David Whelan Sports Ltd v JJB Sports

A contractual apportionment clause covering payments relating partly to periods before and after an effective time applies only where the relevant payment is properly attributable to such periods. A one-off payment is outside the clause where neither its contractual terms nor its nature apportion it to any period. This remains so where the payment economically reduces the cost of an asset acquired by a business and related lease payments span the effective time. The possibility that apportionment would give the buyer both the asset and an additional benefit may support the construction, but the decisive point is the absence of any period-based attribution.

The appellant acquired the respondent’s business under an agreement defining the assets and liabilities transferred at an Effective Time. Equipment used in the business was acquired through finance leases whose payments covered periods both before and after that time. Before the sale, the manufacturer had made a one-off payment to the respondent under arrangements reducing the effective cost of the equipment.

The High Court, sitting in the Manchester District Registry, held that the one-off payment did not fall within clause 11.6, which required certain expenditure, outgoings and payments to be apportioned on a time basis. The appeal concerned whether that payment should be apportioned alongside the lease payments.

1. Appeal dismissed. The Court of Appeal unanimously agreed with the construction adopted by HHJ Waksman QC.
2. Clause 11.6 required apportionment only of expenditure, outgoings and payments which related to a period falling partly before and partly after the Effective Time. The clause directed that the relevant amount be divided on a time basis between the seller and the buyer.
3. The lease payments were capable of apportionment because they arose under agreements extending over periods on both sides of the Effective Time. The manufacturer’s payment was different. It was a one-off payment and was not, by the terms of any contract or otherwise, attributable to any period.
4. The fact that the payment may have reduced the effective acquisition cost of equipment which passed to the buyer did not bring it within clause 11.6. The court also saw nothing necessarily unfair in that construction. If the payment were apportioned, the buyer might receive both the benefit of the equipment and the benefit of the apportionment.
5. Accordingly, there was no contractual basis for apportioning the one-off payment.

1. Court of Appeal (Civil Division): In [2012] EWCA Civ 96, the court dismissed the appeal unanimously.
2. High Court, Queen’s Bench Division, Manchester District Registry: HHJ Waksman QC, in a judgment given on 11 March 2011, held that the manufacturer’s one-off payment did not fall within clause 11.6 and was not subject to apportionment.