Breach Of Warranty Crib Sheet Notes

Breach Of Warranty

1. Is there a breach of warranty?

   1. What did the seller warrant in the SPA?

      1. STATE CLAUSE & SUMMARISE IT

      2. If a warranted fact turns out to be untrue, the buyer has a claim for breach of contract regardless of whether he relied on the warranty in question

   2. Can seller argue that there has been no breach of the warranty as drafted as the claim did not have a “material adverse effect” on the business or financial condition of the target?

      1. Check terms of SPA to ascertain if material is defined

   3. Common breaches:

      1. Change of control

      2. Confidentiality

      3. Maintenance of plant & machinery

      4. Licence fee payments

2. Has there been a loss?

   1. Was provision made in the Completion Accounts for any liability in respect of the damage?

      1. If yes then this would have been taken into account when determining the price paid for the target and no loss would have been suffered

      2. If no then this would not have been taken into account when determining the price paid for the target and a loss will have been suffered

3. Was the breach disclosed in the disclosure letter?

   1. General disclosure

   2. Specific disclosure

4. What was the standard of disclosure in the SPA?

   1. HIGH STANDARD OF DISCLOSURE (buyer friendly)

      1. Levison v Farin

         1. “Save as disclosed”

         2. Disclosure must be fair; it is not enough to disclose a whole pile of documents and leave it to the buy to discover the truth

         3. Court held that this kind of clause was intended to require “A party who wishes by disclosure to avoid a breach of warranty to give specific notice for the purpose of the agreement, and protection by disclosure will not normally be achieved by merely making known the means of knowledge which may or do enable the other party to work out certain facts and conclusions”

      2. New Hearts v Cosmopolitan Investments

         1. “Subject to matters fairly disclosed”

         2. Sellers provide the buyers with all the information and draw the buyer’s attention to the matter

         3. Cited Levison v Farin that “the mere reference to a source of information, which is itself a complex document, within which a diligent enquirer might find the relevant information will not satisfy the requirements of this clause”

      3. Daniel Reeds Ltd v EM ESS Chemists Ltd

         1. “Save as fairly disclosed”

         2. Fair disclosure requires some positive position statement of the true position, so providing a list is not fair disclosure

      4. Edward Prentice v Scottish Power

         1. “There must be fair disclosure of the facts and circumstances sufficient in detail to identify the nature & scope of the matter disclosed and to enable the buyer to form a view”

   2. LOW STANDARD OF DISCLOSURE (seller friendly)

      1. Chadwick found that wording cannot be imported from another contract into an SPA and the standard of disclosure decided by the parties in the current agreement is what the parties should rely on and the commercial reality of the transaction

      2. Allocates the risk to the buyer

      3. It will be for the Court to determine whether the specific disclosure constituted full, fair and clear disclosure in the circumstances

5. Did the buyer have actual knowledge?

   1. Were the directors of the buyer aware?

      1. Seller could put forward defence that the buyer acquired actual knowledge of the breach from the circumstances and that it waived the breach by proceeding with the...

Buy the full version of these notes or essay plans and more in our Private Acquisitions Notes.