Alfa Finance Holding AD v Quarzwerke GmbH

On 31^st December 2012 the defendant, which is a German company, agreed to purchase from the claimant, a Bulgarian company, 67.2% of the shares in a company called Kaolin AD, another Bulgarian company, and its subsidiaries, which were at various places over Europe, largely Eastern Europe, carrying on business similar to the defendants, which is a business of extraction processing and refining of industrial materials.

Under clause 12.1.3 of that agreement various rights were conferred upon the claimant in relation to the companies it formerly owned as follows (where the Purchaser is the defendant and the Seller is the Claimant):

Access to documents was formally required on 20^th June 2014 by a written notification provided for under the December 2012 agreement, which for a variety of reasons has not been complied with. Accordingly, the claimant brings this action for specific performance.

The defendant says that this clause is not suitable for specific performance, although it is, in my view, self-evident that damages would not be a suitable remedy because of impossibility of quantification of damage, and because this is an obligation which requires the provision of information which can relatively readily, I will have to come back to that, be provided.

It is said that the provision for disclosure is insufficiently imprecise to form the subject matter of a specific performance decree. It is not said that the obligation is insufficiently precise or uncertain for contractual purposes. In other words it is not said that the obligation is void for uncertainty.

It is certainly the case, as recognised in Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1998] AC 1, that uncertainty in an order may be a ground for refusing relief. A specific performance order takes effect as a mandatory injunction and it is contrary to principle and settled practice to grant injunctions in a form which leaves the persons subject to the injunction in doubt as to what it is they have to do or refrain from doing so as to ensure compliance.

The claimant seeks to meet that objection by putting forward a form of order which spells out with some greater precision than the clause itself does in the contract, what is to be done, so that the defendant knows exactly what is required of it.

The defendant’s objection is that the requirements of the order do not reflect what is required in the contract. In my judgment that is an unsound objection. What is in the contract is an obligation capable of being performed in a number of different ways. It is open to the court, in order to give its order specificity and effectiveness, to spell out what performance is required in the particular circumstances of the case, just as, for example, the court will fix a completion date for the sale of land which may be different from the contractual completion date, which will often have passed by the time the case gets to court and an order for specific performance is made. In these cases, no objections are made to the difference in dates, provided the contract is given effect to.

Moreover, it is appropriate in a case such as the present, if specific performance is ordered, to include a liberty to apply, so that the parties can, if it becomes necessary, come back for further directions.

In my judgment, therefore this is an appropriate case for specific performance. What is sought is a single inspection over a period of two weeks in the first instance. It may well be, given that the contractual obligations last for ten years, that there may be further requests or requirements for inspection in the future. If that happens, they can be dealt with under the liberty to apply.

So far as the present application is concerned, the court is merely ordering the immediate inspection that is sought.

It is said by the defendant that the court should not make any order because all that the defendant is required to do is to grant “reasonable access to the books, records and documents” and the claimant has not demonstrated why it is reasonable for it to access the broad range of documents it now seeks, and with which it will be very onerous for the defendants to comply. The first point to make is that whilst the documents sought are wide-ranging, they relate only to the periods ended, December 2011, September 2012, December 2012 and May 2013, in each case the last day of the month. They are set out under various categories, 12 in all, ending with “Other”, where there are five specified items.

The obligation under the order sought is for the defendant to “use its best endeavours to ensure” that the books, records and documents of Kaolin AD and any of its subsidiaries as set out in the schedule are made accessible from Kaolin’s archive at Senovo, Bulgaria. It is plainly sensible, if this can be arranged, for all the documents to be gathered in one place. There is an existing archive at Senovo in Bulgaria. It seems sensible for that to be the collection place, though the defendant prefers its solicitor’s offices in Germany. It does not seem to me to matter very much where the documents are as long as every effort is made to render them accessible. However, the problem with Germany is that all the documents, including a large number already in Bulgaria, would have to be removed to Germany. The claimant, who accepts that it has to pay the reasonable and necessary costs of collating the documents, should not, in my judgment, have to pay additional costs unnecessarily. Accordingly, if it is reasonable to order access at all, then access should be given in Bulgaria.

The defendant’s complaint is that the claimant has not said why it wants to see these documents. There is an ongoing arbitration which has now been put back to May of this year, and the defendant expresses concern that the claimant is seeking, in some way, to circumvent the disclosure process which has occurred under directions of the arbitrator in that arbitral process. In my judgment that is not an objection which has any substance because the claimant has a clear contractual entitlement to access to these documents and to copying them. The claimant must have sought them for a reason, and one of the reasons which must reasonably have been in contemplation would have been in connection with disputes which might be referred to arbitration, as provided for in the purchase agreement.

There are also warranty claims which are pending before the English courts. It is not said on the defendant’s side that the present application involves any circumventing of the English court’s process, those proceedings presently being stayed. The defendant also disclaims any intention once the arbitration is over to use the English proceedings as a reason for withholding disclosure any further. Its position is that it will grant access to the documents once the arbitration is concluded, as long as the claimant provides a proper explanation of why the documents are needed, and as long as various practical difficulties can be overcome, as described in the evidence of Dr. Harlfinger, (an executive director on the management board of Kaolin AD and a legal advisor to the defendant). He sets out, in relation to the various companies within the group, the difficulties that might be encountered in the collation and copying of documents. In some places, such as Serbia and Romania, it is apparently the case that originals cannot be taken out of the country. Accordingly, copies would have to be taken out. There are also concerns regarding possible data protection issues regarding personnel which, it seems to me, could be dealt with by suitable redaction if they are real concerns, no-one presently having considered the provisions of foreign law which might be relevant, or at least not having considered them in any detail. It seems to me that the obligation to use best endeavours covers difficulties of that nature and the liberty to apply will allow the parties to come back for clarification if necessary (I am certainly not encouraging it, but the mechanism will be there).

In my judgment, this is a suitable case for summary judgment and I will accede to making an order as presently sought, subject to that order being modified in the following ways. I do not think it is appropriate to order at this stage the defendant to retain the books and records for ten years because there is no threat that they will cease to do so. Should that change then the liberty to apply would enable the claimant to come back.

What I will do is declare that the provisions of clause 12.1.3 of the agreement ought to be specifically performed and carried into execution.

I will make peremptory orders in the terms of what are presently paras. 3(ii)-(vi) inclusive.

In para. 4, I extend the obligation of the claimant to bear the defendant’s costs under para. 3(ii), as well as under 3(iii) and 3(vi).

It seems to me that the suggested dates of 13^th to 27^th February 2015, despite the expressions of concern from Dr. Harlfinger, are reasonable and appropriate, especially given the length of time that the claimant has been pressing for this access and the fact that no defence of any kind has, in my judgment, been put forward at any stage.

I do not accept the construction advanced by the defendant that it is appropriate to look at the claimant’s reasons for seeking access in order to determine whether access is reasonable. The reference to reasonable access extends, in my judgment, only to the method and timing of access, so that access needs to be sought at a reasonable time and by a process which it is reasonable and practicable to meet. I have already ruled that the timing under the order is reasonable and appropriate. In my judgment, on everything I have seen and heard, the process set out in the draft order is reasonable access, and the reasons for the claimant seeking to exercise its contractual rights are neither here nor there, because that is exactly what it is doing, exercising its contractual rights. The claimant has the right to see anything in relation to the two years in question, including, if that be the case, for the purpose of what was described on the defendant’s side as a fishing expedition to see if there is anything else for the arbitration that may not hitherto have been disclosed.

As is pointed out by the claimant, that process will not in any way hinder the arbitration or circumvent it, because if there are further material documents which ought to have been disclosed as relevant documents in the arbitration, the arbitral process will be enhanced, and if not, the arbitral process will be unaffected. Nor do I see why the granting of access by the defendant should impede it in its preparation for the arbitration. It seems to me that the difficulties that have been highlighted in the evidence may have been over-exaggerated.

In all those circumstances I will grant the relief sought subject to further argument on the terms of any order.

I was asked by the defendant following the judgment for clarification of my reasons for deciding that damages would be neither an adequate remedy nor (in the absence of reasons for requiring access) an appropriate remedy, and for deciding that the reference to “reasonable access” extended only to the method and time of access. There is very little, if anything, to add as clarification. I regarded the unsuitability of damages as obvious, and still do. That is a strong indication that specific performance a suitable and appropriate remedy, and I can see no warrant for requiring the claimant to explain why it wishes to exercise these particular contractual rights, assuming it has them, in relation to the limited period in question. As to the construction of the clause, a construction requiring the claimant to explain or justify its wish for access would in my judgment be wholly uncommercial, and a recipe for potentially endless dispute. The construction I prefer also fits the words more naturally, the word “reasonable” being referable to the access itself, and not to the reasons for access.

The terms of the Order were also debated in correspondence following my judgment. I have accepted some but not all of the amendments suggested by the defendant. I felt they were entitled to some comfort as to the precise timing of collation of documents for subsidiaries, but did not consider it appropriate to make specific provision for the requirements of foreign law, as there were no unavoidable impediments on the evidence, and the primary obligation, as a “best endeavours” obligation, is protection enough. The clause they suggested is often seen in freezing orders as a protection for third parties who have not, unlike in the present case, had the opportunity of explaining the difficulties under the foreign law.

I also did not provide for set-off of the costs of compliance against the costs I ordered to be paid by the defendant, as there may be considerable scope for debate over what is reasonable or necessary in that regard, which should not hold up the claimant’s costs entitlement.

The defendant has also subsequently sought permission to appeal and a stay.

An application for permission to appeal can only now be made to the Court of Appeal, as no application was made to me at the hearing. This follows from CPR 52.3 and PD52A 4.1. I also decline to deal with the stay application on the grounds that if such an application is to be made, it is better made to the Court of Appeal. I also do not consider that any appeal would have a real prospect of success, despite the skeleton argument of 2 February 2015 explaining the basis of an appeal.