England and Wales High Court (Queen's Bench Division) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		27th July 2010

JAMES GOUDIE QC:

INTRODUCTION

1. Both the Claimant and the Defendant are experienced business people. They have both for some years managed restaurants and bars in Soho. The Claimant runs "Ran". This is a Korean restaurant in Great Marlborough Street. The lease of "Ran" is held by the Claimant's company, Birchend Limited. The Defendant runs "Arang". This is a Korean restaurant in Golden Square. The lease of "Arang" was (until December 2009) held by the Defendant's company, Ran Restaurants Ltd ("RRL").
2. The Claimant was the sole director of Robata Ltd ("Robata"), incorporated in August 2005. The Claimant held 70 of the 100 shares in Robata. Her mother (resident in Korea) held the other 30. Robata held the leasehold interest in the licensed basement bar at 187 Wardour Street ("the Premises"). This case arises out of a Share Sale Agreement ("the SSA") relating to Robata dated 23 January 2009 between the Claimant and her mother as Vendors and the Defendant as purchaser. Scheduled to the SSA is a Letter of Guarantee ("the Guarantee") from RRL. Robata is now, since shortly after the present proceedings were issued, in insolvent liquidation.
3. Business is not the only relationship between the Claimant and the Defendant. They were married in 1991. They have two children, aged 18 and 12. They divorced at the end of 2003 or beginning of 2004.

THE PREMISES

4. The Claimant purchased the Premises in October 2006. Following extensive refurbishment, the bar opened in May 2008. Under the Claimant it operated first as "Bordello" and then, from August 2008, as "Bar 187". Under the Defendant it operated as "Arang 2". The rent was £60,000 per annum, payable quarterly on the quarter days, including Christmas Day. The leasehold interest had been held by the Claimant's Company, Extraflair Ltd, but was transferred to Robata when the bar opened. (Also in 2006 the Claimant purchased a bar in the City of London, "Sheds". "Sheds" opened in July 2007.) Also in May 2008 Lloyds Bank made a loan of £70,000 to Robata, referred to as the DTI loan, registered against the Premises. In or about October 2008 the Claimant focussed her attention on "Ran", the landlord of which was requiring extensive, expensive and urgent works, and decided to sell "Bar 187" (and "Sheds").

THE SSA

5. The SSA was prepared by the Claimant's Solicitors, DLA Piper. They were paid by the Defendant. His own Solicitors would have charged him £3-4 thousand pounds. He regarded that as too much. (It was about twice what DLA Piper charged.) He told the Claimant so, and said that she could instruct DLA Piper, both because they were cheaper, and because they had a Korean speaker, which would ease communications.
6. The SSA provided for completion on the data of the SSA (23 January 2009). The Claimant and her mother (together "the Vendors") sold all their shares in Robata to the Defendant. The execution of the Guarantee was a condition precedent.
7. The consideration was £200,000. This was payable in instalments of £10,000, with an accelerated payment provision if two instalments were not paid. The first two instalments had already been paid, on 25 November and 15 December 2008. The balance of £180,000 (the amount of the Guarantee) was payable to the Claimant on the 25^th of each month for 18 months from 25 January 2009.
8. This has not been paid, save to the extent of one instalment of £10,000, paid on 18 February 2009. £170,000 is outstanding and is the main element in the claim. This is, however, subject to an issue as to £40,000, referred to below.
9. Moreover, it is to be noted that on 25 March 2009 (after a statutory demand) the Defendant gave the Claimant six cheques for £10,000 each, which the Claimant returned to him the following day. One of the cheques was dated 25 March 2009. The others were post-dated at monthly intervals thereafter.
10. In addition: (1) the Vendors agreed to be liable for the debts incurred by the operations at Bar 187 including the outstanding invoices issued and payable by Robata until 24 December 2008; (2) the Vendors were entitled to receive (i) all profit made by Robata and (ii) all VAT returns of Robata until the same date (in the event £14,579, the subsidiary element in the claim); and (iii) the Defendant warranted that from 23 January 2009 he would cause all liabilities of Robata to be duly paid, including liabilities pursuant to the charges set out in Schedule 1 to the SSA. These include charges in favour of Lloyds Bank.
11. The SSA further provided for the Claimant to deliver or cause to be delivered to the Defendant duly executed share transfer forms in favour of the Defendant and other Robata documents; for limitation of warranties; and for the SSA to constitute the entire agreement between the parties.
12. The SSA was e-mailed to Charter Green, the Accountants for both sides, on Friday 23 January 2009. They saw it on Monday 26 January 2009. A few days later they informed the Defendant of this. The SSA had an out of date address for the Defendant (which was carried over into the initial demand letters).

BEFORE THE SSA

13. The execution version of the SSA followed a draft. The draft had contained an error. The draft Guarantee had referred to £200,000. In other words it had failed to give credit for the two sums of £10,000 each already paid. This was corrected in the final version. The draft was shown to the Defendant.
14. This was around 19 December 2008, prior to the keys being handed over on or around 22 December 2008, and the Defendant being appointed a Director of Robata on 1 January 2009. (The Claimant's resignation from Robata was not filed until later.) There was a gala opening on 30 December 2008. This had been advertised I find since at least 8 December 2008, and probably from 24 November 2008.
15. The draft SSA in turn had followed earlier heads of agreement ("the Korean Note"), largely in Korean and mostly in the handwriting of the Defendant, written on 15 November 2008 or shortly thereafter. It recorded that the take over would be on 25 December (2008), that £10,000 in total would be paid in late November (2008) and a further £10,000 on 15 December (2008), with further sums of £10,000 for 18 months from 25 January (2009), thus totalling £200,000. The Heads of Agreement continued (in the Defendant's handwriting) "Take over: DTI Loan pay By buyer".

DEFENDANT'S CASE

16. As regards the primary claim for £170,000 outstanding under the SSA, the Defendant claims to be able to set off £40,000, by reference to an agreement between the parties in February 2009 arising out of the Claimant borrowing that amount from the Defendant's friend, Mr Cho, guaranteed by the Defendant, but the Claimant not having repaid Mr Cho (albeit having paid him some interest), and the Defendant having done so (with interest). The Claimant disputes any link between her borrowing from Mr Cho and the Defendant's obligations to her under the SSA.
17. Clause 2.4 of the SSA provides that the Vendors shall be liable for the debts incurred in the operations of Bar 187 until 24 December 2008. The Defendant argues that there was a collateral warranty that the Claimant would discharge those debts within a reasonable time and that she has failed to do so. He himself (or Robata) has paid one of these debts, in the sum of £244.68.
18. Clause 2.5 of the SSA provides that the Vendors shall be entitled to receive, inter alia, all VAT returns of Robata until 24 December 2008. This is the subsidiary claim of £14,579. The Defendant argues that this provision is illegal, as being contrary to Section 830 of the Companies Act 2006. The Claimant responds that an obligation on the Defendant, not on Robata, cannot amount to a distribution by Robata under Section 829. The Defendant also argues that at best the Defendant's obligation was to procure that Robata pay over the VAT returns when they were received after 24 December 2008.
19. However, the Defendant's primary defence is misrepresentation. Rescission and/or damages are sought. The Defendant says that various misrepresentations were made by the Claimant at the meeting where the initial agreement was concluded, but that those misrepresentations were discovered by the Defendant before he entered into the SSA.
20. Two allegedly operative allegedly undiscovered misrepresentations are relied upon. It is unclear when and where they are alleged to have been made, save that it was not on the occasion that the SSA was entered into.
21. The first alleged operative misrepresentation is that the Claimant would be liable for the DTI/Lloyds Bank Loan, whereas the SSA provided to the contrary. The second alleged operative misrepresentation is that Robata had no creditors other than Lloyds Bank and an interior designer, Sam Buxton (over £38,000), whereas there were other creditors, Adam Sutcliffe, Emily Hiller and Kevin Coughlan, totalling over £14,000. (Mr Buxton gave evidence before me. I found him to be an honest and reliable witness.)
22. The Defendant purported to rescind the SSA by letter dated 27 May 2009. Robata ceased trading shortly thereafter. The fundamental issue in the case is whether the two representations or either of them were made.

DTI/LLOYDS BANK LOAN

23. Whatever representation the Claimant may or may not have made in December 2008/January 2009, the position in relation to the DTI/Lloyds Bank Loan had been covered in the Korean Note in mid November 2008. This placed responsibility on the Buyer.
24. In his oral evidence the Defendant said that he was not the prospective Buyer referred to in the Korean Note, which was merely the Claimant's terms for a buyer whom the Defendant would find for her. This was the first time he had made that claim.
25. Moreover, it contradicts what he had previously said. In paragraph 9 of his Witness Statement, where he says that "to evidence the proposed agreement between us", he set out the terms on a piece of paper in Korean. He refers further to "the agreement" in paragraph 11 of his Witness Statement.
26. Further, his new claim contradicts the Pleadings and his Solicitors' letter of 29 June 2009, referring to information that the Defendant had given them on 17 November 2008, referring to "an agreement written in Korean" which the Defendant agreed to sign. Yet further, the elaborate instalment provisions seem odd for an unknown buyer.
27. I have no doubt that at the time of the Korean Note it was agreed between the parties that it was the Defendant who would be responsible after the share sale for the DTI/Lloyds Bank Loan. The question then is whether this position changed thereafter, as between the Claimant and the Defendant.

CREDIBILITY

28. Whether the two misrepresentations or either of them were made essentially turns on the credibility of the parties. Both parties have behaved badly. For example, both have forged signatures: the Claimant, her mother's on the SSA and a Stock Transfer form; the Defendant, the Claimant's on a number of Robata cheques. Both, especially the Claimant, have adopted an attitude towards their respective creditors that is to say the least cavalier.
29. I found neither of them a satisfactory witness. However, in the witness box the Defendant created a much worse impression than the Claimant. In general on issues where there is no independent evidence I prefer her evidence to his.

CONCLUSIONS

30. I accept the submission by Mr Buttimore on behalf of the Defendant that if a misrepresentation were made out, then just because the representation is in fact contradicted by the terms of the SSA does not mean that it cannot be an effective misrepresentation, or that the Defendant's only remedy is to seek rectification. I also accept Mr Buttimore's submission that the Claimant would not be able to rely on the no-reliance and entire agreement clauses in the SSA.
31. However, I conclude that the misrepresentation defence fails on the facts. I find that:-

(1) the Claimant made no representation to the Defendant at any time that she would be liable for Robata's DTI/Lloyds Bank Loan;

(2) on the contrary, the Defendant at all times accepted that Robata in his hands would be liable for that debt, as the SSA duly provides;

(3) the Claimant made no misrepresentation to the Defendant at any time that there were no creditors of Robata other than Lloyds Bank and Sam Buxton;

(4) on the contrary, what the Defendant relied upon (see for example paragraph 18 of his Witness Statement) was that the Claimant would be liable for the debts of Robata up to 24 December 2008, as the SSA duly provides;

(5) the Defendant has suffered no loss attributable to the Claimant not discharging those debts or not doing so promptly; and

(6) the Claimant did not agree to any link between the loan to her by Mr Cho and the Defendant's obligations towards her under the SSA or the timing for performance of those obligations.

32. Further, in my judgment:-

(1) there was no collateral warranty or implied term that the Claimant would discharge the debts for which she was liable within a reasonable or any particular time;

(2) clause 2.5 of the SSA is not in breach of Section 830 of the Companies Act 2006 and is not illegal, because it does not amount to a distribution by Robata under Section 829, and the Claimant's entitlement is an entitlement as against the Defendant;

(3) the Defendant in a number of ways affirmed the SSA after the purported rescission and would not be entitled to rescission;

(4) there has been no breach by the Claimant of the SSA, and no basis for the Defendant counterclaiming any damages for misrepresentation or breach of contract;

(5) any restitutionary claim the Defendant may have or may have had against the Claimant for £49,600, as payments by the Defendant to Mr Cho as the Claimant's guarantor under a separate arrangement, and/or for the £244.68, does not form part of these proceedings; and

(6) as between the Claimant and the Defendant she remains liable for Robata's debts incurred before 24 December 2008.

33. I allow the claim, in the principal amounts of £170,000 and £14,579. I dismiss the entirety of the counterclaim.