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Jersey Unreported Judgments |
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You are here: BAILII >> Databases >> Jersey Unreported Judgments >> Energy Investments Global Limited and Heritage Oil Limited v Albion Energy Limited 14-Dec-2020 [2020] JCA 258 (14 December 2020) URL: http://www.bailii.org/je/cases/UR/2020/2020_258.html Cite as: [2020] JCA 258 |
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Companies - appeal against two orders of the Royal Court.
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Before : |
James McNeil, Q.C; Sir William Bailhache and Jeremy Storey, Q.C. |
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Between |
(1) Energy Investments Global Limited (2) Heritage Oil Limited |
Appellants |
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And |
Albion Energy Limited |
Respondent |
Advocate D. M. Cadin for the Appellants.
Advocate A. D. Hoy for the Respondent.
judgment
BAILHACHE ja:
1. This the judgment of the Court on an appeal against two Orders of the Royal Court that:-
(i) The First Appellant shall transfer 19,249,664 shares in the Second Appellant into the name of the Respondent; and
(ii) The Second Appellant shall register the transfer of those shares in its Register of Members and issue a Certificate of Title to reflect that entry and deliver the same to the Respondent.
We adopt the same definitions in this judgment as were adopted in the court below.
2. The judgment of the Royal Court (Clyde-Smith, Commissioner sitting with Jurats Blampied and Thomas) is to be found at Albion Energy Limited v Energy Investments Global Limited and Heritage Oil Limited [2020] JRC 147A, and was handed down on 30th July, 2020. The Orders were made by the Royal Court at the Respondent's request to enable the Respondent to enforce its security over shares in the Second Appellant.
3. As was indicated by the Royal Court, the background is well set out in the judgment of Foxton J in Albion Energy Limited v Energy Investments Global BRL [2020] EWHC 301(Comm) whose wording was substantially adopted by the Royal Court in its judgment, extracts of which appear below:-
4. The Court noted that on 14th February 2020, Foxton J refused EIGL's application for a stay and granted Albion's application for summary judgment on its claim for the balance of the purchase consideration in the sum of US $13.3 million. An application by EIGL to appeal the decision of Foxton J was refused and his decision is therefore final.
5. The Escrow Agreement, so far as is material, provided that the sum of US$13,333,334 paid to the Respondent's English solicitors Messrs Charles Fussell & Co LLP, was to be held pursuant to the solicitors' undertaking, governed by the law of England and Wales. By that undertaking, Messrs Charles Fussell & Co promised to hold the funds strictly to the joint order of the First Appellant and the Respondent, and not transfer the funds to any person other than on joint instructions of the First Appellant and the First Respondent or pursuant to an order of a court with competent jurisdiction. There having been no agreement between the parties' respective English solicitors, Messrs Charles Fussell & Co applied on 17th June, 2020 as stakeholders for an order from the English Court authorising the transfer of the Escrow monies to the Respondent. The hearing of the application took place on 30th September, 2020, when the following Order was made by Henshaw J :
6. The amount paid into the Escrow account represented the balance of the purchase price then alleged to be due to the Respondent under the SPA. Since the date of the payment into escrow, the Respondent has asserted other liabilities due to it by the First Appellant - prejudgment interest of US$954,424, and post judgment interest of US$509,626. By letter dated 2nd October, 2020, the Respondent purportedly exercised a right to appropriate the Escrow funds as between the different debts - applying them first of all to post judgment interest, secondly to pre-judgment interest and thirdly to the balance due under the EPA. Accordingly, the Respondent now contends that US$1,289,413 of the SPA balance remains due. The Appellants deny that the Respondent was entitled to make this appropriation. The detail of the respective contentions appears below.
7. A number of arguments were raised by the Appellants in the Royal Court as to why the Respondent was not entitled to the relief which it sought. The Royal Court found against the Appellants on all the objections which had been raised and for the most part the Appellants have accepted that adjudication. The appeal is primarily based on the narrow point that the Royal Court, having correctly found that the legal doctrine of merger (under which a cause of action merges into a judgment obtained in respect of such cause of action and is thereby extinguished such that no new proceedings can be brought in relation to that cause of action) is part of the law of Jersey, failed correctly to apply the legal doctrine to the case before it and thus reached the wrong conclusion. The appeal is put in two ways, the first emphasising substantive legal issues around the nature of causes of action and of the doctrine of merger into judgments, and the second emphasising that on the construction of this particular SIA, the Royal Court was wrong to find as it did. Subsequently, two other matters have been raised: as set out at paragraphs 16-18 below, the Respondent has raised the issues of the doctrine of non - merger of foreign judgments, and of appropriation in relation to the Escrow monies.
8. As indicated in the summary by the Royal Court set out at paragraph 3 above, the Respondent sold its remaining 20% interest in the Second Appellant on the terms of the SPA, governed by English law, for the sum of US$100m payable in three instalments. The obligation to pay the consideration was secured over the 20% of the shares in the Second Appellant that were sold. In the SIA, the First Appellant is described as the "Grantor" and the Respondent as the "Secured Party". Relevant extracts from that SIA are as follows:-
"1. DEFINITIONS AND INTERPRETATION
(1) (Definitions)
...........
(h) "Event of Default" means the Grantor's failure to pay any instalment of the Consideration when due and payable under the SPA;
(i) "Final Release Date" means the date on which any unpaid portion of the Consideration is paid by the Grantor in full pursuant to the SPA;
...........
(r) "Secured Liabilities" means the Grantor's obligation to pay any unpaid portion of the Consideration to the Secured Party pursuant to the SPA;
(s) "security interest" shall have the meaning given to it in Article 1A of the Security Law;
(t) "Security Law" means the Security Interests (Jersey) Law 2012;
(u) "Security Period" means the period beginning on the date of this Agreement and ending on the date on which the Grantor has paid the Consideration to the Secured Party in full in accordance with the SPA;
(2) Interpretation
In this Agreement, unless the context otherwise requires:
......
(m) any covenant of the Grantor under this Agreement shall remain in force during the Security Period or such longer period as may be specified in this Agreement.
2. SECURITY INTEREST
(1) In order to provide continuing security for the payment and performance of the Secured Liabilities, the Grantor, subject to Clause 11, hereby creates a first ranking security interest under the Security Law in or over all of its present and future rights, title and interest in and to the Collateral in favour of the Secured Party.
......
6. ENFORCEMENT
(1) The power of enforcement in respect of the security interest constituted by or pursuant to this Agreement shall become exercisable when an Event of Default has occurred and the Secured Party has served on the Grantor written notice specifying such Event of Default.
......
(8) Unless otherwise required by law, any amount or value received or recovered by the Secured Party as a result of exercising the power of enforcement in respect of the security interest constituted by or pursuant to this Agreement shall be applied by the Secured Party in or towards payment or discharge of the Secured Liabilities. If any surplus arises as described in Article 51 of the Security Law, then the Secured Party shall apply such surplus in accordance with Article 49 of the Security Law or pay such surplus into court pursuant to Article 50 of the Security Law. If the Secured Party elects to apply any surplus in accordance with Article 49 of the Security Law, the Secured Party shall not be liable for any failure to apply the surplus in accordance with Article 49 of the Security Law provided that the Secured Party sought to comply with Article 49 of the Security Law in good faith and after having made reasonable inquiries.
......
10 NO IMPAIRMENT
The obligations of the Grantor under this Agreement, and the security interest constituted by or pursuant to this Agreement, shall not be discharged, released, impaired, prejudiced or otherwise affected in any way by:
.....
(2) any act or omission by the Secured Party in taking up, perfecting or enforcing any security, indemnity, guarantee or other claim from or against the Grantor;
......
15. MISCELLANEOUS
(1) The security interest constituted by or pursuant to this Agreement shall be independent of and in addition to and shall not merge with or be prejudiced or affected by or otherwise prejudice or affect any contractual or other right or remedy or any guarantee, indemnity, lien, right of set off, right of combination or consolidation of accounts, security interest, mortgage, charge or other security or other right now or hereafter held by or available to the Secured Party.
.......
(7) The Secured Party is not obliged to marshal, enforce, apply, appropriate, recover or exercise any security, guarantee or other right held at any time by it, or any amounts or other property that it holds or is entitled to receive, or have recourse to any other remedy, before enforcing the security interest constituted by or pursuant to this Agreement.
......
18. GOVERNING LAW AND JURISDICTION
(1) This Agreement shall be governed by and construed in accordance with the laws of Jersey.
(2) The Parties submit to the non-exclusive jurisdiction of the courts of Jersey.
(3) Nothing contained in this Clause 18 shall limit the right of the Secured Party to institute proceedings against the Grantor in any other court of competent jurisdiction nor shall the institution of proceedings in one or more jurisdictions preclude the institution of proceedings in any other jurisdiction, whether concurrently or not.
(4) The Grantor irrevocably and unconditionally waives (and irrevocably and unconditionally agrees not to raise) any objection which it may at any time have to the venue of any proceedings in any such court as is referred to in this Clause 18 and any claims that any such proceedings have been instituted in an inconvenient forum.
(5) The Grantor unconditionally agrees that a judgment in any proceedings brought in any court as is referred to in this Clause 18 will be conclusive and binding upon the Grantor and may be enforced in the courts of any other jurisdiction.
...... "
9. Given that the definition of "Secured Liabilities" in the SIA is agreed to be the Grantor's obligation to pay any unpaid portion of the Consideration to the Secured Party pursuant to the SPA, it is necessary to identify the nature of that obligation.
10. The aggregate consideration for the purchase of the shares (in the Second Appellant) under Clause 3.1 of the SPA was defined as the sum of US$100,000,000 payable by the First Appellant to the Respondent in three instalments, the first in the 10 days following the Completion Date, the second on 20th June, 2018 and the third - in the sum of $33,333,334 - on 20th December, 2018. By Clause 4 of the SPA the Buyer (the First Appellant) was required to deliver the SIA, duly executed, to the Seller (the Respondent) on the Completion Date.
11. By Clause 11 of the SPA, the parties agreed that that agreement was governed by and was to be construed in accordance with the laws of England, and the parties submitted to the exclusive jurisdiction of the Courts of England and Wales as regards any claim, dispute or matter, whether contractual or non-contractual, arising out of or in connection with the agreement, including its formation.
12. The narrow point raised by the Appellants on this appeal is that the SIA created security for the Respondent only in respect of the Secured Liabilities, namely, the payment of the consideration for the shares under the SPA. The first two tranches of that consideration were paid on a timely basis; and as to the third tranche, which was not paid when due, the Respondent elected to take proceedings in England, obtaining a judgment against the First Appellant for the remaining sum due under the SPA, rather than pursue its rights under the SIA. As a consequence, as a matter of English law, no further claim could be made against the First Appellant under the SPA for payment of the outstanding consideration - instead, the Respondent had a judgment which it would be able to enforce in the usual way. Thus, it is said that because nothing further was due by way of the consideration stipulated in the SPA, there were no liabilities which remained secured. From the moment that the Respondent obtained summary judgment on 14th February, 2020, it was owed a judgment debt but nothing further was due under the SPA.
13. When it comes to construction of the SIA, the Appellants contend that this was a limited and specific form of security interest which had been negotiated. It is apparent from the transcript of submissions before the Royal Court and in its judgment that the Court found that it was a startling proposition that, by bringing proceedings in England and obtaining a judgment rather than pursuing security in Jersey, the Respondent had effectively brought the SIA to an end. At paragraph 52 of its judgment, the Royal Court said this:-
14. The Appellants contend that the Royal Court went wrong in so finding - not every form of security would be lost if a judgment is obtained on the underlying secured obligation because whether it is lost or not depends entirely on the way in which the security interest is drafted. If it is drafted so as to catch any underlying debt obligation after judgment as it did before, or describes security for all and any monies which may be due from one party to another, the security interest would remain in place until the creditor had received full satisfaction. However, the Appellants contend that is not what happened here, and in the circumstances, the Court ought to give effect to the bargain which the parties have made.
15. The Appellants have also contended that there is a direct risk of double jeopardy. In this case, following discussions between the parties, the sum of £20m out of the last tranche of consideration due was paid, albeit later than contracted for, and the balance was paid into the Escrow account. The Respondent has been able to secure judgment for the amount of the balance and furthermore, has obtained an order that the Escrow account be paid to it. As a result, some or all (the Appellants say all) of the third tranche of the Consideration has been paid. There may or may not be other enforcement procedures available to the Respondent in England in respect of the monies remaining due under the summary judgment obtained, but if the Respondent is correct in its Contentions, and is able to obtain the full amount of the last tranche of the Consideration by realising its security interest through the proceedings in Jersey, it is contended, understandably, that this would be very unfair. The Respondent would have both the Consideration and the shares.
16. The Respondent contends that the security interest has not disappeared alongside the underlying cause of action when the Respondent obtained a Judgment from the English High Court under the SPA. It advances three reasons for this: -
(i) The doctrine of merger does not apply in Jersey to foreign judgments including English judgments.
(ii) In any event, the effect of merger is to prevent the Respondent from bringing proceedings in respect of the same cause of action. The underlying contractual rights have not been extinguished, and are still available for the purposes of collateral security.
(iii) Thirdly, the security interest in the present case came into being when the SIA was completed. The SIA provided only one method by which the security would be discharged, namely when the purchase price was paid in full. It is said that the SIA provided that the security interest would be unaffected by the Respondent seeking a remedy on its contractual rights and for all these reasons the security interest remains extant and is enforceable.
17. In relation to this last point, a new argument has arisen. As a result of the more recent order of Henshaw J set out at paragraph 5 above, the Escrow funds of US$13,333,334 with interest have been paid to the Respondent. The Respondent asserts that it is entitled to appropriate those monies to debts owed to it by the Appellants in such a way as it thinks fit. Accordingly, it has applied the Escrow funds to other monies asserted to be due to it by the First Appellant, first of all to post judgment interest of US$509,626; next to prejudgment interest of US$954,424; and the balance towards the final instalment due under the SPA. Because the Escrow funds have been applied to post and prejudgment interest first, it is said that US$1,289,413 of the SPA balance remains due and the security interest accordingly has not yet been released in full. It follows, it is said, that the Event of Default of 20th December 2018, therefore still continues.
18. The argument at paragraph 16.1 above has been raised pursuant to a Respondent's Notice dated 12th Octobe,r 2020. Given that the Respondent was served with the Notice of Appeal on 14th August 2020, the Respondent's Notice should have been served by 28th August, 2020. Accordingly, the Respondent has sought an extension of time within which to file the Respondent's Notice. In that connection, the Appellants' position is that they will rest on the wisdom of the Court.
19. In its judgment, the Royal Court held that it was "satisfied that Albion was entitled to the relief it sought, essentially for the reasons put forward by Advocate Hoy for Albion". The doctrine of non-merger was one of those reasons. All the parties have always known this. Indeed, the Appellants have addressed the question of non-merger in their written Contentions when they referred to the Respondent's case as involving the submission that it is only a Jersey judgment which causes the extinction of an underlying cause of action before a Jersey court.
20. In our judgment, the issue covered by the Respondent's Notice does naturally arise out of the Contentions filed by the Appellants and indeed, out of the other Contentions filed by the Respondent. There is no prejudice to the Appellants in giving leave to the Respondent to file the Respondent's Notice out of time; the point was a live point in the Court below albeit that it receives relatively little attention in the judgment now appealed. For these reasons, we think it is right to grant the extension of time, which we do. In that connection we have noted that the Appellants had already filed responsive Contentions in relation to this part of the Respondent's case. In the interests of reaching a timely conclusion to the current dispute between the parties, we also invited written and oral submissions on the question of appropriation.
21. The doctrine of merger under English law is one which emerged with some definition during the 19th century. The case of Drake v Mitchell [1803] 3 East.252 at page 594 of 102 Eng. Rep. concerned an issue as to whether the fact that one of three joint covenantors had given a bill of exchange for part of a debt secured by the covenant, on which bill judgment had been recovered, was a bar to an action for breach of covenant against all three joint covenantors. The underlying facts concerned some coal mines in the Parish of Halifax in the county of York made over to the three defendants for a term of one hundred years for payment of a price of £917 10 shillings and 9 pence, payable over six instalments between July 1798 and July 1803. Payment of the second instalment was missed and one of the defendants delivered a promissory note in writing to the plaintiff by which he promised to give value for one third of that instalment. The plaintiff subsequently obtained judgment on that promissory note and then took proceedings against all three covenantors together for payment of the outstanding balance as originally agreed. It was averred by the defendants that the debt had been extinguished by the judgment on the covenant given by the first covenantor / defendant. It was said that a judgment recovered in whatever form of action was a security of a higher nature than a covenant, and all judgments recovered are of an equal nature - and reference was made to a number of 18th century cases in support of these contentions. Lord Ellenborough CJ, while accepting the principle that a judgment had a higher nature than the original cause of action, went on to say:-
22. Perhaps Lawrence J put the matter more simply:-
23. The language of "satisfaction" points to the analysis which the court made in that case, namely that by accepting the promissory note from one tenant, the landlord had not forgiven either him or the others of their obligation to him. In effect, there had been no merger where there was a different form of security given for the debt, but the case is of interest for the fact that by 1803 it had already been established that the doctrine of merger existed under English law.
24. We were referred to the case of Ex Parte Fewings [1883] Chancery Division Vol XXV 338 CA. In that case, a mortgage deed contained a covenant to repay the principal sum six months after a specified date with interest at 5% per annum during the six months. There was a further covenant that if the principal sum remained unpaid after the expiry of the six month period, then for as long as the sum or any part thereof remained unpaid, the mortgagor would pay the mortgagee interest at 5% per annum on the outstanding capital. After the expiry of the six months in question, the mortgagee recovered judgment against the mortgagor on the covenant for the principal sum and the arrears of interest to that date. The question later arose as to whether, the covenant being merged into the judgment, the mortgagee was entitled to interest on the judgment debt at the rate of 4%, that being the statutory rate allowed at the time, or at the rate of 5% which was the original covenanted sum.
25. The Court of Appeal noted the two different covenants and at page 350 Cotton LJ said this:-
26. Lindley LJ was of the same opinion. He said this at page 353:-
27. Fry LJ gave judgment to similar effect.
28. In support of his contentions, Advocate Cadin for the Appellant relied on the judgment of Birss J in Zavarco Plc v Nasir [2020] EWHC 629 (Ch) at paragraph 27 where the learned judge said this:-
29. Reliance was also placed on the dicta of Lord Sumption JSC in Virgin Atlantic Airways Ltd v Zodiac Seats UK Limited [2013] UKSC 46 [2014] AC160 at paragraph 17, where it was said:-
30. In our judgment, Lord Sumption's use of the word "superseding" is illustrative of the impact of the doctrine. The circumstances in issue give the creditor a right of action. The right, as here, is to have his contractual entitlement vindicated - an entitlement to enforce an obligation to make payment. When judgment is obtained, the right of action which the judgment sustained is extinguished, but the obligation to pay remains. The juridical means by which it can be vindicated has changed. Prior to the judgment, it was a personal right to claim payment which requires judicial process in the face of opposition; but after the judgment has been handed down, there is a judgment debt which can be directly enforced against the debtor and her or his property when placed in the hands of the Viscount. The obligation to pay because of the contractual arrangements has not been extinguished. Rather, the creditor's private right to seek to enforce it has been superseded, or replaced, by the higher right of a public decree. The juridical entitlement to a judgment - the successful cause of action - forms the basis on which the judgment is obtained and, once obtained, is not available for use again in order to obtain another judgment for the same sum. Thus is prevented double recovery (or more) of what is essentially the same debt; and also harassment of a defendant to more than one suit on account of the same obligation. Nonetheless, the obligation to pay, and the right to receive payment, have not been lost.
31. This concept of subordinating a right under a contract for a right under a judgment is one which has been accepted in the Royal Court in Doorstop Ltd v Gillman [2012] (2) JLR 297 where at paragraph 57 the Court said this:-
32. Advocate Cadin criticised this passage on the ground that it was out of step with English law and could give rise to a number of problems. The contractual rights he said were not lost - the contract continues. One had to have regard to the fact that not all contracts contained pecuniary obligations. He considered that non-payment under a provision requiring the payment of interest was only one type of obligation, and there would be contracts under which the breach would not bring the entirety of the contract to an end. That last submission is obviously right, as indeed the Royal Court recognised in the preceding paragraph of its judgment when referring to restrictive covenants in a contract of employment which would not come to an end notwithstanding the employment contract's termination. As to his other points, and leaving aside the comment that the decision is out of step with English law which does not appear to be relevant, it seems to us that the Royal Court on that occasion did not hold that the contractual rights had been lost for all purposes. It did hold that in a loan contract, the fundamental basis of the contract came to an end when the loan fell due for repayment because the borrower was no longer entitled to the loan. Instead, the borrower's obligation pursuant to the contract to repay gave the lender the right to sue for the borrower's breach of obligation. Doorstop was not a case directly concerning merger but it was a case in which the court had to consider the extent to which contractual provisions would continue to apply post-judgment in respect of interest contractually agreed between the parties. The solution adopted in that case was to regard the creditor's right to repayment of the loan as exchanged for his right to a judgment - the former right is subsumed within the latter. While the formulation may need to be refined in a case where the issue arises in future - the precise question does not arise in this case - the approach which the Royal Court took on that occasion is consistent with the application of the English doctrine of merger because it recognises the supremacy of the judgment over the contractual right, albeit that the cases to which we have been referred were not cited to the court when the case in question was argued.
33. In our judgment, the doctrine of merger forms part of the law of Jersey. We adopt the analysis of Lord Sumption in Virgin Atlantic Airways Limited v Zodiac Seats UK Limited at paragraph 17 of his judgment in this respect. In particular we consider that the parties before us were correct to agree that the effect of the doctrine of merger was that the court had to examine the nature of the underlying obligations by construing the relevant agreements. In the present case, there has been argument before us as to what individual terms and expressions in the SPA and the SIA meant, but it is important also to focus on the purpose of the two agreements - the SPA was there to set down the terms on which shares in the Second Appellant were to be sold by the Respondent to the First Appellant. The purpose of the SIA was to provide security for the payment of the price for the shares. That was its reason for existence. The submission that security could be lost by enforcing in another jurisdiction the contractual right to payment of the price was described in the Royal Court as "startling" and we can see why that is so. The commercial purpose of taking security was not to lose it at the very moment it was most needed. In our view, the nature of the right to obtain a judgment for payment of the price is sufficiently different from the taking of security to secure that obligation that it could not be said that the right to security merged into the judgment which was obtained in England.
34. We will come to the construction arguments later in this judgment, but in our view the appeal falls at the first fence - the doctrine of merger did not apply to the different rights engaged by these agreements, whether the court is applying English or Jersey law to the question. Before we do so, however, we now address the argument raised in the Respondent's Notice that even if there had been a merger of the right to enforce the security as a result of the taking of judgment on the debt in England, that argument does not run in Jersey because the English judgment is a "foreign" judgment in this jurisdiction.
35. The contention is that there is a doctrine of non-merger - to which indeed Lord Sumption also referred where he said that "at common law [the doctrine of merger] did not apply to foreign judgments, although every other principle of res judicata does". The Respondent also refers to Dicey, Morris and Collins on the Conflict of Laws 15th Edition volume 1 page 722 at paragraph 14-122 where it is said:-
"The judgment of an English court of record extinguishes the original cause of action, which merges in the judgment [there is a foot note to Hawsbury's Laws of England 5th Edition volume 12 para 1190]. If A in an English court recovers judgment for £10,000 against X for breach of contract or for a tort he can issue execution on the judgment, but he cannot bring proceedings against X for the breach of contract or for the tort. But at common law a foreign judgment did not extinguish the original cause of action, so that if A recovered judgment in a New York court for $10,000 against X he could bring an action in England on the judgment but he could also, if he chose, bring an action for the debt, in which case the foreign judgment would be merely evidence of the debt. This anomaly has been removed by S. 34 of the 1982 Act [Civil Jurisdiction and Judgments Act]..."
36. The Respondent relies on the dictum of Lord Guest in Carl Zeiss Stiftung v Rayner and Keeler Limited (No 2) [1967] 1 AC 853 HL, where at p938 paragraphs A-C he said:-
37. Advocate Hoy submitted that this was the English rule until the 1982 Act. A statute which did not apply here would not change the position and thus it followed that if we were to apply the English common law doctrine of merger in the island, we should apply the whole of it. In effect, what the Respondent is inviting us to do is to declare the law of Jersey, in this respect so far in a state of uncertainty because there is no previous authority on the point, to be the same as the common law of England before 1982 in circumstances where, by statute that year, Parliament has decreed that the English common law rule be abrogated. In our judgment this would be both inappropriate and unnecessary. It is not the position that English common law provides any form of binding precedent in Jersey. Different expressions have been used in the courts from time to time to describe the nature of the doctrine of precedent in Jersey, but one thing which is certain is that nowhere in modern practice is there to be found any statement that decisions of the English courts are binding in the island. It is accordingly not the case that the court is obliged to apply the English common law rule. Nor, obviously, is it the case that the courts of this island are required to apply an Act of Parliament which changed the position in England but which does not apply to us here. Neither the English common law nor the inapplicable statute have any binding force in this jurisdiction. They are not of themselves precedents which we are required to follow.
38. The consequence is that we need to examine the issue, not from the perspective of English decisions of previous centuries nor from the perspective of what Parliament has ordained for England and Wales, but instead from the perspective of what is right as a matter of principle. In that limited context, we can have regard to the fact that Parliament has abrogated the common law rule, although for the reason given that is not conclusive.
39. It was unclear from the submissions received as to what the principled reason might be for applying the pre 1982 English rule. On the contrary, all the more modern authority suggests that comity between courts of commensurate jurisdiction is an important factor to take into account as the courts of this island both at first instance and appellate level have emphasised from time to time. Furthermore, it is clear that a foreign judgment can operate as res judicata in cause of action estoppel where the remedy is the same - see Dicey Morris & Collins 15th edition Rule 42 at paragraphs 14 - 021 and 14-031 - and the law in England has developed to allow issue estoppel in respect of matters covered by a foreign judgment in an appropriate case. In Carl Zeiss Lord Wilberforce, admittedly considering issue estoppel rather than merger, set out some compelling reasons for that view. Having noted that a foreign judgment does not have the same finality and conclusiveness of an English judgment, because of the effect of the doctrine of merger, and that in such a case action could only be brought to enforce the judgment, he said this at p 966/7A/B:
40. In Virgin Atlantic (supra) Lord Sumption introduced the passage referred to at paragraph 29 above by saying this at paragraph 17 of his judgment:
41. We recognise that with issue estoppel there is no automatic merger of the judgment with the earlier cause of action in the case of a foreign judgment. However, as Lord Sumption makes clear, the rules around cause of action estoppel, issue estoppel and merger fall within the same portmanteau. There does not seem to us to be any reason why the approach adumbrated by Lord Wilberforce in relation to issue estoppel in Carl Zeiss should not be carried forward to the doctrine of merger when considering the effect of a foreign judgment. That is currently the position in England as a result of the changes introduced by the 1982 Act and there appear to have been no problems as a result of those changes. Just as is the case for a court considering the doctrine of merger where there is an earlier domestic judgment, the court will analyse what the cause of action was in the foreign judgment, and what, on its true construction, the foreign judgment covered. The court would have to go through this process if considering the issue as one of issue estoppel or cause of action estoppel, and there seems no reason in principle why it cannot go through the same exercise, should it ever be necessary, when considering merger. The result might not flow automatically, as Advocate Cadin contended would be the case when considering the merger of a right of action into a domestic judgment, but the process would be none the worse for that.
42. In the circumstances, we reject the non-merger argument as advanced by the Respondent, and conclude that, if we are wrong in our conclusion at paragraph 37 above as to the effect of the law on merger in this case, we should now, in accordance with the practice in England where merger arguments are raised, construe the SPA and SIA to identify if it can be said that the Appellants have raised a valid claim on these documents that the right to security under the SIA was lost on the Respondent's obtaining judgment in the High Court.
43. Accordingly we turn next to the question of the construction of the SIA, and we examine first the principles of construction.
44. It was contended by the Appellants that these are best summarised in the decision of Commissioner Page in re Internine Trust [2005] JLR 236, a passage approved by this Court in Trilogy Management Limited v YT Charitable Foundation (International) Limited and Others [2012] JCA 152. The passage from Commissioner Page is as follows: -
45. We note that this Court followed this approach at the request of both parties in Trico Limited v Buckingham [2020] JCA 067 - see paragraph 55 of that judgment.
46. Internine and Trilogy were of course trust cases rather than contract cases. In cases of contract, the courts of this island also regularly refer to the works of Pothier, who the Royal Court on numbers of occasions in contract cases has described as providing a surer guide to the law of Jersey than that of cases decided in England and Wales. It is right to reflect that the English legal authorities on the interpretation of contracts have sometimes drawn from the rules which he described - unsurprisingly in that Pothier, the most influential of commentators, was at one stage regarded as authoritative in England: in Cox v Troy [1822] JB & Ald 474, Best J described his status as "as high as can be had, next to a decision of a court of justice in this country", and he is said to have had a major influence on the terms of the Sale of Goods Act 1893. A similar respect for Pothier is held in Scots Law: see Caledonia North Sea Ltd v London Bridge Engineering Ltd (the "Piper Alpha" litigation) [2000 ]SLT 1123, especially at 1140 - 1144 (Lord President Rodger).
47. So we note the commentaries of Pothier - Oeuvres Complètes (Tome Premier - Traité des obligations) Part 1, Chapter 1, at Article VII where he writes:
48. With all those principles in mind, we have considered the detailed provisions of the SIA.
49. The main argument of the Appellants is that the definition of "Secured Liabilities" in Clause 1 (1)(r) of the SIA ties that expression to the obligation of the First Appellant to pay any unpaid portion of the Consideration to the Secured Party (the Respondent) pursuant to the SPA. It is submitted that the obligation to pay is an obligation to pay pursuant to the SPA and not pursuant to any judgment, whether of the High Court or any other Court, in respect of the same debt. It is also noteworthy that the Secured Liabilities do not include interest or costs. Thus, it is that the Appellants can rightly say that this Agreement does not create an "all monies" charge or security interest. The only payment obligation to which reference is specifically made in relation to the definition of Secured Liabilities is the obligation to make the contractual payments due pursuant to Clause 3 of the SPA.
50. The Appellant's position in this respect is supported by examining the definition of "Event of Default" in Clause 1(1)(h) - in similar fashion, this is linked to the failure of the First Appellant to pay any instalment of the Consideration "when due and payable under the SPA". Advocate Cadin also referred to other parts of the SIA defining the Release Dates, and especially the Final Release Date, and the Security Period; and he relied on the language in Clause 2(1) of the SIA which creates the security interest to "provide continuing security for the payment and performance of the Secured Liabilities". Thus it was said that what was secured was the covenant to perform the SPA and the court was obliged to assess the SIA in the light of the judgment on the SPA. The parties could have extended the security interest to cover sums due under any judgment obtained elsewhere, but they did not do so. The result was that the Respondent had a choice as to whether to bring proceedings in England with the result that the security interest would be lost if judgment were obtained, or to bring proceedings in Jersey for the enforcement of the security interest.
51. If there were nothing else in the SIA to assist us with the construction of the document, it is possible that the Appellants' arguments would be the stronger. However, we are enjoined by Pothier and indeed by the English authorities, to look at the document as a whole and there are other provisions which seem to us to be potentially relevant. At Clause 1(1)(u) the definition of "Security Period" shows that the period ends on the date on which the "Grantor has paid the Consideration ....in full in accordance with the SPA". The Appellants might contend that this similarly simply sets out the links between the Security Interest Agreement and the Share Purchase Agreement. However, in our judgment the natural construction of this definition is that emphasis is to be placed on the language "has paid". The Security Period lasts until such time as the full consideration has actually been paid. This construction is also assisted by reference to Clause 1 (2)(m) which sets out that during the Security Period, or such longer period as may be specified, all and any covenants of the First Appellant will remain in force. If the Security Period bears the construction which we have set out above, then it would follow that the covenants of the First Appellant continue until it has paid in full the Consideration due to the Respondent.
52. Clause 2(1) sets out the purpose of the Security Interest Agreement - it is "to provide continuing security for the payment and performance of the Secured Liabilities". Once again this supports the view that the security remains in place until the Consideration is paid.
53. In our judgment, particular assistance is to be found in the language of Clause 10 which sets out in some detail what will not affect the obligations of the First Appellant or, importantly, the security interest. Taking out the unnecessary language, Clause 10(2) reads:
54. Advocate Cadin suggested that the there was no act of the Respondent which impaired the security interest - what impaired it was the judgment of the English court by the operation of the doctrine of merger. That is a point on which one simply has to take a view. We do not think that is the natural construction of the sub clause. The act of the Respondent led to the judgment, and one takes them together as having the result that the security interest is not to be impaired.
55. Finally, at Clause 15(1), there is provision that the security interest is to stand independently of the other rights available to the Respondent, and at 15(7) there is provision that the Respondent is not obliged to enforce, apply, appropriate, recover or exercise any security or other right held at any time by it before enforcing the security interest constituted by the Agreement, but that is a permissive provision. The Respondent as the Secured Party is not obliged to follow other remedies, but, if it did, there is nothing in that Clause which indicates there would be any impact on the security created by the SIA at large; quite the reverse, as Clause 15(1) makes clear. Indeed, Clause 18, which deals with the governing law and jurisdiction of the courts, expressly contemplates that there may be proceedings taken in other jurisdictions in relation to any matter arising under the SPA or the SIA, which emphasises the commercial necessity for Clause 10(2).
56. These provisions other than the definitions of "Secured Liabilities" and "Event of Default" are points for the Respondent in the construction of the SIA.
57. Taking a step back, and looking at what the parties must have intended by making the SIA, it appears to us that the Respondent has much the better of the argument. The purpose of the SIA was to give the Respondent security. It was selling shares in the Second Appellant in circumstances where payment of part of the consideration would be deferred for some time. Not unnaturally, the Respondent wanted to have security for the obligations due to it and the natural construction of the parties' intentions in this respect was that the security would be available until all of the debt was paid. We accept the submission of the Appellants that the Royal Court may have expressed itself more widely than was necessary in raising the concern that secured parties would generally lose their security if they did not enforce it before seeking a judgment in relation to the obligation as a whole. It may well be that in some cases that was what the parties had agreed, but it seems to us to be far more common place, as indeed the Royal Court found, that security would be provided under a security interest agreement until such time as the deferred purchase consideration had been paid. That is the natural construction of the parties' mutual intentions. Why should the seller, in the circumstances of this case, trade his shares for payment of a price which, if not paid, would leave him with a judgment to enforce rather than the assets which he was selling? It makes far more commercial sense to conclude that the parties intended the security would be available until payment of the Consideration had actually been made, and in our judgment, that is the proper construction of the sale agreement, having regard to all the provisions in the SIA which we have mentioned.
58. For these reasons, the Appellants have not persuaded us that the construction of the SIA leads to the view that the security available to the Respondent ceased to be available when a judgment was taken against the Appellants in England.
59. Accordingly, but for the question of appropriation to which we now turn, we would dismiss the appeal on the grounds that the doctrine of merger is part of the law of Jersey but does not apply here having regard to both the fact that the remedy sought is different in the two sets of proceedings, and to the commercial intention of the parties and the proper construction of the SIA.
60. The Escrow account came into being as a result of the dispute over payment of the last instalment of the Consideration in December 2018. We have examined the Solicitors' correspondence referred to at paragraph 7 of the judgment under appeal and the terms of the Escrow agreement. We have considered the factual matters set out at paragraph 6 of this judgment. The issue for us is whether the Respondent was entitled to appropriate the Escrow monies to pre and post judgment interest ahead of the principal debt, namely the last instalment of the Consideration.
61. The governing law of the Escrow Agreement and any matters arising from it is the law of England and Wales. The first point which arose is whether we needed to have expert evidence as to that law. Advocate Cadin submitted that we did, relying on Re Imacu [1989] JLR 17. That was a case where there was dispute about the law of Belgium, and in particular whether under that law criminal proceedings had been instituted on the facts of that case which was a relevant matter going to the jurisdiction of the Royal Court to make an order under the Evidence (Proceedings in Other Jurisdictions) Act 1975 as extended to Jersey by an Order in Council in 1983. On this technical point, essential to be resolved for the purposes of establishing the court's jurisdiction, the Royal Court unsurprisingly held that it required evidence of foreign law.
62. We do not dissent at all from the propositions that foreign law is a question of fact in the island's courts and that where there is dispute about that law, the court should hear evidence from expert witnesses and make its adjudication. There are however two points to make where the foreign law is English law. The first is that English authorities are regularly cited in this court and the court below, and it is expected that the court should be able to form a view as to what the effect of those authorities might be. The position is therefore not the same as that where the court is faced with assertions about the law of a country where the judicial and juristic structure is quite different from our own. Of course there will be occasions where there are highly technical points of law or practice which arise - a typical example, though no more than an example, is one which arises in mistake applications in trust law where the taxation consequences of the gift into trust under English law have an impact which it is said is sufficient to have the gift set aside - thereby driving a need to have formal evidence before the court. Whether that is so or not will be a matter for the judgment of the court dealing with the issue. The second is that the court will need to make an assessment of the extent to which there is material difference between the parties as to that law and as to the materiality of the differences to the issue the court has to determine.
63. In the circumstances of this case, for the reasons given below, we considered that we did not need to adjourn to receive formal evidence about the English law of appropriation, but we do now set out the contentions of the parties as to that law.
64. It is common ground that the Respondent received $13,506,971 from the Escrow account on 1st October, 2020. It is also common ground that the Appellants had not in fact given any indication prior to the letter on behalf of the Respondent on 2nd October that they appropriated the sum by way of priority to settlement of any particular debts. The Respondent therefore asserts that under English law, which applies to the Escrow agreement, the Appellants had no right to require the application of the Escrow monies to particular debts because they did not make the payment - the monies were held by stakeholders - and even if that were wrong, the Appellants did not in fact make any appropriation before the Respondent did, and in consequence, as a matter of English law, the appropriation made by the Respondent was conclusive. Thus the Respondent was entitled to apply the Escrow monies first to payment of pre and post judgment interest and having done so, there remained a balance due on the Consideration under the SPA. Accordingly, the Respondent was covered for that balance under the SIA.
The basic principle under English law is not controversial. It was articulated in the judgment of Lord Halsbury LC in The Mecca [1897] AC 286 HL:
65. The Appellants say that the Escrow monies plainly represented the last instalment of the Consideration due under the SPA. They assert that it is a question of fact as to whether there has been an appropriation by either debtor or creditor, and that appropriation can be implied as well as express. In this case, the application for the release of the Escrow monies was made in the High Court on 17th June, 2020, albeit that was not mentioned to the Royal Court at the hearing which led to the judgment now appealed. Accordingly, the order of Henshaw J having been obtained and the Escrow monies having been paid over, the last instalment of the Consideration has been paid in full.
66. For completeness, we mention that it was said before us that the Jersey law on appropriation may not be the same as that in England. Reference was made to Le Gros, Traité du Droit Coutumier de l'Isle de Jersey (1943) at p 455, relying on Code le Geyt, where there is cited the maxim "Qui transige du principal ou le recoit est censé quitter intérêsts et dépens, s'il ne les réserve"; to the Remise de biens of Super Seconds Limited [1996] JLR 117 at 124; and Dessain and Wilkins, Jersey Insolvency and Asset Tracking, 5th ed. at para 5.10. We do not consider we need to resolve this question for the purposes of the present appeal for the reasons given below.
67. In our judgment, this is not a question where the law on appropriation applies. On the facts, the Respondent was not entitled to appropriate the Escrow monies as it did on 2nd October, 2020. There is absolutely no doubt in our minds that the monies in the Escrow account represented the remaining instalment of the Consideration under the SPA and receipt of those monies by the solicitors for the Respondent free from the terms of the Escrow Agreement amounted to full payment of the Secured Liabilities pursuant to the SPA. In our judgment, they had already been appropriated to the Consideration. This happened at the time the Escrow Agreement was made. It was not possible thereafter to change that agreement without novation agreed by both parties. We say that for these reasons:
(i) The monies paid into escrow were for precisely the same sum as was due under the SPA. Advocate Hoy sought to persuade us that the reference in the agreement to the claims against Mr Buckingham showed that the Escrow monies did not necessarily refer to the Consideration, but in our judgment that is to misconstrue the document. It is clear that the monies were paid into escrow to represent the sums due to the Respondent by way of the Consideration with the understanding that the parties might subsequently agree a deduction against those sums for any monies for which Mr Buckingham might have to account. Each side reserved their positions in law against the other, but the agreement did provide that interest on the Fund was also held against the solicitors' undertaking, which shows that an apportionment of that interest against the settlement figure, if one could be reached, would be made.
(ii) At the time of the payment of monies into the Escrow account, the First Appellant was already late with the last payment of the Consideration. Presumably, interest on that sum had already accrued. Yet it was surely not agreed that the sum, representing as it did the exact amount of the Consideration remaining due, was for a lesser capital amount plus that interest. That confirms it was paid and received as the amount due for the last instalment of the Consideration.
(iii) The correspondence between the respective solicitors at the time confirms this view of the arrangement agreed.
68. We note also that this was the understanding of the Respondent subsequently. In its Skeleton argument before the Royal Court, it was said that "Albion, in reliance upon the Final Instalment being paid, had committed itself to make substantial payments under another transaction. On notice of this, Energy paid $20 million of the outstanding Final Instalment to Albion and from 30 January 2019, the outstanding balance of $13.3 million ("Escrow Amount") was held by Albion's solicitors under the terms of an Escrow Agreement dated 22 January 2019.... ".
69. In paragraph 8 of the Representation issued on 31st March, 2020, the Respondent's advocates pleaded that "Following a solicitors' undertaking dated 22 January 2019, [the First Appellant] agreed to pay the remaining balance of the Final Instalment in the amount of $13,333,334 (the "Escrow Amount") to be held by the Representor's English solicitors on the terms of an escrow agreement..." That pleading was admitted in the Appellants' Answer dated 5th June 2020. There was no dispute about it and it does not lie in the mouth of the Respondent to assert now that there is.
70. It is clear that the Escrow monies were of concern in the Royal Court in the argument before the learned Commissioner. There is this exchange with Advocate Hoy :
Commissioner " But Energy has actually paid the final amount of $13 million? That's the final sum due. It has paid it into -
Advocate Hoy It has technically ---
Commissioner ---- to your English lawyers.
Advocate Hoy Yes. "
71. This exchange took place against a background of enquiry as to why the orders of the Royal Court were needed where the full amount due was in the hands of the English solicitors for the Respondent, albeit held against undertakings. The Court was left with the impression that there was nothing further to be done because the Appellants had not agreed to the transfer of the Escrow monies to the Respondent and thus the monies would "just sit there". Unfortunately the Court was not told that the stakeholders had already applied to the English court for an order that they be released from their undertaking.
72. In our judgment, in the light of the facts of this case, no question of appropriation arises whether under English or Jersey law. Advocate Hoy volunteered in oral argument that the Escrow monies were held "perhaps in a fiduciary capacity". We think that would have been accurate if the word "perhaps" had not been used. It was not open to the Respondent to appropriate them as it purported to do in the letter of Charles Fussell, its English solicitors, on 2nd October, 2020. Indeed, the effect of permitting this would be to extend the security interest under the SIA to pre and post judgment interest which it was not expressed to cover.
73. For these reasons, the appeal is allowed and the orders of the Royal Court are set aside. The parties are invited to make written submissions within the twenty-one days of this judgment being handed down as to what costs order(s) would be appropriate.
