Al-Hasawi v Nottingham Forest Football Club Ltd & Ors

The court dismissed the defendants' claims under the share purchase agreement (the SPA) including claims for Leakage, Losses and Schedule Claims because the defendants failed to prove the relevant liabilities or the conditions for recovery. Key contractual provisions considered included clause 6 (Leakage), clause 7.1 (indemnity for Liabilities above £6,600,000), clause 5 (set-off) of the deed of variation and facility (the Deed), Schedule 6 paragraph 9 (time and quantification limits), and clause 3.7 (acceleration notice). The court rejected the defendants' construction that the defined term "Liabilities" should be interpreted solely by reference to accounting standards (FRS 102), adopting instead a construction that limited "Liabilities" to obligations relating to the period on or before the Liability Statement Date. The Trial Balance was not a false representation for the purposes of a misrepresentation claim. The Acceleration Notice under the Deed was held valid and there were no sums properly set off against the Completion Loans.

This first instance Chancery trial concerned disputes arising from the 2017 sale of Nottingham Forest Football Club. The Buyer (and the Club) asserted claims under the SPA for Leakage, indemnities in respect of Liabilities above a contractual threshold, various Schedule Claims and other costs; the Seller and its guarantor (Mr Al-Hasawi) sought repayment of Completion Loans under the Deed.

Nature of the proceedings: consolidated claims and counterclaims concerning contractual indemnities, alleged pre-completion payments ("Leakage"), the proper construction of the defined term "Liabilities", whether particular contracts were "Material Contracts" omitted from the data room, entitlement to set-off under the Deed, validity of an Acceleration Notice and an alleged misrepresentation arising from the Trial Balance.

Issues framed by the court included:

• whether disputed items constituted "Leakage" under clause 6 of the SPA;
• the correct construction of the defined term "Liabilities" and whether the Liabilities exceeded the £6,600,000 threshold for clause 7.1 indemnity;
• whether alleged omitted contracts were "Material Contracts" and if any Loss was caused by their omission from the Data Room (Schedule Claims);
• whether the Buyer properly gave notices required by Schedule 6 and clause 15 of the SPA and so whether set-off under clause 5 of the Deed was valid; and
• whether the Trial Balance gave rise to an actionable misrepresentation.

Court's reasoning, briefly: the court held that the disputed solidarity payments, legal fees and other small items were not payments "received by the Seller or any person Connected to it" and so were not Leakage. On construction of "Liabilities" the court rejected the defendants' submission that the term should be equated with liabilities recognised under FRS 102 and concluded the SPA created a bespoke definition limited to liabilities relating to the period on or before the Liability Statement Date; accordingly the aggregate did not exceed £6,600,000 and the indemnity claim under clause 7.1 failed. Schedule Claims were dismissed because the Buyer did not show that omission of the alleged Material Contracts from the Data Room caused Loss; many additional claims also failed for lack of proof or because they had been accounted for in the Liabilities claim. The court found that no valid contractual notice satisfying Schedule 6 had been given before 31 August 2017 and rejected the submission that the parties had agreed to postpone repayment of the August Loan; the Acceleration Notice served on 4 October 2017 was valid and there were therefore no sums properly set off against the Completion Loans. Finally, the Trial Balance was not shown to be a false representation and the misrepresentation claim failed. The court left assessment of contractual interest and of the parties' costs to be dealt with subsequently.

First instance: the court dismissed the defendants' claims under the SPA (Leakage, Losses, Schedule Claims and misrepresentation). It held that the defined term "Liabilities" in the SPA must be read as limited to liabilities relating to the period on or before the Liability Statement Date and not simply as accounting liabilities under FRS 102, that the Acceleration Notice under clause 3.7 of the Deed was valid, and that there were no sums properly available for set-off against the Completion Loans. The defendants failed to prove loss caused by alleged omissions from the Data Room and the Trial Balance did not found a misrepresentation.