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||Neutral Citation Number:  EWHC 2540 (Comm)
||Case No: 2001/358
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
NEUTRAL CITATION NO.  EWCH 2540 (Comm)
||Royal Courts of Justice
Strand, London, WC2A 2LL
||31st October 2003
B e f o r e :
THE HONOURABLE MR JUSTICE COOKE
|| Laminates Acquisition Co
||- and -
||BTR Australia Ltd
Charles Flint, Q.C., and Andrew Green (instructed by Clifford Chance LLP, London) for the Claimant
Elizabeth Gloster, Q.C. and Michael Fealy (instructed by Slaughter & May, London) for the Defendant
Hearing dates : 27th, 28th and 29th October
HTML VERSION OF JUDGMENT
Crown Copyright ©
Mr Justice Cooke:
- In this action the claimant (Laminates) sues the defendant (BTR) for breach of warranties to be found in a Share Sale and Purchase Agreement (SPA) dated 16th March 1998, under which Laminates acquired BTR's shareholding in FM Holdings Inc and its subsidiary companies, including Formica Corporation (Formica) a company incorporated in Delaware in the USA. The principal business of Formica was and remains the manufacture of high-pressure laminates (HPL). The warranties allegedly broken are those to be found in Schedule 7 to the Agreement in paragraphs 10 (D), 15(A), (B), (C), (D) and (E). All of those breaches relate to the business of Formica.
- On 11th December 2002, Cresswell J reformulated a preliminary issue for decision by the Court as follows:
"Whether the claimant is precluded, in the events that have happened, from bringing a claim in respect of BTR's alleged breach of the Agreed Assurance at paragraph 10(D) of Schedule 7 of the SPA by any failure to comply with the requirements of paragraph 2 of Schedule 8 to that Agreement."
- Under the terms of the SPA, the price payable was US$415M, subject to adjustment. BTR gave a series of warranties, representations and indemnities under the SPA which were referred to as "Agreed Assurances". By clause 9A BTR warranted to Laminates that, at the date of the SPA, each warranty was true and accurate. By Clause 9(D) BTR's liability under or in relation to the warranties was expressly limited as set out in Schedule 8, and by Clause 9(G), save as otherwise provided, each of the warranties was to be construed as a separate and independent warranty, not limited or restricted by reference to any other warranty or any other provision of the SPA except as provided for in Schedule 8.
- The warranties set out in Schedule 7 included the following:
(A) No contract to which any of the Companies is a party:
(iv) is unusual in the context of the business;
(D) No Company is a party to an agreement or arrangement:
(i) which has been notified to any competition or authority;
(iii) which is prohibited by competition law in any jurisdiction and which is any case material to the Business or the separate Businesses of any one or more of:
(c) Formica North America (which included Formica).
(D) Except in relation to Intellectual Property or Proprietary Know-how so far as the vendor is aware no Company conducts or has conducted its Business or deals or has dealt with its assets in a manner which is not in accordance with all applicable legal and administrative requirements in any jurisdiction where such conduct or dealing is reasonably likely to have a material adverse effect on the Business.
(E) Except in relation to Intellectual Property or Proprietary Know-how there is and has in the last five years been no governmental or other investigation, inquiry or disciplinary proceeding concerning any agreement, arrangement or conduct (by omission or otherwise) of a Company in any jurisdiction and none is pending or threatened. So far as the vendor is aware, no fact or circumstances exists which might give rise to an investigation, inquiry or proceeding of that type."
- Schedule 8, which was headed "Limitations on Liability" provided that the purchaser should not be entitled to damages in respect of any individual claim for less than $125,000 nor liable unless and until the aggregate amount of all individual claims in excess of $125,000 exceeded $3M, in which event BTR's liability should be limited to the excess of that aggregate figure. The total aggregate liability of BTR under the Agreed Assurances was not however to exceed 75% of the final cash consideration (i.e. approximately $305M). Paragraph 1(D) of Schedule 8 provided that each provision of the Schedule should be read and construed without prejudice to each of the other provisions of the Schedule.
- Schedule 8 paragraph 2 reads as follows:
"2. Time limits for bringing claims
shall be brought against the Vendor in respect of any Agreed Assurances
unless the Purchaser shall have given to the relevant Vendor written notice of such claim specifying (in reasonable detail, to the extent that such information is available at the time of the claim) the matter which gives rise to the claim, the nature of the claim and the amount claimed in respect thereof (detailing the Purchaser's calculation of the loss thereby alleged to have been suffered by it or the relevant member of the Purchaser's Group):
.. on or before 31 March 2000.
.. the liability of the Vendor in respect of such claim shall absolutely determine (if such claim has not been previously satisfied, settled or withdrawn) if legal proceedings in respect of such claim shall not have been commenced within 12 months of the expiry of the relevant limitation period referred to in (i), (ii) and (iii) above and for this purpose proceedings shall not be deemed to have been commenced unless they shall have been properly issued and validly served upon the Vendor."
- Paragraph 3 of Schedule 8 provided as follows:
"3. Conduct of Litigation
(A) Upon the Purchaser or any member of the Purchaser's Group becoming aware of any claim, action or demand against it or any other matter likely to give rise to any claim in respect of any of the Agreed Assurances (other than under the Tax Warranties (in which case the provisions of the Tax Covenant will apply) or under the Environmental Covenant), the Purchaser shall:
(i) within 30 days thereof notify the Vendor by written notice that such assessment or claim of a third party received by or coming to the notice of any director or other officer of any member of the Purchaser's Group may result in a claim under the Agreed Assurances;
(ii) take such action and give such information and access to personnel, premises, chattels, documents and records to the Vendor and its professional advisers as the Vendor may reasonably request (and the Vendor shall reimburse the Purchaser's out of pocket costs in doing so) and the Vendor shall be entitled to require any relevant member of the Purchaser's Group to take such action and give such information and assistance in order to avoid, dispute, resist, mitigate, settle, compromise, defend or appeal any claim in respect thereof or adjudication with respect thereto;
(iii) at the request of the Vendor, allow the Vendor to take the sole conduct of such actions as the Vendor may deem appropriate in connection with any such assessment or claim in the name of the Purchaser or any member of the Purchaser's Group and in that connection the Purchaser shall give or cause to be given to the Vendor all such assistance as it may require
(iv) make no admission of liability, agreement, settlement or compromise with any third party in relation to any such claim or adjudication without the prior written consent of the relevant Vendor; and
(v) take all reasonable action to mitigate any loss suffered by it or any member of the Purchaser's Group in respect of which a claim could be made under the Agreed Assurances.
(B) If the Purchaser fails to give the Vendor notice of a claim, action or demand in accordance with paragraph (A)(i) then, to the extent that the Vendor's defence of such claim has been prejudiced or its liability in respect of such claim increased as a result thereof, the liability of the Vendor in respect of such claim, action or demand shall be reduced to compensate it for any such increased liability.
(C ) In relation to matters to which paragraph (A)(i) applies, the Vendor shall be entitled at any stage (i) at its absolute discretion to settle any such third party assessment or claim for which they have accepted liability and (ii) with the prior written consent of the Purchaser (not to be unreasonably withheld or delayed) to settle any other such third party claim or assessment."
- Thus, in order to bring warranty claims, the purchaser had to comply with the requirements of paragraph 2 of Schedule 8 and give notice of such a claim on or before 31st March 2000. Additionally, proceedings had to be commenced on or before 31st March 2001. It is the former provision and the terms of letters written by Laminates to BTR which form the subject of the preliminary point for determination.
- On about 12th April 1999, Formica Corporation received a subpoena to produce documents to the US Department of Justice in connection with a Grand Jury Antitrust Investigation into price fixing in the US HPL market during the period lst January 1994 to 1st April 1999. It is plain from an examination of that subpoena that the Department of Justice suspected that some of the four competitors in the HPL market in the US were involved in price fixing arrangements. Formica had the second largest market share of these four entities, the largest market share being owned by Wilsonart International Inc.
- The subpoena served upon Formica required it to produce a large range of documents relating to HPL pricing, price announcements and any actual possible or proposed agreements, whether implemented or not, in connection with that subject matter. Formica instructed US lawyers to represent it and those lawyers then liaised with the Department of Justice, produced documents, prepared witnesses for the Department of Justice's and Grand Jury's investigations, liaised with lawyers representing senior employees of Formica who required separate representation and entered into a Joint Defence Agreement with other players in the HPL market for sharing of information of common interest. Davis Polk & Wardwell (DPW) acted for Formica from April 1999 through to May 2001 when the investigations concluded without any charges being brought against Formica or any of its employees. In May 2000 an action had been brought against the Chief Executive Officer of Wilsonart International Inc for perjury, on the basis that he had lied when testifying to the Grand Jury in November 1999 about the absence of any conversation between him and representatives of other manufacturers (not including Formica) about price fixing or anti-competitive practices. Following the acquittal of that executive on the charge of perjury, the investigation was concluded and no charges were preferred against any of those involved in the HPL market.
- However, before the investigation was concluded, private litigation had been commenced by a number of complainants against Formica and its competitors in the HPL market on the basis of an alleged conspiracy to fix prices. The first of those complaints was served upon Formica on 14th June 2000 and over the ensuing period, in excess of 40 further complaints were made in State and Federal actions, the latter of which were consolidated into a Class Action in the US District Court for the Southern District of New York, in which treble damages are claimed. All these complaints lacked any particularisation as to the personnel involved in such a conspiracy, the date of making it or the terms of it. It is alleged however that the price charged for HPL by the defendants to the complainants rose steadily during the period from 1994 onwards without any correlation with any rise in the manufacturers' cost of the component materials.
- It will be apparent from the above that, as at 31st March 2000, the deadline for a Notice under paragraph 2 of Schedule 8, the Department of Justice and Grand Jury investigations were in process but no criminal indictment nor civil proceedings had been commenced. The investigations take place in secret so that, unless a subject of the inquiry discloses the existence of the investigations, the public at large would be unaware of them. On 12th November 1999, Formica, as part of its Securities Filings, filed form 10-Q with the Securities and Exchange Commission for the period ending 30th September 1999. In that filing it revealed that it had received a subpoena from a federal Grand Jury investigating possible Antitrust violations in the High Pressure Decorative Laminates industry in respect of the period January 1st 1994 until April 1st 1999. The statement concluded with the following words:-
"The Company is unable to determine at this time the effect, if any, that this matter may have on its financial statements".
On 27th March 2000 Formica filed form 10-K with the Commission in respect of the period ending 31st December 1999, with information to the same effect, stating that the Company had provided information in response to the subpoena in the shape of documents and testimony but concluding with the same sentence as set out above. This filing took place one day before the letter on which Laminates relies as the major item by which Notice was given to BTR in compliance with paragraph 2 of Schedule 8 of the SPA.
- In the meantime, on 28th December 1999, one of the other competitors in the HPL market had also made a filing with the Commission, in which it stated that it had likewise been cooperating in the Antitrust investigations but that it was not a target of those investigations. This it would have been able to say only if the Department of Justice had so indicated.
- Details of what took place before the Grand Jury and in interviews with the Department of Justice have not been made available by Formica but, as set out in paragraph 10 of this Judgment, the Bills of Costs of DPW amounting to some $1.236M reveal extensive work carried out in the preparation of witnesses for appearance before the Grand Jury (where their lawyers could not be present), the preparation of witnesses and attendance at Department of Justice interviews and the debriefing of them afterwards. DPW had extensive dealings with the Antitrust Division of the Department of Justice and with Counsel for other HPL manufacturers in connection with joint defence matters, concluding a Joint Defence Agreement with them under which the sharing of information of "common interest" took place. It was BTR's contention that the conversations with the Department of Justice investigators, the negotiations over the subpoena production and the preparation and debriefing of witnesses must have resulted in knowledge on the part of Formica of the details of the price fixing agreement which the Department of Justice suspected. It was said by BTR and accepted by Laminates' expert that if the Department of Justice had details of specific meetings and agreements, it would inevitably have to put those to the witnesses concerned in clear terms. This it was said would result in Formica being aware of the details of the alleged price fixing agreement or arrangements. Thus, BTR maintained that Formica and its parent company would know who were alleged to be parties to the price fixing conspiracy, when it was made, when it was implemented and the area of the market with which it was concerned, including the value of tainted sales. Of course, if no such specific allegations were made to any of the witnesses, Formica and Laminates would be none the wiser, unless their personnel knew that such an agreement had been made.
- Mr Gizzi was the General Counsel of Formica between October 1998 and May 2001. His evidence was adduced by Laminates in the forms of a witness statement under the provisions of Civil Evidence Acts. He was not produced for cross-examination. In that statement, he said that, to his knowledge, no-one at Formica knew upon what factual basis the Department of Justice had taken the view that Formica might have been involved in price fixing activity at any stage of the investigation. When he left Formica in May 2001 he was, he said, still unaware of any facts which might have underpinned any allegations of price fixing against Formica.
- Paragraph 25 of the Re-Amended Particulars of Claim reads as follows:-
"Any price fixing or other agreement or arrangement in breach of U.S. Antitrust Laws by Formica ("Antitrust violations") has been denied by Formica in the DOJ investigation, the Federal actions, the State actions and the Consolidated actions. However, to the extent that Antitrust violations against Formica are true, the Defendant has breached Clause 9(A) of the Agreement in that:-
(a) The Antitrust Warranty (defined as Schedule 7, paragraph 10D) was untrue; and
(b) No reference to Antitrust violations was made in the Disclosure Letter or Disclosure Files."
From this paragraph and from the absence of any evidence on the part of Laminates to the contrary effect, I was invited to infer that allegations of price fixing had been made against Formica in the DOJ Investigation. It seems to me that this is a proper inference to draw from the terms of paragraph 7 of Mr Gizzi's statement and his denial of knowledge of any facts which underpinned any such allegations, as well as from the terms of paragraph 25 of the Particulars of Claim. There is however no material upon which I can form any conclusion as to the specificity of any such allegations.
- It is in this context that the correspondence between BTR and Laminates falls to be examined for the purposes of determining whether or not the requirements of paragraph 2 of Schedule 8 to the SPA were met.
The relevant correspondence
- Laminates relies upon a couriered letter of notification dated March 28th, 2000 sent just three days prior to the expiry of the relevant period (two years from the completion date). The letter enclosed a schedule of claims and took the following form, so far as relevant:
"NOTICE OF CLAIMS
. In accordance with paragraph 3(A)(i) of Schedule 8 (Limitations on liability) of the Share Sale and Purchase Agreement between BTR Australia Limited and Laminates Acquisition Co. dated 16 March 1998 (the "Agreement"), we notify you of the claims on the attached list.
We further notify you that these may result in claims under the Agreed Assurances.
All terms used in this letter, unless otherwise defined, shall have the same meaning as defined in the Agreement.
The enclosed list scheduled a series of claims made by third parties against Formica except for a reference to "claims previously noticed" under which appeared a reference to "US DOJ". Under the heading "Claim type" appeared "Grand Jury Investigation". The status was described as "pending" and the costs to date were listed as $1,236,610.63. All the other items in the list were third party claims which had not been previously notified.
- Laminates maintains that although it made no reference to earlier correspondence, this letter has to be read in the light of preceding letters of 13th April 1999, 23rd April 1999, 27th May 1999, 28th July 1999 and 22nd October 1999.
- The letter of 13th April 1999 upon which Laminates also placed great reliance, took the following form:
"NOTICE OF CLAIM
. In accordance with paragraph 3(A)(i) of Schedule 8 (Limitations on liability) of the Share Sale and Purchase Agreement between BTR Australia Limited and Laminates Acquisition Co. dated 16 March 1998 (the "Agreement"), we notify you that:
(i) Formica Corporation has received a grand jury subpoena seeking the production of documents in respect of a criminal investigation by the U.S. Justice Department Antitrust Division into possible price-fixing activities; and
(ii) This investigation may result in a claim under the Agreed Assurances.
All the terms used in this letter, unless otherwise defined, shall have the same meaning as defined in the Agreement.
- The subsequent letter of 23rd April was a reply to a request from BTR for a copy of the Grand Jury subpoena received by Formica to which the letter of 13th April referred. That subpoena was enclosed by Formica with the 23rd April letter, whilst stating that DPW had been retained to represent it and had begun the process of assembling documents and negotiating with the US Department of Justice regarding Formica's response to the subpoena. Anyone reading the terms of that subpoena would appreciate that the documents requested were those relating to any price fixing involving Formica and/or others engaged in the production of HPL, as paragraphs 11, 12, 13, 14 and 20 of the subpoena make clear.
- The letter of May 27th 1999 enclosed Formica's preliminary response of 25th May to that subpoena setting out details of Formica's business, its affiliates, HPL distributors and personnel. The letter of 28th July 1999 enclosed a fax from the Department of Justice deferring Formica's production of a number of documents previously requested.
- The letter of 22nd October 1999 whilst again referring to paragraph 3(A) of Schedule 8 of the SPA provided "an update on the status of a criminal Grand Jury investigation by the Antitrust Division of the US Department of Justice into whether there has been illegal price fixing in sales of HPL in the United States". This letter cross-referred to "a notice of claim dated 13th April 1999". Details then followed as to the production of documents and witnesses who had appeared before the Grand Jury or the Department of Justice in lieu. The letter enclosed a chart setting out legal fees incurred by DPW and another firm which was acting for Formica's current or former employees. The letter stated the readiness of Formica to cooperate with BTR in respect of the defence of the matter and to discuss any issues or questions which BTR might have. The costs chart showed that expenditure of over $800,000 had been incurred.
Did Laminate' notice comply with Paragraph 2 of Schedule 8?
- An examination of the terms of the letters of April 13th 1999 and March 28th 2000 shows that they had been drafted by express reference to paragraph 3(A)(i) of Schedule 8. Each of the letters is signed by Mr Gizzi who was General Counsel for Formica Corporation but who wrote these letters on behalf of Laminates. They were addressed to BTR's General Counsel.
- The letter of 13th April 1999 (set out at paragraph 20 above) can only be taken as notification under the terms of paragraph 3(A) of Schedule 8 as Laminates accepted. Not only does the letter expressly refer to that paragraph in the first sentence but the form of the notification specifically follows the requirements of the paragraph. That paragraph required two elements in the notice first, a notification of the third party claim or demand against Formica "or any other matter likely to give rise to any claim in respect of any of the Agreed Assurances" and then, secondly notification to BTR that this "may result in a claim under the Agreed Assurances". Sub-paragraph (i) of the letter refers to the receipt of a Grand Jury subpoena in respect of an investigation into possible price fixing activities whilst sub-paragraph (ii) specifically states that this investigation "may result in a claim under the Agreed Assurances". The last paragraph states that all terms used in the letter are to have the same meaning as defined in the SPA. There can be no doubt that what Laminates was doing was to give notice within 30 days of a "demand" against Laminates for production of documents or of a "matter likely to give rise to any claim in respect of the Agreed Assurances" under paragraph 3(A) of Schedule 8. The language of sub-paragraph (ii) of the letter tracks the language of paragraph 3(A)(i) of the Schedule, as reinforced by the last sentence in the letter itself. The heading "NOTICE OF CLAIM" is plainly intended to refer to a claim falling within paragraph 3, whether or not the "claim" is a reference to a third party claim or demand or to a potential claim under the Agreed Assurances.
- Similarly, when regard is had to the letter of 28th March 2000, it is plain that this is directed to paragraph 3(A)(i) of Schedule 8 also. Once again it has the express reference in the first sentence to that paragraph and the statement in the last sentence about the use of terms defined in the SPA. It also follows the same format of notifying claims of a third party nature (on an attached list) which fall within paragraph 3(A) with the exception of the Grand Jury Investigation which as it stated had already been notified as a "demand" or "matter likely to give rise to a claim in respect of any of the Agreed Assurances". The letter again goes on to "further notify
.. that these may result in claims under the Agreed Assurances", again tracking the words of paragraph 3(A)(i) of the SPA. Once again, the heading cannot be given undue weight, in the light of the content of the letter itself which makes no reference to paragraph 2 of Schedule 8 at all.
- Despite this, it is Laminates' case that the letter of March 28th, 2000, when seen in the light of previous correspondence is adequate notification under paragraph 2 of Schedule 8 as well as under paragraph 3 of Schedule 8. It is pointed out that paragraph 2 does not expressly require any notice to refer to the paragraph itself and it is said that the issue therefore is simply whether or not the requirements of that paragraph are satisfied, regardless of paragraph 3. It is accepted that in principle one notice could satisfy the requirements of both paragraphs 2 and 3 of the Schedule and the question is therefore whether, as a matter of substance, notice has been given in accordance with paragraph 2.
- I was referred to a number of authorities about the need or otherwise for precision in notices of this kind and the parties both addressed me on the commercial purpose of the notice provisions and their legal effect.
- I was referred to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749 and encouraged to adopt the more flexible approach to construction of Notices than had previously been the case in the light of the Judgments of Lord Steyn at pages 767 8 and Lord Hoffmann at pages 779 780. The question is how this notice would be understood by a reasonable recipient with knowledge of the context in which it was sent. Reliance was also placed upon the decision of the Court of Appeal in Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks  2 Lloyd's Reports 243, Odebrecht Oil & Gas Services Ltd v North Sea Production Co Ltd (an unreported decision of Dyson J of 10th May 1999) and on the House of Lords decision in A/S Rendal v Arcos Ltd (1937) 58 LLR 287 (and in particular the speeches of Lord Wright at page 291, 292 4 and Lord Maugham at pages 298 299). I found these citations of limited help because each notice clause has to be construed for itself and in the light of the commercial context in which it is found and the commercial purpose it is intended to serve. Notice clauses of this kind are usually inserted for a purpose, to give some certainty to the party to be notified and a failure to observe their terms can rarely be dismissed on a technicality. The comments of Stuart-Smith LJ in Senate Electrical are apposite, in the context of a notice clause in a Share Sale Agreement requiring notice to set out "such particulars of the grounds on which such claim is based as are then known to the Purchaser promptly
and in any event within 18 months". He said:-
"The clear commercial purpose of the clause includes that the vendors should know
in sufficiently formal written terms that a particularised claim for breach of warranty is to be made so that they may take such steps as are available to them to deal with it
. The commercial purpose may not be sensibly served if an uninformed and uninformative notice is given
The notice provision here does not require "particulars" of the grounds of claim for breach of warranty but some information relating to the claim, as set out in the paragraph, which can be seen as equivalent, or analogous to that required in Senate Electrical.
- The starting point here must be, regardless of the proviso dealing with the need for legal proceedings within a specific time, that the terms of the notice provision are clear in debarring claims which have not been notified within the required period. Thus the clause begins "No claim
. shall be brought
..". A compliant notice is therefore a matter of importance. Secondly, since the clause provides for conditions precedent to the liability of BTR under the Agreed Assurances, it is for Laminates to establish, as a matter of fact, compliance with those conditions precedent, although, because this is an exclusion clause, the usual principles which apply to construction of exclusion clauses apply when interpreting the clause itself. Thirdly, the purpose of the notice provision, as essentially agreed by both parties is to ensure that BTR is provided with a warning of future legal proceedings against it under the Agreed Assurances with sufficient information and time to enable it to make enquiries, to make an informed assessment of the claim, decide what to do about it, take precautionary steps, (such as notification to insurers and preparation of defence material) make provision in its accounts or obtain withdrawal of the claim or satisfy or settle it before legal proceedings are issued. These purposes can essentially be garnered from the proviso to paragraph 2 and the overall structure and content of paragraph 2 in the light of paragraph 3 of the Schedule and the SPA as a whole. To do any of these things necessitated some particularisation of the claim made by Laminates.
- Paragraph 2 of Schedule 8 has gone to some lengths to set out the requirements for a Notice to be valid, failing which, "no claim
shall be brought against the vendor". The requirements are as follows:-
i) There must be a notice of a claim against BTR in respect of a Warranty or an Agreed Assurance see the words "such claim".
ii) It must be a claim in writing "written notice".
iii) The Notice must specify "the matter which gives rise to the claim". This must mean the underlying facts, events or circumstances, which constitute the factual basis upon which the claim is posited.
iv) The Notice must specify "the nature of the claim". The parties agree that this must mean notification of what is being claimed and the basis of it by reference to the SPA - namely the form and substance of the claim.
v) The Notice must set out the "amount claimed". This specifically requires a calculation on the part of Laminates of the loss which is allegedly suffered.
These last three elements in the Notice are qualified by the passage in parenthesis which states that these matters have only to be specified "in reasonable detail, to the extent that such information is available at the time of the claim". This brings in two further inter-relating factors, namely, the concept of reasonableness and Laminates' knowledge.
- BTR rightly points out that there are two distinct regimes set out in paragraphs 2 and 3 of Schedule 8. Paragraph 2 is specifically concerned with claims made against BTR under the Agreed Assurances whilst Paragraph 3 relates to claims against Formica or Laminates or other matters which may subsequently give rise to such a claim by Laminates against BTR. The purpose of this notice differs from that of a notice under paragraph 2 as the provisions of paragraph 3A(ii) (v) make clear. Notice is given so that BTR can, if it so desires, avail itself of the rights provided in this sub-paragraphs, such as taking over the conduct of the third party claim. There is a 30-day time limit for notification under paragraph 3. This is not a condition precedent to the liability of BTR but a failure to give timely notice can result in reduced recovery under paragraph 3(B) insofar as BTR suffers loss whether in relation to the exercise of other rights acceded to it under that paragraph, or otherwise. If however a claim is to be pursued for breach of warranty against BTR in respect of a third party claim or a matter notified under paragraph 3, there must in addition to a paragraph 3 notification, also be a notice under paragraph 2. This is a notice of a different kind because it gives notice of a claim against BTR under the Agreed Assurances as opposed to notice of a third party claim against Formica which may result in such a claim against BTR. The giving of a paragraph 3 notice does not, ex hypothesi from its terms, mean that a paragraph 2 Warranty claim will be made. If no such notice is given which complies with paragraph 2, no warranty claim can be pursued, because of the express terms of paragraph 2.
- The form of notice under paragraph 3 has therefore to detail the third party claim or other matter and the fact that "this may result in a claim under the Agreed Assurances" whilst a notice under paragraph 2 must specify that a claim is actually being made against BTR in respect of an Agreed Assurance. Thus, on any view, a notice which complies with paragraph 2 must make it clear that such a claim is being pursued whatever wording is used, rather than indicating the possibility that a claim may yet be made as a paragraph 3 notice would do. This does not mean that a claim cannot be in respect of a future contingency. A notice could make it plain that a claim was now being made in respect of a breach of Warranty, if for example some third party claim proved to be well founded, whilst it was currently denied that such a claim had any basis. The important feature is however that the notice should make it clear that a claim is being lodged, not that it might subsequently be lodged.
- There is a significant difference between notifying a party of a claim and notifying a party that a claim may be made as the decision in The Catherine Helen  2 LLR 511 points out. The language of any notice has to be examined to see which side of the line it falls, but whatever latitude is allowed, the answer here is evident. This point is not susceptible of extended argument and in my judgment, the letters of 28th March 2000 and 18th April 1999 and the others to the extent that they constitute a notice at all, all partake of the nature of a paragraph 3 notification and not a paragraph 2 notification. Mr Gizzi does not suggest that any mistake was made in the terminology used which is specifically that of paragraph 3 and that of a potential as opposed to an actual claim. Nowhere is it made plain that a claim is now being pursued under the Agreed Assurances and although the 28th March, 2000 letter was close to the deadline of 31st March, 2000, the very contents of the list enclosed and the terms of that letter would not have suggested to a reasonable recipient with knowledge of the terms of the SPA, that a paragraph 2 Notice was being given. Indeed it might have been expected that a paragraph 3 Notice on 28th March stating that third party claims may result in a claim under the SPA might be immediately followed by a paragraph 2 notice before the expiry of the deadline, stating that a claim was being pursued under the SPA.
- When regard is then had to the other requirements of paragraph 2, in my judgment the letter of 28 March 2000 makes no attempt to comply with the terms of the clause, leaving aside for one moment the question of the extent of the information available to Laminates at the time of the claim.
- The only information supplied in relation to "the matter which gives rise to the claim" is to be found in the list attached to the letter, in the subpoena enclosed with an earlier letter and in the restricted "update" of October 22nd, 1999, to which "Claims previously noticed" in that list might have been intended to refer. In essence, BTR had been informed that the Department of Justice had instituted an investigation into price fixing activities, from which it could be assumed that the Department suspected that there was a price fixing arrangement which operated between 1994 and 1999, the parties to which and the terms of which remained wholly unspecified.
- As to the nature of the claim, Laminates did not state that what was being claimed nor what warranty was allegedly broken. Whilst BTR might well assume that, because of the reference to potential price fixing arrangements in the subpoena, a claim could be pursued under Schedule 7, paragraph 10(A)(iv), 10(D)(i), 10(D)(iii), 15(D) or 15(E), nowhere was the form or substance of the claim spelt out. There are material differences between the Warranties and the criteria which would apply to establish any breach (e.g. the need for the vendor's knowledge, as defined, for a claim to run under paragraph 15(E) ).
- Whereas Warranty 10(D) in Schedule 7 is now alleged in the Particulars of Claim to be broken, of which notice was given before 31 March 2000, nowhere in the letter of 28 March 2000, nor in any prior correspondence, is there any attempt to set out the agreement or arrangement to which Formica is a party, the other parties to it or the terms of it. If the letter had made a claim and then set out what appears in paragraph 25 of the Re-Amended Particulars of Claim, stating that there were no details known to it of the arrangement alleged by the Department of Justice between 1994 and 1999 to which Formica was said to be party, whilst referring to a breach of Clause 9(A) and Schedule 7, paragraph 10(D), this (provided Laminates really did know no more) would probably have sufficed. The matter giving rise to the claim would have been identified as any price fixing or anti competitive agreement alleged in the Department of Justice Investigation and the nature of the claim identified as one for breach of a specific Warranty in the SPA. This was not done however.
- In addition, no quantification of the claim was made beyond the costs of the Department of Justice investigations so that there was no other indication of the amount claimed nor any detail of Laminates' calculation of the loss alleged to follow from any alleged breach of warranty in respect of any of the Agreed Assurances.
- It is striking that, although it is Laminates' case now that third party civil Antitrust proceedings against Formica were almost inevitable from the moment that the Department of Justice Investigations involving Formica became known, nowhere in the letter of 28 March 2000, in the list attached or in any earlier correspondence is there any reference to such likely proceedings or the costs involved in them, or to potential liability for treble damages. Moreover at that time, criminal proceedings were still a possibility with the costs involved in them, with the potential for conviction and a substantial fine.
- It was argued by BTR that for adequate notice to be given of "the matters giving rise to the claim" now being pursued in the Particulars of Claim under paragraph 10(D) of Schedule 7, the letter has to specify not only the price fixing Agreement alleged, but the potential consequences in the shape of past and future costs of the investigations, Formica's potential liability to fines, penalties and costs in criminal proceedings, and to damages and costs in civil proceedings, should any such be brought. This I do not accept, but in my judgment such information was required in connection with "the amount claimed" and the "Purchaser's calculation of the loss thereby
. suffered" however approximate any estimate would be, or at the very least information which set out the potential heads of loss. There was nothing to stop Laminates from setting out its losses in the manner adopted in paragraph 50 of the Re-Amended Particulars of Claim.
- I heard expert evidence from both parties which explored the question of what BTR would be expected to understand, as a reasonable recipient of the information supplied by Laminates, with the benefit of advice from US Antitrust Counsel. I find that on receipt of the various pieces of information which were given by Laminates to BTR, BTR would know that the Department of Justice had an informed suspicion that Antitrust violations had occurred, that Formica was a potential target of such price fixing or anti-competition allegations and that, in all probability, at some time after 28th December 1999 it would know that one of the other four major competitors was not such a target. Additionally, on receipt of the totality of this information, BTR would know that there was a risk of criminal prosecution of Formica and a risk of civil litigation involving treble damage suits against it. There was a difference between the experts as to the degree of risk involved as to whether such litigation was almost inevitable or not. A substantial number of Grand Jury Investigations do not lead to prosecution the percentage which do is highly variable from year to year. If a company is indicted, there is a strong likelihood that civil liability suits will follow and if there is a conviction, it is almost certain that this will take place. Without a prosecution, however, the question of civil suits, launched by an opportunistic plaintiffs' antitrust Bar appears largely to depend upon the obtaining of knowledge of a Grand Jury price fixing investigation. BTR, it is accepted, might have anticipated but could not have known that the Investigation would be the subject of public disclosure by Formica in its 10-Q and 10-K reports and even with such disclosure, it could not be said that civil litigation was inevitable. On the basis of the evidence which I heard from the experts, it appears to me that BTR might well have expected disclosure to be made and that there was, at the very least, a good chance of treble damages civil litigation then being pursued.
- The experts agreed that on the information provided BTR could form no judgment on whether or not there was any real prospect of liability in respect of any allegations of Antitrust or anti-competitive practices. Thus the purpose of notice under the clause was not met. BTR could not even begin to assess the position and take any steps of the kind referred to in paragraph 30 of this Judgment.
- In the context of what BTR could be expected to know, it seems to me that Laminates' expert is right in saying that once the 10-Q and 10-K disclosures were made in November 1999 and 27th March 2000, the prospect of civil litigation was high because the HPL market was small, consisting of four players, because one player had been eliminated as a target by the Department of Justice, because Formica was the second largest player and because there were $1billion worth of sales per annum in that market. Regardless of any proper basis for a claim, Formica would be seen as a ripe target by the entrepreneurial, contingency fee opportunist Antitrust Bar in the USA.
- This is however, in my judgment, nothing to the point. Whatever assumptions or judgments BTR might make with the benefit of advice from US Antitrust counsel, the question is still whether or not the terms of paragraph 2 of Schedule 8 were met in the shape of the notices which were given. It was not for BTR to make judgments about the matter giving rise to the claim, the nature of the claim or the amount claimed it was for Laminates to give notice with the required degree of specificity. What BTR might think, having received the subpoena and perhaps obtaining knowledge of disclosure of Formica's and other's Securities Filings is irrelevant when notice in writing was required with the specific elements to which paragraph 2 of Schedule 8 refers. Laminates did not claim against BTR for a price fixing arrangement as a breach of Warranty 10(D), giving the information required by paragraph 2 of Schedule 8.
- Given the absence of any of this information and the need for Laminates to establish compliance with the conditions precedent, it is for Laminates to show that the qualification given by the passage in parenthesis in paragraph 2 applies and that it has furnished in reasonable detail, to the extent that information was available to it, the information which paragraph 2 requires. If objectively adequate information for the purposes of paragraph 2 had been given this issue would not arise, but as I have found this was not so, I turn to the question of Laminates' knowledge at 28th and 31st March 2000.
Information Available at the time of the Claim
- The expert evidence explored the issue of the information which must have been available to Formica and therefore Laminates in consequence of work done in connection with the Department of Justice Investigations.
- In issue between the experts was Formica's position namely as to whether it could or could not form any view on Formica's exposure in respect of price fixing but, allowing for the difficulty in placing weight upon a limited statement of the kind adduced from Mr Gizzi, unless I am to hold that he is dishonest (for which I have no basis whatsoever) I must find that Formica at no stage had any knowledge of facts which would justify the Department of Justice suspicions. Moreover the 10-K and 10-Q Securities filings show that DPW was unable to assess the financial impact of the Investigation on Formica's business.
- I have already indicated that a notice sent to BTR which contained the information set out in paragraph 25 of the Particulars of Claim, whilst actually making a claim might well have satisfied the terms of paragraph 2 of Schedule 8. There is no suggestion in the evidence that Formica's knowledge or Laminates' knowledge improved at any stage between 31st March 2000 and the date of service of the Re-Amended Particulars of Claim, at least so far as any of the elements to which paragraph 2 of Schedule 8 refers. Indeed it is Laminates' case that it knows of no basis for the antitrust allegations that have been made and are now being made against it. The only relevant developments since 31st March 2000 involve the termination of the Department of Justice Investigation without any indictment being preferred against Formica and the commencement of multiple private civil antitrust suits. In paragraph 50 of its Re-Amended Particulars of Claim, Laminates has pleaded a loss in the value of its investment in Formica represented by the costs of the Grand Jury and Department of Justice Investigations amounting to $2,838,816.26 and the future costs and liabilities to be paid by Formica, whether by way of damages, settlement payments or otherwise, arising from or in connection with the civil litigation to which the Re-Amended Particulars refer and/or the alleged agreements or arrangements underlying the Department of Justice Investigation. There was in my judgment no difficulty whatsoever in Laminates giving notice of the matters set out in paragraphs 25 and 50 of the Re-Amended Particulars of Claim, there being no issue that it had sufficient knowledge as at 28th March 2000 to give notice in that form.
- As set out in Mr Stark's expert report at paragraphs 45 and following, it is clear that Formica had a large body of information deriving from the Department of Justice and Grand Jury investigations and the work done in connection therewith by DPW. Between May 1999 and January 2000 DPW had been extensively involved in the preparation of witnesses for the Grand Jury and Department of Justice and in debriefing them as well as being present at interviews with the Department of Justice (although of course not present at the Grand Jury depositions). If specific allegations had been made against Formica about a price fixing agreement or anti-competitive arrangement, in which the parties, dates, places and terms of such an agreement or arrangement had been put, then DPW, Formica and Laminates would know. It is plain that allegations of a general nature were made, as I have already found, but beyond that I am unable to make any determination. The only specific allegations of price fixing of which evidence has been adduced appear in relation to the perjury suit of Wilsonart's Chief Executive Officer, where the alleged perjury relates to statements he made with regard to conversations with parties other than Formica.
- The position as to the specificity of allegations put to Formica witnesses therefore remains unknown. Mr Gizzi refers only to "allegations" as does paragraph 25 of the Re-Amended Particulars of Claim, without saying whether they were general or specific. If there were specific allegations of price fixing, then Formica and Laminates would have known of them and Laminates would have been required to give some information to BTR about them as part of its duty to specify in reasonable detail to the extent that information was available to it, the matter which gave rise to the claim. In such circumstances, information of the kind set out in paragraph 109 of BTR's skeleton argument would have been appropriately included in the notice.
- It may very well be however that no specific allegations were ever put to Formica witnesses in the Department of Justice Investigation and that Formica, as it has said, has rightly always taken the view that there is no factual basis for any allegation of this kind. If so, that might explain the form of the notice given on 28th March 2000. If Laminates had no real claim to make because there was no case to be put, a notice which complied with paragraph 3 of Schedule 8 reflected the situation, as it saw it. Regardless of this, the fact remains that at no time did Laminates give any notice which attempted to comply with the requirements of paragraph 2 of Schedule 8 and the elements referred to in it, nor did it attempt to say, in the light of information available to it at the time of sending the letter, why it could state no more than it did. The 28th March 2000 letter and the earlier correspondence never referred to any actual price fixing to which Warranty 10(D) relates, whether alleged or otherwise, nor to the terms of the SPA which were allegedly broken, nor to any loss or damage (other than past costs) which would flow from such a breach. Notice was given of the existence of the Department of Justice Investigation and of the costs of investigations (which could not of themselves give rise to any breach of Warranty 10(D) but all of this was done within the context of paragraph 3 of Schedule 8 without asserting a claim against BTR that there had been a price fixing agreement. If Laminates had no basis for alleging such a price fixing agreement and making a claim in respect of it then it is perhaps not surprising if it found difficulty in framing a notice which complied with paragraph 2 of Schedule 8 although I have found that a notice which contained the information set out in the Re-Amended Particulars of Claim would probably have sufficed. If it had information which enabled it to frame such a notice and chose not to do so, then there was self evidently a failure to comply with the terms of paragraph 2, quite apart from the failure to make a claim at all.
- In these circumstances, the answer to the preliminary issue as reformulated by Cresswell J is in the affirmative and I hold that Laminates is precluded from bringing a claim in respect of BTR's alleged breach of the Agreed Assurance at paragraph 10(D) of Schedule 7 of the SPA by reason of its failure to comply with the requirements of paragraph 2 of Schedule 8.
- Subject to any peculiarities of which I am unaware, it seems to me that costs must follow the event in relation to this issue but before making any final order on this, I will hear submissions from the parties.
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