Corporate finance update - June 2011

Team News

Taylor&Emmet LLP’s Corporate team has recently added to its strength in depth with the recruitment of Amit Bansal who joins as an assistant.  Amit joins from London law firm, Goodgers and will work on the full range of corporate and commercial services which the team provides.

Briefcase News

Correct measure of damages for a breach of contract

In the recent case of MMP GmbH v Antal International Network Ltd the High Court had to consider the most appropriate measure of damages for a breach of contract: loss of profits or the diminution in value of the company at the time of the breach?

The facts of the case are as follows:  MMP had entered into a franchise agreement with Antal, the defendant.  Five years later Antal terminated the agreement citing an alleged breach by MMP of a “substantial term.”  Consequently MMP sued Antal claiming that it was Antal that had committed the repudiatory breach by terminating the contract.  In its claim, MMP asserted that the most appropriate measure of loss was the value of MMP with the franchise, compared to MMP’s value without the franchise (which it claimed was nil).

The court concluded that MMP had not breached a substantial term, and therefore Antal had itself committed a breach of contract which deprived MMP of the franchise.  However, the breach did not result in the closure of MMP, and instead it continued to trade.  In these circumstances the court ruled that the correct measure of damages was MMP’s loss of profits.  Unfortunately, since MMP had chosen not to plead this alternative measure of damages it was unable to establish that it had suffered any loss.

The judge held that only in situations where it was not possible to assess damages on the loss of profits basis, would the court resort to measuring damages based on the diminution in the value of the company at the date of the breach.   

Limitation period for claims for illegal company loans   

In Brown and another v Button and others the High Court ruled on whether a liquidator’s claims regarding loans against a company’s former directors were statute-barred.

This case centred on two out of three directors who had received loans that were unlawful under section 330 of the Companies Act 1985 (now section 197 of the Companies Act 2006).  The liquidator claimed that all three directors were jointly and severally liable to indemnify the company because they had all authorised the loans.  Responding, the directors argued that the claim was time barred under section 2 of the Limitation Act 1980 because the claim was brought more than six years after the loans were made.  They maintained that the claim was in tort and therefore the liquidator had missed the six year deadline.

In return, the liquidator argued that each director’s obligation to indemnify the company was an ongoing responsibility, only terminating on either the date of liquidation or the resignation of a director.  The court rejected this argument, confirming that the obligation to indemnify the company under section 341(2)(b) of the CA 1985 arose when the loans were made and was not continuing.  Therefore the claim based on joint liability for authorising the loans was statute-barred.

However, the claims against the two directors who had actually received the loans were not statute-barred.  The court held, that because they were both fiduciaries, the claims against them were claims for breach of trust for which there was no limitation period contained within the Limitation Act 1980.

A valid execution?

In Williams & Ors v Redcard Ltd & Ors the Court of Appeal was asked to rule on whether a document had been properly executed by a company where it had been signed by each of the two authorised signatories of the company, who were also a party to the agreement in a personal capacity, and the document was not expressed to be signed “by or on behalf of” the company.

The document in question was a contract and a subsequent supplementary agreement selling Redcard Limited’s (Redcard) freehold interest in a building that had been converted into 5 residential flats.  The flats had been let on long leases to directors and shareholders of Redcard.  The contractual documents also included an agreed sale of the leasehold flats by the directors and shareholders.

The supplementary agreement was created to vary the completion date, otherwise it confirmed the earlier contract in all other respects.  The agreement described the sellers as Redcard (the seller of the freehold interest), and identified by name the 5 individuals who were selling their leasehold interests.  The sellers’ part of the agreement was signed by 3 of the 5 individuals with someone outside of the transaction signing on behalf of the other 2.  The buyers refused to complete on the purchase citing amongst other things that Redcard had not executed the supplementary agreement.

The sellers brought a claim for damages and applied for a summary judgment.  In response the buyers made a cross-application for summary judgment for return of the deposit and for a strike out of the claim.  The court at first instance held that because the supplementary agreement had not been executed by Redcard it was not valid and binding.  The sellers appealed.

The High Court confirmed that the signatures appeared in the box headed “Seller” and that “Seller” was defined to include Redcard.  The signatures also included two authorised signatories, being directors of the company.  Therefore the court held that the supplementary agreement had been validly executed by Redcard in accordance with the requirements of section 44 of the Companies Act 2006 and was so signed by Redcard for the purposes of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. 

The buyers appealed claiming that the contract had to be signed “by or on behalf of” each party to the contract under section of the LP(MP) Act 1989.  However, the Court of Appeal dismissed the appeal, holding that section 44 of the CA 2006 did not require words spelling out that the signatures were “by or on behalf of” the company.  It was sufficient that the signatures were in the “Seller” box.  The use of the defined term “Seller” above those signatures meant that the document was expressed to be simultaneously executed both by the company and the individuals, all being included in the term “Seller”.