Denware Limited v Rosewild Limited

Where a share-sale agreement requires the purchaser to pay the company’s net assets without qualification, a tax repayment right which accrued by the valuation date is an asset even if the parties did not know of it, its value was unquantified, or recovery might be delayed. A warranty concerning the recovery of debtors does not narrow that primary obligation.

A certified completion statement which the contract makes final and binding is effective unless there is manifest error. A later written agreement signed on behalf of a party governs its clear terms and cannot be contradicted by oral evidence of a different understanding.

Denware sold the entire share capital of Handella to Rosewild. The agreed price comprised a nominal sum and Handella’s adjusted net asset value at 31 January 1998, as shown in a certified completion statement which was final and binding absent manifest error.

After the business ceased trading as a Benetton concession, Handella became entitled to a corporation tax repayment. The completion statement included £32,809 for recoverable corporation tax. In a later signed letter, Rosewild agreed that that sum would be paid to Denware when the tax repayment had been received.

The Central London County Court dismissed Denware’s claim. It held that the repayment was not an asset and that the letter did not oblige Rosewild to pay the stated sum. Denware appealed. The central issues were whether the repayment was a net asset, whether its inclusion was a manifest error, and the effect of the signed letter.

Disposition

The Court of Appeal unanimously allowed the appeal. It entered judgment for Denware for £32,809 plus interest, with costs here and below.

1. Lord Justice Tuckey held that the corporation tax repayment right accrued when Handella ceased trading as a Benetton concession on 31 January 1998. It was therefore an asset at the contractual valuation date. The parties’ ignorance of the right, uncertainty as to its value, and potential difficulty or delay in realising it did not alter that conclusion.

2. The sale agreement required payment for net assets without limitation. A warranty that amounts then due from debtors would be recovered within twelve weeks concerned trade debtors and could not restrict the unqualified meaning of “asset” in the primary pricing obligation. The inclusion of recoverable tax in the certified completion statement was accordingly not a manifest error. The amount was due under the sale agreement upon receipt of that statement.

3. The signed letter also bound Rosewild. It was itself an agreement, or an offer accepted by Rosewild when its managing director signed and returned it. It superseded any prior telephone arrangement. Oral evidence that the director intended only to pass on money received by Rosewild contradicted the document and was inadmissible for that purpose.

4. The letter varied the escrow mechanism and deferred payment until the tax repayment was received. Its wording required payment of £32,809, rather than only the amount ultimately refunded, and receipt meant receipt by Handella or its authorised payee. Lord Justice Sedley agreed, apart from treating the precise meaning of the payment-timing provision as immaterial. Lord Justice Brooke agreed with Lord Justice Tuckey.

• Court of Appeal (Civil Division) — allowed Denware’s appeal in [2002] EWCA Civ 2003 and entered judgment for £32,809 plus interest.
• Central London County Court — His Honour Judge Cowell dismissed Denware’s claim on 26 February 2002.