Rayden & Anor v Edwardo Ltd & Anor

Where a share sale agreement provides for a cash alternative but does not expressly state its payment date, the court may construe the agreement commercially and purposively. If the purchaser is deemed to have elected cash, payment may fall due within the completion mechanism rather than at the purchaser’s option.

Mandatory insolvency set-off against a principal debtor does not necessarily discharge a guarantor’s separate primary obligation. The result depends on the construction of the guarantee.

Rescission has no realistic prospect where the contract has been affirmed, misrepresentation is unsupported or immaterial, damages are an adequate alternative, or restitution cannot realistically be achieved.

The claimants sought payment of outstanding consideration under a share sale and purchase agreement and summary judgment against the second defendant under his guarantee of the first defendant’s obligations.

The first defendant had entered members’ voluntary liquidation and raised warranty claims, statutory set-off and rescission. The issues against the guarantor were whether the cash consideration had fallen due, whether insolvency set-off defeated the guarantee, and whether the rescission case gave rise to a realistic prospect of successfully defending the claim.

1. Payment date. On a commercial and purposive construction of the agreement, the second completion date, where the purchaser failed to give the required notice and was deemed to have elected the cash alternative, was six business days after the deemed election. The agreement’s drafting was infelicitous, but the alternative construction would make payment dependent on the purchaser’s option and would be commercially absurd. The £20,000 monthly reduction operated as a discount for early payment, not as an election to defer payment until 31 December 2008. The construction point was decided as a preliminary issue under CPR 3.1.
2. Guarantee and insolvency set-off. The statutory set-off rules under Rule 4.90 applied in a members’ voluntary liquidation and could not be contracted out of as against the company. However, the parties could agree a guarantee requiring payment by the guarantor notwithstanding that set-off. The guarantee imposed a primary and separate obligation to procure payment without set-off and contained sufficiently broad provisions to preserve the claim against the second defendant.
3. Rescission. By formally advancing warranty claims and making further contractual payments, the defendants affirmed the agreement. The evidence did not provide solid grounds for fraudulent or non-fraudulent misrepresentation. Any possible breach appeared technically minor, caused no established loss, and was covered by contractual warranties. Even if rescission were available, damages would probably be awarded instead under section 2(2) of the Misrepresentation Act.
4. Rescission was also unavailable because restitutio in integrum was not realistically possible. The business had been substantially reorganised and integrated after the agreement, and the claimants had ceased involvement in its operation.
5. Summary judgment was therefore given for the claimants against the second defendant in the sum of £3.2 million, subject to the stated credit, together with the declaration for monthly instalments and liberty to apply.

not stated in the judgment.