The share purchase agreement (SPA) creates a great playing field for seller and purchaser (and their legal advisers) to try and allocate their respective risks. The preferred tool to do so is the warranty provision. The purchaser will want to include as many seller’s warranties as possible in the SPA to (i) gain comfort about the company and the business it is purchasing and (ii) encourage the seller to reveal as much information as possible. In turn, the seller will aim to provide the purchaser with as few warranties as possible, or to limit a large part hereof to the facts it knows (the best knowledge qualification). By including or excluding seller’s warranties in the SPA, parties also attempt to define the limits of the seller’s duty to disclose and the purchaser’s duty to investigate.

Should a warranty provided by one party be incorrect (because a warrantied fact does not occur), then that party has breached one of its obligations under the SPA. It is however customary in an SPA to qualify certain (non-fundamental) seller’s warranties to the (best) knowledge of the seller, when it is legitimate for the seller to not be aware of a breach of such warranty at the time the warranty is given. The best knowledge qualification will then, to some extent, impact the allocation of the risks under the SPA.

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