FORT successfully represented clients in a dispute regarding the alleged non-performance of a Share Purchase Agreement
Attorney at Law of FORT, Andreas Veeret, successfully represented three clients (sellers) in court proceedings against a buyer.
Namely, the buyer brought an action against the sellers, arguing that the latter provided false representations and warranties in the Share Purchase Agreement (“SPA”), under which, the buyer purchased shares in two Estonian companies from the sellers. Prior to conclusion of the SPA, the buyer conducted a financial and legal due diligence of the target companies.
In the essence of the dispute was a question of how and to what extent may prior conduct of due diligence limit the seller’s liability, including in case of red flag due diligence.
The courts assumed a position that a professional buyer cannot simply rely on representations and warranties provided by the seller in the SPA, but also has to – with due care – analyse data and documents (including annual reports) accessible to the buyer. The aforementioned principle is also applicable in case of red flag due diligence. Should the buyer fail to exercise due care, the seller may be exempt from liability even in if some of the representations and warranties provided in the SPA later prove to be inaccurate.
In conclusion, the courts ruled in favour of our clients since, in the courts’ opinion, the buyer should have become aware of all the circumstances forming the basis of its action (e.g. inaccuracies in the bookkeeping of the target companies) in the course of due diligence. Accordingly, all claims of the buyer were rejected.