Belfairs Management Ltd v Sutherland & Anor

A contractual warranty must be construed objectively, in its commercial setting. An agreement expected by both parties to be signed immediately after completion may fall within a warranty concerning agreements where that agreement is central to the transaction.

A warranty that an agreement can readily be fulfilled or performed on time is not, without express wording, a warranty of the warrantor’s honest subjective belief. It requires an objective assessment, at the contractual date, of whether performance could readily be achieved on time.

Belfairs Management Ltd bought 60% of the shares in Waveform Solutions Ltd from the respondents under a share purchase agreement. The proposed acquisition was intended to capitalise Waveform so that it could sign an NHS Framework Agreement and seek to meet its Level 2 requirements within 12 months.

The sellers warranted that Waveform was not party to an agreement, arrangement or commitment which could not readily be fulfilled or performed on time. The High Court held that the unsigned NHS agreement was outside the warranty and, alternatively, that the warranty required only an honest subjective assessment. It rejected the claim based on paragraph 16.1.5 of Schedule 3.

The appeal concerned whether the NHS agreement fell within paragraph 16.1 and the proper nature and application of the warranty.

1. Appeal allowed. The NHS Framework Agreement fell within the word “agreement” in paragraph 16.1 of Schedule 3. Although it had not been signed at completion, both parties expected it to be signed immediately afterwards, knew its terms, and treated it as central to the share acquisition. Construed objectively and in its commercial context, paragraph 16.1 included that agreement.

2. The court respectfully disagreed with the judge’s narrower construction. The fact that Waveform was not then contractually obliged to sign the NHS agreement did not preclude its inclusion. The disclosure letter was unnecessary to that conclusion, and the court did not decide whether it could assist construction.

3. Paragraph 16.1.5 required an objective assessment, as at 11 February 2008, of whether Waveform could readily fulfil or perform the NHS agreement on time. Its language did not make the sellers’ subjective view relevant. Clause 5 merely vouched the truth and accuracy of the warranty; it did not alter the warranty’s objective character.

4. The trial judge had not determined the objective question. Belfairs had an arguable case that the warranty was breached, but the Court of Appeal should not make the required primary findings of fact. The issue was remitted to the judge, who was already to conduct an inquiry into damages for other warranty breaches, to determine breach and any resulting damages.

• Court of Appeal (Civil Division): Allowed the appeal on the paragraph 16.1.5 warranty and remitted the issue of breach and damages: [2013] EWCA Civ 185.
• High Court, Chancery Division: Dismissed the deceit claim and the claim based on paragraph 16.1.5, but found breaches of other warranties and directed an inquiry into damages: [2010] EWHC (Ch) 2276.