Sameer Karim and Another v Douglas MacDuff Wemyss

JurisdictionEngland & Wales
JudgeLord Justice Lewison,Lord Justice Kitchin,Lord Justice Longmore
Judgment Date28 January 2016
Neutral Citation[2016] EWCA Civ 27
Date28 January 2016
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: A3/2014/1825

[2016] EWCA Civ 27

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM QUEEN'S BENCH DIVISION

BIRMINGHAM DISTRICT REGISTRY MERCANTILE COURT

HIS HONOUR JUDGE COOKE

(Sitting as a High Court Judge)

2BM40007

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Longmore

Lord Justice Lewison

and

Lord Justice Kitchin

Case No: A3/2014/1825

Between:
(1) Sameer Karim
(2) Douglas Wemyss Solicitors
Appellants
and
Douglas Macduff Wemyss
Respondent

Mr J K Quirke (instructed by Douglas Wemyss Solicitors LLP) for the Appellant

Mr P J Dean (instructed by Edward Hands & Lewis Solicitors) for the Respondent

Hearing dates: 20 January 2016

Lord Justice Lewison

Introduction

1

Mr Wemyss (as "Seller") sold a solicitor's practice to Mr Karim (as "Buyer") on the terms of an agreement ("the SPA") dated 31 March 2008, with completion taking place on the same day. The practice was carried on by Douglas Wemyss Solicitors LLP.

2

The Purchase Price for the Business and the Assets was defined by clause 3.1 of the SPA as £100,000. The Assets were listed in Schedule 1 to the SPA. Clause 3.1 went on to provide (ungrammatically):

"In addition to the sums due at the effective time in respect of Debtors and WIP [work in progress] set out in clauses 3.2 and 3.3."

3

Schedule 1 defined the Assets as follows:

"The Assets included in the sale pursuant to this agreement and their respective values are as follows:

ASSET

VALUE

Goodwill

£100,000

Fixed Assets, Moveable Assets, Business Intellectual Property & IT System

To be apportioned from the goodwill on completion"

4

Clause 3.2 provided so far as relevant:

"As each invoice for clients who had Work in Progress at Completion is rendered and paid then the Seller and the Buyer shall agree to deposit the agreed apportioned amount to the account of the Seller on an invoice by invoice basis as soon as cleared funds are received by the Business… Domestic conveyancing files will be valued for WIP purposes on the basis of whether the following "milestones" have been reached: New file opened and search applied for/received £100.00; Contract received or sent out £250.00; Contract Exchanged £350.00; Contract Completed £450.00. Builders Developers transactions or unusually complex matters where a quotation of over £600.00 has been given maybe assessed [separately]. In no case will WIP exceed a bill, but the seller must be consulted and agree before any bill is rendered for a sum less than WIP."

5

By clause 5.2 of the SPA Mr Wemyss warranted that "to the best of his knowledge and belief each of the Warranties is true accurate and not misleading". The Warranties were contained in Schedule 4 to the SPA. Paragraph 1.1 of that Schedule contained a warranty that:

"… all other information relating to the Business given by… the Seller to the Buyer … are true accurate and complete in every respect and are not misleading."

6

That Schedule contained four other relevant warranties. They were:

"1.2 There is no information that might reasonably affect the willingness of the Buyer to buy the Business and the Assets on the terms of this agreement.

10.1 Neither the Seller nor any person for whose acts all defaults the Seller may be vicariously liable has committed or omitted to do any act or thing in relation to the Business which could give rise to any fine or penalty.

11.1 Neither the Seller, nor any person for whose acts or omissions it may be vicariously liable, is engaged in, subject to or threatened by any:

(a) litigation … in relation to the Business or the Assets or any of them ….

11.2 Details of all material claims [and] complaints relating to the Business that have occurred during the 12 months preceding the date of this agreement have been Disclosed."

7

Clause 5.5 of the SPA provided:

"Without prejudice to the right of the Buyer to claim on any other basis… if any of the Warranties are breached or prove to be untrue or misleading, the Seller undertakes to pay to the Buyer on demand:

(a) The amount necessary to put the Buyer into the position it would have been in if such Warranty had not been breached or had been true and not misleading; and

(b) all costs and expenses (including without limitation, damages, claims, demands, proceedings, costs, legal and other professional fees and costs, penalties, expenses, and consequential losses) incurred by the Buyer (whether directly or indirectly) or the Business as a result of the breach or of such Warranty not being true or misleading (including a reasonable amount of management time)"

8

Clause 5.9 of the SPA capped the Seller's liability at "the purchase price including debtors and [work in progress]".

9

At the same time as the agreement was concluded there was prepared a schedule of work in progress. Mr Karim's evidence about that schedule was this:

"On completion a full final completed list of WIP and debtors was supplied to me that is referred to as the WIP list of April 2008 … I recall the accountants made a couple of spot checks in respect of files that were listed in the WIP… There were no issues arising from the same at the time."

10

The schedule in question contains a column headed "estimated WIP". To take one example (which was discussed in the course of the hearing) against the name of a client called "Smart" in that column is the figure of £1000. A further column headed "Balance WIP" shows the same figure of £1000 against his name. This pattern is repeated throughout the schedule file by file. The schedule was compiled by collating the figures for each file produced by the LLPs' fee earners who were asked to go through their files and produce a WIP figure for each. In the case of domestic conveyancing the figures were based on the formula in the SPA, and in other cases on the minimum billable amount if instructions were terminated on that day.

11

Mr Wemyss brought a claim against Mr Karim for payment of what he alleged was due in respect of work in progress but which had not been paid. Mr Karim disputed that claim and also brought a counterclaim for misrepresentation and breach of warranty. The progress of the action was beset by procedural errors and missed opportunities. Much potentially relevant evidence was not called. It finally came on for trial before HH Judge Cooke in the Mercantile Court. The trial began on 2 July 2013 but it overran twice and did not conclude until 7 November 2013. The judge gave a comprehensive judgment on 13 February 2014. His task was not helped by the way that the case was prepared and presented; and on many of the issues he had very little relevant evidence. He undoubtedly did the very best that he could and the fact that I disagree with some of his conclusions does not undermine the conscientious way in which he set about his task. Moreover some of the arguments presented to us differ from the way in which the case was presented to the judge.

The claim

12

I begin with the claim. The Particulars of Claim had annexed to them a spreadsheet which was said to justify Mr Wemyss' claim. It was in my view unintelligible, not least because it did not identify what amounts represented work in progress or how they had been calculated. I do not think that Mr Dean, appearing for Mr Wemyss, suggested otherwise. Rather he relied on what he described as the master schedule which he himself prepared for the purposes of the trial. Mr Karim's Defence on the other hand did contain a schedule which at least made some attempt to identify what had been paid by way of work in progress. But that did not explain what was in dispute or why. Mr Karim remedied that situation in a schedule served on 20 June 2013 (some 10 days before trial) which he verified by means of a witness statement made on 24 June 2013. To take the client Smart as an example (which was discussed in the course of the hearing), Mr Karim identified Mr Wemyss' claim as £5,040 and admitted liability for £1,000. He explained his case on the balance as follows:

"WIP as at 31.3.08 was £1000 increased by DW to £5040 in June 2008 for no reason. SK agreed fixed costs with the client after the takeover. DW is only entitled to the WIP that he calculated as at 31.03.08 as SK had agreed an increase in fees with the client after 31.03.08."

13

Mr Karim repeated this process file by file, explaining in each case how much he accepted he was liable to pay, and why he disputed the balance. The upshot was that he accepted liability for £29,075 but disputed the balance of Mr Wemyss' claim amounting to £16,783. The judge accepted a concession made by Mr Dean that £4,000 should be deducted from the claim, and as I understand it therefore awarded Mr Wemyss £12,783 of the disputed balance.

14

Mr Karim's case, as it seems to me, raised two points. The first was that, as a matter of interpretation of the SPA, Mr Wemyss was only entitled to the amount shown in the schedule of work in progress that had been prepared in connection with the SPA. The second was that, as a matter of fact, there was no reason (i.e. no justification) for any change.

15

The judge rejected the contention that, as a matter of interpretation of the agreement, Mr Wemyss was restricted to the amount shown on the WIP schedule. He said at [25]:

"Firstly, I reject the submission that the effect of the contract is that Mr Wemyss can never recover more than the amount on the WIP schedule for a particular file. It would no doubt have been possible to define the amount due by reference to the schedule, but the contract did not do that. Nor did it set out that WIP was to be valued on the "instructions terminated" basis, which would be likely to produce an absolute minimum figure and so be very favourable to the buyer. The reference to an "agreed apportioned amount" means in my view that an apportionment of the eventual bill must take place, and is to be interpreted as...

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