Spotpress Pty Ltd v Spotpress Newspapers Pty Ltd [2025] NSWSC 1094: Lessons From a NSW Business Sale Dispute: Warranties, Due Diligence and Defining What Is Being Acquired

Can a buyer rely on a contractual warranty when the financial information provided during due diligence proves inaccurate?

In Spotpress Pty Ltd v Spotpress Newspapers Pty Ltd [2025] NSWSC 1094, the Court considered this question in the context of a dispute arising from the sale of part of a printing business. The decision examines the consequences of inaccurate financial information, alongside issues concerning seller warranties, asset transfers, misleading representations, business valuation and the interaction between warranty claims and vendor finance.

The transaction

Spotpress Newspapers Pty Ltd operated a printing business comprising three components:

- a coldset business, principally involving newspaper printing;

- a heatset business, involving magazines and catalogues; and

- a hybrid business involving publications requiring both coldset and heatset printing.

The buyer acquired the heatset and hybrid components while the seller retained the coldset business.

The Asset Sale Agreement was entered into on 7 March 2023. The agreed non-stock purchase price was $6 million. Of that amount:

- $2.5 million was payable at completion; and

- $3.5 million was funded by vendor finance under a Loan Deed.

- Stock was dealt with separately following a stocktake, and accrued employee entitlements were subject to a purchase-price adjustment under the Asset Sale Agreement.

The transaction was documented through a suite of related agreements, including the Loan Deed, security agreement, lease, services agreement and consulting agreements.

What went wrong?

Following completion, the buyer alleged a range of breaches and other problems, including:

- breaches of warranties concerning the financial information provided in due diligence;

- failure to transfer certain assets;

- failure to transfer the hybrid business;

- misleading representations concerning a price increase; and

- issues concerning the premises, including electricity costs.

The financial information was not as straightforward as it appeared

The business acquired by the buyer had previously operated as part of a larger business (the Original Business). The seller had not maintained separate historical management or financial accounts for the heatset and hybrid components being sold (the Transferred Business).

For due diligence purposes, the sellers prepared a worksheet of divisional accounts by attributing portions of the Original Business's revenue, costs and operating expenses to the Transferred Business.

The Asset Sale Agreement contained warranties concerning the accuracy of those accounts, including a seller warranty in clause 3.1 that they gave a "true and fair view" of the financial position, state of affairs and financial performance of the business.

In construing that warranty, the Court considered what a reasonable businessperson, with knowledge of the circumstances known to the parties when the agreement was entered into, would understand "true and fair view" to mean in the context of clause 3.1 and the agreement as a whole.

The sellers argued that the worksheet was a"forward-looking" set of accounts; the Court rejected that submission. The worksheet was directed to the position as at the accounts date. The Court found that it did not give a true and fair view of the financial position, state of affairs and performance of the Transferred Business because it understated certain costs and operating expenses, including electricity costs, and included the 7.3% normalising entry. The warranty was therefore breached.

How did the Court arrive at the $4.875 million warranty damages award?

The Court assessed the true value of the Transferred Business at completion at $1.125 million, compared with the $6 million non-stock purchase price, and awarded the buyer $4.875 million in damages for the breach of the financial warranty. The valuation analysis is particularly instructive.

The Court considered two expert valuation approaches. The first, the Additional Documents Approach, relied principally on contemporaneous and pre-completion information. The second, the Alternative Approach, used post-completion trading results as evidence relevant to value at completion. The Court considered both approaches and gave them equal weight because each provided corroboration for the outcome reached by the other.

A narrow trading window. The divisional accounts covered only three months: September, October and November 2022.

An allocation methodology that was not agreed. The sellers disclosed a revenue-based methodology for allocating expenses between the Original Business and the Transferred Business. The buyer did not agree to that methodology, and the Court found that it had been disclosed but not accepted or agreed.

Under that methodology, the total expenditure incurred by the Original Business in each expense category in the relevant month was divided by the total printing revenue generated by the Original Business in that month, and the resulting percentage was multiplied by the revenue attributed to the Transferred Business for that month. As the Transferred Business generated approximately two-thirds of the revenue of the Original Business, it was allocated costs on that basis.

The allocation did not accurately reflect the cost structure of the business. In particular, the paper used in the heatset printing operations of the Original Business was generally more expensive than the paper used in the coldset operations retained by the seller. Allocating costs by reference to revenue therefore understated the costs of what would become the Transferred Business and overstated its profitability.

Electricity costs. The worksheet understated electricity costs attributable to the Transferred Business because the underlying electricity usage was not fully captured in the accounts. This was separate from the later dispute about the lease's electricity pricing arrangement.

The buyer could not fully verify the allocations. The buyer's evidence was that it was unable to verify or test the way expenses had been allocated between the Original Business and the Transferred Business, and was not able to conduct unrestricted due diligence. That evidence was not challenged, and the Court accepted that the buyer relied on the fact that the seller would warrant the accuracy and reliability of the accounts provided.

The 7.3% price increase. The worksheet included a normalising entry reflecting a 7.3% increase in print prices from 1 January 2023. Separately, the buyer alleged representations that all customers had been given notice of the increase and that the buyer would receive its benefit. The Court found those representations misleading, including because the increase had not been notified to all customers. However, there was no separate damages award for those representations because the resulting loss was already reflected in the $4.875 million warranty damages.

Post-completion performance. One of the Court's valuation approaches drew on post-completion trading results. The Court noted that the buyer had operated the business in substantially the same way after completion, making those results relevant evidence when assessing true value at completion. The post-completion results were not used in isolation; the Court considered them alongside contemporaneous information and gave equal weight to the two valuation approaches.

Due diligence does not replace careful warranty drafting

For buyers, the case is a reminder that due diligence and warranties perform different functions. If a buyer is relying on particular information being accurate, there is value in identifying that information expressly in the transaction documents and obtaining an appropriate contractual warranty.

For sellers, the reverse applies. A seller should be cautious about giving a broad warranty concerning financial information where the underlying accounts have been prepared by allocation or estimation, particularly where the business being sold has historically operated as part of a larger enterprise.

The decision does not mean that divisional accounts prepared by allocation will necessarily fail a true and fair view warranty. The issue was whether the particular methodology and resulting accounts accurately reflected the financial position and performance of the business being sold.

Defining the transferred business and assets

The seller retained the coldset business while transferring the heatset and hybrid components, which had historically shared infrastructure, expenses, customers and operational arrangements.

The Court found that the sellers had failed to transfer the hybrid business as required by clause 2 of the Asset Sale Agreement and awarded the buyer $600,000 in damages for that failure.

Separately, the Court found that four items of equipment acquired before completion had been omitted from the defined Assets and rectified the Asset Sale Agreement so that the buyer could retain them.

This highlights a common issue in business sales: the commercial concept of the "business" and the legal definition of what is being transferred are not necessarily the same thing.

Where only part of a business is being sold, the agreement should deal expressly with matters such as:

- which customers are transferring;

- which employees are transferring;

- which plant and equipment and other assets are transferring;

- shared premises and infrastructure;

- transitional arrangements; and

- how revenue and expenses are to be allocated between the retained and transferred businesses.

A commercially unusual term can still matter if it is agreed and documented: the electricity arrangement

The dispute also extended to the lease of the premises. The lease required the Lessor to procure electricity at the cost price applicable to the Lessor as at 7 March 2023 and invoice the buyer on that basis. The arrangement had been discussed between the parties at a meeting and was then included in the executed lease.

The Court found that the Lessor had agreed to the arrangement under the lease. When the Lessor later charged other rates, the Court found that this breached the lease.

The lesson is that a commercially unusual term can have significant consequences where the parties agree it and record it in the executed document.

Think about the remedy when drafting the warranty

The size of the damages award in Spotpress is a reminder of how much can turn on a financial warranty.

The case demonstrates why lawyers should think about the remedy and valuation consequences of a warranty breach at the time the agreement is drafted, rather than treating warranties as standard boilerplate. That includes the measure of loss, any cap or basket, the survival period, and how a successful claim will practically be recovered, including through set-off, retention or security.

Vendor finance became part of the risk allocation

The buyer still owed approximately $2.67 million under the vendor finance, after the payments and employee-entitlement adjustment addressed in the judgment, subject to a further adjustment referred to by the Court.

However, the Asset Sale Agreement, read with the Loan Deed as rectified by the Court, contained a contractual set-off mechanism under which amounts owing by the sellers to the buyer under the Asset Sale Agreement could be set off against amounts owing by the buyer to the sellers under the related transaction documents.

The sellers did not dispute that the buyer was entitled to set off the $4.875 million warranty damages and the $600,000 awarded for failure to transfer the hybrid business against that balance.

This illustrates why vendor finance should not be treated as merely a payment schedule. Where the transaction documents contain an effective contractual set-off mechanism, deferred consideration may also form part of the buyer's practical recovery position in relation to post-completion claims.

Practical takeaways for business sale transactions

For buyers

1. Identify the information you are actually relying upon.
If financial information is material to the purchase price, consider whether it should be backed by an express warranty.

2. Understand how the accounts have been prepared.
Particularly where only part of a larger business is being acquired, understand and test the allocation methodology for revenue, costs and overheads, and the period the figures cover.

3. Consider recovery mechanisms at the outset.
A warranty claim is only as useful as the buyer's ability to recover it. Consider set-off, retention amounts, escrow arrangements, guarantees and security.

4. Make sure agreed commercial points are documented.
If a point has been agreed in negotiations, such as the basis on which utilities will be supplied at the premises, make sure the transaction documents accurately record it.

For sellers

1. Do not give broader warranties than the evidence supports.
If financial information has been reconstructed or allocated, the warranty should reflect that reality.

2. Disclose accounting methodologies and assumptions.
A clear disclosure may be preferable to an apparently clean set of accounts that cannot withstand scrutiny.

3. Consider the interaction between deferred consideration and warranty claims.
If the purchase price is partly vendor financed, understand whether the buyer can withhold or set off amounts that become owing under the transaction documents.

4. Take care with pre-contract representations.
Statements about matters such as price increases, and the benefit the buyer will receive from them, should be accurate and complete, particularly where they influence the purchase price or financial model.

The broader lesson

A business sale agreement is not simply an agreement recording a price.

It allocates assets, liabilities, information risk and post-completion risk between the buyer and seller. In Spotpress, the scope of the Transferred Business, the quality of the financial information, the lease terms and the vendor-finance set-off mechanism all materially affected the outcome.

The time to resolve ambiguity about what is being bought, what the numbers mean and how post-completion claims will be recovered is before completion, not after the business has changed hands.

For lawyers acting on business acquisitions, careful drafting of the business definition, financial warranties, disclosure provisions, limitations, deferred consideration and set-off provisions can be just as important as negotiating the headline purchase price.

Disclaimer

This article is provided for general information purposes only and does not constitute legal advice. It is not intended to be a comprehensive statement of the law and is limited to a commentary on the facts, issues, and principles arising in Spotpress Pty Ltd v Spotpress Newspapers Pty Ltd [2025] NSWSC 1094. The discussion should not be relied upon as applicable to other circumstances.

If you require advice on a business sale dispute, particularly in relation to warranties, due diligence or defining the subject of the acquisition, you should seek independent legal advice. Our Commercial Team at Watson Webb is available to assist.