Newcastle law firm Ward Hadaway is facing legal action from one of its former clients over advice it provided during a deal made more than five years ago.
The law suit involves advice Ward Hadaway provided to Tanfield Group after it sold a 51% stake in Washington cherry-picker manufacturer Snorkel to protect the business from going bust.
The stake in Snorkel was sold to American firm SKL Holdings LLC, which is owned Don Ahern of Ahern Rentals Inc, in 2013.
The rescue deal said that if Snorkel managed to achieve an EBITDA of $25m in any 12-month period over the following five years, Tanfield would be able to sell its shares to SKL for $50m. At this point Mr Ahern’s company would be able to acquire Tanfield’s remaining 30% stake in Snorkel for 5.5 times the its EBITDA.
But the two companies are now disputing whether or not these targets have been hit, with SKL arguing that it is now able to acquire Tanfield’s 49% stake in Snorkel for free.
After Tanfield refused to hand over its shares, SKL has filed legal proceedings against Tanfield in the US.
But to protect itself, Tanfield has now served legal proceedings on Ward Hadaway in relation to the Newcastle law firm’s work during the deal.
In a statement to the London Stock Exchange, Tanfield Group said: “As reported in the Snorkel Investment Update on 22 October 2019, Snorkel and SKL Holdings LLC, the 51% shareholder in Snorkel, have brought a claim against Tanfield in Nevada in which they allege that the Company has refused to comply with its contractual obligations relating to a purported call option which sought to acquire the company’s membership interest in Snorkel for an option price of $0 as well as purporting that payment of the priority amount and preferred return (collectively the “preferred interest”) is not required (the “US litigation”).
“As a result of the issues arising from the US litigation, Tanfield has been seeking to preserve its position against Ward Hadaway as, depending on the outcome of the US Litigation, the company may need to hold the firm to account for its role in and/or advice to Tanfield in relation to the joint venture transfer.
“Due to time limitation issues, and because a suitable standstill agreement which would have fully protected the company could not be agreed, it became necessary for the Company to issue and serve a claim against Ward Hadaway in the English High Court in order to ensure that the company’s rights were fully protected pending the outcome of the US Litigation.”
Tanfield has said it will ask the court to put its legal action against Ward Hadaway on hold until the outcome of the US law suit is known.
Ward Hadaway declined to comment but did say it was “vigorously defending the proceedings”.
