BAT Industries Plc v Windward Prospects Ltd

The court granted BAT's application to protect substantial dividend claims said to be vested in Windward by appointing a receiver (absent an appropriate undertaking from Windward) to commence protective proceedings. The judge applied the equitable jurisdiction under section 37(1) of the Senior Courts Act 1981 and the principles in Masri (No 2) and Tasarruf, emphasising that the power is not unfettered and must be used with caution. The court found that BAT had a good arguable contractual indemnity claim and that Windward's Dividend Claims (in respect of dividends paid to Sequana in 2008 and 2009) had a real prospect of success under company law and directors' duties (including provisions of the Companies Act 2006 and common law duties). Because there was a real risk that some claims might become time‑barred under French law unless protective steps were taken by mid‑December 2013, the appointment of a receiver to issue protective proceedings was justified and proportionate to preserve the limitation position.

Background and parties:

• BAT applied for the appointment of a receiver over dividend claims said to be vested in Windward (total c. $800m) paid to Sequana in December 2008 and May 2009.
• BAT asserted it had a contractual indemnity under the 1990 Demerger Agreement and various collateral or estoppel-based rights. Windward denied liability but did not contest BAT's arguable case for the purpose of the application.

Nature of the application: BAT sought appointment of a receiver to preserve and prosecute Windward's claims against Sequana and former directors (the "Dividend Claims") on the basis that those claims risked becoming time‑barred, particularly under French limitation rules.

Issues framed:

1. Whether the Dividend Claims were viable and had a real prospect of success on company law grounds (Companies Act 2006 distribution rules and directors' duties).
2. Whether some or all of the claims might be governed by French law and therefore subject to an imminent five‑year limitation period.
3. Whether it was just and convenient under section 37(1) of the Senior Courts Act 1981 to appoint a receiver, taking account of the discretionary and extraordinary nature of the remedy and possible prejudice to Windward.

Reasoning and findings:

• The court accepted that BAT had a good arguable claim to be indemnified by Windward. The Dividend Claims were shown to have a real prospect of success: the 2008 and 2009 dividends involved distributions that, on the evidence before the court (including a marked mismatch between estimated liabilities from the Fox River exposures and provisions recorded in Windward's accounts), could not be justified and gave rise to viable claims for unlawful distribution and breach of directors' duties.
• The court did not finally decide the choice of law question but concluded there remained a real risk that French law might govern some claims (notably unjust enrichment), exposing them to a five‑year prescription that could expire in mid‑December 2013.
• Applying the equitable principles for appointment of receivers, the court held that (i) the claims were substantial (excess of $800m); (ii) there was a real risk of loss by limitation unless protective proceedings were issued or a tolling agreement obtained; (iii) Windward had not given an unequivocal undertaking to issue protective proceedings; and (iv) the receiver's role would be limited and the prejudice to Windward minimal (Windward was not an active trading company and BAT offered to meet costs). Accordingly, appointment was proportionate and necessary to protect the limitation position.
• The court noted related matters (insurer position, possible assignment, Windward's independent committee and investigator) but emphasised that absence of an assurance to issue proceedings was decisive. The court did not rely on any point about Windward's insolvency which had not been developed.

Relief: The court concluded that receivers should be appointed to commence the Dividend Claims in the name of Windward unless Windward provided an appropriate undertaking to commence protective proceedings by the necessary date.

First instance: The claimant's application was granted. The court ordered that receivers should be appointed (absent an appropriate undertaking from Windward) to commence the Dividend Claims in the name of Windward in order to protect the limitation position. The order was based on findings that BAT had a good arguable indemnity claim, that the Dividend Claims had a real prospect of success, that the claims were substantial and that there was a real risk of imminent time‑bar unless protective proceedings were issued.