Summary

A judge had been wrong to grant summary judgment on the basis a company had no prospect of successfully defending a claim that it had not used its best endeavours to release the claimants from personal guarantees in relation to a share purchase agreement. He was also wrong to order the company to pay £1 million into court pending determination of the sum of deferred consideration.

Facts

The appellant (H) appealed against a decision ((2009) EWHC 2109 (Ch)) granting summary judgment to the respondents (M, D and S). H had contracted to buy from M the entire share capital of five care-home businesses under a share purchase agreement. D and S gave personal guarantees to three banks and, under the term of the share purchase agreement, H had undertaken obligations to secure the release of the personal guarantees. Under the agreement the deferred consideration fell to be adjusted by reference to the figure for the net assets and was payable in two instalments. M had accepted a figure of reduction but H sought to rely on a much larger deduction eliminating the whole of the deferred consideration. The matter was referred to an independent expert and, at the time of the summary judgment hearing, the expert's report had not been completed. S and D sought to enforce the benefit of the undertaking. The judge held that H had no realistic prospect of successfully defending the allegation that it had failed to use its best endeavours to release the guarantees. He further held that it would be premature to conclude that H had no prospect of successfully obtaining an adjustment to the deferred consideration, but, in the absence of the expert's report, he ordered H to pay £1 million into court pending the outcome of the determination.

Held

(1) The evidence was such that the judge was wrong to reject H's defence at the summary stage. It was not permissible for the judge on an application for summary judgment to simply disbelieve H's account as to the endeavours it had undertaken to release D and S from the guarantee. (2) (Carnwath L.J. dissenting) There was no basis for the judge to make an order that the sum of £1 million should be paid in advance of the determination of the deferred consideration issue and the sum should be reduced. The expert's report was now available and specified that a sum of £400,000 was due on the first payment date. As H could not dispute that amount it was appropriate to make an order pursuant to CPR r.25.1(k) for an interim payment of that sum. Unless the balance of the deferred consideration was agreed there would need to be a trial of the issue.

Appeal allowed