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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> AMG Global Nominees (Private) Ltd v Africa Resources Ltd [2008] EWCA Civ 1278 (20 November 2008) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2008/1278.html Cite as: [2008] EWCA Civ 1278, [2009] 1 BCLC 281

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT CHANCERY DIVISION
MR JUSTICE EVANS-LOMBE
Lower Court Ref. No1201 of 2005

		Royal Courts of Justice Strand, London, WC2A 2LL
		20/11/2008

The Chancellor:

Introduction
1. SMM Holdings Ltd ("SMMH") and THZ Holdings Ltd ("THZH") are companies incorporated in England. Their respective share capital was and is represented by bearer share warrants. At the times material to this appeal they held the entire issued share capital of, respectively, SMM Holdings (Pvt) Ltd ("SMMZ") and Endurite Properties (Private) Ltd ("Endurite"). SMMZ and Endurite were incorporated in accordance with the laws of Zimbabwe and held assets of substantial value, either directly or through subsidiaries, in the case of SMMZ in asbestos mines and other industrial properties situate in Zimbabwe and, in the case of Endurite in financial services generally.
2. In early 1996 T&N plc held the bearer share warrants in SMMH and THZH but, because of adverse publicity relating to asbestos, wished to dispose of its holdings in both companies. By an agreement made on 7th March 1996 between T&N (and an associate company) and the Part 20 claimant, Africa Resources Ltd ("ARL"), a company incorporated in the British Virgin Islands, T&N agreed to sell its holdings in SMMH and THZH to ARL for US$60m payable as set out in clause 3. Clause 3, to which I shall refer in greater detail later, required the purchase price to be paid by 12 instalments of $5m each out of the proceeds of export sales due to SMMZ by the Zimbabwe state sole marketing and sales agent Minerals Marketing Corporation of Zimbabwe ("MMCZ").
3. That agreement ("the SPA") was completed on 15th March 1996 when, as required by its terms (clause 10(5)) and the law of Zimbabwe, the members of SMMZ passed a special resolution authorising SMMZ to provide financial assistance in connection with the purchase of the shares in its parent company, SMMH, by ARL as contemplated by clause 3 of the SPA. In addition, as also required by the SPA (clause 10(7)), a Memorandum of Deposit and Charge ("MDC") was made between ARL and T&N whereby the former deposited the bearer share warrants in SMMH and THZH with T&N to secure the obligations of ARL to T&N to procure the payments to be made in accordance with clause 3 of the SPA. The MDC provided for a power to sell the security in the event of a default, namely a failure by ARL to pay or procure the payment of the purchase price in accordance with clause 3 of the SPA.
4. Between 15th March 1996 and 7th October 1997 there was paid to T&N in accordance with clause 3 of the SPA the aggregate sum of US$37m. The balance of US$23m remained unpaid on 5th November 2004 when an agreement ("the AMG Agreement") was made between T&N, acting by its administrators who had been appointed on 1st October 2001, and the claimant AMG Global Nominees (Private) Ltd ("AMG") for the sale of the issued share capital in SMMH and THZH for US$2m. The only power of sale referred to in the AMG Agreement is that conferred on administrators by the Insolvency Act 1986.
5. The directors of SMMH and THZH having refused the request of AMG to be registered as the holder of the shares covered by the bearer warrants, a Part 8 claim form was issued by AMG on 24th January 2005 seeking orders pursuant to s.359 Companies Act 1985 for the rectification of the register of members of those companies. The application came to the notice of Mr Mutumwa Dziva Mawere, the chairman and sole shareholder in ARL. In February 2005 he sought and in November 2005 obtained on behalf of ARL permission to intervene in the application initiated by AMG as a Part 20 claimant on the footing that ARL had a better right to the shares covered by the bearer warrants than AMG.
6. In due course directions were given for the service of Part 20 pleadings. So far as relevant to this appeal ARL claimed that the SPA gave it a prior and better right to the shares in SMMH and THZH because, there having been no default under the SPA and MDC, T&N was not entitled to sell them to AMG whether under the AMG Agreement or otherwise. These assertions were denied by AMG. AMG contended that the SPA was illegal and, therefore, void because the provisions of clause 3 infringed s.151(2) Companies Act 1985. In the alternative AMG asserted that ARL had been in default for the purposes of the MDC so that T&N had been entitled to sell the shares in SMMH and THZH by the AMG Agreement.
7. These proceedings came before Evans-Lombe J between 20th November and 19th December 2007 but were interrupted by the late disclosure of relevant documents by both parties and the preparation of closing written submissions. Evans-Lombe J gave judgment on 13th February 2008. He rejected the contentions that (1) the SPA infringed s.151(2) Companies Act 1985 and (2) ARL had been in default under the SPA and MDC so as to entitle T&N to sell the shares to AMG. In the result he dismissed the application of AMG and declared that ARL alone had title to the bearer share warrants subject to T&N's security under the MDC. AMG now appeals with the permission of Lloyd LJ.
8. Accordingly there are two issues on this appeal, namely (1) Did the SPA infringe s.151(2) Companies Act 1985? and (2) was ARL in default on 5th November 2004 when T&N purported to sell the shares in SMMH and THZH to AMG? I will deal with those issues in that order.
S.151 Companies Act 1985
9. S.151 is in the following terms:

"151. Financial assistance generally prohibited

(1) Subject to the following provisions of this Chapter, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place.

(2) Subject to those provisions, where a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of that acquisition, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.

(3) If a company acts in contravention of this section, it is liable to a fine, and every officer of it who is in default is liable to imprisonment or fine, or both."

10. S.152 goes on to explain that:

"152(1) In this Chapter -

a) "financial assistance" means -

(i) financial assistance given by way of gift,

(ii) financial assistance given by way of guarantee, security or indemnity, other than an indemnity in respect of the indemnifier's own neglect or default, or by way of release or waiver,

(iii) financial assistance given by way of a loan or any other agreement under which any of the obligations of the person giving the assistance are to be fulfilled at a time when in accordance with the agreement any obligation of another party to the agreement remains unfulfilled, or by way of the novation of, or the assignment of rights arising under a loan or such other agreement, or,

(iv) any other financial assistance given by a company the net assets of which are thereby reduced to a material extent or which has no net assets."

Subsection (2) provides that:

"In subsection (1)(a)(iv), "net assets" means the aggregate of the company's assets, less the aggregate of its liabilities ("liabilities" to include any provision for liabilities or charges within paragraph 89 of Schedule 4)."

11. It was and is common ground that by the law of Zimbabwe, which as the law of the place of their incorporation is the relevant system of law, it was and is lawful for a subsidiary to provide financial assistance for the purpose of or in connection with a purchase of shares in itself or in its holding company. Thus, if and so far as either of SMMZ and Endurite provided financial assistance for the purpose of or in connection with the purchase of shares in SMMH or THZH and subject to compliance with any formalities required by the law of Zimbabwe, it was lawful. The question is whether, in addition to any financial assistance provided by the Zimbabwean subsidiaries, financial assistance was provided by SMMH as well. That is the context in which to consider further the provisions of the SPA.
12. In the SPA the bearer share warrants in SMMH and THZH were defined as the SMMH and THZH ordinary shares. It recited that T&N was beneficially entitled to them and that SMMH and THZH were beneficially entitled to SMMZ and other companies referred to in various schedules. Clause 2 provided that T&N would sell and ARL would buy the SMMH shares and the THZH shares. Clause 3 dealt with the consideration for that sale. So far as relevant it provided:

"3(1) In this clause:

"LIBOR" means the rate quoted by National Westminster Bank plc in the London Interbank market for six month US dollar deposits.

(a) The Consideration for the SMMH shares and the THZH shares shall be the sum of US $60 million payable as set out in this clause 3;

(b)The Purchaser shall pay the Consideration to T & N in monthly instalments of US $5 million (each a "Principal Amount"). Each Principal Amount shall be paid on the last day of each month…by telegraphic transfer to the account of T & N's subsidiary, T & N Export Services Limited at National Westminster Bank plc….in US dollars and the Purchaser shall procure that such payments shall be made by the Minerals Marketing Corporation of Zimbabwe ["MMCZ"] on its behalf at the instruction of the relevant Company entitled to payment from MMCZ of equivalent amounts in respect of export proceeds of that Company received between 1^st March 1996 and the date on which each Principal Amount falls due.

(c) The first Principal Amount shall be paid on or before 29^th March 1996.

(d) To the extent that a payment of a Principal Amount is not made on the due date, such amount (a "Carry Forward Amount") shall bear interest at the rate of LIBOR plus 2 per cent per annum accruing and applied on a daily basis.

(e) Interest shall accrue on the outstanding balance of the Principal Amounts (disregarding any Carry Forward Amount) at the rate of LIBOR plus 1 per cent per annum accruing and applied on a daily basis.

(f) Any amount paid shall first be set against any Carry Forward Amount and any interest on such amount."

13. Clause 4 provided that the sale was conditional on the Exchange Control Department of the Reserve Bank of Zimbabwe confirming that "the payment mechanism for the Consideration as set out in this agreement is approved". Such approval was given. Clause 10 provided for completion of the SPA on 15th March 1996. Sub-clause (5) required ARL to procure that the additional directors of SMMZ appointed pursuant to sub-clause (4)(a):

"propose a special resolution to [SMMZ]'s shareholders approving the payments mechanism set out in clause 3(1) pursuant to section 58 of the Zimbabwe Companies Act and that, if passed, a certified copy of such resolution is delivered to T&N."

Sub-clause (7) required that:

"The Seller and the Purchaser shall procure that the Memorandum of Deposit and Charge is executed and, once executed by all the parties to that document, the Purchaser shall procure that:

(a) the warrants in relation to the SMMH Ordinary Shares and the THZH Ordinary Shares are delivered to T & N; and

(b) stock transfer forms pre-stamped 50 p executed in blank, together with the share certificates, in relation to the SMMH Deferred Shares and the THZH Deferred Shares, are delivered to T & N."

14. The additional directors referred to in sub-clause (5) included Mr Mawere. They did indeed propose a special resolution as required by the sub-clause. It was duly passed by the members of SMMZ on 15th March 1996 and a copy, duly signed by Mr Mawere, was provided to T&N on completion of the SPA on that date.
15. The MDC recited the SPA and the requirement for the MDC to secure the secured obligations of ARL to T&N, described as 'the creditor', in accordance with its terms. Clause 1 contained a number of definitions including:

"(g) "Default" means any failure by ARL to pay or procure the payment of the Secured Obligations;

(h) "Secured Obligations" means the obligation of ARL under clause 3(1) of the Agreement to procure the payment to the Creditor on or as soon as practicable after the date on which each Principal Amount is due of the lesser of:

(a) all sums due and payable from MMCZ to the Companies in respect of export proceeds on such date; and

(b) the Principal Amount and all Carry Forward Amounts due and outstanding at such date and all interest accrued thereon."

Clause 8 provided that:

"If a Default has occurred and is continuing....the Creditor may, without prior notice to any Shareholder, sell or otherwise dispose of all the title to and interest in the Securities.....upon such terms and generally in such manner as the Creditor may, in its absolute discretion, think fit..."

16. In paragraphs 24 to 26 of its reamended defence to the Part 20 particulars of claim AMG contended that the parties to the SPA intended that SMMH should give financial assistance for the purpose of the acquisition by ARL of the bearer share warrants in SMMH by procuring that the purchase price should be paid from the export proceeds due to SMMZ. AMG relied on the terms of the SPA and the fact that at the time such export proceeds were paid to T&N Mr Mawere was a director of both ARL and SMMH and in a position to instruct the Board of SMMZ to pay the export proceeds to T&N for its contention that SMMH gave financial assistance within the meaning of s.152(1)(a)(iv) contrary to the prohibition contained in s.151(2). It is not in issue that if this contention is established then the SPA is and always was illegal and void.
17. This contention was considered by Evans-Lombe J in paragraphs 49 to 61 of his judgment. In paragraphs 55 to 59 he gave close consideration to the judgment of Millett J as he then was in Arab Bank plc v Merchantile Holdings Ltd [1994] Ch.71. In that case Merchantile, a subsidiary company incorporated in Gibraltar, charged its property situated in London, Queensbridge House, as security for a loan from Arab Bank to the purchaser, Shelfco, of the issued share capital in its parent company Queensbridge Estates Ltd, for the purpose of enabling it do so. By the law of the place of its incorporation, Gibraltar, Merchantile was entitled to create such a charge in favour of Arab Bank. The bank wished to sell Queensbridge House but both Shelfco and Queensbridge claimed that its power of sale had not arisen because the charge was void for illegality.
18. Millett J considered two questions, namely (1) whether the charge given by Merchantile was void notwithstanding that it was lawful under the law of its place of incorporation and (2) if not:

"Whether the mere giving of such assistance by the subsidiary ipso facto and without more necessarily also constitutes the unlawful giving of financial assistance by the parent company contrary to section 151."

Millett J answered the first question in the negative (see pp 80-83). In relation to the second he said (p.80):

"In my judgment the answer is plainly "No." The prohibition is, and always has been, directed to the assisting company, not to its parent company. If the giving of financial assistance by a subsidiary for the acquisition of shares in its holding company necessarily also constituted the giving of financial assistance by the holding company, section 73 of the Act of 1947 would not have been necessary. Moreover, sections 153 to 158 of the Act of 1985 are clearly predicated on the assumption that it is the conduct of the subsidiary alone which needs statutory authorisation.

This is not to say that the giving of financial assistance by the subsidiary may not involve unlawful conduct on the part of the parent. If the acts of the subsidiary are in breach of section 151, the conduct of the parent in procuring them will constitute an offence. And even if the section does not apply to foreign subsidiaries, the hiving down of an asset by an English company to such a subsidiary in order to enable it to be made available to finance a contemplated acquisition of shares of the English company would clearly contravene the section: it would constitute the indirect provision of financial assistance by the English company."

The reference to a hiving down of an asset from the parent to the subsidiary is repeated on page 81F. There Millett J described it as the "indirect provision of financial assistance by the parent company".

19. Having considered the judgment of Millett J in Arab Bank plc v Merchantile Holdings Ltd and, in particular the passages I have quoted, Evans-Lombe J summarised the submissions for AMG and his conclusion thereon in paragraphs 60 and 61 of his judgment in the following terms:

"60. [Counsel] for AMG does not submit that SMMZ's financial assistance to ARL vitiates the SPA. His submission is that the participation of SMMH by passing the resolution of the general meeting of SMMZ having the effect of authorising SMMZ's assistance, together with its board's inaction in preventing SMMZ from procuring payment of its surplus export proceeds to ARL, constituted the provision of financial assistance by SMMH in the purchase of its shares by ARL. He submits that the board of SMMH must be fixed with knowledge of the payments from MMCZ to ARL which had been authorised by the board of SMMZ by reason of the cross-membership of those boards by Mr Mawere and Mr Mkushi and Mr Mawere's directorship of ARL.

61. I am unable to accept this submission. It does not seem to me that anything done in the course of the transaction in question by SMMH or the members of its board constituted "financial assistance" by SMMH to ARL in paying the purchase price under the SPA. SMMH did nothing which could be characterised as similar to the example given by Mr Justice Millett of a parent company hiving down one of its assets to its foreign subsidiary to enable that subsidiary to apply its value for the purpose of giving assistance in the purchase of the parent's shares. That financial assistance was provided by SMMZ through the payment over of money forming part of its assets and not those of SMMH. There is no principled way of distinguishing the position and actions of SMMZ from those of the foreign subsidiary in the Arab Bank case. In arriving at this conclusion I bear in mind what was said by Mr Justice Hoffmann in Charterhouse Investment Trust Ltd v Tempest Diesels Ltd [1980]BCLC, 1:-

"There is no definition of giving financial assistance, although some examples are given. The words have no technical meaning and their frame of reference is in my judgment the language of ordinary commerce. One must examine the commercial realities of the transaction and decide whether it can properly be described as the giving of financial assistance by the company, bearing in mind that the section is a penal one and should not be strained to cover transactions which are not fairly within it."

20. Counsel for AMG does not challenge either of the conclusions of Millett J in Arab Bank plc v Merchantile Holdings Ltd. He submits that Evans-Lombe J was wrong because he failed to recognise or give effect to the limitations on the application of the second principle recognised by Millett J in his use of the words "mere" and "without more necessarily" in his formulation of the second question I have quoted in paragraph 18 above. He contends that the approval or instigation of the parent company of the provision of financial assistance by the subsidiary is logically equivalent to a 'hive- down' and, thus, constitutes an infringement by the parent of s.151. He submits that the inability to identify any particular asset indirectly provided by the parent company is immaterial and that the assistance was provided when the money was paid out to T&N.
21. This is disputed by Counsel for ARL. He points out that the focus of s.151 is on the giving of financial assistance. Unless some financial assistance can be identified as being given by SMMH it matters not that, because of the financial assistance given by SMMZ, there may be some reduction in the net assets of SMMH. Otherwise, he suggests, it is almost inevitable that financial assistance given lawfully by a foreign subsidiary will constitute the unlawful indirect provision of such assistance by the English parent. He contends that it is a misreading of the legislation to work backwards from s.152(1)(a)(iv) and find that, just because there is a reduction in the net assets of the parent and either instigation or approval of the provision of financial assistance by the subsidiary, there is also the provision of such assistance by the parent. He maintains that instigation or approval is not equivalent to a hive-down because there is no movement of an asset of the parent.
22. I prefer the submissions for ARL. Though s.152(1)(a) purports to define 'financial assistance' it does not do so because in the purported definitions it repeats the word "financial". It is not suggested that any of sub-paragraphs (i) to (iii) applies to this case. AMG relies on sub-paragraph (iv). That sub-paragraph, in terms, requires some financial assistance to be given by SMMH. A reduction in its net assets is required to identify the provider but is not alone enough. So, even assuming a reduction in the net assets of SMMH in consequence of the assistance provided by SMMZ, it is still necessary to identify the financial assistance provided by SMMH. Like the judge I see none. In particular the fact that the parent company might, by the exercise of its control over its subsidiary, acquire for itself the asset of the subsidiary used in the provision of financial assistance but instead of doing so authorises its subsidiary to provide the financial assistance is not the sort of hive-down Millett J evidently had in mind in Arab Bank plc v Merchantile Holdings Ltd. It does not involve either an asset leaving the parent or an assumption of liability by the parent.
23. For these reasons I agree with the judge. Further like him (see paras 62 and 63) I see no reason to consider whether there was indeed any reduction in the net assets of SMMH or any misfeasance on the part of its directors. It follows that the SPA and MDC were valid agreements when made on 7th and 15th March 1996 and remained so when the AMG Agreement was made on 5th November 2004.
Default
24. It follows that ARL must have the better right to the bearer share warrants in SMMH and THZH unless AMG is able to establish that ARL was in default for the purposes of clause 8 of the MDC so that T&N's power of sale had arisen and was exercisable on 5th November 2004. At this point it is necessary to consider the course of the proceedings before the judge in relation to this issue.
25. When the case was opened to him on 20th November 2007 the material allegations of ARL were summarised in paragraph 85 of the amended particulars of claim to the effect that the payment mechanism set out in clause 3 of the SPA had at all times been complied with in accordance with its terms, that payment of the outstanding balance of the purchase price had been forgiven by T&N and that neither T&N nor its administrators had any power of sale in respect of the bearer share warrants in SMMH or THZH as there had been no default as defined in the MDC. In paragraph 2.2 of their amended defence to the Part 20 particulars AMG summarised their relevant contentions as being that

"ARL acted in breach of its obligations under the SPA in that ARL failed to procure the payment of monthly instalments of $5m to T&N."

and that

"The administrators of T&N were therefore entitled in November 2004 to exercise T&N's rights as chargee under the MDC and sell the SMMH and THZH bearer share warrants."

Part of the latter contention (paras 30 and 36) involved disputing that the obligation of ARL was confined to procuring payment in accordance with the mechanism set out in clause 3 SPA. AMG contended that in addition to that obligation ARL was itself obliged to make the 12 monthly instalments of $5m. These contentions were clearly put in issue by the reply.

26. The trial continued until Thursday 22nd November. It was then adjourned while substantial further disclosure was given by AMG. There was a short hearing on Monday 26th November and the trial was adjourned again until Wednesday 5th December. Over the course of the adjournment substantial further disclosure was made. A draft re-amended defence of AMG was produced by AMG on 30th November. The proposed re-amendments raised new issues in that it was contended that, even if the obligation on ARL was only to procure payment in accordance with the provisions of clause 3 SPA, ARL was in breach of that obligation because there had been proceeds of relevant export sales which had not been paid to T&N (see paras 38.3-38.8, 41.2.3, 43.3, 44.2, 80A, 82A and 92.1.1). The trial resumed on Wednesday 5th December. Counsel for ARL indicated that he would seek to amend his reply to deal with the new allegations raised by the re-amended defence. The oral evidence was concluded on Thursday 6th December. The hearing was then adjourned to Wednesday 19th December to enable counsel for the parties to prepare written closing submissions.
27. Shortly after 6th December the amended reply was provided to AMG in draft form. The relevant amendment is set out in paragraph 26. In summary ARL contended that insofar as there were proceeds of export sales not paid to T&N it was an implied term that the working capital requirements of SMMZ should be satisfied first and only the balance, if any, was subject to the payment requirement set out in clause 3 of the SPA. In the closing written submissions of counsel for AMG counsel set out at some length the reasons why, in their submission, there could be no such term as claimed in the amended reply. They dealt only briefly in paragraph 63 with the consequence if the implication or construction for which ARL contended was correct. In that paragraph it was claimed that SMMZ received but failed to pay over $11m in the period March to December 1996 and in the period January to November 1997 a further sum of $49m. Counsel for AMG did not, either orally or in writing, make to the judge the submissions he made to this court, to which I shall refer in more detail later, to the effect that the judge could not conclude that there had been no default in the absence of evidence of the working capital requirements of SMMZ.
28. In his judgment Evans-Lombe J dealt (paras 3 to 37) with the background facts occurring between early 1996 and November 2004. He concluded that the result of those events was that US$37m were duly paid in accordance with the provisions of clause 3 of SPA, leaving an outstanding unpaid balance of $23m (judgment para 18) but that (judgment para 36):

"There is no evidence that, before 5th November 2004, T & N or its administrators ever suggested that ARL was in default under the SPA or that SMMZ had available the proceeds of export earnings which should have been paid to T & N pursuant to clause 3 of the SPA but were not so paid."

29. The judge then turned to the terms of the SPA and MDC. He considered that it was plain that they were intended to be construed together. He held that SMMZ was a 'relevant' company for the purposes of clause 3 SPA (paragraph 46(i)). He concluded that there was no 'default' such as to trigger the power of sale conferred by clause 8 of the MDC unless and until there were sufficient proceeds of export sales to pay the monthly instalment or any carry forward amount (para 46(ii) and (iii)). In relation to the implied term relied on by ARL in its amended reply he found (para 46(iv)) that:

"The obligation to procure payment must be construed as limited to any surplus of export proceeds of SMMZ, after receipt of its income from non-export sources and payment of such expenses ("surplus export proceeds")."

In paragraph 46(v) he added that:

"It does not seem to me that clause 3 of the SPA is to be construed as meaning that ARL was not liable to pay the purchase price of the share warrants to T & N as ARL contend. ARL was bound to pay that price, but only by instalments from a defined source if and when that source produced the necessary funds. In the meantime T & N was entitled to retain possession of the share warrants as security for due performance of ARL's payment obligations."

AMG does not challenge the judge's conclusion expressed in those passages.

30. The dispute arises from the factual conclusions reached by the judge in relation to the obligations of ARL so construed. The judge's findings are set out in the following passages from his judgment:

"[Counsel for AMG] drew my attention to evidence that throughout the period between the making of the SPA and the appointment of Mr Gwaradzimba as administrator of SMMZ it was receiving substantial export proceeds both from MMCZ, when it was confined to selling through the agency of that company, and from outside agents when it was exempt from selling through the agency of MMCZ. Much of that evidence was comprised in documents produced by AMG on late disclosure in the course of the hearing. There is no evidence that SMMZ at any stage had surplus export proceeds but failed to pay them to T & N in reduction of the purchase price. By the TSA, T & N staff were seconded to ARL to assist it in administering its business. It seems likely that had any such payable surplus existed from time to time T & N would have got to hear about it. There is no evidence that T & N ever raised with ARL that SMMZ had surplus export proceeds available to pay off the purchase price and accrued interest but had failed to procure MMCZ to pay those proceeds to T & N or to make such payment from surplus export proceeds available from any other source." (paragraph 46(iv))

"In conclusion on this part of the case I would again return to the striking fact that up to 5^th November 2004 there is no evidence that T & N ever raised with ARL or SMMZ that there were surplus export proceeds available to make payment to them. The demand made by the Administrators of T & N on 2^nd November 2004 was not made in these terms and, on my construction of the SPA and the MDC, did not give rise to Default under the MDC." (paragraph 47)

31. On this appeal AMG contends that those conclusions are wrong in fact and in law. AMG submits, first, that the onus was on ARL to prove that it was not in default, not on AMG to prove that it was. Counsel submits that the judge reversed the burden of proof. But wherever the burden might lie, AMG submits, secondly, that there was no evidence before the judge to justify a conclusion of no default. This arises from the circumstances that there was evidence of proceeds of export sales not being remitted to T&N but there was no evidence of the working capital requirements of SMMZ which, alone, might have justified withholding those proceeds from T&N. In addition AMG submits, thirdly, that the judge placed too much emphasis on the lack of complaint by T&N of a failure by ARL to remit surplus proceeds of export sales given that there is no requirement under the MDC for T&N to give ARL any notice of default.
32. In oral argument counsel for AMG submitted that the judge could not conclude that there had been no default in the absence of evidence of the amount of the proceeds of export sales due to SMMZ, the amount of the income of SMMZ derived from other sources and the amount of the working capital requirements of SMMZ. He submits that without it the judge's conclusion of no default is an assumption without any evidential basis. In respect of the burden of proof he submitted that AMG sought registration as the bearer of the share warrants; it was for ARL to displace their title by proving no default.
33. Counsel for ARL submitted that the burden was on AMG to prove default on the part of ARL. In addition he contended that there had been a lot of evidence which, whilst not specifically directed to the issues to which counsel for AMG referred, did touch on them so that in the circumstances of this trial the judge's conclusion was one to which he was entitled to come. If he was wrong on both those points he submitted that the right course would be to order a new trial.
34. Thus the first question in relation to the issue of default is on whom the burden of proving it lay. The general principles to be applied are well known and were not disputed before us. I take them from para 6-06 Phipson on Evidence 16th Ed:

"...the burden of proof lies upon the party who substantially asserts the affirmative of the issue. If, when all the evidence is adduced by all parties, the party who has this burden has not discharged it, the decision must be against him. It is an ancient rule founded on considerations of good sense and should not be departed from without strong reasons.

This rule is adopted principally because it is just that he who invokes the aid of the law should be the first to prove his case; and partly because, in the nature of things, a negative is more difficult to establish than an affirmative.....

In deciding which party asserts the affirmative, regard must be had to the substance of the issue and not merely to its grammatical form..."

35. The basic dispute in this case is which of ARL or AMG has the better title to the bearer share warrants in SMMH and THZH. By commencing its claim to rectify the register of members of those two companies on 24th January 2005 AMG asserted that it did. Though it was the holder of bearer share warrants it was not in substance in any different position from that of any claimant to be registered as the holder of the relevant share certificate and transfer executed by the registered holder. In each case the applicant's title to those documents may be displaced or shown to be imperfect so that registration should be denied.
36. When ARL intervened it did so based on its prior title to the bearer share warrants arising under the SPA and MDC. By its Part 20 claim it asserted that title. As a matter of strict pleading it might have stopped there and left it to AMG to set up its, subsequent, title derived under the MDC through T&N. It did not do so but anticipated that claim and sought to deprive it of effect by its contention of no default. I do not think that the anticipation of what was, in substance, the claim of AMG should be treated as casting the burden on ARL. It was an integral part of the claim of AMG to prove a default on the part of ARL such as to activate the power of sale conferred on T&N by clause 8 of the MDC; without it the prior title of ARL (assuming that the SPA was not an illegal agreement) must prevail.
37. I accept the submissions of counsel for ARL that one must look beneath the surface of the pleadings in order to identify the party which, in substance, was submitting the affirmative case of default by ARL. On this basis the burden of proving that ARL was in default for the purposes of the MDC, in that it had failed to comply with its obligations under clause 3 of the SPA, lay on AMG. If the evidence which AMG now contends is essential to any finding of default was lacking, then AMG failed to prove that there was a default. In this event its claim to have the better right to the bearer share warrants fails.
38. I would add that in this case to find that the onus was on AMG is not such as to cast an unfair burden on that party. They claim through T&N whose personnel had been, as the judge observed, seconded to SMMZ and ARL for a number of years under the TSA. In addition Mr Gwaradzimba was not only the Chairman of AMG but also the Zimbabwean state-appointed administrator of SMMZ. Accordingly the relevant information needed for the production of evidence on the three issues counsel for AMG identified would be more available to AMG than ARL.
39. I should also deal with the second issue as to the sufficiency of the evidence. I do so primarily on the footing that I am wrong on the issue of onus of proof. It is true that there was no evidence directed to the three matters on which counsel for AMG relied. It is also true that whilst there was some evidence touching on the working capital requirements of SMMZ it was not focussed on that subject in such a way as to enable any relevant conclusions to be drawn. But the judge never purported to decide the issue of default on the basis of any such evidence. The evidence he did rely on, which is referred to in the quotations from his judgment I have set out in paragraph 30 above, is not challenged. So this issue boils down to the question whether it was evidence from which the judge was entitled to infer the absence of any default.
40. I have traced the emergence of the issue of the working capital requirements of SMMZ in paragraphs 25 to 27 above. It arose in paragraph 26 of the amended reply in consequence, at least in part, of the re-amended defence of AMG. The reply was served after all the evidence, both oral and documentary, had been adduced by both parties. In his closing submissions counsel for AMG sought to deal with the issue raised by paragraph 26 of the amended reply on the basis of arguments as to the construction of and the implication of terms into clause 3 of the SPA. He made no alternative submission either orally or in writing that there was no evidence before the judge sufficient for him to conclude that there had or had not been a default. Neither side sought an adjournment in order to adduce further evidence in relation to these points which had emerged so recently.
41. In my view the course of the proceedings and the absence of any request for an opportunity to adduce further evidence meant that the parties were inviting the judge to make such findings of fact as were necessary on the basis of the existing evidence. If the evidence on which the judge did rely was logically capable of supporting the inference he drew in my view it is not open to either party on this appeal to complain on the basis that there could have been, but there was not, evidence of a more cogent nature.
42. The basic facts to which the judge had referred at some length in paragraphs 3 to 37 demonstrated the unusually close relationship between T&N and ARL and its subsidiaries, particularly SMMZ. They showed the concern of the former to preserve the financial stability of the latter so that it might be in a position to pay the purchase price in full eventually. If there had been proceeds of export sales in excess of what was required for working capital requirements then it is probable that one or more of the representatives of T&N would have raised the point either at one of their many meetings with representatives of ARL and its subsidiaries or in correspondence, if only to ascertain why from ARL's point of view they had not been paid over to T&N. But as the judge observed in the passages I have quoted in paragraph 30 there was no evidence of any such point ever being raised. The judge referred to the absence of any such query as a striking fact. The fact that T&N was not bound to give notice to ARL before exercising its power of sale does not, in my view, undermine the significance of the absence of any earlier query.
43. The failure of a creditor, particularly one with close acquaintance with its debtor's business, to identify a default is, logically, some evidence that there was no default for it would be in the interest of the creditor to raise the point with its debtor if there had been. In the circumstances of this case I consider that the evidence on which the judge did rely was sufficient to entitle him to draw the inference that he did.
44. The fact is that counsel for AMG is seeking to rely on appeal on a point which was not raised in the court below. Who knows what course the trial might have taken if this point had been clearly made in the written or oral closing submissions of counsel for AMG? Counsel for ARL did not object to the point being taken so that it has been fully argued. But that is no reason to criticise the judge. He was invited by both parties to make the necessary factual findings on the basis of the evidence before him. That is what he did; and the evidence on which he relied is logically capable of justifying the inference.
45. I see no reason to consider the third point, namely if I had taken the opposite view whether the correct remedy would have been to order a new trial or dismiss the claim of ARL. It does not arise.
Summary of conclusions
46. For all these reasons I conclude that:

(1) the SPA did not involve any breach of s.151 Companies Act 1985 either in its formation or in its performance; and

(2) ARL was not in default for the purposes of clause 8 of the MDC at the time of the conclusion of the AMG Agreement; so that

(3) ARL has the better right to the bearer share warrants of SMMH and THZH; and

(4) this appeal should be dismissed.

Lord Justice Hooper

47. I agree.

Lord Justice Wilson

48. I also agree.