Mentmore International Ltd and Others v Abbey Healthcare (Festval) Ltd and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE CARNWATH,MR JUSTICE MORGAN,LADY JUSTICE ARDEN |
| Judgment Date | 07 July 2010 |
| Neutral Citation | [2010] EWCA Civ 761 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A3/2009/1930 |
| Date | 07 July 2010 |
[2010] EWCA Civ 761
Mr Michael Furness Qc
Before: Lady Justice Arden
Lord Justice Carnwath
and
Mr Justice Morgan
Case No: A3/2009/1930
HC09CO1765
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Hashim Reza (instructed by) for the Respondents
Anthony Trace & Ciaran Keller (instructed by Nockolds LLP) for the Appellants
Hearing date: Wednesday 12th May, 2010
Background
By a share purchase agreement (“SPA”) dated 9 October 2008 between the First Claimant (“Mentmore”) and the First Defendant (“Abbey”), Abbey contracted to buy from Mentmore the entire share capital of five care home businesses. The purchase price was £5,983,842, to be paid partly on completion (“the Completion Payment”) and partly by way of Deferred Consideration. The Completion Payment of £2,500,000 was duly paid by Abbey.
Two aspects of the agreement, and their interaction, are of direct relevance to the issues in the appeal: first, those relating to the calculation and payment of Deferred Consideration, and secondly those relating to the release of guarantees of previous directors.
Deferred consideration
By clause 3.1 the purchase price, and consequently the Deferred Consideration, fell to be “adjusted in accordance with clause 4.3”. By clause 4, the sum due fell to be adjusted by any amount by which the Completion Net Assets of the Companies and Subsidiaries exceeded or fell below £5,983,842, and by clause 4.3 the balance was to be added to, or deducted from, “the Deferred Consideration on the first Payment Date”.
Clause 3.2 of the SPA provided that the Deferred Consideration (£3,483,842 before adjustments) should be paid in two instalments. The first, directly relevant to the appeal, was:
“…£2,000,000 on 28 February 2009 or sooner (adjusted in accordance with Clause 4.3)”
The second was a sum of £1,483,842 to be paid on 15 December 2009. This was not in terms subject to any reference to adjustment. “Payment dates” were defined by clause 1.1 as “the dates on which the instalments of the Deferred Consideration are payable”.
At the time of the hearing, Mentmore had accepted that a reduction of £710,917 was appropriate, but Abbey were at that time contending for a further deduction in excess of £3,700,000. That would have eliminated the whole of the Deferred Consideration under both instalments. Under schedule 6 of the SPA, the disagreement was referred to an independent expert for a binding decision. At the time of the hearing below, the expert's report was still awaited.
The expert's determination became available in February 2010, and there have been further exchanges between the parties' accountants. We were told that there now remains a relatively limited area of dispute. Mentmore claims to be entitled to remaining Deferred Consideration of £2,174,607; Abbey claims a further adjustment of £298,357. It follows that the minimum sum outstanding is £1,876,250. In other words, rather than the £3.7m deduction claimed before the judge, the maximum deduction now claimed by Abbey from the Deferred Consideration is about £1.6m (£3,483,842—£1,876,250). If deducted from the first instalment only (£2m), that would leave a figure of c£400,000 due on the first payment date, subject to a possible increase to £700,000 if Mentmore is right on the remaining issues. On the same basis, a further £1,483,842 became payable on the second payment date, but that is not presently claimed in these proceedings.
Personal guarantees
This issue concerns the failure of Abbey (or its sole director Mr Sodhi) to comply with obligations owed to the Second and Third Claimants, Jaswant Dhooper and Joga Atwal (“the former directors”), former directors of the Companies and Subsidiaries who had given personal guarantees totalling some £1,075,000 to the Royal Bank of Scotland, Clydesdale Bank Plc and Abbey National Plc (“the three banks”). Under clause 5.4(a) of the SPA, Abbey undertook certain obligations (the content of which is in dispute) directed to securing the release of the personal guarantees.
The former directors joined Mentmore in seeking to enforce the benefit of this undertaking, but not being parties to the SPA, they rely on the Contracts (Rights of Third Parties) Act 1999 (“the 1999 Act”). The judge noted that this was a matter of considerable concern to them because the guarantees covered £1,075,000 worth of liability, and they had been notified in April 2009 that due to the default of Festival Care Homes Ltd the conditions for payment under a guarantee to RBS of £200,000 had been met. However, as we understand, no actual payment has yet been demanded by RBS or the other banks under any of the guarantees.
Since it is central to the issues in the case, I set out clause 5.4 in full as it appears in the agreement, subject to one correction:
“Release of Personal Guarantees
(a) The Buyer undertakes to the Seller and each of Jaswant Dhooper and Joga Atwal that it will procure by no later than the first Payment Date the release of all personal guarantees given by Jaswant Dhooper and Joga Atwal on behalf of the Companies and Subsidiaries to any third party (using its best endeavours (including, without limitation, the offering of a suitable Buyer guarantee or other security, if required)).
(b) Pending such release:
(i) between Completion Date and the first Payment Date, the Buyer and the Seller agree that each of Jaswant Dhooper and Joga Atwal shall be indemnified against all amounts payable by each of them to such third parties under the personal guarantees (and all costs incurred in connection with such obligation) and such indemnity amounts will be deducted forthwith from the Deferred Consideration reducing the amount payable to the Sellers accordingly; or
(ii) in the event that [the Buyer] has not procured the release of all personal guarantees given by Jaswant Dhooper and Joga Atwal by the first Payment Date, the Buyer's solicitor is to retain from the first instalment payable pursuant to the Deferred Consideration the sum of £1,000,000 in their client account (“ the Retention”) until such time (i) the personal guarantees have been released or (ii) [?] are required to indemnify Jaswant Dhooper and/or Joga Atwal against all sums payable by them to such third parties under the personal guarantees (and all costs incurred in connection with such obligation).”
I have corrected (b) (ii) by substituting “Buyer” for “Seller”. Although the judge noted a dispute on this point (para 7), he does not appear to have resolved it. It seems to me the word “Seller” must be a mistake, because it is the Buyer on whom the corresponding obligation is placed by (a). It does not in fact seem to matter in the present context, since on either view the pre-condition to condition (b) (ii) was satisfied, release of the guarantees not having been procured by anyone.
A further difficulty is posed by the gap in the grammar which I have indicated by [?]. The subject of the phrase “are required to indemnify…” seems to be missing. Another oddity is that, whereas the obligation to secure release of the guarantees is that of Abbey, the risk of them failing to do so is reflected in a reduction in the purchase price payable to Mentmore. For reasons which will become apparent, I do not find it necessary to examine these issues in detail in this judgment.
The proceedings
The present proceedings were launched by a claim dated 28 th May 2009, seeking (i) payment of “£2,000,000 or such lesser sum as may be due” as the first instalment of Deferred Consideration and specific performance of paragraphs 5.4(a) and (b) of the SPA, or alternatively an order for payment of £1m by Abbey to its solicitors, and associated relief. The present application for summary relief was issued on the same day. The relief sought in the application was:
“1. Summary judgment against [Abbey]… for (i) specific performance of clause 5.4(a) and (b) of the [SPA] (ii) an Indemnity (iii) forthwith payment of £1,000,000 to its solicitors or as directed
2 (i) an Interim Declaration under CPR Part 25.1(1) (b) and or (ii) an order that a specified fund of £1,000,000 be paid into Court or otherwise secured under Part CPR Part 25(1) (l)”
I observe at once (as is now I believe common ground) that the reference to CPR Part 25(1) (l) (which deals with disputes over rights to “specified funds”) was misplaced. As will appear, the payment into court which the judge directed seems in purported exercise of powers under Part 24.
After a hearing lasting three days, the judge gave judgment in which he held that clause 5.4 did not impose an absolute obligation to secure the release of the guarantees but only one of “best endeavours”; but that Abbey had no realistic prospect of defending the allegation that it had failed so far to use its best endeavours in that regard.
Other points decided in the judgment, which are not in issue before us, were:
i) He rejected Abbey's argument that the obligation to pay into the solicitors' account under clause 5.4(b) (ii) only arose if the amount due on the first Payment Date amounted to at least £1m. He held that if the amount due fell below £1m, “that lesser amount should be set aside under clause 5(4) (b) (ii)” (paras 12,...
To continue reading
Request your trial
-
Town & Country Properties (GB) Ltd v Black Capital (an Unregistered Company)
...Dutch Shell Plc [2021] 1 WLR 1294 and in particular the passage from the judgment of Lord Justice Carnwath from Mentmore International ltd v Abbey Healthcare (Festival) Ltd [2010] EWCA Civ 761 which was quoted with approval by Lord Hamblen at paragraph 110, 110 In his judgment at para 190......
-
Paul Gregory Allen (acting as Trustee of Adrian Jacobs (Deceased)) v (1) Bloomsbury Publishing Plc, (2) Joanne Kathleen Murray (professionally known as JK Rowling)
...real as opposed to a fanciful prospect of success. The approach to be adopted was explained by Carnwath LJ in Mentmore International Limited v Abbey Healthcare (Festival) Limited [2010] EWCA Civ 761 at [20] to [23]: “20. It is important to keep in mind the principles to be applied in decidi......
-
HRH Emere Godwin Bebe Okpabi and Others (suing on behalf of themselves and the people of Ogale Community) v (1) Royal Dutch Shell Plc
...contradicted by the documents; still less can it say that it is contradicted by all the documents in the case: cf Mentmore International Ltd v Abbey Healthcare (Festival) Ltd [2010] EWCA Civ 761, [21]–[23]. Conclusion 172 Turning back to the judgment below, I respectfully consider that the......
-
Mr Rustem Magdeev v Mr Dimitry Tsvetkov
...Mr Béar QC has drawn my attention to the principles summarised by the Court of Appeal in Mentmore International Ltd v Abbey Healthcare [2010] EWCA Civ 761. In that case, Carnwath LJ (as he then was), with whom Arden LJ (as she then was) and Morgan LJ agreed, said this at [20]: “ It is impo......