“Broadly, my Lord, an independent valuation, non-objection stance of the BdL, general assembly ratification of the proposed transaction, and obviously providing full specifics of the proposed transaction to the BdL for obtainment of the non-objection stance, a post-closing adjustment provision, and the completion of all preparatory actions leading up to the execution of a definitive agreement, amongst which our understanding would have been that a draft -- a final draft definitive agreement would have been finalised and in a form that would be acceptable to SGBL.”
“I told [Mr Najjar] it’s very long basically to actually have a formal general assembly meeting and we are time-sensitive -- under time pressure because of the mounting losses and the raising of Cedar II. So Nadi basically answered me that he actually spoke to Farid Dahdah and Jimmy and they all agreed that all the decisions will be made at the board and there is no need basically to wait for a general assembly meeting.”
“basically my understanding, based basically on the discussion that I had with Nadi, who relayed basically what he discussed with Jimmy and Dahdah, is that this general assembly that we were calling forward was just for the pure form because SGBL was already liaising to get the approval of all the Circular 331 shareholders on the conditions on which basically that board has resolved to enter into the transaction.”
“Q. -- you must have understood the intention and outcome of the13 April 2021 meeting to mean that there did indeed now need to be a general assembly meeting to deal with the matters set out in the agenda; yes? A. Yes, that was the agreement, yes.”
“ARTICLE 17 : BOARD OF DIRECTORS The Company shall be managed by a Board of Directors, composed of three members at least and seven members at most, as determined by the General Assembly. When elected by the General Assembly, the mandate of the Board of Directors shall be for a period of three years maximum. … ARTICLE 19 : POWERS OF THE BOARD OF DIRECTORS The Board of Directors is vested with the widest powers to represent the Company vis-à-vis any and all third parties, to execute the resolutions of the General Assembly and to carry out any and all acts and operations relating to its object, with no limitation or reserve whatsoever except those laid by the Law and the present Articles of Incorporation. ARTICLE 20 : DUTIES OF THE BOARD OF DIRECTORS The duties of the Board of Directors shall include but not be limited to : … 4. to submit any proposal or suggestion to the General Assembly regarding any amendment(s) it believes necessary to introduce to the Articles of Incorporation 5. to call for the meetings of the General Assemblies of shareholders and prepare the agenda of such meetings ; 6. to implement the resolutions of the General Assemblies. 7. Inform the Central Bank of any transfer of the shares of the Company in the capital of the start-up companies in addition to the audit report about said company whereby the value of the transferred shares is indicated; the Central Bank preserves its right to appoint one or several experts which fees shall be paid by company in order for said expert (s) to evaluate the portfolio of the company. 8. To provide the Central Bank with the following documents: Financial Statements; List of the shareholders of the Company; List of the members of the board of directors and general managers and auditors; Auditor’s report showing the evolution of the Company’s business taking into consideration the possibility of the Central Bank to object the appointment of the auditor of the Company.”
“ARTICLE 25 : CHAIRMAN – GENERAL MANAGER – ASSISTANT MANAGER The Chairman of the Board shall act as General Manager of the Company. He may suggest to the Board the designation of a General Manager from amongst the shareholders or from non-shareholders, to carry out general acts of administration provided the appointed manager performs his duties under the Chairman’s supervision and responsibility. … The Chairman, the Vice-President, the General Manager or the Assistant Manager, represents the Company vis-à-vis any and all third parties, executes the resolutions of the Board, and manages the Company in accordance with such resolutions.”
“We are now waiting for a meeting with the Head of the Real Estate and Financial Assets Department, Mr Ricardo Skaf, around the 20th of July” and “[n]ow, due to the investment needs of our Portfolio companies, CMH is on the brink of becoming short on money for further investments and follow-ons”
“… Cedar Mundi having diligently and comprehensively answered all BdL enquiries demonstrating in every instance a strict compliance with all the provisions of its Private Placement Memorandum across all its investments”
“Cedar Mundi has$ 4 m in term deposit at sgbl. We need to have a credit line on those urgently because the bdl is 8 mths late on the 3rd capital [call] and we need$1M advance to cover our investment commitments urgently. SGBL is saying they need your authorization. Please advise” and “George we need a loan !!”
“Please call Mrs Safah on Monday and tell her I am on leave until the 30th and confirm VERBALLY that the account is in LBP. DO NOT CONFIRM ANYTHING IN WRITING.”
“19. That there is an ongoing financial crisis in Lebanon is well known and not in dispute. It has been described by the Spring 2021 Lebanon Economic Monitor as in the top ten “most severe crises episodes globally since the mid-nineteenth century” and is the cause of liquidity problems which currently pervade the Lebanese banking sector. It appears, indeed, that, were Lebanese banks to accede to all international transfer requests, there would be a run on the banks and a collapse of the banking sector. That said, as Mr Toledano QC highlighted, the Banks do not say that the transfers were impossible. Nor have they alleged force majeure. Their case, rather, is that, although they could have made the transfers, they were (and are) under no obligation to do so. 20. The crisis’s immediate catalyst was nationwide political unrest in the autumn of 2019, triggered by a proposal by the government to tax calls made by WhatsApp. Due to that unrest, which included protests, street riots and roadblocks, Lebanese banks were closed for two weeks between18 October 2019 and31 October 2019 . During this time, SGBL issued a blanket directive to refuse all requests for international transfers and Bank Audi directed employees not to process any new cross-border requests until after the Bank reopened and resumed business. When the banks reopened on1 November 2019 , there was a run on all Lebanese banks, with large numbers of clients attempting to withdraw all their foreign currency or transfer it all abroad. 21. Anticipating such a run, SGBL issued a directive to its employees that, from1 November 2019 , no international transfers were to be made for any purpose. Bank Audi similarly imposed severe restrictions on international transfers, directing staff that foreign exchange transactions exceeding US$10,000 must not be accepted unless approved by Bank Audi’s central Treasury Unit. Such international transfers were only to be permitted for personal expenses. These initial directives were intended as temporary, stop-gap measures. At the time, the Banks thought that the crisis would be short-lived and that clients’ loss of confidence resulting from the protests and the October 2019 bank closures would be restored. Instead, the crisis deepened, due to problems at a macro-economic level in Lebanon. 22. Systemic issues within Lebanon’s banking sector mean that Lebanese banks are highly exposed to fiscal issues with the Lebanese state. This is because Lebanese banks rely heavily on the Banque du Liban (‘BdL’), the central bank, for their foreign currency liquidity. As the crisis unfolded, however, it meant that BdL could in practice ‘turn off the taps’ by restricting Lebanese banks’ access to their foreign currency deposits for international transfers. The net result is that the Banks (along with all other Lebanese banks) have been operating with severe foreign currency shortages since October 2019. Lebanon’s economic turmoil and political unrest have worsened since then, the Lebanese pound (LBP) having lost 90% of its value amid dwindling confidence in the Lebanese economy, which has itself shrunk by 40%. … 23. On11 November 2019 , after 10 days of further unrest, including bank employees being subjected to verbal and physical abuse, the Lebanese Syndicate of Bank Employees called for a general strike over concerns for safety, and the Banks were forced to close once more. Also on11 November 2019 , the Governor of BdL asked the banks to process cross-border transfers for personal necessities only - a signal to clients that the Banks were acting in accordance with a public directive, which began to manage expectations. 24. The Association of Lebanese Banks (the ‘ABL’) began developing a harmonised policy on international transfers, which was formally released on17 November 2019 (the ‘ABL Circular’). The ABL Circular directed that transfers abroad were to be limited to urgent personal expenses and set out maximum recommended levels of transfers abroad. Whilst the ABL Circular did not have legal force, it was adopted by the banking sector to achieve a fair and consistent approach across the sector and protect the banks’ shrinking foreign currency liquidity. The publication of the ABL Circular, and the stationing of police officers near each bank branch to ensure employees’ safety, helped calm the immediate situation and bring the Lebanese bank employees’ strike to an end. 25. Over the following months, the Banks each began to tighten their policies and transfer limits as it became plain that the crisis was not transient, and in accordance with subsequent BdL Circulars (BdL Circulars 150, 151, 153 and 155). Each of BdL Circulars 150, 151, 153 and 155 stipulates the amounts and specified purposes for which Banks are required to permit clients to transfer overseas, primarily in respect of Lebanese students abroad. The Banks’ case was that implicit in these Circulars is the acknowledgement that banks are not obliged to provide international transfer services in amounts or for reasons other than those stipulated.”
“Fresh Dollars”: USD obtained from outside the Lebanese banking system, fully liquid and usable locally or internationally (and hence the same as USD in other jurisdictions). “Lollars”: A colloquial term used to refer to US Dollars deposited in Lebanese banks, which were no longer withdrawable in cash or transferrable abroad and so ‘trapped’ in Lebanon (sometimes referred to as “Restricted Dollars”).”
“[A]s a result of receiving the majority of the third capital call in Lebanese Lira the fund was in a situation where it did not have enough capital to meet its commitments to its portfolio companies. The Lebanese Lira we could access were of limited use to the portfolio companies in Lebanon, because they already had bank accounts in that currency which were losing value by the day … This meant that the portfolio companies were unable to meet their immediate financial obligations in Lebanon such as paying employees, suppliers, and other third parties in Lebanese Lira, and they urgently needed US Dollars instead.”
“Cedar Mundi could have stopped actively investing and entered the divestment period where it would have held its then existing portfolio assets until a divestment opportunity presented itself. This is the approach that other 331 funds with which SGBL has been involved took following the onset of the Lebanese financial crisis.”
“The instruction to SGBL should be a normal instruction without the need of words adding a sense of urgency, panic.. etc…. etc… nor is there a need to involve people that have no business in the normal operation of the bank accounts of the fund. Therefore, the normal format of instruction should be sent to Marina @ SGBL as follows (no need to sent the letter received from Med Al Bahar)”
“Subject to subsequent adjustment as per Clause 5 of this Agreement to the Transfer Value, the respective interests in the SPV shall therefore be initially as follows: CMH interest 84,07% corresponding to Transfer Value MAB interest 15,93% corresponding to MABIL Receivable”
“ADJUSTMENT TO TRANSFER VALUE. The Parties agree that the Transfer Value may be adjusted by mutual agreement after completion of the transfer of the Qualifying Portfolio on the basis of adjustments made by the statutory auditor to the fair value of the Qualifying Portfolio as per the audited financial statements of CMH for the year ended Dec. 31st, 2019. Any adjustment shall be agreed no later than May 30th, 2020 and shall result in the consequential adjustment of the Parties’ respective interests in the SPV.”
“Can you please print the attached and have it initialled and signed by Talal ? Talal already signed this doc in Kuwait last week but I was advised to amend it to reduce the stamp duty we should pay on registration with the Ministry of Finance.”
“So, why basically we kept it confidential with Nadi is that basically we did not want to put in front of people who already are denying that they caused a problem a solution to that problem, because if they accepted that solution, which was impossible for them, it would mean they would accept basically they caused the problem, because the entire PPC was only caused by their default and their bad faith and their collusion or contraption with the BdL.”
“Q… I have to suggest to you, Mr Attieh, there’s no question of hindsight at all. You knew very well, at the time you entered the PPC, and at the time you transferred the portfolio shares, that this required a board resolution. A. Yes, that basically I knew. … MR JUSTICE BRYAN: I think what’s being put to you is that you have just acknowledged that you knew at the time when you transferred the portfolio that it required a board resolution? A. Oh, yes, I knew. I mean, Mrs Safa Tfaili told me and obviously my experience said I knew that it was an unauthorised transaction, my Lord…”
“MR JUSTICE BRYAN: Anyway, your evidence is that you regarded it as unauthorised, as you have said twice? A. Unauthorised. I was informed so by legal counsel, yes.”
“this debt, which funded basically this portfolio, is now funding this same portfolio but under the form of equity. So there was basically just a debt interest that was converted to an equity interest but the exposure of that capital is exactly the same as it was in CMH.”
“… about the PPC transaction which occurred basically around I think February/March of 2020, the context was, my Lord, that, as the vice-chairman of the fund, I was faced with the situation where basically the fund was cut off from any source of funding because of the default of the banks and because of the unilateral restrictions put by the banks on all the fund’s bank accounts. I had to operate and I was responsible basically for a company and for a fund that had no means basically to continue operating as it was expected to.”
“At this meeting we discussed the structuring of an offer to buy the C-331 Shareholders’ shares in Cedar Mundi. I told him that I was going to give BSEC the mandate to present an offer to buy their shares. I remember that Jimmy said to me that SGBL was interested in being given the mandate, but I said no…”
“… the purpose of basically our meeting, my Lord, was basically to see if he was agreeable or basically sympathetic to this proposal for this project and … I didn’t mean agreeable on behalf of SGBL or he had the authority to agree for SGBL. I didn’t mean that. I said agreeable as in, you know, he was willing to listen and he was sympathetic.”
“The opportunity arising from the present context is essentially to apply severely devalued dollar deposits in Lebanese Banks to buy shares in a portfolio of mature international tech startups which are international, fast growing and uncorrelated with Lebanon’s country and financial risks.”
“C331 Investors are not soliciting an offer to purchase their interests in the Fund nor have they committed to accept such an offer; therefore, interested buyers should be aware that their indications of interest for the Transaction may not be acceptable to C331 Investors or may differ from the final terms to be negotiated by BSEC with C331 Investors. However, at the date of writing of this IM, the Fund’s management is unaware of any information that would lead it to believe C331 Investors would reject a transparent, fair and market-based offer; furthermore, an informal approach to certain C331 Investors has confirmed their readiness to consider such a transaction favourably.”
“The opportunity consists of acquiring up to circa 54% of the shares of the portfolio invested by Cedar Mundi (i.e. Acquisition of c. 76% of the shares of Cedar Mundi Holding SAL, which owns c. 70% of IFA Capital Ltd. BVI, which is equivalent to circa 54% of the shares of the portfolio companies)”
“(a) a multiplier of 2.4 means the conversion rate from US Dollars to Lollars is 2.4; (b) to convert the other way around, from Lollars to US Dollars, requires the inversion of the multiplier, i.e. 1/2.4, = 0.42, or 42% as a percentage; (c) hence the percentage discount is 100% - 42% = 58%.”
“This is an exceptional opportunity to buy at a deep discount (65% currently) shares into a high-growth portfolio with very good visibility (due to our position as GP); financial returns are extremely attractive with low risk due to the mature section of our portfolio of which you are fully aware. For our VC business, it makes absolute sense from a business development perspective to select the very-best family offices and institutions to be our co-investors in the fund. … to illustrate the opportunity in a compelling manner, you have here below a back-of-the-envelope cash-on-cash calculation taking into account one exit only (a Proximie exit) in 2021 (which is highly likely); … This means that the family will end up owning 44% of the fund through the buyout, that is a NAV value of$10.6M at current fair value, for substantially no cash outlay!”
“We are in the process of building the book for an offer to buy out the interests of the Lebanese Banks in our Venture Capital fund. Our fund has invested over$ 25M in high-growth technology companies which have performed quite well, are mature and are materially decorrelated from Lebanese country risk. Indeed, the fund’s portfolio is made up of businesses which operations, revenues and domiciliation are essentially outside of Lebanon (mainly UK, US and the Gulf). As you know, the current dislocation of the banking sector in Lebanon and the restrictions on withdrawals/transfers have led depositors at Lebanese banks to seek investments denominated in local dollars which could offer payouts outside of the Lebanese Banking system. This is precisely what our transaction is designed to achieve and we have so far seen a lot of appetite from such investors. Our position as GP of the fund also means that we have access to privileged information and insights in relation to the portfolio; we are therefore confident that investors would likely achieve exceptional returns in a short period of time. These exceptional returns are driven by (i) the purchase of the banks interest in “Lebanese dollars” which means a deep discount (cc 65%) to fair value and (ii) by the maturity of the portfolio (4+ years) where several investments are close to$100M + valuations. Our estimate of net investors payouts range between 2x to 6x the cost of investment, with the first exit likely to occur within 2 years. Because the risk/return profile is so attractive, we would like to make this unique opportunity accessible to a select number of key investors and allied families which our group has a special relationship with. As these investors may not necessarily have dollars deposited at Lebanese banks, we can arrange for dollars transferred to Lebanon for the purpose of this transaction to be credited with a multiplier of cc 2.8 X, which means they can also buy out the bank’s interests in our fund at a deep discount to fair value.”
“Following basically my email of the day before, Mr Al Bahar came back, my Lord, and said: I’m not interested. I don’t want to actually increase my exposure. I’m not interested in your proposal, but I’ll try to help you basically with people I know in Kuwait, but please draft me something that I can send to them. So that’s basically the purpose of the email.”
“Hive-off portfolio into separate SPV Anchor GP maintains its fresh commitments to portfolio ex-Lebanese banks to provide traction Sell the portfolio as an ongoing fund to continuing fresh $ investors Restructure Startups to mitigate Lebanese risks ex-C331 Selling LP’s can expect Par +/-15% in L$”
“Banks would get back their total investment$ 18 M (+/-10%) distributed to them post sale by the Fund. If buyers are settling [the consideration paid to the C-331 Shareholders] in fresh US$, the official multiplier between the two official rates will apply. Buyers will commit to take over the banks outstanding obligations with aggregate future funding of$ 11M in fresh dollars Banks will avoid financial and reputational losses from a fire sale of the portfolio or resulting from bankruptcy auction under the PPM.”
“we discussed the key concepts of how to structure the buy-out of Cedar Mundi’s portfolio. I explained to Jimmy that the fund could no longer continue to operate with its current Investors and that we urgently needed a solution to avoid all Investors losing their investments. I also explained that BSEC had failed to present a third-party firm offer for the purchase of the C-331 Shareholders’ shares in the fund. Accordingly, given the ongoing lack of funding from the C-331 Shareholders, my opinion was that it was necessary to organise a buy-out of Cedar Mundi’s portfolio. I remember that during this dinner, Jimmy agreed with my proposal to sell the portfolio to a new continuation fund.”
“First, it was not consistent with my perspective, namely that MABIL or a MABIL related party would bid for Cedar Mundi’s portfolio. Second, it contemplated that the board, rather than MABIL or its related party, would hire a placing agent to help with the sale. Third, it set out Mr Attieh’s view that the “Board [was] left with no choice but to consider a premature exit from the Fund’s investments prior to their maturity” which is not something that the board had determined or agreed. From my point of view, at this time (December 2020) an exit transaction was hypothetical, and nothing had been agreed to by SGBL.”
“1 Fairness Opinion on Portfolio Value [from an] Independent Auditor 2 Disclosure of Exit Mechanism to LPs for alignment on process and indicative price range [to the] Fund’s Limited Partners 4 Non-objection stance on Exit Mechanism [from the] BdL 8 Full Fund “Portfolio” divestiture. via a buy-out by possibly an anchor LP &/or GP-related Party 8 Payment of Cash Consideration in LP’s designated accounts (including with international correspondents)”
“Option (a): We have a clear agreement at the board level with SGBL to approve the proposed transaction and SGBL effectively approaches key banks (Audi, Fransa, BLOM) and gets their endorsement for the transaction. If 2/3 is assured, we will call with for a GA to formally approve and execute the transaction to sell the portfolio of the Fund to the investors. Option (b): if we see SGBL is not cooperating, we could leverage our access to the governor of the BDL to pressure them into accelerating the GA process. We need to secure this access and make clear that the current situation is totally unfair and unacceptable for us as Kuwaiti investor; the purpose here is to get the BdL to contact the banks to instruct them to accept the offer. High level G2G backing is critical in Option (b). Option (c): if options (a) and (b) do not occur for any reason, we will have no choice but to try leveraging our majority at the board and the provisions of the LPA.”
“given that the Portfolio is held at the level of the Target, in which Cedar Mundi owns only 70.23% of the Target’s issued and outstanding shares, the suggested Purchase Price to buy Cedar Mundi shares out of the total fair value of USD 36.92 million should equal to USD 25.92 million to be paid in local US Dollars. Out of the Purchase Price of USD 25.92 million, USD [x] million will be paid in local US Dollars to the Banks.”
“The propose amendments render the fairness opinion absolutely meaningless. This is a non-starter”
“a pool of investors (the “Acquirers”) proposes to buy shares in IFA Capital Ltd. (BVI) (“IFAC” or the “Target”) from Cedar Mundi (Holding) SAL…”
“Cedar II Fund LP, Cayman Islands (“C2” or the “Buyer”) is offering to purchase directly or indirectly (the “Transaction”) investment interests from CMH…”
“… sceptical about that as the limited information provided by Mr Attieh (in the presentation) about the real value of the portfolio investments was unaudited and seemed to be dated as at end of year 2020 and the draft fairness opinion was unsatisfactory and unsupported by any analytical support, and we did not perceive BSEC to be independent because (at least as far as SGBL was understood at the time) it had been retained by MABIL or a MABIL related party and the fact that Mr Attieh was connected to IFA Group/MABIL which I thought would likely have influenced his ability to act in the best interests of the shareholders as a whole and seek the best bid price possible for the Portfolio Assets.”
“1. Cedar Mundi fund is no longer able to operate or achieve its objectives in the current crisis a. LBP or local Lebanese $ paid by banks on capital calls are not investable and drag performance down. b. Our investment portfolio is losing value because startups cannot access fresh US$ ; for the first time, the fund incurred audited losses of$8m + in 2019. c. Any exit in the Lebanese context is not possible (no market, country risk, devalued currency) or if possible would be at a staggering loss (fire sale). 2. The banks are in default of their contractual obligations and this violates the statutory principle of equal treatment between our group (MABIL) and the Banks a. Banks settled 53% of their dues on the last capital call in Lebanese Pounds @1507 and 8 months late from the due date. b. MABIL settled 100% of their dues on time (march 2019) in accordance with their contractual obligations to the fund. c. Hence, the real value of MABIL’s contributions to the fund far exceeds its % ownership; this is unfair and violates the principle of equal treatment between shareholders. d. The Banks are therefore liable for the losses of MABIL resulting from the continuing default on their obligations. 3. To avoid further liabilities and litigations, our group is leading an offer to buy the portfolio and take over the defaulted obligations of the Banks a. The fair price is market-determined and is confirmed by a fairness opinion from an independent regulated investment bank (Bemo Securitization SAL) b. The offer is made by a new offshore fund which will also take over the defaulted commitments of the Banks thus waiving the liability and litigation resulting from the Banks default. c. The offer price should allow to reimburse the banks cumulated contributions AT PAR in local $ thus avoiding any material loss on their investment. d. Most importantly, this new offshore fund carries on the initial objective of our partnership under C331 which is to support the growth and success of Lebanese startups in fresh US$. 4. … e. We therefore urgently need SGBL to formally approve this transaction at the board meeting convened for March 8th 2021 and hope your Excellency conveys to SGBL personally and in no uncertain terms the urgent necessity of endorsing this fair offer which safeguards the interest of all investors and, most importantly, the survival of Lebanese technology startups.”
“Draft TS: 1. Given that the offer is by the GP and as facilitated by the delegated Manager of the Fund, we clearly need to eliminate any potential conflicts of interest as far as the bid and execution processes are concerned; 2. I am skeptical that the proposed transaction may qualify as "permitted" to waive the pre-emptive rights of investee companies (the "Investees") shareholders, particularly that it is never the case that the Fund holds any majority stake in the said Investees - drilling down on the individual shareholders agreements may be necessary to determine the validity of such a waiver; 3. The transaction structuring expenses should be rather borne by the offeror; 4. Termination and potential later terms inclusions in the definitive agreement should be symmetrical across all parties to the transaction; 5. An explicit clause needs to be inserted as to the conditions precedent to the transaction, including inter alia (i) vetting the transaction with BDL, (ii) obtaining an independent expert's fair valuation of the portfolio (possibly PWC's) and (iii) the EGA approving the portfolio exit mechanism and the transaction in particular; 6. There is no reason why the applicable laws should be those of England & Wales, particularly if the proposed consideration is to be settled in local Dollars; 7. A data library containing all contractual arrangements and shareholders agreements entered into by the Company should be made available, and a legal due diligence report should be issued to clear the Company from any potential liabilities (direct or contingent) the Company may be subject to as a result of the transaction; 8. The TS should explicitly mention that the Bid Price be subject to a Fairness Opinion by the financial advisor/agent solicited by the bidder towards raising subscriptions on best execution basis; 9. To remove the penalty for liquidated damages; 10. The consideration should theoretically be in real Dollars, payable anywhere at the discretion of the selling LPs. Alternative local arrangements should factor in the illiquidity premium of local funds; 11. GP-LP dealings should be at arms' length with the Company, so no exclusivity provisions should apply apart from ensuring non-circumvention of the proposed transaction; 12. More clarity is to be obtained in respect of the GP's offset amount between CMH and C2; 13. Preliminary analysis based on the provided unaudited FV of the portfolio indicatively suggests a reference valuation of$16 mn (real) +$5.5 mn (local) - to discuss on how this could be baked into the deal and inform the setting of the bid- ask range; Draft Fairness Opinion: 1. The draft should globally correct any confusion between the Manager and the BoD of the Fund; 2. The opinion itself is rather hollow and fails to address the financial advisor / agent's (in this case BSEC) acting in good faith and on best execution basis to get the best bid price relative to the FV; 3. The opinion should be explicit that BSEC has been solicited by the GP and/or Manager but certainly not the Fund; 4. The opinion should be explicit that only the GP or the Manager will be liable for any remuneration to BSEC in their capacity as financial advisors; 5. Disclosure permission of the opinion should not exclude the remaining LPs of the Fund; 6. The opinion should include a definition of what BSEC qualify as "fair", and representation should be made that BSEC has sought the best bid price in the market relative to a fair valuation as provided by an independent expert; 7. The Fund's audited financial statements should be made available, which could provide the reference basis for negotiating the execution price.”
“Further to our recent calls, we regret to inform you that SGBL and Georges Saghbini shall abstain from attending the aforesaid meeting for reasons of both form and substance. 1 – In form: Pursuant to the provisions of Article 22 of the Company’s Bylaws and Article 156 of the Code of commerce (as amended by Law 126/2019) this BOD meeting may not be held by videoconference as it aims inter alia at reviewing the FY 2019 statements in view of submitting them to the OGA’s approval. 2 – In substance: We are of the opinion that the proposed divestment should be subject – prior to submitting the same to the Company’s corporate competent bodies – to further diligence, let alone that any potential conflict of interest should be cleared at the outset. Without going into details at this stage, we believe that the proposed transaction should take into account the following matters. 2.1. From a legal standpoint: i. divesting out of the overwhelming majority of the Fund s investments would have a direct repercussion as to the continuity of the Company’s business and hence its existence. As such, this resolution should be taken by the appropriate corporate body. Therefore, this matter requires further consideration. ii. as indicated above, a conflict of interest issue may potentially be raised by any of the LPS in respect of this transaction, notably based on the provisions of Article 158 of the Code of commerce (as amended by Law 126/2019). 2.2. From a regulatory standpoint, and notwithstanding the provisions of Article 20 paragraph 7 of the Company’s Bylaws (as amended), the Company’s management should definitely submit the proposed transaction to BDL’s review and consideration in all its aspects, notably in light of the current critical situation in Lebanon. 2.3. From a financial standpoint, the scope of the Fairness Opinion submitted by BSEC is extremely limited and does not reference the portfolio’s fair valuation in seeking the best available price on the market; BSEC has naturally included all usual disclaimers. The offered price may be called into question by the LPs based on several criteria, notably in light of the past fair valuations of the Company’s portfolio. Therefore, this matter requires further consideration. As a result, we believe that passing this resolution at the BOD level is premature and potentially irregular.”
“1. On form It is true that Article 22 of the Company’s bylaws forbids videoconferencing for Board meetings examining annual accounts. It is also true that the ongoing unrest and sanitary situation in Lebanon led the Commerce registry to tolerate Board videoconferencing for reasons one can easily understand. It is for these same reasons (such as the impracticability or even the impossibility for key members to travel to Lebanon) that I proposed by emails dated March 3rd and March 8th to switch the initial invite from a meeting at the Company’s head office to videoconferencing. I take your point nonetheless and because we all highly value SGBL s esteemed attendance at the board, I am happy to remove the examination of the very belated 2019 accounts of the Company from the agenda and reconvene the board for next Tuesday March 16th 2021 by videoconference. Kindly let me know a few convenient times for you before I send the invite. We certainly look forward to SGBL s attendance. 2. On substance 2.1.i. Nature of the proposed Transaction: the board is the right forum for SGBL and all other members to approach this matter based on a lucid examination of the Bylaws, the transaction at hand and to hear the advice of the Company’s legal counsel in relation thereto. My conviction is that the proposed offer to purchase some of the Company’s investments is strictly within the normal course of business and has no impact whatsoever on the continuity or existence of the Company but is, on the contrary, beneficial to and in the interest of the Company. 2.1.ii. Potential conflict of interest: you already raised this matter with the legal counsel of the Company and his answer in no uncertain terms was that no member of the Board is conflicted with the proposed transaction. Here again, the board is the right forum if you want to argue your case. 2.2. BdL notification: the rights of BDL pursuant to Article 20 of the Bylaws are certainly reserved and we shall insert wording to that effect in the minutes of the Board. 2.3. Fairness Opinion: As you well know, the Fairness Opinion is a professional representation which obeys strict standards of form and substance. It is issued by a regulated and licensed financial institution which one assumes has applied suitable standards unless there is, as you seem to imply, indications to the contrary. I therefore fail to understand your objection in relation thereto and reiterate my earlier suggestion that you satisfy yourself with BSEC’s professional conduct by reviewing their work or making any enquiry you wish directly to them. Nor do I understand your reference to a “market” in the context. I am unaware of the existence anywhere in the world, let alone in Lebanon, of an organized market or venue for secondary startup transactions where “best available prices” can somehow be found or guaranteed. The Board will certainly be interested to hear you on this topic. 2.4 Directors responsibility: we are all well aware that, pursuant to article 167 of the Lebanese Code of Commerce, Directors are responsible towards shareholders for their management of the Company. This responsibility is comprehensive and not transferrable; thus, all acts of management in relation to the Company’s business are the sole prerogative of the Board. In the transaction at hand, I am fully satisfied on the basis of the information and evidence presented that (i) approving the offer is in the best interest of the Company and discharges my Director’s duty of care given the challenges and risks facing the Company, and (ii) that the terms of the offer are beneficial for the Company in its current and foreseeable contexts.”
“… we regret to inform you that SGBL and Georges Saghbini shall abstain from attending the aforesaid Board meeting for the main reasons raised in our email dated March 9th, notably due to the persistent divergences between us regarding the approach of the proposed transaction (as more particularly set out in the Heads of Terms) and the interpretation of the applicable provisions of law.”
“… (i) an updated fair valuation of the portfolio to be performed by an independent expert, (ii) that the GA should be the competent corporate body to approve the proposed transaction, (iii) that BDL be informed without delay of the specifics of the proposed transaction to ensure a timely non-objection stance or approval thereon as the case may be, and (iv) that this should be an offer for the buyout of the entire portfolio of the fund.”
“I recommend that the Transaction be approved by the Extraordinary General Assembly”
“The Board of Directors examined the head of terms received from Cedar Fund II, LP (Cayman) as well as the fairness opinion in relation thereto issued by Bemo Securitization SAL and in light of the current financial situation in Lebanon and the inability of most shareholders to fulfil their commitments towards the Company… as per the head of terms submitted by Cedar II Fund, LP (Cayman). The rights of the Central Bank of Lebanon under article 20 of the Company’s bylaws are reserved. Further, the Board of Directors authorized the shareholder ‘Med Al Bahar International – Cayman Islands’ to conduct the deal with the Company in accordance with the provisions of article 158 of the Commercial Code. The Board of Directors additionally resolved to empower the Chairman Mrs. Wafa Al-Qatami and/or the Vice Chairman Mr. Bassel Attieh with the full and necessary powers to separately negotiate and execute the transaction with Cedar II Fund, LP (Cayman) materially in accordance with the head of terms hereby approved.”
“Q. … You had decided, at this point in time, that the banks were guilty, with the BdL, of fraudulent conduct and that governed your own decision-making processes from this point on? … A. What my personal basically opinion of the banks is, obviously I was alive to basically what they were doing and I had my personal opinion, but that has nothing to do with that resolution of the board which is not making any determination as to the nature of their conduct but just stating that they had caused damage to the company.”
“(i) the Offeror is open to the outcome of an updated fair valuation as may performed by an independent expert (possibly the auditor of the Company, PWC), with the Offeror undertaking to pay any difference in price if the independent valuation exceeds the Offered price by over 10%; (ii) the GA (held extraordinarily) would ratify (by circulation) the Board’s decision to execute the proposed transaction; (iii) BDL will be notified the full details of the proposed transaction immediately after GA ratification; and (iv) the Offeror would undertake to, subsequently to the execution of the proposed transaction, buy the remaining assets of the Company.”
“1. The minutes are in the process of being signed; Nadi was present and took the minutes. I have no objections for him to share these minutes with you while we are waiting for the formalization to happen. 2. I will forward Jimmy Elazar s email of March 9th 2021 and my answer as well which has now been approved by the board. However, to cut short endless speculations on interpreting of SGBL constantly changing position, you are requested to let us know your decision tomorrow to withdraw or not from the private placement on the assumption that SGBL will not agree to the ratification of the proposed transaction. I am sure you understand that there is no more time for sterile meandering. The board is fully aware of its imperious responsibility in the current context and is not seeking any reassurance or advice in relation to what he has determined to be the right course of action for the Company.”
“The Board shall of course inform the GA in due time and in strict accordance with applicable laws and regulations; the board has approved the proposed head of terms in its meeting on March 16th 2021.”
“We were about to provide you with a comprehensive response to your two emails dated 18 and 19 March (in line with our previous communications) with the conveying of consensus requirements by the 331 shareholders (as at22 March 2021 ) regarding the proposed transaction but refrained to do so just in time as we were utterly surprised to receive an email from a fellow shareholder of the Company, Med AlBahar International Ltd. "MABIL"), regarding an alleged default by SGBL in connection with the PPM. Naturally, MABIL's claim is legally baseless, it being specified that the sender has no legal capacity whatsoever to send such a notice of default. … The least we can say at this stage is that the conflict of interest matter raised by SGBL and all the 331 shareholders in connection with both the proposed transaction and the approach adopted in connection therewith, proved to be more than justified and founded.”
“1- At the outset, we recommend adhering to the regular process through the Company's competent bodies, especially that SGBL is in no position nor has a legal capacity to sign any bilateral document in respect of the proposed transaction, not least given (i) our fiduciary duty towards the Company's 331 shareholders and (ii) that we find this request inconsistent with the applicable rules of law. 2- The Company’s GA should be called to meet (extraordinarily) the soonest possible to consider the proposed transaction; 3- Ratification of the proposed transaction by the GA should be subject to the Board seeking a non- conflicted expert valuation (in real Dollars) within a reasonable timeframe; 4- Ratification of the proposed transaction by the GA should be subject to the sale price accounting for the illiquidity and capital controls premia should payment be envisaged in locally restricted Dollars; 5- Ratification of the proposed transaction by the GA should be subject to the undertaking by the Offeror that it will compensate the Company for any difference between an acceptable best price (the "Best Price") and the risk-adjusted fair valuation-based price (the "Fair Price") should the latter exceed the former by at least 1.1 times; 6- Alternatively to points (4) and/or (5) above, ratification of the proposed transaction by the GA should be subject to adding a warrants clause in the definitive agreement in favor of the Company, exercisable to compensate the Company in-kind (i.e., shares in the C2 fund) for any difference between the Best Price and the Fair Price; 7- Ratification of the proposed transaction by the GA should be subject to the Vice Chairman, on behalf of the Board of the Company seeking (without delay) the non-objection stance or approval of BDL, as the case may be, by providing the full specifics of the proposed transaction, in any case no later than immediately after GA ratification of the proposed transaction; 8- Ratification subject to (a) obtaining an undertaking by the Offeror that it will, subsequently to the consummation of the proposed transaction, acquire any residual holdings of the Company within a pre- agreed period of time and at a price that will be determined by the outcome of the independent valuation (taking into account points (4) and (5) above), and (b) adding a warrants clause in the definitive agreement to provide security against the Offeror's failure to comply with the terms of the undertaking.”
“… so basically I knew that related-party transactions always have to go to a general assembly meeting. So that’s basically what I was saying, I was saying we all accept there should be -- there should be basically the legal process through the board and then through the general assembly for this transaction because in the offer itself we say it’s a related party.”
“first of all, that fairness opinion seemed to be hollow. I mean, it lacked the basic components of a professional fairness opinion. It had no analytical support and no reference to a fair valuation. It did not opine on the transaction structure, it did not opine on the efficiency and I think -- I think it was not adequate at all. It did not meet the professional standards of a fairness opinion. Plus, we viewed, my Lord, BSEC as conflicted because they were assuming both capacities, or our understanding was that they were assuming the capacity of the placement agent at the same time.”
“Sir Could you kindly mark my homework (out of 20)”
“1. The fund is incurring huge losses due to the default of the banks on the capital calls – paying in LBP or L$ is the same as defaulting 2. The insolvency of the banks is clear and BdL/Lebanon have other priorities for their fresh dollars than financing VCs through Circular-331 3. The banks are completely unresponsive and do not care about the fund because they know losses are entirely supported by the BDL, not them. 4. Given this situation, our group has worked for the past 6 months to limit the losses of CMH by (i) pooling private investors for an offer to buy investments of CMH at a fair price which allows the reimbursement at +/- par of materially all the banks contributions and (ii) committing new investors to take over the defaulted commitments of the banks in fresh dollars and therefore continue funding the startups as per the objective of C311 5. Bemo securities SAL conducted due diligence and issued a fairness opinion on the offer as an independent expert. 6. In spite of that the banks, especially SGBL, are still trying to derail and delay the transaction under false pretexts which are harmful to the fund, its shareholders and its startups. 7. We have additionally agreed to have a second independent expert look at the fairness of the transaction and, should there be a difference in favour of the Fund with the first opinion, to pay the difference. 8. In spite of all our goodwill to limit the losses resulting from their own default, the Banks (especially, SGBL) are still stalling in violation of their duty of care to the Fund, to BDL and to the objective of C-331 which is ultimately to support the startups, not deprive them of funding. 9. The board of the fund decided to approve the offer and we are asking your Excellency to support the board’s position so the majority of the banks commit formally to ratify the transaction in the next upcoming general assembly.”
“I chose not to disclose to Jimmy or Georges that the transfer of Cedar Mundi’s portfolio to IFAC had already happened because I did not want to introduce a potential bone of contention between the Investors during a complicated time for the fund, and when the continued goodwill of all Investors was necessary to find a solution for Cedar Mundi’s problems.”
“I considered it important to have everything recapped, with a very detailed timeline, not least of all to be able to show the other C-331 Shareholders and the BdL that SGBL was acting professionally, ethically and in their best interests. The minutes from the board meeting on16 March 2021 had been inadequate and completely irregular, allowing Mr Attieh and Mrs Al Qatami to act in their sole discretion. I wanted to ensure that all of the necessary information was included, and that all of the necessary requirements were met for the Proposed Transaction and all other related matters to be duly submitted to the General Assembly for ratification including inter alia the authorisation granted in accordance with the provisions of Article 158 LCC.”
“Q. -- you must have understood the intention and outcome of the13 April 2021 meeting to mean that there did indeed now need to be a general assembly meeting to deal with the matters set out in the agenda; yes? A. Yes, that was the agreement, yes.”
“I told [Mr Najjar] it’s very long basically to actually have a formal general assembly meeting and we are time-sensitive -- under time pressure because of the mounting losses and the raising of Cedar II. So Nadi basically answered me that he actually spoke to Farid Dahdah and Jimmy and they all agreed that all the decisions will be made at the board and there is no need basically to wait for a general assembly meeting.”
“basically my understanding, based basically on the discussion that I had with Nadi, who relayed basically what he discussed with Jimmy and Dahdah, is that this general assembly that we were calling forward was just for the pure form because SGBL was already liaising to get the approval of all the Circular 331 shareholders on the conditions on which basically that board has resolved to enter into the transaction.”
“After a long weekend of onerous drafting and negotiations” with Mr Attieh, SGBL believed that they were “nearing a workable understanding with the majority Board members of the Company in anticipation of a scheduled Board meeting for13 April 2021 .” and that Mr Attieh had agreed that SGBL (on behalf of Cedar Mundi) would appoint an independent expert to produce a report in respect of the proposed 2021 Transaction “based on a scope of work that would be agreed upon between SGBL (on behalf of the 331 shareholders) and the independent expert”
“The Board of Directors hereby acknowledges Mr. Georges Saghbini’s resignation from office as member of the Board of Directors as of23 March 2021 pursuant to his letter addressed to the Company’s Chairman on the same day, and therefore decides to duly inform all relevant bodies and authorities of such resignation.”
“The Board of Directors hereby confirms that no Notice of Default has been served by the Company on the Company’s shareholders as of the day of this meeting. The Board further acknowledges receipt of the letter dated March 15th, 2021 received by the Company from Med Al Bahar International (Ltd). and whilst preserving the rights and interests of the Company. it resolves to withhold any position by the Company in relation thereto. SGBL informed the Board that it has already replied in writing to the aforesaid Notice of Default and stated that (i) neither SGBL nor the other 331 shareholders were in default under the PPM and (ii) Med Al Bahar International (Ltd.) had no capacity whatsoever to send such a notice to the Company's shareholders irrespective of the legality and/or merits thereof.”
“The Board of Directors hereby empowers the Chairwoman and/or the Vice Chairman to enter into the Definitive Agreement with Cedar II Fund LP (Cayman Islands) and to do all preparatory actions in connection therewith, on certain terms set out in the Heads of Terms with the express requirement and subject to the inclusion in the Definitive Agreement of the key terms and clauses enumerated in the Third and Fourth Resolutions hereabove.”
“The Board of Directors reiterates its decision to provide the Central Bank of Lebanon with the full specifics of the Proposed Transaction timely in accordance with the provisions of Article 20 of the Company’s bylaws and the applicable regulatory requirements.”
“The Board of Directors resolves to invite the General Assembly to be held extraordinarily at a.m. on 2021 by video-conference to deliberate on the following agenda: 1 Taking note of, deliberating on and ratifying the Proposed Transaction and the Third, Fourth and Sixth Resolutions passed by the Board of Directors during its meeting held on April 13th, 2021. 2 Ratifying the authorization granted by the Board of Directors to enter into the Proposed Transaction and the Definitive Agreement in accordance with the provisions of article 158 of the Code of commerce, 3 Other matters.”
“I am pleased to advise that after several weeks of strenuous and onerous negotiations/drafting, we have managed to reach a workable understanding (the Understanding ) with the majority members of the Board of Directors (the Board) of Cedar Mundi Holding SAL (the Company ) consistent with the consensus reached by the majority of the 331 shareholders of the Company.”
“On the true construction of the minutes of the board meeting on13 April 2021 , was the board’s authorisation of the 2021 Transaction conditional upon subsequent general assembly ratification?”
“Article 366: In legal acts, the judge shall ascertain the true … mutual intent of all contracting parties (in the case of a contract), and shall not be bound by the literal meaning of the wording of the text. Article 367: Where a provision admits of two interpretations, the one most consonant with the spirit of the contract and its intended purpose shall prevail. In all cases, the meaning that gives effect to the text shall be preferred over one that leaves it without effect. Article 368: The clauses of a single agreement shall be harmonised and interpreted together, having regard to the agreement as a whole.”
“259. Primacy of the common intention of the parties. Pursuant to Article 366 CoC, the judge must determine the true intent of the contracting parties rather than merely relying on the express wording of the contract’s text. However, when doing so, the judge cannot give a meaning to clear provisions of a contract that contradicts their plain wording, because doing so constitutes a distortion of the text (denaturation) that may lead to the annulment of his judgment by a higher court. 260. Primacy of the spirit of the contract. If a provision of a contract can be interpreted in two manners, Article 367 CoC provides that the interpretation that is the closest to the spirit and the purpose of the contract must be adopted; and in all events, the sense that gives the provision legal effect must prevail over the one that renders it ineffective. 261. Harmonization of the contractual clauses. Article 368 CoC provides that the clauses of the same contract must be coordinated and interpreted in relation to each other, in light of the contract as a whole. Mr M. El Auji notes that when faced with an ambiguous clause or with provisions that are contradictory or inconsistent with each other, the judge must interpret the contract based on its overall content and in light of what the parties intended to achieve through it.”
“Q. So does this mean, just to be clear, that in interpreting a contract, the court can properly look not only at the contract itself but the surrounding communications of the parties? A. To -- in order to understand the real intent of the party. Q. Right. So is it right the court can take into account the conduct and actions of the parties, both before and after the contract has been concluded, as you say, as an aid to interpreting their true intent? A. Yes.”
“[t]he meeting was presided by Mrs. Wafa Al Qatami who mentioned that the Board was invited to deliberate on the following agenda: … 2) Discussing the letter dated March 15th, 2021 sent by Med Al Bahar International (Ltd) to SGBL and the other 331 shareholders. 3) Discussing the emails dated March 9th, 16th, 23rd and 30th, 2021, addressed by SGBL to the Board of Directors in relation to the “Proposed Transaction” as contemplated in the Heads of Terms submitted by Kuwait Holding Company K.S.C.C. (“KH”) for and on behalf of Cedar II Fund LP (Grand Cayman) (“C2”) and approved by the Board of Directors during its meeting held on16 March 2021 in the absence of SGBL and the resigning Board member, Mr Georges Saghbini. 4) Discussing and approving the appointment of an independent expert by SGBL (on behalf of the Company) from among qualified international firms to produce a report in respect of the Proposed Transaction in accordance with international standards. 5) Reviewing and discussing certain key terms to be provided for in the Definitive Agreement with Cedar II Fund LP (Cayman Islands) in connection with the Proposed Transaction. 6) Empowering the Chairwoman and/or the Vice Chairman to negotiate and enter into the Definitive Agreement on behalf of the Company in accordance with the present minutes of the meeting. 7) Providing the Central Bank of Lebanon with the full specifics of the Proposed Transaction in accordance with Article 20 of the Company’s Bylaws and the applicable regulatory requirements. 8) Convening the Company’s Ordinary General Assembly to meet extraordinarily to take note of, deliberate on and ratify the Proposed Transaction and, accordingly, the Third, Fourth and Sixth resolutions passed during the present Board meeting, as well as setting its agenda. After discussion and deliberation, the Board of Directors resolved the following:”
“After hearing the Vice Chairman on the pressing issues facing the Company in light of the current economic turmoil in Lebanon, the Board of Directors hereby decides to include in the contemplated Definitive Agreement to be entered into with Cedar II Fund LP (Cayman Islands) (the “Definitive Agreement”), the following key terms:”
“Furthermore, the Board of Directors hereby resolves that: A. Immediately upon and subject to ratification by the Company’s General Assembly of the Proposed Transaction and the Third, Fourth and Sixth resolutions passed by the Board of Directors during this meeting, (i) the Board shall be deemed to have waive any and all claims whatsoever towards the 331 shareholders in respect of any called and/or uncalled capital by the Company, and (ii) the Company’s shareholders shall be irrevocably deemed as fully and finally released from any and all obligations in respect of such called and/or uncalled capital…”
“The Board of Directors reiterates its decision to provide the Central Bank of Lebanon with the full specifics of the Proposed Transaction timely in accordance with the provisions of Article 20 of the Company’s Bylaws and the applicable regulatory requirements.”
“The Board of Directors resolves to invite the General Assembly to be held extraordinarily at a.m. on 2021 by video-conference to deliberate on the following agenda: 1 Taking note of, deliberating on and ratifying the Proposed Transaction and the Third, Fourth and Sixth Resolutions passed by the Board of Directors during its meeting held on April 13th, 2021. 2 Ratifying the authorization granted by the Board of Directors to enter into the Proposed Transaction and the Definitive Agreement in accordance with the provisions of article 158 of the Code of commerce, 3 Other matters.”
“Q. … do you accept that if … there’s an actual general assembly, it takes place, and at the general assembly it’s resolved the proposed transaction will not be entered into. A. Yes. Q. Do you accept that’s an outcome that can happen at the general assembly? A. Yes, of course, as a matter of logic.”
“to deliberate on the following agenda … 2. Ratifying the authorization granted by the Board of Directors to enter into the Proposed Transaction and the Definitive Agreement in accordance with the provisions of article 158 of the Code of commerce.”
“In Attorney General of Belize v Belize Telecom Ltd[2009] 1 WLR 1988 , para 36 Lord Hoffmann himself said of an earlier decision of the Court of Appeal discussing a company’s articles of association: “Because the articles are required to be registered, addressed to anyone who wishes to inspect them, the admissible background for the purposes of construction must be limited to what any reader would reasonably be supposed to know. It cannot include extrinsic facts which were known only to some of the people involved in the formation of the company.”
“RULE 2—(1) Where a party relies on foreign law, that law must be pleaded and proved as a fact to the satisfaction of the court by evidence or sometimes by other means. (2) In a case involving a foreign element in which foreign law is not pleaded, the court will apply English law. (3) Where foreign law is recognised to be applicable, but there is no evidence, or insufficient evidence, of the content of the foreign law, it will in general be presumed to be the same as English law.”
“3–026 The presumption of similarity. In Brownlie v FS Cairo (Nile Plaza) LLC Lord Leggatt said that the presumption of similarity was justified by a combination of four factors: first, there were often similarities between the laws of different countries, especially in the case of common law countries; second, unless there would be a real likelihood that any differences between the applicable foreign law and English law on a particular issue may lead to a different outcome, there is no good reason to put a party to the trouble and expense of adducing evidence of foreign law; third, the presumption of similarity does not itself determine any legal issue, and only operates unless and until evidence of foreign law is adduced; fourth, the presumption does not alter the legal burden of proof, but merely places the burden of adducing evidence on a party who wishes to displace it. But the presumption of similarity applies only where it is a fair and reasonable assumption to make in the particular case. The question is one of fact: in the circumstances is it reasonable to expect that the applicable foreign law is likely to be materially similar to English law on the matter in issue (meaning that any difference between the two systems are unlikely to lead to a different substantive outcome)?”
“When a judge interprets a contract under Lebanese law, he must look for the common intention of the parties beyond the mere text of the contract, but without distorting ( dénaturer) such text”
“Q. So does this mean, just to be clear, that in interpreting a contract the court can properly look not only at the contract itself but the surrounding communications of the parties? A. To -- in order to understand the real intent of the party. Q. Right. So is it right the court can take into account the conduct and actions of the parties, both before and after the contract has been concluded, as you say, as an aid to interpreting their true intent? A. Yes.”
“Q. … it was always going to be the case that the banks would participate in the actual formation of the – what’s called the definitive agreement? A. Absolutely not. Q. And this was going to be part of that process? A. Absolutely not. Q. So why did you send them a draft SPA at all in that case, Mr Attieh? A. Because basically I sent them an SPA because it was collaborative -- we actually were working together, we reached an agreement at the board and basically that was part of the package of documentation we were actually discussing with them.”
“Purpose: IFAC is an SPV the purposes of which are i) safeguard the value of the portfolio by providing unrestricted $ funding to investee companies which would otherwise face bankruptcy and total loss and ii) to avail such critical funding to investees from med Al Bahar on the condition that such funding is kept outside the Lebanese banking system. Ownership: 100% beneficially owned by CMH with voting rights held by MABCO to be able to operate the bank account held at NBK (Switzerland). Compliance at foreign banks do not accept as controlling persons Lebanese Banks given reputational/country risks and OFAC listing of JTB. Date of transfer: transfers of investees in April-May 2021 when the scale and severity of the Lebanese monetary crisis became clear. We will provide you with the exact dates of transfer of each company separately.”
“Proximie raised funding of$ 38 M with UK/US at a pre-money valuation of$90M . On a fully diluted basis, CMH’s ownership is down to 16.5% of Proximie as CMH could not follow-on. As Proximie was busy closing this round, it could not provide updates regarding budget, financial projects etc… in the time for the Q1 21 reporting”
“Regarding Proximie’s Series B, the round raised funding of$ 38 M with UK/US VCs at a pre-money valuation of$90M . We are all very proud of this achievement !”
“Even though this round just closed, its indicative terms were fully disclosed during the Offeror’s due diligence and its Offer was therefore made accordingly. Additionally, the same was disclosed to BEMO Securities SAL for the purpose of issuing their Fairness Opinion on the Transaction. Nonetheless, for additional assurance and based on SGBL’s request, the board of Cedar Mundi (Holding) SAL has further obtained the Offeror’s commitment to a comprehensive post-closing adjustment mechanism which, based on independent expertise, shall take into account not only Proximie but also any and all factors relevant to the fair pricing of the Transaction.”
“Proximie was understood to be the most valuable asset in Cedar Mundi’s portfolio, and this information was hard data confirming that Proximie was much more valuable than anyone had realised. In our view, simply relying on a post-closing adjustment was no longer sufficient; this revelation triggered real scepticism on SGBL’s part as to the proposed bid price.”
“I had nonetheless instructed BSEC to take into account the indicative terms of Proximie’s funding round in producing their fairness opinion. This is despite the fact that there had been a recent secondary transaction on Proximie”
“The process that was initially used by CMH, i.e. to proceed with the general assembly without providing full view to the shareholders nor to the BDL, was very badly perceived by the BDL according to Mr Skaff, and he highlighted several times the “damage” done by such actions at the level of the BDL: they perceived this as a tentative of “assets flight”… However according to Mr Skaff this is now in the past given that this General Assembly didn’t take place, and that there is a chance now to proceed with a more proper process and reach a closing in the best interest of all the stakeholders including the banks, the portfolio startups, the buyer … BSEC opinion is that (i) a calm discussion with the above mentioned banks, (ii) a fully transparent approach with the BDL especially in relation to the potential conflict of interest related to MABIL and Bassel Attieh (a related party to MABIL) and elaborate as much as possible on the purpose of the transaction which is the survival of the portfolio rather than an asset flight transaction, (iii) refraining from using a confrontational approach with the banks or the BDL.”
“1- Preserving the regular status of the 311 shareholders, as non-defaulting parties in [Cedar Mundi]; this ultimately preserves – indirectly – BDL’s interests as well; 2- Subjecting any irregular resolutions taken by the previous Board meeting held on March 16th, 2021 in the absence of SGBL and Mr Georges Saghbini to supplemental terms aimed at restoring the integrity of the due process, as relating to any proposed transaction by [Mr Attieh]…; 3- Addressing the pressing issues (as expressed by [Mr Attieh]) facing [Cedar Mundi] in light of the current economic turmoil in Lebanon and the implications as to the going concern of [Cedar Mundi]; 4- Reinforcing the 331 shareholders’ and BDL’s interests and rights by imposing objective, binding and independent mechanisms to (i) protect the value of the investments made by [Cedar Mundi] and (ii) optimize the value of any consideration that may be paid by a willing buyer …”
“Q. Right. So Mr Khoury, reading this, and receiving those documents, would have no idea that the trust undertaking had been executed only a few weeks before these instructions had been backdated, would he? A. No.”
“If a Regulated Agreement was entered into based on the authorization granted by the Board of Directors and later not ratified by the General Assembly, it shall continue to be in force towards concerned third parties. While in the French Code of Commerce, it is clearly stated that the prejudicial consequences for the company of non approved agreements may be charged to the interested party and, potentially, to the other members of the board of directors, nothing similar has been stipulated in the Lebanese Code of Commerce. Still, it is likely that the courts of justice will retain a similar solution when they will have to rule on such a problem upon its occurrence.”
“Thank you for your clear advice which is well received. I have taken the liberty to express your opinion in “less technical” language with the purpose of being more intelligible to board members (who may not be fully conversant legally). Do you mind if we jump on a quick call to finalize the attached file? Let me know. This is a priority.”
“More importantly, I noticed that in the GA of Loolia dated06/10/2020 , Cedar Mundi Holding is not anymore a shareholder. Instead, IFA Capital holds the 63,992 shares that previously belonged to CMH. I do not have any SPA or info about this exit. Moreover, the books of CMH are not correct at the end of year 2020 and till today. you are therefore kindly requested to send me all documents related to this exit as soon as possible. Having discovered this by accident makes me wonder if there are any other transactions that I have not been informed of in a timely manner.”
“[A]s mentioned, CMH ran out of “non-restricted/transferable” funds to finance its portfolio of startups following the Lebanese crisis which started in 2019. In the interest of safeguarding the value of CMH portfolio, MABIL agreed to extend emergency funding to avoid the bankruptcy of CMH investments on the condition that such transfer go to non-Lebanese banks. Therefore, CMH set up in Q1 2020 IFA Capital Ltd BVI, a special purpose vehicle (“SPV”) which is 100% beneficially owned by CMH and to which startups were transferred under the “permitted transfers” clause of their shareholders agreements. This SPV could then receive fresh $ transfers from MABIL into its foreign bank account and transferred it to bank accounts of startups in need of critical funding.”
“fully supported the board’s initiative to seek a workable solution to safeguard shareholders value by way of an orderly and managed secondary disposal of the Company’s investments at the best achievable price. Six-months on, and in-spite of a very volatile situation and somewhat malevolent hurdles, the board can be commended for having successfully executed this initiative to the highest standards of diligence and due process. Most importantly, it has enabled the Company’s Lebanese tech start-ups to seek and access the fresh growth capital they need to survive and thrive.”
“ascertain and confirm that none of the shareholder banks had defaulted on any of its obligations towards the Company, particularly in connection with the 3rd capital call, as they have all fulfilled their aforesaid payment obligations in accordance with BDL’s written approval dated13 December 2019 ; cancel the First Resolution of the Board of Directors held on6 September 2021 as deem it null and void particularly that (i) it is legally baseless and (ii) it merely served a pressure mean by the former executive management to incite the shareholder banks to accept the Proposed Transaction at the level of the General Assembly.”
“ascertain and confirm that the Proposed Transaction has been unilaterally executed by the former Vice Chairman, Mr Bassel Attieh, acting as the Deputy General Manager under the supervision and responsibility of the former Chairwoman of the company, Mrs Wafa Al-Qatami, and flagrantly concealed from the bank shareholders; ascertain and confirm that the unlawful and irregular transfer of the Company’s assets constitutes a material breach by the former Chairwoman and Vice Chairman of the resolutions of the Board meetings dated 16 March and13 April 2021 , the two letters of H.E. the Governor dated28 April 2021 and11 May 2021 , the letter of the bank shareholders addressed to the former Vice Chairman on23 July 2021 , BDL’s letter dated31 August 2021 , the provisions of Article 158 of the Code of Commerce and Article 20 of the Company’s bylaws, as well as further applicable laws and regulations.”
“My Lord, our opinion at that time, that this transaction was a fraud, from IFAC to the disposal of the assets, especially when we came off -- when the Proximie fundraising came to our attention and this is where we-- as LPs, we believe that we have to take back the -- I mean, to regain possession of the assets.”
“I want to start by thank you for the great effort and achievement by closing Cedar I and starting Cedar 2 while continuing developing your portfolio companies I am happy to give you 1,643m bonus and wish you all the success in Cedar 2 and the future funds.”
“You have been awarded a bonus of USD 1’634’000. (US Dollars one million six hundred thirty-four thousand only) for your contribution in relation to setting up Cedar Mundi (Holding) SAL and subsequently serving on its board and investment committee for the period Jan 2015 to Dec 2020 in Lebanon.”
“It is as well to emphasise that a Judge is never bound by expert evidence (even, though that does not arise here, undisputed expert evidence). While a Judge must have a reasoned or rational basis for a decision – on issues of quantum as on other issues – the Judge is in no way confined to the figures contended for by the experts. This is manifestly so in a typical valuation case where the figure arrived at by the Judge may well lie somewhere in between those advanced by the rival experts. Moreover, having regard to the true nature of quantum disputes and their history as jury questions, a Judge will sometimes find himself needing to do the best he can: see, for example, Dennard v Pricewaterhouse Coopers[2010] EWHC 812 (Ch) , at [182]. In her skeleton argument, Ms Carr summarised the task of the Judge in such circumstances as follows: “The exercise required is not about the Court reaching an immaculate or absolute value, but about reaching the most likely figure on the basis of the evidence it has heard. That evidence may well not be perfect, indeed it is unlikely ever to be so.”
“[T]he court must do its best on the material before it. … I do not, with respect, think that it [the comment of Devlin J in Biggin & Co] can be taken as justifying the court in rejecting the claim altogether if the claimant has failed to adduce the best evidence reasonably obtainable. … The assessment of damages is essentially a jury question. The court’s task is to make whatever findings it can on the evidence before it…”
“1. Was the BdL Document produced by the Banque du Liban? I have enquired with the officials at BdL who are in charge of producing various reports and confirm that, to our knowledge, the Document is not part of any report (or even drafts) produced by BdL. In fact, the Document purports to analyze the treatment of various types of deposits with the Lebanese commercial banks, including accrued interest. To date, BdL has not produced or published any final report regarding BdL’s views on the treatment of such deposits and the figures in the Document do not correspond to any figures or categories either previously or currently under discussion by BdL. 2. If so, by whom, when and for what purpose was it produced? Please see response to question one above. 3. Please explain what is being described in Section B of the BdL Document (“Non-Eligible to Eligible deposits”); in particular, please explain what is being referred to or described by the years and respective percentages set out in this section and whether the discount set out relate to the multiplier for transactions between Lollars and fresh funds as described above. The Document purports to describe the treatment of non-eligible deposits in Lebanese commercial banks into eligible deposits, payable with a discount and over time, as part of a restructuring proposal for deposits maintained at Lebanese banks prior to November 2019. As stated above, to our knowledge, the Document has not been produced by BdL and does not reflect BdL’s position on this subject matter. In any event, the ratio of non-Eligible to Eligible deposits, if and when agreed, does not in any way reflect the rates of conversion of local US Dollars in Lebanese banks (i.e. US dollars sitting to the credit of accounts in Lebanese banks prior to November 2019 (“Lollars”)) to “fresh”
“…investments in private equity funds are relatively illiquid, and this illiquidity can be a substantial cost of investing in private equity. The market response to the illiquidity of private equity investments was to form a secondary market in which investors can trade those stakes.”
“While there continues to be an enormous amount of dry powder in the global VC market, many investors will likely sit on the fence until the ramifications of the pandemic become clearer.” (2) Setter Capital’s 2020 report reported that “[a]s a result of the Covid-19 pandemic, FY 2020 volume decreased 27.7% compared to FY 2019” and “[l]ooking forward, buyers expect FY 2021 volume to rebound to$89.84 billion ”
“Highlights From the First Half ▪ Global secondary volume was$48 billion , setting a first-half record. GP-led transactions accounted for 60% of volume, solidifying a new “normal” of consistent prominence ▪ Average pricing for all strategies was 90% of NAV in LP secondary transactions, marking a pivotal rebound after three consecutive annual declines ▪ Private equity sponsors continue to identify “trophy” assets for GP-led opportunities; single-asset continuation fund transactions represented 45% of total GP-led volume ▪ Near-term available capital stands at a record$231 billion , but aggressive capital deployment drove the capital overhang multiple down to 2.6x from 3.1x at the end of 2020 ▪ After LPs sat on the secondary sideline for most of 2020, they have returned to the market in earnest in 2021; traditional LP sales were$19 billion in 1H 2021, representing a 58% increase from 1H 2020”
“… Our fund has invested in over$25M in high-growth technology companies which have performed quite well, are mature and are materially decorrelated from Lebanese country risk.”
“These exceptional returns are driven by (i) the purchase of the banks interest in Lebanese dollars which means a deep discount … by the maturity of the portfolio (4+ years) where several investments are close to$100M + valuations.”
“Q. Now, all of those things might well be relevant to whether the existence of US sanctions would actually have an impact on the liquidity of the transaction. That’s right, isn’t it? A. I couldn’t say”. (5) I consider that there is force in the Claimant’s submission that the effect of the Defendants withholding these documents from Mr Worsnip was that, whilst suggesting arguments to him with which to support the valuation for the 2021 Transaction, they were blindfolding Mr Worsnip as to the true scope of the issues. When this was put to Mr Worsnip, he did not really have any answer (Day 14 page 173 lines 17 to 23): “Q. You're effectively being asked to give an opinion blindfolded because you're not being given any of the documents relating to the sanctions issue, aren't you? A. I'm asked to be -- to consider what the impact on liquidity would be if this business was -- if this entity was sanctioned and I have the -- I've been given the understanding that it was sanctioned.”
“There are three broad approaches to dealing with country risk. The first and simplest is to base the country risk assessment on where the company is incorporated. Thus, all Brazilian companies are assumed to be exposed to only Brazilian country risk and US companies to US country risk. The second and more sensible (in my view) approach is to base the country risk exposure on where a company operates rather than where it is incorporated. The third approach requires us to estimate a relative measure of company exposure to company risk, akin to a beta, that we will term lambda.”
“Q. You have no basis for saying that 46% of Proximie’s workforce was in Lebanon as at the date of the SPA, do you? A. I have no basis for understanding how that proportion would have changed over the subsequent 12 months, that’s correct. Q. And you have no basis for saying that 46% of the Proximie workforce was in Lebanon as at the date that the consideration of the SPA was the adjusted, do you? A. Again, I have no basis for -- to say how that split in workforce would have evolved over that period of time.”
“Q. You’re recorded [in the Valuation Joint Memo] as saying that: ‘... it is likely that part of the country risk premium associated with the financial crisis in Lebanon is reflected in the NAV but not all.’ Do you see that? A. I see that. Q. That’s the basis on which you say there has to be a separate and further discount for country risk; yes? A. Yes. Q. There’s no evidence at all, is there, that Proximie has suffered in any way by reason of the Lebanese financial crisis? That’s right, isn’t it? A. I see no evidence of disruption to the company, no.”
“The healthtech sector is extremely hot and Proximie is deployed on 300 sites today (hospitals, universities…) with 60% in the US and the balance in UK/Europe.”
“Over the last twelve months, Proximie has grown exponentially, especially, in the US, and we are enormously excited to continue our development so we can democratise access to the best possible healthcare worldwide.”
“[MR PEARSON]. … All I’m saying is that Mr Ahmad doesn’t appear to have been an ordinary seller, in the sense that it appears that there were wider discussions around his exit from the group. Q. Well, I mean, the only solid fact we actually have in relation to this is that there was a secondary sale and it attracted a 72% discount? A. Yes. Q. The rest is just speculation, isn’t it? … A. Yes, that [is] correct.”
“Q. … it’s not clear when Mr Ahmad’s litigation with Proximie settled and whether that secondary transaction was part of a wider settlement? A. No, it’s not clear. Q. You just don’t know, do you? A. No.”
“Q. …the value of the earlier transaction may well have been driven by the particular dispute between Mr Ahmad and Proximie. That’s right, isn’t it? A. I really can’t comment. I can’t exclude that possibility, that’s true, but equally I don’t think we know enough about the nature of that dispute. It’s certainly not unusual for founders to fall out with one another and to have litigation on all sorts of different issues. It may well be that he simply had an amount that he had lent to the company at some point, that he required to be repaid to him. Q. Well, there may be all sorts of other factors driving the terms on which Mr Ahmad sold his shares. So, for example, the dispute on his director’s loan account and his IP claims, intellectual property claims, and the terms of any settlement. Those may all be factors driving the discount that we see as against Proximie for this secondary sale. That’s right, isn’t it? A. They are all related to his employment obligations and his position within the company. This concerns a disposal to a third party, this transaction, so there may be some relevance. It may be completely irrelevant. We just don’t know.”
“Q. Now, let’s look at what you say about country risk as regards White Lab. This is your report, table 18. You accept -- well, say there are no employees in Lebanon. Is that right? A. Yes, that’s what I say. Q. There are no known operating costs in Lebanon. Is that right? A. Yes. Q. There are no known operations in Lebanon, are there? We’ve seen it’s not even a target market? A. No. Q. Mr Pearson has identified that all trading activities were actually being done in London. Can I just show you that. That’s Mr Pearson’s third report. Can I ask you just to read paragraphs 4.58 and 4.59. Can you see that? (Pause) A. Thank you. Q. You have no reason to disagree with what Mr Pearson says there, have you? A. I don’t, no.”
“Our fund has so far invested over$25M in high-growth technology companies which have performed quite well, are mature and are materially decorrelated from Lebanese country risk. Indeed, the fund’s portfolio is made up of businesses which operations, revenues and domiciliation are essentially outside of Lebanon (mainly UK, US and the Gulf).”
“Cedar Mundi could have stopped actively investing and entered the divestment period where it would have held its then existing portfolio assets until a divestment opportunity presented itself. This is the approach that other 331 funds with which SGBL has been involved took following the onset of the Lebanese financial crisis.”
“Q. … if the court were to accept the last two sentences of this paragraph of Mr El Azar’s evidence, it would be wrong then to characterise this as a distressed sale because it was open to SGBL and the other C-331 shareholders simply to hold on to what they had without investing more? A. Well, I mean, I don’t believe it was open to SGBL to not follow through with its commitments to Cedar Mundi. Q. That’s not my question. MR JUSTICE BRYAN: That’s a factual question, I think. MR DAY: Yes. Assume this evidence is correct -- you’re not in a position to make findings of fact yourself. I’m just asking you to assume that this evidence is correct. It’s right, in those circumstances, isn’t it, that this wouldn’t be a distressed sale because Cedar Mundi and the C-331 shareholders could simply hold on to what they had without investing more? A. Well, the circumstances of the financial crisis in Lebanon had put all of those banks in a situation where they were starved of US dollars, fresh US dollars, which is really what Cedar Mundi and the portfolio companies needed, and if -- and I accept that this is a matter of fact but if they were unable, because of that situation, to follow through with their commitments, then I would say that that is evidence of distress and indeed it is the consequence of distress that they fail to meet their obligations as they fall due. So that is evidence of distress. Q. Well, we’ve looked at the International Valuation Standards and we’ve looked at IFRS 13 and you agreed with the principle that distress is relevant to valuation because it means a weakened negotiating position of the seller. So let me just put the question one final time and I want you to focus on the opinion in terms of valuation, not the underlying facts, which isn’t for you. If the court accepts this evidence, it would be wrong to characterise this as a distressed sale because it was open to the C-331 shareholders simply to hold on to what they had without investing more. That’s right, isn’t it? A. If it was -- if it was open to the 331 shareholders not to meet their obligations, then they wouldn’t have been in -- then that disposal of 331 shares and then the disposal of the portfolio wouldn’t have been distressed, if that’s correct.”
“Q. … With this clarification as to 123 of Mr Attieh’s first witness statement, the position is not that Cedar Mundi was not able to meet its obligations as they fell due, but that it wasn’t able to deploy further capital in respect of its portfolio interests. That’s right, isn’t it? A. That’s right. Q. We can agree, can’t we, that an inability to make further investments, new investments, is not the same as an urgent liquidity shortfall? A. That’s right, but that doesn’t necessarily mean that the business is not distressed. Q. Well, a fund may not be able to make follow-on investment for all sorts of reasons. It may just simply be beyond its investment period, but that doesn’t necessarily mean that the fund is distressed, does it? A. It means that it’s not operating as it intends to operate and therefore this sort of concept of going concern, if it is being restricted in some way through that, then that is certainly stress, if not distress. Q. Just focus on the question I asked you. A fund may not be able to make follow-on investments for all sorts of reasons. It may simply just be beyond its investment period. That doesn’t necessarily mean the fund is distressed, does it; yes or no? A. That doesn’t mean it’s distressed, no. Q. It doesn’t mean that it’s cash flow insolvent by itself? A. Not in itself, no.”
“I accept that Cedar Mundi, as I say here, not having as much money as it needs, could have an impact on its operations. Obviously that partly would be dependent on what cash balances it had and I believe in ‘21 it did have several million on its balance sheet. But more significantly, you know, I can see the fund would operate in a non-optimal way, but that doesn’t mean that the fund itself or the company is distressed. […] I understand it did have money on its balance sheet and I haven’t seen anything suggesting it couldn’t meet its obligations as they fell due, as opposed to not being able to partake in fundraising, say, which would be about optimising the value of its portfolio. I think there is a difference between distress and, to use my phrase, you know, operating sub-optimally.”
“A. Measurement In addition to the Management Fees, the Managing Agent shall be entitled to a portion of the Portfolio performance measured at time t as follows; Carry Interest (t) = MAX [0, 20% x (RG(t)] Where - t is the date of measurement of the Carry Interest - RG (t) is the aggregate realized net gain or loss derived from the disposal of investments in the Portfolio from its inception to time t. For the purpose of calculating RG(t), capitalized debt funding costs, if any, shall be excluded. For the purpose of this paragraph, debt funding costs refer to the interest charged on the amounts drawn by the Fund under the Subordinated Credit Facilities.”
“[MR WORSNIP]. I think from a valuer’s perspective, seeing this potential for a valuation uplift, then you would want to take some consideration of it into account. Q. And that’s because, isn’t it, a reasonable seller and buyer would take this into account when negotiating the price for the transaction, the prospect of significant upside on this investment; yes? A. Yes. So as a -- if you’re the -- if you’re acquiring an interest in the fund or the portfolio, on either basis then you want to understand what your potential cash flows are likely to look like. And if you know that this secondary transaction is going to happen, then you would take an uplift in relation to that. Q. So it’s right, isn’t it, that it would either be taken into account as a matter of fair value at the top of the calculation or it might impact the level of the secondary discount that’s applied to the existing fair value, but, one way or the other, you would take this into account, wouldn’t you? A. It would be influential in terms of that, correct. Q. Do we have a particular view as to whether it would be in the fair value stage or the secondary discount stage? A. Well, I would -- if the NAV is kept pure, which I think you ought to for consistency, then I would take it in as part of the discount and not adjust the -- not adjust the NAV.”
“12. So we come to consider what the court’s approach should be when the trial judge has heard expert evidence as to foreign law and made findings which are challenged on appeal. What difference does it make that these are findings of fact but of a ‘peculiar kind’ because they are concerned with issues of foreign law? “13. In our judgment, the answer varies according to the nature of the issue which arises in the particular case and the kind of decision which the trial judge and now the Court of Appeal is called upon to make. Sometimes the foreign law, apart from being in a foreign language, may involve principles and concepts which are unfamiliar to an English lawyer. The English judge’s training and experience in English law, therefore, can only make a limited contribution to his decision on the issue of foreign law. But the foreign law may be written in the English language; and its concepts may not be so different from English law. Then the English judge’s knowledge of the common law and of the rules of statutory construction cannot be left out of account. He is entitled and indeed bound to bring that part of his qualifications to bear on the issue which he has to decide, notwithstanding that it is an issue of foreign law. There is a legal input from him, in addition to the judicial task of assessing the weight of the evidence given. The same applies, in our judgment, in the Court of Appeal. When and to the extent that the issue calls for the exercise of legal judgment, by reference to principles and legal concepts which are familiar to an English lawyer, then the court is as well placed as the trial judge to form its own independent view.” 104. Mr Chapman relied on this qualification to submit that this court is as well placed as the Judge to decide what article 27(d) of CMR meant, because there was no issue between the experts as to the Saudi Arabian principles of construction. We cannot accept this submission. Where the foreign law is in the form of a provision in a code, statute or other written source, the task of the court remains one of determining how the foreign courts would interpret and apply it, based on the evidence of the expert witnesses. Generally speaking the court’s task is not to address how it would itself interpret and apply the provision; the wording of the provision is to be considered only as part of the evidence and as a help to decide between conflicting expert testimony: see A/S Tallinna Laevauhisus v Estonian State Steamship Line (1946) 80 Ll L Rep 99, 107, Lazard Bros & Co v Midland Bank Ltd[1933] AC 289 , 298 and Dallah Real Estate and Tourism Holding Co v Ministry of Religious Affairs of the Government of Pakistan[2009] EWCA Civ 755 ;[2011] 1 AC 763 , para 69. There is a qualification to this general principle, recognised in Macmillan Inc v Bishopsgate Investment Trust (No 4), and applicable to a first instance court as well as on appeal, where the nature of the foreign law issue means that the English Court’s expertise approaches that of any foreign law expert, for example where the foreign law is written in the English language and involves concepts similar to English law and familiar to English judges; or where the foreign courts would be influenced by the English Courts’ decisions on the issue: see King v Brandywine Reinsurance Co (UK) Ltd[2005] EWCA Civ 235 ; [2005] 2 All ER (Comm) 1, para 68. 105. However, there is no scope for applying any such qualification to the general principle in this case. The only authorised texts of CMR and CR are in Arabic and the trial judge had to work from an agreed translation, albeit that in the case of CMR it was one published by the CMA….”
“Whereas, although adopting the interpretation given to a legal text in jurisprudence is not considered a serious error, it is necessary to distinguish between the judge’s right to interpret a text when it is ambiguous, unclear, or incomplete, and the obligation to apply the text correctly when it is clear, without suspending or disregarding its provisions.”
“Q. So that reflects a basic principle of Lebanese law, doesn't it, that where a statutory text is clear, the court must apply it; it can't just disregard a provision? Do you agree with that proposition? A. I agree it reflects the general rule, when a judge should interpret a statute, yes. Q. Okay. A. But this is the main −− this is the main rule. This is a general rule −− Q. Yes. A. −− on what −− on when interpretation is needed. Q. Okay. A. Yes.” a provision? Do you agree with that proposition? A. Yes.”
“Whereas, under Article 671 of the Penal Code, anyone who handles a sum of money or other items entrusted to them for a specific purpose, knowing or having reason to know that they cannot return the same, and who fails to clear their liability despite notice, shall be punished by imprisonment for up to one year and a fine of up to one-quarter of the value of the items, as well as compensation for loss and damage, provided that the fine does not amount to less than fifty thousand Lebanese pounds. Whereas, although it is up to the adjudicating court to interpret a legal text when it is ambiguous, unclear, or incomplete, however when the legal text is clear and explicit, the court must apply it correctly and not suspend its provisions - particularly with regard to penal provisions, which are governed by the principle of no crime and no punishment without a law. Whereas it is established that the text of the aforementioned Article 671 is clear (…)”
“121. The Lebanese Court of Cassation has held that an error in the interpretation of a statutory provision or law arises when either: (i) a clear legal text is construed in a manner that plainly contradicts its literal meaning, or; (ii) where a legal text is construed in a manner inconsistent with the purpose for which the provision was enacted. In other words, the court emphasizes that a judge’s duty is to interpret and apply the law in a way that ensures its effectiveness and fulfils the objectives intended by the legislature.”
“Whereas the violation of the law specified in clause (b) of Article 296 Civil Code is achieved when the Court disregards the legal text, so deviates from it, and adopts an approach that is contrary to the content of legal rule specified in it; whereas the error in the interpretation of the law and in its application occurs in the case of interpreting a clear legal article in a manner that clearly contradicts its linguistic meaning, or interpreting this legal article in a manner that contradicts the principles of interpretation and the general and fundamental legal principles relating to the subject matter regulated by legal rule under consideration, or in a manner that conflicts with the underlying purpose of that legal rule; …”
“When a legal text states the authority of an administrative power, there is no room for interpretation, as the judge does not resort to analogy or interpretation except in the case of ambiguity or lack of texts relating to the authority”
“And it is more than that when interpreting a text by the administrative judge, it is up to him to examine the spirit of the text and to give precedence to this spirit over the literal meaning of what is stated in it, in order to ensure the proper administration of justice, and he therefore has the power to broaden or narrow the scope of application of the text before him.”
“An interpretative technique emerged that focuses on interpretating a legal text according to its own content, without resorting to any attempt to go beyond that text. It considered that the text expresses by itself the intent of the legislator and does not call for the search for any other intent, which could only be presumed; as such intent reflect the interpreter’s own understanding rather than the legislator’s intent.”
“Q. Again, this principle is straightforward , isn’t it ? If the statutory text is clear, there's no need to go beyond it to search for the legislature 's intention? Is that expressing the same principle that you were just referring to? A, Yes, but, again, I think the whole section or passage or paragraph must be read. This is −− this is a textbook… MR WILSON: Just to be clear as to what the principle is, Mr Sakr. So can I summarise it this way: unless the text of a statutory provision is unclear, or there is an identifiable ambiguity, Lebanese courts should apply the words of the statute as written, without resorting to a teleological positive interpretation ? A. Yes, but −− no, no, I did −− you want me to answer? Q. Yes, please. A. So there are two points here that I need to make…. [his first point was that it was a textbook and as such it gave a general view on all interpretive techniques under Lebanese and, indeed, under French law]. My second one is, yes, I agree, the interpretation should take place when a text is −− should not take place −− should not take place when the text is clear, but my proposition is that the last paragraph or the sentence "shall not −− shall be deemed −− shall not be deemed effective" is not clear and requires interpretation. … But what I want to clarify , my Lord, is that the literal meaning can be clear but cannot be clear at the same time. So the literal meaning of the word. So the literal meaning here is "shall not be deemed effective". That's the literal . So what does the word say? But the meaning of the words are not clear, you see? I don't know if this distinction is clear?”
“Could the board of directors authorise the 2021 Transaction without general assembly approval under Article 157 of the LCC or Cedar Mundi’s Articles of Association?”
“The Board of Directors possesses extensive authority to implement resolutions of the General Assembly and undertake all necessary tasks for the regular operation of the company which do not fall within the current affairs. These powers are unrestricted, save for provisions delineated in the Law or in the company's bylaws.”
“Q. So that is the part of the authorities that you say supports your position that large transactions are outside the scope of the board's authority; yes? A. Large or important transactions. Q. When you say "large or important" – A. Yes. Q. -- you take that from the words "substantial borrowings"; yes? A. No, I would even add to that, I underlined substantial borrowings to highlight the fact that it's on the magnitude, but there are also transactions that because of their nature fall outside the competence of the board because they do not relate to the regular operation of the company.”
“40. … Article 157 LCC grants the board authority to carry out the regular operation of the company (save for what Mr Soumrani translates as the “current affairs” but which might be better called ‘day-to-day operations’ which are reserved to the chairman general manager). 41. Thus, when considering whether the board is authorised to do something, the real issue is whether what is being proposed is within the corporate purpose of the company. For instance, Mr A. Najjar gives the example of the sale or purchase of real estate being outside the operations of a company “except in the case of a real estate company”
“Q. Okay, but … [corporate object or purpose is] a different question from the board’s authority or the question of -- the question of the board’s authority is determined by allocation of powers between the various organs of the company; yes? I’m putting to you that’s a separate issue from the overarching question of corporate purpose. Do you understand what I mean? A. Yes, but, again, they’re not totally separate because if you, again, look at the section here, it gives the board of director all necessary -- the power to undertake all necessary tasks for the regular operation of the company.”
“The touchstone of whether a transaction is within the authority of the board cannot simply be whether or not the transaction falls within the company’s corporate purpose, since if the transaction is outside the corporate purpose, the company cannot enter into it at all, and the question of the board’s authority becomes irrelevant.”
“In application of these principles, which are consistent with corporate governance principles that support the specialization and separation of corporate bodies, the board of directors may not encroach on the powers conferred by law upon other bodies of the company… Similarly, a delegation of powers that is excessively broad or unrestricted is not permissible.”
“111. Based on the foregoing, the following conclusions can be drawn: (i) The general assembly is the most powerful corporate body of the joint-stock company. It is entrusted with the major decisions relating to the company such as the amendment of the articles of association, the company’s winding-up, the approval of the company’s financial statements and the allocation of profits. (ii) The board of directors manages the normal functioning of the company. Its general powers essentially include performing all acts required for the normal functioning of the company, excluding current affairs. (iii) The chairman general manager, the general manager and the assistant general manager, as applicable, implement the board's decisions, manage the current affairs of the company and represent it towards third parties. (iv) The vice president, which is a position created by practice, has limited powers that he exercises in the absence of the chairman: these powers consist in the convening of the board of directors, the setting of its agenda and the presiding of its meetings. Such powers do not include executive general management powers. (v) Given the principles of hierarchy and separation of powers that underlie the functioning of joint-stock companies and which are of public order, each corporate body has its own distinct and specific powers (pouvoirs propres) that cannot be delegated to other corporate bodies. Only general powers can be delegated, and in such case, only partially and for a limited period.”
“Q. Let's start with some very general propositions. So, as a matter of corporate structure, I think you would agree that there are three main statutory corporate bodies: the general assembly, the board of directors and the general manager or chairman, yes? A. Yes. Q. Those bodies sit in a hierarchical structure? A. Yes. … Q. So the general assembly sits at the top of the structure and that's the most important corporate body; yes? A. Yes. Q. The general assembly is entrusted with the most important decisions about the company, would you agree with that? A. Yes, with −−if I may −−can make an observation here? Q. Yes. A. It 's not necessarily a hierarchy between the different −−the different bodies that you have. There are separate powers for each of these which are not necessarily in the −−one does not fit into one single hierarchy. Q. I understand. So we have the general assembly and then we have the board of directors and the board of directors is entrusted with the regular operation and management of the company; yes? A. Yes. Q. And then we have the chairman or general manager, or sometimes an assistant general manager, and that function is to deal with what we call the current affairs , which really means the day−to−day management? A. Yes. … Q. Within that hierarchy, it 's a hierarchy because the general manager is subordinate to the board? A. In that sense, yes. Q. Yes, and in the same sort of sense, the board is subordinate to the general assembly? A. Yes. Q. And then I think the point you were making a moment ago is each of the corporate bodies is vested with powers that are distinct from the other bodies, is that correct? A. That is exactly so, yes. Q. So, for example, the board of directors may not encroach upon the powers conferred to, well, either the chairman at one end or the general assembly at the other, yes? A. Correct.”
“Q. Now, there's also a distinction, when we're looking at the general assembly, between an ordinary general assembly and an extraordinary general assembly? A. Correct. Q. There are certain things that only an extraordinary general assembly can do and those things would typically include amending the company's constitution, changing its corporate purpose, dissolving the company or just bringing it to an end, is that all −− A. That's correct”
“The ordinary general assembly is also competent to look into any matter that is under that the company’s articles of association defer to its competence, and in any matter that relates to the company’s management and that does not fall in the competence of the board of directors or the chairman general manager: such as an important loan - particularly if it is made by issuance of bonds -, the sale or pledge of the company’s shop, the granting of free guarantees, the settlement and arbitration in matters that are outside the competence of the board, the revocation of the directors, as well as other relevant matters that fall outside of the scope of the usual exploitation of the business.”
“159. According to Lebanese legal doctrine, the following are considered part of the company's “normal course of business”, and therefore fall outside both the authority of the chairman general manager and the competence of the general assembly: – The organization of the company staff; – The appointment and dismissal of executives; – The execution of low-value loan agreements; (see Head of the Beirut Executive Office, July 2, 1966, RJL 1966.778). – The transactions. – The conclusion of lease agreements. However, the following fall within the competence of the general meeting: – amendment of the articles of association; – approval of the financial statements; – appointment of the supervisory commissioner; – acts of disposal that are not “necessary for the operation of the company”: mortgages, pledges, sale or purchase of real estate — except in the case of a real estate company (Fabia and Safa, art. 157, no. 16, Beirut Court of First Instance, March 23, 1974, aforesaid) – significant donations and gifts; – significant loans (cf. South Lebanon High Court, January 28, 2020, cited above, which considers that loans, current account advances, and guarantees fall within the competence of the general meeting); – the contribution of assets to another company; – the merger with another company; – the sale or pledging of business assets (cf. Beirut Court of Appeal, January 18, 1967, H. 1969.53); – the conclusion of onerous insurance contracts (Beirut Court of Appeal, August 2, 1973, Al-Adl, 1974.187). – the appointment or removal of directors. – the allocation of directors' attendance fees...”
“In the Lebanese case of Nasr v Lebanese Maritime Shipping, it appears from the judgement that the company’s object according to its articles of association was the exploitation of the vessels owned by the company. The court thus considered that the sale of all the vessels by decision of the ordinary general assembly made it impossible for the company to continue performing its object, which amounted, in practice, to winding-up the company and its liquidation, a decision that could only be taken by an extraordinary general assembly.”
“Q. So, on the basis of your description here, this was a case about the dividing line between the powers of the ordinary general assembly and the extraordinary general assembly, wasn't it? A. Yes. Q. So it wasn't a case about the dividing line between the powers of the board of directors and an ordinary general assembly? … A. Yes, but the principle is the same”
“Whereas, further to the foregoing, the sale of the company's assets — and in particular all of the vessels related to the company’s operations, and for the continuation of its business in a normal manner — falls within the scope of the powers of the Board of Directors, which is authorised to carry out partial sales falling within the ambit of the company's management and which are not of a nature to paralyse the company's operations in their entirety, in accordance with Articles 16 and 2 of the Company's Articles of Association; especially since the company's objects consist in reality in the operation of its own vessels, and the sale of all of those vessels — which are necessary for pursuing that operation — and the freezing of the company's activities would ultimately result in the amendment of the company's objects, the amendment of the fundamental purpose for which it was incorporated, and the practical disappearance of the company. [1.12] Whereas such a resolution does not therefore constitute an administrative decision that would secure the company's object (Article 2 of the Company's Articles of Association), and the provisions of the second paragraph of Article 196 of the Code of Commerce do not apply to it, nor is it subject to its provisions; rather, it constitutes an act of disposition of the company's assets that are intrinsically linked to and inseparable from the exploitation of the company's object, and it falls squarely within the competence of the Extraordinary General Assembly as provided for in Articles 200, 201, and 202 of the Code of Commerce — particularly since it is of a nature to dissolve the company and wind it up in practical terms. [1.13] Acts of disposition relating to the company's assets are ordinarily reserved to the Extraordinary General Assembly. Indeed, in most cases, the exploitation of those assets forms part of the company's object, which only the Extraordinary General Assembly may modify. However, the Ordinary General Assembly may resolve to dispose of assets that do not form part of the company's object. It is important here to distinguish between acts of administration, which the Board of Directors may carry out, and acts of disposal. [1.14] • Jean Noirel, La société anonyme devant la jurisprudence moderne [The Joint-Stock Company in Modern Case Law], No. 340, p. 238. [1.15] Additional references: • Civil Tribunal of the Seine,3 May 1956 , Gaz. Pal. 1956, 2, 93; Paris,14 May 1957 , S. 1957, 1, 154. [1.16] Whereas the resolution of the Ordinary General Assembly held on24 June 1968 , ordering the sale of the company's assets and enterprise, is accordingly null and void on this ground as well. [1.17]”
“Q. But this case suggests, because there was an ordinary general assembly, that a substantial asset disposal did require an ordinary shareholder authorisation , even though it would not amount to a dissolution of the company −−holding company, but it required an ordinary general assembly resolution? A. Well, yes, because we don't know anything about the articles of that company.”
“Without prejudice to the provisions of the bylaws, the members of the board of directors shall carry out all the work required for the proper conduct of the company’s project in the usual manner, and the company shall be bound by this to that extent”
“The corporate object is to be understood as comprising the commercial activities designated in the articles of association as those to be pursued in furtherance of the intended profit, together with such ancillary acts as are necessary for the conduct of those activities in the manner most advantageous to the company. It follows that the criterion in this regard lies not in the magnitude or gravity of the act in itself, but in its nature. Either the act undertaken by the board of directors falls within the category of commercial activities contemplated by the articles of association, or is necessary for the proper conduct of the common enterprise, or it does not. In the former case, the board is competent to perform the act in question irrespective of its gravity relative to the company's resources. In the latter case alone is the company not bound, however trivial and inconsequential the act may be. In consequence, the word “ordinary” as it appears in Article 157 of the Commercial Code is to be understood in a qualitative, not a quantitative, sense.”
“102. The articles of association may expand or restrict the general powers of the board of directors, provided this does not encroach on powers conferred on the board of directors by law or reserved to other statutory corporate bodies. In this respect, a leading Lebanese scholar, Mr A. Najjar, considers that the articles of association may authorize the board of directors to sell or mortgage the company’s assets, contract loans, or on the contrary subject these acts to the prior authorization of the general assembly. [footnote 46 - A. Najjar, op. cit., p. 192]”
“Q. So -- and then -- and which would, in effect, result in practical dissolution. So, again, the court wasn't saying: if you sell all your vessels there's a risk that you will in practice be dissolved. The court was saying: because the purpose of the company was the operation of its vessels, if you sell all the vessels, there are no vessels to operate and, therefore, the purpose has to be suspended. That's what they are saying, isn't it? A. Not really. I don't agree with you. What this judgment says is that the freezing of the company's activity "would ultimately lead", which means if it persists, this would end up with a practical dissolution of the company, thereby affecting the purpose”. … Q. They specifically say, in the fifth line: "This is particularly so given that the company's actual purpose is the operation of its own vessels~..." So they're drawing a distinction, aren't they, between a situation where you have a company, like a holding company, which is entitled to buy, sell and operate assets, and, on the other hand, a company which is only entitled to -- or its only purpose is the operation of assets? That's the distinction they're drawing there, isn't it? A. There is no distinction here with the holding company. This is specific to the operation of its own vessels, but in the case the company wouldn't buy new vessels, then you would have this problem of dissolution. And for the court, my reading, my analysis of this judgment is that, given the ultimate risk of dissolution, it has to be taken by an extraordinary general assembly. That's it.”
“ARTICLE 43 : THE DISSOLUTION OF THE COMPANY The Company shall be dissolved upon the expiry of its term, or upon the completion or impossibility of completion of its Object; by the will of the shareholders expressed in an Extraordinary General Assembly, in accordance with the quorum and majority required as per Articles 202 and 204 of the Lebanese Code of Commerce; for any other reason provide by the Law.”
“Could the board of directors authorise the 2021 Transaction without general assembly approval under Article 158 of the LCC?”
“1- The members and Chairman of the Board of Directors, the General Manager, the Assistant General Manager, and any shareholder holding directly or indirectly voting rights exceeding five percent (5%) of the company's capital, must obtain prior authorization from the Board of Directors for every contract, agreement, or obligation1 intended to be concluded with the company, irrespective of whether such agreement is enacted directly, indirectly, or under the guise of a third party. None of the aforementioned persons are entitled to participate in the voting process concerning the decision to grant or reject the authorization, and their votes shall not be counted towards the attendance or voting quorum when discussing said authorization. The contracts, agreements and obligations falling within the ordinary business operations between the company and its clients are exempted from this requirement and from the provisions governing authorization. 2- Any agreement between the company and another entity requires the prior authorization of the Board of Directors if any of the persons mentioned in the first paragraph of this Article is: a. a shareholder directly or indirectly holding voting rights exceeding five percent (5%) of the capital of that company. b. a joint partner or a managing general partner in that company, regardless of their share percentage in its capital, if it is a partnership or a limited partnership company. c. a director or a member of the board of directors of that company. Such persons are not entitled to participate in voting on the decision to grant or reject the authorization related to that company, and their votes shall not be counted in the attendance or voting quorum when discussing the authorization. 3. Persons falling under the conditions mentioned in the first two paragraphs here-above must [FIRST STAGE] promptly inform the Board of Directors in writing and in detail. 4. The Board of Directors is required to: a. [SECOND STAGE] Review the authorizations for contracts, agreements, and obligations outlined in the first and second paragraphs of this article within a reasonable period and before convening the General Assembly. If the authorizations are approved, [THIRD STAGE] it shall submit a report to the next General Assembly, whether ordinary or extraordinary, for ratification. The persons mentioned in the first paragraph of this article are not entitled to participate in voting on the ratification resolution, and their shares shall not be counted in the quorum. b.[FOURTH STAGE] Notify the auditors of the contracts, agreements, and obligations that have been authorized, within fifteen days from the date of the authorization resolution. The auditors shall submit their special report to the General Assembly concerning the aforementioned contracts, agreements, and obligations, along with their opinion regarding their impact on the financial statements and accompanying explanations, to be duly voted on. [5. …] [FIFTH STAGE] In all cases, authorization shall not be deemed effective until after it has been ratified by the General Assembly.”
“Q. Again, this principle is straightforward , isn’t it ? If the statutory text is clear, there's no need to go beyond it to search for the legislature 's intention? Is that expressing the same principle that you were just referring to? A. Yes, but, again, I think the whole section or passage or paragraph must be read. This is −− this is a textbook… MR WILSON: Just to be clear as to what the principle is, Mr Sakr. So can I summarise it this way: unless the text of a statutory provision is unclear, or there is an identifiable ambiguity, Lebanese courts should apply the words of the statute as written, without resorting to a teleological positive interpretation ? A. Yes, but −− no, no, I did −− you want me to answer? Q. Yes, please. A. So there are two points here that I need to make…. [his first point was that it was a textbook and as such it gave a general view on all interpretive techniques under Lebanese and, indeed, under French law]. My second one is, yes, I agree, the interpretation should take place when a text is −− should not take place −− should not take place when the text is clear, but my proposition is that the last paragraph or the sentence "shall not −− shall be deemed −− shall not be deemed effective" is not clear and requires interpretation. … But what I want to clarify , my Lord, is that the literal meaning can be clear but cannot be clear at the same time. So the literal meaning of the word. So the literal meaning here is "shall not be deemed effective". That's the literal . So what does the word say? But the meaning of the words are not clear, you see? I don't know if this distinction is clear?”
“MR JUSTICE BRYAN: Let me ask you a question then, … do you accept that on its face it appears to bear the meaning that the claimants suggest it means? MR MONTAGU-SMITH: Not in its context we would say, no. MR JUSTICE BRYAN: Hold on. I'm asking you, leave aside its context. MR MONTAGU-SMITH: I hesitate to answer the question directly. MR JUSTICE BRYAN: Why do you hesitate? Legitimately I can ask you that question because they say that Lebanese law is if a legal text is clear you can't go outside the wording. If they're right -- you say they're wrong about that, but if they are right about that, I think my question is legitimate. MR MONTAGU-SMITH: But what it does is it assumes that one can find a clear meaning without context. That's the point that we disagree with.”
“97. Turning to Article 158 LCC, its plain text and meaning are not unclear or ambiguous; they are simply different from their corresponding Articles of the FCC. Consequently, insisting on interpretating Article 158 LCC to align it with its French counterpart at a time the Lebanese legislator’s intent remains unclear, as explained in paras 77 to 82 above, inevitably leads to contradicting its literal meaning and introducing sanctions that are inexistent, which goes against the fundamental rules of interpretation. … 102. The second reason is that the general wording of the last paragraph of Article 158 LCC is drafted in absolute terms, without differentiating between the internal relationship within the company and the relationship with the contracting party. Mr Sakr’s interpretation would thus violate an important interpretation principle according to which one cannot create a differentiation where the law does not specifically provide for it (là où la loi ne distingue pas, il ne faut pas distinguer). 103. The interpretation of Article 158 LCC should, contrary to what Mr Sakr proposes, be that the Related Party Transaction being concluded without authorisation, should be sanctioned, as explained in my Second Report, by nullity. Nullity has been consistently recognised under Lebanese law, before and after the 2019 reform - and even under French law - as the applicable sanction for unauthorised Transactions.”
“Q. …, but you say at 102: "The second reason is that the general wording of the last paragraph of Article 158 is drafted in absolute terms, without differentiating between the internal relationship within the company and the relationship with the contracting party." I want to ask you about that. I take it what you mean from that is that where the legislation says authorisation shall not be deemed effective, you mean it shall not be deemed -- it shall be ineffective for all purposes? A. Absolutely.”
“Q. I think where I'm getting to is to say isn't this an obvious drafting error? A. Is that a question? Q. Yes. A. No, it is not, because it's a clear text, it's unequivocal. …”
“Q. …, but you say at 102: "The second reason is that the general wording of the last paragraph of Article 158 is drafted in absolute terms, without differentiating between the internal relationship within the company and the relationship with the contracting party." I want to ask you about that. I take it what you mean from that is that where the legislation says authorisation shall not be deemed effective, you mean it shall not be deemed -- it shall be ineffective for all purposes? A. Absolutely.”
“Q. Yes. I ' ll try −−I'll ask you this one more time … what I 'm suggesting to you [on Mr Sakr’s interpretation] is we end up with a strangely narrow distinction between a situation where there's been no actual authorisation by the board and no effective authorisation by the board. A. Yes. Q. You understand that? A. Yes. Q. I think it remains your view, does it, that those do end up with completely different consequences? Q. You understand that? Q. I think it remains your view, does it, that those do end up with completely different consequences? A. Yes”
“Q. Would you accept that the intention behind or the reason behind introducing a two-tier control procedure in Lebanon was the same as in France? A. Initially, yes, perhaps. … Q. So initially -- ,,, the intention was to allow the company to contract without waiting for the general assembly; yes? … A. Yes, yes.”
“Even if the Lebanese legislator’s initial intent was to introduce a two-tier Control Procedure like the one provided for in the FCC, this intent seems to have been altered in the legislative process, as evidenced by the new text of Article 158 LCC. The intent of the Lebanese legislator is to be judged by reference to the final text of Article 158 LCC, not by reference to earlier drafts of the legislation that were not enacted.”
“…if things had gone like they should have, the Lebanese Parliament should have put in place a piece of legislation that looks like the French Code of Commerce, if this was the intent they had in the beginning, and I assume it was, but not only they added the last paragraph of Article 158, they also missed… what I call the sanction matrix that tells you what happens if you have a transaction that is authorised but is not ratified…; all these provisions that make the articles of the French Commerce Code a comprehensive and readable piece of legislation. Unfortunately we did not get there. We are very far from that.”
“The major flaw of the new Article 158 lies in its final paragraph, which nullifies the reform’s practical utility by stipulating: ‘In all cases, authorization shall not be deemed effective unless ratified by the General Assembly.’ Such a provision contradicts the logical solution inspired by French law, according to which a transaction authorized by the Board of Directors cannot later be challenged, except in cases of fraud, though lack of subsequent ratification may entail director liability if the company suffers damage. Legislative intervention is therefore urgently required to restore the intended effectiveness of the text.”
“A. What I was saying in the previous paragraph is that I was not able to understand why the last paragraph of Article 158 was added by whom and what was the intent there, but the general intent behind the reform of Article 158 in the 2019 reform was very clear, even Professor Soumrani agrees with that. So this is what I'm saying here. These are two separate matters. The general intention behind the reform of Article 158 and the specific addition of the last paragraph. Q. Yes. A. But the general reform, aiming at having a two-step authorisation by the board and ratification by the general assembly, I think we are in agreement with that. Q. Yes. I think what Professor -- so, just to be clear, because we heard his evidence -- I don't know if you were here last week? Professor Soumrani's evidence was, that was the original intention, but he equally doesn't know what happened in the halls of Parliament between that original intention and the actual enactment, so I think you're both in the same position there? A. Very well, yes. Q. So ultimately, ultimately, in terms of looking at the act as it is, Article 158 as a whole, now, you can't say what the ultimate legislative intention was that gave rise to that, can you? A. To the general -- we can -- we know what was the general intention for the general -- for the reform of Article 158 in general, but if we are talking about the last -- the addition of the last paragraph, yes, we don't know. It's unclear.”
“Without prejudice to the liability of the person concerned, agreements… entered into without prior authorisation from the board of directors may be annulled if they have had harmful consequences for the company”
“In the case of regulated agreements, failure to comply with the formalities set forth in Article 158 of the Code of Commerce renders any agreement concluded in breach thereof null and void. It also gives rise to the liability of the directors who failed to comply with the applicable legal provisions. Nevertheless, prevailing Lebanese legal doctrine… and case law consider that the rules governing agreements concluded with directors are subject to the sanction of relative nullity, given that the purpose of such rules is the protection of private interests.”
“Although Article 158 of the Code of Commerce does not expressly provide for the nullity of agreements concluded in violation of its regulatory provisions, it is undisputed that such nullity must be incurred for any failure to comply with any of the formalities required by the aforementioned article. Indeed, it is universally accepted that the omission of or non-compliance with a formality or condition established by the legislator as a prerequisite for the validity of a given legal act constitutes grounds for the nullity of that act, even in the absence of an explicit text stating such nullity… 1) Conditions for Nullity As a general rule, the nullity of the agreement must be incurred whenever any of the formalities or requirements set out in Article 158 have not been duly observed in the conclusion of such agreement. Thus, the following must be considered null: … b) Any agreement that has not been duly authorized by the general assembly of the shareholders. This shall apply in all of the following cases: … - If the general assembly is not convened before the agreement is concluded, any subsequent authorization would violate the law and is therefore treated as if no authorization had been given. - If the assembly, duly convened, refuses to authorize the agreement or grants an irregular authorization. - If the assembly votes on the authorization without receiving, or before receiving, one of the two special reports required from the board of directors and the supervisory auditors, or relies on incomplete reports. - If the assembly itself is irregular, either in its convening or in the conduct of its meeting.”
“Regulated agreements: … The control procedure… proceeds in four stages: - The interested director informs the board of directors of the situation requiring authorization; - The board notifies the statutory auditor of the proposed agreements; - The board and the auditor each submit a separate special report on the proposed agreements to the general assembly; - The general assembly makes its decision in light of these reports: it either approves the agreement or rejects it. In the latter case, the agreement cannot be concluded without risking nullity. [General assembly] approved agreements may only be challenged in cases of fraud. Sanctions Failure to comply with the formalities set out in Article 158 exposes the directors to liability for breaching the legal requirements. It also renders any agreement concluded in violation of this article null and void. Lebanese doctrine and case law consider that the regulation of agreements concluded with directors is subject to a relative nullity, given that the purpose of such regulation is to safeguard private interests, namely those of the company and its shareholders.”
“In this regard, the final paragraph 5 of [Article 158] clearly provides that ‘In all cases, the authorisation shall not be deemed effective until after it has been ratified by the General Assembly’. In our view, the terminology of this article should not run counter to the practical life of the company. In other words, such an agreement should not have its implementation suspended pending ratification by a general assembly that may not be scheduled until several months after the conclusion of the agreement. Case law will have to rule on this issue to allow the performance of such an agreement between the parties, while making it enforceable against uninformed shareholders only after its ratification, thereby enabling them to refuse ratification and to require the parties to the agreement to bear any potential damage suffered by the company. … Otherwise, and if such ratification is interpreted as preventing the execution of the agreement even between the parties, it will then be appropriate to amend the text so that it conforms to the company’s life and does not hinder its operations.”
“If the answer to issue 2 is “No”, was the 2021 Transaction nonetheless authorised for the purpose of Article 158 because: (1) It was entered into by Cedar II in good faith; and/or (2) It was beneficial to Cedar Mundi?”
“99. Lebanese case law also held that, as was the case under the old law, there was no nullity if the related party transaction was beneficial to the company or if the counterparty was not the related party and that counterparty had acted in good faith”
“174. In cases where agreements are indirectly concluded with a director, and such agreements are signed by third parties who are unrelated to the company’s dealings with its directors, Lebanese case law considers that such agreements remain valid if the third party acted in good faith (Beirut Court of First Instance,21 July 1965 , R.J.L., 1965.640). However, the contracting party cannot itself invoke the nullity of the agreement (Cass. com.,15 March 1994 , LPA,1 February 1995 , note Gibrila). It was held that annulment may be refused if the disputed agreement proves beneficial to the company. (…)”
“75. Mr Sakr also explains that according to Article 158 LCC as it stood prior to Law 126, if the company entered with a third party into a Related Party Transaction that was not authorised by the general assembly, that Transaction was a relative nullity unless the Transaction benefitted to the company, or whenever (i) the Transaction was entered into indirectly by the Related Party, and (ii) the third party acted in good faith. I agree but I clarify here that according to Mr A. Najjar, cited by Mr Sakr, the said third party must be totally unrelated [étranger] to the company’s relationship with its directors.”
“Q. So are you saying that this principle of good faith only applies if the third party's completely unconnected with the related party? "A. Yes, this is what Najjar says. Q. Just as a matter of logic, if the third party was completely unrelated to the related party, then Article 158 wouldn't be engaged at all, would it? A. But we are talking about an indirect transaction, so the related party is indirectly interested. Q. Yes. But I'm asking you about your view that they have to be completely unrelated, but it can't be right that they have to be completely unrelated? A. The third party must be totally unrelated to the company's relationship with its director. So what's happening here is that a totally unrelated third party is entering into a contract with a company in which he doesn't know who the directors are.”
“In theory, third parties may, here as elsewhere, rely on their good faith to avoid the enforceability of nullity against them (Commercial Code, art. L. 235-12; Civil Code, art. 1844-16). This situation may arise where the annulled agreement does not directly bind its beneficiary. One may think in particular of an agreement in which the executive or subject shareholder has an indirect interest, or of an agreement concluded with a commonly managed company. In such cases, it is conceivable that the contracting third party acted in good faith, and it would be unjust to make that party bear the effects of the nullity (see, for example, P.-A.Rosenfeld, À propos de l’article 40, Rev. sociétés 1958, p. 360). However, proof of good faith, which indeed lies with the third party, is in practice difficult, because it requires demonstrating ignorance of the fact that the agreement was a regulated transaction subject to a control procedure, something very difficult in these circumstances (see, for example, Cass. com.,3 June 2008 , no. 07-12.307: JurisData no. 2008-044246; RJDA 10/2008, no. 1041), except in a situation involving fraud (A. Charveriat, A. Couret, M.-E. Sebire and B. Zabala, Sociétés commerciales, op. cit., esp. no. 52880).”
“Q. Finally, on the question of good faith, you made reference to what you described, I think, as the latest position on the doctrine of good faith in this context. I think the article you were intending to refer to may be the one at [E3.3/152.1]. Is this what you had in mind by referring to the latest position and, if so, can I give you the opportunity to comment on that? A. Yes. When I look at this, it reflects the position of the French scholars who consider that today it is very difficult for a third party to demonstrate that it is acting in good faith in an indirect transaction, particularly when you are in a group of companies. And if I look at what it says in approximately half of the paragraph, it says: "... proof of good faith, which indeed lies with the third party, is in practice difficult, because it requires demonstrating ignorance of the fact that the agreement was a regulated transaction subject to a control procedure ..." So we have -- they have to demonstrate it is their proof that the related party -- it is not a related-party transaction, and the author adds: "... something very difficult in these circumstances.”
“101. Thus, in summary, as the law stood under the immediate predecessor to the current Article 158, if the company entered into a related party transaction that was not authorised by the general assembly: (a) the related party transaction was validly authorised and the company could not set it aside where the agreement was beneficial for the company; (b) the same was true where the related party transaction had been entered into with a counterparty with whom the related party had an indirect interest, provided the counterparty was acting in good faith…”
“Consequently, the void act continues to produce its effect vis-à-vis the party who has good faith until judicial declaration of such nullity”
“Q. No, I do need a "yes" or "no" from you, I'm afraid. Did you understand this to be a proposed related-party transaction? A. Okay. Q. Was that a "yes". Does that mean "yes"? A. As you're saying it, yes, it is a related party.”
“Q. ... to approve the transaction carried out ... which are mentioned in the special report submitted by the Board and the special report of the auditors, and resolved to grant each of the Chairman, General Manager and the Members of the Board ... the authorisations provided for in Article 158~..." So this was specifically, and we've just seen the auditor's report, to cover off the transaction recorded in the accounts showing sums due to MABIL; correct? A. This is indeed correct. …”
“If the answer to issue 2 is “No”, was the 2021 Transaction nonetheless authorised for the purpose of Article 158 because: … (2) It was beneficial to Cedar Mundi?”
“174. In cases where agreements are indirectly concluded with a director, and such agreements are signed by third parties who are unrelated to the company’s dealings with its directors, Lebanese case law considers that such agreements remain valid if the third party acted in good faith (Beirut Court of First Instance,21 July 1965 , R.J.L., 1965.640). However, the contracting party cannot itself invoke the nullity of the agreement (Cass. com.,15 March 1994 , LPA,1 February 1995 , note Gibrila). It was held that annulment may be refused if the disputed agreement proves beneficial to the company. (…)”
“Uncertain as this is a new law in Lebanon (since 07/2019) but based on precedents (from old law) cannot be annulled if the definitive agreement was beneficial to CMH.”
“78.
“63. … Regarding Mr Sakr’s opinion under (ii) above, I do not agree that the Transaction “cannot” be set aside if the company benefitted: a court would have a discretion to decide whether or not to set aside a Related Party Transaction that benefitted the company. I would also like to clarify in the following paragraphs the concept of benefit incurred by the company …in the context of Article 158 LCC. 64. Regarding the concept of benefit, a company is considered to benefit from a Transaction where, for example, such Transaction allowed its survival at a time it is facing a financial deadlock”
“Q. … In your evidence earlier on I understood you to be saying that the exception applies almost in any case -- in any case where there is no proof of harm to the company. Those are two different concepts. A. But they're related. Q. Okay. But which is it in Lebanese law? Which is it? A. I think both concepts have been used interchangeably for the same. Q. Well, I have to put to you that in your report you nowhere say that it is sufficient merely that the company is not able to point to harm. A. Yes, but I think I have cited -- I need to refresh my memory -- one of the Lebanese authorities or at least two, perhaps, that says that – including Alexandre Najjar, who refers to the no harm suffered as well.”
“Without prejudice to the liability of the person concerned, agreements referred to in Article L. 225-38 and entered into without prior authorisation from the board of directors may be annulled if they have had harmful consequences for the company. The action for annulment shall be time-barred three years after the date of the agreement. However, if the agreement has been concealed, the starting point of the limitation period shall be postponed to the day on which it was revealed.”
“Q. So it's fair to say, isn't it, that when you're considering what amounts to benefit, French law is a good guide to Lebanese law in this regard? Do you agree? A. No, because under the French law, the concept of benefit is provided for in two articles -- in one article of the law. You have a transaction that is unauthorised, cannot be set aside, unless it is harmful for the context. You have a text which is the Article 225-41 or 42, if we can see them, of the Code of Commerce”
“Q. So, on your own authority, isn't it right that we can look to French law to understand what amounts to benefit as it would be applied by a Lebanese court? A. Yes, if the Lebanese court decided to apply the notion of benefit to keep the transaction valid, despite the fact that it is not authorised. Q. You accept, I think, that the test under French law is whether the transaction is harmful to the company; yes? A. Actually there is harmful or benefit. The text talks about harm but in the case law I think it's benefit, in the decisions. It is not just not harmful to the company…”
“So this is also a text that we do not have in Lebanon. If it is interpreted au contraire, it means that in case the transaction is not harmful, is beneficial for the company, they may not be annulled, but, again, this is something we don't have. So of course in Lebanon we'll have to decide independently from any text that guides us.”
“It was held that annulment may be refused if the disputed agreement proves beneficial to the company (…)”
“On the true construction of the minutes of the board meeting on13 April 2021 , was the board’s authorisation of the 2021 Transaction conditional upon subsequent general assembly ratification?”
“At the board meeting on13 April 2021 : (1) Was Mr Attieh prohibited from voting by Article 158 by reason of the circumstances of his resignation from Fastnet (applying the Lebanese doctrine of fraudulent acts in its strict sense)? (2) If Mr Attieh was not entitled to vote at the meeting (or is to be treated as not having been entitled to vote) was the effect of Article 158 that the board meeting was invalidly constituted?”
“Q. Now, let's look at the second part of the paragraph: " ... and their votes shall not be counted towards the attendance or voting quorum when discussing said authorization." So this rule is about calculating the quorum where there are conflicted directors on the board as a whole; yes? A. Yes. Q. And the rule is that the quorum is to be calculated by reference only to the non−conflicted directors; yes? A. Yes. Q. And that's there because it ensures that the board can still take a decision even if several directors are conflicted ; yes? A. Yes”
“The use of the conjunction “and” clearly shows in my opinion that the exclusion of the Related Party’s votes is not a sanction - if it were, the legislator would have used a different wording such as “under penalty of” - but rather serves as a clarification regarding the manner in which the quorum and majority are to be calculated in this situation.”
“Q. So conflicted directors cannot take part in the voting process because −−well, by virtue of their being conflicted , they are disabled from doing so. That's the first point. Do you agree? A. Yes. Q. Okay. It's also because part of that policy is if a conflicted director takes part in the voting process, he could influence the decision , even if whether or not he formally casts a vote. Do you agree with that. A. Yes. It 's the same sentence so it's −− Q. Yes. A. −−a continuation … Q. The only safe way of ensuring the independence of the board is to ensure that the director does not take part in the voting process? A. Yes.”
“Q. … the first part says: "None of the aforementioned persons [so the related parties or conflicted parties ] are entitled to participate in the voting process concerning the decision to grant or reject the authorization ... " So the policy behind that rule must be to ensure that the board decision is taken only by directors who are non−conflicted. Do you agree with that? A. Yes. Q. So conflicted directors cannot take part in the voting process because −−well, by virtue of their being conflicted , they are disabled from doing so. That's the first point. Do you agree? A. Yes”
“Q. Yes. So if you have five people who are at the meeting, one is not entitled to vote, four vote in favour, but −− in fact , sorry , they all vote in favour but one was not entitled to vote, what you do is you knock off the one who wasn't entitled to vote and you ask yourself the question: what about the rest, and you say: well, they all voted in favour, so you would conclude, as a matter of law, that that resolution was passed unanimously; yes? A. No, because the presence of this fifth person, the one who hasn't the right to vote, the fact that he attends, deliberates and vote vitiates the whole resolution. Because of the deliberation of this person, he can have influenced the remaining four persons and this is why his mere presence in the vote and voting, which is preceded by a deliberation, means that there is vitiation of the resolution that must be announced.”
“A. … The mere fact that this person is present, if … he's present, he must not vote. Q. Yes. A. If he votes, automatically there is a problem −−a flaw in the system. This person has added a vote. He has influenced the remaining directors . By influencing the remaining directors with his vote, you cannot simply just remove this vote and pass the resolution with the remaining. He shouldn't have voted at all. He shouldn't have expressed an opinion. He shouldn't have deliberated.”
“45. [Mr Sakr] however concludes with a proposition that, if a Related Party not allowed to participate in a vote but nevertheless does participate and vote, the sanction should be merely that such vote does not count for the calculation of the quorum and majority of the meeting. According to him, the Transaction concluded following such vote should not be invalid. 46. I disagree for two reasons. 47. The first reason is that Mr Sakr’s reasoning mixes the organization of the rule forbidding the participation in the vote and its sanction. Indeed, the plain wording of Article 158 LCC provides that the Related Party is not allowed to participate in the vote and that its votes are not counted for the calculation of quorum and majority. The use of the conjunction “and” clearly shows in my opinion that the exclusion of the Related Party’s votes is not a sanction - if it were, the legislator would have used a different wording such as “under penalty of” – but rather serves as a clarification regarding the manner in which the quorum and majority are to be calculated in this situation. 48. The second reason is that the sanction for such participation should be, as for any violation of the provisions of Article 158 LCC, the nullity of the resolution, which in turn entails the nullity of the Transaction concluded on its basis, as explained in paragraph 143 of my Second Report. 49. At paragraph 143 of my Second Report, I cited Mr E. Tyan’s scholarship and a Court of Cassation decision in support of my analysis on this point. According to the Lebanese Court of Cassation: “Whereas a violation of the provisions relating to authorisation results in the nullity of the contract, such nullity is, however, relative, and may be cured by approval, or more specifically, the subsequent approval of the contract by the general assembly following the submission of the board of directors’ report and the auditors’ report.” 50. For completeness I note that Mr S. Zreik also confirms this position: “(…) A director who takes part in the vote exposes the transaction in which he has an interest to nullity, even in the absence of proof of prejudice to the company, and even if his vote does not influence the outcome, the majority being reached in any event, excluding his votes. Where fraudulent means have been used in order to procure votes, the deliberation shall be null, even if the number of votes obtained through such means did not affect the majority. Under Lebanese law, the concept of the useful vote is set aside, in cases of fraud, as in cases of abuse of voting rights or abuse of majority. A deliberation may also be annulled where it is abusive, even though this ground for annulment is not expressly provided for by law.” “Whereas a violation of the provisions relating to authorisation results in the nullity of the contract, such nullity is, however, relative, and may be cured by approval, or more specifically, the subsequent approval of the contract by the general assembly following the submission of the board of directors’ report and the auditors’ report.” 50. For completeness I note that Mr S. Zreik also confirms this position: “(…) A director who takes part in the vote exposes the transaction in which he has an interest to nullity, even in the absence of proof of prejudice to the company, and even if his vote does not influence the outcome, the majority being reached in any event, excluding his votes. Where fraudulent means have been used in order to procure votes, the deliberation shall be null, even if the number of votes obtained through such means did not affect the majority. Under Lebanese law, the concept of the useful vote is set aside, in cases of fraud, as in cases of abuse of voting rights or abuse of majority. A deliberation may also be annulled where it is abusive, even though this ground for annulment is not expressly provided for by law.”
“ …the one who hasn't the right to vote, the fact that he attends, deliberates and vote vitiates the whole resolution. Because of the deliberation of this person, he can have influenced the remaining four persons and this is why his mere presence in the vote and voting, which is preceded by a deliberation, means that there is vitiation of the resolution that must be announced.”
“Although Article 158 of the Code of Commerce does not expressly provide for the nullity of agreements concluded in violation of its regulatory provisions, it is undisputed that such nullity must be incurred for any failure to comply with any of the formalities required by the aforementioned article. Indeed, it is universally accepted that the omission of or non-compliance with a formality or condition established by the legislator as a prerequisite for the validity of a given legal act constitutes grounds for the nullity of that act, even in the absence of an explicit text stating such nullity…”
“92 J. Ghestin, [Traité de Droit Civil, Introduction Générale, 4th edition, LGDJ-Delta] p. 801,802 [Exhibit PS2/101]. See also: J. Ghestin, op. cit., p. 815. This would be the case, for example, when for the sole purpose of evading legal rules governing the termination of employment contract having an undetermined period (and which provide for a prior notice and compensation to the employee), an employer concludes with such employee successive employment contracts having each a limited and short period. … This should also be the case, in my opinion, when a director of a joint-stock company resigns from office shortly before a contemplated resolution to be passed or transaction to be entered into, so as to avoid being subjected to the legal constraints and rule that are imposed by law on directors.”
“159. The sanction of fraud in the strict sense consists in the unenforceability of the fraudulent act. Mr J. Ghestin states that the sanction of the fraud in this case “must result in its own ineffectiveness”
“33. These conclusions are summarized as follows: The concept of fraud has both a narrow (or strict) and a broad meaning. A fraudulent authorization or transaction by a director or agent of the company can be voided in the circumstances of fraud in its strict sense on the basis of the principle fraus omnia corrumpit i.e., whenever a legal subject evades a mandatory rule by deliberately altering his factual situation to fall outside its scope, and under the scope of a more favorable one.”
“127. Further, and in any event, the SPA and the Assignment Deed (and any purported transfers of the Interests thereunder, via the transfer of the IFAC Interest or otherwise) was (or were each): 127.A1. the type of transaction which could only be authorised by Cedar Mundi’s General Assembly (i.e., the transfer of the substantial majority of a company’s assets outside the ordinary course of business). 127.1. in any event a related-party transaction for the purposes of Article 158 LCC because Cedar II and/or Fastnet was in and/or affiliated to the Med Al Bahar Group which was also via MABIL a c.23% shareholder in Cedar Mundi and/or by reason of Mr Al Bahar’s status (and/or that of his family) as an indirect significant (>5%) shareholder in both Cedar II and Cedar Mundi. 127.1A. approved by Cedar Mundi’s Board of Directors only to permit the transaction to be considered at General Assembly (and with no intention of usurping the function of the General Assembly in that regard). 127.2. not approved (prior to the transaction or at all) by Cedar Mundi’s General Assembly nor permitted by any authorisation from the Board of Directors that was subsequently so ratified. 127.3. neither approved by the BdL nor was the BdL’s non-objection stance secured. 128. Further, neither Mr Attieh nor Ms Wafa Al Qatami was entitled to vote at the 16 March Board Meeting or the 13 April Board Meeting, which was contrary to Article 158 LCC. More particularly, pending disclosure and/or further information, Mr Attieh and/or Ms Wafa Al Qatami were each related parties under Article 158 LCC, including because, in the case of Mr Attieh, he was not only director of Cedar Mundi but also was a director of CMCH (which was the proposed fund manager and administrator of Cedar II), until5 March 2021 was a director of Fastnet (the general partner of Cedar II), was a director of Fastnet Capital, was otherwise acting for or in the interests of Cedar II, and/or stood to benefit personally from the proposed transaction (as to which paragraph 75A above is repeated). 128A. Further, or alternatively, such inference to be drawn from (i) their Mr Attieh’s (known) roles and positions in the Med Al Bahar (and IFA) Group (as pleaded in Section I(B) above), including his appointment to the Board of Directors of Cedar Mundi as representatives of that group; (ii) his recognition that the authorisation granted by the Board of Directors in accordance with Article 158 LCC and the execution of the SPA (and thus any purported transfer thereunder) required the ratification of the General Assembly under Article 158 LCC (as is apparent from the minutes of the 13 April Board Meeting pleaded in paragraph 54 above); (iii) the fact that Mr Attieh did not contest the C-331 Shareholders’ position (set out in inter alia the correspondence pleaded in paragraph 48 above) that the transaction required ratification under Article 158 LCC; (iv) the secrecy of the execution of the SPA, as pleaded in paragraph 63 above; and/or (v) their his acting contrary to the interests of 55 A9/2/55Amended Particulars of Claim underCPR rule 17.1 (2)(a) dated3 December 2025 Cedar Mundi (and in favour of the Med Al Bahar (and IFA) Group or entities therein) in the respects pleaded above. In the premises, even the prior purported authorisation of the Board of Directors was void, independently of and in addition to the absence of ratification by the General Assembly under Article 158 LCC. 129. Further or alternatively, in the premises of paragraphs 75A, 77, 78, 79, 80, 81 and/or 127 above, each of Mr Attieh’s and Ms Wafa Al Qatami’s voting at the 16 March Board Meeting and/or the 13 April Board Meeting, the SPA, the Assignment Deed (or their execution) and any purported transfer of the Interests thereunder constituted a ‘fraudulent act’. For the avoidance of doubt, this was so regardless of whether those steps were otherwise purportedly authorised or was a related party transaction under Article 158 LCC: “129.1. …. 129.2. The SPA and the Assignment Deed (and thus any purported transfers thereunder) were each palpably contrary to the interests of Cedar Mundi and the C-331 Shareholders in at least the respects pleaded in paragraphs 77, 78 and 79 above. 129.3. It is to be inferred that each of Mr Attieh, Ms Wafa Al Qatami, Mr Marzouq Al Bahar and Mr Talal Al Bahar (and accordingly and via the attribution of their knowledge, conduct and intentions, variously to each of IFAC, IFAK, MABIL, MAB and (directly or indirectly, through Fastnet and/or MABIL) Cedar II, those entities) knew and intended this (and knew and intended that it was, on the contrary, in the interests of MABIL, IFAC, IFAK, Cedar II, MAB, and/or other entities in the Med Al Bahar (and IFA) Group and/or, through those entities, themselves). Paragraph 80 above is repeated. 129.4. It is to be inferred that the, or an, objective of the SPA and the Assignment Deed was that pleaded in paragraph 81 above. 129.4A. If the SPA and the Assignment Deed (and any purported transfers of the Interests thereunder, via the transfer of the IFAC Interest or otherwise) was not subject to Article 158 LCC and/or other provisions of the LCC, that was by reason of some effective and genuine legal mechanism used to avoid such imperative rules of law with fraudulent intent. In particular, it is Cedar Mundi’s case that Mr Attieh’s resignation from Fastnet on5 March 2021 to avoid the application of Article 158 LCC in the circumstances constituted a fraudulent act. 129.5. the SPA, the Assignment Deed and any purported transfer thereunder involved the commission of offences as pleaded in Section VIII(C2) below. 129.6. In the premises, the 16 March Board Meeting and/or the 13 April Board Meeting, which each preceded the execution of and was in furtherance of the SPA, the Assignment Deed and any purported transfer thereunder were (or the participation in and voting at by Mr Attieh and Ms Wafa Al Qatami were) also, therefore, a ‘fraudulent act’. 130. Accordingly, the SPA and the Assignment Deed (and any purported transfer of the Interests thereunder) was (or were each) unauthorised and accordingly void.”
“D. My Directorship of Fastnet “60. I understand that at paragraph 129.4A of the APoC {A9/2/56}, Cedar Mundi alleges that I resigned from Fastnet to avoid the application of Article 158 LCC and this constituted a fraudulent act. This is not true. 61. I was initially appointed director of Fastnet in order to be able to expedite the administrative tasks necessary to incorporate the GP entity. This is part of my role, as Talal and Marzouq do not deal with these kinds of technicalities. After Fastnet was incorporated, I resigned from my directorship because Nadi advised me that it was best I step down so as not to create confusion ahead of the authorisation of the proposed sale of Cedar Mundi’s portfolio assets under Article 158 of the LCC. I do not recall if Nadi provided this advice to me in writing or orally, and when he did so. I resigned my directorship on5 March 2021 . My understanding at the time was that Article 158 would apply to the proposed transaction whether or not I was a director of Fastnet. I did not think that by resigning, Article 158 could be avoided.”
“A. Fastnet GP, yes, I resigned basically after setting up Fastnet GP, yes, because Nadi Najjar told me there is confusion about basically whether or not basically this would pose a problem. We don't know yet because it's a new law but just to be on the safe side resign, which I resigned. Q. Right. So let's be very clear about that. They were saying that potentially if you stayed on, you would be conflicted and that your vote may not count? A. What Mr Najjar was saying, he's saying it's a new law, it's uncertain, just to be on the safe side just resign basically, so we don't have any confusion. That basically was his advice and I actually followed it.”
“Was the 2021 Transaction unauthorised because it was a fraudulent act (in its broad sense)?”
“The authorization or transaction can also be voided by reason of fraud in its broad sense, which means the existence of illicit manoeuvres, including deceit and trickery.”
“Fraud in the broad sense encompasses various forms of dishonest conduct, including deceit, trickery, and fraudulent manipulation intended either to circumvent a rule of law, or to mislead a contracting party. This definition is confirmed by Mr P. Toubia who defines fraud in its broad sense as illicit manoeuvres, including deceit and trickery. In these cases of fraud, the fraudulent party often seeks to conceal a factual situation to avoid its legal consequences. The fraudulent party hence demonstrates considerable creativity in constructing a fictitious transaction designed to obscure its true intent and achieve a result prohibited by law. Ultimately, fraud in the broad sense consists of a deception, often reinforced by a deliberately orchestrated scheme.”
“129. Further or alternatively, in the premises of paragraphs 75A, 77, 78, 79, 80, 81 and/or 127 above, each of Mr Attieh’s and Ms Wafa Al Qatami’s voting at the 16 March Board Meeting and/or the 13 April Board Meeting, the SPA, the Assignment Deed (or their execution) and any purported transfer of the Interests thereunder constituted a ‘fraudulent act’. For the avoidance of doubt, this was so regardless of whether those steps were otherwise purportedly authorised or was a related party transaction under Article 158 LCC: 129.1. … 129.2. The SPA and the Assignment Deed (and thus any purported transfers thereunder) were each palpably contrary to the interests of Cedar Mundi and the C-331 Shareholders in at least the respects pleaded in paragraphs 77, 78 and 79 above. 129.3. It is to be inferred that each of Mr Attieh, Ms Wafa Al Qatami, Mr Marzouq Al Bahar and Mr Talal Al Bahar (and accordingly and via the attribution of their knowledge, conduct and intentions, variously to each of IFAC, IFAK, MABIL, MAB and (directly or indirectly, through Fastnet and/or MABIL) Cedar II, those entities) knew and intended this (and knew and intended that it was, on the contrary, in the interests of MABIL, IFAC, IFAK, Cedar II, MAB, and/or other entities in the Med Al Bahar (and IFA) Group and/or, through those entities, themselves). Paragraph 80 above is repeated. 129.4. It is to be inferred that the, or an, objective of the SPA and the Assignment Deed was that pleaded in paragraph 81 above. 129.4A. If the SPA and the Assignment Deed (and any purported transfers of the Interests thereunder, via the transfer of the IFAC Interest or otherwise) was not subject to Article 158 LCC and/or other provisions of the LCC, that was by reason of some effective and genuine legal mechanism used to avoid such imperative rules of law with fraudulent intent. In particular, it is Cedar Mundi’s case that Mr Attieh’s resignation from Fastnet on5 March 2021 to avoid the application of Article 158 LCC in the circumstances constituted a fraudulent act. 129.5. the SPA, the Assignment Deed and any purported transfer thereunder involved the commission of offences as pleaded in Section VIII(C2) below. 129.6. In the premises, the 16 March Board Meeting and/or the 13 April Board Meeting, which each preceded the execution of and was in furtherance of the SPA, the Assignment Deed and any purported transfer thereunder were (or the participation in and voting at by Mr Attieh and Ms Wafa Al Qatami were) also, therefore, a ‘fraudulent act’.”
“437. As a final fallback, even if the13 April 2021 board meeting had otherwise conferred effective authority on Mr Attieh to enter into the SPA and transfer Cedar Mundi’s investment portfolio under it to Cedar II, Cedar Mundi contends that the 2021 Transaction was a fraudulent act. 438. Mr Attieh’s conduct throughout is properly to be characterised as dishonest, involving a series of fraudulent manipulations and illicit manoeuvres, with material information that should have been shared with the C-331 Shareholders and Cedar Mundi’s board of directors concealed until after the13 April 2021 board meeting. Cedar Mundi relies on Mr Attieh’s entire course of conduct as set out in Section B above. 439. Mr Attieh’s trickery of the board of directors and the C-331 Shareholders includes, most obviously, the existence and effect of the 2020 Transaction. That was carefully concealed until after the13 April 2021 board meeting, including by holding back any SPA drafts until after the board meeting, and drafting the HoTs and the Fairness Opinion in a way which did not disclose the existence of the IFAC or the 2020 Transaction. Mr Attieh knew that revealing the 2020 Transaction before the13 April 2021 board meeting would prevent reaching any agreement on the board resolutions. 440. Mr Attieh’s fraudulent conduct also includes his concealed involvement on both sides of the 2021 Transaction from August 2020 onwards, including: (1) the drafting the HoTs (which was then presented as coming from KHCK); (2) calculating the consideration to be offered for Cedar Mundi or its investment portfolio (the workings for which were never disclosed until this litigation—unsurprisingly since that analysis presented the economics of the deal in a fundamentally different light); (3) substantially changing the terms of the Fairness Opinion (which was then presented as being an independent assessment by BSEC); (4) holding back (from the banks but not the Al Bahar group) relevant information about the Proximie fundraise; (5) concealing any intention to proceed with the 2021 Transaction without a general assembly meeting (despite Mr Attieh’s preparation of the analyse juridique prior to the13 April 2021 meeting); and (6) concealing from the board and the C-331 Shareholders the confirmation provided by Allen & Overy in their letter of28 May 2021 concerning Daikin’s proposed investment in White Lab .”
“43.2. The IFAC Transaction was (so Cedar Mundi infers, deliberately) concealed by at least Mr Attieh, Ms Wafa Al Qatami, Mr Talal Al Bahar, Mr Marzouq Al Bahar, IFAC, MABIL and MAB (or some of them) from Cedar Mundi, Midclear SAL (the custodian and administrator of the fund) (“Midclear”), Cedar Mundi’s auditors, the C-331 Shareholders and (Cedar Mundi infers) the BdL: 43.2.1. As pleaded above, Mr Attieh never referred to the PPC Agreement or provided a copy of it to Cedar Mundi, its Investment Committee, any of the C-331 Shareholders or to Cedar Mundi’s Board of Directors or General Assembly. The IFAC Transaction was never put before the Investment Committee at all. 43.2.2. Ms Wafa Al Qatami (and Mr Talal Al Bahar, Mr Marzouq Al Bahar, IFAC, MABIL and MAB) also never referred to the PPC Agreement or provided a copy of it to Cedar Mundi, its Investment Committee, any of the C-331 Shareholders or to Cedar Mundi’s Board of Directors or General Assembly. 43.2.3. As Mr Attieh acknowledged in his margin comment on the draft SPA on or about30 April 2021 , Mr Attieh did not seek the consent or approval of the Board of Directors, the General Assembly or any of the C-331 Shareholders for any of the PPC Agreement, the Trust Undertaking or the purported transfers that they envisaged. 43.2.4. Mr Attieh did not even inform the Board of Directors, the General Assembly or any of the C-331 Shareholders of any purported transfer of the Portfolio Assets to IFAC. Neither did Ms Wafa Al Qatami or any of Mr Talal Al Bahar, Mr Marzouq Al Bahar, IFAC, MABIL or MAB. 43.2.5. None of Cedar II, KHCK, MABIL or Mr Talal Al Bahar referred to the IFAC Transaction in the Heads of Terms (pleaded below) circulated in 2021, which set out a proposal for the purchase by Cedar II of various of Cedar Mundi’s assets. 43.2.6. Cedar II only provided a copy of the PPC Agreement for the first time on29 May 2024 in connection with the Cedar II Proceedings. Cedar Mundi does not presently know how Cedar II, which was not a party to the PPC Agreement, obtained a copy of it. 43.2.7. To the best of Cedar Mundi’s knowledge, except in the limited and incomplete respect pleaded in paragraph 36 above, none of Mr Attieh, Ms Wafa Al Qatami, Ms Talal Al Bahar, Mr Marzouq Al Bahar, IFAC, MABIL or MAB informed any of Cedar Mundi, Midclear, Cedar Mundi’s auditors, the C-331 Shareholders or the BdL of the IFAC Transaction. 43.2.8. Cedar II also did not inform any of Cedar Mundi, Midclear, Cedar Mundi’s auditors, the C-331 Shareholders or the BdL of the existence or content of the PPC Agreement or the Trust Undertaking in the lead up to or in the context of the execution of the SPA or Assignment Deed (which are pleaded below).”
“As to ratification: (2) Was the 2021 Transaction ratified by the board meeting on25 October 2021 and/or by Cedar Mundi accepting receipt of the cash consideration pursuant to the SPA, retaining that cash consideration and/or using some of those funds for its own purposes?” (2) Was the 2021 Transaction ratified by the board meeting on25 October 2021 and/or by Cedar Mundi accepting receipt of the cash consideration pursuant to the SPA, retaining that cash consideration and/or using some of those funds for its own purposes?”
“A principal cannot adopt the favourable parts of a transaction and disaffirm the rest: the principal cannot approbate and reprobate,” reprobate, for this would enable the principal to effect a transaction into which the third party had never intended to enter. A principal must therefore adopt or reject the transaction in toto, and where it can be said that this has not been done, the conclusion may be drawn that there was no ratification (though where an agent has effected several separate transactions, the principal may ratify certain transactions individually and refuse to ratify others).”
“Even a contract induced by a fraudulent, and therefore tortious, profession of agency can be ratified, though the agent might be liable to the principal. The right to rescind for misrepresentation, whether fraudulent or innocent, is clearly extinguished.”
“102. The principles governing ratification by a purported principal of an act done in his name were considered by Waller J in Suncorp Insurance and Finance v Milano Assicurazioni SpA [1993] 2 Lloyd's Rep. 225 especially at page 234 and by Moore-Bick J in Yona International Ltd v La RéunionFrancaise SA [1996] 2 Lloyd's Rep. 84 especially at pages 103 and 106. Ratification may be implied as well as express, and there is no requirement that it be communicated to either the agent or the person with whom the agent entered into the contract: it operates as a unilateral manifestation of will. Mere acquiescence or inactivity may be sufficient to constitute ratification. However, it involves a conscious decision to adopt an unauthorised act, and in order for there to be ratification: (i) The act of ratification must be that of the principal or of someone competent at the time of ratification to make the contract in question or to do the relevant act for the principal. (ii) The person ratifying the agent's conduct must know of all the material circumstances, unless he evinces an intention to ratify the contractual or other act regardless of them. (iii) In a case of ratification through silence and inactivity, it must be such as to manifest unequivocally an intention to adopt the act in question”
“Such words or conduct must be unequivocal: they must not be such that they could be accounted for by other possible interpretations, e.g. that the principal is simply resuming possession of his own property. … Such reasoning is necessary to protect the principal against too easily being held liable as having ratified.”
“receipt or retention of money with knowledge of the circumstances of a contract under which it is paid will normally constitute ratification of that contract, as will use or disposal of goods received under it unless the supposed principal did not assent to the transaction and had no alternative but to receive them and use them as they were, e.g. where they were already his own.”
“It is not open to the liquidator to retain the proceeds of the transactions in which the lorries were employed and at the same time to repudiate the authority of the directors to employ the lorries.”
“… In order that a person may be held to have ratified an act done without his authority, it is necessary that at the time of the ratification, he should have full knowledge of all the material circumstances in which the act was done, unless he intended to ratify and take the risk whatever the circumstances may have been. (See Bowstead art. 16, p. 64.) The commentary makes clear however that this principle, designed to protect the principal from being held too readily to have ratified acts of his agent, is less strict in the contractual context than it is in a tort context.”
“616. Cedar Mundi ratified the 2021 Transaction by using the cash consideration paid under the SPA into the BEMO account to pay fees due to BEMO to maintain Cedar Mundi’s accounts. … 617. The use of the cash consideration thus is an unequivocal act. It is inconsistent with Cedar Mundi’s case that the SPA is void”
“Q. When you took over this account, you must have known that the money in the account would be used to fund this management fee expense? A. My Lord, as I said, this is common practice to pay management fees when you have an account open with the bank. Q. I'm asking about your knowledge. So I'll ask one more time. A. My knowledge -- I mean, this is not a question that you ask yourself, since it's a common practice. …”
“Are Cedar II / IFAC entitled (whether as trustees or in unjust enrichment from Cedar Mundi) to the sums expended in maintaining the investment portfolio and should any order for the transfer of assets by them be conditional upon payment of the same?”
“286. MABIL hereby demands (to the extent demand has not already been made) repayment of the entire MABIL Overpayment. 287. Consequently, Cedar Mundi is liable under Lebanese law in debt, alternatively restitution to pay the sum of$1,860,609.40 . Paragraphs 40 and 52 above are repeated.”
“5. Neither the principal nor the interest on the Subordinated Amounts may be (re)paid if such (re)payment would mean that the Company may become insolvent, over indebted or ceases to be a going concern. The Company shall notify the Central Bank without delay of all repayments of any part of the Subordinated Amounts. 6. The Subordinated Amounts/shareholders' loans are in substance an integral part of the capital of the Fund/Company. 7. The Lender shall not demand, sue for, or receive payment of the whole or any part of the Subordinated Amounts or claim any set-off which would result in the principal amount of the Subordinated Amounts for the time being outstanding being reduced. 8. The Lender's claims on the Company in respect of the Subordinated Amounts are wholly subordinated to the claims of all other non-subordinated creditors of the Company. It is agreed that the Subordinated Amounts will rank paripassu with all other debt which is subordinated to the other creditors of the Company unless the Lender has first given its consent in writing to any such other subordinated debt of the Company having any priority, which consent shall not be unreasonably withheld.”
“By Articles 140, 141 and 233 CoC the claimant is also entitled to the restitution or disgorgement of profits obtained by the transferee without cause. In particular, pursuant to Article 141 CoC, the obligation to provide restitution under Article 140 CoC arises where: (i) there has been a direct or indirect, pecuniary or moral, enrichment of the defendant; (ii) a correlative impoverishment of the claimant due to the transfer of an asset or value made by or a service rendered by the claimant; (iii) the enrichment and correlative impoverishment must be devoid of a justifying cause; and (iv) there are no other legal grounds available to obtain such restitution.”
“… arises from and only from the director’s relationship with the company. If it does not relate to the constitution of the company, it must I think relate to its internal management. A director’s duties to his company are inextricably bound up with these matters and must therefore be governed by the place of the company’s incorporation”
“The duty of loyalty and good faith of directors and general managers is (i) enshrined in Article 221 CoC where it is associated with the principle of performance of contractual obligations, and (ii) inferred from various provisions of the LCC that set forth specific obligations and prohibitions with which the directors and general managers of Lebanese companies must comply. In summary, the duty of loyalty and good faith requires that directors and managers act in the company’s best interests (which includes the best interests of its shareholders), and that they refrain from taking advantage of their position to obtain benefits for themselves to the company’s and its shareholders’ detriment.”
“Whoever, in exercising a right, exceeds the bounds of good faith or the purpose for which the right was granted, thereby causing prejudice to another, shall also be liable in damages”
“The Lebanese Code of Commerce does not state any general principle regarding the duty of loyalty of commercial companies’ managers. Article 158 of the Lebanese Code of Commerce, which is the subject of my thesis, is nevertheless one of the manifestations of the raison d’être of the loyalty obligation. The latter aiming primarily to avoid that managers act in a manner that could create a conflict between their personal interests and the company’s interest, against the company and its shareholders, is truly and indeed, albeit implicitly, incorporated in the said Article the purpose of which is to prevent directors to contract with the company without having received the prior authorisation of the general assembly.”
“Q. ... ‘The Company’s board members owe the Company and its shareholders the fiduciary duties of care, loyalty and, compliance with corporate authority. In the discharge of their fiduciary duties the Board Members must at all time act in good faith, with candour, avoiding all potential or actual conflicts of interest, and in the best interests of the Company’ Do you agree with all of that? A. I agree. Q. Are those principles that you adhere to as a director? A. Yes, absolutely.”
“Cedar Mundi could have stopped actively investing and entered the divestment period where it would have held its then existing portfolio assets until a divestment opportunity presented itself. This is the approach that other 331 funds with which SGBL has been involved took following the onset of the Lebanese financial crisis.”