Upm Kymmene Corporation and Others v Bwg Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Laffoy
• Judgment Date: 11 June 1999
• Neutral Citation: [1999] IEHC 178
• Docket Number: No. 8718 P 1987
• Court: High Court
• Date: 11 June 1999

[1999] IEHC 178

THE HIGH COURT

No. 8718 P 1987

UPM KYMMENE CORPORATION & ORS v. BWG LTD

BETWEEN

UPM KYMMENE CORPORATION, RAUMA-REPOLA (IRELAND) LIMITED, BROOKS THOMAS LIMITED, BROOKS HAUGHTON LIMITED AND BROOKS HANLEY LIMITED

PLAINTIFFS

AND

BWG LIMITED

DEFENDANT

Citations:

HALSBURYS LAWS OF ENGLAND 4ED V31 PARA 1054

MCGREGOR ON DAMAGES 16ED PARA 1106

Abstract:

Commercial — Contract — Warranty — Breach of warranty — Contra proferentem — Share purchase agreement — Purchaser to take over companies in financial difficulty owned by vendor — Vendor warranted in share purchase agreement in relation to pension schemes that the purchaser would not in future have to secure or fund schemes in respect of service prior to completion of agreement — Pension schemes actually underfunded — Letters from vendor's pension adviser stating this position subsequently given to purchaser — Whether letters varied warranties — Whether warranties stand alone — Whether vendor had reflected true position in relation to underfunded schemes — Whether representation in its entirety true or false on whole of the facts — Whether purchaser or advisers negligent in failing to ascertain true position if there was misrepresentation.

The representation at issue in this case must be regarded as the warranties in the share purchase agreement combined with the disclosure letter and the letters from the vendors pension advisers as they are necessarily bound together and do not stand alone. In assessing the effect of these documents it is clear that the vendor represented that the pension schemes were underfunded and that this was correct. The High Court so held in dismissing the plaintiffs' claim saying there was no breach of warranty.

1 Ms. Justice Laffoy delivered on the 11th day of June, 1999

THE CLAIM

2 The alleged wrong which founds the Plaintiffs' claim against the Defendant in these proceedings is a breach of warranty in relation to the funding of pension schemes contained in a share purchase agreement dated 21st December, 1981 (the Share Purchase Agreement) made between Brooks Watson Group Limited, as vendor, and Rauma-Repola OY, as purchaser. At the time Brooks Watson Group Limited, the Defendant, which is now incorporated under the name BWG Limited, which will be referred to as "the Vendor" in this judgment, was the owner of the entire issued share capital in three companies, namely, Brooks Thomas Limited, the third named Plaintiff; Brooks Haughton Limited, the fourth named Plaintiff; and Brooks Hanley Limited, the fifth named Plaintiff, which will be referred to as "Thomas", "Haughton", and "Hanley" respectively and collectively as "the Companies" in this judgment. In the Share Purchase Agreement, the Vendor agreed to sell the entire issued share capital in Thomas, Haughton and Hanley to Rauma-Repola OY, a public company incorporated in Finland which, by reason of subsequent mergers, is now known as UPM Kymmene Corporation, the first named Plaintiff, which will be referred to as "the Purchaser" in this judgment. In broad terms, the relief which the Plaintiffs, which for simplicity will be regarded as being synonymous with the Purchaser in this judgment, seek in these proceedings is an indemnity and damages for breach of contract.

THE BACKGROUND TO THE TRANSACTION

3 During and for many years, prior to 1981, Thomas, Haughton and Hanley operated builders' providers and hardware businesses in Dublin, Cork and Sligo respectively. By 1980, the Companies were experiencing serious trading and financial difficulties and were losing money. The financial status of Thomas was such that its auditors, Price Waterhouse & Company, noted in the accounts for the year ended 31st December, 1980 that the accounts were prepared on a "going concern" basis by reason of confirmation by the parent company, the Vendor, that it would continue to provide Thomas with the finance necessary to fund its budgeted operating requirements during 1981. The Purchaser was a major Finnish Corporation engaged in forestry, ship building and engineering. It was the biggest producer of sawed timber in Europe at the time and still is. It had had a long term trading relationship with Thomas, Haughton and Hanley and between 80% and 90% of imports of its product into this country was through those companies.

4 The take-over of Thomas, Haughton and Hanley by the Purchaser was anything but hostile. In fact, it was initiated by the Vendor by a contact in March 1981. The contact was welcomed because the Purchaser was interested in distribution as well as production of timber and wanted to test the waters in Europe by starting in a small country like Ireland. The evidence shows that the reality of the transaction was that both parties were not merely willing, but eager.

5 However, the evidence shows that, on the Purchaser's side, the eagerness was tempered by caution. First, early on in the negotiations it became obvious to the Purchaser that Thomas was grossly over-staffed and that there was a need for about one hundred redundancies, which the Purchaser required the Vendor to effect before the transaction was completed. Because of this requirement, it was necessary that secrecy should surround the negotiations. Secondly, the Purchaser performed a due diligence process during the negotiations and the internal auditors of the Purchaser visited the Companies. Thirdly, the Purchasers retained legal and accountancy expertise in this jurisdiction in relation to the proposed acquisition: legal advice from Messrs. Gerard Scallon & O'Brien, Solicitors, the partner dealing with the transaction being Mr. Timothy Crowley; and, with the approbation of the Vendor, to avoid a conflict of interest, commercial, accountancy and taxation advice from Price Waterhouse & Company, the partner dealing with the transaction on behalf of the Purchaser being Mr. Frank Belton, who had not been involved in the audit of the Companies. The Purchaser also consulted banks in this jurisdiction, Bank of Ireland, Ulster Bank Limited and Ulster Investment Bank Limited because the acquisition was to be funded by borrowings in Ireland. The Purchaser did not retain any consultant actuary or pension advisor in this jurisdiction in relation to the pension schemes which are at issue in these proceedings.

THE COURSE OF THE TRANSACTION

6 The negotiations between the parties proceeded over the spring, summer and early autumn of 1981 and culminated in a crucial meeting on 9th September, 1981 at which the Vendor was represented by, among others, John Harnett who, at the time, was the Group Financial Director of the Brooks Watson Group and Mr. Michael Williams, a partner in the firm of McCann Fitzgerald Roche & Dudley, Solicitors, who were acting for the Vendor in the transaction. The Purchaser was represented by Mr. Kari Makkonen who, at the time, was the Financial Director of the saw milling division of the Purchaser, Mr. Akso Matula who, at the time, was the Senior Vice President and General Counsel for corporate legal affairs of the Purchaser, Mr. Crowley and Mr. Belton. I will return to that meeting later to consider what transpired at it in relation to the pension schemes. For present purposes, it is sufficient to note that at the end of the meeting, a letter of offer, signed by Mr. Makkonen on behalf of the Purchaser, was given to the Vendor in which the Purchaser offered to purchase the entire issued share capital of the Companies on the terms of a share purchase agreement attached to the letter. The attached document was the Share Purchase Agreement, which was ultimately executed on 21st December, 1981. The offer was open for acceptance between 30th September, 1981 and 30th October, 1981 and was irrevocable up to 30th October, 1981. Completion was to take place on the expiry of seven days from acceptance. The consideration was a combination of a cash payment of £675,474 and repayment of long term and short term loans due by the Companies to the Vendor and its subsidiaries. It is common case that the acquisition was at a discount to net assets.

7 That offer was subsequently revoked by mutual agreement on 29th October, 1981 and replaced by a call option given by the Vendor to the Purchaser and a put option given by the Purchaser to the Vendor in relation to the entire issued share capital in the Companies on the terms of the Share Purchase Agreement, the options to be exercised on or before 1st December, 1981. The cash consideration was paid on the execution of this agreement. By a further agreement dated 1st December, 1981, the period for the exercise of the options was extended to 23rd December, 1981.

8 As I understand it, the rather tortuous course of the transaction was occasioned by the fact that the redundancies required by the Purchaser were being effected in the background.

9 At any rate, the transaction was finalised on 21st December, 1981 by the execution of the Share Purchase Agreement in the terms agreed on 9th September, 1981. Completion of the Share Purchase Agreement took place on the same day, whereupon the Purchaser became the owner of the Companies.

RELEVANT PROVISIONS OF SHARE PURCHASE AGREEMENT

10 In Clause 4 of the Share Purchase Agreement, it was provided as follows:-

"The sale and purchase of the Shares hereby agreed upon is made on the basis of the Balance Sheet and the Vendors jointly and severally represent and warrant to the Purchaser (to the intent that the provisions of this Clause shall continue to have full force and effect notwithstanding Completion and shall also be binding upon their successors) in the terms set out in Part I of the Second Schedule but subject to the disclosures listed in the Disclosure Letter...."

11 In the Share Purchase Agreement, the expressions "the Balance Sheet" and "the Balance Sheet Date" were defined as meaning the balance sheets and accounts of the Companies as at 31st...