IN THE SUPREME COURT OF JUDICATURE		CHANF 98/0311/3
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CHANCERY DIVISION
(MR JUSTICE EVANS-LOMBE)

								Royal Courts of Justice
								Strand
								London WC2A 2LL

	Wednesday 17 March 1999

	B e f o r e:

	THE MASTER OF THE ROLLS
	(LORD WOOLF)
	LORD JUSTICE MORRITT
	LORD JUSTICE LAWS

	- - - - - - 

	1.  IAN PETER PHILLIPS
	(Liquidator of A J Bekhor & Co)
	2.  A J BEKHOR & CO
	(In Administrative Receivership and in Liquidation)
	Plaintiffs/Respondents

	- v -

	1.  BREWIN DOLPHIN BELL LAWRIE LIMITED
	(Formerly Brewin Dolphin & Company Limited)
	2.  PRIVATE CAPITAL GROUP LIMITED
	Defendants/Appellants

	- - - - - - 
	(Transcript of the Handed Down Judgment of
	Smith Bernal Reporting Limited, 180 Fleet Street,
 	London EC4A 2HD
	Tel: 0171 421 4040
	Official Shorthand Writers to the Court)
	- - - - - - 

MR G MITCHELL QC and MR C SMITH (Instructed by Messrs Goodman Derrick, London, EC4A 1EQ) appeared on behalf of the Appellant

MR R SLADE (Instructed by Messrs Cameron McKenna, London, EC1A 4DD) appeared on behalf of the Respondent
	- - - - - - 

	J U D G M E N T
	(As approved by the Court)
	- - - - - - 
	©Crown Copyright

	Wednesday 17 March 1999

	JUDGMENT

LORD JUSTICE MORRITT:
1.	A.J.Bekhor & Co. (“the Company”) carried on the business of stockbrokers through agents, known as half commission men, with whom it shared the commission payable by the client for the business transacted on his or her behalf.   It carried on business from premises at 1 Singer Street, London in which it accommodated the back office staff it employed and the leased computers it used in the course of its business to record the transactions undertaken on behalf of its clients.   On 10th November 1989 the Company sold part of its business and some of the assets employed in it to Brewin Dolphin & Co. Ltd (“Brewin Dolphin”).   The sale involved a number of elements.  The following were the most significant.  First, by an agreement dated 17th October 1989 and made between the Company (1) and Bekhor Securities Ltd (“BSL”) (2) (“the Hive-down Agreement”) that part of the business which Brewin Dolphin wished to buy was hived down into a wholly owned subsidiary of the Company.   The part so hived down included the goodwill of the business, the benefit of all agreements with clients and the contracts of employment with the back office staff;  but there were excluded the office premises and the computer hardware and software used by the Company.   Second, by an agreement dated 10th November 1989 and made between the Company (1), Mr Jonathan Bekhor (2) and Brewin Dolphin (3) (“the Share Sale Agreement”) the Company sold to Brewin Dolphin the issued share capital of BSL for “the total consideration [of] £1 payable on completion”.   Third, by an agreement dated 10th November 1989 and made between the Company (1) and the parent company of Brewin Dolphin, The Private Capital Group Ltd (“PCG”) (2) (“the Lease Agreement”) the Company let to PCG for a term of four years commencing on 11th November 1989 at a rental of £312,500 payable annually in arrears the McDonnell Douglas computer equipment used in its business and leased from Wirral Equipment Ltd and Asterrose Ltd.  Fourth, by an agreement collateral to the Lease Agreement dated 10th November 1989 and made between the Company and PCG (“the Collateral Agreement”) the Company agreed that it would perform all obligations and pay all sums due under the leases under which it held the computer equipment comprised in the Lease Agreement.

2.	On 17th January 1990, Wirral Equipment Ltd and Asterrose Ltd terminated the leases of such equipment granted by them to the Company.   On 2nd March 1990 PCG, relying on its acceptance of the repudiation of the Lease Agreement constituted by the Company’s failure to perform the leases with Wirral Equipment Ltd and Asterrose Ltd, claimed to be discharged from further performance of the Lease Agreement.  The Company was compulsorily wound up on 24th April 1990;  a bankruptcy order was made against Mr Bekhor in July 1990.

3.	The proceedings with which this appeal is concerned were commenced in June 1994.  On 24th June the Company, through its Liquidator, issued a writ against both Brewin Dolphin and PCG seeking payment of the sums, £1,250,000, it claimed to be due to it under the Lease Agreement by way of rent and damages for its breach.   On 28th June the Liquidator applied to the Companies Court under s.238 Insolvency Act 1986 for a declaration that the Share Sale Agreement was a sale of the shares in BSL at an undervalue and for payment to the Liquidator of £2.5m. or such other sum as might be required to restore the Company to the position it would have been in but for the sale at such undervalue.  The proceedings were subsequently consolidated and came before Evans-Lombe J in November 1997.  By his judgment given on 28th January 1998 he determined that (1) the value of the shares in BSL sold by the Company to Brewin Dolphin on 10th November 1989 was £1.2m. from which he deducted £150,000 as the second hand value of the computer to which Brewin Dolphin was entitled but which was retained by the Company, (2) the consideration for such sale was the specified price of £1 and £325,000 in respect of the redundancy claims of the employees of the Company the benefit of whose contracts was hived down to BSL, (3) the sale of the shares in BSL was therefore a sale at an undervalue of £725,000; (4) PCG had been entitled to accept the repudiation of the Company of the Lease Agreement as discharging it from further performance thereof and so was not liable to the Company for £1,250,000 or any other sum thereunder.   The overall consequence of the judge’s order was to require Brewin Dolphin to pay to the Liquidator £1,008,500 and the costs of the proceedings concerning the alleged undervalue.   

4.	This is the appeal of Brewin Dolphin and the cross-appeal of the Company.  The issues they raise may be summarised as follows: (1) What was the value of the shares in BSL to be taken into account for the purposes of s.238 Insolvency Act 1986?  Was it £nil as contended by Brewin Dolphin or was it £1,050,000 as found by the judge and as supported by the Company?  Or was it £2.5m, as originally contended by the Company and preserved by its respondent’s notice if, contrary to its primary submission, this court is prepared to go behind the judge’s findings?  (2)  What was the value of the consideration provided to the Company?   Was it limited to the sums found by the judge amounting to £325,001 or should it also have included the value of the covenant of PCG to pay the annual rent of £312,500 over the next four years?   (3) Was the judge right to conclude that the Company had repudiated the Lease Agreement so that PCG was not liable for the annual rent of £312,500?   If the judge was wrong in this respect only, was the Company entitled both to compensation for the undervalue and to the unpaid rent?   I will deal with each of these issues in due course, but first, it is necessary to set out the material legislation and to sketch in some more of the detail.

5.	The provisions of the Insolvency Act 1986 concerning transactions at an undervalue were originally introduced into the Insolvency Act 1985 in consequence of a recommendation in the Cork Report.   It was not suggested that there was any help to be derived from the Report not already available from the terms of the sections themselves.  So far as material s.238 provides:

	(1) [application of the section]
	
	(2)	Where the company has at a relevant time (defined in section 240) entered into a transaction with any person at an undervalue, the office-holder may apply to the court for an order under this section.

	(3)	Subject as follows, the court shall, on such an application, make such order as it thinks fit for restoring the position to what it would have been if the company had not entered into that transaction.

	(4)	For the purposes of this section and section 241, a company enters into a transaction with a person at an undervalue if-
	
		(a) the company makes a gift to that person or otherwise enters into a  transaction with that person on terms that provide for the company to receive no consideration, or

		(b) the company enters into a transaction with that person for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth, of the consideration provided by the company.

	(5)	The court, shall not make an order under this section in respect of a transaction at an undervalue if it is satisfied -

		(a)	that the company which entered into the transaction did so in good faith and for the purpose of carrying on its business, and

		(b)	that at the time it did so there were reasonable grounds for believing that the transaction would benefit the company.

S.241 sets out a wide range of orders the court may make in case of both transactions at an undervalue and in the case of voidable preferences.  There is a provision similar to s.238 in the case of personal insolvency (s.339) and in the case of both personal and corporate insolvency where the transaction at an undervalue was entered into with intent to defraud creditors (s.423).   In each case it is provided by s.436 -
 
	“In this Act, except in so far as the context otherwise requires (and subject to Parts VII and XI)-
	.....
	
	“transaction” includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.”

6.	I will defer consideration of the questions of the construction and application of those provisions until I have described the background in somewhat greater detail. The facts are comprehensively set out by the judge in his careful judgment reported at [1998] 1 BCLC 700.   In the circumstances I can deal with the matter more shortly.

7.	The Company was incorporated in 1933 as an unlimited company.  It carried on business as a stockbroker at 1 Singer Street, London, EC2A 4DR.   It was a member of the International Stock Exchange and of the Securities Association.  It had access to a large number of private clients through half commission men, and employed about 75 back office staff.	The Company developed particular computer software to account for transactions undertaken in the course of its business.  Such software, together with associated hardware, was sold and leased back in a series of transactions which took place in 1986 and 1987.  The details do not matter.  What is material is that the hardware and software were let by two finance companies to the Company by two leases (“the Computer Leases”).  The first was a lease made between Wirral Equipment Ltd and the Company dated 7th October 1986 whereunder Wirral leased the hardware and software to the Company at a quarterly rent of £75,335, such lease to expire on 1st October 1991.  The second was a lease dated 9th January 1987 and made between Asterrose Ltd and the Company whereunder the Company leased further computer equipment at a quarterly rent of £17,516.  Each lease was renewable by the Company at a much lower rent.

8.	In February 1989 Mr Bekhor, the Chairman of the Company, let it be known that the business of the Company was for sale.   This came to the notice of Brewin Dolphin and negotiations started in April 1989.   It is not in my view necessary to trace the course of the negotiations in any detail.  By July 1989 the figure of £2.5m. was being discussed within Brewin Dolphin.  At a meeting between representatives of the Company and Brewin Dolphin held on 8th September 1989 the figure of £2.5m payable by five annual instalments was reduced to a figure of £1.25m payable by four annual instalments.   On 22nd September 1989 it was reported to a board meeting of PCG that “...negotiations were continuing...the total price was £1,250,000 payable annually in arrears over four years.”

9.	Brewin Dolphin were concerned not to pay anything for the goodwill of the business of the Company.  There were two reasons.  First, a payment for goodwill would not have been deductible by Brewin Dolphin for tax purposes.  Second, a payment for goodwill would, under the rules of the Stock Exchange, have given rise to a matching increase in the capital adequacy requirement of Brewin Dolphin and, thus, a larger deferred loan to Brewin Dolphin from PCG.  Thus, as recorded in a memorandum prepared by Brewin Dolphin’s finance director in mid-September 1989, and accepted by the judge as accurate

	"The basic concept is that Brewin Dolphin purchases the trade of [the Company] for a consideration of £1.25m payable over four years plus 50% of any tax losses passed through to Brewins when the tax relief is received....
	The detailed scheme is as follows:
	
	1. [The Company] forms Newco as a subsidiary.  [The Company sells its business excluding its computer and other fixed assets to Newco....
	[The Company] sells Newco to Brewin Dolphin...the purchase consideration would be £1 plus 50% of the value of the tax loss...
	
	2. [The Company] enters into a finance lease for the computer and other assets with PCG.  PCG enters into an operating lease with Brewin Dolphin for the computer, the lease payments to be yearly in arrears for four years at a rate of £312,500.  This means that the purchase price will be tax allowable and there will be no goodwill.”

Though the concept did not change, as the judge found, by 27th September 1989 a decision had been taken by Brewin Dolphin not to use the computers to be acquired from the Company to run the merged business but, rather, to update Brewin Dolphin’s existing system.

11.	As I have mentioned the Hive Down Agreement was made on 17th October 1989.   It recited that the Company had agreed to sell to BSL as a going concern the business of stockbrokers then carried on by the Company together with certain assets on the terms and conditions set out therein.  The business assets included in the sale were defined to include the benefit of all agreements with clients and the goodwill of the business but to exclude the business premises at 1 Singer Street, “the McDonnell Douglas Computer equipment together with the Northgate software” and “computer software owned by [the Company] together with the intellectual property therein”.  By clause 7.1 the contracts of employment being transferred to BSL carried with them the liability to pay compensation for redundancy.   This is relevant to clause 5.7 of the Share Sale Agreement which contained an undertaking by Brewin Dolphin that it would procure BSL to perform, inter alia, its obligations to pay such redundancy claims.  The consideration for such sale was the issue of shares in BSL.

12.	I have also mentioned already the Share Sale Agreement, the Lease Agreement and the Collateral Agreement each concluded on 10th November 1989.  There were two further agreements but they are not relevant to the issues on this appeal. They were:

a) The Tax Loss Agreement, comprised in a side letter dated 10th November 1989 from Brewin Dolphin to the Company, whereby they agreed to share between them the realised value of any tax losses pertaining to the business of the Company.

b) A Licence from the Company to Brewin Dolphin authorising the latter to use the application software devised by the Company.

13.	In so far as any of the agreements had to be completed it was so completed on the same day.  In fact the first payment due under the Lease Agreement was anticipated because it was paid to the Company by PCG, by way of a loan secured by a promissory note and by a charge on the Lease Agreement, on 9th November 1989.   The Company used that money to compromise a claim made against it in respect of the computer by a payment to McDonnell Douglas Information Systems Ltd (“MDISL”) of £377,500 but, in consequence, failed to pay the rent due to Wirral and Asterrose on 2nd January 1990.  

14.	Problems arose very shortly after the completion of the sale.  On 21st November 1989 Baltic, the parent company of the lessors under the Computer Leases, Wirral and Asterrose, wrote to the Company complaining of the assignment of the benefit of those leases without the consent of the lessors.   The judge found that Brewin Dolphin knew at the time of completion that the Company could not grant a sublease of the computer equipment without the consent of the owners and that such consent had not been obtained.   On 17th January 1990 such headlessors terminated the Computer Leases and, on 5th February 1990, instituted proceedings against the Company and PCG to which Brewin Dolphin were later added seeking inter alia damages for conversion.   On 2nd March 1990 PCG treated the actions of the Company as a repudiatory breach of the Lease Agreement and accepted it as discharging them from all further performance.  The head-lessors obtained judgment against the Company for £656,675 on 15th March 1990 and wound them up on 25th April 1990.   In the meantime, on 12th April 1990, Brewin Dolphin abandoned the computer equipment when they vacated the Company’s premises at 1 Singer Street.  Brewin Dolphin ultimately settled the claim of Wirral and Asterrose by paying them £95,000 on 23rd April 1992.

Should the Share Sale Agreement and the Lease Agreement be treated as separate?

15.	Before the judge Brewin Dolphin argued that the Share Sale Agreement and the Lease Agreement were to be treated as separate transactions for the purpose of considering whether the Lease Agreement had been determined by PCG’s acceptance of the Company’s repudiation of its obligations thereunder but together for the purpose of assessing the consideration moving to the Company on the sale of the shares in BSL.   The judge held [723f] that the Share Sale Agreement and the Lease Agreement “were linked in the sense that it was never contemplated that one would not be entered into without the other.”  After recording the twin submissions to which I have referred the judge expressed the view [723j] that

	"It is not open to the defendants to put forward these two contentions simultaneously.  If the payments made under the lease agreement were, in truth, part of the consideration for the purchase of the BSL shares under the share purchase agreement, then the lease agreement is not to be treated as a contract for the hire of goods within s.7 of the 1982 Act.   Failure to ensure that PCG would be in a position to enjoy possession of the leased equipment was not a breach going to the root of the share acquisition agreement nor did it constitute a repudiation of that agreement...”

He supported that conclusion by reference to Total Oil Great Britain Ltd v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318 and Tinker v Tinker [1970] P.136.

16.	Brewin Dolphin challenges this conclusion.  It contends that the judge misapplied both the decisions of this court to which he referred.  In Total Oil Great Britain Ltd v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318 the tenant of a petrol station subject to a tie requiring him to buy all his petrol from his landlord sought to retain the benefit of the lease but free from the tie because of the landlord’s repudiation of the latter.   The tenant failed because the court considered that the lease and the tie formed one composite legal transaction which could not be severed.  As Stephenson LJ observed the tenant was seeking “to blow hot and cold”.  The judge commented [725a] that “the position of the defendants on the lease agreement is similarly an attempt to “blow hot and cold””.   But, says counsel for Brewin Dolphin, in this case it is obvious that the various agreements, though parts of one transaction, are severable one from the others.  Thus, he contends, the Lease Agreement might be both enforced and discharged in accordance with its terms as the separate  contract it undoubtedly was.

17.	In the case of Tinker v Tinker [1970] P.136 a husband bought a house in his wife’s name so that it might not fall into the hands of his creditors if his business failed.  To achieve that result it was necessary that the wife should be beneficially as well as legally entitled to the house.  On the subsequent breakdown of the marriage the husband sought to establish that he never did intend that his wife should be the beneficial owner.  He was not entitled to do so because, as Lord Denning MR put it, “the husband could not be heard to say that it belonged to him, because he could not be allowed to take advantage of his own dishonesty”.   The judge considered that the principle exemplified in that case was applicable in this because [726b]

	"..it is plain from the evidence that it was the intention of PCG to set off the payments that they were to make against profits for the purposes of corporation tax.   This could only be done on the basis that the payments were genuinely to be made as rent pursuant to an agreement of lease of equipment genuinely required by PCG to be made available to its subsidiary Brewin Dolphin for the purpose of that company’s business.  If, on the other hand, the payments were actually consideration for the transfer of the business, they would not have been allowable for corporation tax purposes and to seek to  have them allowed would be a dishonest evasion of tax.”

Counsel contends that it has never been part of his case that the payments due under the Lease Agreement were anything other than payments for the purposes clearly set out in the Lease Agreement itself.  He points out that neither side has ever contended that any of the contracts is a sham or otherwise dishonest.   His case is that, notwithstanding the purposes for which the rental payments were to be made under the Lease Agreement, under the terms of s.238 the obligation to make them may still be treated as consideration payable to the Company for the purpose of ascertaining the existence of a transaction at an undervalue.  If and to the extent that the payments due thereunder were not received by the Company then, submits counsel for Brewin Dolphin, that was due to the subsequent breaches by the Company of the Lease Agreement.

18.	For my part I consider that the criticisms of the judgment based on the application of Total Oil Great Britain Ltd v Thompson Garages (Biggin Hill) Ltd [1972] 1 QB 318 and Tinker v Tinker [1970] P.136 are well founded.   At the root of the objection the judge felt about the case for Brewin Dolphin was the belief that Brewin Dolphin was somehow “blowing hot and cold”, “approbating and reprobating” or seeking to maintain two inconsistent rights without being put to its election between them.   I shared that feeling for much of the argument but I do not think that there is any legal objection to the stance Brewin Dolphin seeks to take, though whether it is successful is quite another matter.   At the root of the doctrines adverted to in the expressions I have referred to is the requirement that the two rights or courses of action sought to be maintained are truly alternative and inconsistent.  This essential feature clearly emerges from the speeches of Lords Atkin and Wright in Lissenden v C.A.V.Bosch [1940] AC 412, at pp.429/30 and 435/6.  see also Express Newspapers v News Ltd [1990] 1 WLR 1320, 1329G.

19.	In my view the case for Brewin Dolphin does not involve the pursuit of two alternative and inconsistent rights or remedies.  The claim of the Liquidator for an order against Brewin Dolphin involves the assertion that “the Company..entered into a transaction with..[Brewin Dolphin] at an undervalue” within and for the purposes of s.238 Insolvency Act 1986.  Given the width of the definition of “transaction” in s.436, to which I have referred, there is obvious scope for debate as to what was the transaction for the purposes of the section.  The answer to that question will not necessarily depend on whether and if so to what extent two or more contracts are parts of a composite whole or linked with or severable from one another.   Similarly the question whether the Lease Agreement was discharged by the acceptance by PCG of the alleged repudiation thereof by the Company depends on ascertaining, in accordance with normal contractual principles, the contract to the root of which the alleged breach went.  Thus the two questions, though similar and overlapping, are different.   It is theoretically possible for a separate contract to be both liable to discharge by acceptance of a breach going to its root and an integral part of a transaction at an undervalue within the meaning of those words in s.238 Insolvency Act 1986.  The issues being different each has to be decided on its merits.

20.	The first two issues to which I referred earlier, particularly the second, depend on ascertaining, for the purposes of s.238 Insolvency Act 1986, what was the transaction alleged to have been entered into by the Company at an undervalue.	The allegation of the Liquidator is that the Share Sale Agreement was the transaction so that only the consideration passing to and from the Company thereunder is to be taken into account.  This was disputed by Brewin Dolphin on the basis that the court must have regard to the whole transaction not just that part of it the Liquidator seeks to challenge.  This is a point of some importance on the true construction and application of s.238.   It is true that the word “transaction” is very widely defined.  It is also true, as submitted by counsel for Brewin Dolphin, that, given the purposes of ss.238, 339 and 423 to which it applies, the court should not strain to narrow the definition by judicial decision.   However, the word “transaction” is to be construed and applied as part of s.238 as a whole.   Other parts of the section indicate some of the limits involved.  First, the transaction must be identified by reference to the person (or persons, for the singular must include the plural) with whom the company entered into it.   Only the elements of the transaction between the company and that person may be taken into account.  Thus, without more, a contract between the company, A, and B cannot be part of a transaction entered into by the Company, A,  with C.   I introduce the caveat “without more” to guard against cases where the transaction is artificially divided.  The second limit appears to me to flow from the comparison the statute requires the court to make.  In each case it is necessary to ascertain the consideration to be received by the company.   In the case of ss.(4)(a) the transaction is either a gift or “on terms that provide for the company to receive no consideration”.  In other cases, as provided for in ss.(4)(b), the task is to ascertain the value of the consideration provided by the other person “for” the consideration provided by the company.   Whether or not the word “consideration” in those contexts is confined to its legal meaning it clearly connotes the quid pro quo for that which it is alleged the Company disposed of at an undervalue.

21.	In my view these limitations point clearly to the conclusion that the transaction in this case was the Share Sale Agreement alone.   (In what follows I have referred only to the Lease Agreement because it is the only one of the associated agreements which, arguably, could affect the judge’s conclusion.)   I reach this conclusion for a number of reasons.  First, the parties acting at arms length and for readily understandable commercial reasons chose so to structure the deal between them so that on the face of the documents the Share Sale Agreement and the Lease Agreement effected two separate, though linked, transactions.  There is no indication that this different treatment was a sham or otherwise colourable.   If parties in such circumstances choose so to structure their commercial dealings in my view the court should give full weight to their intentions.  Second, for the reasons I have already given, the Share Sale Agreement and the Lease Agreement cannot be the same transaction for the purposes of the section because, though the Company was party to both of them, only Brewin Dolphin was party to the first and only PCG party to the second.   Third, the parties to the Lease Agreement, the Company and PCG, unambiguously attributed the four annual payments of £312,500 to rent due thereunder for possession and use of the computer equipment to which it related.  The promise to make those payments cannot be recharacterised as consideration from PCG or Brewin Dolphin “for” the shares being sold by the Company.

What was the value of the consideration provided by the Company?

22.	I turn then to the first of the issues I summarised above, namely the value of the shares in BSL.   It was common ground that the value was to be ascertained as at the date of the sale, namely 10th November 1989.  The judge directed himself by reference to the dictum of Millett J in Re M.C.Bacon [1990] BCLC 324, 340 subsequently applied with approval by the Court of Appeal in Menzies v National Bank of Kuwait [1994] BCC 119, 129 and Agricultural Mortgage Corporation plc v Woodward [1995] 1 BCLC 1, 9 that

	"to come within that [sc.ss(4)(b)] paragraph the transaction must be (i) entered into by the company; (ii) for a consideration; (iii) the value of which measured in money or money’s worth; (iv) is significantly less than the value; (v) also measured in money or money’s worth; (vi) of the consideration provided by the company.   It requires a comparison to be made between the value to be obtained by the company for the transaction and the value of consideration provided by the company.  Both values must be measurable in money or money’s worth and both must be considered from the company’s point of view.”

23.	The evidence before the judge as to the value of the shares in BSL fell into three categories.  First there was the evidence of the expert called by Brewin Dolphin, Mr Matthew-Jones, to the effect that the appropriate method of valuation was to ascertain a maintainable profits stream to which to apply a multiplier.  He concluded that as the business of the Company was insolvent there was no such stream and therefore no value.   Second, there was the evidence of the course of the negotiations between Brewin Dolphin and the Company through the summer and autumn 1989.  The judge concluded [727j] that this evidence demonstrated that Brewin Dolphin were prepared to pay of the order of £1,200,000 to acquire the business of the Company.   Third, there was the evidence of Mr Clokey, the expert witness called by the Company, to the effect that the value of the shares was £2.5m based on a maintainable stream of future profit, as ascertained by Brewin Dolphin, of £282,000 to which he applied a multiplier of 10.  To the resultant figure of £2,820,000 he applied sundry further adjustments in order to arrive at his valuation of £2.5m.

24.	The judge considered the rival submissions based on this evidence at some length.  His conclusion was [729j]

	"I have already found that by November 1989 Brewin Dolphin had sufficient information about the business being sold to form a reasonable view of its value.  I accept Mr. Clokey’s evidence that notwithstanding the insolvency of Bekhor brought about, it seems by certain substantial investment transactions in the firm name, and notwithstanding the discovery subsequent to November 1989 of some questionable leasing transactions, there was tucked away a stockbroking business through associated half commission men with established clients which was potentially valuable to purchasers such as Brewin Dolphin.  Provided that any sale was handled, as was the intended sale to Brewin Dolphin, by means of hiving  down the business to a new company so that it was sold by means of a disposition of shares in the new company, any purchaser would be insulated from any of the problems arising out of Bekhor’s business in the past.  Even if it be the case, as submitted by the defendants, that by November 1989 Bekhor was not only substantially insolvent, which is accepted, but also in imminent danger of collapse into insolvent liquidation, I do not think that I should assume, as is submitted, that any value of its business would be unrealisable.  This is the classic situation for which administration orders were conceived.
	
	It is, as I understand it, a basic rule of valuation that the value of a given item is what a purchaser having reasonably accurate information about the nature of the item being purchased will pay for it.  As I have said, I have found that Brewin Dolphin had that information.  It is not contended by either PCG or Brewin Dolphin that the share acquisition agreement or the lease agreement were vitiated by any sort of misrepresentation by or on behalf of Bekhor.  Notwithstanding Mr. Matthew-Jones’ valuation, in my judgment the value of the BSL shares at 10 November 1989 and so of the business being transferred from Bekhor to Brewin Dolphin was at least what Brewin Dolphin and its associated companies were prepared to pay in order to acquire it.”

He then rejected the higher valuation of Mr Clokey for the four reasons he gave and concluded

	"It is my task to assess the value of the BSL business at that time, namely 10th November 1989,and I am not sufficiently convinced by Mr Clokey’s report to depart from the prima facie value which results from what Brewin Dolphin and PCG were prepared to spend in acquiring the BSL shares.”

25.	Brewin Dolphin dispute this conclusion on substantially the same grounds as it advanced before the judge.   In addition it contends that the financial situation of the Company in November 1989 was so parlous that the judge’s conclusion that the profitable part of the business might have been preserved by an administration order was unsupported by any evidence and unrealistic.   I have to say that I think that the conclusion of the judge was eminently sensible and evidently right.  There was no doubt, on the evidence, what Brewin Dolphin was prepared to pay for the business of the Company, and none the less so because for sound commercial reasons of its own it attributed the principal part of the price to different assets.  This is made as plain as it could be by the memorandum produced in mid-September 1989 by the finance director of Brewin Dolphin from which I have quoted and from which Brewin Dolphin did not subsequently depart.  The judge found that Brewin Dolphin had sufficient information about the business being sold to form a reasonable view of its value.   In my view it was an entirely permissible inference to draw from those findings that by some means or another the profitable part of the business would be hived down and preserved for sale by the Company or its liquidator.  I do not accept the submission based on the last sentence of the dictum of Millett J in Re: M.C.Bacon, which I have quoted, that if the business has no value to the company because the company is insolvent it can have no value for the purpose of s.238.  Millett J was not addressing that issue at all.

26.	Accordingly I would uphold the judge’s conclusion that the value of the BSL shares on 10th November 1989 was £1.2m.  It is not disputed that the judge was right in assessing the value of the consideration provided by the Company to deduct the second hand value of the computer equipment (£150,000). Thus the outcome of the first issue is that the value of the consideration provided by the Company under the Share Sale Agreement was, as found by the judge, £1,050,000.

What was the value of the consideration provided to the Company?

27.	I turn then to the second issue.  What was the value of the consideration moving to the Company for that consideration valued at £1,050,000?  It is not in dispute that the judge was right to credit Brewin Dolphin with the net cost of meeting the redundancy claims of the former employees of the Company.  The net liability was £325,000 and was imposed on Brewin Dolphin by clause 5.7 of the Share Sale Agreement.   The issue is whether the judge should also have credited them with the value of the promise of PCG to pay £1.25m rent for the computer spread over four years.  In that connection I would observe that it was not suggested that the annual value of that computer equipment should be treated as part of the consideration provided by the Company.

28.	The judge determined that

	"It is not open to Brewin Dolphin to contend that the covenant to pay £1.25m. over four years contained in the lease agreement can be treated as part of the consideration for the purchase of the shares under the share acquisition agreement.”

For the reasons I have tried to explain I agree with the conclusion of the judge but not his reasons for it.  I do not think that it is a question of “blowing hot and cold” or “approbating and reprobating” but of ascertaining the transaction for the purposes of s.238.  For the reasons I have given I do not consider that the Lease Agreement formed any part of a transaction for those purposes of which the Share Sale Agreement formed another.  It follows that in my view the covenant by PCG to pay to the Company £1.25m over the next four years as rent for the computer cannot form part of the consideration to be compared with that provided by the Company in the form of shares in BSL.

29.	The judge also declined to bring into account the loan of £312,500 made by PCG to the Company on 9th November 1989  because

	"..consistently with my treatment of the lease agreement as a separate free standing agreement, I should not treat the payment of this sum by PCG as actual payment of consideration for the transfer of the shares by Brewin Dolphin.”

I agree that the loan of £312,500 should not be treated any differently from the obligation to pay the rent and did not understand counsel for Brewin Dolphin to contend otherwise.  In any event I doubt whether PCG could now rely on that payment as consideration for the sale of the BSL shares given that it assigned the benefit of the loan to Brewin Dolphin and Brewin Dolphin has proved in the liquidation of the Company as a creditor in respect thereof.   It follows that I would uphold the judge’s conclusion on the second issue also.   Thus the result so far is that the comparison of the consideration moving from and to the Company pursuant to the Share Sale Agreement is to indicate an undervalue of £725,000.  It is not suggested that the judge’s adjustments by way of discount for future payments and interest for payments after due date was incorrect in any way.  Thus the outcome of the first and second issues is that, in my view, the appeal of Brewin Dolphin should be dismissed.

Is PCG liable to pay the rent provided for by the Lease Agreement?

30.	This leaves the third issue, namely whether the judge was right to conclude that the obligations of PCG under the Lease Agreement had been discharged by its acceptance of the Company’s repudiation thereof.  The Lease Agreement provided that:

	"The lessor has the right, title and benefit of the equipment under the leasing agreements specified in Schedule 1 hereto (hereinafter called the equipment).” [clause 1]
	
The leased equipment specified in the Schedule was 

	"McDonnell Douglas computer equipment used by the Vendor.”
	
Clause 2 provided

	"The lessor hereby lets so far as he is able and the lessor takes on lease from the lessor upon the terms and conditions hereinafter mentioned the Equipment for the Term of 4 years (“the Term”)...”
	
The Lease Agreement contained no express covenants on the part of the Lessor.   In my view there must be implied in it an obligation on the part of the Company to pay the rents due under the Computer Leases.   In any event, as I have already mentioned, the Collateral Agreement provided that in consideration of PCG entering into the Lease Agreement

	"[the Company] agrees that it will perform all obligations and pay all sums due under the leases under which it holds the equipment.”
	
31.	The first submission of counsel for the Company is on the hypothesis, but contrary to his principal submission, that the Share Sale Agreement and the Lease Agreement, as well as all the other associated agreements, were but parts of one overall transaction or contract.   In this event, so he submits, a breach of the Lease Agreement could not go to the root of the overall contract or transaction so as to give rise to the necessary repudiation of that contract or transaction.   I have already considered this submission in connection with the proper construction and application of s.238 Insolvency Act 1986.   As I pointed out in that connection the question of repudiation must be considered in the light of the usual rules for ascertaining what was the contract between the parties.  This argument was not developed in any detail, but I would reject the submission for the Company.

32.	The parties deliberately structured the transaction so as to have five apparently separate agreements.  For example the Lease Agreement, but not the Share Sale Agreement, contained specific provisions for its termination (clause 9), an arbitration clause in respect of differences arising under that Lease (clause 17) and an entire agreement provision (clause 19).   In my view it is plain that the parties intended each agreement to be enforced and discharged separately in accordance with its own terms.   Whether or not there was also an overall agreement with contractual force does not matter if, as I think, the individual agreements are separately enforceable in accordance with their terms.

33.	The second submission of counsel for the Company was made on the hypothesis, with which I have agreed, that the Lease Agreement must be treated as a separate agreement.   On this basis Counsel for the Company relied on the judge’s finding [715j] that up to the time the agreements were signed on 10th November 1989 Brewin Dolphin were aware that the Company could not create a valid lease of its computer equipment in favour of Brewin Dolphin without the consent of the owners of that  equipment, which remained Wirral and Asterrose, and that that consent had not been obtained.   He submitted that in those circumstances the contractual right conferred on PCG, and through a sub-lease with PCG, on Brewin Dolphin was to possession of the computer but unauthorised by the head lessors, Wirral and Asterrose;  he suggested that the only breach which could go to the root of that obligation was the actual loss of possession;  but, he contended, PCG and Brewin Dolphin never lost such possession, rather they abandoned the computer when it vacated the offices of the Company on 12th April 1990.

34.	The conclusion of the judge on this issue [725a] was

	".. if this agreement is to be treated as standing separately it ceases to be enforceable by Bekhor.  It is not necessary for me to consider each of the grounds upon which the defendants contend that the lease agreement has been terminated.  Suffice it to say that the plain purpose of this agreement, if it is to be treated simply as a chattel lease was to hire certain computer equipment to PCG to be made available to Brewin Dolphin for the purposes of Brewin Dolphin’s business for the period of the lease.  The parties must have contemplated that the equipment would be used to store and process information arising from Brewin Dolphin’s business as a stockbroker.  It was quite inconsistent with such contemplated use that the  true owner should be in a position at any moment to take possession of the equipment from Brewin Dolphin.  Bekhor’s failure to procure that PCG through Brewin Dolphin could rely on uninterrupted possession of the equipment for the period of the lease was plainly a breach going to the root of the contract and which constituted a repudiation of it open to PCG to accept.  It is equally clear that even though Goodman Derrick’s letter of 23 March 1990 was somewhat obscure, their letter of 27 March made plain that they were treating the lease as having been repudiated, and indicating PCG’s acceptance of that repudiation.  It is equally clear that the failure by Bekhor resulted in a total failure of the consideration to be provided by Bekhor under the agreement.”

35.	This conclusion was criticised on a number of bases.  It was suggested that the judge had concluded that s.7(1) Supply of Goods and Services Act 1982 applied so as to import the

	"condition on the part of the bailor that in the case of a bailment he has a right to transfer possession of the goods by way of hire for the period of the bailment and in the case of an agreement to bail he will have such a right at the time of the bailment.”

But, it was pointed out, the statutory implication provided for by that subsection may, as permitted by s.11(1), be negatived or varied by express agreement, or by the course of dealing between the parties.   It was submitted that the qualification in clause 2 of the Lease Agreement constituted by the words “so far as he is able” is an express agreement negativing the statutory implication.   With reference to the provision in the collateral agreement that the Company would pay all sums due under the Computer Leases and, by implication, the comparable obligation implied into the Lease Agreement it was suggested that the term was but “innominate” so that no breach of it could give rise to a repudiation capable of acceptance.

36.	I do not accept either of these submissions.   On 10th November 1989 the Company was in lawful possession of the computer equipment leased from Wirral and Asterrose.  The Lease Agreement was a breach of the Computer Leases because the consent of the headlessors had not been obtained.  But that did not invalidate the Lease Agreement as between the Company and PCG.  PCG was lawfully in possession of the computer equipment unless and until the Computer Leases were determined.  The Company was, to that extent, able to let the computer equipment.   Moreover clause 1 of the Lease Agreement specifically confirms that the basis of the lease is that the Company had the right, title and benefit to the equipment under the Computer Leases.  I do not consider that the addition of the words “so far as he is able” in clause 2 are, in the context of the Lease Agreement as a whole, sufficient to negative the condition implied by s.7(1).  

37.	Further I do not accept that the obligation to pay all sums due under the Computer Leases, either as implied into the Lease Agreement or as expressed in the Collateral Agreement, can be downgraded to an innominate term so as to avoid a repudiation capable of acceptance.  The full and prompt payment of the rent due under the Computer Leases was essential to the preservation and enjoyment of the rights conferred by the Lease Agreement.  I agree with the judge’s conclusions on this part of the case also.

38.	In those circumstances it is unnecessary to consider whether the doctrine of eviction by title paramount applies to a chattel lease and if so with what result.  Moreover in the light of the conclusions to which I have arrived the court is not faced with the problem what order to make pursuant to s.238(3) in the event that the Lease Agreement remained valid and enforceable.   Could the Liquidator maintain his judgment for remedying the undervalue as well as enforcing the liability of PCG to pay the rent due under the Lease Agreement?   Counsel for the Company maintained that he could.  I am not convinced that it would be a proper exercise of the court’s discretion under s.238(3) to enable the Company to do so, but as the point does not arise I need say no more about it.

Conclusion

39.	For all these reasons I would dismiss the appeal and the cross-appeal.

LORD JUSTICE LAWS:  I agree.

LORD WOOLF, MR:  I also agree.

Order:  Appeal and cross-appeal dismissed with costs of appeal.  Leave to appeal to the House of Lords refused.