Claim No: LM-2023-000318 - [2025] EWHC 1098 (Comm)

The SPA

In the course of 2019, IVL began exploratory discussions with the Claimants to purchase EDD. Following negotiations and a process of due diligence and disclosure, the SPA was signed and completed on 28 October 2020.

The SPA provided for IVL to purchase the entire issued share capital of EDD, the majority of which was owned by Mr Lay and his wife, the Second Claimant. In terms of consideration, after certain adjustments, £2,714,446.21 was to be paid immediately on completion and the balance was to be deferred and either paid on certain conditions or based on performance calculated by reference to “EBITDA” (earnings before interest, tax, depreciation and amortisation but excluding certain direct costs).

The SPA contained detailed provisions as to how “EBITDA” was to be calculated and determined for the purposes of performance related payments. This included the delivery of a specific form of management accounts within a set time period, the raising of any objection by the Claimants to the amount of “EBITDA” shown by such accounts within 10 business days, then a further period of 10 business days for resolution of the dispute, failing which, any matter related to the preparation of the management accounts identified in the notice of objection was to be referred to an independent expert chartered accountant for determination.

The cash consideration was duly paid on completion and the first instalment of deferred consideration based on financial performance, amounting to £1,535,666.98, was paid to the Claimants in January 2022. However, a dispute arose in relation to the next instalment. When relevant management accounts were delivered on 6 December 2022, the Claimants at first raised a dispute on 16 December 2022, which was not then resolved by agreement, but then seem to have withdrawn the notice of objection on 7 September 2023. The Claimants thereafter claimed the sum due based on the management accounts of £1,534,047.15. When this was not paid it led to the commencement of these proceedings on 14 December 2023.

A number of alleged breaches of the SPA have been raised by IVL by way of defence to the claim but the principal focus for this application has been upon an alleged breach of warranty which forms part of the counterclaim and which is relied upon by way of set-off.

The SPA included a number of provisions regarding warranties and indemnities that are relevant as follows:

“[clause 14.2] The [Claimants] jointly and severally warrant that the Warranties are true and accurate as at Completion, save as Disclosed or save for those matters in respect of which Keith Chandler, Sophie Taylor, Ben Hanning or James Brown have actual knowledge in accordance with clause 14.4.

[clause 14.4] Except for the matters Disclosed and save for those matters in the actual knowledge of Keith Chandler, Sophie Taylor, Ben Hanning or James Brown:

(a)

no information of which the Buyer, its agents or its advisers has knowledge (in each case actual, constructive or imputed) or which could have been discovered (whether by investigation made by the Buyer or on its behalf), shall prejudice or prevent any Warranty Claim or reduce the amount recoverable under the Warranty Claim; and

(b)

the Sellers may not invoke the Buyer’s knowledge [actual, constructive or imputed] of a fact or circumstances as a defence to a claim for breach of clause [14.2]” (Footnote: ¹)

The term “Disclosed” as used in these provisions was itself defined in clause 1.1 as meaning “fairly disclosed to the Buyer expressly for the purposes of this Agreement in the Disclosure Letter and “fairly” means disclosed with sufficient particularity to enable a reasonable buyer to assess the impact on the Company of the matter disclosed and to enable a reasonable buyer to properly identify the nature and scope of the matter disclosed and “Disclose” shall be construed accordingly”.

[18.1] [The Claimants]…irrevocably undertake to indemnify and keep indemnified the Buyer…following completion against any Losses arising from…(c) any breach, prior to Completion, of FSMA or any rules or regulations made under FSMA including (but not limited to) the conduct of any unauthorised regulated activity in contravention of section 19 of FSMA”.

The particular warranties relied on by IVL are set out in Schedule 4 to the SPA. These include a warranty that certain financial statements for EDD gave a true and fair view of its state of affairs (paragraph 11.2); accurate details of all licences, consents and permissions required by EDD to carry on its business had been Disclosed (paragraph 22.1); and “the business of [EDD] has at all material times been conducted in accordance with all applicable laws, regulations, orders and by-laws” (paragraph 23.1).

The above provisions are then qualified by limitations on liability provided for in clause 17.1 and Schedule 5. Relevantly this schedule provides in paragraph 3 that: “The Warrantors shall not be liable for any Warranty Claim if, and to the extent that, the fact, matter, circumstance or event giving rise to such Warranty:

The four individuals identified in clause 14.4 and Schedule 5, paragraph 3 appear to have been members of IVL’s mergers and acquisitions department.

For the purposes of the application the focus has been upon a claim of breach of warranty arising from the alleged failure of EDD to conduct its business lawfully in that it failed to obtain the requisite authorisation for “acquiring of payment transactions”. As a consequence it is said that the relevant accounts failed to provide a true and fair view (contrary to the warranty in Schedule 4, paragraph 11.2) and to have resulted in a breach of the warranties concerning the conduct of business lawfully with all requisite permissions (in Schedule 4, paragraphs 22.1 and 23.1).