Levison v Farin [1978] Abstract: On the reduction of a company's assets between balance sheet date and completion, disclosure

generally of the causes of probable future losses, as opposed to disclosure of a quantified reduction in the net asset value or the actual rate of continuing losses, will not protect the vendors of the company from being in breach of a warranty that "save as disclosed there will have been no material adverse change in the overall value of the net assets of the company." The plaintiffs were the shareholders of L Co, a fashion company, who marketed clothes designed by L, a well-known designer. L became ill and could not work, and L Co began to run at a loss. The plaintiffs negotiated to sell L Co to the defendants. They disclosed that no new collection had been designed, that L Co was running at a loss and that it was in a traded down state they could not specify, because they did not know, how much money was being lost. The defendants agreed to buy L Co's assets for GBP 44,000 and goodwill for GBP 10,000. The agreement contained a warranty that "save as disclosed between balance sheet date and completion date there will have been no material adverse change in the overall net assets of the company allowing for normal trade fluctuations." When the defendants took over, they found an adverse change of GBP 8,600. They refused to pay the full purchase price. Held, the defendants were entitled to damages for breach of the warranty. The reduction was entirely special to the company and had not happened before, and was not a "normal trade fluctuation"; it was a "material adverse change" which was not covered by the general disclosure of the cause of future losses and which had not been specifically disclosed for the purposes of the warranty. Eurocopy v Teesdale [1992] Facts: The first and second defendants agreed to sell the whole of the issued share capital of a company to the plaintiff. The third and fourth defendants, who were directors of the company and parties to the agreement, warranted in para 13 of Sch 5 to the agreement that there were no material facts or circumstances in relation to the company which had not been disclosed in the disclosure letter and which if disclosed might have been expected to affect the decision of the plaintiff to enter into the agreement or the decision of any purchaser to purchase the shares or any of them. The plaintiff claimed that in breach of this warranty the defendants had failed to disclose material facts or circumstances and that as a result the shares were worth far less than the sum paid for them. The plaintiff sought to strike out those parts of the defence in which the defendant alleged that the plaintiff had actual knowledge of material facts and matters not disclosed in the disclosure letter on the ground that the defendants were precluded from relying upon that defence by cll 3.3 and 4.1 of the agreement, which provided that the warranties were subject to the disclosure letter but that no other information relevant to the company of which the plaintiff had knowledge precluded or affected any claim made by the plaintiff under the warranties or reduced the amount recoverable. Mr John Weeks QC sitting as a deputy judge of the High Court dismissed the plaintiff's application on the grounds (amongst others) that it was arguable that the clauses were representations that could not be enforced without reliance, or could not be enforced by a party who knew the disclosure letter was incomplete because to do so would be dishonest, or because the plaintiff was estopped from relying on the clauses. The plaintiff sought leave to appeal. Held (1) If the allegation in the defence of an agreement or understanding that the facts alleged not to have been disclosed in the disclosure letter were not to be treated as being material for the purposes of the warranty in para 13 of Sch 5 was made out, it was arguable that cll 3.3 and 4.1 did not apply at all.

(2) For some of the reasons given by the judge it was not plain and obvious that the defendants should be precluded from asserting that the plaintiff knew of the facts not disclosed in the disclosure letter. (3) Nor should the defendants at this stage be precluded from maintaining their plea that the plaintiff, because it knew of the matters of which it now complained, was not entitled to claim that it had suffered loss and damage by purchasing the shares at more than their fair value. Although the fair value of the shares was to be objectively ascertained, a valuer might take into account the amount offered by the plaintiff and the fact that that offer was influenced by the plaintiff's knowledge of the material facts and circumstances. Accordingly, on the assumption that the facts alleged in those parts of the defence which the plaintiff sought to strike out were true, the submissions of law which the defendants based on those facts were not bound to fail and the application would be dismissed.

Infiniteland Ltd v Artisan Contracting Ltd [2006] Facts: The claimant and the defendant entered into a share purchase agreement under which the claimant purchased a number of companies owned by the defendant. One of the companies purchased by the claimant got into financial difficulties and went into creditors voluntary liquidation less than 6 months following completion of the acquisition. The claimant commenced proceedings against the defendant for misrepresentation and breach of warranty. An error in the target companys accounts had improperly inflated the profits of the target company by 1 million. The purchaser claimed that if the true situation concerning the 1 million was known to it, it would not have entered into the share purchase agreement. The court held that: The purchasers accountant had discovered the error but had failed to expressly notify the purchaser of it. The accountant had only made a small reference to it in a due diligence report which the purchaser had not spotted. This meant however that the purchaser had actual knowledge of the problem in the accounts, because the knowledge of the accountant, who was the agent of the purchaser, could be imputed to the purchaser. This knowledge defeated a claim for breach of warranty but, importantly, on the basis of the drafting of the particular contract in relation to the purchasers knowledge, and not as a general proposition. The error in the accounts had not been properly disclosed in the disclosure letter. The reference in the disclosure letter did not constitute full, clear and accurate disclosure. The references to disclosure of categories of information provided to the purchaser did not compensate for failing to identify clearly the specific point in the disclosure letter.