W&I Insurance: Courts Confirm Approach For Assessing Damages For Breach Of Warranty In A SPA

Warranty and Indemnity (W&I) insurance is being used more and more widely across the breadth of global M&A activity to provide protection to buyers for breaches of warranty. Whilst the W&I insurance policy will govern how and what claims can be made by buyers, there is considerable case law relating to the measure of damages for breach of warranty. In particular, case law has confirmed that the normal measure for damages is the difference between the value of the shares "as warranted" and the value of the shares "as is" (i.e. their actual value).

This approach was reaffirmed in two recent cases.

In Oversea-Chinese Banking Corp Ltd v ING Bank NV [2019] EWHC 676, unusually, the buyer did not allege that the value of the shares purchased would have been different had the relevant warranty not been breached. Instead, the claimant submitted that the general rule for calculating damages could be departed from in appropriate circumstances, and in particular that damages could be assessed by reference to a hypothetical indemnity and the amount which could have been claimed under the hypothetical indemnity. This argument was rejected by the judge, which indicates the difficulty that buyers may face in making a breach of warranty claim where there has been no diminution in value of the purchased shares. For full analysis of this case please see our Litigation Blog.

In 116 Cardamon Ltd v MacAlister & Anor [2019] EWHC 1200 (Comm), the...