Papanicola v Sandhu [2011] EWHC 1431 (QB)

Case No HQ10X02166[2011] EWHC 1431 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 9 June 2011
Before
MR SIMON PICKEN QC(sitting as a Deputy High Court Judge)
Between
THEODOULOS PAPANICOLAClaimantBULBINDER SINGH SANDHUDefendant
James Couser (instructed by Judge Sykes Frixou) for ClaimantJK Quirke (instructed by Douglas Wemyss Solicitors) for DefendantHearing Hearing dates: 19 & 20 May 2011
JUDGMENTMR SIMON PICKEN QC:Introduction
[1]This is a claim in respect of a personal guarantee provided by the Defendant (“Mr Sandhu”) as part of a Sale and Purchase Agreement (“the SPA”) entered into on 22 January 2008 under which Acton Farm Limited (“Acton”) acquired the business and assets of a company, Atlantic Fashions Limited (“Atlantic”), which the day before had been put into administration. The Claimant (“Mr Papanicola”) was formerly the Administrator of Atlantic and is now its Liquidator.[2]On Mr Papanicola’s behalf, Mr Couser submitted that there is no defence to the claim: Acton having defaulted on its obligations under the SPA, Mr Sandhu is liable under the guarantee and judgment should follow accordingly. Specifically, Mr Papanicola seeks a monetary judgment in the amount of £148,895.76 together with interest; a declaration that he is not liable to pay the costs which Mr Sandhu was awarded when a statutory demand which Mr Papanicola issued was withdrawn; and a declaration in respect of certain rent arrears.[3]Mr Sandhu denies liability. His position is: that he is entitled to a discount in the sum of £120,000 by reason of a collateral contract or warranty; in any event, that he has already paid £162,000 of what Mr Papanicola is claiming and, therefore, credit needs to be given in that amount; that a declaration concerning the rent arrears should not be given because vis-a-vis the relevant landlords Mr Papanicola has not admitted that there are the rent arrears alleged; and that it would be inappropriate to award a declaration concerning the costs of the statutory demand in circumstances where the Bankruptcy Registrar has previously made an order requiring Mr Papanicola to pay Mr Sandhu’s costs.[4]During the course of opening, Mr Quirke made it clear that his client no longer maintained his case that he was the victim of economic duress, his case that he was denied access to legal representation by Mr Papanicola and his case that he was induced to provide the guarantee by the belief that somebody else (Mr Brafman) would also be providing a guarantee. He did, however, advance a previously unheralded argument that, as a matter of construction of the SPA, Mr Sandhu had not provided a guarantee at all. In the event, that was another argument which was not pursued, Mr Quirke in his closing confirming that Mr Sandhu accepted that he had done so.

The SPA

[5]The parties to the SPA are Atlantic (the company in administration) (described in the SPA as “the Company”), Mr Papanicola (described as “the Office Holder”), Acton (described as “the Buyer”) and Mr Sandhu (described as “the Surety”).[6]The recitals are in the following terms:
“Background A. The Office Holder was appointed to act as the Administrator of the Company with effect from 21.01.08 on the application of its directors and by the Court pursuant to Paragraph 10 of Schedule B1 to the Insolvency Act 1986 In the High Court of Justice Chancery Division Birmingham District Registry No: 6001 of 2008. B. The Company has agreed to sell and the Buyer has agreed to purchase the business and assets of the Company on the terms and conditions set out in this Agreement. C. In consideration of the Company agreeing to enter into this Agreement with the Buyer the Surety has agreed to guarantee certain of the obligations of the Buyer arising under this Agreement.”
[7]Under Clause 3, it was agreed as follows:
“3. Consideration & VAT 3.1 The consideration to be paid by the Buyer for the Assets shall be £337,497 (“the Consideration”), which shall be apportioned in accordance with Schedule 2. 3.2 The Consideration shall be payable by the Buyer as follows:- 3.2.1 as to £84,374.25 on the date of this Agreement; 3.2.2 as to the balance by equal monthly instalments of £14,889.75 each for months 2-17 payable on or before the 21st day of each successive month thereafter together with a final payment of 14,889.63 in month 18; but all sums payable by virtue of any other obligation imposed on the Buyer by this Agreement to the extent that such sums are ascertainable on or before the date due for payment shall be payable by the Buyer on the execution of this Agreement and in the event that the whole or any part of any of the above-mentioned instalments in clause 3.2.2 remains unpaid upon its due date the balance of the whole of the Consideration due under Clause 3.1 shall become immediately due and payable. 3.3 The Consideration payable under Clause 3.2.1 shall be paid by CHAPS to the Office Holder’s Solicitors (whose receipt for the same shall be a good discharge to the Buyer) or in such other manner as the Office Holder shall reasonably direct. ... The Consideration payable under Clause 3.2.2 shall be paid to the Office Holder (whose receipt for the same shall be a good discharge to the Buyer. ...”
. As to interest, Clause 8 provides as follows:
“8. Interest In the event of any default by the Buyer in paying any monies due under this Agreement to the Company or the Office Holder the Buyer shall pay interest thereon at the rate of 4% per annum above the base rate for the time being of the Bank calculated on a daily basis from the date of default until all such monies have been paid in full together with all interest thereon.” 3.2.1 as to £84,374.25 on the date of this Agreement; 3.2.2 as to the balance by equal monthly instalments of £14,889.75 each for months 2-17 payable on or before the 21st day of each successive month thereafter together with a final payment of 14,889.63 in month 18; but all sums payable by virtue of any other obligation imposed on the Buyer by this Agreement to the extent that such sums are ascertainable on or before the date due for payment shall be payable by the Buyer on the execution of this Agreement and in the event that the whole or any part of any of the above-mentioned instalments in clause 3.2.2 remains unpaid upon its due date the balance of the whole of the Consideration due under Clause 3.1 shall become immediately due and payable. As to interest, Clause 8 provides as follows: In the event of any default by the Buyer in paying any monies due under this Agreement to the Company or the Office Holder the Buyer shall pay interest thereon at the rate of 4% per annum above the base rate for the time being of the Bank calculated on a daily basis from the date of default until all such monies have been paid in full together with all interest thereon.”
[8]Importantly, as will become apparent, Clause 12 (“General”) includes the following sub-clause:
“12.6 This Agreement (and any document referred to in this Agreement) supersedes any previous arrangement between the parties in relation to the matters dealt with in this Agreement and represents the entire understanding between the parties in relation to them and the Buyer acknowledges and agrees that it has not entered into this Agreement in reliance upon any representations agreements statements or replies to specific enquiries (whether oral or written) made or alleged to have been made by the Company the Office Holder or its or their officers servants or representatives at any time.”
[9]Clause 14.1 (“Employees”), which is relevant to the £162,000 (staff wages) issue, is in these terms:
“14.1 The Buyer shall take a transfer of the contracts of employment of the Employees pursuant to the Transfer of Undertakings (Protection of Employment) Regulations 2006 (“the Regulations”) and the Buyer shall assume all obligations imposed by the Regulations (including without limitation accrued rights relating to redundancy and unfair dismissal) to such Employees and the Company shall have no liability to the Buyer in respect thereof. Further and for the avoidance of doubt all accrued salaries and holiday pay of Employees in respect of whom the Buyer shall assume obligations as above-mentioned shall be the sole liability of the Buyer.”
By the “Employees”, as made clear in Clause 1.2 of the SPA, is meant “such of the employees of the Company immediately prior to the Completion Date and listed in Schedule 3”. “Completion Date” is defined in the same clause as being “with effect from 11:41 on 21.01.08”. The significance of this date and time is that Atlantic went into administration the minute before, at 11.40 am on 21 January 2008.[10]Clause 20 (“Surety provisions”) provides (the misnumbering is original) (inter alia) as follows:
“20.1 The Surety unconditionally guarantees and undertakes to the Company and the Office Holder that the Buyer will duly and punctually observe and perform the obligations of the Company contained in clause 3.2.2, clause 13, and Schedule 7 (but not otherwise) whatever of the Buyer under or pursuant to the terms of this Agreement to the intent that if the Buyer shall fail for whatever reason to observe and perform any such undertakings covenants and obligations then the Surety shall be liable to perform the same in all respects. 20.2 The Surety shall indemnify and keep the Company and the Office Holder fully indemnified from and against all actions proceedings costs claims and demands which may be suffered or incurred by the Company or the Office Holders by reason of any default on the part of the Buyer and in the performance observance of the obligations contained in clause 3.2.2, clause 13, and Schedule 7 (but not otherwise) of this Agreement and shall pay and make good to the Company and the Office Holders the amount of any losses damages costs and expenses suffered by the Company or the Office Holders. 20.2 The liability of the Surety under this Agreement shall be as primary obligor as regards the Company and the Office Holder and not merely as Surety and no time or other indulgence given to the Buyer nor any neglect failure or forbearance on the part of the Company or the Office Holder to enforce the performance or observance of any of the undertakings covenants and obligations under this Agreement shall in any way release lessen or affect the liability of the Surety.”
[11]As to Schedule 7 (“Licence of the Premises”), this provides (inter alia) as follows:
“6.1 The Buyer shall pay and discharge or otherwise indemnify the Company and the Office Holder from and against all outgoings and expenses (including the cost of all rent service charge insurance rent rates insurance minor repairs heating electricity gas telephone and any other services and the cost of complying with fire and other statutory regulations) arising after the Completion Date in respect of the Premises.”
Clause 1.2 defines “the Premises” as consisting of “the property or properties occupied by the Company as described in Schedule 1” and included the premises at Unit 27, Orchard Shopping Centre, Dartford, Kent DA1 1DN.

The claim for a monetary judgment in the amount of £148,895.76 together with interest

[12]As I have mentioned, Mr Quirke suggested, in his opening, that, as a matter of construction of the SPA, Mr Sandhu had not provided a guarantee. Although this was not an argument which was ultimately pressed, it is right that I should nevertheless deal with it, albeit only briefly. Mr Quirke’s point was that the words used in Clause 20.1 were insufficiently clear to demonstrate that Mr Sandhu was agreeing to guarantee. He relied, in particular, on the fact that the provision refers to the Buyer duly and punctually observing and performing “the obligations of the Company contained in clause 3.2.2, clause 13, and Schedule 7 (but not otherwise)” (my emphasis).[13]The reference to “the Company” is, on its face, a little odd. However, it seems to me that the meaning of Clause 20.1 is clear enough. I say this for a number of reasons. First, immediately after the words relied upon by Mr Quirke, Clause 20.1 continues with the words “whatever of the Buyer”, so confirming that the guarantee which Mr Sandhu was providing was in respect of Acton’s obligations owed to Atlantic. Secondly, the provision then goes on to state expressly that the “intent” was “that if the Buyer shall fail for whatever reason to observe and perform any such undertakings covenants and obligations then the Surety shall be liable to perform the same in all respects”. Thirdly, this accords with what one would expect, namely that Mr Sandhu, a significant shareholder in Acton, would be agreeing to guarantee Acton’s obligations rather than those of Acton’s contractual counterparts, Atlantic and Mr Papanicola. Fourthly, this is further borne out by the language used in Clause 20.2, which clearly is for Atlantic’s and Mr Papanicola’s benefit, not Acton’s. Fifthly, if further confirmation were needed, Recital C similarly makes it clear that Mr Sandhu was agreeing “to guarantee certain of the obligations of the Buyer arising under this Agreement”. In short, it seems to me that “the obligations of the Company contained in clause 3.2.2, clause 13, and Schedule 7 (but not otherwise) whatever of the Buyer” is to be understood as though “the obligations of the Company” read “the obligations owed to the Company” since otherwise the provision makes little sense.[14]I am in no doubt, in the circumstances, that Mr Quirke was right not to press the argument. This leaves just two matters: first, Mr Sandhu’s case that he is entitled to a discount in the sum of £120,000 by reason of a collateral contract which he says was entered into shortly before the SPA; and secondly, his case that he is entitled to a credit reflecting the fact that he has already paid £162,000 to Mr Papanicola. Mr Quirke accepted that, unless Mr Sandhu can make good either or both of these contentions, then Mr Papanicola is entitled to judgment in the amount claimed.

The £120,000 (collateral contract/warranty) issue

[15]Mr Sandhu’s case concerning the alleged £120,000 discount was pleaded in the Defence as part of a misrepresentation case. Specifically, paragraph 5.1 stated: “... the Claimant misrepresented the nature of this transaction to the Defendant and as to essential elements of it. Therefore the Defendant disaffirms it. The misrepresentations (alternatively innocent or reckless) were:- ... 5.2.1 That the Defendant would be given a credit refund by the Claimant of £120,000:00, which never happened. ...”.[16]In the event, however, Mr Quirke put his case not on the basis that there had been a misrepresentation but on the basis of an alleged collateral contract or warranty. He did so because he recognised (correctly, in my view) that the ‘representation’ relied upon, if it was made at all, is not a representation of fact and actionable as such, but is instead a promise which, if it has any legal significance, gives rise to a collateral contract or warranty rather than an actionable misrepresentation. The same distinction was recently drawn by Stanley Burnton LJ in Axa Sun Life Services PLC v Campbell Martin Ltd & Others [2011] EWCA Civ 133 at [27] and [38] (and, when dealing with costs, ([2011] EWCA Civ 549) at [2]). As Mr Quirke rightly acknowledged, the distinction is as apposite in the present case as it was in the Axa case.[17]Mr Quirke’s case was straightforward, if a little vague in terms of detail even after the relevant evidence had been called. It was that, at a meeting on 18 January 2008 to discuss the proposed SPA, Mr Sandhu was promised by Mr Papanicola’s partner, Mr Theophanos Odyssea (known professionally as Mr Theo Alexander), that (as Mr Quirke put it) “in some form he would be given a £120,000 discount or repayment or credit” in respect of the £337,497 Consideration stipulated in Clause 3.1 of the SPA “at some future date”. Mr Quirke invited me to conclude that it was in reliance on this promise that Mr Sandhu provided Atlantic and Mr Papanicola with his personal guarantee and provided Acton with the funds to pay the £84,374.25 required by Clause 3.2.1 of the SPA, the £162,000 to which I refer below and a further £104,000 or so of the £253,122.75 which was required to be paid in instalments under Clause 3.2.2.[18]Although there was no pleaded case of collateral contract/warranty, Mr Couser sensibly took no objection to Mr Quirke repackaging Mr Sandhu’s case in this way. There are, however, two fundamental difficulties with the collateral contract/warranty case: the first concerned with the evidence, the second a legal obstacle. As to the evidence, I am wholly unconvinced that the promise which Mr Sandhu maintains was made to him was made at all. On the contrary, having considered the evidence adduced before me (both oral and in the case of one witness, Mr Timothy Higginson, in written form), I am quite sure that no such promise was made by Mr Alexander for the reasons which follow.[19]The precise circumstances in which it was suggested that Mr Alexander promised to give a discount of £120,000 are obscure. There is no doubt that a meeting took place on 18 January 2008, in the afternoon, at Atlantic’s head office in Acton. This was a meeting attended by Mr Alexander and Mr Sandhu, as well as Mr Brafman (a shareholder in Atlantic) and Mr Higginson (an Atlantic director). During the course of this meeting there appears to have been a discussion concerning the level of the Consideration which would be payable by Acton. Mr Sandhu’s evidence, in his witness statement served shortly before the trial, was that Mr Alexander opened discussions by referring to the fact that the assets and business of Atlantic had been valued at £337,497. He said that he made a note of this on a piece of paper, a document which he exhibited to his witness statement. He said that he told Mr Alexander that the maximum which he wanted to pay was £150,000 and that he suggested that Mr Alexander should, therefore, “knock £150,000 off £337,000 and I would pay the balance - £187,000”. He said that Mr Alexander countered “that he should knock off £100,000” and that he (Mr Sandhu) “suggested splitting the difference and we haggled and agreed a figure for discount of £120,000 - £217,000 to pay overall”. Mr Sandhu then said (again, I am referring here to his witness statement) that Mr Alexander “said that he could not deduct the £120,000 from the valuations on the Agreement but would give credit for £120,000 at a later stage”. Mr Sandhu added: “I asked how he would do that – he said there were a number of ways”.[20]In his oral evidence, given after Mr Brafman had given his oral evidence, Mr Sandhu put things rather differently. First, he was asked whether he agreed with how he had described matters in his witness statement; he confirmed that he did. He then went on, however, to say that the agreement was that if Acton were (as he put it) to “fulfil the £337,497”, then it would get a discount. Mr Sandhu was, therefore, saying that first Acton would have to pay the Consideration before the £120,000 discount would apply; in effect, that there would be a later repayment. In response to subsequent questioning, Mr Sandhu reiterated that this was what Mr Alexander was agreeing to do. However, when taken back to his witness statement and its reference to his having asked Mr Alexander “how he would” give the £120,000 credit “at a later stage” and being told by Mr Alexander that “there were a number of ways”, Mr Sandhu’s answer was that Mr Alexander told him that “one of the ways was to deduct from future audit fees”. It seemed to me at the time (and seems to me now) that this represented a significant change in what Mr Sandhu was saying. I struggle in particular to understand how it could be right that any defraying of audit fees by Mr Alexander’s and Mr Papanicola’s firm, Bond & Partners, could operate as a discount in respect of the Consideration. This would be to confuse the different, and separate, functions which Bond & Partners were performing, or would be performing: Mr Papanicola’s role as administrator (and agent) of Atlantic was clearly a different role to any auditing function which his firm might subsequently perform. It is impossible to see how giving a discount in respect of audit fees can equate to the giving of a discount in respect of the Consideration.[21]Nor can I lose sight of the fact that it was not until the Defence was served in these proceedings, in July last year, that Mr Sandhu raised the question of the £120,000 discount. Significantly, Mr Sandhu made absolutely no mention of the point when, a year earlier on 11 June 2009, he swore an affidavit in support of his application to set aside the statutory demand which Mr Papanicola had issued. In that affidavit, Mr Sandhu advanced a number of defences: economic duress; the absence of legal advice; and his case that he was induced to provide the guarantee by the belief that Mr Brafman would also be providing a guarantee. He continued, in paragraph 2, as follows:
“2. In addition to that, I also wish to draw this Court’s attention to the fact that the debt is not owing by reason of the fact that the amount claimed in the Particulars of Debt makes no mention of the fact that the correct agreement amount was actually £337,497. From that amount I (trading as Isher Fashions) made two payments on the same day of £84,374.25 and £162,000 in January 2008 at the instruction of Theo Alexander. Those payments total £276,374.25, leaving £91,122.75. But in addition, further payments were later made (see paragraph 4 of the particulars of debt) of £104,226.99, producing an overpayment of £13,104.24 before allowing for interest either way. Even with interest on the payments, nothing is owing – if anything I am in credit.”
I find it inconceivable that, if Mr Sandhu considered that a £120,000 discount had been agreed, as he now says, even if the discount was to be by the means which he identified in his oral evidence, he would not have mentioned that this was the case when submitting this affidavit. The fact that, together with his point concerning the £162,000 which he says has already been paid, the £120,000 discount is put forward as his main defence in the current proceedings makes it all the more curious that Mr Sandhu made no mention of it in the affidavit but should seek to rely upon other matters such as economic duress which are no longer pressed. I am quite clear that if a discount really had been agreed, Mr. Sandhu would have been bound to have mentioned it. The fact that he did not is, therefore, very telling.[22]The point goes further than this, however, since Mr Sandhu expressly stated, in the passage set out above, that “the correct agreement amount was actually £337,497”. He, therefore, was positively asserting that the correct figure was £337,497, not £120,000 less than that amount. Indeed, if what Mr Sandhu was saying in his affidavit was right and there had been an overpayment in view of the £162,000 which, according to him, needed to be taken into account alongside the £84,374.25 paid under Clause 3.2.1 and the further £104,226.99 paid in instalments under Clause 3.2.2, then, far from there being “if anything” a credit due to him, the position would have been that he was due a very substantial refund amounting to the £133,104.24 which he now counterclaims in these proceedings. I cannot accept that Mr Sandhu would have overlooked so significant a refund had he really considered, when swearing his affidavit, that he was owed these monies because a £120,000 discount had been agreed with Mr Alexander before the SPA was entered into. Nor, I should note, did Mr Sandhu ever suggest that a £120,000 discount had been agreed when Acton was being pressed for payment of the outstanding arrears. Although he sought to suggest that he was unaware of these demands, I found that evidence somewhat unconvincing, not least because at least some of them were addressed to Mr Sandhu personally (albeit at Acton’s offices rather than in Leicestershire where Mr Sandhu lives and works).[23]In short, I do not feel that I can accept the evidence which Mr Sandhu gave before me. I do not regard it as being plausible; indeed, I find it implausible. It was not ultimately suggested by Mr Couser, at least in closing, that Mr Sandhu was consciously attempting to deceive the Court. Whether that is right or wrong probably does not much matter. I should not, in the circumstances, be taken as finding that Mr Sandhu was actively seeking to mislead in the evidence which he gave. Nevertheless, it seems to me that Mr Couser is right in his submission that much of what Mr Sandhu had to say was based on assumptions and conclusions which, looked at critically and objectively, cannot be accepted. I agree that Mr Sandhu is a man who hears what he wants to hear and then proceeds from the basis that he is correct in his assumptions in every respect.[24]I should make it clear that I do not, of course, overlook the evidence which was given by Mr Brafman and Mr Higginson. I did not, however, find their evidence especially compelling. As to Mr Higginson, he did not attend the trial because he was abroad. As such, although admissible as hearsay, his evidence was nevertheless both untested by cross-examination and not capable of further exploration. In his witness statement, he said simply that he “distinctly” recalled Mr Alexander “telling Bali Sandhu that he would give him a credit refund and that there was robust discussion as to the level of the same”. No further detail was given. Nothing was said about what level of “credit refund” was agreed.[25]As for Mr Brafman, who did give oral evidence before me, he referred in his witness statement to Mr Sandhu telling Mr Alexander that he was “not happy” with a price of £337,497 and that “the price should be approximately £150,000.00”. He went on (the quotation is exactly as it appears in the witness statement):
“Theo [Mr Alexander] said to Bali that we show the full amount on the Agreement but he will then offer Bali a credit for the difference. Bali asked how Theo would give the credit refund to him. Theo replied that he would find a way to refund the credit amount to Bali, so Bali agreed to get a credit and said to Theo ‘so you will give me a credit for £150,000.00 so the deal only costs £187,497.00’. Theo replied ‘no I can not give you £150,000.00 but will give you £100,000.00’. Bali replied ‘No that is to less I need £150,000 credit’. Bali asked for my opinion and I replied ‘Yes, Bali needs £150,000.00 to complete the deal. Theo then said ‘Look maximum I will give is £110,000.00’. Bali said that it was still too low but agree on £120,000.00 and I will go ahead with the deal (Bali scribbled on a piece of paper as we spoke, took our £120,000.00 from £337,497 and knew it will cost £217,497.00). Theo replied ‘ok but must give Personal Guarantee’. Bali shook hands and agreed to the credit of £120,000.00 and told Theo to go ahead with the Agreement and I will sign for the Personal Guarantee.”
Mr Brafman added later that “Bali only did this deal based on credit of £120,000.00 agreed by Theo otherwise Bali would not do the deal and not give any Personal Guarantee from himself”.[26]However, having had the opportunity of observing Mr Brafman give evidence, I am afraid to say that I did not find him to be a satisfactory witness. He was argumentative and defensive in a way which, to my mind, bordered on the evasive. It was also, in my view, curious that Mr Brafman was apparently able to recall after all this time (his witness statement was only dated May this year) the actual words used by Mr Alexander and Mr Sandhu. I doubt that Mr Brafman can really have such a level of recall, in circumstances where neither Mr Sandhu nor Mr Higginson was able to remember in anything like the same detail. This extends beyond what, according to Mr Brafman, was said during the meeting and to the evidence which Mr Brafman felt able to give concerning Mr Sandhu’s state of mind.[27]My doubts about Mr Brafman’s evidence were heightened by the evidence which Mr Sandhu subsequently gave after Mr Brafman had completed his evidence. Specifically, Mr Brafman said nothing in his evidence about the arrangement being (as Mr Sandhu said it was) that there would be a discount in the event that Acton were (as Mr Sandhu put it) to “fulfil the £337,497”. Nor did he mention that (as Mr Sandhu again explained in his oral evidence) Mr Alexander had said that “one of the ways was to deduct from future audit fees”. Given Mr Brafman’s purported ability to recall the discussion between Mr Alexander and Mr Sandhu in detail, it is telling that apparently he could not recall these aspects also. It seems to me that this is either because Mr Sandhu is mistaken and Mr Alexander did not say what he told the Court he said, or what Mr Brafman said in evidence was not the position. I do not consider that both Mr Sandhu and Mr Brafman can be right. Either way, it seems to me that the conflict of evidence detracts from the case which Mr Sandhu (through Mr Quirke) advanced before me.[28]The other witness to give evidence concerning the discussions at the 18 January 2008 meeting was, of course, Mr Alexander. I found him to be an impressive witness. I am in no doubt that his evidence was honestly and straightforwardly given. I am in no doubt, in particular, that when he denied that there was an agreement concerning a £120,000 discount or credit, he was telling the truth. Mr Quirke made the point that Mr Alexander had not dealt with the point directly in his witness statement. He was right about that, but I do not consider that this detracts from the veracity of the evidence which he gave. His evidence was that, whilst there were discussions concerning the sale price (the Consideration), there was not the agreement alleged. He explained, in his examination-in-chief, that Mr Sandhu at one stage asked him to leave the room and that Mr Sandhu then made him what he described as a “commercial offer or a bribe”. Mr Alexander said that he rejected that offer, but that he made Mr Sandhu aware that “if at some point Acton was in a position to pay the full amount” of the Consideration in advance of the seventeen months contemplated by Clause 3.2.2 of the SPA, “a reasonable reduction would not be unreasonable”. I understood him to mean by this a figure which would reflect the fact that the Consideration would be paid on an accelerated basis as a “lump sum”; he said that he had in mind something in the region of £20,000-£30,000. He was adamant, however, that the “discussion did not go any further” and that it was, in any event, only a without prejudice conversation. There was no concluded agreement. There certainly was no agreement that there would be a £120,000 discount.[29]Mr Alexander added (and I accept) that he had no power to agree such a thing since any such agreement would be liable to be set aside in the subsequent liquidation as a transaction at an undervalue. He (strictly Mr Papanicola as the Court-appointed administrator) was obliged to follow the valuation which had been obtained; it simply was not open to them to negotiate a lesser figure. There might, as he put it, be room for “discussions around the edge”, but not otherwise. Accordingly, although he accepted, in cross-examination, that Mr Sandhu told him that there was a maximum which he was willing to pay (he could not remember what that figure was), he said that he “made it clear that it was not possible”, explaining that “the valuation protects the liquidator and the purchaser because nobody wants to be criticised for undervalue”. He said that, for this reason, he disagreed “in the strongest possible terms” that he agreed any reduction in order (as Mr Quirke put it) “to get the agreement sorted”.[30]My conclusion, for all these reasons, is that the promise which Mr Sandhu maintains was made to him was not made. However, even if I had been persuaded that Mr Alexander had made the promise, I am clear that, in any event, Clause 12.6 of the SPA (the entire agreement clause) precludes Mr Sandhu’s collateral contract/warranty case.[31]As explained by Moore-Bick LJ in Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] 2 Lloyd’s Rep 24, the “effect of an entire agreement clause ... must depend primarily on its terms, since it is the language chosen by the parties to express their agreement (wherever it appears) which, construed in its proper context, provides the primary source of their intentions”. Nevertheless, as Lewison, The Interpretation of Contracts (4th Ed. 2007), puts it at paragraph 3.13, “Where a contract contains a clause stating that the written contract contains the parties’ entire agreement, that will usually prevent a finding that a collateral contract was made”.[32]Thus, in Deepak v Imperial Chemical Industries [1999] 1 Lloyd’s Rep. 387 the entire agreement clause was in the following terms:
“10.16 Entirety of AgreementThis CONTRACT comprises the entire agreement between the PARTIES …. and there are not any agreements, understandings, promises or conditions, oral or written, expressed or implied, concerning the subject matter which are not merged into this CONTRACT and superseded hereby. This contract may be amended in the future only in writing executed by the parties”
. The Court of Appeal held that, in such circumstances, Rix J ([1998] 2 Lloyd's Rep 139) was “plainly correct” that a provision in this form “excluded liability in respect of collateral warranty”. As Stuart-Smith LJ put it in paragraph [34]: “The combination of the opening words, coupled with ‘and there are not any agreements, understandings or promises oral or written’ clearly covers such a warranty”.[33]The approach adopted in the Deepak case was followed by Lightman J in Inntrepreneur Pub Co. Ltd v East Crown Ltd [2000] 2 Lloyd’s Rep. 611, in which the entire agreement clause was in the following terms: “14.1 Any variations of this Agreement which are agreed in correspondence shall be incorporated in this Agreement where that correspondence makes express reference to this Clause and the parties acknowledge that this Agreement (with the incorporation of any such variations) constitutes the entire Agreement between the parties”.[34]The provision was, therefore, as Lightman J put it, in an “abbreviated” form when compared to the entire agreement which was considered in the Deepak case (and that considered by Browne-Wilkinson J in an earlier case also mentioned by Lightman J, Alman & Benson v Associated Newspapers Group Ltd, 20 June 1980). Lightman J nevertheless decided that the wording was sufficient to exclude reliance on a collateral warranty:
“7. The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need, which may arise in its absence to conduct a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save insofar as they are reflected and given effect in that document. The operation of the clause is not to render evidence of the collateral warranty inadmissible in evidence as is suggested in Chitty on Contract, 28th ed., vol. 1, par. 12-102: it is to denude what would otherwise constitute a collateral warranty of legal effect.”
[35]Lightman J continued in the next paragraph as follows:
“8. ... In neither case [i.e. the Deepak and Alman cases] was it necessary to decide whether the clause would have been sufficient if it had been worded merely to state that the agreement comprised or constituted the entire agreement between the parties. That is the question raised in this case, where the formula of words used in this clause is abbreviated to an acknowledgment by the parties that the agreement constitutes the entire agreement between them. In my judgment that formula is sufficient for it constitutes an agreement that the full contractual term to which the parties agree to bind themselves are to be found in the agreement and nowhere else and that what might otherwise constitute a side agreement or collateral warranty shall be void of legal effect.”
[36]Similarly, in SEREHoldings Ltd v Volkswagen Group UK Ltd [2004] EWHC 1551 (Ch), Mr Christopher Nugee QC (sitting as Deputy High Court Judge) considered that the approach adopted by Lightman J in Inntrepreneur Pub Co. Ltd v East Crown Ltdwas the right one. That was a case in which the provision stated not only that the agreement “constitutes the entire agreement between the parties” but also (as in the Deepak case) that the agreement superseded “any previous agreement between the parties” (see [11(x)]). Mr Nugee QC said this at [22]: “…. It is elementary that whether an agreement has legal effect is a matter of the intentions of the parties so that an offer and acceptance duly supported by consideration will nevertheless not be a legally binding contract unless the parties intend to create legal relations. I can see no reason why parties who have in fact reached an agreement in precontractual negotiations that would otherwise constitute a collateral contract should not subsequently agree in their formal contract that any such collateral agreement should have no legal effect, or in other words should be treated as if the parties had not intended to create legal relations; and for the reasons given by Lightman J this is precisely what an entire agreement clause on its face does. In the present case clause 14.7 contains in its first sentence a provision to this effect and that is in my judgment sufficient to prevent the claimant bringing any claim on a precontractual or collateral agreement ….”.[37]More recently, in BSkyB Ltd v. HP Enterprise Services UK Ltd[2010] EWHC 86 (TCC) the entire agreement clause provided that the agreement and its schedules "constitute the whole agreement between the parties in relation to the subject matter and supersede any previous discussions, correspondence, representations and agreement between the parties with respect thereto…" ([359]). The issue in that case was whether this clause excluded liability for non-fraudulent misrepresentation. Ramsey J concluded that it did not. In doing so, he distinguished between exclusion of liability for misrepresentation and exclusion of liability in collateral contract. As to the latter, he said this: “[385] In this case the statement that the Agreement superseded any previous discussions, correspondence, representations or agreement between the parties with respect to the subject matter of the agreement prevented other terms of the agreement or collateral contracts from having contractual effect. ...”.[38]Similarly, in the very recent Axa case it was common ground between the parties that the entire agreement clause in that case (clause 24) was effective to exclude collateral warranties (see per Stanley Burnton LJ at [34]). As in the BSkyB case, the issue was whether clause 24 was also effective, as a matter of its true construction, to exclude misrepresentations or liability for them. The Court decided that it was not, but instead had as its focus what the terms of the agreement were rather than exclusion of misrepresentation or liability for it. In this context, Rix LJ broke clause 24 down into four parts, numbered(i) to (iv), as follows: "(i) This Agreement and the Schedules and documents referred to herein constitute the entire agreement and understanding between you and us in relation to the subject matter thereof.(ii) Without prejudice to any variation as provided in clause 1.1,(iii) this Agreement shall supersede any prior promises, agreements, representations, undertakings or implications whether made orally or in writing between you and us relating to the subject matter of this Agreement(iv) but this will not affect any obligations in any such prior agreement which are expressed to continue after termination.” Rix LJ explained that parts (i), (ii) and (iv) are all concerned with identifying the parties' contractual arrangements and that, therefore, in context, part (iii) was concerned not with misrepresentations but only with representations “which might be argued, but for the clause, to have become terms of the agreement” ([78]-[81]).[39]These authorities seem to me to make it clear that, whilst (as Rix LJ put it in the Axa case at [94]) “all cases are only authority for each clause's particular wording”, nevertheless, in general, an entire agreement clause is likely to be regarded as precluding reliance on a collateral contract or warranty. Mr Quirke did not really dispute this. His submission was that, as a matter of construction, the entire agreement provision in the present case, Clause 12.6, did not achieve such a result.[40]Mr Quirke submitted, in the first place, during his oral closing, that, simply looking at the first part of Clause 12.6 (“This Agreement (and any document referred to in this Agreement) supersedes any previous arrangement between the parties in relation to the matters dealt with in this Agreement and represents the entire understanding between the parties in relation to them”), the provision has nothing to do with Mr Sandhu (the Surety). According to him, the reference to “This Agreement” is a reference to the agreement only as between Atlantic and Acton, and that, therefore, the reference to “the parties” is a reference only to Atlantic and Acton, and did not include Mr Sandhu or, for that matter, Mr Papanicola. He went on to submit that this construction is supported by the fact that the second part of Clause 12.6 (“and represents the entire understanding between the parties in relation to them and the Buyer acknowledges and agrees that it has not entered into this Agreement in reliance upon any representations agreements statements or replies to specific enquiries (whether oral or written) made or alleged to have been made by the Company the Office Holder or its or their officers servants or representatives at any time”) is specific in that it refers only to “the Buyer” acknowledging and agreeing as there set out. Mr Quirke pointed out that the two parts of Clause 12.6 form one (rather long) sentence linked by the word “and”. As such, he submitted that it would make little sense for the second part to be confined to “the Buyer” (Acton) yet for the first part to apply to all the parties, including Mr Sandhu. Mr Quirke also made the point that the inclusion of the word “agreements” in the second part of Clause 12.6 underlines the fact that the two parts are to be read as one since that is a reference which would include collateral contracts. As such, Mr Quirke submitted, it would be odd if the first part could be divorced from the second.[41]I cannot agree with Mr Quirke about this. It seems to me that the reference to “the parties” in the first part of Clause 12.6 takes in all the parties to the SPA. The phrase’s natural meaning, in the context of an agreement such as the SPA to which there are several parties, is one which obviously includes all the parties to the SPA. It cannot be limited (like the second part of the provision) simply to “the Buyer” since that would require a reading of the plural (“the parties”) as though it were a singular (“the party”). Nor do I consider it right to read “the parties” as though it were a reference only to the parties identified in the second part of the provision:
“the Buyer” (Acton), “the Company” (Atlantic) and “the Office Holder” (Mr Papanicola). It seems to me that if the draftsman had intended the first part of Clause 12.6 to be limited to those parties, Acton, Atlantic and Mr Papanicola would need to have been listed as they have been in the second part. The fact that instead the term “the parties” is used makes it clear that this cannot have been the intention. In addition, the fact that the second part of Clause 12.6 refers to “agreements” does not seem to me to justify Mr Quirke’s conclusion that the first part is, therefore, to be read restrictively as applying only to “the Buyer” also. The simple fact is that the first part of Clause 12.6 is more generally expressed than the second part. In these circumstances, to read it in the restrictive way suggested by Mr Quirke is, in my view, impermissible. I bear in mind also, in this context, that Clause 12.6 is part of an overall clause which is headed “General” and which includes other provisions dealing with the SPA generally, including a law and jurisdiction provision (Clause 12.3). If that provision is applicable as between Mr Sandhu and Mr Papanicola (and there was no suggestion that it is not), then I struggle to see why it should be the case that the first part of Clause 12.6, with its reference to “the parties”, should not also apply as between Mr Sandhu and Mr Papanicola. Similarly, I am not at all persuaded by Mr Quirke’s suggestion that the opening reference in Clause 12.6 to “This Agreement” is somehow to be regarded as a reference only to the agreement as between Atlantic and Acton (or, if it be suggested, Mr Papanicola). If that were the case, then it is difficult to see why the SPA begins by stating that “This Agreement is made ... Between” and then lists Atlantic, Mr Papanicola, Acton and Mr Sandhu. Nor, if Mr Quirke is right in his submission, can it readily be explained why Recital C is in the terms which it is: “In consideration of the Company agreeing to enter into this Agreement with the Buyer the Surety has agreed to guarantee certain of the obligations of the Buyer arising under this Agreement.”
[42]In additional written submissions, put forward after the hearing, Mr Quirke advanced a different argument. He submitted that the reference to “This Agreement” superseding "any previous arrangement between the parties in relation to the matters dealt with in this Agreement…” (even assuming that "the parties" refers to Mr Sandhu as well as Atlantic, Acton and Mr Papanicola) should nevertheless be regarded as applying, as far as Mr Sandhu is concerned, only to the obligations which he owed to Atlantic and (although Mr Quirke did not include him as well) Mr Papanicola under Clause 20 (the Surety provisions). He submitted that, accordingly, Mr Sandhu’s guarantee is confined to the obligations listed in Clauses20.1 and 20.2, namely the obligations contained in Clause 3.2.2 (the obligation to pay part of the Consideration which was to be paid by monthly instalments), Clause 13 (concerning leased equipment) and Schedule 7 (concerning licensing of the Premises and discharge of outgoings). As he pointed out, Clauses 20.1 and20.2 each contain “but not otherwise” language which makes this clear. Accordingly, Mr Quirke submitted, the only “previous arrangement” which can be superseded by the SPA, as far as Mr Sandhu specifically is concerned, is one which relates to Clause 3.2.2, Clause 13 and Schedule 7. He submitted in particular that, as regards Clause 3.2.2, the “previous arrangement” would need to “impinge upon, as relevant, the obligation to pay or ensure payment of the deferred consideration”. He also relied, in this context, upon the fact that the first part of Clause 12.6 goes on to state that the SPA “represents the entire understanding between the parties in relation to them”, making the point that the words which I have underlined, as he put it, “restrict the effect of the clause to the small proportion of the bundle of obligations contained in the Agreement which the Surety has undertaken”.[43]As I understand it, Mr Quirke’s ultimate submission was that the promise which Mr Sandhu alleges was made to him at the meeting on 18 January 2008 did not relate, as he put it, “to the terms of the Agreement and was not intended to affect that obligation” (the obligation contained in Clause 3.2.2). I do not see how Mr Quirke can be right about this, however; on the contrary, it is clear to me that his submission is wrong. The promise alleged by Mr Sandhu was directly related to the Consideration provisions which were agreed in the SPA (including, therefore, Clause 3.2.2). Its very essence was that there would be a discount, credit or refund. I struggle, in such circumstances, to see how it can really be supposed that the promise did not relate to an obligation, in Clause 3.2.2, to pay the agreed Consideration. It follows that I also reject Mr Quirke’s alternative argument.[44]For all these reasons, I reject Mr Quirke’s arguments and conclude that Clause 12.6 is apt to preclude Mr Sandhu from succeeding with a collateral contract/warranty case, even if I were satisfied (which I am not) that Mr Alexander made the promise to Mr Sandhu which Mr Sandhu says he made. It seems to me that the first part of Clause 12.6, with its express acknowledgment that the SPA “represents the entire understandingbetween the parties”, clearly is sufficient to mean that Mr Sandhu is precluded from relying on his collateral contract/warranty case. This conclusion accords with the various authorities to which I have referred, specifically the Inntrepreneur case which contained only an abbreviated form of entire agreement provision. I am quite satisfied that the purpose behind Clause 12.6 was precisely that identified by Lightman J in that case,namely to preclude the parties (including Mr Sandhu) from “threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty”.[45]Even if I were to assume in Mr Sandhu’s favour that Mr Alexander made the promise which is alleged and that he did so not by chance but deliberately, the effect of Clause 12.6 is still that which Lightman J described. Further, in the present case, Clause 12.6 is not the abbreviated form of entire agreement provision which was to be found in the Inntrepreneur case. Like the entire agreement provisions in the Deepak and SERE Holdings cases (as well as the BSkyB and Axa cases), Clause 12.6 expressly states that the SPA “supersedes any previous arrangement between the parties in relation to the matters dealt with in” the SPA. The language of supersession and the reference to “any” previous agreements serve, in my view, to underline that Clause 12.6 (specifically, its first part) has the effect to which I have referred.[46]It follows that Mr Sandhu’s collateral contract/warranty case must be rejected. Whether, if Mr Sandhu were advancing a misrepresentation case, properly so-called, rather than a collateral contract/warranty case, Clause 12.6 would also preclude him from doing so is a different question. That would require a consideration of the second part of Clause 12.6. Adopting the approach followed in the BSkyB and Axa cases, the non-reliance language contained in the second part might very well be sufficient also to preclude a misrepresentation case. This is subject, however, to Mr Quirke’s point about the second part of Clause 12.6 referring only to “the Buyer”. It seems to me that, in view of this, Clause 12.6 is unlikely to operate since for it do so it would be necessary to read “the Buyer” as though it also included Mr Sandhu, and I see no justification for effectively rewriting the provision in such a manner. If it were to operate, consideration would then also need to be given to whether it satisfies the reasonableness requirement contained in Section 3 of the Misrepresentation Act 1967. However, in view of how the case ultimately came to be put by Mr Quirke, these are points which do not need to be determined and, therefore, I say no more about them.

The £162,000 (staff wages) issue

[47]The other matter which I need to address is Mr Sandhu’s case that he is entitled to a £162,000 credit. There is no doubt that Mr Sandhu (trading as Isher Fashions) paid £162,000 into Atlantic’s bank account with NatWest on 21 January 2008, the day before the SPA was entered into and the day on which Atlantic went into administration. Nor is there any doubt that that money was used to pay staff wages since the bank statements from NatWest show the individual payments out to members of staff by cheque which then followed until the end of the month and into early February 2008. The dispute between the parties is whether (as Mr Sandhu says was the case) the £162,000 was paid as part of the agreed Consideration under the SPA because Mr Alexander requested that it be paid as a lump sum and right away at the meeting on 18 January 2008, or whether (as Mr Alexander would have it) the payment was made by Mr Sandhu not as part of the agreed Consideration, but in discharge of Acton’s own liability to meet staff costs under the SPA, and in order to ensure continuity in the sense that Atlantic’s staff carried on working after the sale of the business to Acton.[48]I am clear that the latter, rather than the former, was the case. First and most significantly, under Clause 14.1 of the SPA, it was made very clear that “all accrued salaries and holiday pay of Employees in respect of whom the Buyer shall assume obligations as above-mentioned shall be the sole liability of the Buyer.” Further, as I have previously pointed out, Clause 1.2 defined “Employees” as “such of the employees of the Company immediately prior to the Completion Date and listed in Schedule 3”, with “Completion Date” being defined as being “with effect from 11:41 on 21.01.08”, immediately after Atlantic had gone into administration. In these circumstances, I simply cannot accept that, at the meeting on 18 January 2008, Mr Alexander would have said anything to Mr Sandhu about paying £162,000 by way of staff wages in discharge of the obligation on the part of Acton to pay the agreed Consideration of £337,497. It would have made no sense at all for Mr Alexander to make such a request given that Acton had quite separate obligations as regards the agreed Consideration (under Clause 3.1) and in relation to the staff wages (under Clause 14.1). I am, therefore, quite satisfied that Mr Alexander did not do as Mr Sandhu and Mr Brafman said he did. Indeed, I note that in his witness statement Mr Higginson made no mention of any such discussion.[49]Secondly, although related to the first point, if Mr Alexander and Mr Sandhu had the discussion which Mr Sandhu and Mr Brafman suggest, it makes absolutely no sense for Clauses3.2.1 and3.2.2 to provide, respectively, for a lump sum payment of £84,374.25 “on the date of this Agreement” (22 January 2008) and subsequent “monthly instalments of £14,889.57 each for months 2-17 payable on or before the 21st day of each successive month thereafter together with a final payment of 14,889.63 in month 18”. It should be borne in mind that the £162,000 was paid even before the SPA was entered into, the day before to be precise. In such circumstances, if the £162,000 really was intended to be part of the agreed Consideration which was payable by Acton, Clause 3 would have reflected this position. It would certainly not have referred to a lesser lump sum payment obligation and then a requirement to pay monthly instalments. Indeed, it is not merely a question of what the SPA provided since it should also not be overlooked that, after entering into the SPA, Acton proceeded not only to pay the £84,374.25 stipulated in Clause 3.2.1 but also the monthly instalments referred to in Clause 3.2.2 (albeit not initially in the full amount). If Mr Sandhu really thought, at the time, that the payment of the £162,000 was to be set against the agreed Consideration, it is difficult to see why he and Acton went ahead and made further payments in this way, all the more so if (as Mr Sandhu would have it) he had agreed a discount of £120,000.[50]Thirdly, although it is right that, on 11 June 2009, in the affidavit which he swore to set aside the statutory demand, Mr Sandhu referred to his having “(trading as Isher Fashions) made two payments on the same day of £84,374.25 and £162,000 in January 2008 at the instruction of Theo Alexander” in support of a contention that both of these payments had been contributions towards the agreed Consideration, he had nevertheless never previously suggested, as far as the £162,000 is concerned, that this was the position. This was despite, as I say, being pressed for payment of the outstanding arrears during 2008. In this respect, I repeat that I was unconvinced by Mr Sandhu’s protestations that he was unaware of these demands.[51]Fourthly, having listened to Mr Alexander and Mr Papanicola explain how and why the £162,000 came to be paid into Atlantic’s bank account, I am fully satisfied that what they told me was the case and that what Mr Sandhu and Mr Brafman had to say on the topic cannot be right. Mr Alexander explained that Mr Brafman had made him aware, as I understand it at the meeting on 18 January 2008 but it may have been before this, that after the SPA had been entered into “the new bankers were not able to process payment to the staff, and that if the staff were not paid, then there would be no business”. Mr Alexander was, therefore, asked whether the administrator (Mr Papanicola) would authorise NatWest, Atlantic’s bank, to make the advances on Acton’s behalf, in effect, to ensure what Mr Alexander described in his evidence as a “smooth handover”. During cross-examination, Mr Alexander confirmed, in strong terms, that there was no agreement that the £162,000 payment was to form “in any shape or form part of the sale proceeds”.[52]Mr Papanicola then gave evidence. He was emphatic that the £162,000 having been paid into Atlantic’s bank account for the specific purpose of enabling staff wages to be paid, it was not open to him (as Atlantic’s administrator) to earmark the money for the benefit of Atlantic’s creditors. He explained that, as he saw it, “that would be fraud” and that Acton would have been able to sue him personally if he had gone against Acton’s instructions and used the money for purposes other than the paying of staff wages; he also would have been liable to be struck off as a licensed insolvency practitioner. Mr Papanicola went on to explain that arrangements of this sort, under which staff wages can be paid, are commonly entered into in order to maintain the business which is being sold. I have no doubt that what Mr Papanicola had to say about this is, indeed, the position, and that that is what happened in the present case. That was why Mr Papanicola wrote to NatWest on 22 January 2008, the day after Atlantic went into administration and the day on which the SPA was entered into, referring to his understanding “that the purchaser has deposited a sum of cash with you in the region of £162,000 in order to pay the outstanding wages” and continuing:
“I also understand that the Bank quite rightly requires comfort from the Administrator prior to releasing these funds. To the extent that the Bank is now holding additional CLEARED FUNDS, I can confirm that the Bank is hereby authorised to release funds in accordance with the attached schedule for the sole purpose of paying the outstanding wages. For the avoidance of doubt I confirm that this is a one off transaction that I have agreed to, to utilise the Company’s existing facility”
. This is contemporaneous evidence which is entirely consistent with the evidence which Mr Alexander and Mr Papanicola gave before me and which simply does not square with the version of events given by Mr Sandhu and Mr Brafman. In the circumstances, I am bound to prefer Mr Alexander’s and Mr Papanicola’s evidence to that of Mr Sandhu and Mr Brafman, whose evidence I have anyway already rejected on the £120,000 discount issue.[53]It follows that Mr Papanicola is entitled to judgment in the amount claimed: £148,895.76 together with interest.

The claim for a declaration in respect of rent arrears

[54]Mr Papanicola also seeks to recover from Mr Sandhu, under Clause20.1 alternatively (as I understand it) under Clause20.2 of the SPA, in respect of certain rent arrears alleged to have accrued in respect of Unit 27, Orchard Shopping Centre, Dartford, Kent DA1 1DN – one of the properties falling within the definition of “the Premises” in Clause 1.2. In this context, he relies upon Clause 6.1 of Schedule 7, in particular the obligation on the part of Acton (as the Buyer) to “pay and discharge or otherwise indemnify the Company and the Office Holder from and against all outgoings and expenses (including the cost of all rent ...) arising after the Completion Date in respect of the Premises”. Mr Papanicola’s position is that, as there are rents “due and outstanding ... as Acton occupied the premises without taking an assignment and without paying the rent due” (paragraph 19 of his witness statement), Mr Sandhu is liable to pay these arrears and an appropriate declaration should be made accordingly.[55]Mr Quirke disputed that Mr Papanicola has any such entitlement. His position was that the declaration which Mr Papanicola seeks would amount to no more than re-stating what appears in the SPA itself. He also submitted that any declaration would anyway be of little use, and as such is inappropriate bearing in mind that the notes in the White Book at paragraph 40.20.2 state as follows:
“The power to make declarations is a discretionary power. ... When considering whether to grant a declaration or not, the court should take into account … whether the declaration would serve a useful purpose”
. Mr Quirke pointed out that there has been no disclosure provided concerning the amount of the arrears. The only information which has been provided, besides Mr Papanicola’s statement that there are arrears (albeit in an unspecified amount), is the plea in the Particulars of Claim that the landlord of Unit 27 has made a claim in respect of rent arrears. As Mr Quirke went on to point out, Mr Papanicola has chosen in the context of that claim not to admit that there are the arrears alleged.[56]In addition, Mr Quirke submitted, more fundamentally, as he put it, that the obligation in Clause 6.1 of Schedule 7 was not an obligation on the part of Acton to pay rent to the landlord but was an obligation which remained upon Atlantic. He asserted, in the additional written submissions which he put forward after the hearing (although it was not a point which he made during the hearing itself), that “there are instances on the papers of the landlord refusing to accept payment direct from Acton on the reasonable ground that to do so might give rise to a tenancy between Acton and the Landlord”. He submitted that the Clause 6.1 obligation is an obligation on the part of Atlantic or Mr Papanicola, not Acton. As such, so Mr Quirke submitted, Mr Sandhu is not liable under Clause 20.1 which only applies "if the Buyer shall fail for whatever reason to observe and perform any such undertakings covenants and obligations”.[57]I do not accept Mr Quirke’s various submissions in this context. As to the second of his two objections, it seems to me that Mr Quirke overlooks the fact that, under Clause 6.1 of Schedule 7, Acton (the Buyer) is (and was) obliged to “pay and discharge or otherwise indemnify the Company and the Office Holder from and against all outgoings and expenses (including the cost of all rent ...) arising after the Completion Date in respect of the Premises”. In other words, Acton is (and was) under an obligation either to pay and discharge the rent itself or to indemnify Atlantic and Mr Papanicola in respect of the rent which was due and owing after the Completion Date (defined as being “with effect from 11:41 on 21.01.08”, the minute after Atlantic went into administration).[58]As to Mr Quirke’s first point, that any declaration would amount to no more than re-stating what appears in the SPA itself and as such would be of little use, I do not agree. I am satisfied, based on Mr Papanicola’s evidence contained in his witness statement, that there are arrears of rent which are due and owing even though I am not in a position to determine what those arrears are. In such circumstances, it seems to me that, as a matter of my discretion, it is appropriate that a declaration is made, albeit that the monetary effect of that declaration will have to be determined subsequently assuming that it cannot be agreed.

The claim for a declaration in respect of the costs of the statutory demand

[59]The final matter which I need to address is Mr Papanicola’s claim for a declaration that he is not liable to pay the costs which Mr Sandhu was awarded when the statutory demand which Mr Papanicola issued was withdrawn.[60]Mr Couser framed this claim as a restitutionary claim. He submitted that Mr Sandhu’s affidavit sworn on 11 June 2009 in support of his application to set aside the statutory demand contained a number of allegations which ultimately Mr Sandhu has abandoned (his case that he was the victim of economic duress, his case that he was denied access to legal representation by Mr Papanicola and his case that he was induced to provide the guarantee by the belief that Mr Brafman would also be providing a guarantee) or which have not been accepted by the Court (his case that he is entitled to a discount in the sum of £120,000, and his case that his payment of £162,000 was a payment which counts towards his liability to pay the agreed Consideration). Mr Couser submitted that Mr Sandhu must have known that these allegations were untrue and that merely by making them would mean that Mr Papanicola would have to withdraw his statutory demand with costs following the event. In this context, Mr Couser referred me to the following passage from the judgment of Warner J in Re Cannon Screen Entertainment Ltd [1989] BCLC 660:
“... It is perfectly true ... that there is nothing improper in a creditor who has no notice of a substantial defence to his claim serving a statutory demand, but to my mind he does that at his own risk, because the normal course for a creditor to adopt, if he wants to enforce a debt by proceedings, is to issue a writ, and of course, if he issues a writ and is sufficiently confident that there is no defence to his claim, the procedure under RSC Ord 14 is available to him. If instead of adopting that course the creditor takes the shortcut of serving a statutory demand with a view to presenting a winding-up petition without having obtained a judgment, in my opinion he does so at his risk as to costs. If it should turn out that there is a defence to his claim he must pay the costs of the company against whom he has chosen to take such proceedings.”
It was Mr Couser’s submission that, in the circumstances, it is appropriate that the Court should order that the costs of the statutory demand proceedings should be denied to Mr Sandhu since any other outcome would result in his unjust enrichment at the expense of Mr Papanicola. He relied in this context on Lord Steyn’s description of the ingredients of an unjust enrichment claim as set out in Banque Financiere la Cite v Parc (Battersea) Ltd[1999] 1 AC 221 at 227B.[61]Mr Couser relied also on the following passage from the judgment of Hart J in Liveras v A Debtor (No 620 of 1997) [1999] BPIR 89, a case in which costs were awarded against the party which was withdrawing its statutory demand applying the approach adopted in the Re Cannon Screen case:
“There is one distinction that can be taken between the two cases [the Re Cannon Screen case and the present Liveras case] and it is this. In the present case, unlike in Cannon Screen Entertainment, there were in existence at the date of the hearing on the question of costs subsisting proceedings in the form of the writ issued by the respondent on 10 March 1998 in which the underlying dispute may in due course be resolved. There is the further consideration, which I have found a troubling one, that in this case the resolution of the underlying dispute in those proceedings will almost inevitably involve a decision that one party or the other before me has adduced affidavit evidence on the application to set aside the demand which is dishonest. That is a consideration which it appears to me that Mr Registrar Baister had in mind when he gave his judgment and it underlies the misgiving to which he drew attention in the opening words of the reasoning which I have quoted. I am troubled by the point myself. I am unable to see that Mr Registrar Baister was wrong in law or otherwise erred in principle in not attaching a more decisive weight to that consideration. It seems to me that powerful though that consideration is, Mr Registrar Baister was correct to come to the conclusion in the present case that costs should follow the event of the application, no doubt having in mind that should it subsequently be found that the applicant had tendered dishonest evidence to the court in support of his application [to set aside], that finding might have independent consequences so far as the applicant was concerned.”
Mr Couser focused in particular on Hart J’s reference in the last sentence of this passage to there being “independent consequences” in the event that the party in Mr Sandhu’s position has “tendered dishonest evidence”. He submitted that this demonstrates that it is open to a party in Mr Papanicola’s position subsequently, after an adverse costs order has been made on the withdrawal of a statutory demand, to seek to recover its costs, thereby, in effect, overturning that costs order.[62]I cannot accept these submissions. I agree with Mr Quirke that, having sought to persuade the Bankruptcy Registrar that a costs order ought not to be made in Mr Sandhu’s favour on the withdrawal of his statutory demand (which is what Mr Papanicola did) and having chosen, no doubt for good reason, not to appeal against that order, it would now be inappropriate for me to make a declaration which would have the practical effect of overturning the Bankruptcy Registrar’s costs order. I consider that there is force in Mr Quirke’s submission that the matter is res judicata alternatively that Mr Couser’s invitation to me represents an abuse of process. It seems to me that, however much the point is dressed up, the making of the declaration sought would entail my disturbing what is, in truth, an “in any event” type of costs order made on a previous occasion by a court with competent (indeed, at that stage exclusive) jurisdiction to deal with the question of costs. I am not prepared to adopt such a course. Nor, in any event, am I satisfied that Mr Couser is right when he suggests that this is a case of unjust enrichment. It seems to me that, in line with the approach explained by Warner J in the Re Cannon Screen case a party like Mr Papanicola who chooses to follow the statutory demand procedure does so at its own risk, including as to costs. I am not persuaded that, merely because the matters raised by a party in Mr Sandhu’s position prove groundless (even if they are known by that party to be so when raised), it can properly be said that the case is as a result one of unjust enrichment. Nor, I might add, do I consider that Mr Couser can derive a great deal of assistance from the passage in the judgment of Hart J in the Liveras case. It seems to me that Hart J’s reference to “independent consequences” is likely to be a reference to contempt or perjury proceedings, rather than the making of a subsequent declaration which, in effect, reverses the effect of a costs order made on withdrawal.[63]In the circumstances, I decline to make the further declaration sought.

Conclusions

[64]In conclusion and by way of summary:(1) Mr Papanicola is entitled to judgment in the sum of £148,895.76 together with interest as claimed. I reject Mr Sandhu’s case both as to the £120,000 (collateral contract/warranty) issue and as to the £162,000 (staff wages) issue.(2) Mr Papanicola is also entitled to a declaration that Mr Sandhu is liable to pay the rent arrears in respect of Unit 27, Orchard Shopping Centre, Dartford, Kent DA1 1DN. I would ask that the parties seek to agree the precise terms of the appropriate declaration in this regard, failing which I will hear submissions on the matter.(3) However, I reject Mr Papanicola’s claim in respect of the costs of the statutory demand.