Ageas (UK) Ltd v Kwik-Fit (GB) Ltd & Anor

Damages for breach of warranties in a share sale agreement are ordinarily assessed by comparing the shares’ value as warranted with their true value at the date of breach. The court may use subsequent events to resolve a future contingency affecting that earlier value, but only where this is necessary to give effect to the compensatory principle.

Hindsight must not disturb the parties’ contractual allocation of risk. Under an executed fixed-price acquisition without a post-completion adjustment, the buyer ordinarily receives both the benefit and burden of subsequent trading performance. Later results cannot reduce damages unless they are sufficiently comparable to establish that conventional breach-date valuation would confer a windfall.

Ageas acquired an insurance-services business from Kwik-Fit under a fixed-price share purchase agreement. Kwik-Fit warranted the accuracy of the business’s accounts, subject to a £5 million liability cap. Ageas separately insured losses above that cap with AIG.

The accounts overstated revenue and assets because they incorrectly treated certain time-on-cover bad debt as a risk borne by a bank. Liability was admitted, and the claim against Kwik-Fit was settled. The remaining dispute concerned quantum under AIG’s policy.

Ageas valued the warranty loss prospectively at the acquisition date, producing an insured loss of £12.635 million. AIG relied on lower post-acquisition bad-debt figures and contended for £3.792 million. The central issue was whether hindsight could be used when valuing the company at the acquisition date.

1. Judgment for Ageas in the principal sum of £12.635 million. Damages for breach of warranty were measured by the difference between the value of the shares as warranted and their true value. The prima facie assessment date was the date of breach: [2014] EWHC 2178 (QB), paras 14, 30 and 54.

2. The compensatory principle may justify using knowledge of later events to value property at an earlier date. Where value depends on a future contingency, the court may take account of the contingency’s known outcome rather than speculate. This approach is available only when required to compensate for the contractual benefit actually lost: paras 30–37.

3. Two qualifications govern that departure. First, the conventional breach-date rule remains the starting point, so necessity must be established. Secondly, hindsight must respect the parties’ allocation of risk. A later benefit cannot be removed from a party where the bargain allocated that contingency’s benefit and burden to it: paras 37–41.

4. AIG did not establish that the prospective valuation produced a windfall. Its calculation adjusted for overall policy volume but not for other material variables affecting bad debt: the proportion of instalment policies, cancellation rates, debtor defaults and the management of recoveries. Nor did it account for related effects on financing revenue. The later figures were therefore not sufficiently comparable with the acquisition-date forecast: paras 42–49.

5. The fixed-price agreement contained no adjustment for later trading performance. Upon completion, the business and the risks inherent in its projected performance passed to Ageas. Subsequent changes in bad debt resulted from business decisions and market conditions whose benefits and burdens the agreement allocated to Ageas. Using hindsight to remove that benefit would confound the bargain: paras 50–53.

6. The amount formally to be entered, including the treatment of tax and interest, was left for further argument: para 54.

not stated in the judgment.