Williams & Anor v HCB Solicitors Ltd

This is the Defendant’s application for summary judgment pursuant to CPR 24.2 (a) (i) in respect of the whole of the claim on the basis that the Claimants have no real prospect of succeeding in their claim. The application is supported by the first witness statement of Ms Melissa Danks dated 17^th December 2014 and is opposed by the Claimants, who rely on the witness statement of Mr Andrew Anthony Hickman dated 16^th February 2015.

In its Application Notice, in addition to applying for summary judgment, the Defendant also sought an order that the Second Claimant, Genesis Range Company Limited, (“Genesis”) should give security for costs. However in view of the evidence filed on behalf of the Claimants, that application is no longer pursued and I need say no more about it.

Following the hearing I invited submissions on two specific points. I am grateful to both parties’ counsel for their submissions which I have read and considered. Given that neither party was attracted by the suggestion of an adjournment, I have rejected that suggestion and propose to say nothing further about the two specific points which I raised.

At all material times Mr Jon Williams, (“First Claimant”), was the sole shareholder in a company called Vital Industries Limited (“Vital”). That company in turn had two subsidiaries called Arc Aluminium Limited (“Arc”) and Arc Aluminium Services Limited (“Services”).

Over the years, the First Claimant had developed a range of window and door products the intellectual property rights to which he wished to extract from Vital at the same time as effecting a sale of Vital. Those rights (“the Rights”) were in fact owned by Arc.

Genesis is a company which was specifically incorporated with a view to being the vehicle into which the Rights were to be transferred.

In or about April 2012 the First Claimant agreed to sell his shares in Vital, Arc and Services to Firstmain Investments Limited (“Firstmain”) on the following principal terms:-

The First Claimant instructed the Defendant to act on his and Genesis’ behalf in the sale of his shares in Vital, Arc and Services to Firstmain, the purchase of the Rights and the granting of the licence from Genesis back to Vital.

The Defendant produced a series of drafts of the documentation designed to put into effect the agreement negotiated between the Claimants and Firstmain namely a Share Purchase Agreement (“SPA”), by which the First Claimant sold his shares in Vital to Firstmain, an Assignment by which Vital and Arc assigned the Rights to Genesis (“ Assignment”) and a Licence (“Licence”) by which Genesis was to licence Firstmain to use the Rights in much the same way as Vital had previously used them, but which nevertheless permitted Genesis to seek to exploit them in new ways.

Negotiations on the form of the various agreements were conducted by Mr Adrian Leonard of the Defendant on behalf of the First Claimant and Genesis and by David Goulding on behalf of Firstmain. At a late stage in those negotiations, on or about 3^rd July 2012, Mr Leonard and Mr Goulding agreed, apparently without advising or taking instructions from the First Claimant, that the £45,000 nominally due from Genesis to Vital under the Assignment did not need to be recorded as part of the purchase price because it was too cumbersome to require Genesis to pay £45,000 to Vital only for Firstmain to pay £45,000 immediately to the First Claimant. Instead, they agreed that the purchase consideration ought to be referred to in the SPA as simply the sum of £170,000 plus the value of the First Claimant’s outstanding director’s loan (£57,623) that is to say a total consideration of £227,623. Moreover, given that the director’s loan was being repaid by the First Claimant, the actual cash sum changing hands from Firstmain to the First Claimant on completion was agreed to be £170,000. Firstmain however remained under an obligation to pay the First Claimant the deferred consideration of £50,000 over 18 months.

The sale of the First Claimant’s shares was completed on 5^th July 2012 with the execution of the finalised documents namely the SPA, the Assignment and the Licence.

Unfortunately the SPA, at clause 4.2, continued to include the following provision:

“The seller (the first Claimant) shall:-

(d)

Procure the entry of the Genesis Range Company Limited (Genesis) into the licence and the payment to the Company of the Transferred IP Payment (i.e. the sum of £45,000 payable by Genesis to Firstmain pursuant to the Assignment).”

Subsequently the First Claimant and Genesis commenced negotiations to permit Thyssen Krupp Materials (UK) Ltd (“TKM”) to develop and market products using the Rights and in early 2013 agreement in principle was reached with TKM for the use by TKM of the Rights and the payment of commission/royalties by TKM to the First Claimant and or Genesis.

Firstmain defaulted on paying the deferred consideration and in early 2013 the First Claimant wrote to Firstmain demanding payment of the deferred consideration and royalties said to be due under the Licence. Firstmain responded alleging that the Assignment had been ineffective to transfer the Rights to Genesis and that they therefore remained vested in Arc as a result of a failure by the First Claimant/Genesis to pay the sum of £45,000 in respect of the Rights and that accordingly no further payments were due from Firstmain to the First Claimant.

The solicitors acting for the First Claimant and Genesis notified the Defendant of the problem and sought their assistance and also sought to resolve the dispute with Firstmain but without success. As a result TKM withdrew from its agreement with Genesis and/ or the First Claimant.

In this action Genesis asserts that the reason why it was unable to enter into what it says would have been a very lucrative agreement with TKM for the exploitation of the Rights was the defective drafting of the SPA and damages in excess of four million pounds are sought.

CPR 24.2 is in these terms:-

“The court may give summary judgment against a claimant or defendant on the whole of a claim or on a particular issue if -

(a)

it considers that –

(i)

that claimant has no real prospect of succeeding on the claim or issue;…and

(b)

there is no other compelling reason why the case or issue should be disposed of at a trial.

(Rule 3.4 makes provision for the court to strike out a statement of case or part of a statement of case if it appears that it discloses no reasonable grounds for bringing or defending a claim).”

In this case it is not suggested that Rule 24.2 (b) is engaged.

There is a useful summary of the applicable principles for exercising this jurisdiction in Easy Air Ltd - v – Opel Telecom Limited [2009] EWHC 339 (Ch) in the judgment of Lewison J (as he then was), which was subsequently approved by Etherton LJ in AC Ward and Son – v – Catlin (Five) Limited and others [2009] EWCA Civ 1098:-

“15.

As Ms Anderson QC rightly reminded me, the court must be careful before giving summary judgment on a claim. The correct approach on applications by defendants is, in my judgment, as follows:

i)

The court must consider whether the claimant has a "realistic" as opposed to a "fanciful" prospect of success: Swain v Hillman [2001] 1 All ER 91 ;

ii)

A "realistic" claim is one that carries some degree of conviction. This means a claim that is more than merely arguable: ED & F Man Liquid Products v Patel [2003] EWCA Civ 472 at [8]

iii)

In reaching its conclusion the court must not conduct a "mini-trial": Swain v Hillman

iv)

This does not mean that the court must take at face value and without analysis everything that a claimant says in his statements before the court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous documents: ED & F Man Liquid Products v Patel at [10]

v)

However, in reaching its conclusion the court must take into account not only the evidence actually placed before it on the application for summary judgment, but also the evidence that can reasonably be expected to be available at trial: Royal Brompton Hospital NHS Trust v Hammond (No 5) [2001] EWCA Civ 550;

vi)

Although a case may turn out at trial not to be really complicated, it does not follow that it should be decided without the fuller investigation into the facts at trial than is possible or permissible on summary judgment. Thus the court should hesitate about making a final decision without a trial, even where there is no obvious conflict of fact at the time of the application, where reasonable grounds exist for believing that a fuller investigation into the facts of the case would add to or alter the evidence available to a trial judge and so affect the outcome of the case: Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63;

vii)

On the other hand it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should graspthe nettle and decide it. The reason is quite simple: if the respondent's case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant's case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Ltd v TTE Training Ltd [2007] EWCA Civ 725.”

What is said on behalf of the Defendant is that Firstmain’s contention that the Rights have not vested in Genesis is, as a matter of law, wrong. Rather the Rights were transferred to Genesis and thus they were capable of being exploited by Genesis. It follows, it is said, that there was no relevant breach of duty on behalf of the Defendant and the losses alleged to have been sustained cannot be said to have been caused, as a matter of law, by the drafting error in the SPA.

The Claimants for their part assert that an important issue is not whether the documents in question did effectively transfer the Rights to Genesis but whether the alleged negligence of the Defendant allowed Firstmain to be able to say to TKM and the Claimants that they were the rightful owners of the Rights and that, in the circumstances, there is a real prospect of the Claimants’ succeeding against the Defendant. Those prospects it is said cannot be described as fanciful so that this application should fail.

The principles governing the identification of a contractual term as a condition, breach of which may be considered by the innocent party as a substantial failure to perform the contract at all are summarised in Chitty 31^st edition, at paragraph 12- 040 (cited with approval by the Court of Appeal in BS&N Ltd (BVI) – v – Mikado Shipping Ltd (Malta) (“The Sea Flower”) [2001] [1 Lloyd’s Rep 341, at 348, 350 and 353];

“The conclusion to be drawn from these cases is that a term of a contract will be held to be a condition:

(i)

If it is expressly so provided by statute;

(ii)

if it has been so categorised as the result of previous judicial decision (although it has been said that some of the decisions on this matter are excessively technical and are “open to re-examination by the House of Lords”);

(iii)

if it is so designated in the contract or if the consequences of its breach, that is, the right of the innocent party to treat himself as discharged, are provided for expressly in the contract; or

(iv)

if the nature of the contract or the subject matter or the circumstances of the case lead to the conclusion that the parties must, by necessary implication, have intended that the innocent party would be discharged from further performance of his obligations in the event that the term was not fully and precisely complied with.

Otherwise a term of a contract will be considered to be an intermediate term. Failure to perform such a term will ordinarily entitle the party not in default to treat himself as discharged only if the effect of the breach of the term deprives him of substantially the whole benefit which it was intended that he should obtain from the contract.”

It is common ground that the starting point for determining the nature of a contractual term is the context in which it appears. Here that context is supplied by the three agreements to which I have referred, all of which were executed on the same day and which together gave effect to the agreements reached between Firstmain, Vital, Arc, the First Claimant and Genesis.

The relevant clauses of the three agreements are as follows

It is common ground that for the purposes of this summary judgment application Firstmain’s contention that the consideration set out in the SPA meant the “Transferred IP Payment” defined in clause 1.1 of the SPA must be accepted as the correct construction. The question is whether such an obligation was a condition precedent to the transfer of the Rights to Genesis.

The Licence provided by its recitals that Genesis was the owner of the Genesis Range Dies detailed in schedule 1 and it is plain that these were the dies particularised in schedule 4 to the SPA and the Schedule to the Assignment and by clause 2.1, Genesis, as owner of the Genesis Range Dies, granted a 999 year licence to Vital to cause manufacturers to manufacture products with the dies for use in the products manufactured by Arc and sold by Vital within the United Kingdom.

It was submitted on behalf of the Defendant and in my judgment it is plainly right that the scheme of the SPA, the Assignment and the Licence was self evidently to effect the transfer to Firstmain of the shares in Vital, to extract the Rights from Vital/Arc to Genesis; and then for Genesis to grant a licence to Firstmain to make use of products embodying the Rights to continue the business it had previously operated when Vital owned the Rights. Nowhere is there any indication that any obligation on Genesis to pay Vital £45,000 for the Rights is a breach which would entitle Vital not to transfer the Rights to Genesis. On the contrary:

In all the circumstances to my mind if any obligation to pay £45,000 existed, it merely gave Vital a claim against Genesis for payment of a debt of that amount.

It follows that the agreements drafted by the Defendant were, in fact, effective to do what it was required that they should do. In those circumstances, as it seems to me, the loss of the TKM business opportunity cannot, as a matter of law, have been caused by any breach of duty on the part of the Defendant. The losses which are alleged are not losses which can possibly legally have been caused by the breach of duty alleged. If any loss were caused by the deficiencies in the drafting such losses could conceivably have been the additional costs of having to argue with Firstmain about the construction of the agreements but no such losses are claimed.

It follows in my judgment that the Defendant is entitled to judgment against the Claimants on the grounds that the claim that has been brought cannot as a matter of law succeed.

I trust that the parties will be able to agree the form of an order that reflects the substance of this judgment and deals with the costs consequences. If the parties are unable to agree the costs consequences, they should file and serve brief submissions of the form of order they seek and, if possible, I will deal with that issue on paper.

Finally, I would like to take this opportunity to thank both counsel for their very helpful submissions.