MARPLACE (NUMBER 512) Ltd v CHAFFE STREET (A Firm)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 27 July 2006 |
| Neutral Citation | [2006] EWHC 1919 (Ch) |
| Docket Number | Case No: HC 05 C 02008 (TLC 386/05) |
| Court | Chancery Division |
| Date | 27 July 2006 |
[2006] EWHC 1919 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand London WC2A 2LL
Mr Justice Lawrence Collins
Case No: HC 05 C 02008 (TLC 386/05)
Mr John Dagnall (instructed by Halliwells) for the Claimant
Mr Justin Fenwick QC and Mr Jamie Smith (instructed by Beachcroft Wansbroughs) for the Defendants
Hearing: April 27, 28, May 2, 3, 4, 8, 9, 10, 11, 12, 16, 17, 18, 19, June 8, 9, 2006
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
()
I Introduction
Ebrahim ("Ebby") Jebreel and his brother Jacob Jebreel are businessmen, mainly interested in property transactions. I shall refer to them together as "the Jebreels." In mid-September 2000, the Jebreels were interested in acquiring properties in receivership situations through their family property company (which also involved their father and their brother, Houshy Jebreel). They learned that Coats Viyella plc ("CVP") was anxious to sell or close down its clothing division, which was a manufacturing operation carried on by and through its subsidiary Coats Viyella Clothing Ltd ("CVC"). CVC's main customer was Marks and Spencer plc ("M&S"), but CVC was not thriving. CVP preferred to sell CVC, rather than close it down, in order to avoid CVP having to go through a massive closure and redundancy process involving 3,000 to 5,000 employees employed at factories some of which were clustered in parts of the country in which CVP had always had a major presence, which would involve adverse publicity.
Deloitte & Touche ("Deloittes") were advising CVP, and were also auditors of CVC. Ultimately the main person at Deloittes who was involved in the transaction was Mr Maghsoud Einollahi. The Jebreels first discussed a plan whereby they would acquire inter-company indebtedness of CVC to CVP, and then put CVC into receivership and acquire its properties.
Through Deloittes the Jebreels were introduced to Mr Graham McInnes, a partner in corporate finance advisers TMG Corporate Finance ("TMG"), who was assisted by his partners Mr Ian Hill and Mr Philip Travis. Through Eversheds (CVP's solicitors) the Jebreels were introduced to the defendants, Chaffe Street (since dissolved), to act as solicitors. Chaffe Street was at the time a relatively small Manchester boutique firm specialising in corporate law. The partners principally concerned were Mr Robert Street and Mr Mark Brandwood on the corporate side, and Mr Shaun Rearden on the banking side. The Jebreels were also advised by the accountants, Lathams, who were to effect the due diligence exercise, and where Mr John Daly was the partner principally concerned.
Ultimately the Jebreels (through the Claimant, which is an off-the-shelf company supplied by Chaffe Street) entered in to an agreement ("the Agreement") which was exchanged on November 10, 2000, under which the Claimant acquired an option to purchase CVC with the use of bank finance secured on the assets of CVC.
As the financing for the transaction was to be secured on CVC assets, it was going to be necessary for the statutory whitewash procedure to take place pursuant to sections 155 and 156 of the Companies Act 1985. This required the directors of CVC to make a statutory declaration under section 156(2) that, as at completion of the transaction, their opinion was that CVC was then and would be able during the next 12 months to pay its debts as they fell due. Accordingly, CVC needed to be cash flow solvent in that 12 month period. Mr McInnes was to become a director of CVC for this purpose and Deloittes were going to give the auditors' report required by section 156(4) that they had enquired into the affairs of CVC and were not aware of anything to indicate that the opinion of the directors was unreasonable.
I should add at this point that other persons who play a role in the narrative include Sir Harry Djanogly, the Chairman of CVP, Ms Kazia Kantor, who was at the relevant time the finance director of CVP, and Sir David Alliance (now Lord Alliance), who is the Jebreels' uncle (his sister is their mother) and had been chairman, and was at the relevant time still a major shareholder, of CVP.
The Claimant's case is, very broadly and simplified for the purpose of setting the scene, as follows. An important part of the transaction was that CVC would continue to receive, following completion, payments from M&S on a continuing regular basis for stock called off by M&S. The Option was exercisable not later than November 28, 2000. After the Agreement was exchanged the Claimant learned that CVP had agreed with M&S that payments of some £14 million which would ordinarily have been paid after completion, were to be paid prior to completion, and used to reduce inter-company debt. CVP would not agree to reverse the effect of these pre-payments, and the Claimant says that it was unable to exercise the Option because the effect on cash flow would have been such that the whitewash procedure would have been impossible. As a result the deal fell through. The Claimant says that as a form of consolation or compromise CVP agreed to pay the professional fees incurred by the Claimant, and to give it an option to purchase CVP's surplus properties at forced sale valuations. The compromise agreement was not put in writing, and CVP subsequently denied that it had made any agreement to pay professional fees, other than those of TMG and Chaffe Street, or to grant an option over its surplus properties.
This is an action for negligence against Chaffe Street. There are three basic claims. The first is that Chaffe Street negligently failed to advise the Claimant that CVP was in breach of the Agreement and failed to advise on remedies in relation to that Agreement, as a result of which the Claimant was deprived of the opportunity of forcing CVP to reverse the M&S accelerated payments and of the opportunity that would have given the Claimant to exercise the Option, or the Claimant was thereby deprived of a valuable right to damages against CVP. The second claim is an alternative claim: if, contrary to the Claimant's primary submission, the procurement of the M&S accelerated payments was not in breach of the Agreement, Chaffe Street's drafting of the Agreement was negligent in that it should have drafted to ensure that no such acceleration took place. The third claim is that Chaffe Street failed to advise the Claimant that the compromise agreement should be in writing. Chaffe Street denies negligence in all the alleged respects.
II The Agreement
In this section, I set out for convenience the principal relevant provisions of the Agreement.
By clause 1(A):
(1)" 'the Debt' means all indebtedness owing by the Company and any of the Subsidiaries and any of the Overseas Entities to the Seller or any of its subsidiaries (other than the Company, the Subsidiaries, and the Overseas Entities) other than the Excluded Debt and other than current trading indebtedness (which will be settled in accordance with current terms of business);"
(2)" 'the Excluded Debt' means the sum of £4,600,000 (subject to adjustment as hereinafter mentioned) of the indebtedness of the Company to the Seller (not being current trading indebtedness). The said sum of £4,600,000 shall be increased by an amount equivalent to any excess of the consolidated Net Working Capital of the Company and the Subsidiaries and the Overseas Entities (calculated and consolidated using bases, policies and practices consistent with those used to prepare the 30 th September 2000 Management Accounts forming the Sixth Schedule) over £44,000,000 at 26 th November 2000 up to a maximum increase of £8,800,000 and shall be reduced by an amount equivalent to any shortfall in such consolidated Net Working Capital below £44,000,000 at 26 th November 2000 up to a maximum reduction of £4,600,000. The parties shall use all reasonable endeavours to agree the amount of the Excluded Debt and the Net Working Capital as soon as reasonably practicable following Completion;"
(3)" ' Net Working Capital means stocks of raw materials, work in progress and finished goods plus debtors (but excluding intra-group debts other than intra-group trading debts) and cash less creditors (but excluding intra group creditors other than intra-group trading creditors);"
By clause 1(D):
"Each of the Schedules shall have effect as if set out herein."
By clause 2
"(1)Subject to the terms of this Agreement in consideration of the payment of the sum of £1 by the Buyer to the Seller (receipt of which the Seller hereby acknowledges) the Seller hereby grants to the Buyer the right exercisable on one occasion only following a notice of intention under Clause 2(4) (which may only be given once) by notice in writing from the Buyer to the Seller given at any time on or after 17th November 2000 but on or before 28 th November 2000 to require the Seller to sell the Sale Shares and to sell or procure the sale of the Overseas Entities Shares and the Debt to the Buyer under the terms of this Agreement.
…
(3)In the event of the Buyer not giving notice to require the Seller to sell to it (or procure the Sale as the case may be) the Sale Shares and the Overseas Entities Shares and the Debt in accordance with Clause 2(1) above on or before 28 th November 2000 this Agreement shall lapse and neither party shall have any further liability to the other hereunder.
(4)The Buyer shall notify the Seller of its intention to exercise its right under Clause 2(1) not less than three Business Days prior to such exercise. Such notice shall not in any way bind the Buyer to serve a notice of...
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