Aymes International Ltd v Nutrition4u BV & Ors

Factual and Procedural Background

The principal issue on this appeal concerns the interpretation of a call option agreement dated 31 August 2016 between the Plaintiff ("AIL") and the First Defendant ("Company A"). Under the Agreement, Company A granted AIL an option to purchase shares in the Second Defendant ("Company B"), its wholly-owned subsidiary, in consideration of payment by AIL of €537,500 ("the Option Consideration"). The Third Defendant ("Individual A") was the sole shareholder and director of Company A and the CEO of Company B, and a party to the Agreement due to provisions for his continued CEO role post-purchase.

AIL exercised the option, but dispute arose over the purchase price. AIL contended it owed €1, while the Defendants argued for €526,930, hinging on whether "Turnover" for calculating purchase consideration included the Option Consideration. The High Court judge ruled that it did. AIL appealed, challenging this interpretation (ground 1) and certain findings about Individual A (grounds 2 and 3). Permission to appeal was granted on all grounds.

Subsequent to the judgment, Company A entered insolvency, and Individual A ceased as director. The Defendants did not participate in the appeal.

Background facts include that Individual A was formerly employed by a third company in marketing. AIL, trading since 2013, supplied nutritional products in the UK and Ireland, as did Company B. Both companies perceived synergies, leading to a 2014 distribution agreement. Between 2015 and 2017, AIL and Company B were involved in litigation with another company concerning trademark infringement and related counterclaims, settled by AIL paying €101,000. In 2016, AIL and Company A entered into the Agreement. Until 2019, AIL's chairman was another individual.

AIL exercised the call option in April 2020, with completion scheduled for May 2020, which did not occur. In April 2021, AIL commenced proceedings seeking declaratory relief and specific performance, joining Company B and Individual A as Defendants. Defendants accepted valid exercise but contended the contract had lapsed due to time being of the essence and resisted specific performance, alternatively disputing consideration payable. There was also dispute over the reasonableness of an employment contract offered to Individual A as CEO post-acquisition.

The judge held time was not of the essence and ordered specific performance. Although the employment contract was not entirely reasonable, guidance was given on what would be reasonable. Neither party challenged these findings. AIL maintained its wish to complete the purchase.

Legal Issues Presented

1. Whether the "Turnover" used to calculate purchase consideration under the Agreement includes the Option Consideration.
2. Whether certain factual findings concerning Individual A, including his credibility and conduct, were properly made by the judge.
3. Whether the Court of Appeal has jurisdiction and should exercise it to entertain an appeal against the judge’s findings about Individual A.

Arguments of the Parties

Appellant's Arguments

• Turnover does not include the Option Consideration because it is a separately defined term and not referenced in the calculation of Relevant Margin or Company Value in the Agreement.
• The Option Consideration is a payment for the grant of the option, not for sales of goods or services by Company B, and thus does not fit the ordinary meaning of Turnover.
• Including the Option Consideration in Turnover inflates the purchase price commercially unreasonably, especially given the multiplier effect in the Company Value calculation.
• The Option Consideration payment to Company B constituted a gift from Company A (parent) to Company B (subsidiary), which is not turnover of Company B.
• Defendants’ argument that deduction of the Option Consideration would amount to double counting with CEO salary is incorrect; these are distinct sums.
• Challenges to the judge’s adverse credibility findings against Individual A are unfounded and should be reversed, though AIL accepts such a ruling would have no legal consequences.

Defendants' Arguments

• Turnover includes the Option Consideration, supported by the judge’s interpretation and the absence of express exclusion in Schedule 1.
• The Option Consideration was paid to compensate Company B for lost margin on sales to AIL, justifying its inclusion in Turnover.
• Deducting the Option Consideration would constitute double counting given the CEO salary deduction.
• The judge’s adverse findings on Individual A’s credibility were justified based on his evidence and conduct during trial.
• The cross-examination on the Nualtra litigation episode was relevant to assessing Individual A’s credibility.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court began by analysing the contractual terms, focusing on the interpretation of "Turnover" within the Agreement. The Option Consideration was separately defined and expressly paid by AIL for the grant of the option, not as revenue from sales of goods or services by Company B. The Agreement’s Schedule 1, which sets out the calculation of Relevant Margin and Company Value, refers only to Turnover without mention of the Option Consideration, indicating it should be excluded.

The Court rejected the judge’s earlier interpretation that Turnover includes the Option Consideration, reasoning that the absence of express inclusion is more persuasive than the absence of express exclusion. The ordinary meaning of Turnover, as the value of goods and services sold, does not encompass a one-off payment for an option right. The Court also noted that the Option Consideration was paid to Company B, which is not a party to the Agreement and cannot enforce it, effectively constituting a gift from Company A to Company B, which cannot be treated as turnover of Company B.

Commercially, including the Option Consideration in Turnover would inflate the purchase price artificially, especially given the multiplier of six applied in the calculation of Company Value. The deductions in Schedule 1 further support excluding the Option Consideration, as sales and costs related to AIL are excluded, and it would be inconsistent to include the Option Consideration, which was AIL’s payment to Company B.

The Court also addressed the Defendants’ argument of double counting with CEO salary deductions, rejecting it as the sums are distinct. Regarding the findings about Individual A, the Court acknowledged the judge’s adverse credibility assessment but held that the appeal on these grounds should not be entertained. The Court reasoned that the appeal did not challenge the legal consequences of the findings, and there was no sufficient basis to overturn them. The Court distinguished the authority relied upon by AIL and emphasized that such appeals are exceptional and require compelling reasons, which were absent here.

Holding and Implications

The Court ALLOWED the appeal on ground 1, holding that the Option Consideration does not form part of Turnover for the purposes of calculating the purchase consideration under the Agreement. Consequently, the Company Value is negative, and AIL's payment obligation for the shares is €1.

The Court DECLINED TO ENTERTAIN the appeal on grounds 2 and 3 concerning the judge’s adverse findings about Individual A’s credibility, finding no jurisdiction or compelling reason to do so. This decision leaves those findings intact but has no legal consequences for the parties.

The direct effect is that AIL may complete the purchase of the shares at the lower price. No new legal precedent beyond the interpretation of the Agreement’s terms was established.