England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
(His Honour Judge Kershaw QC)

		The Royal Courts of Justice Strand London WC2 Wednesday 31st July, 2002

1. LORD JUSTICE ALDOUS: The defendant Mr Gesner van der Voort appeals the order of His Honour Judge Kershaw QC made on 19th April 2002 which restrained him from presenting a winding-up petition based upon a statutory demand served on 19th December 2001.
2. For the purposes of these proceedings the background facts are not in dispute. By agreement dated 26th October 1998 the appellant sold his shares in a company called Sunbelt (UK) Ltd to the claimants (who are the respondents) European Micro Plc. The purchase price was payable by three instalments with an option to pay the second and third instalment by allotment of shares. The relevant part of the agreement was in these terms:

"2. SALE AND PURCHASE

2.1. Upon the terms and conditions and subject to the conditions of this agreement, the Vendor with full title guarantee shall sell and the Purchaser shall purchase the number of Shares of which each of the Vendors is the registered holder ...

2.5.1. Any portion of the Guaranteed Earn-Out Amount not paid at Completion shall accrue interest at the agreed rate from the Completion Date until the date payment is made. All amounts payable in cash shall be paid by electronic transfer in sterling.

2.5.1.1 the Second Instalment and the Third Instalment due to Mr Gesner shall at the option of the Purchaser be satisfied in whole or in part by the allotment for EMCC Shares (subject to clause 2.5.2 below); ...

2.5.2. Should the Purchaser pursuant to clause 2.5.1 elect to satisfy the consideration by procuring the allotment of EMCC Shares and the traded volume of EMCC Shares on NASDAQ in the 30 days prior to the election being made not being equal to [three] times the number of shares to be allotted ("the Trading Volume") then the following conditions shall apply:

2.5.2.1 after 15 days of receipt of the said shares by Mr Gesner shall arrange to sell the shares received as far as possible in equal lots over the next 40 succeeding trading days;

2.5.2.2 in the event that the sums realised upon the sale of the said shares shall be less than the amount due for either the Second Instalment or the Third Instalment the Purchaser shall pay to Mr Gesner the difference in cash within 28 days of being notified of the amount of any shortfall."

3. The third instalment became due on 19th November 2000. It is admitted that the amount payable was just over £151,000. European Micro exercised its option under clause 2.5.1 to pay that instalment by procuring the allotment of shares. On 9th January 2001 Mr Gesner's solicitors received a share certificate for 37,754 shares. Mr Gesner immediately instructed Morgan Stanley Dean Witter, a firm of brokers, to sell the shares in accordance with clause 2.5.2.1 of the sale agreement. The first trade took place on 24th January 2001.
4. A certificate for a further 32,993 EMCC shares was sent on 6th March 2001 by European Micro to Morgan Stanley. The total sum received after commission by Mr Gesner from the sale of both batches of shares was just over $71,000.
5. On 1st June 2001 Mr Gesner wrote to the chief finance officer of European Micro notifying him that the total shortfall now due was over $144,000. A copy of the Morgan Stanley trading summary was enclosed. On 14th June 2001 the co-president of European Micro acknowledged receipt of Mr Gesner's letter and agreed the details of the statement, except for a $10 adjustment in Mr Gesner's favour. However the debt was subject to a set-off of Singapore taxes arising from termination of Mr Gesner's employment with a company called Colchester Enterprise PET Ltd. Following agreement of the Singapore taxes, a revised calculation was sent to European Micro and Mr Gesner requested a transfer to him of just over $104,000 "so that this long episode can be brought to a rapid closure."
6. Mr Gesner heard nothing further in writing from European Micro prior to the service of the statutory demand on 19th December 2001. According to Mr Gesner's evidence, he contacted European Micro who told him that they could not pay and he would have to wait until the company had liquidated its assets. He says that he was told the company would cease trading on 1st October 2001 and that a new company called Square One would start trading from the same premises with the same people and customers.
7. It was accepted before the judge that the statutory demand was overstated and that only about £73,000 was actually claimed by Mr Gesner. However that was not the reason why the judge granted the injunction restraining presentation of the petition. The judge referred to the summary of sales of shares that had been made on behalf of Mr Gesner. According to the judge the summary showed that of the 40 trading days, excluding weekends when the NASDAQ was closed, there were 17 days on which no shares at all were sold. Against that background the judge came back to clause 2.5.2. Having read it, he recorded the submissions made on behalf of European Micro in these terms:

"... the argument for the claimant is that the obligation to pay in cash (or indeed in any other way, but it was an obligation to pay cash which might by concession be satisfied in another way), only arose as a matter of construction of the share sale agreement if the sum realised on the sale of the shares was the sum realised on the sale of the shares in the way prescribed in 2.5.2.1. That, in my judgment, is an eminently arguable proposition of law."

8. The judge went on to record that that submission was not accepted by Mr Gesner. However the judge concluded that he was only concerned with the question of whether there was a genuine dispute. It seemed to him that there was a genuine dispute, namely whether the contract provided a trigger and in default of that trigger being pulled, there was no entitlement to a cash payment. As the judge said at page 8F of the transcript:

"All that matters is whether we have a genuine dispute on substantial grounds about the alleged debt which is the subject of the statutory demand. If that may not be a debt, then it is going to have to be proved in the usual way by litigation, and it will be a gross injustice to the claimant to allow the statutory demand to stand for reasons which consisted of or included allegations of insolvency in or allegations of in contra dealing with its assets, or even allegations of failing to put before the court all relevant material at the initial hearing before Judge Howarth."

9. I cannot accept the interpretation of clause 2.5.2 relied upon on behalf of European Micro to establish that no debt arose. The agreement has to be construed purposively to obtain the intention of the parties. Despite the persuasive submissions of Miss Dooher, it is in my view quite clear that the method of sale of the allotted shares in clause 2.5.2 was not a condition, in the sense that that word is used in some legal cases which, if not satisfied, would wipe out the debt owed to Mr Gesner for the purchase of his shares. No doubt breach of the terms of clause 2.5.2.1 could provide a challenge to any claimed amount under clause 2.5.2.2. However resolution of that challenge would only go to the amount of the cash payable for any shortfall. It would not obliterate the obligation to pay. In my view the opposite is not arguable. It would lead to a bizarre result which the parties could not have intended.
10. I accept Miss Dooher's submission that this is a commercial document entered into and carefully drafted. But to come to the conclusion that it was arguable that clause 2.5.2.1 acted as a trigger, which if not pulled correctly would obliterate the money that was owed pursuant to the sale agreement under clause 2.5.1 would be -- and I use the word -- absurd.
11. In the present case there is no evidence that any failure to comply with the terms of clause 2.5.2.1 resulted in a loss of value and therefore would lower the debt claimed (which is about, as I have said, £75,000). In those circumstances I can find no reason for restraining the presentation of the petition. I therefore would allow this appeal and dismiss the case.
12. LORD JUSTICE LAWS: I entirely agree.
13. LORD JUSTICE JONATHAN PARKER: So do I.
ORDER: Application for permission to appeal granted; appeal allowed with costs here and below, to be the subject of detailed assessment if not agreed; the £3,000 paid into court by Mr Gesner to be paid out to the Mr Gesner's solicitors together with any interest accrued. (Order not part of approved judgment)