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A share purchase agreement (SPA) will typically contain warranties that require sellers to disclose to the buyer potential challenges or legal difficulties affecting the relevant company, to avoid being liable for breach of warranty. As a High Court ruling showed, any failure to make a proper disclosure against a relevant warranty can have serious financial consequences for those who give the warranties.
The case concerned the sale for over £10.9 million of a company that produced a software package that included an address lookup facility. Numerous warranties were contained in the SPA, and by one of the warranties the sellers confirmed to the buyer that the company owned, or had licensed to it, all the intellectual property rights
required to carry on its business. This was not true, and in upholding the buyer’s subsequent claim for breach of warranty, the Court found that the database on which the lookup facility was founded was principally derived from Royal Mail data that the company had obtained, under licence, from a third party. The company’s use of the data had exceeded the terms of its licence, thereby infringing copyright and/or database rights in a manner that would allow Royal Mail to bring a claim.
There was conclusive evidence that the sellers were aware that the company was using the Royal Mail data in a manner that was almost certainly in breach of the relevant licence. The buyer was awarded £3.5 million in compensation for the breach.