Court of appeal considers competing definitions of “goodwill”

01 December 2020

The Court of Appeal has recently considered the meaning of “goodwill” in a commercial contract, continuing a long-standing discussion on the proper contractual interpretation of that term.

The case in question, Primus International Holding Company & Ors v Triumph Controls – UK Ltd & Anor [2020] EWCA Civ 1228, centred on the construction of an exclusion clause in a share purchase agreement, which excluded liability “in respect of lost goodwill”. In determining the meaning of the exclusion clause, the court considered two rival definitions of “goodwill”: (i) the ordinary legal meaning, being “the good name and public reputation of the business concerned” (at [25]); and (ii) a technical meaning based on the common accounting definition of “goodwill”, which focused on the loss of value in the assets of the affected business.

The Court of Appeal confirmed the decision of the trial judge that, in the absence of clear words to the contrary, the ordinary legal meaning of the term “goodwill” will prevail over any alternate technical or accounting definitions. This case is a helpful reminder that, if the parties to a contract intend for a term to have a meaning other than its ordinary legal meaning, that alternate meaning must be clearly spelt out in the contract.

"If a contract contains a term to which the parties intend to give an unusual or technical or non-legal meaning, that must be spelt out. That did not happen here." [paragraph 26]