Dodika Ltd v United Luck Group Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Peter MacDonald Eggers |
| Judgment Date | 31 July 2020 |
| Neutral Citation | [2020] EWHC 2101 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: CL-2019-000744 |
| Date | 31 July 2020 |
[2020] EWHC 2101 (Comm)
Mr Peter MacDonald Eggers QC
(sitting as a Deputy Judge of the High Court)
Case No: CL-2019-000744
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS
OF ENGLAND AND WALES
COMMERCIAL COURT (QBD)
Royal Courts of Justice
Strand, London, WC2A 2LL
Alain Choo-Choy QC (instructed by Taylor Wessing LLP) for the Claimants
Matthew Hardwick QC (instructed by Clifford Chance LLP) for the Defendant
Hearing date: 11 June 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Peter MacDonald Eggers QC:
Introduction
This is an application for summary judgment made by the Claimants on their Part 8 Claim seeking the release of the sum of US$50,000,000 (being a part of the purchase price) held in escrow pursuant to the terms of a Sale and Purchase Agreement dated 21st December 2016 (“the SPA”) relating to the shares in Oufit7 Investments Limited (“Outfit7”) between the Sellers and the Defendant (as Buyer). The Claimants are some of those Sellers.
Whether the funds in escrow can be released to the Sellers depends on the validity of a written notice of a Claim under the Tax Covenant in the SPA given on 24th June 2019 by the Defendant to the Sellers who were Warrantors under the SPA. If the notification provided by the letter dated 24th June 2019 (“the letter dated 24th June 2019”) was invalid, because it did not comply with paragraph 2.1(b) of Schedule 4 of the SPA, the funds can be released to the Sellers. If the notification was valid, the funds can remain in escrow.
The Claimants therefore seek declarations essentially to the effect that (1) the letter dated 24th June 2019 failed to comply with the requirements of paragraph 2.1 (b) of Schedule 4 of the SPA, (2) the Claim under paragraph 2.1(a) of Schedule 7 of the SPA (the Tax Covenant), and the associated claim for costs and expenses incurred in connection with the claim under paragraph 2.2, are not enforceable pursuant to paragraph 2.1(b) of Schedule 4 of the SPA, and (3) the Defendant is obliged to give all necessary instructions and take all necessary steps forthwith to ensure the payment of the balance of the sums held in escrow to the Sellers.
The Defendant denies that the Claimants are entitled to the declaratory relief sought.
The SPA
By the terms of the SPA dated 21st December 2016, the Defendant purchased all of the issued shares in Oufit7 for the price of US$1,000,000,000.
Outfit7 was the holding company for a group of entities specialising in mobile device applications. Outfit7 had been founded by Mr Samo Login and Mrs Iza Login who had been the CEO and Deputy CEO of Outfit7 prior to the sale.
The Sellers of the shares in Outfit7 were various corporate and individual holders of shares and share options in Outfit7, and certain individuals as Managers. There were close to 200 Sellers.
The Claimants were certain of those Sellers who also acted as Warrantors under the SPA. There were other Warrantors who have not participated in these proceedings, because they have been dissolved, or are in liquidation, or have chosen not to participate.
By clause 2.1 of the SPA, it was agreed that each Seller would sell with full title guarantee and free from all encumbrances the shares in Outfit7. The consideration for the purchase of the shares was set out in clause 3 in the sum of US$1,000,000,000.
On Completion, the parties agreed that US$100,000,000 of the purchase price would be held in a Claims Escrow Account. It was agreed that the funds held in the Claims Escrow Account would be released in two tranches, each of US$50,000,000, the first on 31st December 2018 and the second on 1st July 2019 (being the next Business Day after the contractual date of 30 June 2019). However, the release of these funds could be halted in certain circumstances.
The SPA contained the following provisions:
“ INTRODUCTION
The Sellers have agreed to sell, and the Buyer has agreed to buy, subject to the terms and conditions of this agreement, all of the issued shares in the capital of the Company as at Completion …
AGREED TERMS
1. Definitions and interpretation
1.1. Definitions
In this agreement:
…
“ Claim” includes a claim, action, proceeding or demand under or pursuant to this agreement …
“ Sellers' Representatives” means Samo Login and Iza Login …
7. Seller warranties
…
7.3 Each of the Warranties, the Tax Covenant and the Indemnities is given subject to any limitations, exceptions or exclusions expressly provided for in this agreement including those contained in schedule 4 …
20. Miscellaneous
…
20.10 Each Seller irrevocably appoints the Sellers' Representatives (acting alone or jointly) to negotiate, determine and agree any matter between the Buyer and the Sellers (including, for the avoidance of doubt, the Buyer and all of the Warrantors alone) including to:
(a) give or receive any notice or consent or make any agreement;
(b) take any other action in connection with such matters …
SCHEDULE 4
Limitations
…
2. Time limits
2.1 The rights of the Buyer in respect of:
(a) any Warranty Claim shall only be enforceable if the Buyer gives written notice to the Warrantors stating in reasonable detail the matter which gives rise to such Claim, the nature of such Claim and (so far as reasonably practical) the amount claimed in respect thereof on or before the First Claims Escrow Release Date; and
(b) any Indemnity Claim or Claim under the Tax Covenant shall be enforceable if the Buyer gives written notice to the Warrantors stating in reasonable detail the matter which give rise to such Claim, the nature of such Claim and (so far as reasonably practical) the amount claimed in respect thereof on or before the Second Claims Escrow Release Date …
12. Contingent liability
The Warrantors shall not be liable for any Warranty Claim or Claim under the Tax Covenant to the extent such liability is, at the time when written notice of the Warranty Claim or Claim under the Tax Covenant is given, contingent only or is otherwise not capable of being quantified and the Warrantors shall not be liable to make any payment in respect of such Warranty Claim or Claim under the Tax Covenant unless and until the liability becomes an actual liability or (as the case may be) becomes capable of being quantified. For the avoidance of doubt, this paragraph shall not operate to avoid liability under a Warranty Claim made in respect of a contingent liability where the Buyer has given notice of such Warranty Claim within the time limit specified in paragraph 2 …
SCHEDULE 7
Tax Covenant
1. Definitions and interpretation
1.1. In this schedule, unless the context requires otherwise:
…
“ Event” means any event, transaction (including the execution of, and Completion of, this agreement), action or omission;
“ Income, Profits or Gains” means revenue profits, chargeable gains and any other similar measure by reference to which Tax is chargeable or assessed …
1.2 References to “ Tax Liability” include not only a liability of a Group Company to make payment of Tax (an “ Actual Tax Liability”) but also …
and so that the amount of the Tax Liability will be: (i) in the case of an Actual Tax Liability the amount of Tax payable by the relevant Group Company …
2. Covenant
2.1 The Warrantors severally covenant to pay to the Buyer an amount equal to:
(a) any Tax Liability of a Group Company which has arisen or arises:
(i) in consequence of an Event which occurred on or before Completion; or
(ii) in respect of any Income, Profits or Gain which were earned, accrued or received on or before Completion or in respect of a period ending on or before the Completion Date …
2.2 The Warrantors covenant to pay to the Buyer an amount equal to any reasonable costs and expenses properly incurred by the Buyer and/or a Group Company in connection with any successful claim under this schedule …
3. Exclusions
3.1 The covenants at paragraph 2 do not apply in respect of a Tax Liability of a Group Company, and the Warrantors will not be liable for any breach of the Tax Warranties in respect of a Tax Liability, to the extent that … [there follow exclusions (a) to (o)]
SCHEDULE 8
Provisions relating to the Claims Escrow Account
1. Definitions
In this agreement:
…
“ Claims Escrow Amount” means the sum of US$100,000,000 to be credited to the Claims Escrow Account by the Buyer on Completion …
“ Claims Escrow Claim” means a Claim by the Buyer under this agreement notified to the Sellers in accordance with this agreement on or before the Claims Escrow Release Date;
“ Claims Escrow Release Date” means either of the First Claims Escrow Release Date or the Second Escrow Release Date, as the context requires …
“ First Claims Escrow Release Date” means 31 December 2018 (or, if that is not a Business Day, the next Business Day after that) …
“ Second Claims Escrow Release Date” means 30 June 2019 (or, if that is not a Business Day, the next Business Day after that);
2. Claims Escrow Account
2.1 On Completion:
(a) the Buyer shall transfer the Claims Escrow Amount to the...
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