Corporate Development Partners Llc v E-Relationship Marketing Ltd
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE RIMER,MR JUSTICE RIMER |
| Judgment Date | 09 March 2007 |
| Neutral Citation | [2007] EWHC 436 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC06C01110 |
| Date | 09 March 2007 |
[2007] EWHC 436 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Rimer
Case No: HC06C01110
Mr Arshad Ghaffar(instructed by Finers Stephens Innocent LLP) for the Claimant
Mr James Barker (instructed by Wedlake Bell) for the Defendant
Hearing date: 13 December 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
MR JUSTICE RIMER:
Introduction
This is the claimant's application for summary judgment under CPR Part 24. It is for the payment of fees amounting to at least £42,745 plus VAT and interest. The claimant also asks for a disclosure order directed at enabling it to quantify its claim more precisely. The fees are said to be due under an agreement dated 17 February 2005. The agreement is admitted, but the defence is that its relevant provisions are unenforceable because they infringe the “financial assistance” provisions in section 151 of the Companies Act 1985. The claimant is Corporate Development Partners LLC (“CDP”) and appeared by Mr Ghaffar. The defendant is E-Relationship Marketing Limited (“E-RM”) and appeared by Mr Barker.
The story
CDP is a Delaware company that also carries on business in England. It provides management consultancy services and advises companies on domestic and cross-border business development strategies. Its clients are typically companies that are looking to grow by acquisition, joint venture or strategic alliance. It effects introductions to its clients of potential targets. It uses a fee structure under which the client pays it a monthly fee but with the bulk of its return being in the nature of a contingent “success” fee, success being the entry by the client into a transaction with a party introduced by CDP. E-RM supplies digital direct marketing technology and services. This is a fragmented market, with many small players providing a range of services.
Contact between CDP and E-RM dates from September 2004, when Andrew Littell (CDP's managing director) spoke to Mike Williams (E-RM's Chief Executive Officer). Mr Littell explained what CDP did and Mr Williams displayed interest. Mr Littell sent Mr Williams an email explaining CDP's fee structure and services (which included identifying and approaching potential acquisition targets) and indicating he already had in mind two potential targets for E-RM, although he did not name them.
Email contact between CDP and E-RM continued and led to their signing of an agreement on 20 December 2004 (“the December agreement”). It is not this agreement upon which CDP sues, but I should summarise it. It was headed “Corporate Development Program Proposal for [E-RM]”. The first two pages were largely devoted to an explanation of how CDP operates, and included an explanation of its programme for E-RM under several headings. The first was “A Profile of Our Method”, which described CDP's function as working “as an extension of your management ….” The second was “Defining the Acquisition Criteria” under which CDP was to “define with you the activity-related, market-related, and company-related characteristics to be sought in an acquisition.” Subsequent headings were “Conducting the Search”, “Making the Approach” (which provided that CDP would not reveal E-RM's identity to any identified business until that business had indicated an interest in pursuing the type of transaction or agreement that E-RM had in mind) and “The Screening Process”. The last heading recognised that:
“During the course of this program it is quite possible that independent of our efforts other companies or their representatives will contact you with an interest in acquisition, divestiture, merger, joint venture, license agreement or financing transaction. To maximize the likelihood of a successful outcome CDP will handle the screening and preliminary evaluation of each contact or inquiry and assist in the administrative and logistical aspects of keeping the negotiating process moving.” (My emphasis)
The agreement then identified the “Transaction Advice” that CDP could provide. Then it turned to fees. The first element, in clause (1), was a monthly fee of £2,500 plus VAT, commencing on 5 January 2005, with the engagement being terminable by either side on 30 days' notice after the first month. E-RM was also required to pay CDP's out of pocket expenses. The second element, in clause (2), was headed “Contingent Transaction Fees”. This was the forerunner of the provision in the later February 2005 agreement upon which CDP does sue and which has given rise to all the trouble. It provided in the first paragraph:
“The contingent portion of your obligation is the Transaction Fee which is paid in connection with each completed strategic acquisition, merger, joint venture or divestiture (any one of which is defined as a 'Transaction') that involves E-RM and any company which we have contacted on your behalf or which was referred to us for handling by E-RM (any one of which is defined as a 'CDP Prospect').”
The agreement then explained, in paragraphs (2)(a) to (d), the computation of the transaction fee, the method and timing of its payment and so on. It is unnecessary to say more than that the fee was to be the aggregate of 5% on the first £ 1m, 4% on the next £ 1m, 3% on the next, 2% on the next and 1% on the balance of the transaction value. By clause 2(c) E-RM agreed to provide CDP “with a copy of the closing documents, including the Contract of Purchase and Sale, prior to the closing date and to notify CDP at least one week in advance as to the time and place of closing.” This related to the documents effecting a transaction upon which a fee would be payable. There then followed a page or so of further provisions which are not material to the present issue.
Following the signing of the December agreement, CDP commenced working for E-RM, the initial phase of its work being focused on listing possible target companies. On 11 January 2005 Mr Littell forwarded to Mr Williams an email he had received from Paul Cook on 21 December 2004 to the effect that Mr Cook wanted to sell his 25% stake in Red Eye International Limited (“Red Eye”). Mr Littell's message to Mr Williams was that he was not sure if E-RM already knew Red Eye but thought the matter might be of interest. Mr Williams was interested, and Mr Littell had a meeting with Brian Fenwick-Smith, the chairman of Red Eye, on 12 January 2005. In the meantime, Mr Williams had authorised Mr Littell to disclose E-RM's identity to Mr Fenwick-Smith. The outcome of that meeting, as Mr Littell reported to E-RM on the same day, was that Red Eye was “open to discussing being acquired – or potentially playing a role in a larger online marketing services roll-up” and “open to exploring a deal with E-RM further (e.g. meeting, phone call, etc).” Mr Williams continued to be interested, as he conveyed by his emailed reply to Mr Littell of 13 January 2005.
So far the contemplation had been that E-RM might acquire Red Eye. But on 14 January 2005 Mr Littell received an email from Mr Fenwick-Smith to the effect that a search he had done on E-RM led him to conclude that “unless [it] has had a huge increase in capital and a huge increase in profits, its appetite is much bigger than its stomach!” Mr Fenwick-Smith could not, therefore, see that E-RM could hope to acquire Red Eye – but he still “would very much like to talk to them, but about them joining Red Eye, not the other way round.” So by then the nature of any possible commercial link had, or may have, changed: Red Eye was claiming to view E-RM as a possible target, although these were still early days. Mr Littell forwarded Mr Fenwick-Smith's email to Mr Williams, who retained an interest in Red Eye. He emailed Mr Fenwick-Smith directly on the same day, 14 January, saying that he “would be more than happy to discuss with you any/many ideas in the pursuit of our mutual benefit including deals that work whichever way round they are constructed.” So Mr Williams was keen to discuss the possibility of an association with Red Eye, including an acquisition of E-RM. But nothing firm had yet been proposed: there had not even been a meeting between the two companies.
During the rest of January 2005 Mr Littell heard nothing further from E-RM regarding Red Eye. He worked on other avenues that might be of interest to E-RM and set up meetings for them with two other companies, with the first taking place on 25 January 2005. On 27 January 2005 Mr Littell attended a scheduled meeting at E-RM's offices to present them with his findings and recommendations. He identified various potential targets, and E-RM asked for their turnover details. Red Eye was mentioned at the meeting as another possible prospect or target.
Mr Littell sent Mr Williams an email on 31 January 2005, the PS to which asked if there was “any headway with Red Eye?” The response, on the same day, was that E-RM was meeting Mr Fenwick-Smith on 1 February 2005. Mr Littell had been unaware of such communication as there had in the meantime been between E-RM and Red Eye. E-RM and Red Eye duly held their meeting on 1 February 2005, of which Mr Littell was told nothing at the time. The outcome was that Red Eye made a “subject to contract” offer to E-RM's shareholders to buy their E-RM shares for about £1.6m. During the afternoon of 3 February 2005 there was an exchange of emails between Mr Williams and Mr Fenwick-Smith by which an agreement in principle appears to have been reached that the price would be about £1.7m, plus £300,000 to Mr Williams and Mr...
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Estafnous v London & Leeds Business Centres Ltd
...he had already made. In this respect the case would have been similar to Corporate Development Partners v E-Relationship Marketing Ltd [2007] EWHC 436 (Ch), a decision of Rimer J in which he held that there had been no breach of s. 151 where the defendant company agreed to pay a transaction......