MDW Holdings Ltd v James Robert Norvill
| Jurisdiction | England & Wales |
| Judge | Keyser |
| Judgment Date | 04 May 2021 |
| Neutral Citation | [2021] EWHC 1135 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: BL-2019-CDF-000002 |
| Date | 04 May 2021 |
[2021] EWHC 1135 (Ch)
HIS HONOUR JUDGE Keyser QC
sitting as a Judge of the High Court
Case No: BL-2019-CDF-000002
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS IN WALES
BUSINESS LIST (ChD)
Cardiff Civil Justice Centre
2 Park Street, Cardiff, CF10 1ET
Andrew Ayres QC and Laurie Scher (instructed by Morgan LaRoche Ltd) for the Claimant
Hugh Sims QC and Jay Jagasia (instructed by Blake Morgan LLP) for the Defendants
Hearing dates: 18, 19, 20, 21, 22, 25, 26, 28, 29 January 2021
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.
HIS HONOUR JUDGE Keyser QC
JUDGE Keyser QC:
By a share purchase agreement dated 14 October 2015 (the “SPA”), the claimant, MDW Holdings Limited (“MDW”), purchased the entire share capital of G.D. Environmental Services Limited (“GDE”) from the three defendants for £3,584,224. Completion of the purchase took place on the date of the SPA. For convenience, I shall refer to the three defendants respectively as James, Jane and Stephen. Jane and Stephen are James's parents.
In these proceedings, MDW alleges that GDE had been systematically breaching environmental law and unlawfully avoiding the costs of environmental compliance, thereby increasing its profits to levels that would not have been achieved if it had acted lawfully; and that, in consequence, MDW paid substantially more for the shares in GDE than they were worth. It claims against the defendants damages for breach of warranty, for misrepresentation and, against James alone, for deceit.
The trial was conducted over nine days by Cloud Video Platform. I am grateful to counsel (Mr Andrew Ayres QC and Mr Laurie Scher for the claimant, and Mr Hugh Sims QC and Mr Jay Jagasia for the defendants) for their assistance throughout and for their detailed written and oral submissions, and to the solicitors for all parties, who facilitated the use of large amounts of documents through well-prepared electronic and paper bundles.
This judgment will not contain a list of the persons who gave evidence at the trial or general remarks about my assessment of individual witnesses. Findings will appear in what follows. However, it is convenient at the outset to address a submission by Mr Ayres that adverse findings ought to be made against the defendants by reason of the failure of certain persons to give evidence: Jane and Stephen, the second and third defendants; two people (Frank Holmes and Andrew Charter) who worked for the selling agent that acted for the defendants in the sale of their shares and were closely involved in the pre-sale process; and John Allison, a solicitor and friend of James who advised him in the period leading to the SPA. I reject Mr Ayres's submission. As for Jane and Stephen, the fact that they are defendants or that Stephen was managing director of GDE at one stage and had some practical involvement in the business even thereafter does not mean that they had necessary or useful evidence to give, far less that I could properly infer that the reason why they did not give evidence is indicative of anything adverse to the defendants' case. Likewise, as for Mr Holmes, Mr Charter and Mr Allison, it seems to me to be entirely likely that the reason they were not adduced as witnesses is that the pleaded issues in the case did not provide any good reason for adducing them. Even if judgments on that point might differ, the case is by no means so clear as to justify drawing adverse inferences.
The rest of this judgment will be structured as follows.
A. Introduction and Background: paragraphs 6 – 16;
B. Regulatory Framework: paragraphs 17 – 26;
C. Narrative: paragraphs 27 – 126;
D. Expert Evidence: paragraphs 127 – 144;
E. Core Allegations of Non-Compliance: paragraphs 145 – 192;
F. The Share Purchase Agreement: paragraphs 193 – 205;
G. MDW's Pleaded Case—a Summary: paragraphs 206 – 208; H. Liability: Breach of Warranty: paragraphs 209 – 243;
I. Liability: Misrepresentation: paragraphs 244 – 276;
J. Liability: Summary: paragraphs 277 – 279;
K. Quantum of Damages: paragraphs 280 – 294.
A. Introduction and Background
In 1979 Stephen began to carry on a drain-clearing business in the name Gwent Drains. The business was carried on at premises (“the Site”) at Felnex Industrial Estate, Newport. James began to work in the business in 2001.
In 2003 GDE was incorporated for the purpose of acquiring the business of Gwent Drains. James, Jane and Stephen were the members and directors of GDE; James held 51% of the shares, Jane 24% and Stephen 25%. The business was run for the most part by James and by Stephen, who was the managing director. In 2009 there was a falling out within the family; Stephen resigned as a director and James became the managing director, a post which he held until 2013, when he became Chief Executive Officer.
GDE's business grew significantly in the decade after its incorporation. In 2014 it acquired a company called Skip Solutions Limited, which operated from premises in Llanelli. References in the SPA to “the Subsidiary” are to Skip Solutions Limited but are of no importance for present purposes. The issues in these proceedings relate only to the business carried on at the Site, and I need say nothing about the operations in Llanelli.
The Site is in two parts. Unit 11 deals only with dry waste: this is the “Dry Side” (also referred to as the Waste Transfer Station). Units 18 and 19 deal only with wet waste; this is the “Wet Side”. Although the entirety of the Site is on the same industrial estate, the Dry Side and the Wet Side are on different sides of a public highway, by which alone access may be gained from one to the other.
The Dry Side deals with an assortment of non-hazardous dry waste, which is typically brought to the Site in skips. The dry waste is weighed, sorted into its various kinds (for example: ferrous metals, wood, plastic, paper, fines from construction waste, hardcore), and disposed of. The gross profit to GDE from these operations consists mostly of the difference between the income generated by the removal of the dry waste from customers and the costs of collecting and disposing of the dry waste; though some of the dry waste itself generates revenue for GDE.
However, this case mainly concerns the Wet Side and wet waste. As at the date of the SPA, GDE dealt with broadly four kinds of wet waste, all of which were generally collected in its own tankers:
a) Cess waste;
b) Non-hazardous waste, such as gulley waste;
c) Hazardous waste, such as waste from garage forecourts or interceptor tanks, which might contain oils or other contaminants;
d) Leachate, which is the ammonia-rich liquid run-off from landfill sites.
Cess waste collected by GDE's own tankers from domestic or commercial tanks was not treated at the Site; GDE did not have active facilities for treatment of cess waste there and was not permitted to discharge cess waste from the Site into the public sewer. Instead it was taken by the tankers to the sewage treatment works operated by Dwr Cymru Welsh Water (“DCWW” or “WW”), usually the works at Nash, Newport, where it would be processed. GDE's gross profit was the difference between (a) the amount it was paid to collect the waste and (b) the sum of the transport costs it incurred and the amount it paid to DCWW to discharge the waste. One of the issues in the case concerns the extent to which GDE avoided the latter cost by the improper practice of discharging cess waste directly into the public sewer via an inspection chamber on the Wet Side of the Site known as “the magic hole”. GDE accepts that this was common practice from the 1980s onwards, but it says that the practice had been stopped between five and ten years before the sale of the shares in 2015. MDW's case is that the practice continued until 2015, ceasing only in the months leading up to the sale of the shares, and that GDE's financial records disclosed to MDW before purchase of the shares reflected the artificial increase in profits resulting from the improper practice.
The other three categories of wet waste were brought to the Wet Side in GDE's tankers and were processed there. At the material time, the treatment of leachate was a separate process from that used for other hazardous waste and non-hazardous waste; I shall consider the latter process first and for that purpose give a rudimentary description of some of the plant on the Wet Side.
A little after entering the Wet Side, one comes to the reception pit, which is a large pit sunk into the ground and covered at ground level by a metal grill. Non-hazardous liquids are discharged from the tankers into the reception pit, as is the “wash-out” from the tankers after they have discharged their loads, whether those loads be hazardous or non-hazardous. (There were occasions when hazardous waste would be put into the reception pit, but I do not think that was the normal practice.) Any solid materials, such as stones or aggregate or other debris, will either be caught on the grill or settle at the bottom and will in due course be taken away in skips to the Dry Side and there disposed of with other dry waste. The next relevant plant at the Wet Side is Tank A, which is sometimes referred to as the “primary settlement tank”. It is a large cylindrical tank, with a capacity of 8000 gallons, lying on its side and surrounded by a low waterproof wall or bund that...
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