High Court of Ireland Decisions

1. The alleged wrong which founds the Plaintiffs' claim against the Defendant in these proceedings is a breach of warranty in relation to the funding of pension schemes contained in a share purchase agreement dated 21st December, 1981 (the Share Purchase Agreement) made between Brooks Watson Group Limited, as vendor, and Rauma-Repola OY, as purchaser. At the time Brooks Watson Group Limited, the Defendant, which is now incorporated under the name BWG Limited, which will be referred to as "the Vendor" in this judgment, was the owner of the entire issued share capital in three companies, namely, Brooks Thomas Limited, the third named Plaintiff; Brooks Haughton Limited, the fourth named Plaintiff; and Brooks Hanley Limited, the fifth named Plaintiff, which will be referred to as "Thomas", "Haughton", and "Hanley" respectively and collectively as "the Companies" in this judgment. In the Share Purchase Agreement, the Vendor agreed to sell the entire issued share capital in Thomas, Haughton and Hanley to Rauma-Repola OY, a public company incorporated in Finland which, by reason of subsequent mergers, is now known as UPM Kymmene Corporation, the first named Plaintiff, which will be referred to as "the Purchaser" in this judgment. In broad terms, the relief which the Plaintiffs, which for simplicity will be regarded as being synonymous with the Purchaser in this judgment, seek in these proceedings is an indemnity and damages for breach of contract.

2. During and for many years, prior to 1981, Thomas, Haughton and Hanley operated builders' providers and hardware businesses in Dublin, Cork and Sligo respectively. By 1980, the Companies were experiencing serious trading and financial difficulties and were losing money. The financial status of Thomas was such that its auditors, Price Waterhouse & Company, noted in the accounts for the year ended 31st December, 1980 that the accounts were prepared on a "going concern" basis by reason of confirmation by the parent company, the Vendor, that it would continue to provide Thomas with the finance necessary to fund its budgeted operating requirements during 1981. The Purchaser was a major Finnish Corporation engaged in forestry, ship building and engineering. It was the biggest producer of sawed timber in Europe at the time and still is. It had had a long term trading relationship with Thomas, Haughton and Hanley and between 80% and 90% of imports of its product into this country was through those companies.

3. The take-over of Thomas, Haughton and Hanley by the Purchaser was anything but hostile. In fact, it was initiated by the Vendor by a contact in March 1981. The contact was welcomed because the Purchaser was interested in distribution as well as production of timber and wanted to test the waters in Europe by starting in a small country like Ireland. The evidence shows that the reality of the transaction was that both parties were not merely willing, but eager.

4. However, the evidence shows that, on the Purchaser's side, the eagerness was tempered by caution. First, early on in the negotiations it became obvious to the Purchaser that Thomas was grossly over-staffed and that there was a need for about one hundred redundancies, which the Purchaser required the Vendor to effect before the transaction was completed. Because of this requirement, it was necessary that secrecy should surround the negotiations. Secondly, the Purchaser performed a due diligence process during the negotiations and the internal auditors of the Purchaser visited the Companies. Thirdly, the Purchasers retained legal and accountancy expertise in this jurisdiction in relation to the proposed acquisition: legal advice from Messrs. Gerard Scallon & O'Brien, Solicitors, the partner dealing with the transaction being Mr. Timothy Crowley; and, with the approbation of the Vendor, to avoid a conflict of interest, commercial, accountancy and taxation advice from Price Waterhouse & Company, the partner dealing with the transaction on behalf of the Purchaser being Mr. Frank Belton, who had not been involved in the audit of the Companies. The Purchaser also consulted banks in this jurisdiction, Bank of Ireland, Ulster Bank Limited and Ulster Investment Bank Limited because the acquisition was to be funded by borrowings in Ireland. The Purchaser did not retain any consultant actuary or pension advisor in this jurisdiction in relation to the pension schemes which are at issue in these proceedings.

5. The negotiations between the parties proceeded over the spring, summer and early autumn of 1981 and culminated in a crucial meeting on 9th September, 1981 at which the Vendor was represented by, among others, John Harnett who, at the time, was the Group Financial Director of the Brooks Watson Group and Mr. Michael Williams, a partner in the firm of McCann Fitzgerald Roche & Dudley, Solicitors, who were acting for the Vendor in the transaction. The Purchaser was represented by Mr. Kari Makkonen who, at the time, was the Financial Director of the saw milling division of the Purchaser, Mr. Akso Matula who, at the time, was the Senior Vice President and General Counsel for corporate legal affairs of the Purchaser, Mr. Crowley and Mr. Belton. I will return to that meeting later to consider what transpired at it in relation to the pension schemes. For present purposes, it is sufficient to note that at the end of the meeting, a letter of offer, signed by Mr. Makkonen on behalf of the Purchaser, was given to the Vendor in which the Purchaser offered to purchase the entire issued share capital of the Companies on the terms of a share purchase agreement attached to the letter. The attached document was the Share Purchase Agreement, which was ultimately executed on 21st December, 1981. The offer was open for acceptance between 30th September, 1981 and 30th October, 1981 and was irrevocable up to 30th October, 1981. Completion was to take place on the expiry of seven days from acceptance. The consideration was a combination of a cash payment of £675,474 and repayment of long term and short term loans due by the Companies to the Vendor and its subsidiaries. It is common case that the acquisition was at a discount to net assets.

6. That offer was subsequently revoked by mutual agreement on 29th October, 1981 and replaced by a call option given by the Vendor to the Purchaser and a put option given by the Purchaser to the Vendor in relation to the entire issued share capital in the Companies on the terms of the Share Purchase Agreement, the options to be exercised on or before 1st December, 1981. The cash consideration was paid on the execution of this agreement. By a further agreement dated 1st December, 1981, the period for the exercise of the options was extended to 23rd December, 1981.

7. As I understand it, the rather tortuous course of the transaction was occasioned by the fact that the redundancies required by the Purchaser were being effected in the background.

8. At any rate, the transaction was finalised on 21st December, 1981 by the execution of the Share Purchase Agreement in the terms agreed on 9th September, 1981. Completion of the Share Purchase Agreement took place on the same day, whereupon the Purchaser became the owner of the Companies.

9. In Clause 4 of the Share Purchase Agreement, it was provided as follows:-

10. In the Share Purchase Agreement, the expressions "the Balance Sheet" and "the Balance Sheet Date" were defined as meaning the balance sheets and accounts of the Companies as at 31st December, 1980. The Disclosure Letter was a letter from the Vendor's solicitors to the Purchaser's solicitors of the same date as the Share Purchase Agreement, 21st December, 1981, in which, as the preliminary recitals in the Share Purchase Agreement recited, the Vendor had disclosed to the Purchaser "certain exceptions to the warranties" contained in the Share Purchase Agreement, the terms of the Disclosure Letter having been agreed on 9th September, 1981.

11. The principal warranty in issue in these proceedings is paragraph 25 of Part I of the Second Schedule which provided as follows:-

12. It is the portion of paragraph 25 to which I have added emphasis which is in issue.

13. In relation to paragraph 25 and in so far as it is relevant to the issues in these proceedings, the Disclosure Letter contained two sub-paragraphs. The first provided as follows:-

14. The second sub-paragraph related to the pension entitlement of a former director which was covered in the provision for retirement benefits in the balance sheet of Thomas at 31st December, 1980 and, in effect was an undertaking by the Vendor to complete the funding of the pension, which it had agreed to "fully fund", by making a payment to Irish Pensions Trust Limited (IPT) on 31st December, 1981.

15. Appendix 4 contained three letters dated respectively 27th August, 1981, 3rd September, 1981 and 3rd September, 1981 from IPT to the Vendor. IPT was the Vendor's pension advisor and the trustee of the five pension schemes which were in place for the Companies' employees. Four of the schemes are in issue in these proceedings, namely, the Staff Pension Fund, which related to employees in all three Companies and which was by far the biggest of the funds, the estimated pensionable salaries of the members aggregating £1.888 million in 1981; the Cork Timber and Hardware Trade Group Fund which related to wage earners not only in Haughton but in other companies in the Cork area, the estimated pensionable salaries of the Haughton members aggregating £0.59 million in 1981; the Thomas Fund for Manual Workers, the wages of the members aggregating £0.845 million in 1981; and the Pension Fund for Directors and Senior Executives, the smallest of the funds with just thirteen members in 1980 whose salaries aggregated £0.189 million. The investment medium in the case of each of the funds was contracts of insurance with Irish Life Assurance Company Limited (Irish Life). Irish Life carried out periodic valuations of the funds for and gave actuarial advice to IPT and the Vendor.

16. As the core issue on liability is the extent, if any, to which the three letters "watered down" the substance of the unqualified warranty given in paragraph 25, it is necessary to quote from the letters extensively. I propose to do so without putting any interpretative gloss on the content of the letters at this juncture.

17. The letter of 27th August, 1981 primarily related to the Staff Pension Fund. The letter recorded that the triennial valuation of that fund as at 1st January, 1981 had been completed by Irish Life in accordance with IPT's instructions and the results had been analysed by IPT. It was then divided into four segments. In the second, it recorded that the valuation disclosed the "profile" of the pension fund over the three years of the review, which was set out, showing the number of members and the aggregate of pensionable salaries in each of the three years under review (1979, 1980 and 1981), in relation to each of the Companies, the figures for 1981 being estimated. It also recorded that in 1981 the funding rate as a percentage of pensionable salaries was 10% in the case of Thomas, 12.6% in the case of Haughton and 12.3% in the case of Hanley. There followed a statement in the following terms:-

18. The third segment of the letter went on to state that the same valuation assumptions as at 1st January, 1978 had been again employed and the assumptions were then listed. Two items in the list of assumptions, in particular, were the subject of comment during the hearing. The first was item 9 which was in the following terms:-

19. The second was item 10 which was in the following terms:-

20. The fourth segment of the letter was the subject of very considerable debate during the hearing and was in the following terms:-

21. While the letter of 27th August, 1981 was primarily concerned with the Staff Pension Fund, two matters were dealt with at the outset in the first segment. First, there was confirmation that the valuation excluded "ex-gratia" pensions paid to retired staff as these were valued separately by IPT in January each year for the purposes of the Group accounts. The second matter was subsequently covered in the first letter of 3rd September, 1981.

22. In relation to the Cork Timber and Hardware Trade Group Fund, the salient features of the fund were outlined. These disclosed that a uniform funding rate applied to all participating employers. The last valuation had been carried out as of 1st January, 1981 and the funding rate recommended for pensions and death benefits was 13.9%, which was a marginal increase over the rate recommended by the previous valuation completed in 1978. In relation to valuation assumptions, it was stated as follows:-

23. In relation to the "Standard Valuation Test", it was stated as follows:-

24. It was further stated that negotiations were then underway to improve the definition of Final Pensionable Salary to the average of the last twelve months and if adopted this would add .8% to the funding rate.

25. In relation to the Thomas Fund for Manual Workers, the letter contained a brief summary of the nature of the fund, the benefits payable under it, the funding method and the valuation date. In relation to valuation assumptions, it was stated that the same assumptions were employed as set out in page 2 of the report of 27th August, 1981 on the Staff Pension Fund with the past service liability spread over 50 years. There followed a profile of the fund over the years 1979 to 1981 giving details of number of members, actual wages, members contributions and Thomas' outlay. In relation to the "Standard Valuation Test" it was stated as follows:-

26. The second letter of 3rd September, 1981 related to the Pension Fund for Directors and Senior Executives. It contained a description of the nature of the fund and a brief resume of the benefits structure. It disclosed that each member's benefit was re-costed individually at 1st January in each year based on his then salary. In other words, the cost was reviewed each year and no specific provision was built in for salary increases. Past service liability was spread over the remaining term to age 65 for each member and, consequently, the question of a sufficiency test did not arise. The fund profile for 1978, 1979 and 1980 was set out showing the number of members, the actual salaries and the fund cost.

27. There were two further warranties in the Share Purchase Agreement on which the Purchaser relies.

28. First, in paragraph 1 of Part I of the 2nd Schedule, the Vendor warranted in relation to the Balance Sheet, that it had been prepared on a consistent basis and in accordance with general accepted accounting principles and standards, was accurate in all material respects and showed a true and fair view of the state of affairs of the relevant Company and of its results for the financial year in question and, in particular, that it contained proper provision or notes of "all material contingent liabilities". The balance sheet

29. There was corresponding provision and a similar note in the accounts of Haughton and Hanley, the amounts provided for being £49,507 and £65,000 respectively. These provisions and notes refer to the so called (probably inaccurately) "ex-gratia" pensions referred to in the letter of 27th August, 1981 from IPT.

30. Secondly, in paragraph 33 of Part I of the 2nd Schedule, the Vendor warranted that all information contained in the Disclosure Letter was when given true and accurate in all material respects and all other information and documents concerning the Companies supplied to the Purchaser within the previous twelve months were when given true and accurate in all material respects and the Vendor went on to warrant that-

31. In Clause 5 of the Share Purchase Agreement the Vendor entered into an indemnity with the Purchaser in the following terms:-

32. Paragraph (a) of Part II of the Second Schedule specified:-

33. Clause 13.1.3. of the Share Purchase Agreement provided as follows:-

34. Prior to the crucial meeting of 9th September, 1981, the negotiations between the Vendor and the Purchaser had been ongoing for over four months. The Purchaser had been furnished with the audited accounts of the Companies for the year ended 31st December, 1980 and probably also with management accounts for the half year ended 30th June, 1981. The due diligence process had taken place. The preparation of the contract documentation was at an advanced stage. The Share Purchase Agreement had been drafted by Mr. Crowley and submitted to the Vendor's solicitors. In relation to paragraph 25, Mr. Crowley testified that he based the wording of it on a precedent being conscious of the financial position of the Companies, which he knew were in very significant financial trouble. The Disclosure Letter had been drafted by the Vendor's solicitors. On the day prior to the meeting, 8th September, 1981, the Vendor's solicitors had furnished the Disclosure Letter and the three IPT letters to the Purchaser's solicitors who, in turn, had furnished them to Price Waterhouse & Company.

35. As to the circumstances in which disclosure in relation to the pension funds was made by reference to the IPT letters, Mr. Williams testified that on the basis of his instructions he understood that the pension funds were not adequately funded and he advised the Vendor that the level of under-funding was a matter which required to be disclosed. In discussions with his client on the matter it was agreed that, with a view to giving a precise description of the situation, letters would be sought from IPT to append to the disclosure letter. Mr. David Craig, who at the time was the Group Financial Controller of the Vendor and to whom the IPT letters were addressed, testified that IPT was made aware that the Vendor was negotiating the sale of the Companies and that the letters were required to inform a prospective purchaser of the pension situation.

36. It is common case that the meeting of 9th September, 1981 was a long meeting which lasted nine or ten hours. The redundancy issue was the major controversial issue. The pension issue absorbed only fifteen or twenty minutes of the entire meeting.

37. It is the Purchaser's contention that the Purchaser was given a verbal assurance at the meeting on 9th September, 1981 that the pension schemes were fully funded as regards past liability. Mr. Matula testified that he asked Mr. Harnett what the Disclosure Letter and the three IPT letters meant and Mr. Harnett responded that they meant that the pensions were fully funded. Mr. Matula then explained the situation to Mr. Makkonen. Mr. Makkonen testified that he understood that Mr. Harnett confirmed to Mr. Matula that the pensions were fully funded and that Mr. Williams had given a similar assurance to Mr. Crowley. Mr. Harnett denied that he had given any assurance to Mr. Matula or to any other representative of the Purchaser that the pension schemes were "fully funded" or used words which would have conveyed that impression. His view was that the IPT letters clearly disclosed that the schemes were not fully funded.

38. Mr. Crowley testified that when he received the Disclosure Letter and the IPT letters and read them, they underpinned his belief that the pension schemes were fully funded. He understood that the letters were given for the purposes of establishing that past service liabilities were fully funded. That assumption was backed by the general conversation which took place at the meeting on the following day with Mr. Harnett and Mr. Matula that there was no under-funding of past service. His recollection of his conversation with Mr. Williams was that he came away from the meeting assured by Mr. Williams that the pensions were fully funded. Mr. Williams was adamant, however, that he did not make any statement oral or otherwise to indicate that the pensions were adequately funded. In the light of this, Mr. Crowley acknowledged that something must have happened between himself and Mr. Williams which caused a misunderstanding between them.

39. The three representatives of the Vendor who testified in relation to the meeting and the IPT letters, Mr. Harnett, Mr. Craig and Mr. Williams, all testified that they were surprised that the IPT letters had evoked no reaction from the Purchaser's representatives.

40. When it was first alleged by the Purchaser in correspondence in May 1984 that the Purchaser had repeatedly required assurances from the Vendor that the pension schemes were fully funded and that those assurances had been given verbally, McCann Fitzgerald Roche & Dudley, who were acting for the Vendor at the time, repudiated the allegation of oral misrepresentation on the basis that it was unfounded and unjustified. The Plaintiffs have not based their claim in these proceedings on any allegation of oral misrepresentation. The relevance of what transpired at the meeting on 9th September, 1981 arises out of the Purchasers' joinder of issue with the Vendor's plea of contributory negligence on the part of the Purchaser and its professional advisors.

41. On the evidence, I find that at the meeting on 9th September, 1981 the Purchasers' representatives were not given any oral assurances that the pension schemes were fully funded as to past service liabilities. In fact, the actuarial advice which the Vendor had from Irish Life and IPT indicated that the pension schemes were grossly under-funded as to past service liabilities. The officers of the Vendor and its professional advisers who were negotiating with the Purchaser were aware of that fact and they were aware of the necessity to disclose it to the Purchaser. They sought to make such disclosure by means of the IPT letters and the contents of the letters themselves, in my view, bear this out. It is inconceivable, in my view, that the officers or professional advisers of the Vendor would have asserted that the pension schemes were fully funded as to past liabilities in the face of the IPT letters. I believe that when they testified seventeen years after the event, Mr. Makkonen and Mr. Matula were mistaken in their recollection of what transpired at the meeting on 9th September, 1981, notwithstanding that Mr. Makkonen was not prepared to admit of this possibility because, as he testified, he had to first collect his mind in relation to the matter in 1983, just one and a half years after the event. The transaction discussed at the meeting on 9th September, 1981 was a very complex transaction. The letter of offer with the attached Share Purchase Agreement and its appendices, which was signed at the conclusion of the meeting, ran to 226 pages. The issue which was of paramount importance was the issue of the redundancies. In these circumstances, a mistaken recollection is understandable.

42. The take-over of the Companies by the Purchaser coincided with a period of economic recession. In the early years, the Companies incurred severe trading losses. It became necessary to reduce the work force drastically and to effect redundancies over and above the redundancies which were effected prior to completion. The post completion redundancies cost the Purchaser about £4 million. Eventually trading improved and after six bad years, the Companies had ten good years and, in the final analysis, the take-over was not considered a failure.

43. The first notification given by the Purchaser to the Vendor of a claim on foot of the warranty in the Share Purchase Agreement in relation to the funding of the pension schemes of the Companies was contained in a telex of 9th March, 1984 from Mr. Crowley to Mr. Williams. This telex coincided with an announcement of a proposed take-over of the Brooks Watson Group by Irish Distillers Group. These proceedings were initiated by a plenary summons which issued on 28th September, 1987. The primary relief sought by the Purchaser in the proceedings is a declaration that the Purchaser is entitled to be indemnified by the Defendant in respect of all payments made or to be made by the Purchaser for the purpose of eliminating or reducing the shortfall in the funding of the pension schemes of the Companies which existed at 21st December, 1981. The Purchaser also claims damages for breach of agreement and interest.

44. At the hearing it was acknowledged on behalf of the Vendor that, on the basis of the actuarial assumptions used by Irish Life and IPT in valuing the funds, the pension schemes were not adequately funded to fully secure past liabilities as at 21st December, 1981. However, the evidence establishes that neither the Purchaser, the Companies nor the second named Plaintiff has had to make any payment to anybody on account of that shortfall. The evidence further establishes that after completion neither the Purchaser, the Companies, nor the second named Plaintiff had to make any contributions to the pension schemes beyond the level provided for in the IPT letters to secure benefits in respect of the service of employees of the Companies. However, it is the Purchaser's position that this outcome arose because of the redundancies effected post completion, which cost the Purchaser £4 million and which resulted in reduced membership of the pension schemes. The Purchaser also complains that it has been prevented from availing of contribution holidays and reduced rates of contribution in the years since completion because of the existence of the shortfall.

45. Having regard to the pleadings and the evidence, the issues which fall for determination are as follows:-

46. The principal witness called on behalf of the Purchaser on the actuarial aspects of the matter was Mr. Alan W. Botterill, an actuary and a principal in the firm of Towers Perrin, a firm of actuaries and pension advisers which operates on a global basis advising on employee benefits and human resources issues. Mr. Botterill's professional qualifications were gained and all his experience as an actuary is based on practice in the United Kingdom. Mr. Botterill's evidence was supplemented by the evidence of Mr. Peter Delaney, an experienced actuary practising in this jurisdiction for over thirty years.

47. The principal actuarial expert called on behalf of the Vendor was Mr. Derek McNamee, a principal in the firm of Buck Consultants, which also operates on a global basis and is one of the largest employee benefit actuarial firms in the world. Mr. McNamee is a member of the Irish branch of Buck Consultants and for over twenty years he has been working exclusively in the area of Irish pension schemes. Mr. McNamee's evidence was supplemented by the evidence of Paul Kelly, an actuary who has thirty years experience in pensions, over the last twenty years in this jurisdiction with Mercers. Mr. Breffni John Byrne, a chartered accountant and a senior partner in Arthur Andersen, also testified on behalf of the Vendor, on the commercial and accountancy aspects of the matter. The Vendor has served third party notices on IPT and McCann Fitzgerald. The issues between the Vendor and the Third Parties and issues between the Third Parties inter se have been postponed until the determination of the Purchaser's claim against the Vendor. Both Mr. Kelly and Mr. Byrne were originally instructed by McCann Fitzgerald in connection with the matter.

48. While there was a wide divergence of opinion between the experts on each side on the outcome of the liability and quantum issues, the actuarial principles applicable to resolution of those issues were clearly identified in the evidence and there was a large measure of agreement among the experts as to their proper application in the circumstances prevailing in this case.

49. Broadly speaking, the Purchaser's contention is that the Vendor warranted in paragraph 25 that the pension schemes were fully funded to secure past service liabilities as at 21st December, 1981 and that neither the Disclosure Letter nor the IPT letters effectively qualified or varied that representation. The Vendor's position is that, while paragraph 25 standing alone has the meaning ascribed to it by the Purchaser, paragraph 25 was materially qualified by the IPT letters which disclosed the fact of under-funding and also the contribution rates which would have to be paid in the future to rectify the problem.

50. In order to ascertain what representation was made by the Vendor it is necessary to interpret paragraph 25 in conjunction with the Disclosure Letter and the three IPT letters in the context of the Share Purchase Agreement and all of the provisions thereof including Clause 13 and the utmost good faith provision in paragraph 33. A similar exercise is necessary in relation to paragraph 1, which must be construed in conjunction with the Disclosure Letter and the IPT letters and the notes to the accounts for the year ended 31st December, 1980. Before indicating what I consider to be the true meaning of these provisions and what the Vendor represented, I propose outlining the general principles I consider applicable in construing the provisions.

51. First, the basic rules of construction which the Court must apply in interpreting the documents which contain the parties' agreement are not in dispute. The Court's task is to ascertain the intention of the parties and that intention must be ascertained from the language they have used considered in the light of the surrounding circumstances and the object of the contract. Moreover, in attempting to ascertain the presumed intention of the parties, the Court should adopt an objective, rather than a subjective approach, and should consider what would have been the intention of reasonable persons in the position of the parties.

52. Secondly, the parties are not agreed as to how the contra proferentem rule of construction is to be applied if an ambiguity is found in the language of the agreement. The Vendor's contention is that, as the Share Purchase Agreement was drafted by Mr. Crowley, the warranty must be construed narrowly against the Purchaser. I do not accept this proposition. While it is true that the Share Purchase Agreement, including paragraph 25, was drafted by Mr. Crowley on behalf of the Purchaser, the representation made and the warranty given was comprised in Clause 25, which was adopted by the Vendor, and in the Disclosure Letter and the IPT letters, which were the Vendor's documents. The maker of the representation and the profferer of the warranty in relation to the funded status of the pension schemes was the Vendor and, insofar as it is relevant, the contra proferentem rule operates against the Vendor.

53. Thirdly, having regard to the circumstances in which the entire agreement was put together, in my view, the "utmost good faith" obligation assumed by the Vendor under paragraph 33 is not of particular significance. The fact is that in seeking a warranty in the terms of paragraph 25, which, standing on its own, represented that past service liabilities as at completion were fully funded, whatever that means, the Purchaser put the onus on the Vendor to make candid, full and proper disclosure as to the funded status of past service liabilities as at that date if the Vendor was to create an effective exception to the full rigors of paragraph 25. In the circumstances, the duty of disclosure on the Vendor would have been no less if paragraph 33 had been omitted.

54. Fourthly, the representation the meaning of which is sought to be ascertained was compounded by several statements contained in a number of documents. The general rule of construction is that all the statements must be considered in their entirety, and in their bearing on one another, the primary object being to ascertain whether the conjoint effect of the whole complex representation is true or false of the whole of the facts. While it is pointed out in paragraph 1054 of Volume 31 of Halsbury's Laws of England, 4th Edition, that the general rule is subject to the qualification that, if one of the several statements, not inseparably nor necessarily bound up with the others, has a clear and definite meaning by itself, and that meaning is false or true, the representee or representor, as the case may be, is entitled to rely on this falsity or truth respectively, in my view, the exception to the general rule does not apply in this case. The statements which together make up the Vendor's representation, namely, Clause 4, paragraph 25, the Disclosure Letter and the IPT letters are inseparably and necessarily bound together and none of the statements stands alone.

55. When one telescopes all the components of the representation, the nub of what the Vendor was saying can be paraphrased as follows: I say that no sums will in the future become payable by the Company to secure or otherwise fund in full any pension or other benefit in respect of service prior to completion subject to the exceptions disclosed in the IPT letters, which tell you the basis on which the benefits are being funded. While the representation was framed as a promise as to what would not occur, in substance, it was and intended to be a statement of the then current funded status of the pension schemes in respect of past liabilities. In endeavouring to ascertain the conjoint effect of the whole representation the crucial question is whether the contents of the IPT letters constituted an exception or exceptions to the statement in Clause 25 that past service liability was fully funded as of 21st December, 1981.

56. Before considering the terms of the IPT letters, I would make two observations. First, I do not accept the argument advanced on behalf of the Purchaser that, if the IPT letters disclosed, for instance, that the past service liabilities were, say, 50% funded as at 21st December, 1981, the mechanism of the disclosure was deficient and ineffective, in that the situation was not one of an exceptional matter being disclosed as a variation of a general position but rather the negation of the general position. In my view, if it was clearly stated in the IPT letters that past service liabilities as of 21st December, 1981 were only funded to the level of, say, 50%, that statement would operate as a valid exception to the warranty contained in paragraph 25 which, in essence, is a warranty that as of that date past service liabilities were 100% funded. While making the representation in that manner would have been both inelegant and convoluted, the fundamental consideration is whether the Purchaser would have been properly alerted to the disclosure. In my view the Purchaser would have been properly alerted to the disclosure and could not have been lured into a false state of complacency as to what the true position was, as the Purchaser suggested. Secondly, if the IPT letters clearly disclosed, say, a 50% funding level of past service liabilities as of 21st December, 1981, the failure of the disclosure to elicit any reaction from the Purchaser's representatives to the surprise of the Vendor's representatives would not have imposed any onus on the Vendor's representatives to further apprise the Purchaser's representatives of the true position.

57. I propose now considering what, if anything, the IPT letter of 27th August, 1981 disclosed as to the funding of past service liabilities of the Staff Pension Fund. Taking an overview of the letter, Mr. Botterill's opinion was that it did not give him any information about the extent to which the assets in the pension scheme covered the benefits accrued for service before completion.

58. The second segment of that letter, which recorded the "profile" of the staff pension fund over the three years covered by the then most recent Irish Life valuation, gave anyone reading it a considerable amount of information about that fund. A simple calculation would have enabled the reader to ascertain the estimated amount of the contribution which each of the Companies would have to make to that fund in 1981. It also gave an insight into the approach of Thomas historically to contributing to that fund. The funding rate recommended by the actuarial advisor, Irish Life, on the previous valuation review in 1978 had not been adopted by Thomas but instead was being phased in over five years. By 1981 Thomas's contribution for that year (10% of pensionable salaries) was 2.25% short of the recommended funding rate of 12.25% of pensionable salaries. While this information gave no precise indication about the funded status of past service liabilities, in the case of a company such as Thomas which was experiencing trading difficulties and serious financial difficulties, the obvious inference to be drawn from it was that the accruing liabilities of the pension scheme over the years in question were not being sufficiently funded. Mr. Botterill acknowledged that this was a reasonable conclusion to draw.

59. The third segment of the letter recorded the valuation assumptions used by Irish Life in valuing the Staff Pension Fund. This gave the reader with the appropriate expertise the information to assess the reasonableness or otherwise of the assumptions underlying Irish Life's valuation. Mr. Botterill characterised item 9, "past service - spread over 40 years" as a statement of methodology rather than an assumption. While he acknowledged that one could draw the conclusion from it that part of the Company's annual contribution to the pension fund would be addressing some element of past service, his opinion was that one could not conclude from the statement that there was a deficit in the fund. However, against the background of a trading and financial history such as that of Thomas, Mr. Botterill acknowledged that, if he was advising a client on an acquisition, he would investigate further. In my view, the disclosure in item 9 would have put a reasonable purchaser on enquiry as to the funded status of past service liabilities. Similarly, item 10, which outlined the policy in relation to sufficiency testing, would have put a reasonable purchaser on such enquiry.

60. The fourth segment of the letter set out the results of Irish Life's valuation of the Staff Pension Fund as at 1st January, 1981 in terms of the revised funding rate recommended by Irish Life, which showed an increase on the 1978 funding levels. From the perspective of a prospective purchaser of the Companies that was very useful information because it enabled the prospective purchaser to estimate the level of contribution it would be advisable to make in future years. That segment also set out the results of a "further standard test". As I have stated earlier, there was considerable debate as to the meaning of that portion of the letter during the hearing and, indeed, the Purchaser queried as to whether it was intelligible at all. The results of the test were expressed in percentages, for example, in the case of Thomas, as 33%. It is obvious that the application of the test formula identified - t/n x Pensionable Salary at a specific date - would not give a result expressed in percentage terms. Mr. Botterill's view was that the "t/n test" described in the letter did not provide any meaningful information on whether the assets of the fund as of the calculation date would be adequate to provide for expected benefits for service completed up to the date at which the calculations were made. That would undoubtedly have been the case if the only exercise involved in the "further standard test" was the application of the "test formula" described. Both Mr. McNamee and Mr. Kelly, who had considerable experience of Irish Life actuarial valuations, explained that the "test formula" as described merely set out the parameters of the test. The objective of the standard test was to compare assets which had already been accumulated within the fund with the liabilities which had accrued in respect of past service of members. Mr. Kelly explained that the "test formula" as described gave him two vital pieces of information as to how the test had been carried out. The first was that the calculation was posited on service with the employer, as opposed to membership of the scheme. The second was that the pensions were calculated by reference to pensionable salary at the assessment date, as opposed to an estimate of pensionable salary at retirement so that the valuation was on a discontinuance, rather than an ongoing, basis.

61. It is clear from Mr. Kelly's evidence that the application of the standard test referred to by IPT is a complex process designed to arrive at the value of the assets of the fund in aggregate and the value of the liabilities of the fund in aggregate. The test result is the percentage produced by the division of the asset value by the liability value. The assessment of the value of the liabilities in aggregate involves calculating the accrued pension of every member of the scheme. The first step in that process is calculating the projected pension the member would be entitled to if he remained in service until retirement date. The second step is a determination of how much of that pension has accrued up to the date of assessment. It is in these calculations that the "test formula" or the test parameters come into play, identifying the pensionable salary by reference to which the pension is calculated, depending on whether the valuation is on an ongoing or a discontinuance basis, and identifying the factor by which accrual is determined, whether it is service while in employment or service while a member of the scheme. In calculating the value of the liabilities of the funds in assessing the shortfall as of 21st December, 1981, Mr. Botterill went through the very same process, save that the first step in his calculation of the projected pension was based on projected final pensionable salary. In other words, his valuation was an ongoing or funded level basis.

62. Reading the description of the standard test and the result of the standard test as set out in the IPT letter of 27th August, 1981 objectively in the light of the expert actuarial evidence as to the process involved in the standard test, in my view, what was represented by the Vendor through the medium of that letter was that as of 1st January, 1981 the Staff Pension Fund was funded to the extent of 33% in the case of Thomas, 53% in the case of Haughton and 54% in the case of Hanley to secure benefits accrued in respect of service prior to 1st January, 1981 on a discontinuance, rather than an ongoing on funded level, basis, that is to say, not allowing for future salary increases. That disclosure, in my view, was unambiguous, so that there is no need to resort to the contra proferentem rule and it properly and in a meaningful way qualified the statement in paragraph 25. Both the statement and the disclosure were directed to the same objective: stating the extent to which the relevant scheme benefits were secured in respect of service prior to a specific date. The disclosure substituted 1st January, 1981 for 21st December, 1981 as the relevant date, because that was the date by reference to which the valuation had been carried out by Irish Life. The disclosure also clarified that the assessment was done on a discontinuance basis, whereas paragraph 25 did not address that issue. It follows as a matter of logic and common sense that the funding deficit would be greater if the calculation was done on an ongoing basis and future salary increases were taken into account. The disclosure also clarified that it was service with the Company which formed the basis of the calculation of the accrued liability. Finally, the disclosure established that the extent of the funding was, in the case of Thomas, 33% not 100%, so that there was a deficit of 67%. Similarly, it was implicit that there was a deficit of 47% in the case of Haughton and a 46% in the case of Hanley.

63. The first of the IPT letters of 3rd September, 1981 disclosed that the same standard valuation test has been applied or considered in relation to the two funds referred to in that letter as had been applied to the Staff Pension Fund. In the case of the Cork Timber and Hardware Fund, the result disclosed that the extent of funding of past service liabilities at 1st January, 1981 was 48%, so that there was a deficit of 52%. That disclosure materially qualified paragraph 25. In the case of the Thomas Fund for Manual Workers, it disclosed that the next valuation was not due until 1st July, 1982, but IPT's opinion was that the next valuation should not require a major upward adjustment in the funding rate. This disclosure materially qualified paragraph 25, in that it made it clear that the exercise to ascertain the funded status of the fund as to past liabilities had not been carried out and, instead of a test result, the Vendor was giving the Purchaser IPT's opinion as to the likely level of the recommended funding rate at the next review. The second IPT letter of 3rd September, 1981 made it clear that the cost of funding the Pension Fund for Directors and Senior Executives was reviewed annually and that past service liability was factored into each year's costs. This disclosure also materially qualified the statement in paragraph 25, because, by definition, that fund was always going to have a past service liability.

64. It was urged on behalf of the Purchaser that the duty of the Vendor was to disclose to the Purchaser in plain and unequivocal terms that the funds were under-funded or inadequately funded as to past service liabilities. In my view, that approach would not have enhanced the Purchaser's knowledge of the true state of affairs. The terminology used in paragraph 25, "fund in full", was vague and imprecise, in that it did not indicate whether the level of funding was being assessed on an ongoing or on a discontinuance basis or what actuarial assumptions were used in the assessment. A disclosure in the Disclosure Letter or the IPT letters of under-funding or inadequate or insufficient funding without more would have been equally vague and imprecise. Moreover, it would have inevitably led to an enquiry as to the extent of the under-funding, which would inevitably have led to a disclosure in the terms of the disclosure in the letter of 27th August, 1981. To a reader with advice from an actuary, there was clear disclosure that the Staff Pension Fund was under-funded in relation to each Company and the extent of under-funding was, by implication, disclosed in percentage terms. To a reader with commercial acumen, as Mr. Byrne's evidence indicated, a similar message was conveyed. IPT, had it been asked, could have translated the percentages into absolute terms, as it did in the case of Thomas, translating the implied shortfall of 67% to £802,800, in response to an enquiry from the Personnel Manager of Thomas on 1st May, 1984.

65. The facts disclosed in the letter of 27th August, 1981 were of a technical nature and were conveyed in precise technical language by an actuarial expert. A reasonable purchaser would have sought actuarial advice if in doubt as to the meaning of the letter. On the evidence I am satisfied that there were several independent actuarial and pension consultants practising in Dublin in 1981 whose advice could have been obtained. While the Purchaser became contractually bound when the letter of offer was signed on 9th September, 1981, in the sense that the offer was irrevocable up to 30th October, 1981, the Purchaser was not locked into the contract in the event of a misrepresentation. It was provided in Clause 4 of the Share Purchase Agreement that, in the event of it becoming apparent on or before completion that the Vendor was in material breach of any warranty, the Purchaser might rescind the agreement. The Purchaser had an opportunity between 9th September, 1981 and 21st December, 1981 to get expert actuarial advice on the IPT letters.

66. Turning to paragraph 1, the Purchaser's contention that the representation contained in paragraph 1 was untrue, in that the balance sheets of the Companies did not contain proper provision or notes of all material contingent liabilities, was based on the proposition that there was an implied representation in the notes to the audited accounts that the pension schemes were fully funded. The notes explained the items in the three balance sheets described as "provision for retirement benefits", which, it was explained, represented the estimate of the capitalised value of the relevant Company's liability for pension benefits not covered by the pension schemes. The notes were informative in that they disclosed that the main pension liabilities of the Companies were funded by insurance schemes and that the balance sheet provision was the only contingent liability for pensions not so funded, in other words, the pensions regarded as "ex-gratia" pensions by IPT. On an fair reading of the note, in my view, a reasonable inference could be drawn that the Company's pension liability other than the liability appearing on the balance sheet was fully funded by the pension schemes. However, the issue in this case is not whether the Company's off balance sheet pension liabilities were fully funded by insurance schemes. The issue is whether at a particular time, at completion, the pension schemes were adequately funded to cover past service liabilities. As one would expect, the notes did not speak to that issue at all. They said nothing about the funding objectives of the schemes or how the funding of past service liabilities, whether in respect of service before membership or arising out of improved benefits, was spread. No reasonable person reading the notes would make any deduction as to the funded status of the off balance sheet pension schemes at any particular time. Similarly, no reasonable person would make any deduction as to the funded status of the off balance sheet pension schemes from the reference to the agreement by Thomas to "fully fund" an ex-gratia pension in the second sub-paragraph in relation to paragraph 25 in the Disclosure Letter. Taking the contract documentation in its entirety, it is quite clear that the pension liabilities for which provision was made in the accounts were separate and distinct from pensions funded by the insurance contracts with Irish Life and that the manner of funding of the latter over time was very complex. By way of general observation, in my view, none of the statements contained in the contract documentation in relation to the ex-gratia pension liabilities qualified or modified or on any material way affected the express statements therein in relation to the pension schemes funded by insurance contracts.

67. To summarise my conclusions as to what the Share Purchase Agreement read in conjunction with the Disclosure Letter and the IPT letters represented in relation to the funded status of the pension schemes, they are as follows:-

68. On the evidence it is clear that the foregoing representations were true. Therefore, in my view, the Purchaser has not established the breach of warranty alleged.

69. Having regard to the conclusion I have reached that the Vendor did not misrepresent the funded status of the pension schemes in relation to past service liability, so that the Vendor was not in breach of any warranty in the Share Purchase Agreement, the other issues do not arise. Nonetheless, I propose to make some general observations on the issue of the remedy which would have been available to the Purchaser if there had been a breach of warranty in relation to the funded status of the pension schemes in the circumstances which prevailed in this case, because they tie in with and hopefully will amplify my views on the proper construction of the representation in the contract documentation.

70. It was urged on behalf of the Vendor that the only remedy available to the Purchaser for breach of warranty was to enforce the indemnity given by the Vendor in Clause 5 to indemnify the Purchaser against any payment by any of the Companies or any other depletion or diminution in the value of the assets of any of the Companies resulting from, inter alia, a breach of warranty. It was further urged that the Purchaser's approach to the assessment of damages by reference to the measure of the shortfall in the pension schemes in relation to past service liabilities at the date of completion was inappropriate because it did not come within the ambit of the indemnity and that the Purchaser was not entitled to enlarge upon its rights under the indemnity against the Vendor by invoking a particular form of measurement of the deficiency in the pension schemes at the completion date.

71. In my view, the Purchaser was not confined to one remedy only, namely, to enforce the indemnity contained in Clause 5, for breach of a warranty in the Share Purchase Agreement. Clause 5 itself recognised that in addition to the indemnity, the Purchaser had a right to have its loss as a result of a breach of warranty made good or compensated for by a payment in accordance with Clause 4. On the proper construction of the Share Purchase Agreement, in my view, it provided two remedies for breach of warranty. First, it allowed for the normal measure of damages for breach of warranty. As is pointed out in McGregor on Damages, 16th Edition (1997) at paragraph 1106, where shares are in some way not up to the promised standard, this is in the nature of a breach of warranty of quality and the normal measure is of value as warranted less value in fact. Secondly, the indemnity included in Clause 5 provided for a measure of restitution of monies outlayed or assets lost by reason of the warranty not being true. The measure of damages contended for by the Purchaser clearly would not be allowable under the indemnity. The question which remains is whether it would represent the normal measure of damages for breach of warranty in a sale of shares.

72. If the Vendor had misrepresented the funded status of the pension schemes as to past service liabilities, the Purchaser would have acquired the shares and the Companies burdened with contingent liabilities it had not bargained for. I think such liabilities would be correctly characterised as contingent, because any measurement of past service liabilities at any given time is notional, being based on a large number of assumptions which may or may not represent the ultimate out-turn. In assessing the normal measure of damages for breach of warranty in this case, had there been a breach, the crucial question would have been what was the difference between the value of the shares in the Companies burdened with those contingent liabilities on 21st December, 1981 and their value not so burdened. No evidence was adduced as to the value of the shares in the Companies as of 21st December, 1981 on the two bases, although Mr. Makonnen testified that, if he had been aware of the under-funding of past service liabilities, he would have sought compensation, presumably by means of a reduction of the purchase price, and, if it had not been paid, he would not have proceeded with the purchase. Therefore, the question which arises is whether it can be assumed that the quantification of the under-funding of past service liabilities of the pension schemes in issue would represent the difference between the valuation of the shares on the two bases. In my view, in broad terms, it would, although the Court, on the basis of evidence, could properly allow for the fact that in the particular sale and purchase context the Purchaser might take a more or less benign view of the pension situation. I do not accept that the notional basis of the quantification of the shortfall would render this approach inappropriate as a measure of damages, as submitted on behalf of the Vendor; it would be no less appropriate than assessing compensation for future loss of earnings on an actuarial basis and discounting for adverse contingencies.

73. However, when one analyses the quantification of the under-funding of the past service liabilities advanced by Mr. Botterill on behalf of the Purchaser, it cannot be said that it reflects the "value as warranted" by the Vendor on the basis of the Purchaser's contention that the warranty is to be found in paragraph 25 alone. In valuing the liabilities of the funds, Mr. Botterill has used the Irish Life assumptions. However, paragraph 25 on its own without reference to the IPT letters, did not indicate the actuarial assumptions by reference to which the pension schemes were funded in full. Even if there were to be implied into paragraph 25 a term that they were funded in full by reference to reasonable assumptions, it would be open to the Vendor to argue, as indeed the Vendor did, that the shortfall should be determined in accordance with any reasonable set of assumptions, not necessarily the Irish Life assumptions. This, in my view, highlights the vagueness and the imprecision of paragraph 25 on its own. More significantly, Mr. Botterill calculated the accrued past service liability on an ongoing or funded level basis. However, the Vendor did not represent in paragraph 25, taking on its own, that the schemes were funded in full on an ongoing basis. Again, this highlights the vagueness and imprecision of paragraph 25, despite Mr. Delaney's assertion that he would not associate "fully funded" with a discontinuance calculation. When viewed as a reflection of value as warranted, the quantification of the shortfall advanced by the Purchaser does not stand up for the simple reason that it does not reflect what was stated in paragraph 25. It reflects a re-write of paragraph 25.

74. In contradistinction to the vagueness and imprecision of paragraph 25, by producing the letter of 27th August, 1981, the Vendor re-wrote the warranty with precision and accuracy and told the Purchaser in precise terms what the funded status of the Staff Pension Fund as regards past service liabilities was: using the Irish Life assumptions and valuing liabilities on a discontinuance basis, it was under-funded, the extent of the under-funding being stated in percentage terms and being capable of being stated in absolute terms on the same basis.

75. As a breach of warranty has not been established, the Plaintiffs' claim must be dismissed.