Intrum Justitia BV v Legal Trade Financial Services Ltd

JurisdictionIreland
JudgeO'Sullivan J. delivered
Judgment Date10 June 2005
Neutral Citation[2005] IEHC 190
Docket Number[2004 No. 1461P]
CourtHigh Court
Date10 June 2005
INTRUM JUSTITIA BV v LEGAL & TRADE FINANCIAL SERVICES LTD

BETWEEN

INTRUM JUSTITIA BV
PLAINTIFF

AND

LEGAL AND TRADE FINANCIAL SERVICES LIMITED
DEFENDANT

[2005] IEHC 190

[Record No. 19461P/2004]

THE HIGH COURT

CONTRACT

Recission

Misrepresentation - Mistake - Due diligence process - Completion accounts - Embezzlement - Whether representations made by defendant had to be main consideration upon which representee acted - Whether plaintiff entitled to rescind contract where they did not rely on representations - Appropriate remedy where court would not order recission of contract or declare contract void ab initio - Whether warranties given by defendant were warranties of quality - Appropriate measure of damages where the warranty was a warranty of quality - Whether plaintiff had mitigated its loss - Recission refused, specific performance granted - (2004/19461P - O'Sullivan - 10/6/2005) [2005] IEHC 190

INTRUM JUSTITIA BV v LEGAL & TRADE FINANCIAL SERVICES LTD

Facts: the plaintiff entered into a contract with the defendant for the purchase of its shares. One of the warranties contained in the contract was that "all the accounts, books...financial and other records...have been fully, properly and accurately kept and do not contain any material, inaccuracies or discrepancies of any kind..." The contract also provided, inter alia, that "no breaches of any of the warranties, specific warranties or the deed of indemnity shall give rise to any right on the part of the purchaser to rescind this agreement after completion". Subsequently, the defendant discovered embezzlement by one its staff. The plaintiff sought to rescind the contract on the basis that no purchaser with knowledge of the embezzlement would have purchased the company. The defendant acknowledged that the contract had been entered into on the basis of a common mistake but that such mistake or breach of warranty as there may have been was not fundamental and that the plaintiff was entitled to a reduction in the price only.

Held by O'Sullivan J in directing specific performance of the contract with an appropriate adjustment to the purchase price that for misrepresentation to allow a representee to rescind a contract, the representations did not have to be the main consideration in the mind of the representee but they had to be part of the underlying basis upon which the representee proceeded. Those representations were not in fact relied on or formed part of underlying basis upon which the plaintiff proceeded as the warranties in the agreement were wide enough to cover the situation that arose.

That mistake in contract law concerned a situation where the parties thought they knew the true facts and proceeded upon the basis of their erroneous assumption without even suspecting that their assumptions could be wrong. On the evidence, the effect of the fraud did not make the subject matter of the share purchase agreement essentially different from the one contracted for.

Reporter: P.C.

GAHAN v BOLAND UNREP MURPHY 21.1.1983 1984/7/2191

BELL & SNELLING v LEVER BROS LTD 1932 AC 161

SOLLE v BUTCHER 1950 1 KB 671

O'NEILL v RYAN 1992 1 IR 166 1991 ILRM 672

LION NATHAN LTD v CC BOTTLERS LTD 1996 1 WLR 1438

MCGREGOR ON DAMAGES 17ED PARA 24-007

RATCLIFFE v EVANS 1892 2 QB 424

CHAPLIN v HICKS 1911 2 KB 786

1

JUDGMENT of O'Sullivan J. delivered the 10th of June, 2005

Introduction
2

The plaintiff is a Dutch Company located at the Hague and carries on the business of credit management and debt collection.

3

The defendant is an English Company located in Lancashire and carries on a similar business.

4

By agreement dated 11th October, 2004, the plaintiff agreed to purchase the entire issued share capital of an Irish subsidiary of the defendant (Legal and Trade Collections (Ireland) Limited) for a purchase price of €2.15 million of which 90% was paid on closing. Prior to entering into the agreement the plaintiff had conducted a comprehensive due diligence process.

5

The agreement provided for delivery of Completion Accounts not later than four weeks following the completion date, that was not later than Monday 8th November, 2004. These accounts were to comprise the un-audited balance sheet and un-audited profit and loss account for the period from the last accounts date to

6

1st October, 2004. This exercise would have included a reconciliation of the defendant's client's accounts which was of significance to the plaintiff because these had come under particular scrutiny in the course of the due diligence process and some concern had been raised in relation to them.

Embezzlement comes to light
7

The financial director of the defendant was Mr. Colin Thorpe and he worked from the defendant's Ashtown Gate premises in Dublin. The chief accountant of the defendant was Mr. Ronald Whitehead and he was based in the United Kingdom. At the end of October and the beginning of November, 2004, he was in Dublin working on the Completion Accounts. In particular he was working on the provision of a reconciliation between the client account balance in the nominal ledger and the balance in the CUBS, which was a computerised system operated by the defendant to administer the debts on behalf of the companies' clients. In the early afternoon of Tuesday 2nd November, 2004, Ronald Whitehead had made a comparison between the nominal ledger and the control account and found a discrepancy in the order of €457,000. He had a subsequent discussion with Colin Thorpe who at that point confessed that he had been embezzling money from the defendant for a period of almost three years from the beginning of 2002 to feed a gambling habit.

8

Following his confession Colin Thorpe was emotionally upset and Ronald Whitehead took some time to quiet him down and to persuade him to contact Price Waterhouse Cooper, the company's auditors, in an attempt to clarify the method and extent of the embezzlement. Mr. Whitehead also contacted his superiors in the United Kingdom and it was agreed that Paul Anslow, the Chief Financial Officer would come from England to Dublin the following day, which he did. That following day, Wednesday 3rd November was spent checking references and the system with the result that a figure of €453,000 approximately appeared to be the extent of the embezzlement. That exercise took all of Wednesday 3rd November, 2004, and on the morning of Thursday 4th November, Mr. Anslow contacted Mr. Biggam of the plaintiff who had been made a Director of the Ashtown Gate Company after completion of the agreement. Mr. Biggam immediately informed Mr. John Easdon who was Regional Managing Director of the plaintiff for the UK and Ireland and who was just returning from Zurich Airport. He arranged to come over to Dublin the next morning, Friday 5th November. He did so and having contacted his solicitors, Mr. Biggam and Mr. Easdon interviewed Colin Thorpe on the morning of Friday 5th November.

9

At that time they were concerned at the delay which had elapsed between Colin Thorpe's confession in the early afternoon of the previous Tuesday and their being informed only on the morning of Thursday 4th. At the interview Colin Thorpe told Messrs. Easdon and Biggam what he had been doing since his confession and that he had wanted to go to the police. After meeting Mr. Thorpe, Mr. Easdon suspended him pending an investigation. He then contacted Mr. Anslow and Ronald Whitehead at around lunchtime on Friday 5th November. The big concern in Mr. Easdon's mind at that point was why there had been a delay between Colin Thorpe's confession and his being informed. He therefore asked Mr. Anslow and Mr. Whitehead to give their account of what had happened since Colin Thorpe's confession.

10

At this time the defendant's auditors, Price Waterhouse Coopers, were busy working on the finalisation of the Completion Accounts which were due to be delivered not later than the following Monday 8th November. Mr. Easdon asked that this activity cease for the duration of his conversation with Mr. Anslow and Mr. Whitehead and this was done. At the end of that conversation they had confirmed the account given by Colin Thorpe. Mr. Easdon said that he was "somewhat reassured" and that he was happy to let the auditors back in to complete their work and said so. In fact as transpired in evidence that Price Waterhouse Coopers were contacted on that Friday afternoon but had redeployed their personnel and did not have them available to continue work that Friday or indeed the following Monday.

The early correspondence
11

It will be recalled that Clause 4.5 of the agreement required furnishing by the defendant of Completion Accounts (as defined) on or before Monday 8th November, 2004. On that date a document was sent by Mr. Anslow, Chief Financial Officer of the defendant, which stated that "...we and our professional advisors need access to the premises at Ashtown Gate in order to access the records and have further discussions with senior management to carry out the investigation to the fullest extent possible. Until we are allowed to carry out fully our investigation, you will appreciate that the Completion Accounts can only be regarded as provisional."

12

The letter went on to say that the writer was not able to present at that time the full reconciliation between the client account balance in the nominal ledger and the balance in CUBS.

13

On the same day, Monday 8th November, the plaintiff wrote to Geoffrey Ognall, Chairman of the defendant, saying that the disclosures were serious and had a fundamental impact on the share purchase agreement and that the integrity of all financial information provided to date was now open to question and that the magnitude of the problem was at that time unclear. The letter went on the say that it was of the utmost...

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