Background
Kevin Rice sold the entire issued share capital of Core Management Group Ltd, an umbrella payroll company, to Napril Holding Ltd under a July 2023 share purchase agreement. The purchase price included potential quarterly “Stretch Value Payments” during the three years after completion, calculated by reference to “Relevant Revenue,” which included contractually defined “New Revenue.” Napril made payments for the first four quarters based on all revenue generated by the group.
Napril later contended that New Revenue included only revenue exceeding a quarterly baseline equal to 25% of the company’s annualised turnover at completion. It also argued that revenue from existing clients merely maintaining their business was excluded. Rice sought summary judgment and declarations on the proper construction of the agreement. Napril, which had pleaded a counterclaim for repayment of alleged overpayments and a third-party negligence claim against its former transactional solicitors, opposed summary determination and relied on alleged pre-contractual discussions and a spreadsheet. It also applied for relief from sanctions after serving responsive evidence late.
The Court’s Holding
Mr Justice Sweeting granted Napril relief from sanctions and considered its late evidence. Although the breach was significant, management changes, the recent appointment of a director, and the late instruction of new solicitors provided a reasonably cogent explanation. The delay caused limited prejudice, did not displace a trial date, and did not materially impair the efficient conduct of the litigation.
The court then granted Rice summary judgment on the contractual-construction issue. Read in the context of the company’s business model, the four limbs of the New Revenue definition covered the material ways in which the company generated revenue, including existing clients renewing business by submitting successive Requirement documents. Nothing in the agreement imposed Napril’s proposed 25% threshold, and the express reference to clients renewing or increasing business treated renewal and increase as distinct concepts. Alleged pre-contractual understandings and subjective intentions were inadmissible for construing the written agreement, which also contained an entire-agreement clause. Napril’s competing interpretation therefore had no realistic prospect of success, and the court ordered declaratory relief, subject to a minor amendment discussed at the hearing.
Key Takeaways
- A defined term governs according to its contractual wording and objective context, even when its label—here, “New Revenue”—might suggest a narrower everyday meaning.
- The SPA’s New Revenue definition encompassed ordinary revenue generated during the earn-out period, including revenue from existing clients renewing business; it contained no 25% turnover threshold.
- Disputed negotiations and preliminary spreadsheets cannot supply omitted contractual language on an interpretation claim, though they may be relevant to separate rectification or professional-negligence claims.
Why It Matters
The decision illustrates the risk of relying on an earn-out structure allegedly discussed during negotiations but not expressed in the executed agreement. Courts will not insert a detailed financial threshold through commercial common sense when the contract’s text does not contain it.
It also confirms that a discrete contractual-construction issue may be resolved summarily where the relevant agreement and objective factual context are before the court. The declaration narrowed the remaining main and third-party proceedings but did not end the litigation.