England and Wales High Court (Commercial Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		11th February 2011

Mrs. Justice Gloster, DBE:

Introduction

1. This claim arises out of the sale on 11 July 2006 of a family-owned business known as the Card Tech group of companies ("the Card Tech companies") to Total Systems Services Inc. ("TSYS"^[1]), an American company listed on the New York Stock Exchange. The Card Tech companies were jointly built up from scratch by the relevant family members from 1989 onwards. The business became very successful in the area of provision of services to the banking industry. The particular services provided by the Card Tech companies allowed banks for the first time to issue and process debit and credit card transactions using personal computers rather than traditional and costly mainframe computers. These PC based systems were particularly attractive to smaller banks and their customers in emerging markets and the Card Tech companies developed the first software system that allowed PC processing of credit card transactions. In addition to developing and upgrading systems for banks, Card Tech earned significant revenues from servicing such systems. By the time of the sale to TSYS, Card Tech employed about 300 employees around the world and had in excess of 180 clients in 60 countries.
2. It is common ground that the day to day running of the business prior to the sale was essentially in the hands of a four-person "partnership" made up of the following men who were cousins:

i) Raad Chalabi ("Mr. Raad Chalabi"), the first claimant who provided financial and legal management;

ii) Mohammed Al-Bassam ("Mr. Al-Bassam"), the second claimant, who dealt with manpower, recruitment and project management;

iii) Jaffar Agha-Jaffar ("Mr. Agha-Jaffar"), the first defendant, who dealt with product licensing and sales; and

iv) Bashar Chalabi ("Mr. Bashar Chalabi"), the second defendant, who concentrated on software development.

3. It was also common ground that a Mr. Ahmed Chalabi was the originator of the business idea, but did not play in any part in its day-to-day running. By the time of the matters with which this action is concerned, he had transferred his shares in one of the Card Tech companies, Card Tech Research Ltd ("Research"), to his wife, Mrs. Leila Osseiran, the third claimant ("Mrs. Osseiran").
4. SP Degree Limited (the fourth claimant) ("SP Degree") is a company incorporated under the laws of the British Virgin Islands. At all relevant times, Mr. Al-Bassam was authorised to act on its behalf in relation to the negotiations and agreements with the Defendants. Scalenine Limited (the fifth claimant) ("Scalenine") is owned and controlled by Mr. Raad Chalabi. It is not in dispute that, prior to the sale of the Card Tech companies, the business of the group overall was treated as equally owned in one-fifth shares between the five natural persons who are parties to these proceedings. I shall refer to the claimants collectively as "the Claimants", and to the defendants collectively as "the Defendants".
5. The sale of the Card Tech companies to TSYS was structured in two stages: (a) on 11 July 2006 the Claimants sold their shares in the Card Tech companies to the Defendants for US$ ("$") 35.5 million; and (b), on the same date, "back to back" with the first sale, the Defendants then sold shares and assets to TSYS for $ 54.5 million. The Defendants (and certain Card Tech companies) also received from TSYS further sums totalling $ 3.17 million as part of the second stage of the transaction. These sums were paid pursuant to three tax deeds of indemnity ("the Tax Deeds") as between the Defendants, two Card Tech companies and TSYS. This two stage structure was adopted because of differences of opinion between the Claimants and the Defendants as to the conduct of the negotiations with TSYS and other matters relating to the business, as a result of which the Claimants were not prepared to give warranties or indemnities to TSYS in respect of the sale (as they would have had to have done in a direct sale). They therefore sold their shares to the Defendants and were immediately paid the sale price free of any liabilities to TSYS as ultimate purchaser. All legal responsibilities to TSYS were thereby assumed by the Defendants who, as I set out in more detail below, undertook extensive obligations by way of warranties to TSYS (as well as being subject to a retention of $ 8 million held in escrow against warranty claims from TSYS).
6. The dispute centres on the treatment and characterisation of the further sums totalling $ 3.17 million paid to the Defendants and two Card Tech companies by TSYS pursuant to the Tax Deeds. The Defendants contend that the sums were paid to indemnify the Defendants and the two Card Tech companies in respect of additional tax liabilities arising because the second stage involved asset sales rather than simple share transfers (as had been originally intended). The Defendants contend that the sum of $ 3.17 million reflected amounts which independent accountants, PriceWaterhouseCoopers ("PWC"), had identified as additional tax liabilities which the Defendants and certain of the Card Tech companies would have to pay under the transaction if it were partially structured as an asset sale.
7. The Claimants' contend that the receipt of these sums resulted in the Defendants committing breaches of various warranties contained in the agreements under which the Claimants sold their shares to the Defendants. The Claimants' argument, in summary, is that the Defendants warranted and undertook:

i) that the "consideration price" of $ 35.5 million which the Defendants paid to the Claimants would amount to three-fifths or more of the sum which the Defendants were to receive from TSYS, for the sale of the shares and the assets of the Card Tech companies; and

ii) that the total sum which the Defendants and the relevant Card Tech companies were to receive for the sale by them of the shares and the assets of the Card Tech companies was to be $ 54.5 million.

8. The Claimants contend that the additional $ 3.17 million paid to the Defendants by TSYS was effectively consideration received by the Defendants for the sale of their shares in, and the assets of, the Card Tech companies and that, accordingly, the Defendants are in breach of the warranties and undertakings which they gave to the Claimants. They argue that the tax indemnity payments were not genuine payments to indemnify the Defendants and the two Card Tech companies for additional tax that might become payable, but rather a device to circumvent the "consideration warranties" in the relevant agreements with the Claimants and to provide additional up front consideration. In the alternative, the Claimants contend that they were induced to sell their shares in reliance upon misrepresentations in similar terms to the warranties.
9. By way of damages for breach of warranty, the Claimants sought a sum equal to three fifths of the additional $ 3.17 million, namely the sum of $ 1,902,000 plus interest. That was on the pleaded basis that the loss they suffered as a result of the breaches was an element of the true value of their shares because the true price paid by TSYS was greater than the Defendants warranted. The Particulars of Claim pleaded that the true value that they lost was that element of what the Claimants contend was the extra consideration which reflects their likely share, which in the circumstances is best measured as 60%.
10. By way of damages for misrepresentation, the Claimants contended that, but for the misrepresentations, they would not have entered into the contracts to sell their shares to the Defendants; the Claimants would then have held shares that were best valued by reference to the true amounts TSYS paid to the Defendants; the best measure of that loss was the difference in value between what they received and what the shares were really worth, which was again 60% of the extra payments.
11. The Defendants' response was that the additional payments of $ 3.17 million were not part of the consideration for the sale of the shares and assets to TSYS but, as stated above, were payments to indemnify the Defendants against additional taxes which they (and certain companies) were liable to meet under the transaction. There was accordingly no breach of warranty. In response to the misrepresentation claim, the Defendants denied that there was any misrepresentation and argued that, even if the Claimants had been informed of the payment of $3.17 million, the Defendants would not have paid the Claimants any greater sum, and the Claimants would nonetheless have gone ahead with the transaction on the same terms.

The relevant background facts

12. The facts relating to the negotiations leading up to the relevant agreements and the events thereafter were not substantially in dispute. In so far as they were in dispute, such dispute was not sufficiently material to the factual matrix to have any effect on my determination as to the correct interpretation of the agreements. The following summary reflects my findings, based upon the evidence which I heard and my analysis of the relevant documents.
13. As at the date of sale, 11 July 2006, there were five principal operating companies in the Card Tech group of companies:

i) Research, which held the intellectual property rights for the software on which the business was based.

ii) CTL Card Tech Services Limited ("CTSL" or sometimes "Services"), which provided the manpower and technical services for the business, through branches and foreign subsidiaries;

iii) Card Tech Services (Malaysia) SDN BHD, ("Services Malaysia") a subsidiary of CTSL;

iv) Card Tech Limited ("CTL") which contracted with customers of the business; and

v) CTL-R Limited ("Russia"), whose holding company was Algebra Limited ("Algebra").

14. Another relevant company was Card Technology Limited ("Technology"), a Cayman Islands corporation, which held 84% of the shares of CTL.
15. The negotiations for the sale of the Card Tech companies to TSYS began in about March 2005. On 2 June 2005, TSYS put forward a preliminary bid (indicating an offer in the region of $ 50-65 million). TSYS stated that it expected "the transaction to be structured as an acquisition by TSYS of (1) all of the issued and outstanding stock of the Companies or (2) all of the assets of the company". From the outset both the Claimants and the Defendants appreciated that a sale of assets, as opposed to a sale of shares would give rise to different tax considerations. By 2 August 2005 the structure of the transaction proposed by TSYS was the purchase of the issued share capital of the Card Tech companies at a purchase price of $ 52 million with "an earnout provision", or $ 54.5 million without any earnout provision. The negotiations during the first stage were conducted principally by the Defendants, who reported back to the Claimants from time to time. They all agreed between themselves that, regardless of the actual shareholdings in the Card Tech companies, they would split the proceeds of sale equally (i.e. five ways) to reflect their own understanding of where ownership lay.
16. By the end of September/early October 2005, the negotiations with TSYS were faltering. TSYS had required the Claimants and the Defendants to provide warranties of the Card Tech companies as part of any share sale agreement. The Claimants made it clear that they were not prepared to provide any warranties to TSYS, and that if such warranties were required there would be no sale to TSYS. The Defendants were, however, prepared to provide warranties to TSYS. Accordingly, at about this time, the Claimants proposed, and the Defendants agreed, that a back to back type structure would be used which would involve the Defendants buying the Claimants' shares in the Card Tech companies, on the basis of very limited warranties given by the Claimants, and the Defendants then being able to sell the Card Tech companies (whether by share sale or an asset sale) in a second transaction, in which the Defendants would provide the warranties required by TSYS.
17. Thereafter the negotiations with TSYS proceeded on that basis, with the Defendants having full conduct of the negotiations, with no involvement on the part of the Claimants. In addition, the solicitors who had previously acted for both the Claimants and the Defendants, Morton Pugh Welch, ceased to act for the Defendants and continued to act only for the Claimants. The Defendants engaged their own solicitors. The reason for the Claimants' non-involvement in the negotiations with TSYS, was not merely the fact that they were not parties to the sale transaction with TSYS, but also because they did not want to be seen by TSYS as being involved, particularly in relation to the provision of information or the making of representations to TSYS, which they believed might in some way lead to their having a potential liability to TSYS after the sale. In addition, Mr. Raad Chalabi, because of certain concerns he had about the Defendants' conduct of the business, refused to sign the statutory year-end accounts for CTL, Services and Research that were delivered to TSYS as part of the due diligence process.
18. The Defendants progressed the negotiations with TSYS and reached a point in about December 2005 where TSYS appeared comfortable with the deal which was planned to complete at the beginning of 2006. At that stage, it had been agreed between TSYS and the Defendants that the purchase price for the Card Tech group would be $ 54.5 million, subject to a working capital adjustment. However, in late-2005, TSYS lost a large client in the United States, where they were based. As a result of various concerns expressed by TSYS about the proposed transaction, which it is not relevant to explain, TSYS informed the Defendants, in January 2006, that it did not want to buy the Card Tech group, and instead suggested that it should license Card Tech's software and systems. However, as the discussions over a licence proceeded, TSYS again decided, around March 2006, that it would prefer to buy the Card Tech group, and the purchase negotiations resumed. I accept the Defendants' evidence that, once discussions resumed in March 2006, there was no further discussion about the price that TSYS was to pay for the Card Tech group, which it was agreed remained at $ 54.5 million, other than the discussions relating to the tax indemnity.
19. I also accept the Defendants' evidence that, when the deal was resurrected by TSYS in March 2006 and the structure of the transaction was changed, the Defendants raised with TSYS the question of the latter's indemnifying the Defendants in respect of the increased tax liability. Indeed the point had already been raised during the first round of negotiations with TSYS in October 2005. At that time the Claimants and the Defendants had also discussed amongst themselves the principle that, if there was to be an asset sale, TSYS should indemnify the sellers for any increased tax liability.
20. I also accept the Defendants' evidence that, once it became known there would be additional tax liabilities because of the changed nature of the transaction, TSYS agreed to cover such liabilities, the precise figure to be independently verified.
21. It was common ground that, neither prior to completion nor thereafter, did the Defendants disclose to the Claimants the negotiations with TSYS which produced the Tax Deeds or the payments made pursuant to them, either before or after the payments were made. The Defendants gave evidence as to their various commercial reasons for not doing so; these included:

i) because they did not consider that the payments to be made under the Tax Deeds were part of the consideration for the sale of the Card Tech group to TSYS; therefore they took the view that they did not breach the warranties they were giving to the claimants;

ii) because the relations between the Claimants and the Defendants were difficult during the transaction and became progressively worse at the end;

iii) because the existence of the Tax Deeds was likely to have caused the Claimants to demand more money from the Defendants, but such a demand would not have been successful, as the Defendants considered that they were receiving less cash on the closing of the sale than the Claimants, and because, so far as the Defendants were concerned, the money paid under the Tax Deeds was to cover a specific and identified cost;

iv) because such discussions were not ones that the Defendants wanted to encourage, because they might have delayed or obstructed any conclusion of the transaction with TSYS.

22. The Defendants' position was encapsulated in an email from Mr. Bashar Chalabi to Mr. Agha-Jaffar dated 21 June 2006 which read as follows:

"2 more things:

1. Talked to Ahmed. He is on board. He will talk to Raad. I said if we have a breakdown with Mohammed, I will ask him to intercede. I explained the situation and he said if there is any scenario under which they will make more money than us, he will refuse to participate.

2. We are trying to find a scenario under the additional 3.5 will not be added to the price. Otherwise, our warranty to our partners that the price we are paying them is 3/5 of the total price will not be true. Instead of trying to explain it to them, we are trying to have the 3.5 as an indemnity from Tsys against money we have to leave in the Limited and Services to pay taxes on assets sale. In any case, do not mention the 3.5 to Mohammed and make sure Robert does not mention it in front of Mohammed."

23. The Claimants contended that the Defendants had deliberately withheld this information from them, because the Defendants knew that the receipt of the additional sum was a breach of the warranty which they had given as to the purchase price which they had received from TSYS. I do not need to decide precisely what was or what were the Defendants' motives for not telling the Claimants, as they are wholly irrelevant to what I have to decide, namely the construction of the relevant agreements. (In fact, a letter dated 10 July 2006 from TSYS's solicitors to the Claimants expressly referred to the Tax Deeds in Schedule 1 thereto, but their existence was not picked up by the Claimants or their advisors until a much later stage, in 2007.)
24. After lengthy and difficult negotiations between the Claimants and the Defendants, on or about 3 May 2006, the Claimants indicated a willingness to sell their shares to the Defendants on the basis that the three Claimant partners would each receive $ 11.5 million, and otherwise on the terms of agreements already in draft from earlier in the course of the negotiations. Those draft agreements included the warranties by the Defendants as to the sums which they were to be paid under the agreements to be made with TSYS. The negotiations assumed that the Claimants would be responsible for paying their personal tax; see e.g. the first Defendant's email to the second Claimant dated 2 May 2006. However the negotiations between the Claimants and the Defendants in fact continued up until the end of June before the parties finally reached agreement.
25. In May 2006, the Defendants engaged the Cyprus branch of PriceWaterhouseCoopers ("PWC") to provide an assessment of the tax consequences arising as a result of the structuring of the transaction as a part asset sale. On 14 June 2006, PWC produced a report dealing with the specific tax implications of the transaction. PWC concluded that, as a result of the revised structure, there would be additional tax of $3.17 million to be paid split between the Claimants, the Defendants and certain of the Card Tech companies, as compared with what had originally been estimated when the transaction was going to be structured simply as a share sale transaction.
26. So far as each individual plaintiff was concerned, the estimated increased (or decreased) amount of tax was as follows:

i) Mr. Raad Chalabi – increase of $ 240,000 from the previous amount of tax he had been estimated to pay;

ii) Mr. Al-Bassam – decrease of $ 170,000 from the previous amount of tax he had been estimated to pay;

iii) Mrs. Osseiran - increase of $ 240,000 from the previous amount of tax she had been estimated to pay;

iv) Scalenine - decrease of $ 160,000 from the previous amount of tax it had been estimated to pay;

v) SP Degree - no figures included.

27. Taking the Claimants' position together as a whole, therefore they were notionally bearing an additional $ 150,000 of the estimated tax increase, arising as a result of the change in the structure, while the Defendants, together with the relevant Card Tech Companies selling assets or businesses, were notionally bearing $ 3,020,000 of the estimated tax increase,
28. As already mentioned, TSYS agreed to indemnify the Defendants and certain of the Card Tech companies) against this additional estimated tax liability of $3.17 million. It was, therefore, agreed that TSYS would pay to the sellers (1) a purchase price of $54.5 million for the partial share and partial asset sale of the Card Tech companies, and (2) an additional sum of $3.17 million to indemnify the sellers in respect of the additional tax, pursuant to the three Tax Deeds.

The completion of the share sales and asset sales in July 2006

29. On 11 July 2006:

i) The Claimants sold their shares in the Card Tech companies (including Algebra) to the Defendants for a total sum of $35.5 million. This first part of the two-stage sale transaction was achieved by eleven contracts between the parties comprising of contracts of sale, contracts of indemnity and deeds of warranty. (I shall refer to these collectively as "the relevant share sale agreements".) $ 1 million of the price paid by the Defendants was attributable to the shares in Algebra held by the Claimants.

ii) The sellers (i.e. the Defendants and certain of the Card Tech companies) then sold the shares and assets of the Card Tech companies (other than Algebra and Russia^[2]) to TSYS for a total sum of $54.5 million. This second part of the two-stage sale transaction, was contained in 4 contracts of sale and 1 deed of warranty. The break down was as follows:

a) $ 7,500,000 paid to CTL in relation to the sale of its assets;

b) $ 26,000,000 paid to Services (comprising $ 21,000,000 for certain assets of Services and $ 5,000,000 for the shares held by Services in CTS Malaysia); and

c) $ 21,000,000 paid to the Defendants in relation to their shares in Research, all the shares in CTL and Services being held by the Defendants, following the completion of the sale by the Claimants.

The sum of $ 54,500,000 paid by TSYS for the Card Tech group also included an element for Russia. It was agreed that the assets of Russia would be transferred to TSYS at some point during the future for no consideration (as set out above) and that, in the meantime, Russia would continue to provide necessary services to the Card Tech group within TSYS through a sub-contracting relationship. At the same time, however, the Defendants paid $ 1 million to the Claimants for the shares in Algebra.

30. The Claimants (who received $35.5 million, amounting to $ 11,833,000 each) thereby received more than three fifths of the total sum paid by TSYS (three fifths being $32.7million), and so received more pro rata than the Defendants from the sale, if one were to exclude the disputed $ 3.17 million. The Defendants, CTL and Services together received $19 million i.e. $54.5 million less $35.5 million. However, as Mr. Agha-Jaffar fairly described in his evidence, the position was somewhat more complicated by reason of the Defendants' retention of interests in certain of the Card Tech companies and the working capital requirements contained in the agreements with TSYS. He described the position as follows:

"41. The remainder of the proceeds from the sale of the Card Tech group to TSYS totalling US$19,000,000 (i.e. US$ 54,500,000 less US $ 35,500,000) was retained by the Second Defendant and me. However, due to the structure of the sale and the need to provide for working capital, the cash remaining in the Card Tech group after the adjustment for working capital and certain other costs should be taken into account to come to the true amount retained by the Second Defendant and me from the sale. At the time of the sale, CTL and Services had around US$ 8,200,000 of cash. The terms of the sale of the Card Tech group to TSYS required that there was US$ 4,600,000 of working capital transferred as part of the sale. The working capital requirement was achieved by transferring US$ 4,100,000 of cash to TSYS as part of the sale, which in effect was achieved by CTL receiving US$ 4,100,000 less than the price agreed for its assets (i.e. CTL received US$ 3,400,000 being US$ 7,500,000 less US$ 4,100,000), with an additional US$ 1,500,000 of funding being provided directly by CTL post-closing to ensure that the group could keep functioning until TSYS was able to take over the funding of operational expenditure (this US$ 1,500,000 was not refunded by TSYS to CTL.

42. Once the working capital requirement was provided for, US$ 2,600,000 of cash remained in CTL and Services. From this amount the Second Defendant and I paid a commission that had previously agreed by the partners to the Card Tech group's Chief Operating Officer, who had first introduced the TSYS acquisition to the partners. Once this commission had been paid, US$ 1,100,000 of cash remained to be divided between the Second Defendant and me. As a result, the Second Defendant and I retained US$ 10,050,000 in total each from the sale of the Card Tech group to TSYS.

43. Whilst the Second Defendant and I retained US$ 10,050,000 in cash from the sale of the Card Tech group, we also had the opportunity to earn additional amounts following the sale as part of the terms of our employment. One element of these terms was a performance bonus that incentivised the Second Defendant and me following the acquisition. These bonuses, which were disclosed to the Claimants, depended on certain strict targets being met in relation to the Card Tech business within TSYS. The maximum amount that could be paid out under the terms of these bonuses was US$ 2,000,000, to be shared equally between the Second Defendant and me (with an additional US$ 1,000,000 payable to other key staff). However, it was also possible for no payment to be made to the Second Defendant and me under the bonus agreements. In addition to the performance bonus, the Second Defendant and I also stood to receive a retention bonus of US$ 750,000 each if we remained with the Card Tech business until December 2008. Again, there was a risk that this would not be the case.

44. The targets set by TSYS in relation to the performance bonus were met in December 2008 and the Second Defendant and I will receive US$ 1,000,000 each from TSYS sometime around February 2009. The Second Defendant and I remain with the Card Tech business and therefore will be paid US$ 750,000 each from TSYS under the terms of the retention bonus. Although these amounts were not part of the sale price, when this amount is taken into account, the Second Defendant and I each received an amount from TSYS that was roughly comparable to the amount received by each of the other three partners for the sale of the Card Tech group to TSYS (i.e. US$ 11,833,000 received by each of the Claimants against US$ 11,800,000 received by each of the Defendants. Therefore, overall, the Second Defendant and I came out with about the same amount of money for our stake in Card Tech as the other partners. However, these additional payments were not without risk and were only paid because the performance of the Card Tech group within TSYS met the necessary targets. It was just as likely at the time the sale closed that the Second Defendant and I would not receive this money and, had that been the case, we would have done significantly worse than the Claimants from the sale. The Second Defendant and I worked very hard to ensure that the targets required for payment of the performance bonus were met. Payment of the performance and retention bonuses were also dependent on the TSYS corporate situation."

31. I accept this evidence. These provisions were all known to the Claimants. The only dispute (at least in these proceedings) related to the sums totalling $ 3.17 million received pursuant to the terms of the Tax Deeds.
32. The Claimants also received from the Defendants extensive indemnities and warranties in respect of any potential claim or liability to TSYS (or any third party) relating to the Card Tech business.
33. In August 2006, the sum of $ 3.17 million was paid by TSYS to the sellers (the Defendants and certain of the Card Tech companies), pursuant to the Tax Deeds.
34. The Defendants also provided detailed warranties to TSYS in relation to the sale of the shares and assets of the Card Tech companies, and accordingly assumed significant ongoing potential liabilities to TSYS. The sum of $8 million from the $ 19 million received by the Defendants and the relevant Card Tech companies, was placed into an escrow account for two years in relation to potential warranty claims. The Defendants bore the risk of the loss of this $8 million.

The relevant terms of the agreements

35. The relevant terms of the various agreements upon which the Claimants rely are as follows:

i) Research

36. As between the Claimants and the Defendants the transfer was comprised in a share sale agreement dated 11 July 2006 under which the first to third Claimants sold their 600 issued shares in Research to the Defendants (who themselves owned the remaining 400 issued shares in Research). The Defendants thereby acquired the entire issued share capital of Research. The price paid by the Defendants to the first to third Claimants for the 600 shares was $12.6 million (Clause 3) and Clause 2.3 of the agreement contained an indemnity from the Defendants to the first to third Claimants in respect of (among other matters) any losses, liabilities, claims and damages arising or suffered by those Claimants as a consequence of any claim made against them by Research, any subsidiary, and by "any successors of the Purchasers" (which included any relevant TSYS company). The warranties upon which the Claimants' rely are at Clauses 6.1.1 to 6.1.3. These clauses provided as follows:

"6.1 Each of the Purchasers warrants, represents and undertakes to the Sellers:

6.1.1 that the consideration price stated in Clause 3 above represents and amounts to three-fifths or more of the sum which the Purchasers are to and will receive for the sale by the Purchasers of the entire issued share capital of the Company.

6.1.2 that the Purchasers will immediately after Completion provide to the Sellers' solicitors a certified copy of the agreement for the sale by the Purchasers of the entire issued share capital of the Company.

6.1.3 that the sum to be received by the Purchasers for the sale by the Purchasers of the entire issued share capital of the Company is $ 21,000,000 (Twenty One Million United States Dollars)."

37. In addition, by a deed of indemnity dated 11 July 2006, the Defendants agreed to indemnify the first Claimant against any and all claims and losses arising from his conduct of Research's business and the business of any and all subsidiaries and associates of research in his capacity as director and secretary of Research.
38. As between the Defendants and TSYS the transfer was comprised in the following documents. By a share sale agreement dated 11 July the Defendants sold the entire issued share capital in Research to TSYS Card Tech Holding Limited for a consideration of $21 million. Clause 3.1 provided as follows:

"The total consideration for the purchase of the CTRL Shares shall be satisfied by the payment at Completion to the Sellers of the sum of US$ 21.0 million (the 'CTRL Purchase Price') to be apportioned equally between the Shares."

39. By a deed of warranty dated 11 July 2006 the Defendants gave various warranties and covenants to (among others) TSYS Card Tech Holding Limited in relation to (among other things) the sale of Research.
40. By a Tax Deed dated 11 July 2006 made between TSYS Card Tech Holding Limited and the Defendants, TSYS Card Tech Holding Limited acknowledged (in Recital (B) that

"the sale [i.e. by the Defendants under the Research-TSYS Sale Agreement] of Research has increased the tax that will be payable by the Sellers [i.e. the Defendants] and the Buyer [i.e.TSYS Card Tech Holding Limited] has agreed to indemnify the Sellers in respect of the additional tax ("the Additional Tax") arising in connection with the sale of Research on the terms of this Deed of Indemnity but not otherwise."

Clause 2.1 provided that

"… the Buyer hereby agrees to indemnify the Sellers in respect of the Additional Tax arising to the Sellers on the sale of Research to the Buyer to the extent and with the payment of $1,233,000 ("the Indemnity Amount") …".

ii) CTSL and shares of subsidiary, Services Malaysia

41. As between the Claimants and the Defendants the transfer was as follows. By a share sale agreement dated 11 July 2006, the first, second and fourth Claimants sold their 8000 issued shares in CTSL to the Defendants (who themselves already owned the remaining 8000 issued shares in CTSL). The Defendants thereby acquired the entire issued share capital of CTSL, and thereby also acquired ownership of CTSL's wholly owned Malaysian subsidiary, Services Malaysia. The price paid by the Defendants to the first, second and fourth claimants for the 8000 shares was $ 18.15 million. As in the previous agreements, Clause 2.3 of the agreement contained an indemnity from the Defendants to the first, second and fourth Claimants in respect of (among other matters) any losses, liabilities, claims and damages arising or suffered by those Claimants as a consequence of any claim made against them by CTSL, any subsidiary, and by "any successors of the Purchasers…and by any Purchaser of the Business … and/or any Purchaser of all or any of the assets of [CTSL]" (which included TSYS Card Tech Services Limited).
42. The warranties upon which the Claimants rely are again at Clauses 6.1.1 to 6.1.3 of this agreement. These clauses are similar to those in the earlier agreement and provide as follows:

"6.1 Each of the Purchasers warrants, represents and undertakes to the Sellers:

6.1.1 that the consideration price stated in clause 3 above represents and amounts to three-fifths or more of the sum which the Purchasers are to and will receive for the sale by the Purchasers of the entire issued share capital of the Company or which the Company and/or the Purchasers will receive for the sale of the Business of the Company and/or which the Company and/or the Purchasers will receive for the sale of all or any assets of the company.

6.1.2 that the Purchasers will immediately after Completion provide to the Sellers' solicitors a certified copy of the agreement for the sale by the Purchasers of the entire issued share capital of the Company or of the agreement for the sale by the Company of the Business of the Company and/or for the sale of the Company of all or any of the assets of the Company.

6.1.3 that the sum to be received by the Purchasers for the sale by the Purchasers of the entire issued share capital of the Company or which the Company and/or the Purchasers will receive for the sale of the Business of the Company and/or which the Company and/or the Purchasers will receive for the sale of all or any of the assets of the Company is $26,000,000.00 (Twenty Six Million United States Dollars)."

43. As in the case of the sale of Research, there was also a deed of indemnity dated 11 July 2006 under which the Defendants agreed to indemnify the first and second Claimants against any and all claims and losses arising from their conduct of CTSL's business and the business of any and all subsidiaries and associates of CTSL in their capacity as directors of CTSL and any subsidiaries.
44. As between the Defendants and TSYS the transfer was comprised in the following documents. By an asset sale agreement dated 11 July 2006, CTSL sold its business and assets to TSYS Card Tech Services Limited for the sum of $21 million . Clause 3.1 provided as follows:

"The total consideration for the purchase of the CTL Malaysia Shares shall be satisfied by the payment at Completion to the Seller of the sum of US$ 5.0 million (the 'CTL Malaysia Purchase Price')."

45. By a share sale agreement dated 11 July 2006, CTSL sold the entire issued share capital of its subsidiary, Services Malaysia to TSYS Card Tech Services Limited for the sum of $5 million (giving a combined sale price of $26 million). By the same deed of warranty covering the sale of Research referred to above, the Defendants gave various warranties and covenants to TSYS Card Tech Services Limited in relation to the sale of the business and assets of CTSL and the sale of the share capital of Services Malaysia.
46. By a Tax Deed dated 11 July 2006 made between CTSL and TSYS Card Tech Services Limited, TSYS Card Tech Services Limited acknowledged (in Recital (B) that:

"the sale of the Business [i.e. by CTSL to TSYS under the two sale agreements] has increased the tax that will be payable by the Seller [i.e. CTSL] and the Buyer [i.e. TSYS Card Tech Services Limited] has agreed to indemnify the Seller in respect of the additional tax ("the Additional Tax") arising …".

Clause 2.1 provided that

"… the Buyer hereby agrees to indemnify the Seller in respect of the Additional Tax arising to the Seller on the sale of the business by the Seller to the Buyer to the extent and with the payment of $1,526,000 ("the Indemnity Amount") …".

iii) CTL

47. As between the Claimants and the Defendants the transfer was as follows. Immediately before the sale to TSYS, (1) the shares of CTL were owned by Scalenine (8%), Mr. Agha-Jaffar (8%) and Technology (84%); and (2) the shares in Technology were owned jointly by Mr. Raad Chalabi (the owner of Scalenine) and Mr. Agha-Jaffar. By a share sale agreement dated 11 July 2006, Scalenine sold its 8% interest in CTL to Mr. Agha-Jaffar for $600,000.00. The warranties given by Mr. Agha-Jaffar appear at Clause 6.1 and were in similar terms:

"6.1 The Purchaser warrants, represents and undertakes to the Seller:

6.1.1 that the consideration price stated in clause 3 above represents and amounts to eight percent (8%) or more of the sum which the Purchaser is to and will receive for the sale by the Purchaser along with Bashar Chalabi of eight percent of the issued share capital of the Company or which the Company and/or the Purchaser will receive for the sale of the Business of the Company and/or which the Company and/or the Purchaser along with Bashar Chalabi will receive for the sale of all or any of the assets of the Company.

6.1.2 that the Purchaser will immediately after Completion provide to the Seller's solicitors a certified copy of the agreement for the sale by the Purchaser along with Bashar Chalabi of the entire issued share capital of the Company or of the Agreement for the sale by the Company of the Business of the Company and/or for the sale by the Company of all or any assets of the Company.

6.1.3 that the sum to be received by the Purchaser along with Bashar Chalabi for the sale by the Purchaser along with Bashar Chalabi of the entire issued share capital of the Company or which the Company and/or the Purchaser along with Bashar Chalabi will receive for the sale of the Business of the Company and/or which the Company and/or the Purchaser along with Bashar Chalabi will receive for the sale of all or any of the assets of the Company is $ 7,500,000".

48. Mr. Agha-Jaffar and Technology as a result then together owned the entire issued share capital of CTL.
49. By a further share sale agreement dated 11 July 2006, Mr. Raad Chalabi sold his 50% of the shares in Technology to Mr. Bashar Chalabi for the sum of $ 3,150,000 and, as Mr. Agha-Jaffar already owned the other 50% of the shares in Technology, the consequence was that the Defendants jointly owned 100% of the shares in Technology. As in the other sale agreements, extensive warranties and indemnities were given to the Claimants against possible claims by any successors of the purchasers including TSYS.
50. The warranties given in Clause 6.1 were in similar form to the previous agreements. They provided as follows:

"6.1 The Purchaser warrants, represents and undertakes to the Seller:

6.1.1 that the consideration price stated in clause 3 above represents and amounts to forty two percent (42%) or more of the sum which the Company and/or the Purchaser along with Jaffar Agha Jaffar is to and will receive for the sale by the Company of eighty four percent (84%) of the issued share capital of Card Tech Limited or which Card Tech Limited and/or the Purchaser along with Jaffar Agha-Jaffar will receive for the sale of the business of Card Tech Limited and/or which Card Tech Limited and/or the Purchaser along with Jaffar Agha-Jaffar will receive for the sale of all or any assets of Card Tech Limited.

6.1.2 that the sum to be received by the Company and/or the Purchaser along with Jaffar Agha-Jaffar for the sale by the Company of its shareholding in Card Tech Limited or which Card Tech Limited and/or the Purchaser along with Jaffar Agha-Jaffar will receive for the sale of the business of Card Tech Limited and/or which Card Tech Limited and/or the Purchaser along with Jaffar Agha-Jaffar will receive for the sale of all or any of the assets of Card Tech Limited is $7,500,000.00 (Seven Million Five Hundred Thousand United States Dollars)."

51. As between the Defendants and TSYS the transfer was as follows. By an asset sale agreement dated 11 July 2006, CTL sold its business and assets to TSYS Card Tech Limited for the sum of $ 7.5 million. Clause 5.1 of the agreement provided as follows:

"The total consideration for the purchase of the CTL Business, including the Assets, shall be satisfied by the payment at Completion to the Seller of the sum of USD$ 7.5 million (the 'CTL Purchase Price')."

52. By the deed of warranty dated 11 July 2006 (the same as that applying to the sales referred to above), the Defendants gave various warranties and covenants to TSYS Card Tech Limited in relation to the sale of the business and assets of CTL. Again Mr. Raad Chalabi and Scalenine were not parties to the Deed of Warranty, and so assumed no potential liabilities in relation thereto.
53. By a Tax Deed dated 11 July 2006 made between CTL and TSYS Card Tech Limited, TSYS Card Tech Limited acknowledged (in Recital (B)) that:

"… the sale of the Business [i.e. by CTL under the CTLTSYS Asset Sale Agreement] has increased the tax that will be payable by the Seller [i.e. CTL] and the Buyer [i.e. TSYS Card Tech Limited] has agreed to indemnify the Seller in respect of the additional tax ("the Additional Tax") arising in connection with the purchase of the businesses from the Seller …."

Clause 2.1 provided that:

"… the Buyer hereby agrees to indemnify the Seller in respect of the Additional Tax arising to the Seller on the sale of the business by the Seller to the Buyer to the extent and with the payment of $411,000 ("the Indemnity Amount") …".

iv) Algebra

54. As between the Claimants and the Defendants the position was as follows. Immediately before the sale to TSYS, the shares of Algebra were owned as to 25% each by Mr. Raad Chalabi and Mr. Al-Bassam and as to the remaining 50% by Mr. Agha-Jaffar and Mr. Bashar Chalabi in equal shares. By a share sale agreement dated 11 July 2006, ("the Algebra Agreement") the first and second claimants each agreed to sell their shares to the Defendants for $ 1 million so that the latter each respectively became 50% shareholders in Algebra.
55. As in the other sale agreements, extensive warranties and indemnities were given by the Defendants to the Claimants against possible claims by any successors of the purchasers including TSYS.
56. However the warranties given in Clause 6 of the Algebra Agreement were in a different form from those in the previous agreements. In so far as material, they provided as follows:

"6.1 Each of the Purchasers warrants, represents and undertakes to the Seller:

…

6.2. that the Purchasers will immediately after Completion provide to the Seller's solicitors certified copies of all contracts of employment or contracts for services or documents/contracts relating to working capital settlements between TSYS Card Tech Services Limited … TSYS Card Tech Services Limited Cyprus … (and hereafter collectively called 'TSYS') or any subsidiary, associate, holding company or group company of TSYS and the Purchasers and/or any company owned or controlled by the Purchasers or any documents of a similar nature, including but not limited to Retention Bonus Agreements, which each of the Purchasers either directly or through companies they own and/or control shall have entered into or plan or intend to enter into with TSYS and/or any subsidiary, associated, holding Company or Group Company of TSYS and/or with any other company or entity relating to the employment of the Purchasers or the provision of services by the Purchasers.

…

6.4 that the total or maximum remuneration of whatever nature, but excluding the consideration, which each of the Purchasers either directly or indirectly through the companies they own and/or control will or is likely to receive in the next three years in respect of the contracts and/or agreements and/or working capital settlements referred to in clause 6.2 above will not amount to more than:

6.4.1 salary of £250,000 … gross per annum;

6.4.2 retention bonus of $ 750,000 … GROSS

6.4.3 performance bonus of $ 1,000,000.00 … gross;

6.4.4 working capital settlement of $ 2,500,000 … gross, the formula of which is defined in the agreements referred to in clause 6.2 above, subject to:

…"

Subsequent events

57. In a Form 8-K filing made by TSYS on 11 July 2006 (the day after its purchase of the Card-Tech companies) pursuant to its obligations under the US Securities and Exchange Act of 1943 (as amended), TSYS stated that two separate payments had been made for its acquisition of the Card Tech companies; these were referred to as "$3.17 million for post closing tax adjustments" and "$54.5 million cash consideration". Further, in its annual report for 2006, TSYS referred to an amount of $ 59.3 million paid in connection with the acquisition. The report referred to "the aggregate consideration of approximately $ 59.3 million, including direct acquisition costs."

The Claimants' claims

58. The Claimants claim 60% of the sums paid under each of the three Tax Deeds. Their claims are made by way of damages for breach of warranty and/or misrepresentation under the Misrepresentation 1967 Act and are set out in the Schedule to the Particulars of Claim as follows

i) Research: $ 739,800.00 (that is 60% of $ 1,233,000.00 paid by TSYS to the Defendants under the Tax Deed relating to Research at Clause 2.1);

ii) CTSL: $ 915,600.00 (that is 60% of $ 1,526,000.00 paid by TSYS to CTSL under the Tax Deed relating to CTSL at Clause 2.1);

iii) CTL: $246,600.00 (that is, 60% of $ 411,000.00 paid by TSYS to CTL under the Tax Deed of Indemnity relating to CTL at Clause 2.1).

The issues

59. Although there was extensive evidence on both sides (much of it inadmissible evidence of the respective party's intention), by the close of submissions there were, in my judgment, only two issues which fell to be determined.
60. The first issue arose in relation to each of the three material sale agreements as between the Claimants and the Defendants (which each contain the similar "Clause 6.1" wording subject to modifications where asset sales rather than share sales were in issue) . That issue can be articulated as follows:

"whether the sums paid to the Defendants and the two Card Tech companies by TSYS pursuant to the Tax Deeds were part of the 'sum' which:

a) the Defendants were to 'receive for the sale of the entire share capital' of the relevant Card Tech company (i.e. in the case of Research); or

b) the Defendants and/or the relevant Card Tech company were to 'receive for the sale of the business of' the relevant Card Tech company and/or "for the sale of all or any assets of" the relevant Card Tech company (i.e. in the case of CTSL or CTL)."

61. The second issue was only raised as one for determination towards the end of argument, when Mr. Timothy Charlton QC, leading counsel for the Claimants, sought permission to amend the Particulars of Claim to plead an additional case based on an alleged breach of the warranties, representations and undertakings contained in clause 6.4 of the Algebra Agreement. Under this second head the issue is:

"whether the sums paid to the Defendants by TSYS pursuant to the Tax Deeds were

'remuneration of whatever nature, but excluding the consideration, which each of the Purchasers either directly or indirectly through the companies they own and/or control will or is likely to receive in the next three years in respect of the contracts and/or agreements and/or working capital settlements referred to in clause 6.2 above …' so as to breach the maximum figure warranted in clause 6.4. of the Algebra Agreement."

62. From the pleadings, the list of issues and the skeleton arguments, there appeared that there were also issues between the parties as to causation, and the nature and quantum of any loss suffered by the Claimants, if there had indeed been a breach of warranty and/or a misrepresentation. However, during the course of the hearing Mr. Charlton submitted, and Mr. Pushpinder Saini QC, leading counsel for the Defendants, conceded, that (on the assumption that there had indeed been a breach of warranty because the sums paid to the Defendants by TSYS pursuant to the Tax Deeds were part of such "sum"), the correct quantum of any breach of warranty claim was such sum as would have put the Claimants in the position in which they would have been, if they had indeed received three fifths of the sums paid to the Defendants under the Tax Deeds. In the light of this concession, any issues about what the Claimants would have done if they had been told about the sums intended to be paid to the Defendants and the two Card Tech companies by TSYS pursuant to the Tax Deeds fell away.

Issue i)

The Claimants' submissions

63. In summary, Mr. Charlton submitted on behalf of the Claimants that the evidence demonstrated that the so-called tax indemnity payments were a device adopted by the Defendants (and which they were able in part to persuade TSYS to go along with) to attempt to get around the "consideration warranties" in their agreements with the Claimants, but that, in fact, it was clear beyond doubt that the payments were extra consideration for the sales to TSYS. He did not go so far as to contend that the payments or the deeds of indemnity were a sham, in the sense described by Diplock LJ in Snook v London and West Riding Investments Ltd^[3], but he submitted that, in particular:

i) the tax calculation which was carried out by PWC to arrive at the $ 3.17m compared tax forecast to be payable by both the Claimants and the Defendants on the basis of a pure share sale, with tax forecast to be payable by both the Claimants and the Defendants on the basis of a mix of share and asset sales ;

ii) the indemnities promised up-front payments, and not true indemnities of extra tax that might in due course become payable; and on the Defendants' own case, they have paid nothing like $ 3.17m in tax, let alone extra tax arising from the change of sale structure;

iii) the sums promised in the three indemnities were seemingly calculated pro-rata to the consideration payable rather than by reference to actual forecasts of tax liabilities;

iv) there was no justification for the indemnity amount promised to the Defendants in relation to the sale of the Research shares;

v) the e-mail from Mr. Bashar Chalabi to Jaffar of 21 June 2006 made it clear that the indemnity agreements were a device designed to get round the "consideration warranties" given to the Claimants.

64. Mr. Charlton further submitted, that even assuming that the payments were a genuine reflection of extra tax payable by the corporations or individuals to whom they were promised, it was clear beyond doubt that they were extra "consideration" for the sales to TSYS. They were, within the language of clauses 6.1.1 and 6.1.3 of the relevant share sale agreements, sums which the Defendants or the companies received for the sales of shares or assets. Indeed TSYS was required to treat them as part of the price which it paid and did so in both the Form 8-K filed to report the transactions and in its annual report for 2006. He submitted that if the payments were part of the price paid by TSYS, they were part of the price received by the Defendants; the fact that the payments were promised by separate agreements describing them as indemnities (again assuming them to be entirely genuinely described as such) should not obscure the simple reality that they were part of the price. To find otherwise would be to prefer form to substance.

The Defendants' submissions

65. Mr. Saini submitted that, on the true construction of clauses 6.1.1 and 6.1.3 of the relevant share sale agreements, the sums paid under the Tax Deeds were simply no part of the "sum which the Purchasers are to and will receive for the sale by the Purchasers" of the shares (or, where material, the assets sold). The $ 3.17 million paid to the Defendants and the two Card Tech companies by TSYS pursuant to the Tax Deeds were genuine payments to indemnify the Defendants and the two Card Tech companies for additional taxes for which they were liable as a result of the change in the structure of the transaction. These were not simply extra cash sums to be paid to the Defendants but sums of a distinct nature, separate from the sums paid for the sale of the shares and the assets. He further submitted that the evidence of Mr. Kevin Conway, a solicitor in the firm of King & Spalding, which acted for TSYS in the transaction, supported the Defendants' analysis.
66. Accordingly, Mr. Saini submitted that the sums paid under the Tax Deeds were not either sums received for the sale of the shares or "consideration" for the sale of shares or assets of the relevant businesses. These were sums paid to the Defendants or the relevant companies to compensate for additional tax liabilities.

Determination of issue i)

67. As set out above, the issue which falls to be determined under this head is whether the sums paid to the Defendants and the two Card Tech companies pursuant to the Tax Deeds were part of the "sum" which the Defendants were to "receive for the sale of the entire share capital" of the relevant Card Tech company or which the Defendants and/or the relevant Card Tech company were to "receive for the sale of the business of" the relevant Card Tech company and/or "for the sale of all or any assets of" the relevant Card Tech company.
68. As well as the written evidence, I heard oral evidence from Mr. Raad Chalabi and Mr. Al-Bassam on behalf of the Claimants, and Mr. Agha-Jaffar, Mr. Bashar Chalabi and Mr. Conway on the part of the Defendants. All did their best to give their respective individual truthful recollections. Necessarily, with the exception of Mr. Conway, the witnesses' evidence was to greater or lesser extent coloured by their subjective views as to what they considered the effect of the relevant clauses was. Such views were not relevant to the court's determination of the two issues.
69. I am satisfied, on the basis of the evidence which I read and heard, that the Tax Deeds, and the payments of $ 3.17 million made pursuant to such deeds, cannot be characterised as shams or devices. They were payments made by TSYS with the genuine commercial purpose of compensating and indemnifying the Defendants and the two Card Tech companies for the estimated additional tax that was going to arise, or potentially arose, because of the changed nature of the transaction.
70. The evidence of Mr. Conway, in particular^[4], made it clear that none of the features referred to by Mr. Charlton, as summarised at paragraph 63(i) to (iv) above undermine that commercial characterisation of the transaction reflected in the Tax Deeds and the payments thereunder. There was indeed additional tax to pay, as a result of the restructuring of the transaction, even in relation to the sale of the Research shares; there were genuine commercial reasons for TSYS to agree to pay an immediate, but defined and limited, amount by way of indemnity against the estimated additional tax liabilities resulting from the changed nature of the transaction. The apportionment of the indemnity payments was based on the tax advice received from PWC and from other accounting or tax advisors. As the Defendants made clear in their evidence, they and the relevant Card Tech companies have paid, or are due to pay, $ 2,775,000 to the relevant tax authorities, in additional tax, as a result of the assets sales, but these are only estimated figures, and there may well be further sums to pay. Indeed Mr. Raad Chalabi in cross-examination fairly accepted that it was not his case that the monies which were paid under the Tax Deeds were paid for anything other than tax. Likewise, I conclude that the fact that the PWC estimates were originally based on the fact that the Claimants (taken together) might have had an additional tax liability of $ 150,000 is irrelevant. There was no evidence before me as to what increased tax, if any, that the Claimants had had, or were liable, to pay as a result of the alteration in the structure of the Defendants' deal with TSYS.
71. The fact that care was taken on the part of the Defendants deliberately to structure the indemnity payments in such a way as to attempt to avoid the consequences of the warranties and representations given at clause 6 of the relevant share sale agreements, is, in my judgment, irrelevant to the issue which I have to decide, as defined above; whether they succeeded or not, is a matter for the Court's determination.
72. I also take the view that, on the wording of clause 6 in the relevant share sale agreements, and in the context of the commercial background to the agreements with TSYS, the fact that, approached as a matter of English law, the agreement on the part of TSYS to pay the additional $ 3.17 million by way of tax indemnity, might be regarded as forming part of the consideration moving from TSYS in relation to its acquisition of the Card Tech group, is not relevant to the issue which I have to decide under this head. To that extent, I consider that Mr. Charlton's submissions directed to whether the payments were "consideration" for the Defendants' deal with TSYS were not in point, nor were addressing the correct question. What is relevant here is whether the $ 3.17 million was part of the "sum" the Defendants were to receive "for the sale of the specific shares or assets". It is therefore wrong, in my view, to describe the warranties as "consideration warranties"
73. As Lightman J said in Spectros International plc v Madden^[5], when deciding matters of this sort, it is relevant to look at the method in which the parties themselves have structured the transaction to which the court will normally give effect:

"What is the relevant consideration may depend upon the terms and form of the transaction adopted by the parties. The parties to a proposed transaction frequently can achieve the same practical and economic result by different methods. Take for example the position of the owners of the entire issued capital of a company with gross assets of £2 million and net assets (after discharging a debt of £1 million owed to the owner or someone else) of £1 million. The shares are worth £1 million, but would be increased to £2 million if the owner at his own cost and for the benefit of the company released or discharged the debt. In this situation, the owner may agree to sell his shares for £1 million or, on condition that he first releases or discharges the debt, for £2 million. The law respects the freedom of the parties to a transaction to frame and formulate their agreement as they wish and to suit their own legitimate interests (taxation and otherwise) and, so long as the form adopted is genuine, and not a sham, honest, and not a fraud on someone else, and does not contravene some established principle of public policy, the Court will give effect to the method adopted. But as a corollary to this freedom, where the parties have chosen one method, it is not open to them to invite the Court to treat as adopted some other method because it is more advantageous to them, because it leads to the same practical and economic result and because it is the more obvious and sensible method to have adopted. If the question is raised what method has been adopted and the transaction is in writing, the answer must be found in the true construction of the document or documents read in the light of all the relevant circumstances. If the terms of the documents are clear, that is the end of the question. If however there is any doubt or ambiguity upon the language used read in its proper context, it may be possible to resolve that doubt or ambiguity by reference to the inherent probabilities of businessmen entering into the transaction in one form rather than another."

74. Given that I have held that the $ 3.17 million paid by TSYS were payments genuinely intended to indemnify the Defendants and the relevant Card Tech companies in respect of their additional tax liabilities, the critical question is whether the sums paid to the Defendants and the two Card Tech companies were part of the "sum" which the Defendants were to "receive for the sale of the entire share capital" of the relevant Card Tech company, or which the Defendants and/or the relevant Card Tech company were to "receive for the sale of the business of" the relevant Card Tech company and/or "for the sale of all or any assets of" the relevant Card Tech company.
75. On the basis of the evidence before me, including in particular the course of the Defendants' negotiations with TSYS, the form and wording of the various agreements, and Mr. Conway's evidence as to the requirement for separate agreements, I conclude that it is impossible to characterise the sums received by the Defendants pursuant to the Tax Deeds as part of the "sum" which the Defendants were to "receive for the sale of the entire share capital" of the relevant Card Tech company, or which the Defendants and/or the relevant Card Tech company were to "receive for the sale of the business of" the relevant Card Tech company and/or "for the sale of all or any assets of" the relevant Card Tech company. The sums received pursuant to the Tax Deeds were received for an entirely different purpose – namely to indemnify the Defendants and the relevant Card Tech companies in respect of additional tax liabilities arising out of the restructuring of the deal. Under the express terms of the share sale and asset sale agreements with TSYS, the "total consideration" was specifically stated in clauses 3.1 or 5.1. The fact that the Defendants would, or might, not have proceeded with TSYS had the tax indemnities not been on offer is in my view irrelevant to the outcome of issue i), which is strictly dependent on the wording of the relevant provisions. As I have said, it does not in my view involve any wider analysis as to what was the composite consideration moving from TSYS for the wider deal. The sums that were to be received in respect of the sale of the Research shares and the assets/businesses of the other two Card Tech companies were clearly set out in the relevant sale agreements. As a matter of form and substance, there is no justification for treating the sums paid pursuant to the Tax Deeds as sums "receive[d] … for the sale of" the specific shares or the specific assets/businesses.
76. In my view, the terms of TSYS' Form 8-K filing with the SEC, or the terms in which the transaction was described in its 2006 financial statements, do not assist the determination of the issue which I have to decide, since they are no more than a third party's description of the transaction in compliance with its own regulatory obligations, or to meet its own accounting requirements. If, however, I am wrong about this, and the terms of such filings are relevant, then, in my judgment they support the Defendants' case. As Mr. Conway said in his witness statement, if the indemnity payments had simply been part of the consideration there would have been no need for separate agreements. In that respect, TSYS's Form 8-K filing with the SEC accurately stated a consideration of $54.5 million plus a separate payment of $ 3.17 million for "post-closing tax". Likewise the reference in the 2006 annual report to the inclusion of "direct acquisition costs" supports the Defendants' approach.
77. Accordingly, I accept the Defendants' submission that the sums paid under the Tax Deeds were not sums received for the sale of the shares or sale of the assets of the relevant businesses, but rather were sums paid to the Defendants or the relevant companies to compensate for additional tax liabilities. I therefore decide issue i) in the negative.

Issue ii)

78. As set out above, the issue under this head is whether the sums paid to the Defendants by TSYS pursuant to the Tax Deeds were "remuneration of whatever nature, but excluding the consideration, which each of the Purchasers either directly or indirectly through the companies they own and/or control will or is likely to receive in the next three years in respect of the contracts and/or agreements and/or working capital settlements referred to in clause 6.2 above …" so as to breach the maximum figure warranted in clause 6.4. of the Algebra Agreement.
79. In order to qualify as a payment to be taken into account under clause 6.4 of the Algebra Agreement, such a payment had to be:

i) "remuneration of whatever nature" (other than consideration), received by the Defendants or companies controlled by them in the three years following 11 July 2006; and

ii) received by them "in respect of the contracts and/or agreements and/or working capital settlements referred to in clause 6.2" of the Algebra Agreement.

80. Further, to fall within the description in clause 6.2, such a contract had to be

i) a contract of employment;

ii) a contract for services;

iii) documents/contracts relating to working capital settlements; or

iv) any documents of a similar nature, including but not limited to Retention Bonus Agreements;

v) which, in the case of (iv) above, related "to the employment of the [Defendants] or the provision of services by the [Defendants].

81. In my judgment the tax indemnities cannot, in the circumstances of this case, be described, or characterised, as "remuneration" even applying an extremely wide description to that term. Even if that were not right, the tax indemnities cannot be said to be come within the description of a "contract of employment", "a contract for services", "documents/contracts relating to working capital settlements", or "any documents of a similar nature, including but not limited to Retention Bonus Agreements". Nor do the tax indemnities relate "to the employment of the [Defendants] or the provision of services by the [Defendants]." As Mr. Saini correctly submitted, the Algebra Agreement (which was only as between the first and second Claimants and the Defendants) was directed at monies received under agreements of a wholly different nature, which were to govern the ongoing relationship of the Defendants (whether under contracts of employment, or for the provisions of services, or in respect of the maintenance of capital) with TSYS or its subsidiaries. Accordingly the requirements for potential inclusion of the payments made under the Tax Deeds in the list of agreements referred to in the Algebra Agreement are not satisfied.
82. It follows that I refuse the Claimants permission to amend their Particulars of Claim to rely on this point. In my judgment it does not have any real prospect of success.

Disposition

83. Accordingly, the Claimants' claim is dismissed.

Note 1    I use the definition “TSYS” to include the relevant TSYS company purchasing the shares in, or the assets of, the relevant Card Tech company.    [Back]

Note 2    The sale to TSYS of the business of Russia (for which the Defendants, in effect, paid the Claimants US$1 million on 11 July 2006) could not take place because TSYS had not managed to deal with the formalities necessary for taking over the business of Russia by that date. However, by an agreement contained in a letter dated 11 July 2006, TSYS and the Defendants acknowledged that they would “… discuss ways in which the business of CTL-R Ltd (Russia) can be transferred into the TSYS Card Tech Group” and “we have agreed that any such transaction will be effected without any further consideration being due … and that such transaction will be structured in a tax and financially efficient manner to both yourselves and TSYS Card Tech Group”. Russia was subsequently transferred to TSYS on 1 July 2008 for no further consideration.    [Back]

Note 3    [1967] QB 786 at 802 C-F.    [Back]

Note 4    See, in particular, paragraphs 5-15 of his witness statement. He gave oral evidence to similar effect.    [Back]

Note 5    [1997] STC 114.    [Back]