Johnson Control Systems Ltd. v Techni-Track Europa Ltd.

The value of a company for an inquiry into damages following a freezing injunction is assessed by asking what an informed and prudent purchaser, after appropriate enquiries, would have paid at the relevant date. The assessment should reflect economic realities, including profits generated through a separate associated company where those profits were in substance part of the target company’s trading record. Unagreed claims may be excluded from income, while exceptional costs attributable to a one-off contract may be removed to avoid distortion. A shorter trading period should not be mechanically annualised where evidence of seasonal or declining profits makes an uplift speculative. A contractual claim for payment for work done remains a debt claim despite an alternative claim for damages. Appellate courts exercise particular restraint when reviewing valuation and costs decisions.

Johnson Control Systems Ltd. v Techni-Track Europa Ltd. appealed, and Techni-Track Europa Ltd. cross-appealed, from a judgment of His Honour Judge Wilcox sitting in the Technology and Construction Court, handed down on 2 August 2002. The proceedings included an inquiry into damages after a Mareva injunction had been set aside and a counterclaim for sums said to be due under sub-contracts.

The judge valued Europa immediately before the injunction at £225,000 and awarded £64,000 for contractual work, together with other sums. Johnson challenged the valuation methodology, the award for work done, and the costs order. Europa sought an uplift by annualising maintainable earnings calculated over eight months. The central issues concerned the proper valuation approach, the treatment of disputed claims and exceptional costs, the character of the payment claim, appellate review of costs, and whether annualisation was justified.

The appeal was allowed only in respect of £1,847 bank interest which had not been claimed. All other grounds of Johnson’s appeal were dismissed, and the cross-appeal was dismissed.

1. For the valuation inquiry, the correct question was what a prudent purchaser, having made appropriate enquiries, would have been prepared to pay for Europa at the relevant date. The purchaser would assess economic realities rather than apply an artificial separation based solely on corporate personality. The judge was therefore entitled to include Engineering’s apparent profits in Europa’s trading record because Engineering’s trading was, in substance, invoicing derived from Europa.

2. In assessing maintainable earnings, the court had to consider how a purchaser would view the accounts immediately before the injunction, rather than the eventual success or failure of the disputed claims. It was permissible to exclude unagreed claims from credited income while adding back corresponding exceptional costs, where the evidence showed that the resulting distortion arose from a one-off contractual problem. The trial judge was entitled to prefer that treatment.

3. Although the trial judge described the multiplicand as earnings before interest, tax, depreciation and amortisation, the accepted evidence showed that the relevant interest and depreciation had already been deducted, with tax dealt with later. The figure of £75,000 was therefore secure and required no appellate adjustment.

4. The counterclaim for payment for work carried out after 18 January 1994 was a claim for a contractual debt. The alternative prayer for damages did not alter its character. Where the claimant’s conduct had affected compliance with documentary procedures, the court was entitled, and required, to assess the value of work done and sums due on the evidence.

5. Interference with a costs order is exceptional, particularly where the trial judge has managed a lengthy matter and considered the parties’ conduct. No error in the exercise of discretion was shown.

6. Annualising the eight-month maintainable-earnings figure was not a matter of simple arithmetic. The evidence showed reduced work and profits during the relevant winter period and no uplift could be justified without speculation. The issue did not need to be remitted for a further hearing.

1. Court of Appeal (Civil Division) — In [2003] EWCA Civ 1126, the appeal was allowed only as to £1,847 bank interest; all other grounds and the cross-appeal were dismissed.
2. Technology and Construction Court — His Honour Judge Wilcox valued the company for the damages inquiry at £225,000 and awarded £64,000 for contractual work, with the remaining claims dismissed or otherwise dealt with as described in the judgment.