What are the remedies for a breach of warranty? Belgium Van Bael & Bellis

Subject to the contractual limitations, the aggrieved party may seek indemnification from the other party in case of a breach of the representations and warranties.

Alternatively, depending on the nature of the breach and the wording of the transaction documents, the buyer may also have the right to terminate the relevant agreement. This is particularly relevant in case of a breach of a warranty in the period between signing and closing that results in a condition precedent not being satisfied.

Bermuda BeesMont Group

Remedies for a breach of warranty must be in accordance with the terms of the acquisition agreement and common law, but parties will often agree to include indemnification provisions in the acquisition documentation. Indemnity provisions often provide a specified minimum threshold for claims and a maximum claim limit.

Canada Gowling WLG

The remedies available to a purchaser will vary depending on the timing of the breach and the structure of the transaction. The acquisition agreement will typically provide for the closing of the transaction to be conditional on the sellers not being in breach of any representation and warranty. On the occurrence of a breach pre-closing, the purchaser will have the option to terminate the agreement or close the transaction and seek damages.

If the breach occurs post-closing or is identified post-closing, the purchaser will have the right to:

  • bring an indemnity claim under the terms of the purchase agreement;
  • submit the claim to arbitration; or
  • bring an action before the courts, unless the agreement provides that the contractual indemnity is the exclusive remedy available to the purchaser for a breach of a representation and warranty.

On the parties agreeing on the quantum of the damages suffered and therefore the quantum of the indemnity claim, the indemnified party may seek payment from the indemnifying party or may have a contractual right to offset such amount against any holdback amount or amount held in escrow for such purposes or any other amount which is payable by the indemnified party to the indemnifying party, including earn outs or promissory notes. If there is more than one seller or purchaser, the representations and warranties and the indemnification obligations will generally be joint and several, meaning that each seller, for example, is responsible for the full amount of any breach of a seller representation and warranty and the purchaser may bring an indemnity claim or action against any of the sellers for the full amount. The alternative is for the representations and warranties and/or the indemnification obligations of the sellers to be several, but not joint and several, whereby the obligations of one seller is limited to its own obligations or its portion of the obligations.  

China Baker McKenzie

Under the Contract Law, if a party fails to perform its contractual obligations or its performance does not comply with the agreement of the parties, it shall be liable for breach – for example:

  • continued performance;
  • taking remedial measures; or
  • paying damages.

Typically, indemnity obligations and contractual damage claims are contemplated for breach of warranty.

Denmark Danders & More

As a default, the remedies for a breach of a warranty are indemnification, termination (requires a material breach) or proportionate reduction of the purchase price. The purchase agreement usually will limit the remedy for breaches to indemnification.

In addition, it has become increasingly common for sellers to take out insurance against claims related to breaches of warranty.    

Germany Skadden Arps Slate Meagher & Flom LLP

German law contains no special rules for breach of contract concerning the acquisition of companies. On the basis of German statutory law, if a warranty turns out to be incorrect, the purchaser will generally have the option to:

  • receive subsequent performance;
  • reduce the purchase price;
  • rescind the acquisition agreement; or
  • claim damages for non-performance.

In practice, the right of rescission and the right to reduce the purchase price are usually excluded.

Most of the available statutory remedies are impractical. Therefore, the seller will normally be obliged to restore the buyer's situation to how it would have been had the warranty been correct, on the basis of a regular claim for damages and subject to a number of limitations.   

Greece Karatzas & Partners Law Firm

According to Articles 534 and following of the Civil Code – and to the extent that the parties have not otherwise agreed to limit or waive the following protective provisions – the buyer will have the right (which may be exercised alternatively) to:

  • seek to repair or replace the purchased assets;
  • seek to reduce the purchase price;
  • rescind from the sale agreement; or
  • seek all damages suffered due to the non-performance of its counterparty under their agreement, in which case it must also return any assets received by the seller.

In addition to the above rights, the buyer may cumulatively seek additional consequential damages if these are causally linked with the warranties. Rescission of a transaction is generally considered an inappropriate remedy where a company is being sold.

Guernsey Carey Olsen

A breach of warranty is a breach of contract, giving the buyer a claim for damages. The parties may also agree that warranties are to be given on an indemnity basis, which affects the assessment and recoverability of damages. Warranties can be (but are not usually) given as representations, so that a breach gives rise to a claim in tort, which in turn gives rise to damages assessed on a tortious basis or, potentially, rescission.

Hong Kong Baker McKenzie

The main claim for a breach of warranty will be for damages, although the parties may also agree an indemnity provision to cover breach of warranties. Claims arising from a breach of warranty are ultimately enforceable only by litigation, which can be both costly and time consuming. Recovery of damages will also depend on the creditworthiness of the seller at the time the judgment is enforced. 

India Trilegal

Under the law, the aggrieved party may either claim indemnity under the contract or approach the jurisdictional court to claim for damages. In either case, the aggrieved party must provide sufficient proof of the loss that it suffered. The parties may also contractually agree on other remedies – for instance, in case of partial acquisitions, the aggrieved party may propose put or call options as a remedy for breach of material warranties.

Italy Nctm Studio Legale

The parties may agree in the stock purchase agreement for indemnification and termination provisions. Termination may apply by operation of law in case of major breaches.

Jersey Carey Olsen

A breach of warranty is a breach of contract, giving the buyer a claim for damages. Remedies for a breach of warranty are generally on a common law or indemnity basis. Indemnity basis recovery covers the cost of remedying the breach. Recovery on a common law basis is limited to the diminution in the value of the shares or assets acquired arising as a result of the breach of warranty.

Warranties can be (but are not usually) given as representations, so that a breach gives rise to a claim in tort, which in turn gives rise to damages assessed on a tortious basis or, potentially, rescission.

Malaysia Tay & Partners

The acquisition agreement will typically provide for a timeframe for the defaulting party to remedy the breach, failing which the non-defaulting party can claim damages for breach of warranty.

Peru Rodrigo Elías & Medrano Abogados

The typical remedy for breach of warranty is indemnification. In addition to the remedies that parties may agree on in case of breach of warranty, an error by a party may entitle the affected party to file an action for annulment, provided that the error is essential and could have been known by the other party.

Switzerland FRORIEP

The parties usually seek to derogate from the warranty regime that otherwise applies under general law in that any claims by the buyer other than for damages (eg, rescission of the sale and purchase agreement) are excluded.

The buyer's remedies are usually structured as follows:

  • Upon breach of warranty, the seller has the right to resolve the breach within a certain period.
  • If the breach cannot be resolved, the buyer may claim for damages subject to the limitations agreed in the sale and purchase agreement. 

Turkey Moro─člu Arseven

In the event of a breach of warranty, the parties usually agree that the seller granting the warranty will indemnify a party which incurs damage or loss (usually the buyer) for all the loss that it incurs. Such penalty should be proportionate to the breach and expected damage resulting from such breach.

It is common to include specific indemnities in an acquisition agreement and grant the buyer a put option and/or a compensation right. In such case, if a specific indemnity event occurs after the signing of the agreement, the buyer can exercise its put option or claim compensation. Specific indemnities are usually drafted in accordance with due diligence findings.

Parties can agree on other remedies in case of a breach of warranty.

USA Dechert LLP

There are generally two types of remedy for the non-breaching party:

  • to forego closing; or
  • to bring a post-closing claim for losses.

An increasingly common post-closing remedy is representation and warranty insurance. Such policies may be structured in ways that allow sellers to have limited exposure for representation and warranty breaches (other than in instances of fraud) and may provide buyers with certain indemnity enhancements.

In public M&A transactions, there is frequently little or no post-closing opportunity to obtain recovery for breaches of representations as warranties.

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