OneCom Group Limited v James Palmer
[2024] EWHC 867 (Comm)
Ruth Munn & Anor v ETL Holdings (UK) Limited
27 November 2023
[2023] EWHC 2998 (Ch)
High Court
A company (ETL) bought shares, but the sellers didn't tell them about some debts. A judge said the sellers had to pay, but a higher court said the judge didn't look closely enough at whether the company was paid too much. The case will be heard again.
Key Facts
- •ETL Holdings (UK) Limited (ETL) acquired 40% of shares in Carston Holdings Limited (the Company) in a share purchase agreement (SPA).
- •The SPA contained warranties breached by Mr and Mrs Munn (appellants).
- •Breaches related to undisclosed debts (Dormco debt and dilapidations claim).
- •Deputy Master Smith granted summary judgment for ETL, and Deputy Master Arkush assessed damages at £2,008,531.74.
- •Mr Munn is bankrupt; Mrs Munn faces bankruptcy petition by ETL.
- •The Company enforced a lien on Mr and Mrs Munn's remaining shares (Retained Shares) to recover an unlawful dividend paid to Mr Munn.
- •The Retained Shares were subsequently purchased by ETL and a related company.
- •The appeal challenges the damages award, arguing overcompensation due to the lien enforcement.
Legal Principles
Measure of damages for breach of warranty in a share purchase agreement is the difference between the warranted value and the true value of the shares, considering undisclosed debts.
Deputy Master Arkush's judgment
Hindsight generally cannot be used to adjust damages, except to uphold the compensatory principle or where the contract allocates risk.
Deputy Master Arkush's judgment
Separate claims (breach of warranty vs. breach of director's duty) should be treated independently in damage assessment.
Deputy Master Arkush's judgment
In assessing damages, a series of closely related transactions should be viewed as a single transaction to avoid speculative valuations.
Phillips v Brewin Dolphin Bell Lawrie [2001] UKHL 2
Subsequent events may inform an assessment of value at an earlier date if it avoids overcompensation and upholds the compensatory principle.
Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2014] Bus LR 1338 & MDW Holdings Limited v Norvill [2022] EWCA Civ 883
Outcomes
Appeal allowed.
The Deputy Master failed to adequately address the "single transaction" argument, the valuation of the Retained Shares, and the potential for overcompensation due to the lien enforcement. The court found that the Deputy Master erred in not considering the possibility of a single transaction and did not adequately deal with expert evidence suggesting overcompensation.
Case remitted to the Master of the Chancery Division for rehearing.
The appeal court lacked complete evidence to make a final decision on damages and requires a fresh hearing.