Quartz Assets LLC v Kestrel Coal Midco Pty Ltd
Jurisdiction | England & Wales |
Judge | Mr Justice Calver |
Judgment Date | 08 October 2021 |
Neutral Citation | [2021] EWHC 2675 (Comm) |
Docket Number | Case No: CL-2019-000676 |
Court | Queen's Bench Division (Commercial Court) |
THE HONOURABLE Mr Justice Calver
Case No: CL-2019-000676
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Charles Graham QC and Oscar Schonfeld (instructed by Slaughter and May) for the Claimants
Nigel Tozzi QC and Kate Livesey (instructed by Stewarts Law LLP) for the Defendant
Hearing dates: 21 and 22 September 2021
There are two separate disclosure applications before the court:
i) the Defendant's specific disclosure application dated 4 June 2021 (“the Defendant's Application”); and
ii) The Claimants' application dated 19 July 2021 for additional disclosure (“the Claimants' Application”) – comprising an application for expansion of the Disclosure Issues directed at the first Case Management Conference (CMC) (to which the Defendant has consented) and a direction that the Defendant's disclosure should extend to documents held by a third party (which is disputed).
(A) Relevant factual background
The First Claimant (“Quartz Delaware”) is a US limited liability company incorporated in Delaware, USA. The Second Claimant (“Quartz Singapore”) is a limited company incorporated in Singapore. The Claimants are both special purpose vehicles (SPVs) within the Värde group.
The Defendant (also referred to herein as “Kestrel”), previously known as Mining Holdco A Pty Ltd, is a limited company incorporated in Australia and one of a series of Australian SPVs that were ultimately owned by a consortium of investors, led by EMR Capital Advisors Pty Ltd (“EMR”) and PT Adaro Energy Tbk (“Adaro”) (together, the “Sponsors”), and which were intended to be used (and were used) by that consortium to acquire Rio Tinto's 80% interest in the Kestrel coal mine in Australia (“the Acquisition”).
On 26 March 2018, Quartz Delaware, Nomura Singapore Limited (“Nomura”) and the Defendant entered into a Mezzanine Commitment Letter (the “Commitment Letter”) pursuant to which Quartz Delaware (or its affiliate), Nomura and Indies Capital Partners Pte Ltd (collectively defined in the Commitment Letter as the “Mezzanine Lenders”) would make available a facility of up to US$400m for the purposes of the Acquisition.
On 27 March 2018, Rio Tinto publicly announced that it had signed a binding agreement for the sale of its interest in the Kestrel coal mine to the consortium led by EMR and Adaro.
On 23 July 2018, Quartz Singapore entered into a Mezzanine Subscription Agreement (the “MSA”) with the Defendant pursuant to which a facility of US$325m of mezzanine financing would be made available (the “Mezzanine Facility”). At the time of entering into the MSA, Quartz Singapore did not hold the funds to be provided under the Mezzanine Facility, but was instead to receive the funds from 7 Värde funds (the “7 Värde Funds”) who would then become shareholders in Quartz Singapore in proportion to the funding each provided. On 25 July 2018, the Defendant delivered a cancellation notice terminating the facility provided for under the MSA. As a result, the planned transfer of funds from the 7 Värde Funds was cancelled and Quartz Singapore never received the funds that had been earmarked for the Mezzanine Facility.
On 1 August 2018, it was announced that the Acquisition had completed, in part, with funds received by the Defendant from another finance-provider, Meritz, a Korean investment house, in the form of a US$325m mezzanine financing facility (the “Meritz Mezzanine Facility”). The Claimants later learned that the Defendant had entered into the Meritz Mezzanine Facility on 24 July 2018, the day after it had entered into the MSA and the day before it cancelled the facility provided for under the MSA.
In summary, the Claimants' case is that:
i) Pursuant to the Commitment Letter, the Defendant appointed the Mezzanine Lenders as exclusive providers of mezzanine financing for the purposes of the Acquisition. The Claimants say that the Defendant's appointment of Meritz as mezzanine provider was in breach of those exclusivity obligations as set out in the Commitment Letter;
ii) In the Commitment Letter, the Defendant warranted and represented to the Mezzanine Lenders on a daily basis from 26 March 2018 to 23 July 2018 (inclusive) that it intended to utilise the Mezzanine Facility in connection with the Acquisition. At the very latest, when the Defendant started serious negotiations with Meritz for the provision of mezzanine financing outside of the Commitment Letter and did not inform the Mezzanine Lenders of the same, those warranties and representations became untrue and misleading or false; and
iii) By negotiating the Meritz Mezzanine Facility, secretly and simultaneously with its negotiations for the MSA, the Defendant acted in breach of its obligations under the Commitment Letter to negotiate the MSA in good faith.
The Defendant denies any breach of the Commitment Letter and denies that it gave any untrue, misleading or false warranties or representations. Those denials are based in part on the Defendant's alternative construction of key terms in the Commitment Letter.
The Claimants claim the loss of profits one or other of them would have made had the Defendant complied with its obligations under the Commitment Letter and, as a result, used the MSA facility (or an equivalent facility under a replacement funding agreement) instead of the finance provided by Meritz.
It is common ground that, in principle, the relevant Claimant should give credit for:
i) Any funding costs that would have been incurred by the relevant Claimant had it provided finance under the MSA (or an equivalent facility); and
ii) Any loss in fact avoided and/or which should reasonably have been avoided by alternative profitable investment of the unused funding commitment.
However, the Claimants say that:
i) Because, as a matter of fact, the funding that would have been made available to the Defendant under the MSA (or equivalent agreement) by the relevant Claimant would have been that Claimant's own equity capital no funding costs would have been incurred; and
ii) Because neither Claimant in fact ever received equity capital for use as mezzanine financing for the Defendant and neither Claimant had the power to compel the transfer to them of such funds, neither Claimant made any alternative investments or could reasonably have been expected to have made any.
(B) The disclosure ordered
Directions for disclosure were given at a CMC before Mr. Richard Salter QC on 31 July 2020. Prior to the CMC, the parties had managed to agree all but one of the Issues for Disclosure (“IFDs”) and all of the models for disclosure in respect of all of the IFDs. Accordingly, disclosure was ordered in respect of 12 IFDs.
The Defendant relies on IFD 9 and IFD 10 in relation to the remaining parts of its Disclosure Application. Model D extended disclosure (narrow search-based disclosure without narrative documents) was ordered in respect of both IFD 9 (quantum) and IFD 10 (mitigation).
i) IFD 9 provides as follows:
“Which, if either, Claimant has suffered a loss of profit as a result of Kestrel's decision to use the Meritz finance in the Acquisition instead of the finance contemplated in the Commitment Letter and MSA and in what amount. Specifically:
(1) Whether, had Kestrel not used the Meritz finance in the Acquisition, following the cancellation of the MSA, Quartz Delaware would have been the party that entered into a replacement MSA or its equivalent and lent the funds committed, and has thereby sustained the loss claimed.
(2) What the net profit of the Claimants (or either of them) would have been had the finance contemplated in the MSA been used in the Acquisition either pursuant to the original MSA (if not cancelled) or pursuant to a replacement MSA or its equivalent.”
ii) IFD 10 provides as follows:
“(1) Whether the Claimants have avoided (alternatively in breach of their duty to mitigate loss have failed to avoid) the claimed loss of profits (or any of it) by investing the funding committed in the Commitment Letter and MSA in other profitable ventures.
(2) Did either Claimant in fact receive by 25 July 2018 (or have the right to compel production of) the funds which it would have used to perform its obligations under the MSA, but for the cancellation of the MSA facility by Kestrel pursuant to clause 9.2 of the MSA?
(3) If so, has either Claimant made any alternative investments with the funds not used for the Kestrel MSA and could either have reasonably been expected to do so?”
(C) The Defendant's Application
The Claimants gave disclosure against those (and the other) IFDs on 11 December 2020 and 10 February 2021. The issues which remain between the parties concern the following categories of document listed in the Schedule to the draft Order:
i) Categories 3A, 3E, 3F and 3J; and
ii) Categories 4A, 4B and 4C.
In summary, Categories 3A, 3E, 3F, 3J and the Category 4 documents are documents (or categories of documents) that appear to exist and which the Defendant maintains are relevant to its quantum and mitigation defences.
The pleaded issues in respect of which these categories of disclosure are said to be relevant are as follows:
i) At paragraphs 24 to 27 of the Amended Particulars of Claim, the Claimants (one or other of them) claim to have suffered a loss of profits as a consequence of the Defendant's alleged breach of contract in not borrowing US$143.5m from either Claimant for use in the transaction, namely (1) up...
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