Wemyss v Karim & Anor

A contractual obligation to apportion work in progress is determined by reference to the eventual invoice and all relevant circumstances, rather than an earlier estimate, unless the contract provides otherwise. A warranty given to the best of the seller’s knowledge and belief requires appropriate enquiry and investigation. For a misrepresentation or warranty concerning past turnover or profitability, loss is ordinarily measured by the reduction in value at the date of purchase, not by treating the statement as a continuing guarantee of future profits. A contractual indemnity for increased insurance premiums may cover pre-completion matters, but the buyer must prove the increase attributable to them.

The claimant sold his interest in a solicitors’ practice to the first defendant, with the practice continuing through the second defendant LLP. The agreement provided for deferred consideration, payments referable to debtors and work in progress, consultancy fees, warranties and indemnities. The claimant sought unpaid consideration and fees. The defendants counterclaimed for losses said to arise from misrepresentations, breaches of warranty, client claims, increased professional indemnity premiums, undisclosed liabilities and lost business.

The central issues were the proper construction of the work-in-progress payment mechanism, the effect of the warranties and indemnities, the recoverable measure of loss, and whether the defendants had proved causation and quantum.

1. Judgment. Judgment was entered for the claimant for a net amount of £45,000, subject to any issue concerning apportionment between the defendants. The claimant was awarded £105,375 before the counterclaim. The defendants established counterclaims totalling £60,365, comprising increased insurance premiums, management time and an employment-related liability.
2. Work in progress. The reference to an “agreed apportioned amount” required a reasonable apportionment of the eventual invoice between pre-completion and post-completion work. The completion schedule was evidence but did not cap the amount recoverable. If the parties could not agree, the court could determine a reasonable apportionment having regard to all relevant evidence.
3. Representations and warranties. The statement that turnover and profits were on course to reach stated figures was a statement of present fact, not merely subjective opinion. The warranty given at the date of the agreement required the previously supplied information to be true at that date. A warranty expressed to be to the best of the seller’s knowledge and belief required some enquiry and investigation. The claimant was liable for negligent misrepresentation and breach of warranty.
4. Loss. The defendants failed to prove recoverable loss arising from the turnover and profitability statement. The proper measure was the difference between the value of the business as represented and its actual value at purchase. The warranty was not a continuing warranty of future turnover or profitability. Borrowed capital was not itself a loss; only causally related interest could potentially be recoverable.
5. Indemnity. The indemnity for increased professional indemnity premiums was construed as relating to matters occurring before completion. It included claims notified before completion and claims subsequently made. The buyer bore the burden of proving the element of any premium increase attributable to the relevant claims. On the available evidence, £58,000 was recoverable.
6. Other counterclaims. The court rejected the claims for most alleged lost business and held that the reference to consequential losses in clause 5.5 did not create a separate entitlement to recover income foregone. The approach in Infiniteland Ltd v Artisan Contracting Ltd [2005] EWCA Civ 758 did not establish actual knowledge in the circumstances. The discussion of With v O'Flannagan [1936] Ch 575 assisted in explaining the effect of a warranty concerning a prior statement.