Jafari-Fini v Skillglass Ltd

The Court of Appeal dismissed the appellant's appeal. The principal legal issues concerned (i) whether a payment of £150,000 made on 27 June 2003 was a bribe such that PAL committed a contractual Major Default under clause 21.8.2 of the Facility Agreement by failing to disclose it to Skillglass, (ii) whether knowledge of that payment could properly be imputed to PAL, and (iii) whether the claimant had been procedurally unfairly treated at the trial. The majority (Moore-Bick LJ and Laws LJ) upheld the trial judge's findings that a bribe had been paid, that Mr Webster's knowledge of the payment was imputable to PAL for the purpose of clause 21.8.2, and that Skillglass was therefore entitled to serve the October 2003 notice of default; Carnwath LJ would have allowed the appeal on the bribery issue, concluding the bribery and PAL's knowledge were not proved to the requisite standard. The court unanimously rejected the procedural unfairness complaints.

This is an appeal from a Chancery Division decision arising out of the financing and takeover arrangements by which PAL acquired control of Chesterton in 2003. The appellant (Mr Jafari-Fini) challenged the validity and consequences of notices of default served by Skillglass in October and December 2003 under a facility agreement dated 16 April 2003. Central to the dispute was an allegation that the appellant paid £150,000 on 27 June 2003 (the date the offer became unconditional) to an associate of Skillglass (Three V / Mr Constable) and that PAL failed to disclose that payment to Skillglass, constituting a defined Major Default (clause 21.8.2) which removed the protections of the "Certain Funds Period" and permitted Skillglass to accelerate and enforce.

The proceedings involved: (i) a trial of preliminary issues before Mr Stuart Isaacs QC (a seven-day trial with oral evidence from nine witnesses); (ii) earlier interlocutory decisions including a consideration by Chadwick LJ on permission to amend and the scope for a derivative claim; and (iii) this appeal to the Court of Appeal.

Reliefs sought: declarations as to whether the October notice and December demand were valid; whether Skillglass had committed breaches of the Facility Agreement, the Debenture and the Nominee Declarations; and whether, if those notices were invalid, PAL and/or the appellant were discharged from liabilities (including under guarantees and securities).

Issues framed and the court's reasoning:

• Bribe and standard of proof: the civil standard on the balance of probabilities applies, but cogent evidence is required for serious allegations of corrupt conduct. The judge applied that approach. Moore-Bick LJ and Laws LJ concluded the judge was entitled to find the payment was a bribe on the evidence (noting admissions, Mr Rowland's account of a confession by Mr Constable, Mr Webster's evidence and surrounding circumstances); Carnwath LJ (dissenting on this point) considered the evidence inadequate and criticised reliance on hearsay/confessions and on gaps in the defendants' case.
• Imputed knowledge: if a director (Mr Webster) knew material facts about the payment those facts could be attributed to PAL for the purposes of clause 21.8.2. Moore-Bick LJ analysed agency and "directing mind and will" principles and concluded Mr Webster's knowledge was imputable to PAL and material.
• Validity and contractual effect of notices: the majority held that because a Major Default had occurred Skillglass was entitled to give the October notice. The court also addressed (obiter) the effect of an unauthorised notice of default and followed authority (Concord Trust and subsequent approval) that an invalid premature notice is ineffective and does not of itself repudiate the facility agreement.
• Procedure: complaints by the litigant-in-person about failure to summon key witnesses (notably Mr Constable) and trial conduct were considered and rejected; the court found the trial fair and the appellant had not been denied necessary assistance.

The majority dismissed the appeal. Carnwath LJ would have allowed it only on the bribery/imputation points.

Appeal dismissed. By majority the Court held that the judge was entitled to find that a £150,000 payment was a bribe and that material knowledge of that payment (principally via Mr Webster) was imputable to PAL under clause 21.8.2 of the Facility Agreement; that constituted a continuing Major Default permitting Skillglass to serve its October 2003 notice of default during the Certain Funds Period and to exercise lender remedies. The court also unanimously held there had been no procedural unfairness at trial. Carnwath LJ dissented on the bribery/imputation finding, considering the evidence insufficient.

Appeal from the Chancery Division (judgment at first instance before Mr Stuart Isaacs QC; earlier interlocutory ruling by HH Judge Rich QC refusing permission to amend to include a derivative action, considered on appeal to this court by Chadwick LJ (see [2005] EWCA Civ 356). The High Court judgment under appeal is reported at [2006] EWHC 77 (Ch). This Court of Appeal judgment is [2007] EWCA Civ 261.