A share purchase agreement entered into in the context of an M&A transaction often provides for seller warranties whereby the seller undertakes to indemnify the purchaser against any potential loss of value suffered by the target after completion of the transaction, provided that the triggering event of such loss occurs before completion of the transaction and the purchaser complies with the provisions set out in the share purchase agreement. Seller warranties often provide for specific contractual provisions which oblige the purchaser to inform the seller of any event that is likely to result in a claim of the purchaser and to organise the conduct of third-party claims. However, agreements often remain silent on the consequences of a breach by the purchaser of such obligations under the warranties.

In 2009 the Supreme Court ruled that when an agreement is silent on the consequences of a breach by the purchaser of its obligations under the warranties, the court shall decide, in accordance with its sovereign power of interpretation, whether the rights of the purchaser to make a claim under the warranties are forfeited or whether the purchaser remains entitled to exercise its rights under the warranties.


The transaction was a share deal in which the seller conventionally undertook in the warranties to indemnify the purchaser, provided that the seller was offered the opportunity to conduct and control the defence of any third-party claims.

The purchaser made a claim under the warranties following a tax reassessment concerning a subsidiary of the target. The seller was made aware of the tax reassessment four months after the start of the tax audit and had only a few days to make comments. Two months later he was informed that the tax administration had continued its audit, but he was not informed of the possibility to challenge the initial decision of the tax administration before a committee. The company finally paid the amount claimed by the tax administration, even though the time limit to judicially challenge the decision of the tax administration had not expired. The seller refused to pay the claim notified by the purchaser on the grounds that he had not been notified of the tax reassessment initiated by the administration within the contractual deadlines and had not been offered the opportunity to monitor the tax audit procedure. He was therefore denied the ability to challenge the tax reassessment and was unable to mitigate the loss which had to be indemnified under the seller warranties.


On May 18 2016 the Supreme Court ruled that the court of appeals had rightfully, and in accordance with its sovereign power of interpretation, decided that the purchaser was entitled to make a claim under the warranties ? even though he had not complied with some of the contractual provisions ? and that the amount to be paid by the seller should be reduced to account for the loss of chance. The Supreme Court also confirmed that it fell under the sovereign power of interpretation of the court of appeals to determine the amount to be paid by the seller.


The Supreme Court has confirmed the flexible approach of the court of appeals in that the warranties remained valid despite the purchaser not complying with the contractual provisions; the damages awarded could be reduced by the court depending on the extent of the loss of chance. This decision improves legal certainty, even if parties are subject to the interpretations of the lower courts, which are often unpredictable and made on a case-by-case basis.

To avoid any doubt, sellers of shares should ensure that the consequences of non-compliance by the purchaser with any provision of the warranties are explicitly and precisely set out in the share purchase agreement. This decision reasserts the importance of the duty of disclosure and information in French contract law, which was recently expanded in Ordinance 2016-131 of February 10 2016.

For further information please contact Alain Levy or Gwenaëlle de Kerviler at AyacheSalama by telephone (+33 1 58 05 38 05) or email ( or The AyacheSalama website can be accessed at

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