Mr Justice Floyd this week gave his judgment on the latest set of proceedings following the sale of Liverpool Football Club back in October last year.
It is clear that Tom Hicks and George Gillett are still aggrieved about how the club was taken away from them and have previously threatened to commence proceedings in order to recover the millions of pounds that they have claimed to have lost following the sale to New England Sport Ventures (“NESV”). Unsurprisingly, the former owners would prefer to commence any such claim in the United States but, currently cannot do so due to an anti-suit injunction being in place that prevents them from commencing proceedings relating to the sale of the football club in the any other jurisdiction.
This latest action involved a total of six applications made by various parties but the application that was believed to be the most significant was the one by the former owners. Their application was to discharge the anti-suit injunction granted in October, which, if successful, would have enabled them to bring a claim for damages in the United States.
If you cast your mind back to October last year you will remember that the former owners attempted to remove directors Christian Purslow and Ian Ayre from the board in order to block the approval of any sale to NESV. This was in clear breach of the various agreements with Royal Bank of Scotland (“RBS”), which clearly stipulated that the former owners were to have no involvement in the sale of the football club.
Sir Martin Broughton, who was appointed by RBS as independent Chairman in order to facilitate the sale process, did not believe that this was a valid decision by the former owners and so proceeded to accept the offer made by NESV.
RBS subsequently obtained an interim injunction preventing the former owners from taking further steps in breach of those agreements and later applied for a mandatory injunction reversing the changes to the board. RBS also issued a claim against the former owners and their corporate entities seeking a declaration that the removal of Christian Purslow and Ian Ayre was invalid or, if valid, was in breach of the agreements with the former owners.
In response, the former owners sought an injunction preventing the sale to NESV from proceeding and also issued a claim against Sir Martin Broughton, RBS, the corporate entities that owned the club, and the directors seeking a declaration that the decision to enter into the sale contract with NESV and the sale contract itself was not binding.
Finally, Sir Martin Broughton, and the corporate entities that owned the club, issued a claim against the former owners seeking a declaration that the reconstitution of the board by the former owners was invalid and that the decision to accept NESV’s offer was binding.
Mr Justice Floyd heard RBS’ application for a mandatory injunction and the former owners application for an injunction preventing the sale on 12th October 2010. In support of the former owners application, they claimed that RBS had acted in repudiatory breach of the agreement by excluding the former owners from the sale process and refusing to consider other offers. Justice Floyd held that the former owners claim based on repudiatory breach had “no realistic prospects of success” and refused to grant their injunction. Justice Floyd, however, granted RBS’ mandatory injunction and ordered that the board be restored.
This should have enabled the sale to NESV to proceed however, the former owners obtained a Temporary Restraining Order (“TRO”) in Texas against Sir Martin Broughton, the other directors, RBS and NESV. The TRO sought a declaration that Ian Ayre and Christian Purslow had been removed as directors and that they had no authority to approve the sale to NESV. The TRO was therefore clearly aimed at preventing the sale to NESV taking place and also included serious allegations against the club’s directors calling it “an epic swindle at the hands of rogue corporate directors” with Sir Martin Broughton accused of “constructive fraud”.
After becoming aware of the TRO, RBS, Sir Martin Broughton and NESV were forced to make an application for an anti-suit injunction. An anti-suit injunction prevents a party from commencing or continuing proceedings in another jurisdiction. Justice Floyd granted the injunction due to “the unconscionable conduct of the former owners in seeking to undermine the English proceedings”. The injunction required the former owners to discharge the TRO and prevented further claims by them against the parties to the proceedings taking place in the US. The specific order was as follows:
“The Defendants shall not, without the prior consent of this Court, commence or pursue, or procure or assist the commencement or pursuit of, any further proceedings relating to the Disputes in any Court or Tribunal other than the High Court of England and Wales or the courts of the member states of the European Union.”
As a result, the TRO was discharged and the sale to NESV was finally completed.
Currently, there are two sets of proceedings that remain:
1. RBS’ claim seeking a declaration that the removal of Christian Purslow and Ian Ayre was invalid or, if valid, was in breach of the agreements with the former owners; and
2. Sir Martin Broughton’s claim seeking a declaration that the reconstitution of the board by the former owners was invalid and that the decision to accept NESV’s offer was binding.
The claim by the former owners seeking a declaration that the sale to NESV was not binding has since been discontinued due to Justice Floyd dismissing the repudiatory breach argument.
This latest action involved the following six applications, which were heard by Mr Justice Floyd last week:
1. Application by the former owners seeking to discharge or vary the anti suit injunction; and
2. Application by Sir Martin Broughton seeking to amend his claim;
3. Application by Royal Bank of Scotland seeking to amend their claim;
4. Application by the former owners seeking to strike out or dismiss Sir Martin Broughton’s claim;
5. Application by NESV seeking an order joining themselves as a defendant to Sir Martin Broughton’s claim; and
6. Application by Sir Martin Broughton seeking permission to serve Kop Investment LLC out of the jurisdiction;
1. An application by the former owners seeking to discharge or vary the anti suit injunction
Following the anti-suit injunction being granted and the sale to NESV taking place, the former owners have since applied for the anti-suit injunction to be discharged or at least varied in order to incorporate a statutory provision provided by US law. The former owners argued that there are “no foreign proceedings immediately in prospect” meaning that the continued operation of the anti-suit injunction is not justified. As an alternative, the former owners proposed agreeing to provide an undertaking that they would give notice of any intended proceedings brought abroad.
RBS challenged this application on behalf of Sir Martin Broughton and NESV. They contended that the anti-suit injunction was necessary to protect the threatened proceedings by the former owners and should therefore not be discharged. RBS also referred to the contractual provisions contained within the various documents, which specified the jurisdiction to be England and Wales.
Mr Justice Floyd was “satisfied that the former owners have not shown any good reason why the injunction should be discharged.” In respect of the former owner’s contention that there is no immediate threat of any foreign proceedings, Justice Floyd believed that “they will undoubtedly start more proceedings if allowed to do so” and that “there is a real threat that those proceedings will be in the United States.” Justice Floyd felt that the form of any future proceedings was clear
“it is a claim … that there has been an unlawful means conspiracy by RBS, Sir Martin Broughton, the directors and NESV to exclude the former owners from the sale process and to sell Liverpool Football Club at an undervalue to NESV…The objective includes the recovery of sums by way of punitive damages against RBS, NESV and Sir Martin Broughton, amongst others.”
In respect of the jurisdiction clauses, Justice Floyd was satisfied that any proceedings brought in the US against Sir Martin Broughton would amount to a breach of the jurisdiction clause in his letter of appointment. However, the judge was less certain about any proceedings brought against RBS due to one of the agreements, namely the Corporate Governance Side Letter, specified the jurisdiction of England & Wales to be “non-exclusive”, although the judge did feel that any foreign proceedings against RBS would be covered by the exclusive jurisdiction clauses in the RBS side letter.
Interestingly, Justice Floyd failed to comprehend how any claim will have a connection with the US:
“this dispute concerns an English asset (Liverpool Football Club), duties owed by English directors under English law to English companies and corporate governance arrangements governed by English law.”
Justice Floyd was also still clearly perturbed by the TRO as he did not feel that he was provided with “a satisfactory explanation of the conduct which led to the application being made in Texas”. The former owners conduct back in October was obviously a relevant factor, which Justice Floyd considered:
“Given what has happened in the past, I think the court is justified in seeing what those proceedings are before releasing the injunction.”
As a result of the above, Justice Floyd concluded that the former owners application was dismissed although he did permit a variation of the anti-suit injunction allowing the former owners to seek assistance from a US court if any proceedings are subsequently commenced in this country.
2. Application by Sir Martin Broughton seeking to amend his claim
As stated above, Sir Martin Broughton’s claim remains active and he continues to seek declaratory relief. However, as the sale to NESV has taken place, the claim requires amending. The application heard last week was therefore to seek permission to make amendments to this claim.
Firstly, Kop Football (Holdings) Limited and Kop Football Limited were previously the corporate entities that had immediate control and ownership of the football club. However, because the sale to NESV has taken place, they are now under the control of the former owners. Sir Martin Broughton therefore applied to make these companies Defendants rather than Claimants in the action. Sir Martin Broughton’s previous claims for declarations remained. The further amendments sought were as follows;
a. That he is not liable to the former owners or any of their entities for breach of any duty in respect of his conduct as a director. In particular, with regard to his involvement in the sale of Liverpool Football Club to NESV.
b. Alternatively, a declaration or order pursuant to Section 1157 of the Companies Act 2006 relieving him of any liability in respect of the same matters, on the ground that he acted honestly and reasonably and ought fairly to be excused.
Counsel on behalf of the former owners felt it was wrong to allow the requested amendments as it had the effect of forcing the former owners into proceedings before they were ready to do so. Secondly, the former owners felt that the declaration sought was too wide as it relates to Sir Martin Broughton’s whole tenure as Chairman and not just the events during the sale process. Finally, the former owners argued that there was not a sufficient threat of proceedings from them to justify declaratory relief sought.
Mr Justice Floyd was “not persuaded by these submissions.” The judge felt that declaratory relief was suitable in this case due to the former owners’ threats of bringing a claim. Justice Floyd referred to an interview with Sky on 15th October 2010 where Tom Hicks said:
“this was an organised conspiracy, it went on over months, and it consisted of the Royal Bank of Scotland, Martin Broughton, who wanted to have a good PR event in his life…”
Further, Justice Floyd referred to a report in the Times on 16th October where Tom Hicks’ lawyer said that he would pursue “every legal avenue possible.”
The judge also referred to the TRO and the serious allegations made against Sir Martin Broughton contained within those proceedings:
“The proceedings were only withdrawn because of my order: the allegations made in it have never been.”
The judge therefore felt that nothing had changed and that Sir Martin Broughton’s “conduct of the sale process continued to be subject to attack by the former owners.” As a result, Mr Justice Floyd believed “Sir Martin Broughton has established that it would be useful for him to have the negative declaration sought”.
3. Application by Royal Bank of Scotland seeking to amend their claim
RBS’ claim also remains active and they continue to seek declaratory relief. Once again, the application heard this week decided whether RBS were permitted to make the following amendments to their claim:
a. A declaration that RBS did not act in repudiatory breach of the terms of the agreements with the former owners;
b. A declaration that RBS’ conduct did not deprive it of equitable relief in relation to the enforcement of those letters;
c. A declaration that RBS’ conduct in relation to the sale process of Liverpool Football Club did not involve it in dishonestly assisting any breach of fiduciary duty by the directors in relation to the sale;
d. A declaration that RBS’ conduct in relation to the sale process did not involve an actionable conspiracy;
e. A declaration that RBS is not prevented from enforcing its rights under the Security Agreement in respect of outstanding liabilities owed to RBS; and
f. A declaration that RBS is not prevented from enforcing its rights under the Guarantees from the former owners in respect of outstanding liabilities owed to RBS
Counsel for the former owners chose not to separately address the application to amend RBS’ claim as it was his intention to rely on his previous submissions concerning the application to amend Sir Martin Broughton’s claim. Accordingly, Mr Justice Floyd allowed RBS’ application.
4. Application by the former owners seeking to strike out or dismiss Sir Martin Broughton’s claim
As the judge permitted Sir Martin Broughton to make the requested amendments to his claim, the former owner’s application to strike out the claim was dismissed.
5. Application by NESV seeking an order joining themselves as a party to Sir Martin Broughton’s claim
This was granted by the Justice Floyd.
6. Application by Sir Martin Broughton seeking permission to serve Kop Investment LLC out of the jurisdiction
As Kop Investment LLC is a company incorporated in the United States, Martin Broughton sought permission to serve his claim outside the jurisdiction of England and Wales. This was granted by Mr Justice Floyd.
The outcome of these latest proceedings is undoubtedly a good result for all those involved with the sale of the Liverpool Football Club. The prospect of defending an action for damages by Tom Hicks and George Gillett in the United States would certainly have been unwelcome not to mention uncertain. For now, the former owners continue to be barred from bringing an action in the United States but it remains to be seen whether any further challenge to the anti-suit injunction will be forthcoming or if the former owners decide to instigate proceedings here. In the meantime, Sir Martin Broughton’s and RBS’ claims remain ongoing so expect further rulings relating to the sale in the future.