MARCHANDS ASSOCIATES LLP and Another/s v The THOMPSON PARTNERSHIP LLP /s
| Jurisdiction | England & Wales |
| Judge | LADY JUSTICE ARDEN,LORD JUSTICE PETER GIBSON,LORD JUSTICE WALLER,LORD JUSTICE MAY |
| Judgment Date | 28 June 2004 |
| Neutral Citation | [2004] EWCA Civ 878,[2004] EWCA Civ 555 |
| Date | 28 June 2004 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | A2/2004/0125 |
[2004] EWCA Civ 555
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM LEEDS DISTRICT REGISTRY
(MR JUSTICE LLOYD, VICE-CHANCELLOR)
Royal Courts of Justice
Strand
London, WC2
Lady Justice Arden
A2/2004/0125
MR ANTHONY ELLERAY QC (instructed by Marshalls, The Old Halsall Arms, 2 Summerwood Lane, Halsall, Lancashire L39 8RJ) appeared on behalf of the Applicant
THE RESPONDENTS DID NOT ATTEND AND WERE NOT REPRESENTED
This is an application by Thompson Partnership LLP for permission to appeal from the order of Lloyd J dated 16th January 2004. By his order, the judge refused to restrain the advertisement of a winding-up petition against the appellant and made an order that the appellant should pay 80 per cent of the costs of the respondent, subject to detailed assessment failing agreement between the parties. I am informed that the amount claimed on account of those costs by the respondent is approximately £37,000.
I need to say a little about the facts in issue. The debt on which the petition is based is the principal amount of six post-dated cheques. The cheques were given on the completion of a retirement agreement, dated 10th September 2003, made between the Thompson Partnership of the first part ("the partnership") as seller, the remaining partners, Messrs Thompson and Frost of the second part, Messrs Shaw and Brooke as retiring partners of the third part, and Marchands Associates LP as buyer of the fourth part. The petitioner is Mr Shaw, one of the parties of the third part. He is now petitioner as a result of an amendment. The petition was originally presented in the name of the party of the fourth part.
The retirement agreement provided for the buyer to buy part of the business of the partnership and for the price to be set against the balance owed to Mr Shaw and Mr Brooke on their current and capital accounts with the partnership. That left a balance due to Mr Shaw and Mr Brooke at the date of completion, which was to be paid to them by a series of post-dated cheques delivered at completion. Thus clause 4 provides, in clause 4.1, that the price payable by the buyer for the transfer of the business and assets is apportioned as stated in that clause, including premises, goodwill, fixtures and fittings, transferred vehicles, transferred cases and intellectual property. In clause 4.2 the retirement agreement provides that the price is to be satisfied by the payment to the seller of the retiring partner's capital and current accounts as shown in the completion accounts subject to clauses 4.3, 4.4, 4.5 and 4.6.
Clause 4.3 deals with the possibility that there is a deficiency as a result of the offset of the capital and current accounts against the price. It provides that the buyer is then to make a cash payment to the seller to the value of the deficiency. The deficiency should be payable by the buyer on the transfer date, defined as 30th September 2003. I should add, at that point, that it was accepted before the judge that if there was a deficiency on the account of, say, Mr Shaw, he would retain his liability to the partnership for that amount.
Clause 4.4 provides:
"In so far as the value of the Retiring Partners' Capital Accounts and Current Accounts at the Transfer Date is greater than the price ("the Excess"), the Seller shall pay the Excess to the Retiring Partners by providing post-dated cheques on the date hereof made payable to Martin Andrew Shaw in the following instalments and such post-dated cheques to clear on the following dates as to which time shall be of the essence:
4.4.1 on the Transfer Date £20,000 on account of sums to be calculated in accordance with Clauses 4.2.4 and 4.5;
4.4.2 such sum as will be payable in accordance with Clause 4.5 by no later than 30 October 2003;
4.4.3 £14,000 by no later than 31 October 2003;
4.4.4 £14,000 by no later than 30 November 2003;
4.4.5 £14,000 by no later than 31 December 2003;
4.4.6 £14,000 by no later than 31 January 2004;
4.4.7 £14,000 no later than 28 February 2004; and
4.4.8 £14,000 by no later than 31 March 2004."
Clause 4.6 provided:
"For the avoidance of doubt, should the sum paid on the Transfer Date pursuant to Claus 4.4.1 be greater than the actual figure as at 30th September 2003 payable pursuant to Clause 4.4.2, then the Retiring Partners will pay over such excess to the Remaining Partners."
Accordingly, clause 4 referred to the completion accounts. The procedure for the completion accounts was set out in clause 6. This clause provided for the valuation of work in progress of the partnership at 30th September 2003.
It was accepted before the judge that if, when settled, these accounts showed that the amount of the post-dated cheque was not due to Mr Shaw, then these amounts would have to be repaid to the partnership by him, as well as by Marchands, the party of the fourth part. It was also common ground that there was a genuine dispute as to the amount shown to be due by the completion accounts, which are only available in draft. These amounts have either to be agreed or determined by an expert. It was accepted below that there was a substantial dispute as to whether any amount was due in respect of the current and capital accounts of Mr Shaw and Mr Brooke.
The Thompson Partnership also says that it has a substantial cross-claim in damages for negligent or fraudulent misrepresentation by Mr Shaw as to the amount of the work in progress before the retirement agreement was signed.
The judge decided that the decision of this court in Re Bayoil SA [1999] 1 WLR applied and that there was no challenge to proceedings on the basis of that authority. I will read the holding from the case note in that case:
"Held, allowing the appeal, discharging the winding-up order, authority did exist for the practice in cross-claim cases that a petition for a winding-up order should not be allowed where there existed a genuine cross-claim. The cross-claim must be genuine and serious or one of substance. It must be an amount exceeding the amount of the petitioner's debt and one that the company had been unable to litigate. Nevertheless there existed a residual discretion which allowed the judge to ask himself in each case whether there were special circumstances which might make it inappropriate for a petition to be dismissed or stayed. Given that the company had a genuine and serious cross-claim, which it had been unable to litigate in the arbitration, and which was in an amount exceeding that of Seawind's debt, the judge ought to have asked himself whether there were special circumstances which made it inappropriate for the petition to be dismissed or stayed. Matters which had been relied upon by the judge in exercising his discretion at the hearing, namely the finality and unappealability of the interim award, the security for the company's counter-claim granted by Seawind's PI club, the judge's concern as to the potential commercial insolvency of the company and the fact that there was no real evidence that showed that the award could be payable did not amount to special circumstances. The ability of a petitioning creditor to levy execution against a company did not entitle him to have it wound up. A winding-up petition often sounded the death nail of a company and it would be unlikely that a liquidator would prosecute a company's claims with the diligence and efficiency of the directors. Accordingly, on the facts the appeal would be allowed."
In the present case the Thompson Partnership claims that the cross-claim does exceed the amount of the post-dated cheques. It estimates that the deficiency on the account was some £200,000. It also submits that this is a claim which it has been unable to litigate before the matter reached this stage.
In this present case the judge held that he could not be satisfied that special circumstances did not here exist because the machinery in clause 4.4, in his judgment, contemplated the delivery of cheques before the completion accounts had been finalised. He took the view that the cheques were to be payable in any event and, without question, whatever might be the process as regards the completions accounts, unless and until those accounts were finalised: see paragraph 54 of his judgment. He further held that the fact that the cheques might have to be paid and then repaid was one of the risks which Mr Thompson must have accepted.
I have the benefit of a lengthy skeleton argument from Mr Elleray. The grounds of appeal are of course set out in the appellant's notice. I am only concerned with the first five of those grounds. I am going to put to one side two matters: first, the cross-claim for misrepresentation, because the judge was not satisfied that there was a substantial dispute as regards that matter. I am also going to put to one side for the purposes of this judgment grounds 1, 2 and 3, which arguably misinterpret the judge's judgment. The position is that the judge applied the rule in the Bayoil case, but held that there were exceptional circumstances. He went on to hold that while he could not decide what would be held on the petition, he could not say that there was no prospect of success on the petition and thus restrain advertisement of the petition. Likewise, I will not deal with clause 4 because that is directed to the misrepresentation claim.
Ground 3, however, is based on the argument that there was no consideration for the cheques. I should say at this point that this matter came before Jonathan Parker LJ on paper. He refused...
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