TOC Investments Corporation v Beppler & Jacobson Ltd & Ors

The court decided that TOC Investments Corporation was entitled to reimbursement of sums of £2,685,206.61 advanced to meet the fees and expenses of the provisional liquidators. The decision rested on contractual construction, insolvency law and equitable principles.

• On contractual construction the word "advance" in the Funding Agreement was ambiguous but, read in context (including the Newey Order and Insolvency Rule 4.30(3)), contemplated reimbursement out of the assets of the company; the Funding Agreement did not itself contain a sufficiently certain, self-contained repayment mechanism and a complex implied repayment term could not be interpolated.
• The Funding Agreement did not oust the effect of paragraph 21, Schedule 1 to the Newey Order or Rule 4.30(3); read together those instruments prescribed the mechanics and timing for reimbursement.
• Alternatively, and in the further alternative, TOC was entitled to be subrogated to the provisional liquidators’ rights to payment out of the company’s assets; the court viewed the substance of the funding arrangement as giving rise to that equitable remedy.
• The court did not need to and (without deciding the point) was doubtful whether the principle in Ex parte James would be available to save TOC had the other routes failed.

This was an application by TOC Investments Corporation for declaratory relief and orders requiring Beppler & Jacobson Limited to reimburse sums advanced by TOC to meet the provisional liquidators' fees and expenses under a Funding Agreement dated 27 July 2012. The sums in issue totalled approximately £2.685m and were held in Court by order of Rose J pending determination of whether they were repayable to TOC as an expense of the provisional liquidation.

Background and parties: BJUK was the company in provisional liquidation following a petition presented by Caldero Trading Limited. TOC (a TNK-BP subsidiary) funded Caldero's petition and then advanced monies to the provisional liquidators under the Funding Agreement. The petition was partly compromised by the Newey Order, which provided that BJUK should bear the fees and costs of the provisional liquidators. TOC was not a party to the Newey Order. The MdR respondents (controllers of BJUK following the compromise) denied any obligation to reimburse TOC.

Nature of the application: TOC sought declarations and repayment of the sums it had advanced, asserting entitlement under the Funding Agreement (expressly, implicitly or by implication), alternatively by subrogation to the liquidators' rights, or alternatively under the Ex parte James principle.

Procedural matters: The court admitted a late witness statement by the MdR respondents' solicitor and allowed joinder of Caldero. The substantive hearing addressed contractual construction, the effect of the Newey Order and Rose Order, the operation of Insolvency Rule 4.30(3), and equitable remedies.

Issues framed:

• Whether the Funding Agreement gave TOC a contractual right of repayment or required implication/interpolation of a repayment term;
• Whether clause 12 (entire agreement) or clause 3.4 (return of surplus) excluded other remedies;
• Whether paragraph 21, Schedule 1 to the Newey Order or Insolvency Rule 4.30(3) authorised reimbursement to TOC; and
• Whether TOC could obtain relief by subrogation or under Ex parte James.

Reasoning and outcome: The judge held that the word "advance" was ambiguous and that the surrounding context (including the Newey Order and Rule 4.30(3)) showed the parties contemplated reimbursement out of BJUK's assets; however the Funding Agreement did not itself contain a sufficiently certain, self-contained obligation fixing the triggering event and mechanics of repayment and the court would not imply the elaborate term TOC sought. Instead the Funding Agreement should be read with the Newey Order and Insolvency Rule 4.30(3), which provided the mechanism and timing for reimbursement on dismissal of the petition or on winding up. The judge also concluded that, alternatively, TOC should be entitled to equitable subrogation to the provisional liquidators’ rights to payment out of the company's assets. The judge doubted the need to rely on Ex parte James and expressed scepticism it would assist if all other routes failed. The court granted declaratory relief in favour of TOC and invited the parties to agree a form of order.

The application is allowed. The court declared that TOC is entitled to reimbursement of the sums advanced to the provisional liquidators, the Funding Agreement being read with paragraph 21, Schedule 1 to the Newey Order and/or Rule 4.30(3) of the Insolvency Rules; alternatively TOC is entitled to reimbursement by subrogation to the liquidators' rights. The court declined to rely on Ex parte James and refused to imply the complex repayment term sought directly into the Funding Agreement.