British and Commonwealth Holdings Plc v Quadrex Holdings Inc.
| Jurisdiction | England & Wales |
| Judge | THE VICE-CHANCELLOR,LORD JUSTICE WOOLF,LORD JUSTICE STAUGHTON |
| Judgment Date | 23 February 1989 |
| Judgment citation (vLex) | [1989] EWCA Civ J0223-3 |
| Docket Number | 89/0172 1515/88 1516/88 |
| Court | Court of Appeal (Civil Division) |
| Date | 23 February 1989 |
[1989] EWCA Civ J0223-3
The Vice-Chancellor
(Sir Nicolas Browne-Wilkinson)
Lord Justice Woolf
Lord Justice Staughton
89/0172
1514/88
1515/88
1516/88
IN THE SUPREME GOURT OF JUDICATURE
COURT OF APPEAL. CIVIL DIVISION
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MR JUSTICE HIRST (In Chambers)
Royal Courts of Justice
LORD IRVINE Q.C., MR NICHOLAS PADFIELD and MR PHILIP SALES (instructed by Messrs Herbert Smith) appeared on behalf of the plaintiffs.
MR ANTHONY GRABINER Q.C., MR NICHOLAS STADLEN and MR CRAIG ORR (instructed by Messrs Slaughter & May) appeared on behalf of the respondents.
These are two appeals from orders made by Mr. Justice Hirst in the Commercial Court. By the first order, dated 24th November 1988, the judge gave summary judgment under Order 14 against the defendant company Quadrex Holdings Inc. ("Quadrex" for damages to be assessed for breach of an Agreement dated 13th August 1987 made between the plaintiff company British and Commonwealth Holdings plc ("B & C") and Quadrex. The damages claimed amount to more than £100m. B & C applied for an order for interim payment of damages and on 29th November 1988 the judge made an order for interim payment in the sum of £75m. Quadrex appeals against both orders.
The history of the case is extremely complex and impossible to state shortly. B & C is a public company which includes amongst its subsidiaries a money broking business, Exco. Exco in turn owns RMJ Holdings Inc., a U.S. Government securities broker. In July 1987 B & C made a bid for another company, Mercantile House Holdings Ltd. ("Mercantile House"). One division of Mercantile House was its Wholesale Broking Division ("WBD"). The WBD largely comprised two money broking companies, M.W. Marshall & Co. Ltd ("Marshalls") and William Street Holdings Ltd. ("Streets"). Marshalls is an English company carrying on a world-wide money broking business. Streets carries on business in the United States as a broker in the U.S. Government fixed securities market.
Quadrex is an American company also engaged in the money broking field. The President of Quadrex and its moving spirit is Mr. Klesch.
Because B & C is itself engaged through Exco in the money markets, it could not retain the WBD of Mercantile House even if its bid were successful. At the time of making the bid, B & C announced its intention to sell off the WBD.
Quadrex made a rival bid for the whole of Mercantile House, its desire being to obtain control of the WBD. Quadrex bought shares in Mercantile House on the market.
Between 11th and 13th August 1987 there were high pressure negotiations between B & C and Quadrex. The proposal was that Quadrex should withdraw its rival bid for Mercantile House and B & C (if its bid for Mercantile House were successful) would sell the WBD to Quadrex. It was envisaged that such sale of the WBD might give rise to acute tax problems for B & C. The negotiations were successful and reached fruition in the Agreement dated 13th August 1987 which is the subject matter of this action.
The Agreement was made between B & C and Quadrex. After reciting the offer made by B & C for all the shares in Mercantile House (defined as the "Offer"), clause 1 contains certain definitions, one of which defines the WBD and another defines "Quadrex U.K." as a U.K. resident subsidiary of Quadrex nominated by Quadrex to acquire certain parts of the WBD. Clause 2 contains two conditions precedent which had to be satisfied (as in the event they were) by 5 p.m. on 16th August 1987. One of the conditions precedent reads as follows:
"(b) joint consultation by the parties with the senior management of each of Marshalls and William Street having taken place and each party hereto confirming to the other that it is satisfied with the outcome of such consultations."
Clause 3 is of central importance and I must set out most of it:
"3. Subject to the satisfaction of the conditions set out in clause 4 and as soon as reasonably practicable thereafter:-
(a) B & C will secure the implementation of a scheme of reconstruction or amalgamation in relation to Mercantile House (the "Scheme") whereby—
(i) under a scheme of reconstruction or amalgamation to which section 267 Taxes Act 1970 and section 88 Capital Gains Tax Act 1979 apply, Quadrex U.K. (having acquired shares of Mercantile House or a new holding company of Mercantile House) becomes entitled to receive shares in a U.K. resident company which owns the Wholesale Broking Division apart from the shares in William Street and its subsidiares; and
(ii) Quadrex or a U.S. resident company nominated by Quadrex will become entitled to the shares of William Street or to shares of a U.S. resident company which has acquired such shares.
(b) The aggregate price payable by Quadrex or Quadrex U.K. (if appropriate) and the nominated company referred to in (a)(ii) shall be £280,000,000 (together with an annual amount equal to interest at 10% per annum on such amount accrued from the date falling 14 days after the offer has been declared unconditional in all respects up to the date of payment of the consideration) to be allocated between the interests acquired at (a)(i) and the shares purchased at (a)(ii) on an arms length fair market value basis agreed between the parties.
(c) The price payable for the interests acquired at (a)(i) and (a) (ii) above shall be paid by Quadrex on completion of such acquisitions.
(d) B & C will procure that the net profits accruing to the wholesale Broking Division since 30th April 1987 remain in the Wholesale Broking Division at the time of the acquisition and purchase referred to in paragraphs (a)(i) and (a)(ii) above and that subject to the availability of cash resources in the Wholesale Broking Division all inter company balances between members of the Wholesale Broking Division and other members of the Mercantile House Group together with amounts equal to the subscription monies subscribed for any share capital of any member of the Wholesale Broking Division since 30th April 1987 by any other member of the Mercantile House Group are repaid.
(e) [This deals with the repayment of dividends to the Wholesale Broking Division].
(f) On completion of the acquisition of the Wholesale Broking Division by Quadrex pursuant to paragraphs (a)(i) and (a)(ii) above:
[There then follow provisions requiring the repayment by Quadrex of any inter-company indebtedness so far as unsatisfied under clause 3(d), the discharge of guarantees by Mercantile House of the indebtedness of the wholesale Broking Division, and the discharge of guarantees given by the Wholesale Broking Division for the benefit of other members of Mercantile House]".
Clause 4 provides that the obligations contained in clause 3 are conditional on the satisfaction of a number of conditions, which I can summarise as follows: (a) the offer for Mercantile House by B & C becoming unconditional; (b) the approval of the arrangements contained in the agreement by the shareholders of Mercantile House, the Panel on Takeovers and Mergers and the Board of Mercantile House recommending shareholders to give approval; (c) the approval of the disposal by the shareholders of B & C; (d) the obtaining of clearance from the Inland Revenue for all aspects of the Scheme; (e) the Office of Fair Trading indicating that it did not intend to refer the matter to the Monopolies and Mergers Commission; (f) certain requirements of United States anti-trust law being satisfied; (g) the Bank of England indicating that it does not disapprove of the acquisition by Quadrex.
Clause 7 provides that when the Offer becomes unconditional, B & C is to procure the appointment of Mr. Klesch or some other nominee of Quadrex to the board of Mercantile House. Clause 7(b) provides:
"B & C shall consult with Quadrex on all matters which are material to the activities of the Wholesale Broking Division and will use its reasonable endeavours to procure that the members of the Wholesale Broking Division carry on business in the ordinary and usual course".
Under clause 8, Quadrex undertook to accept the Offer for the shares in Mercantile House which it had acquired on the market and not to make any rival bid for Mercantile House. By clause 9, B & C agreed not to enter into negotiations for the disposal of the WBD to any other party.
I must read clauses 11 and 12 in full:
"11. Quadrex and B & C will actively co-operate with one another in carrying out the Scheme and will provide all reasonable assistance to one another so as to enable the disposal of the Wholesale Broking Division to Quadrex or Quadrex U.K. to be achieved in a manner which minimises tax liabilities incurred by B & C or the Mercantile House Group as a result thereof and which does not have adverse tax consequences for Quadrex. If in the reasonable opinion of B & C the proposed Scheme is considered not to be the most advantageous method of achieving the disposal of the Wholesale Broking Division to Quadrex then such disposals shall be effected by such other method as B & C may decide, which in the reasonable opinion of Quadrex is not materially prejudicial to the interests of Quadrex.
12. The parties hereto shall act in good faith and use all reasonable endeavours to bring about the disposal and acquisition of the Wholesale Broking Division on the basis set out in the Agreement".
Clause 13 provides that if the clause 4 conditions were not satisfied before 28th February 1988, the agreement shall cease to have effect.
The financing of the purchase of the WBD is of central importance in this case. B & C allege that at the...
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