The General Trading Company (Holdings) Ltd v Richmond Corporation Ltd

JurisdictionEngland & Wales
Judgment Date03 July 2008
Neutral Citation[2008] EWHC 1479 (Comm)
Docket NumberCase No: 2006 FOLIO 1372
CourtQueen's Bench Division (Commercial Court)
Date03 July 2008

[2008] EWHC 1479 (Comm)




Royal Courts of Justice

Strand, London, WC2A 2LL

Before :

The Honourable Mr Justice Beatson

Case No: 2006 FOLIO 1372

The General Trading Company (holdings) Limited
Richmond Corporation Limited

Mr Matthew Collings QC (instructed by Messrs Davies Arnold Cooper)for the Claimant

Mr Alain Choo-Choy (instructed by Messrs Morgan Colefor the Defendant)

Hearing dates: 19, 20, 21, 22 May 2008

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.




This case arises out of the sale of the business of the well-known retailer, The General Trading Company. The claimant, the General Trading Company (Holdings) Limited, (“GTC Holdings”), was incorporated in December 2005 during the course of negotiations for the purchase of the General Trading Company (Mayfair) Limited (“GTC Mayfair”), which owned the retail business. GTC Mayfair was a wholly owned subsidiary of the defendant, Richmond Corporation Limited (“Richmond”).


On 4 May 2006 the claimant acquired 95% of GTC Mayfair's share capital from Richmond. The purchase price was £60,000 in cash and the provision by GTC Holdings to Richmond of loan notes to a value of £540,000. The agreement also contained an undertaking by Richmond to procure a loan guarantee to enable GTC Mayfair to obtain a loan or loan facility of £200,000 from a major high street bank for two years. By the date of the hearing the dispute was confined to this undertaking. Shortly before the hearing disputes as to the amount of the shortfall in GTC Mayfair's net asset value as against the figure warranted in the sale agreement and concerning the costs of decoupling GTC Mayfair's IT system from Richmond's were settled.


GTC Holdings claims that Richmond failed to procure the provision of the guarantee within the 30 day period following notice specified in the sale and purchase agreement, and that GTC Holdings is consequently no longer obliged to make payments under the loan notes. Richmond's defence is that it has not failed to comply with the terms of the sale agreement as to the provision of the loan guarantee, but that, if it has, such failure was the result of breaches of the agreement by GTC Holdings and GTC Mayfair. It also argues that clause 17.15, which specifies that if Richmond fails to procure the provision of the guarantee as required under the contract the loan notes shall be cancelled, is a contractual penalty and therefore unenforceable.


The negotiations on behalf of GTC Holdings were principally conducted by Paul Middlemiss and Jeffery Gould. The third member of the management buy-in team was Matthew Curzon. Mr Middlemiss was at that time the Retail Director of the House of Fraser and had previously worked for Habitat. Mr Gould's experience included restructuring retail groups on behalf of debenture holders. Mr Curzon had been Habitat's finance director. Richmond was effectively controlled by Mr Galvin Weston, whose family had substantial commercial interests and resources. He was Richmond's Chairman, and prior to the sale and for some time afterwards was also a Director and Non-Executive Chairman of GTC Mayfair. The management buy-in team had some dealings with him, but they primarily dealt with Ben Rodriguez, a Texan consultant who was one of his advisors.


At some stage Mr David Barnett, another Texan business advisor who acted on behalf of members of the Weston family including Galvin Weston's brother Graham and Galvin himself, became involved. His evidence was that he got involved in April 2006 and Galvin Weston's was that Mr Barnett had been involved for some time before the agreement was made. However, the documentation suggests Mr Barnett became an active participant in this transaction after Graham Weston became involved at the beginning of May 2006.


Mr Middlemiss and Mr Gould wanted to complete the deal by the end of April. On Friday 28 April, however, they decided that, in the light of information about GTC Mayfair's financial position, they could not proceed with the sale without an additional £200,000. Neither Richmond nor Galvin Weston were in a position to advance or to guarantee a loan of such a sum. On about 3 May Graham Weston agreed to help his brother by providing a guarantee. As a result of this, last minute changes were made to the draft sale and purchase agreement. Because of the pressure of time the claimant's then solicitors drafted amendments to clause 17. Clause 17.10 inter alia referred to an email from David Barnett to Jeffery Gould dated 4 May 2006 which was annexed to the agreement. They considered they could not draft the clause in any more detail in the time available. The defendant's solicitors, Morgan Cole, agreed to this and marked up and returned the clean contract. The dispute arises as a result of these last minute changes to clause 17 and the conduct of both parties after GTC Mayfair served notice on 3 July requiring Richmond to procure the loan guarantees.

The relevant terms of the sale and purchase agreement


The parties to the agreement were Richmond, “the seller”; GTC Holdings, “the buyer”; Galvin Weston, “the covenantor”; and GTC Mayfair, “the company”. Completion was, by clause 4, to take place immediately after the agreement was signed. I first set out the material part of clause 17 and Schedule 8:

“17.10 The Seller undertakes to the Buyer, as trustee for the Company to procure, when required by the Company pursuant to clause 17.11, the provision of such security and/or guarantees in accordance with the outline provided in the email from David Barnett to Jeffery Gould dated 4 th May 2006 and timed at 12.20pm (a copy of which is annexed at schedule 8) (namely the Loan Guarantees) to enable the Company to obtain from a major high street bank of the Company's choosing a loan or loan facility (without any additional security or guarantees being provided by the Company or the Buyer or any person connected with either of them) of £200,000 for two years. Provided always that nothing in this clause shall oblige the Seller to do or procure to be done anything by either the Company, the Buyer or such high-street bank or to procure the provision of such a loan or loan facility by such bank beyond the provision by the Seller of the Loan Guarantees.

17.11 The Seller shall procure the provision of the Loan Guarantees within 30 days of receiving notice in writing from the Company to such effect which the Company may give to the Seller (in accordance with the notice provisions in clause 15) at any time from 60 days after the Completion Date.

17.12 The Seller shall procure that the Loan Guarantees remain in place for a period of two years following their provision and the Buyer shall procure that the Loan Guarantees are released at the end of that period.

17.13 The Buyer shall indemnify the Seller as trustee for any person providing the Loan Guarantees in respect of any claims made against such person under any of the Loan Guarantees.

17.14 The Buyer may, at its option, request that the Seller procures the provision of guarantees to suppliers of the Company in place of part of the Loan Guarantees, in which case the amount of the Loan Guarantees shall be reduced by the amount of the guarantees to suppliers. The provisions of clauses 17.13 and 17.14 shall apply equally to any guarantees to suppliers.

17.15 If the Seller fails to procure the provision the Loan Guarantees as required under clauses 17.10 and 17.11 (time being of the essence), the Loan Notes shall be cancelled with immediate effect and the Buyer shall be under no obligation to make any payments of any kind under the Loan Notes.”

“Schedule 8

Email from David Barnett to Jeffery Gould dated 4 th May 2006

Dear Mr. Jeffery Gould,

Your email is correct. I have added some detail with the hope we share the same understanding. As follows:

The [principals] of TGTC would get a line-of-credit for the purchase of stock with a UK bank of their choice and Graham Weston would guarantee the loan. Since it is a line-of-credit, it would [be for] interest payments only.

The interest payment would be a pass through expense from the bank paid by TGTC.

The line-of-credit would extended to a new company with a similar name (such as The General Trading Company Stock Limited). This new company would then allow the stock to be in the TGTC stores/warehouses on consignment bases while this new company still retains title. In the event TGTC defaults on the loan and/or files Administration, Graham Weston through this new company has the right to recapture this inventory to satisfy his guarantee.

If Graham Weston refuses to and/or is financially unable to guarantee the loan, then the Richmond note would be cancelled.

The inventory purchased through this loan would on a monthly basis be balanced with the loan. Items sold through TGTC would mean money is going back to the bank. Meanwhile TGTC can purchase additional items with this line of credit provide there is an available balance within the 200,000 pounds. This will require a monthly update to keep inventory balanced with draw from line-of-credit. Graham would have the right to pay for an inventory audit.

If I am unclear, confusing or you find any detail at issue, please do not hesitate to call.


David Barnett”


Clause 1 of the agreement sets out the definitions and rules of interpretation which apply to the agreement. “Loan guarantees” are “the security or guarantees to be procured by the seller for the benefit of the company pursuant to clauses 17.10 and 17.11”. “Option agreement” is “the put option agreement entered into on the date [of the sale and...

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