Keisner v Terrus Group Ltd

A contractual earn-out arrangement is construed according to its wording and commercial structure. A deposit arrangement securing deferred consideration required sums to be deposited when due under the sale agreement and retained until redemption of the relevant loan note, although each seller could ordinarily consent to release of that seller’s share. Specific performance is inappropriate where it would require continuing judicial supervision of a company’s business, particularly where the contract has subsequently been performed. A parent or shareholder cannot recover losses suffered by a subsidiary where the subsidiary is the party in which the cause of action is vested. Unreasonable or disproportionate litigation does not ordinarily create a damages claim for breach of fiduciary duty.

Two related actions arose from business arrangements involving Mr Michael Keisner, Terrus Group Ltd, Evolution Trading Group Ltd and companies within the Terrus and Evolution groups.

In the first action, Mr Keisner alleged breaches of a share sale agreement concerning deferred consideration for the sale of QIC’s shares, including accounting, management charges, board participation and withdrawals from a designated account. He sought damages and specific performance. Terrus counterclaimed for losses allegedly caused by his conduct and litigation.

In the second action, ETG alleged that BUL breached a shareholders’ agreement governing ESSL by permitting unpaid stock transactions and a direct purchase from Marino. BUL counterclaimed in relation to conduct by Mr Keisner as an ESSL director.

1. Keisner action. Terrus had breached the agreement by delivering the 2003/04 earn-out accounts late and by excluding Mr Keisner from QIC’s board between March and 16 July 2004. Nominal damages were appropriate. The remaining claims for substantial damages failed.
2. The deposit account agreement required deferred consideration to be paid into the designated account when it became due under the sale agreement. The money was then to remain secured until redemption of the relevant loan note or consent to release. Properly construed, however, consent was required only from the seller whose share of the consideration was being released. The withdrawals therefore did not establish an actionable breach.
3. The £60,000 management charge was not deductible on the basis of agreement by the A and B directors because Mr Keisner was wrongly excluded from the relevant board meeting. It was nevertheless recoverable as a cost directly incurred wholly and exclusively on behalf of QIC. The challenge therefore failed on quantum and merits.
4. Specific performance was refused. Terrus had subsequently performed the agreement and paid the deferred consideration, so it was not shown to be unlikely to perform without an order. In any event, enforcing the operational obligations would require continuing supervision of QIC’s business, which was a bar to the remedy.
5. The counterclaim for breach of fiduciary duty failed. Mr Keisner’s directorial fiduciary duties to Terrus ended when his directorship ended. The proceedings, although disproportionate and an over-reaction, were not shown to have been brought solely to damage Terrus or QIC.
6. ETG action. The shareholders’ agreement regulated the exercise of shareholder powers in relation to ESSL. It did not give ETG a contractual claim against BUL for Baris’s failure to pay ESSL, nor was there evidence that BUL had controlled or authorised Baris’s conduct. ETG also lacked standing to enforce the covenant in clause 14, which was made with ESSL.
7. The Marino claim failed independently on its merits. ESSL had been given the opportunity to profit from the order but had unjustifiably cancelled it. The counterclaim likewise failed because the alleged losses were ESSL’s losses and the relevant conduct was undertaken by Mr Keisner as an ESSL director. The supply agreement was uncertain and unenforceable; had the ESSL claim been tried, judgment would have been given to ESSL and the counterclaim dismissed.

The judgment records earlier procedural steps in the same proceedings, including the withdrawal by consent of the winding-up petition, dismissal by consent of the interim relief application, and an earlier order striking out the ESSL claim as unauthorised, with a stay pending independent advice to ESSL’s board. No appeal from the present judgment is stated.