Outer House orders proof in £1m dispute over deferred payouts in share purchase agreement

About this case:

• Citation:
  [2026] CSOH 61
• Judgment:
  External link
• Court:
  Court of Session Outer House
• Judge:
  Lord Sandison

Lorraine Murray, Ian Murray, and Stephen Cosh raised an action against Atlas FM Ltd, which acquired their shares in a company named Confida FM Ltd, claiming that the company’s annual turnover as of 31 January 2024 necessitated a deferred consideration payment of £100,000. Additionally, they alleged that the defenders had failed to provide them with management accounts as to enable them to calculate whether additional sums in earnout consideration were due to them based on the company’s performance and sought an order de plano for the £1.1 million maximum sum payable under the contract.

The case was heard by Lord Sandison in the Outer House of the Court of Session, with Tosh, advocate, appearing for the pursuers and Boffey, advocate, for the defender.

A technical breach

The pursuers and the defender, then named Atlas Contractors Ltd, entered into a Share Purchase Agreement dated 31 July 2023. On that date, an initial consideration of £2.15 million was paid to the pursuers, with the SPA contemplating further payment of up to £150,000 in deferred consideration and earnout consideration of up to £1.1 million. The first £50,000 of the deferred consideration did not become payable as the value of the company’s assets at sale fell below the stipulated amount, which the parties accepted. However, the second anticipated slice of deferred consideration depended on the amount of the company’s annualised turnover as of 31 January 2024.

It was averred by the defenders that, with the agreement of the first pursuer, Confida’s operations were progressively integrated into the defender’s operations, with the consequence that it no longer had separate balance sheets or overheads. The pursuers had been provided with sufficient financial information, in particular management performance reports from 2023 to 2026, to allow an independent verification of what was and was not due in consideration. In addition, the actions of the first pursuer, who in meetings with the defender had agreed that the accounts being provided were acceptable and sufficient, barred the pursuers as a whole from maintaining that any technical breaches of the contract gave rise to liability to pay what would otherwise not be contractually due.

On behalf of the pursuers counsel submitted that the format of the accounts was plainly regarded as important in the construction of the SPA. The concept of a “technical breach” was entirely unknown to the law of contract, and the defender’s argument that it did not matter that it had not done what it contracted to do because it had done something else that was essentially good enough flew in the face of the fundamental principles of contract law. As debtor in the obligations, the defender had prevented the purification of the conditions precedent in the SPA by failing to supply management accounts.

For the defender it was submitted that the pursuers’ analysis avoided engaging in the reality of the situation, which was that the company underperformed and under the SPA they already had what they were entitled to. The “condition precedent” analysis reflected an English law tendency to classify clauses of contract, one which Scots law considered to obscure rather than assist, and the wisdom of departing from that approach had recently been recognised by the Supreme Court in King Crude Carriers SA v Ridgebury November LLC (2025).

Too deeply rooted

In his decision, Lord Sandison began by noting: “The basis upon which the pursuers seek decree de plano in respect of the maximum sums which could be payable in respect of the second slice of deferred consideration and all the tranches of earnout consideration is that the failure of the defender to furnish management accounts in the form contemplated by Schedule 3 to the SPA amounted to an impediment or prevention placed by it in the way of purification of a precondition to its liability to make payment of those sums, and that the law in such circumstances regards that precondition as satisfied, a principle most closely associated with the speech of Lord Watson in Mackay v Dick & Stevenson (1881). The recent decision of the UK Supreme Court in King Crude, that that principle does not and should not form part of the law of England, necessarily calls into question whether it is and should be part of the law of Scotland.”

However, he later added: “The Mackay principle is too deeply rooted in Scots law to be capable of being blown over by a southerly side wind. It performs a function of some utility, albeit one heavily circumscribed by the limits on its application recognised in the authorities. Its existence as a valid principle of Scots law does not, however, mean that it can be applied, at least at the stage of debate, to the benefit of the pursuers in the present case.”

Explaining why decree de plano could not be granted, Lord Sandison said: “There is no apparent basis upon which it might be suggested that the defender’s failure to provide management accounts was demonstrably done with the direct intention of preventing the accomplishment of the condition to its potential liability, as opposed to simply being a consequence of a corporate reorganisation carried out for other, perfectly proper, commercial reasons. Although the defender’s ability lawfully to carry out such a reorganisation is circumscribed by the terms of Schedule 5 to the SPA it was not suggested in argument that it was breach of any obligation contained in Schedule 5 which gave rise, on the application of the Mackay principle, to the defender’s obligation to pay the second tranche of deferred consideration and the earnout consideration becoming unconditional.”

He concluded: “Even if the deployment of the Mackay principle were to result in point of law in any such conditionality attaching to such liability flying off, the question remains: liability to pay what sums? The answer to that question can only be supplied by an examination of the underlying substantive facts concerning the features of the company’s financial performance in the respects identified in Schedule 4. Although it seems to me that the difficulties attending the pursuers’ attempt to rely on the Mackay principle are likely to prove insuperable even after proof, I was not asked by the defender to refuse probation to any averments, or to repel any plea, seeking to instruct its application, and so permit the pursuers’ case to go to proof before answer as it stands.”

Lord Sandison therefore allowed the case to proceed to a proof before answer without refusal of probation to any averments.