ABT Auto Investments Ltd v Aapico Investment Pte Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Salter |
| Judgment Date | 14 November 2022 |
| Neutral Citation | [2022] EWHC 2839 (Comm) |
| Docket Number | Case No: CL-2020-000398 |
| Court | King's Bench Division (Commercial Court) |
[2022] EWHC 2839 (Comm)
Mr Richard Salter KC
Sitting as a Deputy Judge of the High Court
Case No: CL-2020-000398
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT (KBD)
Royal Courts of Justice. Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Paul Downes KC and Mr Joseph Sullivan (instructed by Clyde & Co LLP) for the Claimant
Mr Tom Smith KC and Mr Ryan Perkins (instructed by Baker & McKenzie LLP) for the Defendant
Hearing dates: 18, 19, 20, 21, 25, 26, 27, 28 July 2022
Approved Judgment
I direct that no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
This judgment was handed down remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 10:30am on Monday 14 November 2022
Mr Salter KC:
(A) Introduction
On 18 August 2019, the First and Second Defendants, as chargees, enforced a Share Charge granted by the Claimant, as chargor, by appropriating the shares in the Third Defendant which were the subject of that charge. In this action, the Claimant alleges that the valuation placed on the shares by the First and Second Defendants did not comply with the requirements of the Share Charge and/or of The Financial Collateral Arrangements (No 2) Regulations 2003 (“ the FCARs”) 1 and represented a very significant under-valuation. The Claimant accordingly says that the purported appropriation was invalid, and that the Claimant therefore remains the beneficial owner of the shares. Alternatively, the Claimant asks the Court itself to determine the value which the First and Second Defendants should have put on the shares, had the valuation been carried out “in a commercially reasonable manner” in accordance with Regulation 18(1) of the FCARs. Among the issues raised in this action are interesting and difficult questions as to the practical application of that concept and as to the effect, in that context, of provisions designed to create a contractual estoppel.
(B) Background
The essential background facts were not in dispute.
The Claimant (“ ABT Auto”) is a holding company which is part of the Sakthi group. The Sakthi group was founded in 1921 by the grandfather of Dr Manickam Mahalingam (“ Dr Mahalingam”), the director of ABT Auto who has given evidence on its behalf in this action.
In about 2000 the automotive foundry part of the Sakthi group's business was hived off into a separate company, Sakthi Auto Components Ltd (“ SACL”). In about 2004, SACL began supplying steering knuckles to General Motors (“ GM”) and expanded its production capacity through factories (inter alia) in China, Portugal (“ Sakthi Portugal”), and the USA.
The Sakthi group's expansion into the USA led to the creation of a new company, Sakthi Auto Group USA Inc (“ SAGUSA”). In 2012, SAGUSA entered into a joint venture (“ the Chinese Joint Venture”) with a Chinese company, Bethel Automotive Safety Systems Co Limited (“ Weihei China”), with a view to satisfying increased demand from GM. The terms of this were eventually set out in an agreement dated 16 February 2019 (“ the Chinese JV Agreement”). The joint-venture was carried out through two new companies, Weihei Bethel Sakthi Automotive Safety Systems Co Ltd (“ WBS”) (owned 49% by SAGUSA, 51% by Weihei China) and Weihei Bethel Sakthi Automotive Co Ltd (“ Sakthi Bethel”) (owned 51% by SAGUSA and 49% by Weihei
China) (together “ the Chinese Subsidiaries”). In very broad and simplified outline, WBS produced steering knuckle castings for SAGUSA in China, which SAGUSA then machined in the USA before on-sale as finished products to GMThe First Defendant (“ Aapico Investment”) is a company registered in Singapore. The Second Defendant (“ Aapico Hitech”) is registered in Thailand. Aapico Investment and Aapico Hitech (together “ Aapico”) are both members of the Aapico group of companies, the founder and president of which is Mr Yeap Swee Chuan (“ Mr Yeap”).
In about 2017, SACL and the Aapico group began the joint venture which forms the background to the present dispute. The Third Defendant (“ SGAH”) was formed to be the joint-venture company. The shares in SGAH were to be held as to 74.9% by ABT Auto, as to 24.1% by Aapico Hitech and as to 1% by Aapico Investment.
SGAH was to become the owner of SAGUSA and the owner of a 70% interest in SACL. Both shareholdings were to be contributed by ABT Auto. The Aapico group's contribution to the joint venture was to be financial, in the form of USD 50m in equity and USD 50m by way of loan, secured (inter alia) by guarantees given by Dr Mahalingam and by ABT Auto.
The arrangements between the parties were set out in a suite of documents, each dated 25 May 2017. These included a loan agreement between Aapico Investment and SGAH (“ the 2017 Loan Agreement”).
By the first half of 2018, SAGUSA was experiencing financial problems. These are attributed by Dr Mahalingam primarily to thefts of castings and to technical production issues and by Mr Yeap primarily to mismanagement. Aapico agreed to provide an injection of USD 65m. USD 25m of that injection was in the form of equity capital, taking Aapico's shareholding in SGAH to 49.9%. The balance of USD 40m was in the form of a loan from Aapico Hitech, on the terms of an amended and restated loan agreement dated 29 September 2018 (“ the 2018 Loan Agreement”). This loan was again secured by guarantees, including guarantees given by Dr Mahalingam and by ABT Auto. On this occasion, ABT Auto also provided a charge dated 1 October 2018 (“ the Share Charge”) over its shares in SGAH (“ the Charged Shares”), to secure the amounts due both under the 2017 Loan Agreement and under the 2018 Loan Agreement.
Regrettably, this further investment did not resolve SAGUSA's financial difficulties.
Other parts of the Sakthi group were also experiencing financial difficulties at about this time. In April 2017 Oxy Capital had lent EUR 25m to Sakthi Portugal. This loan was to settle earlier loans from Indian banks and was secured by a pledge over the share capital of Sakthi Portugal. On 9 November 2018, Oxy Capital served notices of default giving the borrower 30 days to rectify the position.
In about November 2018, Mr Yeap secured a further USD 27–28m by way of funding for SAGUSA and stepped in as the acting CEO of the SAGUSA operation. Unfortunately, significant sums of money had become due to WBS in respect of the supply of castings to SAGUSA, for which WBS and Weihei China then began pressing strongly for payment.
On 15 January 2019, SGAH failed to make the interest payment of USD 815,556 due under the 2017 Loan Agreement.
On about 22 January 2019, Dr Mahalingam and Mr Yeap signed a Memorandum of Understanding (“ the 22 January MOU”) designed to solve the financial difficulties of the joint venture. The terms of the 22 January MOU were never implemented. In his evidence, Dr Mahalingam attributed this to Aapico's failure to make the further investments which it had promised in the 22 January MOU to make by 25 January 2019. Dr Yeap, in his evidence, attributed this to the failure of Dr Mahalingam's lawyers to engage with the drafts put forward by Aapico's lawyers, and said that the date of 25 January was there simply to placate GM (to whom the 22 January MOU was to be shown) and that none of the parties expected the further investment to be made before the formal documentation was completed.
SAGUSA had a revolving credit facility with the Huntington National Bank (“ Huntington”). In March 2019, Huntington raised concerns that SAGUSA was nearing the credit limit of the facility and, on 27 March 2019, submitted an application (supported by Aapico and eventually by General Motors) to put SAGUSA into receivership.
On 31 March 2019, SGAH failed to make the repayment of USD 14m plus interest due under the 2018 Loan Agreement.
Between 2 and 5 April 2019, Aapico sent four notices of default to SGAH. On 10 April 2019, Aapico sent notices of acceleration to ABT, declaring both loans to be repayable on demand.
On 16 May 2019, Huntington's application was granted, and a receiver was appointed over SAGUSA's business.
On 13 August 2019, Aapico made demands on SGAH for immediate repayment of the sums due under the 2017 Loan Agreement (USD 58,089,506) and the 2018 Loan Agreement (USD 44,688,260). SGAH did not repay any part of that total of USD 102,777,766 (“ the Debt”).
On 14 August 2019, Aapico demanded payment of the Debt from ABT Auto under its guarantees. ABT Auto did not make payment in response to that demand and so, on 15 August 2019, Aapico gave notice purporting to exercise the power under clause 9.3 of the Share Charge to appropriate the Charged Shares. In that notice, Aapico ascribed a value of USD 27m to the Charged Shares. That figure was based on a valuation dated 31 July 2019 of ABT's 50.01% shareholding in SGAH (“ the FTI Valuation”) carried out at Aapico's request by FTI Consulting (“ FTI”).
By this time, Sakthi Portugal had still not repaid the sums due to Oxy Capital. On 20 September 2019, Oxy Capital served an acceleration notice calling in the full sum due under the loan agreement together with penalties for default. On 21 October 2019, Oxy Capital enforced its share pledge, and transferred the shares in Sakthi Portugal to Aapico in return for a payment of EUR 24.5m.
On 11 December 2019, Aapico commenced a SIAC arbitration (“ the SIAC Arbitration”) against Dr Mahalingam under his guarantees.
The Claim Form in the present action was issued on 26 June 2020,...
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