Legal activity around cash-strapped Eurotunnel is reaching a new level of intensity with Nicholson Graham & Jones taking a surprise lead in a £1 billion action against contractors. At the same time, big City firms are re-negotiating the company's massive £8 billion bank debt.
Speculation is rife about whether other law firms previously involved in the project will take a slice of the action. In particular, it seemed questionable whether Freshfields, which acted for Eurotunnel on previous arbitrations and litigation, and Masons, which advised the contractors, would have any part to play.
The claim against the 10-company construction consortium Trans Manche Link (TML) was launched on Wednesday last week.
Eurotunnel general counsel Jean Naslan said: “It centres on the way contracts for supply of rolling stock have been negotiated and managed. We will go as far as questioning fitness for purpose. We are going to go after damages for loss of revenue and additional expenses incurred.”
The contractors – including Balfour Beatty, Taylor Woodrow, Costain, Tarmac, Dumez, SAE, and Spie Batignolles – are aware of the impending litigation, Naslan said.
But a TML spokesman said: “TML expresses surprise that Eurotunnel should issue a press statement that it is to launch a claim especially at a time when tests on completion were successfully completed by TML in January 1995 and TML's performance bonds have been released by Eurotunnel.”
He added: “TML would also point out that Eurotunnel has been responsible for operation and maintenance for the system since TML handed over the tunnel in 1993.”
Taylor Woodrow chair Colin Parsons said he believed TML “is in a strong position to contest the late action”.
Naslan confirmed that ex-Eurotunnel project legal adviser Alan Gittins, who joined Nicholsons in February, is retained. This will give Nicholsons one of its biggest-ever pieces of litigation, said a spokesman.
Gittins, a barrister, is understood to be in line for promotion to the Nicholsons partnership once he has requalified as a solicitor.
Naslan is also “almost certain” to retain Alan Redfern, who retired from Freshfields to become a trainee barrister at 1 Essex Court in March this year. At Freshfields, Redfern led work on past claims by Eurotunnel against TML, including the £200 million-worth of arbitration at the International Chamber of Commerce, Paris.
Freshfields could be squeezed out of handling the litigation because of the moves by these two lawyers. “I don't think they (Eurotunnel) will want to pay for two English firms,” said Redfern.
Nicholsons has enjoyed a windfall of Eurotunnel work since Gittins, an expert in Eurotunnel construction contracts, joined the firm.
“He brought with him quite a lot of Eurotunnel work. The purpose of recruiting him was to be able to handle these type of claims and Eurotunnel was very much in his mind and ours,” said Nicholsons spokesman Paul Jaffa.
“We are delighted if the action does happen. It will be a coup for the firm,” he added.
Eurotunnel is set to also use Paris lawyer Dominique Sargue of US firm Paul Weiss & Rifkind; the major complexity of litigating on Eurotunnel contracts is increased by the fact that its contracts must conform to both UK and French law.
“It is a big piece of litigation in both countries,” Naslan said.
Tony Bunch, managing partner of construction specialists Masons, said the firm “could not comment” on whether it would act on the litigation.
A TML spokesman said a choice of law firm would be made after the action is launched. Eurotunnel expected TML to instruct Masons and Paris firm Gide Loyrette Nouel.
Backdrop to the litigation is the Eurotunnel announcement to “suspend” interest payments on its junior debt total of £8 billion, putting it in default with its backers. As a result, under specific provisions in Eurotunnel's agreement with its 225-member banking consortium, it has started an 18-month “standstill period” to review finances with its bankers.
Herbert Smith continues to advise Eurotunnel on its financing, with a debt team led by project finance partner Stephen Barton and a corporate finance team led by partner Alan Jowett.
Barton's team is advising Eurotunnel on the available options. “We anticipate advising them in the negotiations with the banks over the coming months,” said Barton. Jowett's team may become more involved if the banks accept a possible debt for equity swap.
Linklaters & Paines partners Richard Holden, Robin Elliott and Bertrand Andriani in Paris advise the banking syndicate's lead banks – Nat West, Midland, Banque Nationale de Paris and Credit Lyonnais.
An agency bank spokesman said the consortium intends to support Eurotunnel but remains the ultimate decision-maker about the company's future.
Insolvency remains an option. “It's possible, certainly. There is a range of options, and the banks will take action to preserve their best interests,” the spokesman said.