Joint And Several Liability Following Settlement Of A Claim To Which Not All Of The Sellers Were Parties

Demco Investments and Commercial SA v InterAmerican Life Assurance (International) Limited and Others [2012] EWHC 2053

The Court had to decide on the individual contributions to be made by a number of sellers where arbitration proceedings in relation to a breach of warranty claim under a share sale agreement was settled between the purchaser and one seller before settlement was reached with the other sellers.

A company had been sold pursuant to a share purchase agreement and deed of indemnity. The sellers were the eight shareholders in the company comprising some individuals and some corporate shareholders. Two of the individuals had management roles. The purchase price comprised a fixed sum of £1m with additional sums of £2.77m, although £700,000 was only ever paid by the purchaser. Under the SPA and deed, the sellers were jointly and severally liable for all breaches of the representations and warranties under the SPA and all losses under the deed. Liabilities arising from gross negligence were uncapped whereas non-gross negligence liabilities were capped for each of the sellers at a percentage of the purchase price which was not the same for each seller.

After completion, it transpired that the target company had been guilty of pensions misselling and incurred very substantial liabilities to policy holders. The sellers commenced arbitration proceedings against the purchaser for the unpaid portion of the purchase price and the buyer counter-claimed for the pension mis-selling liabilities. One of the sellers (G) sought to settle the arbitration, entered into a bilateral settlement agreement with the purchaser and paid £26.6m (representing the gross negligence liability and its own capped liability for non-gross negligence). The other sellers subsequently agreed to settle their liability for a higher figure. Proceedings were brought to determine, inter alia, (i) in what proportions the other sellers should contribute to the gross negligence element of G's settlement and (ii) whether G, having entered into the settlement, should be liable to any of the other sellers in...