Triumph Controls - UK Ltd & Anor v Primus International Holding Company & Ors

Damages for breach of warranty in a share purchase agreement may be assessed by the reduction in the value of the acquired companies resulting from the breach, where the evidence shows that the purchaser would have proceeded at a reduced price. The court may use the same valuation methodology as was used in the transaction, provided it reflects the properly corrected assumptions. Contractual deductibles and caps must then be applied. A party cannot introduce late valuation adjustments without an evidential basis, particularly where correcting one modelling feature would require wider revisions to the model.

The claimants had obtained judgment establishing liability for breach of a warranty concerning financial long-range plans prepared for companies acquired under a share purchase agreement. The court had found that the claimants would have proceeded with the transaction but would have paid less if the plans had been properly prepared.

This further judgment determined the outstanding quantum issues. The court considered the experts’ competing calculations of the discounted cash flow value, the resulting reduction in purchase price, interest and costs.

1. The court accepted the agreed valuation methodology: amend the long-range plan to reflect the required corrections, enter the amended data into the transaction model, and compare the resulting net present value with the value based on the original plan.
2. The amended plan had to allow for three months’ buffer-stock production for each of the twelve outstanding product transfers. The transfer schedule also had to reflect accrued delay, while preserving the original sequencing and allowing for recovery where capacity permitted.
3. The plan had to include accelerated production to reduce arrears. The composition of the arrears was not material because the hours represented production required to obtain operational stability and approval for transfers.
4. The higher variable labour rate and scrap rate applied to all production during the relevant accelerated-production periods, not merely to the additional production.
5. The court rejected proposed further adjustments to revenue and fixed overheads. The revenue adjustment was unsupported by evidence and would require consequential modelling changes. Correcting the overhead anomaly alone would be inconsistent with the earlier approach to unpleaded modelling issues.
6. The court accepted the corrected calculation producing an adjusted net present value of US$86,815,798, a reduction of US$5,701,570. The claimants would have negotiated a corresponding reduction in the purchase price, and the defendants would have accepted it. The reduction in value therefore represented the claimants’ loss.
7. After applying the contractual deductible of US$1.5 million, damages were awarded in the sum of US$4,201,570. Interest was awarded at 4.5% per annum from 3 May 2013 to judgment and thereafter at US$1,181 per day until payment. Costs were left for further submissions.

The judgment followed an earlier judgment handed down by the same court on 11 March 2019, which determined liability and directed further evidence on quantum. No appeal is stated.