Loches Capital Ltd v Goldman Sachs International
| Jurisdiction | England & Wales |
| Judge | Stephen Hofmeyr |
| Judgment Date | 27 August 2020 |
| Neutral Citation | [2020] EWHC 2327 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 27 August 2020 |
| Docket Number | Case No: CL-2020-00032 |
[2020] EWHC 2327 (Comm)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
Stephen Hofmeyr QC
(sitting as a Deputy High Court Judge)
Case No: CL-2020-00032
Richard Salter QC and Lisa Lacob (instructed by Acuity Law Limited) for the Applicant
Mark Howard QC, Craig Morrison and Sophie Shaw (instructed by Freshfields Bruckhaus Deringer LLP) for the Respondent
Hearing dates: 16, 17 and 18 June 2020
APPROVED JUDGMENT
Stephen Hofmeyr QC (sitting as a Deputy High Court Judge):
The application
This is an application by the Applicant, Loches Capital Limited (“ Loches”), under section 33(2) of the Senior Courts Act 1981 and CPR r. 31.16 for pre-action disclosure in relation to an intended action by Loches against the Respondent, Goldman Sachs International (“ GSI”).
The application is opposed by GSI on three grounds:
(1) First, GSI submits that Loches' proposed claim against GSI has no real prospect of success since it is squarely time-barred.
(2) Second, GSI submits that pre-action disclosure should be refused because Loches has not shown that pre-action disclosure would serve any useful purpose. In particular, GSI submits that Loches has not shown that pre-action disclosure would assist in resolving the dispute without proceedings or save costs.
(3) Third, GSI submits that pre-action disclosure should be refused in the exercise of the Court's discretion.
In the alternative, GSI submits that Loches' particular requests for documents are excessive and should be refused.
Loches' evidence in support of the application is contained in two statements of Richard Jansson, a director of Equilibrium Capital Limited, a wholly owned subsidiary of Loches, and in exhibits to his statements. GSI's evidence in response to the application is contained in a statement of Philip Linton, a Managing Director within GSI's Legal Division, and in exhibits to his statement. Mr Linton is a solicitor of the Senior Courts of England and Wales.
The prospective claim
The claim which Loches wishes to bring against GSI is a claim for unlawful means conspiracy. The claim is said to arise from the takeover in 2006 of Arcelor S.A. (“ Arcelor”) by Mittal Steel Company NV (“ Mittal”) and the subsequent merger of the two companies in 2007 – the largest merger the steel industry has ever seen. GSI's mergers and acquisitions team were a principal adviser to Mittal in connection with the transaction.
Arcelor was incorporated in Luxembourg and Luxembourg law provides protections for minority shareholders. Articles 265 and 266 of the Luxembourg law of 10 August 1915 on commercial companies is designed to protect shareholders in relation to a merger. It requires two sorts of report approving the merger terms:
(1) Reports from the boards of directors of the companies concerned (under Article 265); and
(2) Reports from independent experts to be appointed by each of the merging companies (under Article 266), stating whether in their opinion the SER is or is not fair and reasonable and specifying any particular valuation difficulties that might exist.
Mr Lakshmi Mittal was the Chief Executive Officer and majority beneficial owner of Mittal. Loches alleges that GSI conspired with, inter alios, Mr Lakshmi Mittal, to carry out a dishonest scheme under which the shares of the small minority of Arcelor shareholders who did not accept Mittal's takeover offer (“ the rejecting Arcelor shareholders”) were exchanged for shares in the merged company at an artificially deflated Share Exchange Ratio (“ SER”) of 8:7 which, to the knowledge of the conspirators, was not based on and did not reflect the fair value of the shares of the rejecting Arcelor shareholders.
As regards the relevant parties, a complicating factor is that Loches was not itself one of the rejecting Arcelor shareholders. If it brings an action, Loches intends to do so as assignee of the rights of Deutsche Bank AG (“ DB”) under a Sale and Purchase Agreement dated 24 September 2012, as amended and restated on 21 November 2012 (“ the SPA”). The pertinent parts of the SPA are set out at paragraph 116 below. The purpose of the SPA appears to have been that Loches would try to obtain a settlement payment from Mittal which Loches would share with DB. In the event, that did not happen.
Assumptions and findings of fact
On an application for pre-action disclosure the court may have to make (and, generally, of necessity, will have to make) assumptions about the factual circumstances, assumptions which may ultimately prove incomplete or incorrect. For this reason, any findings of fact or assumptions about the facts cannot be definitive and will not be binding at any trial of the substantive claim. Further, the court should be hesitant about embarking upon any determination of substantive issues in the case. In order to found an application under CPR r.31.16(3) it will normally be sufficient for the prospective claim to be properly arguable and to have a real prospect of success, and it will normally be appropriate to approach the conditions in CPR r.31.16(3) on that basis: Rose v Lynx Express Limited [2004] EWCA Civ 447 at [4].
The factual background
In 2006 Mittal made a series of takeover offers for Arcelor. The first two offers made by Mittal were rejected by the board of Arcelor on the basis that they were too low. A third, improved offer was made by Mittal in June 2006 which the board of Arcelor recommended be accepted. The third offer included various options comprising exchanges of Arcelor shares for Mittal shares and/or cash. One of the options was to exchange shares in Arcelor for shares in Mittal at a SER of 11:7, i.e. 11 Mittal shares for every 7 Arcelor shares. The third offer was accepted by the majority of the Arcelor shareholders. On 25 June 2006 a Memorandum of Understanding setting out the proposed process was agreed.
By 4 August 2006 Mittal controlled approximately 93.7% of the shares in Arcelor, by 10 October 2006 the boards of Mittal and Arcelor, respectively, had become composed of the same individuals and on 6 November 2006, Mr Lakshmi Mittal became Chief Executive of both companies.
On 14 November 2006 Mittal issued a press release in which it stated that:
“ The share for share merger exchange ratio has not yet been fixed and will only be finally set in the course of the implementation of the merger process, in accordance with applicable laws. As publicly disclosed in the course of the offer, the merger exchange ratio will be consistent with the value of Arcelor shares pursuant to the secondary exchange offer [i.e. at a SER of 11:7] as at the date of its settlement and delivery on August 1, 2006.”
The significance of this press release is that, amongst other matters, it formed the basis for many of the complaints made by the rejecting Arcelor shareholders who complained that what was eventually done was not what was publicly advertised, i.e. that the eventual ratio was not consistent with the earlier ratio.
The steps taken to complete the transaction – which ultimately did not involve a takeover but a merger – were announced on 3 May 2007:
(1) Mittal was first to be merged into a Luxembourg subsidiary, ArcelorMittal SA (“ AM1”) at a SER set at 1:1.
(2) AM1 would then be merged into Arcelor at a SER that remained to be determined.
(3) Finally, Arcelor was to be renamed ArcelorMittal (“ AM2”).
It is Loches' contention that, at the time of this announcement, DB held approximately 1.25m Arcelor shares. GSI submits that there is very real doubt whether DB had any interest in Arcelor on this date and, therefore, that there is very real doubt whether Loches has any right to bring a claim against GSI at all.
The SER for the second step was ultimately set, on 16 May 2007, at a ratio of 8:7. The SER was announced to the public in a press release. As a consequence of the merger of AM1 into Arcelor at a SER of 8:7, the rejecting Arcelor shareholders were bought out at the reduced SER, putting them in a considerably worse position than they would have been in had they accepted the third offer in June 2006.
In the context of the transaction, GSI was engaged by the board of Mittal to provide its opinion on the fairness of the 8:7 SER to Mittal shareholders. Four other institutions, including Morgan Stanley and Société Générale, gave opinions to the shareholders of Arcelor. Each concluded that the 8:7 SER was fair to the shareholders of Arcelor.
As already noted, Luxembourg law additionally requires the draft terms of a merger to be the subject of an examination and of a written report to shareholders carried out and drawn up by independent experts. The experts are required in the report to state whether the share exchange ratio “ is or is not fair and reasonable”. They are also required (i) to identify the method or methods used to arrive at the proposed share exchange ratio, (ii) to indicate whether such method or methods are adequate in the circumstances, (iii) to give an opinion as to the relative importance attributed to such methods in determining the value actually adopted and (iv) to “ describe any special valuation difficulties which may have arisen”.
Audit opinions were obtained some 4 months later, in September 2007, from the Luxembourg branch of Mazars (for the benefit of the Mittal shareholders) and from Compagnie Luxembourgoise d'Expertise et de Revision Comptable (“ CL...
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