Earlier this week, against the background of much media attention and publicity, the High Court, Chancery Divison, dealt with the case concerning Liverpool Football Club. This case proofs the UK equivalent of the Dutch Companies and Business Court can be extremely fast as well. In my opinion, Shakespeare could have written the script.
The facts: RBS financed the purchase of Liverpool Football Club by Mrs. Hicks and Gillett in 2007. After granting numerous extensions, RBS insisted as a pre-condition to a further extension of the major part of the facility (£200m) that the Owners agree to sell their shares in the Companies and, in the meantime, relinquish their control of the management of the Companies and bring in an independent chairman (as well as other independent directors) to run the sale process. The Owners duly entered into agreements with RBS and the Companies, in particular, to reconstitute the boards of the Companies accordingly and to undertake not to make any changes to the revised corporate governance structure, which was then provided for in the Companies’ Articles. As a result, the facility was extended to 15 October 2010. By the beginning of October, a lengthy and thorough sale process with the assistance of professional advisers, only produced two firms offers that were capable of completion in advance of the repayment date. If neither were accepted, RBS would be entitled to put Liverpool into administration with potentially catastrophic consequences on the value of the business and the club already in the relegation zone of the Premier League.
On 3 October, the Chairman, Mr Broughton, gave notice of board meetings to consider the two offers. At this point, the Owners took drastic action. In clear breach of the corporate governance agreements, they secretly convened and purported to pass written shareholder resolutions removing the independent directors (other than the Chairman) from office and replacing them with two of their representatives (including Mr Hicks’ son). In so doing, the Owners hoped to regain the control of the Companies and the sale process which they had voluntarily relinquished. The independent majority of the board refused to recognise the validity of the purported resolutions and resolved in a series of meetings to sell Liverpool Football Club to the best available bidder. Legal claims followed from each of the Owners, the Companies and RBS. The latter sought a mandatory injunction to reverse any purported reconstitution of the boards of the Companies. For their part, Mrs. Hicks and Gillett sought to restrain the sale of the club to a third party.
The legal issues involved points of company law as well as the availability of mandatory injunctive relief. After a highly eventful and fast moving week, the court successfully supported RBS’ application for a mandatory injunction, which was granted on the basis that there was no arguable defence to RBS’s claim. They also successfully resisted the Owners’ application for a negative injunction, which was refused. The result is that the boards of the Companies have been reconstituted and the sale process could take its proper course.
Thereafter, instead of applying to the English Court of Appeal for permission, the Owners launched their own claim against the independent directors, as well as the potential buyer and RBS, in Dallas, Texas for the same declaratory relief as in issue in England as well as a damages claim. In a highly charged petition, the Owners complained of an “epic swindle” and “grand conspiracy” by the parties concerned. At the same time, they applied without notice to the Dallas District Court for the same interlocutory relief which had been refused in the English Court earlier that day (without apparently mentioning this fact to the Dallas Court), as well as an injunction to prevent RBS from enforcing any of its security rights under the loan facility. The Dallas District Court granted a temporary restraining order. The effect of the order was to frustrate the orders granted by the English Court and to prevent any sale of Liverpool Football Club going ahead.
In the circumstances, RBS, the Companies, the independent directors and the potential buyer applied to the English Court the next morning for an anti-suit injunction, as well as other relief. I quote the judge, Mr. Justice Floyd:
This is an application made by RBS and other parties in these proceedings for an anti-suit injunction. Yesterday, after prolonged argument on Tuesday, I gave judgment on two applications. As I explained, the first application was for a mandatory injunction to restore the composition of the boards of KFL and KFHL into the condition that they were required to be pursuant to a contract between the Owners and others and RBS. I granted that application. The second application was an application made by the Owners, the target of which was to prevent the completion of a sale of KFL to NESV. I refused that application. It was an application made by the Owners as an interim injunction. I considered that it was not appropriate to grant that injunction. The decision whether to go ahead with that offer was a matter for the properly constituted boards of the companies. When I gave judgment, the Owners indicated that they would require time in order to sign the necessary unanimous consents to give effect to the mandatory part of my judgment; and they also sought permission to appeal my judgment to the Court of Appeal, which I refused. No steps of which I am aware have been taken to seek to obtain permission to appeal my judgment from the Court of Appeal. I gave the owners until 8 pm London time yesterday to sign the consents. In accordance with my order, at around 5.39 pm London time yesterday, solicitors for RBS received the signed unanimous shareholder consents signed by Mr. Hicks on behalf of KFL and KFHL. Fifteen minutes later, proceedings which I shall call the Texas proceedings were commenced. I shall come back to explain what the Texas proceedings contain. They are proceedings begun by the Owners, but also by KFL and by KFHL. It is quite clear that no decision of the board of KFL or KFHL was held in order to authorise those proceedings. That is the case because Mr. Broughton is the chairman of the board of both companies, whether as now constituted or as constituted under the purported alterations made by the Owners. He is not aware of any decision taken by the boards of those companies to commence those proceedings. To continue the story on this side of the Atlantic, at 9.35 London time last night solicitors for RBS received a letter from attorneys in Dallas purporting to acting on behalf of Cayman, KFHL and KFL, and also LLC, which is another company within the chain of holdings underneath Mr. Hicks and Mr. Gillett. The letter enclosed the petition and a Temporary Restraining Order (TRO) granted by the court in Dallas. The TRO was signed at 8.25 pm London time. The position so far as the proceedings in front of me are concerned is that no mention was made at any stage of the Owners’ intention to commence proceedings in Texas. The inference which I draw is that it was the Owners’ intention to commence the proceedings if they were unsuccessful in the various applications before me. Having reviewed the documents which were sent to RBS’s solicitors, consisting of the Texas petition and order, it is plain that they had been in preparation for some very considerable time.
After argument from the parties other than the Owners (whose legal representatives did not attend on the basis that they were without instructions), the Judge again ruled against the Owners. He held that there was no real connection with Texas, that the Texan proceedings were an attempt to deprive RBS of the fruits of the success in England and, in all the circumstances, amounted to unconscionable conduct on the part of the Owners. Accordingly, he granted an anti-suit injunction preventing the Owners from continuing with the Texan proceedings (or any other proceedings relating to the same subject matter other than in England or the EU) and ordering the Owners to take steps to have the Texas order removed.
The judge said:
I think that RBS are right that this case has no real connection with Texas, and I think they are also right that the commencement and prosecution of the Texas action is an attempt by the Owners to deprive them of the fruits of their success so far in the English litigation. It seems to me to be a deliberate omission from the document presented to the United States judge that there is no mention of the fact that injunctive relief was asked for and refused to the Owners yesterday. It is, of course, the case that the existence of parallel sets of proceedings with common issues is not itself enough to cause the court to interfere. But the material before me goes much further than that, and establishes what I regard as unconscionable conduct on the part of Mr. Hicks and Mr. Gillett in bringing those proceedings.
The Owners complied with that order and the sale of LFC to the buyer has now been completed.
Famous Dutch football coach Rinus Michels used to say: “Professional football is something like war”. In Liverpool they might now say: “Professional football is something like litigation”.
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