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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Greenstein & Anor v Broome and Wellington LP [2009] EWCA Civ 589 (18 June 2009) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2009/589.html Cite as: [2009] EWCA Civ 589 |
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COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER DISTRICT REGISTRY
HIS HONOUR JUDGE WAKSMAN
Claim no: 8MA30828
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE LLOYD
and
MR JUSTICE MANN
____________________
DAVID GREENSTEIN STEVEN GREENSTEIN |
Appellants |
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- and - |
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BROOME AND WELLINGTON LP |
Respondent |
____________________
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
MR. J. GOUDIE Q.C. and MR. J. WILSON (instructed by Messrs. Zatman & Co) for the Respondent.
Hearing date: 4th June 2009
____________________
Crown Copyright ©
Mr Justice Mann :
Introduction
Background
The judgment below
"I have mentioned the fact that no detailed material has been put before me as to how the underlying claim of $7 million has been made up. That, I suspect, is largely because B&W relied heavily on the fact of the consent order. Not because it binds these defendants as a matter of law – clearly it does not – but as powerful evidence of the true debt. Powerful enough to discharge B&W's burdens of making out summary judgment under Part 24, or a case for a very substantial interim payment under Part 25."
i) "1.1 The extent of the indebtedness due to the Claimants under the Sale Agreement dated 8 September 2004 (as Amended).
ii) 1.2 Whether the liability of the Defendants qua guarantor should be limited to the sums stipulated within [the consent order referred to above].
iii) 1.3 The Defendant is refused permission to advance the additional matters recited in the Draft Defence and Counterclaim … on the ground that the same lack any reasonable prospect of success and there is no compelling reason why those matters should go to trial."
The basis of this appeal
i) They should have been given permission to defend on a misrepresentation claim which they pleaded as a complete defence to the claim.
ii) B&W had not sufficiently proved its claim, especially in the light of questions of quantum that the Greensteins sought to raise. They said that a proper calculation of the outstanding price would show that nothing was owing, so it would be wrong to order an interim payment.
iii) They had a counterclaim arising under the 1998 agreement which ought to be set off against any sums due as guarantors, at least for interim payment purposes. It transpired during the hearing before us that the sums claimed under this counterclaim would, if due, still leave about $2m not offset.
Misrepresentation
"1.2.33 The 2004 Report, inter alia, raised concerns as to Fabrics' taxation liabilities and as to the quality of the Claimants' financial accounting and administrative record in respect of Fabrics.
1.2.34 By reason of the 2004 Report, in or about August or September 2004, London Fog withdrew from the proposed purchase of the Claimants' shareholding in Fabrics, with the effect that the negotiations and the proposed purchase ceased.
1.2.35 A short time later, Mr Bernard Rowe, Mr Joshua Rowe's brother, acting on behalf of the claimants, requested a meeting and subsequently met with the First Defendant at Madison Square Park in New York. In the course of the said meeting, Mr Bernard Rowe suggested to the First Defendant that London Fog and the Defendants purchase the assets of Fabrics rather than the Claimants' shareholding in Fabrics.
1.2.36 Mr Bernard Rowe represented to the First Defendant that after the intended cash deposit in the sum of $2m there were more than sufficient assets in Fabrics to ensure the repayment of the purchase price by the purchaser with the effect that the purchase would be self-funding and would not require any additional funds to be introduced by the defendants or at all.
1.2.37 Mr Bernard Rowe further represented to the defendants that there would be no need to rely upon the 2004 Report as an agreement to purchase the assets of Fabrics would avoid any taxation problems and Fabrics would be self-liquidating so there would be no need for concern about the quality of the financial, accounting and administrative records.
1.2.38 For the avoidance of doubt, the defendants did not have any or sufficient information to challenge the validity of the representation set out in paragraphs 1.2.36 and 1.2.37 above ("the Representations") by virtue of the same being held by the Claimants and not having been released in its entirety to the Defendants.
1.2.39 In reliance upon the Representations, the Defendants entered into further negotiations for London Fog and the Defendants to purchase, through their nominees ("the Purchaser") the assets of Fabrics ("the Asset Purchase Negotiations").
….
1.2.42 In further reliance upon the Representations, London Fog and the Defendants entered into the agreement."
"(2) Insofar as it may be held that Homestead was liable to the claimants as alleged within the 2007 proceedings, the Representations were false in that Fabrics was not self-liquidating and/or additional funds were required in order to purchase the assets of Fabrics."
"Newco will remit to [Fabrics] all proceeds, and shall be obligated to turn over or pay to B&W/[Fabrics] such amounts as will provide $27 million to [Fabrics] as a net balance as described below whether derived in whole or in part from collections (net of accrued royalties and sales commissions, charge-backs, claims, discounts, allowances and rebates) of [Fabrics] Receivables and from sale of [Fabrics] Inventory and/or sale or purchase of the Herkimer Warehouse … Such amount (Aggregate Amount) of $27 million shall be the net balance available to [Fabrics], after [Fabrics] shall have paid out its current liabilities (including taxes due or payable) on the books as at 31 July 2004 (as listed in the schedules appended hereto) of $5.5 million and after B&W shall have been paid any net balances owing by HMST/Herkimer Distribution LLC (Herkimer) in the 'inter company' accounts on the books of [Fabrics]/Herkimer as at 31 July 2004 of $1.2 million [subject to other adjustments]"
Quantum and proof
"I do not accept any generalized point here that because the scheduled documents are not before me I should simply take the view that no sums should be awarded at all, and everything should be left to a trial, effectively, on quantum. I have indicated that it is less than satisfactory not to have those underlying documents before me. On the other hand, the defendants specifically asked for those documents. They have had time to go through them, and if there are particular points with which they disagree, one would expect them to raise them before me, as indeed they have in certain respects. However, what I am not prepared to do is simply to say that in the light of the absence of those documents, no sums should be awarded at all."
The scheduled documents to which he refers are the documents which were supplied to the defendants on 30th July 2008, and which had been supplied to Holdings some months before that.
The counterclaim
"2. Interest in the company shall be divided as follows 65% to Joshua Rowe or his nominees, 35% to be divided between David Greenstein and Steve Greenstein. David Greenstein to hold 24.5% and Steve Greenstein to hold 10.5%
3. Subject to the usual commercial considerations, 50% of the net profits, after tax, will be distributed. The remaining 50% will be retained by the Company. David Greenstein and Steve Greenstein have the right to increase the amount of retained earnings in the Company so as to achieve point 4.
4. After 60% of the required capital is accumulated in equity in the business, David Greenstein and Steve Greenstein will receive from Joshua Rowe (or his nominees) an additional 5% interest in the company so as to increase their joint holding to a total of 40%. Such interest will be held by David and Steve in the same proportion as their 35% interest in the Company.
5. The distribution of profits shall be in direct proportion to the interest held by the parties in the Company.
6. David Greenstein and Steve Greenstein will dedicate their full time and energy to manage the Company and its business.
9 Overall management is at the discretion of Joshua Rowe or his successor.
10 Broome & Wellington will finance the operation, open L/Cs, purchase inventory and fund the overall operations of the Company until such time as the company is self financing. The Company shall pay Broome & Wellington 5% of the cost of goods purchased by the Company."
i) B&W wrongly substituted a charge of 3.5% of sales in place of the figure of 5% of purchases provided by clause 10 of the Agreement. Accordingly they charged too much, which depressed the profits paid to the Greensteins.
ii) B&W overcharged for various commissions, salaries, payroll costs and overheads. Those matters should have been covered by the financing charge of 5%, and not charged for separately. The effect of that was to depress the profits which the Greensteins would otherwise have received.
iii) In the year ending April 2003, or alternatively in the next accounting period, sufficient capital had been acquired to entitle the Greensteins to have an increased share in the business (5%) under clause 4 of the 1998 agreement. However, they were not given it, again with the result that their profit share was underpaid (in addition to the non-receipt of the increased shareholding).
The first of those points was abandoned at the beginning of the hearing before this court.
Conclusion
Lord Justice Lloyd: I agree.
Lord Justice Longmore: I also agree.