Share Purchase Disputes: Breach of Warranty – What Can I Do?

In this prolonged period of economic instability, getting your money’s worth is more important than ever. If you feel that you have ended up with a bad bargain in a recent company purchase, one way to rectify this may be through making a claim under the warranties set out in the Share Purchase Agreement (“SPA”).

What is a contractual warranty?

A warranty is a contractual promise that a certain state of affairs exists. When buying a company, this could be, for example, that all of the information disclosed to you in the buying process is accurate. If these promises are breached, it can lead to significant financial losses for the purchaser and a fall in the value of the company. Essentially – a good deal, gone bad.

Warranties are often provided with a disclosure letter, or within the  SPA itself.

What can I do if a warranty has been breached?

If you believe that a warranty has been breached, quick action is needed. Many SPAs have strict time limits for starting proceedings that need to be adhered to. Therefore, it is important to think ahead and seek legal advice early on – or you may lose your right to get any compensation. You should also consider the value of the claim, as some SPAs contain restrictions to prevent minor claims of low value being brought, or maximum liability of the seller.

If you do have a valid claim, it then normally needs to be ‘notified’. The SPA may impose a time limit which is shorter than the statutory six years for when this notification needs to be brought. Courts do not allow flexibility to these timelines, so a breach of warranty claim needs to be dealt with in good time.

The notice is necessary so that the seller knows and understands the nature of the claim. It will usually need to include ‘reasonable detail’ about the warranty and why it is believed to be breached.

After serving notice, you may be able to settle or withdraw the claim without progressing to formal legal proceedings. If not, formal proceedings would need to be issued and served, again by the date specified in the SPA.

It is worth thinking carefully about the merits of pursuing litigation – consider, for example whether you wish to continue a positive commercial relationship with the seller, or whether they can even afford to pay the damages. On the other hand, even if the seller cannot outright afford to pay the value of the damages, they may have warranty and indemnity insurance that would make it worth your while to pursue a claim.

How can Ellis Jones help me with a breach of warranty?

When dealing with a potential breach of a warranty, it is important to seek legal advice sooner rather than later, given the strict timelines often imposed by SPAs. At Ellis Jones, our dispute resolution solicitors are highly experienced in the field of contractual disputes and will deal with your claim promptly to ensure it meets all specified requirements.

Our solicitors will also be able to help you assess any monetary limitations or restrictions in the SPA, as well as whether formal litigation would be in your best business interests. If you do decide to proceed with a formal claim, expert evidence is often needed to assess the loss correctly. Ellis Jones’ skilled and experienced team will be able to assist you with all aspects of your claim.

If you need legal advice or support regarding your Share Purchase Dispute, please get in touch with our team of experienced solicitors on 01202 525333 or by emailing resolution@ellisjones.co.uk.