Valuing a breach of warranty or indemnity claim in an Asset or Share Purchase Agreement

A recent judgment of the English High Court attracted national media attention – not for its legal intricacies, but for the defendant’s colourful emails which formed the basis for a breach of warranty claim. “Education boss cleared over Wolf of Wall Street banter emails”, report The Times. But behind the headlines are lessons for Private Equity and other acquisitive businesses; those negotiating SPA/APA warranties and indemnities; and those considering a claim for breach.

The claim arose from an acquisition by the Claimant (Inspired) from the Defendant (Mr Crombie) of his share in a target company. It centred around (i) internal emails, discovered after the acquisition, which were alleged to be in breach of the target’s internal policy such that relevant SPA warranties were breached; and (ii) whether a notice served under the SPA had been validly served.

Here are four takeaways:

[1]  Consider the Contractual Notice Provisions

Failure to comply with notice requirements can bar a claim entirely. In this case, the claimant was saved by a favourable interpretation of the contract—but that issue could have been avoided altogether with notice clause compliance.

For those negotiating such provisions, consider whether or how notice provisions (timings, formalities, and any evidential requirements) create barriers for bringing claims, or whether loose drafting could lead to confusion and therefore the risk of inadvertent non-compliance. Such barriers may be deliberate or unintentional. Either way, where applicable, they are an important component to assessing the viability of a warranty or indemnity claim. 

[2]  Preserve Evidence and Identify Key Documents Early

It is not entirely clear how the Claimant came to identify the emails which formed the basis of this warranty claim; the judgment merely recounts that they were “discovered” in the founder’s mailbox amongst many thousands of emails, and they were not in the ‘SPA disclosure letter’ by which the Defendant disclosed against the warranties. However, having identified this “small handful” of offensive emails, a further wider disclosure exercise revealed these were “not the tip of the iceberg but represented all that could be found”.  This factor – that evidence of misconduct was limited to some poorly judged emails – was one of the reasons the claim failed. 

Early mapping and preservation of documents, and seeking to identify key documents which support (or undermine) the proposed claim, is an important component to assessing the prospects of a warranty and indemnity claim. In this respect, we have recently observed the rise of a number of tools (driven by AI) which aim to deliver value more effectively, leveraging AI to surface clusters of key documents earlier in the process without a reduced need for manual review. (Our colleague Tom Whittaker frequently writes and talks about these developments).

[3]  Get Early Merits Advice Based on Available Evidence

There is no suggestion that the Claimant failed to do this. However, reading between the lines of the judgment, it does seem that it might have been apparent to the Claimant that its claim faced difficulties.  It tried to ‘make the most’ out of the very limited evidence available in order to found a breach of warranty claim, including via witness statements expressing alleged outrage upon discovering the emails. However, the evidence was not sufficient to convince the judge.

Early merits assessment advice can help avoid pursuing weak claims and/or focus resources where they’re most likely to succeed.

[4]  Obtain Independent Expert Opinion

The value of a breach of warranty is often the difference between the price paid (in reliance on the warranty) and the true value of the business or asset (had the true position been known). As such, valuing a breach of warranty often hinges on expert evidence.

It is not unusual to instruct an ‘expert advisor’ to provide advice that will not be deployed in court or visible to the other party; this can be valuable in calibrating the ‘risk versus reward’ assessment in deciding whether to bring a breach of warranty claim.  However, any expert providing a report or other opinion to the Court must be independent, and must adhere to the relevant Civil Procedure Rules which contain measures seeking to ensure independence. 

One of the many risks of partisan evidence is that it may distort the Claimant’s own view of the claim – in particular ‘the size of the prize’. In this particular case, the Claimant’s expert suggested the breach of warranty claim was worth millions. At trial, the Court found their evidence was partisan and materially overvalued the breach of warranty claim, which was so small it did not meet the SPA’s £75k warranty breach materiality threshold (even if the Claimant had established the alleged breach of warranty).

-----------------------------------------

Further details of the case

There are many recent news articles covering Inspired Education Online Ltd v Tom Crombie [2025] EWHC 1123 (Ch) in far greater detail.  The core narrative is that Inspired acquired Mr Crombie’s stake in ‘My Online Schooling’ (a company which grew very profitable in the wake of covid-19) under an SPA.  It then sought to claw back some of the value paid for those shares. In particular:

1. Inspired’s claim focussed on a series of emails between Mr Crombie and a senior executive of the company which contained ‘Wolf of Wall Street-style’ references to drugs and women which Crombie called “obviously jokey…banter” but which Inspired termed “highly offensive, obscene, vulgar, racist, sexist and discriminatory”.
2. Inspired claimed these emails amounted to gross misconduct for which Crombie would have been liable to be dismissed. It claimed that by not disclosing these emails Crombie had breached warranties given to Inspired in the SPA (relating broadly to compliance with laws, and lack of knowledge of any dispute or claim or likely to give rise to the same at the time of the SPA).  
3. The SPA contained a materiality threshold to claim for breach of warranty: the contract required Inspired to show the breach of warranty resulted in losses greater than £75k.  To address this, Inspired produced expert evidence suggesting that the impact on the share price of Mr Crombie giving false warranties was in excess of £2M (i.e. had the true position – the offensive emails – been discovered and Crombie resultingly dismissed then the shares would have been devalued by that amount). Crombie’s expert said the impact was less than £75k – i.e. did not meet the materiality threshold. 
4. A further element of complexity was that Inspired alleged that Crombie was deemed to have accepted certain post-acquisition Completion Accounts. This was because, rather than raising objection to them via the SPA contractual Notice provision, he had raised them via email to a particular contact.  As no valid notice had been given in time, the SPA’s deemed acceptance provisions applied and Crombie could not therefore dispute the Completion Accounts. 

The court found in favour of Mr Crombie (i.e. the breach of warranty claim failed): 

1. “Looked at dispassionately, the Emails evidence the occasional unprofessional and inappropriate use of work emails as a means of letting off steam”. Inspired’s evidence to suggest they would have been seen as scandalous by a purchaser, and would have led to a scandal if they reached the public domain were not believed. “…[T]he evidence of each of Inspired’s witnesses in detail, their (obviously partial) attempts to justify their (often) extreme reactions to the Emails fell flat.”
2. The emails did not amount to gross misconduct. There was therefore no breach of warranty.  
3. However, the judge went on to consider that, even if there was such a breach, the value of the breach did not meet the warranty materiality threshold. In reaching that conclusion, the Court was highly critical of Inspired’s expert. His methodology, and as a result his opinion of value, was “flawed in too many significant respects” and displayed a “somewhat partial approach (inappropriate for an independent expert)”. This was exposed by “skilful and forensic cross examination” at trial, leading the Court to conclude that “he had not approached his task with the rigour of the truly independent expert”.
4. Finally, perhaps consistent with the prevailing wind of the judgment (because otherwise this part may be a surprise to some commentators), the Court found that Mr Crombie was not deemed to have accepted the Completion Accounts, despite not adhering to the Notice provisions. This was because the email in which he had set out his objections was enough to meet the Completion Accounts’ requirement for “any notice”.  Notwithstanding this finding, we would generally caution against deviation from contractual notice requirements. Usually, a clause reference to giving “a notice” is interpreted by the Court as meaning “a notice given in accordance with the Notice clause”. Mr Crombie was successful on the particular and specific wording of the clause in this case; slightly different wording could have resulted in a finding he had failed to comply with the notice provisions and was therefore deemed to have accepted the Completion Accounts. 

-----------------------------------------

This article was written by Lloyd Nail and Caroline Brown, with assistance from Nathan Gevao. Our dispute resolution team is dedicated to achieving successful outcomes for our clients, focusing on resolving your disputes swiftly and effectively. We prioritise outcomes, not just the process, working alongside you to ensure the right solution is found, minimising the impact on your business while maximising success.