News & Insight

Interpretation of contracts June 28, 2019
Pause for thought when warranting management accounts: High Court gives Judgment on breach of warranty claim

Pause for thought when warranting management accounts: High Court gives Judgment on breach of warranty claim

We recently looked at the High Court’s recent Judgment in Triumph Controls – v – UK Ltd & Anor v Primus International Holding Company & Ors [2019] EWHC 565 (TCC) as regards warranties given against forward looking statements.

Last month, the High Court published its Judgment on a separate case in 116 Cardamon Ltd v Macalister & Anor [2019] EWHC 1200 (Comm) (“Cardamon”) which relates to a breach of a warranty given by sellers against management accounts, awarding a refund of the entire purchase price to the buyer.

Cardamon highlights the importance for sellers to:

  • verify the accuracy of the management accounts and financial information of a company being sold or raising investment;
  • provide proper and fair disclosure;
  • provide tightly-drafted warranties; and
  • include well-drafted limitation clauses to protect their interests.

The warranties, which were the subject of Cardamon, were as follows:

The Accounts have been prepared in accordance with accounting standards, policies, principles and practices generally accepted in the UK and in accordance with the applicable law and give a true and fair view of the state of affairs of the Company as at the Accounts date, and of the profit and loss of the Company for the financial year ended on the Accounts Date.”

“The Management Accounts have been prepared on a basis consistent with that employed in preparing the Accounts and fairly represent the assets and liabilities and the profits and losses of the Company as at and to the date for which they have been prepared”.

We will first set out the key facts of Cardamon before commenting on the High Court’s analysis of the warranty, and then look at what should be done in practice before giving such warranties.


The claimant was 116 Cardamon Limited (the “Claimant”). The Claimant sought damages arising out of breaches of warranties contained in a share purchase agreement dated 23 May 2014 (the “SPA”).

The SPA related to the purchase by the Claimant of the entire share capital of Motorplus Limited (the “Target”). The Target sold insurance policies such as legal expenses insurance and lost key insurance which are “add on” policies for motor or household insurance. The Claimant is an investment company and is part of a group of companies which is also involved in the insurance and claims handling sector.

The defendants Mr and Mrs MacAlister – the sellers – were the Target’s sole shareholders and directors (the “Defendants”).

Under the terms of the SPA, the purchase price for the Target’s shares was £2,386,247.5 (the “Purchase Price”).

On completion, an initial payment of £1,282,472 was made by the Claimants by means of assuming liability for certain directors’ loans in the same sum which had previously been owed to the Target’s by the Defendants. The remaining balance of £1,103,775.50 was paid in cash, also on completion, by the Claimants.

The cap on liability as regards to warranty claims under the SPA was the Purchase Price, the principal sum claimed.

Management accounts warranty

The Defendants warranted that the management accounts to April 2014 “fairly represented the assets and liabilities and the profits and losses of the Target as at the date they were prepared”.

The Defendants also warranted that the management accounts were not affected by any unusual or non-recurring items or any other factor that would make the financial position and results shown by the management accounts unusual or misleading in any material respect.

However, the reality was far removed from these warranties.

The Target was effectively insolvent at the time of the purchase by the Claimant.

Amongst other claims,  the Claimant pointed out that the management accounts and accounts failed to take into consideration the Target’s liability to pay claims under one of its programmes called FamilyPlus.  The financials put forward under-provided for this liability by 144%.

On the facts, the Court concluded that there were breaches of warranty and that there was no defence available to the Defendants under the schedule of limitations on liability.


It was common ground that the correct approach in dealing with the question of quantum was that the Claimant is entitled to compensation sufficient to put it into the position in which it would have been had the information warranted been true.

The damages for a loss of bargain were calculated by reference to the difference between the value of the shares purchased on the basis of the management accounts as warranted and the value of the shares that would have been paid by the Claimant had the management accounts properly reflected the financial condition of the Target.

The Court awarded the entire Purchase Price to the Claimant, noting prima facie that the loss suffered was greater than the Purchase Price but that the cap on liability was set at the value of the Purchase Price.

Putting this into practice

It seems that the speed at which the Defendants wished to close the deal blinded their ability to check the financial information they were warranting to the Claimant.

It is crucial for warrantors to be absolutely certain that the financial information they warrant is accurate and fairly represents the actual assets and liabilities of a company. This was not the case here and the Claimant successfully recuperated the full purchase price they paid for the Target.

If you would like to discuss this case, or what constitutes fair disclosure and warranties in general, then do please contact us at

This piece was researched and prepared by Paul Wong and Amir Kursun from our Transactional team.

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