Oversea-Chinese Banking Corporation Ltd v ING Bank N.V

Damages for breach of a warranty as to the quality of shares are generally assessed by comparing the value of the shares as warranted with their true value. The ordinary measure is not replaced by the amount which might have been recovered under a hypothetical indemnity. Valuation methodology may be adjusted to reflect the loss of bargain, but an entirely different measure requires legal and evidential justification. A claimant relying on a hypothetical indemnity must also prove that it would have sought and obtained that indemnity. The court further emphasised that alleged accounting errors and contingent liabilities must be shown to be material to the truth and fairness of the accounts.

The claimant purchased the shares in ING Asia Private Banking Limited from the defendant under a sale and purchase agreement. The defendant warranted that the target’s 2008 accounts gave a true and fair view. Following Lehman Brothers’ collapse, the target made various calculations and set-offs concerning its derivatives exposure to Lehman Brothers Finance S.A. It later paid US$14.5 million to settle litigation.

The claimant alleged that the accounts should have disclosed a contingent liability and claimed the settlement payment as damages. The issues were whether that loss was recoverable in law, whether the alleged breach caused loss, and whether the accounts breached the warranty.

1. Measure of damages. The claim based on the amount recoverable under a hypothetical indemnity was unsustainable. The contractual measure for breach of a warranty as to the quality of shares is ordinarily the difference between the value of the shares if the warranty had been true and their true value. This reflects the claimant’s loss of bargain. The court may need to adjust the valuation methodology to reflect the circumstances, but the authorities did not support an entirely different measure based on a hypothetical indemnity. The discussion of Lion Nathan Ltd v CC Bottlers Ltd [1996] 1 WLR 1438 (PC) did not establish otherwise, since the Privy Council had not needed to decide the measure for a warranty of quality. The approach stated in Wemyss v Karim [2016] EWCA Civ 27 supported the conclusion.
2. Causation. In any event, the claimant failed to prove that, if it had known of the Lehman exposure, it would have sought an indemnity and would have obtained one. The evidence showed that indemnities were negotiated selectively, some proposed protections were removed or diluted, and the claimant was prepared to accept risks of comparable size where it considered them sufficiently understood. The alleged exposure was modest in relation to the purchase price and its likely effect on net asset value.
3. Accounts and contingent liabilities. The claimant did not establish that the 2008 accounts contained a material error or that FRS 37 required disclosure of the alleged potential liability. The liability arising from the triangular set-off was already reflected on the balance sheet, and the evidence supporting its treatment as a contingent liability was rejected. Even if disclosure had been required, materiality had not been proved. Materiality required consideration of the size and nature of the omission in the surrounding circumstances, including the reasonable expectations of users and the relevance of normalised profits. The alleged collateral set-off and initial-sum errors were likewise not shown to produce a material misstatement or a breach of FRS 37.
4. Disposition. The claim failed on the measure of damages and causation. The court also found, for completeness, that the claimant had not established breach of the warranty that the accounts were true and fair. It was unnecessary to determine whether the alleged underlying accounting errors occurred or whether contractual disclosure and limitation provisions applied.

This was a first-instance decision of the High Court (Commercial Court). No prior appellate decision is stated in the judgment.