Litigation

UK LITIGATION REVIEW 2021 9 basis that the seller had made certain representations regarding licencing requirements in respect of data required by the relevant business, in respect of which the seller had offered various warranties. In general, a warranty under an SPA will not also form the basis of a claim for misrepresentation—where a party warrants something, it is intended as a contractual promise for which they will be held accountable in contract. Without more, it will not also be taken to be a representation of fact or law. The court has also previously suggested that there is a fundamental conceptual difficulty in arguing that a party was induced into entering a contract by a warranty that was not formally given until the agreement was executed. 9 The buyer in Arani argued that the relevant warranties included in earlier drafts of the documents were capable of constituting a representation for this purpose and, as such, gave rise to a claim for fraudulent misrepresentation (which was not captured by the non- reliance language in the SPA). In addition, the buyers asserted that further statements made in other transaction documents, in particular the disclosure letter, amounted to representations, in respect of which the sellers sought to bring a claim for misrepresentation or negligent misstatement. The court rejected both arguments. Drawing on prior authorities, the court held that warranties included in draft documents indicated only what a party was prepared to warrant if the agreement were executed and did not constitute representations. In respect of statements in the transaction documents more broadly, the disclosure letter contained its own non-reliance clause to the effect that no matters disclosed would constitute a representation. The court also held that the same principles applied to statements found in the wider transaction documents as to warranties under the SPA, in that it was "hard to see how they [could] contain pre-contractual representations which induced the Defendant to enter into the transaction of which they formed a part." In MDW Holdings v Norvill, 10 the buyers under an SPA also sought to assert that statements of fact which were incorporated into warranties within the agreement gave rise to representations on which the buyer could base a claim for misrepresentation. While the judge similarly found that statements of fact contained within warranties could not also form the 9 Idemitsu Kosan Co Ltd v Sumitomo Corporation [2016] EWHC 1909 (Comm) basis of a misrepresentation, in contrast to Arani he found that the buyer could rely on representations which had been made separately from the transaction documents but which addressed the same matters as the relevant warranties. This included, in particular, statements made in the Due Diligence Index and Responses. Although the SPA included an entire agreement clause, it did not include any language to the effect that no representations had been made or relied upon by the parties. There is therefore a tension between these two cases. However, MDW Holdings appears to suggest (at least for the time being) that, where a seller has breached a warranty, provided that a buyer can find a distinct statement to the same effect outside of the transaction documents (and drafts thereof), such statements may also be capable of founding a claim in misrepresentation (provided that this is not excluded by the provisions of the agreement). Permission to appeal this judgment to the Court of Appeal has been sought and is outstanding. Interpretation In Primus International Holding Co v Triumph Controls – UK Ltd, 11 the Court of Appeal considered the meaning of "goodwill" in an SPA exclusion clause. The appeal concerned breach of a warranty that financial forecasts had been "honestly and carefully prepared." The defendant argued that the breach had only caused loss of "goodwill" and that, under the SPA, claims "in respect of lost goodwill" were excluded. The defendant argued for a broad "accounting definition" of goodwill, i.e., the difference between the net book value of the identifiable assets and the acquisition price. Conversely, the claimant argued for a narrower definition, namely the value attributable specifically to the brand or good reputation of the business. In dismissing the appeal, the Court agreed with the claimant's narrower definition, principally because: • The narrower definition was consistent with the "ordinary legal meaning of goodwill" in a commercial context. • This was consistent with authorities on the meaning of "goodwill," as well as other clauses of the SPA which were "plainly designed to protect the 10 [2021] EWHC 1135 11 [2020] EWCA Civ 1228

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