Fons Hf v Corporal Ltd & Anor
2014
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
- LORD JUSTICE PATTEN
- LADY JUSTICE SHARP
Areas of Law
- Contract Law
2014
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
AI Generated Summary
This Court of Appeal case revolves around interpreting the definition of 'Shares' within a legal charge agreement. The rights of Fons under two unsecured shareholder loan agreements were debated as either 'debentures' or 'other securities'. The court allows the appeal, declaring that the SLAs are within the Charge. Key legal principles include the broad interpretation of 'debentures' and 'securities' consistent with contract law and business common sense.
Judgment
Lord Justice Patten :
Introduction
This appeal concerns the proper interpretation of the definition of the word “ Shares ” which is contained in clause 1.1 of a legal charge (“the Charge”) entered into on 29 th September 2008 between the claimant, Fons HF (“Fons”) as Chargor, and Kaupthing Bank Luxembourg S.A. (“Kaupthing”) as Lender/Chargee. Under clause 3.1 of the Charge (headed “Grant of security”) this provided that:
“The Chargor, as a continuing security for the payment, discharge and performance of the Secured Obligations, charges and agrees to charge in favour of the Lender:
3.1.1 by way of first legal mortgage, the Shares;
3.1.2 by way of first equitable mortgage, the Distribution Rights from time to time accruing to or on the Shares; and
3.1.3 to the extent not validly and effectively charged by way of mortgage pursuant to clauses 3.1.1 or 3.1.2, by way of first fixed charge, the Secured Property and all the Chargor’s interest in the Secured Property.”
“ Shares ” in clause 3.1.1 is defined as meaning:
“all shares (if any) specified in Schedule 1 ( Shares ), and also all other stocks, shares, debentures, bonds, warrants, coupons or other securities now or in the future owned by the Chargor in Corporal from time to time or any in which it has an interest.”
The particular issue which divides the parties is whether this definition encompasses the rights of Fons under two shareholder loan agreements dated 17 th October 2007 and 15 th February 2008 (“the SLAs”) under which Fons made unsecured loans to a company, Corporal Limited (“Corporal”), in which it held both ordinary and preference shares. The loan under the first SLA was £563,500 and Fons was the sole lender. Under the second SLA, BG Holding EHF (“Baugur”) and Fons acted as joint lenders and advanced £1.5m in proportion to their respective shareholdings in Corporal. Fons provided 35 per cent of the loan. As in the case of the first SLA, the loan was unsecured.
Kaupthing contends that the rights of Fons under the SLAs were charged either as “ debentures ” or as “ other securities ” under the clause 1.1 definition of “ Shares ”. The judge, Mr Mark Cawson QC (sitting as a deputy judge of the High Court), rejected this argument but gave Kaupthing permission to appeal.
Background
Before coming back to some of the detailed provisions of the Charge and the SLAs, it is convenient to set out some of the relevant factual background as found by the judge.
On 30 th June 2006 Fons, thro