In assessing the damage suffered by the sellers, the judge applied the impairment and found that the difference between the value of the shares “as justified” and their value “as it is” exceeded the purchase price more than the de minimis threshold for the warranty rights included in the BSG. The G.S.O. also included a liability cap (equal to the purchase price), so the judge accepted the full purchase price as damages. Although it applies orthodox principles, the decision highlights the possibility that shares “as collateral” are worth much more than the buyer actually agreed to pay for them, meaning that even in the case of market restrictions and de minimis rules, sellers may be responsible for the total purchase price if the shares are zero or rated “as they are”. In this case, it was not possible to provide a debt of $14.5 million in the accounts. Not an insignificant amount of money to miss! Surprisingly, the omission did not affect the valuation of the company and, therefore, the depreciation of the company`s shares. The question therefore arose as to whether the reduction was only part of the alleged injury and whether it was also possible to include an element of injury based on the loss of the opportunity to negotiate a guarantee or compensation determined during pre-contract negotiations. In the event of a breach of a warranty, the reason provided by a buyer for this infringement is within contract law and, therefore, any buyer would have to prove that he or she suffered a loss as a result of that infringement and would have an obligation to limit or mitigate his loss (for example. B, the old stock can generate a return, but not the full value) or prove that the damage suffered was not too far away. The sellers negotiated the sale of their stake in Target in Cardamon Limited (Buyer) for $2.3 million, which they consider to be highly discounted, based on (a) of the sale on an accelerated two-week basis; (b) the buyer would not perform due diligence for the destination and (c) the sellers would give the “blinded” guarantees since they were not involved in the management of the transaction. With respect to the AM agreements being negotiated, many buyers place additional emphasis on the guarantees and other safeguards they obtain under the deal documents. In difficult economic climates, transactions are more likely to take legal action against their counterparty after the transaction is completed.
For example, when a buyer buys a business that, in turn, falls short of expectations after closing, the buyer may be more likely to proactively check whether guarantees have been breached in the G.S.O. and try to recover from the seller to mitigate this disappointing performance. The guarantees provided by the seller in the share purchase agreement (hereafter the SPA) offer the buyer protection against the risk of unknown debts. They give the buyer assurances as to the status of the target entity, the other or the asset. In the event of a breach of truth, the purchaser can claim contractual damages as long as he can prove a loss due to the breach of the warranty. An action for damages for breach of the guarantee is intended to put the buyer back in the position he would have benefited from if the guarantee applied. The judge noted that the provision in the 2013 accounts was a very significant undersur supply, meaning that the sellers were violated against the warranty. In addition, it was found that target`s legal financial statements for 2012 also included sub-provisions, making the 2013 account opening position unreliable.
Both the buyer and the sellers provided expert evidence of assessment and the judge decided that a specific figure was not required, as it was at least $500,000 more than the purchase price. This meant that the buyer was able to charge up to the ceiling in the SPA (i.e. the purchase price).