Dispute over share sale in IT company resolved through court decision on warranty violation issues
In a significant ruling, the High Court in Birmingham, UK, has awarded £2.4 million in damages to Node4, an IT services company, in a dispute that arose from the 2022 sale of Tisski Limited. The sellers, led by Tisski's founder Anna Assassa, were found to have breached warranties over key contracts and provided overstated accounts.
The dispute centered around three key warranties in the Share Purchase Agreement (SPA), including a promise that Tisski was not party to any contract that could only be completed late or with excessive cost or effort. The court's ruling found that this condition was breached, with the NAO contract being a prime example.
The NAO contract, a major fixed-price contract won by Tisski in March 2022, was already in difficulty by May 2022. Missed milestones and growing staff concerns were indicators of the project's troubles. The judge found that the NAO contract could not be fulfilled without undue or unusual expenditure of money or effort, and the largest component of the damages was £2 million for this contract.
In addition, Tisski was engaged in unbilled work in progress for the Ministry of Defence (MoD) valued at £90,000. However, the MoD's requirements changed, and payment for the work was improbable. The MoD claim was upheld for the full £90,000.
The Aquila claim, another significant contract, also succeeded with damages of £312,000. The judge emphasized that warranty damages are compensatory, not punitive.
The sale of Tisski to Node4 was aimed at strengthening its public sector business and Microsoft consultancy credentials. Node4 set up an SPV named Atten Bidco to pursue the claim, and Noel Casey KC of 7KBW represented the defendants. George Spalton KC and Will Cook of 4 New Square Chambers represented Atten Bidco.
By June 2022, the project was rated 'red' for risk, with Tisski staff predicting a likely breach of contract. The sellers had warranted that they had not lost, and were not likely to lose, any significant customers in the run-up to completion, and that the locked box accounts gave a true picture of Tisski's assets and liabilities as at 30 June 2022. However, these conditions were also found to be breached.
The companies involved in the lawsuit were not publicly disclosed in available sources, adding an element of mystery to the case. The ruling is expected to have a materially adverse effect on Tisski's business, as it grapples with the consequences of the court's decision.
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