How Far Can You Stretch "Goodwill"? English Court Of Appeal Considers The Meaning Of "Goodwill" In An SPA

Published date05 October 2020
Subject MatterCorporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Contracts and Commercial Law, Trials & Appeals & Compensation
Law FirmMayer Brown
AuthorMr Miles Robinson, Mark Stefanini and Jonathan Cohen


In Primus International Holding Co and others v Triumph Controls - UK Ltd and another1, the English Court of Appeal has upheld a first instance judgment, in which it was held that an exclusion clause in a Share Purchase Agreement ("SPA") did not prevent the purchaser from pursuing a breach of warranty claim. The case concerned the contractual meaning of the term "goodwill" in the context of an exclusion clause which purported to exclude claims for damage to goodwill.

The Court of Appeal's judgment highlights the English court's general reluctance to depart from the ordinary meaning of words used in contracts when interpreting contractual provisions, absent a good reason to do so.


The Appellants ("Primus") were the owners of two aerospace manufacturing companies (the "Targets"). In 2012, Primus entered into discussions with the Respondents ("Triumph") about the sale of the Targets.

As part of those discussions, Primus provided Triumph with a set of financial forecasts for the companies extending to 2017 - referred to as the "Long Range Plan" or "LRP". Although the Targets were not profitable at the time of the discussions, the LRP predicted that the Targets would be profitable in the future. Following the discussions, the SPA was signed in March 2013 and the sale of the Targets completed in May 2013. The original purchase price was $63,530,145, which later increased by $13 million to reflect changes in the book value of the Targets' assets.

Following the sale, significant operational and business problems were discovered within the Targets, and their financial performance fell well short of the forecasted earnings, as set out in the LRP. In fact, Triumph was required to inject a further $85 million in order to keep the Targets afloat.

In August 2015, Triumph commenced proceedings against Primus, alleging breach of the warranties given by Primus in the SPA. One of the claims alleged was that contrary to the warranty at paragraph 19.5 of Schedule 3 to the SPA, the LRP had not been "honestly and carefully prepared" by Primus.

In defence of that claim, Primus asserted that liability for such claims was excluded pursuant to the terms of the SPA - specifically paragraph 3.1(f)(i) of Schedule 8, which excluded liability "to the extent that'the matter to which the claim relates'is in respect of lost goodwill" (the "Goodwill Exclusion").

At first instance, the judge (Mrs Justice O'Farrell) found that Primus had breached the warranty in...

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