Summary judgment refused; case remitted to plenary hearing due to disputed tax indemnity and turnover shortfall.

THE HIGH COURT

[2025] IEHC 415

Record No. 2023/357S

BETWEEN

KEY PEST LIMITED

AND

LAKECOVE LIMITED

PLAINTIFFS

AND

MICHAEL WALSH

DEFENDANT

Judgment of Mr Justice Barr delivered electronically on the 2nd day of July 2025.

Introduction.

1. This is an application by the plaintiffs for summary judgment in the sum of €135,502, plus interest, against the defendant.

2. The said sum is alleged to be made up of four separate elements of indebtedness that are alleged to arise consequent upon the conclusion between the parties of a share purchase agreement, a transfer of undertakings agreement and a tax deed in connection with the sale by the defendant of his shareholding in his company Omega Environmental Ltd, to the plaintiffs.

3. The defendant has made limited admissions in relation to some elements of the plaintiffs’ claim. Other than that, he denies that any money is due and owing by him to the plaintiffs in the manner alleged, or at all.

4. The defendant, who appeared in this application as a lay litigant, states that having regard to his having a bona fide defence to the plaintiffs’ claim, the matter should be remitted to plenary hearing.

The Issues.

5. As already noted, these proceedings arise out of the sale of the defendant’s shareholding in his pest control business called Omega Environmental Ltd (hereinafter ‘Omega Environmental’).

6. The essential elements of the plaintiffs’ claim are that in 2022, the parties entered into three detailed written agreements in connection with the sale and purchase of the defendant’s shares in Omega Environmental. Under the combined effect of these agreements the plaintiffs agreed to purchase the defendant’s shareholding in the company for a total consideration of €440,000. It was agreed that 90% of the purchase price would be paid in 2022, with the outstanding 10% being paid after six months if the company achieved a target turnover of €130,000 in that period.

7. In compliance with the agreements, the plaintiffs paid €396,000 to the defendant. The remaining €44,000 has not been paid to the defendant, as the company did not achieve the target turnover provided for under the agreements. This will be elaborated upon later in the judgment.

8. There are four elements to the plaintiffs’ claim against the defendant. The first is a claim in relation to an indemnity which was to be provided by the defendant in relation to the tax liabilities of Omega Environmental. It is not necessary to say a great deal about this head of claim as the defendant has accepted that he is liable for a tax payment recouped by the Revenue Commissioners from the company’s account in the sum of €35,431. He denies that he is liable for the slightly greater sum as claimed by the plaintiff in this regard of €38,200.

9. The defendant has stated in his affidavit that made an offer to the plaintiffs whereby they could deduct the sum of €35,431 from the €44,000 owed by the plaintiffs by way of deferred consideration. However, the plaintiffs did not accept that offer.

10. The plaintiffs also seek payment of €14,760 as legal fees incurred by them in dealing with Revenue in respect of this payment of tax. The plaintiffs allege that recovery of this sum from the defendant is provided for under the terms of the share purchase agreement and the tax deed. In respect of this aspect of the claim, Mr O’Boyle, a director of the plaintiff companies, has exhibited an invoice from the company’s solicitor.

11. The defendant objects to this element of the claim on the following grounds:

(a) that it was not necessary to have any detailed interaction with the Revenue Commissioners in relation to this tax payment. They had served an attachment notice and had recovered the money directly from the company’s account. While the defendant and his accountant had had dealings with the Revenue on the matter, it was submitted that there was no need for the plaintiff companies to incur costs of approximately €12,000, plus VAT, in legal fees; (b) the defendant does not accept that the agreements provide for recovery of these legal fees from him.

12. The second element of the plaintiffs’ claim arises under the heading of what is termed ‘leakage’ from the company’s accounts. The plaintiffs’ claim under this heading is that under the share purchase agreement, the ‘locked box accounts’ were defined as meaning the balance sheet and the profit and loss account of the company at the locked box accounts date, which was defined as being 30 April 2022. The agreement further provided that ‘leakage’ meant any payments out of the company’s accounts that did not come within the definition of ‘permitted leakage’, which was essentially defined as being disbursements and payments that were made in the ordinary day-to-day operation of the company’s business.

13. Clause 5 of the share purchase agreement provided that the seller warranted that no leakage had occurred other than permitted leakage as defined in the agreement. The clause further provided that the seller agreed to pay to the buyer on demand a sum in cash which was equal to the amount of any leakage that occurred in breach of the undertakings given at clause 5.1.

14. It was alleged that a review of the financial accounts between the locked box accounts date and the completion date had identified payments totalling €26,845.41 which did not fall within the scope of permitted leakage. Accordingly, that sum was claimed from the defendant on the basis that it represented payments that had been made from the company’s accounts in respect of either (a) personal items of expenditure incurred by the defendant; or (b) related to operating costs that had been incurred prior to the locked box accounts date, but had not been disclosed in the accounts.

15. In response to this claim, the defendant admitted that €2,799 was due to be repaid by him under the heading of leakage. Other than that, he asserted that all debits from the company’s account after the locked box accounts date and prior to the

conclusion of the agreement in July 2022, were made exclusively in furtherance of the day-to-day operation of the company’s business. He asserted that such payments came within the definition of permitted leakage as provided for in the agreements. Save as had been admitted by him, he denied that any of the expenditure related to expenditure on personal items on his own behalf.

16. Furthermore, the defendant stated that the figures that had been compiled by the plaintiffs as representing leakage were inaccurate, insofar as some of the sums that the plaintiffs alleged constituted payments from the accounts, were in fact payments into the company’s account, as shown by the words “receivable cre” in the account summary as exhibited by the plaintiffs, meaning receivable credit. Accordingly, the defendant asserted that he had a bona fide defence to this element of the plaintiffs’ claim against him.

17. The third head of claim brought by the plaintiffs against the defendant was in respect of the sum of €5,306 which was alleged to be due as bad debts. The plaintiffs allege that the bad debts were in respect of amounts that had been written off by the defendant, but had not been disclosed in the accounts prior to the locked box accounts date and therefore were covered by the defendant’s warranty that no further bad debts, other than those as disclosed in the accounts as of that date, were in existence. On this basis, it was alleged that the defendant was liable to repay this sum to the plaintiffs in respect of the bad debts that had been written off, but not disclosed in the accounts.

18. The defendant admitted that these debts had been written off by him. He stated that he had done so because the customers involved were long-standing customers of Omega Environmental, who had allowed these debts to accrue during the period of Covid-19 lockdown in 2020, and subsequent thereto. They disputed some of the invoices that had been raised during this period.

19. The defendant stated that he had made the decision to write off this relatively small sum on the basis that it would be better to keep these long-standing customers on board, rather than pursue them, given that those customers disputed some of the invoices that had been provided to them. He accepted that due to an error on the part of his accountant, they had not been disclosed in the locked box accounts.

20. The final part of the plaintiffs’ claim related to a claim for alleged shortfall in failing to achieve the target turnover as provided for under the agreements. It was alleged by the plaintiffs that under the agreements the defendant had warranted that the company would achieve a target turnover of €130,000 in the first six months after the transfer of ownership from the defendant to the plaintiffs.

21. It was asserted by the plaintiffs that the actual turnover which had been achieved by the company after the transfer date amounted to €98,895 in the first six months, thereby giving rise to a shortfall of €31,105.

22. The plaintiffs further asserted that under clause 4 of the share purchase agreement, it was provided that where there was a shortfall between the actual post completion turnover and the target post completion turnover, the buyers would be entitled to deduct three times the actual turnover shortfall from the amount that was due by them as deferred consideration in respect of the purchase price for the shares.

23. Applying that formula to the actual shortfall of €31,105, this gave a total reckonable shortfall of €93,315. When the amount of the deferred consideration of €44,000 was set off against that sum, this gave a final reckonable figure of €49,315, which it was alleged was due by the defendant to the plaintiffs under this heading.

24. In response, the defendant argued that the only reason why the company did not achieve the target turnover in the first six months was because the plaintiffs had failed to run the business formerly carried on by Omega Environmental, in a proper manner.

25. In support of that assertion, the defendant exhibited statements from the previous operations manager of Omega Environmental and his second-in-command, both of whom had been kept on to work in the new company. Both of them had stated that the new owners of the company had paid very little attention to the existing customers of Omega Environmental, resulting in a significant number of these customers taking their business elsewhere.

26. They stated that they were at the receiving end of complaints from customers of Omega Environmental, who were dissatisfied with the level of attention that they had received after the transfer of ownership of the company to the plaintiffs.

27. Both the operations manager and his second-in-command stated that they had left the new company some months after the transfer of ownership of it, due to their unhappiness in relation to the way that they and the customers of Omega Environmental were being treated.

28. The defendant stated that it had been agreed that after the transfer date he would stay on for three months to assist with the transfer of the business to the new company. He stated that he had tried to bring the concerns of his former employees and customers to the attention of management in the new company, but he was not listened to. He was dismissed summarily after just five weeks.

29. The defendant asserted that in these circumstances, any warranty that had been given by him that the company would achieve a target turnover of €130,000 in the first six months, would not be recoverable against him where the sole reason why the company did not achieve that target was because the new owners had mismanaged the company in the relevant six-month period.

The Law.

30. In an application for summary judgment it must be clear that the plaintiff is prima facie entitled to the relief claimed, be that a monetary sum, or some other order, such as an order for possession of property.

31. Normally, the existence of the debt, or right of recovery, which is the subject matter of the proceedings, will be reasonably clear-cut. Very often it is a simple contract debt, either in the form of a loan, or unpaid purchase price, or a claim to recovery of land based on a mortgage or charge.

32. Once the underlying cause of action or debt is clearly established, the focus then shifts to whether the defendant has established that he has an arguable or stateable defence, such that it would not be appropriate to enter judgment in a summary manner against him, but that the matter should be remitted to plenary hearing where the issues in the case can be fully argued and determined.

33. The approach which the court should take to an application such as this, is well settled in law. The relevant test was set down by the Supreme Court as far back as 1996 in First National Commercial Bank v Anglin [1996] 1 IR 75. In that case Murphy J, giving the judgment of the court, endorsed the following test laid down in Banque de Paris v DeNaray [1984] 1 Lloyd’s Law Rep 21, which had been referred to in the judgment of the President of the High Court and reaffirmed in National Westminster Bank PLC v Daniel [1993] 1 WLR 1453:- “The mere assertion in an affidavit of a given situation which was to be the basis of a defence did not of itself provide leave to defend; the Court had to look at the whole situation to see whether the defendant had satisfied the Court that there was a fair or reasonable probability of the defendants having a real or bona fide defence.”

34. The test set down in the Anglin case has been applied in a number of cases in the intervening years. The appropriate test was more recently set out in Aer Rianta CPT v Ryanair Limited [2001] 4 IR 607 in which case Hardiman J stated as follows at page 623:- “In my view the fundamental questions to be posed on an application such as this remain: is it ‘very clear’ that the defendant has no case? Is there either no issue to be tried or only issues which are simple and easily determined? Do the defendants affidavits fail to disclose even an arguable case?”

35. In Harrisrange Limited v Duncan [2003] 4 IR 1, McKechnie J, having analysed the relevant case law, set out a helpful summary of the relevant principles. It is not necessary to set these out in this judgment, as they are very well known.

36. The court has also had regard to the dicta of Moriarty J in Allied Irish Banks v Killoran [2015] IEHC 850, where he warned that the court should not accord substantive relief to defendants in summary judgment motions who raise spurious, fanciful or conjectural contentions to resist judgment. He advised that courts must be alert to defendants who seek merely to defer the evil day on the basis of arguments that do not pass muster, and must remain mindful of the de minimis rule in assessing summary judgment applications.

37. In Ennis v AIB [2021] 3 IR 733, McMenamin J stated that generally, judgment will only be granted in clear cases and will not be granted where there is any serious conflict on the facts, or real difficulty on matters of law. He further stated that a court may engage in some limited assessment of documents or the evidence, but may only do so where there is no risk of injustice. This is because the procedure is intended to enable speedy justice to be done, but only in appropriate cases. Finally, he stated that it was well established that a defendant need only meet a low evidential threshold for a court to conclude that the case should be remitted for plenary hearing: see paras. 27 and 28.

38. In Feniton Property Finance DAC v McCool [2022] IECA 217, the court noted that “The fundamental question to be addressed is whether there is a fair and reasonable probability of the defendant having a real bona fide defence, in law, on the facts or both”. The court stated that in addressing this question the court must proceed with caution. Murray J, delivering the judgment of the court, stated as follows at para. 11:

“At the same time, while the court must be cautious in granting summary judgment, and while the requirement that a defendant establish a fair and reasonable probability of the defendant having a defence is a relatively low threshold, it is a threshold: it is neither in the public interest nor in the interests of the parties that straightforward claims for a debt or liquidated demands should require to be determined by plenary hearing, with the additional delay and cost that such a hearing involves and the additional burden thereby placed on the resources of the courts (see Promontoria (Aran) Ltd. v. Burns [2020] IECA 87 (‘Burns’ at para. 4). The defendant must, accordingly, lay a basis on which the court can conclude that there is in truth an issue to be tried, and that that issue is neither simple nor capable of being easily determined (see Prendergast v.

Biddle, Unreported, Supreme Court, 31 July 1957). Thus, in IBRC Ltd. v. McCaughey [2014] 1 IR 749, Clarke J. (as he then was) stated that the type of factual assertions which may not provide an arguable defence are those that amount to a mere assertion unsupported either by evidence or by any realistic suggestion that evidence may be available, or which comprise facts which are in and of themselves inconsistent or contradictory.”

Discussion and Conclusions.

39. Having considered the affidavit evidence in this case and the documents exhibited thereto, and having considered the written and oral submissions of the parties, and the relevant case law, I am not satisfied that it is appropriate to mark summary judgment in the sum of €135,502 against the defendant. I have reached that

conclusion for the following reasons.

40. First, in the summary summons dated 26 September 2023 and in the notice of motion dated 23 January 2024, the plaintiffs have sought summary judgment in the sum of €116,752. They have not claimed the sum of €135,502, which was the sum claimed at the hearing of the motion herein.

41. While Mr O’Boyle has explained how the increase in the sum claimed is alleged to have arisen, there was no application to amend either the summary summons or the notice of motion. Therefore, technically the only application before the court was for summary judgment in the lesser sum as claimed in these documents.

42. Secondly, while interest was claimed as a relief in the summary summons, it was not claimed in the notice of motion. Therefore, technically it was not part of the relief sought on the hearing of this application.

43. These somewhat technical objections are not the only grounds on which it is not appropriate to allow summary judgment to be marked against the defendant. I will deal with each of the elements of the plaintiffs’ claim in turn.

44. The claim to an indemnity in respect of tax was not contested by the defendant. While he limited his concession in this regard to the sum of €35,413, I am satisfied that the further sums seized by Revenue would also come within the indemnity given in relation to tax. Accordingly, I hold that the plaintiffs have established that they are entitled to receive the sum of €38,276 from the defendant in respect of the overall tax liability that arose on the part of the company.

45. In relation to the claim for legal fees of €14,760, I accept the submissions made by the defendant that he has an arguable defence to this part of the claim. There is no evidence before the court that that level of fees was incurred by the plaintiffs or the company in dealing with Revenue in relation to these VAT payments.

46. The invoice exhibited from the company’s solicitor merely refers to a different sum claimed, which is specified to be in respect of “general work”. There is no indication as to what work was done by the solicitor, or in connection with what subject matter it arose. It does not state that any of the work was done in connection with these tax payments.

47. If it is claimed that the company’s solicitor had to do specific work in connection with the VAT payments, the defendant is entitled to be told what work was done by the solicitor in this regard. It is only when he is given this information that he will be able to assess the reasonableness of the fees charged, or the necessity to do the work for which the claim is made.

48. Accordingly, I am not satisfied that it is appropriate to mark summary judgment against the defendant for the sum claimed for legal fees.

49. The second element of claim was in respect of alleged leakage. I am satisfied that the defendant has raised an arguable defence to this aspect of the plaintiffs’ claim on the following basis: first, it would appear that the defendant’s contention that a significant number of items in the statement of account exhibited appear with the designation “receiveable cre”; therefore, it is arguable that these are payments into the company’s account not out of it. Secondly, I am satisfied that the defendant has raised an arguable case that the disputed payments from the account were made by him in connection with the day-to-day operation of the company and therefore constitute permitted leakage as defined in the agreements. This Court cannot resolve this issue on affidavit evidence.

50. Thirdly, Mr O’Boyle asserted that while some of the payments related to the operation of the company’s business, they were referable to operations prior to the locked box accounts date and therefore were not permitted leakage, as they were made after that date. However, no evidence has been furnished by him for the basis of his assertion that although the payments were made after the locked box accounts date, they were in fact for items or services prior to that date. In these circumstances, this element of the claim has not been established to such a level as to permit summary judgment thereon.

51. Accordingly, with the exception of the limited admission made by the defendant of €2,799, I hold that it is not appropriate to grant summary judgment in respect of the sum claimed for leakage.

52. Finally, there is the claim to €49,315 in respect of the reckonable shortfall in target turnover, less the amount of the deferred consideration. I am not satisfied that it is appropriate to grant summary judgment against the defendant for this amount.

53. I accept that it is arguable that if a warranty was given by the defendant that turnover would reach €130,000 in the first six months, as alleged by the plaintiffs; that was dependent on an implied term that the company would be operated by the plaintiffs in a reasonable and competent manner in that period.

54. On behalf of the plaintiffs, it was submitted that the wording of the contract was clear. It was submitted that the defendant had warranted that the turnover would be €130,000 in the first six months. If there was any shortfall, the agreements provided that the plaintiff was entitled to three times that shortfall under the agreement and to set that off against the amount of the deferred consideration.

55. I accept that it is arguable that that warranty was given on the basis of an implied term that the new owners would act competently and would use their best endeavours to achieve that turnover. If that was not implied into the contract, it would mean that the owners of the company could have done nothing in the first six months and could then have run up a shortfall of the full €130,000, which when multiplied by three, would give a reckonable shortfall of €390,000, which could be recovered from the defendant. That would be absurd.

56. In argument in the course of the hearing, the defendant stated that if the warranty were interpreted in the manner alleged by the plaintiffs, it would be similar to the seller of a motor vehicle giving a warranty that a car was of merchantable quality, and when the purchaser of the vehicle drove the car from Dublin to Cork in first gear, thereby damaging the engine, he could then rely on a breach of warranty against the seller. It was submitted that no one would contend for such an absurd state of affairs. I am satisfied that that analogy is apposite and that this ground of defence is arguable.

57. Furthermore, the relevant clause in the agreement appears to provide that the reckonable shortfall can be deducted from the deferred consideration. That would seem to limit the amount recoverable to the total amount of the deferred consideration. In argument at the bar, Mr Sweetman BL submitted that the plaintiffs could rely on clause 7.3 of the share purchase agreement to recover the excess of reckonable shortfall above the amount of the deferred consideration. Clause 7.3 provides that if an amount withheld from the deferred consideration amount pursuant to clause 4.2 is less than the estimated liability in respect of the corresponding outstanding claim (the amount of such shortfall being the ‘liability shortfall’), then the seller shall be liable for any such liability shortfall. He also referred to the provisions of clause 7.4 in this regard. I am not persuaded that the provisions of clause 7 in the share purchase agreement go as far as may be contended for by counsel for the plaintiffs. I am satisfied that the defendant has raised an arguable defence in this regard. Accordingly, I refuse to grant summary judgment in respect of the amount claimed for the shortfall in target turnover.

58. That brings the court to the question whether it should grant summary judgment in relation to the amounts admitted in respect of the tax indemnity and the admitted leakage, being €38,276 and €2,799; together with the sum for bad debts, which was not credibly contested by the defendant, in the sum of €5,306; giving a total of €46,381.

59. Having considered the entirety of the matter, I am of the view that it would not be appropriate to grant summary judgment in respect of this aggregate sum. There are a number of elements to this action. The defendant either admits, or does not have an arguable defence, that he owes approximately €46,381 to the plaintiffs. The plaintiffs admit that there is an outstanding sum of €44,000 due as deferred consideration, subject to the deduction of any reckonable shortfall in target turnover.

60. If the defendant is successful in his defence in relation to the recoverability of the shortfall in the target turnover and in relation to the claim for legal fees, this would mean that what the defendant may be found to owe to the plaintiffs under the agreements would only slightly exceed the amount owed to the defendant as deferred consideration, of somewhere in the order of €2,000.

61. I am satisfied that in these circumstances it is better to remit all matters to plenary hearing where the trial judge can decide all the disputed elements and having done that, he/she can add or subtract the admitted elements as appropriate, to reach whatever figure may be appropriate to award as damages against the defendant.

62. In view of the court’s findings on these elements of the claim, it is not necessary to determine the claim to interest at this stage.

Proposed Final Order.

63. Having regard to the court’s findings in this judgment, it would propose that the final order should provide as follows:

(a) Refuse the reliefs sought by the plaintiffs in their notice of motion dated 23 January 2024;

(b) remit the action to plenary hearing;

(c) grant the plaintiffs liberty to amend the figure claimed in the summary summons;

(d) the court would suggest that the following timeline should be put in place for the delivery of pleadings: four weeks for delivery of an amended summary summons and statement of claim; three weeks to raise a notice for particulars thereon; three weeks to furnish replies thereto; and three weeks thereafter to deliver a defence.

64. In relation to costs of this application, the court would propose that in light of the decision in ACC v Hanrahan [2014] 1 IR 1, the appropriate order would be to reserve the question of costs to the trial of the action.

65. As this judgment has been delivered electronically, the parties will have two weeks within which to furnish brief written submissions of not more than 1,000 words on the terms of the final order and on costs and on any other matters that may arise.

66. The matter will be listed for mention at 10.30 hours on 22 July 2025 for the purpose of making final orders.