Broome & Wellington LP v Greenstein and Another

JurisdictionEngland & Wales
JudgeMr Justice Mann,Lord Justice Lloyd,Lord Justice Longmore
Judgment Date18 June 2009
Neutral Citation[2009] EWCA Civ 589
Docket NumberCase No: A3/2008/2493
CourtCourt of Appeal (Civil Division)
Date18 June 2009

[2009] EWCA Civ 589

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM MANCHESTER DISTRICT REGISTRY

HIS HONOUR JUDGE WAKSMAN

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Longmore

Lord Justice Lloyd and

Mr Justice Mann

Case No: A3/2008/2493

Claim no: 8MA30828

Between:
David Greenstein
Steven Greenstein
Appellants
and
Broome And Wellington Lp
Respondent

MR. M. CAWSON Q.C. and MR. R. CHAPMAN (instructed by Messrs Fruhman Davies Livingstone) for the Appellants.

MR. J. GOUDIE Q.C. and MR. J. WILSON (instructed by Messrs. Zatman & Co) for the Respondent.

Hearing date: 4 th June 2009

Mr Justice Mann

Mr Justice Mann :

Introduction

1

This is an appeal from a decision of HHJ Waksman Q.C. sitting as a deputy judge of the Chancery Division in the Manchester District Registry and dated 26 th September 2008 in which (in essence) he allowed the defendants to defend quantum points on a guarantee liability, but not liability itself, ordered that they pay $3.5m by way of interim payment and refused them permission to defend on other bases put forward by them. The defendants appealed that order, seeking permission to defend this claim generally. Permission to appeal was given by Arden LJ.

Background

2

The claimants (“B&W”) and defendants (“the Greensteins”) were formerly both interested in an English company called Homestead Fabrics Limited (“Fabrics”). Between January 1998 and autumn 2004 they operated the business of Fabrics together; the defendants were 35% shareholders and B&W were 65% shareholders. Their relationship was governed by a short written agreement dated 27 th January 1998 to which I will have to refer in more detail in due course, but that detail does not matter for the purposes of this narrative. Fabrics operated as a supplier of cloth to those who manufactured items from cloth. Mr David Greenstein ran the sales side of the business, Mr Steven Greenstein arranged for the manufacture and supply of goods and B&W's role (through Mr Joshua Rowe and/or Mr Bernard Rowe) was to run the administration and financial side of the company. B&W also provided finance.

3

In about April 2004 the defendants informed B&W that they wished to terminate the 1998 agreement and buy out B&W's shareholding in Fabrics. KPMG prepared a report on the business, which reflected some uncertainty as to what tax would be payable and queried some of the administrative records. That led to the withdrawal from that particular arrangement of a US company called London Fog Industries Inc (“London Fog”) who had been intending to participate with the Greensteins in the purchase of the shareholding. However, interest in purchasing remained, and by an agreement dated September 2004 (“the Agreement”) the Greensteins and London Fog, operating through a new company called Greenco Enterprises Inc (“Greenco”), agreed an asset sale with Fabrics for a sum of $27m paid in a complicated way which included inter-company credits and the realisation of Fabrics' book debts. The effect of the arrangement was that the price would be paid over time, rather than in one lump sum. The Greensteins guaranteed the liabilities of Greenco under that agreement. The agreement was subject to English law and the parties submitted to the exclusive jurisdiction of the English courts.

4

Various other agreements were entered into at the time or subsequently, most of whose detail does not matter. Greenco's rights and liabilities under the agreement were in due course taken over by another company, Homestead Holdings Inc (“Holdings”), but the guarantee liabilities of the Greensteins remained. Unfortunately in March 2006 Holdings entered into Chapter 11 insolvency proceedings in the US. Part of the purchase price was said to be still outstanding and B&W submitted a proof in the US insolvency in a sum exceeding $7m. On 18 th April 2006 Holdings commenced proceedings seeking to disallow the proof, judgment on certain counterclaims and injunctive relief preventing B&W from making claims against the Greensteins other than in the Nevada jurisdiction.

5

On 13 th September 2006 the Nevada court made an order in which it abstained from hearing the determination of the claim and counterclaim, in favour of the courts in this jurisdiction. It declined to grant an injunction restraining proceedings against the Greensteins. In May 2007 B&W issued proceedings against Holdings in the Manchester District Registry in respect of the outstanding price (including sums said to have accrued due since March 2006) and shortly thereafter a default judgment was entered. Holdings applied to set aside that judgment, and on 13 th November 2007 HHJ Hodge Q.C. set it aside, but only to the extent of ordering an account pursuant to which account schedules and documents were to be exchanged.

6

Those proceedings never reached a contested final hearing. They were compromised by an order of 19 th May 2008 which contained a simple judgment in favour of B&W in the sum of $7,018,710 (the amount of the original proof) and no order for costs. Sanction for that order had to be obtained in the US insolvency court, and justification had to be given to that court for entering into the compromise. It was apparently opposed by the Greensteins. Nevertheless, the court in the US sanctioned the compromise. It appears that the case made for settling was that, while it was considered that the debtor had a good defence, it was not worth fighting the claim because it would be very costly to do so and success would make no difference to the unsecured creditors because there were no funds for them in the insolvency anyway. The justification, as set out in the documents that we have seen, seems therefore to be commercial pragmatism rather than a perception that defeat was inevitable.

7

Shortly after that, on 3 rd June 2008, B&W issued the claim form in these proceedings against the Greensteins as guarantors. It sought a sum slightly over $10m made up of two elements – the $7m-odd referred to above, outstanding as at 20 th March 2006 (the date of the Chapter 11 filing) and an additional sum of some $3.084m for additional overheads and interest said to have accrued due between March 2006 and the end of May 2008. No defence was filed, and on 18 th August 2008 B&W issued the summary judgment application which ultimately came before Judge Waksman.

8

In the intervening period, on 30 th July 2008, the Greensteins were supplied with information about the claim. As will appear, the price due under the 2004 transaction was not a straightforward sum payable on a specified date. It depended on various inter-company dealings. In the past complaints had been made that the proper sums due could not be verified for want of information. It was, as I understand it, in those circumstances that Judge Hodge ordered the disclosure of information. That was provided to the company at some point in time after it was ordered. It was that same information that was provided to the Greensteins on 30 th July 200It was said in submission by the Greensteins that to analyse it would take months of work by a forensic accountant. Whether or not that is true, neither party in these proceedings (and in particular the Greensteins) made any attempt to put any of that information either before Judge Waksman below or before us. Its content has been ignored for the purposes of the summary judgment proceedings (subject to one suggestion by Judge Waksman that a limited part was somehow deployed in a limited way). Furthermore, having received that information, the Greensteins at no stage sought an adjournment of the summary judgment application in order that they might have an opportunity to see whether anything in that information assisted their defence in this case.

The judgment below

9

The summary judgment application came before Judge Waksman on 26 th September 2008. The positive evidence in support of the sum being owed took the form of a witness statement of Mr Joshua Rowe in which he set out the historical background and referred to the consent order. Ostensibly relying principally on the consent order, he claimed that the Greensteins were indebted to B&W on the guarantee in the $7m sum. No attempt was made to justify the quantum of that element of the debt. He also exhibited a spreadsheet with some details of the additional $3m said to be owing. We can put that sum on one side for the purposes of this appeal because no sum is sought in respect of that element at this stage.

10

In his judgment Judge Waksman dealt with various defences that the Greensteins raised to their liability. His conclusion as to the settlement was, rightly, that it could not be seen in terms of a capitulation on the merits. He plainly did not treat it as such. It is also apparent from paragraph 43 of his judgment that he did not treat the consent order as binding the Greensteins in any way. He observed:

“I have mentioned the fact that no detailed material has been put before me as to how the underlying claim of $7 million has been made up. That, I suspect, is largely because B&W relied heavily on the fact of the consent order. Not because it binds these defendants as a matter of law – clearly it does not – but as powerful evidence of the true debt. Powerful enough to discharge B&W's burdens of making out summary judgment under Part 24, or a case for a very substantial interim payment under Part 25.”

11

He then went on to deal with the various defences that were made. The first was the effect of the consent order. It had been alleged that that somehow discharged the guarantee. He held that it did not. Although there was...

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