Al-Hasawi v Nottingham Forest Football Club Ltd

A contractual indemnity threshold based on an accruals-based liabilities figure must be compared with liabilities calculated on the same basis. Pre-cut-off obligations are not excluded merely because the contracted services are supplied later. A separate indemnity for losses caused by non-disclosure requires proof of causation; the undisclosed liabilities themselves are not automatically the loss. A settlement reached on legal advice may support an inference that it was reasonable, but that inference can be displaced by contrary evidence.

The appeal arose from the sale of Nottingham Forest Football Club under a share purchase agreement. The agreement contained indemnities concerning liabilities exceeding a specified threshold and contracts not disclosed in the data room.

The High Court, in [2019] EWHC 1287 (Ch), dismissed the purchasers’ claims to set off alleged indemnity liabilities against loans owed to the former owner. The appeal concerned the construction of the liabilities threshold, the causation requirement in the non-disclosure indemnity, and claims relating to several undisclosed contracts.

Appeal allowed in part. Patten LJ gave the judgment, with Males LJ and Roth J agreeing. The appeal succeeded on the clause 7.1 indemnity and failed on all clause 7.4 claims.

1. The £6.6 million threshold in clause 7.1 was based on the Trial Balance, prepared using the accruals basis under FRS 102. The Club’s actual liabilities therefore had to be calculated on the same basis. The parenthetical words referring to liabilities relating to the relevant period confirmed the accounting period and did not exclude obligations accrued before 31 December 2016 merely because services were to be supplied afterwards.
2. The accounting treatment had to remain consistent with the benchmark figure. The possible inclusion of matching assets or credits was an issue that might require expert accounting evidence, but it did not arise on the pleaded defence.
3. Clause 7.4 used causal language. The appellants had to prove that their losses were due to the non-disclosure of material contracts. The existence and cost of later contracts did not itself establish loss; the relevant loss might have been an inability to negotiate better acquisition terms. The additional claims therefore failed because causation was not proved. The meaning of contracts in respect of Players did not need to be decided.
4. The Chiodi claim was also defeated by the finding, which was not appealed, that no liability had arisen under the contract. The further construction issue concerning double recovery was therefore academic.
5. On the Ahmadi claim, settlement on leading counsel’s advice raised an inference that the settlement was reasonable, but did not prove the underlying liability. The inference was displaced by the contractual and evidential uncertainties identified by the judge. Maintaining privilege over the advice justified no adverse inference, although the bare fact of advice carried little weight against the contrary evidence. The Court of Appeal would not re-try the claim where the judge’s conclusion was open to him on the evidence.

Appellate history

1. Court of Appeal (Civil Division): In [2019] EWCA Civ 2242, the appeal was allowed on the clause 7.1 claim and dismissed on the clause 7.4 claims.
2. High Court, Business and Property Courts, Business List (ChD): In [2019] EWHC 1287 (Ch), Mr Stuart Isaacs QC dismissed the counterclaim and Part 20 claim, while ordering repayment of the admitted loan debt.