Neutral Citation Number:
[2003] EWHC 1119 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts
of Justice
The Strand
London WC2A 2LL
Thursday 8th May 2003
Before:
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Between:
-and-
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MR A WALKER appeared
on behalf of the Claimant
MR D BAYFIELD appeared on behalf of the Defendant
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1. This is the application of Time Group Limited for an injunction restraining OT Computers Limited from presenting a winding up petition based on the sum of £506,194.86, or any part thereof, and the subject matter of a statutory demand dated 5th November 2002 served on Time Group on 8th November. Since the proceedings were instituted, OT Computers has agreed that Time Group is entitled to credit for various amounts. The question now is whether in addition to those credits, it is entitled to a further credit for at least £352,450.
2. OT Computers assembled and supplied personal computers under the names of Tiny and Opus. In the course of that business, they also sold extended warranties in respect of computers so supplied. The liability under those warranties was largely but not entirely back by insurance cover. The services supplied thereunder were performed by Computer Care International Limited, an unconnected company nominated by the insurers.
3. On 29th January 2002, three insolvency practitioners with Grant Thornton were appointed as administrators of OT Computers for the purpose of the more advantageous realisation of its assets. This they sought to accomplish by a sale agreement made the following day, 30th January 2002, whereby Time Group bought the business and assets of OT Computers and its associated companies, Opus Technology Limited and Tiny Computers Limited.
4. The relevant terms of that agreement were the following. The price was £1.25 million, apportioned as to £1 each to Opus and Tiny, and the balance to OT Computers, apportioned between various classes of asset. The purchase price was payable by instalments of £550,000 on completion and £40,000 per month from June to September 2002 with a final payment of £540,000 due on 1st October 2002. Clause 9.3 dealt with the provision by Time Group of warranty cover in liaison with the pre-administration provider, Computer International Limited. Clause 9.3.1 is central to the dispute in this case and I will quote it. It is at page 162 of the bundle:
9.3 Warranty cover and support. Following the completion date, the purchaser [Time Group] shall provide the following warranty cover and support to customers.
9.3.1 For customers who have the benefit of an insured warranty, the support shall comprise for the term of the original insured warranty, a) liaison with Computer Care and the relevant insurers to attempt to resolve any customer support issues, b) if Computer Care ceases to trade, the purchaser will co-operate with the administrators to establish similar support arrangements.
9.3.2 For any customers that have a valid warranty claim against the company, the support shall comprise for the term of the original insured warranty, a) telephone technical support using the purchaser's usual support facilities, b) a return to base service with carriage at the customer's cost with labour services, c) replacement parts free of charge up to the first 3 years of the original warranty period, and d) parts charged at cost during any part of the original warranty period in excess of 3 years.
5. There were other provisions in the agreement which were referred to in the skeleton arguments but not in oral argument, namely Clause 24.1 which specified that the contents of the document represented the entire agreement between the parties. Clause 27 which excluded set off in wide terms against sums due from Time Group to OT Computers. Clause 28.1 which precluded waiver affecting the rights of either party. Clause 28.2 which provided that variations to the contract might only be made in writing. The contract was completed on the same day when £550,000 was duly paid by Time Group to OT Computers' administrators. No further sum has been paid since.
6. In February 2002, the insurance backing for the extended warranty claims appears to have been repudiated by the insurer on the basis of non payment of the premium due the previous July. Time Group's claim relates to the provision by Time Group of the necessary services since then, allegedly at the request of the administrators. On 26th April 2002, OT Computers' administrators wrote to Time Group's personnel setting out what they understood was the proper operation of Clause 9.3. I quote from page 24 of the bundle:
The Clause deals with two types of warranty provided by the company – the extended warranty and the basic or statutory 12 month warranty. The commercial intention, as negotiated between the administrators and Time Group Ltd with Ernst & Young, was as follows. Extended warranties – Time did not wish to be committed to any liability as the costs of the scheme were difficult to quantify but were thought to be substantial. The administrators accepted this but, like Time, were concerned about the position of Computer Care as scheme administrator. Accordingly, we insisted and Time agreed that it would liaise with Computer Care or its successor so that the administrators have access to the relevant scheme documentation.
Basic warranty – It was recognised during the negotiations between Time and the administrators that the normal warranty offered by Tiny to its customers went beyond that which would be required under law as a normal 12 month warranty. Concern was expressed by Time as to the extent of the obligation which Time might be taking on, particularly in respect of free parts and carriage costs. It was agreed that Time would provide a warranty going forward which was equivalent to that offered to its own customers, recognising that this was less onerous than offered by the company to its customers.
Accordingly, the wording of Clause 9.3.2 reflects this compromise, such that all customers would benefit from the warranty, that Time would not have an unduly onerous obligation posed on it.
I do not understand that that summary is in substance disputed and it is therefore relevant evidence as to the background against which the agreement was negotiated and concluded.
7. On 11th June 2002, Computer Care went into administration. Thereafter, on 30th September 2002, Time Group tendered to OT Computers a cheque for £71,494.86. It claims to have an additional cross-claim of £352,450. This was described in the first witness statement of Mr Crowley, made on behalf of Time Group, as, "sum due claimed on 30th September '02 to 31st July '02 in respect of Time's support for EWCs", being a reference to extended warranty claims. By contrast, OT Computers claimed that the £506,194.86 was due but, as I have indicated, have since conceded certain other set offs and counterclaims, such that the only issue now is the validity or otherwise of the cross-claim for £352,450.
8. As I have already related, the statutory demand which was served on 8th November 2002 claimed a larger sum. The application now before me was issued on 5th December of that year. The evidence in support of it was not provided to the respondent, OT Computers, until 11th February 2003. It took the form of the first witness statement of Mr Crowley, on behalf of Time Group. He contended, amongst other things and I quote paragraphs 30.11 and 30.13 of that witness statement at page 143 of the bundle:
30.11 As a result of the difficulties with Computer Care and increasing numbers of direct customer complaints, both to the administrators and to Time, Time was forced into an impossible position. Although it still had no liability to provide any EWC support to cover under the sale and purchase agreement, no one else was doing so effectively. We became concerned that we had little commercial choice but to try to provide an alternative interim EWC support scheme itself in order to preserve the value of the business and assets which it had purchased from OTC, pending the administrators arranging for a new scheme to replace the Computer Care scheme.
30.13 As a result of their concerns, the administrators, on behalf of OTC, asked Time to provide interim EWC support cover for former OTC customers. Initially their requests related to those customers who had purchased their products by cheque or debit card or with cash. The reason for the administrators singling out these customers was that they had no additional claim against a finance company or credit card company under Section 75 of the Consumer Credit Act 1974. Before long, however, the administrators' request, on behalf OTC, extended increasingly to customers who had purchased with finance or by credit card, particularly as increasing numbers of customers moved from reliance on the standard 1 year support package to reliance on their EWCs.
9. That evidence was answered on 14th March 2003 by a witness statement of Mr Hoskey on behalf of OT Computers. In relation to the passages I have quoted from Mr Crowley's witness statement, he said this and I quote paragraph of his witness statement at page 9 of the bundle:
The administrators did not ask the applicant to provide interim EWC support, as suggested by Mr Crowley's witness statement in paragraphs 30.13 and 30.14 and elsewhere. Whether or not the applicant had a commercial choice whether to do so is a matter for the applicant. Mr Crowley has failed to produce any documentary evidence to support his allegations. He is unable to do so because the allegation is untrue.
10. On 7th May, that is to say yesterday, a witness statement in reply from Mr Crowley on behalf of Time Group was produced. Counsel for OT Computers objected to its lateness but I allowed Time Group to rely on it because it did not appear to me to raise any new issues. In particular, it did not deal at all with the question of a request by OTC to Time Group to provide the relevant EW services which had been plainly raised by paragraph 25 of the witness statement of Mr Hoskey.
11. I turn then to the issues before me. It is common ground that the test to be applied is that formulated by the Court of Appeal in Re Bay Oil [1999] 1 BCLC 62. I take the proposition as sufficiently indicated by the head note in these terms:
A petition for a winding up order should not be allowed where there existed a genuine cross-claim. A cross-claim must be genuine and serious or one of substance. It must be an amount exceeding the amount of the petitioner's debt ... Nevertheless there exists a residual discretion which allows the Judge to ask himself in each case whether there are special circumstances which might make it inappropriate for a petition to be dismissed or stayed.
12. Counsel for Time Group submits that such test is satisfied in relation to the cross-claim for £352,450 on two bases. 1) Breach of an implied term and, 2) unjust enrichment. I will, as counsel did, take them in that order. First, breach of an implied term. This is said to arise from the terms of Clause 9.3.1 of the sale of purchase agreement which I have already quoted. It is submitted that the Clause envisages that services will continue to be provided for those with EWC claims and for that purpose, the insurance money will be applied for that purpose and not for the benefit of unsecured creditors generally. The obligations, which it is claimed should be implied, are that, 1) OTC would continue to maintain the existing support for customers and, 2) OTC would co-operate with Time Group to establish a similar scheme if Computer Care ceased to trade.
13. Time Group claims that OT Computers failed to perform such obligations in that it did not maintain the existing support, nor co-operate in the provision of any similar alternative support scheme. The loss sustained in consequence is the cost to Time Group of doing so, with the result that OT Computers is liable to Time Group in the amount claimed. OT Computers disputes this contention. Counsel relies on the context in which the agreement was made, namely the insolvency of OTC, the obligations of the administrators with regard to the purpose of their appointment and their duty to pay regard to the interests of OTC's creditors generally. In addition, counsel for OT Computers relies on the wording of Clause 9.3.1.
14. I do not accept the submissions of counsel for Time Group. First, it would be surprising if the administrators of an insolvent company were to assume the obligations of which Time Group contends. Second, the express wording of Clause 9.3.1 is inconsistent with any such obligations. The Clause deals with the obligations of Time Group, not with OT Computers. Third, there is no basis on which to make any such implication. It is not necessary, nor obvious, nor required to give the contract business efficacy. Accordingly, I reject this part of Time Group's case.
15. I turn then to the issue of restitution. Counsel for Time Group puts his case in three ways. First, that Time Group provided the extended warranty services at the express request of OT Computers. Second, that the request of OT Computers is to be inferred from its acceptance of the benefit. Third, the existence of the incontrovertible benefit to OT Computers, as it has been described. Each of these contentions is supported by passages from Goff and Jones on Restitution. Thus, in relation to the first and second propositions, I was referred to paragraph 1-019, which provides as follows:
For that reason, the common law originally concluded that a defendant could be said to have benefited from the receipt of services only if he had requested them. A true request would normally lead to the conclusion that the defendant who requested the services has contractually bound himself to pay for them. But a defendant who is not contractually bound may have benefited from services rendered in circumstances in which the court holds him liable to pay for them. Such would be the case if he freely accepted the services. In our view, he will be held to have benefited from the services rendered if he, as a reasonable man, should have known that the plaintiff who rendered the services expected to be paid for them and yet he did not take a reasonable opportunity open to him to reject the proffered services. Moreover, such a case he cannot deny that he has been unjustly enriched.
16. The third proposition, namely incontrovertible benefit, though more debatable, is supported by the following passage from Goff and Jones in paragraph 1.023. There the editors say:
At one time, English courts did not enquire whether a defendant had been incontrovertibly benefited. He was not deemed to have received a benefit unless he requested or freely accepted the services. But other jurisdictions did consider it critical that he had been incontrovertibly benefiting even though he had not requested the services.
Reference is made to provisions of the Indian Contract Act and decisions of the Supreme Court of Canada and the United States.
The editors then continue:
There is much to be said for the view that a person has been incontrovertibly benefited if a reasonable person would conclude that he has been saved an expense which he otherwise would necessarily have incurred or where he has made, in consequence of the plaintiff's acts, a realisable financial gain.
Such a principle as that described was recognised by Hirst J, as he then was, in The Manila [1988] 3 All ER 843 at p.855.
17. But other passages in Goff and Jones show that the second and third propositions will not apply if the benefit is conferred incidentally while acting in one's own interests (see paragraph 1-078) or if the benefit is conferred on one who neither asked for nor wanted the benefit in fact conferred (see paragraph 1-080).
18. The problem for counsel for Time Group is that the facts of the case do not come within the propositions on which he relies. First, there is no adequate evidence of any express request by OT Computers to Time Group to provide the services for the extended warranty claims. The issue was squarely raised by paragraph 25 of the witness statement of Mr Hoskey. Notwithstanding a lapse of two months, no evidence to support the assertion contained in paragraph 30.13 of Mr Crowley's first witness statement was adduced by Mr Crowley in his second witness statement.
19. In fact, all the evidence is the other way. Thus, on 18th March 2002, Time Group issued a press release, it states as follows:
The Time Group and Trading Standards are warning 80,000 Tiny customers that they face uncertainty because of the failure of the credit card industry to co-operate in a way that will help owners and warranties. The Time Group recently rescued Tiny from the administrators. It did not purchase any of the liabilities, including warranties, believing them to be insured. Once the deal was done it became clear that customers' warranty provision was woefully inadequate. Time has a support company, Total Care, which has the ability to provide telephone and repair services for all the Tiny customers. This service is currently supporting over 280,000 cash and finance customers left in the lurch by the previous management of Tiny. Total Care is committed to working in the best interests of all Tiny customers. Therefore, once the huge multi million pound shortfall was identified, it made a commitment to look after customers who paid by cash/cheque. It is unusual in circumstances like these for cash customers to get support, reference when Tempo folded earlier this year. The Group decided to ensure that all 75,000 cash paying customers would get cover as other forms of protection did not cover them. The cost of this is borne by Time Group. We hope that the other companies liable for customers under the Consumer Credit Act would also ensure as little consequence to customers as possible. Whilst First National Tricity has realised its responsibility and is working with Time to ensure customers who bought goods on finance receive full support, the credit card companies are currently refusing to co-operate. As a result, Total Care is at this point unable to provide any more than telephone support to these customers.
20. Some five weeks later on 26th April 2002, the administrators wrote to Time Group in these terms:
In relation to extended warranties the position is as negotiated by you, i.e. Time has no obligation other than to liaise with Computer Care or their successor. In relation to the basic warranty, you confirmed that the provision in the contract was equivalent to the support provided routinely by Time and that in any event, you are exceeding the level of support required under the contract. I understand that you have been providing support to customers at Time's expense. This is a matter for Time. But presumably the position is broadly FMTF, I assume that you are recovering any costs incurred from them. Credit cards, I assume you are not incurring any significant costs due to the impasse with the credit card companies. Cash, I understood that you are providing support to this residual category as a goodwill gesture. You mentioned that your costs were running at about £150,000 a month. Is this gross or net of recoveries from FMTF? Kieron [that is Mr Crowley] sent me a note this week quoting costs of £500,000 per month. What actual support does this relate to and do you have a schedule of support for this?
21. Three days later, on 29th April 2002, there was a meeting between the administrators and representatives of Time Group. There is an extensive note of that meeting but no indication in the note that OTC would be liable for the cost of Time Group providing the extended warranty support services it was in fact supplying at the time. But on 11th October 2002, the administrators for OT Computers wrote to Mr Crowley, the opening paragraph of which reads as follows:
I am writing to summarise the progress made and issues arising in connection with the proposed scheme of arrangements. This letter is confidential and written for your information only in the knowledge that Time Group Ltd expects to lodge a subrogated claim in the administration. It should not be copied or reproduced without our prior consent.
The letter continues in terms that do not appear to be material.
22. That letter appears to me to be the only documentary reference to any possibility that Time Group will have some sort of claim against OT Computers, but it is by no means clear from that letter and the evidence does not explain, quite what the claim was thought to be. At all events it was, to some extent at least, overtaken by events because a search on 11th March 2003 indicates that even at that late stage the Time Group website records the following, and I quote from page 83 of the bundle:
When Tiny went into administration there were three types of customers left without support or goods. These customers were differentiated by how they paid for their goods. The type of payment gave clear direction as to the liability of the goods and services that cannot be supplied because of the administration of the company. The payment types were cash, credit finance and credit card. Total Care is committed to working in the best interests of all Tiny customers. Therefore, it made and is honouring commitments to look after customers who paid by cash/cheque. It is unusual in circumstances like these that these customers get support, reference when Tempo folded earlier this year. The Group decided to ensure that all 75,000 cash paying customers would get cover as other forms of protection did not cover them. The cost of this is borne by Time Group. We hope that the other companies liable for customers under the Consumer Credit Act would also ensure as little consequence to customers as possible. Whilst First National Tricity Finance is working with us to ensure that the customers who bought goods on finance are covered, the credit card companies are currently refusing to co-operate and would rather that we pass all customers on to them to receive funds. As a result, Total Care at this point is unable to provide any more than telephone support to customers who paid by credit card.
It is true, as counsel for Time Group pointed out, that most of that can be traced back to the press release of 18th March 2002. But the fact is that it was the continuing proclamation of Time Group through its website throughout the period of a year in between that the cost of the exercise was being borne by Time Group.
23. All this has to be considered in the light of a conspicuous lack of any express request for payment or indeed for any supplemental agreement to cover the circumstances that Time Group was supplying the services. It is no answer to say that the press releases, etc, were designed to embarrass the credit card companies or to impress Time Group's customers. The overwhelming inference to be drawn from this evidence is that what Time Group did it did in its own interest. It was concerned to preserve its own goodwill and the goodwill it had bought from OT Computers. It sought no recompense from OT Computers except possibly in the event of the scheme arrangement proceeding.
24. The paucity of evidence in respect of a request is also evident in relation to the second and third propositions on which Time Group relies. The case on which Time Group now relies was never spelt out in the evidence of Mr Crowley so as to focus attention on the essential factual ingredients of it. As the decision of the Court of Appeal in Bay Oil and many other reported cases show, the cross-claim relied on must be a serious one of substance. In my view, the cross-claim based on unjust enrichment is not of that description.
25. It follows that, in my judgment, there is no reason why OT Computers should be restrained from presenting a petition based on a debt of £352,450, if it is not paid, in addition to the sum of £71,494.86 already tendered. Accordingly, I dismiss this application.