Just like property buyers, those who purchase businesses are entitled to have their questions honestly answered by the vendors before a price is agreed. In one case where that sadly did not happen, a woman who bought an ill-fated dental practice won the right to damages from the sellers.
Before she purchased the practice for £625,000, the woman had been informed by the sellers – in response to formal pre-transaction inquiries conducted through solicitors – which its £404,000-a-year turnover was entirely from private patients. The sellers also expressly warranted that the practice’s financial position had not materially deteriorated during the preceding 10-month period. The price the woman paid for the business included £300,000 in respect of its goodwill.
In truth, the practice’s income from private patients was very much less than the sellers had stated. The reality was that much of its income came from NHS patients, but that all that business would be lost following the departure from the practice of all the dentists who were contracted to do NHS work.
After the woman launched proceedings, the High Court found that the sellers dishonestly intended to convey the false impression that the practice was wholly private. They also knew that, had she been aware of the true position, it would likely have had a significant impact on the price she would agree to pay. There was also a breach of the warranty, in that the trading position of the practice had markedly worsened during the pre-sale period. Although the amount of the woman’s damages remained to be calculated, she was entitled to a six-figure sum.