England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice, Rolls Building Fetter Lane, London, EC4A 1NL
		21/06/2017

Birss J:

1. These proceedings arise out of the purchase of a pharmaceutical company incorporated in Denmark known as Nycomed A/S by the Claimant, Takeda, from the Defendant (Fougera).
2. At the time of the sale there was an unresolved question about Nycomed's liability under Danish law to withholding tax in respect of interest accruing to the Defendant under an inter-company loan. The Share Purchase Agreement which is dated 19th May 2011 contains a clause obliging the Defendant to pay an amount equal to the liability of the company to pay withholding tax subject to some limitations. The limitations include a cap of €75m. The covenant to pay will expire unless liability arises under it before 30th September 2017. The sum of €75m has been placed in an escrow account until that date as security for the covenant. The contract also contains provisions dealing with the point at which the Defendant becomes liable which relate to the position of the Danish Tax Authority.
3. The current position is that no amount has become finally recoverable in respect of withholding tax and it is unlikely that will occur before the September 2017 cut-off date. That is because the Danish court dealing with the matter has referred questions to the CJEU which have yet to be resolved. However the Claimant contends that there is a realistic possibility of it reaching a compromise with the Danish Tax Authority in time for September but in order to reach such a compromise the Claimant needs certain information.
4. The Defendant is a subsidiary of an investment fund and the information relates to the residency between certain dates of its ultimate investors in the fund. The Claimant cannot get access to that information readily but it believes that the Defendant has access to at least some of it. The Claimant's position is that the Defendant owes the Claimant a duty or duties to assist and therefore provide that information to the Claimant. The duties either arise under

the Share Purchase Agreement itself or as a result of a subsequent agreement known as the Letter Agreement. The Letter Agreement was entered in to on 28th January 2015.

5. The Claimant believes that a reduction in the liability of about 78% could be achieved if information which it believes is held by the Defendant, or is at least something the Defendant could obtain, were provided. The Defendant's position is that whilst it has been able to assist the Claimant voluntarily at least to some extent it is under no legally enforceable obligation to do so.
6. In addition the Claimant also complains that the Defendant has suggested at various times, at least by its conduct, that it would provide the information, but has never done so. That has taken place over a period of 17 months after the Claimant's first request for information. Nothing has been produced, although the Claimant says that the Defendant has sought to create the appearance of reasonableness and a willingness to co-operate.
7. On the evidence before me, the practical reality is that if the money ceases to be covered by the escrow agreement on 30th September 2017 then the Defendant has no other means to pay the Claimant even if it was held to be liable.
8. The Claim Form was issued on 28th April 2017 with Particulars of Claim setting out the Claimant's case that the Defendant owes the relevant obligations to provide the information, that it has breached its obligations by refusing or neglecting to do so, and that the Claimant will suffer substantial damage if that information is not provided in time. The primary relief claim at this stage is declaratory because the money is still being held in the escrow account.
9. At the date of this hearing the Defendant has not yet acknowledged service or filed its defence. The application comes before me in the Chancery Applications Court because the Claimant sought a direction for an expedited trial of all the issues to be heard before the end of July of this year. That was so that the matters can be resolved in time before 30th September 2017.
10. The Defendant's response was that the proposal to have an expedited trial of all these issues on that timescale is not practical. It submitted that the Court should direct a trial of a preliminary issue (or issues) which relate only to the existence of the duty. The Defendant contends that if it does owe the alleged obligations then it has a real interest in having an opportunity to comply with them prior to the cut-off date and avoid arguments which might otherwise arise as to the consequences of any alleged breach.
11. In response the Claimant contended that the Court should be very wary of ordering trials of preliminary issues, referring to the well known authorities which show that preliminary issues, while often appearing to be a short cut, can turn out to be treacherous and make for a much longer journey in the end. Among other authorities the Claimant refers to the well known judgment of Neuberger J (as he then was) in Steel v Steel [2001] CP Rep 106 in which the judge set out ten questions that the court should answer before ordering a preliminary issue. The Claimant also referred to a helpful summary of those questions by Akenhead J in Aldersgate v Ham [2013] EWHC 104 (TCC). The Claimant pressed for its proposal of a full trial on an expedited basis, recognising that it is tight but contending that it can be done.
12. In preparing this application, and reading the parties' skeleton arguments and evidence overnight, it seemed to me that a possible way forward could be to direct a trial of the preliminary issue as proposed by the Defendant but with a proviso that if the court found the duties did exist the money would remain in the escrow account after 30th September 2017 until the outstanding issues were resolved. That suggestion was put to the parties in advance of the hearing. At the hearing the Defendant supported the proposal while the Claimant pressed its application for expedition of the full trial. The Claimant also made an alternative suggestion of a single expedited trial of all issues but instead of July, listed in November 2017, with the money to be held in the escrow account in the meantime.
13. I decided to make a direction on the basis of the proposal supported by the Defendant. Given that the matter was urgent I gave the directions then and there with reasons to follow. These are those reasons. They can be stated quite briefly.
14. When considering whether to order an expedited trial the factors to be considered are essentially practical. There must be a good reason for expedition, one must take in to account the inevitable interference with the administration of justice and the effect on other court users, a very important factor is the prejudice either to one side or the other, and there may also be other special factors to take in to account see e.g. Gore v Geox [2008] EWCH 622 (Neuberger LJ as he then was).
15. In the end both questions – of expedition and preliminary issues - and the overall management of this case should all be considered in the light of the overriding objective to do justice at proportionate cost. It seems to me that working out the appropriate way forward in this case is essentially a practical question of case management. There may not be a perfect and risk free solution to the problem presented. The question is: what is the best way of arranging a resolution of the issues in dispute to maximise the chances of an orderly and fair resolution and minimise the risk of prejudice to either side or to the administration of justice?
16. The point of having the trial in July is in order that a judgment can be given by the judge in time, in advance of 30th September, in order that the parties can know where they stand. That is an extremely tight timetable, given that today is 12th May 2017 and the time for the Defendant's defence is not yet due.
17. The critical point in my judgment is that a full trial of all the issues in dispute by the end of July 2017 is very unlikely to be practical and will maximise the disturbance to other court users in the administration of justice. The current estimate of that trial is 10 days of court time and full disclosure.
18. The timetable proposed involves disclosure to be provided on 12th June i.e. a month from now, factual evidence to be exchanged and witness statements on 30th June and permission to serve expert evidence on the relevant tax law. The timings will be the same whether the matter is a full trial or a trial of the preliminary issue but the work to be done will be much less if the trial is to be of a preliminary issue. The difference between the two relates to the facts and the evidence necessary to address them. Dealing with breach is likely to involve extensive factual issues, particularly the post contractual developments whereas on the issue of duty the only factual evidence will relate to the admissible factual matrix. On the question of whether the Defendant owes the alleged express or implied obligations to the Claimant, the admissible factual matrix will be a relatively narrow compass. That is reflected in the fact that the estimate for the trial on the preliminary issue is only 5 days.
19. The disclosure which will be relevant to the issue of the duty and the evidence relating to the existence of the duty will inevitably be much shorter than would be required in order to have both sides deal with all the conduct and behaviour of the parties in the intervening period of months to establish whether breaches have occurred.
20. Nevertheless there is clearly some risk associated with ordering a preliminary issue instead of a full trial. Dealing with the Steel v Steel factors:

i) This preliminary issue would dispose of the case. That is because if no duties arose then that is the end of the matter.

ii) Dealing with it this way would cut down the time and costs involved in pre- trial preparation since the evidence and disclosure would not need to address breach. On that point the Claimant was concerned that it might not get disclosure which was relevant to breach and also to duty. There is no reason why that should be so. If the Claimant can make a proper case that disclosure should be given which is relevant to duty then it should be able to obtain it from the Defendant.

iii) The preliminary issue is primarily a matter of law and construction and so will involve much less investigation of the facts than would happen at full trial.

iv) This is not an issue which needs to proceed on agreed facts and so having to agree facts does not impinge on the value of the preliminary issue; nor will the preliminary issue unreasonably fetter either party or the court in achieving a just result.

v) The preliminary issue would not risk any serious delay in the long run given the date on which the escrow expires. A full trial could not realistically be heard before the escrow date is reached.

vi) Moreover as the Defendant has made it clear, it has a real interest in having an opportunity to comply with the duties if they are found to exist before the cut- off date and thereby avoid arguments as to the consequences of any alleged breach. In my judgment that is an important factor in this particular case.

vii) It cannot be said that the determination of the preliminary issue is irrelevant since the existence of the duty is a necessary part of the Claimant's claim. Nor can I see any risk of amendments which could avoid the consequences of the preliminary issue and neither side has suggested that there is.

21. Standing back it seems to me that the question of the existence of the duty in this case is a clear cut question which is reasonably separable from the issues of breach. To try it separately would not unduly restrict the Claimant in bringing to bear whatever facts and evidence it wishes to on those issues.
22. I recognise that in the end a full trial of all issues in one go would be the most cost effective way of resolving this dispute. Without expedition it would have no relevant impact on other court users at all, but without expedition it would take place a significant period of time after the escrow date. A possibility would be simply to order the matter to be tried on a normal timetable and have the money held in the escrow account pending that trial but neither side suggested that course, no doubt recognising that since the money has been in the escrow account for nearly 5 years already the matter ought to be resolved more speedily than that if it can be.
23. What of the alternative of a full trial in November? That was something which the Claimant suggested as an alternative in the light of my suggested way forward. It is a possible approach and it would mean that there was a prospect of all the issues being resolved by Christmas 2017. However to do this that would still cause significant disruption to the lists, with inevitable impact on other court users, because it would have a 10 day action jumping the queue substantially. In terms of disruption to the lists, the impact will be much the same whether the trial is in July or November.
24. A trial in November would also mean that no issues at all would be resolved in advance of the date of 30th September in circumstances where, while I recognise that there is no binding commitment to this effect, nevertheless the Defendant has made it clear it recognises that it has a real interest in complying with the duties before the 30th September if it turns out, contrary to its position, that they exist. That outcome is simply not possible if I order a full trial in November with the escrow monies to remain in place until after that. If I am to hold the escrow monies pending full trial then one might say there is no reason for expedition at all and the money should just remain in escrow.
25. Finally there is the prospect of appeals from the determination of the preliminary issue. However here I do not believe it is a strong point. If the Defendant loses the preliminary issue then the money will be held in escrow in the meantime anyway. If the Claimant loses on the preliminary issue and wishes to appeal, the court can consider what appropriate order to make about the escrow account in the circumstances as they then are.
26. Standing back, the course most likely to maximise the orderly resolution of this dispute and minimise the impact on court users is to direct now a trial of the preliminary issue in July 2017 with the sums held in escrow to remain in place if the Defendant is found to owe a relevant duty to the Claimant. If the Claimant is right it will allow the existence of the duties it claims to be owed to be recognised in advance of the date before which they must be complied with. The alternatives are either impractical (full trial in July), cause significant disruption to other court users for no major advantage (full trial in November), or unpalatable to either side (full trial on a normal timetable).