Rolls-Royce Holdings Plc v Goodrich Corporation
| Jurisdiction | England & Wales |
| Judge | Christopher Hancock |
| Judgment Date | 30 March 2022 |
| Neutral Citation | [2022] EWHC 745 (Comm) |
| Docket Number | Case No: CL-2021-000052 |
| Court | Queen's Bench Division (Commercial Court) |
[2022] EWHC 745 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Christopher Hancock QC
SITTING AS A JUDGE OF THE HIGH COURT
Case No: CL-2021-000052
and
Daniel Toledano QC and David Caplan (instructed by Slaughter and May) for the Claimant
Simon Croall QC and Stewart Chirnside (instructed by Bristows LLP) for the Defendant
Hearing dates: December 7, 9, 2021
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.
Christopher Hancock QC:
Introduction and factual background.
This is an application by the Claimant, (“ RR Holdings”), for summary judgment on its claim for a declaration that it has validly exercised its call option as contained in the agreements set out below. For ease of reference, a summary of my conclusions and decision is set out at paragraph 119 of this judgment.
The facts of the matter are set out in the following paragraphs.
In 2008, a Joint Venture (“ JV”) was established between various members of the Rolls-Royce Group ( “Rolls-Royce Group”) and the Goodrich Group ( “Goodrich Group”). A Joint Venture Company (“ JVC”) was established as a new jointly owned company to carry on the business of the JV, being the design, manufacture and sale of original engine controls equipment.
On 31 December 2008, the Defendant (“ Goodrich”), and various members of the Rolls-Royce Group entered into a number of contracts as part of the arrangements for establishing the JV. Those agreements included the following:
(i) A Joint Venture Agreement between, inter alia, Goodrich, RR Group plc (“ RR Group”) and JVC setting out the terms governing the JV (“ JVA”). The JVA included at clause 7.7 an option for RR Group to purchase Goodrich's shares in JVC in the event of a Change of Control (as defined) (“the JVA Call Option”).
(ii) An Aftermarket Services Agreement (“ ASA”) and an Agreement for the Supply of Goods and Work for Engine Repair Services (“ ECSURS”) between inter alia Goodrich and the Third to Tenth Parties 1 which set out the arrangements for the provision and/or supply by Goodrich of Aftermarket Services (as defined).
(iii) A Put and Call Option Agreement (“ PCOA”) between Goodrich and RR Group pursuant to which Goodrich granted a call option (“the Call Option”) to RR Group to allow it to acquire Goodrich's engine control systems aftermarket business or “ AM Package” (as explained further below) to RR Group. It is RR Holdings' attempt to exercise the Call Option on 9 October 2018 by service of a notice dated 8 October 2018 which gives rise to its claim in the present proceedings.
Under clause 3.1 of the PCOA, Goodrich granted RR Group the right, exercisable during the “Call Option Period” by service of a notice, to require Goodrich to sell to it the AM Package in accordance with the terms of a Combined Asset and Share Purchase Agreement (“ CASPA”). The AM Package was defined as the shares and business assets of those companies in the Goodrich Group carrying on the engine control systems aftermarket business for defined Rolls-Royce engines. The Call Option Period was one year commencing on the date RR Group served a Buyout Notice under the JVA exercising the JVA Call Option.
Under clause 3.4 of the PCOA, within 40 business days of the exercise of the Call Option, Goodrich was obliged to deliver to RR Group the Call Option Exercise
Preliminary Information Documents (the “ Preliminary Information”), after receipt of which RR Group would have 40 business days to notify Goodrich whether it wished to withdraw the exercise of the Call Option. The Preliminary Information consisted of documents containing information about Goodrich's aftermarket business (Part 1 of Schedule 3)If the exercise of the Call Option was not withdrawn, Goodrich and RR Group were obliged to enter into the CASPA and Goodrich was obliged to sell the AM Package to RR Group in accordance with its terms. At or around the time they entered into the PCOA, Goodrich and RR Group negotiated and agreed (but did not execute) an agreed form of the CASPA.
In 2011, RR Holdings replaced RR Group as the holding company for the Rolls-Royce Group following a share for share exchange under a scheme of arrangement. Thereafter, RR Group continued to exist and to be a member of the Rolls-Royce Group. Its most recent filed accounts describe its principal activity as holding investments in subsidiaries of the Rolls-Royce Group. I was told that, following the scheme of arrangement, the corporate structure of the Group was RR Holdings (as holding company), followed by RR Group, followed by various subsidiaries, including the Third Party (“ RR plc”), who RR Group were shareholders in.
In 2012, Goodrich entered into negotiations to merge with the Charlotte Lucas Corporation, a wholly owned subsidiary of United Technologies Corporation (“ UTC”) with Goodrich surviving the merger as a wholly owned subsidiary of UTC (the “ UTC Merger”). The Rolls-Royce Group subsequently raised concerns with the US Department of Justice (the “ DoJ”) in relation to the UTC Merger which led to antitrust proceedings being brought by the DoJ against UTC and Goodrich in the US.
On 7 June 2012, in anticipation of the merger referred to above, RR Holdings (my emphasis) and Goodrich entered into a letter agreement (“ 2012 Letter Agreement”) pursuant to which it was agreed inter alia that: (i) a Change of Control for the purposes of the JVA would be deemed to have occurred on closing of the UTC Merger (“ Closing”); (ii) the 2012 Letter Agreement would constitute a Buyout Notice under the JVA effective from the date of Closing triggering the commencement of the Call Option Period under the PCOA; and (iii) the Call Option Period would be extended by one year until the second anniversary of Closing.
On 26 July 2012, Closing took place. Accordingly, pursuant to the 2012 Letter Agreement, the Call Option Period was due to expire on 26 July 2014.
At or around the same time, as recorded in a proposed final judgment dated 26 July 2012 (the “ Proposed Final Judgment”), UTC and Goodrich consented to the entry of judgment in United States of America v United Technologies Corporation and Goodrich Corporation (Case no.1:12-cv-01230-KBJ) by which UTC and Goodrich would be ordered to offer “Rolls-Royce” (defined as RR Group, its successors, assigns, subsidiaries, divisions, groups, affiliates and partnerships) an additional new right to purchase the AM Package at the same price as determined under the PCOA but exercisable until 31 December 2023 (the “ Right to Purchase” or “ RTP”).
The RTP ran in parallel to the Call Option under the PCOA and used the same pricing mechanism as under the PCOA but lasted for significantly longer. However, it lacked a number of significant contractual protections which the parties had negotiated and agreed in relation to the exercise of the Call Option under the PCOA.
On 13 December 2012, UTC wrote to Rolls-Royce plc (“RR plc”) offering the RTP in accordance with the Proposed Final Judgment (“ RTP Offer Letter”). On 29 May 2013, the US District Court for the District of Columbia (the “ US Court”) issued an approved final judgment (the “ Final Judgment”). It was common ground that the Final Judgment was, so far as relevant, in identical terms to the Proposed Final Judgment.
On 3 February 2014, RR Holdings (my emphasis) and Goodrich entered into a second letter agreement (“ 2014 Letter Agreement”) which extended the Call Option Period for a further 3 years until 26 July 2017.
On 28 June 2017, RR Holdings (my emphasis) and Goodrich entered into a further letter agreement (“ June 2017 Letter Agreement”) which inter alia extended the Call Option Period to 31 December 2017 and provided for good faith negotiations to agree, amongst other matters, the modification and application of the framework of the PCOA to the RTP.
On 21 December 2017, Goodrich and RR Holdings (my emphasis) entered into: (i) a Right to Purchase Agreement (“ RTP Agreement”); and (ii) a further letter agreement (“ December 2017 Letter Agreement”).
Under the RTP Agreement, Goodrich granted RR Holdings (my emphasis) a modified form of the RTP (“ Modified RTP”) which was only exercisable in the period 1 January 2020 to 31 December 2023 and which included some of the contractual protections provided for in the CASPA which were absent from the RTP. The purpose of the RTP Agreement was to replace the Call Option with the Modified RTP and to allow the PCOA to expire on the Unconditional Date (as defined) leaving the Modified RTP as the only option to purchase the AM Package. The Modified RTP was conditional on the parties either obtaining Governmental Approval (as defined) or determining that no such approval was required (the “ Condition”) (clause 2.2). It contained express and unqualified obligations on the parties to take all necessary steps to ensure satisfaction of the Condition (clauses 2.3 and 2.4). The Unconditional Date was defined as the first business day following the satisfaction of the Condition or determination that no approval was required (clause 2.5). If the Condition was not satisfied within 6 months (i.e. by 21 June 2018) or such other date as agreed between the...
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