Journal of International Banking & Financial Law/2010 Volume 25/Issue 2, February/Articles/Meaning of
Subsidiary when Shares Charged - (2010) 1 JIBFL 93
Journal of International Banking and Financial Law
(2010) 1 JIBFL 93
1 February 2010
Meaning of Subsidiary when Shares Charged
Feature
Enviroco Ltd v Farstad Supply A/S [2009] EWCA Civ 1399 (Court of Appeal, Civil Division) (Mummery,
Longmore and Patten LJJ) (18 December 2009)
Jonathan Lawrence
K&L Gates LLP
jonathan.lawrence@klgates.com
www.klgates.com
© Reed Elsevier (UK) Ltd 2010
FACTS
In July 2002 Enviroco Ltd ('Enviroco') was instructed to clean the tanks of a vessel prior to sailing. The vessel
was owned by Farstad Supply A/S ('Farstad'), but was chartered to Asco UK Limited ('Asco UK'). During the
cleaning operation a fire broke out causing substantial damage. Proceedings were issued by Farstad against
Enviroco for damages of £2.7m. The charterparty contained a series of indemnities by Farstad in favour of
Asco UK and its 'affiliates', defined as 'any subsidiary of the Charterer or Customer or a company which is
another Subsidiary of a company of which the Charterer or Customer is a Subsidiary. 'Subsidiary' shall have
the meaning assigned to it in s 736 of the Companies Act 1985' [as amended].
Both Enviroco and Asco UK were subsidiaries of ASCO plc. Enviroco pleaded that it was an affiliate of Asco
UK within the meaning of the charterparty and was therefore entitled to an indemnity in answer to Farstad's
claim. However, Farstad argued that, in May 2000, ASCO plc had charged its shares in Enviroco to Bank of
Scotland (the 'Bank') and the shares had been registered in the name of the Bank. Farstad's case was that
ASCO plc had ceased to be a member of Enviroco and so the latter did not qualify as its subsidiary.
CONCLUSION
The definition of 'Subsidiary' in the charterparty was an unequivocal direction to the parties and to the court
that the statutory definition was to be applied. Therefore Enviroco was not an affiliate of Asco UK according
to s 736 and did not benefit from the charterparty indemnity. There was no evidence of any mistake and
Patten LJ saw no reason not to give the words their ordinary and natural meaning. The court did not have the
power to revise the provisions of a statute simply because it took the view that their operation may produce
uncommercial results in some cases.
Previously, s 258(3) of the Companies Act 1985 had introduced a deeming provision which treated the parent as a member of the subsidiary if shares in the latter were held by a person, such as a nominee, acting on
the parent's behalf. However the amended s 736 contained no such provision, whether by accident or oversight.