Knatchbull -Hugessen & Ors v SISU Capital Ltd, Court of Appeal - Mercantile Court, April 02, 2014, [2014] EWHC 1194 (Mercantile)

Resolution Date:April 02, 2014
Issuing Organization:Mercantile Court
Actores:Knatchbull -Hugessen & Ors v SISU Capital Ltd

Neutral Citation Number: [2014] EWHC 1194 (Mercantile)

Case No: A40BM014





Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 02/04/2014

Before :


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Between :

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John Brennan for the Claimants

Rhodri Thompson QC & Christopher Brown for the Defendants

Hearing dates: 1-3 April 2014

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Mr Justice Leggatt :

  1. The claim and counterclaim in this case arise out of commercial negotiations which did not result in a concluded agreement. They are claims by the claimants and defendant respectively to recover professional fees and other expenses incurred in or in connection with those abortive negotiations. The negotiations formed part of an attempt by the owners of Coventry City Football Club (``the Club'') to find a solution to serious financial difficulties which in 2012 had brought the Club to the brink of insolvency.

  2. The Club was owned by a company in the SISU group of companies, being a group of companies whose investments are managed by the defendant in this case, SISU Capital Limited (``SISU''). The Club's home ground at the time was the Ricoh Arena in Coventry. The arena was operated by Arena Coventry Limited (``ACL''). ACL was owned indirectly in equal shares by the claimants in this case who are the four Trustees of the Alan Edward Higgs Charity (whom I shall refer to as "the Trustees" or "the Charity") and Coventry City Council.

  3. ACL had borrowed a very substantial sum of the order of £22 million from Clydesdale Bank plc trading as Yorkshire Bank in order to fund the acquisition of a lease of the arena. The Club had a licence to use the arena, granted by a wholly owned subsidiary of ACL. ACL was dependent on the revenue from this licence to service its debt to Yorkshire Bank.

  4. In March 2012, SISU embarked on negotiations to try to rescue the Club from its financial difficulties. At the same time the Club stopped making payments of licence fees to the ACL subsidiary. One element of the negotiations was a proposal by SISU to acquire the Charity's 50 per cent interest in the share capital of ACL. Discussions reached the stage where SISU and the Charity were able to agree indicative terms for such a share purchase, which were recorded in a document dated 18 June 2012, described as an indicative term sheet.

  5. This term sheet outlined a proposed transaction whereby "SISU or another SISU Group company" would purchase the Charity's 50 per cent interest in ACL for a total cash consideration of £1.5 million, payable immediately upon completion of the share purchase.

  6. Following completion, it was envisaged that what was in effect further deferred consideration would be payable over a period of ten years. The mechanism for this proposed by SISU was the allocation to the Charity of preferred equity in ACL for a value of £4 million, which would be paid down through annual payments over the ten-year period. However, this proposal was not set in stone. The term sheet contained a statement that:

    SISU would consider an alternative structure to that of preferred equity. The parties will work together to achieve a solution in respect of suitable alternatives.

  7. The term sheet further recorded that SISU would require a period for due diligence investigations, which was expected to last 30 days. Four conditions precedent to completion were indicated, the first of which was that completion would only take place:

    "once a transaction has been satisfactorily agreed between Clydesdale Bank plc trading as Yorkshire Bank and SISU."

  8. There were provisions concerning costs and exclusivity, which are at the heart of this case and which I will come back to. The expected closing date for the transaction was said to be "as soon as possible".

  9. There was then a paragraph which stated:

    "This offer [meaning the offer made by SISU to purchase shares] is non-binding and subject to due diligence, save for the paragraphs related to Costs and Exclusivity, which shall become immediately binding upon both SISU and the Charity upon countersignature of this term sheet by the Charity...

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