Breach of Warranty Claims: Expert Witness UK

What Is a Breach of Warranty Claim?

A breach of warranty claim arises when a buyer, having acquired a business, finds that financial warranties given by the seller were untrue, typically that the financial statements gave a true and fair view, that there were no undisclosed liabilities, or that the accounts were prepared in accordance with accounting standards and the stated accounting policies.

The Diminution in Value Measure

The primary measure of loss in a warranty claim is the diminution in value, the difference between:

• What the buyer paid for the business (based on the warranted financial position); and
• What the business was actually worth at the date of completion (based on the true financial position)

The Expert's Role

1. Establish the true financial position at completion (what the accounts should have shown)
2. Establish the warranted financial position (what the accounts showed)
3. Value the business under each scenario
4. Calculate the difference: the diminution in value

Accounting Standards and Warranty Claims

The expert must establish which accounting standards governed the financial statements, IFRS or UK GAAP (FRS 102), and whether the treatment adopted complied with those standards. The agreed accounting basis in the SPA, not just general GAAP compliance, is the relevant test.

The Inspired Education Warning on Instructions

The critical lesson from Inspired Education v Crombie [2025]: instructions to the expert must be consistent with standard definitions of market value. Where instructions set up an improper framework, the entire expert analysis is undermined, regardless of the quality of the underlying work.