ESTOPPEL BY ACQUIESCENCE
In Starbev GP v Interbrew Central European Holding the Commercial Court considered the circumstances
in which a contractual party must correct a mistake or an incorrect assumption by another party under the
doctrine of “estoppel by acquiescence”. This applies where one party (“A”) acts or relies on the mistake
or assumption which is “acquiesced” to by another party (“B”) through B’s silence on the matter. B will be
taken to have agreed with the (incorrectly) assumed state of affairs, and be prevented from later
challenging the assumption, if it would be inequitable to do so.
CVC Capital Partners used Starbev as a vehicle to buy ICEH’s European brewing business in 2009. As
part of the transaction the parties entered into a Contingent Value Right Agreement (the “CVR”). This
gave ICEH the right to receive deferred consideration on a subsequent sale of the business. Under the
CVR, ICEH’s entitlement arose if the cash proceeds of the later sale exceeded thresholds which were
linked to the “Investment Amount” (as defined in the CVR): the higher the Investment Amount, the less
deferred consideration ICEH would receive.
Subsequently Starbev sold the business to a North American brewer, Molson Coors, following which
ICEH disputed the amount of deferred consideration payable to it under the CVR. ICEH claimed that the
Molson Coors consideration (part cash, part deferred) had been structured so as to reduce the CVA
amount. Other issues included:
whether the Investment Amount under the CVR, as calculated by Starbev, should include or
exclude transaction costs; and
alternatively, whether ICEH was estopped by acquiescence from challenging the Investment
Amount as calculated by Starbev.
The judge found in Starbev’s favour on the first point, namely that the Investment Amount included
transaction costs, as a matter of contractual interpretation, but went on to consider the estoppel by
Starbev’s argument was that since ICEH did not challenge the Investment Amount calculation until after
the sale to Molson Coors, it should be estopped from doing so. In its view, had ICEH been acting
responsibly, it would have made clear its disagreement with the calculation sooner, instead of waiting until
a payment was due from Starbev.Fried Frank Client Memorandum
The legal principles governing estoppel by acquiescence were set out in ING Bank NV v Ros Roca SA.
Following these principles, there were two main questions for the judge:
was a relevant assumption of fact or law made by Starbev and acquiesced to by ICEH; and
if so, would it be unconscionable to allow ICEH to go back on that assumption by Starbev?
The parties agreed that, in this context, silence could only amount to acquiescence where a “duty to
speak” arose. Starbev argued, on the basis of Ros Roca, that this duty would arise where a reasonable
person would expect that a party with a claim, acting honestly and responsibly, would take steps to make
the claim known. On this basis, ICEH’s irresponsible behaviour of keeping silent could amount to
The judge rejected this approach and held that some form of impropriety was required. ICEH also argued
that estoppel by acquiescence should only apply where the party to be estopped knows that the party
using the estoppel is mistaken. The parties had a genuine dispute over the Investment Amount, and
neither knew which was correct. The judge disagreed, and held that the relevant mistake was whether
there was a dispute as to the amount (as opposed to the amount itself). In his view, there were also two
other reasons why estoppel could not arise in these circumstances. Firstly, because it was always a
possibility that ICEH would challenge the Investment Amount figure (at least until it had been reviewed by
an independent accountant); and secondly, because it did not amount to “unconscionable” behaviour on
ICEH’s part not to inform Starbev of its doubts about the Investment Amount and to wait to review it until
after the sale to Molson Coors.
Cases on estoppel by acquiescence are comparatively rare. This decision illustrates the difficulty of
invoking the doctrine, in particular the requirement that the party who is aware of the true state of affairs
must act with impropriety in failing to speak up. Applying this to M&A transactions, purchasers are often
required by sellers to confirm that they are not aware of any facts which render the seller’s warranties
untrue. Sellers should continue to do so, as it is unlikely that a purchaser would be estopped from
bringing a claim for breach of warranty after closing on the basis that it knew that warranty was untrue at
closing. Parties should also be able to continue to challenge the basis of calculation for completion
PARENT COMPANY LIABILITY FOR HEALTH AND SAFETY OF EMPLOYEES OF SUBSIDIARY
In July 2012, we noted the decision in Chandler v. Cape, in which the Court of Appeal found that a parent
company may owe a duty of care to an employee of one of its subsidiary companies for personal injuries
suffered in the workplace. In Thompson v. The Renwick Group, the Court of Appeal revisited this issue
and provided useful guidance on the circumstances in which such liability may arise.
In Chandler v. Cape the Court of Appeal held that such liability may arise where:
the business of the parent and the subsidiary are the same in a relevant respect;Fried Frank Client Memorandum
the subsidiary’s system of work is unsafe, and the parent company knew or should have known it
to be so;
the parent has, or should have, superior knowledge of a relevant aspect of health and safety; and
the parent knew or should have foreseen that the subsidiary or its employees would rely on the
parent’s superior knowledge.
Both Chandler and Thompson were decisions relating to exposure to asbestos. In Chandler, the claimant
had worked for a haulage company, AW, initially as a labourer and then as a lorry driver. AW was later
acquired by DH, when the claimant became an employee of DH. DH was a subsidiary of the defendant
company, Renwick. The claimant brought a claim against Renwick in respect of lung disease contracted
as a result of exposure to asbestos. He did so, rather than bringing a claim against AW or DH, because
neither AW nor DH had liability insurance. The claim alleged breach of a duty of care owed to him by
Renwick based on the fact that (i) Renwick had appointed a director at DH with responsibility for health
and safety matters, (ii) some of the paperwork which he had received from the company had related to
the Renwick group of companies, (iii) he had been provided with a lorry bearing the Renwick logo, and
(iv) more generally, on the close relationship between some group companies.
The claim succeeded at first instance but was rejected by the Court of Appeal.
The main issue considered by the Court of Appeal was whether the appointment by Renwick to DH of a
director with specific responsibility for health and safety matters was sufficient to establish a duty of care.
The Court held that it was not. That director was responsible for acting as a director of DH and did not
act on behalf of Renwick. To reach any other conclusion would mean that a shareholder exercising a
power to appoint a director would effectively owe a duty to others. This would have been contrary to
On the second issue, the evidence was insufficient to establish that Renwick owed a duty of care to the
claimant. The principles established in Caparo v. Dickman relating to the circumstances in which a
person will be held to owe a duty of care to another require foreseeabilty of loss, proximity, and for the
imposition of a duty of care to be fair, just and reasonable in the circumstances. For his claim to succeed,
the claimant would need to have shown that Renwick was better placed, by virtue of superior knowledge
or expertise, to protect its employees. Renwick did not have greater knowledge of the hazards of
handling raw asbestos than DH and there was no evidence that handling dangerous substances was an
integral part of the defendant’s business, which was limited to acting as a holding company.
Whilst the Court of Appeal expressed great concern over the conditions in which the claimant had been
expected to work, applying the principles in Caparo v. Dickman it found that no duty of care existed.
Whilst the principles set out in Chandler v. Cape were helpful in describing the circumstances in which the
law could impose responsibility on a parent company for the health and safety of a subsidiary company’s
employee, they were not exhaustive. To show the degree of proximity which is required by Caparo to
establish a duty of care in this context, it will be key to show that the parent company has greater
knowledge of health and safety issues, and that there is a very close relationship between the companies
concerned.Fried Frank Client Memorandum
CROSS-BORDER MERGERS: MEANING OF “MERGERS BY ABSORPTION”
In Olympus UK Limited and others, the Court was asked to approve two proposed cross-border mergers
of English incorporated private limited companies as part of a restructuring of a wholly-owned group.
Under both mergers it was proposed to transfer the assets and liabilities of certain English companies
(the “Transferors”) to German group members (the “Transferees”) through a merger by absorption
under the Companies (Cross-Border Mergers) Regulations 2007 (the “Regulations”). The English
companies would then be dissolved without going into liquidation.
The shareholders of the Transferors agreed not to receive shares or other securities in the relevant
Transferee. This led the Court to consider whether these mergers could comply with the Regulations
which, on a strict reading, would require shareholders of the Transferors to receive consideration in the
form of “shares or other security representing capital of the transferee company”. The Court also looked
to the EU Directive which is implemented by the Regulations (the “Directive”)1
, noting that the definition of
“merger” is arguably more restrictive, requiring an “issue” of shares and with no ability for Transferor
shareholders to waive their rights.
An “issue” of shares has a particular meaning in English law, and occurs at the time the shareholder’s
name is written up in the company books as the holder of the relevant shares. Looking beyond this to
construe a broader interpretation of the Directive and the implementing Regulations, the Court heard
expert evidence on the approach taken under French and German law.
The Court concluded that the definition of “cross-border merger” does not require an issue of shares in
the strict sense implied by English company law. What is required is the recognition of the Transferor
shareholder(s) right to be offered consideration by the Transferee, which the Transferor shareholder can
then choose to waive.
Cross-border mergers under the Regulations are generally used for group restructurings.
Whilst this was not a litigated case, this is nonetheless helpful clarification of the process which such
group restructurings need to adhere to.
LIABILITY IN RESPECT OF DISCLOSURE OF CONFIDENTIAL INFORMATION BY SHAREHOLDERS
TO PROSPECTIVE PURCHASERS
In Richmond Pharmacology Limited v. Chester Overseas Limited, the Court considered whether a
shareholder had breached its obligations under a shareholders’ agreement by disclosing information
about the company to prospective purchasers of its shares, and whether such disclosure amounted to a
breach by that shareholder’s nominee directors on the board of the company.
In 2002 Chester Overseas acquired a minority interest in Richmond Pharmacology. The other shares
were held by three individuals. Chester appointed two directors to the board.
EU Directive 2005/56/EC on cross-border mergers of limited liability companies.Fried Frank Client Memorandum
In 2009, Chester instructed a corporate finance adviser to advise on the sale of its shares. The company
claimed that Chester and its nominee directors wrongfully disclosed confidential information to the
prospective purchaser and created the impression that all of the shares in the company were for sale,
thereby causing loss to the company.
The confidentiality clause in the shareholders’ agreement required the parties to treat all commercially
sensitive information as strictly confidential. This was subject to standard exceptions (including disclosure
of such information to professional advisers and bankers, subject to procuring that those persons also
keep the information confidential in accordance with the clause). Critically, the clause did not include an
exception for disclosure of information to prospective purchasers.
Chester argued that the confidentiality clause did not prevent it from disclosing confidential information
provided that care was taken to ensure that the recipient also treated it as confidential. Unsurprisingly,
this argument was rejected. Chester also argued that it is very difficult to sell shares in a company
without disclosing confidential information to prospective purchasers and that the claim should therefore
be interpreted as allowing such disclosure. The Court disagreed, and held that Chester was not entitled
to disclose information to potential investors even though the latter had undertaken to keep the
information confidential. It therefore found that Chester had breached its obligations under the
The nominee directors appointed by Chester owed duties to Richmond under s.172, s.174 and s.175 of
the Companies Act 2006: to act in a way which they consider, in good faith, would be most likely to
promote the success of the company for the benefit of members as a whole, to act with due care, skill and
diligence, and to avoid a situation in which they have, or can have, a direct or indirect interest that
conflicts, or may conflict, with the company’s interests.
The Court found that by entering into the shareholders’ agreement, the other shareholders authorised the
nominee directors to act both as directors of Richmond and as representatives of Chester. Nonetheless,
the nominee directors had breached their duty to avoid a conflict in relation to the disclosure of
confidential information. However, the judge held that the company had not suffered loss, awarded
nominal damages and dismissed the case against the nominee directors.
This case is an important reminder that where a shareholder has agreed to be bound by confidentiality
obligations it is preferable for the agreement to include a specific exception covering the situation where
the shareholder wants to sell its shares, and to ensure that any conflicts of directors’ interests in relation
to such a sale are properly handled.
* * *Fried Frank Client Memorandum
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