Hamid Nawaz-Khan & Ors v UAP Limited

A contractual purchase-price formula must be construed objectively and as a whole. Where additions are made for assets and deductions for liabilities or exclusions, the formula should not require payment for liabilities or items already included in cash. An expert may decide contractual construction questions within its reference, but its determination remains vulnerable to manifest error. Unilateral mistake may justify rectification where one party knows of the other’s mistake and unconscionably benefits from it. Financial statements must recognise service income by reference to the stage of completion under FRS 102.

The claimants, sellers of a group of companies, sought deferred consideration and an adjustment under a share purchase agreement. The defendant disputed the expert determination of the purchase price and counterclaimed for rectification, misrepresentation and breach of warranty.

The central issues concerned the meaning of Claims Provision and Deferred Fee Income, the effect of the expert determination, rectification and estoppel, compliance of the accounts with FRS 102, disclosure and damages.

1. The purchase-price formula was construed objectively and commercially. Claims Provision and Deferred Fee Income referred to supposed assets or funds, not liabilities or negative balance-sheet entries. As no corresponding assets existed, nothing was payable for them.
2. The expert had jurisdiction to decide construction questions necessary to determine compliance with Schedule 8. Its construction of Claims Provision and Deferred Fee Income was manifestly wrong and non-binding. Its reasoning on the accounting hierarchy was not manifestly erroneous.
3. The defendant’s unilateral mistake was known to and induced by the claimants. Rectification was available. Estoppel by convention and representation would also have been available if necessary.
4. The accounts breached warranties 17(a)(i), (ii) and (v). The unsupported allocation of 67% of annual fee income to the first month was inconsistent with FRS 102 and the matching principle. The change from the previous straight-line method was not disclosed in the Group Accounts.
5. The aged-debt warranty claims failed or caused no proved loss. Damages for breach of warranty 17(a) were assessed at £12,862.50. The purchase-price conclusion was £3,229,464. Consequential matters were adjourned.

First-instance judgment. No earlier decision in the same proceedings was stated.