ISOFT Group Plc v Misys Holdings Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 16 October 2002 |
| Neutral Citation | [2002] EWHC 2094 (Ch) |
| Docket Number | HC02C01056 |
| Court | Chancery Division |
| Date | 16 October 2002 |
[2002] EWHC 2094 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL
Mr Justice Lawrence Collins
HC02C01056
Mr Lawrence Cohen QC and Mr Stephen Moverley Smith QC (instructed by Pinsent Curtis Biddle) for the Claimant
Mr Andrew Onslow QC and Mr Orlando Fraser (instructed by Allen & Overy) for the Defendants
Approved by the Court for handing down
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.
()
I Introduction
The claimant, iSOFT Group plc ("iSOFT"), was founded in 1994 by Patrick Cryne, who is now its chief executive officer. It is a publicly-quoted, Manchester-based, software group, with a turnover of approximately £31m in the year to April 30, 2001, specialising in the provision of information technology systems to the UK healthcare industry, particularly laboratory systems and patient information management systems.
The second defendant, Misys plc ("Misys"), is an international software applications group, with a turnover of approximately £850m. Its core business is the development and licensing of specialist computer software for the banking, financial services and healthcare industries. The business was started in 1980, and has grown substantially since, mainly by corporate acquisitions. Its healthcare division, which now operates under the brand Misys Healthcare Systems, is based in Raleigh, North Carolina, and chiefly operates in the United States. The main element of the healthcare division was a substantial US company, Medic Computer Systems LLC ("Medic"), which was acquired by Misys in 1997. It did not have any activities in Europe.
In these proceedings iSOFT seeks to enforce against Misys, and its subsidiary Misys Holdings Ltd ("Holdings"), the first defendant, an agreement entered into between them by which iSOFT acquired from Holdings the leading laboratory information systems provider in the United Kingdom, ACT Medisys Ltd ("ACT").
One of the terms of the agreement required the Misys group (in circumstances to which I revert in detail later) to offer to sell to iSOFT after-acquired competing businesses "for a consideration equal to the then fair market value of such business and otherwise on such detailed terms and conditions which are fair and reasonable" to the relevant member of the Misys group and to iSOFT. One of the principal issues in these proceedings is the scope and application of the rules relating to certainty of contractual terms.
II The acquisition and disposal of ACT
In 1995 Misys had acquired, through Holdings, ACT Group plc, a UK information technology company which included a healthcare business, ACT, among its subsidiaries. In 2000 the UK healthcare business was expanded when ACT acquired CDS Group Ltd. ("CDS"), a leading laboratory information systems provider. ACT and CDS sold their systems primarily to the UK and Ireland.
In 1998 the Department of Health and the National Health Service executive published plans to implement a strategy designed to ensure that information technology was used to help patients receive the best possible care. The first phase (to March 2003) included the creation of the first stage of a National Health Record Service, and the development of an Electronic Patient Record system. In 1999 the Department of Health set up a pathology modernisation programme to improve the quality and efficiency of NHS pathology services, including the integrated use of information and communication technology.
Despite these developments, Misys did not find the UK healthcare market an attractive place to do business, because purchasing decisions are difficult to anticipate and the market is politically sensitive, both for access to funding and the approach taken to information technology, and wished to concentrate on expanding its US business. iSOFT had a substantial business in supplying patient information systems to NHS and private hospitals, but did not have a competitive laboratory information system. As a result, after negotiations which commenced in September 2000, Misys sold ACT to iSOFT for £24 million in December 2000.
The ACT Sale Agreement ("the Agreement") was signed on December 14, 2000 and completed on February 5, 2001. Allen & Overy and PriceWaterhouseCoopers acted for Misys, and Pinsent Curtis Biddle ("Pinsents") and RSM Robson Rhodes acted for iSOFT on the Agreement, and in addition Ashurst Morris Crisp ("Ashursts") acted for iSOFT on the merger clearance.
The Agreement
The Seller as defined was Holdings, and its obligations were guaranteed by Misys. The heading of clause 11 is "protection of goodwill," but clause 1.4 provides that the headings to clauses are for convenience only and are not to affect the interpretation or construction of the Agreement.
Clause 11.1 defines the expression "Restricted Person" to include any member of the "Seller's Group," which means Holdings, any subsidiary undertaking or parent undertaking of Holdings and any subsidiary for the time being of a parent undertaking of Holdings (clause 1.1) (i.e. it included after acquired subsidiaries).
By clause 11.2.1 Holdings undertook to iSOFT that without the latter's written consent:
"… for a period of 3 years from Completion it will not and will procure that no other Restricted Person will in any capacity whatsoever directly or indirectly carry on or assist in carrying on or be engaged, concerned or interested in any activity or undertaking which is the same as, or substantially similar to, the business of the Company or any Group Company as carried on at the date of this Agreement or at Completion ('Restricted Business') within the Restricted Area …"
The "Company" and "Group Company" meant ACT and its subsidiaries (clause 1.1). The Restricted Area was the UK, South Africa, Poland, Ireland, Kenya, Switzerland and Zimbabwe (clause 11.1).
Clauses 11.2.2, 11.2.3, and 11.2.4 contained provisions prohibiting for three years the solicitation by the Misys group of customers, suppliers and employees. Clause 11.2.5 prohibited the future use by any Restricted Person of the trade names associated with the business carried on by ACT.
By clause 11.4 nothing in clauses 11.2.1 (three year restrictive covenant) and 11.2.2 (three year non-solicitation of customers) was to prevent any Restricted Person from acquiring any interest in any entity "which carries on a Restricted Business in the UK" provided that the number of employees employed in the UK in the Restricted Business did not exceed 20 per cent of the total number of employees employed in the entity acquired, and by clause 11.4.2
"… the Seller shall procure that relevant Restricted Person shall within 3 months of the completion of the acquisition of the entity offer to sell to the Buyer that part of the acquired entity which carries on a Restricted Business ('Target Business') for a consideration equal to the then fair market value of such business and otherwise on such detailed terms and conditions which are fair and reasonable to both the relevant Restricted Person and the Buyer. The Buyer shall and the Seller shall procure that the relevant Restricted Person shall negotiate in good faith to agree and complete such sale and purchase as soon as is practicable if the Buyer indicates that it wishes to acquire the Target Business. The Seller shall procure that all information and documents reasonably necessary to enable the Buyer to consider the offer and the business and assets the subject of the offer are made available to the Buyer and that all reasonable requests for further access to information, property or personnel are complied with. If the Buyer declines to buy the Target Business, the Restricted Person shall be free to dispose of it on no worse terms to it than it proposed or negotiated with the Buyer (or in relation to the consideration, in the absence of a proposal by the Restricted Person relating thereto, on terms no worse than the fair market value thereof)."
By clause 21, if any provision were held to be unenforceable or illegal, such provision was to be deemed not to form part of the Agreement and the enforceability of the remainder was to remain unaffected. By clause 23.1 the failure of either party to exercise, or the delay in exercising, any right or remedy under the Agreement was not to constitute a waiver of the right or remedy.
Clause 13 contained elaborate provisions dealing with existing disputes between ACT and third parties, so that Holdings would indemnify iSOFT from liability, and Holdings would have the conduct of any proceedings. Schedule 3 contained some 30 pages of detailed warranties given by Holdings to iSOFT.
Clause 28.2 provided for the exclusive jurisdiction of the English court in relation to any dispute or claim arising out of or in connection with the Agreement. But in relation to certain specified matters, provision was made for alternative dispute resolution. First, clause 4 envisaged an upward adjustment to the consideration where the net current assets were more than £1.4 million, or a downward one where they were less than £1.35 million, and schedule 7 provided for claimed adjustments to be resolved by the parties' accountants, or, in default of agreement, by an accountant appointed by the President of the Institute of Chartered Accountants acting as an expert. Second, Schedule 1, Pt II, para. 2.6 provided that if iSOFT recovered any damages against a landlord for unreasonable refusal of a licence to assign, they would be divided between Holdings and iSOFT in such fair and equitable manner as they...
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Lessons From 2002 For Contract Negotiators and Draftsmen
...to be taken to ensure that provisions in contracts are sufficiently certain to be enforceable. In iSOFT Group plc v Misys Holdings Ltd [2002] EWHC 2094, the parties to a share purchase agreement agreed a restrictive covenant in favour of the purchaser. They then agreed a compromise arrangem......