Neutral Citation Number: [2009] EWCA Civ 589
Case No: A3/2008/2493
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM MANCHESTER DISTRICT REGISTRY
HIS HONOUR JUDGE WAKSMAN
Claim no:  8MA30828
Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 18/06/2009
Before :

LORD JUSTICE LONGMORE
LORD JUSTICE LLOYD
and
MR JUSTICE MANN
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Between :

	(1)	DAVID GREENSTEIN
(2)	STEVEN GREENSTEIN	
Appellants	
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	BROOME AND WELLINGTON LP	Respondent	
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MR. M. CAWSON Q.C. and MR. R. CHAPMAN (instructed by Messrs Fruhman Davies Livingstone) for the Appellants.
MR. J. GOUDIE Q.C. and MR. J. WILSON (instructed by Messrs. Zatman & Co) for the Respondent.

Hearing date: 4th June 2009
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Judgment
Mr Justice Mann : 
Introduction
1.	This is an appeal from a decision of HHJ Waksman Q.C. sitting as a deputy judge of the Chancery Division in the Manchester District Registry and dated 26th September 2008 in which (in essence) he allowed the defendants to defend quantum points on a guarantee liability, but not liability itself, ordered that they pay $3.5m by way of interim payment and refused them permission to defend on other bases put forward by them.  The defendants appealed that order, seeking permission to defend this claim generally.  Permission to appeal was given by Arden LJ.
Background
2.	The claimants (“B&W”) and defendants (“the Greensteins”) were formerly both interested in an English company called Homestead Fabrics Limited (“Fabrics”).  Between January 1998 and autumn 2004 they operated the business of Fabrics together; the defendants were 35% shareholders and B&W were 65% shareholders.  Their relationship was governed by a short written agreement dated 27th January 1998 to which I will have to refer in more detail in due course, but that detail does not matter for the purposes of this narrative.  Fabrics operated as a supplier of cloth to those who manufactured items from cloth.  Mr David Greenstein ran the sales side of the business, Mr Steven Greenstein arranged for the manufacture and supply of goods and B&W’s role (through Mr Joshua Rowe and/or Mr Bernard Rowe) was to run the administration and financial side of the company.  B&W also provided finance.
3.	In about April 2004 the defendants informed B&W that they wished to terminate the 1998 agreement and buy out B&W’s shareholding in Fabrics.  KPMG prepared a report on the business, which reflected some uncertainty as to what tax would be payable and queried some of the administrative records.  That led to the withdrawal from that particular arrangement of a US company called London Fog Industries Inc (“London Fog”) who had been intending to participate with the Greensteins in the purchase of the shareholding.  However, interest in purchasing remained, and by an agreement dated September 2004 (“the Agreement”) the Greensteins and London Fog, operating through a new company called Greenco Enterprises Inc (“Greenco”), agreed an asset sale with Fabrics for a sum of $27m paid in a complicated way which included inter-company credits and the realisation of Fabrics’ book debts.  The effect of the arrangement was that the price would be paid over time, rather than in one lump sum.  The Greensteins guaranteed the liabilities of Greenco under that agreement.  The agreement was subject to English law and the parties submitted to the exclusive jurisdiction of the English courts.
4.	Various other agreements were entered into at the time or subsequently, most of whose detail does not matter.  Greenco’s rights and liabilities under the agreement were in due course taken over by another company, Homestead Holdings Inc (“Holdings”), but the guarantee liabilities of the Greensteins remained.  Unfortunately in March 2006 Holdings entered into Chapter 11 insolvency proceedings in the US.  Part of the purchase price was said to be still outstanding and B&W submitted a proof in the US insolvency in a sum exceeding $7m.  On 18th April 2006 Holdings commenced proceedings seeking to disallow the proof, judgment on certain counterclaims and injunctive relief preventing B&W from making claims against the Greensteins other than in the Nevada jurisdiction.
5.	On 13th September 2006 the Nevada court made an order in which it abstained from hearing the determination of the claim and counterclaim, in favour of the courts in this jurisdiction.  It declined to grant an injunction restraining proceedings against the Greensteins.  In May 2007 B&W issued proceedings against Holdings in the Manchester District Registry in respect of the outstanding price (including sums said to have accrued due since March 2006) and shortly thereafter a default judgment was entered.  Holdings applied to set aside that judgment, and on 13th November 2007 HHJ Hodge Q.C. set it aside, but only to the extent of ordering an account pursuant to which account schedules and documents were to be exchanged.
6.	Those proceedings never reached a contested final hearing.  They were compromised by an order of 19th May 2008 which contained a simple judgment in favour of B&W in the sum of $7,018,710 (the amount of the original proof) and no order for costs.  Sanction for that order had to be obtained in the US insolvency court, and justification had to be given to that court for entering into the compromise.  It was apparently opposed by the Greensteins.  Nevertheless, the court in the US sanctioned the compromise.  It appears that the case made for settling was that, while it was considered that the debtor had a good defence, it was not worth fighting the claim because it would be very costly to do so and success would make no difference to the unsecured creditors because there were no funds for them in the insolvency anyway.  The justification, as set out in the documents that we have seen, seems therefore to be commercial pragmatism rather than a perception that defeat was inevitable.  
7.	Shortly after that, on 3rd June 2008, B&W issued the claim form in these proceedings against the Greensteins as guarantors.  It sought a sum slightly over $10m made up of two elements – the $7m-odd referred to above, outstanding as at 20th March 2006 (the date of the Chapter 11 filing) and an additional sum of some $3.084m for additional overheads and interest said to have accrued due between March 2006 and the end of May 2008.  No defence was filed, and on 18th August 2008 B&W issued the summary judgment application which ultimately came before Judge Waksman.
8.	In the intervening period, on 30th July 2008, the Greensteins were supplied with information about the claim.  As will appear, the price due under the 2004 transaction was not a straightforward sum payable on a specified date.  It depended on various inter-company dealings.  In the past complaints had been made that the proper sums due could not be verified for want of information.  It was, as I understand it, in those circumstances that Judge Hodge ordered the disclosure of information.  That was provided to the company at some point in time after it was ordered.  It was that same information that was provided to the Greensteins on 30th July 2008.  It was said in submission by the Greensteins that to analyse it would take months of work by a forensic accountant.  Whether or not that is true, neither party in these proceedings (and in particular the Greensteins) made any attempt to put any of that information either before Judge Waksman below or before us.  Its content has been ignored for the purposes of the summary judgment proceedings (subject to one suggestion by Judge Waksman that a limited part was somehow deployed in a limited way).  Furthermore, having received that information, the Greensteins at no stage sought an adjournment of the summary judgment application in order that they might have an opportunity to see whether anything in that information assisted their defence in this case.
The judgment below
9.	The summary judgment application came before Judge Waksman on 26th September 2008.  The positive evidence in support of the sum being owed took the form of a witness statement of Mr Joshua Rowe in which he set out the historical background and referred to the consent order.  Ostensibly relying principally on the consent order, he claimed that the Greensteins were indebted to B&W on the guarantee in the $7m sum.  No attempt was made to justify the quantum of that element of the debt.  He also exhibited a spreadsheet with some details of the additional $3m said to be owing.  We can put that sum on one side for the purposes of this appeal because no sum is sought in respect of that element at this stage.
10.	In his judgment Judge Waksman dealt with various defences that the Greensteins raised to their liability.  His conclusion as to the settlement was, rightly, that it could not be seen in terms of a capitulation on the merits.  He plainly did not treat it as such.  It is also apparent from paragraph 43 of his judgment that he did not treat the consent order as binding the Greensteins in any way.  He observed:
“I have mentioned the fact that no detailed material has been put before me as to how the underlying claim of $7 million has been made up.  That, I suspect, is largely because B&W relied heavily on the fact of the consent order.  Not because it binds these defendants as a matter of law – clearly it does not – but as powerful evidence of the true debt.  Powerful enough to discharge B&W’s burdens of making out summary judgment under Part 24, or a case for a very substantial interim payment under Part 25.”
11.	He then went on to deal with the various defences that were made.  The first was the effect of the consent order.  It had been alleged that that somehow discharged the guarantee.  He held that it did not.  Although there was originally an appeal from that, that point was abandoned before us.  I do not therefore need to deal with it.  Next he dealt with a point taken about the effect of an assignment.  He ruled against that point and there was no appeal from that.  I therefore do not need to deal with that either.
12.	That leaves the three defences that were argued before us by Mr Cawson Q.C. for the Greensteins.  I shall deal with the judge’s findings in relation to those defences in turn when I come to consider them individually.
13.	Judge Waksman concluded that there was only merit in three specific points going to quantum, amounting in aggregate to £2.65m.  He found against all the other defences.  Having done so, he considered that the appropriate course would be to allow the claim to go to trial on quantum, but that there should be an interim payment.  In arriving at the interim payment he started with $7m, took off the $2.65m as to which he said there was a proper dispute, and then took a reasonable proportion of that remaining sum as being the proper payment, which he fixed at $3.5m.  That was the interim payment that he ordered.  His order expressly gave permission to defend on the following issues:
i)	“1.1  The extent of the indebtedness due to the Claimants under the Sale Agreement dated 8 September 2004 (as Amended).
ii)	1.2  Whether the liability of the Defendants qua guarantor should be limited to the sums stipulated within [the consent order referred to above].
iii)	1.3  The Defendant is refused permission to advance the additional matters recited in the Draft Defence and Counterclaim … on the ground that the same lack any reasonable prospect of success and there is no compelling reason why those matters should go to trial.”
The basis of this appeal
14.	The Greensteins appeal that order.  As the appeal was finally argued before us, they took the following points:
i)	They should have been given permission to defend on a misrepresentation claim which they pleaded as a complete defence to the claim.
ii)	B&W had not sufficiently proved its claim, especially in the light of questions of quantum that the Greensteins sought to raise.  They said that a proper calculation of the outstanding price would show that nothing was owing, so it would be wrong to order an interim payment.
iii)	They had a counterclaim arising under the 1998 agreement which ought to be set off against any sums due as guarantors, at least for interim payment purposes.  It transpired during the hearing before us that the sums claimed under this counterclaim would, if due, still leave about $2m not offset.
15.	I shall take each of those points in turn.
Misrepresentation
16.	In a draft defence exhibited to a witness statement in these proceedings, and in the witness statement itself, the Greensteins claim to have been the victims of a misrepresentation by Mr Bernard Rowe of B&W.  The fullest account of this misrepresentation appears in the draft defence, which was exhibited to a witness statement of Mr David Greenstein in this application.  It refers to the abortive sale of the shares of Fabrics to London Fog because of adverse comments made in KPMG’s 2004 report.  The material paragraphs of the draft Defence read as follows:
“1.2.33	The 2004 Report, inter alia, raised concerns as to Fabrics’ taxation liabilities and as to the quality of the Claimants’ financial accounting and administrative record in respect of Fabrics.
1.2.34	By reason of the 2004 Report, in or about August or September 2004, London Fog withdrew from the proposed purchase of the Claimants’ shareholding in Fabrics, with the effect that the negotiations and the proposed purchase ceased.
1.2.35	A short time later, Mr Bernard Rowe, Mr Joshua Rowe’s brother, acting on behalf of the claimants, requested a meeting and subsequently met with the First Defendant at Madison Square Park in New York.  In the course of the said meeting, Mr Bernard Rowe suggested to the First Defendant that London Fog and the Defendants purchase the assets of Fabrics rather than the Claimants’ shareholding in Fabrics.
1.2.36	Mr Bernard Rowe represented to the First Defendant that after the intended cash deposit in the sum of $2m there were more than sufficient assets in Fabrics to ensure the repayment of the purchase price by the purchaser with the effect that the purchase would be self-funding and would not require any additional funds to be introduced by the defendants or at all.
1.2.37	Mr Bernard Rowe further represented to the defendants that there would be no need to rely upon the 2004 Report as an agreement to purchase the assets of Fabrics would avoid any taxation problems and Fabrics would be self-liquidating so there would be no need for concern about the quality of the financial, accounting and administrative records.
1.2.38	For the avoidance of doubt, the defendants did not have any or sufficient information to challenge the validity of the representation set out in paragraphs 1.2.36 and 1.2.37 above (“the Representations”) by virtue of the same being held by the Claimants and not having been released in its entirety to the Defendants.
1.2.39	In reliance upon the Representations, the Defendants entered into further negotiations for London Fog and the Defendants to purchase, through their nominees (“the Purchaser”) the assets of Fabrics (“the Asset Purchase Negotiations”).
….
1.2.42	In further reliance upon the Representations, London Fog and the Defendants entered into the agreement.”
17.	Under Particulars in paragraph 9.4 of the Defence it was pleaded:
“(2)	Insofar as it may be held that Homestead was liable to the claimants as alleged within the 2007 proceedings, the Representations were false in that Fabrics was not self-liquidating and/or additional funds were required in order to purchase the assets of Fabrics.”
18.	The topic is dealt with in Mr Greenstein’s witness statement, but even more cursorily (somewhat surprisingly, to my eyes).  He deals with it in one paragraph only, without setting out any background and merely referring to the meeting and the representations.  In a witness statement in reply Mr Rowe put in a short bald denial that he made any such representation.
19.	This allegation of misrepresentation was not referred to at all until it appeared in the present proceedings.  In particular, it was never asserted in resistance to the proof of debt in the Holdings insolvency proceedings.  The judge below declined to give this matter any weight, given the late state at which the allegation was made.  He regarded it as “fanciful”.  He relied heavily on the lateness of the allegation, and the absence of any documented complaint about the matter.  He regarded the failure to refer to the application before the witness statement in this application as a “staggering omission”.  Since it was fanciful it had no prospect of success as a defence.  
20.	Mr Cawson submits that the judge was wrong to reach this conclusion on this material.  There was enough evidential material to raise a serious dispute of fact, and Mr Rowe did nothing other than baldly deny the allegation.  As to the time at which it was raised, there was no “obligation” (as Mr Cawson put it in his skeleton argument) to raise the point earlier, and it was not surprising that the point was not taken by Holdings in the earlier proceedings because the claim would not have assisted Holdings, since Holdings was not at the time a party to the agreement or negotiations.  In the circumstances these proceedings are the first occasion on which the point fell to be taken.  The judge was wrong to vest the delay point with such significance, and was wrong to say that the misrepresentation point had no reasonable prospect of success.
21.	I think that the conclusion reached by the judge was one which he was entitled to reach, and one with which this court should not interfere.  But I would go further.  I think that he was quite right to reach his conclusion.  All the points alluded to by the judge demonstrate that the case is not sustainable.  The delay in taking it has not been satisfactorily explained.  If the misrepresentation had been made and relied on, it would seem to me to have plainly afforded at least an arguable defence to the claim against Holdings.  It is not plain that any particular purchaser was identified at the date of the alleged representation, and if it was made it would presumably have been intended to be for the benefit of the purchaser.  If that is right, then Holdings could, at least arguably, have had the benefit of any misrepresentation claim.  The Greensteins were active in the resistance to B&W in the US, and would naturally have told Holdings’ advisers and directors of the misrepresentation had it been made.  It does not appear that they did.  That is a very telling point against its having been made.  Furthermore, a letter before action was sent to both Greenco and to the Greensteins on 30th March 2006.  We were not told what response, if any, there was to that letter, but it certainly did not emerge in evidence that they raised the misrepresentation point at that stage.  This lateness is therefore a very telling point which has not been satisfactorily justified.
22.	Furthermore, the quality of the claim and the evidence demonstrates the implausibility of the claim to a very high degree.  Very little context is given; one would have expected more particularly in the light of implausibilities in the alleged making of the representation and the context.  The background is said to be a report which raised the possibility of tax claims and cast doubt on some of the record keeping.  The Greensteins are said to have been in ignorance of the financial material relevant to Fabrics – that was always dealt with by B&W.  Those factors might explain why the transaction moved from a share sale transaction to an asset sale transaction.  However, they do not explain why the representation fixed the problem about administrative record keeping.  The representation is said to be one to the effect that the current debts and current stock would be sufficient to discharge the intended purchase price.  Assuming for the moment that that is the proper effect of what was allegedly said, then it would involve Mr Rowe making, and the Greensteins accepting, an assertion by Mr Rowe about matters which would be likely to be affected by administrative shortcomings which had caused the previous sale to go off.  That is unlikely.  It is even less likely that the whole deal would be based on such an assertion, which it would have to be for the misrepresentation claim to work.  In a deal of the size of this one, it is not likely that the Greensteins would simply rely on a generalized assertion of this nature in doing the deal, and even less likely that London Fog (their partners in the deal) would.  It is, I suppose, theoretically possible, but not at all likely.  It becomes even less likely when one sees how the deal was finally structured.  The price payable was specified by clause 5 of the agreement. It is not always easy to understand, but its material parts read as follows:
“Newco will remit to [Fabrics] all proceeds, and shall be obligated to turn over or pay to B&W/[Fabrics] such amounts as will provide $27 million to [Fabrics] as a net balance as described below whether derived in whole or in part from collections (net of accrued royalties and sales commissions, charge-backs, claims, discounts, allowances and rebates) of [Fabrics] Receivables and from sale of [Fabrics] Inventory and/or sale or purchase of the Herkimer Warehouse … Such amount (Aggregate Amount) of $27 million shall be the net balance available to [Fabrics], after [Fabrics] shall have paid out its current liabilities (including taxes due or payable) on the books as at 31 July 2004 (as listed in the schedules appended hereto) of $5.5 million and after B&W shall have been paid any net balances owing by HMST/Herkimer Distribution LLC (Herkimer) in the ‘inter company’ accounts on the books of [Fabrics]/Herkimer as at 31 July 2004 of $1.2 million [subject to other adjustments]”
23.	Various other adjustments are provided for.  It is not necessary to understand the details of the actual workings of that provision.  It is sufficient to note two things.  First, it provides for what are in effect serious deductions from the proceeds of sales of assets before they are turned over to Fabrics, and second (no doubt in part recognition of the fact that there will be deductions) it plainly anticipates that collection of debts and the realisation of stock might not be sufficient to get to the crucial sum of $27m.  The representation alleged, and even more so reliance on it, do not sit well with this manner of paying the purchase price.  
24.	I therefore agree that there is such a heavy air of implausibility hanging over this representation claim that it is quite right to regard it, even at this very early stage in its life, as having no reasonable prospects of succeeding.
25.	I therefore consider the judge was correct in his conclusion on this part of the case.
Quantum and proof
26.	The essence of this point is as follows.  The defendants say that B&W has not sufficiently proved its case for the purposes of a summary judgment application, or for the purposes of an interim payment application.  They say that the proof that any principal debt is owing is too weak for that purpose.  Mr Cawson points out that the consent judgment on the principal debt was the result of a settlement agreement which in turn was a result (so far as the debtor was concerned) of pragmatism and not an acceptance that the debt was due.  He accepted that the existence of the judgment was some evidence that the principal debt was due, but in these circumstances its force was not great.  The claimants, he said, had not established that any sum was owing to the standard which is required in a summary judgment or interim payment application.
27.	Before the judge below the defendants had claimed that there had to be a particular deduction of $4m from the sums claimed because of the position involving a property known as the Herkimer warehouse.  The judge ruled against the defendants on that, and the point is not resurrected before this court.  He also dealt with three points raised by the defendants which challenged a sum of about $2.65m in aggregate, and in essence accepted that there was a triable dispute about those (he took that sum off the $7m figure in order to arrive at his interim payment award, as referred to above), and the claimant does not challenge that.  That state of affairs means that the point which is left for this court is that which is referred to in the preceding paragraph.  The judge does not neatly deal with that point as such in a discrete part of his judgment (doubtless because it was not presented to him in that way) but  his views are plainly contained in paragraph 43 (set out above) and in paragraph 75, where he says:
“I do not accept any generalized point here that because the scheduled documents are not before me I should simply take the view that no sums should be awarded at all, and everything should be left to a trial, effectively, on quantum.  I have indicated that it is less than satisfactory not to have those underlying documents before me.  On the other hand, the defendants specifically asked for those documents.  They have had time to go through them, and if there are particular points with which they disagree, one would expect them to raise them before me, as indeed they have in certain respects.  However, what I am not prepared to do is simply to say that in the light of the absence of those documents, no sums should be awarded at all.”

The scheduled documents to which he refers are the documents which were supplied to the defendants on 30th July 2008, and which had been supplied to Holdings some months before that.
28.	Mr Cawson criticized the learned judge for adopting this view.  He says the judge should have considered the shortfalls in the proof of the debt, and the problems faced by the defendants in challenging it, and left the whole of the quantum to be established at a full hearing.  He relied on a 2005 report from KPMG in which, while some of the transactions said to give rise to the inter-company account which represented the outstanding purchase price were accepted, nonetheless raised queries which meant that parts were not.  KPMG did not have all the relevant material at the time, because it was held by B&W.  It was also said that when B&W came to submit its proof in the insolvency (which it did by means of a Scott schedule) there was still missing information.  This meant that the defendants did not have a proper opportunity to consider quantum and any detailed challenges that might be made.  The later disclosure (referred to by the judge) might have clarified matters, but it would take months for forensic accountants to go through it and the defendants were not in a position to mount any detailed challenge (presumably other than those which the judge acknowledged in his judgment amounting to $2.65m in aggregate) until that had been done.  In those circumstances the judge was said to be wrong in allowing any sum as an interim payment.
29.	Other than the specific challenges allowed by the judge, the defendants did not manage to set up any other specific challenges to the sums claimed.  It was common ground that an interim payment should only be allowed if the court was satisfied that a sum of at least the amount awarded would end up being payable, so the question is whether it can be said that the judge was wrong, in the light of the evidence of the debt and the reasons for the lack of specific challenges to quantum, in finding (as he must have done implicitly) that a large part of the debt was established.  
30.	I consider that the judge was entitled to reach the view that he did, as a matter of judgment, and that indeed that it was a view with which I would again respectfully agree.  Against a background where there is obviously an enormous amount of commercial detail underpinning the claim, it might be thought that some greater degree of detail in the claim might have been forthcoming.  However, it amounts to satisfactory proof for a deponent to vouch for a sum with a lot of undisclosed underlying detail (for example, in many claims on overdrafts), and the detail only becomes necessary or appropriate if some sort of challenge is mounted.  When the evidence in the present case is analysed, that is what has happened here.  Mr Rowe has essentially deposed to the amount outstanding as at March 2006, and relies on the consent judgment as proof as well.  There are therefore two limbs to the proof.  If matters had stopped there, that would have been sufficient evidence to justify summary judgment or an interim payment.  True it is that the evidential support provided by the consent order is not strong (as the judge below acknowledged) but even the defendants (through Mr Cawson) acknowledged that it provided some.  
31.	So the question then becomes whether the defendants have undermined that evidential case to an appropriate degree.  They have managed to do so to some extent in the figures allowed by the judge as deductions.  As to the rest the question is whether the defendants have cast enough doubt notwithstanding that they have not provided any particularised challenges.  I agree with the judge’s conclusion that they have not.  This claim had been live, as a formulated claim against the principal debtor, for 2½ years before the hearing before the judge, and probably for a year more than that, judging by the 2005 KPMG report.  The Greensteins have been involved in that dispute for all of that period.  Even if others had charge of the accounting and administrative function while the trading company was a going concern, they could have got information if they wished to do so.  If they felt they were short of information which only B&W had, then they could have asked for it, as indeed they did in 2008.  Having received that information they could then have analysed it, or started to analyse it, to see if it threw up any material other than those challenges allowed by Judge Waksman.  They have done little or nothing of that in the past 3 years.  Mr Cawson’s submissions suggested that nothing had been done by the Greensteins since they received the information in 2008 because it was going to take too long to do the exercise.  That is not a satisfactory stance to take in these circumstances.  It would have been open to the Greensteins to seek an adjournment of the summary judgment application in order to enable them to review the material, at least partially, but they did not do that.  Nor did their evidence before the judge refer to the material, or its size or complexity, or complain of lack of time or opportunity to assess it.  In those circumstances, and bearing in mind their engagement with the process in the past, the judge was entitled to come to the conclusion (with which I would agree) that the claimant has sufficiently proved its case and the defendants have not raised sufficient evidence to challenge it, beyond the $2.65m already mentioned.  
32.	For the sake of completeness I would add that there is an indication that the Greensteins had in fact given some consideration to the 2008 material.  In paragraph 75 of his judgment Judge Waksman observed that the defendants had had time to go through that material and raise points if they disagreed with the claimant “as, indeed, they have in certain respects”.  If that reflects the fact that they did actually consider that material (as it seems to do) then the case against them gets even stronger – they have actually looked at the potential defence material and have managed to identify only limited quantum questions.  
33.	I would therefore dismiss this ground of appeal.
The counterclaim
34.	The third basis of the appeal involves reliance on a counterclaim to which the Greensteins say they are entitled.  The counterclaim is said to arise out of the 1998 agreement between them and B&W in respect of which B&W are said to be in breach.  In order to understand it it is necessary to set out some of its provisions.
35.	The agreement is something of a home-made document.  It relates to the way in which the parties agreed to run, and benefit from, Fabrics.  The relevant provisions read as follows:
“2.	Interest in the company shall be divided as follows 65% to Joshua Rowe or his nominees, 35% to be divided between David Greenstein and Steve Greenstein.  David Greenstein to hold 24.5% and Steve Greenstein to hold 10.5%
3.		Subject to the usual commercial considerations, 50% of the net profits, after tax, will be distributed.  The remaining 50% will be retained by the Company.  David Greenstein and Steve Greenstein have the right to increase the amount of retained earnings in the Company so as to achieve point 4.
4.		After 60% of the required capital is accumulated in equity in the business, David Greenstein and Steve Greenstein will receive from Joshua Rowe (or his nominees) an additional 5% interest in the company so as to increase their joint holding to a total of 40%.  Such interest will be held by David and Steve in the same proportion as their 35% interest in the Company.
5.		The distribution of profits shall be in direct proportion to the interest held by the parties in the Company.
6.		David Greenstein and Steve Greenstein will dedicate their full time and energy to manage the Company and its business.
9		Overall management is at the discretion of Joshua Rowe or his successor.
10		Broome & Wellington will finance the operation, open L/Cs, purchase inventory and fund the overall operations of the Company until such time as the company is self financing.  The Company shall pay Broome & Wellington 5% of the cost of goods purchased by the Company.”
36.	Three claims were originally made in relation to this agreement: 
i)	B&W wrongly substituted a charge of 3.5% of sales in place of the figure of 5% of purchases provided by clause 10 of the Agreement.  Accordingly they charged too much, which depressed the profits paid to the Greensteins.
ii)	B&W overcharged for various commissions, salaries, payroll costs and overheads.  Those matters should have been covered by the financing charge of 5%, and not charged for separately.  The effect of that was to depress the profits which the Greensteins would otherwise have received.
iii)	In the year ending April 2003, or alternatively in the next accounting period, sufficient capital had been acquired to entitle the Greensteins to have an increased share in the business (5%) under clause 4 of the 1998 agreement.  However, they were not given it, again with the result that their profit share was underpaid (in addition to the non-receipt of the increased shareholding).
The first of those points was abandoned at the beginning of the hearing before this court.
37.	The judge below dealt with these points in two paragraphs.  He pointed out that, like the misrepresentation claim, this claim emerged only in the course of these proceedings, notwithstanding the fact that the Greensteins became aware of it (they say) when they first saw the 2004 KPMG report in 2005.  He found that it faced the same difficulties as that claim (which is the way that he put it), so his finding was that its lateness demonstrated that there was nothing in it so that it had no reasonable prospects of success (though he did not articulate it in that way).  In addition, he found that the first of those points presented additional difficulties because it appeared from a number of contemporaneous documents that the Greensteins themselves were referring to the 3.5% of sales figure in a manner which demonstrated that it reflected the practice of the parties.  We have seen those documents and it is a fair description of them.  They suggest very strongly that the Greensteins accepted that it was an appropriate charge for B&W to make.  He found that this was more than a cross-examination point, and demonstrated that there was no substance in relation to the allegations in relation to the 1998 agreement.
38.	Before us Mr Cawson started by abandoning the 5%/3.5% point, though not before having submitted in his skeleton argument that “there is no explanation or detail as to how, when or why the amount of the finance charge changed from the 1998 Agreement”.   He went on to say that the judge erred because there was no “obligation” on the Greensteins to refer to the counterclaim any earlier than they did, that the counterclaim was personal to them and would not have benefited Holdings (which went some way to explain why it was not raised during the earlier phases of the dispute), that the 2004 report provided the basis for the counterclaim and provides sufficient detail of it, that disputes of fact were raised, and that no adverse inference should be drawn from a failure to raise it earlier.
39.	As before, I consider that the judge below was entitled to come to the conclusion that he did on the evidence that he had, and furthermore I would have reached the same conclusion myself.  The claim in relation to the 5%/3.5% is not very large (less than $60,000), but the rest of the claims are said to amount to a sum exceeding $3m.  It is accepted by the Greensteins that the material on which the claim is now advanced, namely the 2004 KPMG report, has been known to them from 2005.  Not to advance such a claim until 3 years later, in response to an action against them, must cast some doubt on the bona fides of the claim.  The delay in advancing it calls at least for some explanation in the evidence, but there is none.  On the facts of this case the judge was entitled to consider that it made the claim improbable, and he was further entitled to consider that that improbability was reinforced by the apparent fact that the change from the 5% charge on purchases to the 3.5% charge on sales was acquiesced in by the Greensteins, and that the evidence to that effect was unmet.  That reinforcement is even greater in the light of the abandonment of the point.
40.	In addition, there are serious evidential problems for the claimants.  It is not wholly easy to understand what clause 4 of the 1998 agreement actually means, or even what the Greensteins say it means.  The Greensteins’ case on that is not set out in their Counterclaim; much less is it set out in their evidence, which merely points to the Counterclaim in this respect.  One might have expected some elaboration of this by way of an identification of the material relied on for making the allegation that the important 60% level had been reached, but all that their pleaded and evidential case did was to point in general terms to the 2004 report.   That report does not address the case in terms, and without some assistance it is not possible to see which parts of it address it more obliquely, let alone tend to prove it.  I am afraid that I found it impossible to understand how this part of the case was put, even after the attempts by Mr Cawson to explain it.  The Greensteins’ target for these purposes was to make an arguable case for this aspect of the counterclaim, and they fell short of it.  
41.	The other surviving head of counterclaim (that B&W wrongly charged for overheads which ought to have been subsumed within its finance charge) also seems to me to be doomed to fail on the material before us.  The obligation of B&W was to finance the operation – that is to say, to provide funds, but not personally to undertake the payment of outgoings without reimbursement.  If the Greensteins were right about this, then I do not see why the obligation of B&W should not extend to paying for all stock and effectively make a present of it to the company, and all in exchange for 5% of the cost of that stock (under the original terms).  That would be such an extraordinary business model that it would require much clearer wording to achieve it.  The overheads were no more the subject of a gift by B&W than was the stock, in my view.  Mr Goudie QC, for B&W, drew the court’s attention to how the overheads were actually dealt with in the audited accounts of the company for the year ended 30th April 2003, which also showed the 2002 figures.  They show that management charges were accounted for separately from the funding charge and that was clearly disclosed.  That does not, of course, affect the true construction of the 1998 agreement, and the Greensteins would doubtless say that the 2003 figures in the accounts, which were not signed off until April 2004, demonstrated a breach rather than how the agreement ought to be complied with, but the accounts plainly suggest that the matters had been dealt with in the same way in the previous year (for which accounts would doubtless have been available to Greensteins some time previously) and tend to show a much more sensible business model than that suggested by the Greensteins.  A sensible model is much more likely to have been the intention of the parties than that contended for by the Greensteins.  
42.	Accordingly, the evidential and legal case advanced by the Greensteins is, in my view, too weak to enable this court, or the court below, to say that it has an apparently arguable counterclaim based on the 1998 agreement, and together with the delay in advancing that claim gives the strong impression that this is a smokescreen.  The judge below was right to reject it as a defence to the summary judgment application.
Conclusion
43.	For those reasons, therefore, I would dismiss this appeal.
Lord Justice Lloyd:	I agree.
Lord Justice Longmore:	I also agree.