In Oversea-China Banking Corporation v ING, the court held that damages based on a hypothetical indemnity were not recoverable for breach of warranty of quality on a share sale.
OCBC entered into a sale and purchase agreement with ING to purchase shares in ING Asia. Subsequently, ING Asia paid USD 14.5m to Lehman Brothers to settle an ongoing dispute relating to some equity derivative transactions. OCBC sought to claim this amount arguing there was a breach of the warranty that the accounts gave a true and fair view of the state of affairs of ING Asia.
OCBC argued that were it not for ING’s breach, OCBC would have obtained an indemnity in respect of ING Asia’s liability to Lehman Brothers. Whilst acknowledging that it is well-established that the measure of damages for breach of warranty in a share sale is diminution of value of the shares (ie the difference between the true value of the shares and the value of the shares as warranted), OCBC argued that this was merely a prima facie rule, and in appropriate circumstances the courts are permitted to consider other measures of damages.
The court disagreed, noting that neither the authorities nor the textbooks support the proposition that a hypothetical indemnity could be a recoverable measure of damages in a claim for breach of warranty, nor was there support for any other measure of damages other than diminution of value of the shares.