Ajou v Stern & Ors [2006] EWCA Civ 165

Case No A3/2005/1127[2006] EWCA Civ 165
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
Nicholas Warren QC
The High Court (Chancery Division)
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate Tuesday, 14 th March 2006
Before
LORD JUSTICE LAWS LORD JUSTICE CARNWATHLORD JUSTICE WILSON
Between
Abdul Ghani EL AJOURespondentWilliam George STERNAppellantsDOLLARLAND (MANHATTAN) LIMITEDAppellantREMILE LIMITEDAppellantILOT 68 DEVELOPMENT LIMITEDAppellantCHANNEL HOTELS AND PROPERTIES LIMITEDAppellant
(Transcript of the Handed Down Judgment ofSmith Bernal WordWave Limited190 Fleet Street, London EC4A 2AGTel No: 020 7421 4040 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
David Foskett QC and Jacques Algazy (instructed by Michael Conn Goldsobel) for AppellantsSarah Harman (instructed by Zaiwalla & Co) for Respondent
Judgment

Introduction

[1]I gratefully adopt the judge’s short introduction:-[2]“It is now over 10 years since the Claimant (“Mr El Ajou”) won, in the Court of Appeal, his claim against Dollar Land Holdings (“DLH”): see [1994] BCC 143. Mr El Ajou’s entitlement to damages, interests and costs against DLH was assessed, in round figures, at £5.5m. He has not received any payment following that success. The present claim is part of Mr El Ajou’s battle to recover money in satisfaction of that judgment. I shall refer to the Defendants as Mr Stern, Manhattan, Remile, IDL and CHAPS respectively.[3]DLH’s only worthwhile asset appears to have been its shareholding in Manhattan, its wholly owned subsidiary. Manhattan owned a valuable development site in Brussels near the Gard du Nord, Ilot 68 Abord de la Gare du Nord (“the Brussels Property”). It had, by December 1996, granted an option (“the Option”), I understand for tax reasons, to Remile (a sister company of DLH) to purchase the Brussels Property. Manhattan is a company which is now registered in Belgium but it had originally been an English company.[4]The day to day management of DLH and its subsidiaries was in the hands of Mr Stern. He and his family also had interests in DLH as shareholders. By December 1996, Mr Stern was proposing a creditors’ voluntary arrangement over the affairs of DLH. Mr El Ajou opposed the arrangement.[5]Mr El Ajou had, by then, obtained the benefit of a charging order in England over a debt due to DLH from Manhattan and had commenced proceedings in Ireland to garnishee debts owed to DLH by various subsidiaries in Ireland. Mr Stern was persuaded, in one way or another, to discuss with Mr El Ajou’s solicitors the opposition to the CVA. Following negotiations, Mr El Ajou agreed to withdraw his opposition on Manhattan, Remile and DLH entering into an assignment (“the Assignment”) which was designed to regulate the distribution of the proceeds of sale of the Brussels Property. It was intended to secure for Mr El Ajou payment of part of the judgment debt against DLH obtained from the Court of Appeal in 1994. The Assignment is the central document in the current proceedings.”[6]That summary does not explain the identity of the 4th and 5th Defendants. The relationships were described in more detail in an earlier judgment of HH Judge Reid QC (12th February 2001), to which I shall need to refer later. At this stage it is sufficient to note that both CHAPS and IDL belonged to, or were linked to, Mr Kirch, a long-time associate of Mr Stern (see Reid judgment paras 24, 29).

The Assignment

[7]The Assignment is dated 11 December 1996, and governed by English law. It is made between(1) Manhattan(2) Remile(3) DLH(4) Mr El Ajou and(5) Mr Stern. The relevant parts of the Assignment are as follows:

Recitals

[8]Recital (A) states:
“DLH is indebted to Mr El Ajou in respect of a Judgment interest and costs in the sum of £5,500,000 (“the Judgment Debt”)”
It is also noted that Remile has agreed to assign or renounce its Option to enable Manhattan to sell the Brussels Property (Recital (D)) (Happily, it is agreed that Remile’s interest can be ignored for present purposes.)[9]Recital (E) records that – “Manhattan is in preliminary discussions for the sale of the Brussels Property and/or intends to sell the Brussels Property”.”[10]Recital (F) contains an important definition of the “Claim”:
“It is anticipated that on the conclusion of the sale of the Brussels Property each of Manhattan and Remile shall have a separate claim (hereinafter referred to as the “Claim”) against the buyer (hereinafter referred to as the Third Party Debtor) of the Brussels Property for the purposes respectively of the purchase price for Manhattan and of the sum for renouncing the Remile Option for Remile remaining after payment in full of the obligations secured by mortgage on the Brussels Property specified in recital (I) below”
[11]Recital(i) (I) reads as follows: “Manhattan and/or Remile have granted certain mortgages (“the Mortgages”) over the Brussels Property which are registered in Belgium as follows: Mortgagee Amount Due BEF (i) An Hyp Bank BEF 250m(ii) An Hyp Bank BEF 136.5m(iii) GGF Asset Management SA BEF 41.1m(iv) GGF Asset Management SA BEF 370m(v) GGF Asset Management SA BEF 22m(vi) Alliance and Leicester Building Society BEF 163m(vii) CFE BEF 221.25m(viii) CHAPs BEF 250m(ix) Interest outstanding to An Hyp and GGF Asset Management SA BEF 200m[12]Recital (J) lists certain “Undertakings”, given by Manhattan, Remile or DLH to various third parties to account to them for the proceeds of sale of the Brussels Property for various sums of money (expressed in sterling).[13]Recital (K) records that the parties have agreed that £1,500,000 of the Judgment Debt “shall be satisfied by the grant of an assignment and the giving of undertakings” on the terms of the Assignment; and that Mr El Ajou would thereupon agree to discontinue the proceedings relating to the charging order and the Irish proceedings, and to vote in favour of the CVA.[14]Recital (L) records that Mr Stern has agreed to guarantee the commitments of Manhattan and Remile under the agreement.

Operative clauses

[15]Clause 1.1 provides:
“Manhattan and Remile hereby jointly and severally assign now and irrevocably their respective Claims both in case of a private sale or of a public sale towards the Third Party Debtor (North Galaxy SA) and any other money receivable by Manhattan and/or Remile arising from the disposal of any rights over or interest in the Brussels property to Mr El Ajou who accepts such assignment up to any amount of 75 million Belgian Francs.”
[16]Clause 3.1 provides:
“The Guarantor, DLH, Manhattan and Remile warrant to Mr El Ajou:- (a) that the recitals hereto are true and correct; (b) that no undertaking or assignment in respect of the proceeds of sale of the Brussels property other than the undertakings shall be given without the written consent of Mr El Ajou (c) that no mortgage other than the Mortgages (specified in Recital I) shall be granted over the Brussels property and that the debt due pursuant to the Mortgages shall not be increased except in respect of the accrual of interest thereon; ………”

The “mortgages” and what happened to them

[17]The “mortgages” listed in Recital (I) were described in more detail by the judge. He also gave an account of Mr Stern’s subsequent dealings in respect of them (paras 22ff). Even with that assistance it is not easy for a newcomer to appreciate precisely what was going on in practical terms. Judge Reid referred to Mr Stern’s “outré manoeuvrings”, a term echoed by Warren J. Fortunately, understanding of the detail is not necessary for us to resolve the issue of construction.[18]At my invitation, Miss Harman has outlined the sequence of dealings. Although I acknowledge that this is a one-sided account, and I refrain from any comments as to its accuracy or completeness, I have found it helpful in understanding the significance of the present dispute at least from the view of one party. According to Miss Harman’s summary: i) “In 1999, around the time of the sale of Ilot 68, Mr Stern arranged for CHAPS (Channel Hotels & Properties Ltd), and its subsidiary IDL (Ilot 68 Development Ltd), companies connected with a Mr Kirch, to enter into a complicated series of agreements. ii) One aspect of these agreements was that IDL would buy from GGF and Alliance & Leicester the debts owed to those entities by Dollar Land (Manhattan) Ltd (“Manhattan”). IDL also bought the benefit of the mortgages granted by Manhattan over Ilot 68 to secure those debts, but the mortgages were not formally transferred or re-registered. iii) By a “Settlement Agreement” a number of debts owed to CHAPS/IDL by a number of Stern-connected entities, including but not limited to Manhattan’s debts formerly owed to GGF and A&L, were rolled-up together into a single global sum to be paid to CHAPS. iv) A further term of the Settlement Agreement was that when the agreed rolled-up global sum had been paid, Mr Stern himself would be able to buy the shares in IDL from CHAPS for £100. When Mr Stern made an Individual Voluntary Arrangement with his creditors, he excluded this right from the assets made available to meet creditors’ claims. v) By the “Pledge Agreement”, the proceeds of sale of Ilot 68 (including the Variable Portion) were pledged for the repayment of that rolled-up global sum. It was this Pledge which HHJ Reid held to be a breach of the Assignment to Mr El Ajou. vi) In due course, at CHAPS/IDL’s direction, GGF and A&L (having received the purchase money for their debts) each gave a discharge (“mainlevée”) of their mortgage securities over Ilot 68. vii) Separately from the Settlement Agreement and the Pledge, Mr Stern negotiated with An Hyp for IDL to purchase the debt owed to them by Manhattan. An Hyp settled for the sum secured on the property by the mortgage (which was less than the full amount claimed) and gave a discharge (“mainlevée”) of their mortgage securities, and for 1 BEF (around 2.5p in sterling) assigned the balance of the debt owed to it by Manhattan to IDL, expressly stating that this debt was unsecured. viii) This web of contractual arrangements meant that all the mortgages granted over Ilot 68 were discharged or redeemed, the sale took place, and Manhattan then (relevantly) owed - a) to CHAPS/IDL the rolled-up global sum which included, among amounts due from other entities, the sums formerly due to GGF and A&L, and b) also owed to IDL as a result of the separate agreement the unsecured part of the amount formerly owed to An Hyp. Because of the lapse of time and the interest claimed, these amounts seem likely to eclipse the Variable Portion of the sale proceeds.”[19]Miss Harman also referred to more recent dealings, of which Warren J was not aware, which had the effect that Mr Stern is “now entitled to buy for £100 the shares in IDL, which in turn is said to remain entitled to the amount in (viii)(b)”.[20]At the same time it is pertinent to note Warren J’s concluding comment on this section of the judgment:
“ 56. The upshot of all the “outré manoeuvrings”… is that Mr Stern is to benefit. Now, I quite accept that there is no reason why he should not negotiate deals with the major secured creditors (An Hyp, GGF and A&L) to compromise the debts owing to them for less than their face values. Nor is there any reason why the balance of the debts should not be kept alive, together with the securities if that is possible. And if that is possible and is also what has been achieved, Mr El Ajou’s rights under the Assignment have not been prejudiced. Having said that, it might be thought to be very surprising indeed that the beneficiary of these arrangements should be Mr Stern personally rather than any of the debtor companies. However, if Mr El Ajou has any complaint sustainable at law (whether in England or in Belgium) about what Mr Stern has done, it could, I think, only be based on an allegation that Mr Stern has in some way improperly extracted value which ought to belong to one or other of the companies, possibly, Manhattan, and thus be available for creditors. In my judgment, it is not correct to say that the priorities in respect of entitlement to the Variable Portion viz a viz Mr El Ajou as a result of the Assignment are affected by what Mr Stern has done.”
[21]For the present argument, all that matters, as I understand it, is that as a result of these arrangements the relevant mortgages were themselves discharged, while the underlying “obligations” were to some extent preserved, although wholly unsecured and no longer representing any incumbrance on the Brussels property or its proceeds.

The construction issue

[22]The principal issue in the appeal turns on the correct interpretation of Recital (F) of the Assignment in these circumstances. I repeat the material part (omitting the references to Remile, which the parties agree can be ignored for present purposes):
“It is anticipated that on the conclusion of the sale of the Brussels property… Manhattan… shall have a separate claim (hereinafter referred to as the “Claim”) against the buyer (hereinafter referred to as the Third Party Debtor) of the Brussels Property for the purposes …of the purchase price for Manhattan … remaining after payment in full of the obligations secured by mortgages on the Brussels property specified in recital (I) below.”
(emphasis added)[23]For the appellants it is said that, although the mortgages have been fully discharged, the underlying obligations have not yet been “paid in full”. Accordingly, Manhattan’s “claim”, which was to form the subject of the assignment to Mr El Ajou, either has not yet arisen, or if it has is worthless.[24]To do

justice to the submission, I quote their skeleton:

“The words ‘…in full..’ and the use of the words ‘..the obligations secured by mortgages…’ are important. As to ‘in full’ it is apparent that unless the obligation is discharged in its entirety, it remains one which ranks above any obligation to pay money to Mr. El-Ajou: and therefore a reduction in the mortgage debt, even almost to the point of extinction, does not render the balance one which slips in the ‘pecking order’ to below him. As to ‘..the obligations secured by mortgages…’ the words used focus not upon the mortgage, nor upon the mortgage debt, but upon the obligation. If the existence of the mortgage had been critical, then one might have expected the omission of the words ‘the obligations secured by’, since they would add nothing to the sense. In short, on the face of the clause there is no provision to the effect that the discharge of the mortgage would be such that the debt, or any part of it still outstanding, would rank behind Mr. El-Ajou, rather than in front of him. The apparent purpose of the words ‘the obligations secured by…’ is to place the primary focus upon the debts themselves, to secure which, as it happens, mortgages have been entered into.”
The submission is supported by more detailed arguments based on consideration of the assignment as a whole, the context in which it was made, and the odd consequences of the contrary construction.[25]Attractively though the arguments are put, I remain wholly unpersuaded. The assignment must be construed in its commercial context. The starting-point, as the first recital makes clear, is a long-unsatisfied judgment debt of over £5m. The Brussels property offered the opportunity of satisfying it in part, but only to the extent of any surplus over prior encumbrances. The assignment represented a compromise, which recognized the potential value of the asset, but also its limitations. In that context it was not the obligations which mattered, but the extent to which they were secured on the property. A linguistic case can be made, at least in Recital (F), for distinguishing between the obligations and the mortgages, but it makes no sense viewed in the commercial context of this agreement. Even the linguistic case loses its force in Recital (I), which puts the emphasis clearly on the “mortgages”, not the obligations.[26]I should note the appellants’ argument based on item (ix) in the list in Recital (I). As they say, that is not the subject of a separate secured obligation, but rather a “guesstimate” of interest owing on the An Hyp and GGF loans. This, it is argued, reinforces the submission that the purpose of Recital (I) was “not so much to specify mortgages, as it was to identify debts”. However, it is accepted, as I understand it, that interest on the loans, while not the subject of a separate mortgage, would have been secured along with the principal sum under the terms of the main mortgages, at least to the extent that Belgian law allowed. The fact that this was included, on an approximate basis, as the final item in the list, does nothing to detract from the overall understanding of the agreement.[27]The judge thought that appeals to “commerciality” did not assist either party (para 64). In a general sense that may be right. As he said, if the assignment had been clearly drafted in either of the proposed meanings, it might not have led a reasonable observer “to express astonishment” at its “uncommerciality”. However, what matters is not “commerciality” in the abstract, but the commercial context of this particular agreement. In that context, in my view there can only be one answer. The reasonable observer, alive to the background of this assignment, is unlikely to have contemplated a situation in which the obligations would survive detached from their securities. In any event the judge felt able to arrive at the same result by reference to the “natural meaning” of the relevant provisions, in particular the words “the obligations secured by mortgages….” I am content to adopt his reasoning on that approach.

The estoppel issue

[28]I have already mentioned the earlier proceedings before Judge Reid. The appellants now seek to argue that Judge Reid is to be taken as having also implicitly decided in their favour the present issue of construction. The argument is “simply stated” in their skeleton:
“The outcome of the hearing before Mr. Justice Warren was that Mr. El-Ajou secured a money judgment in his favour for the equivalent of BEF 75 million, plus interest. He had earlier sought an order for payment of the self-same sum before HHJ Reid QC. On that occasion, his claim was rejected. No salient fact was different: the central issue before Mr. Justice Warren was the construction of the same Assignment as had been placed before HHJ Reid QC.”
They rely on passages in the judgment which suggest that Judge Reid shared their view on the construction point, but they rely principally on his refusal to make a money judgment in Mr El Ajou’s favour:
“The matter may be tested this way: if the Reid judgment was not finding as a necessary step in its determination of the appropriate remedy that the underlying indebtedness previously secured by the Recital (I) mortgages ranked ahead of the Claimant, there would have been nothing to prevent the Court granting an immediate money judgment there and then, as was in that case sought by the Claimant. It is precisely because no loss was found yet to have been suffered by the Claimant that only declaratory relief was granted. ”
[29]The weight given to this argument in the appeal seems to have been something of an afterthought. It was not pressed before Warren J (although possibly touched on in the skeleton), and understandably not covered in his judgment. However, he gave permission for what he called the “res judicata/issue estoppel” point to be raised by way of appeal, and so it is properly before us.[30]In my view, with respect, the appellants’ first thoughts were right. Even the broadest application of the principles of issue estoppel would not be sufficient to get the argument on its feet.[31]The appellants rely, for a statement of the modern approach, on the judgment of May LJ in Specialist Group International Limited v. Deakin and Deakin [2001] EWCA Civ 777, para [23]:
“If a claim has been explicitly determined in previous concluded proceedings between the same parties, that claim cannot be raised again, other than on an appeal, unless there is fraud or collusion. If a necessary element of a claim has been explicitly determined in previous concluded proceedings between the same parties, that issue cannot be raised again, if, as is likely but not inevitable, it would be an abuse to raise that issue again. This may also extend to an implicitly necessary element of the previous determination…. If the claim or issue has not been determined in previous concluded proceedings between the same parties, there may nevertheless be circumstances in which, as a matter of public and private interest or on a broad merits-based procedural judgment, it would be an abuse for a party to raise that claim or issue.”
As that passage recognizes, an issue may in some circumstances be treated as having been conclusively determined by a previous judgment, even if not explicitly addressed in it. However, the context is crucial.[32]The issues in the earlier action were specific and clearly understood as such by the parties and the judge. The judge said in terms (para 52)), that it was “only these five complaints” with which he was concerned, and not “any other complaints which might be made as a result of Mr Stern’s somewhat outré manoeuvrings”. He also referred (para 67) to the “interesting questions of priority” yet to be determined in relation to the proceeds of the sale of the Brussels property, saying: “In the absence of (IDL) I cannot begin to determine that issue or to make any declarations as to their respective priorities”.[33]His refusal to make a money judgment in favour of Mr El Ajou cannot fairly be read as implying a final determination against him. It is equally consistent with the position that decisions on the five issues before him were not sufficient in themselves to arrive at that point. That would leave it open, without any question of abuse, for the remaining issues to be litigated in further proceedings, as has now happened.

The interest issue

[34]The final ground of appeal is formulated in this way in the appellants’ skeleton:
“Finally, the specific relief ordered by the Learned Trial Judge went beyond the relief claimed and pleaded by the Claimant in the Particulars of Claim. No claim for a money judgment was pleaded in terms (the most that could be said was that it was included in the portmanteau claim for “further or other relief”) yet one was ordered. Further, despite there being no claim for interest pleaded in the Particulars of Claim, contrary to the requirements of CPR 16.4 which appear mandatory in their terms, a substantial sum (€873,671) was awarded by way of interest. The third ground of appeal attacks the grant of interest on the money judgment.”
Thus, as I understand it, the complaint relates solely to the award of interest, not to the money judgment as such.[35]The foundation of the argument is CPR 16.4, which it is said is expressed in “mandatory” terms. It requires the claimant, if seeking interest, to include in the particulars of claim a statement to that effect, and the particulars required by paragraph (2). Paragraph (2) requires a statement whether interest is sought “(i) under the terms of a contract; (ii) under an enactment and if so which; or (iii) on some other basis and if so what that basis is”; and other details such as the percentage rate claimed.[36]The appellants acknowledge that their submission is in apparent conflict with Privy Council authority in Greer v. Alstons Engineering Sales and Services Limited [2003] UKPC 46, in which an order for interest was upheld, even though not pleaded. Sir Andrew Leggatt, having referred to English and Trinidad authorities, observed:
“The same practice prevails in Trinidad and Tobago as in England: neither a claim for interest nor the facts and matters relied upon in support of such a claim need be pleaded…..”
The appellants submit that this statement, so far as it relates to the position in England, is unsustainable in the light of the clear provisions of the CPR.[37]This is another argument which does not seem to have been advanced with much vigour before Warren J. Counsel for the defendants (Brian Langstaff QC, as he then was) is recorded as offering two reasons why interest should not be awarded in accordance with the discretion given by section 35A of the Supreme Court Act 1981. The first he described as a “technical pleading point, interest claims have to be pleaded…” The second was a “point of substance” on the interpretation of the agreement, which has not been pursued before us. The pleading point was not further developed in argument before the judge. Warren J concluded that it was “manifestly fair” that Mr El Ajou should be awarded interest.[38]Assuming jurisdiction to make the award, I do not understand the appellants now to question its fairness as such, only the lack of proper notice as required by the rules: “The Defendants here were unaware that they were exposing themselves to the potential of such a sizeable award by way of interest until after judgment had been handed down and the Claimant sought both a money judgment and an award of interest. Although not the case here, in other cases it may be that the Defendant would wish to protect his position by a payment into court – which may have to be carefully assessed.[39]In my view, this ground of appeal is without substance. Section 35A of the Supreme Court Act 1981 undoubtedly gave the judge the power to award interest. The rules regulate the exercise of the power, they do not take it away. Had the pleading point been pressed before him, the judge could no doubt have given leave to amend, on appropriate terms, and, if necessary, given the defendants time to prepare their response. As it was, the judge was fully entitled to proceed as he did. I see no grounds for this court to interfere with the exercise of his discretion.

Conclusion

[40]For these reason I would dismiss this appeal.[41]I agree.[42]I also agree.

Cited in 1 later judgment