Clearwell International Ltd v MSL Group Holdings Ltd & Anor

The Court of Appeal dismissed Clearwell's appeal against the High Court judgment awarding Messrs Clark and Lauretti sums equivalent to their shares of the final instalment of Weatherford's licence fee. The court upheld the trial judge's factual findings that an oral agreement was reached on 12 December 2006, that it constituted a binding (albeit simple) contract and that the arrangements were not an unlawful distribution of company assets. The Companies Act 1985 provisions relevant to distributions (in particular section 263(1) and section 281) and the authorities on distributions and appellate review were considered in support of the conclusion that the payments reflected remuneration for services and were not a disguised return of capital.

Background and nature of the claim:

Clearwell was sued by MSL and by Messrs Clark and Lauretti for sums due as each director's share of the final instalment under a licence fee received from Weatherford. Claimants relied on an alleged oral agreement made at a meeting on 12 December 2006 dividing licence receipts between the directors and Hydropath. The High Court (Sir Raymond Jack) found for the Claimants and awarded judgment; Clearwell appealed.

Procedural posture:

• The appeal was from the High Court (HQ11X00933) judgment handed down 6 January 2012. Clearwell sought permission on multiple grounds; the trial judge granted permission to appeal on the illegality/unlawful distribution ground and refused permission on others. Clearwell continued to press five grounds in the Court of Appeal.

Issues before the Court:

• Whether the trial judge erred in permitting amendments to the pleadings and whether the case as tried departed from the pleaded case.
• Whether the trial judge was wrong to find that a binding oral agreement was made on 12 December 2006.
• Whether the agreement (if found) was unenforceable because it amounted to an unlawful distribution of company assets contrary to the Companies Act 1985 and the common law.

Reasoning and outcome:

• The Court of Appeal declined to re-open the trial judge's credibility findings, emphasising the narrow scope for appellate interference on primary fact and assessments of witnesses. It held that the learned judge had properly found that a simple, binding agreement was made, and that it was not void for uncertainty.
• On the pleading point, the Court agreed with the trial judge that the pleaded case could legitimately be read as an agreement that the directors would provide services as and when required; in any event any departure would not have affected the conduct or outcome of the trial.
• On illegality, the Court accepted the trial judge's finding that the payments reflected remuneration for substantial services performed and expected to continue, that the arrangements were bona fide and not a disguised return of capital, and therefore not unlawful under section 263(1) Companies Act 1985 or on common law principles. Authorities and principle on distributions and appellate review were applied to support that conclusion.

Relief sought: Judgment and payment of sums by Clearwell to the Claimants; the appeal sought to overturn that judgment.

The appeal was dismissed. The Court of Appeal upheld the trial judge's findings that (i) an oral agreement was made on 12 December 2006 which was a binding simple contract; (ii) the pleaded case was not unfairly broadened and any variance would not have altered the trial; and (iii) the agreement did not amount to an unlawful distribution under the Companies Act 1985 or at common law because the payments reflected remuneration for services and were bona fide and not a disguised return of capital.

Appeal to the Court of Appeal from the High Court of Justice, Queen's Bench Division (Sir Raymond Jack), HQ11X00933. Judgment below handed down 6 January 2012. The trial judge granted permission to appeal only on the unlawful distribution point but refused permission on other grounds; the appellant pursued five grounds in the Court of Appeal and the appeal was dismissed ([2012] EWCA Civ 1440).