AMG Global Nominees (Private) Ltd v Africa Resources Ltd

The Court of Appeal considered two issues: whether the sale and related documentation (the SPA and the Memorandum of Deposit and Charge) involved unlawful financial assistance contrary to s.151 Companies Act 1985, and whether ARL was in default under the MDC such as to permit T&N (or its administrators) to exercise a power of sale. The court held that financial assistance given by a foreign subsidiary (SMMZ) did not, without more, constitute financial assistance by the English parent (SMMH) for the purposes of s.151; Millett J’s reasoning in Arab Bank plc v Merchantile Holdings Ltd was treated as applicable and limiting.

On the issue of default the court held that AMG bore the burden of proving that ARL had failed to procure payment under clause 3 of the SPA. The judge’s factual finding of no default was held to be open on the evidence: in particular the close operational relationship between T&N and ARL and the absence of any complaint or contemporaneous assertion of unpaid surplus export proceeds supported the inference that no default had occurred.

Background and parties. The dispute concerned bearer share warrants in two English holding companies, SMM Holdings Ltd and THZ Holdings Ltd. T&N sold those warrants to Africa Resources Ltd (ARL) under a 7 March 1996 share purchase agreement (the SPA). The SPA provided a payment mechanism in which instalments were to be paid from export proceeds of a Zimbabwe subsidiary, SMMZ. A Memorandum of Deposit and Charge (MDC) secured ARL's obligations. In 2004 administrators of T&N purported to sell the shares to AMG Global Nominees (AMG). AMG applied under s.359 Companies Act 1985 to be registered; ARL intervened claiming prior title under the SPA and MDC.

Procedural posture. The claim was heard at first instance by Evans-Lombe J, who rejected AMG’s contentions that the SPA was illegal under s.151 Companies Act 1985 and that ARL had defaulted under the MDC. AMG appealed to the Court of Appeal.

Nature of the claim / relief sought. AMG sought rectification of the registers to be registered as holder of the shares; ARL sought a declaration of prior title and to defeat AMG’s application by showing no default had arisen which would have permitted a valid sale to AMG.

Issues framed by the court.

• Whether the SPA infringed s.151 Companies Act 1985 by reason of financial assistance said to be provided by SMMH.
• Whether ARL was in default under the MDC on 5 November 2004 so as to permit exercise of the power of sale.

Court’s reasoning. On the first issue the court accepted the principle in Arab Bank plc v Merchantile Holdings Ltd that financial assistance given lawfully by a foreign subsidiary does not ipso facto amount to financial assistance by the parent. The court found no acts by SMMH equivalent to a hive-down of assets or other identifiable financial assistance within the terms of s.152(1)(a)(iv). The penal character of s.151 pointed against straining its scope.

On the second issue the court analysed the burden of proof and held that AMG, which asserted entitlement to registration, bore the burden of proving default by ARL. The trial judge’s factual conclusion of no default was supported by evidence of the close relationship between T&N and ARL, secondment arrangements and the absence of any contemporaneous complaint by T&N about unpaid surplus export proceeds. Given the course of the hearing and late pleadings, the judge was entitled to decide the factual issues on the existing evidence and to draw the inference he did.

Result and wider comments. The SPA and MDC were held valid when made, and ARL retained the better right to the bearing share warrants. The court emphasised that the words defining financial assistance ought not to be stretched beyond their ordinary commercial meaning.

Appeal dismissed. The Court of Appeal agreed with the first instance judge that (1) the SPA and MDC did not involve unlawful financial assistance by SMMH contrary to s.151 Companies Act 1985 because the assistance was provided by the foreign subsidiary and there was no hive-down or other identifiable assistance by the parent, and (2) on the facts there was no default by ARL under the MDC on 5 November 2004; AMG bore the burden of proving default and the absence of contemporaneous complaint and the close relationship between the parties supported the judge's finding.

On appeal from the High Court, Chancery Division (Evans-Lombe J), Lower Court Ref. No 1201 of 2005; judgment below delivered by Evans-Lombe J (13 February 2008). This appeal to the Court of Appeal was heard 4–5 November 2008 and dismissed 20 November 2008 ([2008] EWCA Civ 1278).