Business: High Court Judgement Of SABMiller’s Dispute with EABL
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· EABL entered into 3 agreements with SBL on 16 July 2009:
-A share purchase agreement (SPA)
-A loan agreement (LA)
-A brewing and distribution agreement (BDA)
· TBL sought an urgent order for injunction to prevent these agreements from being consummated on the grounds that they were prejudicial to TBL interests
· On 18 August 2009, the judge granted the order to injunct. In terms of the injunction order, EABL has been prevented from completing these agreements and the originalBDA between EABL and TBL remains in full force and effect.
· However this is only an interim (“interlocutory”) judgement. The injunction order will stand until resolved by ICC arbitration proceedings.
SABMILLER AFRICA B.V. ("SABMA") and TANZANIA BREWERIES LIMITED ("TBL") v EAST AFRICAN BREWERIES LIMITED ("EABL")
1. Summary of Clarke J Judgment dated 18 August 2009
1.1 The High Court in London has granted SABMiller an injunction which stops EABL from purchasing Serengeti Breweries Ltd ("SBL").
1.2 The dispute between the parties will be determined finally by an ICC arbitration in London. That ICC arbitration was commenced against EABL by TBL and SABMA on 7 August 2009.
1.3 The High Court Injunction will prevent EABL from taking any further steps to acquire SBL until after 17 January 2011 (or further order of the High Court or the ICC arbitration).
1.4 Provisions of the Brewing and Distribution Agreement between TBL and EABL dated 14 May 2002 (the "BDA") preventing EABL from acquiring SBL will continue to be binding on EABL until January 2011 or further order of the ICC arbitration.
1.5 TBL continues to be the sole and exclusive brewer and distributor of EABL brands in Tanzania.
2. Extracts from the Judgment
2.1 At paragraph 202, the Judge sets out the key terms of the injunction:
"[...] an order restraining EABL until further order of the arbitral tribunal, or of the court, or until 17th January 2011, whichever shall first occur, from any further implementation of (a) the SBL [Share Purchase Agreement]; (b) the SBL [Brewing and Distribution Agreement] and (c) the SBL [Loan Facility Agreement] and any related transaction by which advances made or to be made pursuant the latter are to be secured."
2.2 At paragraph 30, the Judge criticised EABL's attempt to conceal its secret negotiations to acquire SBL:
"On 15th July 2009 TBL wrote to EABL seeking confirmation that it was not seeking to purchase an interest in any competitor of TBL. It asked for confirmation by 5.00 pm Tanzanian time on 16th July that, if EABL was engaged in such discussions, it would desist. On 16th July EABL replied saying that it would be unable to provide a substantive response by 5.00 pm but anticipated being in a position to respond the following morning. Given that EABL had been in negotiations to acquire a shareholding in SBL for months and was about to conclude the agreements referred to in the following paragraphs, this response was disingenuous."
2.3 At paragraph 35, the Judge describes how TBL and SABMA obtained an interim injunction from the High Court in London on 17 July 2009 shortly after it became clear that EABL was rushing to acquire SBL:
"The applicants applied to Gross J for relief [on 17 July 2009]. EABL was represented. TBL had by then learnt of the SBL SPA and SBL BDA but not of the SBL LFA. The upshot of the hearings was that EABL was required to undertake until further order of the court not to proceed with or procure completion of the SBL [Share Purchase Agreement] or the SBL [Brewing and Distribution Agreement] and to continue to act as if it were bound by the [terms of the BDA]."
2.4 At paragraph 126, the Judge set out his conclusion that TBL has a strong case that EABL acted in breach of the BDA when it attempted to terminate the BDA immediately on 17 July 2009:
"In short, for the reasons set out in the preceding paragraphs I conclude that there is a serious question as to whether TBL was in fundamental breach and whether EABL was justified in terminating the TBL BDA. I go further than that. It seems to me that TBL has a strong case for saying that any price increase and want of best endeavours breaches should have been the subject of a notice to remedy and that there was no repudiatory breach in respect of the advertising expenditure."
2.5 At paragraphs 138 and 139, the Judge set out his conclusions regarding EABL's claims that the BDA contains unreasonable restraint of trade terms that are unenforceable:
"TBL’s contention is that the BDA will not terminate until July 2010. It seems to me that until that time no question arises of the unreasonableness of the restraints. TBL could reasonably expect that, whilst it was acting as sole and exclusive Brewer for EABL and devoting itself to promoting EABL’s products EABL would not acquire an interest in another brewer and appoint it to distribute its products as well.
In relation to the post termination period the position is potentially different. However, I am not persuaded that, at an interlocutory stage, I should regard the restraints as so unreasonable that any interlocutory relief based on them should be refused. They were the subject of extensive negotiation between two sizeable and sophisticated commercial concerns, each advised by well known lawyers. The parties took care to express their agreement as to the reasonableness of the restraints and the necessity for having them. The matching arrangements in relation to Tanzania and Kenya provided sizeable advantages to both sides, and included the passing over of confidential information and the potential loss of goodwill in relation to TBL’s own products arising from its having agreed to act as brewer and distributor of EABL’s products. Such interests could reasonably be said to deserve protection."
2.6 At paragraph 173, the Judge stated that TBL has a strong case that the BDA will continue to be binding on EABL until January 2011:
"[...] TBL has a strong case that the BDA will not terminate until July 2010 in which case the [terms of the BDA which prevent EABL from acquiring SBL] would last until January 2011."
2.7 At paragraphs 178 to 181, the Judge set out his conclusions on the risk that TBL would suffer unquantifiable damages if the High Court did not act quickly to prevent EABL from acquiring SBL:
"In my judgement damages would not be an adequate remedy for TBL.
Firstly it seems to me that the loss which it will suffer if EABL is allowed to proceed with the SBL BDA (together with the SBL SPA and the SBL LFA) is not limited to the royalties that it would have earned on the sales of EABL products that would have occurred if the TBL BDA had not been terminated. It is tolerably clear that the agreements which EABL and SBL seek to implement are designed to merge the interests of SBL and EABL, to enhance the position of SBL, of which EABL is to be the majority owner, and which is to be financed by the loans provided for by the SBL LFA, and to create a powerful new competitive force. The new enhanced SBL will no doubt seek, with its increased range of products and increased finance, to make a greater impact on the market than SBL has previously been able to do. It is inherently likely that the new SBL will succeed in attracting custom to the detriment of sales of TBL’s products. The extent to which it does so will be very difficult to calculate but is likely to be real. If TBL/Sabma’s contentions are right the new SBL will be able to start up 17 months earlier than the TBL BDA and SHA contemplate.
I note in this connection the evidence of Mr Goetzsche:
'we will lose all the custom and goodwill that we have successfully generated, at considerable expense to TBL, for EABL’s brands over the last seven years. Such custom and goodwill will immediately accrue to our rival, SBL, who will immediately begin selling EABL Products. This will result in a surge in the popularity and goodwill associated with SBL’s portfolio. Inevitably it will be very difficult to quantify the value and effect of such a wrongful transfer of custom and goodwill associated with TBL to SBL.' "
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