Douglas Macduff Wemyss v Sameer Karim and Another
| Jurisdiction | England & Wales |
| Judge | HHJ David Cooke |
| Judgment Date | 13 February 2014 |
| Neutral Citation | [2014] EWHC 292 (QB) |
| Docket Number | Case No: 2BM40007 |
| Court | Queen's Bench Division |
| Date | 13 February 2014 |
[2014] EWHC 292 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
BIRMINGHAM DISTRICT REGISTRY
MERCANTILE COURT
Birmingham Civil Justice Centre
Bull Street, Birmingham B4 6DS
HHJ David Cooke
Case No: 2BM40007
Paul J Dean (instructed by Edward Hands & Lewis) for the Claimant
James Quirke (instructed by Sidhu & Co) for the Defendants
Hearing dates: 2–4 July, 2–3 September, 5–7 November 2013
This litigation arises from the sale of a solicitor's practice by the claimant to the first defendant, by an agreement dated 31 March 2008. The practice was at the time of the sale known as Douglas Wemyss Solicitors and conducted through the second defendant, an LLP. An LLP is of course a legal entity separate from its members. The claimant was the sole member of the LLP and the first defendant (whom I will refer to as Sameer Karim in order to distinguish him from his father Rafik Karim who is also closely involved) was a solicitor employed by the firm. Previously the practice had been conducted by the claimant in partnership with a Mr Hathaway and known as Wemyss Hathaway, but Mr Hathaway left in June 2007, at which time the LLP came into existence.
The relevant terms of the sale were negotiated between Mr Wemyss and Sameer Karim (assisted by Rafik Karim) and set out in two documents drafted by another firm of solicitors acting for Sameer Karim. The principal agreement (Bundle v2/p194) is intended to transfer the operation of the practice but is somewhat confused in character, being based on a precedent for sale of assets and failing to recognise clearly that the trading assets of the business were now owned not by Mr Wemyss but by the LLP. Mr Wemyss is defined as "the Seller". The LLP is a party, defined as "the Business", but there is also a separate definition of "the Business" as "the business of a solicitors practice carried on by Douglas Wemyss Solicitors LLP…". The operative clause (cl 2) provides that the Seller (Mr Wemyss) shall sell to the Buyer (Sameer Karim) "the Business and the Assets… the Goodwill…the Records…the Work in Progress…the Debtors…"subject to the exclusion of "the Excluded Liabilities…the Creditors (subject to apportionment)…", all the capitalised terms being defined. This fails to recognise that the assets referred to could not be sold by Mr Wemyss because they were held by the LLP, and that if (as was clearly intended and implemented by the parties) Sameer Karim was to succeed Mr Wemyss as member of the LLP which would continue the practice, the LLP as a corporate entity would continue to be liable for the debts stated to be excluded. What Mr Wemyss in fact sold was his entitlement as a member of the LLP, which was more akin to a sale of shares in a limited company. The agreement has to be given a very free and purposive reading in relation to the mechanism of the sale in order to overcome this confusion.
The basic terms of the sale were that Sameer Karim would pay a consideration of £100,000 on completion, which by Sch 1 was to be apportioned between goodwill, chattel assets at the offices including the IT system and Intellectual Property (I am not clear if there was any intellectual property in fact). Clause 3.1 provided that this payment would be "[i]n addition to the sums due at the effective time in respect of Debtors and WIP set out in clauses 3.2 and 3.3".
"Debtors" was defined as, in summary, any amount due to the LLP at completion, principally no doubt being amounts for fees and disbursements due from clients pursuant to invoices delivered before completion. Clause 3.3 provided that
" As each invoice in relation to the Debtors at Completion is collected and paid by clients of the Business then the Seller and Buyer shall agree to deposit such amount to the account of the Seller on an invoice by invoice basis and as soon as cleared funds are received by the Business. "
Although this is drafted in terms of a requirement to agree in future, it was not suggested that this clause did not create a binding obligation. Nor was it suggested that "such amount" meant anything other than the whole amount paid by the client, excluding VAT.
In respect of Work in Progress, i.e. amounts not yet invoiced to clients in respect of work done prior to completion, clause 3.2 provided:
" As each invoice for clients who had Work in Progress at Completion is rendered and paid then the Seller and Buyer shall agree to deposit the agreed apportioned amount to the account of the Seller on an invoice by invoice basis and as soon as cleared funds are received by the Business… if the Bill is rendered on any file, it must include the WIP. Once WIP has been included as part of, it will be treated in the same way as debtors below …"
The clause went on to provide a formula for determining the value of WIP on domestic conveyancing files according to this stage the matter had reached (e.g. "Contract Exchanged £350") but otherwise there was no mechanism set out in the contract for determining "the agreed apportioned amount" of any invoice which (as would be likely) covered work done both before and after the completion date. Mr Quirke submitted that unless and until an amount was agreed, nothing was due.
Since, as explained above, the debts and work in progress were not assets actually sold, these provisions are to be interpreted not as consideration for any such sale but consideration for the transfer of Mr Wemyss' interest in the LLP, calculated by reference to the amount received by it in respect of these assets which it at all times owned, but payable by Sameer Karim as and when the amounts were collected by the LLP. What was expressed to be consideration apportioned to goodwill must be interpreted in a corresponding way.
The LLP did not own the premises from which the practice operated, which were dealt with separately and do not feature in this litigation. Mr Wemyss in addition entered into a consultancy agreement with the LLP under which he would continue to work in the practice.
Mr Wemyss' claim is made up as follows:
i) £50,000 being part of the £100,000 stated to be payable on completion but agreed to be deferred. This is accepted in principle, subject to set off for the amounts counterclaimed and a dispute over whether the terms agreed for deferment also waived any interest on the deferred amount.
ii) The amounts he says are unpaid in respect of WIP that has been billed and paid since completion and consultancy fees in respect of work done since that date. In his skeleton argument, Mr Dean put these amounts at £49,784.27 and £35,407.52 respectively. The figure for consultancy fees is agreed in principle, subject as before, but the figure for WIP is disputed.
iii) Interest, at the contractual rate provided under the sale agreement and/or under the Late Payment of Commercial Debts (Interest) Act 1998.
The defence and counterclaim is based on warranties and indemnities contained in the sale and purchase agreement. Because of the way the document was drafted, this results in a somewhat confusing mixture of claims made by Sameer Karim as the buyer in respect of losses said to have been incurred by him, claims by Sameer Karim for indemnity payments in respect of losses and costs said to have been suffered by the LLP and the claim for indemnity in respect of increased professional indemnity insurance premiums which may be pursued by either defendant. The principal matters giving rise to these claims are as follows:
i) Mr Wemyss had failed to disclose circumstances which subsequently gave rise to substantial claims against the LLP by clients referred to as Purewal, Malhotra and Le Butt. This was said to amount to a fraudulent or reckless breach of warranties to the effect that the information contained in the agreement and other information provided to the buyer was true accurate and complete in every respect and not misleading, and that there was no other information that might reasonably affect the willingness of the buyer to purchase the business on the terms of the sale agreement, that the records of the business were fully properly and accurately maintained and complete and that nothing had been done or omitted by Mr Wemyss that might give rise to any fine or penalty.
ii) Mr Wemyss made an erroneous statement as to the current rate of turnover and profitability of the LLP in the period leading up to completion, which is pleaded both as a negligent or innocent misrepresentation, and as a breach of the warranty as to accuracy of information
iii) Mr Wemyss failed to disclose an outstanding loan liability of the LLP in the sum of £30,000 and various acts of negligence which led to the LLP being removed from the panels of National Westminster bank and Nationwide Building Society and prevented it being appointed to the panel of Norwich & Peterborough Building Society, and gave inaccurate information as to the terms of employment of various employees by failing to disclose undocumented entitlement to additional holidays
iv) The agreement provides at clause 5.8 a specific indemnity in respect of "any increase in professional indemnity insurance premiums arising as a result of claims made upon the professional indemnity insurance policy of the Business". Sameer Karim contends that the LLP suffered and continues to suffer increases in the insurance premiums payable by it after completion as a result, principally, of the claims brought by Purewal Malhotra and Le Butt, and seeks to recover the amount of these increases.
These issues have been dealt with in a somewhat unfocused way in the pleadings and evidence. The preparation for trial of the defendants, in particular, has been far from ideal. On 29 March 2012 His Honour Judge Brown QC made an order permitting single...
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