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

In a share purchase agreement, “goodwill” ordinarily means the proprietary value of a business’s established reputation, good name and customer connections. It does not ordinarily bear the wider accounting meaning of the difference between acquisition price and identifiable net assets. A technical or unusual meaning must be clearly expressed. Goodwill is not interchangeable with value merely because it is valuable or can be valued. An exclusion of claims in respect of lost goodwill concerns loss of the acquired business’s reputation or connections. It does not exclude a warranty claim for overpayment caused by an inaccurately prepared forecast, measured by the difference between the price paid and the lower price that would have been paid on accurate information. Contractual context and the need for clear words before important remedies are cut down reinforce that construction.

Primus sold shares in two aerospace manufacturing companies to Triumph under a share purchase agreement. Triumph later alleged that a warranty concerning the honest and careful preparation of forward-looking projections had been breached. The High Court found for Triumph, rejected reliance on the lost-goodwill exclusion, and quantified damages following a further judgment: [2019] EWHC 565 (TCC); [2019] EWHC 2216 (TCC).

Permission to appeal was granted only on the construction of the exclusion clause in Schedule 8, paragraph 3.1(f)(i), which excluded claims to the extent that the matter was in respect of lost goodwill. The central issue was whether that expression used its ordinary legal meaning or a broad accounting meaning encompassing the difference between acquisition price and identifiable net assets.

The appeal was dismissed. Lord Justice Coulson gave the judgment, with which Lord Justice Henderson and Lady Justice Carr agreed.

1. Meaning of goodwill. In a commercial contract for the sale of a business, goodwill ordinarily denotes the proprietary right represented by the business’s good name, reputation and connections. The broader accounting concept, covering the excess of acquisition price over the fair value of identifiable net assets, was not the ordinary legal meaning. A technical or unusual contractual meaning must be clearly expressed.
2. Construction in context. Goodwill is not synonymous with value merely because it is valuable or capable of valuation. The authorities, including Austen v Boys (1858) 2 De G & J 626 and IRC v Muller and Co’s Margarine Limited [1901] AC 217, supported the ordinary legal meaning. Authorities concerned with goodwill as a possession under A1P1, including Breyer Group Plc and Others v Department of Energy and Climate Change [2015] EWCA Civ 408 and R (Nicholds) v Security Industry Authority [2006] EWHC 1792 (Admin), did not determine the domestic contractual issue. Other provisions of the SPA, especially its goodwill protections and intellectual-property definition, used the term consistently in the ordinary commercial sense.
3. Application to the claim. Triumph’s claim was for overpayment caused by the inadequately prepared long-range plan. The loss was the difference between the price actually paid and the lower price that would have been paid had the projections been properly prepared. It was not a claim for damage to goodwill and was not excluded by paragraph 3.1(f)(i).
4. Clear words. The proposed accounting construction would have excluded most warranty claims concerning future performance and deprived the projection warranty of practical value. Applying the clear-words approach in Nobahar-Cookson and the authorities there cited, the parties could not be taken to have cut down important contractual remedies without clearer language. The High Court’s construction was correct.

The appeal was therefore dismissed.

1. Court of Appeal (Civil Division): dismissed Primus’s appeal on the construction of the lost-goodwill exclusion.
2. High Court, Technology and Construction Court: found Primus in breach of the projection warranty and held that the exclusion did not apply in [2019] EWHC 565 (TCC). A subsequent judgment assessed damages at $4,201,570: [2019] EWHC 2216 (TCC).