Posted by: stan chelney | February 18, 2011

London Court Slams Hicks And Gillett; Holds That Liverpool Case Must Proceed In England, Not Texas

Yesterday, the High Court of Justice in London heard oral argument in the fierce legal battle arising out of the sale of Liverpool Football Club (“LFC”). The details of the Court’s judgment (the “Judgment”) largely have been misreported or over-simplified by the media, so this article will attempt to set the record straight.

Before getting to serious legal analysis, however, it is noteworthy that the London High Court essentially accused Hicks and Gillett of using foul play to obtain their Texas TRO enjoining the sale of the club. (The complicated background of this case is set forth here, but, in essence, LFC’s former-owners Tom Hicks and George Gillett Jr. managed to obtain an emergency temporary restraining order (TRO) in Texas restraining the sale of LFC to New England Sports Ventures (“NESV”), owners of the Boston Red Sox, literally hours after the London High Court had denied them nearly identical relief. Although the London High Court ultimately entered an order compelling Hicks and Gillett to dissolve the Texas TRO, the fact that the Texas court granted such relief under those circumstances certainly raised eyebrows.)

Somebody’s Not Telling The Truth

The Judgment surmises that the Texas court only granted the TRO in the first place because it was seemingly unaware that the London High Court previously had denied Hicks and Gillett that relief. The Judgment states: “It is clear from the account of the proceedings in England . . . that the [Texas] Court was not told in [Hicks’ and Gillett’s Texas petition] that an application to restrain the sale had been made and refused in England. Judgment at ¶ 27. Indeed, the High Court wrote, “It now transpires that that the [Texas] Judge had asked why the application made in his court was not being made in England and was told by the attorney for the claimants that it had not been possible because ‘the courts were closed’ and that the plaintiffs ‘couldn’t reach the court for that relief.'” Id.

The London High Court gave the lawyers the benefit of the doubt and instead placed the blame for this misrepresentation squarely at the feet of Hicks and Gillett themselves:

“At a subsequent hearing, the plaintiffs’ attorney, on being questioned by the [Texas] Judge, answered, no doubt on the instructions of the former owners, that ‘under no circumstances have we ever sought the relief that was sought before this court. It has never been sought.’ It is tolerably plain that he had not been told by the former owners [Hicks and Gillett] that the application had been made and refused.” (Emphasis added.)

Unsurprisingly, the London High Court was not pleased with this situation, but found itself left without an explanation from Hicks and Gillett, although both had served witness statements for the purposes of yesterday’s hearing. Instead, Hicks’ and Gillett’s solicitor was left in the unfortunate position of explaining what had transpired. Luckily, he brought his tap shoes, explaining, among other things, that: no disrespect to the London High Court had been intended; Texas counsel was unaware that the prior application had been made and refused; and that Hicks and Gillett, while aware that the prior application had been made and refused, “did not appreciate the legal significance of what had happened in London.” Id. at 28.

Ultimately, the London High Court “[f]ound this second-hand explanation both difficult to understand and difficult to accept.” Id. at ¶ 29. Suffice it to say that Hicks’ and Gillett’s conduct surely will not help their cause (or case) in London’s High Court, which, as explained below, is where they must now proceed if they intend to pursue their damages lawsuit.

Legal Analysis: What Will Happen Next

Thus, we turn to the altogether more hum-drum legal analysis of the Judgment. The Judgment decides three pivotal issues that will dictate the nature of future litigation related to LFC:

(1) Whether Sir Martin Broughton (“Broughton”), LFC’s former chairman, and the Royal Bank of Scotland (“RBS”), which provided acquisition financing to Hicks and Gillett, would be able to pursue “negative declaratory relief” in the London High Court;

(2) Whether Hicks and Gillett will be able to sue RBS, Broughton and/or NESV, i.e., whether the anti-suit injunction prohibiting such litigation would be discharged or at least varied; and

(3) If Hicks and Gillett are permitted to file suit, where can they do so?

To the first question, the Judgment states that Broughton and RBS could pursue “negative declaratory relief.” Essentially, Broughton and RBS have been granted permission to seek declaratory judgment that, for example, Broughton is not liable to Hicks and Gillett with respect to his involvement in the sale of LFC and RBS did not engage in misconduct in connection with sale. Thus, Broughton and RBS, acting as plaintiffs, are seeking declarations to protect themselves from liability, whereas they ordinarily would be defendants with respect to the conduct at issue. (Under the ordinary course, Hicks and Gillett would be the plaintiffs, seeking declarations that Broughton and RBS did something wrong and thus should be liable.)

Acknowledging that negative declarations are “an unusual remedy insofar as they reverse the more usual roles of the parties[,]” the London High Court nevertheless exercised its discretion to permit Broughton and RBS to pursue such relief – a decision which it emphasized comports with the more modern, flexible approach in relation to the availability of negative declarations. Id. at 13-15.

Second, as has been widely reported, the London High Court declined Hicks’ and Gillett’s request to lift the ant-suit injunction altogether, but agreed to modify it such that Hicks and Gillett could pursue their claims in London. The London High Court explained that anti-suit injunctions are available under two circumstances: (i) where there is some legal or equitable right, such as an exclusive jurisdiction clause, for the proceedings to be brought in the London High Court, rather than in a foreign court and/or (ii) where it would be vexatious or oppressive for the proceedings to be pursued in a foreign jurisdiction. Id. at 15-16. The London High Court’s analysis suggests that both circumstances may exist here, but it focused on the fact that several of the underlying transaction documents, which are summarized in some detail in the Judgment, contain exclusive jurisdiction clauses specifying London and Wales.

Interestingly, the London High Court also surmised that any future litigation initiated by Hicks and Gillett would likely allege that RBS, Broughton, the other LFC directors and NESV entered into an unlawful conspiracy to exclude Hicks and Gillett from the sale process and to sell LFC at a below-market price. The London High Court commented that the true allegations would be “markedly less enthusiastic” than what has been reported in the media, id. at 12, though Hicks and Gillett supposedly have uncovered documentation confirming these allegations.

Third, the London High Court held that any proceedings initiated by Hicks and Gillett shall be initiated in London, not Texas or elsewhere, with one small caveat: pursuant to 28 U.S.C. § 1782, a United States statute, the parties could apply to an American court to obtain evidence for use in any proceeding in London High Court. In response to a concern that § 1782 applications could be made ex parte (i.e. by one party, without the presence of the other party), the London High Court further imposed the requirement that any applications under §1782 be made with 7 days prior notice. Thus, for all intents and purposes, any legal proceedings initiated by Hicks and Gillett will play out in London High Court.

Conclusion

There is plenty of courtroom drama yet to play out regarding the fallout from the sale of LFC, albeit across the pond. Hicks and Gillett will undoubtedly now file an action seeking damages in London, a less familiar and less friendly forum than their home turf of Texas. For sure, neither they nor their lawyers can be particularly proud of the not-so-subtle accusations in the Judgment that Hicks and Gillett played fast-and-loose with the Texas court to obtain their TRO. That reputation will certainly precede them in the next phase of this compelling case, both in the High Court and in the court of public opinion.

By Stan Chelney and Ryan M. Philp

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