General Electric Company v AI Alpine US Bidco Inc.
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 13 January 2021 |
| Neutral Citation | [2021] EWHC 45 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2020-001131 |
| Date | 13 January 2021 |
[2021] EWHC 45 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BUSINESS LIST
Rolls Building
Fetter Lane,
London, EC4A 1NL
Mr Justice Miles
Case No: BL-2020-001131
Sharif Shivji QC and Karl Anderson (instructed by Clifford Chance) for the Claimant
Philip Edey QC, Andrew Fulton and Sarah Tresman (instructed by Quinn Emanuel Urquhart & Sullivan UK) for the Defendants
Hearing dates: 14 December 2020
Introduction
The Defendants apply for a stay of proceedings brought by the Claimant under Part 8 of the CPR. The claim concerns a Share Purchase Agreement (“the SPA”) dated 25 June 2018 (as twice amended) by which the Claimant (as Seller) sold its distributed power business to the Defendants (as Buyer). The SPA uses defined terms, and I shall adopt some of them here.
In the SPA the parties agreed a Base Purchase Price of $3.258 billion. The Base Purchase Price was to be adjusted by various items including Working Capital, Cash and Debt. These various adjusting items were to be set out in an Estimated Closing Statement to be provided by the Seller shortly before Closing. The Buyer was then to make the Closing Payment which was the Base Purchase Price as adjusted for the amounts set out in the Estimated Closing Statement. The Closing Payment was (in the event) about £3 billion.
The parties also agreed a process for determining a Final Closing Statement, which was to contain (among other things) the Purchase Price (i.e. the final price payable for the business).
The process was set out in Schedule 2 to the SPA. The first stage was the provision by the Buyer of a Proposed Final Closing Statement within 75 days of Closing. There was then a Review Period of 60 days for the Seller to review the Proposed Final Closing Statement.
If the Seller disputed any item set forth in the Proposed Final Closing Statement it was required (during the Review Period of 60 days) to deliver a written notice (a Dispute Notice) to the Buyer setting out in reasonable detail the basis for such dispute and the Seller's proposed modifications to the Proposed Final Closing Statement. The parties were then required to negotiate in good faith for 30 days (the Resolution Period) to seek to reach agreement.
If the parties failed to reach agreement during the Resolution Period any matters identified in the Dispute Notice that remained in dispute were to be finally and conclusively determined by an accountancy firm to be appointed under Sch. 2, para 1.1(h), known as the Independent Accountancy Firm (which I shall call “the IAF”).
By Sch. 2, para 1.1(i) the parties were required jointly to appoint the IAF and instruct it promptly to make a determination, based on written presentations, of the matters in dispute, and provide a written report (the Final Closing Statement) setting out its determination. The IAF was to act as an expert, not as an arbitrator.
The expert determination was to be a rapid process, in the first instance within 40 days from appointment, but extendable by the IAF after consultation with the parties, with an ultimate limit of 120 days.
Sch. 2 provided that the IAF would be bound by the provisions in the SPA and could not assign a value to any item greater that the greatest claimed by the parties, or smaller than the smallest value claimed by the parties.
Sch. 2, para 1.3 required the Final Closing Statement to be (a) in a format substantially similar to the Form of Closing Statement set out in Sch. 2, Part C, and (b) prepared in accordance with the Closing Statement Principles. These were set out in Part B of Sch. 2. and provided that the entries in the Final Closing Statement for Net Working Capital, Cash and Debt were to be prepared in accordance with the following hierarchy: first, the Specific Policies (which were listed); second (to the extent not inconsistent with the Specific Policies) the Consistent Policies; and third (to the extent not addressed in the Specific or General Policies) US GAAP as of 31 March 2018 as adopted by the Seller. It is not necessary for present purposes to go into the details of the Closing Statement Principles.
One of the entries to be contained in the Final Closing Statement was the Purchase Price. Sch. 2, para 1.2 provided for payment (in one direction or the other) of the difference between the Closing Payment and the Purchase Price (as stated in the Final Closing Statement), to be made within three days of the Final Closing Statement becoming conclusive and binding (for present purposes, the date of the IAF's determination). The amount payable would then attract interest from such payment date in accordance with clause 14.13 of the SPA at 5% over Barclays Bank's base rate.
It is common ground on the facts that any payments which may eventually fall due once the Final Closing Statement has been issued will be payable by the Claimant to the Defendants.
The SPA separately contained warranties including in respect of the accuracy of certain specified historical accounts relating to the business. Such claims were required to be brought by November 2020. By Schedule 8 to the SPA there were limitations on the Seller's liability under the warranty claims. By Sch. 8, para 9 no matter was to be the subject of a warranty claim to the extent that allowance, provision or reserve in respect of such matter shall have been made in the Final Closing Statement or reflected therein.
In accordance with the provisions of Sch. 2 to the SPA, the Defendants served a Proposed Final Closing Statement within 75 days of Closing. In March 2019 the Claimant served a Dispute Notice which identified the various items disputed by the Claimant and identified the amount of each disputed item.
In the Dispute Notice the Claimant contended that a number of the disputes enumerated by the Defendants in the Proposed Final Closing Statement could not properly be raised as part of the Closing Statement process. The Claimant's position was, in summary, that the Sch. 2 process did not permit the Defendants to revisit the accounting decisions or judgments adopted or applied by the Claimant when compiling the Estimated Closing Statement or related documents. The Claimant argued that, in the Proposed Final Closing Statement the Defendants had improperly and inadmissibly sought to substitute their own accounting decisions or judgments for the Claimant's. The Claimant said that any complaints concerning historical accounting decisions or judgments were exclusively to be addressed under the accounting warranties, and that the Closing Statement process was designed only to “true-up” the position as between 25 October 2018 (when the Estimated Closing Statement was provided by the Seller) and Closing, 31 October 2018. As will be explained further below these contentions are the basis for the declarations now sought in the Part 8 claim. In the alternative, and without prejudice to that general position, the Claimant took issue in the Dispute Notice with the Defendants' contentions about the Claimant's historical accounting treatments or decisions and explained why those treatments and decisions were valid as a matter of accounting.
On 3 December 2019 the parties jointly appointed BDO as the IAF to make a determination in accordance with Sch. 2 to the SPA.
The IAF has carried out a substantial part of its task. It has received and considered various written representations from the parties, has issued requests for information, and has received responses from the parties.
As already explained, even before the appointment of the IAF the parties had taken differing views about the nature of the Closing Statement process and, in particular, the extent to which the Defendants are entitled to revisit the accounting treatments and decisions made by the Claimant about historical transactions. The parties nonetheless served submissions and responded to the IAF's requests for information. In these documents the Claimant continued to object to the Defendants approach but, in the alternative, explained why its own historical accounting treatment was valid.
In their joint instructions to the IAF the parties agreed that the IAF should be allowed to seek advice from leading counsel if it thought fit. The IAF indicated to the parties that it intended to seek the advice of leading counsel about certain legal questions. The parties gave their views about the questions to be asked. The IAF did not think it was necessary to ask leading counsel for his views about the Defendants' approach to the Claimant's historical accounting treatments. The IAF stated that it had reached a clear view about the meaning of Sch. 2 to the SPA and had concluded that it did not require legal advice to interpret it in reaching a determination.
However, at the insistence of the Claimant, the IAF ultimately agreed to include the following passage in the instructions to leading counsel:
“… during the course of seeking to agree these instructions with the Parties, the Seller has submitted that legal advice on the “Threshold Legal Issues” should be provided as follows:
a) Do the terms of the SPA permit the Buyer to substitute or revisit the Seller's historical accounting treatments, accounting judgments, and business judgments and decisions which were used to prepare the Form of Cash and Debt Statement, Form of Working Capital Statement and Form of Closing Statement in Schedule 2 to the SPA (“the Forms”) and the Estimated Closing Statement?
b) Is the Closing...
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