ETL Holdings (UK) Limited v Kenneth McGregor Munn & Anor [2026] EWHC 860 (Ch)

[2026] EWHC 860 (Ch)Case No BL-2019-001510
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (ChD)
Venue Royal Courts of Justice, Rolls Building, Fetter Lane,Date 17 April 2026
London, EC4A 1NL
Before
HHJ PAUL MATTHEWS(sitting as a Judge of the High Court)
Between
ETL HOLDINGS (UK) LIMITEDClaimantKENNETH MCGREGOR MUNN (a bankrupt)DefendantsRUTH MUNNDefendant
Mark Harper KC (instructed by Glaisyers ETL Global) for ClaimantKatherine Hallett (instructed by direct access) for Second DefendantThe First Defendant was present at, but did not participate in, the hearingHearing Hearing dates: 25-27 November 2025
This judgment was handed down remotely at 10:30 am on 17 April 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives.HHJ Paul Matthews :

Introduction

[1]This is my judgment on the trial of an assessment of damages, following summary judgment on the question of liability. It raises questions as to how far hindsight can be taken into account in quantifying compensation for breach of contract. In fact, the assessment of damages which I conducted was the second to be carried out, the decision on the first having been set aside on appeal. The underlying cause of action for the purposes of this assessment is breach of contract, in relation to warranties given in a share purchase agreement. The claimant was represented at the hearing by solicitors and counsel. Although there are two defendants to the claim, only the second defendant participated in this assessment of damages, when she was represented by counsel instructed through direct access. The first defendant (who was actually present at the hearing, but who did not participate) was made bankrupt in 2023, and his trustees in bankruptcy have not taken part in these proceedings.

Representation and evidence

[2]The fact that the hearing which I conducted was the second attempt at an assessment of damages has had certain consequences. One is that the second defendant has this time had the benefit of being legally represented by counsel. This has meant that her case has been properly put. (The claimant was represented by solicitors and counsel on both occasions, though Mr. Harper KC did not represent the Claimant until after the appeal before Chief ICC Judge Briggs referred to below.) Another, perhaps even more significant, is that, because on the first occasion the judge heard significant oral evidence, both of fact and of expert opinion, the issues have narrowed. So far as facts are concerned, there are now relatively few disputes between the parties for the purposes of my assessment of damages. And the experts have now largely agreed on the questions of value on which they were asked to opine. I therefore did not hear from the experts in person, and I heard from only one witness of fact, Sara Brassington (the claimant’s managing director). The claimant had no cross-examination for either of the defendants. The remainder of the trial was taken up with submissions from counsel on the law and the (largely undisputed) facts. I should incidentally record that I was considerably assisted by the admirable submissions of both counsel. If I should make any mistakes in this judgment, it will not be for any want in the quality of advocacy on either side.[3]As I say, the only witness from whom I heard in person was Mrs Brassington. She was skilfully cross-examined, but my overall view is that she was trying to assist rather than to mislead the court. She knew her business and was straightforward in giving her evidence. She also accepted corrections. On the whole (making allowance for gaps in her knowledge and the effect of the passage of time), I accept what she said. As for the defendants, they were not cross-examined, and so there are limits on how far I can disbelieve their written evidence. Although I am not obliged to accept all such evidence (eg because a witness may be mistaken), and I can weigh it up in the balance with other evidence, for present purposes I am not at liberty to disbelieve the written evidence, unless I consider that it was manifestly incredible in light of all the circumstances: see Long v Farrer & Co [2004] BPIR 1218, [57], which the Court of Appeal applied in Coynev DRC Distribution Limited [2008] EWCA Civ 488, [58].[4]In commercial cases, at least, where there are many documents available, and witnesses give evidence as to what happened based on their memories, which may be faulty, civil judges nowadays often prefer to rely on the documents in the case, as being more objective: see Gestmin SGPS SPA v Credit Suisse (UK) Ltd [2013] EWHC 3560 (Comm), [22], restated recently in Kinled Investments Ltd v Zopa Group Ltd [2022] EWHC 1194 (Comm), [131]-[134]. This is indeed a commercial case, and there are a lot of documents available to me. I shall use those documents as primary sources of basic information, such as dates and times and also the substance of communications, but also as a cross check on the accuracy of the memories of witnesses.

Background

[5]The background to this matter is as follows. Carston Holdings Ltd (“the Company”) was a holding company. The first defendant and one Jonathan Rees were directors. They were then both qualified accountants. At some subsequent time, which I do not know, the first defendant was struck off the roll by the ICAEW. The Company had a number of subsidiaries, including Sinclairs Carston Ltd (“SICA”), SBL Carston Ltd (“SBL”), and Dormco Candco Ltd (“Dormco”). These were trading companies providing accountancy services. By two transactions, in 2004 and 2009, Dormco purported to transfer its goodwill to the Company for a total consideration of £1,469,586, which was however left outstanding as a debt. In 2013 the Company purported to transfer goodwill back to Dormco for a consideration of £975,670, which was again left outstanding as a debt. Later in 2013, Dormco purported to transfer goodwill to SICA for a consideration of £1,800,000, once more left outstanding. It then ceased trading. Its only creditors were HMRC.

The 2014 dividends

[6]In 2014 Dormco declared and paid a dividend to its parent (the Company). It could do this lawfully only if it had sufficient distributable reserves. It would have such reserves only if the debt due from SICA were a genuine asset of Dormco. It was on this basis that the Company thereafter declared and paid a dividend to its own shareholders, including the first defendant. The amount paid to the first defendant was £169,990.90. HMRC subsequently concluded that the dividend was unlawful, because they did not accept that the inter-company transfers of goodwill had been lawful. Accordingly, the debts generated by the promises to pay for them did not genuinely exist.[7]At the hearing of the summary judgment application on liability, the defendants did not dispute that, to the extent that the Company required the Dormco dividend in order to create distributable reserves, the dividend declared and paid by the Company was unlawful. Deputy Master Smith so held in 2021. The consequence for the first defendant was that he now owed a debt of £169,990.90 to the Company. In accounting terms, this appears to have been dealt with as an overdrawn director’s loan account. As such, it was an asset of the Company, although everyone was unaware of its existence until the dividend was declared unlawful.

The 2015 SPA

[8]On 6 February 2015, the claimant, the UK arm of a Europe-wide professional services provider, agreed to buy, and the defendants and Mr Rees agreed to sell, 40% of the share capital in the Company, for the total consideration of £2,880,000. For this purpose, the claimant borrowed the necessary funds from its parent company at the rate of 0.9% per annum. Later in this judgment, I shall have to refer to some of the provisions of the share purchase agreement (“the SPA”), but it contained various warranties, which were subject to matters disclosed in a letter between the parties, also dated 6 February 2015 (“the Disclosure Letter”).[9]At that date, in part because of the unravelling of the sales of goodwill referred to above, the Company owed the total sum of £3,106,158.11 to Dormco (“the Dormco debt”). However, this was not shown in the Company’s financial information provided to the claimant at that time, nor in the disclosure letter. Indeed, the existence of the Dormco debt became known to the claimant for the first time in July 2017 when, at a meeting in London, the first defendant mentioned it to Mrs Brassington.[10]Nor was the unlawful nature of the 2014 dividend (or the debt owed by the first defendant thereby created) disclosed. It was only after the first defendant had ceased to be a director of the Company, in 2017, that Mr Rees searched the first defendant’s work computer and discovered correspondence with HMRC relating to an investigation carried out into the first defendant. It was this investigation which concluded that the 2014 dividend had been made without sufficient distributable reserves, and was therefore unlawful.[11]On the same date as the SPA, and as part of the broader transaction including it, SICA purported to transfer to SBL the goodwill acquired from Dormco, for the sum of £1. Then SICA ceased trading, and subsequently went into insolvent liquidation. At the time of the summary judgment application, there were proceedings between the liquidator of SICA on the one hand, and SBL on the other, alleging that the transfer of goodwill was a transaction in fraud of creditors. I do not know what has happened to that litigation.

The liquidation of Dormco

[12]Over a year later, on 21 April 2016, HMRC presented a winding-up petition against Dormco in respect of unpaid tax. On 31 May 2016, the first defendant, as the sole director of Dormco, signed a certificate of solvency of Dormco. He could properly do so only on the basis that the Dormco debt due from the Company actually existed. Without it, Dormco would have been balance sheet insolvent. On 4 June 2016, relying on the certificate of solvency, Dormco was put into members’ voluntary liquidation. Ten months later, however, on 21 April 2017, Dormco went into creditors’ voluntary liquidation. On 13 July 2017, the liquidator of Dormco made demand of the Company for payment of the Dormco debt. The first defendant tried to settle the liquidator’s claim for £1.5 million, but the liquidator declined to accept his proposals for both the timetable for payment and security in the meantime. On 18 July 2017, he resigned as a director of both Dormco and the Company. On 28 July 2017, the liquidator of Dormco presented a winding-up petition against the Company. On 21 September 2017, the claim by Dormco’s liquidator in respect of the Dormco debt was compromised in the sum of £1.05 million, which was paid to his solicitors on 27 September 2017, and the petition was withdrawn.

The Company’s claims against the first defendant

[13]Also on 21 September 2017, the Company wrote to the first defendant intimating a claim in the sum of £1,249,999.90. This was made up of three elements. The first was the sum of £169,990.90 owed to the company on the reversal of the unlawful dividend. The second was compensation for breaches of duty in relation to the Dormco debt in the sum of £1,050,000. And the third was the sum of £30,000 in respect of legal fees in dealing with the Dormco debt. Next day, on 22 September 2017, the Company served a Lien Enforcement Notice (pursuant to its articles of association) on both defendants, notifying them that, unless the sum of £1,249,999.90 was paid within 14 days, the Company intended to forfeit and sell their remaining 420 shares without further notice. I emphasise that the liability with which the Company was concerned was that of the first defendant alone, though the shares were owned jointly by the first and second defendants.[14]The Company valued the defendants’ 420 shares, without minority discount, at £958,211. On 9 October 2017 (the seventeenth day after 22 September 2017), no money having been paid by the first defendant to the Company in the meantime, the Company sold 49 of the 420 shares to the claimant for the price of £111,791, and the other 371 shares to EK Williams Accountants Ltd for the price of £846,420. The letters informing the defendants of this sale included a copy of the valuation relied on by the Company. EK Williams Accountants Ltd is an accountancy business owned as to 51% by Peter Brassington and as to 49% by the claimant. (Peter Brassington is married to Sara Brassington, the managing director of the claimant.)

The 2012 dilapidations claim

[15]In January 2019, the claimant discovered for the first time that a dilapidations claim been made in 2012 against SICA by the landlord of offices then occupied by SICA in London. Pursuant to a Licence dated 8 February 2011, the Company had acted as guarantor of SICA’s liabilities under the lease. The claim was in the sum of £277,237. The first defendant was aware of the claim at that time. But it had not been referred to in any of the documents disclosed to the claimant at the time of the SPA and it did not appear in SICA’s accounting records. Nor had the Licence (containing the guarantee) been disclosed to the claimant. The claim was settled by the payment of the sum of £90,000 to the landlord on 8 January 2019.

This claim

[16]On 9 November 2017, the claimant’s then solicitors wrote a letter of claim to the second defendant, seeking damages for breach of warranty, and inviting her proposals to deal with the matter. It will be seen that this claim was intimated more than a year after a claim had been intimated against the first defendant alone by the Company, which claim had been partially satisfied by the forfeiture of the defendants’ remaining shares, and more than a year after the Dormco debt had been compromised by the Company. On 19 August 2019, the claimant issued a claim form under CPR Part 7, claiming damages(i) against both defendants for breach of the warranties given in the share purchase agreement of 6 February 2015,(ii) against the first defendant alone for fraudulent misrepresentation in relation to pre-contract representations, and(iii) against both defendants for negligent misrepresentations in relation to the accounts and management accounts of the company. The matters relied on included the non-disclosure of (i) the Dormco debt, and (ii) the dilapidations claim.[17]On 11 June 2020, the claimant applied for summary judgment on the claim. This application was eventually heard in December 2020. At the hearing the claimant was represented by solicitors and counsel, but the defendants appeared in person. On 23 April 2021 Deputy Master Smith handed down written judgment on the application, awarding the claimant summary judgment against both defendants on the issue of liability for breach of warranties, and declared the 2014 dividend unlawful (see at [41]). There was no similar summary judgment in relation to the misrepresentation claims. On 25 October 2021, Marcus Smith J on the papers refused an application by the second defendant for permission to appeal against that decision. She renewed her application, but on 6 December 2021 Adam Johnson J refused that renewed application.

The assessment of damages

[18]The matter then proceeded to an assessment of damages. This was originally listed for two days in November 2021. However, because of related litigation being heard before an ICC Judge (see [2021] EWHC 3209 (Ch)), the hearing was adjourned by consent, and it was refixed for March 2022. But the hearing was adjourned again at least twice, once because the claimant wished to amend its particulars of claim, and secondly because the defendants wished to make a counterclaim. The assessment was eventually carried out by Deputy Master Arkush over three days in September 2022, followed by written submissions and a further one day hearing in November 2022. After the deputy master had reserved, and indeed was preparing, his judgment, he came to the conclusion that he needed to hear further from the parties’ experts. So there was a further one day’s hearing in January 2023. Once again, at these hearings the claimant was represented by solicitors and counsel, and the defendants appeared in person.[19]On 13 March 2023, Deputy Master Arkush handed down his written judgment. He assessed the damages as £1,242,463.24 in respect of the breach of warranty in relation to the non-disclosure of the Dormco debt, £66,608 in respect of the breach of warranty in relation to the non-disclosure of the dilapidations claim, and £25,100 (exclusive of VAT) in respect of the incurring of legal costs in connection with resolving the Dormco debt. In addition, he awarded interest (at the rate of 0.9% per annum) on that part of the loan from the claimant’s parent company that was unnecessary as a result of the first two heads of damage, though at that stage he did not quantify the amount of the interest. The Deputy Master held a further hearing on 24 April 2023 to consider consequential matters. He assessed the interest on the damages as £69,495.55. The Deputy Master himself gave permission to appeal to the defendants in respect of those parts of his order that related to the Dormco debt issue (but not the dilapidations claim issue), and stayed the enforcement of those parts in the meantime.

The appeal

[20]On 7 June 2023, Rajah J extended time for lodging the appeal bundle, but refused an application to stay further parts of the order. The appeal itself was heard by Chief ICC Judge Briggs (sitting as a deputy High Court judge) on 2 November 2023. The claimant was represented at the hearing by counsel and solicitors, and the second defendant by counsel instructed through direct access. By this stage the first defendant had become bankrupt (on 23 March 2023), but his trustees in bankruptcy took no part in the proceedings. The deputy judge handed down a written judgment on 27 November 2023 and dealt with consequential matters at a hearing on 12 December 2023. The deputy judge allowed the appeal in large part (though not completely), and directed a rehearing of the assessment of damages in respect of the Dormco debt. That is the rehearing that I have conducted, and in respect of which this is my judgment.[21]I said that the appeal was allowed “in large part”. However, it was not allowed in relation to(i) the diminution in value of the shares caused by nondisclosure of the dilapidations claim, or(ii) the claim to interest on that part of the claim, although both (i) and (ii) were stayed pending the rehearing. The award of interest on the main part of the claim was set aside, because the award of damages had been set aside, but the deputy judge did not criticise the deputy master’s calculations, assuming that he had been right to award the damages which he did.[22]The deputy judge allowed the appeal on two grounds. The first was that Deputy Master Arkush did not sufficiently address the defendants’ “single transaction” argument, nor the valuation of the retained shares. The second was that, in related litigation (between different parties) ICC Judge Jones found that the Dormco debt was obvious from the accounts, but Deputy Master Arkush had failed to take this into account. This second aspect of the case was not pursued on appeal. The claimant and the second defendants agree that ICC Judge Jones was referring to a different Dormco debt, and that Chief ICC Judge Briggs was mistaken. Moreover, Deputy Master Smith had found, in this litigation, that the defendants did not disclose the existence of this debt.[23]As to the first point, the deputy

judge put the matter in this way:

“53. In my view the Deputy Master was right to start from the position that the claim vested in the Company and the claim vested in ETL were different. The Company claim was against Mr Munn only breach of duty, and ETL had a contractual claim against Mr and Mrs Munn. 54. As I read the judgment, the conflation of the separate causes of action and separate parties, and the timing issue persuaded the Deputy Master to find that the losses caused by the existence of the Dormco debt could be recovered by the Company and ETL. It appears from his reasoning that the two-year time difference between the completion of the share purchase agreement and the settling of the claim by the Company was of great importance. 55. On the separate party issue, he made no finding on the argument advanced about the link or single transaction whereby, it is said, that the parties intended to settle all claims. 56. The use of the term ‘single transaction’ may not adequately describe the argument advanced. It is more likely that the argument (I have not been provided with the skeleton arguments from the first instance hearings nor do I have the benefit of a transcript) involves a common intention to compromise, which may have comprised an express agreement or possibly an agreement by conduct or an estoppel. The factual basis of the argument, as advanced to me, is grounded in the settlement made by ETL by way of a payment to the liquidators for the Dormco debt, the connected seizure of the Retained Shares and the transfer of those shares to ETL. 57. Finally, the Deputy Master failed to address the valuation of the Retained Shares but made a finding that was contrary to what the experts agreed.”
Further matters The terms of the SPA

Further matters

[24]In addition to the background which I have set out, there are a number of further matters with which I need to deal. The first is the terms of the SPA. As already stated, this was made on 6 February 2015. The parties were(1) the first and second defendants, Jonathan Rees and his wife Samantha (all four together referred to as “the Vendors”),(2) the Company, and(3) the claimant (referred to as “the Purchaser”). It is to be noted that the SPA was executed as a deed. This might have an impact on the limitation period applicable to a cause of action arising under the deed: Limitation Act 1980, s 8.[25]So far as relevant for the purposes of this case, the SPA provided:
“1. Definitions and Interpretation [ … ] 1.5. The Vendors shall be deemed to enter or undertake all obligations under this agreement jointly and severally, whether those obligations result from the execution of this agreement of [sic] from the breach of its provisions (including without limitation any of the Warranties proving to be untrue or misleading, or being breached). [ … ] 2. Sale and purchase of shares 2.1. Subject to the terms of this agreement: [ … ] 2.1.2. the Purchaser (relying on the representations, warranties, undertakings and indemnities by the Vendors in this agreement) shall purchase the Shares … [ … ] 7. Warranties 7.1. The Vendors warrant and represent to the Purchaser in relation to the Company … in the terms set out in Schedule 6; and that all information contained or referred to in the Disclosure Letter is true, accurate and fairly presented, and nothing has been omitted which renders any of such information incomplete or misleading. [ … ] 7.5. If, at any time after the Completion Date, it should transpire that any of the Warranties is untrue or incorrect, or has been breached, then (without prejudice to any other remedy available to the Purchaser) the Vendors shall immediately pay to the Purchaser a cash amount sufficient to compensate the Purchaser against all loss suffered by it in consequence of such breach, and this payment shall: 7.5.1. take into account in particular the resulting diminution in the value of the Shares as at the Completion Date calculated into alia by reference to the projected profitability divided by net profits of the Company and its Subsidiaries and the multiplier provided in clause 8; 7.6. Where the Vendors are obliged to make a payment under clause 7.5, the Purchaser may elect in its absolute discretion that the Vendors should be, instead of making such a payment, immediately paid to the company or the relevant subsidiary (as the case may be), by way of indemnity: 7.6.1. a cash amount equal to the diminution or shortfall in value of any of its assets; or 7.6.2. a cash amount equal to the amount of any liability (actual or contingent) which would not have been made, incurred or occasioned if the relevant matters had been as represented in the Warranties; or 7.6.3. both of the above. 7.7. Whether [sic] the Vendors are obliged to make a payment under clause 7.5 or 7.6 above, that payment shall: 7.7.1 provide, on a full indemnity basis, for any costs and expenses incurred investigating, resisting or negotiating any claim (whether successful or not) which, if successful, would have given rise to a liability on the part of the Vendors or any of them under this clause … [ … ] 7.10. The Vendors undertake with the Purchaser that they will immediately disclose in writing to the Purchaser any event or circumstance which may arise, or become known to them, after the date of this agreement, where that event or circumstance: 7.10.1. is inconsistent with any of the Warranties; or 7.10.2. constitutes a breach of the Warranties; 7.10.3. would be considered material by purchaser for value of the Shares. [ … ] SCHEDULE 6 Warranties The warranties and undertakings referred to in clause 7 are as follows, except as provided for in this agreement or fairly fully disclosed Disclosure Letter: [ … ] 2.8. All dividends or other distributions of profits declared, made or paid since the date of incorporation of the Company have been declared made and paid in accordance with law and its articles of association (or equivalent documents). [ … ] 4.3. The Accounts: [ … ] [4.3.3] are accurate in all material respects and show a true, complete and fair view of the state of affairs, financial position, assets and liabilities of the Company, and of its results for the financial period starting on the Accounting Date. [ … ] 4.6. All liabilities or outstanding capital commitments of Company [sic] as at the Accounting Date have been included in the Accounts … ” [ … ] 1.5. The Vendors shall be deemed to enter or undertake all obligations under this agreement jointly and severally, whether those obligations result from the execution of this agreement of [sic] from the breach of its provisions (including without limitation any of the Warranties proving to be untrue or misleading, or being breached). [ … ] 2.1. Subject to the terms of this agreement: [ … ] 2.1.2. the Purchaser (relying on the representations, warranties, undertakings and indemnities by the Vendors in this agreement) shall purchase the Shares … 7.1. The Vendors warrant and represent to the Purchaser in relation to the Company … in the terms set out in Schedule 6; and that all information contained or referred to in the Disclosure Letter is true, accurate and fairly presented, and nothing has been omitted which renders any of such information incomplete or misleading. [ … ] 7.5. If, at any time after the Completion Date, it should transpire that any of the Warranties is untrue or incorrect, or has been breached, then (without prejudice to any other remedy available to the Purchaser) the Vendors shall immediately pay to the Purchaser a cash amount sufficient to compensate the Purchaser against all loss suffered by it in consequence of such breach, and this payment shall: 7.5.1. take into account in particular the resulting diminution in the value of the Shares as at the Completion Date calculated into alia by reference to the projected profitability divided by net profits of the Company and its Subsidiaries and the multiplier provided in clause 8; 7.6. Where the Vendors are obliged to make a payment under clause 7.5, the Purchaser may elect in its absolute discretion that the Vendors should be, instead of making such a payment, immediately paid to the company or the relevant subsidiary (as the case may be), by way of indemnity: 7.6.1. a cash amount equal to the diminution or shortfall in value of any of its assets; or 7.6.2. a cash amount equal to the amount of any liability (actual or contingent) which would not have been made, incurred or occasioned if the relevant matters had been as represented in the Warranties; or 7.6.3. both of the above. 7.7. Whether [sic] the Vendors are obliged to make a payment under clause 7.5 or 7.6 above, that payment shall: 7.7.1 provide, on a full indemnity basis, for any costs and expenses incurred investigating, resisting or negotiating any claim (whether successful or not) which, if successful, would have given rise to a liability on the part of the Vendors or any of them under this clause … [ … ] 7.10. The Vendors undertake with the Purchaser that they will immediately disclose in writing to the Purchaser any event or circumstance which may arise, or become known to them, after the date of this agreement, where that event or circumstance: 7.10.1. is inconsistent with any of the Warranties; or 7.10.2. constitutes a breach of the Warranties; 7.10.3. would be considered material by purchaser for value of the Shares. SCHEDULE 6 Warranties [ … ] 2.8. All dividends or other distributions of profits declared, made or paid since the date of incorporation of the Company have been declared made and paid in accordance with law and its articles of association (or equivalent documents). [ … ] 4.3. The Accounts: [ … ] [4.3.3] are accurate in all material respects and show a true, complete and fair view of the state of affairs, financial position, assets and liabilities of the Company, and of its results for the financial period starting on the Accounting Date. [ … ] 4.6. All liabilities or outstanding capital commitments of Company [sic] as at the Accounting Date have been included in the Accounts … ”

The Disclosure Letter

[26]The Disclosure Letter was also dated 6 February 2015. It was sent to Mrs Brassington, the managing director of the claimant, and was signed by the first and second defendants and Mr Rees. It relevantly read as follows:
“We have agreed that we will sell you some of our shares in the Company and an agreement (‘Agreement’) to achieve this has been entered into today. This letter is called the ‘Disclosure Letter’ in the Agreement. Its purpose is to tell you formally about those things relating to which are, or which may be, inconsistent with the promises we have made to you in the Agreement about the Company. These promises are called representations, warranties and undertakings and they are referred to in Clause 7 and contained in Schedule 6 of the Agreement (Warranties). If the Warranties are not correct then you may be able to sue us. The matters set out in this Disclosure Letter are intended to set out the things we need to make you aware of in order to avoid a claim being made by you against us.”
[27]The Disclosure Letter set out a number of matters which were thereby disclosed to the claimant. Those matters did not include any reference to the Dormco debt, the 2014 dividend, or the dilapidations claim, except that paragraph 15.4 stated that “It is possible a claim may arise the end of a particular lease. This is considered to be highly unlikely in the case of the London lease since the office has been recently refurbished.” Deputy Master Smith in his judgment (at [51]) noted that a provision had actually been made in the 2014 accounts for a dilapidations claim that had already been served. He regarded the statement set out above as “wholly inadequate” (at [53]) to disclose the existence of the claim to the claimant, and held that there was no real prospect of successfully defending that breach of warranty claim. For what it is worth, I respectfully agree with him.

The shareholders’ agreement

[28]There was also a shareholders’ agreement, entered into on 6 February 2015. It was made between(1) the first and second defendants, Jonathan Rees and his wife Samantha (defined as the “Original Shareholders”),(2) the claimant (defined as the “Minority Shareholder”), and(3) the Company. This agreement was also executed as a deed. Recital 3 to the agreement defined the expression “the Shareholders” as the “parties to this agreement”. The agreement relevantly read:
“3. Matters requiring consent of both parties The Shareholders must exercise all voting rights and other powers of control available to them respectively in relation to the Company so as to procure, insofar as they are able to do so by the exercise of those rights and powers, that the Company does not, without the prior written approval of each of the Shareholders: [ … ] 3.5. take major decisions relating to the conduct of material legal proceedings to which it is a party, where: 3.5.1. conduct of proceedings includes settlement of the claim, and 3.5.2. a potential liability or claim in excess of £5000 is material, [ … ] 14. Duration and assignment 14.1. This agreement is to continue in full force and effect until the earlier of: [ … ] 14.1.2. the date of commencement of any winding up of the Company. [ … ]” [ … ] 3.5. take major decisions relating to the conduct of material legal proceedings to which it is a party, where: 3.5.1. conduct of proceedings includes settlement of the claim, and 3.5.2. a potential liability or claim in excess of £5000 is material, [ … ] 14.1. This agreement is to continue in full force and effect until the earlier of: [ … ] 14.1.2. the date of commencement of any winding up of the Company. [ … ]”

The funds for the compromise of the Dormco debt

[29]I have already referred above to the discovery by the claimant of the existence of the Dormco debt in July 2017 and the failure of the first defendant to resolve the problem. I further mentioned that, on 28 July 2017, the liquidator of Dormco presented a winding-up petition against the Company. The Company was under some pressure, as it did not want to be wound up, but it did not have sufficient funds to be able to discharge the debt claimed. However, it managed to negotiate a compromise with the liquidator to settle the matter for a payment of £1,050,000. There is no doubt that these funds were provided by the claimant’s German parent company, but the exact circumstances are disputed. There is a letter in the bundle from Dormco’s liquidator’s solicitors, dated 20 September 2017, addressed to the Company’s solicitors. The liquidator’s solicitors refer to their client as “Dormco Candco Ltd (in liquidation)” and their addressees’ client as “Carston Holdings Ltd”.[30]In part, this letter reads as follows:
“We refer to our meeting this afternoon and write to set out the terms agreed to compromise the debt claimed as due by [Dormco] under the petition presented on 28 July 2017 … The parties have agreed as follows: 1. [The Company] will pay the sum of £1,050,000 … in full and final settlement of the petition debt including all interest and costs (‘the Settlement Sum’). 2. The Settlement Sum shall be received by this firm by no later than 4 PM Wednesday, 4 October 2017 (‘the Payment date’). [ … ] 4. Upon receipt of the Settlement Sum by the Payment Date we confirm that we are instructed to seek dismissal of the Petition with no order as to costs at the adjourned hearing on 9 October 2017 … ”
The parties have agreed as follows:[31]On 21 September 2017, the Company’s solicitors wrote to the liquidator’s solicitors, confirming that the terms were agreed. As I have already said, on the same day they also wrote to the first defendant making formal demand for the total sum of £1,249,999.90 to be paid by him by 22 September 2017. This included the sum of £1,050,000, the schedule to the letter stating that “The Company has agreed to pay [Dormco] the sum of £1,050,000 in compromise of the Petition debt”. In an email dated the following day, the first defendant denied liability and in particular referred to the provisions in the shareholders’ agreement requiring prior written approval of shareholders for the settlement of the claim by Dormco. Also on 22 September 2017, the Company’s solicitors wrote to the first defendant serving a “Lien Enforcement Notice” under article 22 of the Company’s Articles of Association.[32]On 25 September 2017 Mrs Brassington, on behalf of the claimant (rather than the Company) requested funds from its German parent in the sum of £1,050,000. The document was headed “Attn. Mr Christian Gorny.” Dr Gorny was a director of the parent company. The funds were requested “As soon as possible. These must be paid within one week to comply with the legal requirements of the deal.” It is evident from the format of the document that it was an internal document in the form of a template request for funds which was completed or amended to suit the exigencies of the situation. The part dealing with the funds requested set out three items, of which the first two were “Salary payments (NAME)” and “Payroll TAX”. On this document they were marked as “n/a”, which I infer meant “not applicable”. The third item read as follows “3. Purchase of shares in Carstons 1,050,000 GBP”[33]Further down the page were these words:
“There may be some other amounts further depending on the structures we use moving forwards. These amounts will be minimal. The full make up of this amount and risks/rewards have been fully discussed with Dr Gorny.”
Immediately below these words were set out the bank account details for Dormco’s liquidator’s solicitors. It is thus clear that the German parent was being invited to transfer directly to the liquidator the funds required by the compromise agreement between the liquidator and the Company. However, the request did not refer to discharging the Company’s liability to the liquidator. Instead, it referred to the purchase of shares in the Company itself. The trial bundle also contains a copy of the same document with manuscript annotations, dated 25 and 26 September 2017, presumably by Dr Gorny and a colleague in Germany, approving the request.[34]In cross-examination, Mrs Brassington said that she considered that the words “Purchase of shares in Carstons” were a mistake. Her understanding of the transaction was that the German parent was lending £1,050,000 to the claimant, and the claimant was lending the same sum on to the Company, so that the Company could discharge its liability to the liquidator of Dormco. Her evidence (which I accept) was that the template read “Purchase of shares in”, followed by a blank, where the name of a company would be inserted. The words in bold and underlined in paragraph 27 above have plainly been added to the template in completing the request. The particular “deal” in this case whose legal requirements are stated to have imposed a one week deadline is plainly the compromise of the Dormco debt.[35]Were it not for the fact that, contemporaneously, the Company had made a demand of the first defendant and fortified it by serving a Lien Enforcement Notice upon him, meaning that the defendants’ shares would almost certainly be sold to discharge the first defendant’s liability, I think that that would be the most likely interpretation. Internal documents are generally not completed or scrutinised with the same care as documents with external addressees. However, the coincidence in time with a company lien enforcement procedure and the ultimate sale of the defendants’ shares to the claimant and an associated company of the claimant does complicate matters.[36]Mrs Brassington also accepted that the Company did not seek or obtain the consent of the first defendant to settle the liability to Dormco. She said that she and her co-director Mr Rees were acting in good faith for the benefit of the business and to safeguard the jobs that depended on it. She was asked, but was not able to say, which of them had given the instructions to the Company’s solicitors to write the various letters to which I have referred. However, I accept her evidence that at that time those solicitors were dealing more with Mr Rees than with her, and that he certainly obtained advice from the solicitors on at least some aspects of this. On the whole, I find it more likely than not that the instructions for these letters were given by Mr Rees.[37]Given(i) that finding,(ii) the fact that the funds from Germany were paid directly to the liquidator’s solicitors,(iii) expressly to implement a “deal” consisting of the compromise of the Dormco debt, and also(iv) the fact that Mr Rees (not being also a director of the claimant) had no particular reason for viewing the settlement of the Dormco debt as part and parcel of a further purchase of shares by the claimant, my conclusion is that theCompany certainly did not see the various transactions in that way. In addition, overall, I am not satisfied that the claimant did either. In particular, having seen Mrs Brassington being cross-examined, I accept her evidence that the words “Purchase of shares in Carstons” were indeed a mistaken description of what was happening when the funds request was sent to Germany. It was a loan from the German parent to the claimant, and from the claimant to the Company, for the purpose of satisfying the liability under the compromise with Dormco, and not for the purpose of buying further shares. In context, I find that this was not “all one transaction”, even though the forfeited shares were then sold to the claimant and to Mr Brassington’s company.

The expert evidence in summary

[38]It was common ground between the parties’ experts that the value of the shares purchased by the claimant as warranted would have been the same as the price paid, that is, £2,880,000. The experts were agreed that the difference in value of the Company between what should have been the case if the contract had been performed (“warranty true”) and what it was in reality (“warranty false”) was £1,242,463.23, that is, 40% of the value of the Dormco debt of £3,106,158. The claimant’s expert (Mr Stringfellow) gave his opinion that, on 9 October 2017, the defendants’ (forfeited) shares would have been worth £1,561,460. The defendant’s expert (Mr Mesher) did not give an exact value for those shares, but gave his opinion that whatever it was it exceeded the diminution in value claimed by the claimant. I accept that the forfeited shares were worth more than the diminution in value claimed by the claimant.[39]So far as concerns the damages for nondisclosure of the dilapidations claim, Deputy Master Smith found that the landlord’s claim was for £237,887, of which 70% (£166,521) was “estimated to be… payable”. The claimant bought 40% of the company, and 40% of £166,521 is £66,608. In fact, as I have already said, the whole claim was settled for £90,000 in January 2019. There was also the claim for the legal costs for dealing with the Dormco debt, amounting to £30,000.

The law

[40]The general rule in English law is that damages for breach of a contract to sell and purchase an object of commerce are assessed as at the date of breach. In Rodocanachi, Sons & Co v Milburn Brothers (1886) 18 QBD 67, the owners of a cargo sued the shipowners for the loss of the cargo through the master’s negligence. The market value of the cargo if it had arrived would have been greater than the amount that the cargo-owners had sold it for. The Court of Appeal held that the damages were to be assessed as at the market value if the contract had been performed, and the cargo had arrived. There was a market, and the onward sale was irrelevant.[41]Lord Esher MR said (at 76-77):
“I think that the rule as to measure of damages in a case of this kind must be this: the measure is the difference between the position of a plaintiff if the goods had been safely delivered and his position if the goods are lost. What, then, is that difference ? … If there is no market for such goods, the result must be arrived at by an estimate, by taking the cost of the goods to the shipper and adding to that the estimated profit he would make at the port of destination. If there is a market there is no occasion to have recourse to such a mode of estimating the value; the value will be the market value when the goods ought to have arrived. But the value is to be taken independently of any circumstances peculiar to the plaintiff. It is well settled that in an action for non-delivery or non-acceptance of goods under a contract of sale the law does not take into account in estimating the damages anything that is accidental as between the plaintiff and the defendant, as for instance an intermediate contract entered into with a third party for the purchase or sale of the goods.”
[42]The other judges agreed. Lindley LJ said (at 78):
“The rule in an action such as this seems to be well settled, viz, that the damages are the value of the goods at the port of discharge, minus the accruing freight, and that any contract for sale of the goods made by the charterers, whether at a greater or less price than the market value, is not to be taken into account.”
And Lopes LJ said (at 80):
“ … the measure of damages in such a case must be the market value at the time when and place where the goods ought to have been delivered independently of any circumstances peculiar to the plaintiff, but deducting therefrom what he would have had to pay to get the goods.”
[43]This decision was affirmed by the House of Lords in Williams Brothers v Ed T Agius Ltd [1914] AC 510, which Lord Moulton at 580 called “a plain case of a failure to deliver a specified quantity of an article obtainable in the market” (a cargo of coals). The same rule was applied to sales of company shares in the case of Jamal v Moolla, Dawood, Sons & Co [1916] AC 175. Lord Wrenbury, giving the advice of the Privy Council, said (at 179):
“The question therefore is the general question and may be stated thus : In a contract for sale of negotiable securities, is the measure of damages for breach the difference between the contract price and the market price at the date of the breach—with an obligation on the part of the seller to mitigate the damages by getting the best price he can at the date of the breach—or is the seller bound to reduce the damages, if he can, by subsequent sales at better prices ? If he is, and if the purchaser is entitled to the benefit of subsequent sales, it must also be true that he must bear the burden of subsequent losses. The latter proposition is in their Lordships' opinion impossible, and the former is equally unsound. If the seller retains the shares after the breach, the speculation as to the way the market will subsequently go is the speculation of the seller, not of the buyer; the seller cannot recover from the buyer the loss below the market price at the date of the breach if the market falls, nor is he liable to the purchaser for the profit if the market rises. It is undoubted law that a plaintiff who sues for damages owes the duty of taking all reasonable steps to mitigate the loss consequent upon the breach and cannot claim as damages any sum which is due to his own neglect. But the loss to be ascertained is the loss at the date of the breach. If at that date the plaintiff could do something or did something which mitigated the damage, the defendant is entitled to the benefit of it.” (Emphasis in original.)
[44]These were all cases where there was in fact a functional market for the goods in question. As Lord Esher MR said in Rodocanachi, where there is no market, the value must be estimated (as price plus estimated profit). It was submitted to me that there are cases where it is appropriate in the assessment of damages in a case of breach of warranty to take into account events subsequent to the date of breach. I was accordingly referred to a number of legal authorities on the use of hindsight in assessing damages for breach of contract. The first of these was Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426, HL. In fact, this was not a contract case at all, but a statutory assessment of profits that were never made.[45]The owner of a coal seam gave notice under certain legislation to a waterworks of its intention to work the coal. The waterworks served a counter-notice under the legislation, which had the dual effect of(i) prohibiting the coal seam owner from working the coal, but also(ii) requiring the waterworks to compensate the owner for the profits which were never made. The price of coal increased after the notices were served, and before the assessment of profits was made. The argument was about whether that price increase could be taken into account by the arbitrator in calculating the lost profits. The House of Lords held that it could.[46]The Earl of Halsbury LC said (at 428):
“I think in this case that Phillimore J [at first instance] stated the question for debate with perfect accuracy when he said that ‘the true inquiry here is not what is the value of the coalfield or of the coal, but what would the colliery company, if they had not been prohibited, have made out of the coal during the time it would have taken them to get it’.”
He went on to say (at 429):
“It is, of course, only an accident that the true sum can now be ascertained with precision; but what does that matter? It seems to me that the whole fallacy of the contention that you may not look to the facts that have occurred rests upon the false analogy of a sale.”
[47]Lord Macnaghten, with whom Lord Shand agreed, said (at 431):
“The counter-notice by the undertakers following a notice of the mine owners under s 22 does not operate to make a contract or to transfer property. It is not even a step towards a contract or a step towards expropriation. The undertakers acquire no property in the minerals. The property remains where it was. The mine owner is prohibited from working, and the undertakers are bound to make full compensation. That is all. If the question goes to arbitration, the arbitrator's duty is to determine the amount of compensation payable. In order to enable him to come to a just and true conclusion it is his duty, I think, to avail himself of all information at hand at the time of making his award which may be laid before him. Why should he listen to conjecture on a matter which has become an accomplished fact? Why should he guess when he can calculate? With the light before him, why should he shut his eyes and grope in the dark? The mine owner prevented from working his minerals is to be fully compensated—the Act says so. That means that so far as money can compensate him he is to be placed in the position in which he would have been if he had been free to go on working.”
[48]Like the Lord Chancellor, Lord Robertson (at 433) repeated the statement from the judgment of Phillimore J, and said:
“ … my view exactly coincides with that of Phillimore J.”
Finally, Lord Lindley simply said that he was of the same opinion.[49]In my judgment, in this case the House was simply interpreting the relevant legislation as requiring the calculation of the profits that would have been made by the coal owner during the time in which it would have worked the seam. As their lordships said, this was not a sale of the coal at a particular moment, or even an assessment of its value. Instead, it was an exercise in calculating the profits that would have been made over a period. And, plainly, the price of coal from time to time would be relevant to the exercise of calculating profits over a period. But I do not think that this authority assists me in assessing the loss suffered by a share purchaser when, immediately upon the sale, he or she suffers a loss because what has been acquired is worth less than what was contracted to be supplied.[50]By contrast, Phillips v Brewin Dolphin Bell Lawrie [2001] 1 WLR 143, HL, was a case about the sale and purchase of (private company) shares. But the issue of hindsight did not arise in the context of assessing damages for breach of contract. Instead, it arose in an insolvency context, specifically that of a transaction at an undervalue. In October 1989, a company (AJB) negotiated to sell its stockbroking business to the defendant (BD) for the sum of £1.25 million. In preparation for the sale, AJB transferred that stockbroking business to a subsidiary company (BS) for £1. Two further agreements were entered into. By the first, AJB sold the shares in BS to BD for £1, and agreed to take over AJB’s obligations towards employees in the stockbroking business (and, pursuant to this agreement, BD discharged redundancy obligations of some £325,000). By the second, BD’s parent company (PCG) agreed to take a sublease of certain computer equipment, leased by AJB from two unconnected companies, for four years at a rent of £312,500 per annum. (It will be noted that 4 x £312,500 = £1.25 million.) The agreements were structured in this way for tax and regulatory reasons.[51]Unfortunately, the subletting agreement was in breach of a covenant in the lease against such subletting. Moreover, AJB was already in financial difficulty, and failed to make payments under its computer leases to the lessors. As a consequence, in early 1990 the leases were terminated by the lessors, and the equipment was repossessed. In April 1990 a winding-up order was made against AJB on the petition of the lessors. In May 1990 an administrative receiver was appointed by a debenture holder. The liquidator and administrative receiver was Mr Phillips, the claimant. Although BD had discharged redundancy obligations to the employees who had lost their jobs, no money was ever paid by PCG under the sublease. In June 1994 the claimant commenced proceedings against BD and PCG, contending that the sale to BD of the shares in BS (and therefore also its stockbroking business) was a sale at an undervalue.[52]Both the judge (Evans-Lombe J) and the Court of Appeal so held, although only as against BD. The claim against PCG failed. BD’s (and, curiously, PCG’s) subsequent appeal to the House of Lords was dismissed. However, the reasoning of the House differed from that of the courts below (which also differed from each other). Evans-Lombe J held that the value of the BS shares had been £1,050,000, and that the only consideration paid by BD was the £325,000 in redundancy payments made. The covenant of PCG was excluded from consideration because PCG’s intention had been to set off the payments under it against profits for the purposes of corporation tax, and PCG could not “blow hot and cold”.[53]In the Court of Appeal Morritt LJ (with whom Lord Woolf MR and Laws LJ agreed) said that, unless there had been an artificial division of the real transaction, or the sublease agreement was a sham, the form of the transaction entered into was determinative. He concluded that there had been no artificial division, and that the sublease agreement was genuine. Hence “the transaction” for the purposes of the Insolvency Act had been the share sale agreement alone. However, he agreed with Evans-Lombe J on the values to be attributed to the shares on the one hand (£1,050,000), and the consideration given for them on the other (£325,000).[54]In the House of Lords, Lord Scott (with whom the rest of their lordships agreed) did not agree with the approach of either the High Court or the Court of Appeal. But he nevertheless arrived at the same conclusion, namely, that the payment obligations undertaken by PCG added nothing to the discharge by BD of the redundancy payment obligations. He did so by accepting that they did form part of the whole transaction, and therefore could be taken into account, but that, in the circumstances, they had no value. This was because, by the time the question fell to be considered by the courts, the lease agreement had been terminated, the equipment had been repossessed, and it was clear that the subleasing contract had been unlawful. In vain did counsel for BD argue that they were all matters of hindsight, and should not be taken into account in considering whether PCG’s covenant had any value at the time of the transaction.

Lord Scott said:

“26. Mr Mitchell submitted that these ex post facto events ought not to be taken into account in valuing PCG's sublease covenant as at 10 November 1989. I do not agree. In valuing the covenant as at that date, the critical uncertainty is whether the sublease would survive for the four years necessary to enable all the four £312,500 payments to fall due, or would survive long enough to enable some of them to fall due, or would come to an end before any had fallen due. Where the events, or some of them, on which the uncertainties depend have actually happened, it seems to me unsatisfactory and unnecessary for the court to wear blinkers and pretend that it does not know what has happened. Problems of a comparable sort may arise for judicial determination in many different areas of the law. The answers may not be uniform but may depend upon the particular context in which the problem arises. For the purposes of section 238(4) however, and the valuation of the consideration for which a company has entered into a transaction, reality should, in my opinion, be given precedence over speculation. I would hold, taking account of the events that took place in the early months of 1990, that the value of PCG's covenant in the sublease of 10 November 1989 was nil. After all, if, following the signing of the sublease, AJB had taken the sublease to a bank or finance house and had tried to raise money on the security of the covenant, I do not believe that the bank or finance house, with knowledge about the circumstances surrounding the sublease, would have attributed any value at all to the sublease covenant.”
[56]In my respectful view, this case does not assist me either. The question before the House on that occasion was not whether hindsight could be used to value compensation for a breach of contract. In that case there was none. Instead, it was whether there had been a transaction at an undervalue within section 238(4)(b) of the Insolvency Act 1986. The law of damages had nothing to do with the matter.[57]The Golden Victory [2007] 2 AC 353, HL, was not a case of the sale and purchase of shares. But it was at least one about assessing damages for breach of contract, in this case a charterparty. In 1998 the shipowners chartered their vessel to the charterers for seven years. The charterparty (which contained an arbitration clause) provided that each party should have the right to cancel the charter if war or hostilities were to break out between certain countries. In December 2001 the charterers repudiated the charter, and three days later the owners accepted the repudiation. This was therefore a case of anticipatory breach of contract. They claimed damages, and the matter was referred to arbitration. In March 2003 the Second Gulf War (triggering the break clause) broke out. The arbitrator found that, in December 2001, a reasonably well-informed person would have considered war or large-scale hostilities within the break clause to be not inevitable or even probable but merely a possibility. The arbitrator, Langley J and the Court of Appeal all held that the charterers were limited to damages for loss to March 2003. By a majority, the House of Lords dismissed the charterers’ appeal.[58]In theoretical (or intellectual) terms, the principal speech of the majority was that of Lord Scott. Agreeing also with the other members of the majority, he said:
“34. The assessment at the date of breach rule is particularly apt to cater for cases where a contract for the sale of goods in respect of which there is a market has been repudiated. The loss caused by the breach to the seller or the buyer, as the case may be, can be measured by the difference between the contract price and the market price at the time of the breach. The seller can re-sell his goods in the market. The buyer can buy substitute goods in the market. Thereby the loss caused by the breach can be fixed … 35. In cases, however, where the contract for sale of goods is not simply a contract for a one-off sale, but is a contract for the supply of goods over some specified period, the application of the general rule may not be in the least apt. Take the case of a three year contract for the supply of goods and a repudiatory breach of the contract at the end of the first year. The breach is accepted and damages are claimed but before the assessment of the damages an event occurs that, if it had occurred while the contract was still on foot, would have been a frustrating event terminating the contract, eg legislation prohibiting any sale of the goods. The contractual benefit of which the victim of the breach of contract had been deprived by the breach would not have extended beyond the date of the frustrating event. So on what principled basis could the victim claim compensation attributable to a loss of contractual benefit after that date? Any rule that required damages attributable to that period to be paid would be inconsistent with the overriding compensatory principle on which awards of contractual damages ought to be based. 36. The same would, in my opinion, be true of any anticipatory breach the acceptance of which had terminated an executory contract. The contractual benefit for the loss of which the victim of the breach can seek compensation cannot escape the uncertainties of the future. If, at the time the assessment of damages takes place, there were nothing to suggest that the expected benefit of the executory contract would not, if the contract had remained on foot, have duly accrued, then the quantum of damages would be unaffected by uncertainties that would be no more than conceptual. If there were a real possibility that an event would happen terminating the contract, or in some way reducing the contractual benefit to which the damages claimant would, if the contract had remained on foot, have become entitled, then the quantum of damages might need, in order to reflect the extent of the chance that that possibility might materialize, to be reduced proportionately. The lodestar is that the damages should represent the value of the contractual benefits of which the claimant had been deprived by the breach of contract, no less but also no more. But if a terminating event had happened, speculation would not be needed, an estimate of the extent of the chance of such a happening would no longer be necessary and, in relation to the period during which the contract would have remained executory had it not been for the terminating event, it would be apparent that the earlier anticipatory breach of contract had deprived the victim of the breach of nothing.”
[59]Lord Scott then referred to the Bwllfa case, from which I have cited above. He continued:
“36. … Their Lordships were not dealing with a contractual, or tortious, damages issue but with the quantum of compensation to be paid under the Waterworks Clauses Act 1847. Their approach, however, is to my mind as apt for our purposes on this appeal as to theirs on that appeal.”
[60]The second member of the majority, Lord Carswell, also agreed with the other members of the majority. In his speech, he set out the facts in some detail, and then considered the caselaw, again in detail. He then said:
“64. The duration of the charter may in a case such as the present be affected by the contingency of the occurrence of an event which is in the contemplation of the parties and catered for in the terms of the charterparty. While the rate at which the hypothetical new charter is arranged on repudiation of the original one is for good reasons taken to be fixed at the time when the injured party could go into the market to negotiate a replacement, the same considerations do not apply to determination of the duration. The damages can be assessed at the date of repudiation by valuing the chance that the contingency would occur and that the charter would be cancelled … 65. This is where the principle exemplified by Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426 operates … 66. If the second Gulf War had not broken out by the time the arbitration was held, the arbitrator would have had to estimate the prospect that it might do so and factor into his calculation of the appellants' loss the chance that the charter would be cancelled at some future date under Clause 33. The loss which would have been sustained over the full period of the charter would then have been discounted to an extent which would have reflected the chance, estimated at the time of the assessment, that it would be so terminated. As events happened, however, the arbitrator did not come to assess damages until after the outbreak of war, when, as he found, the respondents would have cancelled the charter. The outbreak of the second Gulf War was then an accomplished fact, which was highly relevant to the amount of damages, and in my opinion the arbitrator was correct to take it into account in assessing the appellants' loss … ”
[61]The third member of the majority, Lord Brown, also agreed with the other law lords in the majority. He said:
“79. … the rule is by no means confined to the sale of goods context and … has been applied by analogy to a variety of other situations. Essentially it applies whenever there is an available market for whatever has been lost and its explanation is that the injured party should ordinarily go out into that market to make a substitute contract to mitigate (and generally thereby crystallise) his loss. Market prices move, both up and down. If the injured party delays unjustifiably in re-entering the market, he does so at his own risk: future speculation is to his account … 80. The rule is easy to apply where, for example, goods or shares are traded: if it is the seller who is injured by non-acceptance, he must as soon as possible re-sell the goods or shares at the then available market price; if the buyer, he must similarly buy in substitute goods or shares. But undoubtedly the rule can be applied in more complex situations, for example, to building or repairing contracts and, most relevantly for present purposes, to breached charterparties … 81. Take, indeed, this very case. Whilst it was not disputed before the arbitrator that an available market existed for the chartering of this vessel, the owners contend that a new fixture could only have commenced earning on 1 April 2002 and in the result claim for loss on the spot (rather than the period charter) market for the three and a half months between 17 December 2001 and 1 April 2002. In this case … therefore, account must necessarily be taken of post-breach events. Why then ignore the outbreak of the War?”
[62]The approach of the minority was however conceptually different. They saw the question as turning on the acquisition by the shipowner of an asset with a marketable value, namely the charterparty. Lord Bingham (the only law lord sitting on this appeal who had been a judge of the Commercial Court) went through the relevant caselaw in characteristically trenchant style. Then he said:
“22. The thrust of the charterers' argument was that the owners would be unfairly over-compensated if they were to recover as damages sums which, with the benefit of hindsight, it is now known that they would not have received had there been no accepted repudiation by the charterers. There are, in my opinion, several answers to this. The first is that contracts are made to be performed, not broken. It may prove disadvantageous to break a contract instead of performing it. The second is that if, on their repudiation being accepted, the charterers had promptly honoured their secondary obligation to pay damages, the transaction would have been settled well before the Second Gulf War became a reality. The third is that the owners were, as the arbitrator held … entitled to be compensated for the value of what they had lost on the date it was lost, and it could not be doubted that what the owners lost at that date was a charterparty with slightly less than four years to run. This was a clear and, in my opinion, crucial finding, but it was not mentioned in either of the judgments below, nor is it mentioned by any of my noble and learned friends in the majority. On the arbitrator's finding, it was marketable on that basis. I can readily accept that the value of a contract in the market may be reduced if terminable on an event which the market judges to be likely but not certain, but that was not what the arbitrator found to be the fact in this case. There is, with respect to those who think otherwise, nothing artificial in this approach. If a party is compensated for the value of what he has lost at the time when he loses it, and its value is at that time for any reason depressed, he is fairly compensated. That does not cease to be so because adventitious later events reveal that the market at that time was depressed by the apprehension of risks that did not eventuate. A party is not, after all, obliged to accept a repudiation: he can, if he chooses, keep the contract alive, for better or worse. By describing the prospect of war in December 2001 as ‘merely a possibility’ … the arbitrator can only have meant that it was seen as an outside chance, not affecting the marketable value of the charter at that time.”
Finally, Lord Bingham said that he “wholly agreed” with the speech of Lord Walker.[63]The other member of the minority, Lord Walker, made clear that he agreed with Lord Bingham, but also said:
“41. Cases concerned with the assessment of damages in tort for personal injuries are in a quite different category. They are not concerned with economic loss as between traders operating in the marketplace, but with assessing monetary compensation (so far as money can ever provide compensation) for bodily injuries whose long-term effects may be very difficult to predict. In those cases (and especially in cases of very serious injury) it is well understood that the final assessment of damages should be made only on the basis of full and up to date medical evidence. That does not bear on the assessment of damages for breach of a commercial contract in cases where there is an available market. [ … ] 46. In my opinion the arbitrator erred only in not following his own instinct … towards the owners' ‘more orthodox’ approach. He concluded, wrongly in my view, that The Seaflower [[2000] 2 Lloyd's Rep 37, Timothy Walker J] required him to look at later events as a guide to what was inevitable, rather than looking at the position (and weighing contingencies in an appropriate case) as at the date of breach. In this case an objective and well-informed observer, looking at the matter in December 2001, would have thought, not only that the prospect of the war clause option becoming exercisable was not inevitable (in the sense of being predictable with confidence equal, or closely approximating, to 100%) but that it was a mere possibility carrying little or no weight in commercial terms.”
[64]What I obtain from this case is that there was a profound cleavage of opinion amongst their lordships, culminating in a bare majority decision, as to whether this was the case of the valuation of a marketable asset (ie the charterparty) as at the date of breach, or the case of valuing the supply of a service over a period. This appears to turn on an appreciation of the facts. Lord Scott (at [34]-[35]) was plainly of the view that there was no market where one could establish the value of the charterparty. Lord Brown, also in the majority, thought that, although there was a market, the actual product to sell would have been different, ie a spot charter rather than a time charter: see at [81]. On the other hand, Lord Bingham (at [22]) clearly thought that there was a market and that the charter had a value there as it was. From my point of view, sitting here at first instance, I am plainly bound by the propositions of law laid down by the majority. But I am not bound by their view of the facts. In my judgment, the decision in this case is relevant to the value of the supply of a service over a period, but not to the sale of an asset for which there was a market at a particular date, or where market value can otherwise be ascertained.[65]Bunge SA v Nidera BV [2015] Bus LR 987, SC, was a case where a contract between Nidera to buy a single cargo of Russian wheat from Bunge was entered into on 10 June 2010, with delivery in August, later narrowed by notice to 23-30 August. On 5 August 2010 Russia introduced a legislative embargo on exports of wheat from its territory, to run from 15 August to 31 December 2010. On 9 August 2010, Bunge notified Nidera of the embargo and purported to declare the contract cancelled. Nidera did not accept that declaration, and treated it as a repudiation, which it accepted on 11 August 2010. Next day, Bunge offered to reinstate the contract on the same terms, but Nidera would not agree. Instead, Nidera began arbitration proceedings, to pursue a claim for damages.[66]The arbitration tribunal held that Nidera were right, yet awarded no damages, on the basis that the contract would have been cancelled anyway. The arbitration appeal tribunal also held that Nidera were right, but awarded substantial damages, on the basis that, even though the contract would have been cancelled later, as at 11 August there was a breach and a loss sustained then. There was an appeal to the Commercial Court, which Hamblen J dismissed. A further appeal to the Court of Appeal was also dismissed. Both Hamblen J and the Court of Appeal expressed doubts as to the applicability of The Golden Victory to a “single cargo” contract. But the Supreme Court had no such doubts, and allowed a final appeal, restoring the decision of the original arbitral tribunal.[67]Lord Sumption (with whom Lords Neuberger, Mance and Clarke agreed) said:
“22. … Where the only question is the relevant date for taking the market price, the financial consequences of the breach may be said to ‘crystallise’ at that date. But where, after that date, some supervening event occurs which shows that that neither the original contract (had it continued) nor the notional substitute contract at the market price would ever have been performed, the concept of ‘crystallising’ the assessment of damages at that price is unhelpful. The occurrence of the supervening event would have reduced the value of performance, possibly to nothing, even if the contract had not been wrongfully terminated and whatever the relevant market price. The nature of that problem does not differ according to whether the contract provides for a single act of performance or several successive ones. … [T]he compensatory principle would be equally offended by disregarding subsequent events serving to reduce or eliminate the loss under ‘any anticipatory breach the acceptance of which had terminated an executory contract’. The most that can be said about one-off contracts of sale is that the facts may be different. In particular, if the injured party goes into the market and enters into a substitute contract by way of mitigation, it will not necessarily be subject to the same contingencies as the original contract.”
[68]Lord Toulson (with whom Lords Neuberger, Mance and Clarke also agreed) said:
“82. There are three important things to note about measurement of damages by reference to an available market. First it presupposes the existence of an available market in which to obtain a substitute contract. Secondly, it presupposes that the substitute contract is a true substitute. The claimant is not entitled to charge the defendant with the cost of obtaining superior benefits to those which the defendant contracted to provide. Thirdly (and in the present case most importantly), the purpose of the exercise is to measure the extent to which the claimant is (or would be) financially worse off under the substitute contract than under the original contract. [ … ] 84. However, in this case the lost contract and its hypothetical substitute were subject to automatic cancellation unless the Russian government ban was lifted, and the extent to which the buyers were worse off by loss of the original contract could not be measured by a simple comparison of the contract price with the price of a hypothetical substitute contract. 85. The fundamental compensatory principle makes it axiomatic that any method of assessment of damages must reflect the nature of the bargain which the innocent party has lost as a result of the repudiation. In this case the bargain was subject to a high risk of cancellation. Leaving aside for the purposes of this discussion the sellers' offer to reinstate the contract, what the buyers lost was the chance of obtaining a benefit in the event of the export ban being lifted before the delivery period, only in which case would the contract have been capable of lawful performance.”
[69]Lord Sumption emphasised the lack of difference between a “one-off” contract and a “successive performance” contract. Lord Toulson did not mention that. But both Lord Sumption and Lord Toulson emphasised the importance to the date-breach rule of the existence of a market in which the injured party could buy exactly the same good, neither better nor worse, as the comparator by which to measure the loss. It appears that both judges considered that what was available in the market in that particular case would not be the same as that which was contracted for. Hence, in that case, the date-breach rule was “unhelpful”. Both the contract and its hypothetical substitute would have been alike affected by the Russian government’s embargo. But that is not this case. In the present case, the property contracted for was actually supplied. It was simply less valuable – by an easily ascertainable amount – than it had been warranted to be worth. It was not even necessary to ascertain the market value of the shares to show that there had been a loss. They were worth whatever they were worth, but the problem was that they were in effect burdened by a company debt of a certain value which had been warranted not to exist.[70]The next case is Ageas (UK) Limited v Kwik-Fit (GB) Ltd [2014] EWHC 2178 (QB), a decision of Popplewell J, as he then was. On 1 July 2010, Ageas bought the entire share capital of Kwik-Fit’s insurance subsidiary for £215 million. Kwik-Fit breached the share sale warranties by the treatment in the accounts of two aspects of bad debt, which had the net effect of overstating revenue and assets. Kwik-Fit settled the claim against it up to a £5 million cap in the contract. But Ageas had insured the excess risk of a breach with AIG. Ageas claimed under the policy for the excess liability of Kwik-Fit in the sum of about £13 million. AIG said that the excess was only about £4 million. Ageas’s expert evidence valued the diminution in value of the shares purchased by grossing up bad debt levels in the first five months of 2010 (the latest trading figures available for the period prior to the sale) to represent the whole of 2010, and then projecting them forward for future years, assuming that they remained constant. However, the actual bad debt figures between June 2010 and April 2014 were much lower than those assumed by Ageas’s expert. The question therefore was whether in valuing the insurance subsidiary at the date of acquisition, account was to be taken of the bad debt experience of the business since the date of acquisition.[71]Popplewell J considered the case law, and concluded:
“35. … when assessing damages for breach of contract by reference to the value of a company or other property at the date of breach, whose value depends upon a future contingency, account can be taken of what is subsequently known about the outcome of the contingency as a result of events subsequent to the valuation date where that is necessary in order to give effect to the compensatory principle. In an appropriate case, the valuation can be made with the benefit of hindsight, taking account of what is known of the outcome of the contingency at the time that the assessment falls to be made by the court. This is so not merely as a cross check against the reasonableness of prospective forecasting ... It is so whatever view might prospectively be taken at the breach date of the outcome of the contingency. [ … ] 37. … There are, in my view, two qualifications to the adoption of such an approach. The first is that it can only be justified where it is necessary to give effect to the overriding compensatory principle. The prima facie rule, from which departure must be justified, is that damages are to be assessed at the date of breach and that only events which have occurred at that date can be taken into account. 38. Secondly, it is important to keep firmly in mind any contractual allocation of risk made by the parties. Party autonomy dictates that an award of damages should not confound the allocation of risk inherent in the parties' bargain. It is not therefore sufficient merely that there is a future contingency which plays a part in the assessment. It is necessary to examine whether the eventuation of that contingency represents a risk which has been allocated by the parties as one which should fall on one or other of them. If the benefit or detriment of the contingency eventuating is a risk which has been allocated to the buyer, it is not appropriate to deprive him of any benefit which in fact ensues: it is inherent in the bargain that the buyer should receive such benefit … ”
[72]So, that was a case where the calculation of the loss as at the date of the sale involved ascribing a necessarily estimated value to the bad debts expected in the years following the sale. As Lord Esher MR said in Rodocanachi, where there is no market, you have to estimate the loss. The estimate in this case was based on figures available at the time. However, these were shown subsequently to be an overestimate, because bad debts were at a high point at the time of the sale, but diminished thereafter. Nevertheless, the judge held that the assumption about future bad debts was one the parties would reasonably have made at the time of the sale if they had known that the incidence of bad debts had erroneously been excluded from the warranted accounts. So, there was no windfall for Ageas. Moreover, “[t]he bargain embodied in the SPA was the allocation of risk to Ageas of any benefit or loss arising either as a result of the way Ageas chose to run the business or as a result of external influences on the success of the business”. So, neither of the two qualifying conditions identified by the judge for the application of hindsight was satisfied, and Ageas succeeded in its claim.[73]The Hut Group Limited v Nobahar-Cookson [2014] EWHC 3842 (QB), [184], was another case of claims on warranties given on a share sale. It was factually more complex than Ageas, in that(1) the defendants had sold shares in a company to the claimant, which had(2) transferred shares in itself to the second defendant in part satisfaction of the sale price. Subsequently (i) the claimant complained of a breach of warranty in relation to the shares sold to it by the defendants, and (ii) the second defendant complained of a breach of warranty in relation to the transfer of shares of the claimant to the second defendant.[74]On the law in relation to breach of warranty on a share sale, Blair J cited the decision of Popplewell J in Ageas, and summarised and agreed with the law as stated by him and set out above. Then he added this:
“185. For the avoidance of doubt, it is not suggested that the mere fact that shares sold in breach of warranty later recover their value because the business in fact does well has any effect on quantum assessed as at the date of breach. Any such argument would be insupportable, not least because the buyer is entitled to the benefit of the upside, having taken the risk of the downside.”
I note that an appeal against the actual decision of Blair J was dismissed by the Court of Appeal ([2016] EWCA Civ 128), but without commenting on that part of his judgment.[75]Bir Holdings Limited v Mehta [2014] EWHC 3903 (Ch) was a decision of HHJ Cooke (sitting as a Judge of the High Court). Once again, it was the case of a share sale agreement, and a claim of breach of warranty. Once again, the judge cited the decision of Popplewell J in Ageas, and quoted paragraph 35 of the judgment, as set out above, with apparent approval. But the judge distinguished that case, saying that his own case was not one “of a valuation being made on the basis of an assumption as to future contingencies”. But, in any event, he concluded that the application of the breach-date rule would not result in any windfall offending the compensatory principle. Moreover, the negotiation of the contract and the price agreed involved an allocation of risk with which the court should not interfere. There was accordingly no room for the application of the benefit of hindsight.[76]In particular,

the judge said:

“77. … this is not in my judgment a case of a valuation being made on the basis of an assumption as to future contingencies. The breach in this case was of a warranty as to present fact, and the consequences in terms of the value of the company depended on the assessment that parties in the market might have made of the uncertainties and risk to the business resulting from the undisclosed fact that the opportunity to be included on the CHC framework had been lost. It is of no assistance to say that this might or might not have resulted in future loss of income; in that wide sense almost all factors affecting the value of a business could be said to involve the outcome of future events. 78. Second, even if I am wrong on the above point, assessment of loss on the basis of information available at the date of sale does not result in any windfall to the defendants that offends against the compensatory principle. By suppressing the information that the tender opportunity had been lost Mrs Bir deprived Mr. Mehta of the chance of negotiating on the basis of the true state of affairs. Assessing his loss on the basis of the information available to the theoretical market at the time of sale puts him, as nearly as possible, in the position he would have been if Mrs Bir had disclosed what she knew at that time. [ … ] 80. Fourth, the way in which the contract was negotiated and the price was struck involves an allocation of risk as between buyer and seller in which the buyer, having paid a price based on evaluation of the business prospects in the light of information known at the date of sale assumes the risk that the outturn may be worse than expected, and stands to benefit if it is better, either because factors that were uncertain or the effects of which were uncertain at the date of sale resolve themselves in his favour, or because he so manages the business that adverse effects are avoided or overcome … ”
[77]In OMV Petrom SA v Glencore International AG [2017] 3 All ER 157, [53], cargoes of oil were systematically falsely described by the seller as what had been agreed to be sold, when in fact they were inferior. So, it was a case of fraud, and a claim in deceit. Christopher Clarke LJ, with whom Black and Kitchin LJJ agreed, cited paragraphs 35-38 of Ageas with apparent approval. He went on to say this:
“60. The market value of a cargo will depend on the terms on which it is sold and the information which the buyer has about it. The critical questions are (a) what is the date by reference to which the value/price is to be determined; and (b) what information is the putative buyer to be taken to have had? The latter is relevant because the price that a purchaser will pay on any given day depends, inter alia, on the information that is then available to him, as well as the terms upon which he is to purchase. 61. As to (a), in a case of fraud the answer is, generally, the date of purchase – here the date of the bill of lading. Whatever may be the position in relation to contractual claims there is no good reason for departing from that measure in a case of fraud or at any rate in this one. On the contrary I would, in this case, regard the fact that refining led to no problems as something which should enure to the benefit of [the buyer]. 62. As to (b), for the reasons which I have already considered the information which the buyer must be taken to have does not include information about what happened after the bill of lading date. Any market value at the bill of lading date would not be based on information which did not then exist. I consider in paragraphs 81ff below the extent of the information which the putative buyer should be taken to have had.”
[78]In Equitix EEEF Biomass 2 Ltd v Fox [2021] EWHC 2531 (TCC), 198 Con LR 224, by a contract dated 23 December 2015, as amended on 5 August 2016, the claimant bought all the shares in Gaia Heat Ltd from the defendants. Gaia’s business was supplying steam to a single customer, Greenenergy Biofuels Ltd. However, there had already been, and were still considerable problems with Gaia’s boilers, and the relationship with Greenenergy broke down. Greenenergy terminated the contract between them by notice on 22 November 2017. On 30 October 2018, the claimant issued the present claim for damages for breaches of the share sale agreement. The judge (Kerr J) found that some of the warranties given by the defendants in the agreement were false.

The judge said:

[79]“323. Equitix submits that the best evidence of market value is the price paid for the shares, particularly by experienced willing parties bargaining hard at arm’s length in a tense negotiation. This was common sense and supported by the cases … [ … ] 340. Although the defendants’ late change of position has required me to deal with this issue at greater length than one would expect where these experts, case law and common sense all treat the price paid as normally the best evidence and indication of market value on an ‘as warranted’ basis, I can express my conclusion briefly: I find nothing in the defendants’ arguments, nor in the expert or lay evidence on which they are based, to displace that norm. [ … ] 342. In my judgment, [the claimant’s forensic accountant] was correct to point to those features as tending to confirm the view that this was a normal case where the price paid was the best evidence of open market value; and [the defendants’ forensic accountant] was right to agree with that view until he was moved - without calculating any alternative lower figure - to alter it on what seem to me flimsy grounds, for the reasons advanced by Equitix. [ … ] 389. In cases of breach of warranties of quality, the measure of damages is generally the difference between the ‘as warranted’ value of the shares purchased and their true value … [ … ] 391. The court does not normally ascertain the consequences of the breach of warranty by looking at subsequent events. If a likely loss of business consequence of the breach does not come to pass, damages are usually not reduced on that account because a share purchase agreement normally involves allocation of risk between the parties and there is no windfall to the buyer if a risk does not eventuate … 392. The position is different where the warranty breached is one of ‘process’, for example where a financial forecast warranted to have been prepared with reasonable care has not been. There, it is the usual measure of damages that puts the victim in the position it would have been in had the contract not been breached: see Salzedo et al, op cit at 8.43: ‘[i]f a purchaser can show that had the warranted forecast been prepared with proper care, the outcome would have been that the purchaser would not have bought the shares at all, then the starting point for damages ought to be the same as in a tort claim: the loss of the purchase price, less the gain of the value of the shares acquired. Conversely, if the purchaser cannot show that it would have acted differently had the forecast been prepared with proper care, then the vendor can assert that no loss was caused by the breach of warranty.’ [ … ] 394. I agree that the prima facie measure of damages is the diminution in the value of the shares attributable to the falsity of the warranties of quality breached. Some warranties were of process: the reasonableness of the opinions in the financial model and, arguably, the assurance that the environmental permit had been complied with. Their presence among the warranties does not disentitle Equitix from recovering the full measure for breach of the warranties of quality. [ … ] 427. … in my view the present case is one where - subject always to the issue of mitigating loss, to which I will return shortly - the court should not allow hindsight to play a part in the share valuation exercise, which I have already undertaken on a conventional basis, without recourse to hindsight other than as a cross-check. Risk was allocated as between buyer and sellers by the warranties of quality.” ‘[i]f a purchaser can show that had the warranted forecast been prepared with proper care, the outcome would have been that the purchaser would not have bought the shares at all, then the starting point for damages ought to be the same as in a tort claim: the loss of the purchase price, less the gain of the value of the shares acquired. Conversely, if the purchaser cannot show that it would have acted differently had the forecast been prepared with proper care, then the vendor can assert that no loss was caused by the breach of warranty.’[80]Finally, in MDW Holdings Ltd v Norvill [2023] 4 WLR 33, CA, the claimant bought the entire issued capital of a company (“GDE”) from the defendants in 2015. GDE's business involved the collection, processing and disposal of waste. It depended on consents and permits from environmental regulators. The warranties given included warranties that GDE had conducted its business in accordance with all applicable laws and regulations, that it held the requisite consents and was not in breach of any of their terms and conditions, that no proceedings against GDE had been threatened and there were no circumstances likely to give rise to any such proceedings, that GDE's accounts showed a true and fair view, and that GDE had complied with environmental laws and permits and there were no facts or circumstances likely to lead to any breach of any such law, to the revocation, suspension, variation or non-renewal of such a permit or to any claims, investigations, prosecutions or other proceedings.[81]At first instance the judge held that the defendants had breached each of the warranties mentioned above, and assessed damages. In the Court of Appeal this was accepted, and there was no dispute about liability. Instead, the argument was about the measure of damages. Newey LJ, with whom Asplin and Whipple LJJ agreed, considered the case law, and concluded:
“49. Drawing some of the threads together, it seems to me that the following can be said: i) Where damages fall to be assessed in respect of an anticipatory breach of contract which was accepted, it is appropriate to consider what would have happened if the breach had not occurred and, in that context, events subsequent to the breach may be relevant; ii) That principle has, however, no application where a party to a contract has, by failing to supply goods or services, committed an actual, rather than anticipatory, breach of contract; iii) Further, where a claimant has been induced by deceit to buy something, the defendant cannot reduce its liability by showing that a contingency which served to reduce the value of the item at the date of assessment did not eventuate; iv) There is a strong case for saying that, in general at least, the position should be similar in relation to warranties given on a share sale. Supposing the position to be that the true value of some shares is depressed by a contingency, someone buying them at a higher figure will have paid more than they were worth even if the contingency never happens. Events subsequent to the purchase cannot affect the value at the time of the transaction. The price of a share could typically be said to be a product of a number of contingencies. If a particular risk does, or does not, occur, the price may rise or fall, but that will not retrospectively change the value of the share at an earlier date. In Bunge, Lord Sumption thought that the minority in The Golden Victory had been wrong to focus on the value of the charterparty itself, as opposed to the chartered service which would have been performed, observing that sections 50 and 51 of the Sale of Goods Act 1891 and the common law were alike concerned with ‘the value of the goods or services which would have been delivered under the contract’, not ‘the value of the contract as an article of commerce in itself’. In contrast, a share sale relates to an existing asset which is recognised as ‘an article of commerce in itself’; v) If, none the less, there can be cases in which account can be taken of what happened subsequently as regards a contingency which existed on the date of assessment when determining what, if any, damages are payable for breach of a warranty on a share sale, they must be rare. They would doubtless involve situations in which the buyer might otherwise be said to have gained a ‘windfall’, but the mere fact that the value of the relevant shares has increased since the date of assessment cannot demonstrate such a ‘windfall’: it is inherent in the selection of a date of assessment that subsequent changes in value can fall to be disregarded. Still less could it be appropriate to categorise a post-assessment rise in value as a ‘windfall’ if it were attributable to steps that the purchaser had itself taken since the transaction. Further, as Popplewell LJ said in Ageas, it would be ‘important to keep firmly in mind any contractual allocation of risk made by the parties’; and vi) There is no similar bar on using events subsequent to the date of assessment to cast light on events which had happened by that date.”
I add only that permission to appeal was subsequently refused by the Supreme Court.

The parties’ submissions

[82]Both parties accept that what is in play here is the so-called compensatory principle, that the claimant is entitled to be compensated fully for the loss suffered by the defendants’ breach of contract. This is a case where assets (company shares) were being sold subject to certain warranties. The loss suffered by the claimant on the breach of any warranty is accordingly the difference between the value of the shares if the warranty breached had been fulfilled (“warranty true” value) and the value of the shares on the basis that it has not been fulfilled (“warranty false” value). The claimant submits that in assessing that difference it is not permissible to take account of events that took place after the date of the breach, except in one case. That exceptional case (says the claimant) is where the value of the shares depends upon a future contingency which becomes certain before the court comes to assess the loss.[83]Moreover (says the claimant), the exceptional case applies only subject to two further qualifications which must both be satisfied. The first qualification is that it must be necessary to take the subsequent events into account in order to give effect to the overriding compensatory principle, or, in other words, to avoid a “windfall” (ie over-compensation) to the claimant. The second is that taking such events into account does not cut across the allocation of risk as between the parties by their contractual bargain. I will return to these qualifications further below.[84]The claimant further says that the only future contingency relied upon in the present case by the second defendant as affecting the value of the shares at the date of the breach is a combination of(i) the ability of the company in this case to forfeit the defendants’ jointly held shares in response to the first defendant’s breach of fiduciary duty and(ii) the ability of the company to negotiate and compromise the Dormco debt. The claimant says that these are two separate contingencies rather than one single contingency, but also says that these matters were not contingencies taken account of in the valuation of the company shares. This is because nobody (except the first defendant) knew of the Dormco debt, and no one (except the first defendant) knew of the prospect of a claim against the first defendant which might give rise to a forfeiture of the shares. No-one regarded the possibility of a debt to Dormco, or of a claim against the first defendant for breach of fiduciary duty, as a contingent event affecting the value of the Company. To the contrary, the whole point of taking the warranties was to provide certainty to the purchaser, by putting the risk of such things eventuating squarely on the defendants, who after all had been running the company up to that point, and should have known.[85]Even if the facts of the present case did disclose a contingency which had to be taken into account in assessing the damages as at the breach date, the claimant says that the second defendant cannot satisfy either of the two qualifications to the contingency principle, referred to above. As to the first, the claimant borrowed £1,050,000 from its German parent and lent it on to the Company. Accordingly, £1,050,000 of the damages assessed simply goes to make the claimant whole in that respect and does not amount to a windfall. As to the second, the claimant in entering into the SPA, and becoming a shareholder in the Company, was entitled to take the benefit of whatever the Company could subsequently do to improve its financial position as against third parties, including its creditor, Dormco. In this respect, the SPA had allocated the risks and benefits.[86]On the other side, the second defendant says that the lien imposed on and forfeiture of the defendants’ jointly held shares was only one half of the transaction. The other half was the sale of the forfeited shares to the claimant and its associated company EK Williams Accountancy Ltd. But (she says) the two halves of the transaction must be viewed together. If only one half is addressed, the claimant will be compensated twice. First, the claimant will receive the full difference between the “warranty true” value of the original shares and their “warranty false” value (their actual value). This difference arose predominantly because of the existence of the Dormco debt. Secondly, the claimant has obtained the forfeited shares (the second defendant says for less than their true value) at the same time and as part of the same transaction as increasing the value of the original shares by extinguishing the Dormco debt. In the present proceedings the claimant seeks judgment in the sum of 40% of the value of the Dormco debt, but has already obtained the forfeited shares. In his original witness dated 14 April 2022, which stood as his defence, the first defendant said “in these proceedings ETL are duplicating a claim which has already been settled by way of a set off”.[87]The second defendant also relies on the fact that the 2014 dividend declared by the Company was declared unlawful in 2021. That resulted in the treatment of the payment out as a debit to the first defendant’s director’s loan account. Accordingly, it was an asset of the Company in 2015, even though this was not realised at the time, and so not priced into the sale. Therefore, says the second defendant, she should have the benefit of 40% of the value of that claim to set off against any liability to the claimant.[88]The second defendant originally had two other arguments. One was that the claimant was estopped as against her because the forfeited shares settled all matters between them. The other was that the claimant fully mitigated any loss arising as a result of the breach of warranty by way of the forfeiture of those shares. In the event, however, neither argument was pursued at the hearing, and I say no more about them.

Discussion

[89]Before descending into the facts, I can state the most important legal propositions applicable to this case in this way. This is not a case of anticipatory breach of contract, where the date for performance has not yet arrived. So, subsequent events are not to be taken into account merely on that basis. It is however the case of the sale of an article of commerce in itself. Although there is no liquid market for unquoted shares, the price paid by the buyer in an arms’ length transaction is normally treated as the market value at that time (and the experts did so in this case). The mere fact that the shares increase in value after the sale does not of itself demonstrate a windfall to the buyer, and still less where the increase is attributable to the buyer’s own efforts. The contract of sale and purchase of the shares is usually taken to allocate the risk of subsequent changes in value. Normally the seller bears the risk of a diminution in value until the sale, and then the buyer bears the risk. Conversely, the seller takes the benefit if any uplift before sale (by fixing the price appropriately), and then the buyer takes the benefit of any uplift afterwards.[90]Turning to the facts, this case involves multiple parties, causes of action and sums of money said to be owing. I therefore begin with some clear anchor points. The first is that the Dormco debt was in the sum of £3,106,158.11. The claimant bought 40% of the shares in the Company in 2015. So, the warranty in relation to company debts being breached, the prima facie measure of loss to the claimant is 40% of £3,106,158.11, that is £1,242,463.24. The second anchor point is the fact that in 2017 the Company compromised the claim made by the Dormco liquidator in respect of the Dormco debt for the sum of £1,050,000.[91]The third anchor point is the claim made by the Company against the first defendant in 2017. This was in the total sum of £1,249,999.90. It was composed of three elements. First, there was the sum of £169,999.90 in respect of the unlawful 2014 dividend paid to the first defendant which had to be reversed, and (in accounting terms at least) had become an overdrawn director’s loan account as against him. Second, there was the sum of £1,050,000 in respect of the first defendant’s breaches of duty in relation to the Dormco debt. The figure of £1,050,000 was of course derived from the sum paid to compromise that debt. Third, there was the sum of £30,000 in respect of legal fees incurred in relation to the Dormco debt.[92]The fourth anchor point is that the Company enforced its claim for £1,249,999.90 against the first defendant by forfeiting the 42% of the shares in the Company still jointly held by the two defendants, and immediately selling them to third parties for a total sale price of £958,211. That left a shortfall on the Company’s claim of £291,788.90. The purchasers of those shares were(i) the claimant, which bought 49 of them for £111,791, and(ii) its associated company EK Williams Accountancy Ltd (49% owned by the claimant), which bought 371 shares for £846,420. If the sums paid for the forfeited shares represented the market value at that time, those shares could not compensate the claimant for its loss, because the claimant would have fully paid for them.[93]The question for the court is whether, in assessing the loss to the claimant caused in 2015 by the defendants’ breach of warranty in respect of the Dormco debt, the claimant can recover the prima facie measure of loss of £1,242,463.24, or only some lesser sum (or even nothing at all) by reason of the subsequent events in 2017 set out above. As the authorities make clear, the prima facie rule, from which departure must be justified, is that damages are to be assessed at the date of breach, and that only events which have occurred at that date can be taken into account. I can depart from that only where it is necessary to give effect to the overriding compensatory principle, and only where the parties have not by their contract already allocated the risk of subsequent events changing the value of the property sold and bought.[94]The first point is that the claimant’s loss accrues in 2015, on the making of the SPA. The loss accrued because the defendants failed to disclose a fact, that is, the Dormco debt. However, in 2017 the Company compromised the Dormco debt with the liquidator of Dormco in the sum of £1,050,000. It also forfeited the defendants’ shares because of the first defendant’s unpaid liability to the Company. The second defendant asks me to see this possibility of compromise of the Dormco debt and the forfeiture of the defendants’ remaining shares in 2017 as a contingency or contingencies affecting the value in 2015 of the compensation otherwise due to the claimant for breach of warranty.[95]I find this unreal. If it were true in this case, it would be true in the case of every SPA where a warranty were breached on the basis of non-undisclosed liabilities, and in every case where a company’s articles permitted shares to be forfeited for unpaid members’ liabilities to itself. The (subsequent) successful negotiation of a compromise of a debt claimed from the Company by a third party obviously increases the value of the Company, but that is an entirely separate matter from the amount of the loss caused to the claimant by the breach of warranty in 2015. It is the Company’s action, not the claimant’s. In my judgment, the possibility of compromise of an undisclosed debt of the target company that has been warranted not to exist, and the ability of a company under its articles to forfeit members’ shares for unpaid debts, are not a contingency or contingencies affecting the value of the shares sold in 2015.[96]The second point is that the Company had a claim against the first defendant in respect of his various breaches of duty. This claim was an asset of the Company. The value of this claim to the Company from time to time depended upon a number of factors. One of them was the availability of assets of the debtor to meet the claim. Another was the willingness of the Company to take legal action which might involve both expense to itself and potential liability to other parties. In the present case, the Company embarked on legal procedures which realised nearly 77% of its claim against the first defendant. By its efforts, therefore, the Company caused the claim as an asset of the Company to be worth a considerable amount of money. If the Company had instead owned land which it subsequently developed, so increasing the value of the Company itself, that increase in value would not go to reduce the claimant’s loss on the breach of warranty claim. For the same reason, it seems to me that the successful exploitation by the Company of a claim against the first defendant should not do so either. Once again, the Company’s own actions in vindicating its own claim are entirely separate from the valuation of the loss to the claimant attributable to the breach of warranty claim which the claimant made.[97]But, it may be said, here the asset concerned is a legal claim, four-fifths of which by value relates to the same source of loss to the Company as to the claimant, namely the Dormco debt. To the extent that the value of the claim is recovered, surely that should diminish the loss to the claimant? One answer to this is that the parties are different. The claim of the Company against the first defendant alone for breach of his fiduciary duty was the claim of the Company and not of the claimant. Another is that the causes of action of the Company against the first defendant and the claimant against both defendants are different. The claim of the Company against the first defendant was for breach of the latter’s fiduciary duty, in causing the Dormco accounts to be signed showing the Dormco debt as owed by the Company, and causing a statutory declaration of solvency for Dormco to be signed and filed confirming that the Company indeed owed the debt. On the other hand, the claimant’s cause of action against the defendants was for breach of warranty that there was no such debt as the Dormco debt. Both causes of action relate in some way to the Dormco debt, but the former relates to the creation and confirmation of the debt, whereas the other relates to not disclosing its existence. The losses that flow are different, and impact on different people. The company’s claim was intimated and dealt with in September 2017. The claimant’s claim was intimated in November 2017 and launched only in August 2019.[98]If the claimant had known of the false warranty in 2015, it would have paid less for the shares. So, it paid too much. Its loss accrued at that stage. But the Company would still have had its claim against the first defendant for his breach of fiduciary duty. Later recovery by the Company from the defendant, and the compromise of the Dormco debt at a reduced level, do not diminish the earlier loss of the claimant, any more than the claimant’s paying less for the shares at the outset would diminish the losses of the Company. Moreover, the sale and purchase agreement clearly allocated the risk as between the claimant and the defendants. Before the sale, the risk/reward was for the sellers. Afterwards, it was for the buyer. In my judgment, therefore, the claimant is entitled to claim the loss of 40% of the value of the Dormco debt, that is, £1,242,463.23.[99]Applying the same principles, the claimant is also entitled to damages for breach of warranty by reason of the nondisclosure of the dilapidations claim. I have already said that Deputy Master Smith found that the landlord’s claim was for £237,887, of which 70% (£166,521) was “estimated to be… payable”. So the damages are calculated as the claimant’s 40% of the 70% of the claim estimated to have been payable at the time of the sale and purchase agreement. Deputy Master Akush accordingly assessed these damages at £66,608. There was no appeal against this award or the award of interest upon it, although both were stayed pending this hearing. I will order that the stay now be lifted. Finally, there are the legal costs of dealing with the Dormco problem, which I find were £25,100, exclusive of VAT.[100]On the other side, I must deal now with the complaint that the forfeited shares were sold by the Company to the claimant and to EK Williams at an undervalue. This is a complaint against the Company rather than against the claimant (who bought the shares at the price demanded by the Company). But the second defendant has never taken any steps to vindicate this complaint, whether by an unfair prejudice petition or otherwise. It is difficult to see how I can take account of it in these proceedings, to which the Company is not a party. Mrs Brassington was very briefly cross-examined about the valuations obtained by the Company in relation to the defendant’s remaining shares, but the only evidence elicited was that one was prepared by Mr Rees, the independent director of the Company, and that another was prepared by her husband, but that she had nothing to do with either of them. In my judgment, whatever the merits of this complaint, which I am unable to decide in these proceedings, it cannot amount in law to a set-off against any liability to the claimant.[101]The next point is the second defendant’s submission that credit should be given to her in respect of the value of the director’s loan account created by the unlawful dividend payment in 2014. If the existence of this value had been known in 2015, it may well be that the price to be paid for the shares would have been greater, probably by 40% of the increased value of the loan account. However, if there had been no breach of warranty, and subsequently the 2014 dividend had been declared unlawful, the sellers could not have claimed extra money from the buyers on that account, at least in the absence of some mechanism in the share purchase agreement to do so. No such mechanism is suggested here. Nor was it suggested that there could be any claim for extra payment under the general law of mistake. Accordingly, if the sellers cannot get more money from the buyer because they have misunderstood what they were selling, and charged too little, in my judgment there can be nothing to set off against any liability which the second defendant has towards the claimant.

Conclusion

[102]For the reasons given above, I assess the damages owed by the second defendant to the claimant as follows: £1,242,463.23 in respect of the Dormco debt warranty and £25,100 in respect of the costs of dealing with the Dormco debt. The award of £66,608 by Deputy Master Arkush in respect of the dilapidations claim warranty remains undisturbed, as does the award of interest upon it. Interest will be payable on the other sums in accordance with the statutory provisions set out in paragraphs 2 and 3 of the order of Deputy Master Arkush, that is, Section 35A of the Senior Courts Act 1981 for pre-judgment interest, and section 17 of the Judgments Act 1838 and CPR rule 40.8 for post-judgment interest. I assume that the parties will be able to make a precise calculation and agree it.[103]In the present case it is hard not to feel some sympathy for the second defendant. She trusted her husband to make proper disclosure about the fortunes of the company which he ran, and both he and she (as co-vendors of some of the shares in the company) gave a contractual warranty as to the result. Because her husband failed to tell the truth about the company, she is now liable for breach of contract, with the consequences set out above. I say nothing about the position as between the first and second defendant. But, as between the (innocent) claimant and the second defendant, it is right that its loss should fall upon her, rather than upon the claimant.[104]Lastly, I am sorry for the delay in the preparation of this judgment. It was caused partly by pressure of other urgent work, but also by personal circumstances beyond my control.