Invertec v De Mol Holding BV and Another
| Jurisdiction | England & Wales |
| Judge | THE HON MR JUSTICE ARNOLD,MR JUSTICE ARNOLD |
| Judgment Date | 09 October 2009 |
| Neutral Citation | [2009] EWHC 2471 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC08C00893 |
| Date | 09 October 2009 |
[2009] EWHC 2471 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: The Hon Mr Justice Arnold
Case No: HC08C00893
Romie Tager QC and Ian Clarke (instructed by Charles Russell LLP) for the Claimant
Stephen Cogley and Paul Henton (instructed by TLT LLP) for the Defendants
Hearing dates: 8–10, 13–17, 20 July, 2 September 2009
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 ARNOLD:
Contents
| Topic | Paragraph |
| Introduction | 1–2 |
| The contracts | 3–10 |
| The SPA | 4–5 |
| The Disclosure Letter | 6–7 |
| The Tax Deed | 8 |
| The MSA | 9 |
| Other agreements | 10 |
| My approach to the evidence | 11–13 |
| The witnesses | 14–28 |
| Invertec's factual witnesses | 14–21 |
| John Ellison | 14 |
| David Paulson | 15 |
| Julie Wilkinson | 17 |
| Karen Harris | 18 |
| Mark Batha | 19 |
| Ian King | 20 |
| Paul Sutcliffe | 21 |
| Missing witnesses | 22 |
| The Defendants' factual witnesses | 23–25 |
| Mr de Mol | 23 |
| Harald de Wit | 24 |
| Harrie de Kok | 25 |
| The expert witnesses | 26–28 |
| Christopher Clements | 27 |
| Vanessa Winspeare | 28 |
| The facts in general | 29–250 |
| Volante | 30–36 |
| Volante's financial situation in the first quarter of 2005 | 37–47 |
| Invertec | 48 |
| ITS | 49 |
| Negotiations for a merger between Invertec and Volante, |
|
| Volante's financial situation in the second quarter of 2005 50–87 |
|
| Negotiations leading to the sale of Volante, |
|
| Volante's financial situation in the third quarter of 2005 | 88–245 |
| Events after administration | 246–250 |
| The timing of the claim | 251–252 |
| Mr de Wit's reward | 253 |
| July and August 2005 management accounts | 254–295 |
| The facts | 258–293 |
| Purpose of the warranty | 258 |
| In-house and factored sales etc | 259–269 |
| July & August 2005 accounts before the changes | 270–272 |
| Management accounts for year ended 30 June 2005 | 273–276 |
| The changes | 277–293 |
| Breach of warranty | 294 |
| Fraudulent misrepresentation | 295 |
| Solvency | 296–324 |
| Construction of the Warranty | 297–300 |
| Discharging the burden of proof | 301–302 |
| No going concern warranty | 303 |
| The facts | 304–322 |
| Breach of warranty | 323 |
| Fraudulent misrepresentation | 324 |
| Corporation Tax | 325–352 |
| General considerations | 325–326 |
| The facts | 327–344 |
| Breach of warranty | 345 |
| Fraudulent misrepresentation | 346 |
| Tax Deed | 347–352 |
| The Alstom Contract | 353–361 |
| Misrepresentation by warranty | 362–364 |
| Reliance | 365–377 |
| July and August 2005 management accounts 369–374 |
|
| Solvency | 375 |
| Corporation Tax | 376 |
| Alstom contract | 377 |
| Loss | 378–387 |
| Initial consideration | 379–380 |
| Loans | 381–386 |
| Sums paid under the MSA | 387 |
| Invertec's alternative claims | 388–390 |
| Negligent misstatement | 389 |
| Misrepresentation Act 390 |
|
| Entire agreement clause | 391 |
| Personal liability of Mr de Mol | 392–393 |
| Counterclaims | 394–400 |
| MSA | 395–398 |
| Debts Agreement | 399–400 |
| Conclusions | 401 |
Introduction
In this action the Claimant (“Invertec”) makes a number of claims arising out of the sale by the First Defendant (“DMH”) to Invertec of the entire issue share capital in Volante Public Transportation Interior Systems Limited (“Volante”) under a Sale and Purchase Agreement dated 6 October 2005 (“the SPA”). The Second Defendant (“Mr de Mol”) is a director of DMH and its sole beneficial owner. He was also, at the relevant times, the sole director of Volante. Invertec claims that it was induced to enter into the transaction by a number of fraudulent misrepresentations by DMH and Mr de Mol which became warranties in the SPA. These concern (i) Volante's July and August 2005 management accounts, (ii) its solvency, (iii) its corporation tax liability with regard to the year ended June 2004 and (iv) a contract with one of Volante's customers, Alstom Transportation SA (“Alstom”). In the alternative, Invertec advances claims for negligent misstatement and under section 2(1) of the Misrepresentation Act 1967. There is no claim for breach of warranty, but I have found it convenient to consider this question as well. Invertec claims as damages: (i) the initial consideration it paid for the shares in Volante, namely £1,512,113; (ii) monies lent by it to Volante following the acquisition which it lost when Volante went into administration on 11 December 2006, in the sum of £1,521,441; and (iii) monies paid by it to DMH under a Management Services Agreement between Invertec and DMH also dated 6 October 2005 (“the MSA”), in the sum of €196,960 plus expenses estimated at €20,000. A separate claim is also advanced under a side agreement forming part of the transaction (“the Tax Deed”) in the sum of £87,403.06.
The Defendants deny any liability. In addition DMH counterclaims for outstanding sums due under (i) the MSA and (ii) a Consultancy Agreement between DMH and Volante dated 27 May 2004 (“the Consultancy Agreement”). The Consultancy Agreement was terminated as part of the acquisition, but as at 6 October 2005 Volante owed DMH certain sums under it. Liability for those sums is said to have been novated to Invertec by an agreement evidenced by an exchange of emails dated 27 and 28 October 2005 (“the Debts Agreement”). The sums claimed by DMH under the MSA and the Debts Agreement total €428,995.
The contracts
Since they are central to the claims advanced, it is convenient to begin by setting out the relevant terms of the various contracts.
The SPA
The SPA provides:
“1 INTERPRETATION
1.1 Definitions
In this Agreement unless the context otherwise requires:
…
'Company'
means Volante ….
'Company 2005 Accounts'
means the audited balance sheet of the Company made up as at the Company Balance Sheet Date and the audited profit and loss account of the Company for the year ended on that date, and the notes, reports, statements and other documents which are annexed to the accounts, a copy of which has been initialled by or on behalf of the parties for the purpose of identification;
'Company Balance Sheet Date'
means 30 June 2005
…
'Company Management Accounts'
means the unaudited management accounts of the Company for the period from the Company Balance Sheet Date to the Company Management Accounts Date, a copy of which has been initialled by or on behalf of the parties for the purpose of identification;
'Company Management Accounts Date'
Means 31 August 2005
…
'Disclosure Letter'
means the letter of even date from the Vendor to the Purchaser (in the agreed form) disclosing:
(a) information constituting exceptions to the Warranties (save those set out in paragraph 1of Schedule 4); and
(b) particulars of other matters required to be set out in the Disclosure Letter in accordance with Schedule 4;
…
'Initial Consideration'
means the sum of £1,512,113;
….
'Shares'
means the entire issued share capital of the Company being 20,000 ordinary share of £1 each a 1 B ordinary share of £1;
…
'Tax'
means any form of taxation, duty, impost, levy, tariff of any nature whatsoever whether of the United Kingdom or elsewhere … and includes, without limitation … any penalty, charge, fine or interest payable in connection with any such taxation, duty, impost, levy or tariff;
…
'Total Earn-Out Consideration'
means the part of the consideration for the Shares to be calculated and paid in accordance with clause 8;
…
'Warranties'
means the warranties given by the Vendor set out in Schedule 4.
…
3. PURCHASE CONSIDERATION
3.1 The total consideration for the sale by the Vendor of the Shares shall be the Initial Consideration plus the Total Earn-Out Consideration (as adjusted, if applicable, in accordance with clause 5.6 and the Tax Deed).
….
5 WARRANTIES BY THE VENDOR
5.1 Accuracy of warranties
The Vendor warrants to the Purchase that, save as fairly disclosed by the Disclosure Letter, the Warranties are true and accurate in all material respects.
5.2 The rights and remedies of the Purchaser in respect of any breach of the Warranties shall not be affected by:
….
5.2.2 information relating to the Company of which the Purchaser has knowledge, actual or constructive save for that fairly disclosed in the Disclosure Letter;
5.2.3 any investigation made by or behalf of the Purchaser into the affairs of the Vendor or the Company;
…
5.3 Knowledge of the Vendor
Save as qualified in relation to any particular Warranty in Schedule 4 where any Warranty refers to the knowledge, information or belief or awareness of the Vendor, it shall be deemed to include a warranty that the same is made or given after due and careful enquiry by the Vendor into the subject matter of the Warranty.
6 LIMITATIONS OF LIABILITY
Limitation of Vendor's liability
The provisions of Schedule 5 shall operate to limit the liability of the Vendor under the Warranties save the Warranties set out in paragraph 1 of Schedule 4.
6.2 No limitation in cases of fraud etc
The provisions of Schedule 5 shall not operate to limit the liability of the Vendor under or in connection with the Warranties where the liability arises as a result of fraud on the part of the Vendor, the Company or any of the officers or employees of the Company, or any agents or representatives of the Company or of the Vendor or where a matter has been deliberately concealed or withheld by the Vendor or any of the officers of the Company.
7 INDEMNITIES
7.1 The Vendor shall indemnity and keep indemnified the Purchaser and the Company from and against all losses, costs, claims, demands, liabilities or expenses which the...
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