Richard John Bamford and Others v Cordiant Communications Group Plc
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE CRESSWELL |
| Judgment Date | 08 March 2004 |
| Neutral Citation | [2004] EWHC 552 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | 2003 Folio 538 |
| Date | 08 March 2004 |
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION COMMERCIAL COURT
Royal Courts of Justice
Mr. Justice Cresswell
2003 Folio 538
MR. A. HOCHHAUSER Q.C. and MR. C. CIUMEI (instructed by Messrs. Mishcon de Reya) appeared on behalf of the Claimants.
MR. G. MORPUSS (instructed by Messrs. Macfarlanes) appeared on behalf of the Defendant.
(As approved by the Judge)
This is the Claimants' application for summary judgment pursuant to CPR Part 24 in respect of part of their claim against the Defendant. It is common ground that (a) if I conclude that the Defendant has no real prospect of successfully defending the issue I should give summary judgment against the Defendant, and (b) if I conclude that the Claimants have no real prospect of succeeding on the issue, I should give summary judgment against the Claimants.
The Claimants' action is for breach of contract and misrepresentation arising out of a Share Purchase Agreement made on 27 July 2001 by which the Claimants agreed to sell their group of companies to the Defendant ("the Agreement"). This application concerns one of the claims of breach of contract. It is to resolve issue one in the agreed list of issues: was the Defendant obliged under the Agreement to pay the Deferred Consideration due on 30 April 2003 to the Claimants by way of loan notes and/or cash? Or (as the Defendant contends) was it entitled to pay by allotting and issuing its own shares to the Claimants, notwithstanding that at the material time they were trading below their nominal value?
The commercial effect of the Defendant's decision to pay in shares was striking. It purported to satisfy an express obligation to pay �2,880,157 by allotting and issuing shares worth approximately �432,024.
The Claimants claim damages being the difference between the sum of �2,880,157 and the sums they actually realised on the shares allotted and issued on 30 April 2003, namely �380,389, i.e. �2,499,768, together with interest of �98,980.55.
A statement of agreed facts has been prepared for the purposes of the application for summary judgment. The purpose of this is to present, insofar as possible, an agreed account of the factual matrix and background to the Agreement. I am grateful to the parties for the care that has been taken in preparing the agreed statement of facts. I now turn to draw on the statement.
THE PARTIES
On 27 July 2001, the First, Second and Third Claimants, together with C.I. Law Trust Group Ltd., owned all the shares ("the PCI shares") in two companies: Presentation Communications International Limited and PCI LiveDesign Limited ("the PCI companies"). The Fourth Claimant is the successor in title of C.I. Law Trust by virtue of a Deed of Appointment dated 28 June 2002. The proportions in which the PCI shares were owned are set out in Schedule 1 to the Agreement.
Prior to July 2001, the Second and Third Claimants were the owners of a separate company, Ultimate Events Limited. On 27 July 2001 �as part of the overall transaction between the parties �the Second and Third Claimants sold their shareholdings in Ultimate Events to the PCI companies in return for shareholdings in the PCI companies, and Ultimate Events thereby became a subsidiary of the PCI companies. The PCI companies together with Ultimate Events are referred to as "the PCI group".
The PCI group specialises in facilitating "face to face" communication, particularly the planning, design and delivery of events, exhibitions, installations and film and video.
The Defendant is the holding company for a group of communications and advertising companies ("the Cordiant group"). The shares in the capital of the Defendant were admitted to trading by the London Stock Exchange until 1 August 2003 when the WPP group concluded its purchase of them.
BACKGROUND TO THE SALE
In about January 2001, the Defendant approached the First Claimant (on behalf of himself and C.I. Law Trust) with regard to the possibility of the Defendant acquiring the PCI companies.
From about May 2001, the Second and Third Defendants became involved in the negotiations, it being envisaged that Ultimate Events might be joining the PCI group.
The Defendant used KPMG to perform due diligence upon the PCI group before the Agreement was finalised, and this exercise produced an agreed valuation for the business of the PCI group of �20,626,701, which was defined as P1 in the Agreement.
The Agreement was entered into against the background of a decline in the Defendant's share price. At the end of May 2001 the Defendant's share price was in the region of 240p. By the end of June 2001 it was in the region of 185p. Throughout July 2001 the share price remained at around 185p per share. At all material times, the nominal amount of a CCG share was 50p. It is agreed that a purpose of the inclusion of the nominal amount of a CCG share of 50p (adjusted for any subdivision or consolidation of CCG shares) in the definition of Reference Share Price was to protect the Defendant against the risk of a breach of s.100 of the Companies Act 1985 where the CCG share price fell below 50p (or whatever the nominal value had been adjusted to). It is the Claimants' position that this was the only purpose. This is not agreed by the Defendant.
THE AGREEMENT
On 27 July 2001, the Claimants entered into the Agreement under which the Claimants agreed to sell and the Defendant agreed to buy the PCI shares. The individual Claimants also entered into new service agreements with the PCI group.
Clause 7 of the Agreement contains prohibitions on the Claimants in relation to competition with the business of the Defendant and the solicitation of and dealing with clients until 31 December 2005. In addition at clause 7.5 in relation to the Restricted Shares (relevant to the Initial Consideration) there was a further prohibition on the Claimants on disposing of any interest in those shares until the end of the first anniversary following the date of allotment, i.e. 26 July 2002.
PAYMENTS MADE TO THE CLAIMANTS
On about 27 July 2001, the Defendant paid the Initial Consideration (as defined in the Agreement) to the Claimants by allotting and issuing to them 7,675,052 CCG shares. The Initial Consideration was 80% of P1, i.e. 20,626,701 x 0.8 = �16,501,360. The number of Consideration Shares to be allotted and issued was arrived at by dividing this sum by the deemed value of each Consideration Share of 215p, i.e. 16,501,360 ? 2.15 = 7,675,052 (rounding up the "part share"). The Claimants were taking the risk that the market price at which they could sell their CCG shares (either immediately or, in the case of the Restricted Shares, after 27 July 2002) would be more or less than 215p. In fact, this risk materialised. Of the Initial Consideration shares:
16.1 1,918,763 were sold by the Claimants immediately on receipt of the relevant share certificates on or about 10 August 2001, amounting to a value of approximately �2,868,551 (being 149.5p x 1,918,763);
16.2 5,756,289 were Restricted Shares (under clauses 3.2.1 and 7.5) that could not be sold by the Claimants until 27 July 2002. When sold they had a total value of approximately �3,856,714 (being 67p x 5,756,289.
Hence, the total amount received by the Claimants was approximately �6,725,265 against a consideration value of �16,501,360, a shortfall of almost �10 million.
AMENDMENT OF THE AGREEMENT
By a letter dated 27 June 2002, the parties agreed an amendment to the Agreement in the following terms (insofar as is relevant to the summary judgment application):
"An amount equal to �1,500,000 of the Deferred Consideration amount of �4,281,607 referred to in Clause 3.2 shall be payable to the Vendors on 27 June 2002� and shall be satisfied in full by the allotment of Consideration Shares� The balance of the Deferred Consideration shall be an amount equal to �2,781,607 plus �10,950 for any whole calendar month falling in the period from the first anniversary of the Completion Date to the Deferred Payment Date and should be satisfied in accordance with the provisions of Clause 3.2."
FURTHER PAYMENTS TO THE CLAIMANTS
In accordance with the Agreement as amended, on 27 June 2002 a total of 1,589,404 CCG shares were allotted (as being an amount equal to �1,500,000) and issued to the Claimants. As at 27 June 2002, the market value of the CCG shares was in excess of their nominal value of 50p. Using the averaging mechanism of the Reference Share Price, it was approximately 94.4p. Hence the number of shares allotted and issued was 1,500,000 ? 0.944 = 1,589,404 shares. Although none of these shares were restricted shares, the short delay (for production of share certificates) before the Claimants could sell the CCG shares meant that they only received �1,271,523 for them, as the CCG share price fell during this period, although it was still above 50p. The average share price on sale was �1,271,523 ? 1,589,404 = 80p.
The balance of the Deferred Consideration under clause 3.2.2 of the Agreement was due and payable at the latest on 30 April 2003. As at 30 April 2003 the balance was 2,880,157: i.e. 4,281,607 �1,500,000 = 2,781,607, to which was added nine complete months of interest set by the amendment letter of 27 June 2002 at �10,950 per month: 2,781,607 plus (9 x 10,950) = 2,880,157.
By 30 April 2003, CCG shares were trading on the London Stock Exchange at a price below the minimum level of the Reference...
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