David Whelan Sports Ltd v JJB Sports

This is an appeal from the order made by HHJ Waksman QC, sitting as a judge of the High Court in the Manchester District Registry, following a judgment which he gave on 11 March of last year. The appeal raises a short question of the construction of a relatively short provision in an agreement dated 25 March 2009 by which Dave Whelan Sports Ltd, the appellant, acquired the business of JJB Sports Plc. The business that was acquired was defined in clause 1.1 as:

“the business of operating health and fitness clubs both

(i)

carried on by the Seller at the Effective Time from the Leisure Division Head Office, the Properties and [subject to another provision] [certain] Licensed Properties; and

(ii)

proposed to be operated from the Committed Sites [all the capitals in those provisions relating to defined terms] ...

(b)

the business of the sale of sports and leisure goods, clothing, equipment, accessories and other items carried on by the Seller at the Effective Time, only from the Properties and [subject to another provision] the Licensed Properties...”

The Effective Time was the date from which the buyer was deemed to acquire the business and presumably did acquire the business on 24 March 2009. The assets and certain liabilities of the business passed to the purchaser and, as is common in such a case, there was provision for liabilities and payments received and to be received or paid and to be paid by the business which was being acquired over the period before and after the Effective Time, such as rentals payable under a lease or indeed rent that might be paid under any lease of which the business was the landlord.

Sometime before this agreement was entered into – that is to say in 2006 – the seller entered into negotiations with a manufacturer for the purchase of equipment to be used in its business. The equipment was relatively new equipment at the time and there was a list price of £5246.25 for each item of the equipment. Cannily, JJB Sports negotiated with the manufacturer: it was unwilling to pay that price in respect of the equipment. The manufacturer was keen to maintain at least the appearance of requiring and obtaining payment of the list price. The equipment was going to be the subject of lease agreements entered into by the JJB Sports, that is to say it was envisaged that in due course, as took place, the equipment would be sold by the manufacturer to a finance company and the finance company would then lease the equipment to JJB Sports for use in its business. The price at which the manufacturer sold the equipment to the finance company was indeed the list price of £5246.25. However, the negotiations between JJB Sports and the manufacturer had arrived at an agreement under which, on one view, the effective price of the equipment was going to be only £3,800 and the difference between that effective price and the list price was going to be paid as a once-and-for-all payment to JJB Sports.

In due course the equipment was sold to a finance company at the list price and JJB Sports entered into lease agreements which were undoubtedly based on the list price in the sense that the sums payable under them would cover the list price which had actually been paid by the finance company, plus an amount which would be the equivalent of interest. It was not described as interest since this was a lease, but it would have to cover the financing of the capital payments made by the finance company. The period of the lease covered a period before and after the effective time. Indubitably the lease payments made under the lease agreements were payments which one would expect be the subject of apportionment under the agreement between the buyer and the seller. The question that has arisen in this case is whether, in addition to apportionment of the lease payments, the one-off payment made by the manufacturer to the seller, which on one view, reduced the burden of the acquisition of this equipment, fell to be apportioned under the terms of the business sale agreement. The relevant clause is 11.6, which provides:

“Except as otherwise specifically provided in this agreement, all expenditure and outgoings and all payments received in respect of the Business, the Assets or the Employees shall, insofar as they relate to a period falling partly before and partly after the Effective Time, be apportioned on a time basis between the Seller and the Buyer so that such part of the relevant expenditure, outgoings or payment attributable to the period up to the Effective Time shall be borne by or be for the benefit of the Seller and such part of the relevant expenditure or payment attributable to the period after the Effective Time shall be borne by or be for the benefit of the Buyer.”

The remainder of clause 11.6 dealt with the calculation and payment of the apportionment.

The judge held that the one-off payments made by the manufacturer to the seller when the leases were entered into did not fall within clause 11.6, because it was a one-off payment and the payment was not made pursuant to any contract or contractual term which apportioned it or in any way made it payable over a period which fell partly before and partly after the effective time. It was one-off payment. It may have had the effect of reducing the cost of the acquisition of the equipment by JJB Sports, but nonetheless it was a one-off payment which did not fall to be apportioned with the lease payments insofar as there were any payable in respect of a period before or after the effective time.

In my judgment the judge was entirely right in his construction of clause 11.6 and its application to the facts of the present case. The sums paid by the manufacturer of the equipment to the seller were one-off payments which were not, by the terms of any contract or otherwise, apportionable to any period whatsoever. Moreover, I see nothing necessarily unfair in the construction of the contract which the judge found. The payments made by the manufacturer to the seller may have been used to acquire assets which passed under the agreement, and, if there were an apportionment pursuant to clause 11.6, in such circumstances the buyer would have both the benefit of that equipment which passed under the agreement and the benefit of apportionment. As it is, I see no basis for an apportionment. I would therefore dismiss the appeal.

I agree.

I also agree.