Maple Leaf Macro Volatility Masterfund v Rouvroy

The court held that a binding Funding Agreement had been formed between the claimants (Maple Leaf and Astin) and the defendants by signature of a termsheet (Version 9) on 25 July 2007 and that the parties consented to a later variation (Version 10a) on 26 July 2007. The judge applied the ordinary objective test for contract formation, treating the termsheet in its commercial context and rejecting the defendants' contentions that the document was non-contractual because it was a "termsheet", unsigned by Lion Capital, or insufficiently certain.

The court determined that the English Commercial Court had jurisdiction under Article 24 and Article 23 of Council Regulation No 44/2001 (the Brussels Regulation) and, in relation to Maple Leaf's deceit claim, under Article 5. The termination clause in the termsheet operated automatically and was not a penal clause. The judge rejected the defendants' arguments based on the Consumer Protection (Unfair Terms) Regulations 1999 and the "unfair relationships" provisions of the Consumer Credit Act 1974.

Remedies: the court allowed contractual relief for the claimants (permission to pursue debt and damages), rejected Maple Leaf's deceit claims, and dismissed the defendants' counterclaim under section 150 FSMA (COB rules). The judge quantified part of the claim (including an assessment for the lost value of the call option) and invited further submissions about one quantum point.

Background and parties: The claimants were Maple Leaf Macro Volatility Master Fund (a Cayman hedge fund, managed in London) and Astin Capital Management Ltd (an FSA-authorised arranger). The defendants were two senior executives of Belvédère SA (JR and KT), who sought funding to help complete a private placement of securities held by CL Financial. The deal was negotiated in London and Paris over 24–26 July 2007 and crystallised in a multi-page termsheet (Version 9) signed late on 25 July 2007. Lion Capital was expected to participate but did not sign at that stage.

Nature of the proceedings and relief sought: Claimants sued for enforcement of the alleged Funding Agreement (alternatively damages), indemnities and specific performance; Maple Leaf also alleged fraudulent misrepresentation in the inducement (deceit). Defendants counterclaimed against Astin under section 150 FSMA, alleging contravention of FSA Conduct of Business rules. The court also had to determine jurisdiction under the Brussels Regulation and the validity and effect of the termination clause in the termsheet.

Procedural posture: This was a first-instance Commercial Court trial before Mr Justice Andrew Smith following a pre-trial review and a contested trial over several days in November 2008. Issues of jurisdiction were adjourned and determined at trial.

Issues framed by the court:

• Whether the English court had jurisdiction under Articles 24, 23 and 5(3) of the Brussels Regulation;
• Whether a binding Funding Agreement existed (Version 9 or as varied to Version 10/10a);
• Construction and validity of the termination provision; whether it was penal;
• Whether the agreement was unenforceable or unfair under the 1999 Regulations or the Consumer Credit Act 1974;
• Whether the defendants made fraudulent misrepresentations inducing Maple Leaf;
• Whether Astin contravened COB rules and, if so, whether the defendants suffered loss under FSMA s.150.

Court’s reasoning (concise): The judge applied an objective test to the parties' conduct and the wording of the termsheet. He found that on the commercial facts and given the prior communications (including the express requirement that management sign the document before investors would subscribe), Version 9 manifested an intention to create legal relations and to be binding. Subsequent agreed changes on 26 July (Versions 10/10a) were effective variations of the contract.

The judge rejected the defendants' points that: (i) signatures were not witnessed; (ii) the absence of Lion Capital's signature prevented contract formation—the court found Lion Capital had acceded to the terms in the course of the exchanges or, in any event, its later withdrawal did not render the Maple Leaf–defendants contract ineffective; and (iii) the agreement was too uncertain. He found the termination clause allowed automatic termination if the documentation was not completed by the date stated, and that the purported unilateral extensions claimed by the claimants were ineffective when both lenders’ agreement was required.

Jurisdiction: the court had jurisdiction under Article 24 because the defendants entered an appearance (and failed to challenge jurisdiction within the procedural time limits), and also under Article 23 because the Funding Agreement contained a valid jurisdiction clause. Maple Leaf’s deceit claim was also within Article 5 since harm (the commitment and subscription) occurred in England.

Deceit: the judge found no actionable deceit. Although the defendants’ conduct in late 25–26 July was equivocal and later dishonest in the judge’s view, the evidence did not establish the subjective dishonesty required for deceit in respect of the signing of Version 9; and Maple Leaf did not rely on any continuing representation at the time of its revised subscription on 26 July.

Counterclaim: the defendants’ FSMA s.150 claim based on alleged breach of COB rules failed because (i) the COB stock-lending rule did not apply (no stock lending by Astin to the defendants), (ii) Astin had taken reasonable steps in communications and risk-warning given the parties’ sophistication and time pressure, and (iii) no loss was proven to result from any alleged contravention.

Outcome and remedies: The Funding Agreement was held binding; the termination clause operated so that it terminated automatically in early August 2007 (the court treated attempt(s) by the claimants to extend as ineffective). The claimants obtained contractual remedies: permission to pursue debt claims in respect of the Loan Redemption Amount and damages, an award in respect of the lost option (quantified by the judge subject to further brief submissions), and Maple Leaf’s deceit claims were dismissed; the defendants’ counterclaim under FSMA s.150 failed. The judge invited further short submissions on quantification/interest.

First instance: The judge held that a binding Funding Agreement existed on the terms of the signed Version 9 as varied (Version 10/10a) and that the English court had jurisdiction (Article 24 and Article 23 Brussels Regulation; Article 5 as to deceit). The contract terminated automatically under its own termination provision in early August 2007. The judge awarded contractual relief to the claimants (debt/damages and an assessed sum in respect of the lost call option), dismissed the deceit claims and dismissed the defendants’ FSMA s.150 counterclaim. The judgment explains the objective approach to termsheet enforcement, construction of the termination provision, rejection of consumer/regulatory defences and reasons for rejecting alleged COB contraventions.