(First) Lorraine Murray; (Second) Ian James Murray; and (Third) Stephen Cosh against Atlas FM LTD (Court of Session)

Factual and Procedural Background

The Plaintiffs were former members of Company A and sold their shares to the Defendant under a Share Purchase Agreement dated 31 July 2023. The Defendant paid initial consideration of £2.15m and the SPA contemplated deferred consideration (up to £150,000) and earnout consideration (up to £1.1m) payable subject to post‑completion financial tests measured by management accounts in a prescribed format. The Plaintiffs allege the Defendant failed to provide the required management accounts and therefore (a) the conditionality to payment is to be treated as purified and the maximum deferred/earnout sums are payable de plano, or alternatively (b) the Plaintiffs are entitled to damages for breach. The Defendant contends it provided adequate financial information, that a corporate integration made the prescribed format unavailable, and that the Plaintiffs (or their representative) agreed or acquiesced to an alternative format. The procedural question before Judge Sandison was whether to pronounce decree de plano for the Plaintiffs or to allow proof before answer; the court ordered a proof before answer with all pleas standing.

Legal Issues Presented

1. Whether the Defendant's failure to supply management accounts in the Schedule 3 format amounts to preventing purification of a condition precedent and therefore renders the conditional deferred and earnout obligations immediately payable (the Mackay principle).
2. Whether, alternatively, the Defendant is in breach of contract entitling the Plaintiffs to damages and, if so, the appropriate procedure for determining quantum.
3. Whether the Defendant may rely on personal bar, acquiescence, waiver or related defences given the Plaintiffs' representative's alleged conduct and Clause 11 (no variation/waiver except in writing).
4. Whether the pleadings resisting the Plaintiffs' conclusions should be refused probation or whether the matter requires proof before answer.

Arguments of the Parties

Plaintiffs' Arguments

• The SPA obliged the Defendant to use reasonable endeavours and to deliver management accounts within 15 business days in the Schedule 3 format; failure to do so is breach.
• Because the Defendant prevented the purification of the condition precedent (by not supplying accounts), the condition is to be treated as purified and the Defendant is liable to pay the maximum deferred and earnout sums de plano; alternatively, damages in the same amounts.
• The Defendant's contentions of mere "technical breach" are legally irrelevant; any departure from the prescribed format is material and not excused by provision of other financial information.
• The Defendant's allegations of agreement/acquiescence by the Plaintiffs (or their representative) lack particularity and cannot bind the other Plaintiffs; the SPA requires any variation or waiver to be in writing.

Defendant's Arguments

• The court should allow proof before answer; the Defendant offers to prove that, properly construed and calculated, no further sums are due and that the Plaintiffs have been overpaid.
• The Defendant supplied sufficient financial information (management performance reports) to enable independent verification and the missing Schedule 3 items are not material to the calculations.
• The corporate integration after completion made the Schedule 3 format unavailable; any failure to provide that format was curable and did not cause loss; awarding the full sums would produce an unjust windfall.
• The Defendant pleads personal bar/acquiescence and contends that the Plaintiffs' representative accepted an alternative format and treated timing flexibly; those factual disputes require proof.

Table of Precedents Cited

Court's Reasoning and Analysis

Judge Sandison undertook a two‑part analysis: (A) doctrinal review of the purification doctrine (the line from civil law through Mackay and subsequent Scottish authorities), and (B) application of that doctrine and other contract principles to the facts and pleadings.

(A) Doctrinal review:

• The court traced the doctrine's civil‑law origins and its recognition in Scottish authority, noting both supporting and critical precedents, and acknowledged the UK Supreme Court's rejection of the doctrine for English law in King Crude.
• The judge concluded the purification principle remains part of Scots law in theory but is heavily circumscribed by limits developed in the authorities (e.g. requirement of direct/deliberate obstruction, inapplicability where obstruction arises from exercise of an independent right, need for the condition to be the sole obstacle to enforcement, and availability of damages as an adequate remedy).

(B) Application to the pleadings and facts:

• At the interlocutory stage the court would not grant the drastic remedy sought (de plano payment of maximum sums) because: (i) there was no clear basis to treat the Defendant's failure as deliberate prevention of the condition rather than a corporate reorganisation for legitimate commercial reasons; (ii) the Plaintiffs' pleaded alternative (damages) route could provide adequate redress and thus equitable supplementation was unnecessary at this stage; and (iii) the actual sums payable cannot be ascertained without investigation of the underlying financial facts—purification would not obviate the need for factual enquiry on quantum.
• The Defendant had pleaded that sufficient financial information was supplied and that any breach was curable (including by treating accounts of a transferee within the Buyer Group as satisfying Schedule 4). Those contentions could not be dismissed on the pleadings and required proof.
• On personal bar/waiver/acquiescence, the court emphasised the recent authority (including Sarwar) that such defences are highly fact‑sensitive and ordinarily require evidence; Clause 11's formalities did not automatically oust fact‑based equitable defences, and precedents considering analogous clauses supported leaving the issue for proof.

Accordingly, the court refused to pronounce decree de plano, refused to exclude the Defendant's averments resisting a finding of breach, and ordered that the case proceed to proof before answer with all pleas maintained.

Holding and Implications

ORDER: The action shall proceed to a proof before answer; no averments or pleas shall be refused probation; all pleas stand.

Implications: The direct effect is procedural — the Plaintiffs do not obtain immediate de plano payment of deferred or earnout sums; factual determination at proof is required on (inter alia) whether the Defendant provided sufficient financial information, whether any breach was material or curable, whether a Post‑Completion Reorganisation alters the identity of the entity required to produce accounts, and whether any personal bar/waiver/acquiescence applies. The opinion reviews and affirms the continued existence of the Scottish doctrine that a party who prevents fulfilment of a condition may, in some circumstances, be treated as having purified it, but it emphasises limits and declines to apply the doctrine to award immediate payment on the pleadings; the court did not convert that doctrinal review into a new, binding precedent displacing existing limits.