McKillen v Misland (Cyprus) Investments Ltd & Ors [2012] EWHC 505 (Ch)

No: 8690 of 2011[2012] EWHC 505 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Venue Royal Courts of Justice, 7 Rolls Buildings, Fetter Lane,Date 28/02/2012
London, EC4A 1NL
Before
MR. JUSTICE DAVID RICHARDS
Between
PATRICK McKILLENPetitioner(1) MISLAND (CYPRUS) INVESTMENTS LIMITEDRespondents(2) DEREK QUINLANRespondent(3) ELLERMAN CORPORATION LIMITEDRespondent(4) B OVERSEAS LIMITEDRespondent(5) RICHARD FABERRespondent(6) MICHAEL SEALRespondent(7) RIGEL MOWATTRespondent(8) COROIN LIMITEDRespondentPATRICK McKILLENClaimant(1) SIR DAVID ROWAT BARCLAYDefendants(2) SIR FREDERICK HUGH BARCLAYDefendant(3) MISLAND (CYPRUS) INVESTMENTS LIMITEDDefendant(4) ELLERMAN CORPORATION LIMITEDDefendant(5) B OVERSEAS LIMITEDDefendant(6) MAYBOURNE FINANCE LIMITEDDefendant(7) THE TRUSTEES OF THE SIR DAVID AND SIR FREDERICK BARCLAY FAMILY SETTLEMENTSDefendant(8) RICHARD FABERDefendant(9) MICHAEL SEALDefendant(10) RIGEL MOWATTDefendant(11) NATIONAL ASSET LOAN MANAGEMENT LIMITEDDefendant
Transcript of the Stenographic Notes of Marten Walsh Cherer Ltd.,1 st Floor, Quality House, 6-9 Quality Court, Chancery Lane, London, WC2A 1HP.Telephone No: 020 7067 2900. Fax No: 020 7831 6864
M R. PHILIP MARSHALL QC, MR. RICHARD HILL and MR. GREGORY DENTON-COX (instructed by Herbert Smith LLP) appeared for Petitioner/Claimant.MR. STEPHEN AULD QC and MR. MICHAEL d'ARCY (instructed by Messrs.Quinn Emanuel Urquhart & Sullivan LLP) appeared for Derek Quinlan.MR. SA'AD HOSSAIN (instructed by Weil, Gotshal & Manges) appeared for Misland (Cyprus) Investments Limited, Ellerman Corporation Limited, B. Overseas Limited and Maybourne Finance Limited.MR. EDWARD DAVIES (instructed by Messrs. Ashurst LLP) appeared for Richard Faber, Michael Seal and Rigel Mowatt.LORD GRABINER QC and MR. EDMUND NOURSE (instructed by Messrs. Weil, Gotshal & Manges) appeared for Sir David Barclay and Sir Frederick Barclay.MR. ANDREW MITCHELL QC (instructed by Messrs. Berwin Leighton Paisner LLP) appeared for Barclays Bank plc (Third Party).MR. MICHAEL FEALY (instructed by Messrs. SJ Berwin) appeared forMrs. Siobhan Quinlan (Non-party).
JudgmentMR. JUSTICE DAVID RICHARDS :
[1]This is an application by some of the respondents for an order against the petitioner for further information under CPR 18.1 and for specific disclosure under CPR 31.12. The information and disclosure relates to attempts which Mr. McKillen made or might have made to raise finance for the purchase of all or some of the shares in the company held by Mr. Quinlan if, as Mr. McKillen alleges, they should have been offered to the other shareholders under the preemption provisions.[2]It is part of Mr. McKillen's pleaded case that if the shares had been offered round, he would have purchased either his rateable share, which would have given him over 50% of the equity of the company when combined with his own 36% shareholding, or all of the shares if they had been available. It is therefore on the face of it an issue in respect of which standard disclosure should be given. It is nothing to the point if, as Mr. Marshall on behalf of Mr. McKillen submits, it is not a central allegation and that Mr. McKillen can succeed in his case without establishing his ability to purchase the shares at the relevant time. While it remains part of his case, it is an issue to which the disclosure provisions of CPR 31 apply.[3]No disclosure was given by Mr. McKillen of any documents relating to this issue as part of the standard disclosure exercise for which I gave directions. The absence of any such disclosure was commented on by counsel for the respondents at a PTR held on Friday, 10th February 2012, when it was said that it might be necessary to make an application.[4]I raised this with leading counsel for Mr. McKillen who on instructions told me that there were no documents to disclose. He commented that this was hardly surprising, given that it was a hypothetical matter, since Mr. Quinlan's shares had not been offered round. I thought it right to give Mr. McKillen and his advisers time to consider and be clear on this, so I directed that the position be stated in a letter from Mr. McKillen's solicitors to be provided by 2 p.m. on Wednesday, 15th February 2012.[5]The letter provided in accordance with that direction stated, so far as relevant:
"With regard to Mr. Quinlan's shares, our client's position is that had Mr. Quinlan's shares been offered in February 2011 as paragraph 41 contends they should have been he would have taken steps to raise the necessary finance to purchase them. Our client's position is not that he held sufficient available financial resources to purchase the shares at the relevant time without financing. Mr. Quinlan's shares were not so offered and not surprisingly our client did not take steps to raise finance to purchase shares that were not for sale. We have located one text message which records that around the time in question Mr. McKillen received an unsolicited approach from someone who offered to provide funding to acquire Mr. Quinlan's parcel of shares should they ever become available. We will disclose this text. We are re-viewing our disclosure to confirm whether there are any other documents which could be relevant to the issue in question."
[6]The letter then goes on to make comments about discussions with prospective third party backers after the presentation of the petition.[7]On 22nd February 2012, the respondents issued the present application for disclosure and for the information which had first been sought in a letter dated 17th February 2012. My directions for exchange of witness statements for the trial provided for exchange on Thursday, 23rd February. Mr. McKillen was not ready to exchange then and applied at the resumed PTR on Friday, 24th February for an extension until Monday, 27th February.[8]Among the considerable number of matters to be heard on 24th February was the present application for disclosure and further information. The absence of Mr. McKillen's witness statements meant that it could not be seen how he was putting his case on the question of buying some or all of Mr. Quinlan's shares if they had been offered round under the preemption provisions. I extended the time for exchange of witness statements until Monday, 27th February, but directed that those parts of Mr. McKillen's evidence dealing with this issue be made available by 6 p.m. on Sunday, 26th February.[9]On Sunday evening Mr. McKillen's solicitors served a witness statement of Mr. Liam Cunningham, Mr. McKillen's longstanding financial adviser, and a letter giving the relevant extracts from Mr. McKillen's proposed witness statement. This evidence disclosed for the first time that Mr. McKillen and Mr. Cunningham on his behalf had held discussions and negotiations with seven possible funding parties as regards Mr. Quinlan's shares in 2011 before the issue of the present proceeding. Four were unsolicited and on the basis of Mr. Cunningham's witness statement did not progress very far. The negotiations with the three other parties had got to the point of draft term sheets, which are exhibited by Mr. Cunningham in a heavily redacted form.[10]Mr. Cunningham also gives evidence of negotiations with three further parties since the commencement of these proceedings with a view to funding either the purchase of Mr. Quinlan's shares or the purchase of all the shares not owned by Mr. McKillen, in either event if he succeeds in his claim.[11]It is thus clear that the information provided in the solicitors' letter of 15th February was substantially inaccurate. I find this highly regrettable, particularly given that I allowed several days for a considered response on the issue.[12]Against this background the present application is pursued. The further information sought is as follows:
"(1) Whether the Petitioner will assert that he would have approached any particular third parties or if not, particular kinds of third parties for funding; (2) if so, who he would have approached; (3) in any case, what amount of funding he would have sought at the relevant times; (4) what, if any, security he would have offered in return for such funding; (5) the terms that he would have been prepared to agree and, in particular, what interest and other fees he would have been prepared and able to pay in order to obtain such funding."
[13]The disclosure sought is as follows. Paragraph 2 of the draft order is: "The Petitioner do by 4pm on 2 March 2012 conduct a proper search and give standard disclosure by list of all documents in his control which relate to his ability himself to fund, or to raise finance for, the purchase of shares in the Eighth Respondent", that is the company, "in the pre-emption rounds he alleges should have occurred during 2011 including (but not limited to) documents evidencing or providing:(i) the level of his indebtedness generally, the identity of his substantial creditors and whether such debts are in default;(ii) information about the security taken in relation to such indebtedness and its terms and status, including whether it has become enforceable;(iii) information about any property that could, in the relevant period, be offered to any third party as potential security for any loan, including its value and whether it was encumbered in any way;(iv) information about the security existing over Mr. McKillen's shares in the Company at the relevant times, including the terms of such security and whether it has become enforceable.”[14]Paragraph 3 of the draft order is as follows:
"The Petitioner do as soon as possible and in any event by no later than 2 March 2012 conduct a proper search for and provide standard disclosure by list of all documents within his control relating to unsuccessful attempts by the Petitioner to obtain funding from third parties, or evidencing the requirements sought to be imposed by third parties in order to provide funding, for the purchase of shares in the Company should he be successful in this action."
[15]It is, in my judgment, clear that there must be disclosure of all documents relating to the possible raising of finance for the purchase of Mr. Quinlan's shares.[16]Mr. Marshall for Mr. McKillen made clear that he relies on the negotiations after the presentation of the petition as well as those before then. He said that negotiations to raise funding for a buyout are relevant because there was not a sharp division between a purchase of enough of Mr. Quinlan's shares to give Mr. McKillen over 50% of the equity and a purchase of all the shares in the company not held by Mr. McKillen. It was envisaged that the former could well lead to the latter. In those circumstances, the disclosure must extend to all attempts to raise funding since the start of 2011 whether to purchase Mr. Quinlan's shares or to purchase all outstanding shares.[17]Before considering the rest of the disclosure sought, I will consider the application for further information. Now that we have Mr. Cunningham's witness statement it can be seen that paragraphs 1-3 of the request contained in the respondent's solicitors' letter of 17th February do not fully cover the case because Mr. McKillen in fact had the discussions of which Mr. Cunningham gives evidence.[18]Mr. Marshall submitted that it was now unnecessary to give the information requested in those paragraphs. I disagree. I think it is important that there should be a complete statement of Mr. McKillen's case on this, even though it is expected in effect to do no more than repeat what is said by Mr. Cunningham. I suggest that paragraph 1 be rephrased so that it reads "whether the Petitioner will assert that he did have or would have had discussions with any particular third parties or particular kinds of third parties" and paragraph 2 should read "if so, the identity of such parties or kinds of such parties."[19]Mr. McKillen objects to answering paragraph (4), as to the security which would have been offered for such funding. It is said to be hypothetical. I do not follow that. There have been discussions with several possible funding parties and it is highly unlikely that the subject of security did not come up. It seems hardly credible that Mr. McKillen could have obtained a wholly unsecured personal loan, but if that is his case he can say so. In fact the heavily redacted term sheets exhibited by Mr. Cunningham refer to security. It seems to me that this information should be given.[20]Mr. McKillen also objects to providing the information sought by paragraph (5). First, it is again said to be hypothetical which I reject for the same reasons; and, secondly, it is said that there is no point in providing this information unless disclosure is also given, so as to be able to judge whether Mr. McKillen could have met the relevant terms. I do not accept that point. It is material information in relation to his case and the respondents are entitled to it, whether or not they are also given disclosure as regards Mr. McKillen's financial position. Even without disclosure the respondents may be able to challenge the ability of Mr. McKillen to meet such terms.[21]I turn then to the balance of the disclosure application relating to the financial circumstances of Mr. McKillen. Its relevance appears clear to me. It is not Mr. McKillen's case that he would have raised non-recourse finance, in which event his personal circumstances might be of little interest to prospective lenders. Mr. Cunningham is clear in his evidence that discussions proceeded on the basis of a personal loan to Mr. McKillen. In fact a proposal by one possible lender for a loan to a special purpose vehicle was specifically rejected. In those circumstances it is to be expected that prospective lenders would be concerned to assess Mr. McKillen's ability to service the loan, pay the fees and repay the principal. They would be likely to be concerned to assess the risk of bankruptcy.[22]Mr. Marshall relied on the evidence given by Mr. Cunningham, especially paragraph 58 of his witness statement where he says:
"In all of my discussions with the above-mentioned lenders, none have ever made any enquiry into Mr. McKillen's ability to service the loan being sought or in carrying out due diligence on Mr. McKillen personally. Most did or do want to undertake some due diligence on the Company. They are perfectly comfortable with Mr. McKillen as a proposed Debtor."
[23]Mr. Cunningham may be right in this, but the respondents are not required to accept it at face value, particularly as none of the lenders is being called to give evidence. In my judgment, the categories of documents sought in the application fall within the requirement for standard disclosure under CPR 31.6 having regard to the case being run by Mr. McKillen.[24]Mr. McKillen resists disclosure of these categories of documents essentially on grounds of proportionality. He says that it would be very far ranging, time-consuming and expensive. He points to the exercise undertaken in proceedings in the Republic of Ireland brought by him and a number of companies under his control challenging by way of judicial review a decision of the National Asset Management Agency to acquire from banks loans made to the applicants.[25]In his witness statement, Mr. Cunningham says as regards those proceedings in paragraph 12:
"McKillen's finances were considered by the Justices of the Supreme Court of Ireland in Dellway Investments & Ors v NAMA & Ors [2011] IESC 14, proceedings between Mr. McKillen and NAMA. In preparation for the Dellway proceedings, we prepared statements of Mr. McKillen's financial affairs which were connected to participating institutions in the NAMA scheme, Anglo Irish Bank of Ireland and Irish Nationwide Building Society ('INBS'). Further, Mr. McKillen also introduced evidence from six notable financial experts, including Nobel prize winner and former Senior Vice President and Chief Economist of the World Bank, Professor Joseph Stiglitz, in the Dellway proceedings. As Justice Fennelly noted 'It is only fair to say, to Mr. McKillen's credit, that he has produced evidence from experts of the highest quality and of international reputation'."
[26]He goes on to say in paragraph 16:
"The exercise of producing evidence (including expert evidence) for the Dellway proceedings, took approximately four months to complete. If any similar exercise were to be carried out now, it would also take many months to complete since it would involve an analysis of not only the interests examined in the Dellway case in 2012, but also Mr. McKillen's assets which were not considered by that exercise. Information and documents would have to be obtained from multiple sources, including advisers or partners across multiple jurisdictions, in relation to numerous (more than 100) businesses. In producing the expert reports for the Dellway proceedings, the relevant expert undertook due diligence at Mr. McKillen's Dublin office, and I do not believe any separate file has been retained containing these documents. The consequence of this would be to delay the commencement of trial next month on what I believe to be an inappropriate and unnecessary exercise."
[27]I do not accept that the task facing Mr. McKillen in providing some disclosure in relation to this issue is anything like as complex as Mr. Cunningham suggests. First, it is clear that some of the expert evidence adduced in the Irish proceedings was not concerned with the personal financial circumstances of Mr. McKillen.[28]But, more importantly, what must be borne in mind is that Mr. McKillen must prove that he could have satisfied the requirements of prospective lenders. This would have been required in a tight timetable. Preemption provisions allow for a maximum offer period of 28 days. If Mr. McKillen could not do what was necessary in that time, he would not get the funding to purchase the shares.[29]In principle, therefore, I consider that an order should be made for the disclosure sought.[30]Three issues then arise. The first is the precise scope of that disclosure. For a start I would limit the disclosure to documents relating to the four categories itemised in paragraph 2 of the draft order annexed to the application. So far as paragraphs (ii), (iii) and (iv) are concerned, I do not consider that their scope is likely to cause any significant difficulty.[31]I am, however, more concerned about paragraph (i), that is to say, documents which relate to "the level of his indebtedness generally, the identity of his substantial creditors and whether such debts are in default". The identity of substantial creditors and whether such debts are in default is not, as it seems to me, a major exercise. The level of his indebtedness generally, however, could open the door to a very wide ranging, and I would think unnecessarily wide ranging, disclosure exercise. I will invite counsel to consider some means whereby that element can be narrowed to more manageable proportions.[32]The second issue is timing. The trial is due to start in a fortnight. There is obviously much to be done by all parties to be ready by then. Mr. Marshall has indicated that he will be asking me to put the start of the trial back by a week. As present advised, I do not think that it is essential that the parties' cases on Mr. McKillen's ability to fund a purchase of Mr. Quinlan's shares need to be fully prepared by the start of the trial. It goes to a discrete issue which can be taken at a later stage in the trial. I will discuss the question of timing with counsel. However, disclosure relating to discussions with possible funders must be given in short order.[33]Thirdly, Mr. McKillen is concerned about the commercial confidentiality of his negotiations with prospective lenders and of his own financial position. He is particularly concerned because the Barclay Interests have had discussions with Mr. McKillen's own bankers seeking to purchase from them their loans to Mr. McKillen and there is evidence that they have been seeking to obtain confidential information about him and his finances.[34]I think Mr. McKillen is entitled to have concerns in this respect. The information and documents provided by Mr. McKillen must be subject to a confidentiality regime restricting access to those documents to the parties' solicitors and counsel and preventing any disclosure to their clients or others without the consent of either Mr. McKillen or the court.[35]I can envisage that it may be thought appropriate to instruct an accountancy or other expert in relation to the disclosure provided. In that event application can be made for a relaxation of the confidentiality regime, but subject of course to the expert himself being subject to confidentiality undertakings. Whether that is necessary or not, I know not, but I indicate the sort of relaxation which might be permitted.[36]In due course consideration will have to be given to the protection of confidentiality during the trial. I think it premature to make directions about that at this stage. But I envisage that there may well need to be a regime in relation to it.[37]Confidentiality regimes of this sort are unusual in litigation of this type, but are fairly common in other areas of litigation, in particular certain types of intellectual property litigation. It may well be that the sort of orders quite regularly made in those proceedings will provide a sensible basis for a regime in this case. Again, I will discuss this issue with counsel. (See separate transcript for proceedings after judgment)

Cited in 1 later judgment