Alistair Kenneth Bruno Trow v Durmast Group Ltd

The court rejected Durmast's claim for misrepresentation arising from alleged statements or silence about the inter-company discount applied to transfers from SBF to PFC because the claimant (Duncan) did not prove that the alleged statements were made or that he had relied on them when agreeing the buy-out. The judge found the inter-company arrangements and accounting practice were long-standing, the 5% discount was reflected in statutory accounts, and contemporaneous material and the credible witness evidence (notably the financial controller) did not support the allegation of concealment or repeated statements to the contrary.

The court held that a redemption notice given by Rod substantially in the required form, accompanied by a solicitor's letter, was valid despite the certificate not being enclosed, and Rod was entitled to default interest from the accelerated payment date.

On employment claims the court decided that the agreed £120,000 'salary guarantee' was an informal shareholder-level understanding to be implemented flexibly (by salary, dividends or other routing) and was not a contractual obligation of the employer beyond the contractual salary of £89,034 which Durmast was obliged to pay; payments from various sources were treated as discharging Durmast's salary obligation first. Pension contributions made by PFC before the buy-out were to continue; however, enhancements to pension contributions authorised by Alistair and Rod as directors of PFC for the purpose of punishing Duncan were unenforceable against PFC. The claimant succeeds in part on unpaid contractual salary and on recovery of BUPA contributions.

This judgment resolves three consolidated first-instance claims between three brothers and two companies arising from the 2009 purchase by Durmast of PFC and SBF. The principal disputes concerned:

• an allegation by Durmast (effectively Duncan) of misrepresentation about the inter-company margin (discount) applied to sales from SBF to PFC;
• claims by the claimants (Alistair and Rod) for payment of loan notes issued on the buy-out;
• cross-claims and counterclaims relating to Alistair's employment, salary, bonus/dividend expectations, pension contributions and BUPA payments.

The court heard oral evidence from the brothers and from the companies' long-standing financial controller, and considered a bundle of documents together with late disclosure from the auditors who advised on the buy-out.

Nature of relief sought: Durmast sought damages for misrepresentation relating to the alleged understatement of the inter-company margin (claimed loss put at about £1.7m in principle); the claimants sought repayment of loan notes; Alistair sought unpaid salary, bonus/dividend and pension entitlements and recovery of BUPA contributions; PFC and Durmast sought recovery of alleged overpaid or misapplied benefits.

Issues framed by the court included whether representations (or silence amounting to representation) were made as alleged, whether such representations induced completion, whether loan note redemption formalities were observed, and whether informal shareholder arrangements for remuneration converted into contractual obligations enforceable against Durmast, together with the proper treatment of pension and BUPA payments.

Court's reasoning and conclusions:

• Misrepresentation: The judge found Duncan had not proven the alleged statements or a course of conduct amounting to representation. Key factors were the absence of contemporaneous documentary support, cogent evidence from the financial controller that all brothers had access to the same information and treated the businesses as a combined operation, implausibility of the asserted repeated statements, and inconsistent conduct by Duncan after the buy-out. The claim in misrepresentation therefore failed.
• Loan notes: A redemption notice served on behalf of Rod was held to be "substantially" in the required form; the absence of the certificate did not prevent a valid demand and Rod was entitled to default interest from the accelerated redemption date.
• Employment and remuneration: The alleged £120,000 "salary guarantee" was held to be an informal shareholder-level understanding intended to be implemented flexibly (salary, dividends or routed payments) rather than a contractual obligation of Durmast beyond the written contractual salary of £89,034. Payments from Durmast, PFC and other vehicles were to be treated as discharging Durmast's contractual salary obligation first; there remained a shortfall for which Durmast is liable.
• Pensions and BUPA: Assurances that pre-existing benefits would continue were binding so far as employer pension contributions continued at pre-buy-out levels. However, increases to pension contributions implemented by Alistair and Rod as directors of PFC for the purpose of punishing Duncan were a breach of duty and unenforceable against PFC. BUPA contributions were recoverable in accordance with the contract.

The judge invited the parties to agree the consequential financial figures or else seek directions for an account. The judgment determines key issues of fact and law at first instance and leaves certain quantifications to be agreed or to be dealt with on further account evidence.

At first instance the court dismissed Durmast's misrepresentation claim because the claimant did not establish that the alleged representations (or actionable silence) about the inter-company discount were made or relied upon; the court held that the 5% rate was reflected in the accounts and the evidence did not support concealment. The court held that Rod's redemption notice was substantially in the required form and therefore valid, entitling him to default interest from the accelerated date. The court held that the £120,000 "salary guarantee" was an informal shareholder arrangement and not a contractual obligation of Durmast beyond the written salary of £89,034; Durmast therefore remains liable for any unpaid contractual salary but not for an enforceable additional guaranteed salary of £120,000. Employer pension contributions existing before the buy-out continue to be enforceable, but enhancements imposed by directors of PFC for an improper purpose were unenforceable against PFC. BUPA contributions deductible under contract are recoverable. The court directed the parties to agree figures or obtain an account to quantify outstanding sums.