WRM Group Ltd v Wood
| Jurisdiction | England & Wales |
| Judge | Morritt,Buxton L JJ. |
| Judgment Date | 21 November 1997 |
| Court | Court of Appeal (Civil Division) |
| Date | 21 November 1997 |
Court of Appeal (Civil Division).
Morritt and Buxton L JJ.
Murray Rosen QC and Alan Gourgey (instructed by Dibb Lupton Alsop) for the appellant.
Jeffrey Onions (instructed by Speechley Bircham) for the respondents.
The following cases were referred to in the judgment of Morritt LJ:
Boyd & Forrest v Glasgow & South-Western Railway CoENR 1911 SC 33.
Coca Cola Financial Corp v Finsat International Ltd [1996] CLC 1564.
Continental Illinois National Bank and Trust Co of Chicago v Papanicolaou (“The Fedora”)UNK [1986] 2 Ll Rep 441.
Gill (Stewart) Ltd v Horatio Myer & Co LtdELR [1992] QB 600.
Investors Compensation Scheme Ltd v West Bromwich Building Society [1997] CLC 1243.
Lazarus Estates Ltd v BeasleyELR [1956] 1 QB 702.
London General Omnibus Co Ltd v HollowayELR [1912] 2 KB 72.
Pearson (S) & Son Ltd v Lord Mayor of DublinELR [1907] AC 351.
Sanctuary Housing Association v BakerUNK (unreported, 5 September 1997).
Schneider v HeathENR (1813) 3 Camp 506; 170 ER 1462.
Skipskredittforeningen v Emperor Navigation [1997] CLC 1151.
Society of Lloyd's v Leighs [1997] CLC 1398.
Contract — Breach — Misrepresentation — Set-off — Purchase price for companies satisfied in part by issue by purchaser of loan notes to sellers — Sale agreement provided that purchaser could not set-off amounts due for breach of agreement against amounts payable to sellers — Purchaser sued sellers for misrepresentation — Sellers claimed interest under loan notes — Whether exclusion of set-off applied to claims for fraudulent misrepresentation — Whether exclusion of set-off fair and reasonable — Misrepresentation Act 1967, s. 3 — Unfair Contract Terms Act 1977, s. 11(1).
This was an appeal by WRM Group Ltd (“WRM”) from a judgment of Lloyd J determining under RSC, O. 14A that WRM was not entitled to set off its liability to pay interest under certain loan notes against a claim for damages for misrepresentation.
WRM was the purchaser of two companies from the defendants. The purchase price was satisfied in part by the issue of loan notes by WRM to the defendants. In the sale agreement the defendant sellers made various representations and gave various warranties. Clause 5.7 of the agreement provided that the purchaser was entitled (after serving written notice of its claim) to set off against amounts otherwise payable by the purchaser to the sellers claims for breach of the warranties up to a maximum of £300,000. Clause 5.8 provided that save as provided by cl. 5.7 the purchaser could not set off against amounts payable by the purchaser to the sellers any amount claimed for breach of the terms of the agreement. WRM served a notice under cl. 5.7 claiming £5.56m for alleged breaches of the warranties in the sale agreement and corresponding misrepresentations, and applied under RSC, O. 14A for a determination that it was entitled to set off its liability for interest under the loan notes. The judge held that there was no right to set off and gave summary judgment for the sellers for interest on the loan notes. He held that WRM's claims were within cl. 5.8 even if framed in tort as misrepresentations as opposed to contract as breach of warranty, and even if alleged to have been made fraudulently. Clause 5.8 was not invalidated by s. 3 of the Misrepresentation Act 1967 because it was fair and reasonable in the circumstances under s. 11(1) of the Unfair Contract Terms Act 1977. WRM appealed.
Held dismissing the appeal:
1. Clause 5.8 was clear and operated to exclude the possibility of set-off in respect of all sums claimed to be due because a warranty contained in the agreement was broken or because a representation made therein, whether innocently, carelessly or fraudulently, was false. The parties to a contract could exclude the remedy of set-off in relation to allegedly fraudulent misrepresentations. Given the width of the warranties in the agreement there was no reasonable possibility of the sellers being liable for a misrepresentation not coming within any of the warranties. Clause 5.7 covered set-off of contractual claims for breach of warranty and the tortious claim in respect of the equivalent misrepresentation. Clause 5.8 then excluded set-off in respect of those items for which it was permitted by cl. 5.7. There was no reason to restrict the breaches covered by cl. 5.8 so as to exclude fraud. (Society of Lloyd's v Leighs[1997] CLC 1398followed).
2. In the circumstances it was fair and reasonable (under s. 11 of the 1977 Act) to exclude the remedy of set-off in respect of liability for fraudulent misrepresentation. The sale of the companies was a bargain at arm's length under which WRM acquired the companies but the majority of the purchase price was deferred. There was no exclusion of liability for misrepresentation nor of rescission if the misrepresentation was fraudulent. It was not unfair or unreasonable to require the purchaser to pay the deferred price when due without any deduction for what was at that stage a mere claim, however arguable, even if for fraud. Further cl. 5.8 excluded that contractual claims whether fraudulent or innocent and it could not therefore be unfair or unreasonable to exclude the equivalent claim in tort in respect of the same facts. (Skipskredittforeningen v Emperor Navigation[1997] CLC 1151approved).
Morritt LJ: On 17 March 1997 Master Moncaster gave summary judgment for the defendants (“the warrantors”) for various sums totalling £68,229.96 in respect of interest due but unpaid on certain guaranteed or convertible loan notes. Such notes had been issued by the plaintiff (“WRM”) pursuant to an agreement dated 10 March 1995 as consideration for the sale to WRM of the issued capital of Wood Distribution Ltd and Chelquest Ltd (“the sale companies”). By the same order the master declared, pursuant to RSC, O. 14A, that WRM is not entitled to set off its claims against the warrantors for misrepresentations contained in and part of the same agreement against their claims for interest under such notes. On 19 June 1997 Lloyd J dismissed the appeal of WRM from the order of the master. This is an appeal by WRM, brought with the leave of the judge, from the latter order.
The warrantors and others were the registered holders and beneficial owners of the entire issued share capital of the sale companies. By an agreement (“the agreement”) dated 10 March 1995 and made between the warrantors and the other shareholders as the vendors (1) WRM as the purchaser (2) and the sale companies (3) and (4) the warrantors and the other shareholders agreed to sell the entire share capital of the sale companies to WRM on the terms contained therein.
The material provisions of the agreement are detailed and need to be explained. By cl. 1, except where the context otherwise required, the word “warranties” meant the representations and warranties set out in the sixth schedule. Clause 4 provided that completion of the sale should take place the same day as the agreement was concluded. The price was £7,498,651 subject to increase by not more than £1,250,000 calculated in accordance with a formula depending on the profits of the sale companies and their subsidiaries earned in the accounting year ended 30 September 1995. Such price was to be paid or satisfied at completion by the payment of £732,277 in cash and the issue by WRM to the warrantors and the other vendors of loan notes of various descriptions. Such loan notes consisted of £6,466,374 guaranteed loan notes of type B1, £300,000 ofwhich were of type B2 and defined by cl. 1 as retention loan notes, not more than £1,250,000 guaranteed loan earn-out...
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