Arani & Ors v Cordic Group Ltd

Under a share purchase agreement, a contractual retention mechanism operates according to its express notification requirements. A purchaser cannot withhold escrow money or set off wider claims where no contractual Warranty Claim was notified in time and in the required detail. A no-deduction or withholding clause may exclude set-off, including set-off based on alleged fraud.

A fraudulent breach of warranty claim may remain viable outside the contractual limitation period where the agreement preserves such claims and fraud is properly pleaded. Warranties do not, without more, constitute actionable representations. Detailed negotiations and transaction documents may support a misrepresentation claim only where they contain an identifiable pre-contractual representation not excluded by the agreement.

The claimants sold shares in a company to the defendant under a share purchase agreement. £2 million was placed in a retention account, due for release 16 months after completion unless a properly notified Warranty Claim remained outstanding.

The defendant failed to release the money and asserted warranty, fraud, misrepresentation, negligent misstatement and rescission claims. The claimants sought summary judgment and strike-out. The defendant sought permission to amend its Defence and Counterclaim. The central issues were whether the defendant could withhold or set off the retention money, whether the proposed counterclaims had a real prospect of success, and whether alleged fraud justified refusing specific performance.

1. Summary judgment and release of the retention money. The claimants were entitled to specific performance of paragraph 2 of Schedule 5. The defendant admitted that its 2 March 2020 letters were outside the contractual notification period. In any event, they did not provide full particulars, identify an actual claim rather than reserve the right to sue, or state an Estimated Claim Amount. The defendant therefore failed to comply with the contractual gateway to withholding payment.
2. Clause 6.4.3 preserved a properly pleaded claim for fraudulent breach of warranty outside the ordinary limitation period. It did not, however, allow such a claim to prevent release of the retention money. The agreement distinguished between a contractual Warranty Claim notified within time and other claims. Paragraph 6 of Schedule 5 preserved wider remedies but did not alter the express release mechanism.
3. Clause 6.2 was a valid no-set-off provision. Its requirement that sums be paid free and clear of all deductions or withholdings was clear and unambiguous. It was a payment-obligation provision rather than an exclusion clause, and set-off was not something required by law.
4. The original fraud pleading had no real prospect of success because it relied on bare warranties and an allegation that persons knew or ought to have known. The amended pleading adequately pleaded a fraudulent breach of warranty claim against the first three claimants, based on actual knowledge or recklessness and identified documents. That claim was permitted to proceed.
5. Warranties could not, without more, constitute actionable representations. The amended misrepresentation and negligent misstatement claims failed because the alleged representations were contained in the transaction documents, the Disclosure Letter expressly negatived such implications, and clause 8.6 excluded reliance on matters outside those documents. The rescission claim also failed through delay and affirmation.
6. The court refused to withhold payment on the basis of unclean hands. Although the amended fraud claim was properly arguable, the allegations remained contested and were not comparable to the reprehensible conduct in Quadrant Visual Communications v Hutchison Telephone (UK). There was also no sufficient evidence of dissipation and no formal freezing-order application.
7. The claimants obtained summary judgment. The original Counterclaim would have been struck out. The defendant was permitted to proceed only with the amended fraudulent breach of warranty claim. The retention money was not paid into court.