Takeda Pharmaceutical Company Ltd v Fougera Sweden Holding 2 AB

These proceedings arise out of the sale of a Danish pharmaceutical company, Nycomed A/S (“Nycomed”) for €9.6 billion. The seller was the Defendant (“Fougera”), which is a Swedish subsidiary of Fougera SCA SICAR (previously known as Nycomed SCA SICAR) (“the SICAR”), a Luxembourg limited partnership. The buyer was the Claimant (“Takeda”), a Japanese company. The sale took place pursuant to a sale and purchase agreement dated 19 May 2011 (“the SPA”).

There was at the time of the sale, and remains, a live issue as to whether Nycomed was liable to SKAT (referred to in these proceedings as the Danish Tax Authority or “DTA”) for withholding tax (“WHT”)on interest payable by Nycomed on monies it had borrowed from Fougera. The DTA’s claim for WHT arises out of a new financing and holding structure for the Nycomed Group which was put in place in December 2006 in connection with its acquisition of Altana Pharmaceutical AG (“Altana”), a German pharmaceutical company.

The SPA contains indemnity provisions whereby, in certain circumstances, a payment of WHT by Nycomed would fall to be indemnified by Fougera, subject to limitations and exclusions, including a monetary cap of €75 million. Fougera’s liability under the indemnity is to cease altogether after the sixth anniversary of Closing as defined in the SPA, namely on 30 September 2017. (Strictly speaking, the provisions in question do not provide for a true indemnity, but nevertheless it is convenient for present purposes to describe them in that way.)

In order for the indemnity to be triggered prior to that cut-off date, the WHT would have to become “finally recoverable” from Nycomed, meaning that it was the subject of a binding agreement with the DTA (i.e. a compromise) or the subject of an unappealable or unappealed decision of a court or tribunal. To date, none of this has happened. In the meantime, the sum of €75 million is standing in an escrow account.

Takeda contends that the SPA, either on its own or in conjunction with a subsequent letter agreement dated 28 January 2015 (“the Letter Agreement”), imposes an obligation on Fougera to provide Takeda with information and documentation about the ultimate investors in the SICAR (“the Investor Information”). Takeda puts its case on the basis both of a positive obligation (to provide the Investor Information as soon as reasonably practicable upon Takeda’s request) and a negative obligation (not wrongfully to prevent Takeda from getting the Investor Information or wilfully to delay its provision). Takeda contends that these obligations arise either because this is the meaning of a covenant for further assurance in the SPA, taken together with the indemnity provisions, or because there are implied terms to that effect. Fougera disputes that it is subject to either obligation.

If the alleged obligations do exist, then further issues arise between the parties concerning breach, causation and loss. Recognising that it would be helpful for the parties to know where they stand prior to the 30 September 2017 cut-off date, on 12 May 2017 Birss J directed an expedited trial of the following preliminary issues:

Takeda served witness statements from four factual witnesses:

Fougera contends that large swathes of all four of these statements are inadmissible in evidence at this trial on one or more of the following grounds: (i) they contain statements of subjective intention in relation to the SPA and/or opinion and/or legal argument, (ii) they concern the negotiation of the SPA, (iii) they concern facts which were only available to one of the contracting parties and (iv) they concern the conduct of the parties after the SPA. Consistently with that contention, counsel for Fougera elected not to cross-examine any of the witnesses.

Takeda disputes that any parts of the statements are inadmissible. In order to reduce the ambit of the dispute, Takeda has elected not to rely upon some of paragraphs objected to by Fougera. Nevertheless, Takeda does rely upon a fairly large number of paragraphs in all four statements which are objected to. I do not propose to lengthen this judgment by considering each paragraph and each objection seriatim. I consider that, on the whole, Fougera’s objections are justified. Even if all the evidence relied on by Takeda were admitted, however, I do not consider that it would affect the conclusions which I have reached.

Fougera called two factual witnesses to deal with the issue of control (as to which, see below):

Both parties adduced expert evidence as to Danish tax law and practice as at the dates of the SPA and the Letter Agreement. Takeda’s expert, Anders Oreby Hansen, has been a partner in a Danish law firm, Bech-Bruun, since 2005. He obtained an LLM from the University of Copenhagen in 1991 and has been a member of the Danish Bar Association since 1994. He has worked on Danish tax matters for more than 25 years. He is the author or co-author of five books and over 50 articles.

Fougera’s expert, Niels Winther-Sørensen, has been a tax partner at PriceWaterhouseCoopers since 2013. He obtained a Master of Laws in 1989 and a Doctorate in Jurisprudence in 2000. From 1989 to 1991 he was employed by a law firm. From 1991 to 2000 he was successively Assistant Professor, Associate Professor and Professor of Tax Law at Aarhus University. From 2000 to 2008 he was Professor at Copenhagen Business School and from 2001 to 2005 he was Chairman of the Danish Tax Board. From 2008 to 2013 he was a tax partner in Ernst & Young. He has written many books and articles. He has personally been involved in litigating a number of WHT cases, including two of the key cases discussed in the expert evidence.

As one would hope, there was a large measure of agreement between the experts. To the extent that they differed, I prefer Dr Winther-Sørensen’s evidence for the following reasons. First, Dr Winther-Sørensen is the better qualified of the two experts. Secondly, Mr Hansen was forced to accept that, in places, his reports were incomplete and/or inaccurate. Thirdly, I found Dr Winther-Sørensen’s evidence to be more cogent and better supported by the underlying materials than that of Mr Hansen.

The SICAR is a Societe en Commandité par Actions (a partnership limited by shares) and a Sociéte d’Investissement en Capital à Risque (a risk capital investment fund) resident in Luxembourg. By virtue of its status as a SICAR under Luxembourg law, income on its investments is not taxed.

At the material times, the largest investors in the SICAR were, and remain, two private equity funds, the Nordic Capital Funds (with 42.7%) and aPriori (with 25.9%). Smaller shares are held by two other private equity funds, Coller International Partners (9.7%) and Avista Capital Partners (6.6%). The balance (15.1%) is held by other investors, including a Swedish bank, SEB. (The percentages quoted are those as at 2007; nothing turns on the precise percentages at any given time thereafter.)

It is common ground that the identity of the ultimate investors in the SICAR who have invested through the four private equity funds (“the Funds”) is information confidential to the Funds, being in the nature of a trade secret. Moreover, there is no dispute that the ultimate investors themselves have an interest in protecting information about their identities, residency and tax status.

In December 2006 there was a corporate restructuring as the result of tax advice received from KPMG Germany in relation to the Nycomed Group’s acquisition of Altana. The resulting structure included the SICAR and two intermediate Swedish companies, Fougera (then known as Nycomed Sweden Holding 2 AB) and its then parent (Nycomed Sweden Holding 1 AB, which was later re-named Fougera Sweden Holding 1 AB (“Fougera 1”) and later still merged with Fougera), above Nycomed. This structure is depicted in simplified form (it omits Nycomed Luxco SA, which was the General Partner of the SICAR, and management, who held around 2.5% of the shares in Fougera) below:

On 27 December 2006 the loan arrangements that have given rise to the WHT issue were put in place. In particular:

KPMG Germany’s rationale for this structure was to optimise the Nycomed Group’s effective tax rate:

If KPMG Germany was right, therefore, Nycomed would be able to reduce its corporate income tax in Denmark by reference to the amount of the interest, but that interest would not end up being taxable in the hands of any recipient (whether via Danish WHT or via direct assessment on the recipient in Sweden, Luxembourg or anywhere else). The SICAR’s capital value would be increased by the interest ultimately received by it, resulting in capital gains or dividends for the ultimate investors.

Importantly, there is no dispute the ultimate investors themselves did not at any stage receive, or have any entitlement to, any payments of interest.

Section 65D of the Danish Tax At Source Act provides (in translation):

“Any payment or crediting to a company etc which is liable to tax according to section 2(1)(d) of the Danish Corporation Tax Act implies that the company at whose expense the payment or crediting is made is obliged to withhold [30%/25%/22%] of the total interest amount. The amount withheld is denoted ‘withholding tax on interest’. The obligation to withhold tax on interest lies with companies, funds and organisations resident in this country …”

The percentage in square brackets varied over the relevant period.

Section 2(1)(d) of the Danish Corporation Tax Act provides (in translation and with added numbering in bold for ease of reference):

“(1)

The tax liability in relation to this Act further lies with companies and organisations, etc. as laid down in section 1(1) which are resident abroad, as far as they …

(d)

[1] receive interest from sources in this country pertaining to debt which a company or an organisation, etc. subject to section 1 or section 2(a) owed to foreign separate legal entities as stated in section 3B (controlled debt) of the Danish Tax Control Act. [2] The tax liability does not include interest if taxation of interest is to be waived or reduced [2a] according to EC Directive 2003/49 on the joint scheme on taxation of interest and royalties paid between associated companies in different Member States, or [2b] according to a double tax agreement with the Faroe Islands, Greenland or the state in which the receiving company, etc. is resident. [3a] However, this only applies if the contributing company and the receiving company are associated as stated in this Directive in a consecutive period of at least 1 year within which period the time of payment should be. [3b] The tax liability no longer applies if a Danish parent company, etc. directly or indirectly has a controlling interest of the receiving company, etc., cf. section 31 C, in a consecutive period of at least 1 year within which the time of payment should be. [3c] Furthermore, the tax liability no longer applies if the receiving company, etc. is subject to controlling interest of a parent company, etc. which is resident in the Faroe Islands, Greenland or a state which has entered into a double tax agreement with Denmark, if the said company, etc. according to the rules of the Faroe Islands, Greenland or the said state is subject to CFC tax on the interest provided that the conditions under these rules are met. [3d] Moreover, the tax liability no longer applies if the receiving company, etc. can substantiate that the foreign corporation tax on the interest totals at least ¾ of the Danish corporation tax and that the company does not repay the interest to another foreign company, etc. which is subject to corporation tax on the interest amounting to less than ¾ of the Danish corporation tax ….”

Section 2(1)(d) refers to the foreign company as the “receiving company”. The better view as a matter of Danish law is that, although these words could literally be read as referring to the company that actually receives the interest, the statute is to be construed as referring to the entity which, as a matter of Danish law, has the entitlement to be paid the interest, known in Danish law as the “rightful owner” (rette indkomstmodtager) of the interest. As it happens, however, nothing turns on this particular question in the present case since it is common ground between Nycomed and the DTA that the entity that received interest from Nycomed (namely, Fougera) would also be regarded as the rightful owner of the interest in Danish law.

Strictly speaking, the “receiving company” is the entity liable to taxation. For understandable reasons, however, the DTA does not seek to compel the foreign receiving company to satisfy its liability to Danish tax under section 2(1)(d). Instead, the liability is met through charging WHT to the Danish resident company.

Section 2(1)(d) contains two express exemptions from the obligation on the receiving company to pay tax on interest (and thus the consequent obligation on the Danish resident company to pay WHT).

First, tax is not payable where there is a double tax treaty between Denmark and “the state in which the receiving company is resident” whereby the tax is to be waived (see [2b]). Most of the double tax treaties to which Denmark is a party provide an exemption from Danish tax where the “beneficial owner” (retmæssige ejer) of the interest is resident in the other State that is party to the treaty in question.

Applying the tax treaty exemption in section 2(1)(d) to the present case involves the following analysis:

Secondly, an exemption from tax is available whereCouncil Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (“the Directive”) requires the taxation of interest to be waived or reduced (see [2a]). Article 1(1) of the Directive provides that an exemption is available where the “beneficial owner” of interest payments arising in one Member State is a company of another Member State. Article 1(7) provides that the exemption applies only where the payer of the interest and the beneficial owner of the interest are associated companies of one another. Article 3(b) provides that an associated company for this purpose means that one company must have a direct minimum holding of 25% of the share capital of the other.

By 2010 the DTA had begun to scrutinise tax avoidance structures being used by private equity funds. The DTA undertook a tax audit of Nycomed in the second half of 2010.

On 13 December 2010 the DTA issued an assessment holding that, for the years 2006-2009, Nycomed should have paid WHT (at rates of 25% or 30% according to the year in question) on the interest payable to Fougera in the sum of €53 million excluding penalties and interest (“the First Assessment”). In summary, the DTA rejected the view that either Fougera, Fougera 1 or the SICAR could be regarded as the beneficial owner of the interest. It reasoned that, although as a matter of form Fougera was expected to make group contributions (rather than interest) up the chain to Fougera 1, the expected equity payments broadly matched the quantum of the interest due to Fougera from Nycomed. Fougera 1, in turn, was then to make broadly matching payments upward to the SICAR under a loan agreement executed simultaneously with the loan agreement between Fougera and Nycomed. The DTA therefore concluded that, in substance, the interest payable by Nycomed would not be received by Fougera beneficially for its own enjoyment, but merely as a conduit to make payments ultimately destined for the SICAR.

In the case of the SICAR, the DTA recognised that there was no similar upward flow of funds to the shareholders in the SICAR. But the DTA pointed out that the SICAR did not need in the real world to make onward payments of interest to offset the interest it received, because the favourable Luxembourg tax regime meant that the SICAR was not liable to be taxed on the interest it received in any event (and so did not need to make an onward payment to offset that tax). The DTA said that, instead, the owners of the SICAR would in due course receive the amounts equivalent to the interest (and repaid principal), but in the form of dividends. In substance, therefore, the DTA concluded that the SICAR also was not a beneficial owner of the interest. Rather, in its view, the owners of the SICAR were the beneficial owners.

In addition to these points, the DTA said it regarded the structure as “wholly artificial” such that it fell afoul of the anti-abuse doctrine in Article 5 of the Directive.

Importantly for present purposes, the DTA left open the possibility that the owners themselves might be entitled to claim exemption under a double tax treaty or the Directive. As the DTA stated (in translation):

“As the owners of Nycomed SCA SICAR are considered the beneficial owners of the interest income it may be considered to grant a proportionate reduction in the withholding tax on the interest if the owners are to be exempted from tax or are granted a tax relief subject to the double tax treaty or the Interest/Royalty Directive.

Provided that this can be documented, the Danish tax authority will of course grant such a reduction.”

In anticipation of the DTA’s decision, in November 2010, Bjarne Frank Nielsen, Nycomed’s Head of Tax, set in motion a process for collecting information to demonstrate to the DTA that the ultimate investors in the SICAR were resident in countries with which Denmark had a double tax treaty. On 10 December 2010 Mr Mueller circulated a description of the proposed process. For this purpose, KPMG Denmark was to enter into engagement letters and non-disclosure agreements with the shareholders in the SICAR whereby KPMG Denmark would collect the desired information from the shareholders and act as a “black box” between them and the DTA. This meant that only KPMG Denmark (apart from the DTA) would be able to see the totality of the information received from all the shareholders. KPMG Denmark would not share this information with the shareholders themselves, or with the Nycomed Group.

The direct shareholders in the SICAR (i.e. the Funds and others) subsequently provided information about their investors to KPMG Denmark, pursuant to the terms of the various engagement letters and non-disclosure agreements between KPMG Denmark and each shareholder. The information was provided to KPMG Denmark by the shareholders direct. None of it was provided by or via Fougera, nor was it shared with Fougera.

On 9 May 2011 KPMG Denmark reported that it had received information from approximately 90% of the ultimate investors and that it would be possible to initiate conversations with the DTA based on that information, albeit that it would be beneficial if the majority of the outstanding information were available before then. KPMG Denmark said that it expected the DTA to take a sample and request further information and documentation.

On 20 December 2010 Nycomed filed a “preliminary” appeal to the Danish National Tax Tribunal (“the DNTT”) against the DTA assessment, followed by an expanded “preliminary” appeal on 21 January 2011. Nycomed advanced two main arguments:

On 18 March 2011 the Counsellor to the Danish Government (as to which, see below) filed a response to the appeal. In relation to the Secondary Argument, this stated (in translation):

“Concerning those owners who allegedly are resident in a country that is a member of EU or a country, with which Denmark has entered into a double taxation treaty, Nycomed A/S shall furthermore at least provide information which enables an unambiguous identification of the owners, just as Nycomed A/S at leastshall substantiate that the interest according to Danish law and to the legal system of the country where the owner is alleged to be resident, is to be attributed to the owner for tax purposes.”

It is common ground that there were discussions between Fougera and Takeda concerning the WHT issue prior to the SPA. I do not consider that it is appropriate to consider most of these discussions in this judgment, since they constituted part of the negotiations that led to the conclusion of the SPA, and in particular the provisions concerning the WHT issue in section 10. It is nevertheless important to note three points, all of which are common ground.

First, the DTA’s assessment (see paragraph 31 above) and the DTA’s response to Nycomed’s appeal (see paragraph 39 above) were both made available to Takeda in a data room. Accordingly, the stance adopted by the DTA in both documents was known to both parties.

Secondly, the existence of the black box information held by KPMG Denmark was disclosed to Takeda, and thus was known to both parties.

Thirdly, the substance of the advice given by KPMG Denmark to Nycomed and by Deloitte to Takeda was exchanged between the parties and thus known to both. Unsurprisingly, perhaps, KPMG Denmark was optimistic as to the prospects of success of both the Primary Argument and the Secondary Argument. Although it does not appear that any opinion from KPMG Denmark was shared with Takeda prior to the date of the SPA, there is no dispute that the substance of its advice was discussed in meetings between the parties.

Deloitte’s assessment of the Secondary Argument was as follows:

“The argument about rightful owner of the income but beneficial owner would also eliminate the potential for using the treaties between Denmark and the ultimate owners about Luxembourg [i.e. the SICAR] as potential second line of reasoning. The Danish tax authorities have not accepted the argument that no withholding taxes should be levied on investors above Luxembourg covered by a double taxation [treaty] with Denmark. The tax authorities have required detailed access to the tax return of the ultimate … investors to ensure that the interest income has been included in tax returns of the applicable investor in the correct year and with [the] same classification. In other similar structures it has been impossible to meet these information requirements.”

Deloitte’s report was shared with Fougera on 10 May 2011, shortly before the execution of the SPA. The statements in it were therefore known to both parties as at the date of the SPA.

On 19 May 2011 the SPA was entered into between Takeda, Fougera and Fougera 1. Closing took place on 30 September 2011. On 5 September 2013 an escrow agreement was entered into between Fougera, Takeda and JP Morgan Chase Bank NA under which the latter presently holds the sum of €75 million in escrow against Fougera’s potential liability under the indemnity.

On 9 July 2012, following a recommendation by a case-handler that the DNTT should dismiss Nycomed’s appeal against the First Assessment, Nycomed removed the case to the Danish Eastern High Court. In its statement of case Nycomed maintained both the Primary Argument that Nycomed was not liable for WHT at all because Fougera was the beneficial owner of the interest, and the Secondary Argument that the quantum of WHT should be reduced based on the residence of the ultimate investors.

On 15 October 2012 the Danish Ministry of Tax (“the DMT”) filed its defence to Nycomed’s case in which it adopted the position adopted by the Counsellor on 18 March 2011 regarding the provision of information (paragraph 39 above).

Shortly afterwards, the parties in the case and a number of similar cases agreed that certain questions raised by the cases should be referred to the Court of Justice of the European Union (“the CJEU”). On 4 December 2012 the Eastern High Court ordered the parties to draft questions for the CJEU.

There followed a protracted period during which the questions for the CJEU were drafted and agreed, in part because counsel for the DMT became seriously ill and had to be replaced. On 19 February 2016 the Eastern High Court referred the questions to the CJEU, where the references are presently pending as Cases C-116/16 to C-118/16. It is common ground that the resolution of the Primary Argument is likely substantially to depend on the CJEU’s answers to the questions.

On 16 January 2015 the DTA issued a second assessment (“the Second Assessment”). This essentially extended, on the basis of the same reasoning as the First Assessment, the period for which WHT should have been withheld so as to cover interest accruing in 2010 and 2011.

On 28 January 2015 Fougera and Takeda entered into the Letter Agreement. The principal purpose of the Letter Agreement was to enable Nycomed to pay under protest the WHT asserted by the DTA to be due in the First and Second Assessments, in order to stop penalty interest from accruing. Nycomed subsequently made a payment of €125 million. By the date of the Letter Agreement the black box information was being held by Ernst & Young Denmark rather than KPMG Denmark.

In October 2015 the Funds entered into confidentiality agreements and associated letters of release allowing for the transfer of the black box information from KPMG Denmark to Plesner, to be used for the purposes of the WHT dispute. The confidentiality agreements permitted Plesner to disclose the black box information to the DTA. They also permitted Plesner to disclose to Takeda “such redacted confidential information as may be requested by Takeda for the purposes of enhancing its understanding of the quantitative composition of the (former) ultimate owners of the Nycomed group”, but not including any information from which an investor in the Funds might be identified, and subject to advance notice to Fougera and KPMG Denmark.

Plesner received what it believes to be the black box information on or around 24 November 2015. The information consisted of spreadsheets containing limited information in respect of some ultimate investors. There were no primary documents. According to Mr Pedersen, the black box information was inadequate to begin negotiations with the DTA in respect of a reduction in its assessment of the WHT liability.

On 4 December 2015 Takeda wrote to Fougera’s Swedish lawyers and to Mr Melinder and a representative of aPriori enclosing an update concerning Nycomed’s appeal and a letter from Plesner dated 3 December 2015 requesting the provision of certain information and documents, including the full names and addresses of, tax identification numbers of and tax residency certificates for all direct investors in the SICAR or (where the direct investor is tax transparent) their own investors (“the Required Information”). Takeda requested provision of the Required Information by 31 January 2016.

On 23 December 2015 Fougera responded. It explained that what Takeda was proposing would require contacting the investors again “to provide documents that are not within our possession” andqueried whether the associated effort and expense was justified at that stage, given that the information would become relevant only if Nycomed failed on the Primary Argument. It also disputed the existence of any obligation to provide the information.

The correspondence continued. Nothing turns on the detail for present purposes, since questions of breach are not within the preliminary issues. In short, Fougera agreed to approach the Nordic Capital Funds and aPriori, as the two largest investors, to see what information was available and subsequently to try to gather it, but made it clear that this documentation could only be handed over if there was a sufficiently strong likelihood of it being of genuine assistance to the dispute with the DTA. In the event, Fougera says it never received any adequate assurance in that regard and, apart from a copy of the shareholders register of the SICAR, no Investor Information has been handed over to date.

During the course of the correspondence, on 8 November 2016 Fougera confirmed that it did not object to Plesner contacting the DTA to continue discussions with respect to the Secondary Argument and to explore the possibility of a global settlement.

On 16 February 2017 Takeda alleged that Fougera was obliged to provide the Required Information. Takeda elaborated on that contention in a letter before claim dated 16 March 2017, to which Fougera responded on 30 March 2017, denying the alleged obligations.

On 28 April 2017 Takeda commenced these proceedings.

Takeda pleaded certain alleged facts which it relied upon as supporting its interpretation of the SPA and the Letter Agreement. Fougera takes issue with these allegations. Most of the evidence adduced for the hearing of the preliminary issues was directed to two of these allegations, namely those pleaded in paragraph 12(c) and (d) of the Particulars of Claim:

“(c)

The parties understood that it was necessary for the DTA to have access to the Relevant Information as a means of ascertaining the Danish withholding tax liability or otherwise compromising liability and/or giving effect to the indemnity and/or mitigating Nycomed’s liability for withholding tax.

(d)

That access to the Relevant Information lay outside of Takeda’s control and within the control of Fougera.”

“Relevant Information” is defined in Schedule 1 to the Particulars of Claim as meaning “Information within the control of Fougera about its own investors, and the entities lying behind them”. As Fougera pointed out, it follows that paragraph 12(d) has an element of circularity to it. It is common ground, however, that the Relevant Information embraces the “Required Information”, which is defined in Schedule 1 as meaning “Certain Relevant Information, specifically the information and documents relating to the Ultimate Investors, identified by Plesner in its letter to Takeda dated 3rd December 2015 and forwarded to Fougera on 4thDecember 2015”.

Fougera contends that, both as at the date of the SPA (19 May 2011) and as at the date of the Letter Agreement (28 January 2015), provision of the Required Information was not necessary, because it would have been futile, in that it would not have enabled Nycomed to secure or negotiate any reduction in the WHT liability (without prejudice to the Primary Argument). Takeda accepted in closing submissions that, even if the Required Information was provided, it would have been difficult for Nycomed to secure or negotiate any reduction in the WHT liability, but nevertheless submitted that it had a real and substantial chance of doing so. Who is right depends on the evidence as to Danish tax law and practice.

As counsel for Fougera pointed out, because the Court is concerned with the admissible factual matrix for the purposes of interpreting the SPA and the Letter Agreement, what matters is the actual tax law and practice that would reasonably have been available to the parties at the relevant dates. Any possibility that a Danish Court might, in future, hold that the extant practice to have been wrong in law is immaterial, because a future decision of that kind is, by definition, not a fact that was known or reasonably available to the parties when contracting.

As counsel for Fougera also pointed out, in considering the position as at the date of the SPA, the opinions expressed by KPMG Denmark on one side and Deloitte on the other side are immaterial. On one view, they are inadmissible as being part of the negotiations leading to the SPA. Even assuming that they are admissible, however, the key point is that both contracting parties knew, for the reasons discussed above, that there was a difference of opinion. In interpreting the SPA, what matters is what, objectively assessed, the actual position reasonably available to the parties was.

The sources of Danish tax law and practice are as follows:

As at 19 May 2011. There are three aspects of the relevant Danish tax law and practice which must be considered. The first is the interpretation of the relevant statutory provisions. The second is the practice established by publicly available decisions. The third is the position adopted by the DMT with respect to Nycomed’s appeal. Although this was not public, it was known to both contracting parties for the reasons explained above.

So far as the interpretation of the relevant statutory provisions is concerned, Dr Winther-Sørensen’s view, which is consistent with the ordinary and natural meaning of the statutory words and supported by preparatory works to which he referred, is that section 2(1)(d) of the Danish Corporation Tax Act excludes any possibility of invoking the tax treaty rights of the ultimate investors, save for those who are resident in the same country as the recipient of the interest. It was not suggested, either by Mr Hansen in his evidence or by counsel for Takeda in his cross-examination of Dr Winther-Sørensen, that the words of the statute should be interpreted in a different manner. On this basis, a tax practitioner would have concluded that there was little point in providing documentation about the ultimate investors to the DTA (since, apart from SEB, it is unlikely that many of them are resident in Sweden). The suggestion advanced by Mr Hansen in his evidence, and by counsel for Takeda in his cross-examination of Dr Winther-Sørensen, was that, regardless of the correct interpretation of the statute as a matter of strict law, the practice of the various Danish tax authorities was more lenient.

As for the Directive, it was common ground between Dr Winther-Sørensen and Mr Hansen that, on the face of the Directive, no-one apart from Fougera could be an associated company of Nycomed within the meaning of the Directive, since Fougera was the only company with a direct shareholding of at least 25% in Nycomed. The ultimate investors could not therefore satisfy the test in the Directive.

Turning to the practice established by publicly available decisions, it is convenient to adopt a chronological approach to this aspect of the matter. On 24 March 2010 the DTA published its list of focus areas for 2010, one of which was WHT on interest or dividends paid in connection with the acquisition of Danish enterprises by private equity companies. This suggested that the DTA would take a tough line in relation to the tax status of such structures.

It then emerged that the DTA was contending that there was a distinction between the rightful recipient or owner of the interest (the Danish law concept) and the beneficial owner of the interest (the tax treaty/Directive concept). The DTA was using this distinction to argue that, if the recipient or rightful owner was not the beneficial owner, then no exemption applied and the Danish entity would be liable for WHT.

This distinction first came into the public domain with the publication of two cases dealt with by the DNTT in 2010. It is convenient to consider these in reverse chronological order. The first is decision SKM 2010.729.LSR, made on 1 November 2010 and published on 17 November 2010 (“Case 2010.729”). In this case, the DTA had decided that the Luxembourg company which received interest was not the beneficial owner and so was liable for tax, thus rendering the Danish company which paid the interest liable for WHT. The DNTT overturned the DTA’s decision, holding that the Luxembourg company was the beneficial owner. It reasoned that the Luxembourg company had not channelled the interest upwards, but had instead remitted it back to the Danish company, and so could not be regarded as a mere conduit.

The taxpayer had advanced a fallback argument that, if the Luxembourg company was not the beneficial owner, then the ultimate owner in the structure should be treated as the beneficial owner and the rightful recipient of the interest. However, the DNTT did not consider this fallback argument and made no comment about it. Accordingly, the DNTT said nothing about the documentation or information that might be required to establish such an argument.

The second case is decision SKM.2010.268.LSR, published on 16 April 2010 (“Case 2010.268”). This was a mirror image of Case 2010.729, but involved a payment of dividends rather than interest. Again, the status of the ultimate owners did not arise for consideration.

In decision SKM2011.57.LSR, made on 22 December 2010 and published on 27 January 2011, the DNTT upheld the DTA’s decision that a company was liable for WHT in respect of interest paid to its parent company in Sweden, which was ultimately owned by a company in Jersey. The secondary argument does not appear to have been raised in this case.

Mr Hansen conceded in his first report that, prior to the decision in Case 2010.729, there was “no general awareness among Danish legal practitioners … of the necessity to ensure that ultimate shareholders provided documentation and information required to substantiate that they themselves would be able to claim protection under EU Directives and/or tax treaties”. He expressed the opinion, however, that such a general awareness “settled over a period of approximately one year from” four events: (i) the publication of the DTA’s list of focus areas, (ii) the publication of Case 2010.268, (iii) the publication of Case 2010.729, and (iv) the publication of decision SKM 2011.441.SR on 27 June 2011 (“Case 2011.441”).

Making due allowance for the fact that English is not Mr Hansen’s mother tongue, it is perhaps understandable that he did not appreciate that it was not clear from the text of his report when he was saying that the understanding had “settled”; but, when he was asked about this, Mr Hansen’s oral evidence was somewhat confused and contradictory. Overall, Mr Hansen appeared to be saying that awareness had grown over the period of 15 months between the first and last event; but he had trouble explaining what, apart from Case 2011.441, had led to that growing awareness.

The problem, of course, is that 27 June 2011 is after the date of the SPA. Considering the matter as at 19 May 2011, the position is as follows. As I have already noted, Mr Hansen accepted that there was no general awareness of the need for information and documents prior to the publication of Case 2010.279. But for the reasons explained above, Case 2010.279 changed nothing in this respect. Indeed, counsel for Takeda put it to Dr Winther-Sørensen that Case 2010.279 was “of no assistance in helping us determine what the law or practice is in relation to the secondary argument”, and Dr Winther-Sørensen agreed.

Dr Winther-Sørensen’s unchallenged evidence was that there had not been any published decision prior to 19 May 2011 where the DTA had accepted that WHT could be waived or reduced by reference to double tax treaty protection of the ultimate investors.

Accordingly, I conclude that there was nothing in the practice established by publicly available decisions as at 19 May 2011 to suggest that the provision of the Required Information would assist Nycomed to reduce the WHT claimed by the DTA.

That then leaves the position adopted by the DMT in the Nycomed appeal. In the assessment under appeal, the DTA had conceded the possibility of the WHT being reduced if it was shown that the owners of the SICAR were resident in a country which was an EU Member State (paragraph 34 above). As at 19 May 2011, however, the DMT’s most recent statement of its position was that set out in the Counsellor’s response dated 18 March 2011 (paragraph 39 above). This required Nycomed in addition to “substantiate that the interest according to Danish law and to the legal system of the country where the owner is alleged to be resident, is to be attributed to the owner for tax purposes”.

When first asked about this additional requirement in re-examination, Mr Hansen volunteered that the DMT had thereby backtracked from the position taken in the DTA’s decision. When pressed as to whether the two could somehow be read together, he agreed, but only in the sense that the March 2011 response was more specific about what would be required to qualify for an exemption.

In cross-examination Mr Hansen accepted that one way of satisfying the additional requirement would be for Nycomed to produce an investor’s tax return showing interest income and treating it as taxable, but that this could be very difficult. He agreed that, generally, private equity structures such as the Nycomed one were not designed to leave taxable interest income in the hands of the ultimate owners. Moreover, he also agreed that, on the facts of the present case, Mr Pedersen was right to say that the ultimate owners did not earn any interest income. Mr Pedersen’s evidence was as follows:

“It was clear from this ruling [i.e. Case 2011.441] that these conditions could hardly be met in any of the pending beneficial owner cases and almost certainly never in the ones – like the one at issue – concerning payments of interest from Danish companies owned by private equity funds. The deemed beneficial owners generally never provided any loans and therefore did not earn any interest income.”

Accordingly, Mr Hansen accepted that, in light of the March 2011 response, it would be difficult for Nycomed to get a reduction based on the status of the ultimate investors.

As for Dr Winther-Sørensen, there was no challenge to his evidence that it was very unlikely that the investors in the SICAR were taxed on interest income. Accordingly, it was his view that the conditions set out in the March 2011 response could not be met.

A point which was mentioned by Mr Hansen for the first time in cross-examination was that pension funds might be in a different category if they were taxed not on specific lines of income but on overall wealth. He accepted, however, that there was nothing in the pre-SPA guidance or published decisions suggesting that any kind of special rule applied in relation to pension funds, so that he could not have advised in May 2011 that the fact that an entity was a pension fund would have made any difference to the documentation required. Dr Winther-Sørensen’s evidence on this new point was that he agreed that foreign pension funds would probably not have been taxed on interest, but that he did not think this would fulfil the requirements of DMT to achieve a waiver or reduction of the WHT.

Accordingly, I conclude that, having regard to the position adopted by the DMT in relation to the Nycomed appeal, as at 19 May 2011, it was very unlikely that Nycomed would be able to satisfy the requirements which the DMT had specified for obtaining a reduction of the WHT.

Counsel for Takeda sought to meet this point by putting it to Dr Winther-Sørensen in cross-examination, and arguing in closing submissions, that provision of the Required Information was necessary, even if it was not sufficient, because, as Dr Winther-Sørensen accepted, it was not possible to maintain the Secondary Argument without it. This argument does not assist Takeda, however, because the evidence does not establish that, viewed as at 19 May 2011, Nycomed had any real and substantial chance of satisfying the requirements specified in the March 2011 response. Counsel for Takeda accepted that provision of the Required Information was not necessary if it would be pointless. Realistically speaking, that was the position.

Counsel for Takeda also submitted that, if it were the case that provision of the Required Information was unnecessary because it was pointless, then it must follow that the provision of the black box information to KPMG Denmark had been equally pointless, and therefore unnecessary. I agree that that must follow, but I do not accept that this undermines the conclusions reached above. No doubt KPMG Denmark considered that the exercise was a potentially useful one. It appears from the evidence that this may have been because of some private communications between KPMG Denmark and the DTA. As I have already pointed out, however, while both contracting parties knew that KPMG Denmark was optimistic about the prospects of success of the Secondary Argument, they also knew that Deloitte was pessimistic, and the question is what conclusion an objective assessment would lead to.

I therefore find that, as at 19 May 2011, it was not necessary for Fougera to provide the Required Information in order to enable Nycomed to secure or negotiate a reduction in its WHT liability (if any).

As at 28 January 2015. In considering the practice established by publicly available decisions as at 28 January 2015, it is again convenient to adopt a chronological approach.

The first relevant decision was the ruling of the DTB dated 21 June 2011 and published on 27 June 2011 in Case 2011.441. This was a dividends case. The DTB adopted the reasoning of the DMT. The primary conclusion was that the holding company was not the beneficial owner and the question therefore arose as to whether the WHT could be waived or reduced by reference to an entity higher up in the chain. The DTB adopted the DMT’s view that three conditions would need to be satisfied (in translation):

“The Ministry bases its assessment on the fact that the purpose of the requirement to the effect that the formal recipient of the dividends must be the beneficial owner of the dividends is to prevent tax evasion and abusive practise. An abusive practice is generally not considered to exist if the dividends immediately flow through to a company in a country party to a double taxation convention or an EU country, provided that the underlying beneficial owner has received an amount that

1.

is identical to the amount that flowed through in the first step,

2.

has the same nature as the amount paid from Denmark, i.e. the nature of the amount must not have changed in such a way that it is not subject to taxation in the country of domicile under the same regulatory framework as the one that would have applied had the amount been paid directly from Denmark to the beneficial owner in question,

3.

the amount must be received and taxed in the same income period and in the same way as if it had been disbursed directly from Denmark to the underlying beneficial owner.”

Mr Hansen accepted that these three conditions were similar to those advanced by the Counsellor to the Danish government in the March 2011 response. Moreover, he accepted that it would be very difficult for Nycomed to satisfy these requirements, and that it might prove impossible. Dr Winther-Sørensen’s unchallenged evidence was that at least condition 2 could not be fulfilled in the Nycomed case.

The second relevant decision is the DNTT’s decision SKM2011.485.LSR, a decision of 25 May 2011 published on 13 July 2011 (“Case 2011.485”). This case has a strong factual resemblance to the present case, since it involved payment of interest by a Danish company to a Swedish company, which was owned by another Swedish company, followed by a Cayman company and ultimately leading to a US holding company. The DNTT ruled that only the Nordic Tax Treaty was relevant (being the treaty of the State of the receiving company), not the double tax treaty between Denmark and the US.

As Mr Hansen accepted, on the approach taken in Case 2011.485, treaties between Denmark and the states of residence of the ultimate investors (unless they happened to be in Sweden) could not be relied upon at all. Dr Winther-Sørensen agreed with this.

The third relevant decision is the DNTT’s decision SKM2012.26.LSR dated 16 December 2011 and published on 13 January 2012 (“Case 2012.26”). This concerned WHT on a dividend paid by a Danish company to its Cypriot parent, which in turn paid the money to its own Bermuda parent, ultimately reaching a US holding company. The DNTT held that the receiving company was the Cypriot parent, such that only the Cypriot double tax treaty could be relevant, and not the US-Denmark tax treaty. As Mr Hansen accepted, the DNTT thereby followed the reasoning in Case 2011.485. The DNTT also held that the Cypriot company was not the beneficial owner, but it upheld an exemption by virtue of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States.

The fourth relevant decision is the DNTT’s decision SKM2012.409.LSR dated 31 January 2012 and published on 29 June 2012 (“Case 2012.409”). The DNTT held that WHT had to be paid despite 92.8% of the investors in a foreign private equity fund being resident in the EU or in a country with a double tax treaty. The DNTT said (in translation):

“The question is, as a result of the Double Taxation Convention that covers the investors, whether they should possibly be exempt from tax on the interest. As the case is presented, there is no basis for taking a position on this, because with the existing lists there isn’t evidentiary documentation that there is a case of double taxation.”

It is clear from this that evidence had not been produced of double taxation, i.e. WHT being levied on the Danish company and the same interest being taxed in the hands of the investors.

Mr Hansen’s evidence in his first report was that Case 2012.409 supported the position adopted by the DTB in Case 2011.441. Although at points in his cross-examination he appeared to be resiling from this, he confirmed that he stood by what he had said in his report and that the three requirements set out in Case 2011.441 would have to be satisfied.

The fifth relevant decision is a decision of the Eastern High Court SKM2012.121.ØLR dated 20 December 2011 and published on 24 February 2012 (commonly known as “the ISS case” because it is widely known to have involved the ISS private equity group). This concerned WHT on a dividend paid by a Danish company to its Luxembourg parent company, which the parent immediately loaned back to the Danish company. The Eastern High Court held that the Luxembourg company was the beneficial owner of the dividends, with the result that it was entitled to an exemption and no WHT was therefore payable by the Danish company. The facts were strong from the taxpayer’s point of view because there had been no flow through of funds up the chain and because, it being a dividend case, there was no prejudice to the Danish exchequer in the form of a tax deduction (in contrast to interest cases, where the payment of interest is deductible but no tax may end up being paid on the interest anywhere). The case therefore involved a special situation, as Mr Hansen accepted.

The decision records that a concession was made by DMT in the following terms (in translation):

“The Danish Ministry of Taxation has stated to the National Tax Tribunal that regardless of whether the Court finds for the Danish Ministry of Taxation in the claims submitted –which both parties agree are the correct calculation of taxes due – the final withholding tax should be reduced to the extent H1 S.à.r.l. documents that the investors involved reside in EU countries and/or countries with which Denmark has reached a double taxation agreement.”

As Mr Hansen accepted, however, this concession proved irrelevant because of the Eastern High Court’s decision that the Luxembourg company was indeed the beneficial owner. Mr Hansen also accepted that the concession had not been repeated in any other dividend WHT case, let alone in an interest WHT case. Mr Hansen also accepted that the concession was not binding on the DMT in any case other than the ISS case. Mr Hansen said that the DMT would need to explain to the Court why it was not prepared to make a similar concession, but he accepted that the DMT would be able to point to differences between the ISS case and the instant case and it would then be for the Court to decide whether those differences were sufficient to justify the change of stance.

The sixth relevant decision is a ruling of the DTB SKM2012.214.SR dated 20 March 2012 and published on 28 March 2012 (“Case 2012.214”). This decision reiterated the three requirements set out in Case 2011.441. In a vivid, and impressively idiomatic, phrase, Mr Hansen said that the DTB had “found … their sea legs on this”.

It follows that a competent adviser on Danish tax practice as at 28 January 2015 would have to balance the DMT’s concession in the ISS case, which was not binding in any other case, and which had been made in a special case about dividends which the DMT had lost on other grounds in any event, against two decisions of the DTB (in Cases 2011.441 and Case 2012.214) holding that the three requirements had to be satisfied in relation to the ultimate owners and a decision of the DNTT (in Case 2012.409), referring to the need for evidence of double taxation, which was supportive of that approach. There were also two decisions of the DNTT (in Cases 2011.485 and 2012.26), which went further still and treated tax treaties with the countries in which the ultimate investors were resident as being irrelevant (unless they also happened to be the country of residence of the rightful recipient).

The conclusion which I draw from this is that information about ultimate investors would be of no assistance to Nycomed unless at least the three requirements in Case 2011.411 could be satisfied.

This assessment is supported by an opinion which Mr Hansen himself gave to Takeda in October 2016, in which he said:

“On the basis of the specific cases described above in section 5.1, it is our assessment that the Danish Ministry of Taxation will make strict requirements for comprehensive documentation to be provided if the consequences of the right for the Ultimate Investors to claim beneficial ownership should result in these Ultimate Investors being allowed to invoke tax exemption and treaty protection. These requirements would, in our assessment, be the same for corporate and individual investors.

We would expect the Danish courts to allow the Danish Ministry of Taxation to make such strict requirements.

As mentioned above, we would expect an Ultimate Investor to be required to prove:

1.

identity between the funds paid out by the Danish company; and

2.

that taxes were paid similarly to what would have been paid, had the funds been received directly from the Danish company and not through intermediaries.

Accordingly, in our assessment, the Ultimate Investors … will be requested to provide documentation for both their specific share of the interest paid or accrued by Nycomed A/S and documentation for the payment of income tax on interest in the relevant jurisdiction.

With regard to documentation for the share of the interest, it is most likely necessary to be able to trace the interest accrued in every year, possibly by reviewing annual accounts, notifications to investors etc. made by the private equity funds through which the investment was made.

With regard to documentation for the taxation having taken place, we would expect the Danish Tax Authorities to require, inter alia, that tax returns reflecting the income be produced and submitted in connection with claiming tax exemption or treaty protection.

Mr Hansen said in cross-examination that he stood by this advice and that it was the conclusion that any competent Danish tax practitioner would have drawn about the DTA’s practice as at 28 January 2015.

For what it is worth, the conclusion is also supported by the position adopted by the DMT in its defence to Nycomed’s case in October 2012 (see paragraph 48 above), although that would not have been publicly available, nor is there any evidence that it was known to Fougera as at 28 January 2015.

I therefore find that, as at 28 January 2015, it was not necessary for Fougera to provide the Required Information in order to enable Nycomed to secure or negotiate a reduction in its WHT liability (if any).

Even though it was Takeda that pleaded this allegation in support of its case on the interpretation of the SPA and/or the Letter Agreement, counsel for Takeda submitted in his closing submissions that it was not necessary for the Court to resolve the issue because, as noted above, the Relevant Information is defined as being information within Fougera’s control. I do not accept this submission. As also noted above, the Relevant Information includes the Required Information. Moreover, Fougera denies that it had control of the Required Information as at either 19 May 2011 or 28 January 2015.

Mr Hofert and Mr Melinder gave unchallenged evidence that Fougera had no legal, contractual or other right to the information sought. As counsel for Fougera rightly accepted in his closing submissions, however, this evidence is inadmissible because there is no suggestion that these matters were known to Takeda at the dates that the SPA and the Letter Agreement were entered into. In any event, however, Takeda confined its case in closing submissions to factual control of the information and documents, rather than legal control over them.

As at 19 May 2011. As counsel for Fougera submitted, the best evidence of what was known to both contracting parties with regard to Fougera’s control over the Required Information is to be found in the terms of clause 10.10 of the SPA, which records that the ultimate investors themselves had provided certain information to KPMG, which KPMG was not free to share with anyone other than the DTA, including Fougera. This is entirely inconsistent with the black box information having been in Fougera’s control as at the date of the SPA. If the black box information was not in Fougera’s control, then the remainder of the Required Information cannot have been in Fougera’s control either. This is not surprising given Fougera’s position in the Nycomed Group structure and the nature of the Required Information.

Counsel for Takeda nevertheless submitted that Fougera had had factual control over the Required Information as a result of an informal understanding or agreement between the SICAR and the Funds which had supposedly been reached at a board meeting of the SICAR in Luxembourg on 30 November 2010. I am not satisfied on the evidence that there was any agreement or understanding that any information would be provided by the SICAR or the Funds other than the black box information or that it would be provided to anyone other than KPMG Denmark. In any event, I agree with counsel for Fougera that any such agreement or understanding is inadmissible as an aid to construction of the SPA since there was no evidence that its existence was known to Takeda as at 19 May 2011.

Counsel for Takeda also submitted that the shareholders register of the SICAR was in Fougera’s possession because their boards were identically constituted and they were managed together. I am not persuaded that this establishes that Fougera had factual control over the shareholders register, however. Moreover, again there is no evidence that these facts were known to Takeda as at 19 May 2011. In any event, the shareholders register of the SICAR is only a small element of the Required Information.

I therefore find that, so far as the contracting parties were aware as at 19 May 2011, the Required Information was not in Fougera’s control.

As at 28 January 2015. Although counsel for Takeda relied upon certain evidence which post-dated the SPA in support of his submissions on factual control, I am not persuaded that there is any evidence which shows that the position changed between 19 May 2011 and 28 January 2015.

Counsel for Takeda particularly relied upon Fougera’s letter dated 23 December 2015 (see paragraph 56 above), which appears to suggest that Fougera had some documents falling within the Required Information in its possession. This is well after 28 January 2015, however.

For completeness, I would add that Fougera accepts that, since 4 December 2015, Fougera’s solicitors have gathered some information from the Nordic and aPriori funds which those funds have voluntarily agreed to provide to Fougera’s solicitors on terms as to confidentiality. This does not show that such information was then in Fougera’s control, still less that it was as at 19 May 2011 or 28 January 2015.

The SPA is a complex and detailed agreement running to 63 pages. It is common ground that it was professionally drafted on behalf of sophisticated and well-resourced parties engaged in a very substantial transaction. Although the SPA must be interpreted as a whole, I obviously cannot set it all out. I shall, however, set out the principal provisions which are relevant to the issues. In the SPA Fougera is referred to as “the Seller” and Takeda is referred to as “the Purchaser”.

Most of the key provisions are contained in section 10 of the SPA, headed “Additional Seller Undertakings”. This section includes the following clauses:

“Danish withholding tax undertakings

10.5

Subject to clauses 10.6 and 10.7 below, the Seller covenants to pay to the Purchaser an amount equal to any liability of Nycomed to make an actual payment of Tax to the Danish Tax Authority after Closing as a result of a failure by Nycomed to account to the Danish Tax Authorities for Tax in respect of interest accruing to the Seller prior to Closing under the Seller/Company Loan (a DK WHT Tax Liability), provided that the Seller shall cease to have any liability under this clause 10.5 after the sixth anniversary of Closing, save in respect of payments that have become due from the Seller prior to that date in accordance with clause 10.6(b) below.

10.6

The Seller shall not be liable under clause 10.5 to the extent that:

…

(b)

the DK WHT Tax Liability would not have arisen (or would have been less) but for (i) the failure of the Purchaser to comply with its obligations under clauses 10.15 and 10.16 below …

10.7

The Seller shall not be liable under clause 10.5 for such amount of any DK WHT Tax Liability as exceeds the lesser of (i) € 75,000,000 and …

10.8

Any payment under clause 10.5 shall be made on the latest of:

(a)

the date 10 Business Days after written demand is made by the Purchaser;

(b)

the date 10 Business Days after the Tax in question becomes finally recoverable by the Danish Tax Authority; and

…

10.10

The Purchaser acknowledges that the ultimate owners of the Seller (the Owners) have provided certain information to KPMG which KPMG is holding on a strictly confidential basis in accordance with the terms of confidentiality agreements entered into between the Owners and KPMG. The Purchaser acknowledges and agrees that KPMG are not permitted to disclose such information to any person (including the Seller, the Purchaser and/or any Target Company) other than the Danish Tax Authorities. The Purchaser agrees that it shall not, and will procure that its Affiliates shall not, take any action to undermine or question the confidentiality of the information held by KPMG or seek to obtain such information.

…

Notification and conduct of claims

…

10.16

The Purchaser shall, and shall procure that each Target Company and each member of the Purchaser’s Group shall:

(a)

ensure that no … DK WHT Tax Liability is settled or otherwise compromised, and that no material actions are taken in relation to a … DK WHT Tax Liability, without the Seller’s prior written consent (such consent not to be unreasonably withheld or delayed);

(b)

ensure that the Seller and its representatives are kept fully informed of any actual or proposed developments (including any meetings) and that they are promptly provided with copies of all correspondence and documentation relating to … a DK WHT Tax Liability …, and (at the Seller’s cost) such other information, assistance and access to records and personnel as the Seller reasonably requires in connection with … a DK WHT Tax Liability … (subject to the deletion of information confidential to the Purchaser);

(c)

ensure that no correspondence or other communication is made to any third party (including any Tax Authority) other than the Purchaser’s professional advisors in respect of … a DK WHT Tax Liability without the Seller having had reasonable opportunity to comment on such correspondence or communication in advance and that (without prejudice to paragraph (d) below) any reasonable comments of the Seller or its representatives in respect of such correspondence or communication are taken into account;

(d)

take such action as the Seller may reasonably request (having regard to any reasonable comments from the Purchaser) to avoid, dispute, resist, appeal, compromise, settle or defend a … DK WHT Tax Liability, including in relation to the conduct of negotiations and correspondence with the third party (including any relevant Tax Authority) and the reaching of agreement with such third party with respect to such … DK WHT Tax Liability;

…”

Schedule 6 paragraph 2(f) provides that:

“for the purposes of clause 10, an amount is finally recoverable by a third party (including a Tax Authority), or is finally determined, when it is the subject of a binding agreement as to its amount with that third party or is the subject of a decision of a Tax Authority, court or tribunal from which either no appeal lies or in respect of which no appeal is made within the prescribed time limit.”

Section 14 contains a confidentiality provision in respect of Confidential Information, that expression being defined in clause 14.1(a) as follows:

“Confidential Information means:

(i)

(in relation to the obligations of the Purchaser) any information received or held by the Purchaser (or any of its Representatives) relating to the Seller or its parent companies and, prior to Closing, to include any of the Target Companies; or

(ii)

(in relation to the obligations of the Seller) any information received or held by the Seller (or any of its Representatives) relating to the Purchaser Group and, following Closing, to include any of the Target Companies; and

(iii)

information relating to the provisions of, and negotiations leading to, this Agreement, the Proposed Transaction and the other Transaction Documents,

and includes written information and information transferred or obtained orally, visually, electronically or by any other means”.

Clause 16.1 provides as follows:

“Each of the parties shall from time to time, on being required to do so by the others, as soon as practicable following written request and at the sole cost and expense of the party requesting it, do or procure the doing of all such acts and/or execute or use reasonable endeavours to procure the execution of all such documents as are reasonably necessary for giving full effect to this Agreement, including the sale of the Shares.”

Clause 18.3 provides as follows

“The Purchaser shall not … seek to recover any amount from the Seller … in respect of a … DK WHT Liability … otherwise than pursuant to clause 10 (including under any statutory right to recover or any other provision of this Agreement).”

Clause 22 provides as follows:

“This Agreement and the other Transaction Documents together set out the whole agreement between the parties in respect of the sale and purchase of the Shares and supersede any prior agreement (whether oral or written) relating to the Proposed Transaction. It is agreed that:

(a)

no party shall have any claim or remedy in respect of any statement, representation, warranty or undertaking made by or on behalf of the other party (or any of its Affiliates or Connected Persons) in relation to the Proposed Transaction which is not expressly set out in this Agreement or any other Transaction Document;

(b)

any terms or conditions implied by law in any jurisdiction in relation to the Proposed Transaction are excluded to the fullest extent permitted by law or, if incapable of exclusion, any right, or remedies in relation to them are irrevocably waived;

…

provided that this clause 22 shall not exclude any liability for (or remedy in respect of) fraudulent misrepresentation. …”

Section 29 includes provisions for the SPA to be interpreted in accordance with English law and for the English courts to have exclusive jurisdiction in relation to all disputes arising out of or in connection with the SPA except as expressly provided otherwise.

There is no dispute as to the principles to be applied in interpreting the SPA. They have been considered by the House of Lords and the Supreme Court in a series of cases culminating in the recent decision of the Supreme Court in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 WLR 1095. In short, the court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement when read in the context of the factual background known or reasonably available to the parties at the time of the agreement, excluding prior negotiations.

Takeda does not contend that either the positive obligation or the negative obligation for which it contends can be spelled out of any of the express terms contained in section 10 of the SPA. Instead, it contends that those obligations are “reasonably necessary to give full effect to” the SPA, and in particular clauses 10.5, 10.10 and 10.16(a) and (d), and hence arise under clause 16.1.

Clause 16.1 is a further assurance clause. I was referred to three authorities on the interpretation of further assurance clauses: Brady v Brady [1989] 1 AC 755, Dear v Jackson [2013] EWCA Civ 89, [2014] 1 BCLC 186 and Millen v Karen Millen Fashions Ltd [2016] EWHC 2104 (Ch), [2017] FSR 7. I note that the first two cases were not cited in the third case. The clearest relevant statement of principle is that of McCombe LJ, with whom Lewison and Laws LJJ agreed, in Dear v Jackson:

“35.

…. By cl 7 the parties agreed to take such actions as were reasonably required to ‘… give effect to this Agreement’. To give effect to an agreement requires one to know what the parties have agreed that the agreement shall do. A clause such as cl 7 does not assist in that exercise.

36.

The case of Brady v Brady [1989] 1 AC 755 … does not, I think, take the matter any further. In that case the underlying contractual obligation, to which the covenant for further assurance was prayed in aid, was not in doubt. In this case, the identification of the obligation, the performance of which clause 7 is to assist, is the essence of the dispute; clause 7 cannot help in determining what that obligation is.”

Clause 10.5 is the basic indemnity provision, which is supplemented by clauses 10.7 and 10.8. As counsel for Fougera submitted, it amounts to a carefully-calibrated risk allocation mechanism: in some scenarios, some or all of the WHT would end up being borne by Fougera, while in others it would end up being borne by Takeda. That was the nature of the deal. It is self-evident that clause 10.5 itself says nothing whatsoever about the provision of information by Fougera to Takeda.

Clause 10.10 concerns the black box information held by KPMG. This does not provide for Takeda to have access to the black box information. On the contrary, it prohibits Takeda from seeking to obtain it. It also records Takeda’s agreement that Fougera cannot obtain the information. Thus, to the extent that the SPA deals with information about the ultimate owners of Fougera, it prohibits both parties from having access to it. This cannot be interpreted as requiring Fougera to provide such information to Takeda. As counsel for Fougera submitted, it is striking in this context that the confidentiality provisions in clause 14 of the SPA would not apply to such information even though, as already noted, it is common ground that such information is confidential. This confirms what is apparent from clause 10.10, namely that the parties did not intend that Takeda should receive such information.

Clause 10.16 imposes a series of obligations on Takeda for the benefit of Fougera. It imposes no obligations on Fougera for the benefit of Takeda. So far as clause 10.16(a) is concerned, this imposes a negative obligation on Takeda not to settle the DTA’s claim without Fougera’s consent, which must not be unreasonably withheld. There is nothing in clause 10.16(a) which imposes an obligation on Fougera to provide information to Takeda. As counsel for Fougera submitted, Takeda can comply with clause 10.16(a) simply by abstaining from entering into a settlement unless Fougera has consented. Moreover, if Fougera were to refuse to consent to a settlement on the ground that a better settlement could be achieved by deploying information about the ultimate investors when Takeda did not have such information, then that refusal would obviously be unreasonable. Turning to clause 10.16(d), this requires Takeda to take such steps as Fougera reasonably requests to pursue Nycomed’s appeal against the DTA’s claim in the absence of a settlement. Nothing in this imposes an obligation on Fougera to provide information to Takeda either. Takeda can pursue the appeal simply by maintaining the Primary Argument. If it proposes to abandon the Secondary Argument because it does not have information which is needed about ultimate investors, Fougera could not reasonably request it not to do so.

As counsel for Fougera pointed out, it is also relevant that there are a number of clauses in the SPA which deal with the provision of information by one party or the other. These include clause 10.16(b) and (c), and also the following:

Counsel for Takeda submitted that the effect of the SPA, and in particular clauses 10.10 and 10.16(a) and (d), was in broad terms to allow Takeda to step into Fougera’s shoes with respect to the WHT issue, and in particular to do so with respect to the use of the black box information in resisting or compromising the DTA’s claim. I am prepared to accept that it is implicit in clauses 10.10 and clause 10.16 that Takeda would be entitled to arrange for Nycomed to use the black box information held by KPMG Denmark in support of the Secondary Argument and that it would be entitled to arrange for KPMG Denmark to disclose the black box information to the DTA for that purpose, if that had not already been done (or least, that Fougera could not reasonably refuse to consent to this). It follows from my findings of fact that that would have been a futile endeavour, but I do not consider that that militates against this interpretation of those clauses.

I do not accept the further submission made by counsel for Takeda that, assuming that the parties knew that (i) provision of the Required Information was necessary in order to enable Nycomed to secure or negotiate a reduction in the WHT liability and (ii) the Required Information was in Fougera’s control, then access to the Required Information was reasonably necessary to give full effect to the SPA. This is for two reasons. First, I have found that neither of the factual premises for this submission have been established. Secondly, even if the factual premises had been established, the problem would remain that nothing in the SPA requires Fougera to provide Takeda with the Required Information. Thus there is nothing for the covenant of further assurance in clause 16.1 to bite on.

Nor do I accept the submission that, by refusing to provide the Required Information and/or by hindering or obstructing the provision of the Required Information, Fougera is depriving Takeda of the full benefit of the six year period in clause 10.5. The argument assumes that the parties had agreed to ensure that the WHT issue was resolved within the six year period, but the effect of clause 10.5 is precisely the opposite. It expressly envisages that the WHT may not be resolved within the six year period and allocates the risk of that occurring. Moreover, there is no nexus between this contractual bargain and the provision of information in respect of which there was no contractual bargain.

On the other hand, I agree with Takeda that clause 18.3 does not assist Fougera on this question. All clause 18.3 does is to prevent double recovery by Takeda in respect of the WHT liability. In any event, it cannot affect the outcome of the preliminary issues.

Takeda relies upon the principle stated by Lord Blackburn in Mackay v Dick (1880-81) LR 6 App Cas 251 at 263:

“I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect.”

As Lord Hughes, with whom three other members of the Judicial Committee of the Privy Council agreed, said in Ali v Petroleum Company of Trinidad and Tobago [2017] UKPC 2, [2017] ICR 531 at [8] there are “many other examples of such implied terms in cases where the co-operation of one party to a contract is essential to the performance by the other of his obligations”. In such circumstances the requirements for the implication of terms which were re-stated by the Supreme Court in Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) [2015] UKSC 72, [2016] AC 742 are satisfied.

Takeda contends that in this case the “something” that the parties agreed was to be done was to continue to dispute the matter with the DTA (see clause 10.16(a)). It was understood that this necessitated the provision of certain information. In those circumstances either as an aid to construing clause 16, or as a freestanding implied term, Fougera has a duty to cooperate by providing that information in so far as the information is within its control.

I do not accept this contention for three reasons. First, I have found that neither of the factual premises for this contention have been established. Secondly, even if the factual premises had been established, I am not persuaded that it would be necessary to imply such an obligation to render the contract workable. Takeda would be perfectly able to maintain the Primary Argument without any investor information. Furthermore, as already discussed, so far as the Secondary Argument is concerned, Fougera could not reasonably object to a settlement proposed by Takeda if Takeda did not have information which it needed to have to maintain that argument. Still further, as already discussed, the argument wrongly assumes that the parties had agreed to bring about a final determination of the WHT issue by 30 September 2017. Thirdly, I consider that there is no room to imply a term dealing either directly with the provision of investor information when that question is expressly addressed by clause 10.10, or indirectly by a duty of cooperation when the SPA contains express duties of cooperation such as clause 10.19: see Broome v Parless Co-Operative Society of Orange Growers (Est 1900) Ltd [1940] 1 All ER 603 at 612 (MacKinnon LJ). This consideration is reinforced by the strong form of entire agreement clause contained in clause 22, albeit that clause 22(b) does not positively preclude the implication of such a term.

I would add that I consider it may be possible to imply a term into the SPA that Fougera would cooperate with Takeda in arranging for KPMG Denmark to disclose the black box information to the DTA for the purposes of the Secondary Argument; but that is not what Takeda is contending for. (It would not take Takeda any further than is expressly provided for by clause 20 of the Letter Agreement, as to which see below.)

Takeda relies upon the principle stated by Cockburn CJ inStirling v Maitland (1864) 5 B & S 841 at 852:

“I look on the law to be that, if a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative.”

Takeda contends clauses 10.5 and 10.16(a) of the SPA can only take effect if Fougera does nothing to interfere with, impede, hinder, prevent or obstruct Takeda’s efforts to procure or wilfully to delay provision of the necessary information about the ultimate investors which is within Fougera’s control.

I do not accept this contention for three reasons. First, I have found that neither of the factual premises for this contention have been established. Secondly, even if the factual premises had been established, I am not persuaded that it would be necessary to imply such an obligation to render the contract workable. If Fougera was under no positive obligation to provide the information, then there is no basis for implying the negative obligation. Thirdly, I do not consider that there is room to imply such an implied term having regard to the express terms.

I would add that I consider it may be possible to imply a term into the SPA that Fougera would not prevent, obstruct or delay KPMG Denmark from disclosing the black box information to the DTA for the purposes of the Secondary Argument; but that is not what Takeda is contending for.

Takeda also relies upon the principle that a grantor must not derogate from his grant. Since this principle did not feature in Takeda’s written closing submissions, I propose to say little about it. It suffices to say that I agree with Fougera that it does not assist Takeda. If Takeda establishes the interpretation of clause 16.1 or the implied terms for which it contends, then the principle is otiose. If Takeda does not establish any of those things, then there will be no grant from which Fougera must not derogate.

Clause 20 of the Letter Agreement provides as follows:

“Notwithstanding clause 10.10 of the SPA, the parties agree that the Purchaser may seek to obtain, use and disclose (including for the avoidance of doubt to the Danish tax counsel of Nycomed) such information as may be held by Ernst & Young Denmark (previously KPMG Denmark) as is described in clause 10.10 of the SPA, in each case solely for the purpose of (i) progressing the Dispute or (ii) any audit and provisioning requirements of any member of the Purchaser Group; provided that the Seller is informed in advance of any such request made by the Purchaser Group (or its advisors) to Ernst & Young and is promptly supplied with copies of all reports, analysis and other information that Ernst & Young provides to the Purchaser Group and the terms on which such information is provided.”

Clause 22 provides as follows:

“Clauses 14, 15, 20, 24, 27 and 29.2 to 29.4 of the SPA shall apply as though set out in full in this letter agreement with references to ‘the Agreement’ substituted for this letter agreement.”

Clause 26 provides for the Letter Agreement to be interpreted in accordance with English law.

Takeda contends that (i) the Letter Agreement amended the SPA, and in particular clause 10.10, with effect from 28 January 2015, (ii) clause 16.1 of the SPA requires full effect to be given to the SPA as so amended and (iii) even if the SPA did not originally bear the interpretation contended for by Takeda, it did so following the amendment.

I do not accept this contention. The Letter Agreement does not amend or vary the SPA. The Letter Agreement is a separate agreement, into which some of the terms of the SPA are incorporated, not including clause 16.1. Clause 20 of the Letter Agreement relaxes the prohibition in clause 10.10, but otherwise the effect of the SPA so far as the WHT issue is concerned is unchanged. Nothing in the Letter Agreement obliges Fougera to provide Takeda with the Required Information. Nor is there anything to found the negative obligation for which Takeda contends. The factual matrix had not changed since 19 May 2011 in a way which assists Takeda, and even if it had, the SPA would still fall to be interpreted as at 19 May 2011.

I answer both preliminary issues in the negative.