David Freud Ltd & Anor v Vickbar Ltd

The Court of Appeal dismissed the appellants' challenge to a county court order enforcing clause 4 of the schedule to a Tomlin order made in s.459 Companies Act 1985 proceedings. The central legal question was the proper construction of the phrase "outstanding accruals" in the Tomlin schedule. The court held that the phrase was not limited to the narrow accountancy meaning advanced by the appellants (i.e. uninvoiced liabilities recorded on an accruals account) but should be read in its commercial and factual context as referring to the sums Vickbar was entitled to receive from FLL in respect of management fees (whether invoiced or not), including VAT. The Court also held that the descriptive phrase "in the sum of approximately £10,000" was not a limiting qualification but a mistaken label (falsa demonstratio) and did not reduce the payable amount. The judge's reliance on the material provided to the joint expert valuer and his arithmetic calculation of the payable sum were upheld.

This appeal concerned an application to enforce a term in the schedule to a Tomlin order made on settlement of s.459 Companies Act 1985 proceedings between shareholders of a joint venture company. The Tomlin schedule provided for a buy-out of Vickbar Limited's 50% shareholding for a sum equal to half the expert valuation and contained clause 4 requiring that "on or before 21 November 2003, FLL repays outstanding accruals to P in the sum of approximately £10,000." Completion occurred on 5 December 2003. After completion the parties disputed the construction of "outstanding accruals": the respondent (Vickbar) claimed approximately £24,658 based on figures in the accounting material supplied to the joint expert; the appellants (DFL and FLL) contended that "accruals" bore the narrow accountancy meaning of uninvoiced liabilities recorded in an accruals account and that nothing was payable.

Nature of the claim: declaration and payment of a sum claimed under clause 4 of the Tomlin schedule (enforcement of settlement term).

Issues framed by the court:

• What meaning should be given to "outstanding accruals" in the schedule: narrow accountancy meaning or a broader commercial meaning including invoiced and uninvoiced entitlements?
• Whether the words "in the sum of approximately £10,000" operated as a limit on recovery or were merely a descriptive misstatement (falsa demonstratio).
• Whether it was permissible to have regard to the (disputed) documentary material supplied to the joint expert valuation when construing the schedule, and whether VAT formed part of the payable sum.

Court's reasoning: The court analysed the factual matrix (the s.459 proceedings, the joint instruction to Ernst & Young, the documentary material provided to the valuer, and the buy-out price equal to half the valuation). Against that background the expression "outstanding accruals" was held to be intended to capture the management fees Vickbar was entitled to receive up to the settlement date, whether invoiced or not. The presence of the valuation (and the fact the buy-out price matched half that valuation) made the accounting material a legitimate part of the background; the trial judge was entitled to have regard to it. The descriptive figure "approximately £10,000" was characterised as a bad estimate and not a limiting qualification. VAT was to be included because Vickbar routinely charged VAT on management fees.

Relief sought: declaration and payment of the sum adjudged due under clause 4.

Disposition: the appeal was dismissed and the county court order declaring and ordering payment of the specified sum was upheld.

Appeal dismissed. The Court of Appeal held that "outstanding accruals" in the Tomlin schedule should be construed in its commercial and factual context and not confined to a narrow accountancy meaning; the trial judge was correct to rely on the accounting material supplied to the joint valuer and to include VAT in the calculation. The words "in the sum of approximately £10,000" were a descriptive misstatement and did not limit recovery.

Appeal from Central London County Court (HHJ Cowell, HCY04401). Permission to appeal granted by Jacob LJ on 17 October 2005. This Court (EWCA Civ) heard the appeal and dismissed it on 30 November 2006 ([2006] EWCA Civ 1622).