Rescission of share sale agreement
Hampson plc (Seller) wanted to sell its subsidiary, Hampson Precision Automotive (HPA). Hampson provided income and sales forecasts to potential buyers, and Grove Industries (Buyer) eventually agreed to buy all of the shares of HPA. What Buyer did not know at the time was that about 3 months before the sale, one of HPA's largest customers had indicated that it was severing its business relationship with HPA.
The judge found that the forecasts, while statements of opinion, carried an implied representation of fact, namely reasonable belief in or knowledge of facts justifying the figures that had been given. Boilerplate exclusion clauses in the sale agreement precluded a claim for innocent or negligent misrepresentation, leaving a claim for fraudulent misrep. (Boiler plate clauses cannot exclude liability for fraudulent behaviour). The judge concluded that Hampson was liable because its CEO knew the representations in the forecasts were false and, knowing that, failed to correct them. His excuse was that he had forgotten he had the information and was not involved in the sales process. Hampson's counsel argued that liability would arise only if it could be established that the CEO knew he had an obligation to correct the misrepresentation and dishonestly failed to do so. The judge disagreed but thought that even if this were required, the plaintiff had satisfied that additional burden. The plaintiff was entitled to unwind the share sale.
Post script: The Buyer got an order for rescission - reversing the transaction - but given the impracticalities of doing this so long affter the event the parties instead have since agreed that the Buyuer would keep the shares and receive from the seller a payment of ?1.5 million plus legal costs.