Contractual limitation defence succeeds but Claimant recovers maximum damages available for breach of warranty under SPA

17/05/19

Mrs Justice Cockerill has handed down judgment following the trial in 116 Cardamon Ltd v Macalister, a case involving claims for breaches of warranty relating to the accuracy of accounts and management accounts given by the Defendants in a share purchase agreement made in May 2014. The Claimant brought several claims which the Defendant resisted relying in part on contractual limitation periods. The Claimant had served the Notice of Claim in April 2016, at the end of the time period within which it had to be served, and had obtained permission from the same Judge to serve the proceedings by means alternative to the method prescribed by the Hague Service Convention for service in Western Australia when it encountered difficulties serving the Defendants within the further six months allowed under the SPA, the Defendants having chosen to instruct solicitors in London to deal with the Notice of Claim but not to authorise them to accept service of proceedings.  Among the methods considered to be sufficient for service were Whatsapp messages attaching the documents which had been marked by a double tick, showing that the Defendants had opened the messages.

The SPA related to shares in a company which sold policies of legal expense insurance underwritten by other companies and rewarded brokers who sold those policies.

At the trial, the Judge found that one of the claims for breach of warranty relating to a change in method of remunerating brokers which had not been disclosed in the warranted accounts prior to the sale was barred as it had not been properly articulated in the Notice of Claim. This was so even though the SPA required a claim to be notified “summarising the nature of the claim” which the Claimant had contended, by reference to Forrester v Glasser [2006] 2 Lloyds Rep 392 (CA), did not impose an onerous requirement to specify the detail of the claim advanced. A second claim alleging that that a debt recorded in the accounts was not recoverable failed on the ground that such non-recoverability had in fact been disclosed, whilst a third claim alleging an over-statement of turnover had caused no identifiable loss.

The principal claim pursued was that the provision for liabilities in the warranted accounts was under-stated in respect of a book of legal expenses insurance business where the company (in effect) bore the underwriting risk. Although numerous expert issues had arisen in relation to the amount of such reserve , and there was a substantial dispute between the expert accountants as to how the shares in the company should be valued taking into account the resulting deficit between the company’s net liabilities of £1.8 million and the requirements of the FCA for the company to maintain capital of at least £160,000, this claim for breach of warranty was proved and resulted in a calculation of damages which exceeded the maximum recoverable under the SPA. As a result, the Claimant recovered damages in the full amount of the purchase price it had paid for the company.

The Judgment can be viewed here.