Macquarie International Investments Ltd v Glencore UK Ltd

Permission to appeal may be granted where a substantial and genuinely arguable point remains undecided, particularly where it concerns a common form of contractual warranty and can be argued proportionately. The court may grant permission while protecting the respondent in costs if the appeal fails. The merits remain open where the issue is whether a warranty concerning management accounts addresses only the preparation of the accounts in accordance with accounting practice, or also the accuracy of the underlying assets and liabilities.

The appellant acquired shares in an energy-supply group under a sale and purchase agreement. An undiscovered gas-measurement error created an approximately £2.4 million liability. The appellant alleged that the management accounts warranty was breached because the accounts did not fairly reflect the group’s financial position, while accepting that the accounts had been diligently prepared.

Mr Justice Andrew Smith rejected the claim, holding that the warranties concerned the preparation of the accounts in accordance with conventional accounting practice. Sir Richard Buxton refused permission on paper. The Court of Appeal considered whether the construction of such a warranty was an undecided and important point fit for appeal.

1. Permission granted. The renewed application for permission to appeal was allowed.
2. The proposed appeal raised an arguable question which the court regarded as undecided and not adequately covered by authority: whether a warranty that management accounts fairly reflected the financial position concerned only the manner in which the accounts were prepared, or also the underlying assets and liabilities.
3. The point warranted consideration because approximately £2.4 million was at stake and warranties in this form were common in sale and purchase agreements. The appeal could be argued within one day.
4. Although the court considered there was considerable force in the reasoning of Mr Justice Andrew Smith and Sir Richard Buxton, it did not determine the merits. The respondent was to be fully protected in costs if the appeal failed.

Order: Application granted.

• Court of Appeal (Civil Division): on 26 January 2010, Lord Justice Thomas granted the renewed application for permission to appeal.
• High Court of Justice, Queen’s Bench Division: Mr Justice Andrew Smith’s judgment of 17 September 2009 rejected the appellant’s argument concerning the management accounts warranties.