The High Court has dismissed a purchaser’s claim for breach of warranty under a share purchase agreement (“SPA”) where it alleged that damages should be assessed on a “hypothetical indemnity” basis, ie on the basis that had the true position been known, the purchaser would have contracted for an indemnity that it did not in fact negotiate: Oversea-Chinese Banking Corp Ltd v ING Bank NV [2019] EWHC 676.

The relevant warranty was that the accounts gave a true and fair view of the state of affairs of the target company. This was treated as a warranty as to quality – a term that is more often associated with the sale of goods context, but which has been applied to other assets including shares. The court reaffirmed that the correct measure of damages for claims for breach of warranty as to quality under a SPA is the diminution in value measure, ie the difference between the value of the shares as warranted and their actual value.

This decision arises out of unusual facts, in that the purchaser did not allege that any loss had been suffered on the diminution in value measure. In other words, it did not allege that the value of the shares would have been any different had the accounts been prepared on a proper basis. The case illustrates the lack of protection that a warranty as to quality offers in these circumstances.

Andrew Cooke, a senior associate in our disputes team, considers the decision further below.


The facts can be briefly stated. The claimant (“OCBC”) entered into a SPA with the defendant (“ING”) in 2009. Pursuant to the SPA, ING agreed to sell OCBC the shares in ING Asia Private Banking Limited (“IAGPBL”) for a total consideration of US$1.466 billion.

The SPA contained a warranty that the accounts provided by IAGPBL gave a true and fair view of its state of affairs as at 31 December 2008 (“the 2008 Accounts”).

OCBC argued that this warranty was breached because the 2008 Accounts failed to disclose the full extent of IAGPBL’s contingent liability to Lehman Brothers Finance S.A. (“LBF”). The liability had been quantified in the accounts at approximately US$8.5 million. Following completion, the liability was settled upon payment of US$14.5 million.

OCBC sued ING for breach of warranty, alleging that the liability had been wrongly quantified in the 2008 accounts such that they failed to give a true and fair view. However, OCBC did not allege that the value of the shares in IAGPBL would have been any different had the liability been correctly stated.

Instead, OCBC argued that, had the liability been correctly stated in the accounts so that the warranty was met, OCBC would have sought a specific indemnity in relation to the liability and this indemnity would have been triggered upon settlement with LBF. OCBC therefore quantified its loss as US$14.5 million.


The High Court determined three issues:

  • whether it was arguable that OCBC’s damages should be measured on the basis of the hypothetical indemnity;
  • assuming that they should, whether any breach of warranty caused OCBC to suffer loss; and
  • whether ING had breached the warranty as to the 2008 accounts.

The judge (Moulder J) therefore reversed the traditional analysis of a breach of contract claim, beginning with loss before dealing with causation and then breach.

Measure of damages

On the first issue, the judge held that OCBC could not recover damages other than on the diminution of value basis. Since OCBC had not sought such damages, the judge decided the first issue against OCBC and, as a result, OCBC’s claim failed.

OCBC had argued that the normal measure of damages for breach of a warranty as to the truth and fairness of accounts in a SPA is the loss directly and naturally resulting from the breach. While this would generally be the difference between value as warranted and actual value, OCBC argued that this general rule could be departed from in appropriate circumstances. In support of its submission, OCBC relied on the measure of damages for breach of warranty as to quality of goods under the Sale of Goods Act 1979 (“SOGA 1979”), which refers to the diminution value as the “prima facie” measure (section 53(3)). OCBC also cited Lord Hoffmann’s decision in the Privy Council in Lion Nathan Ltd v CC Bottlers Ltd [1996] 1 WLR 1438 (PC) which similarly referred to the diminution in value measure as the “prima facie” basis for assessing damages.

The judge rejected the submission that the general rule concerning the measure of damages on a share sale can be departed from in appropriate circumstances. In her view, neither the authorities nor the textbooks supported OCBC’s proposition that, on a claim for breach of warranty of quality on a share sale, damages could be assessed by reference to a hypothetical indemnity and the amount which could have been claimed under that hypothetical indemnity. Consistent, recent authority of both the High Court and the Court of Appeal in the specific context of warranty claims under SPAs supported the diminution in value test. In determining the claimant’s loss of bargain it might be necessary to adjust the valuation methodology (eg as to the date of valuation), but there was no support for an entirely different measure of damages other than the diminution of the value of the asset.


Even if the judge was wrong that the “hypothetical indemnity” measure was not available as a matter of law, she held that OCBC’s claim must in any event fail because OCBC could not prove, on the balance of probabilities, that it would have sought and obtained a specific indemnity even had it known that the warranty as to the accounts was not correct.

Having heard evidence from individuals at OCBC who were responsible for negotiating the SPA, the judge concluded that OCBC was unlikely to have sought an indemnity in relation to a potential liability of approximately US$15 million in the context of the whole transaction, the total value of which amounted to US$1.466 billion. That was particularly so when the judge considered the indemnities that OCBC had in fact sought. They related to matters that were of much more substantial value than the contingent liability to LBF, and OCBC’s witness had conceded in evidence that, as with any negotiation, certain terms that OCBC had sought in the SPA had been omitted in order to preserve more favourable treatment in relation to other aspects of the transaction as a whole.

In any case, the judge was not persuaded that OCBC could have obtained an indemnity from ING, had such an indemnity been sought. OCBC asserted that ING would have been unlikely to allow OCBC to walk away from the transaction if there had been disagreement over an indemnity of such relatively low value, and would instead have given the indemnity. However, there was no evidence that OCBC would have advanced the indemnity as a “dealbreaker” such that the entire deal would have been at risk if the indemnity was refused.


Even if the judge were incorrect as to causation, she also concluded that the warranty as to the 2008 accounts had not been breached. The accounts were required to give a true and fair view, assessed by reference to relevant accounting principles. On the basis of expert accounting evidence, the judge concluded that OCBC failed to establish that the 2008 accounts were not true and fair – the contingent liability to LBF had been fairly calculated in the 2008 accounts, and they therefore gave a true and fair view.


This decision reaffirms that the proper measure of damages for claims for breach of warranty as to quality under a SPA is the diminution in value measure. Since OCBC did not allege any diminution in value, it followed that its claim must fail.

It may be thought unfair for OCBC to have been unable to recover any damages even had it been able to establish that the warranty had been breached. However, this result reflects the purpose of the warranty in the case – the warranty as to the 2008 accounts protected OCBC’s financial interest in the shares that it acquired, ensuring that the basis upon which it had valued them was correct. On the facts of this case, the difference in the settled value of the liability to LBF and the value of such liability stated in the accounts was not asserted to make any difference to the value of the shares OCBC purchased so there was no loss to OCBC’s financial interest which required the court to grant relief.