SGS 6: Share Sale Agreement: Key Points
(1)Definitions: - fully and fairly disclosed (with sufficient details to identify nature and scope of matter
“disclosed” disclosed.
- Case law -> disclosure must be fair; however:
- Infiniteland – adequacy of disclosure depends on wording of sale doc
-If B accepts ‘vague’ terms of disclosure -> can’t claim disclosure was ineffective bcs it wasn’t
fair
-Amendment ensures disclosure is ‘fair’ throughout doc.
(2)Sale and purchase - ‘full title guarantee’ = ‘operative clause under which parties agree to sell/buy
of sale shares -> LP (Misc.Provs) Act 1994: implies covenants for title (S has right to dispose of shares + will do
what it reasonably can (at own exp’s) to pass title to B; shares are free from encumbrances/3 rd
party rights)
(3)Warranties -‘Seller hereby warrants jointly and severally that Warranties are true and accurate
-only add ‘jointly + severally’ if there is more than 1 seller
i.e B can choose to sue jointly or severally (sue 1 warrantor) -> option increases chances of
recovery
(4)S agrees not to -prevents circular argument:
make claims against -> B sues S for breach of warranty and S sues an employee of T or its sub who may have assisted
employee re re negotiation/sale
warranties
(5) Warranties: Entire - limits B’s potential claim for misrepresentation
agreement Thomas Witter: 4 requirements for clause not to be ‘unreasonable’ under s.3 Misrep Act 1967
NB: B should NOT -> can be scattered around dif. parts of agreement:
complete knowing 1) Non-reliance (“warranties are the only reps […] B may rely …”)
of any misrep. 2) contractual remedies only
3) whole agreement clause
4) carve-out for fraud -> obiter Grimstead: carve-out may not be necessary; B can be estopped
from claiming misrep anyway!
Solution if fraud carve-out is missing:
i. leave clause as it is -> advise client they can sue in misrep but unlikely successful; and
ii. B give assurance that if it becomes aware of circ. Giving rise to claim for misrep -> B to seek
reduction in price or indemnity
(6) Warranties: - recession is impossible in cases of share sale (impossible to put parties back in to position they
Rescission clause were in before completion) – [useless clause]
(7) Warranties: - B will want ability to assign contract to one of its subs/holding/parent cos (Group Co0
Assignment
(8) Warranties: B’s - allows B to claim breach of warranty even if it had knowledge of X circumstances/breach
knowledge* before completion
(S will want to - limited to constructive and imputed knowledge
delete clause) - read together w/t clause that says B is not aware of any breach at time of completion
- B will only be allowed to claim for breach of W if it knew about it before completion at the
time it did not appreciate significance of breach
(9) S’s knowledge** “…so far as Seller is aware” shall be deemed to mean enquiries made by Bob, Dick and Harry..”
(B will want this to -> so far as S is aware = qualifies warranty/limits S’s liability in deciding what to disclose to B
be general) -limiting it to enquiries made by specific people prejudices B
- Ex: one of specific people is not aware of an issue -> S is “off the hook” re breach of warranty
(10) Seller’s - Limits S’s liability re Warranties and, where specified, Tax Covenants:-
limitations 1) Warranties – S only liable for breach of warranties up to 2 years after completion (2 audits)
2) Tax Covenants - S only liable for breach of warranties up to 7 years after completion (bcs
HMRC has right to make a determination to tax for up to 6 years from end of T’s accounting
period -> 7 years)
(11) Aggregate -cap on S’s liability = up to Purchase Price (typically btw 50% - 75%)
liability of S -S will want lower; B will want higher -> compromise
(12) Aggregate Aggregate liability for all claims = 1% Purchase Price (i.e £100,000)
liability: CLAIMS -> S will want lower; B will want higher -> compromise (remove “excess only”!)
Individual claim is “at least” £10,000
-> remove “equal to” = only claims worth EXACTLY “£X” would count towards total
(13) Disclosed - B shall not be entitled to claim that any fact/circ. Constitutes a breach of W if such fact/circ.
(1)Definitions: - fully and fairly disclosed (with sufficient details to identify nature and scope of matter
“disclosed” disclosed.
- Case law -> disclosure must be fair; however:
- Infiniteland – adequacy of disclosure depends on wording of sale doc
-If B accepts ‘vague’ terms of disclosure -> can’t claim disclosure was ineffective bcs it wasn’t
fair
-Amendment ensures disclosure is ‘fair’ throughout doc.
(2)Sale and purchase - ‘full title guarantee’ = ‘operative clause under which parties agree to sell/buy
of sale shares -> LP (Misc.Provs) Act 1994: implies covenants for title (S has right to dispose of shares + will do
what it reasonably can (at own exp’s) to pass title to B; shares are free from encumbrances/3 rd
party rights)
(3)Warranties -‘Seller hereby warrants jointly and severally that Warranties are true and accurate
-only add ‘jointly + severally’ if there is more than 1 seller
i.e B can choose to sue jointly or severally (sue 1 warrantor) -> option increases chances of
recovery
(4)S agrees not to -prevents circular argument:
make claims against -> B sues S for breach of warranty and S sues an employee of T or its sub who may have assisted
employee re re negotiation/sale
warranties
(5) Warranties: Entire - limits B’s potential claim for misrepresentation
agreement Thomas Witter: 4 requirements for clause not to be ‘unreasonable’ under s.3 Misrep Act 1967
NB: B should NOT -> can be scattered around dif. parts of agreement:
complete knowing 1) Non-reliance (“warranties are the only reps […] B may rely …”)
of any misrep. 2) contractual remedies only
3) whole agreement clause
4) carve-out for fraud -> obiter Grimstead: carve-out may not be necessary; B can be estopped
from claiming misrep anyway!
Solution if fraud carve-out is missing:
i. leave clause as it is -> advise client they can sue in misrep but unlikely successful; and
ii. B give assurance that if it becomes aware of circ. Giving rise to claim for misrep -> B to seek
reduction in price or indemnity
(6) Warranties: - recession is impossible in cases of share sale (impossible to put parties back in to position they
Rescission clause were in before completion) – [useless clause]
(7) Warranties: - B will want ability to assign contract to one of its subs/holding/parent cos (Group Co0
Assignment
(8) Warranties: B’s - allows B to claim breach of warranty even if it had knowledge of X circumstances/breach
knowledge* before completion
(S will want to - limited to constructive and imputed knowledge
delete clause) - read together w/t clause that says B is not aware of any breach at time of completion
- B will only be allowed to claim for breach of W if it knew about it before completion at the
time it did not appreciate significance of breach
(9) S’s knowledge** “…so far as Seller is aware” shall be deemed to mean enquiries made by Bob, Dick and Harry..”
(B will want this to -> so far as S is aware = qualifies warranty/limits S’s liability in deciding what to disclose to B
be general) -limiting it to enquiries made by specific people prejudices B
- Ex: one of specific people is not aware of an issue -> S is “off the hook” re breach of warranty
(10) Seller’s - Limits S’s liability re Warranties and, where specified, Tax Covenants:-
limitations 1) Warranties – S only liable for breach of warranties up to 2 years after completion (2 audits)
2) Tax Covenants - S only liable for breach of warranties up to 7 years after completion (bcs
HMRC has right to make a determination to tax for up to 6 years from end of T’s accounting
period -> 7 years)
(11) Aggregate -cap on S’s liability = up to Purchase Price (typically btw 50% - 75%)
liability of S -S will want lower; B will want higher -> compromise
(12) Aggregate Aggregate liability for all claims = 1% Purchase Price (i.e £100,000)
liability: CLAIMS -> S will want lower; B will want higher -> compromise (remove “excess only”!)
Individual claim is “at least” £10,000
-> remove “equal to” = only claims worth EXACTLY “£X” would count towards total
(13) Disclosed - B shall not be entitled to claim that any fact/circ. Constitutes a breach of W if such fact/circ.
