Limited Warranty Claims


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By Clare Richards

The warranties and limitations in a share purchase agreement are typically one of the most heavily negotiated and redrafted sections of the document.

A recent Court of Appeal decision (Nobahar-Cookson & Ors v The Hut Group Limited) highlights how important precise wording can be.

The buyer of a target company had the benefit of various warranties, subject to limitations. The buyer wanted to bring a claim against the seller for a breach of warranty about management accounts. The contract said that the claim had to be brought within twenty business days of the buyer “becoming aware of the matter”. Essentially, the Court of Appeal had to decide whether this meant a claim had to be made within twenty business days of the buyer:-

  • becoming aware of the underlying facts;
  • becoming aware that there might be a claim; or
  • becoming aware that there was a proper basis for a claim.

The Court found that on balance the last interpretation was applicable – so the time limit did not start to run until the buyer knew there were proper grounds for the claim after it had received advice from its forensic accountants.

Lord Briggs’ leading judgment accepted that if there were ambiguities in an exclusion of liabilities clause (as here) then the “contra proferentum rule” could be applied. This means that the narrowest interpretation of an exclusion clause can be adopted if its meaning remains doubtful after its language and the purpose and context of the words have been considered.

In other words, the seller’s liability for breach of warranty was not excluded simply because the buyer made its claim more than twenty business days after becoming aware of the underlying facts.

As ever, if you want certain benefits under a contract (here, an exclusion of liability for breach of warranty) you need to make sure that the relevant language clearly covers what you want to achieve.

Clare Richards is a solicitor in the Business Services team

Ipswich Business Solicitors – If you need advice, the friendly and experienced solicitors at Barker Gotelee are on hand to help. Call the team on 01473 611211 or email bg@barkergotelee.co.uk