Scope of warranties in a share purchase agreement

Belfairs agreed to buy a majority stake in Waveform Solutions Limited (the target) from Sutherland. Belfairs also agreed to provide an additional £600,000 interest-free loan to the target. Sutherland was to lend the target £1m — it was agreed that this would be taken from the sale proceeds.

The share purchase agreement (SPA) contained a warranty stating that ‘The company [the target] is not a party to any agreement, arrangement or commitment which cannot be readily fulfilled or performed by it on time.’

Before the SPA was signed, the target succeeded in a bid to participate in the NHS National IT programme and this gave it the chance to enter into a framework agreement (the agreement) which, if certain milestones could be achieved by it within 12 months of entering into the framework agreement, would allow it to bid for lucrative supply contracts with NHS primary care trusts. Sutherland was aware that the target would be unable to enter into the agreement without an injection of capital, so it delayed signing the agreement until the SPA with Belfairs had been completed…

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