Macquarie Internationale Investments Ltd v Glencore UK Ltd

Accounting standards require recognition of an asset or liability only where there is sufficient evidence of its existence and it can be measured with sufficient reliability. The evidence must be assessed objectively by reference to information available to the reporting entity. Reasonable and proportionate enquiries may be required, but accounting standards do not demand extravagant investigations or hindsight analysis.

A liability arising only after a future classification or assessment may properly be treated as contingent, or not recognised at all. “True and fair” is a composite statutory and accounting standard informed by accepted accounting practice. Materiality is assessed objectively by reference to the reasonable, knowledgeable and diligent user of the accounts, not by the contractual price mechanism.

Macquarie acquired the Corona Energy group from Glencore under a sale and purchase agreement containing warranties concerning statutory accounts, management accounts and books and records.

Macquarie claimed damages for breach of warranty arising from two categories of charges imposed by Xoserve: charges relating to meters omitted from a computer system, and Mod 640 charges arising when supply points were reclassified as Larger Supply Points.

The central issues were whether the charges were liabilities requiring recognition or disclosure under the applicable accounting standards, whether the accounts gave a true and fair view or fairly reflected the group’s financial position, whether the charges were material, and whether the contractual warranties otherwise applied.

1. The claim was dismissed. Glencore was not in breach of the warranties.
2. Under FRS 5, recognition of an asset or liability required sufficient evidence of its existence and sufficiently reliable monetary measurement. The test was objective and concerned evidence available to the reporting entity. A warning or indication might require reasonable and proportionate enquiries, but the standards did not require investigations that could not reasonably be expected from a diligent entity.
3. The information available to Corona before completion did not sufficiently identify the Missed Meters charge or its financial significance. Even if its existence had been sufficiently evidenced, the charge could not then have been measured reliably. It was therefore properly omitted from the Accounts and Management Accounts.
4. Mod 640 charges depended upon Xoserve’s later AQ review and other contingencies, including whether customers changed supplier. A properly advised board could conclude that no liability arose until the revised AQs were set. Alternatively, the charges could properly be treated as contingent liabilities because their existence and amount depended on future events and uncertain measurement.
5. The “true and fair view” requirement was a single, composite standard informed by generally accepted accounting practice. Compliance with accounting standards did not invariably guarantee a true and fair view, since exceptional circumstances could justify departure, but no such circumstances existed here.
6. The Management Accounts were prepared for ordinary internal management purposes. Their warranty that they fairly reflected the financial position and were not materially misleading was less demanding than a warranty that they gave a statutory true and fair view. The accounts complied with the relevant standards and were not materially misleading.
7. Materiality was objective. It depended on whether an omission might reasonably influence the decisions of knowledgeable and diligent users, considering size, nature, context and the inherent limitations of the accounts. The SPA’s purchase-price mechanism was irrelevant. Neither category of charge was material to the relevant accounts.
8. The “books and records” warranty naturally concerned record-keeping and did not include the statutory or management accounts. The contractual provisions also did not prevent Glencore from requiring Macquarie to prove that the accounts were wrong.

First-instance decision. The judgment does not state any earlier appellate decision.