A reminder from the Court of Appeal about the importance of clients being sure documents are true before signing statements of truth. In Makdessi v Cavendish the Court of Appeal has upheld a decision to grant permission for committal proceedings to be brought against Mr Makdessi (represented by Clifford Chance) for contempt of Court.
The dispute involved an SPA for the acquisition by Cavendish of ‘Team Y & L’ in which Mr Makdessi was a major shareholder. Under the SPA, Mr Makdessi would be a Defaulting Shareholder if he continued to be involved with a rival company – Carat. In December 2010, Cavenish started proceedings alleging Makdessi had continued to be involved with Carat and was therefore a Defaulting Shareholder. Read our analysis of the substantive decision on whether the Defaulting Shareholder terms in the SPA are enforceable.
In February 2011, Makdessi filed his defence denying any involvement in Carat during the relevant period and also alleging that the provisions applying to Defaulting Shareholders were penal in nature and therefore unenforceable. However, following disclosure and exchange of witness evidence (including email evidence of Makdessi involvement in Carat long after the SPA), in October 2012, Makdessi amended his defence now fully admitting his continued involvement with Carat during the relevant period and that this made him a Defaulting Shareholder. As such, the only remaining principal issue in dispute was whether the provisions applying to Defaulting Shareholders were penal.
Cavenish applied for permission to bring Contempt of Court proceedings given Mr Makdessi’s false statements about his involvement in Carat contained in his original defence.
The Test for Contempt of Court
The Court recited the test from Poole Motors v Seabrook  EWHC 1849 (Admin). Namely, that in deciding whether to allow proceedings for contempt, the Court should assess (i) whether the person making the statement knew it to be false at the time it was made and (ii) whether there is a public interest in allowing proceedings for contempt in light of factors including the strength of the case against the contemnor; the significance of his false statement in proceedings (including how long he had persisted in maintaining his false statement); and whether the contemnor understood the likely effect of the statement and use to which it would be put in proceedings.
The Court also noted that “A failure to warn the alleged contemnor at the earliest opportunity of the fact that he may have committed a contempt is a matter that the court may take into account."
The judge was right to allow contempt proceedings
The Court of Appeal upheld a decision of Burton J to grant permission for Cavenish to apply to commit Mr Makdessi. It found that, had Makdessi not made the statement denying involvement in Carat in his original Defence, his factual defence on liability would and could not have been made and the vast amount of time and money which was spent on this aspect of the case would not have been spent. Although the length of time for which the contemnor had persisted in maintaining his false statement was a relevant factor, the fact that the contemnor had recanted his statement before trial did not make committal proceedings inappropriate – any such principle would risk becoming a licence to misrepresent the truth up to the eleventh hour.
Although a failure to warn an alleged contemnor that he may be in contempt is a relevant factor, in this case “a litigant in the position of Mr Makdessi, a highly successful and intelligent businessman with top flight lawyers, did not need to be reminded by the Respondents that false statements of truth were punishable by committal”. Cavenish had incurred over £1.75M in establishing Makdessi was a Defaulting Shareholder. Even though much of this may have related allegations of breaches of other non-compete obligations in the SPA, costs would still have been saved if Makdessi had not made the statement in his original Defence, or recanted from it earlier.
This is a case in which it could not have been more apparent that Makdessi was aware of the statement he was making and the effect it would have on proceedings. For instance:
- The original defence stated: “Following 26 March 2008 the Defendant's only involvement in the business of Carat was to assist in finding a replacement CEO and, pending his appointment, to sign cheques on behalf of the business”; whereas
- The amended defence stated: "It is admitted that after 28 February 2008 the Defendant had an ongoing, unpaid involvement in the affairs of Carat pending the appointment of a replacement CEO and that such involvement placed him in breach of fiduciary duty to the Second Claimant with effect from 1 July 2008….[if] the covenants are valid and enforceable it is admitted that the Defendant’s involvement in the affairs of Carat rendered him Defaulting Shareholder within the meaning of the Agreement”.
It is worth noting that these statements were made in Mr Makdessi’s Defence. This underscores the importance of parties in litigation who are signing or confirming that documents are true, the importance of reading Statements of Case in full and the seriousness of signing the statements of truth, particularly given the Court’s statement that “a litigant in the position of Mr Makdessi, a highly successful and intelligent businessman with top flight lawyers, did not need to be reminded by the Respondents that false statements of truth were punishable by committal”.
Mr Makdessi was found in contempt and faces prison. In the end it is the client who signs a statement who is at risk of punishment and consequently clients should always make sure to check the accuracy of documents provided to them by their lawyers before signing them.