Macquarie International Investments Ltd v Glencore UK Ltd

There is before the court a renewed application for permission to appeal from the judgment of Andrew Smith J given on 17 September 2009.

The facts can be very shortly stated. The claim has been brought by the appellants, part of the Macquarie banking group, against a Glencore company under a sale and purchase agreement (SPA) dated 31 July 2006 for the acquisition of shares in Corona Energy Group, a leading supplier of energy, particularly natural gas.

The purchase price under the SPA was £5.74 million. Unbeknown to either Glencore or Corona, a mistake had been made by a company called Xoserve (formerly Transco) in the measurement of gas supplied to or taken from Corona. The result was that because of what has been referred to as “missed meter charges” there was an undiscovered liability by Corona to Xoserve in the sum of roughly £2.4 million. In the management accounts the liabilities are curiously expressed under the heading “Current Assets” and “Transco Reconciliations” in the sum of £3.549 million as a negative figure. In truth and in fact, had the figures been correct, that figure would have been £2.4 million greater.

The warranties as to assets and liabilities set out in the SPA, which would normally cover an inadequacy of assets or liabilities, are not drafted in terms that cover the error that was undiscovered. Macquarie therefore brought a claim under the warranties relating to the management accounts. They were brought under the warranty in relation to management accounts because the purchase price was adjustable be reference to the figures in the management accounts. It is contended by Macquarie that although they accept the management accounts were diligently prepared and although they accept the fact that the liability was undiscovered, the management accounts do not “fairly reflect the financial position of the group as at 30 June 2006”.

The judge rejected that argument. He considered that if the accounts had been properly prepared, as is accepted to be the case, the warranty had been complied with, as the warranty in relation to both the management accounts and the statutory accounts went essentially to the preparation of those accounts in accordance with conventional accounting practice. He rejected therefore the argument that the warranties as to the accounts provided any remedy in respect of an undiscovered liability or deficiency in the assets of the company. Sir Richard Buxton, when the matter came before him on the paper, concurred with that view in refusing permission.

It seems to me that there is very considerable force in the view that has been expressed by both Sir Richard Buxton and Andrew Smith J. Nonetheless, in the submissions that have been put forward to me today by Mr Graham QC, he says that the question as to whether such a warranty merely goes to the way in which the accounts had been prepared and not to the underlying assets is a point that is undecided and uncovered by authority, the reason probably being that in most cases the claim that Macquarie wish to advance would have been covered by the warranties as to assets and liabilities.

In the light of the fact that the sum involved is some £2.4 million, the point is one that can easily be argued within a day, and as I have made clear Glencore must be fully protected in costs in the event the appeal fails, it seems to me that it would not be fair to deprive Macquarie of the opportunity of arguing this point which I am told is undecided and which can be clarified by this court for the future, bearing in mind that warranties in this form are very common in sale and purchase agreements.

For those reasons I give permission to appeal.