In this piece we consider the 2024 High Court case of Onecom Group v Palmer [1], in which the High Court ruled that the buyer’s warranty claims were not barred by the contractual limitation in a share purchase agreement (SPA), which required proceedings to begin within six months of notifying the seller.
The SPA
The case involved the sale of shares in a group of telecoms services companies from an individual to a trade buyer, the terms of which were set out in the SPA.
The price to be paid by the buyer was based on the target’s estimated future cashflows by applying an agreed multiplier to a figure agreed to reflect its sustainable earnings measured by reference to EBITDA (earnings before interest, taxes, depreciation and amortisation). Since the parties were unable to reach full agreement as to the appropriate EBITDA figure, an earn-out arrangement was used. If the parties were unable to agree the amount of the earn-out, they would refer the matter to an independent expert.
The SPA included a comprehensive set of warranties concerning the target business. It also outlined limitations on the seller’s liability for any breach of these warranties, incorporating the following provisions:
The dispute
The parties failed to agree the earn-out, and the matter was referred to an independent accountant (IA) for determination per the provisions in the SPA. The buyer also alleged several breaches of warranty in the SPA.
The buyer commenced breach of warranty proceedings within six months of the conclusion of the IA’s determination, which was more than six months after notifying the claim to the seller.
The sellers alleged that the warranty claims were time barred, pursuant to the contractual limitation regime set out in the SPA. The buyer alleged that the claims were contingent on the outcome of the IA’s determination.
The ruling
The judge concluded that the buyer’s claims were not time barred. His reasoning included:
Lessons
Contact our Corporate & Commercial team if you would like help with warranty claims in SPAs.
¹ Onecom Group Ltd v Palmer [2024] EWHC 867 (Comm) (17 April 2024) (bailii.org)
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