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You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Aras & Ors v National Bank Of Greece SA [2018] EWHC 1389 (Comm) (08 June 2018) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2018/1389.html Cite as: [2018] EWHC 1389 (Comm) |
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Neutral Citation Number: [2018] EWHC 1389 (Comm)
Case No: CL-2017-000341
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND AND WALES
QUEEN’S BENCH DIVISION
COMMERCIAL COURT
SHORTER TRIALS SCHEME
Royal Courts of Justice
Strand, London, WC2A 2LL
Date: 8 June 2018
Before:
THE HON. MR. JUSTICE PICKEN
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Between:
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(1) MEHMET OMER ARIF ARAS (2) SINAN SAHINBAS (3) TEMEL GUZELOGLU
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Claimants |
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Defendant |
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Ben Valentin QC (instructed by White & Case LLP) for the Claimants
Matthew Parker (instructed by Freshfields Bruckhaus Deringer LLP) for the Defendant
Hearing date: 30 April and 1-2 May 2018
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Judgment Approved
THE HON. MR. JUSTICE PICKEN:
Introduction
1. The Claimants are senior executives of QNB Finansbank AS (‘Finansbank’), which is apparently one of the largest banks in Turkey. The First Claimant, Dr Aras, is its Chairman and one of its co-founders. The Second Claimant, Mr Sahinbas, is its Vice Chairman and a former Chief Executive Officer. The Third Claimant, Mr Guzeloglu, is its current Chief Executive Officer.
2. This case concerns the Claimants’ entitlement to a fee (the ‘Fee’) which they contend became payable by the Defendant, National Bank of Greece SA (‘NBG’), the second largest bank in Greece by market capitalisation, under three agreements, each described as an “Incentive Fee Agreement”, which they separately (but on materially identical terms) entered into with NBG on 30 December 2011 (the ‘IFAs’).
3. The purpose of the IFAs was described in Clause 1 (“BACKGROUND”) as being:
“… to incentivize the Executive to use his best efforts to dispose of NBG’s interest in the Finansbank Group, directly or indirectly, by providing the Executive with an opportunity to earn an incentive fee (the ‘Fee’) linked to such disposal on the terms and conditions set out in this Agreement.”
5. The present dispute comes about by reason of the fact that, on 21 December 2015, NBG entered into an agreement, described as a “Share Sale and Purchase Agreement” (the ‘SSPA’), under which it agreed to sell its shares in Finansbank to Qatar National Bank SAQ (‘QNB’). Upon completion of that sale, on 15 June 2016, QNB paid €2.711 billion to NBG for its shares in Finansbank and the shares were transferred to QNB. Under the SSPA, NBG also agreed separately to sell to QNB the subordinated debt of US$910 million which was due from Finansbank to NBG (the ‘Subordinated Debt’), at a price equal to its par value and accrued but unpaid interest.
Background to the IFAs
The Claimants and Finansbank
14. The Claimants have worked together at Finansbank as a team for the last 15 years. They continue to do so to this day: Dr Aras as the Chairman, having co-founded Finansbank in 1987; Mr Sahinbas as the Vice Chairman, having joined Finansbank on graduation in 1990 and, apart from a short spell away in 1997/98, having worked with the bank in various positions in Istanbul and abroad ever since, being appointed Chief Executive Officer and joining the Board in 2003; and Mr Guzeloglu as Finansbank’s current Chief Executive Officer, having joined Finansbank in 2004 and become a Board member in 2010.
The events leading up to the IFAs
16. Turning to the parties’ entry into the IFAs in December 2011, earlier that year Dr Aras was approached by Mr Tamvakakis to discuss NBG’s plans to sell part of its shareholding in Finansbank. As part of that process, Mr Guzeloglu and Dr Aras travelled to London in March 2011, together with Mr Anthimos Thomopoulos, then NBG’s Chief Financial Officer, on a ‘pilot fishing’ roadshow to meet with potential investors. Although well received, investors expressed concern at recent decisions of the Turkish Central Bank to increase the capital reserve requirements for Turkish banks (which would impact adversely on their profitability). In the circumstances, NBG decided to postpone the sale of any part of Finansbank, hoping that it would achieve a better price in the future. As part of this strategy, it is clear (indeed, it is stated, in terms, in the IFAs which came to be entered into) that NBG wished to incentivise the Claimants to use their “best efforts to dispose of NBG’s interest in the Finansbank Group”. So it was that in the second half of 2011 Dr Aras proposed, and Mr Tamvakakis agreed, to enter into the IFAs. This led to a meeting at NBG’s headquarters in Athens on 19 December 2011, attended by Dr Aras, Mr Tamvakakis, Mr Agis Leopoulos (NBG’s General Manager of International Activities), a lawyer from Allen & Overy (acting for NBG) and Mr Can Verdi (a Turkish qualified lawyer and friend of Dr Aras) and, ultimately, to the entry into the IFAs which are the subject of these proceedings, the Claimants also that same day signing new employment contracts with Finansbank extending their employment until 31 December 2014 on substantially the same terms as their existing contracts.
“Company means Finansbank A.S.;
Completion means, with respect to an Exit Event, the receipt by NBG of the consideration payable with respect to the Exit Event;
Contingent Consideration means any consideration arising in respect of an Exit Event that is a disposal the payment of which has been deferred to, or is subject to the satisfaction of a condition or conditions on, a date following the Completion of the Exit Event;
…
Exit Event means a Total Exit Event or a Partial Exit Event(s);
Exit Value means the aggregate value of the consideration paid in respect of an Exit Event together with any Contingent Consideration, provided that any Fee payable in respect of any Contingent Consideration will only be payable following receipt by NBG of the Contingent Consideration. Where the consideration payable in respect of an Exit Event consists in whole or in part of securities or other non-cash assets, the value of the consideration will be the value attributed to the securities or other assets in the documents associated with the Exit Event;
Partial Exit Event means, through one or more transactions, the disposal by NBG to a third party, other than a party within the NBG Group, of more than 5 (five) per cent, but less than 50 (fifty) per cent. of The NBG Holding. For the avoidance of doubt, no Partial Exit Event can occur once NBG has disposed of 50 (fifty) per cent. or more of The NBG Holding but a Partial Exit Event will still occur if NBG has disposed of 50 (fifty) per cent. or more of The NBG Holding if that Partial Exit Event occurs as a direct consequence of an earlier Exit Event (for example, the exercise of a put/call option granted at the time of the earlier Exit Event);
The NBG Holding means NBG’s holding of ordinary shares of common stock and the founders’ shares in the Company as at the date of this Agreement;
Total Exit Event means the disposal by NBG to a third party, other than a party within the NBG Group, of 50 (fifty) per cent or more of The NBG Holding.”
18. Clause 3 (“AGREEMENT”) is, then, in the following terms:
“NBG and the Executive agree that following the Completion of an Exit Event the Executive will be entitled to a Fee calculated in accordance with the Appendix and paid in accordance with clause 4 below. For the avoidance of doubt, no fee will be payable if there is no Exit Event.
NBG and the Executive agree and covenant to negotiate in good faith and execute additional agreements to provide the Executive with an opportunity to earn an incentive fee linked to the disposal of the Company’s shares in its subsidiaries.”
“Any fee payable will be determined as the relevant percentage of the Exit Value as determined in accordance with the provisions of this Appendix.
1. Percentage of Exit Value
If:- % of Exit Value
A is 25% less than B or A is between 25% less than B
and 20% less than B [0.30]
A is 20% less than B or A is between 20% less than B
and 10% less than B [0.40]
A is 10% less than B or A is between 10% less than B
and B [0.50]
A is equal to B or A is between B and 10% more
than B [0.59]
A is 10% more than B or A is more than 10% more
than B [0.65]
Where A and B are determined in accordance with 2 and 3 below respectively.
2. Determination of A
A = C/D
Where:- C is the value of the Company by reference of the Exit Value; and
D is the last Equity Book Value published in accordance with the BRSA standards before the Exit Event.
PROVIDED THAT, and for the avoidance of doubt, no fee will be payable if A is less than 1 (one).
3. Determination of B
B = (E+F)/2
(i) Where: E = G/H
where:- G is the market capitalisation of [YKB(Yapi Kredi Bank)] by reference to the average of the mid-market quotations for the closing price of a share in [YKB] on the Istanbul Stock Exchange over the 90 Dealing Days before the Exit Event; and
H is the last equity Book Value of [YKB] published in accordance with the [BRSA] standards before the Exit Event; and
(ii) Where F = J/K
where:- J is the market capitalisation of [Garanti Bank] by reference to the average of the mid-market quotations for the closing price of a share in [Garanti Bank] on the Istanbul Stock Exchange over the 90 Dealing Days before the Exit Event; and
K is the last Equity Book Value of [Garanti Bank] published in accordance with the BRSA standards before the Exit Event.
If either of YKB or Garanti Bank is delisted following the date of this Agreement, so that it is no longer quoted on the Istanbul Stock Exchange, the relevant bank will be replaced by the next largest publicly-traded private sector bank in Turkey (as determined based on its market capitalisation as at the date of the replacement) for the purposes of the calculation required by this Appendix.”
It will be appreciated that it is as regards these provisions, those setting out the formula to be applied to work out what (if anything) is due to the Claimants as a Fee, that the present dispute comes about.
The sale of Finansbank
NBG’s predicament
23. Although Mr Parker urged caution in relation to subsequent events, as I have just mentioned, he did not quibble with Mr Valentin’s description of the background difficulties which NBG, as a Greek bank, was facing in the period leading up to the sale of Finansbank. The difficulties of Greek banks has been well-documented and, as regards NBG in particular, are summarised in the European Commission’s State Aid Decision concerning NBG published on 4 December 2015 (the ‘Decision’).
24. In summary, as Mr Valentin pointed out based on what is stated in the Decision, whereas the European Central Bank (the ‘ECB’) had confirmed in October 2014 that the four systemic Greek banks (i.e. Alpha Bank, Eurobank, Piraeus Bank and NBG) would not require additional capital, as a result of the severe political uncertainty which was experienced from December 2014 onwards, large deposit outflows from the Greek banks ensued and their liquidity conditions tightened considerably. As a consequence, the Greek banks (again) became largely dependent on Emergency Liquidity Assistance (‘ELA’) from the Central Bank of Greece, with the liquidity crisis experienced in the first half of 2015 leading to the closure of the Greek banks, including NBG, between 29 June 2015 and 20 July 2015. This precipitated a dramatic increase in the Greek banks’ reliance on ELA which, as it was put in the Decision, “skyrocketed from nearly zero to a peak of EUR 88.3 billion at the end of July 2015”. These events, and the introduction of capital controls, also affected the solvency position of the Greek banks, and on 31 October 2015, the Greek Parliament approved legislation which allowed NBG and the other systemic banks to receive support from the Hellenic Financial Stability Fund (the ‘HFSF’).
“(20) On 6 November 2015, the Bank invited its shareholders to the EGM. According to the press release published on 12 November 2015, the objective of that EGM was to approve a capital increase (‘the 2015 capital increase’) via the issue of new ordinary shares for private investors, comprising a book-building process for investors outside Greece (‘the International Offering’) and a public offering for investors in Greece (the ‘Greek Offering’). The press release also clarified that:
- the International Offering would be carried out in the context of the overall implementation by the Bank of the capital plan meant to address the capital shortfall revealed by the 2015 CA,
- the actions of the capital plan included inter alia the 2015 capital raise and the Liability Management Exercise (‘2015 LME’) launched by the Bank on 2 November 2015 and completed on 11 November 2015 (‘the Private Capital Raising Measures’) and
- the part of the adverse scenario shortfall that would remain uncovered by the Private Capital Raising Measures and the intended sale of Finansbank A.S. would be covered through the issuance of CoCos and new shares to the HFSF (provided that the Bank had raised sufficient capital to address the baseline scenario shortfall from the Private Capital Raising Measures and from any burden-sharing measures taken in light of EU State aid rules prior to the granting of State aid).
That press release therefore made measure A publicly known.
(21) In the presentation of the 2015 CA Results and envisaged capital plan published on 3 November 2015 on the Bank’s website, a capital injection by the HFSF is also explicitly mentioned in relation to covering the capital shortfall arising from the adverse scenario of the 2015 CA. …
(22) On 11 November 2015, the Bank announced the preliminary results of the 2015 LME. The LME generated EUR 717 million of capital, as confirmed by the Bank in its 2015 restructuring plan.
…
(24) On 16 November 2015, the Bank announced that the SSM had approved all the capital actions included in the Bank’s proposed capital plan which had been submitted to it on 6 November 2015. The positive impact of the 2015 third quarter results of EUR 120 million was also taken into account, thereby reducing the capital shortfall from EUR 1 576 million to EUR 1 456 million in the baseline scenario and from EUR 4 602 million to EUR 4 482 million in the adverse scenario.
…
(25) The book for the International Offering closed on 19 November 2015. […], it was […] covered at a price of EUR 0,02 per share (‘the Offer Price’) pre-reverse split, or EUR 0,3 per share post reverse split, for an amount of EUR 457 million, representing 31% of the amount of the offering.
…
(28) The Greek Offering was launched on 30 November 2015 and closed on 2 December 2015, and resulted in the raising of an amount of EUR 300 million.”
“(29) On 3 December 2015, the Bank submitted a request to the HFSF for a capital injection of EUR 2 706 million, of which EUR 676 million in ordinary shares and EUR 2 029 million in CoCos. On 3 December 2015, in line with measure A, the HFSF approved its participation in the capital raising process for an amount of EUR 2 706 million. This was the amount necessary to cover the remaining capital shortfall determined by the 2015 CA (EUR 4 602 million), after the mitigating measures approved in the capital plan (EUR 120 million), the participation of private investors through the International Offering (EUR 457 million), the Greek Offering (EUR 300 million) and the 2015 LME (EUR 717 million), and the application of burden sharing measures (expected to generate EUR 302 million of capital). The HFSF approved the participation in the capital raising process conditional on the Ministry of Finance issuing the Cabinet Act on burden sharing, the State aid approval, the European Stability Mechanism’s approval of disbursement for the HFSF and any required regulatory approvals.”
“(66) The 2015 restructuring plan also foresees the full sale of Finansbank as a capital raising action, designed to minimize the need for State aid. The Bank estimates that the sale of Finansbank will reduce NBG’s capital needs by between […] and […]. Any potential capital surplus deriving from the sale will be used to repay the CoCos held by the HFSF or the Hellenic Republic, subject to regulatory approval.
(67) On 25 June 2014 Greece gave a commitment that the Bank and its affiliates will implement the 2014 restructuring plan submitted on the same day and gave further commitments (‘the 2014 Commitments’), regarding the implementation of the restructuring plan.
(68) The 2014 Commitments have been respected by the Greek authorities and the Bank apart from the commitment requiring Finansbank to issue new shares representing at least 20% of the total shareholding by 30 June 2015.
(69) On 4 December 2015, the Greek authorities submitted an amended list of commitments (‘the 2015 Commitments’) in line with the 2015 restructuring plan. Amendments were necessary to take into account the additional aid measures received by the Bank (measures A, B and C) and to adapt the 2014 restructuring plan after the extraordinary adverse macro-economic conditions faced by the Bank since December 2014.
(70) First, the Bank has set-up new and more ambitious restructuring targets for its commercial operations in Greece for the maximum number of branches and employees at 31 December 2017 as well as a maximum amount of total costs over the year 2017.
(71) Regarding the Bank’s foreign subsidiaries outside Turkey, the Bank will continue implementing the 2014 Commitment to […] deleverage its foreign assets (banking and non-banking) by 30 June 2018. Moreover, Greece has committed that the Bank will sell its entire shareholding in Finansbank. The 100% sale of Finansbank will be signed by […] and closed by […]. Subject to regulatory approval, the Bank will use any surplus of capital coming from the sale of Finansbank to repay the CoCos held by the HFSF or the Hellenic Republic. The repayment of CoCos will be carried out within a period of […] from the closing of the sale of Finansbank.”
29. As Mr Valentin put it, the net effect of these measures was that, on 4 December 2015, the European Commission approved aid for NBG, on the basis of the 2015 Restructuring Plan, in the amount of €2.71 billion. This was announced in the European Commission’s Press Release the same day which was entitled “State aid: Commission approves aid for National Bank of Greece on the basis of an amended restructuring plan” and which went on to state as follows in the first paragraph:
“In the context of the third economic adjustment programme for Greece, the European Commission has approved additional state aid of €2.71 billion to National Bank of Greece under EU state aid rules, on the basis of an amended restructuring plan.”
Extension of the Claimants’ employment contracts
“In the event this Agreement is terminated by the Bank serving notice on the Executive in accordance with Clause 14(a)(1), the Executive will be paid: (i) any Retention Payment (net) which would have accrued between the day after the date on which his employment terminated and the Expiration Date; and (ii) an amount equal to the sum of (on a net basis) the applicable base salary that the Executive would have earned between the day after the date on which his employment terminated and the Expiration Date subject always, in the case of (ii), to a minimum payment of, on a net basis, 12 (twelve) months’ applicable base salary (the sum of amounts stated in (i) and (ii) above to be referred to as ‘Early Termination Payment’).”
Although the present case is not a case in which such notice has been served by Finansbank, what is important is that Clause 14, then, goes on to provide as follows at sub-clause (f):
“In the event of a Change of Control, the Executive shall have the right to terminate this Agreement with 8 (eight) weeks prior written notice to the Bank within 13 (thirteen) months following a Change of Control. In such case the Executive will, notwithstanding any other provision of this Agreement, be paid an amount equal to (on a net basis) the Early Termination Payment …”.
By “Change of Control” is meant:
“the Controlling Shareholder losing Control over the Bank or one party acquiring Control of the Controlling Shareholder at any given time up to and including the Expiration Date …”.
34. It is the Claimants’ case that they were only willing to agree to the “Change of Control” provisions no longer appearing in their respective employment contracts on the basis that, as Dr Aras put it in his witness statement, “there were no circumstances in which NBG would sell the Bank at a price which was below its equity book value”. It is this issue to which I shall have to return.
The lead-up to the SSPA
“The purpose of the Non-Binding Proposal is to determine which parties will be invited to the second phase of the process, where selected parties will be permitted to have access to a virtual dataroom, perform due diligence, meet Finansbank management, participate to Q&A session with NBG and Finansbank management, attend site visit in Turkey to Finansbank key premises and branches as well as receive a draft Share Purchase Agreement, specifying the intended terms of the proposed Transaction.
NBG’s primary objective in considering the Non-Binding Proposals is to arrange for the sale of its entire shareholding in Finansbank for cash in a manner that maximizes value to NBG’s shareholders and consummates the transaction as expeditiously as possible upon terms and conditions considered appropriate by NBG and pursuant to an agreement providing for certainty of closing and proceeds.
Please note that (i) NBG may explore strategic alternatives to achieve its objective of sending a meaningful stake in Finansbank including a potential re-IPO of the Company and (ii) a limited number of potential private buyers are being invited to participate in the sale process.”
The letters went on, when describing the basis on which the “NON-BINDING PROPOSAL” should be made, to include the following requirements:
“(b)A proposed non-binding indication of the cash purchase consideration in Euros that you would be prepared to pay for NBG’s 99.8% stake in Finansbank and NBG’s 29.9% direct stake in Finans Leasing. You should indicate the TRY/EUR rate used for the purpose of calculating the indicative cash consideration. Confirmation should be given that the indication is on the basis of payment in cash in full on closing. Any price indicated on the basis of a formula or containing a non-cash element will not be considered and will be disregarded;
(c) A summary of the material assumptions forming the basis of your determination of the cash purchase price together with an explanation of your methodology used to determine the value of the business;
(d) A confirmation that you are prepared to refinance the Company’s subordinated debt instruments held by NBG at closing of the contemplated Transaction;
…”.
36. The letters also referred to the fact that their recipients would be receiving an “Information Pack”. This, at least the version dated September 2015, ran to some 114 pages. As Mr Valentin highlighted in closing: it emphasised that Finansbank was a universal bank, with a proven track record of success since its foundation, and an independent and experienced management team supporting strong growth since NBG’s acquisition in 2006; it identified the key financial performance ratios, up to and including the second quarter of 2015 (the last quarter available as at the date that the Information Memorandum was produced); it highlighted, amongst the five features which made Finansbank “an agile bank offering a compelling investment proposition”, its proven and experienced management team; and it gave details of that team, the most senior members of which were the three Claimants.
“In relation to your Phase II Process Letter dated 6 October 2015 (the ‘Phase II Letter’) and following our due diligence review to date of the Company [Finansbank], Qatar National Bank SAQ (‘QNB’) is pleased to present herewith its Binding Offer for the potential purchase of 99.87% of the shares and voting rights of Finansbank and 29.87% of the shares and voting rights of Finans Leasing (the ‘Proposed Transaction’) …
(ii) Transaction Perimeter
QNB is bidding for 99.81% of the shares and voting rights of the Company [Finansbank] and 29.87% of the shares and voting rights of Finans Leasing. As mentioned in the Phase II Letter, we assume that the 29.87% of the shares and voting rights of Finans Leasing currently held directly by NBG will be transferred to the Company [Finansbank] prior to completion of the Proposed Transaction.
(iii) Consideration
Based on the due diligence undertaken and thorough analysis by QNB and its advisors, we are pleased to present our Binding Offer for the Proposed Transaction as follows:
(a) QNB’s offer for NBG’s 99.81% shareholding in Finansbank is EUR 2,685.8m; and
(b) QNB’s offer for NBG’s 29.87% shareholding in Finans Leasing is EUR 52.2m.
QNB’s Binding Offer assumes a EUR to TRY exchange rate of 3.0494.
The indication of the considerations set out above is given on the basis of payment in cash in accordance with the terms and conditions set out in the Sale and Purchase Agreement (the ‘SPA’) as revised by us and attached to this Binding Offer (the ‘SPA Mark-Up’).
(iv) Valuation Approach
QNB considered customary valuation methodologies (including dividend discount model, adjusted net asset value, trading multiples, regression analysis, Gordon Growth Model and transaction multiples) for this Binding Offer. QNB has also taken into account due diligence findings from its advisors following extensive review of the materials provided in the virtual and physical data rooms, together with the respective question and answer process and interactions with Finansbank’s management team.
(v) Refinancing of Company’s Subordinated Debt Instruments
We confirm that we are prepared to take an assignment of the Company’s [Finansbank’s] subordinated debt instruments held by NBG (and as detailed in the SPA Mark-Up) at closing of the Proposed Transaction.”
The Binding Offer went on, over the page, to note that due diligence was substantially complete, and that the only remaining items QNB required to review included “unredacted copies of the senior management and executive management employment contracts”, before later on stating that QNB had taken account of Finansbank’s “strong and experienced management team”.
The SSPA
40. Specifically, Schedule 15 to the SSPA contains various definitions, as follows:
“Closing means completion of the sale and purchase of the Shares in accordance with the provisions of this Agreement;
Closing Date means the date on which Closing occurs;
Company means Finansbank A.S. …
Default Interest means interest at EURIBOR plus 5 per cent;
Last Accounts Date means 31 December 2014;
Locked Box Accounts means the quarterly consolidated reviewed accounts of the Company in respect of the nine month period ended on the Locked Box Accounts Date in the Agreed Form which have been prepared in accordance with BRSA requirements;
Locked Box Accounts Date means 30 September 2015;
NBG Entities means NBG Finance Dollar and NBG International Holdings;
Pre-Closing Period means the period from and including the date of this Agreement up to Closing;
Subordinated Debt means the USD 910,000,000 principal subordinated debt owed by the Company to the Seller as set out in Schedule 10;
Subordinated Debt Amount means the outstanding principal amount in respect of the Subordinated Debt plus any interest that has accrued and has not been paid up to and including the Closing Date;
Subsidiaries means the companies details of which are set out in Part B to Part g (inclusive) of Schedule 7 and Subsidiary means any one of them;
Target Companies means the Company and the Subsidiaries and Target Company means any of them;
Transaction Documents means this Agreement, the Disclosure Letter, the Transfer Agreement and any other documents in Agreed Form;
Transfer Agreement means the transfer agreement in the form set out in Schedule 12 (Transfer Agreement) to be entered into between the Seller and the Purchaser at Closing pursuant to which the Subordinated Debt is assigned to the Purchaser;
… .”.
41. The Preamble includes the following:
“(A) The Seller is the sole legal and beneficial shareholder and owner of the Seller Shares and the Subordinated Debt.
…
(E) The Seller intends to sell the Seller Shares and the Purchaser intends to purchase the Seller Shares.
(F) The Seller intends to assign the Subordinated Debt and the Purchaser intends to purchase the benefit of the Subordinated Debt.
(G) The Seller intends to procure that the NBG Entities shall sell the NBG Entity Shares and the Purchaser intends to purchase the NBG Entity Shares.”
“The sale and purchase of the Shares shall be on the terms set out in this Agreement”
Clause 1.2, then, states that NBG “warrants and covenants to” QNB that:
“(a) the Shares will be sold with full title guarantee;
(b) the Subordinated Debt will be assigned with full title guarantee;
(c) it has, and at Closing it will have, the right to sell and transfer to the Purchaser the full legal and beneficial interest in the Seller Shares;
(d) it has, and at Closing it will have, the right to assign to the Purchaser the full legal and beneficial interest in the Subordinated Debt;
(e) the NBG Entities have, and at Closing will have, the right to sell and transfer to the Purchaser the full legal and beneficial interest in the NBG Entity Shares; and
(f) the Shares and Subordinated Debt shall, on Closing, be free from all Third Party Rights.”
43. Clause 2 of the SSPA provides, inter alia, that:
“2.1 The price for the Shares shall be the amount of EUR 2,750,000,000 (the Purchase Price)…
2.2 Any payment made in satisfaction of a liability arising under a Seller Obligation or a Purchaser Obligation shall adjust the Purchase Price to the extent of such payment.
“3.1 The Seller shall assign the Subordinated Debt to the Purchaser at par value plus accrued but unpaid interest up to the Closing Date free from Third Party Rights with effect from Closing with all rights attaching to it. The assignment of the Subordinated Debt shall be on the terms set out in this Agreement and in the Transfer Agreement set out in Schedule 12 (Transfer Agreement).
3.2 The assignment of the Subordinated Debt shall be in consideration of the Purchaser’s payment to the Seller of the Subordinated Debt Amount.”
“(A) On _______________ 2015 the Transferor and the Transferee entered into an agreement pursuant to which the Transferor … agreed to sell their legal and beneficial interest in all of the shares they hold in the share capital (the Shares) of Finansbank A.S. (the Company) to the Transferee (the SPA).
(B) The Transferor and the Company have entered into four subordinated loan agreements, the details of which are set forth in Annex 3 to this Agreement (the Subordinated Loan Agreements)
(C) Pursuant to the terms of the SPA, the Transferor agreed to transfer the Subordinated Loan Agreements together with all its rights and obligations under the Subordinated Loan Agreements to the Transferee…
(D) This Agreement is entered into pursuant to clause 3 of the SPA.”
Clause 1, then, provides, inter alia, that:
“For the purposes of this Agreement, the date on which the completion of the sale and purchase of the Shares in accordance with the provisions of the SPA occurs shall be referred to as the Closing Date.”
Clause 5 goes on:
“Pursuant to clause 3 of the SPA and subject to clause 6 of this Agreement, the Transferee shall pay, on the Closing Date, an amount equal to the outstanding principal amount in respect of the Subordinated Debt plus any interest that has accrued but has not been paid up to and including the Closing Date (the Consideration).”
Annex 3, then, lists the four subordinated loan agreements which make up the Subordinated Debt which is the subject of the present claim. So, too, does Schedule 10 to the SSPA.
46. Clause 6 of the SSPA (“No Leakage Undertaking”) provides:
“6.1 The Seller undertakes to the Purchaser that since the Locked Box Accounts Date:
(a) there has not been any Leakage and there will not be any Leakage in the Pre-Closing Period;
(b) no arrangement or agreement has been made or will in the Pre-Closing Period be made that will, or might reasonably be expected to, result in any Leakage; and
(c) other than Permitted Leakage, no Target Company has paid nor has become obliged to pay (or will in the Pre-Closing Period pay or become obliged to pay) any third party costs relating to the Proposed Transaction.”
Schedule 15 to the SSPA defined “Leakage” broadly as payments out, transfers of assets or shareholdings of, or waiver of obligations owed to Target Companies. Schedule 1 to the SSPA defined Permitted Leakage in narrow terms associated with the incidental and consequential costs of executing the SSPA itself.
47. By paragraph 1.8 of Part B of Schedule 4 to the SSPA, NBG warranted to QNB that:
“The Locked Box Accounts give a true and fair view of the financial position of the Company as at the Locked Box Accounts Date and of the income statements of the Company as at the Locked Box Accounts Date in accordance with the Turkish Commercial Code and in accordance with accounting and financial reporting regulations, circulars, communiques and pronouncements published by BRSA, and in accordance with Turkish Accounting Standards and Turkish Financial Reporting Standards in relation to matters not regulated by BRSA accounting and reporting requirements.”
“The Parties acknowledge that the Inter-Company Debt will not be repaid at Closing but shall remain repayable in accordance with the relevant terms and conditions governing the same.”
“20.1 Subject to Clause 20.2 below, any payment to be made pursuant to this Agreement by the Purchaser … shall be made to [various identified bank accounts].
20.2 Any payment in respect of the Subordinated Debt Amount by the Purchaser … shall be made to the Seller’s USD Bank Account.
…
20.4 Payments under Clauses 20.1, 20.2 … above shall be in immediately available funds by electronic transfer on the due date for payment. Receipt of the amount due shall be an effective discharge of the relevant payment obligation.
20.5 If any sum due for payment in accordance with this Agreement is not paid on the due date for payment, the person in default shall pay Default Interest on the sum from, but excluding, the date to, and including, the date of actual payment calculated on a daily basis.
20.6 Any payment of the Purchase Price shall be payable in EUR and any payment of the Subordinated Debt Amount shall be payable in USD.”
“7.1 To the extent permissible under applicable competition/anti-trust laws and subject to Clause 7.2, from the date of this Agreement until Closing, the Seller shall:
(a) ensure that the business of each Target Company is carried on only in the ordinary course of business in all material respects consistent with past practice over the preceding 18 months and as a going concern;
(b) take all reasonable steps, and procure that each of the Target Companies takes all reasonable steps, to preserve and protect the assets of the Target Companies (including relationships with customers); and
(c) comply with the obligations set out in Schedule 2 (Conduct of the Target Companies Pre-Closing).”
Clause 7.2 excepts from this obligation any variations in the business of the Target Companies agreed in writing or required by applicable laws, and Schedule 2 may be summarised as prohibiting substantial changes in the asset position, business or employment practices of any of the Target Companies. In particular, Schedule 2 to the SSPA requires in Clause 1 that:
“(a) no Target Company creates, issues, allots, acquires (other than, in the case of [Finansbank], the acquisition of the Finans Leasing Shares, …) ... repays or redeems any share capital, or agrees, arranges or undertakes to do any of those things (except … the acquisition, repayment or redemption by a Target Company in respect of the share capital of another Target Company),… .”
Furthermore, not only does Schedule 7 to the SSPA list the company information on the Target Companies (and this information included Finans Leasing), but, in addition, Schedule 3, Part A, which deals with NBG’s obligations as regards “Closing Arrangements”, obliges NBG, inter alia, to “deliver to the Purchaser [QNB] evidence (in form and substance acceptable to the Purchaser [QNB], acting reasonably) that the Finans Leasing Shares have been transferred to the Company [Finansbank] by the Seller [NBG] and that no ongoing liabilities have been assumed by the Company [Finansbank] in connection with such transfer” (see Clause 1(j)).
“[NBG] enters into a definitive agreement with [QNB] to sell its 99.81% stake in [Finansbank] for a total consideration of €2,750 million (the “Transaction”).
On 21 December 2015, [NBG] Board of Directors approved the divestiture to [QNB] of NBG’s 99.81% stake in [Finansbank], together with other minor direct and indirect interests [footnote reference to, among other interests, NBG’s 29.87% stake in Finans Leasing]. The agreed consideration for the transaction amounts to €2,750 million. In addition, QNB will repay upon closing the $910 million of subordinated debt that NBG has extended to Finansbank, increasing the liquidity of the NBG group by approximately €3.5 billion. …
The sale of Finansbank reaffirms NBG’s management commitment to the successful implementation of the Bank’s restructuring plan and its long-term strategy to successfully redeploy capital towards the Greek economy and play a leading role in the country’s economic recovery.”
“- Purchase price of €2.75 billion, payable in cash
- Involves the sale of 99.8% of Finansbank and 29.9% of Finans Leasing
- QNB to refinance fully the USD 910m Tier 2 facility at closing.”
The presentation then described the positive impact of the transaction for NBG’s capital ratios in terms which involved using an TL/€ exchange rate as at 30 September 2015 and highlighted that the effect of the transaction was to render NBG the best capitalised bank in Greece, with the highest liquidity and best asset quality in the Greek market.
The QNB Side Letter
“2.1 QNB undertakes to pay (or procure the payment (including, at the absolute discretion of QNB, by [Finansbank]) of) the Fee to the [Claimants] in accordance with, and on the terms of, the [IFAs], subject to Closing under the SPA having occurred”.
2.2 In the event that QNB fails to discharge in full its obligation referred to in paragraph 2.1 above, it shall indemnify and hold harmless NBG against any losses which NBG may suffer as a result, including as a result of any claim brought against NBG by any [of the Claimants] for non-payment of the Fee. …”.
“The agreement recorded in this side letter shall come into full force and effect upon Completion under the SPA occurring. It shall automatically terminate: (i) in the event of the SPA terminating before Completion; or (ii) upon payment of the Fee to the [Claimants] in full.”
Completion
56. Coming on, lastly and briefly, to deal with completion, this had several aspects.
“1. We refer to the agreement (the SPA) dated 21 December 2015 for the sale and purchase of Finansbank A.S between the Seller and the Purchaser Terms defined in the SPA have the same meaning when used in this notice.
2. We hereby give you notice that the transfer of the Finans Leasing Shares from the Seller to the Company completed on 10 February 2016. We are sending you details of the transfer along with this notice and confirm that the Company has not assumed any ongoing liabilities in connection with such transfer.
3. The amount of the consideration paid by the Company to the Seller for the Finans Leasing Shares, which constitutes Leakage under the SPA, is EUR 38,886,563.04 (being TRY 128,111,781.94 converted into euros at the Exchange Rate on 10 February 2016, the date such payment was made) and we hereby give you notice of such Leakage in accordance with clause 6.2 of the SPA.”
Principles applicable to contractual construction
61. The principles concerning contractual interpretation occupy ground which has been very well trodden in recent years. The then Chancellor, Sir Terence Etherton (now the Master of the Rolls), indeed, in Credit Suisse Asset Management LLC v Titan Europe 2006-1 PLC & Others [2016] EWHC 969 (Ch) at [23]) described how the parties in that case relied upon “the usual cohort of authorities”, listing Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, Chartbrook Limited v Persimmon Homes Limited [2009] 1 AC 1101, Rainy Sky SA v Kookmin Bank [2011] UKSC 50, Re Sigma Finance Corporation [2009] UKSC 2 and Arnold v Britton [2015] UKSC 36. [2015] AC 1619. To that list may now be added Wood v Capita Insurances Services Ltd [2017] AC 1173 which was relied upon by both Mr Valentin and Mr Parker before me.
62. The key consideration, as Lord Hoffmann explained in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] AC 1101 at [14], is “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean”. This will be identified “by focussing on the meaning of the relevant words … in their documentary, factual and commercial context”, as Lord Neuberger put it in Arnold v Britton [2015] UKSC 36, [2015] AC 1619 at [15] before going on to explain that:
“That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party’s intentions.”
63. Lord Neuberger’s point (vi) is consistent with the fact that the actual understanding of either party as to what the contract meant is irrelevant and evidence of the parties’ subjective intentions is similarly inadmissible, as explained by Leggatt J (as he then was) in Tartsinis v Navona Management Company [2015] EWHC 57 (Comm) at [9]:
“… in deciding what a contract means, English law does not attempt to identify what the parties actually understood or intended the language used in the contract to mean. Instead, the law adopts an ‘objective’ approach to interpretation. As Lord Hoffmann might have said, I do not think that the extent to which this is so is always sufficiently appreciated. It is not simply that a court, in interpreting a contract, has no window into the minds of the parties and must therefore necessarily draw inferences about what the parties were using the language of the contract to mean, adopting the standpoint of a reasonable observer. What the parties to the contract actually meant, or whether they had any pertinent subjective intention at all, is irrelevant to the task of interpretation. Rather, the court identifies the meaning of the language used by assuming that the parties were reasonable people using the language of the contract to express a common intention. …”.
“A second important feature of the applicable rules of English law is that evidence of what was said during the negotiation of the contract is not admissible for the purpose of interpretation. One reason for this is that such evidence is generally of no help in ascertaining the objective meaning of the document. Even where such evidence could potentially bear on that meaning, however, it is not admissible: see Chartbrook v Persimmon Homes [2009] 1 AC 1101, 1120-1, para 41. Evidence of the subsequent conduct of the parties is also inadmissible to interpret a contract: see e.g. James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583.”
“It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning.”
Lord Hodge went on at [11] to make the point by reference to Lord Clarke’s judgment in Rainy Sky that interpretation is a unitary exercise:
“Lord Clarke elegantly summarised the approach to construction in Rainy Sky at para 21f. In Arnold all of the judgments confirmed the approach in Rainy Sky (Lord Neuberger paras 13-14; Lord Hodge para 76; and Lord Carnwath para 108). Interpretation is, as Lord Clarke states in Rainy Sky (para 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause (Rainy Sky para 26, citing Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299 paras 13 and 16); and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest: Arnold (paras 20 and 77). Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.”
He then went on at [12] to describe the process of construction as an iterative process, explaining what he meant by this in the following way:
“This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated: Arnold para 77 citing In re Sigma Finance Corpn [2010] 1 All ER 571, para 10 per Lord Mance. To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.”
Lord Hodge then observed as follows at [13]:
“Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance spoke in Sigma Finance Corpn (above), assists the lawyer or judge to ascertain the objective meaning of disputed provisions.”
The formula contained in the Appendix to the IFAs
68. As for the Appendix to the IFAs, as will again be recalled, this provides that the Fee is to be calculated by reference to ‘price to book’ ratios, specifically through a comparison of values “A” and “B”, with “A” being the value of Finansbank “by reference to the Exit Value” (“C”) divided by “the last Equity Book Value published in accordance with the BRSA standards before the Exit Event” (“D”), and “B” being calculated by a formula that is applied to the market capitalisations and last equity book values of two other banks listed on the Istanbul Stock Exchange.
The Claimants’ primary case (in summary)
(1) The relevant “Exit Event” was the execution of the SSPA on 21 December 2015. That was a “Total Exit Event” because it involved the disposal by NBG to QNB of 50% or more of the “The NBG Holding”. The IFAs draw a clear distinction between the “Exit Event” and “Completion” of an “Exit Event”: thus, the SSPA itself was the “Exit Event” and the closing of the SSPA (in June 2016) was “Completion” of that “Exit Event”. Execution of the SSPA constituted the relevant “disposal” for these purposes.
(2) It follows that the “last Equity Book Value published in accordance with the BRSA standards” before the SSPA was that as at 30 September 2015. That date was also the “Locked Box Accounts Date”, under the SSPA, and was, therefore, the relevant book value by reference to which both NBG and QNB had negotiated, agreed and executed the transaction. Any value increase after that date was exclusively to QNB’s account.
(3) In order to compare (as the Appendix to the IFAs requires) “the value of the Company by reference to the Exit Value” (which was denominated in Euros) with the Equity Book Value as at 30 September 2015 (which was denominated in Turkish Lira), the approach which gives best effect to the purpose of the IFAs by creating a predictable incentive for the Claimants is to convert the (Turkish Lira denominated) Equity Book Value into Euros, and the only rational date on which to convert the relevant (Turkish Lira denominated) “Equity Book Value” into Euros is the same date as the “Equity Book Value” (30 September 2015). To perform the conversion on any other date would involve using a different exchange rate to the one that was applicable on the accounting date (30 September 2015) and would, therefore, give rise to a fictional amount affected by whatever fluctuations had occurred in the TL-€ exchange rate since the relevant accounting date. Put simply, it would then no longer represent the “Equity Book Value” as at 30 September 2015, which the IFAs assumed would remain a constant for comparison purposes.
(4) The “Equity Book Value” as at 30 September 2015 was TL9,099,950,000. Converted into Euros by reference to the 3.4212 TL-€ exchange rate applicable on that date, the relevant Equity Book Value that constitutes the Denominator (D) in the formula in paragraph 2 of the Appendix to the IFAs was, therefore, €2.659 billion.
72. Furthermore, Mr Valentin submitted, identification of “C” (the “value of the Company by reference to the Exit Value”) involves identifying “the value of the Company by reference to the aggregate value of the consideration paid in respect of the disposal by NBG to [QNB] of … The NBG Holding” (combining the IFA’s definitions of “C”, “Exit Value” and “Exit Event”), and this covers not only the amount paid for NBG’s shareholding in Finansbank (€2.711 billion) but also the amount which NBG received from Finansbank in respect of the Finans Leasing shares (€38,886,563). The position, Mr Valentin explained, taking no account of the Subordinated Debt, is as set out in the table below:
|
"C" |
"D" |
|
"A" |
|||
Exit Event |
FX Date |
Finans Leasing |
Exit Value in € |
EBV in € |
EBV in TL |
Euro/TL Exchange rate |
"A" |
21-Dec-15 |
30 Sep 15 |
In |
2,750,000 |
2,659,871 |
9,099,950 |
3.4212 |
1.033885 |
Out |
2,711,113 |
2,659,871 |
9,099,950 |
3.4212 |
1.019265 |
Accordingly, Mr Valentin submitted, “A” is greater than 1 (one) because (without including the Subordinated Debt) €2.75 billion (“C”) divided by €2.659 billion (“D”) equals 1.0339.
73. Although it is not necessary to go further than this in order for the Court to conclude that the Claimants are entitled to receive a Fee, Mr Valentin went on to submit that the aggregate value of the consideration paid in respect of the disposal to QNB of The NBG Holding also included the amount of the Subordinated Debt, US$910 million, paid by QNB to NBG. This, he submitted, ought to be the case because: (i) from the outset of the sale process the Subordinated Debt was treated by NBG as an essential element which was part and parcel of the same transaction, and (ii) the Subordinated Debt was only identified separately in the SSPA, and paid as a separate amount into a separate bank account, owing to the fact that it was denominated in US Dollars rather than Euros. If the Subordinated Debt is included, then, Mr Valentin pointed out, “C” is €3.55 billion and dividing this by “D” (€2.659 billion) gives 1.3382 if the Finans Leasing shares are included and 1.3235 if they are left out of account.
NBG’s case (in summary)
Preliminary
Issue (iv): when is the “last Equity Book Value published in accordance with the BRSA standards before the Exit Event”?
81. It was Mr Parker’s submission, as previously mentioned, that the plain meaning of the words in the IFAs is that the “Exit Event” was the date upon which NBG actually transferred its shares in Finansbank to a third party. He submitted, in particular, as just observed, that an “Exit Event” must entail the “disposal” by NBG of its shares in Finansbank, and not merely an agreement to sell those shares, in circumstances where the completion of the sale under the SSPA was subject to a number of contingencies. He cited, in this context, the fact that the sale was conditional, for example, upon the sale being approved by the Turkish Competition Board, the Turkish Banking Regulatory Supervising Agency (BRSA) and the Qatar Central Bank. If any of those entities had objected to the sale, Mr Parker explained, it would not have been able to have gone ahead. Accordingly, Mr Parker reasoned, the SSPA itself cannot fairly be considered a “disposal” of NBG’s shares since NBG might never dispose of its shares at all.
Issue (iii): what is the correct approach to the applicable currency exchange rate when comparing the “Exit Value” and the “Equity Book Value”?
Issue (i): whether “the value of the Company by reference to the Exit Value” includes the US$910 million in respect of the Subordinated Debt
97. The starting point here is that the “Exit Value” is defined in the IFAs as being “the aggregate value of the consideration paid in respect of an Exit Event …”. On this basis, since, so Mr Valentin suggested, the refinancing of NBG’s Subordinated Debt was an integral part of the transaction entered into with QNB and so formed part of the “aggregate value of the consideration paid in respect of an Exit Event”, as demonstrated by the fact that confirmation that this debt would be refinanced as part of the transaction was specifically identified in the Phase I letters sent out to potential bidders (including QNB), and by the further facts that QNB’s Binding Offer letter contained the requisite confirmation and the Subordinated Debt formed part of the SSPA. Mr Valentin went on, in this context, to make the point that the only reason that the transfer was addressed separately in the SSPA, rather than within the “Purchase Price”, was that a separate agreement was required to carry out the transfer and, since it was denominated in US Dollars, payment was to be made in that currency to a US Dollar denominated bank account. Mr Valentin relied, for these purposes, upon how Dr Aras put things in his witness statement, as follows:
“… there was no market for the par value sale of NBG’s Subordinated Shareholder Loans on their own. NBG was aware of this and thus made it a condition of the sale of the companies in the Finansbank Group that the purchaser would also have to purchase the Subordinated Shareholder Loans. The two items were therefore bundled together as part of the same transaction in such a way that the value which NBG received for the Subordinated Shareholder Loans clearly formed part of the consideration which it received for the overall transaction.”
“I mean, our wish was for a clean exit. Our wish was to sell at a very good price and to get back the funding, both the sub-debt as well as the other funding. That was our wish.
Now, if it didn’t come out and we had to sell the bank but they were not willing to refinance the sub-debt, that was -- we would have to live with that. Again, we go back, we needed capital. Our main goal was capital. We were short billions of dollars of capital. Liquidity, we were already getting liquidity from the emergency funding facility of the Central Bank, we were borrowing something like 14 billion, 15 billion. 900 for a bit longer was not going to be the end of the world.”
He, then, having been asked further about the Finans Leasing shares specifically, said this:
“Everything was negotiable, everything is negotiable with the bidder. We’re talking on the one hand the sale of a several billion dollar asset versus something that was worth 39 million. At the end of the day, if we had to be stuck as a minority shareholder in Finans Leasing, a leasing company in Turkey, so be it. I mean, that is not going to break the deal for the sale of Finans. … Our preference was for a clean exit, but we were not going to sacrifice the sale of - - in the 2.7 billion of capital for these minor issues.”
Mr Mylonas clarified that by “minor issues” he meant the Finans Leasing shares rather than the (substantial) Subordinated Debt but continued by saying this:
“First order of magnitude the sale of the shares. Second the 900 million of equity. But significantly less, we would do that at a later stage. Anyway, these things were going to mature, so we were going to get repaid at some point. Don’t forget that this was debt issued by Finans, held by NBG, and this was going to be debt issued by Finans, owned by QNB. This was not going to be a risky asset, okay, so this was going to be a very nice asset. We would have preferred to get the liquidity undoubtedly, but if things turned out, we could have stuck with it.”
101. Furthermore and fourthly, looking at the commercial common sense of the matter, I agree with Mr Parker when he submitted that it is difficult to see why the “value of the Company by reference to the Exit Value” should be regarded as including the price paid for the Subordinated Debt in circumstances where the formula in the Appendix to the IFAs requires that a comparison be performed between Finansbank’s equity book value and “the value of the Company by reference to the Exit Value”. The latter requires not simply that the “Exit Value” is looked at, without more, but that “the value of the Company” is ascertained “by reference to the Exit Value”. As Mr Parker submitted, this means that if NBG had, for example, sold only 80% of its shares in Finansbank (and so that the price paid, the “Exit Value”, was for that proportion of shares rather than NBG’s entire shareholding in Finansbank), then, “the value of the Company” for the purposes of establishing what “C” comprises would be the price paid (the “Exit Value”) grossed up to give a hypothetical value for 100% of the shares in Finansbank. Put differently, the formula in the Appendix to the IFAs requires a comparison between what might be described as ‘100% values’, namely “C” (“the value of the Company”) and “D” (Finansbank’s “last Equity Book Value”). That “C” must be a ‘100% value’ necessarily follows from the fact that “D” is a ‘100% value’ since, unless both “C” and “D” are each a ‘100% value’, the comparison would involve a mismatch which would make it worthless as the ‘price to book’ comparison which the formula obviously envisages. It follows from this that, as Mr Parker submitted, it is only insofar as the money paid to NBG under the SSPA constituted the consideration for NBG’s shares in Finansbank that an assessment can be made as to whether those shares were sold at a ‘premium to book’ value. Put another way, to include a payment in respect of the Subordinated Debt, another asset rather than shares, would be to introduce an element which has no proper place in the calculation since that payment does not impact upon, or in any way reflect, the “value of the Company”. Indeed, if the price paid for the Subordinated Debt were to be included as part of “C”, the comparison with “D” (the “last Equity Book Value”) would mean that the comparison was no longer the ‘like for like’ comparison which the Appendix to the IFAs requires should be carried out. This would not only make no sense when seeking to arrive at a figure for “A”, but it would also make no sense in relation to the comparison which is then required between “A” and “B” since it will be recalled that “B” entails looking at the market capitalisation of two comparator banks where the focus is on the price at which shares are trading and nothing other than that. It follows that it would be quite illogical if “A” were to include any element which is not referable to share value.
Issue (ii): whether “the value of the Company by reference to the Exit Value” includes the €38,887,000 in respect of Finans Leasing
Estoppel by convention
Applicable legal principles
112. The principles applicable were summarised by Lord Steyn in Republic of India v India Steamship Co Ltd (No 2) [1998] AC 878 at page 913E-G in this way:
“It is settled that an estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption being either shared by them both or made by one and acquiesced in by the other. The effect of an estoppel by convention is to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on the assumption … It is not enough that each of the two parties acts on an assumption not communicated to the other. But it was rightly accepted by counsel for both parties that a concluded agreement is not a requirement for an estoppel by convention.”
113. The principles were helpfully further explained by Briggs J (as he then was) in HM Revenue & Customs v Benchdollar [2009] EWHC 1310 (Ch), [2010] 1 All ER 174 at [52] (as applied in subsequent cases such as Mitchell v Watkinson [2014] EWCA Civ 1472 and Dixon v Blindley Heath Investments Ltd [2015] EWCA Civ 1023, [2017] Ch 389), as follows:
“… (i) It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them. (ii) The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it. (iii) The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter. (iv) That reliance must have occurred in connection with some subsequent mutual dealing between the parties. (v) Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.”
114. In order to found an estoppel (whether by convention or by representation), Mr Parker submitted, relying upon what Jacob LJ had to say in SmithKline Beecham plc v Apotex Europe Ltd [2007] Ch 71 at [102], that the assumption (in the case of the former) or the representation (in the case of the latter) must be “unambiguous and unequivocal” since that “is inherent in the very nature of an estoppel”. Mr Parker submitted that this requirement stands notwithstanding that in ING Bank NV v Ros Rosa SA [2011] EWCA Civ 353, [2012] 1 WLR 472, when considering a submission to the effect that the shared common assumption must be sufficiently certain, Carnwath LJ (as he then was) described there being a qualification as far as estoppel by convention is concerned. Specifically, explaining that the submission under consideration arose out of a passage in the judgment of Ralph Gibson LJ in Troop v Gibson [1986] 1 EGLR 1 at page 6D-F, Carnwath LJ stated as follows at [64(ii)]:
“… With respect, I find more persuasive the way in which the point was expressed in the leading judgment of Sir John Arnold P. After referring to the extensive argument on the need for a ‘representation’ to be clear and unequivocal to found an estoppel, he said that the same question did not arise in relation to estoppel by convention:
‘Since this is of a consensual character and the terms of the convention, just as those of a contract once the language is established by the evidence, must be interpreted by the court and the only true meaning is that decided upon by the court.’ …”.
115. Mr Parker submitted that this apparent conflict between two decisions of the Court of Appeal (three, if Troop is itself included) ought to be resolved by the Court favouring SmithKline Beecham, an authority which it appears was not cited to the Court of Appeal in ING Bank. His submission was that the analogy with a contract favoured by Sir John Arnold P in Troop (and approved by Carnwath LJ in ING Bank) is inapposite in an estoppel by convention case where the inquiry is as to the parties’ conduct (or assumption) rather than as to what the language used in a contract means. Whether there is, indeed, a conflict, however, as suggested by Mr Parker is something about which I am not convinced since it seems to me that, in truth, what is required (consistent with all three authorities) is that there is clarity over what comprises the common assumption (if there is such a common assumption) as determined by the Court and not by the parties. If there is no such clarity, then, there will be no relevant convention and so no operable estoppel. In any event, as Mr Valentin acknowledged, the present case is not a case which turns on such subtleties.
The present case
118. Mr Valentin submitted that, when the IFAs were originally executed, there was no prospect that NBG would sell its stake in Finansbank at less than book value because Finansbank was trading at significantly over book value. Mr Valentin relied, for these purposes, on Dr Aras’s evidence in his witness statement that “our discussions assumed that the Bank would be sold at substantially over book value”. He submitted that that remained the position in the Spring of 2015 when, according to Dr Aras, NBG’s senior management (including Mr Mylonas) expressed the view to him that NBG would not sell Finansbank at below book value. Furthermore, Mr Valentin suggested, in negotiating the extended employment contracts in July 2015, Mr Mylonas explained that, in the event of a sale, the Claimants would become entitled to an incentive fee under the IFA, so giving Dr Aras, in particular, confidence that he would be entitled to receive a fee, as there were no circumstances in which NBG would sell Finansbank at below book price. Mr Valentin submitted that the fact that “there are other possibilities in life that do not materialise at all”, as Mr Guzeloglu put it when giving his evidence, does not detract from the clarity of the evidence to the effect that NBG would never permit a sale to take place at below book price. Mr Valentin also highlighted Mr Mylonas’s evidence that, despite knowing that it was Dr Aras’s assumption that there would be dire consequences if NBG ever sold below book value, he never told the Claimants that NBG was going to sell Finansbank at below book value.
“PROVIDED THAT, and for the avoidance of doubt, no fee will be payable if A is less than 1 (one)”
This was, Dr Aras himself fairly accepted, “an important part of the overall mechanism for the payment of a fee”. Indeed, when it was put to him in cross-examination that NBG “wouldn’t need to protect themselves against something that couldn't possibly happen”, he agreed with that proposition and, furthermore, that, “although Finansbank was profitable and successful at the time, it was always possible that in the future it would be less profitable and NBG shares might be sold for less than book value”. As Mr Parker rightly observed, there was no change in circumstances between the date of the IFAs and the date of the negotiations in June 2015 which could have led the Claimants to believe that it was no longer possible that Finansbank could not be sold for less than its book value. It must, accordingly, have remained possible, in June 2015, that Finansbank could be sold for less than its book value. The point goes further than that, however, since, again as Mr Parker submitted, NBG had, in the meantime, come under an obligation to dispose of its shares in Finansbank. Dr Aras was clear, coming into the hearing, that the EU had by July 2014 “required [NBG] to decrease its shareholding in Finansbank to strengthen its capital position” and that its need to do so was “increasingly urgent”. In cross-examination, he agreed that by July 2014 it had become clear to him that NBG might be forced to sell at least some of its shares in Finansbank even if it was unhappy with the price that was going to be paid. By the following Spring, Dr Aras explained in his witness statement, this had become a “political imperative”, Dr Aras explaining in cross-examination that by that time NBG was preparing to sell all of its shares in Finansbank. Clearly, in those circumstances, NBG was in no position to ensure that the price would be at a premium to book value since the price achieved would depend upon a range of extraneous factors, including the performance of Finansbank and the market conditions at the time of the sale.
“Q. We’ve already established that it was possible that NBG might be forced to sell its shares in Finansbank for less than book value. That’s right, isn't it?
A. His attitude up until now was that he would never sell below book value.
Q. He obviously didn’t want to sell, but you knew, whatever he said, you knew that it was a possibility that NBG might be forced to sell for less than book value.
A. Anything is a possibility, but his intention was not to sell below book value.
Q. No, exactly.
A. That’s what he said.
Q. I’m sorry for interrupting, but his intention was not to, but it was possible that he might have to.
A. I guess it is.”
“Q. Okay, and so to be clear, you were not given any assurance that you would certainly earn an incentive fee?
A. We were told that most likely we will get a significant incentive fee.
Q. Mr Mylonas never actually -- he never said to you, ‘There are no circumstances in which NBG will sell Finansbank for less than book value’.
A. At that point in time, I don’t recall that, yes.”
Similarly, Mr Guzeloglu accepted that he was always aware that it was possible that Finansbank might be sold for less than book value in this exchange:
“Q. It was always possible, wasn’t it, that you wouldn’t receive an incentive fee under the IFAs?
A. Meaning the price to book value would be below 1 and we won’t be entitled to the fees? Is that what you’re referring to?
Q. No, that’s not what I’m referring to. I was talking about the other requirement in the IFAs that involves the comparison with the comparator banks.
A. Okay. Yes, of course. I mean, if we did not perform and the comparator banks’ price to book values were significantly higher than the achieved book value we achieved, we would not get much.
Q. It was possible for you to get nothing. Let’s look at –
A. Definitely, definitely. Don’t bother yourself. Definitely.
…
A. -- that was one thing. The second thing is for NBG to sell the bank at that kind of a level would be completely politically unacceptable for NBG managers. So those two things, when you triangulate them, led me to believe that it was almost impossible.
Q. Almost impossible, but still actually possible?
A. Obviously. I mean mathematically, theoretically, you are correct.”
125. It makes no difference, in these circumstances, whether Mr Mylonas had by this stage (December 2015) reached any view as to whether a Fee was payable, which was what he maintained in his evidence, since all that matters is whether there was the alleged common assumption and I have concluded that there was not. It follows that, although Mr Valentin was dismissive of Mr Mylonas’s evidence that he had not personally formed any view on whether a Fee was going to have to be paid to the Claimants, ultimately it does not matter whether he did or not. Mr Valentin again in this regard relied upon the fact that NBG decided to enter into the QNB Side Letter as demonstrating that Mr Mylonas (and NBG) must have appreciated that a Fee was payable. I have dealt with that point already. Otherwise, Mr Valentin suggested that the calculation required to work out whether €2.75 billion was greater than the published book value of Finansbank, converted to Euros as at the TL-€ exchange rate applicable on 30 September 2015, could be performed in about thirty seconds. Whilst that may well be right, it does not, however, justify a conclusion that Mr Mylonas must necessarily have carried out that calculation, not least because it presupposes that Mr Mylonas’s thinking at the time was in alignment with how the Claimants put their case on the appropriate construction of the IFAs (and the Appendix) which, although I have accepted the Claimants’ submissions on that issue, is not how the case was presented before the Court by NBG, the bank for which Mr Mylonas works. The position is, I am satisfied, as Mr Mylonas explained it in the following exchange with Mr Valentin (as relied upon in closing by Mr Parker)
“Q. Okay, I’m going to come on in a minute and ask you some questions about the discussions that you say in your evidence you had with the claimants about this, but just focusing on the agreement itself for the moment, it was entered into because you knew that the fee was going to be payable and NBG wished to shift responsibility for payment of it to QNB.
A. I didn’t know it was going to be payable …
…
A. The interpretation of the incentive agreement clearly could be interpreted in many ways, and that’s one of the reasons we’re here today, I guess. As a part of the clean exit, I wanted to get rid of this issue, and QNB was willing to take it, that’s it.
Q. And in your discussions with QNB, did they ask you what is the position in relation to the fee, in other words is this a real liability or is it just something that’s hypothetical?
A. They didn’t ask that, they asked for the contract itself, and they looked at it, and they maintained that they would take it.
…
Q. The effect of it is that QNB is responsible for meeting the fees that are due. Is that your understanding of the arrangement at the time, commercially?
A. If any fees are due, it would be QNB.
…
Q. So in order to answer that question, you had to give consideration to whether a fee might be payable.
A. No. The worst possible case is very simple, it’s the maximum amount that each of the three claimants would get multiplied by the price. It’s 1.04 per cent times the price, so it’s a very simple calculation.”
In other words, the most that Mr Mylonas did was give thought to the worst case scenario as far as QNB was concerned if the QNB Side Letter was to be entered into.
“Q. So faced with the choice between letting your existing contracts expire and agreeing an extension without the change of control provisions, you would obviously have accepted an extension on those terms?
A. Yes, because, as you said, under the IFA we had the expectation of getting a fee at the exit event.
…
Q. But I’m not looking at NBG’s position, I’m looking at your position, Dr Aras, that agreeing to an extension of your employment contract on those terms –
A. Yes.
Q. -- was hugely beneficial for you?
A. It was not hugely beneficial, it was beneficial for me ....”
I acknowledge that in his witness statement Dr Aras stated as follows:
“While I was alive to the fact that, by deleting the change of control clause, I was giving up a valuable right, I was also confident, based on my discussions with Mr. Mylonas, that I would be entitled to receive the incentive fee under the IFA in the event of a sale, as there were no circumstances in which NBG would sell the Bank at a price which was below its equity book value. I therefore agreed to the change of control clause.”
I acknowledge also that Mr Guzeloglu had something similar to say. In reality, however, as Mr Parker submitted, since the employment contracts were about to expire, there was no “valuable right” to give up.
Conclusion
131. I can summarise my conclusions as follows:
(1) The relevant “Exit Event” in this case was the execution of the SSPA on 21 December 2015. It follows that “the last Equity Book Value published in accordance with the BRSA standards before the Exit Event” (“D” in the Appendix to the IFAs) was that which was published on 30 September 2015, namely TL9,099,950,000: Issue (iv).
(2) The correct approach in this case is to convert the “Equity Book Value” from Turkish Lira to Euros as at 30 September 2015: Issue (iii).
(3) The Subordinated Debt ought not to be included in “C”, namely as part of “the value of the Company by reference to the Exit Value” for the purposes of performing the calculations required by the Appendix to the IFAs: Issue (i).
(4) Nor ought the Finans Leasing element to be included in “C” for the purposes of performing the calculations required by the Appendix to the IFAs: Issue (ii).
The consequence, it is agreed between the parties, is that each of the Claimants is entitled to be paid a Fee.