Kang v Eau

A contractual term entitling a vendor to receive sums from the purchaser is not an unlawful distribution by a company merely because the sums relate to the company’s VAT returns, where the entitlement is against the purchaser rather than the company. A representation may remain an effective misrepresentation even if contradicted by the written agreement, and an entire-agreement or no-reliance clause will not necessarily prevent reliance on it. The misrepresentation defence nevertheless fails where the alleged representations were not made, the purchaser suffered no attributable loss, and the parties’ agreement contradicts the asserted case. A party cannot obtain rescission after affirming the agreement.

The claimant and defendant, experienced restaurant operators and former spouses, entered into a share sale agreement under which the claimant and her mother sold their shares in Robata Ltd to the defendant. The consideration was payable by instalments, and the agreement also dealt with Robata’s pre-completion debts and the claimant’s entitlement to Robata’s VAT returns.

The defendant withheld most of the consideration and counterclaimed, alleging misrepresentation, breach of collateral warranty or implied term, illegality under sections 829 and 830 of the Companies Act 2006, and other matters. The central issues were whether the alleged representations had been made, whether the agreement was otherwise enforceable, and whether the defendant could rescind or set off sums paid under separate arrangements.

1. Misrepresentation. The court accepted that a representation could be an effective misrepresentation even where it was contradicted by the terms of the written agreement. The claimant could not rely solely on the no-reliance and entire-agreement provisions to defeat such a claim. However, the defence failed on the facts: no representation had been made that the claimant would remain liable for Robata’s DTI/Lloyds Bank loan or that Robata had no creditors other than those identified by the defendant.
2. The parties had already agreed that the buyer would be responsible for the DTI/Lloyds Bank loan. The defendant’s contrary account was inconsistent with the contemporaneous Korean note, his witness statement, the pleadings and his solicitors’ correspondence.
3. There was no collateral warranty or implied term requiring the claimant to discharge the pre-24 December 2008 debts within a reasonable or particular time. The defendant had suffered no loss attributable to any failure to discharge those debts promptly.
4. Companies Act 2006. Clause 2.5 of the share sale agreement was not contrary to section 830 and was not illegal. The claimant’s entitlement was against the defendant, not against Robata, and therefore did not amount to a distribution by Robata under section 829.
5. The defendant had affirmed the agreement in several ways after purporting to rescind it and was not entitled to rescission. There had been no breach by the claimant and no basis for damages for misrepresentation or breach of contract. Any restitutionary claim concerning payments to Mr Cho or the £244.68 payment did not form part of these proceedings.
6. The claim succeeded for £170,000 and £14,579. The entirety of the counterclaim was dismissed.