Privy Council Appeal No. 64 of 1995 — Anonymized Summary

Factual and Procedural Background

Company A sold the entire share capital of Company E, a soft-drink bottler, to Company D for NZ$250 million. The price was calculated by applying a 20-times multiple to a vendor-supplied profit forecast for the 1988-89 financial year. Because the transaction was negotiated quickly and confidentially, Company D could not inspect Company E’s books and had to rely on forecast data supplied by Company A.

The contract divided the forecasting period. For the first ten months of the year, Company A gave a full warranty and agreed to price adjustments if the forecast proved wrong. For the final two months it provided a “Projected Revenue Statement” (PRS) forecasting NZ$2.223 million in earnings before interest and tax, warranted under Schedule 4 §32 to be prepared “in good faith” and on a “proper basis” and to be “achievable based on current trends and performance.” No price-adjustment clause applied to this period.

Actual EBIT for the final two months was NZ$1.233 million. Company D sued for breach of warranty. Judge Blanchard held Company A liable and, valuing the company as if a proper forecast would have been NZ$1.6 million, awarded damages accordingly. The Court of Appeal upheld liability but reduced the notional proper forecast to NZ$1.223 million, thereby lowering damages. Company A appealed to the Privy Council solely on quantum.

Legal Issues Presented

1. Does the “achievable” limb of Schedule 4 §32 create a substantive warranty about earnings (analogous to a quality warranty) or merely confirm that reasonable care was exercised in preparing the forecast?
2. What is the correct measure of damages for breach of such a warranty?
3. Was the Court of Appeal entitled to substitute its own finding of NZ$1.223 million for Judge Blanchard’s NZ$1.6 million as the figure a competent forecast would have shown?

Arguments of the Parties

Appellants' Arguments

• The “achievable” wording amounted to a quality warranty; hence damages should equal the difference between the company’s value as warranted and its actual value.
• If damages are to be tied to a proper forecast, the vendor should be presumed to choose the highest figure that could have been stated without negligence, which Judge Blanchard put at NZ$1.6 million.
• The Court of Appeal should not have interfered with the trial judge’s factual findings absent an error of principle.

Respondents' Arguments

• Schedule 4 §32 is solely a warranty of reasonable care in preparing the forecast; it is not a promise that earnings will reach any target.
• The appropriate damages are therefore the price difference between what was paid (based on NZ$2.223 million) and what would have been paid if a careful forecast had been provided.
• The trial judge’s method—selecting the “highest tolerable forecast”—misconstrued the concept of negligence and justified appellate correction.

Table of Precedents Cited

Court's Reasoning and Analysis

• Construction of the Warranty. Both limbs of Schedule 4 §32 deal with the care taken in preparing the forecast, not with actual earnings. Reading “achievable” as a substantive quality warranty would contradict the parties’ evident intention to limit post-completion risk.
• Measure of Damages. Because the warranty concerns due care, damages must equal the price difference caused by receiving a negligent forecast.
• Error in the Trial Court. Judge Blanchard conflated (a) the range of reasonable forecasts prepared with due care, and (b) the range of deviations between forecast and outcome. The proper question is: What single figure would a competent forecaster most likely have produced, not what is the highest within a reasonable range.
• Determining the Proper Figure. In the absence of unforeseeable one-sided shocks, the actual EBIT (NZ$1.233 million) is the best proxy for what a careful forecast would have predicted. Potentially unforeseeable factors (Pepsico competition and pre-price-rise buying) offset each other, reinforcing that conclusion.
• Appellate Intervention Justified. The conceptual error in the trial court’s approach warranted substitution of the Court of Appeal’s figure.

Holding and Implications

APPEAL DISMISSED. The Privy Council affirmed the Court of Appeal’s damages assessment based on a competent forecast of NZ$1.223 million and ordered the appellants to pay the respondents’ costs.

Implications: The decision clarifies that a warranty framed in terms of “good faith” and “proper basis” is a duty of care in forecasting, not a guarantee of results. The measure of damages is therefore the price differential occasioned by negligent forecasting, not the quality-warranty measure used for goods. The ruling offers practical guidance for transactional warranties that rely on financial projections but does not establish new substantive law.