Construction - Business purchase agreement - Agreement providing for apportionment of payments and liabilities of business before and after effective dates

David Whelan Sports Ltd v JJB Sports: CA (Civ Div) (Lord Justices Ward, Stanley Burnton, Elias): 19 January 2012

The defendant company operated health and fitness clubs through the business of JJB Sports plc. It had entered negotiations with a manufacturer for the purchase of equipment to be used in the business.

The defendant had not wished to pay the list price for the equipment, so it had been agreed that it would purchase the equipment through a leasing company for the full list price, and the manufacturer would pay a lump sum back to the defendant to represent the difference between the list price and the sum that the defendant had been willing to pay. The defendant subsequently entered into a business purchase agreement (the agreement) by which the claimant company had acquired the defendant’s business.

There had been provision for liabilities and payments received and to be received, or paid and to be paid by the business over the period before and after an effective date, and those liabilities or payments were to be apportioned under the terms of the agreement. The claimant claimed that the one-off payment made by the manufacturer to the defendant under the agreement for the supply of the equipment had fallen to be apportioned under the terms of the agreement. The judge rejected the claim on the basis that the one-off payment had not been made pursuant to any contractual term that had apportioned it, or in any way made it payable over a period which had fallen partly before or partly after the effective date. The claimant appealed.

The issue for determination was whether the judge had erred in finding that the one-off payment had not fallen to be apportioned under the terms of the agreement. The appeal would be dismissed.

The sum paid by the manufacturer to the defendant had been a one-off payment that had not been, by the terms of any contract or otherwise, apportionable to any period whatsoever. That payment could have been used subsequently to acquire assets for the business, which would have passed under the agreement, and if there had been an apportionment in such circumstances the claimant would have received both the benefit of the equipment that had passed and the benefit of the apportionment (see [6] of the judgment).

There had been nothing necessarily unfair in the construction of the contract that the judge had adopted (see [6] of the judgment).

Mark Harper (instructed by DLA Piper UK) for the claimant; Jonathan Rodger (instructed by DWF) for the defendant.