Lucy Burnford v Automobile Association Developments Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Newey,Lady Justice Asplin,Lord Justice Lewison |
| Judgment Date | 14 November 2022 |
| Neutral Citation | [2022] EWCA Civ 1943 |
| Docket Number | Case No: CA-2022-000626 |
| Court | Court of Appeal (Civil Division) |
Lord Justice Lewison
Lord Justice Newey
and
Lady Justice Asplin
Case No: CA-2022-000626
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
His Honour Judge Paul Matthews (sitting as a Judge of the High Court)
Royal Courts of Justice
Strand, London, WC2A 2LL
Stephen Auld KC and KV Krishnaprasad (instructed by Stewarts Law LLP) for the Appellants
Andrew Thompson KC and Ben Griffiths (instructed by Reynolds Porter Chamberlain LLP) for the Respondent
Hearing dates: 1 & 2 November 2022
Approved Judgment
This judgment was handed down remotely at 10.30am on 14 November 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
The main question raised by this appeal is whether Judge Paul Matthews (“the Judge”) was right to strike out the claim on the basis that it was barred by the “reflective loss” principle considered by the Supreme Court in Marex Financial Ltd v Sevilleja [2020] UKSC 31, [2021] AC 39 (“ Marex”). There is also an issue as to the implications of a settlement agreement (“the Settlement Agreement”) concluded on 22 December 2020 between the second claimant, Mr Oliver Astley, and, among others, the defendant, Automobile Association Developments Limited (“AAD”).
The claimants are all former shareholders in Motoriety (UK) Limited (“Motoriety”). Mr Astley and the first claimant, Ms Lucy Burnford, were also directors of Motoriety. The other claimants (Mr Giles Fitzpatrick, Mr Michael Symons and Mr Kevin Gaskell) were not founder shareholders, but they had subscribed for shares by 21 January 2015 for sums totalling £250,000. AAD is a company in the Automobile Association group (“the AA Group”).
Motoriety's business involved products called “Automyze” and “Garage Guide”. The former kept an electronic record of a vehicle's service history and sent prompts to motorists when vehicles were due for servicing or MOT tests. The latter consisted of an online garage directory and booking platform.
In 2015, there were negotiations which ultimately led to AAD investing in Motoriety. According to the particulars of claim, “the Claimants (and Motoriety's other shareholders) wished to develop and expand Motoriety's business by finding a suitable investment partner enabling the expansion of the company's subscriber base” and potential investors included not only the AA Group but Solera Holdings Inc (“Solera”), a subsidiary of which provided a vehicle history checking service. The particulars of claim explain that “[s]ubstantive discussions between the Claimants/Motoriety and [AAD] commenced in February 2015” and that “Motoriety and its shareholders and managers, including the Claimants, were principally represented in these discussions by Ms. Burnford and Mr. Astley”.
In May 2015, heads of terms were agreed between AAD and Motoriety setting out terms and conditions on which AAD was willing to proceed with negotiations with regard to investment in Motoriety. On 28 August 2015, an investment agreement (“the Investment Agreement”) was concluded between the claimants, Motoriety's other shareholders, Motoriety itself and AAD under which AAD agreed to subscribe for 50% of the shares in Motoriety for £400,000 and also, subject to the delivery by Motoriety of an information technology development plan in an agreed form, to lend Motoriety £400,000 by way of “Marketing Facility”. By clause 12.1, Motoriety's shareholders, including the claimants, granted AAD an option to become Motoriety's sole shareholder by purchasing from them the balance of the issued shares. The option could not be exercised unless Motoriety's “EBITDA” (i.e. the company's earnings before interest, taxes, depreciation and amortisation for a year) was at least £1.3 million, but, if it was exercised, AAD was to pay the shareholders sums termed the “Initial Option Payment” and the “Earn-out Consideration”. The “Initial Option Payment” was defined to refer to the aggregate of six times 50% of Motoriety's “EBITDA” for the 12 month period ending immediately before the option's exercise and an amount in respect of cash held by or on behalf of the company. The “Earn-out Consideration” was calculated by multiplying by six 50% of the mean EBITDA in the year before the option was exercised and (a) the next year, (b) the next two years and (c) the next three years and, in each case, deducting the “Initial Option Payment”.
Also on 28 August 2015, AAD and Motoriety entered into a brand licence and services agreement (“the Licence Agreement”) pursuant to which, among other things, AAD licensed Motoriety to use certain trade marks.
It is the claimants' case that they and Motoriety concluded the Investment Agreement and the Licence Agreement in “intended and specific reliance on the Immediate Access Representation, the Honesty Representation, the Business Plan Representations and the Services Representation”: see paragraphs 7.6 and 8.4 of the particulars of claim. References to the alleged representations being relied on by both the claimants and Motoriety are also to be found in paragraphs 3.4, 4.7, 6.1.2 and 6.3 of the particulars of claim. The “Immediate Access Representation” is described as follows in paragraph 3.1 of the particulars of claim:
“[AAD] expressly represented to the Claimants and Motoriety inter alia that upon the conclusion of [AAD's] proposed investment agreement, [AAD] would be in a position to, and would, provide Motoriety with immediate access to the AA's customer base of 4 million members and 9 million B2B customers”.
With regard to the “Honesty Representation”, this is said in paragraph 3.2 of the particulars of claim:
“Further, in making the Immediate Access Representation, [AAD] also impliedly represented that [AAD] … honestly and reasonably believed the Immediate Access Representation to be true (‘the Honesty Representation’)”.
In paragraph 4.5 of the particulars of claim, it is alleged that AAD:
“represented:
(1) That the Claimants and Motoriety could realistically expect that over a 12-month period (or Year 1 in the Business Plan) approximately 5,000,000 of the AA's customers would receive an email reminder that the MOT on their vehicle was due.
(2) That it was reasonable and realistic to expect that, of those 5,000,000 customers, 600,000 customers a year (i.e. 50,000 customers a month) would sign-up to Motoriety's Automyze product in response to the MOT reminder email referred to in paragraph 4.5(1) above
(together ‘the Business Plan Representations’)”.
As for the “Services Representation”, paragraph 7.5.1 of the particulars of claim states:
“The Claimants concluded the Investment Agreement in reliance upon an express or implied representation by [AAD] that it would provide to Motoriety the agreed services referred to in the Licence Agreement … (‘the Services Representation’)”.
The claimants allege that the Immediate Access Representation, the Honesty Representation, the Business Plan Representations and the Services Representation were all false and made fraudulently in that they were made intentionally or with reckless disregard as to their truth or falsity: see paragraphs 10.1, 11.1, 15.1 and 15.2 of the particulars of claim. It is further alleged that the Immediate Access Representation, the Honesty Representation and the Business Plan Representations were made negligently: see paragraph 12 of the particulars of claim.
There are also allegations of breach of contract. This is said in paragraph 9 of the particulars of claim:
“9.1 In the premises set out above, the Investment Agreement including the Business Plan and the Licence Agreement were part of a relational transaction which was akin to a joint venture. There was a mutual intention to have a long-term relationship, for the parties to perform with integrity and fidelity to their bargain and reposing trust and confidence in each other in circumstances where performance of the transaction required collaboration, a significant investment by the parties, exclusivity and communication, co-operation and mutual trust/confidence.
9.2 In the premises, there were implied terms of the Investment Agreement (and/or as necessary the Licence Agreement between Motoriety and the AA), inter alia:
9.2.1 That [AAD] had exercised and would exercise good faith in relation to the provision of information including the contents of the Business Plan.
9.2.2 That the parties would act in good faith in relation to performance of the Investment Agreement including the Business Plan going forward.
9.2.3 That [AAD] would not of its own motion act in a way which frustrated, defeated or undermined the purpose of the venture or change the circumstances or basis upon which the venture was based.”
Breaches of these terms are alleged in paragraph 14.1 of the particulars of claim. It is said that:
“(1) The Business Plan was not prepared in good faith but was intentionally or recklessly false.
(2) The Business Plan was not accurate but was materially inaccurate to an extent which seriously undermined the viability of the venture.
(3) [AAD's] conduct following the conclusion of the Investment Agreement (and related agreements) was designed to (and did) frustrate, defeat or undermine the purpose of the venture and/or changed the circumstances or basis upon which the venture was based.”
For whatever reasons, Motoriety did not thrive. It went into administration on 24 April 2017 and was dissolved on 5 June 2019. The administrators sold its business and assets for £20,004 to Automobile Association Travel Services Limited,...
To continue reading
Request your trial
-
Anthony Douglas King v Barry Stiefel
...have been negligent of Metis Law to fail to spot them and to tell Mr Newman how to plead the case. CONCLUSIONPrimekings Parties: Re King's Solutions Group Ltd [2022] EWCA Civ 1943, on appeal from [2020] EWHC 2861 (Ch) (Tom Leech QC (as he then was)). Although it will be necessary to refer t......
-
Court Of Appeal Confirms Reflective Loss Rule Will Bar Claims Of Former Shareholders Of A Dissolved Company Because The Principle Must Be Determined At Time Of Alleged Loss
...that all the losses claimed were barred by the reflective loss principle: Burnford & Ors v Automobile Association Developments Ltd [2022] EWCA Civ 1943. As a reminder, the Supreme Court in Sevilleja v Marex Financial Ltd [2020] UKSC 31 confirmed that the reflective loss principle is a brigh......
-
Claim Right To Be Struck Out On The Principle That Reflective Loss Cannot Be Recovered (Burnford And Ors v Automobile Association Developments Limited)
...has given a useful summary of the relevant authorities in this area. Burnford and ors v Automobile Association Developments Limited [2022] EWCA Civ 1943 What are the practical implications of this This decision offers a useful summary of a number of recent authorities, including the decisio......
-
Reflective Loss Principle: Sufficiently Settled For Summary Determination
...as due warning to potential claimants: the core aspects of the 'reflective loss' principle are simply not up for debate. Footnotes 1. [2022] EWCA Civ 1943 2. [1982] Ch 204 3. [2020] UKSC 31 The content of this article is intended to provide a general guide to the subject matter. Specialist ......