TIDMWTG
RNS Number : 6275Y
Watchstone Group PLC
07 December 2017
Watchstone Group plc
Change of registered office
Watchstone Group plc (LON:WTG) announces that its registered
office address will be Highgate Court, Tollgate, Chandlers Ford,
Eastleigh, Hampshire SO53 3TY with immediate effect.
For further information:
Watchstone Group plc Tel: 03333 448048
Peel Hunt LLP, Nominated Adviser Tel: 020 7418
and broker 8900
Dan Webster
IN THE HIGH COURT OF JUSTICE CLAIM NO. CL-2017-000348
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
B E T W E E N :
SLATER & GORDON (UK) 1 LIMITED
Claimant
-and-
WATCHSTONE GROUP PLC
(formerly QUINDELL PLC)
Defendant
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SUMMARY OF DEFENCE
1. This summary is served by the Defendant ("Watchstone" or
"Quindell") pursuant to the Order of Mr Justice Males dated 5
October 2017. It is to be read subject to the contents of the
Defence, which remains the governing statement of the Defendant's
defence.
2. Watchstone's position is that S&G's allegations of deceit
and the associated breach of warranty claim are wholly without
merit and should never have been advanced.
3. In late 2014, Quindell, a high-profile public company with
well-publicised accounting policy issues and in a state of distress
due to over-expansion, was approached by S&G and SGL, who
wished to purchase its legal services businesses. S&G was a
rival in the same market as Quindell and a self-professed global
expert in both the business and the practice of personal injury
litigation. Quindell, recently under new leadership, gave only
limited warranties, in particular as to its accounting practices,
which, as S&G was aware, were about to be radically overhauled.
Instead it allowed S&G's and SGL's operatives - and their
numerous banking, financial, legal and accountancy advisers from
well-known professional firms - comprehensive access to its senior
staff and its documents, and permitted 70 of its UK lawyers to
review 8,000 case files, in order to scrutinise the business, and
invited them to draw their own conclusions about it: caveat
emptor.
4. S&G and SGL were content with this. Strategically, SGL's
objective was to increase S&G's market share in the UK by
taking advantage of the fact that one of S&G's major
competitors was in distress, and it believed that it had the
expertise and resources to succeed where Quindell had struggled.
After five months of the most rigorous due diligence on the part of
S&G and SGL, at a cost to S&G of A$51.6m (GBP31.7m) in
external fees alone, the deal completed.
5. The price was agreed in horse-trading over the telephone
between the respective boards. For many months after completion SGL
told the market, and its investors, that it was happy with its
purchase, and with the thoroughness and reliability of its due
diligence. Some sixteen months later, days before the end of the
warranty period and with S&G by now under serious financial and
external pressures which had nothing to do with
Quindell/Watchstone, it gave notice that it intended to commence a
claim based around serious allegations of fraud which it had
hitherto never mentioned to Quindell.
6. As to the detail of the deceit claim:
(1) S&G pleads no primary facts amounting to fraud or
dishonesty and instead seeks to make out its case by reliance upon
inference, innuendo, email extracts presented out of context, and
unparticularised conversations.
(2) The claim is based on alleged representations in Quindell's
management accounts for the period ended 31 December 2014 (referred
to as the "Management Accounts"), and PowerPoint presentations that
it sent to S&G, relating to 'dilution rates', which S&G
groups together under the definition "the Stated Dilution Rates".
This grouping wrongly conflates (intentionally or otherwise) two
totally different concepts, in order to support an alleged
continuing representation which otherwise would not hold water.
Quindell's Management Accounts simply set out the assumptions that
it had applied in order to generate a 'dilution provision' for the
purposes of estimating the value of its WIP on its balance sheet
pursuant to its stated revenue recognition policy at that time.
Those are referred to in the Defence as "Dilution Provision
Assumptions". By contrast, the figures contained in the PowerPoint
presentations were, and were expressly presented as being, rates
used to discount assumed future levels of gross case intake to
achieve a projected net number of cases in a given scenario and for
illustrative purposes only. They were expressly stated (and
understood by it) to be something S&G could 'flex' in its
modelling. These rates are referred to in the Defence as the
"PowerPoint Dilution Rates".
(3) Quindell made no actionable representations in relation to
the achievability of any dilution rates. The Dilution Provision
Assumptions did not purport to be representations of any kind, and
the PowerPoint slides featured prominent disclaimers to the effect
that the information on the slide could not be relied upon and was
provided as an illustration only. In any event, Quindell honestly
believed that the rates on the PowerPoint slides were capable of
being achieved.
(4) Since the Acquisition, S&G and SGL have made repeated
public announcements that they did not need to, and did not, rely
on the dilution rates or other assumptions provided by Quindell.
Rather, they boasted publicly that they had carried out their own
calculations and made their own judgments based on their
comprehensive due diligence, and their own experience as a rival in
the same market and in M&A in the UK and Australia.
(5) S&G's and SGL's public statements were true. S&G
used no figures provided by Quindell in any of its valuation or
financing models, and recalculated Quindell's financial information
using its own, more conservative, accounting policies, and with the
assistance of its own professional advisers. Extensive empirical
data was provided to S&G in respect of the performance of
historic cases so that it could formulate its own views in respect
of its future dilution rate and other assumptions for its own
forecasting. S&G makes no suggestion that any historic data
provided by Quindell was inaccurate or incomplete.
(6) Despite now claiming that the alleged representations as to
dilution rates were a fundamental inducement for it to enter into
the deal, S&G sought no specific warranties, nor any price
adjustment mechanism, in relation to them. On the contrary: it
agreed to specific and extensive exceptions to the accounting
warranties in the SPA in relation to the treatment of WIP and
revenue recognition policies.
(7) All of the matters which S&G now claims are evidence of
fraud - as set out in section E of the Particulars of Claim - were
known to it at or shortly after completion yet no claim was brought
until over 24 months later.
(8) The primary and alternative bases of loss pleaded by S&G
are unfounded as a matter of law and/or fact.
7. As for the breach of warranty claim, in addition to the points made above:
(1) There was no breach of the Management Accounts Warranty. The
Management Accounts were prepared with due care and attention,
disclosed Quindell's financial position with reasonable accuracy,
were not misleading and did not materially overstate its assets or
understate its liabilities.
(2) As for the Dilution Provision Assumptions, there is no basis
for the allegation those were "materially understated" - the
setting of such assumptions was an exercise involving a
considerable amount of judgment and discretion; the rates used were
reasonable and in any event were confirmed by several external
audits and year-end 'truing-up' procedures.
(3) The Management Accounts Warranty was subject to and
qualified by a number of relevant exceptions, which are directly
applicable in this case, the effect of which is that Quindell gave
no warranties in relation to the Dilution Provision Assumptions.
They were also subject to the Disclosure given by Quindell under
the SPA, including a large electronic data room which featured over
22,000 pages and details of every single case on its books. The
Management Accounts themselves contained, on the pages either side
of that which set out the Dilution Provision Assumptions, all of
the information necessary for S&G and its advisers to evaluate
them, namely: (i) a WIP balance sheet analysis which showed the
remaining amount of the dilution provision at the date of the
Management Accounts as a percentage of the remaining unbilled
revenue; and (ii) actual, historic dilution details of every
monthly cohort of cases acquired by it from February 2012 onwards
broken down by case type.
(4) There were no matters of which S&G and SGL had not
already been made aware from their due diligence and Quindell's
disclosures, nor any matters of which Quindell was obliged to make
S&G aware, in the period between the date on which the SPA was
signed and Completion. Therefore, there was no breach of clause
11.3 of the SPA.
(5) Without prejudice to the points made above, any claim in
breach of warranty is subject to limitations contained in schedule
6 of the SPA, including a cap on the value of the claim of GBP100
million.
RICHARD MILLETT Q.C.
WATSON PRINGLE
BIBEK MUKHERJEE
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