Discussing UK law. Links: swarb.co.uk | law-index | Acts | Members Image galleries

Having ones cake and eat it?!

Having ones cake and eat it?!

Postby SPQR49 » Wed Nov 22, 2017 8:56 pm

Company X buys company Y pursuant to SPA. SPA contains indemnities for any obligation inherited by X to deliver free work under Y`s contracts in existence prior to Closing.

Company X is in dispute with company Z (post Closing) the latter claiming X needs to remedy perceived shortcomings in a IT system implementation (ERP). There is a contract however there is no written agreement. So implied terms apply.

Can company X claim it is not in breach vis a vis Z thereby avoiding FOC rework AND at the same time try to trigger the indemnity by claiming that it has such FOC obligations? I think the answer must be No. And then I thought if this went to Court there would be a position that in respect of the claim under the indemnity X is acting as Claimant. And in the separate action Z vs X, X is acting as D. In the former action X`s argument is there IS FOC obligations. In the separate claim X`s defence is there are no such obligations. Is this possible? It seems illogical but is there some rule of evidence or even case law or CPR preventing this scenario?

Has anybody ever come across this before?

As always, many Thanks

P
SPQR49
 
Posts: 58
Joined: Wed Sep 27, 2017 11:00 am

Re: Having ones cake and eat it?!

Postby atticus » Thu Nov 23, 2017 5:56 am

X would say Z has made a claim. While Z's claim is being contested, if there is a liability, then X seeks payment under the indemnity. No inconsistency. This is not uncommon.
User avatar
atticus
 
Posts: 20679
Joined: Sun Nov 11, 2012 2:27 pm
Location: E&W

Re: Having ones cake and eat it?!

Postby SPQR49 » Thu Nov 23, 2017 10:02 am

If there is a liability

That can only be established as a fact when the judgment is handed down in the claimant`s favour. Until then, it is a contention only: there is no liability, only potential liability.

The indemnity can be only be triggered surely upon the crystallisation of the necessary fact: the liability being established.

I suppose the same set of facts applicable to both cases (in the sense of the same subject-matter) will mean a finding of fact applicable to both cases: namely whether or not the liability to provide free work exists or not. If it does not, then X`s defence has been established and it may recover its costs as against Z. If it does, then X is liable to Z for £n in which event X can recover the £n from Y.

In this scenario, is it not more prudent for X to, if not roll-over, then take a weaker position in respect of the liability for free work? I would go stronger and say that it is in X`s interests to concede this point in its dealings with Z in the full knowledge that it can tap on the indemnity. Conversely, if it seeks to mount a strenuous defence - rebutting presumptions about fitness for purpose amongst other things - is it not shooting itself in the foot so to speak...?
SPQR49
 
Posts: 58
Joined: Wed Sep 27, 2017 11:00 am

Re: Having ones cake and eat it?!

Postby atticus » Thu Nov 23, 2017 2:03 pm

A lot will depend on the exact wording of the indemnity provisions in the Share Purchase Agreement. It is common in SPAs to see a contractual limitation period for claims of 2 years or less from completion.

Let us call the sellers of company Y P, Q, R and S. If X simply settles with Z, PQRS may say that Z's claim was weak, and should have been contested.

In some circumstances the best course may be for X to invite PQRS to deal with Z's claim at their expense, and to contest it or settle as they wish.

Otherwise, in Z's claim against X, X can bring PQRS into the claim under CPR Part 20, or, if time allows, bring a contribution claim after judgment in favour of z, if given.
User avatar
atticus
 
Posts: 20679
Joined: Sun Nov 11, 2012 2:27 pm
Location: E&W

Re: Having ones cake and eat it?!

Postby SPQR49 » Thu Nov 23, 2017 3:01 pm

Many thanks - that is most helpful atticus.
SPQR49
 
Posts: 58
Joined: Wed Sep 27, 2017 11:00 am


Return to Contract and Consumer Law

Who is online

Users browsing this forum: No registered users and 2 guests