Understanding warranty claims in M&A
Charlie Danjoux, Corporate Team
In Inspired Education Online v Crombie, the High Court examined whether an email exchange between a seller and an employee amounted to gross misconduct, potentially breaching warranties in a share sale agreement.
Buyers in business sales often require sellers to give warranties—promises about the company’s condition, including matters such as contracts and legal compliance.
In this case, the buyer had purchased all the shares in Online Schooling Ltd. The Court found that the emails did not amount to gross misconduct. It then considered whether any warranties had nonetheless been breached.
The Court ruled that:
- A warranty about compliance with "all applicable laws" did not cover the company’s internal policies.
- A warranty stating there were no employee disputes did not include mere allegations or internal investigations.
Therefore, no warranties were breached.
Key takeaway
This case highlights that the Court will give words their natural and ordinary meaning when interpreting warranties. It is therefore important to instruct solicitors to ensure the clear and precise drafting of warranties in business sale agreements, eliminating any element of doubt.
Get in touch with Charlie with any queries.
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