Member Article

Infiniteland Limited v Artisan Contracting [2005] EWCA Civ 758 This English case highlights some vital principles to be considered when drafting share purchase agreements, carrying out and reviewing due diligence and disclosing against warranties. In share purchase agreements, buyers often seek to introduce wording to the effect that warranties are only qualified by matters “fully, fairly and specifically” disclosed in the disclosure letter and not by any other information of which the buyer has knowledge (actual/constructive). Facts: When this case was initially decided in the High Court, the buyers of a company failed in their claim for damages for breach of warranty because the share purchase agreement contained a clause excluding such a remedy where the buyer had actual knowledge of relevant facts. This would otherwise have amounted to a breach of warranty. The buyers accountant was aware of financial irregularities in the seller’s books but failed to pass this information on to the buyers. An entire agreement clause in the share purchase agreement also stopped the claimants from relying on misrepresentation. Held: • The Court of Appeal dismissed the appeal against the High Court’s decision, stating that there was ample evidence that the accountants knew the accounts were misleading. • The Court also stated that the disclosure letter was prepared in the context that material had been supplied to the accountants. It was open to the buyer to refuse to accept disclosure in general terms by reference to what had been supplied to the accountants, and to insist on disclosure in relation to each individual warranty. • In relation to the issue of knowledge, the Court of Appeal stated that a buyer cannot rely on a saving provision if it had actual knowledge of the matter on which it seeks to base a warranty claim. It is unclear whether or not this case will be appealed to the House of Lords.