BAT Industries Plc v Windward Prospects Ltd

The Claimant (“BAT”) applies for the appointment of a receiver over claims which it contends are vested in the Respondent (“Windward”) for in excess of $800 million against its former sole shareholder, a French company called Sequana S.A. (“Sequana”), and former directors.

The essential basis of the application is that BAT contends that there is a real risk that at least some of those claims may imminently become time-barred, that Windward has taken no effective steps to preserve the claims, and that the appointment of a receiver is necessary to ensure that all Windward’s claims are protected and preserved, and are not lost to Windward and its creditors (including BAT).

In support of the application BAT relied on two witness statements from Mr Lloyd of its solicitors, Debevoise & Plimpton LLP, and two further statements from Mr Kirry, a partner in their Paris office, together with exhibits. Windward relied on two statements from Mr Aldred of its solicitors, CMS Cameron McKenna LLP, and an expert report and note from a French lawyer, Mr Bouckaert of BOPS, together with exhibits. Both parties made extensive written submissions and I have drawn on those submissions, with adaptations and amendments, in preparing this judgment, particularly in relation to matters of common ground and in setting out the parties’ arguments.

The background to and the basis of the application is set out in detail in Mr Lloyd’s First Witness Statement. I shall summarise the factual background under three main headings: General Background; the Dividend Claims; and Limitation. In setting out the General Background I am not making any findings of fact or law, but merely describing the context in which the present application arises.

Underlying the dispute in these proceedings is the question of who should bear the liability for the costs of clean-up exercises in relation to the Fox River in Wisconsin (“the Fox River”) and the Kalamazoo River in Michigan (“the Kalamazoo River”), which have been polluted with polychlorinated biphenyls (“PCBs”) used in the paper production industry in the 1950s to 1970s.

In this case, liability for the clean-up exercises arises both (directly) under the US Comprehensive Environmental Response, Compensation and Liability Act 1980 (“CERCLA”) and (indirectly) under various contractual provisions which were put in place as a result of the acquisition or demerger of the paper production companies which were using or disposing of PCBs.

The relevant production companies are NCR Corporation (“NCR”), Appleton Coated Paper Company (“ACPC”) and Appleton Paper Inc (“API”).

In 1978, NCR sold the business and assets of its paper division to API, which was then a US subsidiary of BAT, pursuant to a business purchase agreement dated 30 June 1978 (the “1978 Purchase Agreement”). Under that agreement, API agreed to assume, pay, perform, defend and discharge, if and when due, certain of NCR’s obligations and liabilities, including certain environmental liabilities (section 1.4) and BAT agreed to indemnify and hold harmless NCR from and against any losses it incurred as a result of any failure by API to perform its obligations in respect of the debts, obligations, contracts and liabilities of NCR to be assumed by API (including section 1.4).

In about June 1990, API (together with several other non-core subsidiaries of BAT) was demerged from the BAT Group. The demerger was effected in part by a demerger agreement dated 10 May 1990 between (amongst others) BAT and Windward (the “1990 Demerger Agreement”). The 1990 Demerger Agreement, which is governed by English law, provided for a number of indemnities in favour of BAT from Windward and API. Windward is a company incorporated in England and Wales.

In September 1994, NCR and API were notified by the US Environmental Protection Agency (“EPA”) that they were likely to be named as Potentially Responsible Parties (“PRPs”) in respect of the pollution of the Fox River under CERCLA. That notification generated a dispute between NCR on the one hand and API/BAT on the other as to their respective rights and obligations under the indemnity provisions of the 1978 Purchase Agreement.

On 20 June 1995, NCR filed an action against API and BAT in the US District Court for the Southern District of New York (the “1995 New York Proceedings”) seeking a declaration that API and BAT were obliged to indemnify it under the 1978 Purchase Agreement in respect of claims arising out of (inter alia) the Fox River site.

The defence of the 1995 New York Proceedings was conducted by Windward and/or API on behalf of API and BAT with BAT having no material involvement in that defence.

The 1995 New York Proceedings were settled on terms set out in a settlement agreement between the parties which was formally executed in July 1999 but stated to take effect from 12 February 1998 (the “1998 Settlement Agreement”).

Under the 1998 Settlement Agreement all “Damages” and “Group Defense Costs”, which terms included potential CERCLA liabilities of NCR (and API/BAT) up to a total of $75 million allocated or assessed to, imposed upon, or incurred by NCR or API/BAT, either singly or collectively, relating to (amongst other matters) the Fox River sites and ‘Future Sites’ would be borne, as to 55%, jointly and severally by API/BAT and, as to 45%, by NCR.

Pursuant to the terms of a Subsequent Allocation Arbitration Agreement dated 12 February 1998 (the “Subsequent Allocation Arbitration Agreement”) liabilities for “Claims”, “Damages” and “Group Defense Costs” (as those terms were defined in the 1998 Settlement Agreement) in excess of $75 million were to be allocated between NCR and API/BAT as determined by binding arbitration.

On 5 July 2001 there was an employee buy-out of API, and Windward indirectly sold and transferred all the outstanding capital stock of API to two companies named Paperweight Development Corporation (“PDC”) and New Appleton LLC (“New Appleton”).

By the PDC Fox River Environmental Indemnity Agreement dated 9 November 2001 between API, PDC, New Appleton and Windward, Windward agreed to indemnify API indirectly in respect of any amounts paid or payable by API constituting (amongst other things) “Damages” or “Group Defense Costs” (save for a $25 million “slice” of such damages and group defence costs in excess of $75 million which was agreed to be borne by API) (the “2001 API Indemnity”).

The effect of the 2001 API Indemnity is that, as between API and Windward, it is Windward who will ultimately bear the financial costs of API’s indemnity obligations to NCR under the 1998 Settlement Agreement.

In early 2005 NCR commenced arbitration proceedings against API and BAT pursuant to clause 4 of the 1998 Settlement Agreement and the Subsequent Allocation Arbitration Agreement seeking a determination of the allocation of “Damages” and “Group Defense Costs” in excess of $75 million (the “2005 Arbitration Proceedings”). Again, the defence was conducted by Windward and/or API on behalf of API and BAT and BAT had no material involvement.

The arbitration tribunal delivered its award on 28 November 2005 (the “2005 Arbitration Award”), allocating all “Claims”, “Damages” and “Group Defense Costs” in excess of $75 million, as to 60%, to API/BAT and, as to 40%, to NCR.

As a consequence of the 1998 Settlement Agreement and the 2005 Arbitration Award, API and BAT are said by NCR to be obliged to indemnify NCR in respect of 60% of all “Claims”, “Damages” and “Group Defense Costs” in excess of $75 million, subject to the terms of the 1998 Settlement Agreement.

BAT is accordingly potentially liable to NCR jointly and severally with API for 55% of NCR’s liabilities up to $75 million and for 60% of those liabilities in excess of $75 million. Current estimates of NCR’s liability in respect of the Fox River are in the region of $1 billion.

It is in respect of this liability that BAT claims that it is entitled to be indemnified by Windward. It puts its case as follows:

(1)

BAT’s principal claim is that it has the benefit of a contractual indemnity under Clauses 11.1.1 and/or 7.2 of the 1990 Demerger Agreement. In support of its claim under Clause 7.2 of the 1990 Demerger Agreement, BAT relies in addition upon an alleged collateral agreement or estoppel which arose in 1999, prior to the execution of the 1998 Settlement Agreement in July 1999.

(2)

An agreement concluded in 1995, in the context of the 1995 New York Proceedings, in oral and written communications between representatives of BAT, Windward and API under which Windward/API agreed that they were liable to indemnify BAT in respect of all losses suffered or incurred by BAT in connection with the subject matter of the proceedings which had been brought against API and BAT by NCR. In the alternative, BAT claims that an estoppel by convention and/or representation arose out of the same communications, as a result of which Windward and API are estopped from denying that they are obliged to indemnify BAT against all such losses suffered or incurred by BAT.

(3)

An estoppel by convention and/or representation arising out of communications between representatives of BAT, Windward and API (and their respective lawyers) between 2003 and 2007, as a result of which Windward and API are estopped from denying that they are obliged to indemnify BAT against all losses suffered or incurred by BAT in connection with the liability to NCR.

Windward denies that it has any liability to BAT but for the purpose of the present application does not seek to dispute that BAT has a good arguable case.

The assets of Windward which BAT contends require protection consist of dividend claims (“the Dividend Claims”) which it is alleged that Windward has against Sequana and its former directors.

These claims are said to arise in respect of (1) a dividend of €443 million ($616.5 million) paid to Sequana on 17 December 2008 (the “2008 Dividend”) and (2) a dividend of approximately €135 million ($184.2 million) paid to Sequana on 18 May 2009 (the “2009 Dividend”). The total sum of the dividends subject to the claims is €578 million ($800.7 million).

BAT contends that these dividends (1) could not lawfully be paid as a matter of company law’s maintenance of capital rules and (2) should not have been paid by Windward’s board in any event acting in accordance with their general duties to Windward.

In relation to whether the dividends could not lawfully be paid BAT relies on various provisions of the Companies Act 2006 and submits as follows:

(1)

Windward could only lawfully make a distribution out of profits which were available for the purpose, being its accumulated, realised profits, so far as not previously utilised, less its accumulated, realised loses, so far as not previously written off (s. 830(1));

(2)

Whether a distribution could be lawfully made was to be determined by reference to the following items as stated in the "relevant accounts" of Windward, namely (a) profits, losses, assets and liabilities, (b) provisions of a kind specified for the purposes of sub-s. 836(1) by regulations under s. 396 (or, in the case of accounts in respect of financial years beginning before 6 April 2008, provisions of a kind mentioned in paragraphs 88 and 89 of Schedule 4 to the Companies Act 1985); and (c) share capital and reserves (including undistributable reserves) (s. 836(1));

(3)

“Relevant accounts” means for these purposes Windward's individual accounts which were last circulated to members in accordance with s.423 of the Companies Act 2006 (or, in the case of accounts in respect of financial years beginning before 6 April 2008, in accordance with s. 238 of the Companies Act 1985) before the distribution in question was made (ss. 836(2) and 837(1)), except that where a distribution would be found to contravene Part 23 by reference to the company’s last annual accounts, it may be justified by reference to interim accounts (s. 836(2)(a));

(4)

The last annual accounts must have been properly prepared in accordance with the Companies Act 2006 (or, in the case of accounts in respect of financial years beginning before 6 April 2008, the Companies Act 1985), or have been so prepared only subject to matters that are not material for determining (by reference to the items mentioned in s. 836(1)) whether the distribution would contravene Part 23 (s. 837(2));

(5)

Interim accounts must be accounts that enable a reasonable judgment to be made as to the amounts of the items mentioned in s. 836(1) (s. 838(1)); and

(6)

If any applicable requirement of s. 837 (in the case of last annual accounts) or s. 838 (in the case of interim accounts) is not complied with, then the accounts may not be relied on for the purposes of Part 23 and the distribution is to be treated as contravening that Part (s. 836(4)).

Windward did not seek to challenge these general propositions.

In relation to whether the dividends should not have been paid BAT contended as follows:

(1)

Pursuant to the Companies Act 2006 (and, before that, as a matter of equity and common law) directors owe general duties to their company, including duties (i) to act in a way that is considered by them in good faith to be most likely to promote the success of the company for the benefit of its members as a whole (s. 172), (ii) to exercise reasonable care, skill and diligence (s. 174) and (iii) to exercise their powers only for the purposes for which they were conferred and in accordance with the company’s constitution (s. 171(b)). Directors’ duties require them to have regard to the interests of creditors, and in particular, where a company is of doubtful solvency, or approaching or at serious risk of insolvency, require priority to be given to the interests of creditors and/or those interests to be treated as paramount and representing the interests of the company as a whole - see, generally, s. 172(3) of the Companies Act 2006; West Mercia Safetywear Ltd v Dodd (1988) 4 BCC 30 (CA); Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch) at [74].

(2)

By the 2008 and 2009 Dividends, Windward’s board paid away to Sequana substantially all of the company’s assets. It was a breach of the duties of Windward’s directors to do so in circumstances where:

(a)

Windward had very substantial potential liabilities (through API and BAT and, in turn, through NCR) in respect of the Fox River and Kalamazoo River clean-up costs;

(b)

Windward’s potential total liability in respect of the Fox River clean-up costs alone was then to be estimated at between $466 million and $526 million, meaning that Windward was left with clearly insufficient assets to be able to meet that liability;

(c)

Windward was not then trading but was (and remains) effectively in run-off. Its principal business was and is, as indemnitor, to conduct and fund the clean-up of the Fox River site and other sites in accordance with its obligations to indemnify API and BAT.

(d)

By distributing substantially all of its assets to Sequana, Windward put itself in a position whereby it was likely to be unable to meet its indemnity obligations to API and BAT, or at the very least there was a grave risk of that.

In relation to the 2008 Accounts, the Board Minutes of 17 December 2008 recording the decision to pay the 2008 Dividend refers to and relies on “Interim Accounts”. BAT does not accept that these are true interim accounts or that they were in fact prepared and used for the distribution of the dividend. It contends that they did not enable a reasonable judgment to be made as to the amounts of the items mentioned in s. 836(1) (e.g. Windward’s liabilities and relevant provisions) because the provision made in respect of Windward’s liability to API and BAT in respect of the Fox River liability was grossly inadequate. In this connection it contends that as regards the Fox River site, Windward’s potential liability (based on NCR’s 2008 accounts) in December 2008 was between at least $466 million and $526 million, but, notwithstanding this, the 2008 “Interim Accounts” record only a provision for €58.4 million in respect of the Fox River clean-up costs.

Windward submits that the true position is far more nuanced than this and that BAT is exaggerating the liabilities which were faced and understating the assets which were available. It is also ignoring the judgment involved in assessing these contingent liabilities and the fact that professionals were involved. In particular it takes no account of potential recoveries under insurance policies, especially a $250 million policy (“the Maris policy”) taken out to cover these liabilities. It was also suggested that this liability had been transferred to an associated company, Arjo Wiggins Appleton (Bermuda) Limited (“AWAB”). In this connection reference was made to the notes to the 2007 accounts which stated that liability up to the $250 million policy limit had been “assigned” to AWAB and subsequent to the hearing a Deed of Assignment was produced. However, there was no statement evidence addressing this issue, nor was it explained or referred to in the “Interim Accounts” or the 17 December 2008 Board Minutes. The Deed of Assignment appears to put in place a mechanism for payment of the API liabilities by AWAB up to the limit of the Maris policy, but Windward was to remain primarily liable to perform its indemnity obligations to API under the 2001 API Indemnity Agreement. In so far as the 2007 Accounts (or any other accounts) were treating $250 million of Windward’s liability as being not its liability but AWAB’s liability, BAT accordingly submitted that it was wrong to do so.

I accept that the figures may well not be as simple or as stark as portrayed by BAT and that there is other evidence which may well need to be considered, but on the evidence before the court I am satisfied that BAT has shown that the 2008 Dividend claim is a viable claim which has a real prospect of success. In particular, even if the Fox River liability figures are significantly reduced from those put forward by BAT they still provide a marked contrast to the €58.4 provision made. Further, in the Board Minutes of 15 December 2008 it is noted that for the purpose of the Solvency Statement being made it was to be assumed that the value of the insurance policies (including the Maris policy) was zero. In addition, in the 2008 Accounts (produced in February 2009) it was noted in relation to the insurance policies (other than the Maris policy) that “current accounting principles, however, do not allow the recognition of such a contingent asset in the Company’s balance sheet”.

In relation to the 2009 Accounts, the Board Minutes of 18 May 2009 state that the decision to declare the 2009 dividend was made in the light of “interim accounts”. However, no such accounts have been provided so there are no “relevant accounts” before the court to seek to explain or justify the decision made. Further, the Minutes refer to distributable reserves of only €41,276,533.47, and such reserves could not justify the declaration and payment of a dividend of €135,181,358.55.

Again, I accept that the figures may well not be as simple as portrayed by BAT and that there may be other relevant evidence, but on the evidence before the court I am satisfied that BAT has shown that the 2009 Dividend Claim is a viable claim which has a real prospect of success. Aside from the position on the accounts noted above, the potential liabilities against reserves remained open to serious question for similar reasons as in relation to the 2008 Dividend. The very recent distribution of €443 million also has to be borne in mind.

I accordingly conclude on the evidence before the court that the Dividend Claims have a real prospect of success.

The essential basis advanced by BAT for the need for the appointment of a receiver is that there is a real risk that the Dividend Claims will become time barred imminently as a matter of French law and that the appointment of a receiver is necessary to ensure that the necessary protective steps are taken. This was disputed by Windward who submits that this is a theoretical rather than a real risk. Both parties agree that the better view is that the Dividend Claims are governed by English law, but BAT submits that there is a real possibility that a court may conclude otherwise.

There was French law evidence before the court from Mr Kirry for BAT and Mr Bouckaert for Windward.

BAT’s case is that there is a possibility that some of the Dividend Claims may be governed by French law and therefore subject to a five year time bar (the five year time bar was common ground between the experts), which would expire in mid December 2013 in respect of the 2008 Dividend Claim.

The principal claim which it was said might be held to be governed by French law was that for unjust enrichment given that the dividends were paid to a French company, Sequana, and the enrichment is therefore likely to have occurred there. This may mean, as a matter of English common law choice of law rules, that it is French law which has the closest and most real connection with the obligation – see, for example, the discussion in OJSC Oil Co Yugraneft v Abramovich [2008] EWHC 2613 (Comm) at [237] to [247]. In so far as this was a matter of French choice of law rules (because of the possibility of proceedings taking place in France) it was Mr Kirry’s evidence that the French courts would apply French law to determine such a claim – a claim for enrichissement sans cause.

Windward submits that as a matter of English conflicts of laws the issue before the court is alleged unlawful payment of dividends by directors of an English company and that all claims arising therefrom will be governed by English law – see, for example, Base Metal Trading v Shamurin [2005] 1 WLR 1157. It points out that it would be perverse if different laws were to apply according to the happenstance of where different recipients of such an unlawful payment might be found.

It was the evidence of Mr Bouckaert that French conflicts of laws reaches the same conclusion. He disagreed with Mr Kirry that an unjust enrichment claim would be governed by English law and further pointed out that such a claim only arises under French law where there is no other claim. Whether that means no other successful claim was not entirely clear, although I understood that to be Mr Kirry’s evidence.

It is neither necessary nor appropriate to decide this issue and I recognise the force of the evidence and submissions of Windward on the applicable law issue. However, I am unable to conclude there is no possibility that any of the Dividend Claims are governed by French law. The risk may not be great but there remains a risk.

As with an injunction, the Court has jurisdiction to appoint a receiver “in all cases in which it appears to the court to be just and convenient to do so…” (section 37(1) Senior Courts Act 1981 (“SCA”)).

As the Court of Appeal confirmed in its decision in Masri v Consolidated Contractors International (UK) Ltd and others (No 2) [2009] QB 450, in the context of receivers, section 37(1) SCA is not to be taken as conferring an ‘unfettered power’. In Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17 the proper approach was summarised by Lord Collins giving the judgment of the Privy Council as follows at [55] to [58]:

“55 The background to the decision in Masri (No 2) [2009] QB 450 was that it had long been thought that the power in what is now section 37(1) of the Senior Courts Act 1981 (formerly the Supreme Court Act 1981 ) to “appoint a receiver in all cases in which it appears to the court to be just and convenient to do so” could only be exercised in circumstances which would have enabled the court to appoint a receiver prior to the Supreme Court of Judicature Act 1873 (36 & 37 Vict c 66), section 25(8) , when it was first put on a statutory basis….

56 But in Masri (No 2) [2009] QB 450 it was held that these decisions were based on a misunderstanding of North London Railway Co v Great Northern Railway Co (1883) 11 QBD 30 and that the court was not bound by pre-1873 practice to abstain from incremental development. The jurisdiction could be exercised to apply old principles to new situations. Masri (No 2) confirms or establishes the following principles: (1) the demands of justice are the overriding consideration in considering the scope of the jurisdiction under section 37(1) ; (2) the court has power to grant injunctions and appoint receivers in circumstances where no injunction would have been granted or receiver appointed before 1873; (3) a receiver by way of equitable execution may be appointed over an asset whether or not the asset is presently amenable to execution at law; and (4) the jurisdiction to appoint receivers by way of equitable execution can be developed incrementally to apply old principles to new situations.

57 Masri (No 2) also confirmed that section 37(1) does not confer an unfettered power. It pointed out that there are many decisions on the injunctive power to that effect: South Carolina Insurance Co v Assurantie Maatschappij “De Zeven Provincien” NV [1987] AC 24, 40, per Lord Brandon of Oakbrook: “although the terms of section 37(1) of the Act of 1981 and its predecessors are very wide, the power conferred by them has been circumscribed by judicial authority dating back many years.”…

58 So too in Masri (No 2) [2009] QB 450 it was confirmed that the power to appoint receivers under section 37(1) is also not unfettered…”

In relation to the exercise of the court’s discretion Windward submits that the following principles should be borne in mind:

(1)

A receiver should not be appointed if it has the effect of preventing the defendant from carrying out ordinary transactions in the course of business: Gee on Commercial Injunctions (5^th ed) at para 16.007.

(2)

The power of appointment of a receiver “is an extraordinary and drastic remedy, to be exercised with utmost care and caution and only where the court is satisfied there is imminent danger of loss if it is not exercised…”: Bond Brewing Holdings Ltd v National Australia Bank Ltd (1990) 1 ACSR 445.

(3)

The Court will need to be satisfied that sufficient protection against dissipation cannot be given to the applicant by less invasive remedies: JSC BTA Bank v Ablyazov (No 3) [2010] EWHC 1779 (Comm) (Teare J).

Windward further submits that the court should be slow to second-guess the decision making of directors of a company and that regard should be had to the important fact that the director’s duties are owed to the company and not to its creditors.

In summary, it submits that a strong case must be made out to warrant the interference with the conduct of a company’s affairs, where there is no proprietary interest in the property to be the subject of the receivership order – see Kerr and Hunter on Receivers and Administrators (19^th ed) at para 2-35 which states:

“…although general creditors may obtain a receiver of the property of the debtor, a strong case must be made out to warrant the interference of the court. The court will not, unless a clear case is established, deprive a person of property over which the claimant has no specific claim, in order that, if he establishes his claim as a creditor, there may be assets wherewith to satisfy it”.

(citing Owen v Homan (1853) 4 HL Cas 997, see pp. 1032-1033)

BAT submits that there is a clear need to appoint a receiver to protect the Dividend Claims in circumstances where there is the risk of an imminent time bar and Windward is unprepared to give any firm commitment to issue protective proceedings.

It points out that the need to make Dividend Claims was first pointed out to Windward by solicitors’ letter in November 2011. At that stage Windward’s response that it did not consider the claims were capable of being pursued. In the intervening period there have been without prejudice negotiations between the parties but no serious steps to investigate the Dividend Claims were taken by Windward before the end of August 2013, when Leading Counsel was instructed. Since then an independent committee has been appointed and a retired Irish Supreme Court and ECJ Judge, Mrs. Justice Fidelma Macken, has been asked to report on the Dividend Claims. A summary of her findings is expected on 15 November 2013 with her report to follow a week later. However, there remains no assurance that protective proceedings will be issued and time is fast running out. Further, although Windward has apparently been seeking to negotiate a tolling agreement with Sequana, there is no guarantee that any such agreement will be concluded timeously or at all.

BAT stresses the quantum of the Dividend Claims is very substantial – in excess of $800 million. Given, as I have found, those are good arguable claims, it is essential that a receiver is appointed to avoid any risk of the right to such valuable assets being lost.

BAT further points out that Windward is not a trading company so that the extent of intervention or interference will be minimal. Further, at this stage such intervention will be limited to the issue of protective proceedings. In addition BAT will cover the receiver’s reasonable fees and disbursements in pursuing the Dividend Claims and will cover any adverse costs orders made against Windward or the receiver. In all the circumstances it submits that no real prejudice will be suffered by Windward through the appointment of the r eceiver.

Windward submits that the real question is whether Windward should be precluded from making its own decision about whether to pursue the Dividend Claims. In addition to relying on the principles set out at paragraphs 46 to 48 above, it contends in particular as follows:

(1)

BAT is not a creditor of Windward. The main proceedings will determine whether Windward is even contingently liable to indemnify BAT. That contingency is all the more remote for the fact that no action has been taken against BAT by NCR (apart from issuing a demand in May 2012, on which it has chosen not to sue) so far as Windward is aware.

(2)

Windward is seriously and properly considering whether or not to pursue the Dividend Claims, and has set up an independent committee and an independent investigator to consider the claims.

(3)

There is no basis for supposing that receivers would be any better placed than Windward to make a decision as to whether to pursue the potential claims.

(4)

Windward will suffer real prejudice as the result of the appointment of a receiver. In particular:

(i)

A receiver will need to consider the merits of a claim. That is complicated. But he will also need to consider whether, even if viable, such a claim should be brought in light of developments in the US litigation. In particular, there is a tension between bringing such claims (on the basis that enormous liabilities exist) and defending claims in the New York arbitration (on the basis that they do not). That is not a judgment call that any receiver will find straightforward, and receivers will have no responsibility for the other litigation.

(ii)

A receiver will have no knowledge of the case or its complicated background. Some of that information can be gleaned from professional advisors (at BAT’s expense), but a heavy burden will fall on Windward’s directors and officers. That involves a duplication of work already done with its present advisors (and the investigator).

(iii)

The burden is all the heavier because a receiver is an officer of the Court. No matter how co-operative the directors and officers are willing to be, there is inevitably a concern that any perceived failure to co-operate will be the subject of sanctions.

(iv)

As a practical matter, the appointment of receivers would come at a crucial moment in negotiations of a possible tolling agreement with Sequana.

(5)

The suggested need for urgency is contrived and there is no real risk of material claims becoming barred.

Having carefully considered both parties’ evidence and submissions I have concluded that justice and convenience does require the appointment of a receiver and that this is an appropriate case for the court to exercise its discretion to do so for the reasons given by BAT and in particular:

(1)

BAT has a good arguable claim for an indemnity.

(2)

Windward’s Dividend Claims have a real prospect of success.

(3)

Those claims are very substantial in amount, being in excess of $800 million.

(4)

There is a risk that the right to pursue those claims will be lost if no protective proceedings are issued and no tolling agreement reached.

(5)

Proceedings need to be issued by mid-December 2013 in order to protect any claims governed by French law.

(6)

Although Windward is investigating the Dividend Claims, there is no assurance that protective proceedings will be issued, or that a tolling agreement will be reached.

(7)

No undertaking has been given that protective proceedings will be issued if there is no tolling agreement.

(8)

There is therefore no certainty that the limitation position will be protected and there is a real risk that it will not be.

(9)

Although the intervention of receivers may cause some disruption, their role will be limited. At this stage it will simply be to ensure that appropriate protective proceedings are issued.

(10)

The potential prejudice to BAT (and other creditors) if no protective proceedings are issued and the Dividend Claims become time barred is very great.

(11)

The prejudice to Windward if receivers are appointed to issue protective proceedings will be minimal for the reasons given by BAT.

(12)

Many of the points made by Windward as to the invasive effect of a receivership order and the interference involved are of less weight in the circumstances of this case because it is not a trading company and because at this stage any intervention will be both limited and circumscribed and will extend only to the issue of protective proceedings.

It will be apparent from the above that an important reason for reaching the conclusion that the appointment of a receiver is required is that there is no assurance that protective proceedings will otherwise be issued. If Windward was to undertake that, if there is no prior tolling agreement, it would issue such proceedings by the requisite date in mid-December, then there would be no present need to appoint a receiver.

This was acknowledged by BAT at various stages in oral argument. However, its ultimate position was that due to the allegedly conflicted position of Windward’s directors, Mr Gower and Mr Tauscher, the appointment of a receiver is necessary for the prosecution of any proceedings issued. On the evidence currently before the court I am not so persuaded. The case which has been made out relates to the need to protect the limitation position and the issue of protective proceedings for that purpose.

For completeness I should also point out that a further reason relied upon by BAT in its written skeleton was that Windward is on the brink of insolvency. This was not developed orally and is not a matter I have relied upon.

For the reasons outlined above I have concluded that, absent an appropriate undertaking from Windward, receivers should be appointed in order to commence the Dividend Claims in the name of Windward and thereby protect the limitation position.