Failing to disclose important information while negotiating a business sale can constitute fraudulent misrepresentation.
So held the High Court in the recent case of Erlson Precision Holdings Limited v Hampson Industries plc.
In this case the buyer had been provided with sales forecasts during the sale process which indicated that one customer of the seller accounted for 34% of projected sales. Shortly before completion of the company sale, that same customer notified the seller of its intention to terminate its agreement with the seller, information that the seller failed to pass on to the buyer. The buyer therefore continued to completion relying on forecasts which the seller knew were inaccurate.
The Court found that the seller’s failure to inform the buyer of the customer’s intention to terminate constituted fraudulent misrepresentation and granted the rescission of the sale contract and the repayment of all sale proceeds.
The seller in this case was therefore left counting the costs of keeping silent. While disclosing certain information may affect the sale price or even put a sale in jeopardy, withholding such information is almost always likely to lead to costly litigation.
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