Cookson and The Hut both claim victory after High Court row

THE legal row between high growth online retailer The Hut Group and Manchester entrepreneur Oliver Cookson has been settled – with both parties claiming victory but having to pay damages to the other.

In a written judgement following the trial in The High Court last month, Mr Justice Blair – the brother of former Prime Minister Tony Blair – awarded The Hut more than £4m after finding warranties that guaranteed the accuracy of management accounts’ had been breached prior to the £58m sale of Mr Cookson’s supplements business MyProtein to The Hut in 2011.

Despite this award, the judge found that The Hut Group should pay Mr Cookson £10.8m after he counter-sued for breach of warranty and fraudlent breach of warranty in relation to the value of the shares (a 12% stake valued at £28m) he took in The Hut as part of the acquisition settlement.

In his 55-page judgement Mr Justice Blair rejected Mr Cookson’s claim of deceit in that The Hut Group’s executives had all known about a fraud committed in 2010 and 2011 by a former financial controller who was sacked in 2011 for gross misconduct after overstating the company’s profits.
 
Mr Justice Blair said this act by the former employee, had blown a plan by The Hut Group to float the business in late 2011 on the Stock Market, off course. The fraud caused The Hut to restate its 2010 accounts, and meant an initially reported EBITDA of £4.1m was in fact a loss of £1.5m,

The Judge states: “Though THG (The Hut Group)  suggested at trial that market conditions may have played their part in the abandonment of the proposed IPO, I am satisfied that the reason that the IPO went off was the fraud and the discovery of the losses concealed by the fraud.”

Mr Justice Blair accepted that Mr Cookson felt “robbed and cheated” after he learned of the fraud, but acknowledged he still has a 10% stake in a “very successful” business underlined by the recent acquisition of a stake in The Hut by US private equity group KKR.

The judge found too there had been a fraudulent breach of warranty by The Hut Group because there had been “an atmosphere within the finance department which allowed fraud to flourish.”

He also says in the judgment The Hut Group’s pursuit of legal claims against Mr Cookson was “by way of a pre-emptive strike” given they were aware that he had a substantial claim as a result of the accounting fraud eroding value of his stake.

Commenting on the outcome, Steven Whitehead, The Hut’s commercial director, who oversee mergers and acquisitions, said: “As the claimant, THG has been wholly vindicated in pursuing its legal action against the former shareholders of Myprotein, specifically Mr Oliver Nobahar-Cookson and his off-shore trust.

“We are pleased the court recognised that MyProtein’s financial information had been materially misrepresented prior to acquisition and awarded substantial damages in our favour. The court also found in our favour on an overwhelming majority of the issues in dispute including the counter-claim of deceit, which was entirely without merit.

“Further, the Court comprehensively rejected the baseless allegations of dishonesty made against various employees at The Hut Group.”

He added: “Despite our successes, we were surprised and disappointed that a single counter-claim was upheld given that it related to the actions of a former junior employee dating back to 2010 and particularly in light of Mr Cookson’s previous Court conviction.

“We will assess in due course the merits of appealing this element of the judgement. Notwithstanding any future actions, our principled commitment to enforce the legal documentation entered into upon an M&A transaction has been wholly endorsed by the Court.”

Mr Cookson said: “Naturally, I am very pleased with the judgement, which vindicates the stance taken after selling Myprotein to The Hut Group in 2011.

“It is unfortunate that this matter was fought all the way to a High Court trial, but I was always confident in our position and that justice would prevail. I am now looking forward to focussing on continuing to grow my new venture, GoNutrition.com.”

Mr Cookson was represented by DWF and The Hut Group by Quinn Emanuel Urquhart & Sullivan.

Mr Justice Blair ordered that The Hut should pay its own costs and meet one third of those incurred by Mr Cookson and the Trust.

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