Hamid Nawaz-Khan & Ors v UAP Limited

Judge Keyser KC : Introduction

1. The claimants claim moneys said to be due to them as the Sellers under a Share Purchase Agreement dated 5 December 2022 (“the SPA”), by which the defendant purchased a group of companies (“the Alltrust Group”). The defendant denies that any further moneys are due to the claimants, and it counterclaims damages for misrepresentation and breach of warranty and (in the alternative to its primary grounds of defence) rectification of the SPA.

2. The Alltrust Group comprised a holding company, Alltrust Holdings Limited (“the Company”), a trading subsidiary, Alltrust Services Limited (“AS Subsidiary”), and four non-trading subsidiaries. The claimants were the shareholders of the Company. They and members of the Nawaz-Khan family also held minority shareholdings in AS Subsidiary, but the majority shareholder was the Company. (The SPA mentions a separate agreement between the defendant and members of the claimants’ families, but I need not say anything about that agreement.) The first claimant, Mr Nawaz-Khan, and the second claimant, Mr Williams, had founded the Alltrust Group and at the date of the SPA were respectively the Chief Executive Officer and the Executive Director. The third claimant, Mrs Nawaz-Khan, was a shareholder in both the Company and AS Subsidiary, and she was a party to the SPA, though she played no part in the negotiations leading up to it. Those negotiations were conducted principally by Mr Nawaz-Khan, and the claimants accept that his conduct regarding the transaction is properly attributable to them all.

3. The defendant, a company registered in Guernsey, operates in the pensions and trusts sector. It is part of the UAP Group and leads the group’s operations in the UK. Negotiations leading to the SPA were conducted on its behalf primarily by its Managing Director, Mr James Floyd, and its Chief Executive Officer, Mr Robert Shipman.

4. In respect of the SPA the parties were represented by their respective solicitors: the claimants by Harrison Clark Rickerbys (“HCR”); the defendant by Appleby Global Services (“Appleby”).

5. The SPA provided a mechanism for the determination of the Purchase Price and its payment by stages. Completion Consideration of £2,906,179, based on certain good faith estimates by the claimants, was payable on the Completion Date. Deferred Consideration was payable in two tranches: the First Deferred Consideration on the First Deferred Consideration Payment Date; and the Second Deferred Consideration on the Second Deferred Consideration Payment Date. The amount of the Purchase Price, and thus of any Deferred Consideration, was to be ascertained via a procedure set out in Schedule 8 of the SPA, whereby the Seller would prepare draft Completion Accounts and a draft Purchase Price Statement and these were to be agreed or, in the event of dispute, determined by Expert Determination.

6. Completion took place on 5 December 2022 (the Completion Date) and the Buyer paid the Completion Consideration of £2,906,179. Because of a dispute on one particular point, part of the Completion Consideration was held in escrow pending resolution of the dispute. On 29 September 2023 the Sellers served on the Buyer a Draft Completion Account and a Draft Purchase Price Statement. On 20 October 2023 the Buyer served a Dispute Notice. The parties referred the matter to an Expert for Expert Determination. The Expert Determination was provided by a letter dated 21 March 2024, which determined that the Purchase Price was £3,738,086. Thereupon the Sellers’ Solicitors released the escrow amount to the Sellers.

7. The claimants claim the following moneys said to be due from the defendant: i. First Deferred Consideration Payment of £373,748.73, due on 5 December 2023; ii. Second Deferred Consideration Payment of £373,748.73, due within 7 business days of 5 December 2023; iii. An Adjustment Amount of £84,409.55, due on 28 March 2024, pursuant to the Expert Determination; iv. Interest pursuant to clause 19 of the SPA or section 35 A of the Senior Courts Act 1981 .

8. The defendant denies the claim on the grounds (i) that the Expert Determination is flawed and not binding, (ii) that the true Purchase Price is £2,775,986, which is less than the Completion Consideration already paid, (iii) that the escrow amount was wrongly released, and (iv) that it is entitled to set off damages for misrepresentation and breach of warranty, for which it counterclaims. A further counterclaim for rectification of the SPA is advanced in the alternative to its primary ground of defence, if it should be held that the construction of the SPA it advances is incorrect.

9. The principal witness for the claimants was Mr Nawaz-Khan. Mr Williams also gave relevant evidence; however, despite the length of his witness statement, he appeared to me to have little detailed recollection of relevant matters and to be reliant on his trust in Mr Nawaz-Khan. Mr Floyd and Mr Shipman were the witnesses of fact for the defendant. Both of them came across as straightforward witnesses, though Mr Shipman tended towards the combative. On issues of fact, the documents provide a surer guide than the memories of individuals. In addition to the factual witnesses, each side adduced written and oral evidence from an experienced and well-qualified forensic accountant: for the claimants, Mr Geoff Mesher; for the defendant, Mr Roger Isaacs.

10. In this judgment, I shall not refer to all the facts mentioned in the evidence, or even to all the matters of evidence relied on by counsel in their closing submissions, though I have considered them all, but only to what I consider useful for explanatory purposes or important for my conclusions.

11. The case has been fought (an appropriate word) with considerable vigour and thoroughness, involving at least 9,000 pages in the various bundles (the number of which was itself a moveable feast), about 130 pages of closing written submissions, and time-consuming procedural arguments that delayed the conclusion of the trial. Even so, I am grateful to Ms Clarke and Mr Ralston for the generally good humour and unfailing mastery of the evidence and the law which they brought to the case.

12. As this judgment is fairly long and perhaps not ideally easy to navigate, I explain its structure as follows. A. A selective narrative background (paragraphs 13 to 23) B. Provisions of the SPA relevant to the claim (paragraphs 24 to 32) C. The Claim: dispute as to the Purchase Price i. Interpretation of the Purchase Price formula (paragraphs 33 to 78) ii. The Expert Determination (paragraphs 79 to 90) iii. The defendant’s alternative cases: rectification and estoppel (paragraphs 91 to 103) iv. Conclusion on the Claim (paragraph 104) D. The Counterclaim for damages i. Summary of the counterclaim (paragraphs 105 and 106) ii. Provisions of the SPA relevant to the counterclaim (paragraphs 107 to 109) iii. Breach of warranty: a. Warranty 13(g) (paragraphs 110 to 114) b. Warranty 17(a): liability (paragraphs 115 to 140) c. Warranty 17(a): damages (paragraphs 141 to 154) Background

13. Mr Nawaz-Khan is a Fellow of the Institute and Faculty of Actuaries. He established the Company and AS Subsidiary in 2005 and was Chief Executive Officer of the Alltrust Group until completion of the SPA. Thereafter he provided consultancy services to the defendant until July 2023. He retired from his professional activities in 2024. Mr Williams was a shareholder of the Company from the outset, but he joined it as an employee and director in January 2006. AS Subsidiary specialised in providing actuarial, trustee and administration services for Self-Invested Personal Pensions and Small Self-Administered Schemes. It was authorised and regulated by the Financial Conduct Authority (“FCA”) for the establishment, operation and winding up of personal pension schemes and was authorised to hold client moneys.

14. In 2016 the FCA introduced new and more onerous capital requirements. The details do not matter. But in mid-2019 the FCA required AS Subsidiary to put in place a Voluntary Requirement, whereby it agreed to stop paying dividends, not to increase salaries for shareholder directors, and not to do anything else that might reduce the company’s reserves. By early 2020, with AS Subsidiary defending a claim against it, the FCA became concerned about AS Subsidiary’s financial position and wanted the shareholders to inject additional capital. The directors engaged insolvency practitioners to advise as to AS Subsidiary’s solvency in the events (a) that it successfully defended the claim, (b) that any damages awarded against it were within the limits of its existing PII policies, and (c) that damages awarded against it exceeded the insured limits. Mr Nawaz-Khan’s evidence was that the advice was sought not because of the company’s own concerns about its solvency but in order to be able to reassure the FCA that it was and would remain solvent. The insolvency practitioners’ report, produced in June 2020, concluded that AS Subsidiary was solvent and would remain so provided that its contribution to any damages award did not exceed £321,000. Even so, in November 2020 the FCA wrote to Mr Nawaz-Khan, informing him that it believed that AS Subsidiary might not have adequate financial resources, on account of risks and uncertainties relating to complaints, litigation, insurance recoveries and HMRC sanction charges. Shortly afterwards, the claim that AS Subsidiary had been facing was settled on terms that Mr Nawaz-Khan describes as a “relief” to AS Subsidiary and to the FCA.

15. Nevertheless, by 2020 it had become very difficult for AS Subsidiary (and, indeed, for other entities carrying on similar business) to obtain affordable professional indemnity insurance (“PII”). In 2021 that company decided that it would become self-insured, as PII was not available on economic terms. In July 2021 Mr Nawaz-Khan explained the decision in an email to the FCA: “1. Alltrust has reserves well in excess of £1m with an additional £150k provision for claims.

2. Had we ‘saved’ the last two years’ premiums as claims provisions then this would have been £350k. …

6. The only offer of PII we have received is from the existing insurer at a premium of £97k. This means that we would have to pay almost £200k before we were able to benefit from the cover. Were we to add this to what we might have had makes £450k. …

9. As a business thus, we would rather add £100k to our claims provision and continue to build this throughout the year with an objective of a minimum addition of £50k giving a total of £300k by the end of our financial year on 31 March 2022. This is not far short of the cover especially with the excess in mind and the potential that this might actually get to £350k.” In response, the FCA confirmed that they expected AS Subsidiary to increase its claims provision by the amount it had saved in not renewing its PII. Mr Nawaz-Khan replied on 12 August 2021 with confirmation that the claims provision had already been increased by £100,000, making “a total of £250k over and above our regular reserves” and that it was intended to increase it further towards the end of the financial year if profits permitted. In his witness statement, he states: “As of 31 March 2022, our claims provision was and remained £350,000.”

16. According to Mr Nawaz-Khan, the claimants would have sought to sell their shareholdings some years previously, had it not been for the adverse claim that they faced until late 2020. After that claim had been settled, Mr Nawaz-Khan and Mr Williams instructed The Camlee Group Limited (“Camlee”) to proceed to market the Company; though it is clear that Camlee had been engaged on the production of an Information Memorandum since the latter part of 2020. Interest was shown by various parties, though without any agreement being reached, before discussions with the defendant commenced in the spring of 2022.

17. At around the end of 2021 the defendant took the decision to increase its operations in the UK, either by entering into a joint venture with a UK company or by the takeover of such a company. By March 2022 the defendant had identified the Alltrust Group as a potential collaborator or target for acquisition, and in late March Mr Floyd made contact with Mr Nawaz-Khan. Initial talks concerned both a joint venture and the defendant’s acquisition of the Alltrust Group, but the defendant’s clear preference initially was for a joint venture. Indeed, in June 2022 the parties publicly announced a joint venture, and Mr Nawaz-Khan acknowledged in evidence that a joint venture was in operation before the parties agreed to move instead towards a share purchase agreement.

18. A non-disclosure agreement had been executed by 1 April 2022. Later that week Mr Nawaz-Khan provided financial statements for FY2020 and FY2021 (that is, the years ended 31 March 2020 and 31 March 2021: financial statements will be referred to in this form), together with draft Profit & Loss account and draft Balance Sheet to 11 February 2022.

19. Before the end of April 2022 the defendant had made a proposal, which calculated the purchase price on the basis of a multiple of turnover, and Mr Nawaz-Khan had responded with a document setting out comments and a counterproposal. Some passages in this document are relevant to issues discussed below. “ Analysis of UAP Proposal

1. T (Turnover) x 1.5 amounts to £1.817m on the basis of 31/03/22 figures (not final yet). This is the lowest multiple that you consider as the range is 1.5x - 2x as you mentioned. The given reason is the low profit margin. …

3. The multiple does not consider the following: 3.1. In saying low profit margin, no account has been taken of £150k of the profit classified as a claims provision for the y/e 31/03/21. This has increased to £350k at 31/03/22, thus another £200k of profit accounted for this way. In order to consider the profitability of the business, these should be added in. … Alternative Proposal

1. A multiple of 1.75 but based upon T of £1.5m. …

4. Payments of shareholders’ funds at the date of sale (additional to the above) as mentioned during our meeting: 4.1 All reserves 4.2 Claims provision 4.3 Deferred fee income”. Some points may be noted. First, while the multiplicand was turnover, the chosen multiplier was at least potentially dependent on profitability. Second, this appears to be the point at which what are here referred to as reserves, claims provision and deferred fee income come into play. Third, these three items are being treated as assets, for which an additional payment is required over and above the sum arrived at by a multiple of turnover. Fourth, nevertheless, the three items are not defined. Fifth, the seeds of confusion regarding claims provision are present, because it is being treated both (a) as an equivalent to a profit component (presumably on the basis that it represents what would otherwise have been profit but has been retained as a fund—distinguished from “All reserves”: cf. the description of it as “over and above our regular reserves”, paragraph 15 above—for use against potential claims), which is being employed to boost the profit calculation and thereby the appropriate multiple, and (b) as an asset for which payment is sought in addition to the product of the multiple (larger, because enhanced by claims provision) of turnover.

20. On 4 May 2022 a meeting took place at a hotel in South Wales between Mr Nawaz-Khan, Mr Williams, Mr Floyd and Mr Shipman. (A third party was also present.) This was the first time the four of them had met together. The focus at this stage was still on a joint venture—indeed, such a venture was announced the following month—but there was also discussion of the terms on which the defendant might acquire the Alltrust Group. I shall make some further reference to this meeting below.

21. On 1 July and 4 July 2022, the claimants and the defendant respectively signed Heads of Terms. Clause 3 of the Heads of Terms provided: “3. The Share Purchase Agreement shall take account of the payment of any shareholders’ and related funds due as at completion, including: 3.1. All reserves 3.2 Claims provision 3.3. Deferred fee income The Sellers shall take advice on a tax efficient method of the payment of the above monies and consideration for the share sale. Completion accounts shall be prepared within a month of Completion showing on a cash free / debt free basis to assess any further monies due to the Seller.” Again, “all reserves”, “claims provision” and “deferred fee income” were not defined. However, they were referred to as “funds”, and the items at points 3.1, 3.2 and 3.3 were referred to as “the above monies”.

22. On or around 7 July 2022 there was a meeting at Mr Nawaz-Khan’s home, at which in addition Mr Williams, Mr Floyd and Mr Shipman were present. Again, I shall make some further reference to this meeting below.

23. Over the following months the parties engaged in further negotiations, disclosure and due diligence, and the refinement of multiple revisions of the SPA. In about mid-September 2022 HCR set up a data room, via which relevant documents could be shared with the defendant. Among the documents uploaded into the data room were AS Subsidiary’s financial statements for FY2020 and FY2021 (which had already been provided), its financial statements for FY2022, a Balance Sheet and Profit & Loss statement as at October 2022, and budget projections prepared by Mr Nawaz-Khan. Some reference will be made below to relevant matters in connection with specific issues. The SPA was executed and completion took place on 5 December 2022. Earlier on the same day, the parties had agreed the terms of the Sellers’ Disclosure Letter that was required by the SPA. The Share Purchase Agreement

24. Here I shall set out the main provisions of the SPA that have a direct bearing on the issues in the claim. The provisions of specific relevance only to the counterclaim will be set out later in this judgment.

25. Clause 1 of the SPA set out a number of definitions and rules of interpretation applicable to the SPA, among them the following. “ Accounts: the Group Accounts and the Individual Accounts. Accounts Date: the accounts of the Company for the period ended on 31 st March 2022. … Adjustment Date : the fifth Business Day following the date on which the Completion Accounts and the Purchase Price Statement are agreed or determined in accordance with Schedule 8.” “Cash : has the meaning set out in paragraph 1.1 of Schedule 8.” “Claims Provision : has the meaning set out in paragraph 1.1 of Schedule 8. Combined Turnover : an amount equal to the combined turnover of the Target Group [defined as “the Group of which the Company is a member immediately before Completion”] for the period of 12 months ending on the Completion Date [5 December 2022]. Completion Accounts : has the meaning set out in paragraph 1.1 of Schedule 8.” “ Completion Consideration : an amount equal to 65% of the Estimated Purchase Consideration: (a) plus an amount equal to the Estimated Cash; (b) plus an amount equal to the Estimated Claims Provision; (c) plus an amount equal to the Estimated Deferred Fee Income; (d) less Estimated Third Party Debt; (e) less £25,000 in respect of the Insurance (f) less £28,000 in respect of the shares owned by Anouska Nawaz-Khan, Hamal Nawaz-Khan and Jeanette Williams to be purchased by the Buyer pursuant to the AS Share Purchase Agreement.” “ Deferred Consideration : means the First Deferred Consideration Payment and the Second Deferred Consideration Payment. Deferred Consideration Payment Dates : each of the First Deferred Consideration Payment Date and the Second Deferred Consideration Payment Date. Deferred Fee Income : has the meaning set out in paragraph 1.1 of Schedule 8.” “ Disclosed : fairly and fully, clearly and accurately disclosed (with sufficient details to enable a reasonable buyer to identify the nature and scope of the matter disclosed and to make an informed assessment of the matter concerned) in or under the Disclosure Letter. Disclosure Bundle : the documents set out in the Data Room an agreed form index of which is annexed to the Disclosure Letter. Disclosure Letter : the letter, in agreed form, from the Sellers to the Buyer with the same date as this agreement and described as the Disclosure Letter, together with the Disclosure Bundle. Effective Time : has the meaning set out in paragraph 1.1 of Schedule 8.” “ Estimated Cash : the Sellers’ estimate of the Cash, as set out in the Estimates Statement being £1,265,330. Estimated Claims Provision : the Sellers’ estimate of the Claims Provision as set out in the Estimates Statement being £350,000. Estimated Combined Turnover : the Sellers’ estimate of the Combined Turnover, as set out in the Estimates Statement being £1,219,383. Estimated Deferred Fee Income : the Sellers’ estimate of the Deferred Fee Income, as set out in the Estimates Statement being £154,853. Estimated Purchase Consideration : the Sellers’ estimate of the Purchase Consideration, as set out in the Estimates Statement being £2,133,920. Estimated Third Party Debt : the Sellers’ estimate of the Third Party Debt, as set out in the Estimates Statement being £0. Estimates Statement : has the meaning set out in clause 3.2.” “ First Deferred Consideration Payment : an amount equal to 17.5% of the Purchase Consideration. First Deferred Consideration Payment Date : means the first anniversary/date of this agreement. FRS 102 : Financial Reporting Standard 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland as issued by the Financial Reporting Council of the UK and in force for the accounting period ended on the Accounts Date.” “ Group Accounts : the consolidated accounts of the Company and the Subsidiaries for the accounting period ended on the Accounts Date, including the statement of financial position as at the Accounts Date and the income statement and statement of other comprehensive income, statement of cash flows and statement of changes in equity for the accounting period ended on the Accounts Date, and the related notes to such accounts as required by law and applicable accounting standards, copies of which are included in the Disclosure Bundle. … Individual Accounts : the individual company accounts of the Company and each of the Subsidiaries for the accounting period ended on the Accounts Date, including the statement of financial position as at the Accounts Date, and the income statement and statement of other comprehensive income, the statement of cash flows and statement of changes in equity for the accounting period ended on the Accounts Date, and the related notes to the accounts as required by law and applicable accounting standards, copies of which are included in the Disclosure Bundle.” “ Insurance : the professional indemnity insurance to be effected by the Buyer for the benefit of the Company and its Subsidiaries on Completion in respect of any potential claims made against of the Company and its Subsidiaries in respect of any matters the causes of which arise prior to Completion.” “ Previous Accounts : the accounts equivalent to the Group Accounts or the Individual Accounts (as the case may be) in respect of each of the three accounting periods immediately preceding the accounting period ended on the Accounts Date.” “ Purchase Consideration : a sum equal to 175% of the Combined Turnover. Purchase Price : means the Purchase Consideration: (a) plus the amount of the Cash; (b) plus the amount of the Claims Provision; (c) plus the amount of the Deferred Fee Income; (d) less the amount of the Third Party Debt; (e) less £25,000 in respect of the Insurance (f) less £28,000 in respect of the shares owned by Anouska Nawaz-Khan, Hamal Nawaz-Khan and Jeanette Williams to be purchased by the Buyer pursuant to the AS Share Purchase Agreement Purchase Price Statement : the aggregate purchase price for the Sale Shares, as set out in paragraph 1.1 of Schedule 8.” “ Second Deferred Consideration Payment : an amount equal to 17.5% of the Purchase Consideration. Second Deferred Consideration Payment Date : means the second anniversary date of this agreement.”

26. Clause 3 made provision in respect of the Purchase Price. It provided in part as follows. “3.1 The Purchase Price shall be paid by the Buyer to the Sellers in cash in accordance with clauses 3.3 and 3.5. 3.2 Before Completion, the Sellers shall give written notice to the Buyer setting out their good faith estimates of the amount of the Estimated Combined Turnover, Estimated Cash, Estimated Claims Provision, Estimated Deferred Fee Income and Estimated Third Party Debt, and the resulting calculation of the Completion Consideration, Deferred Consideration and Purchase Consideration (the ‘Estimates Statement’). 3.3 The Purchase Price shall be payable as follows: (a) the Completion Consideration shall be paid to the Sellers on the Completion Date and, (b) the Deferred Consideration shall be paid to the Sellers in relation to the First Deferred Consideration Payment on the First Deferred Consideration Payment Date and in relation to the Second Deferred Consideration Payment on the Second Deferred Consideration Payment Date. 3.4 The parties shall procure that the Completion Accounts and the Purchase Price Statement are prepared and agreed or determined (as the case may be) in accordance with Schedule 8. 3.5 The following payments shall be made on or before the Adjustment Date: (a) if the amount of the Purchase Price as set out in the Purchase Price Statement exceeds the amount of the Completion Consideration and Deferred Consideration, the Buyer shall pay to the Sellers an amount equal to the excess; or (b) if the amount of the Purchase Price as set out in the Purchase Price Statement is less than the amount of the Completion Consideration and Deferred Consideration, so that an amount is due from the Sellers to the Buyer, such amount shall be deducted from the Deferred Consideration due to the Sellers if in a sum of less than £350,000 or if a sum greater than this amount, £350,000 shall be deducted from the Deferred Consideration and any excess over £350,000 shall be paid to the Buyer by the Sellers in a proportion representing their percentage of the Purchase Price as set out in Schedule 1. … 3.9 Each payment to be made by the Buyer to the Sellers under or in connection with this agreement shall be made free and clear of all deductions, withholdings, counterclaims or set-off of any kind. 3.10 The Sellers shall be entitled to demand immediate payment of the Deferred Consideration (or the unpaid balance) (together with all accrued interest) if any of the following events occur: (a) the Buyer fails to pay the First Deferred Consideration Payment or the Second Deferred Consideration Payment on the relevant Deferred Consideration Payment Date or within 7 Business Days of such date; …”

27. Schedule 8 was headed “Completion Accounts” and was central to the determination of the Purchase Price. Paragraph 1 contained further definitions, including the following. “ Cash : the aggregate amount of all: (i) cash on hand; and (ii) cash standing to the credit of any account with a bank or other financial institution; and (iii) cash equivalents (including trade and other debtors), in each case to which the Company or any of the Subsidiaries is beneficially entitled as at the Effective Time [defined as “the close of business on the Completion Date”] and as shown in the Completion Accounts, calculated on a consolidated basis in accordance with the accounting principles, policies, standards, practices, evaluation rules and estimation techniques specified in paragraph 4 of this Schedule. Completion Accounts : the consolidated statement of financial position of the Company and the Subsidiaries as at the Effective Time (including the notes thereon), as prepared and agreed or determined (as the case may be) in accordance with this Schedule. Claims provision : means the amount held by the Company in relation to the potential professional indemnity claims in respect of services provided by the Company and/or its Subsidiaries. Deferred Fee Income : means the amount held by the Company in relation to the deferred fee income of the Company and its Subsidiaries. … Draft Documents : has the meaning set out in paragraph 2.1 of this Schedule. Effective Time : the close of business on the Completion Date.” “Purchase Price Statement: the statement setting out the amount of the Combined Turnover, Cash, Claims Provision, Deferred Fee Income and Third Party Debt shown in, or derived from, the Completion Accounts, together with the resulting calculation of the Purchase Price, as prepared and agreed or determined (as the case may be) in accordance with this Schedule.” “Specific Policies : has the meaning set out in paragraph 4(a) of this Schedule.”

28. Paragraph 2 of Schedule 8 made provision for the preparation by the Sellers of drafts of the Completion Accounts and the Purchase Price Statement (defined as the “Draft Documents”) and, in the event of disagreement, for service of a Dispute Notice by the Buyer. Paragraph 2.6 made provision for any dispute to be referred to an Expert for determination.

29. Paragraph 3 of Schedule 8 made provision for the Expert determination. Paragraph 3.3 provided: “3.3 Except for any procedural matters, or as otherwise expressly provided in this Schedule, the scope of the Expert’s determination shall be limited to determining the unresolved matters in the Dispute Notice relating to: (a) whether the Draft Documents have been prepared in accordance with the requirements of this Schedule; (b) whether any errors have been made in the preparation of the Draft Documents; and (c) any consequential adjustments, corrections or modifications that are required for the Draft Documents to have been prepared in accordance with the requirements of this Schedule.” Paragraph 3.7 required the Expert to “make their determination in writing (including reasons for their determination)”. Paragraph 3.8 provided: “3.8 The Expert shall act as an expert and not as an arbitrator. Save in the event of manifest error or fraud: (a) the Expert’s determination of any matters referred under this Schedule shall be final and binding on the parties; and (b) the Draft Documents, subject to any adjustments, corrections or modifications that are necessary to give effect to the Expert’s determination, shall constitute the Completion Accounts and the Purchase Price Statement for the purpose of this agreement.”

30. Paragraph 4 of Schedule 8 set out the basis for the preparation of the Completion Accounts: “4. The Completion Accounts shall be prepared on the following basis, and in the order of priority shown below: (a) applying the specific accounting principles, bases, conventions, rules and estimation techniques set out in paragraph 5 of this Schedule (‘Specific Policies’); (b) to the extent not provided for by the Specific Policies, applying the same accounting standards, principles, policies and practices (with consistent classifications, judgements, valuation and estimation techniques) that were used in the preparation of the Accounts; and (c) to the extent not provided for by the Specific Policies or the matters referred to in paragraph 4(b) above, in accordance with FRS 102, together with all other generally accepted accounting principles, policies and practices applied in the UK and the applicable accounting requirements of the CA 2006 , in each case as in force for the accounting period ending on the Accounts Date.”

31. Clause 14 of the SPA was an “entire agreement” clause: “14. This agreement (together with the other Transaction Documents) constitutes the entire agreement between the parties and supersedes and extinguishes all previous discussions, correspondence, negotiations, drafts, agreements, promises, assurances, warranties, representations and understandings between them, whether written or oral, relating to their subject matter.”

32. Clause 19 made provision for interest: “19.1 If a party fails to make any payment due to any other party under this agreement by the due date then the defaulting party shall pay interest on the overdue sum from the due date until payment of the overdue sum, whether before or after judgment. 19.2 Interest under this clause will accrue each day at 4% a year above the Bank of England’s base rate from time to time (subject to a minimum interest rate 6%). 19.3 In relation to payments disputed in good faith, interest under this clause is payable only after the dispute is resolved, on sums found or agreed to be due, seven days after the dispute is resolved.” The Claim: Dispute as to the Purchase Price Issues of Construction

33. The principal issue here relates to the construction of the SPA. The basic principles of construction are well established. I need only refer, without quotation, to Rainy Sky SA v Kookmin Bank [2011] UKSC 50 , [2011] 1 WLR 2900 ; Arnold v Britton and others [2015] UKSC 36 , [2015] AC 1619 ; and Wood v Capita Insurance Services Ltd [2017] UKSC 24 ; [2017] AC 1173 ; and to the helpful summaries offered by Sir Geoffrey Vos C in Lamesa Investments Ltd v Cynergy Bank Ltd [2020] EWCA Civ 821 , [2021] 2 All ER (Comm) 573, at [18], and by Carr LJ in ABC Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645 , [2021] BLR 97, at [18]-[19]. In Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2 , [2023] 1 WLR 575 , Lord Hamblen (with whose judgment Lord Hodge, Lord Kitchin and Lord Sales agreed) said: “The relevant general principles are authoritatively explained by Lord Hodge in his judgment in Wood v Capita Insurance Services Ltd [2017] UKSC 24 , [2017] AC 1173 at paras 10 to 15. So far as relevant to the present case, they may be summarised as follows: (1) The contract must be interpreted objectively by asking what a reasonable person, with all the background knowledge which would reasonably have been available to the parties when they entered into the contract, would have understood the language of the contract to mean. (2) The court must consider the contract as a whole and, depending on the nature, formality and quality of its drafting, give more or less weight to elements of the wider context in reaching its view as to its objective meaning. (3) Interpretation is a unitary exercise which involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its implications and consequences are investigated.”

34. In the context of the extensive narrative that follows, I bear in mind that negotiations, while potentially relevant to other matters, such as the defendant’s alternative claim for rectification, are inadmissible as an aid to contractual construction. See the discussion in Schofield v Smith [2022] EWCA Civ 824 , per Newey LJ at [22]-[27].

35. The SPA was professionally drafted and went through a lengthy drafting process. Even so, it is clear to me that the issue that has arisen regarding the Purchase Price formula is the result of confusion on both sides as to the nature of two of the components of the Purchase Price. Despite Miss Clarke’s valiant efforts to persuade me of the contrary, I regard it as certain that when they agreed on the formula the Buyer believed that in that context “Claims Provision” and “Deferred Fee Income” represented assets; and I think it very probable that the Sellers did also, though Mr Nawaz-Khan’s evident confusion makes it less than certain what he thought. In fact, they did not represent assets.

36. For convenience, I set out again the relevant definitions in clause 1 and Schedule 8. “ Purchase Price : means the Purchase Consideration: (a) plus the amount of the Cash; (b) plus the amount of the Claims Provision; (c) plus the amount of the Deferred Fee Income; (d) less the amount of the Third Party Debt; (e) less £25,000 in respect of the Insurance (f) less £28,000 in respect of the shares owned by Anouska Nawaz-Khan, Hamal Nawaz-Khan and Jeanette Williams to be purchased by the Buyer pursuant to the AS Share Purchase Agreement”. “ Purchase Consideration : a sum equal to 175% of the Combined Turnover.” “ Cash : the aggregate amount of all: (i) cash on hand; and (ii) cash standing to the credit of any account with a bank or other financial institution; and (iii) cash equivalents (including trade and other debtors), in each case to which the Company or any of the Subsidiaries is beneficially entitled as at the Effective Time [defined as “the close of business on the Completion Date”] and as shown in the Completion Accounts, calculated on a consolidated basis in accordance with the accounting principles, policies, standards, practices, evaluation rules and estimation techniques specified in paragraph 4 of this Schedule.” “ Claims provision: means the amount held by the Company in relation to the potential professional indemnity claims in respect of services provided by the Company and/or its Subsidiaries.” “ Deferred Fee Income: means the amount held by the Company in relation to the deferred fee income of the Company and its Subsidiaries.” “ Insurance : the professional indemnity insurance to be effected by the Buyer for the benefit of the Company and its Subsidiaries on Completion in respect of any potential claims made against of the Company and its Subsidiaries in respect of any matters the causes of which arise prior to Completion.”

37. In the calculation of the Purchase Price, the amount of three things was to be added to the Purchase Consideration: (i) Cash; (ii) Claims Provision; (iii) Deferred Fee Income. Then the resulting total was to be reduced by three things on the other side of the equation: Insurance was an expense that the Buyer would be bearing; Third Party Debt was the borrowings and analogous indebtedness of the Company and its subsidiaries (it is unnecessary to set out the full definition); and the final item was some residual shares that were not included in the SPA and were to be subject of a separate agreement. The logic could hardly be clearer: the price is increased by certain assets and decreased by certain things that serve to diminish the value of the acquisition. Thus, as the payment for the amount of the Cash was a payment for the cash, so the payments for the amounts of the Claims Provision and of the Deferred Fee Income were to be payments for valuable assets. For this simple reason, the defendant’s case is that, in these provisions of the SPA, “the amount held” refers to the ownership or possession of an asset. As there was no asset corresponding to “Claims Provision” or “Deferred Fee Income”, there was nothing to add.

38. The claimants deny this and point to two things. First, the expression “amount held” refers in accountancy practice to an entry on the balance sheet, so that it is to be identified by looking simply at the balance sheet rather than seeking any external referent. Second, “deferred fee income” denotes a commonly used accountancy concept, whereby moneys for which an invoice has been submitted are recognised in the same accounting period as that in which the associated costs are incurred (this is explained in more detail later in this judgment), so that “deferred fee income” can never be an asset but is always a liability in accounting terms.

39. The remarkable consequence of adopting this latter construction of the Purchase Price formula—at least, as the claimants seek to use it—is that the defendant was required to pay for negative amounts on the balance sheet. This is easily illustrated by taking the Claims Provision. The defendant paid £350,000 in respect of “the amount of the Claims Provision”. In fact, there was no discrete corresponding asset. Rather, that was the element of “the amount of the Cash” that the claimants say they were not taking out of the business as dividends but leaving in to cover prospective claims; put another way, it represented a contingent liability. So (according to the claimants), if the defendant wanted to acquire the Claims Provision, it would get the full “amount of the Cash” and pay £350,000 in addition for the Claims Provision; whereas, if the defendant decided that it did not want to acquire the Claims Provision, it would get and pay for £350,000 less Cash and would not pay an additional £350,000 for Claims Provision. In short, the payment of £350,000 for Claims Provision was in respect of precisely nothing.

40. I shall turn to a consideration of the construction issue below, but first I shall explain how the dispute arose by reference to some of the facts appearing from the evidence. It is clear, in my view, that Mr Floyd and Mr Shipman understood that the Claims Provision and the Deferred Fee Income, as components of the Purchase Price, were assets. Mr Nawaz-Khan denied responsibility for any such misunderstanding, but both his evidence on the point and the documents show how the misunderstanding arose and indicate that he was responsible for it.

41. Mr Nawaz-Khan’s written evidence regarding Claims Provision was as follows: “54. The Claims Provision was a provision in respect of future professional indemnity claims, in layman’s terms. It was always classified as a provision in the accounts within the definition provided by FRS102 in that it was a liability of uncertain timing or amount (contingent liability) which was recognised in the AS Subsidiary Accounts from 31 March 2021 onwards in the form of a liability in the balance sheet and an expense in the profit and loss account. The AS Subsidiary, at all times, maintained cash in its bank accounts in an amount exceeding the Claims Provision, in compliance with the agreement with the FCA. At no time did AS Subsidiary need to retain a separate cash fund to meet this potential liability and I certainly never said that we did, either to the FCA or the Defendant.

55. Whilst the Claims Provision represented a potential liability for AS Subsidiary, to my mind, it also represented an investment Tim and I had made in the company. But for the need to comply with the FCA’s VREQ and capital adequacy requirements, Tim and I, as sellers, would have released the Claims Provision prior to completion and would have taken the equivalent cash out of the company by way of a pre-completion dividend. That was not possible and so the terms of the deal were deliberately negotiated in order to put Tim and I [sic] in the position we would have been had the Claims Provision been released prior to Completion.

56. As part of the SPA, we agreed to pay £25,000 towards the PII premium which the Defendant was able to put in place. The rationale for this was twofold: it would cover any future claims and, were the Claims Provision to be released, it would have a positive impact on the business’s financial position as it would increase profits (it would no longer be a provision and a liability). The release of the Claims Provision would have been of a particular benefit for the Defendant as it would need to establish that it could comply with the FCA capital adequacy requirements following Completion and its acquisition of Rowanmoor (which had substantially more non-standard assets than AS Subsidiary did). The Defendant has released the Claims Provision since Completion. I was keen that we made sure that the commercial terms agreed with the Defendant recognised this benefit. The Claims provision was always there for the protection of the SIPP members over and above the Capital Requirement. It gave the FCA comfort and the solvency of Alltrust was never in doubt. A collateral advantage was that it reduced the tax liability since it was derived from profits.”

42. Mr Nawaz-Khan was cross-examined about this passage; the following extract from the transcript elicits the obvious point. “Q. I suggest to you that what you are saying in this paragraph is that the deal that was negotiated was one designed to put you and Mr Williams in the same position as if the claims provision had been released and the money dividended out? A. Yes. Q. I want to ignore whether that was technically feasible and just think through the impact of that on the numbers to see what that would have looked like. If you had dividended out £350,000, there would be £350,000 less cash in the business. Correct? A. Probably, yes. That is correct, yes. It depends. It is a liability. I'm not sure how that worked. Not being an accountant, I couldn't actually vouch for anything there. Q. The company pays out £350,000? So the cash would go down by £350,000? A. It would do, yes. Q. And the result of that would be that the buyer would pay £350,000 less on completion. Correct? A. Yes. Q. As the buyer was paying for the cash balances? A. The buyer was paying for the cash balances and not paying for the claims provision. Q. I will come on to the claims provision. I'm just suggesting £350,000 of cash had left the business. The buyer does not pay for money that has left the business, does it? A. No. Q. The third stage in the analysis is at this stage there is no claims provision to pay for, is there? A. Sorry? Q. This is all based on the fact that the claims provision has been released and the money dividended out. So at this stage of the analysis there is no claims provision to pay for, is there? A. There wouldn't be any claims provision to pay for then, yes. Q. On the alternative scenario which you say underpins the deal, my clients would have been £350,000 better off? A. And worse off. Q. Why worse off? A. Because it's been taken out. The money has been taken out. Q. They don't have to pay for it once it's taken out, because they're paying for cash. So if the cash goes down £350,000, they don't pay for it? A. I don't know how that works I'm afraid. I cannot – this is something – this is why it was something that is referred to the accountants and the experts. So I can't comment on that in a way that would be definitive.”

43. Mr Nawaz-Khan said that at the meeting on 4 May 2022 he had explained that the Claims Provision was made because the Company did not have PII and that “it related to funds which would have otherwise been profits and was to cover future liabilities.” He stated: “I had no reason to believe that they did not fully understand what I had explained to them or what was shown in the accounts/financial documents.” (Witness statement, paragraphs 99 and 100) In fact, in saying that Claims Provision was “to cover future liabilities”, Mr Nawaz-Khan was clearly presenting it as an asset, namely as a resource from which future claims could be met. This is also clear in the evidence he gave when cross-examined by reference to his witness statement: “Q. So can we take it from that sentence [in the witness statement] that you are not suggesting that you told the buyer that it was a liability? A. Well, I have suggested at various times. At times I have said -- Q. Not at various times. At this meeting? A. At this meeting I may not have. I may not have done that. But it does say that it is to cover future liabilities. So it’s a contingent liability essentially. Q. Claims provision is a contingent liability? A. Yes, because if the claims arise then that is to be used towards that, otherwise it just stays there as a provision. Q. That doesn’t tell you whether it is an asset or a liability. That’s my question. You hadn’t told them that it wasn't an asset; it was a liability? A. I do say to cover future liabilities.” The slide from “future liabilities” to a fund “to cover future liabilities” is apparent. I accept the substance of the evidence in Mr Floyd’s witness statement: “Mr Nawaz-Khan again highlighted during the meeting that the Company had a sum of money retained for self-insurance purposes. I remember this because from the outset, I found it was unusual for the Company to be trading without an insurance policy in place. Mr Nawaz-Khan referred to this money as a cash provision held ‘elsewhere’ (i.e. not immediately in use) to cover potential professional indemnity claims. We discussed whether, in an acquisition scenario, UAP would want to add that cash provision to the purchase price (buying the Company with that cash left in) or whether the Sellers should extract it (for example, by dividend to themselves) prior to completion. I understood from these conversations that this ‘Claims Provision’ was actual cash sitting in the Company, earmarked for claims/liabilities but very much real money on the balance sheet.”

44. Mr Floyd’s evidence was that, at the subsequent meeting at Mr Nawaz-Khan’s home on or around 7 July 2022 (he actually gave the date, incorrectly, as 2 June 2022), “The Sellers also tried to explain further the restrictions on the business and a cash provision for the Company being held ‘elsewhere’ and whether we would want to add that cash provision to the purchase price or if it should be distributed as a dividend to the shareholders. My recollection is that Mr Nawaz-Khan and Mr Williams stated that a sum of money had been ‘accrued’ or ‘amassed’ to meet any insurance claims (using both of these words specifically). It was made very clear to me that the Sellers were referring to physical cash that was retained on behalf of the Company.” (witness statement, paragraph 19) In cross-examination, Mr Nawaz-Khan denied this. However, his evidence continued: “Q. Can you remember what words you might have used? A. I can’t recall exactly what words I used, but it would be that there was a sum of money there which was for a provision – a provision for meeting claims. Q. Mr Floyd says: ‘It was made very clear to [him] that the Sellers were referring to physical cash ... retained ...’ Do you agree that that was the impression you gave at this meeting? A. I don’t know what impression I gave and what impression they took. I can't comment on that, and I can't recall exactly the words that were used.”

45. So far as the “Deferred Fee Income” is concerned, the position regarding what was said at the meetings is rather different. Mr Nawaz-Khan’s evidence was that at the meeting on 4 May 2022 he gave a clear explanation. “98. I explained to Robert, James and Randy [Landsman] that the accounting treatment had been amended leading me to explain the Deferred Income. I also explained how the Deferred Income was calculated and altered from the straight-line approach which was utilised previously. I went on to explain that it was now on the basis that the majority of the income was undertaken and claimed in the first month with the remainder being evenly spread out throughout the rest of the year. I went into detail about the background to our decision, the varying practices in respect of deferred income and that some in the sector do not defer anything. Robert mentioned to me that the Defendant followed this practice but on a straight line basis so it was clear to me that he understood what the Deferred Income was, how it was calculated and how it materialised in the accounts. …

100. I do not recall Robert, James or Randy asking me any questions about these points or the financial documents we had supplied to them in advance of the meeting. I did not mislead Robert, James or Randy at all during this meeting or at any other time. I was very open and clear with them when explaining these elements and they indicated to me that they understood both Deferred Income and the Claims Provision. Robert, James and Randy are sophisticated businessmen who are very experienced in their sector and with acquisitions. I was not discussing matters with lay people who might not have heard of the terms ‘Deferred Income’, ‘Claims Provision’ or a ‘provision’ before. I had no reason to believe that they did not fully understand what I had explained to them or what was shown in the accounts/financial documents.”

46. Mr Shipman accepted in cross-examination that the conversation recounted in paragraph 98 of Mr Nawaz-Khan’s witness statement had taken place, though he said that it occurred at the later meeting at Mr Nawaz-Khan’s home on 7 July 2022 and not at the meeting at the hotel on 4 May 2022. It follows that Mr Shipman understood the use of “deferred fee income” as an accounting concept. However, it does not follow that he believed the additional component in the Purchase Price formula to be in respect of anything other than something held as an asset in respect of the negative accounting figure (similarly to the Claims Provision), and I think it unlikely that there was any discussion at either meeting as to the role that deferred fee income would play in the calculation of the Purchase Price. (Mr Floyd had a vague recollection of a conversation to do with deferred fee income, but he could not recall mention of a change of accounting practice.)

47. In fact, there is good reason to believe that both Mr Shipman and Mr Floyd and Mr Nawaz-Khan himself thought that not only Claims Provision but Deferred Fee Income also were assets and to be included as such in calculating the Purchase Price. In the course of his cross-examination, Mr Nawaz-Khan accepted that in communications with Camlee in July 2020 he had expressly referred to deferred fee income as “an asset” and that this showed that he “must have” thought it was an asset (transcript, day 1, pages 100 to 101). Again, by email on 5 November 2022, Mr Nawaz-Khan wrote to Mr Shipman: “[W]e have still not heard from you how to treat the funds in claims provision and deferred fee income.” (Mr Shipman replied: “I think we will be taking the full reserves .”) (My emphases in both quotations.) Again, on the morning of 5 December 2022, in readiness for completion, the terms of the Disclosure Letter were finally agreed; these included in respect of Claims Provision: “Since July 2021, Alltrust Services Limited no longer maintains professional indemnity insurance. This was undertaken with the express knowledge of the FCA. Please see email dated 19.04.2022 from FCA at 7.1 of the Disclosure Bundle. The commercial decision was taken due to the large premium of £120,000 which was being requested by the insurers against an excess of £100,000. Since this date, Alltrust Services Limited has maintained the cash in its account to cover any such liability. It is currently holding £350,000 to cover such liability.” This can only mean that the Claims Provision was an actual reserve of money.

48. That the parties believed that Claims Provision and Deferred Fee Income represented assets is also indicated by their concern to arrange the transaction in the manner most tax-efficient for the Sellers. A draft of the SPA produced in early September 2022 contained the following at clause 5.6: “[The Purchase Price shall be payable on a cash free debt free basis. Completion Accounts shall be prepared in accordance with Schedule [x] to take account of amounts due to the Sellers on Completion, in particular: (a) Reserves; (b) Provision in relation to claims; (c) Deferred fee income.] [NOTE- clause to be drafted in detail once tax advice obtained. Also redemption of Preference shares to be considered].” The reference to “tax advice” relates to the question of the most advantageous way to structure the transaction for the Sellers. I accept Mr Floyd’s evidence given in the context of questioning about another document (transcript, day 4, pages 64 to 65): “A. [T]hey’re saying, ‘Monies of the company, are you going to buy them or –’. It is in my statement. We covered it. It is part of reasons for doing it was to help them out on a tax perspective, that by purchasing it they paid less tax than dividends. Q. We’ll come back to the reasoning for it. A. Just to finish that point: it’s about a 20% tax difference. So we were doing them – that’s a -- Q. We will come back to that.” Mr Nawaz-Khan accepted this (transcript, day 2, pages 30 to 31, and page 33): “Q. Again no definitions at this stage [in draft Heads of Terms]: ‘The sellers shall take advice on a tax efficient method of the payment of the above monies and consideration for the share sale.’ Now this tax advice, what do you say that tax advice was? A. It was whether the funds should be included in the sale. It was better for us that they were included as part of the amount that went to the Buyers because then the sums we received would have a different tax treatment than if we had taken it out as dividends. Q. If they are included, then you would pay capital gains tax – is that the position? A. Yes. If they were included, then yes, we would pay capital gains tax. Otherwise there would be dividend tax and income tax. So we had taken tax advice on the matter.” “Q. … I suggest to you that’s [viz. the Note in the draft] a reference to the tax advice that we discussed a moment ago about the most tax efficient method to do this from the Sellers’s perspective? A. Yes.” The question, therefore, was whether “funds” would be left in the Company and included in the sale (in which case the defendant would have to pay for them) or be taken out and distributed among the shareholders (in which case the defendant would of course not pay for them).

49. The tax position was mentioned again at a meeting of Mr Nawaz-Khan, Mr Williams, Mr Floyd and Mr Shipman on 12 or 13 October 2022. Mr Floyd’s evidence was that Mr Tony Totham, the claimants’ tax adviser, was present also. Mr Floyd’s evidence in his witness statement was as follows: “24. On 12 October 2022, a further meeting took place between the parties to address remaining issues. Prior to that meeting, there was a brief call involving Mr Nawaz-Khan, Mr Williams, Rob, and me. During that call (a sort of pre-meeting discussion), the Sellers noted that they did not mind whether we ‘bought’ the funds (i.e. left the cash reserves including the Claims Provision and Deferred Fee Income in the Company for UAP to acquire) or they took them out as a dividend, but they pointed out it would be better for them tax-wise if the cash reserves were included as part of the sale consideration (taxed as capital gains) rather than as a dividend. They also suggested it would be better for UAP to have the Company keep that cash for future acquisitions (implying it was in our interest as well to include it in the purchase price).

25. In the meeting which took place later that day on 12 October 2022 (attended by Mr Nawaz-Khan, Mr Williams, the Sellers’ tax advisor Mr Tony Totham, Rob, and me), we again discussed the opportunity for UAP to acquire the Company inclusive of those cash reserves versus the Sellers extracting the cash. This issue was still unresolved and remained a key point of negotiation. The Sellers kept emphasising the cash in the business and questioning us on how we wanted it to be treated in the transaction. We were unsure about including it in the purchase price but decided to do so for the reasons set out in the paragraph above (i.e. the Sellers’ insistence that there were mutual benefits to both parties). …” Mr Nawaz-Khan was asked about that passage (transcript, day 2, page 41): “Q. … Do you agree that this discussion occurred at this meeting -- sorry -- at both the pre-meeting and the meeting? A. I have no recollection, but it probably did. I can't say for definite. Q. And he says that your tax adviser, Mr Tony Totham, was there. Do you recall him being there? A. He probably was, yes. Q. Was it Mr Totham’s function to give you personal tax advice on this issue? A. On the transaction, yes.” This makes clear that the question of leaving funds in or taking funds out related not only to the Claims Provision but also to the Deferred Fee Income. The question was not whether the defendant would like to pay extra to acquire liabilities. It was whether funds to meet (actual or prospective) liabilities or deficits would be left in the Company (in which case the defendant would have to pay for them) or be “dividended" out to the claimants (in which case the defendant would not pay for them).

50. Mr Nawaz-Khan accepted (transcript, day 2, page 34) that, in the negotiations with the defendant in autumn 2022, he had been insistent that both Claims Provision and Deferred Fee Income be included in the Purchase Price formula—that is, not merely as part and parcel of the sale, but as components in the calculation of the Purchase Price. This is borne out by the documents. On 17 October 2022, shortly after the meeting just mentioned, Appleby sent to HCR a revised draft of the SPA, in which Claims Provision and Deferred Fee Income had been deleted for the reason explained in the covering email: “Deferred Fee Income – This has to be considered as an asset of the Company against future costs and therefore should not be included in the purchase price. Claims Provision – Again, this is an accumulated amount against future liabilities and should remain with the company as its asset.” (The logic appears to be that these are assets already accounted for in the Cash reserves and so should not be subject of an additional charge.) Mr Nawaz-Khan responded to this proposal in an email to Mr Floyd and Mr Shipman on 24 October 2022: “The reasoning put forward is spurious as all the money belongs to the business which, in turn, belongs to the shareholders. It is not difficult for us to take credit for it all. We just thought that it would be good for your development / spending plans to have these sums available.” That response only makes sense on the basis that the items in question—both Claims Provision and Deferred Fee Income—represent valuable “sums” in addition to the Cash that was to be a component of the Purchase Price (compare Mr Nawaz-Khan’s statement to the FCA that claims provision was "over and above regular reserve”: paragraph 15 above), and that if the defendant wanted those valuable sums, which would be of benefit to it, it would have to pay for them. It does not make sense on the basis, advanced by Miss Clarke, that there was (nonsensically) an agreement for double payment for funds that the shareholders would otherwise take out of the Company. Mr Nawaz-Khan was cross-examined about that email (transcript, day 2, pages 5-6): “Q. Now when you say, ‘... all the money’ – emphasising the word ‘money’ – ‘belongs to the business ...’, I suggest that conveys to Mr Floyd and Mr Shipman that these concepts are referring to money? A. Yes. That’s what I suggest here.” A little later in his evidence (transcript, day 2, pages 48-49 and 80), Mr Nawaz-Khan said that Claims Provision was a contingent liability. This again shows the way in which he has tended to slide—perhaps in his thinking as well as his speaking—between the ideas of liabilities and of funds from which to meet those liabilities.

51. On 27 October 2022 HCR sent to Appleby a draft Disclosure Letter. So far as is relevant to the present issue, it was in materially identical terms to the final version, as quoted in paragraph 47 above, indicating that the Claims Provision was an actual reserve of money. (The one difference was that the figure of £350,000 was within square brackets. Mr Williams thought that this was significant. I do not. It seems to me to indicate no more than that the final figure would be stated in the final Disclosure Letter.) A further draft Disclosure Letter provided on 24 November 2022 was in the same material terms.

52. In early November 2022 Mr Nawaz-Khan and Mr Shipman exchanged emails. Mr Nawaz-Khan noted that the Sellers had “still not heard from you how to treat the funds in claims provision and deferred income” (my emphasis). Mr Shipman replied that the Buyer would be taking “the full reserves ” (again, my emphasis). It is clear that the exchange was proceeding on the simple basis that, if the assets were left in the Company, the Buyer would pay for them and, if the assets were taken out, the Buyer would not pay for them. It was not a question of the Seller having the opportunity to pay extra for nothing. As Mr Shipman remarked in cross-examination, “You don’t pay for fresh air.”

53. On 30 November 2022 Mr Nawaz-Khan sent to Mr Shipman an Estimate Statement pursuant to the obligation intended to be recorded in what became clause 3.2 of the SPA. It showed Claims Provision at £350,000. The figures in the Estimate Statement were subsequently incorporated into the SPA. On 2 December 2022 the Sellers’ Solicitors, HCR, sent a Completion Statement, which showed the calculation of the Completion Consideration in accordance with the definition in clause 1 of the SPA; the Completion Consideration included £350,000 for Estimated Claims Provision, in accordance with the Estimate Statement.

54. Completion had been agreed for Monday 5 December 2022. (The date was important for the defendant, as completion was to be linked to its acquisition of another entity called Rowanmoor.) That morning the terms of the Disclosure Letter were finally agreed. At 2.45 p.m. HCR sent by email to Stuart Tyler of Appleby pdf files showing the Company’s account balances, in accordance with Schedule 4 to the SPA. At 2.50 p.m. Mr Tyler forwarded the email to Mr Shipman, asking, “As expected?” At 2.56 p.m. Mr Shipman replied: “No they look light as we are expecting the following cash in accounts - plus Estimated Cash 1,265,330 - plus Estimated Claims Provision 350,000 - plus Estimated Deferred Fee Income 154,853” The accounts show the following £1,034,879.40 plus £23,094 and £33,689.02 this in total doesn’t match any of the above figures?” At 3 p.m. Mr Tyler replied: “So they should add up to the first number? Was an estimate to be rectified aft[er] completion but they are well out, best to discuss with Hamid?” Mr Shipman replied: “No it should all add up to a lot more James [Floyd] is checking with Hamid here at the moment.”

55. Mr Floyd then made a telephone call to Mr Nawaz-Khan, which lasted nearly 4½ minutes. At 3.07 p.m. Mr Floyd sent an email to Mr Shipman and Mr Tyler: “Hamid is checking with his accountant now.” No response had been received by 3.42 p.m., when Mr Shipman emailed Mr Tyler: “Let’s see what comes back from James as we suspect they are missing an account or yes there [scil. their] figures for cash are way out and they need to return it to UAP Ltd as we need this for Rowanmoor.” Mr Floyd had further telephone conversations with Mr Nawaz-Khan during the afternoon, while documents were being signed pending anticipated completion.

56. At 5.36 p.m. Mr Shipman emailed HCR: “We are ready to complete and you have all the signed documents from UAP now, however there is an issue we need resolving and that is the SPA and completion statement stated that the physical cash in the bank accounts was £1,265,330 however having received the bank account statements this afternoon (14.45) it states that there is a total of £1,091,411.62. This means we have overpaid £173,918.38 which is of a material significance and therefore we can only agree to complete now on the basis that the sum of £173,918.38 is returned to UAP Limited after completion and it is not to be offset against any future consideration to be paid etc as this is a material amount and affects the agreed warranties on the tax matter as well. If you are in agreement to hold and ultimately return this sum then we can complete now if not we require the necessary documents to reflect this.”

57. At 5.54 p.m. Mr Nawaz-Khan sent an email to Mr Shipman, copying in HCR, Mr Tyler and Mr Floyd: “I am very confident that the figures are correct as I explained to James. Tomorrow I am going to ask our accountant to prepare reconciliations to demonstrate this. In the meantime, my non-accounting self explains this as below: Bank Balances 1,091,414 Add debtors total 227,603 Add prepayments 24,103 Investment 15,000 My loan account 211,052 Deferred Fee Income 154,854 TOTAL 1,724,026 Take away 504,854 sum of Claims provision and deferred income Balance 1,219,172 The slight discrepancy is only due to the bank balances being taken at todays [sic] date and the other figures being at the end of October. I do hope that this makes sense and we can proceed. Many thanks.” That response puts the Deferred Fee Income (£154,854) in both parts of the equation and the Claims Provision (£350,000) in the negative part of the equation.

58. To that email Mr Shipman replied at 5.57 p.m.: “I am not referring to what you have stated, I am talking about the actual physical cash in the SPA stated at £1,265,330 but its only £1,091,411.62 so we have overpaid for physical cash, it has nothing to do with deferred income claims provision etc.” Mr Nawaz-Khan replied: “That is how it has been stated in our accounts as debtors are counted as cash. If we just took the bank balance then we would have to allow for debtors. If you are still not happy then we can organise an accountant to accountant call tomorrow and clarify the issue. In any event, there will be the completion accounts which will resolve this. Until such time I can ask Theresa not to pay us the disagreed amount until such time as the matter is clarified either way.”

59. Completion was agreed on that basis and took place at 7.24 p.m. The Completion Consideration was paid, and £173,918.38 (the “Escrow Amount”) was held by HCR in its client account until the issue concerning the amount of the cash had been resolved.

60. In the following days the focus was on the issue concerning cash and the inclusion of non-cash equivalents (as suggested by Mr Nawaz-Khan). However, in an email on 13 December 2022 Mr Shipman remarked to Mr Floyd: “[W]e want to understand what has gone on with the £350k where is it, was it a reduction in turnover or just a provision against profit”.

61. There was a sequence of emails on 20 December 2022. Valerie Humphries, in the Company’s Accounts Department, informed Mr Nawaz-Khan, Mr Williams and Mr Floyd that the November accounts were finished. Her email said, “The Insurance Provision is £350,000”. Mr Floyd replied, “Could you walk me through w[h]ere the insurance provisions are?” Valerie Humphries responded, “The PI Insurance Claims Provision was built up from accruals for self insurance. Our accountant asked for it to show as a Long-Term Liability in the balance sheet – £350,000.” Mr Floyd replied, “We have managed to get retrospective and forward insurance in place. So we can release the funds with all the things we have planned. So is the 350 in turnover or is it under deposit somewhere?” Valerie Humphries responded, “It was treated as an insurance expense so taken from the profit and loss figures. Happy to chat this through if its [sic] easier.” Mr Floyd forwarded those emails to Mr Shipman, who in turn forwarded them to Mr Tyler, together with the Completion Statement, and wrote as follows: “On the attached completion statement we had to pay £350,000 for the insurance provision, but we understood this to be retained cash in an account somewhere when we looked at the completion statement (Highlighted on the statement attached) hence we paid this in addition to the cash in the bank accounts and % of turnover as agreed. It has come to light that this was just taken off the profit and loss of the business and therefore we do not know what we paid for this and it needs to be refunded to UAP Ltd as the agreed sale price had nothing to do with the companies [sic] profit and loss. See the below confirmation from the companies [sic] accountant this is what they did. How do we proceed with this claim?”

62. On 26 January 2023 Mr Floyd emailed Mr Nawaz-Khan: “As per our discussion could you please speak with your accounts about how we can deploy the claims provision as usable capital for the purpose of expansion of Alltrust? The claims provision was always defined as: Claims provision: means the amount held by the Company in relation to the potential professional indemnity claims in respect of services provided by the Company and/or its Subsidiaries. As it was purchased as an asset rather than a long term liability, nor profit or retained earnings your accountant should be able to assist us in putting this back into the company for future expenditure.” On 31 January 2023 Mr Floyd asked Mr Nawaz-Khan for a progress report on the issue, and the latter replied, “With the accountant who is busy with the 31 st Jan stuff. May be next week. I suggest that you approach yours.”

63. Repeatedly in his cross-examination Mr Nawaz-Khan insisted that the defendant’s people were experienced in business affairs and should have addressed this issue in the course of due diligence; see, for example, transcript, day 2, page 58: “Q. I suggest to you that the only commercial explanation for that decision is their belief that they were getting an asset in return for their money? A. I can't comment on that, what they believed. Q. I am suggesting that you knew that that’s what they believed. A. Again I go back to the point being we included that. We agreed it. I presume they did their due diligence. They completed it, signed it, so I still don’t know what you’re trying to get out of me here. Q. I am suggesting to you that it is absurd for them to have purchased, to have paid money for, liabilities and the reason they made that decision, if your construction of the contract is correct, is because you had led them to believe that they were buying assets? A. Again I say this is their belief and instead due diligence should have brought it out, and if they didn’t believe this was correct they should have said ‘No, we are not buying it at this price.” There was nothing to stop them doing that.” The view I have formed of Mr Nawaz-Khan is that he knew very well that Mr Floyd and Mr Shipman believed that the payments for Claims Provision and Deferred Fee Income were for valuable assets and that, if he did not in fact share that belief (as I think he may well have done), he took the view that their misapprehension was a matter for them.

64. The parties agreed to a revised timetable for the ascertainment and determination of the Purchase Price. On 18 April 2023 HCR sent to Appleby the Draft Documents (that is, the Draft Completion Accounts and the Draft Purchase Price Statement); these were sent again to Mr Shipman on 29 September 2023. HCR also sent an explanation of the Cash figure, as provided by the Company’s accountants. Key points in the Draft Documents included the following: i. The Draft Completion Accounts showed Turnover for the period 1 December 2021 to 30 November 2022 as £1,220,404. ii. They showed under Creditors (amounts falling due within one year) a figure of £156,566 for Accruals and deferred income. On the page headed “Extracts from the Interim Financial Statements as at 30 November 2022”, this figure was shown in brackets, that is, as a negative figure on the balance sheet. iii. They showed Trade Debtors (amounts falling due within one year) as £226,691. iv. In the balance sheet in the Draft Completion Accounts a negative figure of £354,594 was shown for Provision for Liabilities. Similarly, on the page headed “Extracts from the Interim Financial Statements as at 30 November 2022”, the figure of £350,000 for Claims Provision was shown in brackets, that is, as a negative figure on the balance sheet. v. The Draft Purchase Price Statement included a figure of £350,000 for Claims Provision and a figure of £156,566 for Deferred Income: that is, both figures were shown as increasing the price based on Turnover, not as reducing it.

65. On 20 October 2023 the defendant served a Dispute Notice on the claimants. The points taken were, in summary, as follows. i. The Turnover figure of £1,220,404 was overstated; the correct figure was no more than £1,118,217. The difference was explained on the basis that the Seller’s Turnover figure was based on a departure from the straight-line treatment of revenue recognition (this is explained below). ii. The figure of £156,566 for Deferred Fee Income ought to be deducted, because there was no such amount held separately from cash and it did not represent an asset. In its place ought to be substituted a negative figure of £440,616 to reflect credit that the claimants ought to give for unearned income. iii. The figure of £226,691 (shown for Trade Debtors in the Completion Accounts and for Cash & Equivalents in the Purchase Price Statement) was overstated by at least £34,605, representing the value of bad or doubtful debts. iv. The figure for Claims Provision was wrongly included in the Purchase Price Statement, because there was no such amount held separately from cash. v. In the light of these matters, the Purchase Price should be no more than £2,772,426.

66. Pursuant to a letter of engagement dated 24 January 2024, the parties appointed Mr Gavin Pearson (“the Expert”), of Quantuma Advisory Limited, to determine the issues raised by the Dispute Notice. In February 2024 the parties submitted two rounds of written submissions. In March 2024 they responded to two sets of questions put to them by the Expert.

67. The Expert provided his Determination by way of a letter dated 21 March 2024, which was after the commencement of these proceedings. In summary, he concluded that: i. The correct Turnover figure was £1,125,567; ii. The figure for Deferred Fee Income (corrected to £158,622) was properly included within the Purchase Price; iii. The figure shown for Trade Debtors in the Completion Accounts and for Cash & Equivalents in the Purchase Price Statement should be reduced by £31,405; iv. The figure of £350,000 for Claims Provision should be included in the Purchase Price; v. In the light of these matters, the Purchase Price was £3,738,086.

68. The Expert dealt with the issue regarding Deferred Fee Income in the following passages of the Determination: “2.2 I determine that the deferred income liability recognised in the draft Completion Accounts qualifies as being Deferred Fee Income ‘held’ by the Company for the purposes of calculating the Purchase Price, on the basis that ‘held’ is a commonly used accounting term with reference to amounts recognised on a balance sheet, and the SPA does not explicitly state the amount is to be held as cash. 2.3 I therefore determine that a positive amount of £158,622 should be included when calculating the Purchase Price. To add a negative amount in respect of Deferred Fee Income would be inconsistent with the wider basis of calculation of the Purchase Price. For example, the definition of the Purchase Price specifically states ‘less the amount of Third Party Debt” (i.e. it is explicitly stated that balance should be deducted rather than added on).” He dealt with the issue regarding Claims Provision in the same way, as follows: “2.9 As stated above in respect of Deferred Fee Income, ‘held’ is a commonly used term in accounting to refer to balances recognised on the balance sheet. 2.10 Again, as with Deferred Fee Income Balance, the SPA states that the amount held for the Claims Provision should be added when calculating the Purchase Price. 2.11 As such, I determine that the Claim Provision of £350k shown under Provisions for Liabilities in the Completion Accounts, meets the definition of Claims Provision as per Schedule 8 of the SPA, and should be added when calculating the Purchase Price.”

69. The premise of the Expert’s determination, namely that “held” is a commonly used term in accounting to refer to balances recognised on the balance sheet, accords with the view of the parties’ experts in this case. In response to what they called Issue Two, “Is there a technical definition of ‘held’ in accounting and/or is ‘held’ a commonly used accounting term with reference to amounts recognised in a balance sheet?”, the experts’ Joint Statement said: “RI and GM agree that there is not a technical definition of ‘held’ in accounting but that ‘held’ is a commonly used accounting term with reference to amounts recognised in a balance sheet.” That agreed position reflects Mr Mesher’s evidence on the point in his report: “5.1 I have searched the entire text of FRS 102, March 2018 Edition. There are 127 uses of the word ‘held’. However, nowhere is it a defined term. 5.2 It is often used in the context of someone (or a business) being in possession of something, albeit not generally in the literal sense of holding something tangible in one’s hand. 5.3 On several occasions it refers to physical items or financial instruments as being ‘held’ at a given value. For example, being held at ‘fair value’. In this context, I interpret ‘held’ as being held on the balance sheet as some such items are intangible and so could not be physically held. 5.4 I have been a Chartered Accountant for over 30 years. In that time, the concept of amounts or balances being ‘held’ on the balance sheet has been a common and consistent phraseology that I, my colleagues and other members of my profession have used. Prior to this case, I do not recall it ever giving rise to any confusion or dispute as it is part of generally utilised lexicography within accounting and financial reporting.” To similar effect was Mr Isaac’s analysis in section 4 of his report, where he stated his conclusions as follows: “4.2.4 I therefore conclude that there is no technical definition of ‘held’, but in the context of the definitions summarised above, ‘held’ seems to refer to assets and/or liabilities on a balance sheet. 4.3.1 In my opinion hold (or held) is a commonly used term when referring to assets or liabilities reported on the balance sheet of an entity”

70. Having set out the narrative explaining how the dispute arose, I turn first to consider the construction issue. In my judgment, the defendant’s construction of the Purchase Price provisions is correct. The calculation of the Purchase Price involves adding certain things to the Purchase Consideration and then deducting certain other things. The plain and obvious meaning of the provision is that additional amounts are to be paid for things that increase the value of the acquisition (assets), while reductions are to be made for things that decrease the value of the acquisition (liabilities, or exclusions from the sale). This seems to me to be straightforward. Unsurprisingly, it is also what the parties—certainly the defendant, and probably Mr Nawaz-Khan—thought, as the narrative above shows.

71. In my view it is unreasonable to suppose that one of the things added on was an asset (namely, the Cash) and that the other things added on were liabilities or things that reduced the value of what was being acquired: first, because the things that reduced the value of what was being acquired were separately identified as deductions (“less …”); second, because it makes no sense to suppose that the price is meant to be increased for things that reduced the value of what was being acquired. There is a definition of “Claims Provision”, as set out above. It is contrary to good sense to interpret that definition as referring simply to the estimated amount of “potential professional indemnity claims”, so that the Buyer (which will inherit any such adverse claims) will pay the amount of them to the Seller. The definition obviously refers to funds put away as a form of self-insurance against such claims. Once that is understood, the definition of “Deferred Fee Income” has a corresponding meaning: not the amount of the deferred fee income (in the sense of money received or invoiced by the Company for work it has not yet done) but a fund held in respect of that existing deficit.

72. As already mentioned, the claimants’ construction of the SPA would have the effect that the defendant would pay twice for £350,000 of the Cash that it was acquiring. Paragraph 15.4 of the Reply and Defence to Counterclaim states: “At all material times the AS Subsidiary maintained cash in its bank accounts in a sum exceeding value of the Claims Provision. The AS Subsidiary was not required to retain a separate cash fund to meet the liability represented by the Claims Provision, and the Claimants never represented that it did so, to the FCA or to the Defendant.” As the defendant was paying for “Cash”, and as “Cash” was defined to include all the money in the bank accounts, the claimants’ case means that the acquisition of the Claims Provision is simply the acquisition of the Cash, with the consequence that the £350,000 is paid twice.

73. Although the point is less immediately obvious, the same result of double payment would occur in the case of Deferred Fee Income. As explained in more detail below in connection with accounting methods, deferred fee income is an accounting device whereby the component of an invoice that is as yet unearned (that is, the work to which it relates has not yet been done) is shown as a liability, in order to ensure that the accounts do not recognise income before it has been earned. However, the amount of the invoice will be included as Cash, which is defined in Schedule 8 to include both actual cash and “cash equivalents (including trade and other debtors)”; so the invoice amount will be represented by actual cash (insofar as it has been paid) and by a cash equivalent, viz. trade debtors (insofar as it has not been paid). The Buyer will have paid for the invoice amount as Cash. On the claimants’ construction of the SPA, it will have to pay for a part of it a second time, even though deferred fee income does not represent an asset.

74. The argument that “held” has a recognised meaning in accounting practice goes nowhere. First, the experts are agreed it is not a technical accounting term. Second, the SPA does not purport to incorporate a technical definition of “held”. Third, the word “held” is used by people other than accountants, and the parties to the SPA were not accountants. Fourth, the ordinary meaning of “held” refers to an asset not a liability. (As Mr Ralston observed, the Reply and Defence to Counterclaim more than once states that the bank accounts of the Company or of AS Subsidiary “held” certain amounts. This accords with normal usage.) Fifth, if and insofar as (contrary to my view) there were merit in relying on a supposedly technical meaning of “held” in an accounting sense, the figures so “held” are negative, which would lead to the addition of a negative figure. In his Determination, the Expert correctly noted the structure of the definition of “Purchase Price”, which dealt with additions and deductions sequentially, but then irrationally ignored the negative values of figures that he sought to add. If one wants to insist that a balance sheet value for Claims Provision and Deferred Fee Income be added to the Purchase Consideration, it makes no sense to look merely at the numbers but ignore that the numbers have a negative value.

75. The interpretation of the SPA adopted in this judgment is not contrary to, or even in tension with, the plain meaning of the text. If it were, however, I should nevertheless regard it as necessary in order to avoid what I would consider to be defiance of commercial sense and indeed common sense. See Lewison, The Interpretation of Contracts, chapter 7, section 17.

76. Miss Clarke submitted that commercial sense did not require this construction of the SPA, because there was no getting around the provision for double payment: if the items in question are cash reserves, they are already included in the Cash; therefore they will be paid for within the payment for Cash and also separately. That argument has the merit of strict logic but seems to me to show the pitfalls of literalism without regard to sense. These three items (the amount of the Cash, the amount of the Claims Provision and the amount of the Deferred Fee Income) are clearly meant to be three things, in respect of which there is to be an addition. The definitions of Claims Provision and Deferred Fee Income show that they are intended to refer to specific reserves as distinct from the general money in the Company from time to time. (Again, I note how Mr Nawaz-Khan put the matter of claims provision to the FCA: paragraph 15 above.)

77. The short conclusion is that, as the Company held no asset corresponding to Claims Provision and Deferred Fee Income, there was nothing to add in respect of them in the calculation of the Purchase Price.

78. It is obvious both that there was a problem with the drafting of the SPA and what the problem was. The inclusion of Claims Provision and Deferred Fee Income (as defined) in the Purchase Price was premised on each expression corresponding to an asset, whereas in fact there was no such asset. The survey of the evidence set out above indicates how the confusion arose. The Expert Determination

79. It is necessary to consider whether the Expert Determination has the effect of rendering the foregoing conclusion redundant. The relevant provisions of the SPA are set out in paragraph 26 above. The defendant contends that the Expert Determination is not legally binding for three reasons: (1) the Expert exceeded his jurisdiction; (2) the Determination involves manifest error; (3) the Expert failed to give adequate reasons for the Determination. The defendant’s challenge relates to two distinct areas in the Determination. The first area concerns the treatment of Claims Provision and Deferred Fee Income in the definition of “Purchase Price”. The second concerns paragraph 4 of Schedule 8 and the accounting policies used in the Completion Accounts. Discussion of this second matter will involve mentioning certain things dealt with in more detail regarding the counterclaim.

80. I take first the challenge to the Determination in respect of Claims Provision and Deferred Fee Income in “Purchase Price”. The primary challenge in this respect is on the grounds that the Expert’s construction of the Purchase Price formula was incorrect, so that (a) he exceeded his jurisdiction and (b) he was manifestly in error.

81. The defendant’s argument on excess of jurisdiction is, in essence, that the true meaning of the Purchase Price formula is a matter of construction and, as such, a matter of law to which there is only one correct answer; and that, as the Expert misconstrued the relevant contractual provisions, his Determination went outside the limits of his decision-making authority. I reject this argument. The scope of the Expert’s decision-making authority as conferred by paragraph 3.8 of Schedule 8 to the SPA necessarily involved a decision on a point of construction regarding the requirements of Schedule 8, with which the Completion Accounts and the Purchase Price Statement were required to comply. Indeed, the dispute on these issues that was referred to the Expert focused entirely on the meaning of what was required , not on the figures. Mr Ralston did not refer me to any authority in support of the submission that the Expert had jurisdiction only if he correctly construed the SPA. Such a broad proposition was rejected by Adrian Beltrami QC in Flowgroup plc (in liquidation) v Co-Operative Energy Ltd [2021] EWHC 344 (Comm) , [2021] Bus LR 755 . I have found assistance in his discussion of this issue at [22]-[34], with which I respectfully agree, and I have reached the same conclusion in respect of the Expert’s jurisdiction in this case as he did in that case.

82. It remains, however, to consider whether the Determination is based on a manifest error in the construction of the SPA; if so, it is not binding on the parties. The meaning of “manifest error” was explained by Lord Hamblen in Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd ( supra ): “30. The narrowness of the permitted defences of ‘manifest or mathematical error or fraud’ is relevant to the implications of the interpretation that the landlord’s certification is conclusive subject only to those defences. ‘Mathematical error’ and ‘fraud’ are self-explanatory terms but the meaning of ‘manifest error’ is less clear. Whilst its precise meaning may depend on the particular contract and context in which it is used, there are a number of authorities which have considered the meaning of these words in conclusive evidence clauses.

31. An often cited and applied explanation of the meaning of ‘manifest error’ is that given by Lewison J in IIG Capital LLC v Van Der Merwe [2007] EWHC 2631 (Ch) , [2008] 1 All ER (Comm) 435 at para 52: ‘A “manifest error” is one that is obvious or easily demonstrable without extensive investigation’. This formulation was approved by the Court of Appeal in the same case [2008] EWCA Civ 542 , [2008] 2 Lloyd’s Rep 187 (per Waller LJ at paras 33-35) and more recently in Amey Birmingham Highwavs Ltd v Birmingham City Council [2018] EWCA Civ 264 , [2018] BLR 225 (per Jackson LJ at paras 83-87).

32. Guidance as to what is meant by being ‘obvious or easily demonstrable’ is provided by the Court of Appeal’s decision in in Veba Oil Supply & Trading GmbH v Petrotrade Inc [2001] EWCA Civ 1832 , [2002] 1 Lloyd’s Rep 295 in which it was stated that manifest errors were ‘oversights and blunders so obvious and obviously capable of affecting the determination as to admit of no difference of opinion’ (per Simon Brown LJ at para 33, his emphasis). This has been applied in a number of recent first instance decisions - see, for example, Septo Trading Inc v Tintrade Ltd [2020] EWHC 1795 (Comm) ; [2021] 1 Lloyd’s Rep 258 (Teare J), Flowgroup plc (In Liquidation) v Co-operative Energy Ltd [2021] EWHC 344 (Comm) ; [2021] Bus LR 755 (Deputy High Court judge Adrian Beltrami QC), Euler Hermes SA (NV) v Mackays Stores Group Ltd [2022] EWHC 1918 Comm (Deputy High Court judge Philip Marshall QC).

33. What is meant by being demonstrable ‘without extensive investigation’ may depend on the context. Unless the contract makes it clear that only the certificate can be considered, extrinsic evidence will be admissible - see Amey Birmingham at para 87. Although it may not be necessary to be able to demonstrate the error immediately, in most cases this will need to be done readily – i.e. by an investigation limited in both time and extent. In so far as the decision of the Court of Appeal in North Shore Ventures Ltd v Anstead Holdings Inc [2011] EWCA Civ 230 , [2012] Ch 31 suggests otherwise, I agree with Flaux J’s observation in ABM Amro Commercial Finance plc v McGinn [2014] EWHC 1674 (Comm) ; [2014] 2 Lloyd’s Rep 33 , at paras 51 to 52 that it ‘has to be viewed with some circumspection’ and that on any view it cannot depend on ‘a full blown trial’.

34. It is therefore clear that the permitted defences of ‘manifest or mathematical error or fraud’ are indeed narrow. An arguable error will not suffice, however well founded the allegation of error may ultimately prove to be.”

83. In my judgment, the Expert’s construction of the Purchase Price formula was manifestly wrong, for reasons set out above. First, I regard it as obvious that Claims Provision and Deferred Fee Income, as included in the Purchase Price formula, referred to (supposed) assets held (in the usual sense of the word) by the Company, not to mere entries on a balance sheet. Second, I regard it as irrational, once the latter (in my view, incorrect) meaning has been adopted, then to add figures to the Purchase Consideration without any regard to the fact that the figures “held” on the balance sheet are figures with a negative value: this, as it seems to me, is arithmetically incorrect (the addition of a negative amounts to a subtraction) and manifestly inappropriate (because it involves increasing the price for things that diminish the value of the acquisition).

84. Accordingly, the Expert’s Determination regarding Claims Provision and Deferred Fee Income does not bind the parties.

85. The second challenge is to the Expert’s Determination of the question whether the Draft Documents had been prepared in accordance with the requirements of Schedule 8 to the SPA and, in particular, whether the Completion Accounts had been prepared on the basis set out in paragraph 4 of Schedule 8 (see paragraph 30 above). The challenge arises because the Expert determined that it was not necessary that the Completion Accounts be prepared in accordance with FRS 102, which is the Financial Reporting Standard published by the Financial Reporting Council and applicable in the UK and Republic of Ireland. (The relevant terms of FRS 102 are set out in connection with the counterclaim for breach of warranty.) The defendant had objected to the Completion Accounts on the basis that they were based on a policy for the recognition of income, referred to by the Expert as the “67% Policy” (also explained below), that was not in accordance with FRS 102. The Expert’s Determination rejected this objection in the following terms: “2.4 On the basis that the 67% Policy used in the preparation of the Completion Accounts is consistent with that applied in the preparation of the Accounts (and therefore the application of FRS 102 is not relevant due to the hierarchical basis set out at paragraph 4 of Schedule 8), I determine that Combined Turnover should be £1,125,567, based on the underlying sales information provided.” The reasoning is clear: paragraph 4 of Schedule 8 provides a hierarchy, or order of priority, of requirements applicable to the Completion Accounts; if the Completion Accounts were prepared applying the same accounting standards etc as were used in the preparation of the Accounts (i.e. as defined in the SPA), in accordance with paragraph 4(b), then paragraph 4(c) was not reached; the 67% Policy used in the preparation of the Completion Accounts had also been used in the preparation of the Accounts; therefore the Completion Accounts had been prepared on the basis required by paragraph 4.

86. For the defendant, Mr Ralston submits that this reasoning is manifestly wrong. He identifies three reasons for this, but they come down to the following argument. The fact that FRS 102 is only expressly mentioned in paragraph 4(c) does not mean that it does not apply at earlier stages of the hierarchy. The Accounts purported on their face to have been prepared in accordance with FRS 102; therefore the Completion Accounts ought to have complied with FRS 102, notwithstanding that paragraph 4 only expressly mentions FRS 102 in paragraph 4(c). Further, if the Expert’s reasoning were correct, it would follow that the Completion Accounts would be compliant with Schedule 8 even if they repeated an “accounting howler” contained in the Accounts.

87. Mr Ralston relied in support of his submission on the decision in Flowgroup , and I should address it. In that case, the seller was challenging an expert’s determination of an issue on the purchase price on the basis of manifest error. The share acquisition agreement contained a schedule that provided for a completion statement. I shall not set out the provisions of that schedule extensively, but paragraph 2.2 was closely similar to paragraph 4 in Schedule 8 in the SPA: “2.2 The Completion Statement will be drawn up in accordance with the bases that appear and in the order shown below: (a) the specific accounting policies set out in part C (Specific Accounting Policies) of this Schedule; (b) to the extent not covered by para 2.2(a), on a basis consistent with and using the same accounting principles, policies, practices, evaluation rules and procedures, categorisations, methods and bases adopted by [Target] in the preparation of the Accounts including in relation to the exercise of accounting discretion and judgement; and (c) to the extent not covered by paras 2.2(a) and/or 2.2(b), in accordance with UK GAAP.” The deputy judge noted at [36]: “Para 2.2 sets out a hierarchy of bases upon which the Completion Statement is to be drawn. They are on their terms mutually exclusive and, in short form, engage (a) the specific accounting policies in Part C; and if not (b) a basis consistent with the Accounts, as defined; and if not (c) in accordance with UK GAAP.” Before the deputy judge, both parties agreed that only paragraph 2.2(a) was engaged and that it was determinative. The “Specific Accounting Policies” referred to in paragraph 2.2(a) included a “Consistent Basis” policy. The schedule provided: “‘Consistent Basis’ means a basis consistent with and using the same accounting principles, policies, practices, evaluation rules and procedures, categorisations, methods and bases adopted by [Target] in the preparation of the Management Accounts including in relation to the exercise of accounting discretion and judgement (save for the calculation of the ‘Bad Debt’ line item, which for the purposes of the Completion Statement shall be calculated at a rate of 3% on debtor balances, consistent with historical preparation of the Management Accounts and with the Accounts) …” The deputy judge noted, again at [36]: “The definition of ‘Consistent Basis’, in turn, requires consistency with the principles, policies and so forth in the Management Accounts, as defined. It was common ground that, to the extent that para 2.2(a) of Part A and therefore para 1.2 of Part C were engaged, what was referred to as the ‘Consistent Basis test’ needed to be satisfied.” In that context, Mr Ralston relies on the following passage in the judgment: “38. The principal issue of interpretation considered by the Expert was whether, when applying the Consistent Basis test, this imported all, or indeed any, of the concepts and principles within UK GAAP. The conclusion which she reached, at para 2.15 of the Report, is that it depended on whether such concepts and principles had been applied when exercising discretion and judgements in the preparation of the Management Accounts. If they had, then this would then carry forward as a component of the Consistent Basis test.

39. Seller contended that this interpretation was a manifest error in three respects. First, it was submitted that, on a proper interpretation of para 2.2, any involvement of UK GAAP was excluded unless and until para 2.2(c) was reached (which it never was). I reject this submission, which I consider to be plainly wrong. The hierarchy in para 2.2 was indeed set in three stages with a final and residual reference to UK GAAP if neither of the first two stages applied. But that says nothing about the content of the earlier two stages. If the Management Accounts were produced by reference to UK GAAP concepts then this would necessarily flow into any application of the Consistent Basis test. In other words, the inclusion of UK GAAP at para 2.2(c) does not operate silently to exclude the potential for UK GAAP at para 2.2(a), or indeed 2.2(b), if such concepts would otherwise be applicable by reference to the accounting documents referred to.”

88. I do not accept Mr Ralston’s submission and make the following observations. 1) The point arises for consideration only if the 67% Policy is not actually in accordance with FRS 102. (This issue is discussed below.) 2) I respectfully agree with Mr Beltrami’s analysis in Flowgroup . However, the analysis on the facts is different. As I have noted, in Flowgroup the analysis was agreed to concern only sub-paragraph (a) (Specific Accounting Policies). As the stage at sub-paragraph (a) included the UK GAAP concepts, they applied at that first stage of the hierarchical structure. But in this case the corresponding analysis raises the question whether the Completion Accounts were prepared on the basis shown in paragraph 4(b) of Schedule 8: see paragraphs 6B to 6H of the re-re-re-amended defence and counterclaim. 3) Thus the logic of the Flowgroup analysis produces a different result in this case. The 67% Policy was in fact the policy on which both the Accounts and the Completion Accounts were prepared, and both the Accounts and the Completion Accounts purported to have been prepared in accordance with FRS 102. The same accounting standards, principles, policies and practices were used in the preparation of both documents. Importantly, the same “classifications, judgements, valuation and estimation techniques” were used when preparing the Accounts and the Completion Accounts. There was no change of circumstance that rendered those estimation techniques appropriate in the one case but not in the other. In short, there was (for present purposes) entire consistency of basis for the Accounts and the Completion Accounts. The “concepts and principles by which discretions and judgements came to be exercised or made” (cf. Flowgroup at [42]) were identical, and that is what was required by paragraph 4(b). The fact, as I think it to be (see below), that this consistent approach was not correctly in accordance with FRS 102 does not affect this point but gives rise to different issues. 4) It is not right to say that, on the Expert’s reasoning, errors carried over from the Accounts into the Completion Accounts would mean that there was “no problem” with the latter (Mr Ralston’s closing submissions, paragraph 226). Paragraph 3.3 of Schedule 8 enabled the Expert to determine unresolved disputes regarding errors in the Draft Documents. 5) Further, the SPA contained a specific warranty by the Sellers that the Accounts had “been properly prepared in accordance with FRS 102, using appropriate accounting policies and estimation techniques as required by section 10 of FRS 102)”: Schedule 5, paragraph 17(a)(ii). The provisions of Schedule 8 regarding the Purchase Price Statement do not abrogate the warranties.

89. Accordingly, I agree with the Expert on this second point of challenge. Anyway, in the light of the foregoing discussion, I think (perhaps unsurprisingly) that he was not guilty of manifest error on this point.

90. It was unclear to me whether Mr Ralston was maintaining a submission that the Expert Determination was not binding because of insufficiency of reasons. I rather think that he relied on the supposed paucity of reasoning in the Determination as indicating that the decision was manifestly wrong. At all events, I regard the Expert’s reasons as adequate and none the worse for being expressed succinctly. A decision-maker required to give reasons is not obliged to deal with every point raised, or even with every material point, but only with the main issues in dispute. And the reasons can be briefly stated, provided that they enable the reader to understand why the issue has been decided as it has. See South Bucks District Council v Porter (No. 2) [2004] UKHL 33 , [2004] 1 WLR 1953 , per Lord Brown of Eaton-under-Heywood at [36]. Alternative Case: Rectification

91. In the alternative to its primary case regarding the construction of the SPA, the defendant counterclaims rectification of the SPA to show that in the Purchase Price formula the concepts of Claims Provision and Deferred Fee Income denoted assets not liabilities. The plea of rectification advanced common mistake and unilateral mistake as alternative bases, but Mr Ralston has maintained only the plea of unilateral mistake: that this was the defendant’s misunderstanding and that the claimants knew of the misunderstanding but failed to correct it.

92. Snell’s Equity (35 th edition, 2025) states at paragraphs 16-018 and 16-019 (references omitted): “[T]oday a document may exceptionally be rectified for unilateral mistake where one party knows of the other’s mistake and acts unconscionably in seeking to take advantage of it. … It is now established that if one party to a transaction knows that the instrument contains a mistake in his favour, but does nothing to correct it and seeks to take advantage of the other’s mistake, he (and those claiming under him) may be precluded from resisting rectification on the ground that the mistake is unilateral and not common. This has been described as a species of equitable estoppel. Under this head, evidence of the knowledge and intention of the defendant is crucial. The relevant test is no longer described as requiring ‘sharp practice’, rather: ‘the conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognised the presence of a mistake.’ So rectification was denied where the claimant failed to provide convincing evidence that the other party: ‘shut its eyes to the obvious or wilfully and recklessly failed to do what an honest and reasonable person would have done in the circumstances.’ Actual knowledge by the defendant of the mistake is not necessarily required. It is sufficient that he wilfully and recklessly shut his eyes to the obvious or intended the other party to labour under a mistake and suspected, though did not actually know, that the other party was mistaken. On the other hand, mere non-disclosure of a matter which might have affected the mind of the other party but which there was no obligation to disclose, such as recent information as to market prices, will not suffice. It seems that mere negligence in not spotting the other party’s erroneous understanding of the terms of the contract is similarly insufficient.”

93. The law was stated as follows by Buckley LJ in Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505 at 515-516: “For this doctrine … to apply I think it must be shown: first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A's intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake.”

94. I am satisfied that the defendant believed that the Purchase Price formula provided for payment for assets regarding both Claims Provision and Deferred Fee Income. This is the evidence of both Mr Floyd and Mr Shipman and I see no reason to reject it. Further, I think it inconceivable that they believed they were paying additional sums literally for nothing. Miss Clarke advanced several matters as indicating that the defendant was under no misapprehension, but I found them unpersuasive. The strongest point was that the issue raised by the defendant immediately before and immediately after completion related to the cash balances in the bank accounts but not to the amounts held in respect of Claims Provision and Deferred Fee Income, and that the Escrow Amount related only to the cash. However, the expectation that there were corresponding assets was expressly indicated on the day of completion—see Mr Shipman’s email to Mr Tyler at 2.56 p.m.—and perplexity as to the whereabouts of the assets was apparent in the following days and weeks. The fact that the reservation was made only in respect of the shortfall of cash is probably explicable by a number of things: a degree of confusion on the day itself, exacerbated by the deadline for the transaction concerning Rowanmoor; the fact that the precise nature of the reserves in question had never been very clear, so that the defendant appears to have thought that they were held in some kind of account but to have distinguished them from the Cash balances; and the corresponding belief that they were assets of known amounts, held somewhere by the Company, and did not require the precise verification and quantification that was required in respect of the Cash. This was in the context of what was then a good and even friendly relationship between the parties, in which the verification of particular figures was relevant but there was no thought on the part of Mr Floyd and Mr Shipman that there was anything radically amiss with the very existence of components of the Purchase Price. Mr Floyd’s evidence was that the defendant proceeded to completion “with trust” and in the belief that answers would be forthcoming after completion (transcript, day 4, pages 106 and 107).

95. I also find that Mr Nawaz-Khan both knew of what was ex hypothesi a misunderstanding on the part of the defendant and induced it. I refer to the following particular matters: (i) The introduction by Mr Nawaz-Khan, in April 2022, of these additional components of the Purchase Price in his Analysis of UAP Proposal, where they are listed, along with “All reserves”, as “shareholders’ funds” (paragraph 19 above). (ii) The Heads of Terms in July 2022, listing the same three items as being “shareholders’ and related funds” and as “monies” (paragraph 21 above). (iii) The discussions and concerns regarding efficient tax planning, which I am satisfied concerned both the Claims Provision and the amount held in respect of Deferred Fee Income, as well as general cash in the bank (paragraphs 48 and 49 above; and note the reference to tax planning in the Heads of Terms, referring to both items and the Cash). The defendant was being led to believe that, if the items were not included in the Purchase Price, they would be taken out as dividends. This necessarily meant that they were being held out as assets. (iv) Mr Nawaz-Khan’s email of 24 October 2022 (paragraph 50 above). Mr Tyler had referred to the items as assets, and far from correcting him on this point Mr Nawaz-Khan responded in terms that treated the items as sums of money that would be available for the defendant if they remained with the Company. (v) Mr Nawaz-Khan’s email of 5 November 2022 (paragraph 47 above). (vi) The express recognition in the Disclosure Letter, throughout all of its drafts, that Claims Provision was an actual reserve of money (paragraph 47 above).

96. The mistake in question was one calculated to benefit the claimants, because it resulted in payment of a large amount of additional consideration in return for nothing. Neither Mr Nawaz-Khan and Mr Williams nor anyone else on behalf of the claimants sought to correct the mistake on the defendant’s part. Either the claimants shared the misunderstanding or, if they knew of the defendant’s misunderstanding but did not share it, it was unconscionable of them not to correct it.

97. Miss Clarke submitted that the defendant’s delay in seeking rectification ought to preclude the grant of equitable relief. I do not agree, particularly having regard to the fact that rectification is sought in the alternative to the primary case as to the proper construction of the SPA.

98. Miss Clarke also submitted that rectification would be inappropriate, because it would involve making the provisions of the SPA contradict the true factual position, which is that Claims Provision and Deferred Fee Income were not assets at all. I do not see this as a serious objection to rectification. The defendant believed there were corresponding assets and agreed to pay for them. Rectification would bring the SPA into accord with the defendant’s belief. There were, in fact, no corresponding assets. Therefore the additional payment is nil.

99. The rectification sought has not been precisely formulated by the defendant, but it seems to me that what is sought would be achieved by the insertion of “of assets” between “amount” and “held” in the definitions of Claims Provision and Deferred Fee Income. In the light of Miss Clarke’s submission that the definition of “Cash” included any asset that could be comprised within the other two items, the words “(but excluding the amount of the Claims Provision and the amount of the Deferred Fee Income)” might be added after “(a) plus the amount of the Cash”. Alternative Case: Estoppel

100. The defendant relies, again in the alternative, on estoppel by convention and estoppel by representation.

101. Estoppel by convention was explained by Lord Burrows in Tinkler v Revenue and Customs Commissioners [2021] UKSC 39 , [2022] AC 886 : “45. Having referred to a number of the leading cases on estoppel by convention examined above, including The Indian Endurance , The Vistafjord and Keen v Holland , but not The August Leonhardt , Briggs J set out the following very important statement of principles [in Revenue and Customs Comrs v Benchdollar Ltd [2009] EWHC 1310 (Ch) , [2010] 1 All ER 174 ] at para 52: ‘In my judgment, the principles applicable to the assertion of an estoppel by convention arising out of non-contractual dealings … are as follows. (i) It is not enough that the common assumption upon which the estoppel is based is merely understood by the parties in the same way. It must be expressly shared between them. (ii) The expression of the common assumption by the party alleged to be estopped must be such that he may properly be said to have assumed some element of responsibility for it, in the sense of conveying to the other party an understanding that he expected the other party to rely upon it. (iii) The person alleging the estoppel must in fact have relied upon the common assumption, to a sufficient extent, rather than merely upon his own independent view of the matter. (iv) That reliance must have occurred in connection with some subsequent mutual dealing between the parties. (v) Some detriment must thereby have been suffered by the person alleging the estoppel, or benefit thereby have been conferred upon the person alleged to be estopped, sufficient to make it unjust or unconscionable for the latter to assert the true legal (or factual) position.’ …

48. The Benchdollar principles brought a welcome degree of clarity to the law on estoppel by convention, at least in the context of non-contractual dealings (for the wider context, see para 78 below). As in all areas of the common law, including equitable doctrines, it is important in guiding behaviour that the law is stated with as much clarity and precision as possible while not depriving the courts of the flexibility needed to develop the law incrementally in response to changes in conditions and attitudes.

49. However, it was unfortunate that Briggs J’s first principle made no reference to the need for conduct to have ‘crossed the line’. Soon after Benchdollar , Briggs J was presented with the opportunity to make that refinement. In Stena Line Ltd v Merchant Navy Ratings Pension Fund Trustees Ltd (“Stena Line”) [2010] EWHC 1805 (Ch) ; [2010] Pens LR 411 (upheld on appeal without discussing this point at [2011] EWCA Civ 543 ; [2011] Pens LR 233) Briggs J accepted the submission of counsel that, by reference to The August Leonhardt , his first principle should be amended to include that ‘the crossing of the line between the parties may consist either of words, or conduct from which the necessary sharing can properly be inferred’ (at para 137).

50. Although not referring to Stena Line , the same point was made by the Court of Appeal (Longmore LJ, Jackson LJ and Hildyard J) in Blindley Heath . On the facts of that case, the parties to a share sale agreement had conducted themselves on the incorrect assumption that there was no earlier shareholder’s agreement by which any sale of the shares first had to be offered to existing shareholders. The parties had forgotten about an earlier shareholders’ agreement conferring pre-emption rights. It was held that estoppel by convention applied. The parties had conducted themselves on the basis of a common assumption that there were no valid rights of pre-emption and it would be unconscionable to allow the directors to go back on that assumption. While citing Briggs J’s principles with apparent approval, Hildyard J, giving the judgment of the court, at para 92, made clear in relation to the first principle that ‘something must be shown to have “crossed the line” sufficient to manifest an assent to the assumption.’

51. It may be helpful if I explain in my own words the important ideas that lie behind the first three principles of Benchdollar . Those ideas are as follows. The person raising the estoppel (who I shall refer to as ‘C’) must know that the person against whom the estoppel is raised (who I shall refer to as ‘D’) shares the common assumption and must be strengthened, or influenced, in its reliance on that common assumption by that knowledge; and D must (objectively) intend, or expect, that that will be the effect on C of its conduct crossing the line so that one can say that D has assumed some element of responsibility for C’s reliance on the common assumption.

52. It will be apparent from that explanation of the ideas underpinning the first three Benchdollar principles that C must rely to some extent on D’s affirmation of the common assumption and D must (objectively) intend or expect that reliance. … “53. As I have already said, both counsel submitted that the Benchdollar principles, subject to the Blindley Heath amendment to the first principle, applied in this case. I agree. This judgment therefore affirms that those principles, as amended by Blindley Heath , are a correct statement of the law on estoppel by convention in the context of non-contractual dealings. What I have also sought to do is to explain the ideas underpinning the first three principles which may provide assistance in the understanding and application of those principles.”

102. For reasons sufficiently appearing above, I would if necessary have held the claimants estopped from disputing that the items in question in the Purchase Price formula referred to assets in the nature of reserves held by the Company as provision against future claims and deferred fee income. This was the common assumption underlying the Purchase Price formula, and it was an assumption that Mr Nawaz-Khan was responsible for instilling in the defendant through the various statements mentioned above. The defendant relied on the assumption in agreeing the terms of the SPA and suffered detriment by paying a substantial mount for “fresh air”, as Mr Shipman complained.

103. The same result would, I think, be available on grounds of estoppel by representation. Conclusion as to the Purchase Price

104. The Expert determined the Total Consideration to be £3,738,086. As I understand the figures, the decisions set out above mean that the figures of £350,000 for Claims Provision and £158,622 for Deferred Fee Income fall to be deducted. Therefore the Total Consideration ought to be £3,229,464. The Counterclaim Summary of the Counterclaim

105. The defendant claims damages under section 2(1) of the Misrepresentation Act 1967 for the following alleged misrepresentations: 1) That AS Subsidiary was holding £350,000 in cash, in substitution for professional indemnity insurance, for the specific purpose of meeting any claims that might be made (“the Claims Provision Representation”); 2) That the Deferred Fee Income corresponded to an asset (“the DFI Representation”). The claim in misrepresentation is, accordingly, in the nature of an alternative to the case it advances in its defence in respect of Claims Provision and Deferred Fee Income. As I have already discussed various alternative cases proposed by the defendant, and as I cannot see that the claim in misrepresentation could succeed if all of those other alternatives failed, I shall not discuss the claim in misrepresentation beyond saying shortly that any obligation on the part of the defendant to pay additional amounts for the Claims Provision and the Deferred Fee Income arose because the defendant was induced to agree to the Purchase Price formula by representations by Mr Nawaz-Khan as to the existence of corresponding assets, for which he had no reasonable grounds.

106. The defendant also claims damages for breach of warranty, as follows: 1) Warranty 13(g)(i): certain debts were not realised, and the Sellers were aware of a reason why the relevant debts could not be collected within six months after the date of the SPA for their full amount; 2) Warranty 13(g)(ii): certain debts had been outstanding for more than two months from their due date for payment; 3) Warranty 17(a)(i), (ii) and (v): the Accounts did not give a true and fair view of the state of affairs of the Alltrust Group, because they had not been properly prepared in accordance with FRS 102, in that they had been prepared using an accounting technique that artificially accelerated the recognition of income—a technique that had not been used for the Previous Accounts. I shall begin by setting out further relevant provisions of the SPA. Share Purchase Agreement

107. Clause 1 contained the following definition: “Warranties : the warranties given by the Sellers pursuant to clause 6 [the reference should be to clause 5] and set out in Clause 6.2 [the reference should be to clause 5.2] and Schedule 5.”

108. Clause 5 provided in part: “5.1 The Sellers acknowledge that the Buyer is entering into this agreement on the basis of, the Warranties. … 5.3 The Sellers warrant to the Buyer that except as Disclosed, each Warranty is true, accurate and not misleading as at the date of this agreement.”

109. The main Warranties were contained in Schedule 5. The Defendant relies on the following Warranties. “13 (g) The debts owing to the Company or any of the Subsidiaries as reflected in the Accounts, and all debts subsequently recorded in the books of the Company or any of the Subsidiaries since the Accounts Date: (i) have been realised, and the Sellers are not aware of any reason why the relevant debts could not be collected within six months after the date of this agreement for their full amount as included in those Accounts or books; (ii) have not been outstanding (in whole or in part) for more than two months from its due date for payment; …” “17 (a) The Accounts: (i) show a true and fair view of the state of affairs of the Company and the Subsidiaries as at the Accounts Date, and of their profit or loss and total comprehensive income for the accounting period ended on the Accounts Date; (ii) have been properly prepared in accordance with FRS 102, using appropriate accounting policies and estimation techniques as required by section 10 of FRS 102); … (v) (save as the Group Accounts expressly disclose) have been prepared using the same accounting policies and estimation techniques as those adopted and applied in preparing the Previous Accounts.” Breach of Warranty Warranty 13(g)

110. The defendant alleges breach of warranty 13(g)(i) on the grounds that the claimants were aware of a reason why debts shown at £34,604.85 in the Accounts could not be collected within six months of the date of the SPA for their full amount. The “reason” relied on is the antiquity of the debts: Amended Defence and Counterclaim, paragraph 40; closing submissions, paragraph 283.1. The debts relied on are set out in a schedule to the Amended Defence and Counterclaim. Forty-five debts are listed, all of them outstanding for more than six months at the date of the SPA. Of these, forty had been outstanding for more than 12 months, and twenty-nine for more than two years. Thirteen had been outstanding for more than five years. Three had been outstanding for more than 10 years.

111. For the claimants, the main evidence on debtors was given by Mr Williams. His witness statement was to the following effect. Debtors were kept under regular review. Debts that were thought not to be recoverable were written off. However, it was not uncommon for debts to be outstanding for months or years; this did not mean that they were bad or unrecoverable. Thus debtors might have accounts with non-liquid assets, from which the debts could be recovered in accordance with the AS Subsidiary’s terms of business. All debts shown on the Accounts were considered to be recoverable; if they had not been, they would have been written off. In cross-examination, Mr Williams agreed that it was sensible to write off a debt when its recovery became disproportionately expensive. When asked whether there was “a particular cut-off” for deciding that debts were too small for it to be proportionate to pursue recovery, he made clear that he did not deal with such matters and was unable to answer. However, when it was put to him that the claimants had a reason for thinking that a debt could not be collected if it had not been paid for more than six months, he replied: “No, I don't think that's the case, because I think there are cases where we were talking years to actually claim a debt, but we knew that the money was available and we knew that the assets existed and we were merely waiting for the correct time to release the funds.” When it was put to him that the documentary evidence showed that the Company had stopped writing off debts after the end of FY2022, he replied: “I can’t answer that, I’m sorry. I don’t know.” For the defendant, Mr Ralston invited the inference that no proper analysis of aged debt occurred after the end of FY2022.

112. I am not satisfied that the claimants were in breach of warranty 13(g)(i). The defendant has not shown that the listed debts could not have been recovered within six months from the scheme assets of the respective debtors. The fact that they had not been so recovered previously, in some cases for many years, may well be explicable in terms of pragmatic business decisions. I am not persuaded that it is itself indicative of a reason why the debts could not be recovered promptly. Mr Ralston’s contention that proper analysis of aged debt had ceased by the end of FY2022 invites the observation that the analysis occurring before that date had not resulted in the write-off of debts already outstanding for several years.

113. If I had been of a different view regarding warranty 13(g)(i), I would not have accepted Miss Clarke’s submission that the matters relied on had been Disclosed. The relevant matter for disclosure would have been the reason for thinking that the debts were not recoverable within six months, not the fact that they had been outstanding for more than six months (see Miss Clarke’s closing submissions at paragraph 174). Even so, I would not have accepted the loss and damage as claimed. The defendant claims the full amount of the debts in the schedule, namely £34,604.85. The same rationale appears in the experts’ joint memorandum, where they agree “that if warranty 13(g)(i) had been breached such that the Schedule 1 debts should have been written off or provided for in full, then the value of the shares would have been diminished by £35k.” Both these approaches assume that the claimants were “aware of a reason” why each and every one of the debts in the schedule could not be collected in full within six months. And the experts’ agreed opinion is based on the assumption that all those debts ought to have been written off. Even if I had accepted that the age of a debt might in this case be capable of indicating a reason for thinking the debt to be unrecoverable within a six-month period, I would probably not have reached that conclusion for any debt outstanding for less than five years.

114. The defendant alleges breach of warranty 13(g)(ii) on the basis that certain debts had been outstanding, in whole or in part but in a total sum of £96,330.25, for more than two months from their respective dates for payment. The list of these debts annexed to the Defence and Counterclaim shows that all of them had been outstanding for more than two months. It includes the debts relied on in respect of warranty 13(g)(i). I can dispose of this head of claim briefly. First, the fact of these debts being more than two months old was clear from the list of aged debts in the Disclosure Room and was thus adequately Disclosed. Second, the experts were in agreement that the breach “would have had no impact on the value of the shares because there is no evidence to suggest that a debt which had been outstanding for more than two months should be viewed as irrecoverable.” There is, in the circumstances, no evidence of loss and damage over and above anything referable to a breach of warranty 13(g)(i). Warranty 17(a)

115. There are three relevant warranties in paragraph 17(a) of Schedule 5: warranty (i) is that the Accounts show a true and fair view of the state of affairs of the Alltrust Group; warranty (ii) is that the Accounts have been properly prepared in accordance with FRS 102; warranty (v) is that, save as the Group Accounts expressly disclose, the Accounts have been prepared using the same accounting policies and estimation techniques as those adopted and applied in preparing the Previous Accounts. It is convenient to take warranty (ii) first. Warranty 17(a)(ii)

116. The financial statements of the Alltrust Group state that they have been prepared in accordance with FRS 102, and warranty 17(a)(ii) provides that the Accounts (as defined in the SPA) have been properly prepared in accordance with FRS 102. The edition of FRS 102 produced in January 2022 provides in part as follows: “3.1 This section sets out the requirement that the financial statements of an entity shall give a true and fair view, what compliance with this FRS requires, and what is a complete set of financial statements. … 3.2 The financial statements shall give a true and fair view of the assets, liabilities, financial position, financial performance and, when required to be presented, cash flows of an entity. (a) The application of this FRS, with additional disclosure when necessary, is presumed to result in financial statements that give a true and fair view of the financial position, financial performance and, when required to be presented, cash flows of entities within the scope of this FRS. (b) [Deleted] The additional disclosures referred to in (a) are necessary when compliance with the specific requirements in this FRS is insufficient to enable users to understand the effect of particular transactions, other events and conditions on the entity’s financial position and financial performance. 3.3 An entity whose financial statements comply with this FRS shall make an explicit and unreserved statement of such compliance in the notes. Financial statements shall not be described as complying with this FRS unless they comply with all the requirements of this FRS. … 23.1 This section applies to revenue arising from: … (b) the rendering of services … … 23.14 When the outcome of a transaction involving the rendering of services can be estimated reliably, an entity shall recognise revenue associated with the transaction by reference to the stage of completion of the transaction at the end of the reporting period (sometimes referred to as the percentage of completion method). The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: (a) the amount of revenue can be measured reliably; (b) it is probable that the economic benefits associated with the transaction will flow to the entity; (c) the stage of completion of the transaction at the end of the reporting period can be measured reliably; and (d) the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. Paragraphs 23.21 to 23.27 provide guidance for applying the percentage of completion method. 23.15 When services are performed by an indeterminate number of acts over a specified period of time, an entity recognises revenue on a straight-line basis over the specified period unless there is evidence that some other method better represents the stage of completion. When a specific act is much more significant than any other act, the entity postpones recognition of revenue until the significant act is executed.”

117. The underlying principle is that financial statements should not recognise income before the work to which the income relates has been carried out and the costs generated by that work have been incurred; otherwise, the financial statements would not accurately reflect the profitability of the business, as they would show the income without also showing the associated costs. Mr Isaacs explained (report, paragraph 2.4.6): “Deferred income is an accounting mechanism that enables income to be recognised in the same accounting period as that in which the costs associated with generating that income are incurred. This is called the matching principle.”

118. Prior to the financial year ended 31 March 2021 the financial statements of the Alltrust Group had been prepared on a straight-line basis, so that all revenue from annual invoices to clients was evenly apportioned over the 12-month period of the contract with the particular client. However, in the FY2021 Accounts and thereafter—and, accordingly, in the FY2022 Accounts and in the Completion Accounts—67% of revenue was recognised in the first month, with the straight-line basis being applied to the remaining 33% over the following 11 months. It is the claimants’ case that this latter approach was in accordance with paragraph 23.15 of FRS 102 (“unless there is evidence that some other method better represents the stage of completion”) and reflected the fact that 67% of the total work from year-long contracts would be performed at the beginning of the contract period. The defendant, however, says that the change in accounting practice was not justified by the explanation given but was a device to accelerate artificially the recognition of income in the accounts.

119. Mr Mesher and Mr Isaacs both expressed the opinion that the question whether the change of accounting treatment of turnover was in accordance with FRS 102 was a question of fact: that is, it turned on whether in fact the way of recognising revenue in the accounts from FY2021 onwards better represented the stage of completion of the work to which the income related. However, as will become apparent, even if the change of accounting treatment to something other than the straight-line basis was appropriate, it is a distinct question whether the Accounts were in fact prepared in accordance with FRS 102.

120. I find that the Accounts were not properly prepared in accordance with FRS 102.

121. The matter was raised by the defendant’s current solicitors, Lawrence Stephens, in a letter to HCR on 30 August 2023. In its response dated 29 September 2023, HCR said that the accounting treatment was in accordance with paragraph 23.15 of FRS 102 and had been approved by Alltrust’s accountants and that the process was agreed by the FCA. The letter continued: “Despite the above, the Prospective Claimants discussed the change in accounting treatment with your client during the meeting on 25 May 2022 (6 months prior to completion).” In a further letter dated 19 October 2023, HCR wrote: “Deferred Fee Income had previously been completed on a straight-line basis throughout the year however, CASS Auditors, Watts Gregory, during an audit felt uncomfortable with this approach as they felt that the deferred income should reflect the position when the work was done during a ‘scheme year’. Alltrust undertook an exercise internally and determined that, generally, a higher percentage of the work was undertaken at the beginning of any ‘scheme year’, with the rest of the deferred income spread throughout the remaining months on a linear basis. This approach was undertaken by Alltrust following the first couple of years which meant that any benefit to the business would have been generated during the first year by creating a tax deferral. However, after the initial benefit (tax deferral), had Alltrust ceased deferring income in the final year before the sale, it would have inflated income. The tax liability increased/decreased with the variation in Deferred Fee Income.” Those two letters from HCR were written on Mr Nawaz-Khan’s instructions.

122. The evidence in Mr Nawaz-Khan’s witness statement was as follows: “58. This decision was made to reflect the position that, as a SIPP provider, turnover was created by year-long contracts. Prior to May 2020, a basic internal review was conducted by me, with the assistance of other employees into the way in which invoices were raised and how we treated that income. This review identified that the majority of the work in respect of those contracts was completed at the beginning of the contract. The amount of work completed at the beginning of the contract was, on average, 67%. By changing the accounting treatment in this way, we made sure that income was properly and fully represented the way in which it was generated by AS Subsidiary.

59. The change in accounting treatment was not intended to artificially accelerate the recognition of income, as alleged by the Defendant. It accurately represented the timeframe in which work was performed and income was generated. There was no need for AS Subsidiary to artificially generate profits as these were significant enough for the Claims Provision and to show pre-tax profits.”

123. Mr Nawaz-Khan was cross-examined at length about the change in accounting practice. I note the following points. 1) Mr Nawaz-Khan accepted that the change in the approach to deferred fee income was “quite a change”. It also departed from the method used by the accountant who had prepared the Alltrust Group’s financial statements for a number of years. One would therefore expect that, if it had a bona fide basis in sound accounting practice, it would be made on the basis of professional advice. 2) Mr Nawaz-Khan said that the reference in HCR’s letter of 29 September 2023 to Alltrust’s accountants had been neither to the external accountant who prepared the financial statements, Rhian Lewis-James , nor to the CASS auditor, Watts Gregory, but to the internal bookkeepers, who were referred to as accountants. That is consistent with the position, set out in paragraph 58 of his witness statement, that the change was the product of an internal review. The initial account of the reason for the change did not involve any suggestion of external instigation. In oral evidence Mr Nawaz-Khan said “Rhian Lewis-Jones”, but I am fairly sure that was a slip of the tongue. 3) Mr Nawaz-Khan’s witness statement said that the change in accounting practice had been agreed with AS Subsidiary’s CASS auditor, Watts Gregory, which had never thereafter raised any issue regarding the approach taken to revenue recognition. His evidence when questioned about that and about HCR’s letter of 19 October 2023 indicated that Watts Gregory had been the initial cause of the change: while conducting the audit, a partner in Watts Gregory had said that, although it was “not entirely [her] field”, she “wasn’t comfortable” with the use of a straight-line basis for deferral of income and had suggested that a slightly different approach be adopted. That evidence is problematic. First, the CASS auditor was not mentioned in the letter dated 29 September 2023, which is strange if it was indeed the CASS auditor who made the initial suggestion. Second, Watts Gregory was not the accountant of the Alltrust Group. Watts Gregory’s function as CASS auditor had nothing to do with the accounting treatment of turnover. A CASS audit for a firm regulated by the FCA is not an audit of the firm’s accounts but an assurance engagement to ensure that the firm is complying with the CASS rules designed to protect client assets. Third, there is no documentary record (apart from a mention in board minutes, referred to below) of any relevant advice from or conversation or communication with Watts Gregory. Fourth, even if Watts Gregory suggested that an alternative to the straight-line method might be considered, whether or not it was in fact appropriate would require a detailed consideration of the work undertaken to generate the income (again, not within Watts Gregory’s remit), and it could not be right for Mr Nawaz-Khan to take its subsequent silence on the point when conducting CASS audits as a sign of approval of what had been done. Fifth, if Watts Gregory raised the matter at all, it is unlikely that they did so without referring Mr Nawaz-Khan to the relevant Financial Reporting Standard; yet his evidence is that he embarked on the change without any knowledge of FRS 102 (see below). Sixth, if a remark by the CASS auditor led Mr Nawaz-Khan to conduct an internal review, one would expect that he would first discuss the matter with the external accountant who would prepare the accounts or, at least, explain the matter to her when instructing her to prepare further accounts. To anticipate for a moment, I add, seventh, that the evidence concerning the work to which the income related does not make it apparent why the CASS auditor should have been uncomfortable with the straight-line approach. 4) There is no record that the change was subject of any consideration or advice by Rhian Lewis-James, the companies’ external accountant. In cross-examination Mr Nawaz-Khan said that he had “touched base” with her in a telephone call and that she was “happy with it”. This is possible, but I think it unlikely. First, it is not something mentioned in the letter of 29 September 2023 (as explained by Mr Nawaz-Khan), or in the letter of 19 October 2023, or in Mr Nawaz-Khan’s witness statement, or in the board minutes mentioned below. Second, if the accountant had been aware of a change in the method of treating deferred fee income, it is likely that the change would have been mentioned in the subsequent financial statements that she prepared. It is relevant to note that Mr Mesher and Mr Isaacs were in agreement that the omission of mention of the change in the accounts for FY2021 meant that those accounts did not give a true and fair view. 5) Mr Nawaz-Khan’s evidence in cross-examination regarding the FCA was that it was “fully informed of everything that was going on” and that, when told what was happening, “they didn’t say, ‘No, you shouldn’t be doing that.’ So in that respect you could argue that they agreed with it. If they had not, they would have said, ‘No, don’t do it.’.” However, there is no record of any communication with the FCA about the change, far less any document indicating that they “agreed” to it. Mr Nawaz-Khan’s witness statement did not contain evidence that the FCA had been “fully involved” or “fully informed” or that they had agreed to the change. 6) Mr Nawaz-Khan’s witness statement does not say in so many words that the change was intended to achieve better compliance with paragraph 23.15 of FRS 102, but it does give the impression that this was the intention (see paragraph 63 of the witness statement). The implication is even clearer in HCR’s letter of 29 September 2023: “It is also denied that the accounting treatment is inconsistent with FRS 102, in particular paragraph 23.15 of Section 23. The Prospective Claimants reviewed the financial position in some detail, which resulted in a conclusion that the work was not performed on a straight line basis and an alternative method better represented the stage of completion.” However, in cross-examination Mr Nawaz-Khan said that, as he was not an accountant, he had not even been aware of paragraph 23.15 of FRS 102 when the directors (he and Mr Williams) decided to make the change. This is, I think, important, because a very significant change in accounting practice was being made on the basis of a decision by the board, without any advice from the accountants that it should be made and without any knowledge of the relevant Financial Reporting Standard. It is, of course, possible that the board should have made the decision to change the accounting practice on the basis of an understanding that financial statements should match the income with the work required to achieve it, and without knowledge of the requirements of relevant accounting standards. However, Mr Nawaz-Khan’s professed ignorance of FRS 102 puts a question mark against his claimed reasons for making the change. 7) Mr Nawaz-Khan was cross-examined at length about the justification for the change of accounting approach, with regard both to the motivation for the change and to the incidence of work within the contract year. (See transcript, day 1, pages 140 – 160; day 2, pages 1 - 5.) In fact, the only document that records the rationale for the change is the minutes of a meeting of the board of AS Subsidiary on 22 May 2020, which contained the following text under agendum 4, “Financial Report – HNK”: “HNK expressed concerns over this year’s profits. Unless better new business levels we may struggle in 2020/21 year. HNK ran through the Financial Report which is appended to these minutes. The issue that had affected his recent report had been corrected. HNK explained that he was intending to change the way we accounted for deferred income to improve our reserves – this had been previously agreed with the CASS auditor. SRB [Stuart Brothers, a solicitor] asked if HNK could bring the meeting up to speed with his recent discussions with the FCA. HNK explained that the following points had been covered:- • Solvency Practitioner’s Report • Cash flow projections • The litigation we were involved in • The discussions we were having with CamLee.” In cross-examination Mr Nawaz-Khan acknowledged that he had been concerned about a fall in AS Subsidiary’s profits in 2021, but he denied that the change in accounting treatment was influenced by that or by any concerns (the existence of which he denied) about the company’s solvency. However, the board minutes say nothing about the change in accounting practice being intended to achieve a better reflection of the relationship between work and income; they say that the change was “to improve our reserves”, and the context seems to have been concern about financial performance as shown in the financial statements, at a time when there were discussions with Camlee regarding the possible marketing of the Alltrust Group and when a report had been commissioned from an insolvency practitioner.

124. The justification advanced for the change from the straight-line method is that the new approach reflected the fact that roughly 67% of the total work from each year-long contract would be performed at the beginning of the contract period. (Mr Mesher and Mr Isaacs were agreed that a precise analysis was not required, and that a reasonable and bona fide estimate would appropriately be used.) The matters set out above indicate reason to doubt whether the justification advanced represents the true reason for the change. However, the appropriateness of the change comes down to a question of fact.

125. Mr Nawaz-Khan’s witness statement did not explain in any detail how the apportionment of work during the contract year was identified or estimated. And I do not accept his attempt in cross-examination to justify the change from the straight-line method. Miss Clarke submitted that the lack of detail in the witness statement was because there was no reason at the time to believe that a detailed explanation was important. Regarding his explanations in cross-examination, she submitted that he was doing the best that he could without recourse to documentation now controlled by the defendant—little of which, she said, had been disclosed—and that he had effectively been ambushed by the questions put to him. She submitted that the defendant had produced no substantive evidence touching on the issue. I find those submissions unconvincing. The allegation that the adopted method artificially accelerated the recognition of income was raised squarely. The analysis that led to the change of method is said to have been initiated by Mr Nawaz-Khan and carried out by him, albeit with the assistance of the in-house accounts team. No one expects that he could identify accurate percentages, but that is not what he was being asked to do. It is reasonable to expect that, if the change of method represented a genuine and bona fide effort to reflect the relationship between work and income, he would be able to offer a plausible account of how the work undertaken was so heavily front-loaded in the contract year. He did not do this. As for the observation concerning a lack of evidence from the defendant, I note that the claimants successfully applied in August 2025 to strike out a witness statement by an employee of the defendant that sought to provide an analysis of income recognition, and that (so far as I recall) no application was made by the claimants for additional disclosure on the issue.

126. The fee income under consideration relates to two areas of business: Self Invested Personal Pensions (SIPPs) and Small Self-Administered Pension Schemes (SSASs). Of these, SIPPs accounted for a far greater proportion of the total fee income. The issue concerns the annual fees, as distinct from the one-off establishment fee, charged in each case when the client’s scheme was set up, and from ad hoc fees for work on one-off events (such as property purchases and other investment transactions), which were charged as and when the relevant work was done. For each client, the annual fees were charged prospectively at the beginning of the year to which they related. Thus the annual fee was payable each year on the anniversary of the establishment of the particular client’s scheme; accordingly, it might fall due at any time during the year.

127. In accordance with a regulatory requirement of the FCA, the “alltrust SIPP Key Features” document was provided to prospective clients to give them information about the scheme. Under the heading “annual fees”, the document said: “Annual Fees relate to the ongoing work that is required for each SIPP. The fee is taken in advance, and is drawn directly from the SIPP Bank Account. The services include: • Acting as Trustee & Administrator • Relevant correspondence, general advice (excluding investment advice) and administration for the operation of the pension scheme • Maintaining all records • Liaising with your financial adviser • Provision of general technical assistance and advice on scheme matters • Recording all contributions and submitting returns for tax reclamation to HM Revenue & Customs (HMRC) • Issuing certificates for tax relief where necessary • Compliance of all matters with HMRC requirements • Keeping documentation up to date with regulatory requirements … Where the fees are for one-off transactions, such as the acquisition of an investment, they are chargeable after the event. Where the fees are annual, they will be charged with the SIPP Annual Administration Fee on the anniversary of the establishment of the SIPP. Pro rata annual fees may apply from the date of the completion of the transaction to the next anniversary of the SIPP.”

128. Mr Nawaz-Khan was cross-examined about this passage and, in particular, the list of the services for which the annual fee was payable. • He confirmed that the first item (“Acting as Trustee & Administrator”) related to services provided throughout the year. He confirmed this, again, in response to questions concerning the establishing documents and rules of Alltrust’s SIPP and SSAS schemes. Of course, this does not mean that for each client there will be trustee activity on a constant basis throughout the year, but it means that the obligations and responsibilities subsist throughout the year and will require appropriate oversight and action as required at any time. It is reasonable to suppose that a significant part of the annual fee, as distinct from any ad hoc fees, will relate to this headline responsibility. • Mr Nawaz-Khan said that the second item (“Relevant correspondence …”) concerned sometimes work done throughout the year and sometimes work done just once at particular time, though he accepted that ad hoc fees were dealt with separately. He also said (transcript, day 1, page 145): “The other point you have to take into consideration is all fees and all revenue for any business contain overheads, and I would say [is] that for a business the size of Alltrust at the time about 20% of the fees would include overheads.” It seems to me that the observation concerning overheads tends to indicate prima facie that, as a starting point, at least 20% of fees ought to be dealt with on a straight-line basis. • As to the third item (“Maintaining all records”), Mr Nawaz-Khan first said that once an item had been dealt with Alltrust kept it secure on its system: “that’s part of maintaining all records, but we don’t actually every month go and look at them to say, ‘Are they ok?’” Clearly, insofar as a record is generated or altered by a piece of work done at a particular time, the piece of work can be located at a particular point in time. But, as I think Mr Nawaz-Khan’s initial response acknowledged, the item really relates to the maintenance of a client’s file on a secure server throughout the year. Later, however, when asked to identify any items in the list that related only to the invoicing month, he identified this item, saying that it related to reconciliation of annual contributions with the scheme bank account; though he said that there would be a reconciliation for each contribution: “If it’s monthly, it would happen regularly anyway.” • As to the next item (“Liaising with your financial adviser”), Mr Nawaz-Khan said that this could happen at any point during the year and, particularly in the case of simple SIPPs, might not occur at all after the scheme was established. • As to the next item (“Provision of general technical assistance …”), Mr Nawaz-Khan's evidence was that work of this sort usually arose in relation to ad hoc matters, for which a specific charge would be made. It seems to me that, if and insofar as such a service was provided other than in relation to a specific transaction outside the scope of the annual fee, it could be required and performed at any time during the contract period. • Mr Nawaz-Khan said that the work under the next item (“Recording all contributions and submitting returns for tax reclamation …”), insofar as it related to annual fees rather than ad hoc matters, was done in accordance with the regulator’s requirements but had to be done within a certain time period—he thought, up six months but was not sure. This raises a matter relevant to further items on the list, namely the extent to which work arose from, and was controlled by, regulatory obligations. Mr Nawaz-Khan’s cross-examination contained the following exchange (transcript, day 2, pages 5-6): “Q. What I would like to suggest to you is that in the business of pension trustee and administration services the bulk of the work is regulatory compliance. Correct? A. I would not say that, because lots of the regulatory compliance work is just taken off the system. Things are recorded. Reports are prepared. So I would not say that’s the bulk of the work. Q. And insofar as it did constitute work, the reporting deadlines were driven by the requirements and demands of the regulators? A. Indeed, yes. Q. Correct? Those deadlines were nothing to do with the anniversary of the scheme? A. Correct. No, they weren’t.” I think that Mr Nawaz-Khan was seeking to minimise the burden of regulatory compliance. His answers were, it seems to me, in tension with those given by Mr Williams in that regard. Even if, as was doubtless the case, Alltrust’s system was geared to making regulatory compliance achievable, it is clear (and I find) that there were substantial regulatory and reporting obligations and that these were not something that arose on the contract anniversary in each year and then went away until the following anniversary. • As to the next item (“Issuing certificates for tax relief where necessary”), Mr Nawaz-Khan said: “It could come up at any time. It would only come up where there’s been a contribution. If [the contributions] are annual, it could be any time. Some make contributions in a specific month. Others would make it monthly and others might make a contribution one year and not the next.” • As to the next item (“Compliance of all matters with HMRC requirements”) Mr Nawaz-Khan agreed that compliance required Alltrust to keep up to date with the latest HMRC regulations and make sure that it was complying with them. That indicates to me that the charge relates to general oversight throughout the year rather than merely to specific activity undertaken at a particular point in time. • Mr Nawaz-Khan said that, by contrast, the final item (“Keeping documentation up to date with regulatory requirements”) concerned the making of necessary amendments to scheme documentation in response to changes in HMRC regulations; thus it was irregular and might not occur at all in any given year.

129. In conclusion on this point, I do not consider that the claimants have shown any proper justification for adopting anything other than a straight-line approach to the accounting treatment of turnover, let alone a justification for attributing 67% of the turnover to the first month of the contract period, even when allowance is made for the common position of Mr Mesher and Mr Isaacs that apportionment might properly be made on the basis of an estimate and did not require any precise or scientific calculation. I go further than this. In my view, Mr Nawaz-Khan did not make, or even attempt to make, a bona fide and reasonable assessment of the correlation of work and fee income or to respect the “matching principle” (whether or not he knew it by that name). I find that he made the change in accounting method in order to improve the appearance of the companies’ financial performance at a time when the claimants were seeking a sale of their shares and the companies were coming under a degree of pressure from the FCA. In order that the result of the change of method should not be so stark as to raise questions, he made the manual adjustments in order to smooth the figures; taken with the failure to disclose the change of method, this is indicative of a lack of good faith.

130. Accordingly, (and subject to any question of sufficient Disclosure) I find that the claimants were in breach of warranty 17(a)(ii) in that the Accounts (as defined in the SPA) were not properly prepared in accordance with FRS 102 because they ought to have been prepared on a straight-line basis, and the apportionment of 67% of the fee income to the month of the invoice was not justified in accordance with paragraph 23.15 of FRS 102. Warranty 17(a)(v)

131. The Accounts were not prepared using the same policies and estimation techniques as those adopted and applied in preparing the Previous Accounts, because the accounts for FY2019 and FY2020 were prepared on a straight-line basis in accordance with FRS 102, whereas the accounts for FY2021 and the Accounts (i.e. the accounts for FY2022) were not. It is common ground that the Group Accounts did not disclose this change. Therefore, there was a breach of the warranty in paragraph 17(a)(v) of Schedule 5 to the SPA. Warranty 17(a)(i)

132. In my judgment, as the Accounts did not give a true and fair view of the state of affairs, because they were not prepared in accordance with FRS 102. Given the premise, Mr Mesher and Mr Isaacs were in agreement with that conclusion.

133. An additional reason for concluding that the Accounts did not give a true and fair view is that, the change of method not having been recorded in the accounts for FY2021, the Accounts would not give a true and fair view unless they (belatedly) recorded the change, which they failed to do. This was certainly Mr Isaacs’ view. My interpretation of Mr Mesher’s evidence was that he ultimately agreed with this: see transcript, day 3, pages 17 to 20. Anyway, I am of the view that, as the change of method was not recorded in the accounts for FY2021, and as the Accounts (a) were parasitic on the accounts for FY2021 in that they assumed the data in those accounts and (b) set out comparative figures for the two years, the Accounts could only give a true and fair view if they (belatedly) recorded the change. Warranty 17(a) – Disclosure

134. The matters set out in the various warranties are required to be true, accurate and not misleading “except as Disclosed”: clause 5.3. The definition in the SPA of “Disclosed”, together with the connected definitions of “Disclosure Bundle” and “Disclosure Letter”, is set out in paragraph 25 above.

135. In Triumph Controls UK Limited v Primus International Holding Company [2019] EWHC 565 (TCC) , which involved a disclosure clause in different but relevantly similar terms to those in clause 5 of the SPA, O’Farrell J considered the authorities relating to disclosure clauses and at [335] stated the principles that she took from them: “i) The commercial purpose of such disclosure clauses is to exonerate the seller from its breach of warranty by fairly disclosing the matters giving rise to the breach. ii) The disclosure requirements of the contract in question must be construed applying the usual rules of contractual interpretation, by reference to the express words used, the relevant factual matrix and the above commercial purpose. iii) The adequacy of disclosure must be considered by careful analysis of the contents of the disclosure letter, including any references in the disclosure letter to other sources of information, against the contractual requirements. iv) A disclosure letter which purports to disclose specific matters merely by referring to other documents as a source of information will generally not be adequate to fairly disclose with sufficient detail the nature and scope of those matters. For that reason, disclosure by omission will rarely be adequate. v) However, it is open to the parties to agree the form and extent of any disclosure that will be deemed to be adequate against the warranty. That could include an agreement that disclosure may be given by reference to documents other than the disclosure letter, such as by list or in a data room. vi) Where disclosure is by reference to documents other than the disclosure letter, only matters that can be ascertained directly from such documents will be treated as disclosed.”

136. The commercial purpose of disclosure clauses was clearly identified by Gibson J in Levison v Farin [1978] 2 All ER 1149 , 1157: “I do not say that facts made known by disclosure of the means of knowledge in the course of negotiation could never constitute disclosure for such a clause as this but I have no doubt that a clause in this form is primarily designed and intended to require a party who wishes by disclosure to avoid a breach of warranty to give specific notice for the purpose of the agreement, and a protection by disclosure will not normally be achieved by merely making known the means of knowledge which may or do enable the other party to work out certain facts and conclusions.” That purpose is given particular effect by the word “fairly”. In Daniel Reeds Limited v EM ESS Chemists Limited [1995] CLC 1405, Beldam LJ said: “… fair disclosure requires some positive statement of the true position and not just a fortuitous omission from which the buyer may be expected to infer matters of significance.”

137. For the claimants, it is submitted that the change of accounting treatment had been disclosed. (i) It was explained by Mr Nawaz-Khan in a meeting with Mr Floyd and Mr Shipman, whether that was on 4 May 2022 or 7 July 2022. However, an explanation in a conversation does not constitute Disclosure within the terms of the SPA and so does not qualify the terms of the warranties. So this point does not avail the claimants. (ii) It was disclosed by a document referred to as the HNK Spreadsheet, which set out the detailed calculations of the Deferred Fee Income and was disclosed in native format via the Data Room, as acknowledged by the defendant by signing the Disclosure Letter, on which it was listed as item 17.6.

138. Disclosure by reference to the Disclosure Letter, the Data Room and the HNK Spreadsheet is not relied on in the Re-amended Reply and Defence to Counterclaim. However, the point has been dealt with by both counsel, albeit with unwonted brevity. The Disclosure Letter read in part: “This letter is the Disclosure Letter referred to in the SPA, and constitutes formal disclosure to the Buyer for the purposes of the SPA of the facts and circumstances which are or may be inconsistent with the warranties … contained in Schedule 5 of the SPA ("Warranties"). Such facts and circumstances will be deemed to qualify the Warranties accordingly. Terms defined in the SPA shall have the same meaning when used in this letter. References in this letter to paragraph headings and numbers shall, unless the context otherwise requires, be to those headings and numbered paragraphs in Schedule 5 of the SPA (‘Warranty Schedule’). Such headings and numbering are for convenience only and shall not alter the construction of this letter, nor in any way limit the effect of any of the disclosures, all of which are made against the Warranties as a whole. A disclosure or qualification made by reference to any particular paragraph of the Warranty Schedule shall be deemed to be made also in respect of any other paragraph of the Warranty Schedule to which the disclosure or qualification may be applicable. … By way of general disclosure, the following matters are disclosed or deemed disclosed to the Buyer: …

8. All matters contained or referred to in the documents in the Data Room (an index of which is attached to this letter, two copies of which have been initialled by the Sellers and the Buyer for the purposes of identification

9. All matters shown in the Group Accounts and the Management Accounts. …” No specific disclosures were made in respect of warranty 17(a). But the index of documents in the Data Room listed a management accounting document that has been referred to in these proceedings as “the HNK Spreadsheet”. That document contained full details of the calculations of deferred fee income for the financial years ending in March 2021 and March 2022.

139. In my judgment, the disclosure given by the Disclosure Letter, the Data Room and the HNK Spreadsheet was sufficient disclosure of the change of accounting method and of the 67% formula adopted in the Accounts, especially as the defendant was bringing to the documents in the Data Room the background knowledge that it already had of the change of method. However, the disclosure did not constitute fair and full, clear and accurate disclosure of the facts (as I find them to be) that the Accounts had not been properly prepared in accordance with FRS 102 and did not show a true and fair view of the state of the affairs of the Alltrust Group.

140. I note that there was a further respect in which the Accounts were misleading, because the figures on the HNK Spreadsheet contained manual adjustments to deferred income in January 2021, February 2021 and March 2021. These manual adjustments were first spotted by Mr Isaacs. In their joint statement, the experts agreed that the manual adjustments had no apparent justification and “[did] not accord with FRS 102.” The effect of the manual adjustments was to smooth out the results of the change of accounting practice, making the effects of the change less noticeable. In cross-examination Mr Nawaz-Khan admitted that it was he who had made the manual adjustments. The following passage may be noted: “Q. [W]hat was the purpose of the adjustments? A. The purpose was to smooth the profits a bit, because if I'd left it as it was, there was too much of a spike in the profits. So it went from something like £300,000 profit for the year, close enough, and the following year went down to 30. So I made that adjustment only to smooth the figures. It doesn’t change the end result. It doesn't change the revenue of the business. It doesn't change what we accrue or anything. Q. So the effect of the smoothing out of the change is that it wouldn’t be as noticeable that there had been a change? A. Well, just that it was more – not smooth; it was more in line with sort of income and revenue and profits. To reduce the impact of it in that particular year, it was just spiking up. Q. And that would have been more easily understood by someone looking at the profit levels in the accounts. They would have wondered why you were having such a good year? A. Well, they could have done. We had previous years which were like that. Q. Is that why you smoothed it out? A. I smoothed it out just to make it look a bit better, because it would have been too much of a spike.” At a previous hearing I refused permission to the defendant to make a further amendment to its pleaded case in order to rely on the manual adjustments as an additional breach of warranty. However, I do regard them as evidentially significant and as tending to put in question Mr Nawaz-Khan’s contention that the change in accounting method was made in good faith. Damages for breach of warranty 17(a)

141. The proper measure of damages for breach of warranty is the difference between (a) the value of the Company on the basis that the warranties were true and (b) the actual value of the Company given that the warranties were false. This is often expressed as the difference between Warranty True and Warranty False. The valuation method and figures used by the parties to the transaction may be a guide to the Warranty True value of the Company but is not itself determinative.

142. I take the liberty of quoting what I said in MDW Holdings Ltd v Norvill [2021] EWHC 1135 (Ch): “281. There is a fine but important distinction between two closely connected stages of analysis: proof of causation of loss; and quantification of damage. a) If it is to recover anything more than nominal damages for breach of contract, the claimant has the burden of proving on the balance of probabilities that the defendants’ wrongdoing caused it loss. In Marathon Asset Management LLP v Seddon [2017] EWHC 300 (Comm) , where the fundamental problem concerned the proof that any loss had been suffered, Leggatt J referred at [164] to principles that may assist a claimant who has difficulty in proving loss, in particular that difficulty of estimation will not prevent the court from awarding damages, especially if the difficulty arises from the defendant’s breach, but at [165] he noted that the principles have limits and do not, for example, ‘enable the court to conjure facts out of the air’ and remarked, ‘They may give the claimant a fair wind, but not a free ride: see Adam Kramer, The Law of Contract Damages (2014) at 470-1.’ b) If the court finds on the balance of probabilities that loss has been suffered, it must do the best it can on the evidence available; at this stage, the matter is not one of balance of probabilities: see Chitty on Contracts , 33 rd edition, para 26-018; Wemyss v Karim [2016] EWCA Civ 27 at [40]-[49], per Lewison LJ; and 116 Cardamon Ltd v MacAlister [2019] EWHC 1200 (Comm) at [77]-[83], per Cockerill J. However, ‘doing the best one can’ still does not entail a free ride. The court cannot ignore the statements of case: damages cannot be awarded for a loss that has not been pleaded. Further, if a claimant pleads a loss in an exaggerated amount, he ‘cannot complain if, through opening his mouth too wide, he fails to prosecute a more modest claim and the judge does not deal with the matter as sympathetically as he might otherwise have done’: see Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd (Court of Appeal, 22 June 1998, unreported) at [53].”

143. In the present case, the defendant’s plea of the loss and damage suffered as a result of the breaches of warranty is set out in the particulars under paragraph 47 of the Re-re-amended Defence and Counterclaim: “The Buyer claims the difference between the value of the shares as warranted and their actual value. The value of the shares as warranted is to be ascertained by reference to the Purchase Price, which was calculated by reference to a turnover multiple of 1.75. The actual value of the shares, in the light of the breaches of warranty, is to be calculated by reference to the deductions from the value as warranted set out in the table in Schedule 4.” So far as concerns warranty 17(a), Schedule 4 seeks a recalculation of the Purchase Consideration (the major component of the Purchase Price) by reference to both its parts. It avers that “the correctly calculated turnover for the 12-month period ending on the Completion Date … was no more than £1,118,217”. And it avers that the correct multiple would be 1, not 1.75.

144. Combined Turnover was defined as “the combined turnover of the Target Group for the period of 12 months ending on the Completion Date.” Mr Isaacs’ analysis was that, if the Accounts had been prepared on a straight-line basis in accordance with FRS 102, the Completion Accounts would have shown a turnover of £1,118,000 rather than £1,220,000: report, paragraphs 11.6.5 and 11.8.1. This indicates that the Purchase Price formula would have resulted in a reduced payment of a multiple of £102,000. In cross-examination Mr Isaacs explained what he saw as the importance of respecting the matching principle in the ascertainment of turnover (transcript, day 3, page 88): “A. Well, where [Mr Mesher] and I differ most is on that point, because timing is everything. Companies have collapsed because they recognised their income too soon. It’s not just to keep accountants employed, good though that is as an aim in itself, but one does not recognise income when the money comes in: the need to match income and costs has real commercial significance, and simply ignoring it and just looking at invoicing -- it would make everybody’s lives much simpler, but there is a genuine commercial reason for doing what we accountants do. … And to say, ‘Just ignore deferred income and look at things’ ignores that point.”

145. The second issue concerns the multiple. Mr Isaacs opined that, albeit the multiplicand was based on turnover not profit, the profitability of the target company was relevant to the appropriate multiple and that, as financial statements prepared correctly in accordance with FRS 102 would have shown a lower profit, the multiple of 1 rather than 1.75 would have been appropriate. See his report, in particular at paragraphs 11.10.4 and 11.10.5.

146. The following passage in the experts’ joint statement explains Mr Isaacs’ reasoning: “Recognising that, had the deferred income been appropriately calculated, the Company would have reported a loss in the year to 31 March 2021 [the loss was £64,993, as against a reported profit of £117,804] and would have broadly broken even in the year to 31 March 2022 [the profit was £8,124, as against a reported profit of £99,043] and that the value of a loss-making business is, in RI’s experience, considerably less than one that is significantly profitable, RI considers it reasonable to make a further adjustment by reducing the turnover multiple from 1.75 to 1.0. The effect of this is results in a revised purchase price of £2,637k. In any event, in response to GM’s suggestion that the acceleration of turnover would not affect the Company’s value, RI comments as follows. The reported annual sales in the three years to 31 March 2022 was £1,025k, £1,169k and £1,060k respectively. The true figures applying a straight line approach to deferred income were £1,025k, £986k and £970k. Not only are the true figures lower but they reflect a steady year on year reduction. The same is true of a comparison of turnover as reported and true turnover. In RI’s opinion even if the main interest for a hypothetical purchaser were to be sales income, he considers that a company with lower and consistently declining sales would be worth less than an otherwise equivalent company with higher sales that were not in decline.”

147. Mr Mesher did not dispute Mr Isaacs’ calculation of turnover in accordance with the straight-line method. However, he took issue with the defendant’s approach to valuation of the Company. He did not consider that the profitability of the Company was significant for its valuation. He accepted that in an extreme case profitability might prove to be significant, but he said that the driver of value for the Company was turnover, not profit. However, the “turnover” that he regarded as significant for the purposes of valuing the Company was invoiced turnover, which he took to show the expected future maintainable turnover, not the turnover recognised within a given accounting period in accordance with FRS 102. Thus, although the recognition of income had been accelerated, there was no misstatement of the total level of turnover. In his report, he stated his conclusions as follows: “9.20 I do not consider there to be any adverse effect on the value of the shares should it be found that these warranties are breached. This is because the change in policy only influences the timing of revenue recognition in the financial statements, it does not affect the volume of business carried out by the business or the value of the sales invoices raised to Alltrust’s clients. Value is dependent upon the maintainable future revenue, not the level of revenue recognised in a specific financial year, particularly not a historical year. 9.21 Also, any change in revenue recognition policy has the biggest influence in the year of change which, for Alltrust, occurred in the financial year ended 31st March 2021. Accordingly, the financial years ended 31st March 2022 and 2023 will be only slightly affected by the change in policy as, the amount recognised year on year will be broadly consistent assuming that overall revenue is flat. It can be seen from the accounts that the turnover figure (see Appendix 4) shows very little change in the period 2018 to 2022, averaging £1.25 million.”

148. Regarding the multiple, the experts’ joint statement recorded Mr Mesher’s opinion as follows: “GM does not consider it likely that a willing seller would accept a turnover multiplier of 1.0x even with the alleged breaches.” In the course of cross-examination, he gave this evidence (transcript, day 3, pages 28 to 31 and 34 to 35—with some nod to brevity, I do not quote the full exchanges): “Q. So it is fair to say then that your analysis excludes the profitability of the business as a value driver. Correct? A. Broadly speaking that’s right, because what in my experience I would say … the value of this business is related to its recurring income, recurring turnover. So … for this particular business I would say that that is correct, yes. Q. So profitability is irrelevant? A. I wouldn’t say that it's entirely irrelevant, but I would say that it’s of less importance than the turnover, which is driving the valuation. Q. Does it become more important the closer you get to break-even and loss-making? A. Well, it depends on the reason why that is, but I don't think that it’s necessarily going to make a massive difference to the value, because the concept between a willing buyer and willing seller for this sort of business is that you are importing that into your own costs model. … [After being given an example:] [T]urnover multiplier applies to the turnover, not the profitability. That’s the whole point. … In your assumption, where there is a £30 million difference in profitability, then it may make a difference, but it depends on the specifics of the business and how that business is going to be integrated into the buyer. So if you have a situation where a buyer is going to continue running that business in exactly the same way, I would agree, but there I would expect that the valuation would have been predicated on an EBITDA or earnings basis, not on turnover. … [And with further reference to the example] A. Well, again, it depends on the specifics of the business. I mean, that’s quite an extreme example where there’s a £30 million difference in terms of profit as opposed to maybe £100,000 difference in profit. No, it depends on the specifics of that business. In this particular case, where the business has been valued on a turnover multiplier, do I think that as a result of the business making £100,000 profit or break-even, it would affect from a valuation perspective the multiplier to be applied? No, I don't. … Q. [Mr Isaacs] says: ‘... had the deferred income been appropriately calculated, the Company would have been [loss-making in FY21] and would have broadly broken even [in FY22].’ Do you agree with that, assuming that a straight-line approach was appropriate? A. Yes, I think on the basis -- I don’t think I have an issue with Mr Isaacs’ figures on the basis that he’s putting them forward. Q. He goes on to say that the value much [sic: I think a transcription error] a loss-making business is, in his experience, considerably less than one that is significantly profitable. Do you agree with that? A. As a general observation, yes. This goes to the point that we were discussing earlier. Q. He suggests that it is therefore reasonable to make an adjustment to the value calculation by reducing the turnover multiple from 1.75 to 1. That’s right, isn’t it? A. Well, that's what he says. I don’t consider that’s reasonable, no, because what we would be talking about here is perhaps a £100,000 difference in turnover, giving rise to a multi-million pound difference in price. Maybe the buyer would have wanted that reduction but we are dealing with a willing buyer and willing seller for market value and I don't think a seller would be particularly happy with that level of amendment. Q. Are you referring to the parties in our case or to abstract parties? A. I’m referring to a hypothetical willing buyer and seller, as required under an assessment of market value. Q. You threw out the number of £100,000. Doesn’t it depend on the overall figure and what percentages you are dealing with? A. Yes, it does.”

149. At this point, therefore, two central issues arise regarding valuation of the Company and assessment of damages for breach of warranty. The first is whether “turnover” is relevant in the sense required by FRS 102 (as Mr Isaac thinks) or in the sense of invoiced income that provides a guide to maintainable future revenue (as Mr Mesher thinks). The second is the extent to which profitability of the target business is relevant to valuation in general and selecting the multiple in particular.

150. As to the first issue (turnover), Mr Mesher’s approach was contrary to the method used by the parties to fix the price. It does not necessarily follow that it is incorrect as a method of ascertaining the value of the Company, because the parties’ chosen method is not determinative in respect of actual value. However, that method provides evidence of the price actually fixed by a willing buyer and a willing seller. I prefer Mr Isaacs’ approach. Mr Mesher’s approach involved adopting a different sense of “turnover” from that used in the accounting standard FRS 102. Mr Mesher himself accepted that “the matching principle is crucial to assessing the financial affairs of any business” and that the premature recognition of income could have “disastrous consequences” (transcript, day 3, page 32); though, of course, he did not consider that such consequences arose in the present case. These points, taken with the fact that the parties’ own approach to valuation had regard to turnover, lead me to the view that Mr Mesher has unduly minimised the importance of taking turnover in accordance with the matching principle and that Mr Isaacs is correct in his approach.

151. However, the calculation under the Purchase Price formula was corrected by the Expert. His determination, though binding as to the calculation of the Purchase Price, is not determinative of the issues of causation of loss and quantum of damages for breach of warranty. He determined that for the purpose of the Purchase Price formula the Combined Turnover was £1,125,567. Insofar as the Warranty True value of the Company is to be assessed on the basis of Combined Turnover, the relevant difference is £7,350.

152. As to the second issue, I consider that there is a degree of merit in the position of each expert. 1) The fact that the parties fixed the price by means of a multiple of turnover does not mean that they regarded profitability as irrelevant or that it is indeed irrelevant when valuing the Company. That both parties in the present case did indeed regard it as having some relevance is shown by the defendant’s Proposal in April 2022 and Mr Nawaz-Khan’s response to it (see paragraph 19 above). 2) I also think that the board minutes of AS Subsidiary in May 2020 (see paragraph 123 above) probably reflect, among other things, an awareness that decreasing profits could result in the business struggling and might be detrimental to the marketing of the Company. 3) However, I accept Mr Mesher’s view that the “driver” for the valuation of the Company was its turnover, both as a matter of strict valuation and in terms of the actual concerns of these parties when negotiating the price. Further, the fact that turnover is to be understood as Mr Isaacs understands it does not mean that, when assessing the relevant multiplier, one should minimise the importance of the assessment of maintainable future revenue. While I regard the Accounts as misleading in the manner and for the reasons explained above, it is well not to forget that the defendant had been involved in a joint venture with the Company and had access to a large amount of information via the Data Room. This means that, although it was faced with materially misleading Accounts, it was by no means wholly in the dark as to the affairs of the Company. I am not satisfied that this suffices to make the price agreed on by the parties a secure guide to the actual value of the Company, but it does seem to me to render implausible the suggestion that a willing seller and a willing buyer would have arrived at a multiple of 1. 4) Further, it is necessary to consider how the correction of the financial statements would have affected the recorded profits. The position in this regard is not ideally clear. There are two related matters to be considered. First, although the adjustment in respect of deferred fee income would have depressed the profits, the experts’ joint statement records the following: “RI and GM agree that if (1) the 2021 and 2022 accounts were restated by removing the Claims Provision, as they both consider is necessary in order to show a true and fair view, and if (2) the other side of the original journal entry by which the claims provision had been created was posted to the ‘PI claims’ expense heading in the profit and loss account, then the effect would be to increase profits in the years to 31 March 2021 and 2022. This would mitigate the effect of the deferred income adjustment.” 5) Second, on the other hand, as Mr Isaacs pointed out in cross-examination, the need to remove Claims Provision would result in the need to consider the likely costs that the business would have to incur in future in obtaining professional indemnity insurance; that cost would decrease profits in the future. Mr Isaacs did not know what the costs would be, and there was no evidence directly on the point. It is probable, however, that the cost would have been significant: first, the high cost of insurance was the reason that the Company had become self-insured; second, an email from Mr Nawaz-Khan in July 2020 records that quotations received in respect of the period July 2020 to July 2021 ranged from about £80,000 to about £115,000. This suggests that the true profitability of the Alltrust Group was probably significantly less than the accounts for FY2021 and FY2022 suggested. It does not, however, lead to the conclusion that the Alltrust Group was loss-making.

153. The question is, ultimately, one of valuation, not one of speculation as to what the parties may or may not have done. Mr Mesher did in fact carry out research regarding turnover multiples on sales of broadly comparable businesses and concluded that a turnover multiple of 1.75 was within the range and towards the bottom end of it. By contrast, Mr Isaacs did not actually carry out any valuation exercise and approached the matter on the basis of the difference that profitability would be likely to have made to the defendant’s willingness to pay—a matter on which he seems to have been influenced by what he was told by the defendant—and his opinion that “a profitable growing company is, all other things being equal, worth more than an unprofitable shrinking company” (transcript, day 3, page 77).

154. Doing the best I can, I consider that (leaving aside the other components of the Purchase Price formula) the true value of the Company was probably represented by applying a multiple of 1.75, as Mr Mesher proposes, to the corrected turnover figure of £1,118,000 identified by Mr Isaacs. On this basis (starting from the turnover figure determined by the Expert and, again, leaving aside the matters already dealt with in respect of Claims Provision and Deferred Fee Income), the difference between the Warranty True and the Warranty False values of the shares was £7,350 x 1.75 = £12,862.50. This is clearly a very small amount indeed, in the context of the transaction as a whole, but it is not merely nominal and, as the price was finely calculated, I do not think it right to ignore it. Finally

155. This judgment is to be handed down remotely, without attendance of the parties. As the parties have not been able to reach agreement on the appropriate terms of order to give effect to this judgment or on consequential matters, I shall make an order adjourning the non-attended hand-down hearing part-heard to another date for the consideration of outstanding matters.