Starbev GP Ltd v Interbrew Central European Holdings BV (Rev 1)

In a contractual anti-avoidance clause, purpose ordinarily means the dominant purpose where a transaction has mixed aims; it need not be the sole purpose. A transaction deliberately structured to reduce a contingent payment may be deemed to generate the relevant return even if it would not have occurred without that structure. The deeming exercise uses amounts actually received, excluding sums actually withheld, rather than hypothetical or potential sums. Contractual investment definitions may include transaction costs necessarily incurred in acquiring relevant interests, even where paid by an affiliated acquisition vehicle or discharged through debt and equity arrangements.

Interbrew Central European Holdings BV sold a brewing business to a Starbev investment structure under an agreement containing a Contingent Value Right. The right entitled Interbrew to participate in value realised on a later sale, subject to investment and internal-rate-of-return thresholds and an anti-avoidance provision.

Starbev later sold the business to Molson Coors. Part of the consideration was a convertible note whose realisation occurred more than three years after the original acquisition. The High Court, Commercial Court, held that the note arrangement fell within the anti-avoidance provision and that certain transaction and advisory costs formed part of the Investment Amount. Starbev appealed the first conclusion and Interbrew appealed the second. The central issues concerned the meaning of purpose, the operation of the deeming provision, and the scope of the Investment Amount.

1. Disposition. The Court of Appeal dismissed both appeals on the principal issues. The peripheral issues therefore did not arise for determination, and the order of the court was to declare accordingly.
2. Meaning of purpose. The contractual anti-avoidance clause applied where a transaction was structured or undertaken with the dominant purpose of reducing payments due to Interbrew. In a case of mixed purposes, purpose ordinarily refers to the dominant purpose, not the sole purpose. The court relied on Hayes v Willoughby [2013] UKSC 17, including Lord Sumption’s statement that a person’s purposes are usually mixed. The statutory context was the Protection of Harassment Act 1997, sections 1(1) and 1(3). The tax analogy drawn from W.T. Ramsay Ltd v Inland Revenue Commissioners [1979] 1 WLR 974 was imperfect and did not govern the contractual question. The discussion in Revenue & Customs Commissioners v Pendragon [2015] UKSC 37 concerning principal and essential aims supported, rather than displaced, the dominant-purpose approach.
3. Operation of the deeming provision. Once the transaction was found to have the dominant purpose of reducing payments, it was deemed to be an Equity Return for the specified calculations. It was irrelevant that the sale might not have occurred without the convertible note. The provision required an arithmetical exercise based on the transaction that actually occurred, not a counterfactual inquiry into whether there would have been no deal.
4. Actual receipts. The deemed Equity Return was calculated by reference to the amount actually realised from the note, less the amount actually withheld for warranty claims. The upper limit of a possible retention was irrelevant. The delayed receipts and the gain resulting from redemption were therefore brought into account.
5. Investment Amount. Fees necessarily incurred in acquiring the business could be amounts applied by Starbev in acquiring Relevant Interests, even though Starbev paid them directly rather than Caspian. The definition did not exclude such costs, and there was no commercial logic in doing so. The further advisory debts discharged by Starbev also qualified. Starbev had applied resources funded by the investors in acquiring Relevant Interests, including D PECs and debt interests in Caspian. The definition did not require Starbev itself to make a cash outlay when applying those resources.

• Court of Appeal (Civil Division): dismissed Starbev’s appeal and Interbrew’s appeal on the principal issues.
• High Court, Queen’s Bench Division, Commercial Court: Blair J held that the convertible note arrangement fell within the contractual anti-avoidance provision and that the disputed transaction costs formed part of the Investment Amount. The Court of Appeal substantially agreed with his reasoning.