4 Eng Ltd v Harper and Another
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BRIGGS,MR JUSTICE DAVID RICHARDS,Mr Justice David Richards |
| Judgment Date | 29 April 2008 |
| Neutral Citation | [2007] EWHC 1568 (Ch),[2008] EWHC 915 (Ch) |
| Docket Number | HC06CO1550,Case No: HC06C01580 |
| Court | Chancery Division |
| Date | 29 April 2008 |
[2007] EWHC 1568 (Ch)
Mr Justice Briggs
HC06CO1550
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr I Smith (instructed by Reid Minty LLP) appeared on behalf of the Applicant.
Mr A Gledhill (instructed by Blaser Mills) appeared on behalf of the First Respondent.
Ms J Pollard (instructed by Bond Pearce) appeared on behalf of the Second Respondent.
No of Folios – 64
No of words – 9637
On 29 th June 2001 the claimant in these proceedings, 4 Eng Ltd, agreed to purchase from the defendants, Roger Harper and Barry Simpson, all the shares of Ironfirm Limited, a company trading as Excel Engineering (“Excel”) for £1.2 million, of which £550,000 was to be paid in cash on completion, which was to take place on the same day, and the balance was to be paid in instalments over three years. Part of the consideration for those payments was the giving by the defendants of extensive warranties in a fairly typical modern form as to the affairs and financial position of the company.
On 8 th December 2005 at the Reading Crown Court each of the defendants was convicted of two charges of conspiracy to corrupt and conspiracy to defraud in relation to the affairs of Excel and its principal customer Mars UK Limited, and since that date the defendants have both been serving periods of imprisonment.
These proceedings arise out of the matters in respect of which the defendants were convicted. In paragraph 14 of the Particulars of Claim the claimant describes a corrupt scheme, defined as such:
“Involving the Defendants in relation to the affairs of Excel and Mars as follows:
between at least 1 st July 1997 and 20 th June 2001 the Defendants corruptly induced payments from and defrauded Mars by the following means.
(1) A corrupt Mars' employee would raise a false order or an inflated order for the purchase of work and/or goods to be carried out/supplied by Excel in an arrangement with the Second Defendant;
(2) the Mars' employee raised a Mars' purchase order which falsely described the work and/or goods (or in the case of an inflated order the extent of the work) to be carried out/supplied by Excel;
(3) the Second Defendant would raise a job number in Excel's job control system and the false or inflated order was booked out as completed;
(4) the First Defendant would raise and submit a sales invoice to Mars in respect of the false or inflated order;
(5) Mars would pay Excel in respect of the false or inflated order;
(6) the Defendants would make a payment to the corrupt Mars' employee either as a wage or an expense or as a payment to a fictitious or real business organisation controlled by the Mars' employee or his or her spouse (each organisation is referred to in the annexes as a 'ghost' company) or as a payment to another nominated person despite the fact that neither the Mars' employee nor any other person had provided any lawful and genuine services to Excel in respect of the payments received;
(7) the corruption and payments to the Mars' employees and other persons associated with them was implemented by the use of specially devised internal bookkeeping and accounting procedures including [I summarise] (i) the use of an entirely fraudulent series of internal works order numbers used only in relation to false orders from Mars called the '70,000 orders' and (ii) the use of internal accounts to internally record the amounts of money received from Mars in relation to false and inflated orders and to be paid to corrupt Mars' employees and their associates and/or to be retained by the Defendants for their own benefit.”
The pleading goes on to provide detailed particulars in various annexes of the extent, monetary amount and nature of operation of the scheme, and it is alleged that the aggregate sum of money received by Excel from Mars in respect of either non-existent orders or by way of corrupt inflation of existing orders amounted to a sum slightly in excess of £1.8 million during the specified period.
It is apparent from those allegations that the defendants are alleged both to have known about and to have been personally involved in the corrupt scheme and to have benefited substantially from it.
The claimant claims that the existence of the corrupt scheme as at the time of the sale agreement rendered false a large number of the warranties contained in it and meant that Excel was in truth, both as at the time of purchase and at all times thereafter, of no value for two reasons: first, because Excel's liability to Mars to repay the £1.8 million-odd as a constructive trustee rendered its balance sheet insolvent, although of course that liability was not shown in the balance sheet and, secondly, because the corrupt scheme was bound in time, and later did, destroy Excel's goodwill with Mars, its major customer. The claimant further alleges that after struggling to make a go of Excel's business, notwithstanding the slow emergence of the corrupt scheme after June 2001, Excel went into insolvent administration in January 2006 after business with Mars finally dried up late in 2005 at or about the time of the criminal trial, after a long decline.
The claimant's case is, firstly, that all the warranties were also fraudulent misrepresentations which induced the claimant to buy Excel, giving rise therefore to a claim in deceit; secondly, that all the warranties were, regardless of deceit, misrepresentations under the Misrepresentation Act, giving rise to a claim of the type identified in Section 2(1) of that Act; thirdly, that the breaches of warranties all gave rise to contractual claims of breach of warranty under the agreement; and, fourthly, that although the claimant has recouped £650,000 of its total loss by exercising a contractual right of set-off against its liability to pay the balance of the purchase price, its true loss was nonetheless greatly in excess of £650,000 whether measured on tort principles based upon the misrepresentation claims or upon a contractual basis based upon the breach of warranty claims. Its loss is pleaded as being £2,665,549-odd after allowing for the set-off.
I can summarise the loss as follows. It consists of the purchase price of £550,000 paid in cash, leaving aside the balance in relation to which there is a set-off; expenses connected with the purchase amounting to slightly more than £94,000; it gives credit for certain transfers made by Excel to the claimant; it asserts the loss of what would otherwise have been a valuable investment opportunity to acquire shares in Tarvale which the claimant says it would have proceeded with but for the matters complained of, the loss there being slightly in excess of £2.1 million; it alleges that the claimant made available the services of a Mr Shepherd and a Mr Tapper as directors of Excel at a total cost to the claimant of £275,000 for which Excel did not pay; and there is a small amount claimed in addition by way of employer's national insurance on unpaid remuneration which Excel had to pay in connection with the services of those two gentlemen.
By an application dated 21 st January 2007 the claimant sought summary judgment for damages to be assessed in relation to its claims. By an amendment on 27 th April 2007 the claimant sought an interim payment but sought and obtained an adjournment of its interim payment application after argument at the beginning of the hearing, due to having received evidence recently from the defendants including a valuation report from the second defendant which the claimant seeks time to answer.
I now summarise the defendants' cases, starting with the second defendant.
The second defendant admits the corrupt scheme as pleaded in the form which I have described, save as to certain aspects of it including, in particular, the amounts of money involved. Secondly, he admits that this involved his having made some of the warranties relied upon by the claimant in the sale agreement both falsely and knowingly falsely, in other words deceitfully, but he either does not admit or denies breaches of some of the other warranties. Thirdly, he puts materiality of the warranties and detrimental reliance and loss in excess of £650,000 in issue. Fourthly, basing himself on clause 5.1 of the sale agreement, he relies upon a contractual defence consisting of a notice condition in the sale agreement requiring notification of any warranty claim within two years of the agreement. He relies upon that as a defence to all the contract claims based upon breach of the general warranties rather than tax warranties in the agreement (for which there was a separate notice period) and as a defence to any related claim under the Misrepresentation Act arising from treating the same warranties as misrepresentations, as indeed the contract provided that they should be. All those points and admissions appear from a Draft Defence lodged on behalf of the second defendant and from counsel's submissions.
Furthermore, the second defendant seeks reverse summary judgment in relation to the contractual claims based on the general warranties and the Misrepresentation Act claim to the extent that it is based on the general warranties, relying on what he says is an unanswerable case under clause 5.1 of the sale agreement.
I turn to the first defendant. He makes no admissions as such and has not lodged any draft Defence, but Mr Gledhill, who appeared for him, submitted that, although he could make no admissions, he was not going to invite the court to conclude that, in...
To continue reading
Request your trial
-
Amey LG Ltd v Cumbria County Council
...That is the law". 20. … 21. … 22. In Avrahami , Newey J distinguished the decision of David Richards J in4 Eng Ltd v Harper [2008] EWHC 915 (Ch). David Richards J had permitted the recovery of investigatory costs in a fraud case, but as Newey J observed, "The work for which damages were awa......
-
Mr Ran Avrahami and Others v Mr Doron Biran and Others
...I also accept that it is not recoverable as costs, and so is irrecoverable. That is the law". 297 Those cases can be compared with 4 Eng Ltd v Harper [2008] EWHC 915 (Ch), where the costs of investigating a fraud were held to be recoverable. In 4 Eng Ltd v Harper, the claimant had been indu......
-
Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd
...a third party would have done emerges from cases such as Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, CA, and 4 Eng Ltd v Harper [2008] EWHC 915 (Ch), [2009] Ch 91, at [41] – [92]. In the Court of Appeal in Gregg v Scott [2002] EWCA Civ 1471, [2003] Lloyd's Rep Med 10......
-
Palliser Ltd v Fate Ltd ((in Liquidation))
...a third party would have done emerges from cases such as Allied Maples Group Ltd v Simmons & Simmons [1995] 1 WLR 1602, CA, and 4 Eng Ltd v Harper [2008] EWHC 915 (Ch), [2009] Ch 91, at [41] – [92]. In the Court of Appeal in Gregg v Scott [2002] EWCA Civ 1471, [2003] Lloyd's Rep Med 10......
-
Off On A Tangent: Fraud Claims And Lost Trading Profits
...recently in Sempra Metals v Inland Revenue [2008] S.T.C. (S.C.D.) 1062 (in relation to compound interest) and 4 Eng Limited v Harper (2008) EWHC 915 (Ch) (fraudulent misrepresentation on a corporate acquisition). This case, however, is a striking illustration of the courts' willingness to c......