A share purchase agreement (SPA) sets out the terms on which shares in a company will be transferred from the seller to the buyer. It is usual for the SPA to include warranties and indemnities. Warranties are statements declaring that a particular state of affairs exists which, if breached, give rise to a claim for breach of contract. Indemnities address specific risks and require the indemnifying party to compensate the recipient of the indemnity for the loss arising from a prescribed trigger event.
In a recent case, the seller had agreed to indemnify the buyer for any tax that the target was due to pay the Danish authorities, the time limit for this was six years. As the time limit approached, the buyer requested that the seller provide certain information to enable the buyer to negotiate a settlement for the tax dispute before the indemnity expired. However, there was no express provision in the SPA for the seller to provide the requested information. The buyer relied on the further assurance clause, which stated that the seller must use all reasonable endeavours reasonably necessary to give full effect to the SPA.
The court rejected the buyer's arguments as there was no express provision in the SPA requiring the seller to provide the requested information. Providing the information requested by the buyer was not necessary to give full effect to the SPA.
As a buyer or seller of a company, it is necessary to envisage all the terms upon which you intend to rely, and expressly set them out in the SPA. It is not enough to assume that they follow on from another term and will be implied by the courts.