Goodwill Hunting

• Published date: 05 June 2021
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Simkins
• Author: Ms Giao Pacey

In the case of Primus International Holding Co v Triumph Controls - UK Ltd¹, the courts were left searching for the most appropriate definition of "goodwill" when considering a breach of warranty claim.

Background:

• Primus (the seller) and Triumph (the buyer) entered into a share purchase agreement (SPA) in 2013 for the sale of two aerospace manufacturing companies.

• In preparation of the sale, the seller produced financial forecasts projecting that, although loss-making at the time of the sale, the companies would be profitable in the future. The parties agreed the purchase price for the companies based on those forecasts and, under the SPA, the seller provided a warranty that as far as it was aware, the forecasts had been "honestly and carefully prepared".

• Following the sale, the companies failed to achieve the forecasts and the buyer issued proceedings against the seller for breach of warranty, claiming that the financial forecasts had not in fact been honestly and carefully prepared and that, as a result the buyer had overpaid for the companies.

• The seller sought to rely on a provision in the SPA that excluded liability "to the extent that.the matter to which the claim relates. is in respect of lost goodwill" arguing that the reference to goodwill should be construed in line with the accounting definition of goodwill so that it meant a loss of share value.

• The buyer, on the other hand, argued that the reference to goodwill in the limitation clause meant the good name, business reputation and connections of a business and that, since it was making a claim for lost revenues and increased costs, leading to reduced profitability and loss of share value - which do not fall within the definition of goodwill asserted by the buyer - the seller's liability would not be excluded.

Decision:

The Court of Appeal upheld the trial judge's decision that, on its proper...