Boardman Marden Ltd (Plaintiffs Appellants) v Josephs and Others (Defendants Respondents)
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE DANCKWERTS,LORD JUSTICE EDMUND DAVIES |
| Judgment Date | 16 February 1968 |
| Judgment citation (vLex) | [1968] EWCA Civ J0216-2 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 February 1968 |
[1968] EWCA Civ J0216-2
In The Supreme Court of Judicature
Court of Appeal
Civil Division
From Mr Justice O'Connor
The Master of the Rolls (Lord Denning)
Lord Justice Danckwerts and
Lord Justice Edmund Davies
MR G. H, NEWSOM, Q.C. and MR C. N. GLIDEWELL (instructed by Messrs Manches & Co., Agents for Messrs David Blank, Alexander & Co, Manchester) appeared as Counsel for the Appellants.
MR M. O. STRANDERS, Q.C. and MR H. PALMER (instructed by Messrs Hart, Leverton & Co.) appeared on behalf of the Respondents.
In this case we are concerned with an agreement, which is becoming more familiar nowadays, of a takeover bid or merger of Companies. It arises in this way. There was a small Company called Gryce & Company Ltd. in the West-end which carried on the business of outdoor garments for ladies. In the beginning of 1961 there were negotiations for it to be taken over by a public Company called Boardman Marden, Ltd. As usual, the shares in the Company were to be bought up by the purchasers, so that the Company in effect would become a subsidiary of the public Company. Negotiations were on the basis of the value of the assets of the Company which was being taken over. They had the balance sheet before them and the balance sheet showed, apparently, that there were some 4,000 or so fixed assets and there was getting on for 8,000 put as the value of a lease taken at cost, which is an important point to remember. The profits it was making were about 10,000 a year. There were current assets and current liabilities of about 100,000 on each side of the balance sheet. But the real asset values were those which I have mentioned.
The agreement which was come to was that the purchasers would buy the shares in this private Company. The shareholders were Mr and Mrs Josephs and Mr and Mrs Gryce. Mr Josephs had 3,526 shares and his wife 24. Mr Gryce similarly had 3,326 shares and his wife 24. Those shares were sold by those shareholders to the Company. The agreement contained elaborate provisions as to the ascertainment of the price. The sum of 60,000 was put in as the total purchase price for the shares. But with this important qualification "subject nevertheless to adjustment as hereinafter provided".
On completion, which was on the 30th April, 1961, all the shares were transferred to the purchasing Company, and a sum of 12,500 was paid by the purchasing Company "on account of the said purchase price". Thus leaving a sum of 47,500 out-standing, as to which Clause 6 contained this important provision:"The purchaser shall retain the balance of the purchase price which balance or so much thereof as shall become payable under the provisions hereof shall be paid and satisfied as hereinafter provided". Pausing there, it seems to me that that sum of 47,500 was in effect a retention sum held by the purchasing Company pending the calculation of the account.
Then the agreement went on to provide that the lease should be sold. It was obviously contemplated that it would make in the region of 30,000. It must have gone up a great deal since it was bought, because in the balance sheet the cost was put at some 8,000. At all events, the lease was to be sold to a purchaser and a sub-lease granted to the Company. This was a way of financing the matter. It was contemplated that 50,000 would be obtained. If that sum was obtained, there was to be (in addition to the first 12,500) a second sum of 12,500 paid by the purchasing Company on account of the purchase price. If they got more or less than 30,000 for the lease, there was to be an adjustment, up or down, on the 12,500. As it happened, they got some 26,000 for the lease. On the adjustment of the figures, the sum to be paid came to 10,416, 16s.8d. The purchasers paid this in February 1962. So by that date the purchasing Company had paid two sums on account of the purchase price, a sum of 12,500 payable on completion on the 30th April, 1961, and then the sum of 10,416. 16s.8d. payable when the lease was sold. So much for the payments which were made.
There were further provisions in the agreement. The sellers of the shares guaranteed the profits for the first three years. Under Clause 10 they guaranteed that the three years' profits would come in all to 106,750 before tax. If the profits for those three years turned out to be above 106,750, there would be an increase in the purchase price. If they turned out to be less than that figure of 106,750, then there would be a reduction in the purchase price. Even losseswould have to be taken into account. Then there was an important provision that! "(4) Any reduction or increase in the said purchase price shall be paid and satisfied as here-in after provided". Those words "as hereinafter provided" refer to Clause 11. It said there had to be an auditors' certificate under which the final purchase price was to be ascertained, and the balance paid. The final price was to be ascertained by taking the original 60,000 less the sums which had been paid or allowed for, and also the amount of any adjustments which had to be made. It is important to notice there that that clause provided for "payment of any balance of the purchase price" and not for any repayment of the instalments already paid. I do not think I need recite any of the other clauses in the agreement.
After the first three years had elapsed, the auditors, in order to prepare their certificate, went into the accounts. The result was that this Company over those three years made a net loss of nearly 60,000. So the profits not only fell short of the 106,750 profits which had been guaranteed, there were no profits, but a loss of 60,000. The auditors said that the profits were nill: in fact there was a minus quantity. Their report of the 30th December, 1963, finished up with this laconic phrases "The purchase consideration should be reduced to nil".
Thereupon the purchasing Company said "The purchase consideration is nil. They ought not to have had any of this 60,000 and we ask for the return of the initial 12,500 paid on completion and the 10,41. 16s.8d. which was paid when the lease was sold". That is the issue which has come before the Courts.
I need hardly point out, as the Judge did, that this is a remarkable contention. It would mean that the purchasing Company got all the shares in the Company for nothing. Now the shares represented the assets. So itwould mean that they would get all the fixed assets and the leasehold premises for nothing. Yet we know that the leasehold by itself realised 26,000,
The law is quite straightforward. If a sum is provided as a deposit on a sale and then the sale goes off, the deposit is not returnable. If a sum is paid as an instalment, that is, as part payment of the purchase price, and the agreement is resoinded, that instalment will be recoverable. But if the agreement is not rescinded (and this agreement was not), then prima facie sums already paid as instalments remain where they are in the hands of the recipient. They are not returnable unless there is something in the agreement, on its true construction, to make them returnable.
So it comes down, as Lord Dunedin said in Mason v, Clouet, 1924 Appeal Cases, p. 980, to the true construction of the agreement. Are these two sums which were paid, on the true construction of the agreement, returnable? I must say that at first when I heard Mr Newsom's attractive argument I thought he was right; because there are many places in this agreement where it speaks of the "purchase price" and moneys being paid "on account of the purchase price. Then, if...
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