BTI 2014 LLC v Sequana SA and Others; B.A.T. Industries Plc v Sequana SA and another
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Rose |
| Judgment Date | 11 July 2016 |
| Neutral Citation | [2016] EWHC 1686 (Ch) |
| Docket Number | Case No: HC-2014-001215 HC-201300376 |
| Court | Chancery Division |
| Date | 11 July 2016 |
[2016] EWHC 1686 (Ch)
Mrs Justice Rose
Case No: HC-2014-001215 HC-201300376
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Joe Smouha QC, Andrew ThompsonQC, Edward Davies, Ciaran Keller (instructed by Debevoise & Plimpton LLP) for the Claimant
David Foxton QC, Ben ValentinQC, David MumfordQC (instructed by Freshfields Bruckhaus Deringer LLP) for the Defendants
Hearing dates: 23 rd February – 26 th February, 29 th February – 4 th March, 7 th March – 11 th March, 14 th March – 16 th March, 18 th March, 21 st March – 23 rd March, 5 th April – 8 th April, 11 th April, 14 th April, 22 nd April, 25 th April – 29 th April
CONTENTS
| CONTENTS | PARA |
| I. INTRODUCTION | 1 |
| II AWA | 8 |
| III THE EVIDENCE | 19 |
| (a) The factual witnesses | 19 |
| (b) The CERCLA experts | 32 |
| (c) The accounting experts | 36 |
| (d) The documentary evidence | 39 |
| (e) Other participants in the events giving rise to the claim | 40 |
| IV CERCLA | 47 |
| V LIABILITY FOR THE REMEDIATION OF THE LOWERFOXRIVER | 61 |
| (a) The pollution of the Lower Fox River | 61 |
| (b) The application of CERCLA to the Lower Fox River | 64 |
| (i) The early stages | 64 |
| (ii) The WDNR Technical Memorandum 2d (February 1999): the Tech Memo | 67 |
| (iii) The Fox River Group's Agreement on interim allocation: 27 July 1999 | 73 |
| (iv) The Amendola Report | 74 |
| (v) US Government enforcement action | 77 |
| (c) The Green Mediation | 79 |
| (d) Parallel work on the NRDs | 86 |
| (e) The Whiting litigation | 96 |
| (f) The insurance position and the Green Bay Litigation | 99 |
| VI THE EVOLUTION OF THE PROVISION IN AWA'S ACCOUNTS UP TO DECEMBER 2008 | 105 |
| (a) The elements that go into the provision | 105 |
| (b) The provision in the years to 2007 | 118 |
| (c) Events in early 2008 | 139 |
| (d) The September Internal Memorandum | 149 |
| (e) The New York meeting on 22 October 2008 and following | 165 |
| (f) The 20 November 2008 estimates | 187 |
| (g) The involvement of Mr Mountford and Mr Newell | 193 |
| (h) The 15 December 2008 meeting: the reduction of capital | 207 |
| (i) the November 2008 Interim Accounts | 210 |
| (ii) the December AON Report | 213 |
| (iii) The PwC Agreed Upon Procedures report | 218 |
| (i) The 17 December 2008 meeting: the December Dividend | 226 |
| VII DEVELOPMENTS BETWEEN DECEMBER 2008 AND MAY 2009 | 230 |
| (a) The decision of the US Supreme Court in Burlington Northern | 231 |
| (b) Other developments on the Lower Fox River | 239 |
| (c) Developments within Sequana and AWA | 250 |
| VIII THE EVOLUTION OF THE PROVISION BETWEEN DECEMBER 2008 AND MAY 2009 | 257 |
| (a) AWA's intentions after the December Dividend | 257 |
| (b) Reaction in the AWA team to Burlington Northern | 265 |
| (c) The run up to the 18 May 2009 board meetings | 275 |
| (d) Finalising the AWA audited accounts for the year 2008: the emphasis of matter | 290 |
| (e) The 18 May 2009 meetings and the sale of AWA to TMW | 293 |
| IX THE 'COULD NOT' CLAIMS: THE ALLEGED CONTRAVENTION OF PART 23 OF THE CA 2006 | 301 |
| (a) The reduction of capital: legal issues | 311 |
| (i) The correct approach to construing these provisions | 317 |
| (ii) Is it necessary to show that the directors applied the right test and in fact formed the opinion stipulated? | 321 |
| (iii) What is the correct test under section 643(1)(a)? | 323 |
| (iv) Taking into account contingent and prospective liabilities | 328 |
| (v) Must directors have reasonable grounds for the opinion that they form? | 331 |
| (vi) When forming their view, should the directors assume that all the distributable reserves created by a reduction in capital will be distributed by way of dividend? | 334 |
| (vii) The relevance of the Historic Insurance Policies | 336 |
| (viii) The error in the memorandum of capital | 341 |
| (b) The reduction of capital: the factual issues | 346 |
| (i) Mr Martinet's and Mr Courteault's solvency statements | 347 |
| (ii) Mr Mountford's and Mr Newell's solvency statements | 356 |
| (c) The adequacy of the Lower Fox River provision in AWA's accounts | 365 |
| (i) The relevant statutory provisions and accounting standards | 367 |
| (ii) A duty to obtain professional advice | 378 |
| (d) The challenge to the provision in the December 2008 Interim Accounts | 382 |
| (e) The challenge to the provision in the 2008 Final Accounts (used for the May Dividend) | 401 |
| (i) The reduction of NCR/API's share from 60% to 38% | 402 |
| (ii) Mr Martinet's evidence about the May Dividend | 422 |
| (iii) The NRD value of $18.8 million for NCR/API | 430 |
| (f) The disclosures made in AWA's accounts regarding contingent liabilities | 432 |
| (i) Disclosure actually made in the accounts | 436 |
| (ii) The relevance of defective disclosure in the accounts | 440 |
| (iii) Disclosure: the KalamazooRiver | 443 |
| (g) Conclusion on the "could not" claims | 454 |
| X THE 'SHOULD NOT' CLAIMS: BREACH OF FIDUCIARY DUTY | 456 |
| (a) Some preliminary points | 460 |
| (b) When does the creditors' interests duty arise? | 464 |
| XI CLAIM UNDER SECTION 423 OF THE INSOLVENCY ACT 1986 | 485 |
| (a) Section 423: the law | 486 |
| (b) Section 423: some preliminary points | 494 |
| (c) Is a dividend a transaction falling within section 423(1)(a) or (c)? | 497 |
| (d) Did the directors of AWA have the s 423 purpose in relation to the December Dividend? | 503 |
| (e) Did the directors of AWA have the s 423 purpose in relation to the May Dividend? | 506 |
| XII CONCLUSION | 526 |
I. INTRODUCTION
On 17 December 2008 the Second to Fifth Defendants, Antoine Courteault, Pierre Martinet, Clive Mountford and Martin Newell, attended a meeting of the board of a company called Arjo Wiggins Appleton Limited ('AWA'). At that time, they were the four directors of AWA, now called Windward Prospects Limited, and AWA was a wholly-owned subsidiary of Sequana SA, the First Defendant ('Sequana').
The directors resolved at the meeting on 17 December 2008 to pay an interim dividend to the parent company Sequana of €443 million and resolved further that the payment of the dividend should be effected by way of set off against an equivalent amount of the intra-group receivable due to AWA from Sequana. The outstanding balance of the intra-group receivable after the payment of the dividend was €142.5 million.
On 18 May 2009 the directors of AWA held another board meeting. By this time there were only two directors, Mr Martinet and Mr Courteault. They held the meeting by telephone as Mr Courteault was in London and Mr Martinet was travelling to Turin. The directors resolved to pay a further interim dividend to Sequana to be satisfied by the release by AWA of €135 million of Sequana's intra-group debt owed to AWA.
The payment by AWA of these two dividends is challenged in these proceedings by the Claimants on a number of grounds. The Claimants allege that the dividends contravened Part 23 of the Companies Act 2006 ('CA 2006'). This is on the basis that the accounts on which the directors relied as showing there were sufficient distributable reserves to justify the payment of the dividends were incorrect and did not give a true and fair picture of the state of the company's finances. It is also alleged that the decision to pay both dividends was a breach by the directors of their fiduciary duties towards the company. Finally it is alleged that the dividends constituted transactions which contravened section 423 of the Insolvency Act 1986.
The source of the Claimants' complaint about the dividends lies almost 4000 miles away, in the sediment of the Lower Fox River in Wisconsin, USA. That sediment was heavily polluted during the 1950s and 1960s and the River has been subject to a complex and very expensive cleanup operation pursuant to the US statute, the Comprehensive Environmental Response, Compensation and Liability Act 1980 ('CERCLA'). Through a series of corporate acquisitions and asset transfers since then, the Claimant BAT Industries PLC ('BAT') is liable to pay for part of that clean up and AWA is liable to indemnify BAT for part of the monies BAT has to pay out.
That liability to indemnify BAT resulted in a provision being included for a number of years in AWA's accounts to reflect the directors' best estimate of the value of that liability. The Claimants assert that that provision was inadequate and further that the directors, when taking the various decisions under attack, should have taken more account of the possibility that, even if the provision in the accounts was a best estimate, that estimate could turn out to be wrong by a long way. They also assert that a large reduction in AWA's capital which was approved two days before the payment of the December dividend was unlawful.
The trial which took place before me over 32 days was the trial of two sets of proceedings heard jointly:
(a) The first, Claim No HC-2013–00376, was issued on 9 December 2013 and is brought by BAT against Sequana and AWA. This is, broadly, the claim based on section 423 of the Insolvency Act 1986.
(b) The second, Claim No HC-2014–001215, was issued on 9 May 2014 and is now brought by BTI 2014 LLC ('BTI') against Sequana and against the four directors personally. It was initially brought by AWA itself. But under an assignment effective as of 30 September 2014 AWA assigned its claims against the Defendants to BTI which is a corporate...
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