Macquarie Internationale Investments Ltd v Glencore (UK) Ltd

The claimant (“Macquarie”) applies for an order that Part 20 claims (“the Additional Claims”) brought by the defendant (“Glencore”) be dismissed or stayed. These claims are brought against the Part 20 defendants, Mr Russell and Mr Spellman. Where convenient I shall refer to them together as “the Additional Defendants.” The Additional Defendants apply for summary judgment dismissing the Additional Claims.

Under a Sale and Purchase Agreement dated 31 July 2006 (“the SPA”) Macquarie agreed to buy and Glencore, Baring European Fund (GP) LP and Flenwood Limited (“the Sellers”) agreed to sell, or procure the sale, to Macquarie of the entire issued share capital in Corona Energy Holdings Limited (“Corona”). Corona was, and under the name Macquarie Corona Energy Holdings Ltd remains, the holding company of subsidiaries that comprise the Corona Group. The Corona Group was, and remains, engaged in the business of supplying gas to business customers in the UK. Under the SPA Macquarie paid the Sellers a price of £5,541,000, determined on the basis of the net asset value as at 31 July 2006 of the Corona Group.

Under the SPA Macquarie has the benefit of various warranties given to it by Glencore. Glencore is the sole warrantor under the SPA pursuant to an arrangement between it and the other Sellers. On 20 July 2007 Macquarie issued proceedings (“the Main Claim”) against Glencore. It is Macquarie’s case that the price it paid to the Sellers was in excess of the true net worth as at 31 July 2006 of the Corona Group by some £3.1m. This is said to have arisen from breaches of warranties. The alleged breaches can be broadly summarised as:

The Accounts and Management Accounts of Corona and its subsidiaries did not fairly reflect the financial position of those companies; in particular it is said that the Accounts and Management Accounts ought to have included an accrual or provision in respect of certain alleged liabilities to xoserve Ltd (“xoserve”); and

The books and records of Corona and its subsidiaries did not fairly reflect the business affairs and financial position of those companies, in that they did not record that they had alleged liabilities to xoserve.

On 4 February 2008 Glencore issued and served on Macquarie an application for permission to issue the Additional Claims against Mr Spellman and Mr Russell. Prior to completion of the sale Mr Russell was the Finance Director of Corona and Mr Spellman was its Managing Director. Mr Russell remains the Finance Director of Corona. On 8 February 2008 Burton J gave permission to issue the Additional Claims, with liberty to Macquarie, Mr Russell and Mr Spellman to apply to set aside that permission.

In the Additional Claims Glencore seeks damages from Mr Russell and Mr Spellman for losses it alleges that it has suffered as a result of entering into the SPA as sole warrantor. Glencore also claims to have suffered loss through agreeing with the other Sellers to be the sole warrantor.

Mr Russell and Mr Spellman are alleged to be liable for breaches of common law duties of care and fiduciary duties owed to Glencore to take reasonable care in the preparation of Corona’s accounts and in the provision of information to the Sellers for the purpose of preparing a disclosure letter under the SPA. These duties are said to have arisen because, among other things, Mr Russell and Mr Spellman, as Finance Director and Managing Director respectively, had detailed knowledge of the true financial position of the Corona Group, and knew or ought to have known that the Sellers would be required to give warranties in respect of the Corona Group’s accounts and that the Sellers were reliant on the accuracy of information provided to them by Mr Spellman and Mr Russell.

In the SPA Macquarie is described as “the Purchaser”. Relevant provisions of the SPA included:

in contract in respect of any representation, warranty or other statement (other than the Warranties) being false, inaccurate or incomplete; or

in equity, tort or under the Misrepresentation Act 1967 in respect of any representation, warranty or other statement (whether or not contained in this Agreement) being false, inaccurate or incomplete,

Mr Russell gave an account of the background to the SPA in a witness statement dated 11April 2008. His account of the background was not disputed by Macquarie. He explained that in 2005 and the first half of 2006 an organisation called “Essent” made various offers for Corona. Difficulties in the wholesale gas market caused the last of these offers to be in an amount substantially less than earlier offers. Mr Russell, Mr Spellman and other members of the management of Corona discussed with Macquarie whether it might support a management buyout. However Macquarie took the view that a trade sale would suit it better, and it began carrying out due diligence on Corona in May 2006. From July 2005 onwards the accountancy firm PricewaterhouseCoopers were instructed to advise the Sellers and Corona, among other things on price, risk and the structure of the sale. The law firm Mayer Brown Rowe and Maw (“MBRM”), which had previously acted as Corona’s corporate advisers, was instructed by Corona in relation to the due diligence process and the sale.

Mr Russell asserted in paragraph 16:

Mr Russell added in this regard that following a meeting of the Remuneration Committee of Corona on 30 June 2005, he and Mr Spellman received a letter dated 11 August 2005 from MBRM concerning a proposal for bonuses to be paid if there were a sale of the shares of Corona on or before 31 December 2005. The bonuses would replace existing option and bonus agreements. The letter of 11 August 2005 recorded the shareholders’ desire that the bonuses should be paid by Corona. Mr Russell asserted in paragraph 19 of his witness statement that he and Mr Spellman did not enter into any separate agreements with the shareholders and, so far as they were concerned, their duties and responsibilities were to Corona, and to Corona alone.

Mr Spellman and Mr Russell each entered into similar agreements (“the Management Incentive Agreements”) dated 5 September 2005. These set out in an appendix the amounts that were to be paid in the event of a sale by 31 December 2005. In the light of Essent’s continued interest after 31 December 2005 each of Mr Spellman and Mr Russell on 27 April 2006 executed amendment deeds (“the Amendment Deeds”) extending the Management Incentive Agreements to 31 July 2006, but reducing the amounts of relevant bonuses to 97.9% of those previously applicable.

In its Particulars of Claim against the Additional Defendants at paragraph 12 Glencore states that the reduction to 97.9%:

It is common ground that, subject to issues as to the validity and extent of clause 6.8 of the SPA:

The main issues on the Additional Claims, should they come to trial, would be:

The issues which arise on the present application to debar Glencore from advancing the Additional Claims were identified in different ways at different stages of the argument. I consider that they can conveniently be categorised as follows;

I shall make some general observations about category A (issues as to the construction of clause 6.8) before turning to examine the issues in detail.

Glencore seeks to restrict the scope of clause 6.8. It does so because unless it is restricted in scope that clause would take away a remedy which Glencore now wishes to have available to it. For that reason Glencore says that while clause 6.8 is, at least in large part, in the form of a covenant not to sue, nevertheless the effect of clause 6.8 is to act as an exclusion clause. Until a relatively late stage in oral argument there was much discussion of the differences between a covenant not to sue and an exclusion clause. These differences, however, assumed less significance following consideration of the decision of the House of Lords in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] 2 Lloyds Law Rep 61. Observations by members of the House of Lords in that case, although arising in relation to a question as to whether a contractual provision affected the usual legal remedies for negligent misrepresentation, have relevance to all the construction arguments advanced by Glencore in the present case.

During the course of the last century judgments in a number of cases discussed principles applicable in deciding whether an exclusion clause should be read as covering liability for negligence. They are conveniently summarised in Chitty on Contracts (29^th ed, 2004) at paragraphs 14-010 – 14-013:

With that background I return to the HIH case. The defendants (“Chase”) comprised a syndicate of banks which provided finance for the production of films. The claimants (“HIH”) were insurers who provided financial contingency insurance to Chase. The insurance was subject to a clause which (in phrases numbered for convenience during the course of litigation) provided, among other things, that:

It was common ground that phrase [7], read with phrase [8], precluded avoidance of the policy by the insurers on the ground of innocent misrepresentation by the insurance brokers who acted for Chase (“Heaths”). HIH contended that phrase [6] did not deny HIH the usual legal remedies for negligent misrepresentation by Heaths. The House of Lords rejected this contention.

Lord Bingham, with whom Lord Steyn agreed, said at paragraph 11:

Lord Hoffmann said at paragraph 63:

At paragraph 95 Lord Hobhouse said that the argument by reference to Canada Steamship gave too restricted an interpretation to the clause in its context.

Lord Scott said at paragraph 116:

Accordingly I take the view that my primary task is to identify the commercial purpose of the SPA as a whole and clause 6.8 in particular. The SPA is for the most part an agreement for the sale of a company in a form which is appropriate where the entire share capital is being sold and which has been common for decades. Those purchasing the company have taken a view of the company’s current assets and business prospects. If they have received misleading information from those selling the company then they wish to be able to make a claim in that regard either for breach of promise or for misrepresentation or both. The flip side of that coin is that those selling the company wish to minimise their exposure in that regard. One aim of a well drafted share sale agreement is to make clear precisely what promises and representations give rise to legal obligations on the part of those selling the company. This is done in the SPA by describing relevant promises as “warranties” and listing them in Schedule 3. Some of them were absolute. An example is Warranty 3.2 that Corona was not a member of any partnership. However some were limited so that a promise was made only as to what the promisor was aware of. An example is Warranty 12.5, that so far as the Warrantor was aware no third party was infringing Corona’s intellectual property. Further, Schedule 4 contained a number of general and specific limitations on claims. These included at paragraph 3.2 an exclusion of any entitlement on the part of the purchaser to claim in respect of any matter fairly disclosed or referred to in the SPA, the Disclosure Letter, or the Disclosure Documents.

Three particular features of the SPA may be noted by way of background to clause 6.8. First, Glencore was the only warrantor. Neither of the other sellers gave warranties, and by clause 10.2 in the absence of fraud no claim against the Sellers other than a warranty claim could arise. Second, Mr Russell and Mr Spellman were, by virtue of clause 6.5 and Schedule 6, among those whose knowledge was deemed to be that of Glencore. Third, Mr Russell and Mr Spellman – as was acknowledged by Glencore in paragraph 12 of its Particulars of Claim against them – would not give personal warranties in any sale and purchase agreement for Corona and their promised bonuses under the Management Incentive Agreements had been reduced as a result.

Turning to clause 6.8 in particular, I shall describe here some of the general contentions of the parties before turning to examine each of issues A1, A2 and A3.

The skeleton argument of Mr Tozzi QC for the Additional Defendants submitted that it was a straightforward covenant not to sue identified persons. The heading was irrelevant: see clause 1.2. In oral argument Mr Tozzi stressed that the Additional Defendants had agreed to a reduction of their bonus under the extension to the incentive agreements precisely because they were not willing to enter into a contract under which they gave undertakings to the Sellers.

On behalf of Macquarie, Mr Michael Fealy in his skeleton argument submitted that clause 6.8 was part of a carefully calibrated series of provisions under which Glencore gave warranties to Macquarie. The scope of the potential liability assumed by Glencore in giving the warranties was carefully delimited in the way that I have summarised above. Against that background, clause 6.8 prevented Glencore from attempting to pass to any member of the Corona Group, or to its officers or employees, any liability Glencore may have for breach of warranty. There were good commercial reasons why Macquarie should obtain such a covenant from Glencore.

The first reason identified by Mr Fealy was that without such a clause a successful claim by Macquarie against Glencore for breach of warranty could be rendered nugatory in effect. Without clause 6.8 Glencore, on receipt of a claim by Macquarie, would be able to issue consequential proceedings against Corona or one of Corona’s employees or directors. If Glencore obtained judgment against Corona then an award of damages to Macquarie would be of reduced or even no value because that award of damages in turn led to a loss of value in Corona. Confining clause 6.8 to claims against Corona, however, would not suffice. If Glencore, on receipt of a claim by Macquarie, were able to issue consequential proceedings against any of Corona’s employees or directors, then those employees or directors might, or arguably might, obtain a contribution or indemnity from Corona under s 1 of the Civil Liability (Contribution) Act 1978. Thus Mr Fealy submitted that an important purpose of clause 6.8 was to avoid a risk that an award of damages to Macquarie would be of reduced or even no value because that award of damages in turn led directly or indirectly to a loss of value in Corona.

The second reason identified by Mr Fealy was that collateral claims by Glencore against directors or employees of the Corona Group would be damaging to Corona in terms of the impact of such claims upon staff morale and would be likely to result in a diversion for such staff from their duties to the Corona Group. In addition, under Corona’s articles of association it was liable to indemnify directors and officers in respect of legal costs incurred by them in successfully resisting claims such as the Additional Claims.

In their skeleton argument on behalf of Glencore Mr Richard Southern QC and Ms Jessica Sutherland asserted that clause 6.8 was of limited scope. The skeleton argument submitted that clause 6.8 prevented Glencore from suing Corona’s directors and employees only in cases where Glencore’s claims were against Corona’s directors and employees acting in their ordinary capacity as such. It submitted that clause 6.8 did not prevent Glencore suing for negligence. Finally it submitted that clause 6.8 did not cover Glencore’s claim that it had relied on the Additional Defendants when taking on the warranty exposure of the other shareholders.

As regards the first of these limitations, Glencore’s skeleton argument accepted part of what was said on behalf of Macquarie: in the event of a claim being made by the purchaser under the Warranties, if the Sellers could claim against Corona then the value of the Warranties would be undermined and the value of the shares purchased by Macquarie might be reduced in a way which the parties had not intended. That explained why claims could not be made against Corona. As to the inclusion in the clause of “any director, agent, employee or officer,” this was intended to make sure that the Sellers could not circumvent the prohibition on suing Corona by suing natural persons who, in their capacity as director, agent, employee or officer of Corona, might be said to be responsible for the failings of Corona. Those words extended the protection, but were not intended to protect people who happened to be directors, and other persons who happen to be servants or agents of Corona, from claims arising out of acts or omissions in “their personal capacity.” The clause was for the benefit of Macquarie. That informed its extent. Macquarie had, said Glencore, no proper interest in attempting to shield Mr Spellman or Mr Russell from liability for acts or omissions committed outside of the scope of their employment.

As to not extending to negligence, the theme of Glencore’s skeleton argument was that it was inherently improbable that one party to a contract would intend to absolve the other party (and even more so, a stranger to the contract) from the consequences of that other person’s own negligence.

As to the final limitation, Glencore stressed the words used in clause 6.8: the covenant was not to bring claims against persons on whom the Sellers may have relied before agreeing to “any term of this Agreement or the Deed of Tax Covenant or authorising any statement in the Disclosure Letter.” Accordingly clause 6.8 did not prevent claims arising out of other agreements which Glencore had entered into in reliance upon Mr Spellman and Mr Russell having properly performed duties owed to Glencore.

The Glencore skeleton argument also said that clause 6.8 was for the protection both of Macquarie and those whom the Sellers covenanted not to sue. If ambiguous, there was a rule of construction that the clause should be construed against them. In the course of oral argument, however, Mr Southern put the point differently. Rather than relying on any such rule of construction, he relied instead on the principles described in the HIH case.

Mr Southern acknowledged that Glencore’s particulars of claim against the Additional Defendants said that the reduction in their bonuses reflected the fact that the directors would not give personal warranties in any sale and purchase agreement for Corona. This, said Mr Southern, was not an assertion that the directors had made an agreement under which they would be under no liability whatever. The amount of the reduction in bonus was only 2.1%, this was a tiny change. It did not follow from this that Glencore was giving up all scope for liability to arise on the part of the Additional Defendants to Glencore.

At times Glencore’s first suggested limitation on clause 6.8 was referred to as being a limitation that in relation to directors and employees of Corona the covenant not to sue extended only to claims in a “non-personal capacity”. This expression seems to me to be confusing. As the present case concerns directors of Corona I shall refer to the type of claims which Glencore accepts are prohibited by clause 6.8 as claims arising in a “directorial capacity.” Similarly I shall refer to the type of claims which Glencore contends are not within clause 6.8 as claims arising in a “non-directorial capacity.”

The authorities cited on this issue started with Re a Company [1986] BCLC 382, a decision of Hoffmann J sitting in the Chancery Division. Rival bids were made for a company. Its directors proposed to exercise their rights as shareholders to accept the lower bid. The chairman, writing in that capacity, sent a circular to shareholders to this effect, urged the shareholders to accept the lower offer, and made assertions about the higher offer. A group of shareholders who favoured the higher offer petitioned the court, asserting that the directors had acted in a manner unfairly prejudicial to their interests. The company and its directors applied by motion for an order to strike out the petition. Hoffmann J held that normally the giving of advice to shareholders on the merits of competing bids would be within the authority of the board and would constitute an aspect of the conduct of a company’s affairs. On the facts, the chairman’s circular to the shareholders was arguably misleading, and the motion to strike out the petition was therefore dismissed. At page 388 he said this:

At page 389 Hoffmann J added:

In Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 the House of Lords was concerned with a case where a company had sold to the plaintiffs a franchise for a retail health food shop. The plaintiffs sued the company complaining of inaccuracies in financial projections made by the company in order to induce them to enter into the franchise agreement. When the company was wound up they joined a director as a defendant to the action, asserting that he was liable for negligence in the making of the financial projections. The House of Lords held that to establish the personal liability of a director or employee there had to have been such an assumption of personal responsibility by him as to create a special relationship between him and the plaintiff. No such assumption was demonstrated in the present case, and accordingly the director was not under any liability to the plaintiffs. The leading speech was given by Lord Steyn, with whom Lords Goff, Hoffmann, Clyde and Hutton agreed. At page 835 Lord Steyn commented both on the theory and the practical application of what he described as the “extended Hedley Byrne principle”, saying:

Lord Steyn continued at page 837:

Two years later in Peskin v Anderson [2001] 1 BCLC 372, the Court of Appeal was concerned with a claim by former members of the Royal Automobile Club. The club was owned by a company (“RACL”), and members of the club were shareholders. Under rule 56 of the club rules a member who had resigned (and thus ceased to be a shareholder) might within 3 years re-apply for membership without having to be proposed and seconded under the rules. Letters were sent to the claimants informing them of this after they had resigned. During the 3 year period after each claimant’s resignation there were discussions with a view to selling a motoring services business owned by the club and restructuring the arrangements for the club. The claimants said in their particulars of claim that failure to inform them of these matters constituted a breach of the contract in the club rules. They also sought to amend their particulars of claim to assert that committee members as directors of RACL had a duty to inform former members of the club of the matters in question. The Court of Appeal held that neither the statement of claim nor the proposed amendment disclosed an arguable case of breach of duty. Mummery LJ, with whom Latham LJ and Simon Brown LJ agreed said at page 379:

In Partco v Wragg [2002] 1 Lloyds Rep 320, Leveson J refused to strike out a claim by buyers of shares against the directors of the company which had been bought. His decision was upheld by the Court of Appeal ([2002] 2 Lloyds Rep 343). This case was relied on by Glencore both in relation to the present issue concerning the construction of clause 6.8 and on issues concerning the application and effect of the UCTA. It is not easy to separate out these different aspects in the Partco case, and accordingly I shall give an account of both of them here.

Prior to the formal negotiations in the Partco case the company to be purchased (“Partco”) and the proposed purchaser (“UGC”) entered into a confidentiality agreement. Under that agreement UGC agreed to limitations on the use that it could make of material provided to it for the purpose of the negotiations. In addition, UGC by clause 7.2 agreed three things which I summarise in broad terms, using my own numbering. These were that neither Partco nor any of its subsidiaries or its or their directors [1] accepted responsibility for the truth accuracy completeness or reasonableness of any information, [2] were obliged to update or correct any information, or [3] would be liable to UGC or any other person in respect of any information or its use.

After the takeover the defendants, who were the chief executive and finance director of Partco, were dismissed. They had performed the central role in providing UGC with financial information about Partco’s trading and profit expectation. In proceedings in the Queen’s Bench Division both Partco and UGC said that the defendants fraudulently misrepresented the trading performance of Partco, or alternatively negligently misrepresented that position. Partco said that the defendants were in breach of duty to Partco with the consequence that they were liable to indemnify Partco for liabilities Partco had incurred to UGC and others. Paragraph 32 of Leveson J’s judgment noted that reliance was placed, among other things, on notes prepared by the chief executive containing a prepared answer “I’m telling you the conditions haven’t been breached … if you press for more that’s outside the rules of engagement…” This was referred to in the pleaded claim against the defendants, along with other occasions where it was said that personal assurances were provided.

The strike-out focused on the claim in negligence. Leveson J accepted that there was an arguable case of a personal assumption of responsibility for the purposes of that claim. He continued:

An appeal to the Court of Appeal was unsuccessful. Potter LJ, with whom Kay LJ and Dame Elizabeth Butler-Sloss P agreed, recorded at paragraph 44 that leading counsel for the claimants in the Court of Appeal acknowledged that, in the light of the defendants’ argument that clause 7.2 offended the UCTA, clause 7.2 could not be described as a “knock-out” blow for the purposes of the strike-out application. Earlier in his judgment at paragraph 40 Potter LJ said this:

Potter LJ added at paragraph 51:

Accordingly the defendants’ strike-out application failed.

Glencore’s skeleton argument, while acknowledging that the Takeover Code did not apply to this particular transaction, drew on that code for the proposition that in the context of a take-over directors, in their capacity as directors, are very likely to owe duties to the selling shareholders. That was the sort of duty which had been under discussion in Re a Company and Peskin v Anderson. The mere fact that the present transaction was not subject to the Takeover Code could not mean that such duties were out of the question. Accordingly, a suggestion in Mr Tozzi’s skeleton argument that the Additional Defendants could never, in their capacity as directors, owe duties to shareholders was unsustainable. Glencore submitted that clause 6.8 was concerned only with liabilities which the directors undertook in their capacity as directors. The present claim was said to be very different, for it alleged that the Additional Defendants “personally owed duties,” or “voluntarily assumed a personal responsibility,” to Glencore, and did so not as directors of the company but as individuals. Cases where such a liability existed were not common because of the requirement for an acceptance of personal responsibility. It was true that if the Additional Defendants had not been directors they would never have undertaken “extra-curricular” non-directorial duties to Glencore, but it did not follow that in performing duties owed to Glencore the Additional Defendants were acting “in the ordinary course of their duties as directors”. In this context Glencore made the points that I have summarised at paragraph 33 above. It was said that the matter could be tested by supposing that Glencore had made a contract with the additional defendants. A claim by Glencore for breach of a contractual undertaking to advise it on aspects of Corona’s affairs would not be prohibited by clause 6.8. The reason was that the claim would be against the Additional Defendants for breach of an obligation that they undertook as individuals not as directors. In the present case Glencore’s cause of action was tortious rather than contractual, but only because in the particular circumstances there was no consideration moving from Glencore from the services rendered. Lord Steyn in the second passage cited from Williams v Natural Life Health Foods Ltd above had likened tortious and contractual liability.

In his oral submissions Mr Tozzi denied that in the present case there could be any distinction of the kind alleged. In Re a Company Hoffmann J was simply accepting that directors can accept personal responsibility for statements they make on behalf of the company. Peskin v Anderson was a good example of the principle that in order to create a duty to shareholders there needed to be a special factual relationship between the directors and shareholders in the particular case. Mummery LJ had referred to “duality” – they were still acting as directors but may have assumed some other duty as well. The question which was focussed upon in those cases and in Williams v Natural Life Health Foods Ltd was not whether the directors were acting “in their capacity as directors” or “in the ordinary course of their duties as directors”. The question was simply whether the individuals in question had assumed responsibility so as to create a special relationship.

As to Glencore’s suggestion about the purpose of the clause, Mr Tozzi observed that if a person were acting solely as director, agent, employee or officer of Corona, then that person would not have incurred any personal liability. Plainly clause 6.8 had in mind that there might have been an assumption of some personal responsibility. There was no reason to think that clause 6.8 envisaged an exercise in which one would distinguish instances in which that assumption of responsibility had been made by people acting in their capacity as directors or “in the ordinary course of their duties as directors” and people who had assumed responsibility in some other way. That would be simply unworkable. Indeed in the present case the acts alleged were not outside the scope of employment of the Additional Defendants. The suggestion that the matter could be tested by looking at the position if there were a contract did not assist Glencore. Mr Tozzi pointed out in that regard that the bonus was reduced because the Additional Defendants had refused to give personal warranties. As to Partco, in the Court of Appeal the concession made by leading counsel meant that the court was not concerned with whether the claim fell within the exemption clause. The case was simply concerned with whether the directors owed a duty of care, a point which did not arise at this stage of the present case.

Mr Fealy on behalf of Macquarie took issue with the suggestion that the alleged responsibilities on the part of the Additional Defendants were “extra curricular”. That suggested that the Additional Defendants were acting in their own time, but nothing could be farther from the truth. The acts and omissions relied upon could only have been carried out in their capacity as directors, and the duty of care alleged could only arise in the context of being directors.

In his oral submissions Mr Southern said that the additional claims did not arise solely because the Additional Defendants were directors. They only arose because those directors had acted in such a way as to give rise to a duty because of special circumstances, a special relationship with them as private individuals. The point made by Lord Steyn in the second passage cited was that we are dealing with something akin to contract, a void which in another legal system might well be filled by a contractual analysis. What the Additional Defendants had been doing, however, was not acting in the ordinary course of their duty as directors, but discharging duties which they owed to Glencore. He accepted that the concern related to a possible liability of Corona. It was nothing to do with claims brought against directors as private individuals. For example, suppose that Glencore had contracted with the Additional Defendants for advice on the likely future movement of gas prices. That would be a contract made with the Additional Defendants as experts rather than as directors of Corona. If in reliance on their advice Glencore decided to sell its shareholding in Corona, Macquarie would have no reason to protect them. They would not be within the clause as Glencore did not rely on them in their capacity as directors.

Mr Southern submitted that the analysis advanced by Mr Tozzi effectively resulted in a proposition that directors either only owed a duty to the company or only acted as a personal individual with a duty to shareholders. The answer, submitted Mr Southern, was that the additional claims relied on special circumstances creating a duty on the person individually, and were thus different from a case where directors in their capacity as directors assumed responsibility to shareholders, the latter being contemplated by clause 6.8. Takeovers were not part of the day to day business of the company, they brought the director into close proximity with the shareholder, and it was the sort of liability that was contemplated in the takeover code that the parties had in mind when drafting clause 6.8. The Takeover Code expressly required that the directors undertake personal responsibility as directors.

Mr Southern submitted that the examples given in Peskin v Anderson showed how on some occasions directors might be under a duty to shareholders as private individuals and on other occasions under a duty to shareholders as directors. Mummery LJ referred to “directors making direct approaches to shareholders”, that might be liability as private individuals. A failure to disclose inside information was more likely to be liability as a director. The latter would fall within clause 6.8. That was for the reason given by Mr Fealy, that Macquarie’s concern was that the persons in question might make a claim against Corona, and thus the warranty claim would be denuded of value.

Mr Southern submitted that Partco was a case where Leveson J had recognised that on the facts the circumstances might not fall within the clause, “going beyond the rules of engagement” was fact sensitive. He and Potter LJ in the Court of Appeal had recognised that at trial there would be nuances which deviated from or clarified matters in the pleading.

Mr Tozzi and Mr Fealy replied orally on behalf of the Additional Defendants and Macquarie respectively. I shall refer to points made by them in reply to the extent appropriate in my analysis of the arguments on this issue.

In my view Glencore’s contentions on issue A1 fail because they are inconsistent with the commercial purpose of clause 6.8. Glencore accepts that claims against Corona were barred lest the value of the Warranties be undermined. For the same reason Glencore accepted that claims could not be made against “any director, agent, employee or officer”, but only provided that the relevant acts or omissions were within the scope of their employment. This suggested proviso does not feature in the wording of clause 6.8 and was never satisfactorily explained by Glencore. As Mr Fealy noted in reply, clause 6.8 is a covenant not to sue, and consistently with this its aim was at least to entitle Macquarie to prevent or stay any proceedings by Glencore against the directors so long as there was a prospect of the claim “boomeranging” back. Nothing in the words of clause 6.8 suggests that Macquarie’s entitlement was to be limited to cases where relevant acts or omissions were within the scope of their employment. Nor can I see any commercial reason for doing so: the proviso would not remove the risk of warranty claims being undermined.

I have not thus far examined Macquarie’s contention that there was a second important factor underlying the relevant part of clause 6.8, namely that collateral claims by Glencore against directors or employees of the Corona Group would be damaging to Corona in terms of the impact of such claims upon staff morale and would be likely to result in a diversion of such staff from their duties to the Corona Group. This contention appears to me to make sound commercial sense. Equally it seems to me that from the point of view of directors and employees they had a legitimate interest in being reassured that under clauses 6.8 and 17.4 they could prevent claims being made against them. There are thus good commercial reasons for barring such claims irrespective of whether relevant actions or omissions are alleged to have been within the scope of employment. Here too Glencore’s suggested proviso makes no sense.

Nor have I thus far referred to the arrangements under which the Additional Defendants received a reduced bonus because they were unwilling to give personal warranties in any sale and purchase agreement for Corona. I accept that in themselves these arrangements did not constitute a contract under which the Additional Defendants would be under no liability whatever. Nevertheless in my view they gave a further reason why the Additional Defendants had a legitimate interest in being reassured that under clauses 6.8 and 17.4 they could prevent claims being made against them. Given that their directorial duties had not required them to give personal warranties in any sale and purchase agreement for Corona, they had every reason to conclude that clauses 6.8 and 17.4 protected them whether or not the actions or omissions alleged against them fell within their “scope of employment.”

There are additional reasons for rejecting Glencore’s construction in this regard. For the purposes of argument I am willing to accept that in the context of share sales generally directors might as part of their directorial duties and within the scope of their employment accept personal responsibility for particular communications with shareholders. However as Mr Tozzi submitted in reply, in Peskin v Anderson Mummery LJ observed that the assumption of responsibility did not arise from the legal relationship between the director and the company. His examples were all examples of circumstances capable of giving rise to a special factual relationship. This is consistent with the statement by Lord Steyn in the Williams case that the internal arrangements between a director and the company cannot be the foundation of the director’s personal liability in tort. Moreover, given that one is examining exchanges which cross the line between major shareholders in Corona and Corona’s directors/employees, it is obvious that there may be many circumstances where it will not be easy to distinguish between exchanges falling within the “scope of employment” and exchanges which do not. All of this points to a lack of any principled or practical basis for distinguishing between assuming tortious responsibility in the course of acting as a director and doing so when not in the course of so acting. Much reliance was placed on Partco, but the construction of clause 7.2 simply did not arise for consideration by the Court of Appeal in that case.

As to Glencore’s examples of a contractual undertaking to advise it on aspects of Corona’s business, or for advice on the likely future movements of gas prices, I do not see that they assist. If Glencore wished to mount a claim saying that it relied on that advice before agreeing to the matters mentioned in clause 6.8, then I see no reason why the claim should not fall within that clause.

On behalf of the Additional Defendants Mr Tozzi submitted in his skeleton argument that application of the Canada Steamship principles (set out in the citation from Chitty on Contracts earlier in this judgment) would not assist Glencore. True it was that clause 6.8 did not contain language expressly exempting the directors from liability for negligence. However, the words used were wide enough in their ordinary meaning to cover liability for negligence, and there was no other claim which could be made against the directors based on some ground other than that of negligence which was not so fanciful or remote that the directors could not be supposed to have desired protection against it. In oral argument he stressed the approach of the House of Lords in HIH. It was a question of considering the words in context. The line of authority in Chitty on Contracts at paragraph 14-011 was concerned with exclusion of “the loss”, but in this case there was a covenant not to sue which said expressly that one could not sue for “any claim”. Mr Tozzi submitted that a covenant not to sue was to be dealt with in the way identified by Lord Hoffmann.

Mr Tozzi added that it was fanciful to suggest that the parties intended to exclude breach of fiduciary duty and not negligence. As to innocent misrepresentation the general principle was that there were no damages for innocent misrepresentation.

On behalf of Macquarie Mr Fealy submitted that, applying Lord Hoffmann’s test in HIH, it would defeat the purpose of clause 6.8 if it did not cover claims in negligence. The inherent probability was the other way, the aim was to make sure that Macquarie was not deprived of the benefit of the warranties. The Misrepresentation Act only arose if there was a contract between representor and representee.

Mr Southern on behalf of Glencore acknowledged that Canada Steamship was only guidance. Nevertheless he commended what was said by Lord Morton as “sage guidance”. While “any claim” on the face of it was quite wide, so was “any loss”. They were essentially synonymous, neither was concerned with the origin of liability, they did not make it clear that one was giving up not only obvious claims but also claims for negligence. At Lord Morton’s stage 3 redundancy came into play. This was a compendious clause concerned with a class of persons. There was nothing illogical about the clause having breach of fiduciary duty in mind. Further there might be a claim for breach of statutory duty under the Companies Acts. He submitted that Glencore’s approach to construction on both these aspects would be consistent with Lord Hoffmann in HIH.

Any commercial person reading the SPA would appreciate that Glencore, when giving many of the Warranties, would have to assume that Mr Spellman and Mr Russell had satisfactorily performed their duties as directors of Corona. They were the chief executive and finance director respectively. The accuracy of many of the absolute Warranties would depend on them having done their jobs properly. The limited Warranties described earlier in this judgment were promises by Glencore that Mr Spellman and Mr Russell, among others, did not know anything contrary to what was said in the Warranty in question, and it can be inferred that their duties as directors included providing Glencore with information in this regard. I consider that the relevant background when reading clause 6.8 must include awareness that the Additional Defendants received a reduced bonus because they were unwilling to give personal warranties in any sale and purchase agreement for Corona.

In these circumstances it seems to me that the obvious claim against the Additional Directors, which everyone must have had in mind when clause 6.8 was drafted, was a claim in negligence. Such a claim would be a prime candidate if Glencore wanted to blame directors or employees for putting it in breach of warranty. As regards the purpose of clause 6.8 accepted by Glencore - making sure that the Sellers could not circumvent the prohibition on suing Corona – an action against directors or employees would be an obvious circumvention. In these circumstances I see nothing inherently improbable in Glencore undertaking not to complain of negligence on the part of Corona’s directors and employees. On the contrary, this seems to me to be a fundamental part of the transaction. Accordingly, applying the approach of the House of Lords in HIH, I find against Glencore on issue A2.

As indicated earlier in this judgment, Glencore stressed that the words used in clause 6.8 did not prevent claims arising out of agreements other than those mentioned in clause 6.8 which Glencore had entered into in reliance upon the Additional Defendants having properly performed duties owed to Glencore. On this basis Glencore submitted that clause 6.8 did not affect its claim of reliance upon the Additional Defendants when agreeing to take on the warranty exposure of other Sellers.

The skeleton argument of Mr Tozzi for the Additional Defendants commented that this formulation was just another way of saying that Glencore relied on the Part 20 Defendants before agreeing to give the warranties contained in Clause 6.1 and Schedule 3 of the SPA. In his oral submissions Mr Tozzi added that the agreement between Glencore and the other Sellers was not causative of any loss. The Additional Claims arose on the hypothesis that a loss was caused to Glencore by the giving of the Warranties. No other loss was or could be claimed, and thus the mere fact that there had been an earlier agreement with the other Sellers could not take the loss claimed outside clause 6.8.

In Glencore’s skeleton argument it was said that part of the claim was clearly not within the scope of clause 6.8 at all because it arose out of the agreement to take on the other shareholders’ warranty exposure, and not the terms of the SPA or Deed of Tax Covenant or the Disclosure Letter. Thus it was not simply a claim that Glencore relied on the additional parties before giving the Warranties in the SPA. Glencore having agreed to take on the warranty exposure of the other shareholders, that was the cause of additional loss over and above what would have been Glencore’s loss as warrantor for its own respective share. It flowed from agreeing to take on and taking on that warranty exposure: only because of that did Glencore execute the SPA as sole warrantor. Glencore said that the loss in question did not flow from Glencore’s entering into the SPA – the terms on which Glencore did so as sole warrantor followed from the agreement to take on the warranty exposure of the other shareholders.

In his oral submissions Mr Southern added that if statutory questions of limitation arose in relation to the Additional Claims, time would have started to run from the moment that Glencore entered into the agreement with the other Sellers.

Glencore seeks to separate out loss which it says arises from that part of its warranty exposure which – according to Glencore – would have been borne by the other Sellers, if only Glencore had not relied on the Additional Defendants. At paragraph 27(2) of its Particulars of Claim against the Additional Defendants Glencore says that it has suffered loss in this regard to the extent that it is exposed to more than “its own share” of (i) liability to Macquarie for the breach of warranty claims and for Macquarie’s costs of its claim for breach of warranty, and (ii) the costs and expenses of dealing with and defending the breach of warranty claims. This way of putting the matter seems to assume that the other Sellers would have been willing to take on warranty exposure, an assumption which may or may not be sound.

Nevertheless, taking the matter as pleaded, Mr Tozzi is clearly right when he says that the only loss claimed in the Additional Claims is a loss caused to Glencore by the giving of the Warranties. The mere fact that Glencore gave the Warranties because it made an earlier agreement with the other Sellers to do so cannot sensibly take the loss claimed outside clause 6.8. Glencore’s arguments to the contrary effect depend on an implicit assertion that the clause requires an analysis of whether the loss “arises from” some agreement other than the transactions mentioned in clause 6.8. However this part of the Additional Claims, while it does not arise in relation to the whole of Glencore’s loss arising from the giving of the Warranties, plainly arises in relation to a part of that loss. There is accordingly no reason to treat it as falling outside clause 6.8.

More generally it seems to me that Glencore’s arguments on issue A3 misconstrue clause 6.8. Clause 6.8 says that if a claim is made against any Seller in connection with the sale of the Shares to the Purchaser then the Sellers shall not make a claim against any of certain companies and individuals. Those individuals comprise a class which is subject to this qualification: those within the class must be companies and individuals “upon whom any of the Sellers may have relied before agreeing to any term of this Agreement or the Deed of Tax Covenant or authorising any statement in the Disclosure Letter.”

On the face of clause 6.8 there is nothing to suggest that the Additional Claims are outside that clause. They are claims against the Additional Defendants. The Additional Defendants are within the class, for they are named individuals under clause 6.8 and it is an essential premise of the Additional Claims that Glencore relied upon the Additional Defendants before entering into the SPA. In effect, Glencore’s case is that clause 6.8 is subject to an implicit proviso that it does not apply to a claim for loss arising out of an earlier agreement with others to enter into the SPA. I can detect no good reason for reading in such a proviso. Far from it: an implicit proviso of this kind would obviously run counter to the commercial purpose of not undermining the Warranties.

Accordingly I do not accept Glencore’s submissions on issue A3.

Section 2(2) of UCTA provides that a person cannot exclude or restrict liability for negligence by a contractual term or notice except in so far as the term or notice satisfies the requirement of reasonableness. Section 11 states:

Schedule 2 provides:

Mr Tozzi on behalf of the Additional Defendants submitted that, if UCTA were to apply, any assertion that clause 6.8 could or would be struck down for failing to satisfy the statutory test of reasonableness was fanciful. If Glencore relied on the Additional Defendants when negotiating the terms of the SPA, that was at a time when it knew that the Additional Defendants had declined to give personal warranties and had had their promised bonus reduced as a result. Glencore is and was at the material time a large company, quite capable of negotiating the terms of a sale and purchase agreement. It had the benefit of legal advice and assistance from MBRM as well as financial advice from PricewaterhouseCoopers. There was a stark contrast between the resources of Glencore and those of the Additional Defendants, who were private individuals.

On behalf of Glencore Mr Southern submitted that whether clause 6.8 satisfied the test of reasonableness was a question of fact, whose resolution was no clearer in this case, or in 2008, than it was in 2001 in Partco [see paragraphs 44 to 50 and 58 above]. The only difference between this case and Partco lay in the value of the transaction. Sellers of shares in the position of Glencore were in many ways dependent upon persons in the position of Mr Spellman and Mr Russell. If those persons undertook a personal duty of care or voluntarily assumed a responsibility to Glencore, upon which Glencore reasonably relied, that was highly relevant to the question of whether it would then be reasonable for a clause in a contract between Macquarie and Glencore to exclude their liability for negligence in the performance of those very duties or responsibilities. The circumstances in which such duties and responsibilities came to be undertaken were important to the question of reasonableness, as were all the matters in schedule 2 to the Act. The court could not reach a factual conclusion without proper investigation of the facts. The issue of reasonableness was fact sensitive and could not be satisfactorily resolved summarily.

The issue of reasonableness is fact sensitive. Accordingly particular caution is needed before concluding, without awaiting disclosure and witness evidence at trial, that the Additional Defendants are plainly right in saying that the test of reasonableness is plainly satisfied. The burden is on the Additional Defendants: see s 11(5). That does not mean, however, that there can never be a case in which a party can demonstrate summarily that the test of reasonableness is plainly satisfied.

In my view this is just such a case. While Glencore does not bear the burden of proof, the Additional Defendants are entitled to ask the court to consider the matters which Glencore suggests render clause 6.8 unreasonable. Those matters are, to my mind, obviously inadequate to lead the court to think that there might be any reason to hold clause 6.8 to be unreasonable. There is no suggestion by Glencore that anyone acting for it had any illusions as to the meaning of clause 6.8. The clause formed part of a carefully calibrated commercial agreement on which Glencore had expert legal and financial advice. There is no suggestion by Glencore that it was under any unusual commercial pressure to enter into the SPA. The resources available to Glencore were far greater than those available to the Additional Defendants. If it is relevant, there is no reason to think that the resources available to Macquarie were greater than those available to Glencore. As regards the conduct of the Additional Defendants which Glencore says it relied on, there is no suggestion by Glencore that anyone indicated in any way that any of that conduct fell outside clause 6.8.

By contrast, the Additional Defendants are individuals who, as Glencore knew, had declined to give personal warranties and had had their promised bonus reduced as a result. They were dealing with commercial entities of enormous resources when compared to their own. The wording of clause 6.8 was clear on the face of it and the SPA was obviously designed to give them the right to enforce clause 6.8. All parties to the SPA thus had clear notice of the exemption now relied on by the Additional Defendants – and effectively represented to the Additional Defendants that this exemption was in the SPA and could be relied on. Under s 11(2) the factors listed in Schedule 2 are relevant in consumer cases; to the extent that they might be relevant in the present case Glencore has not suggested that any of those factors assist it.

The matters identified in the preceding paragraphs demonstrate overwhelmingly that clause 6.8 was reasonable. There is a further factor which I have not taken into account as it was not argued. I mention it because it is a factor which for many employees and directors would have particular significance, and thus – although I have no regard to it for the purposes of this judgment – may have relevance to other cases. Individuals who find themselves involved in a transaction between large enterprises face a danger that those enterprises may resort to litigation. If an individual is on the receiving end of litigation by such an enterprise, the individual will in practical terms be dependent on support from the state or some other source. Otherwise the risk of having to pay huge damages and legal costs of the claimant enterprise, coupled with the fearsomely high costs of defending such a claim, will mean that the individual may face bankruptcy and at the least will be put in a severely disadvantageous bargaining position. There is no guarantee of litigation support by the state, and support from other sources may be precarious. This is a further consideration which could well operate in other cases in favour of the reasonableness of exemption clauses for employees and directors.

Returning to the present case, it seems to me that Glencore is reduced to saying that something may turn up. I do not accept that the only difference between this case and Partco lies in the value of the transaction. In the Partco case UGC said in effect that it had been given assurances on the express or implicit basis that the exemption did not apply. The general circumstances of the Partco case gave much more reason for thinking that dealings between the defendants and UGC may have taken place in a context where reliance on an exemption clause could be argued to be unreasonable. I regard Partco as significantly different from the present case. Bearing fully in mind the observations of Leveson J and Potter LJ in that case, I consider that to hold that there was any arguable basis for suggesting unreasonableness in the present case would go well beyond the appropriate “degree of latitude.”

Accordingly I conclude that Glencore fails on issue B1.

If the UCTA applies to clause 6.8, for the reasons given on issue B1 I have concluded that it cannot assist Glencore. In these circumstances it is not necessary to decide whether the UCTA applies to clause 6.8. The issues which would need to be determined in that regard are not straightforward. I consider that they are best examined in a case where they arise on the facts. Accordingly I say no more about the various reasons canvassed in argument as to why the UCTA may not apply.

There was one additional factor mentioned by Glencore. Macquarie’s skeleton argument referred to the effect that the Additional Claims might have on Mr Russell’s willingness to assist Macquarie to recover damages from Glencore. Glencore identified an “alarming” implication that Mr Russell’s explanations might change if he were joined as a party, and Glencore said that if that were so, there was all the more reason to join him in order that justice may be done. There is nothing in this point. No implication of the kind alleged is warranted, and I have no hesitation in rejecting Glencore’s contentions in this regard.

It follows from the conclusions reached above that Glencore is not entitled to bring the Additional Claims. The parties are asked to seek to agree consequential orders.