Ife Fund Sa v Goldman Sachs International
| Jurisdiction | England & Wales |
| Judge | Toulson J |
| Judgment Date | 21 November 2006 |
| Neutral Citation | [2006] EWHC 2887 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: 2005769 |
| Date | 21 November 2006 |
[2006] EWHC 2887 (QB)
The Hon Mr Justice Toulson
Case No: 2005769
IN THE HIGH COURT OF JUSTICE
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Jonathan Nash QC and Rajesh Pillai (instructed by Fox Williams) for the Claimant
Mark Howard QC and David Quest (instructed by Herbert Smith LLP) for the Defendant
Hearing dates: 3 rd, 4 th, 5 th, 6 th, 11 th and 12 th October 2006
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.
The Hon. Mr Justice Toulson :
Introduction
On 30 May 2000 the claimant ("IFE") bought from the defendant ("Goldman Sachs") bonds and warrants issued by a French company, Autodis SA ("Autodis"), for €20 million. The transaction was part of the provision of syndicated credit facilities to Autodis. The purpose of the credit was to enable Autodis to take over an English company, Finelist Group PLC ("Finelist"). The credit facilities were provided in a number of tiers. IFE contributed to the intermediate tier, referred to as the mezzanine facility. The provision of the syndicated mezzanine credit facilities was arranged by Goldman Sachs, who also underwrote the mezzanine facility. Autodis's acquisition of Finelist soon proved to be disastrous. It transpired that Finelist's financial position was not as had been shown in its audited accounts, and that the group had deceived its auditors by transferring money between different members of the group so as to present a false picture of the group's financial position. In October 2000 Finelist was put into receivership.
IFE claims damages for its loss on the transaction against Goldman Sachs on the grounds of misrepresentation, pursuant to section 2(1) of the Misrepresentation Act 1967, and negligence. The claim in negligence is put in alternative ways, either negligent misstatement or breach of a duty of care to inform. The essence of IFE's complaint is that it was induced to enter into the transaction by information provided by Goldman Sachs, which presented a picture that was in fact misleading and which was not corrected or qualified after Goldman Sachs had cause to doubt its reliability as a result of receiving two reports (dated 19 and 26 May 2000) from investigating accountants, Arthur Andersen. At the outset of the case Mr Nash QC made it plain that no allegation of dishonesty was made against Goldman Sachs or any of its employees.
Goldman Sachs's grounds of defence to the claim under the Misrepresentation Act are in summary as follows:
) It did not make the pleaded representations;
) If it did, such representations were confined to Goldman Sachs's state of knowledge at the time when they were made and did not give rise to any duty to disclose information subsequently acquired by it;
) In any event, it was reasonable for Goldman Sachs not to consider that the position was materially changed by any further information obtained by Goldman Sachs before IFE became contractually bound;
) IFE did not rely on the alleged representations;
) IFE's claim to recover its loss is excluded by the terms of Goldman Sachs' Syndicate Information Memorandum ("SIM"), which had contractual effect;
) IFE's claim is barred by the terms of a subsequent Bondholders' Agreement entered into between IFE, Goldman Sachs and others.
In relation to the claim based in negligence, Goldman Sachs relies on similar grounds of defence, but also denies that it owed any duty of care to IFE or that IFE's claimed loss was within the scope of any duty owed to it.
In reply, IFE denies that its claim is barred by the Bondholders' Agreement. That agreement is governed by French law and gives rise to a number of issues to which it will be necessary to refer. There are also issues whether Goldman Sachs' reliance on any exclusionary terms of the SIM is defeated by the statutory controls under the Misrepresentation Act 1967 or the Unfair Contract Terms Act 1977.
The Trial
The trial was confined to liability (except for an issue of principle as to the scope of the damages which might be recovered in negligence).
IFE served statements of five witnesses of fact. The first was Mr Mitjavile. He was a transparently honest witness, who answered the questions put to him in a clear and direct manner. At the end of his evidence, Mr Howard QC indicated that he did not intend to cross-examine IFE's other witnesses and that he would make a submission that there was no case to answer. He was put to his election and elected to call no evidence.
On the issues of French law relating to the Bondholders' Agreement, experts for each party produced a joint memorandum. Before any evidence was called there was some discussion about the meaning and effect of the joint memorandum on certain points. I indicated how I interpreted it and the parties were content to proceed on that basis, so avoiding the need for either expert to be called.
IFE
IFE stands for Intermediate Finance Europe. "Intermediate finance" is a term used to describe financial instruments which rank above ordinary shares but below bank or trade debt. IFE was established under Belgian law. It was launched in December 1999 by CDC-Participations and Credit Lyonnais. CDC-Participations was the private equity arm of the Caisse des Depots et Consignations and a leading French player in private equity. IFE's board of directors appointed from among its members an investment committee. This committee included representatives of CDC-Participations, Credit Lyonnais and other investor partners, who contributed to IFE's fund by way of purchasing shares or bonds issued by it.
Autodis
Autodis is the parent company of Autodistribution SA, the leading French independent distributor of automotive parts. Autodistribution SA was bought in July 1999. Goldman Sachs was co-underwriter of the senior debt issued in connection with the transaction and took a significant stake in the mezzanine funding. For present purposes Autodis and Autodistibution SA can be regarded as indistinguishable.
Finelist
Finelist was the holding company of a group involved in the supply of automotive parts to garages in the United Kingdom. The group was assembled during the 1990s by its chairman and chief executive, Mr Chris Swan. Its auditors were PricewaterhouseCoopers ("PWC"). Its accounting year ran to 30 June.
The Finelist Acquisition
In late 1999 Autodis became interested in acquiring Finelist. The commercial rationale for the acquisition was the prospect of benefits arising from the increased purchasing power of the group and savings in internal costs and administration. The acquisition would involve Finelist ceasing to be a listed company and reverting to private ownership. This meant that the amount of pre-completion "due diligence" which could be carried out would be limited, since any information released by Finelist's management to the offerors would be required to be made available publicly.
Autodis engaged Goldman Sachs to act as its adviser in connection with the transaction. The formal engagement letter was dated 21 January 2000, but Goldman Sachs had begun advising IFE around late October or early November 1999. Under the engagement letter Goldman Sachs would be paid a fee of £3.5 million if Autodis acquired at least 50% of Finelist's shares.
Arthur Andersen was retained by Autodis under the terms of an engagement letter dated 6 December 1999 to carry out a review of Finelist's financial affairs, focusing on the two years ended 30 June 1999 (for which there were audited accounts) and three months to 30 September 1999. It would not have access to any unpublished documents of the company, but it would have discussions with PWC and limited interviews with senior members of Finelist's management.
On 21 December 1999 Arthur Andersen produced its first report on Finelist. Others were to follow.
In the latter part of 1999 and early part of 2000 Goldman Sachs worked on preparing a capital structure for a combined group which would enable Autodis to acquire Finelist and refinance its existing debt. Simultaneously with the execution of Goldman Sachs's formal engagement letter dated 21 January 2000, Goldman Sachs also signed a commitment letter by which it agreed to make finance available to Autodis for the Finelist acquisition and the restructuring of Autodistribution SA's existing debt.
On 11 February 2000 a public announcement was made of a recommended cash offer for Finelist by Goldman Sachs on behalf of Euro Autodistribution Limited, which was to be the vehicle for Autodis' acquisition of Finelist. On the same day Arthur Andersen issued a supplementary report on Finelist. The offer was to become unconditional on 90% shareholder acceptance. It was declared unconditional on 30 March 2000 and was completed on 27 April 2000.
The Syndicated Credit Facilities
The Finelist acquisition was financed by €631 million of senior secured credit facilities (underwritten half by Goldman Sachs and half by BNP Paribas) and €275 million of mezzanine facilities (underwritten by Goldman Sachs).
In early March 2000 Goldman Sachs sent out invitations to selected banks to participate as sub-underwriters of the senior facilities. On 27 March 2000 Goldman Sachs sent out invitations to participate in the syndication of the mezzanine facility. The proposed timetable was that allocations would be made and documents signed on 14 April 2000, but in the event the mezzanine syndication was not completed until 30 May 2000. On 23 June 2000 Goldman Sachs sent out invitations to participate in the syndication of the senior facilities, but because of the discovery of financial...
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