Hunting goodwill – what does it mean and was it excluded?

Published Date
Oct 1, 2020
In Primus v Triumph, the Court of Appeal looked at whether claims brought by Triumph were claims “in respect of lost goodwill” and so excluded under a share purchase agreement.

We covered the first instance decision, offering a case study in breach of warranty claims, last April. By way of summary, having bought shares in three of Primus’ companies for USD 76.5m under a share purchase agreement, Triumph had to inject an additional USD 85m, discovering significant operational and business problems.

Triumph started proceedings against Primus for breach of various warranties. This included a claim that Primus’ “long range plan” – that incorrectly predicted financial success of the acquired companies – had not been “honestly and carefully prepared”.

The central issue in this appeal was whether Primus’ claims were excluded by a provision carving out claims “in respect of lost goodwill”. Upholding the first instance judgment on this point, the Court of Appeal held that “goodwill” had the ordinary business meaning of “reputation, good name and connections”. It did not accept, as Primus argued, that “goodwill” had the broader accounting definition, essentially (and with apologies to the accountants out there), “… the difference between the cost of acquisition and the fair value of [the] identifiable net assets…”. This approach was consistent with the authorities that the court trawled.

The court noted that the sort of thing that would have been excluded by the ordinary business meaning were losses specifically as a result of damage to Triumph’s reputation as a result of acquiring the company, such as the target being found to have convictions of money laundering or corruption. So if you mean goodwill in the accounting sense you probably need to say so expressly.

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This content was originally published by Allen & Overy before the A&O Shearman merger