Auden MckEnzie (Pharma Division) Ltd & Ors v Patel & Anor

Summary judgment is appropriate where the issue is clear, the defendant has no real prospect of success, and no other reason justifies leaving it for trial. A company’s members cannot rely on the Duomatic principle to validate dishonest payments made for personal benefit and tax evasion. In assessing equitable compensation, the court may consider subsequent events and adopt a practical, common-sense approach to causation, but it must assess what actually happened rather than speculate about unpursued alternatives. Contractual earn-out disputes involving arguable constructions, implied terms concerning unlawful pricing or legally required divestment will ordinarily require trial where the claim has a real prospect of success. A claim should not be struck out merely because loss may be fact-sensitive or future consequences remain under investigation, although the pleadings must state the material case clearly.

The claim arose from the sale of a pharmaceutical business under a share purchase agreement. The claimants alleged that the defendants had procured dishonest payments from the company, made fraudulent misrepresentations concerning the business, and breached obligations affecting earn-out payments. The applications concerned summary judgment, strike out, an interim payment and amendments.

The court considered whether the first defendant could resist recovery of payments made against false invoices by relying on member approval and arguments about hypothetical lawful payments; whether the second claimant had a real prospect of establishing entitlement to, or liability for, second-year earn-out payments; whether divestment of the hydrocortisone business breached the agreement; and whether the second claimant could show loss in deceit despite assignment and payment arrangements.

1. False-invoice payments. The first defendant had no real prospect of defending the claim for the payments. The Duomatic principle could not validate conduct of this nature. Member assent cannot make lawful conduct that was dishonest, falsely described as research and development, intended to benefit the members personally and structured to evade tax. The principle is confined to honest transactions, as stated in Parker and Cooper Ltd v Reading [1926] Ch 975, approved in Randhawa and Another v Turpin and Another [2017] EWCA Civ 1021; [2018] Ch 511.
2. Equitable compensation and causation. Subsequent events may be considered when assessing equitable compensation, but the inquiry is factual and must use hindsight in a practical and common-sense manner. The court rejected speculation that the defendants would have pursued alternative lawful routes to extract the money. The company would still have retained the money absent the unlawful payments, subject to credit for the tax rebates recovered.
3. Earn-out claims. The second claimant had a real prospect of succeeding on arguments that “amount invoiced” meant true and correct invoices and that an implied term could take account of the cost and consequences of unlawful pricing. It had no real prospect of establishing an indefinite postponement of the statement obligation. The alleged legally required divestment could involve an implied term and was left for trial.
4. Deceit and pleadings. The court declined to determine summarily whether a party retaining liability under a purchase transaction could show loss where the price was paid on its behalf. The issue was fact-sensitive. Possible losses arising from the Competition and Markets Authority investigation were unsuitable for strike out while the investigation remained incomplete, but the claimants were directed to clarify the material facts relied on.
5. Summary judgment was entered for £13,149,569 on the false-invoice payments. A declaration was made that the second claimant was in breach of its obligation to provide the second-year yearly earn-out statement. The remaining issues were left for trial; no statements of case were struck out.