Earnout Submissions Challenged

The High Court has ruled that earn-out calculations, emailed by the buyer to the sellers in relation to a share sale, were not validly communicated.

Earnout calculations and notice provisions

Under an earnout provision in a share purchase agreement, the buyer was required to "submit" its revenue determinations to the sellers. It did so by email. Initially for Year 1 post completion and then for Year 2. The sellers pointed out that email was not a valid method of service under the formal notice provisions. The buyers tried to argue these provisions did not apply to the draft revenue determinations but only to formal notices under the SPA. The court disagreed. The words used in the notice provisions—which referred to "any notice or other communication"—were extremely widely drafted; it would be undesirable to draw fine distinctions between different forms of communication (e.g., formal notices served under the SPA and these revenue determinations); and it would be