UK appeal court dismisses £1.3m award over share purchase agreement wording

Jessica Meisel of Pinsent Masons said the ruling reminded claimants in breach of warranty cases that they need to be willing and able to assess the quantum of damages of each breach of warranty alleged. She added: “This fact will be relevant to many prospective claimants seeking to bring breach of warranty claims, because these types of claims are often brought in respect of more than one warranty contained in the sale agreement.”

The appeal related to an amended SPA from October 2018 under which the defendants, Stephen Garbett and Anis El-Mariesh, agreed to sell their issued shares in Copperman Consulting Ltd to the first claimant, Decision Inc Holdings Proprietary Ltd. Decision Inc subsequently assigned its rights and benefits under the SPA to the second claimant, Decision Inc Shareco (RF) Proprietary Ltd.

The dispute considered whether Decision Inc and Shareco had given Garbett and El-Mariesh due notice of the claim for breach of the SPA’s prospects warranty. Garbett and El-Mariesh’s barrister argued that because the notice did not specify the quantum of damages relating to each separate alleged breach of warranty as far as is reasonably practicable, it did not comply with clause 11.4 of the SPA.

This argument was rejected by Mr Justice Gleeson, who concluded that assessment on this basis would not have been possible. He held that the assumptions required to establish one breach necessarily imply other breaches which would fall to be valued in turn. Because of this, a cumulative quantum figure was the best that Decision Inc and Shareco could do, which the judge deemed to be both reasonable and all that was required by clause 11.4 of the SPA.

He distinguished this situation from the 1999 dispute between Senate Electrical Wholesalers Ltd and Alcatel Submarine Networks Ltd because he felt that there was no doubt as to the allegations of breach being made, or the calculation method applied in arriving at the quantum of damages. Concluding that Garbett and El-Mariesh were liable to pay Shareco £1.31 million in damages, Mr Justice Gleeson added that there was no risk that they had been disadvantaged in any way by the form of the notice or the way in which the case was pleaded.

Meisel said: “In examining this case, the Court of Appeal judge, Lord Justice Newey, noted that the circumstances in which an appellate court will interfere with an evaluative assessment by a trial judge are limited. This is an important point for appellants considering bringing an appeal based on the evaluative assessment of a breach of warranty claim by a trial judge. However, in this case the Court of Appeal did depart from the evaluative assessment of the trial judge, showing that it does happen – even if in limited circumstances.”

Overturning the damages award, Lord Justice Newey concluded that, on the facts of this particular case, for Decision Inc and Shareco to be entitled to pursue a claim for breach of the prospects warranty, the notice had to include the “amount claimed” in respect of that breach and the fact that it did not do so meant that Garbett and El-Mariesh could not be held liable for any such breach.

He held that in this particular case clause 11.4 of the SPA required Decision Inc and Shareco to state the amount claimed in respect of each breach of warranty alleged, not just a combined figure and as far as is reasonably practicable. Lord Justice Newey said that it was not reasonably open to Mr Justice Gleeson to find either that it was not possible to give an amount claimed for breach of the prospects warranty, or that it was not reasonably practicable to do so.

Instead, he pointed out that common sense suggested it was not impossible to work out how much was claimed for each breach and that, in fact, the evidence of the expert witnesses showed this to be possible. He held that the damages sought might have overlapped with those claimed for other alleged breaches of warranty, but said there was no bar to assessing what the damages would be if no other breach of warranty was alleged or made out.

Meisel said: “It is important to note that the contractual interpretation of every notification clause will turn on its own wording. Breach of warranty notices can be ripe ground for challenge and can be the deciding factor in the success, or not, of a breach of warranty claim. The judgment again shows the importance of carefully examining the wording of the warranties where breach is alleged and of thorough and accurate drafting of the breach of warranty notice.”