The High Court has granted the sellers of a company summary judgment on their claim for specific performance of a clause requiring payment of consideration from an escrow account, as the purchaser’s claims had not been properly notified in accordance with the relevant contractual provisions: Arani & Ors v Cordic Group Ltd [2021] EWHC 829.

The purchaser’s counterclaims for fraudulent breach of warranty could proceed to trial, as the contractual limitations and exclusions were expressly disapplied insofar as a claim was based on fraud (and would not have been effective to preclude fraud claims in any event). However, that did not affect the sellers’ entitlement to payment from the escrow account under the relevant provisions, and nor could the purchaser set off their counterclaims against the escrow monies due to a “no set off” clause in the agreement.

This case is therefore a reminder of the benefit of well drafted contractual protections for sellers – and, for purchasers, the importance of complying with contractual provisions (as to both timing and content) when notifying claims.

The case is also a reminder that purchasers cannot rely on contractual warranties to found misrepresentation claims against sellers. The court struck out the purchaser’s misrepresentation claims based on contractual warranties, following a number of recent High Court decisions in which the courts have held that warranties are contractual promises rather than actionable representations.


Pursuant to a Share Purchase Agreement dated 1 November 2018 (the “SPA”), the defendant purchaser agreed to purchase the claimant sellers’ shares in Cordic Ltd, a fleet management solution provider, for £10.2 million.

In accordance with the terms of the SPA, £2 million of the consideration was paid into an escrow account (the “Retention Account”) established by the purchaser’s solicitors. The SPA provided that, unless a “Claim” (defined in the SPA as a claim for a breach of a warranty) had been notified to the sellers by the “Release Date” (16 months after the date of completion, ie 1 March 2020), the funds in the Retention Account were to be released to the sellers within five business days.

On 2 March 2020, the purchaser wrote to the sellers alleging that Cordic Ltd was using data from Royal Mail without a commercial licence, in breach of warranties contained in the SPA. The purchaser stated that funds in the Retention Account would not be released until this issue was resolved.

The sellers responded, arguing that the purchaser was not entitled to withhold the funds as its 2 March letters had failed to particularise any breach of warranty and had been served outside the period for notifying a Claim under the SPA.

The sellers issued and served a claim for specific performance of the obligation to pay the sums in the Retention Account. The purchaser argued that it was entitled to withhold the sums in the Retention Account on the basis of the claims set out in its 2 March letters. Alternatively, the purchaser argued that it was entitled to set off against the amounts in the Retention Account its counterclaim for (among other things) fraudulent breaches of warranty and representation.

The sellers applied for summary judgment on their claims and the purchaser’s counterclaims (or alternatively an order to strike out the counterclaims).


The High Court (Andrew Hochhauser QC sitting as a deputy judge of the High Court) granted summary judgment on the sellers’ claims to specific performance of the clause of the SPA requiring payment of the amounts in the Retention Account, finding that the purchaser was not entitled to set off the amounts it counterclaimed. In relation to those counterclaims, the court held that the misrepresentation claims should be struck out but the claims for fraudulent breach of warranty should be allowed to proceed to trial.

Withholding of amounts in Retention Account

The court held that, on a proper interpretation of the SPA, the purchaser had no right to withhold the amounts in the Retention Account. The purchaser’s 2 March letters did not comply with the SPA’s requirements for notifying a Claim. As the purchaser had accepted, its 2 March letters were sent outside the period specified by the SPA for notifying a Claim. Further, the 2 March letters did not comply with the relevant provisions of the SPA because: they did not contain “full particulars” of the Claim; they merely reserved the right to bring proceedings, rather than specifying a claim which was actually being made; and they did not set out an Estimated Claim Amount as required.

The court rejected the purchaser’s argument that, notwithstanding any non-compliance with the notification provisions, clause 6.4 of the SPA meant it could withhold the amounts in the Retention Account due to its claims for fraudulent breach of warranty and/or fraudulent misrepresentation, Clause 6.4 of the SPA disapplied “limitations and exclusions” in the SPA in relation to fraud claims.

Whilst it was common ground that, under clause 6.4, the purchaser could bring fraud claims after the Release Date, the court held that such claims did not entitle the purchaser to withhold payment from the Retention Account. The notification provisions in the SPA regarding the Retention Account clearly distinguished between Claims made prior to the Release Date and other claims. These provisions had been carefully drafted by experienced businessmen, with the benefit of legal advice, to provide the sellers with secure funds which they could obtain without seeking judgement, subject only to the relevant provisions of the SPA regarding notification of Claims. Further, the purchaser’s claim for fraudulent misrepresentation was not a ‘Claim’, as required by the notification provisions, as it was not a claim for breach of warranty, and therefore did not entitle the purchaser to withhold the funds in the Retention Account.

Set off

The court also held that the purchaser was not entitled to set off the amounts in the Retention Account against the amounts it was counterclaiming.

Clause 6.2 of the SPA provided that “All sums payable by any party under this Agreement shall be paid free and clear of all deductions or withholdings unless such deduction or withholding is required by law.” The court held that this was a valid ”no set off” clause, noting that a similar clause had been held to be effective in Lotus Cars Ltd v Marcassus Sport S.A.R.L [2019] EWHC 3128 (Comm).

The court rejected the purchaser’s argument that clause 6.4 of the SPA operated to disapply the “no set off” clause in relation to its fraud claims. Applying the decision of the Court of Appeal in WRM Group Ltd v Wood [1998] C.L.C.189, the court held that the “no set off” clause was not an exclusion clause, but rather one that defined the payment obligation. It therefore did not fall within the scope of clause 6.4.


Finally, the court dealt with the purchaser’s counterclaims. It held that that the purchaser’s claim for fraudulent breach of warranty should proceed to trial, as there was a real prospect that it would succeed (and the failure to serve notice in accordance with the SPA did not preclude claims based on fraud), but it struck out the claim for fraudulent misrepresentation.

In relation to the fraudulent misrepresentation claim, the court held that the purchaser could not rely on any of the warranties in the transaction documents to found its claim, as a warranty was not an actionable representation. This was clear from a number of recent decisions of the High Court: Idemitsu Kosan Co Ltd v Sumitomo Corp [2016] EWHC 1909 (Comm), Sycamore Bidco Ltd v Breslin [2012] EWHC 3443 (Ch) and Ivy Technology Ltd v Martin et al [2020] EWHC 94. The court considered that it was obliged to follow these decisions rather than the earlier, contrary decision in Invertec Ltd v De Mol Holding BV [2009] EWHC 2471 (Ch) (following the principles laid down in Colchester Estates (Cardiff) Ltd v Carlton Industries Ltd [1986] Ch 80 and Re Cromptons Leisure Machines Ltd [2006] EWHC 3583 (Ch) for dealing with conflicting decisions at first instance). In any event, the court confirmed that it would have reached this conclusion even if it was not bound to do so.

The court also rejected the purchaser’s attempt to base its fraudulent misrepresentation claim on certain other “representations as set out in the Transaction Documents in particular the disclosure bundle as pre contractual representations”. The court noted that the transaction documents were the documents which constituted the transaction itself, and therefore it was difficult to see how they could contain pre-contractual representations which induced the purchaser to enter into the transaction. Further, the disclosure letter expressly stated that the “disclosure of any matter or document shall not imply any representation… not expressly given in the SPA”. In these circumstances, there was no real prospect that the purchaser’s fraudulent misrepresentation claim would succeed.

Alexander O'Connell-Danes
Alexander O'Connell-Danes
+44 20 7466 2754