TIDMWTG
RNS Number : 5217V
Watchstone Group PLC
07 August 2020
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014 ("MAR").
Watchstone Group plc
Claim against PricewaterhouseCoopers LLP
Further to its previous announcement on 29 August 2019,
Watchstone Group plc (LON:WTG) ("Watchstone" or "the Company")
announces that it has filed and served a claim against
PricewaterhouseCoopers LLP ("PwC") in the High Court.
The claim against PwC is for damages or equitable compensation
of GBP63m plus exemplary damages, equitable compensation, interest
and costs. Watchstone's claim against PwC is for breach of contract
and/or breach of confidence and/or breach of fiduciary duty and/or
unlawful means conspiracy ("Claim").
The Claim arises from an unauthorised and illicit channel of
communication between PwC, Watchstone's trusted restructuring and
technical accounting adviser at the time, and Greenhill & Co
("Greenhill") , a corporate finance adviser to Slater & Gordon
(UK) 1 Limited ("S&G"), procured during the period of due
diligence and negotiation relating to the GBP637m disposal of the
Professional Services Division ("PSD") in 2015.
Watchstone claims that Greenhill established this back-channel
with PwC by one or more secret meeting(s) between representatives
of Greenhill and PwC, at which PwC unlawfully disclosed information
pertaining to Watchstone which was, and which it knew to be,
confidential. This information was then factored into S&G's
tactics and strategy for the negotiations with Watchstone leading
to the acquisition of the PSD. S&G thereby gained an unfair
advantage in those negotiations, which it exploited in order to
purchase the PSD at a lower price than it would otherwise have had
to pay. This caused Watchstone to suffer significant loss.
Watchstone did not discover (and was not told of) the various
breaches by PwC referred to above, and was therefore unaware that
its confidential information had been provided to Greenhill and
S&G until it received third party disclosure from Greenhill in
the proceedings with S&G on 19 July 2019 almost three years
after S&G's claim was first threatened. PwC never informed
Watchstone of the meeting or meetings, the disclosure or the
breaches that occurred.
Even today, PwC continues to refuse to reveal the identity
(other than to confirm that the person was male) of the PwC
representative (referred to in contemporaneous emails as the "Head
of PwC Restructuring") who met with and communicated with
Greenhill. It has, however, confirmed that that individual attended
a meeting on 15 January 2015 with Greenhill and that he was
contacted by them on another occasion in February 2015 to seek to
arrange a further meeting. Watchstone paid PwC in excess of GBP5m
in fees in 2014 and 2015 for its independent review into, inter
alia, Group accounting policies and cash generation. PwC had no
role in respect of the disposal of the PSD.
The Particulars of Claim will be available on written
application to the Commercial Court, alternatively online at the HM
Courts & Tribunals e-filing Service: HMCTS e-filing service at
https://efile.cefile-app.com/login, subject to the payment of the
prescribed fee. The claim number is CL-2020-000507, High Court of
Justice, Queens Bench Division, Commercial Court.
Watchstone will make further announcements in due course, as
appropriate.
The release of this announcement has been authorised by Stefan
Borson, Group Chief Executive Officer and Company Secretary of the
Company.
For further information:
Watchstone Group plc Tel: +44 (0)20 7930
8033
Alex Nekrassov alexnekrassov@newcenturymedia.co.uk
Dimitris Dimitriadis dimitrisdimitriadis@newcenturymedia.co.uk
WH Ireland LLP, Nominated Adviser and Broker Tel: +44 (0)20 7220
1666
Chris Hardie
Lydia Zychowska
Notes to editors:
In October 2019, Watchstone settled the High Court proceedings
issued by S&G in June 2017 relating to the sale of the PSD. The
settlement included the unconditional withdrawal by S&G of all
of its claims or potential claims against the Company relating to
the historical sale of the PSD in May 2015. The Company also agreed
not to pursue its counterclaim against S&G.
The settlement provided for GBP11m of the GBP50m being held in
escrow to be released to S&G with the balance of GBP39m and all
accrued interest from May 2015 being released to the Company.
As part of the S&G proceedings, the High Court considered
the subject matter of the Claim and Mr Justice Bryan found that
Watchstone had a real prospect of success. The judgment of Mr
Justice Bryan is available here:
https://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Comm/2019/2371.html
Watchstone has appointed solicitors Dorsey & Whitney
(Europe) LLP to represent the Company in relation to these
proceedings.
Summary of Particulars of Claim:
IN THE HIGH COURT OF JUSTICE Claim No. CL-2020-000507
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMMERCIAL COURT
BETWEEN:
WATCHSTONE GROUP PLC
Claimant
-and-
PRICEWATERHOUSECOOPERS LLP
Defendant
SUMMARY OF PARTICULARS OF CLAIM
1. The Claimant ("Watchstone", formerly "Quindell") claims
against the Defendant ("PwC") in breach of contract, breach of
confidence, breach of fiduciary duty and/or unlawful means
conspiracy. The basis for the claim is that, in early 2015, PwC,
Quindell's adviser, unlawfully disclosed Quindell's confidential
information to Greenhill & Co. ("Greenhill"), a corporate
finance adviser to Slater & Gordon (UK) 1 Limited ("S&G"),
with whom Quindell was in negotiations for the sale of certain
subsidiaries constituting its Professional Services Division (the
"PSD"). The sale of the PSD to S&G ultimately completed in May
2015 for an upfront cash purchase price of GBP637 million (the
"Sale").
2. By late 2014, Quindell had been the subject of extensive
adverse publicity in relation to its accounting practices and its
senior management. A new board, a new non-executive chairman, and
new advisers were brought in with a view to stabilising Quindell's
position and restoring its reputation.
3. The new board (initially in conjunction with its lending
banks, but ultimately on its own) appointed PwC to carry out a
review of its finances and to recommend any changes needing to be
made to its accounting practices, in the hope that that would, once
any such changes had been implemented, provide reassurance to the
market and to Quindell's lenders. PwC was provided with extensive
access to confidential information concerning Quindell's finances
in order to enable it to carry out that review and to advise.
Quindell paid PwC over GBP5m (excluding VAT) in fees in 2014 and
2015 for its review.
4. Shortly after PwC had been so retained, Quindell was
approached by S&G with an indicative offer to buy the PSD and,
after an initial transaction in which S&G bought a number of
case files from Quindell, it entered into a period of exclusive due
diligence, which was carried out from January to March 2015. PwC
was not retained as an adviser on the Sale, in relation to which it
had no role.
5. From the outset of the due diligence, S&G was very keen
to see the draft (and subsequently the final) report in which PwC
would set out its findings about Quindell.
6. S&G and its advisers considered in email discussions ways
in which they might try to access the report without Quindell's
knowledge, for example by establishing a secret back channel with
Quindell's lending banks, who had initially instructed PwC jointly
with Quindell. They decided not to pursue that idea, but Mr. Gareth
Davies, a Managing Director who worked for Greenhill in London,
told his colleagues that he had spoken to an acquaintance who was
the "head of PwC restructuring" (the "PwC Head of Restructuring"),
that he had thereby discovered that that partner was advising
Quindell, and that he had arranged to meet with him for a "quiet
coffee" to discuss matters. Mr. Davies remarked in relation to the
strategy to contact PwC directly that "if we find [Quindell] are in
a real corner we can take them to the cleaners [...]". Mr. Davies
asked his colleagues what questions they would like him to ask the
PwC Head of Restructuring, and they gave him some ideas, including
specific and price sensitive matters relating to the wider Quindell
group. At that time, Quindell was a high profile and heavily traded
public company listed on AIM.
7. Mr. Davies reassured his colleagues that Quindell would not
find out about the "quiet coffee", saying "We can assume it will go
no further". Mr. Davies' colleagues said that would be " very
helpful " and provided questions that they knew related to
confidential, commercially sensitive and potentially price
sensitive matters in respect of not only the PSD but also Quindell
(i.e., the vendor and not the acquisition target itself), including
its financial viability and options.
8. On 15 January 2015, the PwC Head of Restructuring had a
secret meeting with Mr. Davies. Immediately following the meeting,
Mr. Davies sent an email note to others at Greenhill, setting out
what had been discussed and what he had learnt. When asked whether
he intended that the email report should be passed to S&G's
then Executive Director of UK and Europe, Mr. Davies told them :
"Yes. Just stress to him not to pass on pls. If there is anything
he wants to raise with pwc I can do it next week".
9. Mr. Davies' email recorded in some detail what the PwC Head
of Restructuring had told him, including that Quindell would run
out of cash in mid-2015 and that the PwC Head of Restructuring
would "quietly" look further into some matters that went to value
for Mr. Davies and his client, S&G. Mr. Davies also recorded
that the PwC Head of Restructuring had suggested that S&G
should bid for the entire plc and break it up. The PwC Head of
Restructuring also provided Mr. Davies with confidential details of
Quindell's board's thoughts and plans.
10. That email taken as a whole was a summary of PwC's expert
independent analysis and assessment of Quindell's businesses, its
finances and its strategy, all of which was confidential.
11. Further or alternatively, the email contained the following
categories of information, each of which was confidential:
(1) the nature, detail and genesis of the review that PwC was
carrying out, and the report that it was preparing, for
Quindell;
(2) information concerning Quindell's business and finances
(including that, as Mr. Davies put it in his email, Quindell was
"running out of cash mid-15"); and
(3) details of Quindell's board's approach and thought processes
in relation to its negotiation with S&G.
12. Key members of the Greenhill team advising S&G replied
that the information was "extremely helpful". That information was
then fed into the strategy and tactics which S&G, assisted by
Greenhill, was deploying in its sale negotiations.
13. In mid-February 2015, Quindell and S&G began to trade
figures in a series of telephone calls between David Currie, then
non-executive Interim Chairman of Quindell, and Andrew Grech, the
Group Managing Director of S&G's listed Australian parent. It
can be seen from the parties' respective internal emails and
meeting notes that at a specific point in time S&G was willing
to pay GBP700 million for the PSD and Quindell was willing to
consider a sale at that price.
14. However, Mr. Grech ultimately stood firm at GBP640 million,
an amount which Quindell and its advisers, in the straitened
financial circumstances in which Quindell found itself, felt unable
to refuse. Quindell's case is that S&G was influenced and
emboldened in taking that stance by his knowledge of the
confidential information from PwC and its knowledge that Quindell
was not aware that S&G was in possession of that
information.
15. PwC never informed Watchstone, contemporaneously or at all,
about the 15 January 2015 meeting or the disclosure of information
to Greenhill. Watchstone found out about it only by happenstance in
July 2019 because Mr. Davies' note of the meeting appeared in third
party disclosure provided by Greenhill in litigation between
Watchstone and S&G.
16. On the basis of those facts, Watchstone claims in:
(1) breach of contract, specifically the confidentiality clause in PwC's Terms and Conditions;
(2) breach of PwC's equitable duty of confidence, on the basis
that PwC received information in relation to which Watchstone had a
reasonable expectation of confidentiality;
(3) breach of fiduciary duty, on the basis that Watchstone
breached its duties of loyalty by disclosing the confidential
information and by not reporting to Watchstone that it had done so;
and
(4) unlawful means conspiracy, on the basis that S&G, PwC
and Greenhill conspired to pass the confidential information to
S&G, by the unlawful means of the breach of PwC's duties of
confidence, with the intention that it would be used to S&G's
advantage in the negotiation, which would cause harm to Quindell
because it would have to pay a higher purchase price than if
S&G had not received the information.
17. Quindell's loss is the difference between the figure that
S&G was willing to pay as set out above and the figure that it
ultimately did pay. That case falls to be assessed on a loss of a
chance basis because it requires Watchstone to show what a third
party, S&G, would hypothetically have done in the relevant
counterfactual. On the basis of the figures above, Quindell says
that the value of its lost chance is GBP63 million.
18. Furthermore, in view of deliberate and egregious nature of
PwC's breaches of confidence, and its illicit conspiracy with
Greenhill and S&G, which caused the losses claimed,
Watchstone's primary case is that the Court should award exemplary
damages and compound interest.
19. PwC has to this day refused to tell Watchstone the identity
of the person identified in the documents as the "head of PwC
restructuring" despite that being information which Watchstone, as
a former client with a legitimate interest in and grievance about
such person's conduct, has a right to know. Watchstone reserves its
rights against such individual, whose identity must be disclosed in
these proceedings.
TIM LORD Q.C.
WATSON PRINGLE
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END
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