Oak Investment Partners XII Ltd Partnership v Boughtwood & Ors [2009] EWHC 641 (Ch)

[2009] EWHC 641 (Ch)Case No 5715/08
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 27/03/2009
Before
THE HONOURABLE MR JUSTICE SALES
Between
Oak Investment Partners XII, Limited PartnershipPetitionerMartin BoughtwoodRespondentsAndrew BoughtwoodRespondentStephen BennettRespondentQED Group LimitedRespondent
Mr Christopher Harrison, Mr Donald Lilly (instructed by Simmons & Simmons) for PetitionerMr Max Mallin, Mr David Peters (instructed by Needleman Treon) for First and Second RespondentsHearing Hearing date: 26/2/2009
Judgment
[1]This judgment supplements my judgment in this action at [2009] EWHC 176 (Ch) (“the Main Judgment”). I use the same abbreviations as in the Main Judgment.[2]I am invited by the parties to give a ruling regarding the question whether a sum of £750,000 which PML claims is due from QED in respect of the assignment by PML to QED on 13 November 2007 of the intellectual property rights then held by PML is indeed due as a debt owed by QED to PML. This is a matter which may affect the valuation of Mr Boughtwood’s shares in QED, which I have ordered him to sell to Oak. The assignment of the IPR by PML to QED is referred to at para. [122] of the Main Judgment.[3]Oak submits that the sum of £750,000 is a valid debt owed by QED to PML. Mr Boughtwood submits that it is not. I am invited by the parties to determine this issue on the basis of written submissions from each side, in light of the evidence I have already heard at the trial. It would involve disproportionate cost to have a further hearing for additional evidence to be taken on this issue.[4]The assignment of the IPR was effected by means of a Deed of Assignment dated 13 November 2007 (“the Deed”) executed as a deed by Mr Boughtwood on behalf of PML and also by Mr Boughtwood on behalf of QED. The transaction was approved by the Board of PML at their meeting on 13 November 2007. At that meeting, the Deed was produced to the PML Board and (as recorded in the minutes) the directors carefully considered the purchase price of £750,000 referred to in the Deed and agreed that they considered it to be a fair assessment of the market value of the IPR. The consideration given by the PML Board to the question whether the purchase price reflected the fair market value of the IPR was in light of legal advice they had received that it would be prudent for PML to assign the IPR in return for receiving such value. In my view, having regard to that advice, it is clear that all the Board (including Mr Boughtwood) intended that the assignment by PML of the IPR to QED should be in return for genuine economic value, in the sum of £750,000.[5]The Board of PML resolved that the Deed be executed, and it was on the basis of that authorisation that Mr Boughtwood executed the Deed on behalf of PML.[6]Clause 2.1 of the Deed provided:
“Subject to clause 2.2 and in consideration of the payment by [QED] of £750,000 plus any applicable VAT (receipt of which [PML] hereby acknowledges), [PML] hereby assigns and transfers to the Assignee … all its right, title and interest in the [IPR] …”
[7]The acknowledgement by PML in that provision of receipt of £750,000 plus any applicable VAT did not reflect what in fact happened on 13 November 2007. It is common ground that QED has never transferred that sum to PML. It is something of a mystery to me why the Deed contained this factual inaccuracy. I think it likely that it was drawn up with the prospect of the hiving up of Oak’s investment monies (paid into PML) to QED in mind - since that had been contemplated as a possible step in the corporate restructuring of QED/PML - but had not been modified to take account of the fact that it had proved impossible to achieve the hive up of those monies to QED in the first stage of the restructuring so that the hive up had to be postponed until later on: see para. [51] of the Main Judgment.[8]Mr Boughtwood submits that, in executing the Deed for both QED and PML, he did not understand or intend that it should create an outstanding debt (since the consideration was already treated as having been paid), and that it is his knowledge and intention as signatory of the Deed which is to be attributed to both companies. He also claims that the fact that no-one on behalf of PML claimed payment of this sum until the present proceedings had commenced and PML was on the point of insolvency demonstrates that the parties did not believe that QED owed any money under the Deed.[9]I do not accept these contentions: see para. [4] above. I consider that Mr Boughtwood understood and intended that the Deed would create an outstanding debt, in circumstances where (as happened) the £750,000 was not paid by QED and no other valuable consideration was given by QED specifically referable to the assignment of the IPR. But in any event, I do not think that his understanding and intention is determinative. He signed the Deed on behalf of the Board of PML, pursuant to authority given to him by the Board by its resolution of 13 November 2007: para. [5] above. It is therefore the understanding and intention of that Board, as appears from the minutes of its meeting on that date, which is the most important indication of the parties’ intention in relation to the Deed – particularly since it was PML which was assigning property of value which it owned (the IPR) to QED. It is clear that the PML Board as a whole intended that such assignment should take place only in return for valuable consideration in the sum of £750,000. Similarly, it is likely that Mr Boughtwood signed the Deed for QED upon authority given him by the Board of QED, which also met on 13 November 2007 (even though this is not recorded in the brief minutes of that meeting). There is no indication that the Board of QED had any different intention from the Board of PML, and I find that their intention was the same. Accordingly, I find that it was the common intention of PML and QED in entering into the Deed that valuable consideration in the sum of £750,000 should be given in return for the IPR rights, and that if such a sum was not paid (as in fact it was not) then QED should owe PML that amount.[10]Mr Boughtwood also submits that PML is estopped by the statement in the Deed that the £750,000 had been paid from seeking to go behind that statement: see Chitty on Contracts, 30th ed., para. 1-112. He also says that an estoppel by convention has arisen on the facts, since both QED and PML acted on the shared assumption that QED had no liability to PML in respect of the Deed, and it would be unjust or unconscionable to allow PML to go back on that assumption because the decision not to hive up the investment funds was taken on the basis of that shared assumption.[11]I do not accept these submissions either. The assumption which underlay the statement in the Deed set out at para. [6] above was that the hive up of funds from PML to QED had occurred, and that PML was repaid (or retained) £750,000 of the funds so hived up. Everyone knew that QED had no other source of funds from which it could have paid PML. As events transpired on 13 November 2007, everyone knew that the hive up had not taken place (and could not lawfully have taken place) by that date. Accordingly, I consider that the reference to the payment of £750,000 having taken place was clearly a mistake in the Deed as executed, and was not intended or understood by either PML or QED to set out something to be treated as binding on the parties. Oak contends that this is a case in which the Deed would be capable of rectification in the relevant respect, so as to correct the mistake and to state that the assignment of the IPR was in return for a promise by QED to pay £750,000. I accept this submission, and consequently Mr Boughtwood’s case based on estoppel by deed fails.[12]Mr Boughtwood’s case based on estoppel by convention fails for the same reasons. PML and QED never did have a genuine or real shared assumption that QED had actually paid PML £750,000 for the IPR. On the contrary, everyone knew that it had not. As Oak submits, the real shared assumption was that QED had received from PML a valuable asset (the IPR) for which QED was expected to pay valuable and appropriate consideration. Both parties to the Deed agreed that the proper valuable consideration payable was £750,000. There is nothing unconscionable in PML requiring QED to pay that sum now.