Following a two-week trial in the London Circuit Commercial Court, on 27 January Bright J handed down judgment finding that Cordic Group Limited succeeded in its counterclaim for fraudulent breach of warranty against all three Defendants to the counterclaim, Dr Faramarz Arani, Mr David Griffiths and Dr Farshid Zolghadr (referred to in the judgment as the “Sellers”). Paul Sinclair KC and Nick Daly acted for Cordic Group, instructed by Shoosmiths.
Fraudulent breach of warranty
The claim arose out of the sale of a company known as Cordic Limited, which designed and sold booking software to taxi, private hire and courier businesses. Cordic Group had acquired the company under an SPA dated 1 November 2018, and the Sellers gave warranties that (amongst other things) the company had all necessary licences to carry on its business, and was not infringing any third party rights.
In fact, as Bright J found, the company’s software used the Royal Mail PAF data for address lookups in its software products in a manner which breached the licences the company had for its use and infringed Royal Mail’s copyright and database right in the PAF data. The Judge further held that the Sellers had given the warranties fraudulently, because they knew how the company’s address database was in fact constructed, that this was a breach of the relevant licences, and that the warranties given were therefore untrue. Having heard cross examination of the Sellers over several days (together with IT expert evidence), the Judge rejected the Sellers’ evidence and made wide-ranging findings of dishonesty against them.
In relation to quantum, the Judge held that the difference between the warranty true and warranty false values of the company was to be calculated by reference to two elements: (1) the one-off deduction that a reasonable purchaser would have made to reflect the historical liability that the company had to Royal Mail for copyright and database right infringement and (2) the future licence costs for the address database. Applying the recent Court of Appeal decision in MDW Holdings Ltd v Norvill  EWCA Civ 883 in relation to the use of hindsight in breach of warranty cases, the Judge held that a reasonable purchaser would have made a substantial deduction in respect of the historical liability to Royal Mail (even though no such claim had in fact been brought to date), but he reduced the headline liability to account for the chance of a claim not being brought or not succeeding (viewed as at the SPA date). In relation to future licence costs, the Judge held that a reasonable purchaser would have investigated the position and alighted upon a cheaper alternative (which was in fact eventually adopted by the company), and applied the costs of that alternative in his calculations. The total damages awarded were £3.5 million.
A copy of the judgment ( EWHC 95 (Comm)) can be found here.