Administrators must repay deposit following indemnity clause dispute

Administrators told to refund deposit amidst Stoneywood Mill sale clash. Dispute over indemnity clauses between AW Estates Scotland Limited (AWESL) and ATE Farms Limited (ATE) led to court ruling. Breach by administrators cited, resulting in negotiation delays and deposit reimbursement.

Administrators attempting to sell an insolvent company have been ordered to refund a deposit to a potential buyer following a dispute about an indemnity clause. The case centred on Stoneywood Mill, a papermill in Scotland. AW Estates Scotland Limited (AWESL), the mill's owners, faced administration in September 2022. The administrators of AWESL negotiated a potential sale of the mill, its machinery, and assets to ATE Farms Limited (ATE), leading to a deposit and exclusivity agreement (DEA) between the parties.

Under this agreement, ATE paid a £300,000 deposit and gained exclusive rights for a specific period during which the administrators wouldn't negotiate with other potential buyers. Both parties committed to finalise the contract based on agreed heads of terms. The deposit was to be applied towards the purchase price if the sale concluded by an agreed date. However, if the sale failed to complete by this date due to a breach by the administrators, ATE could seek the return of the deposit.

The sale negotiations hit a roadblock concerning the extent of indemnities demanded by the administrators from ATE regarding environmental liabilities and permits. There was a disagreement over liabilities related to a secondary site where the mill disposed of its waste. ATE didn’t want to purchase the second site and refused to grant the requested indemnity, causing a deadlock in negotiations. While environmental indemnities were part of the initially agreed heads of terms, there was disagreement on their precise scope. ATE believed their indemnities were limited to the mill site, the only asset they were buying. However, the administrators argued that ATE had verbally agreed to assume all environmental liabilities, including those for the second site, as they were taking over the mill's waste management licenses, impacting the sale price.

The Court of Session ruled that while the administrators acted honestly, their insistence on pursuing an indemnity beyond what was detailed in the heads of terms constituted a breach. This breach, causing negotiation delays, was seen as a failure to diligently and swiftly conclude the contract based on the agreed terms, resulting in a refund of ATE's deposit by the administrators.

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