The importance of proper disclosure
Construing the SPA, which included a cap on the sellers' liability equal to the purchase price (£2.3 million) and an unusual de minimis arrangement (rendering the first £500,000 of any claim irrecoverable), the judge found that:
- the damages that on the face of it flowed from the proven breach of warranty exceeded the purchase price by more than the de minimis amount; and
- the damages recoverable were subject to the cap on liability but were not further reduced by the de minimis amount.
Accordingly, the judge awarded damages in the amount of the entire purchase price, £2,386,247.50.
The case has highlighted the importance both on the seller side of proper disclosure in the context of a share/asset sale and also on the buyer side of considering the precise terms of the SPA when making a warranty claim.
The case is also a timely reminder to lawyers acting on the buy side to look very carefully at the wording suggested by the advisers acting for the seller. In this case the seller protection provisions provided unusually that the first £500,000 of a claim was not recoverable. While de minimis and hurdle provisions are often hotly negotiated, it is unusual, when a threshold has been reached, for a buyer not to be able to recover the full amount of its loss.