Demco Investment and Commercial S.A. v Interamerican Life Assurance (International) Ltd and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE CHRISTOPHER CLARKE |
| Judgment Date | 20 July 2012 |
| Neutral Citation | [2012] EWHC 2053 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 20 July 2012 |
| Docket Number | Case No: 2010 FOLIO 260 |
[2012] EWHC 2053 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Christopher Clarke
Case No: 2010 FOLIO 260
Paul Fallon (instructed by City Law) for the Claimant
Ian Gatt QC (instructed by Herbert Smith) for the 3 rd Defendant
Mr Boris Sackville representing himself ( 4 th Defendant)
Mr Sidney Paine representing himself ( 5 th Defendant)
Paul Fallon (instructed by City Law) for the ( 6 th Defendant)
David Edwards QC (instructed by Norton Rose) for the 7 th and 8 th Defendants
Hearing dates: 24 th and 25 th April 2012
This is a claim by the third defendant—Generali Deutschland Holding AG ("GDH")—for contribution from the other parties in respect of sums which it has paid out in respect of claims for breaches of warranties contained in an agreement for the sale of shares in an English insurer—Interlife Assurance Company Limited ("Interlife"). It is nearly the end of a long story, which includes an arbitration, not yet completed, which has lasted for well over a decade. In order to understand the issues it is necessary to cover a fair amount of the background.
The sale
The sale was effected by a Purchase Agreement of 21 April 1993 ("the Purchase Agreement") together with a Deed of Indemnity ("the Deed"). The purchaser was a Swedish bank now named SEB Tryg Liv Holding Aktiebolag ("SEB"). At the time of the Purchase Agreement Interlife was in poor financial shape.
Immediately prior to the sale the shareholdings in Interlife were as follows:
| Name | Shares | Percentage (to 2 decimal places) |
| Demco | 250,741 | 9.62% |
| Interamerican | 799,475 | 30.68% |
| Europolitan | 653,105 | 25.07% |
| Old Aachener Re | 329,719 | 12.65% |
| Mr Sackville | 97,816 | 3.75% |
| Mr Paine | 77,114 | 2.96% |
| Mr Cohen | 9,511 | 0.37% |
| Trygg-Hansa | 388,062 | 14.89% |
| TOTAL | 2.605,543 | 100% |
Demco Investment and Commercial S.A. ("Demco") is a Greek insurance company owned by Mr Dimitris Contominas ("Mr Contominas"). Interamerican Life Assurance (International) Limited ("Interamerican"), a company incorporated in Bermuda, has been a subsidiary of Demco since 6 February 2001, when its previous primary shareholder, Europolitan Holdings Limited, sold the totality of its shares to Demco. Europolitan Investment Corporation ("Europolitan") is a company incorporated in Luxembourg and its shareholder is Mr Contominas. Old Aachener Re was a company, whose successor is GDH 1. Mr Sackville was the Managing Director of Interlife. Mr Paine was its Finance Director. Mr Cohen had no role, other than as a minor investor, in Interlife. Trygg-Hansa Ömsesidig Livförsäkring Aktiebolag ("Trygg-Hansa") was a Swedish mutual insurance corporation (now in liquidation) which subsequently became a subsidiary of SEB. Its assets and liabilities now vest in Gamla
Livförsäkringaktiebolaget Seb Trygg Liv ("Gamla"), which was a transferee of all but a small part of Trygg Hansa's business pursuant to a restructuring in 1997.Pursuant to the Purchase Agreement SEB agreed to buy all the shares in Interlife for the Purchase Price which was made up of a "Fixed Price" of £ 1 million and the "Additional Price I" and the "Additional Price II".
Of the Fixed Price, £ 700,000 was paid at completion, and the remainder was paid into an escrow account to be paid 14 months later, subject to any adjustments pursuant to Articles 3.03 and 10.05 of the Purchase Agreement. In the event, part of the Fixed Price (the part in the escrow account) was never paid by SEB to the sellers, and the Additional Prices I and II were not paid either. The Additional Prices were eventually quantified at £ 2,270,321 and £ 500,000 respectively. In total, therefore, the Purchase Price was £ 3,770,321, but only £ 700,000 was actually paid by SEB.
There were other key provisions of the Purchase Agreement:
a) various representations and warranties were given by the Sellers (as defined in the Purchase Agreement) in Article 7;
b) Article 10.03(b) contained the following limitation of liability provision:
"The liability of each Seller shall be limited to the higher of an amount equal to (A) one-third (1/3) of the Purchase Price and (B) the product of the Purchase Price multiplied by a fraction, the numerator of which shall be the number of Shares sold by the Seller and the denominator shall be the total number of all Shares sold hereunder; provided, however, that with respect to each Seller who is not a corporate entity, the liability shall be limited as provided in paragraph (B) hereof.
For the purposes of this paragraph 10.03(b), the Purchase Price shall include the Additional Price I and the Additional Price II to the extent any amount with respect thereto shall have been paid, become payable or been deposited to the First Account at the time of the discharge by the Seller of any claim hereunder."
c) Article 10.04 narrowed the scope of the limitation provision as follows:
"The provisions of Section 10.03 hereof shall not apply and the breaching party shall be fully liable with regard to any Claim arising from fraud, wilful misconduct or gross negligence by the breaching party, or by the Company as regards the Sellers' liability".
d) Article 10.05 stated that:
"The Sellers shall, subject to the limitation provided for in Section 10.03(b) hereof, have joint and several liability with regard to any Claim by the Buyer under this Agreement…"
The Deed contained the following provisions:
a) Article 2.01:
"From and after the Closing, the Sellers shall fully indemnify, defend and hold the Buyer harmless against any demands, claims, actions, liabilities, assessments, losses, damages, fines, penalties, costs and expenses…(hereinafter referred to as "Losses") that the Buyer or the Company…may incur or suffer at any time resulting from or otherwise related to" a variety of matters.
b) Articles 3.03(b), 3.04 and 3.05 were materially identical to Articles 10.03(b), 10.04 and 10.05 of the Purchase Agreement.
The effect of these provisions was that the Sellers were jointly and severally liable for all breaches of the representations and warranties under the Purchase Agreement and all Losses under the Deed. Liabilities arising from gross negligence (i.e. those covered by Article 10.04 of the Purchase Agreement and 3.04 of the Deed) by Interlife were uncapped. "Non-gross negligence" liabilities were subject to the following caps:
| Name | Liability Cap (£) | Comment |
| Demco | 1,256,773 | One-third of Purchase Price |
| Interamerican | 1,256,773 | One-third of Purchase Price |
| Europolitan | 1,256,773 | One-third of Purchase Price |
| Old Aachener Re | 1,256,773 | One-third of Purchase Price |
| Mr Sackville | 141,543 | 3.75% of Purchase Price |
| Mr Paine | 111,586 | 2.96% of Purchase Price |
| Mr Cohen | 13,762 | 0.37% of Purchase Price |
| Trygg-Hansa | 1,256,773 | One-third of Purchase Price |
|
| 6,550,756 |
|
Interlife was guilty of pensions mis-selling in the 1990s, and incurred very substantial liabilities to policyholders. The full nature and extent of these liabilities came to light after the acquisition of Interlife by SEB.
The Arbitration
In November 1998, arbitration proceedings were commenced in the names of the Sellers (except Trygg-Hansa, which had by that time become a subsidiary in the SEB Group) against SEB for the unpaid portion of the Purchase Price (the "Arbitration"). SEB then brought a counterclaim against the Sellers (excluding Trygg-Hansa) in relation to pensions mis-selling liabilities. As of 26 September 2001, SEB estimated that Interlife had paid some £ 34 million in compensation, and £ 10 million as the cost of its review exercise.
When the Arbitration was commenced, Old Aachener Re, despite being named as a party, no longer existed. It had been liquidated in June 1997, and its obligations under the Purchase Agreement and the Deed passed to GDH. GDH was not a named party to the Arbitration, and did not find out about it until 2002. GDH later sought to argue in the High Court 2 that it was neither party to, nor bound by, the Arbitration. That was ultimately unsuccessful and in 2005 it was held to be a party to the Arbitration alongside the other Sellers (except Trygg-Hansa).
In May 2005, conscious of the increasing costs, GDH sought to settle the Arbitration, and offered to settle with SEB for £ 2 million (representing its 12.65% liability share). On 7 September 2005 Slaughter & May, SEB's solicitors, responded to say that SEB was "not prepared to settle with [GDH] or any other Claimant alone", and also stated that the overall amount sought (inclusive of costs at that stage) was £ 26.3 million (which, if all parties had paid in proportion to their shareholdings, would have represented a liability of approximately £ 3.3 million for GDH).
On 10 October 2005 the Sellers other than Trygg-Hansa and GDH proposed a settlement for a global sum of £ 1.5 million (including GDH's share). This was a wholly unrealistic position.
A mediation took place in March 2006. By this stage the amount sought by SEB had increased (on account of interest and costs) to £ 27.4 million. At that stage, SEB offered to reduce its claim by 14.89% to reflect Trygg-Hansa's share in Interlife, on the basis that "Trygg-Hansa is a wholly owned subsidiary of [SEB]". SEB subsequently resiled from that position.
On 2 October 2006, an...
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