Brad Pomfret KC
Share Purchase Agreements (SPAs) are a key part of corporate transactions, setting out the terms of buying or selling shares in a company. But when things go wrong, whether due to undisclosed liabilities, misrepresentations, or breached warranties, parties often turn to litigation to get their fair share. This article is written as an introduction for litigators; it explains what SPA claims involve, why they’re on the rise, and what litigators need to know in 2025.
The Rise of SPA Claims in 2025
2024 was a bumper year for claims under Share Purchase Agreements (‘SPAs’), with at least 14 cases making it onto Westlaw. In 2025, we are already up to 9, and the claims are expected to continue to come, driven by a number of factors, including the increase in acquisitions following the Covid-19 economic recovery, as well as deals that were perhaps rushed through in the straitened conditions of the pandemic.
Insurance Trends and Their Limitations
It is increasingly common for sellers to take out insurance to cover their liability for breach of the SPA (and sometimes buyers insure the risks too), but warranty and indemnity insurance is not a panacea. The authors of this article have spent a significant part of 2025 travelling to solicitors’ offices to talk about SPA claims, and anecdotal evidence gathered on those occasions has been to the effect that, whilst more sellers are taking out policies, insurers are tightening coverage, and more often disputing indemnity when a claim is made.
Share Purchase Agreement Claims Beyond the Courtroom
Moreover, for all the claims reaching a final court hearing, many more are going to arbitration or being threatened or issued at court, before the parties reach a compromise. SPA claims are therefore likely to continue to be a good source of work for litigators for the foreseeable future. In this article, we look at some of the key issues that might arise, although the complexity of the claims, factually and legally, cannot be overemphasised; specialist advice should always be sought at an early stage (for reasons some of which appear below). It really is a case of a stitch in time may save nine.
Key parts of a typical Share Purchase Agreement
The key provisions of an SPA are often the following:
- Warranties
- Disclosure letter
- Indemnities
- Claim notification requirements
- Limitation of liability provisions
- Restrictive covenants
Understanding Warranties in SPAs
A well-known principle of English law is ‘buyer beware!’, and it applies no less to SPAs. The complexity of most companies’ businesses makes this a particularly treacherous principle for buyers of shares. Alongside the due diligence process usually undertaken by specialist lawyers and accountants, warranties go some way to reassuring the buyer that they are getting what they pay for when the sale completes.
In short, warranties are statements by the selling shareholders (or some of them) about the state of affairs of the target company. They will usually be set out in a schedule to the agreement, listing out specific warranties about the company’s assets (eg. that the company has good title to its premises), alongside more general warranties such as: “the Seller has disclosed all information necessary for the Buyer to make proper assessment”; or “the Seller knows of nothing that has not been disclosed that might affect a reasonable buyer’s decision to purchase”.
Warranties about the finances of the target company are also common and typical examples are:
“There has been no material adverse change in the financial position of the company since the last accounts filed at Companies House” and “All financial and other records of the company have been properly prepared and maintained and constitute an accurate record”. These types of warranties in particular give rise to a lot of litigation, which is usually very complex, requiring an in-depth understanding of the business, the due diligence process and the accounts, forecasts and other documents in the data room, as well as evidence of the company’s performance post-sale. Identifying whether there has been a breach of a financial warranty can be a difficult, multi-factorial assessment; see for example Decision Inc. v Garbett [2023] EWCA Civ 1284, where the Court of Appeal overturned the High Court’s judgment in favour of the buyer on the basis that the Court had taken the wrong approach to deciding whether a forecast was inaccurate (amongst other grounds for allowing the appeal).
Warranties may be qualified by wording such as, “so far as the Seller is aware” or “to the best of the knowledge and belief of the Seller”. Such a provision will usually include a statement that the seller will be deemed to have the knowledge and awareness it would have had “after making due and careful enquiry”, or similar. Where there is no express statement to this effect, the courts will imply into the statement of awareness a provision that the seller had made only such investigation as could reasonably be expected; see William Sindall plc v Cambridgeshire CC [1994] 1 WLR 1016.
Where the seller is a company, the question of what knowledge may be attributed to the corporate entity might be a difficult one. It is therefore commonplace in such cases for the SPA to specify that the corporate seller will be taken to have the knowledge and awareness it would have if it had made due and careful enquiries of key persons within the business (eg. the directors and/or managers). By way of example, see: Triumph Controls v Primus International [2019] EWHC 565 (Ch).
The Disclosure Letter: Carving Out Liability
Where a Buyer has actual knowledge of a matter before the SPA then that matter is correspondingly unlikely to amount to a breach of any warranty by the Seller; see
Eurocopy plc v Teesdale [1992] BCLC 1067; and
Infiniteland Ltd v Artisan Contracting Ltd [2005] EWCA Civ 758.
The disclosure letter is, therefore, the Seller’s opportunity to carve out those matters that might otherwise amount to a breach of warranty. It will usually include general and more specific disclosures, the latter of which are typically given against particular warranties, sometimes in a tabulated format. The content and quality of a disclosure will need to be considered to determine whether it is adequate to absolve the Seller of liability for the matters that materialise.
Disclosure to an agent may be sufficient; see Infiniteland Ltd v Artisan Contracting Ltd [2005] EWCA Civ 758, where the Seller was protected under the terms of the disclosure letter by information that had been made available to the Buyer’s accountants during the sale process.
When to Use Indemnities
Where a specific risk has been identified, it may be more appropriate for it to be covered by an indemnity rather than, or as well as, a warranty.
Some issues commonly covered by indemnities:
• Existing litigation
• Dubious debts
• IP challenges
• Potential tax liabilities
• Environmental risks
• Product liability claims
The nature of indemnities are such that it is likely to be easier to establish a claim under an indemnity than a claim for breach of warranty. It is also noteworthy that the general contractual principles of remoteness, foreseeability of loss and mitigation may not apply to a claim under a well-drafted indemnity; and the Buyer is simply indemnified for their loss by reason of the indemnity being broken, meaning that the difficult question of quantifying damages that arises in relation to a breach of warranty (see below) is avoided.
The Importance of Notification Provisions
SPAs usually contain provisions about notifying the Seller of any claim arising under the agreement, whether for breach of warranty or otherwise. These can be quite complex and onerous.
There will usually be a contractual limitation period much shorter than under the Limitation Act 1980, and the period may be very short, like a matter of months. The courts tend to uphold these clauses; see eg. Zayo Group v Ainger [2017] EWHC 2542.
It is often a further requirement that any claim be progressed within a reasonable time (eg.6-12 months) of notification unless legal proceedings are issued, and there may be similar provisions restricting the time for other steps, often coupled with escalation clauses. Again, strict compliance may be a prerequisite to bringing any claim, so it is important to comply or risk the claim being barred.
In Onecom Group Ltd v Palmer [2024] EWHC 867 (Ch) the SPA provided that a warranty claim must be brought within 6 months of first notifying the claim to S, unless it involved contingent or unquantifiable liabilities, in which case the limit was 6 months from the date on which the claim became an actual liability, or quantifiable. The Buyer brought a claim for breach of warranty 9 months after notifying of a possible breach of warranty. The Seller sought summary judgment on the basis that the claim was time-barred. The Buyer’s position was that the claim was based on contingent liabilities, so that it was not capable of being quantified until the earn-out consideration had been quantified by an independent accountant as provided for under the SPA. The application was dismissed; the Seller was taking too narrow a view of whether the claim was quantifiable before determination of earn-out consideration.
The notice is usually required to give “reasonable details” of the basis of the claim; see generally Dodika Ltd v United Luck Group Holdings [2021] EWCA Civ 638 [46]. This can be a trap for the unwary. Every notification clause is to be construed on its own individual wording; see RWE Nukem v AEA Technology plc [2005] EWHC 78 (Comm) [10] and contractual claim notification requirements are a form of exclusion clause in favour of the Seller, so ambiguity will be resolved by narrow construction favouring the Buyer; Nobahar-Cookson v The Hut Group [2016] EWCA Civ 128 [18-19]. But a failure to give reasonable details or otherwise include information required by the notification clause (properly construed) will be fatal to the claim.
For an example of a case where the Buyer failed to give sufficient details to comply with the notification clause, refer to Decision Inc. v Garbett [2023] EWCA Civ 1284, where a failure properly to state the alleged loss was held by the Court of Appeal to mean that the claim was barred by breach of the notification provision in the SPA. Note, however, that the more recent Court of Appeal case of Drax Smart Generation Holdco Ltd v Scottish Power [2024] EWCA Civ 477, took a more generous view of a similarly worded notification clause, holding that a notice stating the wrong measure and amount of damages complied because it was a genuine notice that fulfilled its commercial purpose. The Decision Inc. case does not appear to have been cited in Drax but may be a decision on its own very particular facts.
Limiting Liability: How SPAs Cap Risk
SPAs typically include limitation of liability clauses. In addition to the notification requirements above, these may include the following:
• A minimum limit that means the Buyer cannot claim for breach unless the particular claim exceeds a set amount.
• A minimum limit for aggregate claims, which is often set at 1% of the purchase price.
• A maximum cap which the Seller will likely wish to set at the total consideration paid, or a percentage of it.
• Limits on the liabilities of particular selling shareholders to control their total respective liability and the extent to which it is joint and several with other sellers/guarantors.
• Provisions requiring prior recourse to third parties before claiming against the Seller.
Quantifying a breach of warranty claim
This can be another trap for the unwary. It may seem intuitive to think that the Seller must make good any broken warranty, for example, by paying the value of a contract terminated by a customer who the Seller had falsely warranted had not given notice, but that would overcompensate the Buyer, who takes the prospective risks of the business in buying the company’s shares. Consequently, the loss for a breach of warranty is measured by looking at what difference the truth would have made to the value of the shares at the time of the SPA. The conventional measure of damages is therefore the difference between the value of the shares as warranted and their actual value, at the time of the SPA; see Lion Nathan v C-C Bottlers [1996] UKPC 9.
It is necessary to distinguish between two different types of warranty:
Warranty of quality
A warranty of quality is one that relates to matters of fact, such as that the Company is not facing any legal claims, for example. In such a case, the warranty is either true or false, and the actual value can be calculated simply on the “warranty false” basis. That is, the measure of damages is the difference between the value of the shares as warranted and their actual value:
- the as-warranted value will usually be the price paid; see Sycamore Bidco v Breslin [2012] EWHC 3443 [391]
- but it is open to the parties to seek to show that the true warranted value was more or less than the price paid; see eg. 116 Cardamon Ltd v McAlister [2019] EWHC 1200 (Comm)
- actual value will be a question of expert evidence, but the approach taken by the parties to the purchase valuation may be useful evidence
- looking at value at the time of the SPA, so the uncertainties would be reflected; for example if the breach was that there was in fact a claim, the parties would look at the possibility of a claim, the probabilities of success and legal costs; Arani v Cordic Group Ltd [2023] EWHC 95.
Warranty of reasonable care
Some warranties are not matters of fact. For example, it is common to warrant that forecasts or projections have been produced with reasonable care. Where a warranty of this nature is broken, the contrast is not between a fact that is true or false but between, for example, the projection produced without reasonable care and one produced with reasonable care. The measure of loss is the difference between the price paid and the price that would have been agreed had the relevant figures been prepared with reasonable care:
- may be more complexity in calculating the difference because the expert has to look at reasonableness
- the most likely reasonable forecast must be identified and taken as the measure of competence
- again, the approach taken by the parties will be useful; ie. look at the valuation mechanism used, adjust the relevant figure and calculation
- in many cases, a breach may not lead to a loss because the price was not so sensitive to fluctuations in projections.
Because loss is assessed at the date of the SPA, there is no or limited room for the doctrine of mitigation of loss to apply; see Equitix v Fox [2021] EWHC 2531 [420-443]. Double-recovery is prohibited, as usual. Munn v ETL Holdings [2023] EWHC 2998 is an instructive example of how the application of this can be difficult in practice in SPA cases.
The Role of Hindsight in Valuation
Hindsight is not usually used in assessing the difference in value, but this is subject to the compensatory principle of damages that the claimant should be put in the position of avoiding its loss, but no better position. Refer to MDW Holdings Ltd v Norvill [2022] EWCA Civ 883 for a useful summary of the law here. Ageas v Kwik-Fit [2014] EWHC 2178 contains an often-cited summary of the position with the use of hindsight:
“In an appropriate case, the valuation can be made with the benefit of hindsight, taking account of what is known of the outcome of the contingency at the time that the assessment falls to be made by the court. This is so not merely as a cross-check against the reasonableness of prospective forecasting, as Staughton J regarded as permissible in Buckingham v Francis [1986] 2 All ER 738. It is so whatever view might prospectively be taken at the breach date of the outcome of the contingency.”
But the use of hindsight “can only be justified where it is necessary to give effect to the overriding compensatory principle” and “it is important to keep firmly in mind any contractual allocation of risk made by the parties”. Consequently, it is also important to keep in mind the guidance in The Hut Group Ltd v Nobahar-Cookson [2014] EWHC 3842 [185]:
“For the avoidance of doubt, it is not suggested that the mere fact that shares sold in breach of warranty later recover their value because the business in fact does well has any effect on quantum assessed as at the date of breach. Any such argument would be insupportable, not least because the buyer is entitled to the benefit of the upside, having taken the risk of the downside.”
Final Thoughts
The above are just some of the issues that might arise in an SPA claim and we have aimed to provide an overview, although with the anticipated increase in cases, the law is likely to continue to develop apace.
About the Authors
This article was a joint piece by Brad Pomfret KC and Qasver Khan.
Qasver Khan is a junior barrister in the Business & Property Team at 23ES. He joined Chambers as a full tenant in October 2024 and has since been developing a busy practice focused on commercial disputes, company law, consumer law, insolvency matters, real estate litigation, and trusts. He regularly appears in courts across the North of England as well as in and around London. https://www.23es.com/barrister/qasver-khan