The Engineering Equipment and Materials Users Association Ltd v JT Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 18 October 2019 |
| Neutral Citation | [2019] EWHC 2753 (Ch) |
| Court | Chancery Division |
| Date | 18 October 2019 |
| Docket Number | Case No: CH 2019 000110 |
[2019] EWHC 2753 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
CHANCERY APPEALS
ON APPEAL FROM THE COUNTY COURT AT CENTRAL LONDON
Royal Courts of Justice
Rolls Building, Fetter Lane, London, EC4A 1NL
Mr Justice Morgan
Case No: CH 2019 000110
Steven Thompson QC (instructed by Fox Williams LLP) for the Appellant
Andrew Thornton (instructed by Mishcon de Reya LLP) for the Respondents
Hearing date: 9 October 2019
Judgment Approved by the court for handing down
Introduction
This judgment concerns an appeal and a cross-appeal against the order of HH John Hand QC, sitting as a Deputy Circuit Judge (“the judge”), in the County Court at Central London, the order having been made on 15 March 2019. The judge granted both parties permission to appeal in relation to identified paragraphs in his order.
The dispute between the parties concerns the meaning and effect of an agreement, called the Business Sale Agreement (“the BSA”), dated 30 April 2014. In the BSA, the Engineering Equipment and Materials Users Association (“the Association”) was the Seller, JT Limited (“JT”) was the Buyer and JTL (the parent of JT) was the Guarantor. It will be necessary to refer to the terms of the BSA in detail later in this judgment but at this point I can summarise the dispute as relating (in particular) to the terms of the BSA in respect of Book Debts and in respect of Cash.
The case for the Association in the county court and again on appeal was that JT owed obligations to the Association in relation to both Book Debts and Cash, as those terms were defined in the BSA. In particular, the Association argued that JT's obligations in relation to Book Debts produced the result that JT was obliged to pay £373,672 to the Association and that JT's obligations in relation to Cash produced the result that JT was obliged to pay £202,189 to the Association. It was not disputed that JTL was liable as the guarantor of JT to the extent (if any) that JT was liable to pay these monies to the Association.
The case for JT and JTL in the county court and again on appeal is that JT did not owe any relevant obligation to the Association in relation to Book Debts and Cash and no sums were therefore due from JT or JTL in relation to those matters.
The judge dismissed the Association's claim in relation to Book Debts and the Association now challenges that decision on this appeal. As regards the Association's claim in relation to Cash, the judge rejected JT's argument that it had no relevant obligation in relation to Cash. However, the judge did not accept the Association's arguments in their entirety but held that there ought to be an account and an inquiry to establish what if any sums in respect of overheads and expenses should be deducted from the sum of £202,189, and following such account and inquiry, JT would be liable to pay to the Association the sum of £202,189 less any such overheads and expenses. On this appeal, the Association contends that the judge was wrong to provide for a possible deduction in relation to overheads and expenses and JT contends that the judge was wrong to allow the Association to recover any sum in relation to Cash.
Mr Thompson QC appeared for the Association in the county court and again on this appeal. Similarly, Mr Thornton appeared for JT and JTL in the county court and again on this appeal. I am grateful to them for the clarity of their submissions.
The terms of the BSA
The BSA contained the following recitals:
“WHEREAS
(A) The Business is now and has for some time been carried on by the Seller under the Business Name.
(B) The Seller has agreed to sell and transfer, and the Buyer has agreed to purchase, the Business as a going concern from the Effective Date (as defined below) on the terms and conditions of this agreement and in particular on the basis of the warranties, undertakings, and agreements set out in this agreement.
(C) The Guarantor has agreed to guarantee the obligations of the Buyer under this Agreement.”
The BSA contained a large number of definitions. The following definitions are potentially material to the present dispute:
“ Assets” means the property, rights and assets of the Business (other than the Excluded Assets) agreed to be sold pursuant to clause 2.1;
“ Assumed Liabilities” means the obligations of the Seller at the Effective Date under the Business Contracts (but excluding the Excluded Liabilities);
“ Balance Sheet” means the balance sheet relating to the Business as at 31 March 2014 in the Agreed Form;
“ Balance Sheet Date” means 31 March 2014;
“ Book Debts” means the book and other debts due from customers of the Business arising in or referable to a period up to and including the Effective Date;
“ Business” means the competency development, assessment and certification scheme known by the Business Name and carried on by the Seller immediately prior to the Completion Date;
“ Business Contracts” means the Customer Contracts and Supplier Contracts, and all other contracts, arrangements and other commitments relating to the Business entered into on or before, and which remain to be performed in whole or part at, the Effective Date, which have been entered into by or for the benefit of the Business, or the benefit of which is held in trust for or has been assigned or subcontracted to the Seller.
“ Business Intellectual Property” means the Intellectual Property owned, used or held for use by the Seller in relation to the Business as set out in Schedule 1;
“ Business Intellectual Property Rights” means all rights in Business Intellectual Property owned, used or held for use by the Seller.
“ Business Name and Goodwill Assignment” means the agreement in the Agreed Form in relation the assignment of the Business Name and the Goodwill to be entered into on the same date as this Agreement between the Seller (1) and the Buyer (2);
“ Cash” means all the cash in the bank account(s) or accounts at any other financial institution in relation to the Business as at the Effective Date, and which have been administered by the Buyer prior to Completion;
“ Completion” means the completion of the sale and purchase of the Business and the Assets in accordance with this Agreement;
“ Completion Date” means close of business on the date on which Completion takes place pursuant to clause 5;
“ Consideration” means the consideration for the Business and the Assets to be paid by the Buyer to the Seller as set out in clause 3;
“ Creditors” means all trade debts and accrued charges owing by the Seller to the trade creditors of the Seller in the ordinary course of the Business;
“ Customer Contracts” means all contracts, engagements or orders entered into on or prior to the Effective Date by or on behalf of the Seller, with Customers for provision of services by the Seller in connection with, and in the ordinary course of, the Business which, at the Effective Date, remain to be performed in whole or in part by the Business;
“ Customers” means the customers of the Business at the Effective Date;
“ Deed of Termination” means the deed of termination in the Agreed Form in relation to the Existing Management Agreement to be entered into on or around the date of this Agreement between the Seller (1) and the Buyer (2);
“ Effective Date” means the 31 March 2014;
“ Excluded Assets” means the assets used in the Business set out in clause 2.2 as being excluded from the sale pursuant to this agreement;
“ Excluded Liabilities” means all the liabilities or obligations relating to the Business or Assets and outstanding on, or accrued or referable to the period up to and including, the Effective Date or arising by virtue of the sale and purchase recorded by this agreement, including any and all liabilities in respect of National Insurance, PAYE, VAT or other Taxation attributable to the Seller in respect of the Business or the Assets relating to the period ending on the Effective Date;
“ Existing Management Agreement” means the management agreement between the Seller (1) and the Buyer (2) dated 26 April 2011;
“ Goodwill” means the goodwill, custom and connection of the Seller in relation to the Business, together with the exclusive right for the Buyer and its successors and assigns to carry on the Business under the Business Name (and all other names associated with the Business) and respectively to represent themselves as carrying on the Business in succession to the Seller;
“ Initial consideration” means the sum of £1,248,701 payable by the Buyer to the Seller in accordance with clause 3.2.1;
“ Outstanding invoice” means the invoice in the sum of £9,407.00 for the fees owed by the Buyer to the Seller pursuant to the Existing Management Agreement for the period 1 April – the Completion Date which immediately prior to the Completion Date remained unpaid.
“ Supplier Contracts” means all contracts, engagements or orders entered into on or before the Effective Date by or on behalf of the Seller for the supply or sale of goods or services to the Seller in connection with and in the ordinary course of the Business, which at the Effective Date remain to be performed in whole or in part.”
Clause 2.1 provided for the Seller to sell and the Buyer to purchase certain specified assets. Clause 2.2 stated that certain assets were excluded from the sale. By clause 2.2.4 there was excluded:
“all the Seller's cash-in-hand or at the bank or at any other financial institution in relation to the Business;”
By clause 2.2.5 there were excluded “the Book Debts”.
Clause 2.4 apportioned a consideration of £1.0 million between identified assets.
Clause 3 dealt with the uplift in the consideration of £1.0 million to £1,298,701 so that the Seller would receive the...
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