Q&As

Are a buyer's rights and remedies in respect of a warranty claim under a share purchase agreement or asset purchase agreement affected by its actual knowledge or the knowledge of its advisers?

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Published on LexisPSL on 10/05/2017

The following Corporate Q&A provides comprehensive and up to date legal information covering:

  • Are a buyer's rights and remedies in respect of a warranty claim under a share purchase agreement or asset purchase agreement affected by its actual knowledge or the knowledge of its advisers?

A buyer will often attempt to include in a share purchase agreement or asset purchase agreement a provision which states that the buyer's actual knowledge of a matter that could give rise to a warranty claim or its advisers' knowledge (the buyer's constructive imputed knowledge) of such matter will not affect its ability to bring a warranty claim. A buyer will be keen to include such provision as it will not have complete control over the information which is provided to its officers, employees or advisers or may have required its advisers to produce a limited due diligence report which 'reports by exception' rather than cover all information disclosed. For an example of such provision, see clause 8.7 of Precedent: Share purchase agreement—pro-buyer—corporate seller—conditional—long form.

However, a seller will be keen to prevent the buyer from bringing a warranty claim if it has knowledge of the facts, matter or circumstances giving rise to a warranty claim. For an example of such provision, see clause 8.4 of Precedent: Share purchase agreement—pro-seller—corporate seller—conditional—long form. Such provision will be heavily negotiated by the seller on the basis that it is subject to a high duty of disclosure under common law, presuming an agreed standard of 'fair disclosure'.

In the case of Eurocopy plc v Teesdale, the agreement contained a provision stating that the warranties were given subject only to

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