June 14, 2016

Dismissing an appeal from a decision of Blair J on the scope of an anti-avoidance provision in a share purchase agreement, the Court of Appeal has held that the judge was entitled to apply the statutory construction, as adopted by the House of Lords in Hayes v Willoughby [2013] UKSC 17, to a contractual provision that required a party to have a specific “purpose”, namely that the relevant purpose was the dominant one.  Longmore LJ, giving the judgment of the court, agreed with the judge that to interpret the term “the purpose” as the sole purpose would, in the particular contractual context, make it all too easy for the anti-avoidance provision to be itself avoided.

Starbev was part of a structure created by private equity investment funds to purchase from Anheuser Busch InBev (ABI) and its subsidiary Interbrew Central European Holdings, the latter’s brewing business in Central and Eastern Europe.  The deal was completed in 2009 and included an element of deferred consideration to which ABI was entitled under a “Contingent Value Right” (CVR) and which was payable when Starbev sold the business on and obtained returns above certain thresholds which rose year-on-year over three years.  Thus the earlier any on-sale happened the lower the threshold and the greater the value of the CVR.  An on-sale happened in 2012, before the end of the third year, when the business was sold by Starbev to the American brewer, Molson Coors.

The agreement contained an “anti-avoidance” provision that required proceeds received by Starbev to be returned for the purposes of the agreement, where a transaction was structured or undertaken “with the purpose of reducing payments due to ABI”.  A dispute arose as to whether the on-sale to Molson Coors engaged the anti-avoidance provision on the basis that the transaction, and specifically a “Convertible Note”, was structured with the purpose of reducing the payments due to ABI.

At trial, argument mainly focused on the construction of the term “the purpose”.  Blair J decided that reduction in payments due to ABI had to be the “dominant” purpose and, on the evidence, reducing the payments due to ABI had indeed been the dominant purpose of the transaction. Starbev had deliberately structured the sale to Molson Coors mainly to achieve that effect by making the agreement for the Convertible Note part of the total consideration.  Starbev appealed.

Rejecting Starbev’s appeal, Longmore LJ noted that, in Hayes v Willoughby, Lord Sumption made the point obiter that “A person’s purposes are almost always to some extent mixed, and the ordinary principle is that the relevant purpose is the dominant one”.  Longmore LJ considered that Blair J had been entitled to rely on this expression of opinion to hold that the word “purpose” in the current case should be construed as the dominant purpose.  Furthermore, it followed from Lord Sumption’s dictum that if the purpose was interpreted to mean “the sole purpose” the mischief at which the clause was aimed was liable to be subverted; it would be all too easy for the anti-avoidance provision to be itself avoided.  Thus, Starbev’s interpretation was “not at all plausible as the objective meaning of the clause in this contractual context” (Starbev GP Ltd v Interbrew Central European Holdings BV [2016] EWCA Civ 449 (11 May 2016) – to read the judgment, in full click here).