Sellers v Buyer
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 06 March 2014 |
| Neutral Citation | [2014] EWHC 596 (Ch) |
| Court | Chancery Division |
| Date | 06 March 2014 |
[2014] EWHC 596 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Birmingham Civil Justice Centre
The Priory Courts, 33 Bull Street
Birmingham
B4 6DS
Mr Justice Morgan
Mr Mark Anderson QC (instructed by Keelys LLP) for the Claimants
Mr Paul Mc Grath QC and Mr James Cutress (instructed by Eversheds LLP) for the Defendant
Hearing date: 6 February 2014
The SPA
On 10 April 2008, the Sellers entered into a Sale and Purchase Agreement ("the SPA") with the Buyer. Pursuant to the SPA, the Sellers sold their shares in two companies to the Buyer. The SPA provided that the consideration for the shares was to equal a sum to be calculated in accordance with the SPA. This sum was called the "Earn-out". The SPA provided for the Buyer to serve an "Earn-out Notice", specifying the amount of the Earn-out. The SPA laid down a timetable for certain disputes as to the calculation of the Earn-out to be determined by an independent accountant, acting as an expert.
On 17 February 2012, the Buyer served a notice on the Sellers. The notice specified a figure for Earn-out of £25,000. The Sellers disputed that figure. However, they did not refer that dispute to an independent accountant in accordance with the timetable in the SPA. The Buyer contended that the result was that the Sellers were bound by the figure of £25,000 stated in the Buyer's notice.
These proceedings
The Sellers brought the present proceedings on 4 December 2012, seeking various heads of relief. They claimed a declaration that the Buyer's notice was not a valid Earn-out Notice with the result that the amount of the Earn-out could be still referred to an independent accountant. The Sellers also claimed declarations as to the issues which could be determined by the accountant. In addition to these claims arising out of the dispute resolution procedures in the SPA, the Sellers put forward a further claim. They referred to certain provisions in the SPA as to how the Buyer was to deal with various matters after the sale of the shares by the Sellers to the Buyer and before the time when an Earn-out Notice was to be served and the Earn-out paid to the Sellers. The Sellers contended that the Buyer had broken these provisions in various respects with the result that the amount of the Earn-out, even when correctly calculated in accordance with the SPA, would be less than it should have been. The amount of that reduction in the Earn-out payable was claimed by the Sellers as damages for breach of contract. The Buyer served a Defence in relation to all of the Sellers' claims and counterclaimed a declaration that the sum payable as Earn-out was £25,000.
On 17 May 2013, I conducted a case management conference in these proceedings. The principal matter which was considered was the sequence to be followed in deciding the various issues arising. Many of the issues between the parties were issues for determination by the court. However, if the Sellers were to succeed in establishing that the Buyer's notice was not a valid Earn-out Notice then the amount of the Earn-out would be determined by an independent accountant. Following that determination, it might then be appropriate for the matter to return to court for the court to deal with the issues arising in the Sellers' damages claim.
On 17 May 2013, I identified the sequence which was appropriate. I held that the court would, first of all, deal with the issue as to the validity of the Buyer's notice and also deal with the arguments as to the issues (if any) which were to be decided by the expert. I indicated that if I held that the Buyer's notice was not a valid Earn-out Notice, then the next step would be for the matter to go to the independent accountant for determination of the amount of the Earn-out. Following that determination, there then remained the possibility that the Sellers would wish to pursue their claim to damages and that matter would be dealt with by the court. Accordingly, I ordered that the Sellers' claim for damages should be stayed pending the determination of the other issues in the proceedings and pending any decision by the accountant, if in the light of the court's decision there were matters to be determined by the accountant.
The first part of the proceedings was dealt with at a hearing on 7 and 8 November 2013. In a judgment delivered on 15 November 2013, I held that the Buyer's notice dated 17 February 2012 was not a valid Earn-out Notice. The result was that the Sellers were entitled to refer the amount of the Earn-out to an independent accountant and, indeed, an accountant had already been appointed on this basis. On 6 February 2014, I decided further issues between the parties as to the matters to be determined by the accountant. I also gave the Buyer permission to appeal to the Court of Appeal against my decision that the Buyer's notice was not a valid Earn-out Notice.
The application for costs
On 6 February 2014, the Sellers applied for an order that the Buyer do pay the Sellers' costs of the issues on which the Sellers had succeeded and so that the Sellers' costs in relation to their claim for damages would be dealt with as and when that claim was dealt with. The Buyer's position was that the costs of the proceedings to date should be reserved.
Although the parties did not initially agree whether I could be told anything about the existence of a Part 36 offer which had been made by the Buyer to the Sellers, it was eventually agreed that I could, and should, be told that the Buyer had made, on 5 March 2013, an offer which (it was agreed) complied with the requirements of CPR Part 36. In summary, the terms of the offer were that the Buyer offered to settle all the issues between the parties including the Sellers' claims to be paid Earn-out and damages for a specified figure and so that the amount of the Earn-out would not be determined by the independent accountant. I have been asked not to identify the offered figure in this judgment and I do not do so. It can be taken, however, that it was in excess of £25,000, the figure which was stated in the Buyer's notice. The letter containing the offer stated that if the Sellers did not accept the offer and failed to beat the offer at trial, then the Buyer would seek an order pursuant to CPR 36.14 for the...
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