Elaine Philp and Another (Appellants and Claimants) v Lesley Joan Cook (Respondent and Defendant)
| Jurisdiction | England & Wales |
| Judge | Mrs Justice May |
| Judgment Date | 28 November 2017 |
| Neutral Citation | [2017] EWHC 3023 (QB) |
| Date | 28 November 2017 |
| Docket Number | Appeal Ref: CL/17/022/EX |
| Court | Queen's Bench Division |
[2017] EWHC 3023 (QB)
IN THE HIGH COURT OF JUSTICE
ON APPEAL FROM EXETER COUNTY COURT
Order of Recorder Christopher Gardner QC
County Court Case No: B09EX053
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice May DBE
Appeal Ref: CL/17/022/EX
Shaen Catherwood (instructed by Coffin Mew Solicitors) for the Appellants
Clive Wolman for the Respondent
Hearing dates: 13 October 2017
Introduction
This appeal is against the refusal by the judge, Mr Recorder Gardener QC, to order summary judgment on the Claimants' claim for an indemnity from the Defendant.
The Claimants ("the Sellers") were the owners and proprietors of a business – Beside the Seaside Ltd ("the Company"). The Sellers were friends with the Defendant ("the Buyer"). In 2012 the Buyer agreed to purchase the Company from the Sellers, under a Share Purchase Agreement drawn up by solicitors dated 5 March 2012 ("the SPA"). Consideration for the sale was £1. At the time of the sale, the Company had a substantial bank loan secured on Company assets and guaranteed by the Sellers. Under the terms of the SPA, the Sellers agreed to continue as guarantors of the bank loan after the sale, in return for an indemnity from the Buyer.
Unfortunately, in the years following the sale the business failed and the bank appointed receivers. The Company assets realised less than the outstanding indebtedness owed to the bank, which claimed the shortfall from the Sellers under the guarantee. The Sellers negotiated the sum down to £130,000 and paid this to the bank, after which they sought reimbursement from the Buyer, together with associated costs of £9,414.84, under the indemnity. Proceedings were issued on 24 April 2015.
The Buyer lodged a defence and counterclaim alleging various breaches of contractual warranties and misrepresentations. The Sellers issued an application to strike out the defence and counterclaim and/or for summary judgment, relying on the Buyer's failure to notify of any claim within 2 years of sale, as required under the terms of the SPA.
In his judgment dated 14 February 2017, the judge held that (i) the notification provisions contained in the SPA were mandatory and had not been complied with, precluding any counterclaim in respect of losses arising from breach of warranty; however, (ii) that the Buyer could nevertheless rely on those same alleged breaches of warranty as a defence, by way of equitable set-off. The judge also held that the Buyer could not rely on any separate misrepresentation claims. Accordingly, he struck out the counterclaim, but refused summary judgment on the claim.
The Sellers now appeal that decision, permission having been granted on the papers. The Buyer sought permission to bring a cross-appeal against the judge's refusal to permit her to counterclaim for various alleged pre-contractual misrepresentations. Permission for the cross-appeal has been refused.
The material provisions of the SPA are as follows:
" 1. Interpretation
…
"Warranties"; the representations and warranties in clause 7 and Schedule 3
…
5. Personal Guarantee
5.1 At and after Completion, the Sellers shall continue to provide security for the Bank Loan by way of the Personal Guarantee already provided to Lloyds TSB Bank plc until such time as the loan is renewed or repaid by 2 August 2012.
5.2 The Sellers shall not call in the Personal Guarantee and will comply with all the terms of the Personal Guarantee so as not to affect a default.
5.3 Subject to the Seller's compliance with clause 5.2, between Completion and such time as the loan is renewed or repaid, the Buyer will Indemnify the Sellers on a pound for pound basis in respect of any obligation that may arise for the Sellers to repay the Bank under the Personal Guarantee.
…
7. Warranties
7.1 The Buyer is entering into this agreement on the basis of, and in reliance on, the Warranties.
7.2 The Seller jointly and severally warrants and represents to the Buyer that each Warranty is true, accurate and not misleading on the date of this agreement.
7.3 Without prejudice to the right of the Buyer to claim on any other basis or take advantage of any other remedies available to it, if any Warranty is breached or proves to be untrue or misleading, the Sellers shall pay to the buyer on demand:
7.3.1 the amount necessary to put the Company into the position they would have been in if the Warranty had not been breached or had not been untrue or misleading
7.3.2 the amount necessary to compensate the Buyer if Warranty 2 (Sale Share constitutes all of the issued shares) is untrue or incorrect in any respect; and
7.3.3 all costs and expenses (including, without limitation, damages, claims, demands, proceedings, costs, legal and other professional fees and costs, penalties, expenses and consequential losses whether directly or indirectly arising) incurred by the Buyer or the Company as a result of such breach of 7.3. 1 or 7.3.2 or of the Warranty being untrue or misleading.
…
8. Limitations on Claims
8.1 The definitions and rules of interpretation in this clause apply in this agreement.
"Claim": a claim for breach of any of the Warranties.
"Substantiated Claim": a Claim in respect of which liability is admitted by the party against whom such Claim is brought, or which has been adjudicated on by a Court of competent jurisdiction and no right of appeal lies in respect of such adjudication, or the parties are debarred by passage of time or otherwise from making an appeal.
8.2 This clause limits the liability of the Sellers in relation to any Claim.
8.3 The Sellers are not liable for a Claim unless the Buyer has given the Sellers notice in writing of the Claim, summarising the nature of the Claim as far as it is known to the Buyer and the amount claimed:
8.3.1 in the case of a Claim relating to Tax, within the period of 7 years beginning with the Completion Date; and
8.3.2 in all other cases, within the period of 2 years beginning with the Completion Date.
8.4 The Sellers shall not be liable for a Claim unless the amount of all Substantiated Claims together exceeds £500, in which case the whole amount (and not merely the excess) is recoverable by the Buyer.
8.5 Nothing in this clause 8 applies to a Claim that arises or is delayed as a result of dishonesty, fraud, wilful misconduct or wilful concealment by the Sellers, their agents or advisors."
There was no cross-appeal against the judge's decision that the effect of clause 8.3 is to preclude any claim for breach of warranty that has not been notified in correct form within 2 years from of the Completion Date (as defined). The Buyer accepts that she did not give timely notification in proper form. Mr Wolman, representing the Buyer at this appeal, did not seek to challenge that part of the judge's decision.
The single remaining issue arising out of the judge's decision, therefore, is whether the terms of clause 8 of the SPA permit the Buyer to rely on alleged breaches of warranty as a set-off, reducing the value of the Seller's claim for reimbursement under the indemnity.
Set-off and the decision in Aries Tanker
In Hanak v. Green [1958] 2 QB 9 at 23 Morris LJ set out the three categories of set-off, of which only the third is relevant here, namely:
"reliance upon equitable set-off and reliance as a matter of defence upon matters of equity which formerly might have called for injunction or prohibition."
It was this third category of set-off on which the Buyer sought to rely before the judge and which he found provided her with an arguable defence to the claim made by the Sellers.
Mr Catherwood, for the Sellers, argued that the effect of the limitation provision in clause 8 of the SPA, as well as precluding any counterclaim for breach of warranty, was also to prevent an equitable set-off which might otherwise arise by virtue of any breach of warranty.
He relied for this purpose on the House of Lords decision in Aries Tanker Corporation v. Total Transport Ltd [1977] 1 WLR 185. That case concerned a claim by owners against charterers for an outstanding sum in respect of freight which had been withheld by the charterers owing to short delivery of the cargo. The charterers defended the claim asserting a counterclaim and an entitlement to set-off their loss against the unpaid amount of freight. The owners obtained summary judgment and the House of Lords dismissed the appeal, holding that article III, r.6 of The Hague Rules operated as a time bar with the result that the charterers' claim had ceased to exist. It could not therefore be introduced for any purpose into legal proceedings, whether as a counterclaim or as a defence by way of set-off.
Article III rule 6 of the Hague Rules provides that:
"…In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered"
As the charterers had brought their counterclaim more than one year after delivery it was time-barred under the contract. The issue was whether this contractual time-bar also prevented the charterers from asserting the right to an equitable set-off in defending the owners' claim against them. Lord Wilberforce found that it did, giving his reasons as follows, at 188C-G:
"My Lords, if this case is to be decided on the terms of the contract it would appear to me to be a comparatively simply one. There is an obligation to pay freight, calculated upon the amount of cargo intaken, which obligation arises upon discharge. There is no dispute as to the amount: it...
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