Dr Faramarz Shayan Arani & Ors v Cordic Group Ltd

In a share sale, a contractual time bar for warranty claims may be displaced by a fraud or wilful-misconduct exception only to the extent that the warranty claim itself arises from, or is increased or delayed by, the sellers’ misconduct. The exception is not concerned with whether the underlying infringement was fraudulent as between the company and the rights owner. A licence permitting PAF data to modify an existing mailing-list database does not permit the data to create the database. Whether particular changes exceed modification is a matter of fact and degree. Warranty damages are assessed by comparing Warranty True and Warranty False values through a hypothetical reasonable buyer and seller, without hindsight. Historic licence exposure may be discounted for claim and litigation risk, while future costs should reflect a commercially rational move to lawful substitute data.

The Sellers sold the entire issued share capital of Cordic Limited to Cordic Group under a share purchase agreement. The Sellers later claimed payment of an amount retained under the agreement. Cordic obtained summary judgment on that claim, subject to an amended Part 20 counterclaim concerning breaches falling within the agreement’s fraud and wilful-misconduct exception.

At trial, Cordic alleged that the Company had used Royal Mail PAF data, obtained through Arc en Ciel, to create its address database in breach of licence and intellectual property rights. The issues were whether the Sellers had breached contractual warranties, whether the claims escaped the contractual notification bar, and the resulting diminution in value.

1. Outcome. Cordic Group’s Part 20 claim succeeded against all three Sellers in the sum of £3.5 million.
2. Licence and intellectual property. The Arc en Ciel licence permitted PAF data to modify an existing database. The court applied Royal Mail Group plc v i-CD Publishing (UK) Ltd [2004] EWHC 286 (Ch), agreeing that the proviso required an existing database used for validation. Whether changes went beyond modification remained a matter of fact and degree. On the evidence, the CDS database was principally created from PAF data rather than an existing database. The use therefore fell outside the licence and infringed Royal Mail’s copyright and database right under the Copyright, Designs and Patents Act 1988 and the Copyright and Rights in Databases Regulations 1997. It also breached warranty 11.7 and the additional warranties identified in paragraph 61.
3. Clause 6.4.3. The reference to a claim in the exception meant the warranty claim otherwise barred by clause 6.3. The question was whether the Sellers’ breach of warranty arose from, or was increased or delayed by, their own fraud, wilful misconduct, wilful concealment or wilful misstatement. It was not necessary that the underlying licence breach itself had been fraudulent. Fraud included giving warranties without belief in their truth, and wilful conduct included intentional wrongdoing. The evidence of the 2012 and 2016 Royal Mail enquiries and the 2018 internal exchanges established the necessary state of mind against each Seller. The limitation bar therefore did not apply. The approach was consistent with Derry v Peek (1889) 14 App Cas 337.
4. Quantum. The measure was the difference between the Warranty True and Warranty False values, applying Lion Nathan Ltd v C-C Bottlers Ltd [1996] 1 WLR 1438 and Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2014] EWHC 2178 (QB). Valuation used a hypothetical reasonable willing buyer and seller and excluded hindsight, while contemporaneous conduct could illuminate the assessment: The Hut Group Ltd v Nobahar-Cookson [2014] EWHC 3842 (QB) and MDW Holdings Ltd v Norvill [2022] EWCA Civ 883. Historic liability was assessed using Royal Mail’s established licence fees, discounted for claim and litigation risk. Future impairment was based on migration to Bing at an annual cost of £116,000. The resulting impairment was rounded to £3.5 million.

This was a first-instance trial in the High Court. The judgment records that the Sellers obtained summary judgment on their retained-amount claim, after which Cordic Group was permitted to pursue an amended Part 20 counterclaim. No appellate decision is stated.