Smuts and Another v Pearson
| Jurisdiction | England & Wales |
| Judge | MRS JUSTICE SHARP |
| Judgment Date | 11 March 2010 |
| Neutral Citation | [2010] EWHC 814 (QB) |
| Date | 11 March 2010 |
| Court | Queen's Bench Division |
| Docket Number | Case No: TLQ/09/1184 |
[2010] EWHC 814 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Before: Mrs Justice Sharp
Case No: TLQ/09/1184
MR S BOYD appeared on behalf of the Claimant
MS C EDGE appeared on behalf of the Defendant
Approved Judgment
The preliminary point which arises for determination is this: between which parties was a written agreement (“the agreement”) for the sale of two shops owned by the claimants made? The claimants allege that the agreement was made with the first defendant, Michael Pearson, personally and not with a company of which he was a director 3PI Limited, the second defendant. The first defendant alleges the agreement was made between the claimants and 3PI.
3PI Limited is now in liquidation and has played no part in the action. This claim was originally brought against Mr Pearson alone. Since Mr Pearson alleged in his defence that the agreement was with 3PI on the claimants' application and with Mr Pearson's consent, the second defendant was joined to these proceedings pursuant to the order of Master Fountaine on 24 November 2009. However, unbeknown to the claimant 3PI had ceased trading on 31 March 2009 and it went into liquidation on 21 October 2009. Joinder therefore took place without the knowledge or consent of a liquidator and the order was made by the court in ignorance of the true position. The official receiver has indicated by letter dated 17 December 2009 that he does not intend to attend this hearing and has no interest in the claim and counterclaim. It is agreed that the order joining 3PI must be revoked as an order made by mistake (see CPR 3.1(7) and I make that order.
If the preliminary point is determined in the claimant's favour, they also ask for a substantial interim payment of £45,000 and there is a further discrete issue which arises on costs.
The background facts are briefly these. Mr Smuts is a businessman who has been in the printing business for about 30 years. He and his wife, the second claimant, owned and operated three printing shops, trading as Mr Print in the South East of England. The shops with which this action is concerned were in Bromley (“the Bromley shop”), and Crystal Palace (“the Crystal Palace shop”).
In 2005, because of Mr Smuts' increasing ill health, the claimants decided to sell the Crystal Palace shop. He had already sold the claimant's principal place of business, which was the Green Street shop in Orpington. In 2005 Mr Pearson was then a director of 3PI, together with Mrs Pearson, who is also his partner personally. Though they are not married they happen to share the same name.
3PI is a company incorporated on 7 January 2004 with an authorised capital of £1,000 and paid up capital of £100. It was operated by Mr Pearson from his home address. It was the first company of which he had been a director. He is a printer by trade. He has been in the printing business for many years and has worked as a manager, including as a sales manager and a manager of a print shop with a number of employees. As at the 31 March 2005, at the end of his first trading year, 3PI's abbreviated accounts showed it had overall liabilities of about £53,000, losses attributed by Mr Pearson in evidence to high drawings and expenses.
Mr Pearson responded to one of the claimant's advertisements for the sale of the Crystal Palace shop, and he and the claimants met in early September 2005. It is Mr Pearson's case that at all material times he was acting on behalf of 3PI and Mr Smuts knew that he was. He says that in all his subsequent dealings with Mr Smuts he made it clear that he was a director of 3PI and that it was the company which was interested in purchasing the Crystal Palace and then the Bromley shops. Mr Smuts accepts that he knew that Mr Pearson was a director of 3PI. His case is that he had had previous difficulty when selling to a limited liability company, thereafter he determined never to contract with a company, but only with individuals. It was for this reason he drafted the agreement which I have to consider in the way he did.
On 6 September 2005, Mr Smuts wrote to Mr Pearson as follows.
“It was good to meet you today and to learn something about you. I hope, in that limited time you were able to learn something about us. No doubt there are many specifics that we both need to get detail on. Maybe this letter might contain some more information and help so far as you are concerned.
Subject to the items listed below, I would be pleased to offer you the position of Manager at the above address to start at a mutually convenient date. In view of the fact that I am prepared to sell you the business on the never-never over a yet-to-be-agreed period, I am willing to pay you as a self employed against a tendered invoice on the basis of the other managers we have had, and that is on a guaranteed £23,000 p.a. salary which can be increased by the 5% bonus which applies on sales over £100,000 p.a. on the basic salary of £20,000 p.a. This would apply for 3 months, during which time we can crystallise matters concerning a takeover after that date. This will enable you to get the best return over the period and allow both of us to see clearly, the way forward.
Our hours are Monday to Friday, 9am to 5.30pm. Your duties will be to learn and take over all areas of responsibility of the running of the business, with the exception (initially) of being responsible for the payroll and book-keeping. I am happy for your existing arrangements concerning print and training to continue by arrangement and agreement, provide that they do not bring in a conflict of interest.
As with all similar outlets we have a proven system, but are always willing to change for a better one. However, it is essential that the work flow and present philosophy continues until a hand over has oactually taken place, to ensure that the business is understood in the way it has been redirected in recent years.
There are 3 questions I ask all prospective staff, which require a written answer when accepting our terms of contract of employment – which are
i) Do you have a criminal record?
ii) Are you on the sex offenders list?
iii) Have you been dismissed from any of your previous places of employment?
As to the sale of the business, I had it valued when it was going to be sold outright 2 years ago for £167,000. As this only attracted asset strippers who eyed up the over £250,000 equipment cost we have, but would leave me liable for rent etc if the business then folded, I am prepared to sell the business over 5 or 10 years, depending on the purchaser, as the longer repayment term would involve more interest repayment. I would require £2,000 per month repayment based on a 5 year term and £1200 per month repayment based on a 10 year term. The purchaser would be responsible for all aspects of the business, without interference, but should the business fail through death, illness or any unforeseen circumstances, then the business would then be sold for the outstanding monies to be repaid before the balance being returned yourself or your wife or legally appointed agents.
At the commencement of the takeover, all existing equipment and stock and all outstanding debts will remain with the business and all purchases will be settled to that date unless otherwise agreed. Even though I would still have a shop in Bromley, I will give an undertaking, as I have already done with those shops I have already disposed of, not to approach any clients of this business.
I am prepared to make the end of November a change over date, provided we both agree, that after having worked together in the meantime, that it is what we both want to do. I will train you on all aspects of the business you are not familiar with, especially on the computer side, which is the greater part of the business, these days.
You might need a overdraft to run the business, which I know our Bank – the NATWEST – would be pleased to help you with, or your own Bank. An option for the best economic reasons is to increase your Mortgage as the rate is lower and you can repay, as and when you want to. Your Accountant should advise you about this and the Payroll and book-keeping. I will show you have we do ours.
For you guidance, I attach a spreadsheet on testing for Profitability for this shop which might be helpful.
I will be pleased to hear from you with any queries etc and whether you wish to take up this offer of employment. I trust we can both make a sunny financial future together.”
Mr Pearson responded on 12 September 2005 in an email which annotated Mr Smuts' letter. (See page 15 of the bundle.)
Whether or not Mr Pearson actually worked as a manager is a matter in contention. He disputes that he did, saying he merely visited the Crystal Palace shop from time to time. Be that as it may, invoices were rendered by 3PI for what were described as Mr Pearson's services for a short period. Mr Pearson says he was rendering consultancy services. Mr Smuts contends the invoices were rendered by the company because Mr Pearson was only there to see whether he did want to buy the business and it was an unnecessary complication for him to become an employee for a relatively short period of time.
Matters proceeded rapidly and the proposed sale date was brought forward because Mr Smuts was due into hospital for a serious eye operation. Mr Pearson, it seemed, was anxious to buy the business, including, at his request, the Bromley shop, as well...
To continue reading
Request your trial
-
Xu Liu Chun v Wu Chang Jiang And Another
...29, empower the court to order an interim payment in respect of an order to buy out shares. The respondent relies on Smuts v Pearson [2010] EWHC 814 (QB) §§96‑97 for the proposition that a defendant has a right not to be held liable to pay until liability and quantum has been established by......