Cavendish Square Holding BV v Team Y&R Holdings Hong Kong Ltd, Court of Appeal - Commercial Court, October 26, 2018, [2018] EWHC 2755 (Comm)

Resolution Date:October 26, 2018
Issuing Organization:Commercial Court
Actores:Cavendish Square Holding BV v Team Y&R Holdings Hong Kong Ltd

Claim No. CL-2015-000901

Neutral Citation Number: [2018] EWHC 2755 (Comm)




Date: 26 October 2018




- - - - - - - - - - - - - -








- - - - - - - - - - - - - -

Joanna Smith Q.C., Richard Leiper Q.C. and Emily McKechnie (instructed by Simkins LLP) for the Claimants/Applicants

Charles Béar Q.C. and Edward Levey (instructed by Holman Fenwick Willan LLP) for the Defendant/Respondent

Hearing Dates: 11 and 16 October 2018

- - - - - - - - - - - - - -

JUDGMENTFactual Background: the SPA

  1. This is the Claimants' application for summary judgment. The Claimants seek a declaration that the Defendant (``Mr Ghossoub'') is a Defaulting Shareholder within the meaning of a Sale and Purchase Agreement dated 28 February 2008 (the ``SPA'').

  2. By the SPA, the WPP group acquired from Mr Ghossoub and his then business partner (Mr Makdessi) a majority stake in a group of media businesses based in the Middle East known as the TEAM Group. Initially, the purchaser was identified as Young & Rubicam International Group BV but, by a novation, the purchaser became the First Claimant. As a result of the SPA, the First Claimant became the majority shareholder in the Second Claimant owning 60% of the issued share capital. Mr Ghossoub and Mr Makdessi remained the holders of 40% of the shares between them.

  3. From around September 2009 the group of businesses headed by the Second Claimant (and previously trading as TEAM) were rebranded under the name ``Menacom'' which I will use in this judgment.

  4. The SPA contained specific provisions dealing with Protecting the Goodwill of the Business.

  5. Clause 11.1 provided that

    ``Each Seller recognises the importance of the goodwill of the Group to the Purchaser and the WPP Group which is reflected in the price to be paid by the Purchaser for the Sale Shares. Accordingly, each Seller commits as set out in this Clause 11 to ensure that the interest of each of the Purchaser and the WPP Group in that goodwill is properly protected''.

  6. Clause 11.2 restrained Mr Ghossoub from undertaking certain activities that could damage goodwill. Clause 11.2 provided that:

    ``Until the date 24 months after the Relevant Date, no seller will directly or indirectly without the Purchaser's prior consent:

    (a) carry on or be engaged, concerned or interested in competition with the Group, in the Restricted Activities within the Prohibited Area;

    (b) solicit or knowingly accept any orders, enquiries or business in respect of the Restricted Activities in the Prohibited Area from any Client;

    (c) divert away from any Group Company any orders, enquiries or business in respect of the Restricted Activities from any Client; or

    (d) employ, solicit or entice away from or endeavour to employ, solicit or entice away from any Group Company any senior employee or consultant employed or engaged by that Group Company''

  7. Pursuant to clause 11.4, ``directly or indirectly'' means ``carrying out any of the prohibited activities on the Seller's own behalf or jointly with, or as servant, agent, manager, employee, consultant, director or shareholder of any other person, firm, company or body''.

  8. By schedule 12 of the SPA:

    8.1 ``Relevant Date'' means the later of the date of termination of Mr Ghossoub's employment by Menacom, the date that he no longer holds any Shares or the date of payment of the final instalment of the Option Price pursuant to Clause 15.5(b) of the SPA;

    8.2 ``Restricted Activities'' means the provision of products and/or services of a competitive nature to the products and/or services provided by Menacom in the 12 months prior to the Appropriate Date.

    8.3 ``Prohibited Area'' means any countries in which Menacom has carried on the Business at any time in the period of 12 months prior to the Appropriate Date.

  9. The Appropriate Date for the purposes of this application is 31 March 2008.

  10. The significance of clause 11.2 in the context of this application is that the SPA defines a Defaulting Shareholder as including a Seller who is in breach of clause 11.2.

  11. If a Seller is a Defaulting Shareholder, then the First Claimant has the right to require that Seller to sell his shares at the Defaulting Shareholder Option Price pursuant to Clause 5.6 of the SPA, which provided as follows:

    ``Each Seller hereby grants an option to the Purchaser pursuant to which, in the event that such Seller becomes a Defaulting Shareholder, the Purchaser may require such Seller to sell to the Purchaser (or its nominee) all (and not some only) of the Shares held by that Seller (the Defaulting Shareholder Shares). The Purchaser (or its nominee) shall buy and such Seller shall sell with full title guarantee the Defaulting Shareholder Shares (free from all Encumbrances but together with the benefit of all rights attaching to the Defaulting Shareholder Shares at the date of transfer) within 30 days of receipt by such Seller of a notice from the Purchaser exercising such option in consideration for the payment by the Purchaser to such Seller of the Defaulting Shareholder Option Price.''

  12. The ``Defaulting Shareholder Option Price'' is defined as:

    ``an amount equal to the Net Asset Value on the date that the relevant Seller becomes a Defaulting Shareholder multiplied by A%, where ``A%'' means the number of Shares sold by the relevant Seller as a proportion (expressed as a percentage) of the entire issued share capital of the Company''.

  13. By contrast, where the Seller is not a Defaulting Shareholder, it is the Seller that has the right to put his shares on to the First Claimant so as to require the First Claimant to buy him out at the Option Price pursuant to clause 15.1.

  14. There may be a significant difference between the two prices since the Defaulting Shareholder Option Price is defined by reference to the Net Asset Value on the date that the relevant Seller becomes a Defaulting Shareholder whereas the Option Price is defined by reference to 8 x operating profits after tax. The former does not include an element to reflect the goodwill of the business. Whether the two prices would produce a substantial difference in this case is not a matter that I need to decide.

    Factual Background: Notice of alleged default

  15. By a letter dated 21 December 2015 the Claimants served notice pursuant to clause 5.6 of the SPA requiring Mr Ghossoub to sell his shares to the First Claimant at the Defaulting Shareholder Option Price. To date, Mr Ghossoub has refused to transfer his shares.

  16. The Claimants contend that Mr Ghossoub is a Defaulting Shareholder because he acted in breach of clause 11.2 of the SPA and that Mr Ghossoub has no real prospect of establishing the contrary at trial. Mr Ghossoub denies that he is a Defaulting Shareholder and contends that the issues which this raises are not suitable for determination on a summary judgment application. Mr Ghossoub says that the inquiry that is needed is intrinsically fact sensitive.

    Legal Principles: summary judgment

  17. I have been referred to a number of authorities dealing with the test to be applied by the Court on a summary judgment application. These authorities include: Swain v Hillman [2001] 1 All ER 91; Royal Brompton Hospital NHS Trust v Hammond (no 5) [2001] EWCA Civ 550; Doncaster Pharmaceuticals Group Ltd v Bolton Pharmaceutical Co 100 Ltd [2007] FSR 63; Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch) per Lewison J at [15]; Lexi Holdings (In Administration v Pannone & Partners [2009] EWHC 2590 (Ch) per Briggs J at [4]; Mellor v Partridge [2013] EWCA Civ 477 at [3]; Arcadia Group Brands Ltd v Visa Inc [2014] EWHC 3561 (Comm) per Simon J at [19]; Aquila WSA Aviation Opportunities II Limited v Onur Air Tasimacilik AS [2018] EWHC 519 (Comm) per Cockerill J at [27].

  18. I do not understand there to be any real dispute between the parties as to the principles which apply. The overriding test is that the court must consider whether Mr Ghossoub has a ``realistic'' as opposed to a ``fanciful'' prospect of success. A ``realistic'' claim means one that carries some degree of conviction and is more than merely arguable.

  19. The authorities make it clear that summary judgment is not appropriate if the application requires the Court to conduct a ``mini-trial''. Nor is it appropriate if the Court concludes that reasonable grounds exist for believing that a fuller investigation into the facts at trial would add to or alter the evidence available to the trial judge and so affect the outcome of the case. However, this does not mean that the court must take at face value and without analysis everything that a party says in his statements before the Court. In some cases it may be clear that there is no real substance in factual assertions made, particularly if contradicted by contemporaneous evidence. Moreover, it is not enough for the respondent to argue that the case should be allowed to go to trial because evidence currently unavailable might turn up in time for trial. In order for the Court to conclude that there is a real prospect of a successful defence, the Court must be in a position to conclude that there is a real prospect that material will become available in time for trial that will make good the defence relied upon. If instead the Court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it.

    Legal Principles: contractual construction and construction of the SPA

  20. So far as issues of contractual construction arise, I was referred, in particular, to the decision of the Supreme Court in Wood v Capita Insurance Services Ltd [2017] AC 1173...

To continue reading