DAMAGES IN BREACH OF WARRANTY CLAIMS – ISSUES FOR PARTIES TO CONSIDER – PRE AND POST DEAL
In this article we set out some of the key considerations of the court when assessing damages for breach of warranty, that parties to transactions might bear in mind both when negotiating and documenting the deal or when bringing and defending a claim. The points are based principally on two cases decided in the England and Wales High Court in 2021: MDW Holdings Ltd v Norvill & Ors and Equitix EEEF Biomass 2 Ltd v Fox & Ors.
Basis of damages
In establishing the basis under which damages are to be awarded for breach of warranty, MDW Holdings confirms that the proper measure should be the difference between the value of an asset had the warranties been true (warranty true), and the actual value of the asset assuming that the warranties were false (warranty false). As noted by Judge Kerr in Equitix, that measure represents “the difference between what the vendor promised and what the vendor delivered”.
The onus is on the claimant to prove, on the balance of probabilities, that the wrongdoing caused them loss. Difficulties in quantifying the loss sustained should not prevent the court from awarding damages. The judgment in MDW Holdings refers to the principles which will allow the court to assist a claimant in overcoming “evidential difficulties in proving damages” (based on a prior case, Marathon Asset Management LLP v Seddon (2017)), but highlights that there are limits to how far this can be taken and the court can only assist to the extent that assumptions can reasonably be made with the evidence available, with Lord Leggatt in Marathon remarking that the court may give the claimant “a fair wind, but not a free ride”.
Jan-Mar 2022 issue
Grant Thornton UK LLP