Inspired Education Online Limited v Tom Crombie

The court construed the sale and purchase agreement (SPA) and decided whether (i) ten email chains exchanged between the defendant (the former sole director and CEO of My Online Schooling Ltd) and a colleague amounted to gross misconduct for which the defendant would have been liable to be dismissed, (ii) the defendant had breached two warranties in Schedule 5 of the SPA (warranties 8.2 and 16.15) or made fraudulent misrepresentations, and (iii) the defendant had breached non‑competition obligations in clause 9 of the SPA by encouraging a rival business. The court applied the legal test for gross misconduct (repudiatory conduct entitling summary dismissal) and considered the proper construction of the warranties, the Companies Act 2006 duties (ss.172 and 174) and the contractual dispute resolution mechanisms under Schedules 7, 10 and 6 of the SPA.

Key findings: the emails were unprofessional and inappropriate but, taken individually or together and in context, did not amount to gross misconduct that would justify summary dismissal; the emails did not demonstrate illegal drug use or safeguarding concerns; the warranties construed in their terms do cover compliance with applicable statutory duties (including ss.172 and 174) but the defendant’s conduct did not amount to a breach of those statutory duties or of warranty 16.15; there was no evidence of wilful concealment or fraudulent misrepresentation; no adverse Armory‑type presumption was drawn from the deletion of the WhatsApp messages (the court accepted the defendant’s explanation for deletions); the defendant did not breach clause 9 (non‑compete) by encouraging the establishment of the rival business; and the Completion Accounts and Purchase Price Statement were not "deemed agreed" under Schedule 7 because the seller had given a written notification within the 20 business day period. The court therefore dismissed the claimant’s claims and granted the declaratory relief sought by the defendant in relation to Schedule 7.

Background and parties: Inspired (buyer) acquired My Online Schooling Ltd (MOS) from Mr Crombie (seller and MOS founder/CEO) by SPA dated 15 November 2022. Inspired alleged breach of warranties (Schedule 5: 8.2 Compliance with laws; 16.15 Employment), fraudulent misrepresentation, breach of a non‑compete (clause 9) and sought contractual damages and declarations relating to Deferred Cash Consideration (Schedule 10) and Completion Accounts (Schedule 7). The defendant counterclaimed for declarations and/or injunctive relief concerning the correctness of Completion Accounts and the validity of Inspired’s Exercise Notice in relation to Deferred Cash Consideration.

Nature of the claim / relief sought: contractual damages for alleged warranty breaches and fraudulent misrepresentation; declarations that a TC Event of Default had occurred allowing immediate crystallisation of Deferred Cash Consideration and that Deferred Cash Consideration was "deemed agreed" at a stated figure; damages for breach of the non‑compete (legal costs incurred securing confidential data); and declaratory/injunctive relief in relation to Completion Accounts and Deferred Cash mechanics.

Issues before the court: (i) construction of the SPA warranties and related clauses (Schedules 5, 6, 7 and 10); (ii) whether the Emails amounted to gross misconduct; (iii) whether any wilful concealment or fraudulent misrepresentation had occurred; (iv) whether the defendant breached clause 9 non‑competition; (v) whether Completion Accounts and Purchase Price Statement were deemed agreed under Schedule 7; (vi) whether a TC Event of Default existed and whether an Exercise Notice was valid and led to Deferred Cash Consideration being deemed agreed; (vii) quantum (valuation expert conflict) if liability arose.

Court’s reasoning (concise): the court applied orthodox contractual construction principles and employment law tests on gross misconduct. It found the Emails were exchanged as private, jocular "banter" between close friends, were unprofessional and breached MOS policies but did not, objectively, demonstrate conduct so grave as to justify summary dismissal. The court construed Warranty 8.2 broadly to include applicable statutory duties (including Companies Act duties) but distinguished those statutory duties from breaches of internal policy unless the latter also amounted to breach of law. Warranty 16.15 was confined to disputes/claims/litigation in the ordinary sense; it did not extend to mere allegations or internal investigations. The court rejected claims of fraudulent misrepresentation and wilful concealment. On deletion of WhatsApp messages, the court applied the Armory/commonsense approach and declined to draw adverse presumptions given the credible explanations and lack of moral culpability in the Burgess deletions; the deleted Leitch WhatsApps required careful assessment but did not sustain an adverse inference sufficient to establish breach of the non‑compete. On procedure, the court held that the Schedule 7 written notification requirement did not require strict compliance with the clause 27.1 formal notice provisions nor necessarily the provision of fully amended draft accounts; the 3 March 2023 email from the defendant was an adequate written notification and therefore the draft Completion Accounts were not "deemed agreed". On Deferred Cash mechanics (Schedule 10) the court found no subsisting TC Event of Default as at 11 May 2023 (the Exercise Notice date) and consequently no valid basis for immediate crystallisation of the Deferred Cash Consideration. Expert valuation evidence was sharply at odds; the court preferred the defendant’s expert methodology and noted that, in any event, any counterfactual diminution would have fallen below the SPA’s £75,000 warranty threshold and the seller’s capped exposure.

Outcome: claimant’s claims dismissed; defendant’s declaratory relief in relation to Completion Accounts (Schedule 7 process) and that no TC Event of Default subsisted were granted. The court reserved consequential matters for hearing.

First instance: The claimant's claim is dismissed. The court held that the Emails, though unprofessional and in breach of company policies, did not amount to gross misconduct justifying summary dismissal and therefore did not render the relevant warranties false or give rise to fraudulent misrepresentation. The court further held the defendant did not breach the non‑competition provisions by encouraging the rival project, and that the Completion Accounts and Purchase Price Statement were not deemed agreed under Schedule 7 because the seller gave a timely written notification; there was no subsisting TC Event of Default as at 11 May 2023. The court therefore granted the defendant's declaratory relief in relation to the Completion Accounts and the invalidity of the Exercise Notice.