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Damages in share sale disputes – new Commercial Court decisions


Two recent Commercial Court decisions provide an interesting insight into how the Courts assesses damages for breach of warranty in share sale disputes.

The decisions are Ivy v Martin [2022] EWHC 1218 (Comm) and Arani v Cordic Group Limited [2023] EWHC 95 (Comm).

These cases consider the potential relevance to damages of: (a) non-warranted statements made about the companies’ performance prior to the date of sale; and (b) the conduct of the buyer post-sale.

The decisions also indicate the importance of properly targeted disclosure requests, expert evidence and legal submissions in relation to such matters.

General principles – a recap

The measure of damages in a claim for breach of a share sale warranty is the difference between: (a) the value of the shares if the warranty had been true; and (b) the actual value of the shares given the falsity of the warranty.

Often there is no dispute about the warranty-true value: the parties and the court simply proceed on the basis that the price paid for the shares reflects the warranty-true value.

This is unsurprising.

The warranty-true value is the price which a hypothetical reasonable willing seller and willing buyer would have agreed on the basis that the warranties were true.   The price negotiated between the actual parties may well provide the best evidence of that hypothetical agreement.

In other cases, however, there will be scope to argue that the sale price should not be taken as the warranty-true value.

There are plenty of reasons why this might be so. Perhaps, for example, the sellers sold at an undervalue as they were keen to exit the business, or did not market it fully. Maybe the buyers overpaid because they made unrealistic assumptions about the future performance of the business or the synergies they might achieve with their existing business.

The outcome of such a dispute about warranty-true value can make a huge difference to damages:

First, the warranty-true value of the target company provides a prima facie cap on recoverable damages. The matters giving rise to the warranty breach may impair the value of the target company’s business. If, however, the impairment is greater than the warranty true value of the target company, the buyer cannot usually recover the excess as damages for breach of warranty.  Rather it is usually limited to the warranty-true value.

Secondly, the valuation method adopted in relation to the warranty-true valuation may also in some cases be highly significant.

This is because such a valuation approach may well (with appropriate adjustments) also apply when calculating the warranty-false value. A buyer may, for example, be able to show that a hypothetical reasonable deal would have involved a higher multiple being applied to earnings when calculating the warranty-true value than the multiple in fact paid. If so, and the earnings are in fact impaired, such impairment may also fall to be multiplied by the higher multiple leading to a higher damages award.  This can make a large difference where the impact of annual earnings, or properly applicable multiple, is high.   So, for example, the matters leading to breach of warranty may give rise to an earnings impairment of £5m p.a.. If the correct multiple is 10x earnings rather than 6x, then the starting position for loss would be £50m rather than £30m.

As a result, all else being equal, a buyer may well wish to argue that the price paid was much less than the true value of the company and the seller may wish to argue to the contrary.

In relation to the use of post-sale matters, a seller cannot generally reduce its liability by showing that a contingency that would otherwise have reduced the value of shares at the date of sale did not in fact eventuate post-sale.   The court generally refuses to take into account such hindsight.  There is, however, no general bar on using events subsequent to the sale to cast light on events which had happened by that date.

With such principles in mind, I now turn to look at the two recent Commercial Court cases.

Ivy v Martin

In Ivy, the sellers of a group of companies for £4.75m gave false warranties and made fraudulent misrepresentations about the profitability of its online gambling business.  This led to claims for breach of warranty and in deceit.

A significant feature of the case was the limited nature of the warranties relied upon.

The relevant warranties were simply that the overall net liabilities of the group were £53k and that it had no liabilities it could not pay when due.   There was no warranty as to profitability.

These warranties were false. The business was in fact in dire straits and had net liabilities of over £1m.

The parties’ experts agreed that it was not possible to tell much, if anything, from the matters actually warranted. It was common ground that the extent of the liabilities of an early stage-tech business did not indicate the value of that business. Such a business could have significant liabilities but still be hugely valuable, or small liabilities but have no real value at all.

The sellers argued that in such circumstances it was simply not possible for the buyer to show that the group had any value at all on a warranty-true basis.

The sellers therefore contended that – although the buyer had paid £4.95m – the buyer could not recover any damages for breach of warranty because the starting point for the damages calculation (warranty-true value) was zero.

The buyer in response argued that in valuing the target group the Court could consider information known to both parties, namely that the sellers had represented that the business had profits of £1.6m per year.  That representation – found to be false – was also the foundation for the buyer’s deceit claim.

The sellers invited the Court to reject this approach, contending that it was not appropriate to take into account the alleged (mis)representations when valuing the business.  Henshaw J agreed.

The judge first noted that a degree of caution is needed when treating there as being a general rule of thumb that the warranty-true value is the same as the purchase price. There will be cases where that does not apply. This includes where – quite apart from the warranties – the company was valued was based on false assumptions relevant to valuation such as the true level of earnings.

The judge then went on to hold that buyer could not rely upon the representation as to profitability to argue for a higher warranty true value:

“The problem with the approach taken by Ivy and [its expert] on this point is that, by introducing information extraneous to the warranties alleged to have been breached, they in substance convert them into warranties as to the represented profitability of the Business. The profitability was not expressly warranted.”

The result was, the judge held, that it could not be said that the business had any, or any particular, value.

Accordingly, and despite the £4.95m purchase price and the warranties plainly being false and to a significant degree, the purchaser was not able to recover any damages for breach of warranty.

Arani v Cordic

In Arani, the Court again was faced with parties contending for very different warranty-true values.

The buyer bought a software business for £11m. In breach of the warranties, the business lacked an important and expensive licence for a data-set which it required to operate.

The buyer argued that the lack of such a licence meant that the target company was worthless, however valuable it might otherwise have been. The buyer so argued on the basis that the target company’s liability for historic and ongoing licence costs far exceeded any valuation that could properly be placed on the company.

The buyer therefore sought to argue for the highest possible warranty-true value so as maximise potential damages.

In particular, the buyer contended that the sellers had been desperate to sell the company and that the purchase represented a fantastic deal for the buyers. They argued that the warranty-value of the company was in fact £23m, rather than the £11m paid.

In support of its valuation, the buyer sought to rely upon a detailed forecast model which its financial backers had produced pre-sale.

In contrast the sellers argued that the Court ought not to take into account the forecast model, including as it was extraneous to the warranties, was not shared between the parties and due to the presence of an entire agreement clause.

Bright J largely accepted the sellers’ arguments.

The judge held that the forecast model represented the buyer’s own work which was not covered by the warranties and that the entire agreement clause provided a further reason why it could not be given contractual weight.

The Judge did not go as far as Henshaw J appeared to in Ivy, however, so as to dismiss any reliance upon matters which were not warranted.

Rather, he held that it would only be relevant to take into account the figures contained in the forecast model insofar as the buyer could show that a hypothetical reasonable buyer would have done so.

The buyer’s expert had expressed no view on the reasonableness of the figures within the forecast model but instead had simply proceeded on the basis that they were achievable.  This left the buyer without expert evidence supporting its case as to the appropriateness of the figures.

Based upon such materials as were before him, including the expert evidence of the sellers, the judge found that the figures in the buyer’s forecast model were in fact entirely unrealistic and that a hypothetical reasonable purchaser would have been far more conservative.

The judge then examined the actual course of negotiations between the parties which he found provided insight into the hypothetical valuation. Having done so, he held that the Company had a greater value than that paid, but only marginally so (at £12m) rather than the £23m claimed.

The Judge also rejected the buyer’s argument that the company had no value in light of the licensing issues.

The buyer had argued that future licence costs should be treated as running at £2m per year as this was the cost of licensing the data-set used (but not paid for) at the date of sale.  The buyer contended that this led to a total impairment to the value of the business of over £24m as at the date of sale. Given the (lower) warranty-true cap on liability, the buyer contended that the company was worthless.

In response, the sellers relied upon the approach in fact taken by the buyer post-sale once it had become aware of the licensing issue. That approach entailed the buyer changing the software to operate using a much cheaper licensed data-set (£100k p.a. rather than £2m p.a.).

Notably, evidence of such post-sale conduct only came to light following a dispute between the parties at the CMC as to issues to be included in the list of issues for disclosure. The sellers succeeded in that dispute, obtaining a direction that the buyers provide disclosure in relation to the solution adopted by the target company post-sale.  They did so in the face of arguments by the buyers that such evidence was inadmissible and irrelevant.

On the basis of such post-sale evidence, the sellers argued that the relevant impairment in relation to future licence costs was only £576k rather than the £24m claimed.

The Court agreed with the sellers that it was entitled to have regard to the post-sale conduct in assessing how a reasonable buyer would have viewed the likely cost to the business as at the date of sale for the purpose of assessing loss.

Based on such evidence, the Court accepted that the hypothetical reasonable buyer would also have assumed that the cheaper data-set would be used, and would have valued the business accordingly. It accepted the sellers’ impairment figure of £576k.

The overall result was that damages were assessed at only a small fraction of the amount claimed by the buyers.


The above cases demonstrate the crucial importance of properly focused expert attention and legal submission on the warranty-true value.   It is wrong to assume that the purchase price always represents the warranty true value, or that pre-sale forecasts will simply be taken as being determinative (or even relevant).

In Ivy, such arguments made the difference between a breach of warranty claim valued at £4.75m and such a claim valued at zero.

In Arani, had all the buyers’ other arguments been accepted, then the difference in relation to warranty-true valuation alone would been over £10m.

Following Ivy and Arani there remains potential scope for argument as to the extent to which it is permissible for the Court to take into account matters which are not warranted when determining the warranty-true value. It is clear, however, that such matters will not be taken into account unless they would have been considered by reasonable and hypothetical purchaser.

Finally, Arani also shows that disclosure, expert evidence and legal submission in relation to post-SPA conduct may well prove critical.   If all the buyer’s other arguments had been accepted, this aspect alone could have led to damages being £20m higher those in fact awarded.

David Lascelles acted for the sellers in both cases, led by Adam Solomon K.C.. David and Adam were instructed on Ivy by Nina Ferris and Kate Steele at Hill Dickinson LLP. They were instructed on Arani by Richard Marshall, Oliver Cooke and Lauren Cormack at Penningtons Manches Cooper.  

David Lascelles is a barrister specialising in commercial and corporate disputes. He has particular expertise in share sale breach of warranty and misrepresentation claims. He brings to such cases his significant experience in both commercial and company law disputes, including in cases involving accounts and valuation issues. 

David is one of only 3 junior barristers ranked both for commercial and for company litigation within the top three bands in the 2023 UK editions of both Chambers & Partners and Legal 500. In 2022, he was shortlisted for Commercial Junior of the Year at the Legal 500 Bar awards.

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