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Law360, London (April 19, 2021, 5:42 PM BST) -- Apollo Capital Management cannot escape liability for the €93 million ($111 million) it promised to hand over for the purchase of a Spanish hotel before the COVID-19 pandemic hit the tourist sector, a hotel group told a London court Monday.
Huw Davies QC, counsel for Lopesan Touristik SA of Spain, urged the High Court to enforce the terms of an equity commitment letter that three Apollo funds entered into to help fund the acquisition of a Lopesan hotel in Gran Canaria in the Spanish Canary Islands.
The deal stalled in 2020 after Apollo claimed that the impact of the pandemic on the hotel business allowed it to back out of its obligations, which included providing €93 million to its special purpose vehicle, Oldavia, to complete the transaction.
Davies told Christopher Hancock QC, sitting as a judge at the High Court, that the participants cannot have intended that Apollo was able to breach the agreement by failing to pay the commitment when required to. He took the judge through several clauses in the arrangement.
"Our case is that the clause comprises the promise from Apollo to ensure its subsidiary, Oldavia, would have the money waiting and ready in advance of the completion date," Davies said. "It's designed to determine when that liability to fund arises."
The hotel company has also sued Oldavia in Spain for breach of the share purchase agreement, or SPA, arguing that the transaction should have been completed once the European Commission gave merger control clearance in April 2020.
In the English proceedings, Lopesan is aiming to enforce the terms of the letter, which is bound by English law. The hotels group has asked the court for a declaration that Apollo is obliged to transfer the funds to Oldavia so the deal can be completed.
The companies entered into the contracts in November 2019, but Apollo has argued that the agreement should be terminated as a result of the COVID-19 pandemic and the subsequent drop in the value of the hotel's business. As an alternative, the price should be reduced to reflect the substantial change to its finances, Apollo has said in court proceedings.
Apollo claims that it is not liable to fund Oldavia under the letter if the SPA has been terminated and that it cannot be held liable for any breach of the letter because the contract's terms have now expired.
Judge Hancock has to rule on seven preliminary issues before the case can head to trial.
Davies told the judge on Monday that the most important issues are whether Apollo is liable to provide the funds to Oldavia and whether an obligation to pay can lapse because of time passed or a valid termination of the transaction.
Davies said the other five issues that arise because of Apollo's defense — in connection with calculating the payments due and Lopesan's ability to bring a damages claim against Apollo under the equity commitment letter — are "misguided" and that Apollo's arguments about them are designed to "obfuscate" the proceedings.
He urged the judge to keep in mind the commercial purpose of the letter, which was to allow Oldavia to complete the transaction, and to reject any suggestion that Apollo and Oldavia were at arm's length from one another.
"Oldavia was Apollo's SPV for this transaction; Apollo had control over it," Davies said.
When Judge David Foxton ordered in October that Monday's preliminary hearing should take place, he warned that none of the contract matters up for early determination would result in an early win for Lopesan Touristik. Some could indeed be fatal to its case if they go in Apollo's favor, he said.
The dispute has been closely watched by mergers and acquisitions lawyers, as it is one of the first to grapple with deals broken because of the health crisis. Another high-profile dispute involved WEX Inc. and its planned acquisition of two payment companies, which settled out of court in December with the technology company paying less than half the original purchase price.
Lopesan Touristik is represented by Huw Davies QC and David Peters of Essex Court Chambers, instructed by Addleshaw Goddard LLP.
The defendants are represented by Laurence Rabinowitz QC, Richard Mott and Michael Watkins of One Essex Court, instructed by Latham & Watkins LLP.
The case is Lopesan Touristik SA v. Apollo European Principal Finance Fund II (Dollar A) LP and others, case number CL-2020-000597, in the Commercial Court of the High Court of Justice of England and Wales.
--Additional reporting by Bonnie Eslinger. Editing by Ed Harris.
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