Decision Inc Holdings Proprietary Limited & Anor v Stephen Garbett & Anor

A warranty that there has been no material adverse change since an earlier accounts date requires comparison of the company’s actual prospects at the two relevant dates. Prospects are future-facing chances or opportunities, assessed in their contractual context, and are not automatically equivalent to EBITDA. A judge must determine the case raised by the parties, subject to a fair and pragmatic ability to permit departure where no prejudice results. A contractual notice clause requiring the nature and, where reasonably practicable, amount of a claim generally requires the amount for each warranty claim, not merely an omnibus total. Where the notice fails that requirement, the claim cannot proceed and a retrial is futile.

The respondents sold shares in a company to the appellants under a share purchase agreement containing warranties concerning changes in the company’s prospects and the accuracy of its records. The respondents alleged breaches of those warranties and claimed damages. The High Court rejected the records and turnover claims but found a breach of the prospects warranty and awarded £1.31 million: [2023] EWHC 588 (Ch).

The appellants challenged the interpretation of the prospects warranty, the basis on which the breach was found, the adequacy of the contractual notice, the treatment of revenues from a TfL project and the refusal to order a retrial.

1. Prospects warranty. The appeal was allowed. The warranty concerned whether there had been a material adverse change in the company’s prospects since 31 December 2017. The proper exercise was to compare the company’s actual prospects at that date with its actual prospects in October 2018. It was not a comparison between the later actual position and what a reasonable buyer would have expected at the later date. Since prospects look to the future, the assessment must focus on what might happen after the relevant date. The term was context-dependent and was not shown to mean EBITDA alone.
2. Pleading and fairness. The judge decided the prospects claim on a basis materially different from that advanced in the notice, pleadings or submissions. The authorities, including Al-Medenni v Mars UK Ltd [2005] EWCA Civ 1041, Satyam Enterprises Ltd v Burton [2021] EWCA 287 and Ali v Dinc [2022] EWCA Civ 34, supported a pragmatic approach, but a party must have a fair opportunity to address a new basis. The defendants had not been given that opportunity.
3. Contractual notice. Clause 11.4 required the amount claimed for each warranty claim, so far as reasonably practicable, rather than only a cumulative figure. The construction was supported by the contractual wording, commercial logic and authorities including Nobahar-Cookson v Hut Group Ltd [2016] EWCA Civ 128 and Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd [1999] 2 Lloyd’s Rep 423. The notice was therefore ineffective for the prospects claim.
4. Consequences. The finding that it was impossible to quantify the individual claim was not reasonably open on the evidence. A retrial would be pointless because the notice and existing particulars could not support the claim, and amendment was too late. The TfL issue consequently did not require determination. The claim was dismissed, and judgment was entered for the defendants on their counterclaim for £787,000.

• Court of Appeal (Civil Division): Appeal allowed. The claim was dismissed and judgment was entered for the defendants on the counterclaim for £787,000.
• High Court of Justice, Business and Property Courts, Chancery Division: Simon Gleeson, sitting as a Deputy High Court Judge, found a breach of the prospects warranty and awarded £1.31 million: [2023] EWHC 588 (Ch).