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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> B.A.T. Industries Plc v Windward Prospects Ltd & Anor  EWHC 4087 (Comm) (20 December 2013)
Cite as:  EWHC 4087 (Comm),  1 Lloyd's Rep 559
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QUEEN'S BENCH DIVISION
London, EC4A 1NL
B e f o r e :
| B.A.T. Industries plc
|- and -
|Windward Prospects Limited
Appleton Papers Inc
Simon Atrill (instructed by CMS Cameron McKenna LLP) for the 1st Defendant
Michael Swainston QC and Richard Blakeley (instructed by DLA Piper UK LLP) for the 2nd Defendant
Hearing dates: 2nd and 3rd October 2013
Crown Copyright ©
Mr Justice Field:
BAT's claims against Windward and API
A. The 1978 Purchase Agreement
B. The Demerger of Windward and API from the BAT Group
The relevant members of the New Group agree with BAT … to indemnify and hold harmless BAT and other members of the Retained Group and each of their directors, officers, employees or agents (together "the Indemnified Persons") … from and against any and all losses, claims, proceedings, damages, actions, demands, and liabilities whatsoever and all reasonably necessary costs associated therewith, which are suffered or incurred by or instituted or alleged against, any of the Indemnified Persons by any person whomsoever … in any jurisdiction to the extent that they relate to or arise out of any neglect or default in the business and operations carried on by the New Group prior to the Effective Date …
Save as disclosed in a letter of even date from [Windward] to BAT, [Windward] represents and warrants that it is not at the date hereof aware of any guarantee or other obligation by any member of the Retained Group in respect of the obligations of any member of the New Group and undertakes that, in any event, [Windward] will use its best endeavours to procure the release of each of the members of the Retained Group from its obligations (if any) as guarantor of the obligations of the New Group and the relevant members of the New Group will as from the Effective Date indemnify each member of the Retained Group against all losses suffered by it arising from any breach of the obligations of any of the New Group in respect of such obligations whether before or after the Effective Date.
C. NCR is notified that it is a potentially responsible party in respect of the pollution of the Fox River
D. The contamination of the Fox River by PCBs
E. NCR's disputed claim against API and BAT to an indemnity under the 1978 Purchase Agreement – the New York Proceedings
F. The 1995 Agreement between BAT, Windward and API
It is our preliminary view that as between AWA [i.e. [Windward] and B.A.T, [Windward] is probably required to indemnify B.A.T in respect of the above matter. Nevertheless, we are unable, at this early stage, to concede that the provisions of the Demerger Agreement cited in your letter definitely have the effect of shifting any liability that B.A.T may have in this matter to [Windward]. Accordingly, it was agreed, during the telephone discussion, that [Windward] would undertake the defence of B.A.T with respect to the action on the following basis. That is, that our undertaking to defend B.A.T will cease to have effect if within sixty (60) days of this letter (i.e. on or before 7th September 1995), [Windward] notifies you of any basis it believes it has for challenging your view that it is obliged to indemnify you under the terms of the Demerger Agreement. I understand that this arrangement is satisfactory to B.A.T.
G. The 1995 Estoppel
H. The 1998 Settlement Agreement
I. The 1999 Agreement
38.1 Following the mediation and subsequent further negotiations between Windward and API (acting for themselves and on behalf of BAT Industries) and NCR regarding proposed terms of settlement on or about 19 November 1998, a copy of the proposed settlement agreement in final draft form was sent to BAT Industries in England for execution by it.
38.2 In that context, by a fax dated 3 March 1999 from David Williams (of BAT Industries) in London to Mr Dungate (still then Windward's General Counsel) in Basingstoke, BAT Industries sought confirmation that Windward and API accepted that under the 1990 Demerger Agreement they were obliged to indemnify BAT Industries from and against all losses suffered or incurred by BAT Industries in connection with the subject matter of the New York Proceedings.
38.3 By a fax in response dated 15 March 1999 from Mr Dungate in Basingstoke to Mr Williams in London ("the 15 March 1999 Fax"), Mr Dungate stated on behalf of Windward and API that (i) it was unnecessary at that stage to reach a final conclusion on the proper interpretation of the 1990 Demerger Agreement; (ii) Windward and API were however happy to confirm to BAT Industries that its signature of the proposed settlement agreement with NCR would not be taken as adversely affecting any entitlement to an indemnity that BAT Industries would otherwise have had under the 1990 Demerger Agreement or the continued payment by Windward of the fees of Simpson Thacher for representing BAT Industries together with API in connection with the New York Proceedings; and (iii) in light of this confirmation Windward and API hoped that BAT Industries would feel able to sign the proposed settlement agreement.
38.4 By (amongst other communications) further faxes dated 12, 19 and 26 April, 19 and 24 May and 4 June 1999 from Mr Dungate in Basingstoke to Mr Williams in London, Mr Dungate acting on behalf of Windward and API repeatedly requested and urged BAT Industries to sign and execute the proposed settlement agreement with NCR on the basis proposed in the 15 March 1999 Fax.
38.5 By the 15 March 1999 Fax and the communications referred to in paragraph 38.4 above, Windward and API made an offer to BAT Industries that, if it executed the 1998 Settlement Agreement, Windward and API agreed, admitted and accepted that BAT Industries' position in relation to any indemnity given to it by Windward and/or API pursuant to the 1990 Demerger Agreement or otherwise would not thereby be prejudiced.
38.6 By a further fax of 7 June 1999 in response from Mr Williams in London to Mr Dungate in Basingstoke, BAT Industries accepted Windward's and API's offer by confirming that it was prepared to sign the Settlement Agreement and in or about July 1999, and on that basis, BAT Industries duly executed the 1998 Settlement Agreement.
J. The 1999 Estoppel
K. The 2005 Arbitration Proceedings
L. The NCR Liability
M. The 2005 Estoppel
N. API ceases to pay for cleaning up the Fox River
"no clear language [in the 1978 Purchase Agreement] indicating that API's [sic] successor agreed to assume liability to the government for any CERCLA claims. At most, as the arbitrators found, API agreed to indemnify NCR for a portion of such liability. The contract's silence on the point is enough to support a finding that API did not agree to assume direct CERCLA liability."
O. The 2013 Arbitration
P. The employee buy-out of API
Q. BAT's claims in respect of the NCR Liability.
The 1995 Agreement and 1995 Estoppel
The 2005 Estoppel
The claim against API in restitution and/or subrogation under New York law
T. API's Defences
(i) in respect of Clause 11.1.1, NCR's claims against BAT do not arise out of any "neglect or default" since the pollution alleged by the EPA in its claim against NCR all occurred before API acquired the assets, properties and business of APD under the 1978 Purchase Agreement and there is no pleaded allegation that API is to be deemed to stand in the shoes of any putative predecessor of API who was guilty of neglect or default in respect of the pollution of the Fox River by PCBs;
(ii) the obligations of BAT under Clause 9.2 of the 1978 Purchase Agreement do not constitute a "guarantee or other obligation" in respect of any obligation of API for the purposes of Clause 7.2 of the 1990 Demerger Agreement; rather, BAT's obligations under Clause 9.2 were joint and several with API's own obligations under Clause 9.2 and were not secondary obligations and thus BAT's obligations under Clause 9.2 cannot be construed as a guarantee or any similar obligation, in respect of API's obligations under the 1978 Purchase Agreement (whether under Clauses 1.4 or 9.2).
(iii) API did not assume CERCLA liability under Clause 1.4 of the 1978 Purchase Agreement in any event. Accordingly, BAT could not have given a guarantee or any similar obligation in respect of API's CERCLA liability.
(iv) even if API had originally been obliged to make payments (on behalf of BAT) to NCR under the 1978 Purchase Agreement, any such obligations would have fallen away and been replaced by those set out in and agreed upon by the parties under the 1998 Settlement Agreement pursuant to which BAT's liability was joint and several with that of API.
The applicable legal principles
It seems to me plain that in a situation of this kind the interests of justice are best served by the submission of the whole dispute to a single tribunal which is best fitted to make a reliable, comprehensive judgment on all the matters in issue. A procedure which permitted the possibility of different conclusions by different tribunals, perhaps made on different evidence, would in my view run directly counter to the interests of justice. (Para 34)
...the attitude of the English courts is, if possible, to avoid fragmentation of disputes between different jurisdictions where such fragmentation raises the twin dangers of waste of resources and of inconsistent decisions.
The English connecting factors
(1) BAT and Windward are both incorporated and have their headquarters in England.
(2) The 1990 Demerger Agreement was concluded in England and was to be performed in England.
(3) The 1990 Demerger Agreement, which is the foundation of BAT's principal claim, is governed by English law in accordance with which all issues of construction and interpretation of Clauses 11.1.1 and 7.2 will be determined, including in particular whether the indemnified losses "relate to or arise, or are alleged to relate to or arise, out of any neglect or default in the business and operations carried on by the New Group prior to the Effective Date…" (Clause 11.1.1) and whether API is in breach of obligations which are the subject of a "guarantee or other obligation" (Clause 7.2).
(4) The applicability of sections 151 and 152 of the English Companies Act 1985 (the financial assistance provisions) to the construction of Clauses 11.1.1 and 7.2 of the 1990 Demerger Agreement.
(5) English law governs the issue of Windward's apparent authority to enter into the 1990 Demerger Agreement on API's behalf (see Dicey, Morris & Collins at [33R-432] and [33-436]), although this may lead back to a question of Delaware law as to whether Windward had actual authority to make the representation(s) relied on for apparent authority.
(6) BAT has the better of the argument as to where the 1995 Agreement was made, contending that it was made in England on the basis that it was concluded pursuant to the 30 June 1995 Letter and the offer made on 7 July 1995 by Mr Dungate and Mr Bush which was accepted by Mr Porter in London, which acceptance was communicated to Mr Dungate in Basingstoke. Alternatively, if the agreement was made on receipt of the 10 July 1995 Letter, that letter was sent from Basingstoke and received in London.
(7) I am also of the opinion that BAT has the better of the argument as to the governing law of the 1995 Agreement, which BAT contends is English law this being the law chosen by the parties pursuant to Article 3 (1) of the Rome Convention since the 1995 Agreement is a successor to and/or parasitic upon the 1990 Demerger Agreement, which is expressly governed by English law. Alternatively, English law applies pursuant to Article 4 (1) and/or 4 (5) and/or is the law of the country with which the agreement is most closely connected pursuant to Articles 4 (1) and/or 4 (5). The fact that under this alleged agreement the New York proceedings were to be conducted by Windward/API does not mean in my view that New York law or Wisconsin law was the governing law, since Windward and API had a right to conduct the defence of the New York proceedings under Clause 11.1.2 of the 1990 Demerger Agreement and such right was contingent on BAT's right to be indemnified under Clause 11.1.1 thereof.
(8) The evidence as to whether the 1995 Agreement was entered into between BAT on the one hand and Windward and API on the other and as to the terms thereof is mainly in England. The fact that Mr Mieliulis of API in Wisconsin and Mr Bourque of Simpson Thacher in New York were copied into the 10 July 1995 Letter is of limited significance since the likelihood is that the letter was copied to them to inform them as to how the New York Proceedings were henceforth to be conducted and not because they had had a role in the negotiation of the 1995 Agreement. It is to be noted that the 30 June 1995 Letter was not copied to either of them.
(9) BAT has the better of the argument as to the law that governs the 1999 Agreement. It submits that the governing law is English law on the basis that the parties chose English law pursuant to Article 3 (1) of the Rome Convention since the agreement was concerned with the scope of the 1990 Demerger Agreement on which the later agreement was parasitic. Alternatively, English law is the law of the country with which the 1999 Agreement is most closely connected pursuant to Articles 4 (1) and/or 4 (5). In my view, the 1999 Agreement is not more closely connected with the 1998 Settlement Agreement than the 1990 Demerger Agreement. BAT, Windward and API were all stated to be parties to the latter agreement, whereas the parties to the former agreement were NCR, BAT and API.
(10) The communications alleged to give rise to the 1999 Estoppel occurred in England and the evidence in respect thereof is mainly in England.
(11) As to the 2005 Estoppel, its existence and scope is connected to England. All but one of the recipients of Mr Gower's communications were and are resident in the UK; the eighth recipient is resident in Chicago. The fact that the meeting on 1 July 2005 took place in New York is of little significance because the meeting was only held there rather than in Chicago for reasons of logistical convenience.
(12) The decisions taken by BAT which are pleaded as reliance on the representations and common assumptions contended for were taken largely, if not entirely in England.
The New York connecting factors
(3) The New York Proceedings, including the claims and defences made therein, the dismissal of the summary judgment motions and the part played by Simpson Thacher are all relevant as background to the 1998 Settlement Agreement and in light of BAT's pleaded detrimental reliance.
(4) New York law governs the 1998 Settlement Agreement which was negotiated in New York.
(5) Evidence as to events in New York is going to have be prepared in response to BAT's pleading that: (i) in reliance on the 1999 Estoppel it gave up the opportunity to participate in the Mediation and the negotiations of the 1998 Settlement Agreement and that it signed the 1998 Settlement Agreement under pressure without a full understanding of the history and without fully understanding the enlarged scope of its obligations under that agreement; and (ii) if it had participated in the negotiations BAT would have obtained a better settlement than was achieved.
(6) Evidence as to the 2005 Arbitration, the subsequent and the ongoing 2013 Arbitration is going to have to be prepared to be given by witnesses from New York, including the relevant New York attorneys.
(7) New York law governs BAT's restitution/subrogation claim.
The non-New York American connecting factors
(1) The scope and operation of CERCLA and the decisions thereon including USA v NCR Corporation and Appleton Papers Inc and Appleton Papers Inc and NCR Corporation v George A Whiting Paper Co et al, will have to be investigated and analysed since matters go to the nature of the liability asserted against NCR and API by the EPA and thereby to API's contention that it is not liable to BAT under the 1990 Demerger Agreement in respect of the Fox River contamination.
(2) The Wisconsin commercial background to the 1978 Purchase Agreement, including the nature and activities of the businesses sold to API is relevant to the construction of that agreement and of the Demerger Agreement.
(3) The Wisconsin factual background to the claims made against NCR and API by the EPA is relevant, inter alia, to the issue whether there was neglect or default on the part of API.
(4) The law of Delaware is likely to govern the issue as to whether Windward had actual authority to enter into the 1990 Demerger Agreement on API's behalf. Delaware law may also be relevant to the question of apparent authority to the extent that it is necessary to show that any representations relied on to establish apparent authority were made with actual authority: see Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd  2 QB 480 at 506.
(5) BAT's averment that if it had not relied on the 2005 Estoppel it would have participated in the Fox River clean up operations and would have obtained a more advantageous outcome therein will require: (i) a wide ranging factual enquiry considering many documents and consulting numbers of individuals engaged in the clear up work in Wisconsin; and (ii) (probably) expert evidence as to the professionalism of those who carried out the clean up.
Weighing the competing connecting factors
What is the appropriate order in the interests of the parties and in the interests of justice?
Note 1 BAT’s expert on New York law, Mr Milonas, is of the view that a New York state court, rather than a Federal Court, is the only court that would potentially have jurisdiction over BAT’s claims against both Windward and API because no ground for federal jurisdiction exists. This opinion has not been expressly contradicted by API’s New York Law expert, Mr Pratt, but API contended in its reply submissions that Mr Pratt’s evidence was geared to the amenability of the prospective parties to a New York federal court. In the circumstances, and since I think that nothing significant turns on which court would have jurisdiction if personal jurisdiction over API were established, I shall assume that if personal jurisdiction under New York law can be established over API, BAT’s claim against API could proceed in a federal, as opposed to a state court in New York. [Back] Note 2 Such as an argument that API was not liable to NCR under section 1.4.9 to the extent that NCR’s liabilities arose not from “the products or operations of APD” but from those of ACPC and/or CPM. [Back] Note 3 The 1 July 2005 Conference had originally been proposed to be held in Chicago but in the event took place in New York for the convenience to Mr Gilbey who was travelling at the time. [Back] Note 4 USA v NCR Corporation and Appleton Papers Inc (Case No. 10-C-910) [Back] Note 5 Appleton Papers Inc and NCR Corporation v George A Whiting Paper Co et al (Case no. 08-C-16) [Back] Note 6 As expressed in his second Witness Statement [Back]
Note 1 BAT’s expert on New York law, Mr Milonas, is of the view that a New York state court, rather than a Federal Court, is the only court that would potentially have jurisdiction over BAT’s claims against both Windward and API because no ground for federal jurisdiction exists. This opinion has not been expressly contradicted by API’s New York Law expert, Mr Pratt, but API contended in its reply submissions that Mr Pratt’s evidence was geared to the amenability of the prospective parties to a New York federal court. In the circumstances, and since I think that nothing significant turns on which court would have jurisdiction if personal jurisdiction over API were established, I shall assume that if personal jurisdiction under New York law can be established over API, BAT’s claim against API could proceed in a federal, as opposed to a state court in New York. [Back]
Note 2 Such as an argument that API was not liable to NCR under section 1.4.9 to the extent that NCR’s liabilities arose not from “the products or operations of APD” but from those of ACPC and/or CPM. [Back]
Note 3 The 1 July 2005 Conference had originally been proposed to be held in Chicago but in the event took place in New York for the convenience to Mr Gilbey who was travelling at the time. [Back]
Note 4 USA v NCR Corporation and Appleton Papers Inc (Case No. 10-C-910) [Back]
Note 5 Appleton Papers Inc and NCR Corporation v George A Whiting Paper Co et al (Case no. 08-C-16) [Back]
Note 6 As expressed in his second Witness Statement [Back]