SPA drafting points

Question 1

Termination rights

Answer 1

If you include a contractual termination right, you should expressly state that it’s a right to terminate whether or not the breach would amount to a repudiatory breach at common law.

This is because the courts could construe a clause giving a termination right for breach as only being a right to terminate for a repudiatory breach.

So it is not necessarily the case that a contractual term that expressly gives a termination right for breach will be treated as breach of an underlying obligation that is a condition.

Question 2

General ways to negotiate / revise drafting

Answer 2

• too wide / narrow (could be in scope / time)
• subjective / objective
• cure periods
• materiality
• acting reasonably / in good faith
• consultation right / requirement

Question 3

Exclusion clauses and fraud

Answer 3

• it’s not reasonable to try to exclude liability for fraudulent misrepresentation
• a provision seeking to exclude liability for fraudulent misrepresentation would be unenforceable
• seller should expressly carve-out fraud from the schedule setting out the limitations on its liability as not doing so could risk the whole limitations of liability provisions / schedule being unenforceable
• exclusion of liability for fraud should also be carved out of all other clauses limiting liability and/including the entire agreement clause
• although there is fairly well-established scepticism about the approach taken in Thomas Witter through subsequent case law - market practice and the prudent approach is to expressly carve out the exclusion of fraud
• NB: “fraud” in the more general sense is thought to be the more appropriate word to use

Question 4

Entire agreement clauses

Answer 4

• more important for the seller than for the buyer
• to exclude liability for misrepresentation (and liability for tortious damages)

Question 5

Gap controls

Answer 5

Gap controls and any pre-completion cooperation provisions between the target and buyer should be reviewed by antitrust if the transaction is subject to antitrust clearance / there’s an antitrust risk.

Question 6

Technical point on drafting of total cap on seller’s liability

Answer 6

seller pov:
- ensure the total cap on the seller’s liability caps its liability “arising out of or in connection with” warranty claims / claims under the SPA and you may want to expressly state that the total cap includes ancillary liabilities - eg interest and costs (although this risks putting the buyer on notice about the point)

buyer pov:
fine to use wording “in respect of claims”

Background
- in a HC case (Equitix) in 2021, the court held that the financial cap “in respect of” warranty claims under an SPA did not limit the seller’s liability for ancillary liabilities in respect of the litigation process to determine the claim (eg interest and costs)
- the judge also noted the absence of any specific mention of interest or costs in the SPA, which he said one would expect if important litigation rights were being forgone