Sycamore Bidco Ltd v Breslin & Anor

In assessing damages for breach of warranty, the court must compare the value of the company as warranted with its actual value on a consistent basis. Where the lower valuation has been calculated on the assumption that a specified amount of cash remains in the company, the upper, as-warranted valuation must adopt the same assumption. The appropriate figure is therefore not determined in isolation by identifying the purchaser’s actual or net payment. The decisive consideration is consistency between both sides of the differential calculation.

The judgment determined a valuation issue left open in an earlier judgment concerning damages for breach of warranty on the acquisition of GAS. The parties agreed that the purchaser’s payment could operate as a proxy for the warranted value, but disputed whether the relevant upper figure was £16.75 million or £17.25 million.

The difference arose from £500,000 retained in the company at completion. The claimant argued that the valuation exercise had to use the £17.25 million headline price because the expert’s lower valuation had been modelled on a company with that amount of cash remaining. The defendants argued that the purchaser should be treated as having paid £16.75 million.

1. The relevant upper figure was £17.25 million. The damages exercise required comparison between the value of the company as warranted and its value in its actual state.
2. Both limbs of the comparison had to be assessed on the same assumptions. If the warranted value represented a debt-free, cash-free company with £500,000 left in it, the actual valuation had to be made on the same basis. Otherwise the resulting difference would be distorted.
3. The court rejected an isolated enquiry into what the purchaser actually paid or should abstractly be treated as having paid. Different figures could represent value under different underlying hypotheses. The relevant question was which upper figure corresponded to the assumptions used in calculating the lower figure.
4. The expert valuation of £11 million had been derived from the purchaser’s completion model, which treated the relevant price as £17.25 million and retained the £500,000 within the company. The court therefore used £17.25 million as the comparator and adjusted the lower figure to £12 million.
5. The basic loss flowing from the breach of warranty was accordingly £5.25 million.