Belfairs Management Ltd v Matthew Sutherland and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Rimer,Baron J,Rix LJ |
| Judgment Date | 15 March 2013 |
| Neutral Citation | [2013] EWCA Civ 185 |
| Court | Court of Appeal (Civil Division) |
| Date | 15 March 2013 |
| Docket Number | Case No: A3/2011/1869 |
[2013] EWCA Civ 185
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Norris
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Rix
Lord Justice Rimer
and
Mrs Justice Baron
Case No: A3/2011/1869
Mr Michael J. Booth QC (instructed by Follett Stock LLP) for the Appellant
Mr Ian Clarke (instructed by Rubric Lois King Solicitors) for the Respondents
Hearing date: 27 November 2012
Introduction
This appeal, by the claimant, Belfairs Management Limited ('BML'), is against an order made in the Chancery Division by Norris J on 22 June 2011 following the trial on liability of its claim against the defendants/respondents, Matthew Sutherland and his wife, Christie Sutherland.
The respondents were formerly the owners of the issued shares of Waveform Solutions Limited ('Waveform'). By a purchase agreement completed on 11 February 2008, BML purchased 60% of their shares for £2m. The acquisition quickly proved to be a failure: Waveform entered into administration on 5 November 2008 and creditors' voluntary liquidation on 24 February 2009. By its claim, BML sought damages from the respondents for alleged deceit and breach of warranties in the share purchase agreement. That agreement limited the amount recoverable for breach of warranty to the diminution in the value of the purchased shares by reason of the breach. The damages for any deceit were, however, at large.
The trial occupied 21 days between January and March 2010. The judge's judgment was delivered on 10 September 2010, with consequential matters being adjourned to a date to be fixed. In the event, no date was fixed until 22 June 2011, when the judge's order was made. The outcome of the trial was that he dismissed BML's claim for deceit but held the respondents to be in breach of warranties in paragraphs 6.4, 8.3, 12.2 and 12.5 of Schedule 3 to the share purchase agreement and directed an inquiry as to damages for such breaches, which he reserved to himself. He rejected BML's claim that the respondents were in further breach of warranty: in particular, of the warranty in paragraph 16.1.5 of Schedule He refused permission to BML to appeal.
By its appellant's notice filed on 13 July 2011, BML challenged the dismissal of its deceit claim and of its warranty claim based on paragraph 16.1.5. Davis LJ refused permission on the papers on 13 October 2011. On BML's renewed application at a hearing on 25 May 2012, Rix and Lewison LJJ affirmed the refusal of permission in respect of the deceit claim but permitted BML to appeal against the dismissal of its paragraph 16.1.5 warranty claim.
It is, therefore, the correctness of the judge's dismissal of that warranty claim that is in issue before the court. The grounds of appeal raise the following issues: (i) was 'the NHS Framework Agreement' (to which I shall come) an 'agreement, arrangement or commitment' within the meaning of paragraph 16.1 of Schedule 3; if yes, (ii) what was the nature of the paragraph 16.1.5 warranty; and (iii) was the warranty breached?
The judge's judgment occupies 173 paragraphs, of which paragraphs 165 to 170 answer those questions. His answers were: (i) that the NHS Framework Agreement was not such an 'agreement, arrangement or commitment', so that the paragraph 16.1.5 warranty did not apply to it; (ii) if, contrary to that view, that warranty did apply to it, the warranty required no more than an honest subjective assessment by the respondents, as at the date of the share purchase agreement, of the future performance of the framework agreement, and there was no basis for a finding that their assessment of such performance was other than honest, albeit that Waveform's future did not turn out as they had hoped; and (iii) it followed that on no footing was there a breach of paragraph 16.1.5. BML submits that the judge was wrong on all three counts; and that, as to points (ii) and (iii), the warranty was an objective warranty to the effect that the framework agreement could readily be fulfilled or performed in time, whereas on the facts it could not.
Mr Booth QC represented BML, as below. Mr Clarke represented the respondents, as he also did below.
The events leading up to the signing of the share purchase agreement
I have gratefully taken the following summary from the judge's judgment.
Waveform was incorporated in May 2002. At all material times until the share purchase agreement, the respondents each held five of its ten issued shares and were two of its four directors, the other two being employees. BML was incorporated in 2006 and carried on the business of providing management services. Its sole director was Dr Abdullah Al Jabbar Al Anizi. As at April 2007, it had capital and reserves of £1 and was dormant. The transaction with the respondents was the only transaction into which it ever entered.
Waveform was a supplier of communications and information technology. It was also a software developer that sold its own products. The ability to develop products was part of its attraction. The judge explained as follows the business venture at the heart of the dispute between the parties:
'29. One of the notional trading divisions of Waveform was "Care Health Systems" ("CHS"). It was "notional" in the sense that it was not organisationally or legally separate from the remainder of the business, rather representing a grouping of products that could be usefully marketed together to create a brand identity. The CHS products were sold to primary care trusts and provided systems to support the National Chlamydia Screening Programme, Teenage Pregnancy Sure Start Programme, genitor-urinary medicine, family planning programs and so forth, and were so sold under the over-arching umbrella of "sexual health". These systems were modular patient and practice management systems, incorporating record-keeping and management, prescribing, diary management, a web-based booking system and audit reports. The modules were the subject of constant re-development and re-packaging for new applications. The Chlamydia programme was well established and a market leader. The Surestart and GUM programmes were more recent developments.
30. In late 2006 Mr Sutherland thought it advisable for Waveform to become involved in the NHS National Programme for IT. This was a government initiative to modernise and synchronise NHS computer systems across the country — in general practices, clinics and hospitals. Part of the £6 billion programme was called "Connecting for Health". This was predominantly concerned with storing and transmitting patient data securely, and ensuring that patients had a single file across all services and departments. But it had certain features designed to improve service to patients such as a 'Choose and Book' appointments system and an electronic prescription service. It was not contemplated that the entire system should be introduced simultaneously as a unified whole. It was contemplated that there would be sequential local implementation by individual GP practices of systems from accredited competing suppliers, each of which met national standards. In some areas, there were to be Local Services Providers to whose system an individual GP practice could simply link. There were six compliance standards within "the Maturity Model". Level 0 was the minimum standard for participation (which effectively required compliance with an existing standard for booking systems called "RF A99"). Level 1 built on Level 0 and required the system to incorporate "Choose and Book", "Personal Demographic Services" access, and Electronic Transmission of Prescriptions. Level 2 was then to provide an up-rated specification for these facilities; and Levels 3 upwards added further functionality (including at Level 4 a data centre hostel solution).
31. All existing suppliers of GP clinical systems were encouraged to design new systems or upgrade their existing systems to meet the requirements. There was to be encouragement for practices to retain their current system as it was upgraded through the various compliance levels. There was only limited support from central funds for a transfer from one supplier to another (from a non-compliant to a compliant provider, from a practice's own compliant provider to a Local Service Provider, and then more freely at Level 4). To that extent, being in the market with an already compliant system therefore conferred an advantage. There were 11 suppliers working closely with the Department to develop the programmes. Waveform sought to join their number.
32. The process whereby suppliers could request to participate in this programme was opened in February 2007. Tenderers had to demonstrate experience for the preceding three years of providing and supporting a GP clinical IT system which had (as a minimum) electronic access to storage and retrieval of patient medical data, patient scheduling, clinical coding of patient medical data, prescribing and dispensing, and analysis and reporting facilities. Mr Sutherland recognised that Waveform's existing programmes might face some difficulty in meeting these criteria. Nonetheless Waveform put in an application. Mr Sutherland disclosed that the existing systems did not have RFA 99 accreditation, but he was informed that Waveform would have effectively 12 months from the signature of a supply agreement to get up to Level 2 (whatever the starting point).
33. On 16 March 2007 Waveform was notified by the...
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