PA - SGS 5
Terms
undefined, object
copy deck
- Who sends the disclosure letter?
- From the seller (or seller's solicitor) to the buyer (or buyer's solicitor).
- How can you describe the structure of a disclosure letter?
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Two parts:
1. General disclosures; and
2. Specific disclosures. - What are general disclosures made in connection with?
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1. Matters of public record; and
2. Pre-completion searches. - How do general disclosures work?
- No specific information is disclosed, however, if anything that could be an issue is contained in the documents referred to, that information is deemed to have been disclosed to the Buyer.
- How do specific disclosures work?
- Specific issues that the seller knows about and must disclose in order to avoid being in breach of warranty.
- What do the specific disclosures usually related to?
- Specific warranties
- What will a disclosure letter usually have attached to it?
- A disclosure bundle of documents (can be very lengthy).
- Is the buyer likely to have already seen the documents included in the disclosure bundle?
- Yes, will have seen as part of the due diligence exercise. However, now the documents are forming part of the disclosure process.
- Who drafts the disclosure letter?
- The seller's solicitor (with input from the seller).
- When will a first draft of the disclosure letter be prepared?
- After a draft of the AA is sufficiently well developed and contains sensible draft warranties.
- How should you describe the process of drafting the disclosure letter?
- On going process in line with the on-going amendments to the AA.
- When is the final version of the disclosure letter entered into?
- On exchange of the AA. Therefore usually at the same time as completion, unless of course you have a split exchange and completion.
- What practically will you need to do with the disclosure letter (and accompanying bundle)?
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1. Needs to be signed by or on behalf of the seller; and
2. Two copies are required, one to be produced to the buyer and the second to be kept by the seller's solicitors. - What should you check in relation to the final versions of the seller's disclosure letter and bundle?
- That the version held by each party is identical.
- How do the warranties and the disclosures link together?
- The AA will contain a clause along the lines that the warranties are subject to matters disclosed in the DL.
- Is there a universal standard of disclosure that will apply in every case?
- No, each case will be examined on its facts and decided based on the standard of disclosure agreed in writing between the parties.
- What options does a buyer have if it learns of a piece of information that it didn't previously know about?
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1. seek (additional) indemnity protection;
2. seek an adjustment to the purchase price;
3. walk away (worst case scenario) - Infiniteland Limited
- No universal standard of disclosure. The standard of disclosure depends on the precise wording of the AA.
- No universal standard of disclosure. The standard of disclosure depends on the precise wording of the AA.
- Infiniteland Limited
- Levison v Farin
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Specific notice of the matter the seller wants to disclose must be given to the buyer.
"Merely making known the means of knowledge which may enable to other party to work out certain facts and conclusions will be insufficient" - Daniel Reeds Limited v EM ESS Chemists
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"Fair disclosure requires some positive statement of the true position and not just a fortuitous omission from which the buyer may be expected to infer matters of significance"
Lapsed licence omitted from list -
Specific notice of the matter the seller wants to disclose must be given to the buyer.
"Merely making known the means of knowledge which may enable to other party to work out certain facts and conclusions will be insufficient" - Levison v Farin
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"Fair disclosure requires some positive statement of the true position and not just a fortuitous omission from which the buyer may be expected to infer matters of significance"
Lapsed licence omitted from list - Daniel Reeds Limited v EM ESS Chemists
- New Hearts Limited v Cosmopolitan Investments Limited
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Fairness:
"Mere reference to a source of information, which is in itself a complex document, would not satisfy the requirements of disclosure" -
Fair disclosure:
"Mere reference to a source of information, which is in itself a complex document, would not satisfy the requirements of disclosure" - New Hearts Limited v Cosmopolitan Investments Limited
- Curtis & Anor v Lockheed Martin
- "fairness requires more than clues which enable a purchaser to start a paper chase"
- "fairness requires more than clues which enable a purchaser to start a paper chase"
- Curtis & Anor v Lockheed Martin
- What was the wording agreed in Infiniteland Limited?
- 'Save as set out in the DL' - lower standard of disclosure.
- 'Save as set out in the DL' - lower standard of disclosure.
- This is the wording agreed in Infiniteland Limited.
- What was the wording agreed in New Hearts Limited v Cosmopolitan Investments Limited?
- 'Subject to matters fairly disclosed (with sufficient details to identify the nature and scope of the matter disclosed)'
- 'Subject to matters fairly disclosed (with sufficient details to identify the nature and scope of the matter disclosed)'
- This is the wording agreed in New Hearts Limited v Cosmopolitan Investments Limited.
- When discussing information in the public domain, what sort of information are we talking about?
- Information on the internet, for example or information filed at Companies House.
- What examples of pre-contract searches/enquiries might a buyer make in relation to Registered Land and IP rights?
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Land Registry searches; and
Trademarks Registry/IPO. - What is a seller hoping to cover in the general disclosures?
- As much as possible in the hope that it might be able to rely on them should any problems come to light.
- Where a seller knows about specific information that could be found on public records, should the seller also make a specific disclosure (rather than rely on the applicable general disclosure)?
- Yes, especially if the level of disclosure in the AA is higher, e.g. 'fully, fairly and specifically disclosed'
- What should the buyer do in relation to the matters generally disclosed?
- Buyer should not accept the general disclosures that go beyond the knowledge it actually has and should limit the general disclosures accordingly.
- How might a buyer go about limiting general disclosures?
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Restrict to certain:
dates;
registers; or
delete entirely. - What will, of course, impact the final position on general disclosures?
- Will depend on the context and the bargaining power of each of the parties.
- If the seller did not disclosure information that the buyer actually know about, could the buyer still sue?
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Case law (Infiniteland) suggests it depends on the wording of the acquisition agreement.
- If a buyer has actual knowledge of a matter not disclosed by the seller, what will the courts decide if the AA states that the Buyer cannot sue if it knew of a breach
- The courts are likely to give effect to that, i.e. the Buyer cannot sue
- If a buyer has actual knowledge of a matter not disclosed by the seller, what will the courts decide if the AA states that the Buyer can still sue despite knowing of a breach?
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The courts are likely to give effect to that and let the Buyer sue.
- If a buyer has actual knowledge of a matter not disclosed by the seller, what will the courts decide if the AA is silent?
- The Buyer can probably still sue
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If a buyer can sue for breach of warranty despite knowing about the breach beforehand, how sympathetic do you think the courts are likely to be?
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Not very! Court will assume the buyer’s prior knowledge affected the purchase price - difficult for a buyer to prove loss.
Court will not approve if it thinks a buyer is acting unfairly, and will penalise accordingly.
- What is ACTUAL knowledge?
- Actual knowledge means knowledge the buyer actually has.
- What is IMPUTED knowledge?
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Imputed knowledge means knowledge that an agent of the buyer has.
- What is CONSTRUCTIVE knowledge?
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Constructive knowledge means knowledge the buyer ought to have.
- What are the headline vendor protection clauses?
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1. De maximis
2. Time limits
3. De minimis
4. Conduct of claims
5. Mitigation
6. No double recovery (inc. accounts)
7. Caps on individual liability
8. Insurance/third party before seller
9. Entire agreement
10. No retrospective application of law - Who prepares a first draft of the AA in the context of an auction sale?
- The seller's solicitor
- Who drafts the AA in the context of a private treaty sale?
- The buyer