England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		18th November 1999

INTRODUCTION

1. This is an application by Mannesmann AG ("M") for an injunction to restrain Goldman Sachs International ("GSI"), Goldman Sachs & Co ("GSCo") and Goldman Sachs & Co OHG ("GSOHG") from acting on behalf of Vodafone Airtouch plc ("Vodafone") in its plans to take over M. (I shall refer to GSI, GSCo and GSOHG together as "GS"). The basis for the application is that by reason of the involvement of GS in two previous matters affecting M, GS has acquired confidential information belonging to M relevant to the take-over which gives rise to a real risk that GS (if it so acts) will make use of this information to the prejudice of M.
2. M made an application to me on Monday afternoon the 15th November 1999 for an injunction "without notice" to GS having informed GS of its intention to do so earlier the same day. GS attended the hearing, but since due notice had not been given was in no position to answer the allegations contained in the evidence adduced by M. This took the form of a draft affidavit (which M undertook to have sworn) by Mr Kinzius ("the First Kinzius Affidavit"). Mr Kinzius is the Managing Director of Mannesmann Eurokom GmbH, a wholly owned subsidiary of M. On the basis of what was said in the First Kinzius Affidavit, I made clear to the parties my view that GS should cease to act over the shortest time-span required to enable the application to be heard on notice. By consent I ordered GS to serve its evidence in answer by Wednesday the 17th November 1999 at 9.30 a.m. and M to serve its evidence in reply by 3.30 p.m. the same day, with the application fixed for hearing at 10.30 a.m. or so soon as Counsel could be heard today, Thursday the 18th November 1999. Over the interim period, in lieu of the grant of an injunction, GS gave an undertaking in the terms sought. The evidence has now been served, and I have today heard both parties on the application.

PARTIES

3. I should first say a few words about the parties.

(a) M is an international group domiciled in Germany which is mainly active in the telecommunications, engineering and automotive industries. It is one of Europe's leading telecommunications companies and has a very substantial engineering and automotive division. On the 23rd September 1999, M announced that it intended to create two separate corporations with their own identities for these two parts of its interests, Mannesmann Engineering and Automotive ("ME&A") and Mannesmann Telecommunications ("MTT"). A separate flotation of ME&A is scheduled to take place by 2001.

(b) Vodafone is one of the world's largest telecommunications groups. It was formed on the 30th June 1999 following a merger between Vodafone Group Plc and Air Touch Communications Inc.

(c) GS is a leading global investment banking and securities firm (one of the three leading such firms in the world). It provides a full range of investment, advisory and financing services. As part of its investment banking services it advises on merger and acquisition transactions and other corporate restructuring, providing specialised services to, amongst others, the telecommunications industry. GS seeks always to maintain the highest ethical standards and recognises that its reputation is its principal asset which must be preserved at all costs. It rigorously applies the principle that it will not act for the bidder on a hostile take-over bid for an existing client, but may do so in case of a bid for a former client, so long as it can do so consistently with any obligation of confidence owed to such former clients.

TIMETABLE

4. M learnt of the possible involvement of GS as adviser of Vodafone in respect of a possible hostile take-over of M on the 25th October 1999. There was accordingly a period of three weeks between the date of its knowledge and the date of the application to me - an ample period for M to gather and evaluate evidence of any communication by M of confidential information to GS and of any assurances by GS to M as to the position it would take if invited to act as adviser of a hostile bidder for M. Over this period, M made no communication with GS seeking information or assurances before threatening and commencing proceedings on the 15th November 1999. On the 14th November 1999 Vodafone told M that (in the absent of an agreed bid for M) it was prepared to make a hostile bid. The explanation given to me by Mr Burnton (Counsel for M) was that such a letter to GS might prove embarrassing to GS. It was apparently thought that springing a hostile application to the Court instead would be less embarrassing.
5. The application on the 15th November 1999 essentially rested on three foundations. The first was an alleged assurance by GS. The second was the alleged communication of confidential information in connection with the offer made by M for the shares in Orange plc ("Orange") the UK mobile telephone operator. The third was the alleged communication in connection with the demerger. On the 15th November 1999 I gave agreed directions and a timetable for the full hearing today. These directions and timetable proceeded on the basis that the above three were the critical issues which were to be debated at this hearing and in respect of which evidence was to be served by GS. After GS had served its evidence in accordance with my Order M served evidence seeking to contend that confidential information was acquired by GS in other ways. I sought in vain from Mr Burnton any explanation why these matters were not raised earlier and I do not think that I can in fairness to GS take the further evidence into account, since GS has not been given any adequate opportunity to answer it. I shall accordingly consider the three issues alone.
6. But before I do so I shall say a word on the law, which is, I think, clear. M is seeking protection of confidential information which (it says) was communicated to GS in the course of its involvement in the two projects I have referred to. There can be no question of GS having any continuing advisory relationship with M at any time since GS was retained by Vodafone. The applicable principle of substantive law is accordingly that M as owner of confidential information is entitled to prevent GS from exposing M to any avoidable real (as opposed to fanciful) risk that confidential information might be disclosed to third parties or otherwise misused. On this application for interlocutory relief, it has to be borne in mind that the grant or withholding of an injunction restraining GS from acting for Vodafone, though technically limited to last only until trial, will in fact finally determine whether GS can and will so act: even a very limited period of sterilisation of GS will put GS out of action for the purposes of this possible take-over bid for good. Accordingly, in evaluating what the balance of justice requires to be done or not done on this application, it is necessary to take into account the parties' respective prospects of success if this action proceeds for trial.

ASSURANCE

7. Paragraphs 14 and 15 and 21 of the Kinzius First Affidavit reads as follows:

"14. An article written by Hugo Dixon appeared in the Financial Times in January 1999 commenting on the merger between Vodafone Group plc and AirTouch Communications Inc. (a US telecommunications company) and suggesting that Vodafone take-over Mannesmann. Goldman Sachs advised Vodafone Group plc in that merger. In order to allow our concerns that Goldman Sachs would advise another company in a bid to take-over Mannesmann, I together with Klaus Esser met with Timothy Plaut (Managing Director of Goldman Sachs in Frankfurt) and Scott Mead (Managing Director and Head of Goldman Sachs' telecommunications group and a member of the Goldman Sachs team which advises generally Vodafone and the team which advised Mannesmann on the acquisition of a shareholding in Omnitel in 1998 and 1999) over lunch on 4 March 1999 to discuss the consequences for Mannesmann of the AirTouch take-over by Vodafone, including the possibility of a hostile take-over of Mannesmann. During that meeting, Klaus Esser queried whether Goldman Sachs would advise Vodafone in a possible attempt to take-over Mannesmann. Timothy Plaut answered that it was not Goldman Sachs' policy to advise on hostile bids for companies who are or have been clients of Goldman Sachs. Klaus Esser asked whether that meant that Goldman Sachs would not advise on a hostile bid for Mannesmann[ in a hostile bid] by Vodafone. Tim Plaut answered Klaus Esser's question in the affirmative. However, Klaus Esser queried whether Tim Plaut spoke for all of Goldman Sachs. I am informed by Klaus Esser and believe that a few days later Mr Plaut telephoned Klaus Esser and confirmed that his answer, that Goldman Sachs would not advise in a hostile bid for Mannesmann by Vodafone, applied to Goldman Sachs as a whole and that he had made sure that the appropriate people within Goldman Sachs had approved his statement.

15. Several days later, I received confirmation of this fact in a separate telephone conversation with Tim Plaut when he repeated the above assurance to me.

....

21. On 28 October 1999, Klaus Esser called Bob Hurst (Goldman Sachs' Vice Chairman in New York) by telephone and expressly asked him whether Goldman Sachs would advise Vodafone if Vodafone were to make a hostile bid for Mannesmann. I am informed by Klaus Esser and believe that Bob Hurst did not give Klaus Esser a clear answer. Klaus Esser offered Bob Hurst the mandate for the engineering and automotive project for which they had competed to advise Mannesmann on in their presentation on 18 October 1999. Bob Hurst answered that he did not know whether he could accept the mandate at this stage. Bob Hurst told Klaus Esser that he would call him back within 24 hours. However, I am informed by Klaus Esser and believe that Bob Hurst did not call again."

Mr Kinzius in those paragraphs stated that :

(1) a meeting was called on the 4th March 1999 with GS specifically to obtain assurances that GS would not act in a hostile bid against M.

(2) at that meeting K, who was present, heard a detailed conversation between Mr Esser (of M) and Mr Plaut (of GS) in which Mr Esser questioned Mr Plaut specifically whether GS would advise Vodafone in a possible take over of M, and Mr Plaut replied in the negative.

(3) Mr Plaut stated that the general policy of GS was not to advise on hostile bids for companies "who are or have been clients of GS".

(4) Mr Hurst on the 28th October 1999 declined to give a clear answer to the question whether GS would act for Vodafone.

8. The evidence served by GS challenged all these allegations. In consequence on Wednesday Mr Kinzius served a second affidavit in which he withdraw each of these allegations. In particular:

(1) there was no meeting specifically to discuss this issue or obtain any such assurance;

(2) Mr Kinzius was not party to any conversation between Mr Esser and Mr Paul. He merely received a report of a meeting between Mr Esser and Mr Paul from Mr Esser.

(3) The GS policy was stated to Mr Esser to be that GS would not advise in respect of a hostile take over, not of companies who "are or have been clients of GS", but "of a client with whom they had a significant [ongoing] relationship;

(4) Mr Esser accepts that Mr Hurst did not give "no clear answer. He said that GS did not regard relationships with clients for whom work had been completed as conflicting for the purpose of advice on hostile take-overs".

9. Mr Kinzius in his further affidavit has sought to explain this wholesale departure from his initial evidence. He says that he has now had the opportunity (on Wednesday) to refresh his memory from his diary and that when preparing the First Kinzius Affidavit he had confused the occasion when confirmation was given by Mr Plaut. This is a totally unsatisfactory explanation. It is extraordinary that he did not check his diary before he swore his first affidavit and what he "confused" was not any "occasion" but what he said he was told. He must have been advised by his solicitors of the importance of taking effort to tell the full truth on the application for interlocutory relief made without notice. He signally failed to do so.
10. In my view the Mr Kinzius First Affidavit contained totally false evidence of great importance. If I had known that the passages regarding GS assurances were false, most certainly I would not have granted any relief on Monday. On this ground alone I would discharge the injunction which I granted and consider it proper to decline further relief on this application. But I shall nevertheless go on to consider the merits of the application disregarding this feature of the case. I regard the placing of this evidence before the Court as totally disgraceful and unacceptable conduct. It raised serious questions as to the integrity of Mr Kinzius and the motive for this application.

ORANGE

11. M made a formal offer for Orange on the 1st November 1999. GS (together with two others) acted as adviser to Orange in respect of the sale of shares in Orange to M. M complain that in the course of this transaction GS obtained from M confidential information of value to Vodafone on the bid for M. It seemed to me essential that I cut through the pages of evidence addressed to this issue by M by asking Mr Burnton exactly what the confidential information was that GS acquired. On analysis Mr Burnton confirmed that it was limited to what was said by M when requiring various provisions to be included in an agreement entered into between the parties. M and Hutchinson Whampoa which held 44% of the shares in Orange. I find it very difficult to see how this information can be confidential: this question is however academic since there is no evidence that M said anything and, if M did say anything, what it was. M can accordingly identify no confidential information acquired by GS in respect of which M is entitled to protection.

DEMERGER

12. The complaint by M is that at a presentation given by GS it has disclosed to GS confidential information regarding M's plans and strategy. Mr Burnton told me that this information is identified in his evidence and it consists of the two facts, namely that (1) M quantified potential tax savings on the demerger of £2-2.5 billion and (2) M's tax structure was very similar to the tax model proposed by GS. Assuming that these two pieces of information were communicated to GS (which is in issue) and could constitute confidential information, by identifying the information at a public hearing of this application in its evidence and in the submissions of its Counsel, M has brought these pieces of information into the public arena: they are no longer private, but common knowledge. They can no long (if they ever could) found any claim to any relief. There are well known and established methods of preventing confidentiality being lost in this way: the information could have been included in confidential exhibits and the Court could have been asked to sit in private. But M did not adopt the former of these courses and at the hearing on Monday did not support the adoption of the second course when proposed by GS.

CONCLUSION

13. In conclusion, this application is completely hopeless and must be dismissed. It should never have been made. The conduct of M in three regards calls for severe criticism:

(1) the failure of M for three weeks after learning of the likely involvement of GS as advisers to Vodafone to take any action at all - even to communicate with GS;

(2) the false and misleading evidence on the basis of which I was persuaded to grant relief on Monday;

(3) (blowing away the froth) the total lack of any substance in M's claim.

14. All these considerations raise serious questions as to the good faith of the claim in the first place and whether it was indeed (as suggested by GS) merely a spoiling exercise designed to rule out of play Vodafone's first choice of advisers in the hostilities to come and pre-empt a bid by Vodafone. It is to be noted that the other two leading firms are already retained by M. It is to be hoped that there will be no repetition of this unseemly exercise in other cases. I dismiss the application with costs.
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