Slocom Trading Ltd v Tatik Inc & Ors (2012)
The court was required to determine the validity and effectiveness of a number of contracts between companies through which two businessmen had managed their financial affairs.
The claimant companies (S and D) claimed damages for breach of contract from the defendants (T, E and M).
The dispute arose out of the financial activities of two businessmen (K and X). K managed his affairs through S and D, while X managed his through T, E and M. The proceedings concerned the alleged liabilities of X and his companies as a result of transactions surrounding his purchase and sale of a villa. The court was also required to determine competing claims to a share in the proceeds of sale. X had purchased the villa in T's name, financed by a series of loans made by K through D. The villa had been sold following litigation between X and E arising out of the misappropriation by X of E's funds. That litigation had been settled on the basis that T would sell the villa to E's subsidiary, M. Also of relevance was litigation between D and E, which had been settled upon D assigning to E its rights to the proceeds of any claims to recover misappropriated funds by any associate of X. The central transactions with which the court was concerned were a series of loans to X; a loan agreement between D and T whereby T took on X's debts; stock pledges by T; assignments of D's interests in the loans to S; and a series of agreements made between the parties in April 2009 which included a "subordination deed". The issues were (i) whether the D/T loan was a sham intended to make it appear that T was indebted to D in order to deceive X's creditors; (ii) whether the D/T loan and/or T's second stock pledge were voidable under the Insolvency Act 1996 s.423; (iii) the effect of the D/T loan agreement; (iv) whether the D/T loan had been procured by fraudulent misrepresentation; (v) whether the assignment to S was voidable under s.423; (vi) whether S was precluded from relying on the April 2009 agreements by reason of misrepresentation; (vii) whether T or E were in breach of their obligations under the April 2009 agreements; (viii) whether E or M had induced a breach of contract by X or T; (ix) whether the sale of the villa could be impeached under s.423; (x) whether M's ownership of the villa was subject to an equitable mortgage; (xi) whether E was entitled to set aside its settlement with D.
(1) The D/T loan agreement was valid and effective. The questions were what legal rights and obligations the agreement appeared to create, and what legal rights and obligations the parties had intended to create. By the agreement, T appeared to agree that it was henceforth liable to repay the loans to D, and that was the liability which the parties had intended to create. The fact that some of the stipulated sums had been erroneously overstated, a recital to the agreement referred to a previous purported contract, and certain dates were incorrectly stated, did not render the agreement a sham. Its purpose was not to mislead X's creditors, but for T to assume liability for the loans (see paras 255-258, 263-268, 271, 274, 354 of judgment). (2) Neither the D/T agreement nor the second T stock pledge were voidable under s.423 (paras 276-277, 354). (3) The D/T agreement provided for T to be liable to D on the terms stated. In those circumstances there was no need to resort to a contractual estoppel. Had there been such a need, the court would have held that T was estopped from denying that it was liable to D. T was liable for damages for breach of the D/T loan agreement (paras 279, 284, 288, 354). (4) The D/T loan agreement had not been procured by fraudulent misrepresentation. Such a claim could only be maintained by showing that X had been unaware of the true position and that T had entered into the agreement in reliance on the alleged misrepresentations. Without evidence from X, that was impossible to establish (paras 292-293). (5) The assignment to S was not voidable under s.423. It was clearly designed to place the benefit of the debt out of E's reach and had not been transacted at an undervalue (paras 294, 301). (6) Since the D/T loan and its assignment to S were valid and effective, S's primary claim against T lay in debt under that agreement. It could not recover any more by way of a damages claim for the alleged breach of the April 2009 agreements (paras 304-305, 354). (7) E was liable to S for damages for certain breaches of the April 2009 agreements (paras 309, 315-327, 354). (8) M was liable to S for damages for inducing a breach by X of T's second stock pledge, and by T of the D/T loan agreement (paras 332-337, 354). (9) The sale of the villa could not be impeached under s.423. It had been transacted pursuant to the subordination deed and it was not clear that it had been at an undervalue (paras 338-340, 354). (10) The villa was held by M subject to an equitable mortgage in favour of S, M having bought it with clear notice of the D/T loan agreement (paras 344-346, 354). (11) There was no basis on which E could set aside the settlement agreement with D (paras 353-354).
Judgment for claimants
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