Incat v Luba

Furthermore, we find that there was no agreement or consensus between the parties that there would be no time limits on refinancing. There was no reference in Lonhro's written offer of the 19 th March 2006 to time limits or their non application or in the subsequent heads of terms executed by Mr Lenigas to Mr Haden on 18 th April 2006. Mr Young proposed certain amendments incorporating time limits which were rejected but the final form of the offer letter was entirely silent on the point, a position which the Incat group, no doubt on advice, accepted. Accepting a draft which is silent on the issue of time limits does not constitute an agreement or consensus that there should be no such limits.

In our view the offer letter is not complete and it is necessary for the Court to imply certain terms. This is not surprising because as made clear in Chitty on Contracts 29 th edition at para 13-002, parties are often content to express only the most important terms of their contract, leaving the remaining items to be understood. The Court will then be asked to imply a term or terms to remedy the deficiency. Often a subsequent disagreement reveals that there are contingencies for which the parties have not provided in their express agreement. However, quoting from paragraph 13-009 of Chitty:-

Mr Gleeson for Luba accepted that a term was likely to be implied by the Court requiring Luba to seek to obtain bank debt financing. We agree, and do therefore imply such a term, as without it the Incat debt could in effect be permanently deferred, which was not the intention, as made clear by the terms of the letter itself and the very clear and helpful evidence of Mr Lenigas. However, Mr Gleeson went on to argue that there is no necessity for the Court to imply any time by which Luba should discharge its obligation to seek bank debt financing. He submitted that the offer letter would expire of its own accord when it becomes clear that Luba has exhausted all possible applications to obtain bank debt financing in the market, applications which we observe are entirely under Luba's control. We do not accept Luba's submissions in this respect.

When no time is specified for performance of an obligation Chitty provides at paragraph 21-020:-

The offer letter defers a very substantial claim, a claim which like all claims may become progressively more difficult to prove with the expiry of time (memories fade, documents are lost, employees leave, witnesses die etc). Luba's submissions place not only the performance of the obligation to obtain bank debt financing but also the expiry of the offer letter entirely in its own hands. We conclude that Luba is obliged under the terms of the offer letter to obtain bank debt financing within a reasonable time, following which the offer letter will cease to be of effect.

The more difficult question is what in all the circumstances of this case is a reasonable time? In addressing this question we must have regard to the meaning which the offer letter would convey to a reasonable person having all the background knowledge reasonably available to the parties, including anything which would affect the way a reasonable man would have understood it but excluding previous negotiations and declarations of subjective intent.

We were assisted by the evidence of Mr Yu. He worked with another colleague in assisting Lonrho in raising project finance for the expansion of the port. He explained that Luba, at the time of the completion, was asset rich but cash poor. Customers who were using the port would come in and build their own facilities at the port, the cost of which would then be amortised after five years, in return for which those customers would not pay any rent during that period. This was a business model employed by the then management team to ensure that the port continued to expand but it did mean that there was very little cash flow for Luba. The key was to get sufficient capital into Luba so that extra quay could be constructed and revenue could then be generated. By reason of commitments made by Luba to the government of Equatorial Guinea it became clear following completion that the development work would need to commence despite the fact that bank debt financing had not yet been secured and this was funded by Lonrho by way of a short to medium term inter-company loan. He explained the steps taken to secure bank debt financing with some eight institutions. The negotiations were all subject to confidentiality agreements and the Incat group legal advisers had been given access to the 25 lever arch files evidencing those negotiations which were discovered in these proceedings. There is no need for this Court to name the institutions concerned but none of the negotiations have proved fruitful, save in respect of one institution where discussions are ongoing. The evidence of Mr Yu went unchallenged and there is no evidence therefore to suggest that Luba had not been genuine in its efforts to obtain bank debt financing.

In his evidence, Mr Lenigas referred to meetings scheduled with two other institutions due to take place shortly. He made the point that with the development to the port already undertaken by Luba the project was becoming more attractive with time as its cash flow and profitability improved. It is clear that obtaining bank debt financing for this project has presented Luba with real and substantial difficulties.

In our view, there are a number of factors in the circumstances surrounding the execution of the offer letter indicating that a substantial period in which to procure bank debt financing should be implied. They are as follows:-

As against that, we have to take into account the fact that the longer the period of deferment, the longer the Incat group is kept out of the sums they claim are due to them and the more difficult it might become to prove such claims following the expiry of the offer letter. At the hearing, Mr Goulborn submitted that 12 months was the reasonable period which the Court should imply, a period which we note would have expired after proceedings were issued by the Incat group.

Exercising our judgement to the best of our ability on the basis of the evidence we have heard, we determine that the reasonable time for Luba to obtain bank debt financing is 3 years from the date of completion, namely to 11 th May 2009, on the expiry of which the offer letter will cease to be of effect.

It follows from this that the Incat group's submissions to the effect that Luba is in repudiatory breach of its obligations under the offer letter or that it made time of the essence by Mr Young's letter of 16 th January 2007 (written after the proceedings were issued) are unsustainable.

Following completion, Mr Paton remained in the employment of Luba and continued to communicate with Mr Ingham of the Incat group, in particular over the inter-company balances. The Incat group rely on an e-mail sent by Mr Paton to Mr Ingham on 12 th April 2007 as constituting an agreement as to the quantum of the Incat debt. We set out the e-mail in full:-

Luba is a Jersey incorporated company and the parties agreed that Jersey law applies to this issue. By Jersey law there are four requirements for the creation of a valid contract, namely a) consent, b) capacity c) an ' objet ' and d) a 'cause '. (See Selby v Romeril [1996] JLR 210 ).

It is necessary to put this e-mail into context. From the period that Mr Paton joined Luba in September 2003, he and Mr Ingham would agree on a regular basis the intercompany balances between Luba and the Incat group. As made clear in Mr Ingham's witness statement , the purpose of the exercise was to draw a line under the running accounts between Luba and the Incat group for accounting purposes at that point in time. It is also clear from the correspondence we have seen that it was of particular importance to the Incat group to have the intercompany balances agreed because any external funder to Luba or proposed purchaser would inevitably carry out its own due diligence and it was therefore in the interests of the Incat group to have its house in order.

In his e-mail of 3 rd February 2006 to Mr Ingham, Mr Paton made reference to being aware of a ' major error somewhere ' but not having the time to see where it is, and he went on to say ' However, I do want to go on record as disagreeing personally with some of the figures. In the interests of drawing this long protracted issue to a conclusion, I accept certain figures into our accounts primarily as a provision. I do not necessarily agree with them, but in the interests of applying prudency have provided for these charges '.

Mr Ingham told us that the purpose of the exercise was to make sure that the figures were correct and would therefore satisfy any due diligence undertaken by a third party. In his view, the exercise was contractually binding on the companies concerned.

In our view, it is necessary to look at the role being undertaken by the accountants, which was to agree the figures to the best of their ability for accounting purposes. It was not their role to engage contractually so that, for example, any one of the Incat group companies could action Luba on the basis of the figures as agreed by the accountants as opposed to the underlying debt or so that Luba would be deprived of defences that might have been available to it in relation to any one or more invoices. This is particularly the case when one bears in mind the fact that under the terms of the offer letter the quantum of the Incat debt was to be determined by the arranging bank. Furthermore this exchange of e-mails took place some time after the commencement of the proceedings in Jersey and it is inconceivable that the accountants intended somehow to usurp the role of the court. In contractual terms we find that there was no consent by the parties to a binding agreement quantifying the Incat debt. Mr Goulborn accepted that a further claim by Luba in relation to interest arising out of an agreement entered into on 8 th July 2002 would fall away if we found against the Incat group on this point.

We therefore summarise our findings as follows:-

The Incat group's summons is therefore dismissed. It follows that if bank debt financing is not obtained by Luba in accordance with the terms of the offer letter before 11 th May 2009, the Incat group will be at liberty to pursue their claims in the ordinary way.