LCP Holding Ltd v Hombergh Holdings BV & Ors

JUDGE MACKIE: I am going to give judgment on the spot. This is an application for summary judgment on the case of LCP Holdings against Hombergh Holdings and FNsteel Holdings BV and FNsteel Germany 1 BV. The case is, in substance, between the claimant and the first defendant because it seems that the second defendant is not a legal entity.

I have been assisted by submissions from Ms Frazer of counsel for the claimant and by Mr ter Haar QC and Mr Shapiro for the defendant. I have a substantial bundle containing the relevant documents and also witness statements, two from Mr Sebastian Burian, the principal behind the claimant LCP Holdings Limited, and one from Mr van den Hombergh, as it were his equivalent at Hombergh Holdings BV. There is also a statement from a Mr Robert Westenberg which I read but which has not been relied upon in oral submissions by either party.

The claimant is a company involved in the business of identifying, investigating and investing in investment opportunities. It seeks to identify opportunities and assess whether they are worthy of investment and then introduce them to potential purchasers who want to invest in the opportunity.

The defendant is a substantial company built up primarily by Mr van den Hombergh and one gets an indication of its scale from paragraph 7 of his witness statement. Mr van den Hombergh worked originally with Hillsdown doing acquisitions before starting his own investment business, initially in the food business. He acquired a vodka distillery and then a vodka brand. He sold these at a significant profit to Diagio. He was involved in other acquisitions. He then diversified away from food into other industries including steel. The group has bought a steel company, Nedri, with a turnover of €100 million and then, as part of a 50/50 partnership, the Ovako companies with a turnover €1.6 billion. The defendant is a substantial and sophisticated organisation.

This is an application for summary judgment. It is not a trial. The claimant has to show that the defendant has no real prospect of successfully defending the claim if it is to succeed. I bear in mind the particular cases cited by both parties but also the frequently cited and approved encapsulation by the then Lewison J in Nigeria v
Santolina Investment Corporation and others[2007] EWHC 437 (Ch) in which he said in the relevant part:

The claim by the claimant, LCP, is for payment under the terms of an agreement entered into on 5 October 2011 between the papers, which the claimant refers to as “the fee agreement”. The claimants submit that this is a straightforward collection of fees payable under that agreement and that there is no real defence to the claim.

No one could accuse the lawyers for the defendant of not being diligent in finding available defences for their client to put forward. The primary defence to the application is that there is enough here to go to trial and it would not be right for the case to be resolved without oral evidence. There are three defences put forward. First there is a claim that the fee agreement is unenforceable for economic duress. That is based on a claim that an earlier agreement was not a binding agreement or was void by reason of frustration or void or voidable for misrepresentation. Secondly it is alleged that the fee agreement is unenforceable for lack of consideration. Thirdly it is claimed that the fee agreement is unenforceable because it was not executed by the second defendant.

In order to understand those issues one has to go into the background, much of which is not seriously in dispute. At some point LCP became aware of an opportunity for the purchase of an insolvent steel business called Theis in Germany. In 2009 it sent what is known as a “teaser” to Mr van den Hombergh of the first defendant. There is some dispute about what happened at that point but the first defendant entered into a non-disclosure agreement. The matter progressed slowly but there came a point when LCP made indicative offers for the business which the first defendant submits involved a degree of lack of candour. But LCP appear to have done work. They say that they did due diligence, concluded that Theis was a good opportunity, contacted the first defendant, shared the due diligence with them and they together made a joint offer to Theis on 14 July 2010.

Further work was apparently done and on 13 September 2010 Mr Burian of the claimant sent to Mr van den Hombergh a fee document with an email:

There is then a reference to the final aspect of the deal. The document is headed “Acknowledgement of Key Terms, Theis acquisition”. It says “Target Theis”. There are references to the bidder consortium, to LCP Services which were identified, then to LCP remuneration which has three bullet points:

There is then a heading “Exit mechanism for LCP” with two bullets:

Unlike the first disclosure agreement and the fee agreement which is the subject of this litigation, there is no express submission to English law but that is not a matter that has concerned either party.

The long process continued after Mr van den Hombergh had signed and returned the agreement. Nine months later, by the end of June 2011, as LCP saw it, an in principle agreement was reached between Theis and the first defendant for the sale Theis.

Following a meeting on 29 June, Mr van den Hombergh reached a deal with the vendors that included, amongst other things, members of the Theis family retaining a shareholding. The sister of the family is a princess.

On 6 July 2011 Mr van den Hombergh told Mr Burian that he wanted to vary the fee as the 10 per cent equity was no longer available. The 10 per cent equity referred to in the key terms agreement was not available because the princess did not want LCP to own the shares.

Email exchanges ensued. The first is on Wednesday, 6 July from Mr Burian to Mr van den Hombergh. He thanks Hendrik for his updates on various meetings. He is pleased at the deal, pleased at the terms agreed with the princess and then he says this:

He then lays out three options, back to back equity stake, cash compensation, other alternatives, and indeed goes on to say, “open for any other ideas”.

Under the back to back equity stake he says:

The defendant says that it rejected that idea on the grounds that it was in some way underhand or not acceptable to the princess. But there are then the other options laid out. There is an email in similar terms a couple of days later on 8 July in which, following a proposal from Mr van den Hombergh for the equivalent of a 5 per cent rather than 10 per cent stake, a consequence of dilution on other matters, Mr Burian says:

More proposals are then tabled as options.

Those emails received a sharp response from Mr van den Hombergh. On 12 July he says, “I received your proposal and this is not acceptable.” He goes on to explain why, under what appears to be a mistaken impression that the claimant is also involved with another financial buyer, he says this:

It is pertinent given the claims of duress, which I will turn to shortly, that the only contemporaneous and explicit reference to a threat of litigation in the papers is not by the claimant against the first defendant but by the first defendant against the claimant.

Between July and September there were further exchanges. Mr van den Hombergh recalls that there were a considerable number of calls in which he was trying to string along Mr Burian to some extent and Mr Burian was making a variety of threats of action if the matter was not attended to.

Eventually, on 27 September 2011, an agreement was entered into between Theis interests and the first defendant, through some vehicle or other, for the sale of shares in Theis with completion due to take place a few months later. Eight days after that on 5 October 2011 the parties to this litigation signed the fee agreement which is now the subject of dispute. The agreement is between LCP Holdings Limited on the one hand and on the other Hombergh Holdings BV, “And its affiliate FNsteel Group (HHBV) or the company each a party and collectively the parties". There is a recital referring to LCP’s introduction diligence and pre-negotiation work in relation to Theis. The recital describes HHBV as currently in advanced negotiations with the administrator of Theis and its current owner to complete the transaction in the near future. After “Now therefore …” there is a series of provisions. First there are payment provisions in which the company unconditionally and irrevocably agrees to pay to LCP, on the financial close and on further fixed dates, specified sums of money. The size of the first payment and the payment dates were altered at the last moment, as it were, in the favour of Hombergh, as one sees from what has been written in apparently by Hombergh on the document as executed. There are relatively unremarkable provisions throughout the rest of the agreement, however, there has been debate around paragraph 8 which provides as follows:

Under the fee agreement payment of the first instalment was due in February 2012. It was not paid and payment was refused hence the bringing of these proceedings.

In answer to what the claimant sees as a straightforward claim for payment, the defendants rely on a variety of defences which in oral submissions Mr ter Haar QC ranked in order as being duress, absence of consideration and absence of execution of the agreement. I will deal with those in turn. It is a useful moment to recall that this is of course not the trial of the action. The issue, at all points, is whether or not the claimants are able to show that the defendants have no real prospect of success with these defences.

The defendants’ first contention is that there are very substantial disputes of facts which are interrelated with and feed into the disputes of the law. They say that the differences go well beyond one witness being merely mistaken. It is not a question of simply who is to be believed, Mr Burian or Mr van den Hombergh, and they go on to explain why. There is a very able and detailed examination in the written skeleton argument of apparent differences and recollections about various matters by the two main witnesses. The claimants says, “Well, that’s all very well but differences of recollection about the facts in an action are irrelevant on an application for summary judgment unless they bear upon the issues of law being considered”.

The first defendant in its several written submissions but not in oral argument, places some reliance on the NDA but since the matter was not developed I will not deal with that.

The defendants' first step on the road to the defence of duress is the assertion that the key terms document was not a binding agreement. It submits that the key terms document was no more than a memorandum of understanding to be turned at some later date if required into a legally binding agreement.

There are arguments to the contrary from counsel for the claimant to the effect that notwithstanding the fact that there are matters that would need to be hammered out, if necessary by reference to reasonableness criteria, the document was intended to be binding and that is why the parties signed it. The dispute about that is, for reasons I shall give, unnecessary for me to resolve.

Mr ter Haar also submitted that the first key terms agreement, if it was one, was made "void", posthumously by misrepresentations allegedly made some time before it was entered into. That is not a defence that the law would recognise. There is, to be fair to the first defendant, an alternative claim that the misrepresentations allowed them to avoid the agreement but even if as a matter of law that were the case, it took no steps to avoid it. So I am not going to discuss further the issue of misrepresentation.

There is also an issue that by reason of the matters that ensued from the entering into the key terms agreement and the deal done between Theis and Hombergh, there was frustration. I indicated that this seemed to be a world away from frustration and invited counsel for the defendant to find some comparable examples. I was shown some cases illustrating the principles. I see no merit in the proposed claim based on frustration. I also do not see where it leads.

Against that background the defendants allege that the fee agreement was entered into by economic duress. They say that by June 2011 the only reason that LCP had to contact the first defendant about Theis was to demand payment, that in the three months between 6 July, when Mr Burian first raised the matter, and 5 October, when the agreement was signed, there was reluctance on the part of Mr van den Hombergh to enter into the agreement which is itself an indication that he did not want to do so. €3.5 million was demanded in July and was still being demanded in October. Nothing changed. That is not an accurate submission because in July 2011 Mr Burian was, certainly on the papers, offering a variety of options. Further the fact that it took some time for an agreement to be entered into may show a reluctance to enter into it but it is also an indication that someone has the luxury of time within which to think through the prudence of a deal. It is also said that if Mr van den Hombergh was perfectly happy to sign the fee agreement, why did he not sign it and return it on 13 September, rather than later?

Both parties rely on the well known summary of the relevant ingredients for the action of duress to be found in the judgment of the then Dyson J in DSND Subsea v Petroleum Geo Services at 131. As the relevant paragraph is important I will read it out:

He then cites authority and adds:

The defendants submit first that LCP did threaten a breach of contract so far as the key terms document was a binding agreement, and then threatened to prevent the acquisition of Theis. This is a reformed undocumented and disputed assertion in the evidence of Mr van den Hombergh, which I take for the purposes of this application to be correct, but there had been a threat by LCP of an injunction. Secondly, it said that it is a matter for exploration of trial what the motives were for that threat but given the potential effect of an injunction there is a prima facie basis for suggesting that LCP was acting in bad faith. That allegation against Mr Burian, so far as I recall, was not pleaded or made against him before today. It is said that the defendant had no realistic alternative but to give in to the pressure. The defendant protested at the earliest time when it practically could and never sought to affirm or rely upon the contract.

Counsel for the claimant responds that there had been no threatened breach of contract. There has been until today no suggestion that anyone was acting in bad faith. The "victim had numerous realistic practical alternatives other than to submit to the so-called pressure. The victim made no protest whatsoever at the time.

Ms Frazer submits that what Mr van der Hombergh says is simply not the stuff of duress, is contradicted by the available contemporaneous documentary evidence and incredible against the background. She says the time to look at the alleged duress is in October 2011, not the earlier period when alleged threats were made. She points to the fact that it is accepted that at the time when the 5 October deal was entered into Mr van den Hombergh was receptive to the possibility of further work between the parties.

She submits that Mr van den Hombergh has not alleged any illegitimate pressure. Even the alleged threats are no more than requests for fees in circumstances where the parties had signed a document that would in other circumstances earn LCP an equity stake worth several million dollars and where it had done significant work. She submits that the contemporaneous documents contradict the idea that Mr Burian wanted to kill the deal or otherwise threaten to have it stopped. She cites extracts from the emails of 6 and 8 July that I have mentioned and she also cites another email, that is the one of 19 August 2011 when Mr Burian says:

She also relies upon an internal email of 28 September which suggests that even amongst colleagues Mr Burian was making it clear that it was correct that the deal had been signed. She also submits that it is incredible that any threats had any significant bearing on Mr van den Hombergh looked at against the background at the time of the fee agreement. By this time the Theis deal had already been signed but not completed. Mr ter Haar responds that there is many a slip between contract and completion. Next, she says that it is inconceivable that Mr Burian would have threatened Mr van den Hombergh when Mr van den Hombergh’s own evidence was that he was stringing Mr Burian along. She also says it is impossible to believe that Mr van den Hombergh felt threatened given his attitude to further commercial dealings between the parties. Further, this was a time when Mr van den Hombergh and his corporation had ready access to lawyers in dealing with the Theis documentation and would not unwittingly have entered into an agreement as a result of being pressured. Finally, she says there were lots of other alternatives open to Mr van den Hombergh other than signing the fee agreement. He could have accepted some of the other options open after July 2011 and she names some more possibilities.

In my judgment the proposed defence of duress is fanciful. The parties to this dispute are very sophisticated. The agreement in October was entered into over a period of time during which Hombergh Holdings BV had every opportunity to accept advice and to obtain advice and consider their position. There are no contemporaneous signs of duress in the paperwork. The probabilities are completely against it.

The assertions made by Mr van den Hombergh, if correct, are no more than part of the hurly burly of commercial life. Someone wants to be paid for work which they have done. Moreover, the agreement was entered into after the main deal had been done, and the idea that there was still some fear or duress in the contract to completion stage seems to me to be misconceived. This is simply not the stuff of duress. It is classic commercial negotiation, classic commercial pressure. Hombergh Holdings BV is an experienced and sophisticated company. In all its sophisticated deals over the years it must have been used to dealing with people pressing for payment of fees and weighing up all the alternatives open to them if they did not want to pay them.

There is, as I say, nothing in the contemporaneous documents and there is nothing, it seems to me, likely to arise between now and trial which is going to change the position. There is no real prospect of the defendant succeeding with the claim for duress for that reason and for the reasons given in argument by Ms Frazer.

The next issue is absence of consideration. The first defendant submits that the only consideration alleged by LCP for the fee agreement is the compromise of existing rights under the key terms document. They say that the fee agreement does not refer to the compromise of pre-existing rights on its face. That is true so far as it goes but as clause 8, which I read out, makes clear, there is express provision that the agreement supersedes all prior agreements and understanding between the parties. It is suggested that this is "boilerplate". It may be but it is considered boilerplate because clause 8 refers expressly to the NDA which it excepts. Both for that reason and because there is nothing wrong with boilerplate, that point is not a good one.

The defendant argues that the fee agreement identifies the alleged consideration as being previous work on the transaction. That is not good consideration as it would be past consideration. It is submitted that LCP, which drafted the fee agreement, did not consider at the time that it was compromising existing rights or it would have said so in the fee agreement. It is submitted that there is no reference in Mr Burian’s statements to any discussion with Mr van den Hombergh about a compromise of existing rights. Again, I do not see where that goes.

Next it is denied that LCP had any legal rights under the key terms documents and for that reason there was no binding agreement. It is said that the assertion that the consideration for the fee agreement was the compromise of pre-existing rights is derived from an after-the-event legal construction applied by LCP lawyers.

Counsel for the claimant says that the short answer on the consideration point is that it is irrelevant that there may have been grounds to challenge the first agreement, the giving up of an arguable claim under the first agreement constituted adequate consideration. Further, even if any claims under the first agreement were invalid or wrong in law, the compromise of that claim would still constitute consideration as long as it was made in good faith, which it was. She cites a law school chestnut Callisher v Bischoffscheim and also one that is not a chestnut, Hill & Anor v Haines [2007] EWHC 1012 a family case in the Court of Appeal, carrying the authority on this issue of Rix LJ. Secondly, she says that even if the first agreement was void, at the very least LCP would have been entitled to a quantum meruit in payment of its expenses. The compromise of those claims gave rise to valid consideration. Thirdly, she says that in any event consideration was provided for the fee agreement because LCP provided a service at the request of the first defendant and the implication at the time of the provision of the service was that LCP would be paid and the fee agreement fix the price as its reasonable remuneration. She relies there upon the decision of Pao On v Lau Yiu Long [1979] UKPC 2, a Privy Council case, which contains a well-known passage, which I will not read out, referring to some scientific students of law believing that a past service cannot support a future promise.

As I see it, the legal enforceability or otherwise of the key terms agreement is beside the point. The consideration exists even if the right being given up is clearly invalid, so long as it was made on reasonable grounds believed by the forbearing party to have a fair chance of success. That is clear in particular from Hill v Haines where Rix LJ makes a distinction between obligatory promises and those that are merely voluntary when explaining how minimal consideration has to be. As the years have gone by the former trump card of consideration has rather lost its status in the pack.

There were skilful submissions from Mr ter Haar to the effect that it was necessary to consider whether there were reasonable grounds for belief and to look into the states of mind of the parties. One would need to have a trial about that and an analysis of his evaluation of the legal enforceability or otherwise of the key terms document. It seems to me that there is nothing in the point, whatever might turn out to be the legal enforceability of the key terms document. Further one would expect a businessman (and many commercial lawyers) to have a good faith belief in a claim under the key terms agreement. If all that were to fail, then the claimants would still be able to rely upon the quantum meruit and Pao On v Lau Yiu Long points, neither of which was considered in the written or oral submissions of the defence. So the consideration point is doomed to fail and it seems to me to be a classic fanciful defence which has no prospect of success.

The third and final point relied upon by the defendants is the absence of execution of the fee agreement. That submission goes along these lines. Mr van den Hombergh did not sign the agreement on behalf of anybody other than Hombergh Holdings BV. LCP knew therefore that he had not signed on behalf of the FNsteel Group. The agreement is expressly stated to involve two parties, "Each a party and collectively being parties". Mr ter Haar says that there were expressly only two parties to the fee agreement, one being the claimant and the other being the combination of HHBV and FNsteel Group. A signing line was provided for FNsteel Group. The result is that HHBV could not effectively enter into the fee agreement by itself but only jointly with FNsteel Group.

As Hombergh would know much better than LCP FNsteel Holdings Limited is not a legal entity. So that submission is a remarkable one. It means that HHBV could not enter into a fee agreement by itself but only jointly with some trading name that had no legal existence. Support for that is sought to be obtained from the wording of the claim form. That leads to the conclusion the fee agreement is incomplete and unexecuted as it requires execution by the FNsteel Group or some other unspecified body.

That submission is hopeless. It cannot be the case that where LCP and Hombergh have signed an agreement the absence of a further signature from a non-existent entity in some way prevents the agreement from being valid.

The application succeeds because none of the three defences upon which the defendants have focussed has any real prospect of success.

There are points arising in relation to the order which the court may be asked to make because, of course, most of the payments sought under this agreement have not fallen due yet. That means either, I suppose that there be an order for payment of what is due at present, plus a declaration or simply a claim for damages, based on the present value of the entire claim. I will hear from counsel on that and other matters.

Whatever the niceties of the pleading the position is that I have determined that the defendant is in breach of that contract. What is due is the 750,000. What is said that is although damages have been claimed it has not been made clear that the contract has been treated as at an end or the matter more fully pleaded. That may be right, but this is the Commercial Court where we take a broad view of pleading where people are not being taken by surprise. What is going to happen if I deal with this strictly is that there will be an adjournment, there will be a letter written by the claimants to the defendant treating the contract as having been discharged and that they are claiming for damages. It has no mitigation or other issues on that claim for damages. As sure as night fall that follows day, it is going to lead to an assessment of damages and some discounted sum of the balance unpaid.

I am not receptive to the idea that this case should continue to linger in this court, while everybody jumps over those procedural roots primarily because in addition to the interest of the parties the overriding objective requires me to consider the allocation of court time fairly to all litigants.

The position being adopted by the defendants is one I invite them to reflect upon. To me at the moment it seems daft, because it is only going to lead to further costs which inevitably, given the commercial realities (of course I make no final conclusion until I have to make a decision on all the facts before me) but which are likely to be on an indemnity basis. I am not going to continue this debate. It might be useful for people to have some time to reflect.

There will be an order for payment of what is due. It seems to me that it is clear enough on the face of the pleadings that the defendants know perfectly well that there is a claim for damages, although that claim for damages is on a discounted basis of the remaining sums due.

I will give permission for amendment of the pleadings, subject to theoretically seeing the form of the pleading, but it can always be emailed to me. If the defendants want to challenge that they can then put in an amended defence within four days of receiving the amended particulars of claim. We will see where we are, I will reserve this to myself and it can be put in at short notice on a Friday before me, as I am here all the time, or indeed on some other day. Because even when I am sitting in other areas of the High Court I am generally in this room. But the way to do that is to inform listing as an when it is to come back.

I invite the defendants to reflect where this is going.

There is an application for permission to appeal. The position is given the terms in which I have expressed what is a view on the summary judgment application. I do not consider there is any real prospect of success, but of course others may take a different view. Mr ter Haar of course is welcome to renew his application to a Lord or Lady Justice of the Court of Appeal.