Darryl Adie & Anor v Ingenuity Digital Limited

Where a share purchase agreement expressly requires deferred consideration to be calculated by reference to adjusted EBITDA, the court should give effect to that machinery unless the agreement contains, or clearly implies, a contrary restriction. A possible overlap between an EBITDA adjustment and an indemnity or warranty claim does not, without more, establish an implied prohibition on both claims. Commercial unfairness assessed with hindsight is insufficient where the contractual wording is clear. The merits of an accounting adjustment should be determined under the agreed expert determination procedure. Whether a later indemnity claim is barred by double recovery is generally better determined in the context of the substantive claim.

The claimants sold the shares in Ampersand Commerce Limited and Snow.io Limited to the defendant under a share purchase agreement. Deferred consideration was calculated by applying a multiplier to EBITDA, subject to adjustments under Schedule 7. Shortly before completion, the agreement was amended to include an indemnity concerning complaints by Online 4 Baby. Invoices owed by Online 4 Baby were later written off, and the defendant both adjusted EBITDA and intimated an indemnity claim.

The claimants sought declarations that the adjustment was impermissible or, alternatively, that the defendant could not pursue both remedies. The defendant sought declarations confirming its entitlement to make the adjustment and that the underlying accounting dispute should go to expert determination.

1. Construction of the SPA. The agreement had to be construed objectively as a whole, by reference to the admissible factual matrix. The court could not rewrite clear wording merely because its operation appeared commercially unfair with hindsight. The principles summarised in Sara & Hossein v Blacks Outdoor Retail [2023] UKSC 2, Lamesa Investment Ltd v Cynergy Bank [2020] EWCA Civ 821 and Federal Republic of Nigeria v JP Morgan Chase Bank NA [2019] EWHC 347 (Comm) were not materially disputed.
2. Schedule 7. Paragraph 2.2 required the deferred consideration statement to be prepared in accordance with paragraphs 2.2(a), (b) and (c), in that order of precedence. The form of the deferred consideration pro forma could not override the substantive wording of Schedule 7. Whether the O4B adjustment was justified on the accounting facts was therefore a matter for the agreed expert determination process.
3. No implied prohibition on overlapping claims. The SPA contained no express or obviously implied prohibition against an EBITDA adjustment alongside an indemnity or warranty claim. Such an overlap would not necessarily produce double recovery, because an indemnity or warranty claim might not fully compensate for the loss of enterprise value reflected by the EBITDA multiplier. Any genuine double-recovery objection could be addressed when the indemnity or warranty claim was litigated.
4. Factual matrix and declarations. The approach in Merthyr (South Wales) Ltd v Merthyr Tydfil County Borough Council [2019] EWCA Civ 526 permitted evidence concerning the genesis and objective aim of a particular provision where sufficiently connected with the transaction as a whole, but the present case did not meet that threshold. The O4B email was nevertheless admissible as evidence of the circumstances in which clause 8.1(c) was added.
5. The alternative declaration was inappropriate in advance of the expert determination and any subsequent indemnity proceedings. The claim was dismissed, and the defendant’s declarations were made. Solutions 4 North Tyneside Limited v Galliford Try Building 2014 Limited [2014] EWHC 2372 (TCC) supported caution in granting declarations in Part 8 proceedings without substantive claims before the court.