Pricewaterhousecoopers LLP v BTI 2014 LLC

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Flaux,Lord Justice Coulson,Lord Justice Henderson
Judgment Date11 January 2021
Neutral Citation[2021] EWCA Civ 9
Date11 January 2021
Docket NumberCase No: A3/2019/3088

[2021] EWCA Civ 9






[2019] EWHC 3034 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL


Lord Justice Henderson

Lord Justice Flaux


Lord Justice Coulson

Case No: A3/2019/3088

Pricewaterhousecoopers LLP
BTI 2014 LLC

Simon Salzedo QC, Tony Singha and Zahra Al-Rikabi (instructed by Reed Smith LLP) for the Appellant

Andrew Thompson QC and Ciaran Keller (instructed by Debevoise & Plimpton LLP) for the Respondent

Hearing dates: 27 and 28 October 2020

Approved Judgment

Lord Justice Flaux



The appellant (to which I will refer as “PwC”) appeals with the permission of the judge against the Order of Fancourt J dated 25 November 2019 dismissing PwC's application to strike out the claim of the respondent (to which I will refer as “BTI”) or parts thereof pursuant to CPR 3.4(2)(a) and/or for summary judgment pursuant to CPR 24.(2)(a)(i) and (b).


The claim is a claim for damages for negligence against PwC in respect of its audit of the 2007 and 2008 annual accounts of a company then known as Arjo Wiggins Appleton Ltd or “AWA” (now renamed Windward Prospects Ltd and the nominal second defendant to these proceedings) finalised in October 2008 and May 2009 respectively.


BTI is a wholly-owned subsidiary of BAT Industries plc (“BAT”). As assignee of AWA, it sued AWA's former parent company Sequana S.A. and the directors of AWA, (“the Sequana claim”), claiming the recovery of very large dividends paid by AWA to Sequana in December 2008 (€443 million, “the December dividend”) and May 2009 (€135 million, “the May dividend”). Those dividends were paid against the background of the two audits. That claim was heard by Rose J (as she then was) in a trial lasting 32 days in February to April 2016. In her judgment dated 11 July 2016 ( [2016] EWHC 1686 (Ch)), Rose J found that that claim failed. She held that the accounts relied upon by the directors of AWA for payment of the dividends were proper accounts for the purposes of Part 23 of the Companies Act 2006 (specifically sections 836 to 838) and that, accordingly, the dividends could not be recovered from Sequana and the directors. Although Rose J granted permission to appeal against that decision, the appeal was not pursued, apparently because of the perilous financial position of Sequana.


At the same time as the Sequana claim, Rose J heard BAT's own claim, as creditor, against Sequana under section 423 of the Insolvency Act 1986 seeking repayment of the dividends (“the section 423 claim”). That claim succeeded in relation to the May dividend, but not the December dividend. That decision was upheld by the Court of Appeal in its judgment dated 6 February 2019 ( [2019] EWCA Civ 112). However, days later on 15 February 2019, Sequana entered insolvency protection in France and went into compulsory liquidation on 15 May 2019. None of Sequana's liability to BAT has been paid.

The factual background


The factual background is set out at [7] to [17] of the judgment of Fancourt J dated 15 November 2019, which I gratefully adopt:

“7. Another wholly-owned subsidiary of BAT, Appleton Papers Inc (“API”), purchased two paper coating businesses from National Cash Register Company (“NCR”) in 1978. API operated in the Lower Fox River area of Wisconsin. Under the terms of the sale and purchase agreement, API took over NCR's liabilities, including any environmental liabilities, and BAT agreed to indemnify NCR against API's failure to discharge those liabilities. At a later time, API's immediate parent company was separated from the BAT group and changed its name to AWA, but API's and BAT's liabilities remained. The paper businesses purchased by API had previously been responsible for polluting the Lower Fox River. In the 1990s, environmental liability claims were notified against NCR and API in this regard, comprising clean-up costs (“remediation liability”) and natural resources damages (“NRDs”) resulting from the pollution.

8. An agreement was made between BAT, NCR and API in 1998 to share out these environmental liabilities. BAT and API agreed to assume liability for 55% up to a total of $75 million. It was later determined that liability in excess of that amount would be allocated as to 60% to BAT and API. There was also agreement in relation to possible liability for further identified decontamination sites (“Future Sites”) where NCR or API might have “arranger” liability (that is to say, liability for facilitating or contributing indirectly to contamination). One such site was the Kalamazoo River in Michigan, in relation to which the first intimation of liability was issued in 1998 and a request for information from the Environmental Protection Agency was received by NCR and API in 2003.

9. By 2000, it was clear that API would have a substantial liability in relation to the Lower Fox River, though its amount was uncertain, and there was a risk of a future claim in relation to the Kalamazoo River and other Future Sites.

10. In that same year, AWA was acquired by Sequana. It sold off API in 2001 on terms that AWA would indemnify API against certain environmental liabilities. In that way, both BAT and AWA had contingent liabilities in respect of API's direct and indirect liability for remediation costs and NRDs. AWA purchased an insurance policy (“the Maris policy”) to pay for these future liabilities. By November 2008 the policy was worth about $250 million.

11. After the sale of API, AWA ceased to trade. The proceeds of sale of AWA's businesses were lent to Sequana, with the result that, in time, the only assets of AWA were the inter-company receivable from Sequana, the Maris policy and certain other historic insurance policies. By the end of 2006, the Sequana receivable was valued at £464.6 million in AWA's accounts, which showed a fully paid-up share capital of in excess of £200 million. The 2006 accounts included a provision of £50.8 million in excess of the value of the Maris policy for Lower Fox River liability.

12. In 2008, the Directors decided to explore ways of releasing to Sequana tied up capital in AWA. To achieve this, they proposed to reduce the share capital of AWA from €318.6 million to €1 million and then pay one or more large dividends to Sequana, which could be set off against the inter-company receivable. Before these steps were taken, PwC audited the 2007 accounts. This work was completed on 28 October 2008 (“the 2007 accounts”). The 2007 accounts included a provision of €59.3 million (in excess of the value of the Maris policy) for the Fox River liability and valued the receivable at €569.7 million.

13. On 15 December 2008, the Directors each signed a solvency statement and Sequana, as sole shareholder, passed a special resolution to reduce the share capital. On the following day, AWA prepared a new set of interim accounts that reflected the reduced share capital (“the December interim accounts”). This time, the Lower Fox River provision was €58.4 million, which derived from new estimates of the aggregate remediation liability provided to AWA in November 2008. On 17 December 2008, the board of AWA approved the December interim accounts and resolved to pay the December dividend by way of set-off against the receivable. This left an outstanding balance of the Sequana debt of €142.5 million.

14. In the first part of 2009, the Directors undertook work on the necessary Lower Fox River provision for the 2008 annual accounts (to 31 December 2018). The conclusion was eventually reached that the Maris policy was sufficient to cover the best estimate of liability and that no further provision was therefore needed. On 18 May 2009, PwC gave an unqualified certificate that the accounts gave a true and fair view of the state of AWA's affairs. These accounts (“the 2008 accounts”) showed distributable reserves of €137 million. The Directors approved them. On the same day, the board of AWA resolved to pay the May dividend by way of set-off against the Sequana debt.

15. Still on the same day, Sequana sold AWA to its former general counsel, Mr Gower, then acting as a consultant to AWA, and another connected person who had advised AWA in relation to the liability issues. From that time, Sequana was no longer exposed to any risk that its debt to AWA would have to be used to fund AWA's environmental indemnity liabilities, and AWA was left with assets of only about €3 million in excess of the Maris policy to meet any such liabilities.

16. In none of AWA's relevant accounts was provision or disclosure made in relation to potential liability at the Kalamazoo River or other Future Sites.

17. When, within less than a year after these events, it became clear that NCR and API's liability and therefore AWA's and BAT's exposure was significantly greater than the value of the Maris policy, and claims were notified in respect of the Kalamazoo River, the question of the lawfulness of the December and May dividends was considered. AWA in due course brought the claim against Sequana and its former directors. The benefit of that claim was assigned to BTI in September 2014 as part of a funding agreement with BAT.”

The Sequana claim and the judgment of Rose J


Fancourt J summarised the issues before Rose J and her conclusions in relation to them at [19] of his judgment:

“19. The issues that Rose J had to decide in the first claim were, in broad terms, the following:

i) Whether the declarations of solvency made by the directors of AWA were validly made, so that the reduction in capital was effective. The Judge held that they were valid.

ii) Whether appropriate provision for the liabilities of AWA (in particular the Lower Fox River liability) was made in the accounts on which AWA relied for declaring the December and May...

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