BAT Industries Plc v Windward Prospects Ltd (First Defendant)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Hamblen |
| Judgment Date | 21 November 2013 |
| Neutral Citation | [2013] EWHC 3612 (Comm) |
| Docket Number | Case No: 2012-213 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 21 November 2013 |
[2013] EWHC 3612 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Hamblen
Case No: 2012-213
Michael Todd QC, Andrew ThompsonandBen Griffiths (instructed by Debevoise & Plimpton LLP) for the Claimant
Stuart Ritchie QC and Simon Atrill (instructed by CMS Cameron McKenna LLP) for the Defendant
Hearing dates: 12 and 13 November 2013
Introduction
The Claimant ("BAT") applies for the appointment of a receiver over claims which it contends are vested in the Respondent ("Windward") for in excess of $800 million against its former sole shareholder, a French company called Sequana S.A. ("Sequana"), and former directors.
The essential basis of the application is that BAT contends that there is a real risk that at least some of those claims may imminently become time-barred, that Windward has taken no effective steps to preserve the claims, and that the appointment of a receiver is necessary to ensure that all Windward's claims are protected and preserved, and are not lost to Windward and its creditors (including BAT).
In support of the application BAT relied on two witness statements from Mr Lloyd of its solicitors, Debevoise & Plimpton LLP, and two further statements from Mr Kirry, a partner in their Paris office, together with exhibits. Windward relied on two statements from Mr Aldred of its solicitors, CMS Cameron McKenna LLP, and an expert report and note from a French lawyer, Mr Bouckaert of BOPS, together with exhibits. Both parties made extensive written submissions and I have drawn on those submissions, with adaptations and amendments, in preparing this judgment, particularly in relation to matters of common ground and in setting out the parties' arguments.
The background to and the basis of the application is set out in detail in Mr Lloyd's First Witness Statement. I shall summarise the factual background under three main headings: General Background; the Dividend Claims; and Limitation. In setting out the General Background I am not making any findings of fact or law, but merely describing the context in which the present application arises.
General background
Underlying the dispute in these proceedings is the question of who should bear the liability for the costs of clean-up exercises in relation to the Fox River in Wisconsin ("the Fox River") and the Kalamazoo River in Michigan ("the Kalamazoo River"), which have been polluted with polychlorinated biphenyls ("PCBs") used in the paper production industry in the 1950s to 1970s.
In this case, liability for the clean-up exercises arises both (directly) under the US Comprehensive Environmental Response, Compensation and Liability Act 1980 ("CERCLA") and (indirectly) under various contractual provisions which were put in place as a result of the acquisition or demerger of the paper production companies which were using or disposing of PCBs.
The relevant production companies are NCR Corporation ("NCR"), Appleton Coated Paper Company ("ACPC") and Appleton Paper Inc ("API").
In 1978, NCR sold the business and assets of its paper division to API, which was then a US subsidiary of BAT, pursuant to a business purchase agreement dated 30 June 1978 (the "1978 Purchase Agreement"). Under that agreement, API agreed to assume, pay, perform, defend and discharge, if and when due, certain of NCR's obligations and liabilities, including certain environmental liabilities (section 1.4) and BAT agreed to indemnify and hold harmless NCR from and against any losses it incurred as a result of any failure by API to perform its obligations in respect of the debts, obligations, contracts and liabilities of NCR to be assumed by API (including section 1.4).
In about June 1990, API (together with several other non-core subsidiaries of BAT) was demerged from the BAT Group. The demerger was effected in part by a demerger agreement dated 10 May 1990 between (amongst others) BAT and Windward (the "1990 Demerger Agreement"). The 1990 Demerger Agreement, which is governed by English law, provided for a number of indemnities in favour of BAT from Windward and API. Windward is a company incorporated in England and Wales.
In September 1994, NCR and API were notified by the US Environmental Protection Agency (" EPA") that they were likely to be named as Potentially Responsible Parties ("PRPs") in respect of the pollution of the Fox River under CERCLA. That notification generated a dispute between NCR on the one hand and API/BAT on the other as to their respective rights and obligations under the indemnity provisions of the 1978 Purchase Agreement.
On 20 June 1995, NCR filed an action against API and BAT in the US District Court for the Southern District of New York (the "1995 New York Proceedings") seeking a declaration that API and BAT were obliged to indemnify it under the 1978 Purchase Agreement in respect of claims arising out of (inter alia) the Fox River site.
The defence of the 1995 New York Proceedings was conducted by Windward and/or API on behalf of API and BAT with BAT having no material involvement in that defence.
The 1995 New York Proceedings were settled on terms set out in a settlement agreement between the parties which was formally executed in July 1999 but stated to take effect from 12 February 1998 (the "1998 Settlement Agreement").
Under the 1998 Settlement Agreement all "Damages" and "Group Defense Costs", which terms included potential CERCLA liabilities of NCR (and API/BAT) up to a total of $75 million allocated or assessed to, imposed upon, or incurred by NCR or API/BAT, either singly or collectively, relating to (amongst other matters) the Fox River sites and 'Future Sites' would be borne, as to 55%, jointly and severally by API/BAT and, as to 45%, by NCR.
Pursuant to the terms of a Subsequent Allocation Arbitration Agreement dated 12 February 1998 (the "Subsequent Allocation Arbitration Agreement") liabilities for "Claims", "Damages" and "Group Defense Costs" (as those terms were defined in the 1998 Settlement Agreement) in excess of $75 million were to be allocated between NCR and API/BAT as determined by binding arbitration.
On 5 July 2001 there was an employee buy-out of API, and Windward indirectly sold and transferred all the outstanding capital stock of API to two companies named Paperweight Development Corporation ("PDC") and New Appleton LLC ("New Appleton").
By the PDC Fox River Environmental Indemnity Agreement dated 9 November 2001 between API, PDC, New Appleton and Windward, Windward agreed to indemnify API indirectly in respect of any amounts paid or payable by API constituting (amongst other things) "Damages" or "Group Defense Costs" (save for a $25 million "slice" of such damages and group defence costs in excess of $75 million which was agreed to be borne by API) (the "2001 API Indemnity").
The effect of the 2001 API Indemnity is that, as between API and Windward, it is Windward who will ultimately bear the financial costs of API's indemnity obligations to NCR under the 1998 Settlement Agreement.
In early 2005 NCR commenced arbitration proceedings against API and BAT pursuant to clause 4 of the 1998 Settlement Agreement and the Subsequent Allocation Arbitration Agreement seeking a determination of the allocation of "Damages" and "Group Defense Costs" in excess of $75 million (the "2005 Arbitration Proceedings"). Again, the defence was conducted by Windward and/or API on behalf of API and BAT and BAT had no material involvement.
The arbitration tribunal delivered its award on 28 November 2005 (the "2005 Arbitration Award"), allocating all "Claims", "Damages" and "Group Defense Costs" in excess of $75 million, as to 60%, to API/BAT and, as to 40%, to NCR.
As a consequence of the 1998 Settlement Agreement and the 2005 Arbitration Award, API and BAT are said by NCR to be obliged to indemnify NCR in respect of 60% of all "Claims", "Damages" and "Group Defense Costs" in excess of $75 million, subject to the terms of the 1998 Settlement Agreement.
BAT is accordingly potentially liable to NCR jointly and severally with API for 55% of NCR's liabilities up to $75 million and for 60% of those liabilities in excess of $75 million. Current estimates of NCR's liability in respect of the Fox River are in the region of $1 billion.
It is in respect of this liability that BAT claims that it is entitled to be indemnified by Windward. It puts its case as follows:
(1) BAT's principal claim is that it has the benefit of a contractual indemnity under Clauses 11.1.1 and/or 7.2 of the 1990 Demerger Agreement. In support of its claim under Clause 7.2 of the 1990 Demerger Agreement, BAT relies in addition upon an alleged collateral agreement or estoppel which arose in 1999, prior to the execution of the 1998 Settlement Agreement in July 1999.
(2) An agreement concluded in 1995, in the context of the 1995 New York Proceedings, in oral and written communications between representatives of BAT, Windward and API under which Windward/API agreed that they were liable to indemnify BAT in respect of all losses suffered or incurred by BAT in connection with the subject matter of the proceedings which had been brought against API and BAT by NCR. In the alternative, BAT claims that an estoppel by convention and/or representation arose out of the same communications, as a result of which Windward and API are estopped from denying that they are obliged to indemnify BAT against all such losses suffered or incurred by BAT.
(3) An estoppel by convention and/or representation arising out of communications between representatives of BAT, Windward and API (and their respective lawyers)...
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BAT Industries Plc v (1) Windward Prospects Ltd, (2) Appleton Papers Inc.
...ordering absent an appropriate undertaking from Windward, the appointment of a receiver over those claims on BAT's application ( [2013] EWHC 3612 (Comm)). 65 It is also the case that by reason of the AWA Agreement and the PDC Agreement (see paragraph 44 above) Windward is the ultimate payma......