Experts who rely on the financial definition of goodwill may face unexpected problems in the UK courts

BVWire–UKIssue #19-2
October 20, 2020


Is goodwill an asset on the balance sheet that reflects the difference between an acquisition price and the value of what was acquired? Most business valuers, citing IASB or other accounting standard, would agree. So it’s of some interest that, in the recently decided Primus International Holding Company and others vs Triumph Controls UK Limited and others [2020] EWCA Civ 1228 case, the court disagreed. Since the ‘lost goodwill’ warranties in the SPA were not clear, Primus’ argument that goodwill should have an accounting meaning, i.e., an intangible asset recorded when a company acquires another company, was rejected, and, with that, their claim that the projections their financial experts had created to support their goodwill claims were ‘honestly and carefully prepared.’

In the original case, the court disagreed:

[T]he plain and natural meaning of goodwill in a commercial contract is business reputation. The losses sustained by reasons of the breaches are lost revenues and increased costs, leading to reduced profitability and loss of share value.

Primus appealed to the Court of Appeal and was rejected a second time in this new ruling. Contrary to the expectations of most business valuers, the court said:

  • The ordinary legal meaning of goodwill is the reputation, good name, or business connection of the business.
  • This was not a claim for loss of share value: It was a claim for overpayment as a result of the careless financial projections.
  • Any contract that contains a term to which the parties intend to give an unusual or technical or nonlegal meaning must spell out their specific intent.
  • It should ordinarily be presumed that language is used ‘consistently within the four corners of an agreement.’ Primus had used the term to mean good business relations in other parts of the purchase agreement.
  • Furthermore, claims for loss of (financial) goodwill are unusual, difficult to formulate, and hard to quantify (many business valuers would disagree with this last claim).
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