Corporate and M&A

Contact: Clarkslegal (Reading, England)

In a recent High Court case, Sycamore Bidco Ltd v Breslin (2012), it was alleged that a contractual warranty could also give rise to an action for misrepresentation. This case highlights the need for care when drafting share purchase agreements.

The facts

In this case, following completion of a share purchase, the buyer (Sycamore) discovered what it considered to be accounting errors in the audited accounts on which it had relied when agreeing the price for the target company resulting in an inflated purchase price.

The share purchase agreement (SPA) contained the usual warranties in respect of the quality of the accounts, including that they showed a true and fair view of the company affairs and that they were prepared in accordance with generally accepted accounting principles. The seller’s liability under the warranties was limited. 

Therefore, as well as suing for breach of warranty, the buyer claimed, in the (preferred) alternative, that the breached warranty was also a false representation that had induced it to buy the target company. Any liability for misrepresentation was not expressly limited in the SPA.

Read the entire article on Clarkslegal's website.