MDW Holdings Ltd v Norvill

The Court of Appeal dismissed the defendants' appeal against liability and quantum as assessed by His Honour Judge Keyser QC, and allowed the claimant's cross-appeal in part by remitting the question of additional damages for deceit to the trial judge. The court upheld the judge's approach to valuation by the EV/EBITDA method and his finding that, on a "Warranty False" basis, both the multiplicand (maintainable EBITDA) and the multiplier could properly be reduced to reflect the effect of proven regulatory non‑compliance and the risk of reputational damage. The court applied established principles about the date of assessment of damages, explaining when and how events after the valuation date may be taken into account (drawing on Bwllfa, The Golden Victory and Bunge) and confirmed that where deceit induced the purchase, post‑acquisition events do not necessarily defeat the tortious measure of damages. Because the trial judge found the purchase price exceeded the "Warranty True" value, the court remitted the question whether MDW would, if it had known the truth, have declined to buy (entitling it to price paid less actual value) or would still have bought at a lower price (entitling it to the difference between the two prices).

This was an appeal from the High Court (His Honour Judge Keyser QC [2021] EWHC 1135 (Ch)) concerning damages for breaches of warranties and deceit arising from a share sale. On 14 October 2015 MDW bought the entire issued capital of G.D. Environmental Services Limited (GDE) from the Norvill family under a share purchase agreement. The SPA contained warranties about regulatory compliance, true and fair accounts and that no proceedings were threatened.

Background and facts:

• GDE operated a waste business regulated by Natural Resources Wales and Dŵr Cymru Welsh Water and held an environmental permit and a trade effluent consent (the 2012 Consent).
• The trial judge found repeated breaches of the 2012 Consent (principally in relation to leachate discharges), false information supplied to regulators, occasional improper disposal practices and a culture of misleading regulators; some findings were that certain practices were rare or had minimal financial impact.
• The judge held that the Norvills breached warranties in schedule 5 and that actionable misrepresentations in the due diligence materials constituted deceit by James Norvill and made his parents liable under s.2(1) of the Misrepresentation Act 1967 and as principals for their agent's fraud.

Procedural posture and relief sought:

• MDW sought damages for breach of warranty and for negligent and fraudulent misrepresentation; the measure of damages and the proper valuation method (EV/EBITDA) were central issues on appeal.

Issues addressed:

• whether the trial judge was entitled to reduce the EV/EBITDA multiplier when valuing GDE on a "Warranty False" basis to reflect reputational damage and the jeopardy to the business; and
• whether MDW could recover, by way of deceit, the difference between the purchase price and the "Warranty False" value (ie the tortious measure) given the judge's finding that the purchase price exceeded the "Warranty True" value.

Court's reasoning and conclusions:

• The court reaffirmed the compensatory principle: damages in contract generally put the claimant in the position if the contract had been performed; in deceit the claimant is to be put in the position as if the representation had not been made.
• The court explained when post‑valuation events may be considered (the Bwllfa/Golden Victory line): events after the breach may be relevant where they show that a contingency which existed at the valuation date did or did not happen, but these principles apply principally in the contexts identified in those authorities and are to be applied cautiously in share sale valuations.
• The judge was justified in using post‑SPA evidence to inform the multiplicand (as evidence about how much unlawful practice had boosted pre‑SPA EBITDA), but was also entitled to reduce the multiplier to reflect impairment of goodwill and the fragility of that goodwill due to the misconduct; the reduction from 4.2 to 4 lay within the expert range and was neither arbitrary nor unjustified.
• Because the judge found MDW had paid a premium above the "Warranty True" value, MDW was entitled to advance the tortious measure on cross‑appeal. The Court of Appeal allowed the cross‑appeal in part by remitting the factual question of what MDW would have done had it known the truth to the trial judge: if MDW would not have bought, damages are price paid less "Warranty False" value; if it would nevertheless have contracted at a lower price, damages are the difference between that hypothetical price and the price actually paid.

The court dismissed the defendants' appeal on the multiplier and valuation points and remitted the deceit‑quantum question for further determination.

Appeal dismissed as to the judge's valuation and reduction of the EV/EBITDA multiplier; cross‑appeal allowed in part by remitting to the trial judge the question whether, had MDW known the truth, it would have refrained from purchasing (in which case damages would be purchase price less the "Warranty False" valuation) or would nevertheless have purchased at a lower price (in which case damages should be assessed by reference to the difference between that hypothetical price and the price actually paid). The court reasoned that the judge was entitled to discount both multiplicand and multiplier to reflect impaired maintainable profits and impaired goodwill, and applied authorities on when post‑valuation events may be considered, distinguishing situations where deceit alters the measure of loss.

Appeal from His Honour Judge Keyser QC sitting as a High Court judge, Business and Property Courts in Wales (Chancery Division): [2021] EWHC 1135 (Ch); heard in the Court of Appeal (Civil Division) and decided at [2022] EWCA Civ 883. The Court of Appeal dismissed the defendants' appeal and allowed the claimant's cross‑appeal in part, remitting quantum on deceit to the trial judge.