Infiniteland Ltd & Anor v Artisan Contracting Ltd & Anor
June 22, 2005
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
- LORD JUSTICE PILL
- LORD JUSTICE CHADWICK
- LORD JUSTICE CARNWATH
Areas of Law
- Contract Law
- Commercial Law
- Corporate Law
June 22, 2005
COURT OF APPEAL (CRIMINAL DIVISION)
United Kingdom
CORAM
AI Generated Summary
The Court of Appeal dismissed Infiniteland Limited’s appeal from Park J in a dispute arising from the sale of shares in Bickerton Construction Limited, Driver Construction Limited, and Yeadon Air Structures Limited by Artisan Contracting Limited. Under a price comprising goodwill and net asset value, Bickerton’s 2001 audited accounts showed an apparent operating profit due to an exceptional £1,081,000 credit from Artisan (UK) Limited netted against cost of sales, which actually masked a trading loss. The purchasers’ reporting accountants, Pridie Brewster (Mr Jones), examined disclosure materials during due diligence. On appeal, Chadwick LJ held the ‘No Principal Accounts’ shortcut was wrong because the variation agreement renewed warranties when accounts existed, and, more fundamentally, the Disclosure Letter and incorporated materials adequately qualified the warranties, so there was no breach. The clause 4 price-adjustment claim failed because Infiniteland did not operate the agreed expert certification machinery. The majority viewed “actual knowledge” in clause 7.4 as the purchaser’s own knowledge; Pill LJ differed but agreed the appeal should be dismissed.
Judgment
Lord Justice Chadwick :
This is an appeal from an order made on 28 May 2004 by Mr Justice Park in proceedings arising from a share sale agreement dated 24 May 2001 and made between the first respondent, Artisan Contracting Limited (as Vendor), and Mea Corporation Limited (as Purchaser). The second respondent, Artisan (UK) Limited was made a party to that agreement in order that it could join with the Vendor in giving the warranties contained in clause 7 – and for other purposes which are not material in the context of this appeal. On 24 July 2001 the Purchaser’s rights and obligations under the agreement were assigned by Mea Corporation, with the consent of the Vendor and Artisan UK, to the first appellant, Infiniteland Limited, a company wholly owned by the second appellant, Mr John Aviss. On the same day Mr Aviss guaranteed to the Vendor the due payment by Infiniteland of the deferred consideration payable under the agreement.
The terms of the share sale agreement
The agreement was for the sale of the whole of the issued capital of three companies, Bickerton Construction Limited (“Bickerton”), Driver Construction Limited and Yeadon Air Structures Limited. The purchase consideration was stated in the agreement, as made on 24 May 2001, to be £1,233,411. But, as appears from a variation agreement made on 14 June 2001 between the same parties (the Vendor, Mea Corporation and Artisan UK), that figure reflected their intention that the price for the shares in the three companies (“the Shares”) was to be £1 million “plus the aggregate value of the net assets of the Group Companies as at 31 March 2001”. In that context “the Group Companies” means Bickerton, Driver Construction and Yeadon Air Structures and their subsidiaries (if any) for the time being – clause 1.1.1 of the agreement. 31 March 2001 was the “Last Accounts Date” for the purposes of the agreement. In the variation agreement the parties increased the purchase price to £1,402,948. The date of the variation agreement, 14 June 2001, was the date upon which completion took place – recital B to the variation agreement.
Clause 3.1 of the agreement of 24 May 2001, as varied by the agreement of 14 June 2001, was in these terms (so far as material):
“The purchase consideration for the Shares shall (subject to adjustment pursuant to the provisions of clause 4) be the sum of [£1,402,948] which shall be paid or satisfied by:
3.1.1. a deposit of £90,000 to be paid in cash to the Vendor’s Solici