Tactus Holdings Ltd v Philip Mark Jordan
| Jurisdiction | England & Wales |
| Judge | Simon Colton,Mr Simon Colton |
| Judgment Date | 01 March 2024 |
| Neutral Citation | [2024] EWHC 399 (Comm) |
| Court | King's Bench Division (Commercial Court) |
| Docket Number | CL-2023-000170 |
[2024] EWHC 399 (Comm)
Simon Colton KC
SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
CL-2023-000170
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
KING'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Alexander Polley KC (instructed by Freeths LLP) for the Defendants / Applicants
Stephen Cogley KC and Sanjay Patel (instructed by Hill Dickinson LLP) for the Claimant / Respondent
Hearing dates: 20–21 February 2024
Approved Judgment
This judgment was handed down remotely at 10.30am on 01 March 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Simon Colton KC SITTING AS A DEPUTY JUDGE OF THE HIGH COURT
Mr Simon Colton KC:
This is the Defendants' application (the ‘ Application’) for reverse summary judgment, alternatively to strike out the Claimant's claims.
Background
In about August 2021, the Claimant (‘ Tactus’) began negotiations with the First to Fifth Defendants (the ‘ Sellers’) for the acquisition of Box Holdings (BHAM) Ltd, the parent company of Box Ltd, an online technology retailer (together, ‘ Box’). The Sellers were assisted in the sale by the Sixth Defendant, a corporate vehicle through which the Seventh Defendant (‘ Mr Bursell’) provided his services.
On about 29 September 2021, Tactus was provided with a 46 page Information Memorandum concerning Box. On 18 October 2021 non-binding Heads of Terms were concluded, which envisaged consideration of £32.5 million, in a mixture of cash and shares, based on a minimum ‘adjusted EBITDA’ of £5 million for the 12 month period to 31 October 2021.
A virtual data room was created to enable Tactus to perform due diligence. EY were retained to advise Tactus, and produced a due diligence report on about 24 January 2022. On 18 February 2022, a Sale and Purchase Agreement (‘ SPA’) was concluded, which contained a range of warranties given by the Sellers. On 28 February 2022, the sale and purchase of Box completed.
Notices of alleged breach of warranty were served on 14 October 2022 and 7 December 2022, accompanied, in the latter case, by a letter of claim. The claim form in the current proceedings was issued on 28 March 2023, and served that day, with Particulars of Claim.
The Defendants made a Request for Further Information of the Particulars of Claim which was answered on 16 May 2023 (the ‘ Claimant's Response’). Thereafter, the Defendants served a Defence and Counterclaim on 24 May 2023; a Reply and Defence to Counterclaim was served on 30 June 2023; a Reply to Defence to Counterclaim was served on 21 July 2023; and the Application was issued on 3 August 2023.
The structure of the claims advanced
The claim form and Particulars of Claim identify five types of claim. Against the Sellers they allege breach of warranty; and against all the Defendants they allege deceit; unlawful means conspiracy; unlawful interference with contractual relations; and the tort of procuring breach of contract.
The claims for breach of warranty alleged against the Sellers are of two types, namely: (i) in respect of the stock provision used in the management accounts for the 12 month period to 31 October 2021 (the ‘ Management Accounts’); and (ii) in respect of other items in the Management Accounts. I refer to these latter warranty claims as the ‘ residual allegations’.
As for the other claims, these all relate to the stock provision: the deceit claims relate to alleged misrepresentations concerning the stock provision; the unlawful means alleged in the unlawful means conspiracy is the making of those alleged fraudulent misrepresentations; the tort of procuring breach of contract is pleaded on the basis that by failing to correct continuing false representations concerning the stock provision, each of the Defendants were procuring a breach of the SPA by each of the Sellers; and the alleged unlawful interference with contractual relations lies in the Defendants not correcting continuing false representations concerning the stock provision between execution of the SPA and Completion. So much is clear from the Claimant's Response, and from the Claimant's skeleton for this hearing.
The stock provision accordingly has central importance to the claim. As the Claimant's Counsel explain, uncontroversially, in their skeleton argument:
“A stock provision in financial accounts is a downward adjustment to the value of stock held by a company. This provision adjusts for losses that are likely to be incurred through obsolescence, damage, returns and/or expired shelf life of purchased stock. Additions to a stock provision during an accounting period have the effect of reducing EBITDA as the effect of the addition in the financial statements is that more turnover is being deployed to purchase comparatively less valuable stock. Conversely, reductions in the stock provision (also known as a ‘release’ of a stock provision) have the effect of increasing EBITDA.”
The summary judgment application
The law
The relevant legal principles when considering an application for summary judgment are well-established. The parties before me cited in particular the principles identified by Lewison J in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339; the summary of Picken J in ArcelorMittal v Ravi Ruia [2022] EWHC 1378 (Comm) at [26]–[29]; and observations of Cockerill J in King v Stiefel [2021] EWHC 1045 (Comm) at [21]–[22].
Of particular relevance to the present case, I remind myself that a mini-trial is not appropriate. But that does not mean that I can or should simply dismiss a well-founded application on the basis that it is all too complicated. On the contrary, “ The fact that some factual or legal questions may be in dispute does not absolve the judge from her duty to make an assessment of the claimant's prospects of success”: per Lewison LJ in Calland v Financial Conduct Authority [2015] EWCA Civ 192 at [28]–[29]. If, therefore, by way of relevant example, it is plain that representations made in writing do not have the meaning for which the claimant contends, or if such representations are undoubtedly true on the agreed facts, then it would be a dereliction of duty to refuse to so decide (always bearing in mind, however, that summary judgment can be given on a claim or an issue, but not on every factual or legal question that may arise: see Anan Kasei Co v Neo Chemicals & Oxides (Europe) Ltd [2021] EWHC 1035 (Ch) at [82] (Fancourt J)).
The misrepresentations alleged by the Sellers
Tactus pleads that various misrepresentations were made to it in the course of the dealings leading to acquisition of Box from the Sellers. Tactus pleads that the misrepresentations were made in seven stages.
First, Tactus says that various misrepresentations were contained in the Information Memorandum of September 2021. The specific language of which complaint is made is in language explaining adjustments made to forecast EBITDA for the year to October 2021. It reads: “ £820k has been added to the stock provision during 2021. The provision is formally calculated at year end so mid-year movements are estimates based on forecast overall year end stock balance”.
Secondly, Tactus says that misrepresentations were made in the Heads of Terms of October 2021. This was a document headed ‘Strictly Private and Confidential and Subject to Contract’. Paragraph 13 states: “ These Heads are a draft for discussion purposes only. They do not represent a commitment of any nature from the Buyer, the Seller, the Target or any of their connected persons to enter into any contract…”. The language of which complaint is made is in paragraph 4: “ The purchase price for the Shares ( Purchase Price) will be £32.5m, with £22.5m payable in cash on Completion, based on a minimum level of adjusted (reasonable adjustments) EBITDA of £5m for the LTM [last 12 months] to 31 st October 2021”.
Thirdly, Tactus says that misrepresentations were made in Management Accounts, for the 12 month period up to 31 October 2021, provided to Tactus and its advisers in about December 2021 in the course of negotiating the SPA. That showed an EBITDA figure of £5.045 million, and a value of stocks of £18.6 million. The Claimant says that embedded within those numbers were, necessarily, a stock provision of £1.177 million.
Fourthly, Tactus says that the various representations were repeated and/or made further or discretely at a presentation attended by various Defendants and various representatives of Tactus on 16 December 2021. The slides for that presentation again show the £5.045 million EBITDA figure.
Fifthly, Tactus says that misrepresentations were made at the moment of entry into the SPA, in the form of the warranties contained therein. In particular, it points to a warranty at paragraph 7.1 of Schedule 4 that the Management Accounts “ have been properly prepared… on a basis consistent with that employed in preparing the Management Accounts for the previous accounting year”.
The warranties were qualified by a Disclosure Letter provided at the moment of entry into the SPA. Tactus says that this Disclosure Letter itself contained misrepresentations. Specifically, the Disclosure Letter stated:
“7.1 … The stock valuation includes a material stock provision
(£1.177m at Oct 20 and Oct 21) is an arbitrary assessment each month and year end and varies each month to smooth profitability. Specific evidence and justification is agreed with the auditors at an October year end however the stock provision balance is generally...
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