Effective set-off

The claimant sold the share capital of one of its subsidiary companies Y in March 2001 to the defendant.

Under the agreement the defendant would pay £2.2m on completion and a further amount calculated in accordance with clause 6 which concerned the potential use of capital losses suffered by the claimant to reduce taxable profits or gains.

HMRC made an agreement with Y in December 2009 for the set-off of the company’s accrued losses against profits of other companies in the defendant’s group.

The claimant argued that the agreement triggered the obligation to pay further consideration in clause 6.

The defendant refused to pay saying the losses were not an “effective set-off” within the sale agreement because the arrangement with the Revenue was part of a wider deal involving additional liabilities.

The Court of Appeal said “allowable capital losses” in clause 6 should be interpreted...