Member Article

When the company was purchased, you will have entered into a Share Purchase Agreement. If you think that there might be potential for a warranty claim, you need to revisit the agreement to establish the basis of your claim and the manner in which it requires to be processed. The warranties in your agreement amount to assurances from the seller with regards to the condition of the business and outstanding liabilities at the time the deal was completed. In order to raise a successful claim you will need to show that the warranty was not true and that as a result, the company you purchased is worth less than you thought.

The agreement will lay down the procedure for letting the seller know about the breach and it will almost certainly contain some time and financial restrictions. There will also be notification provisions which should be carefully complied with. The recent case of John Forrest and Others v John Glasser and John Whitley highlighted the importance of being aware of the notification provisions. In that case the contract stated that the purchasers had to inform the sellers of any breach as soon as practicable and also within three years. ''Without prejudice" to this they also had to provide sufficient information for the seller to be able to look into the claim and reply. Initially the court held that the claim was time barred because the letter had not provided the seller with enough details. However, on appeal it was successfully argued that the words "without prejudice" meant that at that stage the purchaser only had a duty to inform the sellers of a claim not to provide them with details.

In short, you need to revisit your share purchase agreement to clarify the basis of your claim and ensure that you follow the appropriate procedure in terms of the agreement.