Damoco (Bermuda) Ltd & Ors v Atlanta Bidco Ltd

On a summary judgment application, the court may decide a short point of contractual construction where it has the evidence necessary for proper determination and the parties have had a fair opportunity to address it.

In a deferred consideration mechanism, wording requiring accounts to be prepared from audited accounts, or accounts ready for formal sign-off, may be a substantive condition rather than a mere timetable. A long-stop date does not displace that requirement where the contract, read in its commercial context, treats audit oversight as protection for the parties.

Unaudited accounts supplied expressly on a without-prejudice basis and subject to revision cannot be transformed into final and binding contractual accounts by unilateral acceptance.

The claimants, sellers of shares in Damoco Holdco Limited, sought summary judgment concerning deferred consideration under a sale and purchase agreement. The consideration depended on EBITDA calculated under Schedule 11.

The buyer had supplied draft accounts on 5 August 2019, before the company’s audit was complete. The sellers purported to accept those accounts as final and binding on 8 August 2019 and claimed that €20 million was payable.

The central issues were whether the accounts complied with paragraph 3 of Part 3 of Schedule 11, whether the correspondence made them final and binding, and whether the first claimant had authority to commence proceedings while in liquidation.

1. Summary judgment. The court applied the approach in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch). It must consider whether the relevant claim or defence has a realistic, rather than fanciful, prospect of success and must avoid conducting a mini-trial. However, where the issue is a short point of construction and the evidence is sufficient, the court should decide it.
2. Construction of paragraph 3. The reference to audited financial statements being in a condition capable of formal sign-off was not merely a convenient trigger for delivery. The definition of “FY19 Pro forma Audited IFRS EBITDA”, the contractual role of Deloitte, and the protections concerning the auditor showed that audit oversight formed part of the agreed mechanism. The objective meaning was that the draft Deferred Consideration Accounts had to be based on accounts ready for formal sign-off, even after the 30 June long-stop date, subject to the contractual 30-day period.
3. The accounts supplied on 5 August 2019 were not based on accounts in that condition. They therefore were not the contractual draft Deferred Consideration Accounts.
4. Correspondence. Even if the claimants’ construction were correct, the correspondence showed that the buyer supplied the accounts cooperatively and expressly reserved its position. The accounts were unaudited, unapproved and subject to material revision. The sellers’ letter of 8 August could not convert them into final and binding Deferred Consideration Accounts. The summary judgment application therefore failed.
5. Authority issues. These issues were not determinative. The sellers’ representatives appeared authorised under the agreement. The first claimant’s proceedings may initially have lacked liquidator authority, but the liquidator later authorised continuation and amended pleadings were properly filed. Applying Adams v Ford [2012] EWCA Civ 544, there was no realistic prospect that the claim would be struck out as an abuse of process.

First-instance decision. No appellate history was stated in the judgment.