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Case Study Sumitomo Trust vs. Mitsubishi and UFJ - Anderson Mori and Tomotsune

The case study discusses the legal dispute between Sumitomo Trust and UFJ Group following UFJ's withdrawal from merger negotiations, leading to Sumitomo seeking damages for breach of exclusive negotiation obligations. The Tokyo District Court ruled against Sumitomo's damage claims, citing the lack of a binding commitment in their agreement, while the Supreme Court upheld the injunction against UFJ but noted that Sumitomo's damages were not significant enough to warrant immediate action. This case highlights the importance of clearly defining exclusive negotiation provisions in merger agreements to avoid legal complications.

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37 views1 page

Case Study Sumitomo Trust vs. Mitsubishi and UFJ - Anderson Mori and Tomotsune

The case study discusses the legal dispute between Sumitomo Trust and UFJ Group following UFJ's withdrawal from merger negotiations, leading to Sumitomo seeking damages for breach of exclusive negotiation obligations. The Tokyo District Court ruled against Sumitomo's damage claims, citing the lack of a binding commitment in their agreement, while the Supreme Court upheld the injunction against UFJ but noted that Sumitomo's damages were not significant enough to warrant immediate action. This case highlights the importance of clearly defining exclusive negotiation provisions in merger agreements to avoid legal complications.

Uploaded by

2024085
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Sumitomo Trust vs.

Mitsubishi & UFJ


Anderson Mori & Tomotsune

Case Study: Sumitomo Trust vs.


Mitsubishi & UFJ
By Shigeyoshi Ezaki

T
he merger of UFJ Group (UFJ) with Tokyo-Mitsubishi Financial Claiming damages
Group (Mitsubishi) was influential to M&A legal practice After filing a formal lawsuit seeking an injunction in the Tokyo District
in Japan because of litigation arising from UFJ’s unilateral Court, Sumitomo added a claim for expected damages of ¥100
withdrawal from its preceding business merger negotiations with billion (US$870 million), arguing that such damages were caused
Sumitomo Trust & Banking. (Sumitomo). by UFJ’s breach of its exclusive negotiation and faithful consultation
obligation. On February 13 2006, the Tokyo District rejected this
Sumitomo’s reaction to UFJ’s unilateral withdrawal and to the claim, as the agreement did not include a binding commitment to
subsequent creation of Mitsubishi UFJ Financial Group forced the enter into a final agreement and, as such, causation between UFJ’s
Japanese courts to consider the nature of pre-merger agreements, breach and the profit that would have possibly been obtained as a
such as commitments under a letter of intent (LOI) or memorandum result of Sumitomo’s takeover of UFJ’s trust banking business was not
of understanding (MOU). The basic agreement (the Agreement) found.
between UFJ and Sumitomo included an exclusive negotiation
obligation and a faithful consultation obligation. UFJ’s exclusive However, the court did state that UFJ was clearly liable for its failure to
negotiation obligation required that UFJ not enter into negotiations perform its exclusive negotiation and faithful consultation obligation.
with a third party that would possibly conflict with the proposed As Sumitomo did not make a claim for any other damages, such as its
transaction with Sumitomo. However, no penalty clause was included costs for reliance on the exclusive negotiation obligation, the Tokyo
in the Agreement. It also did not include any specific commitment to District Court did not award any damages. Sumitomo appealed this
enter into a final merger agreement. judgement. At the time of writing, the case was still pending.

Provisional injunction Practical implications


Upon UFJ’s termination of negotiations with Sumitomo, the latter This case demonstrates the need for careful consideration of
filed an application for a provisional injunction with the Tokyo District exclusive negotiation provisions. Based upon the rights arising from
Court in order to stop consultations with any third parties with such obligations, parties conduct due diligence and take other costly
respect to UFJ’s merger transactions on its trust business until the end steps toward mergers. It is important to stipulate the content of
of March 2006. The District Court ruled for Sumitomo and ordered the such rights clearly, including duration, whether an injunction would
injunction. UFJ appealed and the case eventually went to the Supreme be obtainable, conditions whereupon a party could unilaterally
Court of Japan. The Supreme Court held that although UFJ’s exclusive withdraw from consultations, and penalty clauses or amounts of
negotiation and faithful consultation obligation had not yet expired, break-up fees payable by the party that withdraws. On the other
there was no necessity to avoid special damage or urgent danger to hand, it is also necessary to consider the problem from the viewpoint
Sumitomo, which is a requirement for a provisional injunction to be of the fiduciary duties of directors, particularly with regard to the
granted. The Supreme Court hold that Sumitomo’s damages were seller because a strong exclusive negotiation provision could restrict
not large enough that they could not not be compensated for later the seller’s choice of potential buyers, which could make lucrative
and that the long injunction period could lead to damages to UFJ offers to the shareholders of the seller.
whereas the possibility of reaching a final agreement with Sumitomo
was remote.

Anderson Mori & Tomotsune


Izumi Garden Tower, 6-1, Roppongi 1-chome
Minato-ku, Tokyo 106-6036, Japan
Tel: (813) 6888 1000
Email: [email protected]
Website: www.andersonmoritomotsune.com

July 2006 asialaw Ja p a n R ev i e w - 21

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