5. Risk Allocation II Flashcards
(26 cards)
purpose of disclosure
limitation of liability for seller
phrase that limits liability of warranties to sellers knowledge
warranties are given by reference to the knowledge, information, or belief of the seller
does UCTA apply when negotiating each warranty term
no unless they are on the others written standard terms of business
how can seller limit liability under warranties
setting max liability to be below price buyer paid for target.
should capture ancillary liabilities such as litigation costs
what is the usual min threshold for claims and what is the purpose
0.5-1% of the consideration
buyer is prevented from making any claim unless aggregate of all claims exceeds the threshold
buyer should argue that once this threshold has been met, they ought to be able to recover the full amount rather than amount by which threshold is exceeded
types of min threshold clauses
Deductible (true threshold)
If the total claim amount exceeds the threshold, only the excess is recoverable.
Example: If the threshold is £10,000 and the loss is £15,000, only £5,000 is recoverable.
Tipping Basket (all-or-nothing threshold)
If the total claim amount exceeds the threshold, then the full amount is recoverable.
Example: If the threshold is £10,000 and the loss is £15,000, the full £15,000 is recoverable.
what is the limitation period for bringing a claim for breach of contract
6 years from date of the breach.
this would be the date on which the warranty statement was given (on simultaneous exchange is the date SPA was dated)
limitation for bringing claim for breach of contract where the share or asset sale is by deed
12 years
what will sellers aim to do re limitation periods
that they are off the hook before limitation period expires- link period buyer can make claims re tax matters to HMRC’s time limit for making an assessment to tax
what will seller aim for re limitation period for non tax matters
linked to target co’s audit
when will seller prevent buyer from bringing a claim
where the loss is covered by insurance
what provision might be made re understated in accounts
seller may include provision that claim will be reduced by amount by which seller can show that the net assets of target were understated in accounts drawn up before completion
what are notification of claim provisions
seller may try to restrict liability by negotiating or demanding specific requirements that should be met following breach of warranty (requisite info, grounds of buyers claim, identification of applicable clause or para to which claim relates)
Teoco v Aircom
claim for warranty breaches struck out on grounds of failing to comply with notification requirements agreed between parties.
purpose of disclosure
qualifies the warranties to avoid it being in breach of warranty in relation to matters disclosed
format of disclosures
letter from seller to buyer
what are deemed disclosures
matters that are deemed to have been disclosed to the buyer - general disclosures that buyer can be expected to find out for itself or info made available to buyer during due diligence
examples of deemed disclosure
info at companies registry
matters apparent from property deeds or LR
matters disclosed by physical inspection of property
matters which are in the public domain
matters disclosed in the audited accounts of the target
matters included/referred to in the accountants report prepared on behalf of the buyer
matters disclosed in the replied to prelim enquiries and docs enclosed within those replies
info and documentation passed on to buyer and advisers in pre-contract period
what are specific disclosures
draws buyers attention to specific info about the target which is inconsistent with one/more of the warranties given by seller
what will the spa provide
that warranties are given subject to matters disclosed in the disclosure letter
infiniteland
ca held that sufficiency of disclosure must be measured by reference to agreed contractual provisions and context of acquisition
disclosure must meet standard agreed in contract to negate a warranty claim
disclosure letter provided for general disclosure of all matters ontained in docs provided to buyer’s reporting accountants for due diligence review
what happened in eurocopy
buyer inserted clause limiting disclosure to that included in the disclosure letter, excluding
other info relating to the co of which purchaser has knowledge (actual, constructive or imputed)
seller warranted that all material facts had been disclosed. buyer sough breach of warranty claim on the ground that seller failed to disclose certain facts (relating to maintenance contract for photocopiers) ca refused the appeal
what happened in infiniteland
issue whether imputed knowledge constituted actual knowledge, therefore falling within the exception outlined in the clause.
held that actual and imputed knowledge are different
knowledge of prof adviser was not buyers knowledge - seller prevented from raising buyers knowledge as a defence
can a seller be liable for statements made by employees or agents of the seller?
freightliner
seller held vicariously liable for fraudulent pre contractual statements of agent who had been put forward as having authority to speak on its behalf
