The High Court has considered, in the context of a share purchase transaction, whether the beneficial owner of half the sale shares (B) was liable for fraudulent misrepresentation and breach of warranty claims brought by the buyer (IV), in circumstances where B had had limited interaction with IV during the transaction negotiations, and was not included as a party to (or mentioned in) the share purchase agreement. IV sought to establish primary liability on the part of both the contracting seller shareholder (M) and B for each cause of action on the basis that M acted as B’s agent.
The court ruled in B’s favour in respect of the breach of warranty claim, finding that M had not concluded the SPA as B’s agent, and that B had no liability under it accordingly. The court considered that had the SPA simply failed to mention B, it would have been possible, in light of the admissible factual matrix, to conclude that B was nonetheless a disclosed and identified principal whose rights and obligations were not excluded by the terms of the SPA. However, the SPA (particularly its recitals) went further, setting out as an agreed basis of contracting that M was selling as 100% beneficial owner of the shares and that no-one else had an interest in them. This position was reinforced by an express provision in the SPA to the effect that nothing in the agreement conferred any rights, remedies, obligations or liabilities on anyone other than the parties to it. The warranty claim also failed against M, as IV had failed to establish any recoverable loss.
The court did, however, uphold IV’s claim in deceit against B and M, on the basis of direct liability (for false representations which it found that both had made directly to IV) and agency (in the case of other representations made only by M). In assessing damages, the court found that IV was entitled to recover on the basis that the acquired companies were in fact valueless as the date of the SPA.
The court also dismissed IV’s claim against M for breach of a non-compete covenant in the SPA, on the basis that IV had failed to discharge the burden of showing that the covenant was reasonable. (Ivy Technology Ltd v Martin [2022] EWHC 1218 (Comm) (20 May 2022).
Source: Practical Law