Nexus Communications Group Ltd v Lambert and Others
| Jurisdiction | England & Wales |
| Judgment Date | 31 January 2005 |
| Neutral Citation | [2005] EWHC 345 (Ch) |
| Docket Number | Case No: HC 03C 03508 |
| Court | Chancery Division |
| Date | 31 January 2005 |
[2005] EWHC 345 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr G. Moss QC
(Sitting as a Deputy Judge of the Chancery Division)
Case No: HC 03C 03508
Amanda Tipples (instructed by Osborne Clarke) for the Claimant
Siward Atkins (instructed by McEwan Parkinson) for the Defendants
Hearing: 7 th, 8 th and 9 th December 2004
Introduction
This case raises a difficult and interesting question of election. It affects actual and potential litigants who raise inconsistent arguments before or during the litigation.
The dispute arises out of a share purchase agreement dated 6 July 2000 ("the SPA"). The Claimant agreed to purchase the entire issued share capital of Portfolio Creative Marketing Limited ("PCM"). The Defendants were the vendors of the shares.
The dispute relates to a clawback of consideration as a result of a deterioration in the business effectively being purchased.
Although the pleadings and the Skeleton Arguments initially raised a niunber of issues, these were by the end of the trial reduced to oniy one and this enables me to abbreviate considerably the description of the facts.
The SPA
Clause 5. 1 of the SPA requires the Purchaser to procure at a particular point in time the preparation of draft Earn-out Accounts and an EBIT Certificate and the sending of a copy of each to the Defendants and t!1eir financial adviser, together with relevant working papers. I will refer to this as "stage 1".
Because of its significance, I set out paragraph 5.2 of the SPA iii full:-'5.2 Notice ofAcceptance
Each party shall notify the other within 10 Business Days of receipt of the Earn-out Accounts and EBIT certificate ("The Notification Period"), whether or not it accepts them as drawn and if no notification is made during that time they shall each he deemed to be so accepted.
If notification is given under paragraph 5.2 within the time permitted, paragraph 5.3 provides 20 business days for the parties to agree any adjustments. I will call this "stage two". If agreement cannot he reached within this period the parties are obliged jointly to appoint an independent firm of chartered accountants to make a determination. In default of agreement within 5 business days the accountants are to be appointed by the President of the institute of Chartered Accountants. I will call this 'stage three".
I note that although none of the provisions for time periods is said to make time of the essence, they are tightly defined and no provision is made for interest to be awarded by the adjudicator to compensate for any delay. Accordingly, it is in the interests of the purchasers to ensure that the time limits are kept to but in the interests of the Defendant vendors to delay the process as long as possible.
The relevant events in summary
Because the issues are now limited to one, I need only focus on those events which are relevant to that issue, although I shall mention some others in order to explain the relevant background.
On 30 July 2002 the Defendants were provided, purportedly under clause 5.1 of the SPA, with draft Earn-out Accounts and a draft EBIT Certificate for the second earn-out period. This required a considerable payment from the Defendants to the Claimant.
On 12 August 2002 the Defendants gave notice that they did not accept the draft Earn-out Accounts as drawn.
On 6 September 2002 the Defendants objected to the preparation of the draft Earn-out Accounts and EBIT Certificate by Mr Roberts. The question of whether or not he was entitled to prepare these documents is no longer relevant.
At the start of the trial, there was a live issue as to whether or not during the stage two, 20 day period, an agreement had been reached between the parties. At the start of the second day's hearing this issue was abandoned by the Claimant in the light of the cross-examination of its witnesses on the first day of the trial.
As a result of the challenge to Mr Roberts' ability to provide the documents, a second attempt to comply with clause 5.1 of the SPA was made by using a firm of accountants, 1 lurst Morrison Thompson (1–1MT").
On 2 1 November 2002 the Defendants pursuant to clause 5,2 of the SPA gave notice that they did not accept the documents produced by HMT.
On 5 December 2002 the Defendants took the point that the 20 day period for agreement at stage 2 had hot started because the Claimant had failed, as required by clause 5.1, to provide the Defendants with all the working papers required by that clause.
On 5 March 2003 the Defendants took the new point that the documents prepared by HMT were not the documents required by clause 5.1 of the SPA and that therefore the three-stage process had not started at all.
On 6 May 2003 the Claimant's solicitors served on the Defendants three lever arch files of documents as being the allegedly missing working papers and purported to start the 10 day period for notice of acceptance or non acceptance in accordance with clause 5.2 of the SPA once again. The Defendants responded by a document which the Claimant said was not a notification within clause 5.2. However, it has become unnecessary to decide whether or not the response was within clause 5.2.
On 6 October 2003 the Claimant commenced proceedings. The primary claim was for the sum of £31 8,862.35 due pursuant to the documentation produced by Mr Roberts. The alternative claim was for £365.722.76 pursuant to the HMT documentation.
The Defendant's skeleton originally detected sonic 9 issues. The day before the trial I was supplied with counsel's agreed list of' issues which had narrowed this down to three issues.
The first agreed issue was whether there had been a consensual agreement in relation to Mr Roberts' documents on or about 9 September 2002. This was the claim abandoned at the start of the second day of the trial. The evidence of the Claimant did not establish that such an agreement had taken place.
The second agreed issue was whether the Claimant's letter of 6 May 2003 succeeded in restarting time under clause 5.1 of the SPA. At one stage I thought that this was a free—standing question but in filet it was clarified that the ability to start time running again depended on a sub-issue within issue 2, namely whether the Defendants' counter-notice of 21 November 2002 to the HMT documents continued to be a valid counter notice or whether it had ceased to have any effect by reason of the Defendant's subsequent inconsistent conduct, which 1 shall describe in more detail below. After further discussion, it was established that the result of the sub-issue, if the Claimant were successful, would be, not that time was restarted subsequently, but that in the absence of the counter-notice the Claimant would simply be entitled to be paid the moneys contained in the HMT documents, namely the alternative claim pleaded.
Agreed issue 3 would have been whether, if time were restarted by the Claimant's letter of the 6 May 2003, the Defendants' response of 13 May 2003 was or was not a valid counter-notice under clause 5.2 of the SPA. However, once the ~ue nature of issue two had been clarified, this third issue fell away. issue 2 was not in reality about whether or not time was restarted but whether or not there was liability by reason of the fallin.g away of the counter-notice of2l November 2002.
The remaining issue
The agreed issue that remained, therefore, set out in paragraph 4(b) of the agreed issues document was whether the Defendants' counter-notice of 21 November 2002 ceased to have effect by reason of their subsequent inconsistent conduct. Put briefly, the inconsistent conduct was to allege that the HMT documents were not documents within clause 5.1 of the SPA and that, therefore, the three stage process had not begun. The reasons for the objection are no longer material.
There is no dispute that the allegation that there were no qualifying documents and that the process had not started under clause 5.1 of the SPA was inconsistent with the counter-notice under clause 5.2, which counter-notice had necessarily assumed that the process had started under clause 5. 1. Moreover, the Defendants no longer maintain that their objection to the documents had any legal validity. In other words, I must assume that the HMT documents were valid and effective to start the process. The Defendants now say that given the counter-notice and the subsequent failure to agree, the matters should move on to the appointment of an independent adjudicator pursuant to clause 5.3 of the SPA.
Although the argument run by the Claimant based on the doctrine of election was not clearly pleaded, the material facts and documents were not in any way surprising to the Defendants, being the facts and documents to be considered in relation to the original nine issues. Accordingly, Mr Atkins for the Defendants very properly did not object to the election point being argued and did not seek any adjournment to consider it.
The doctrine of election
Election at law and in equity is clearly, concisely and definitively described by the House of Lords' judgment in Lissenden v Bosch Limited [1940] AC 412. In that case a workman had obtained an award under the Workmans Compensation Act 1925 in respect of partial incapacity between two particular dates. The workman appealed claiming that he was entitled to be paid the weekly sum as long as he was incapacitated. When the appeal came before the Court of Appeal, preliminary objection was taken on the basis that he could not prosecute the appeal since he had accepted the compensation and costs awarded. This objection was upheld by the...
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