A recent High Court claim involving two Japanese companies shows the importance of the length of the limitation period on a company sale. The target companies here owned North Sea Oil rights.  Japanese company Idemitsu acquired those companies from Japanese giant Sumitomo.

 The limitation period in the Share Purchase Agreement was set at just 18 months.  A contractual dispute arose with the operator of an adjoining oil field over the sharing of operating expenditure.  The buyer claimed over US$100m from Sumitomo but it was out of time under the Share Purchase Agreement.

Legal Argument

The buyer tried an imaginative argument: the signature version of the Share Purchase Agreement it contended were representations that the contractual promises (the warranties in the agreement) were true. In particular there was a warranty that there was no litigation and Sumitomo was not aware of any circumstances likely to give rise to litigation. So it had been induced to enter in the agreement by that representation of no litigation, it alleged.

The court threw out the imaginative argument. There was a express clause in the agreement excluding all representation except those in the agreement itself.  The agreement has provisions capping the liability of Sumitomo and excluding claims below a threshold.  A representation claim would see these ignored. An odd result which the court would not accept.

The unusual feature here was that an early draft of the disclosure letter had made brief reference to a potential dispute over the operating expenditure.  It is to be assumed that the dispute was at an early stage so the potential disclosure was struck out as Sumitomo was struggling (under the deal timetable) to provide sufficient details of the dispute to satisfy the buyer it was making a proper disclosure.

If the buyer could have proved fraud or wilful concealment it would have been home and dry: the limitation period would not have applied. But it could not.

What are the lessons for the cautious buyer in this tale of North Sea woe?

Threefold it may be suggested:-

• Hold out for a much longer limitation period

• Have systems in place post acquisition to identify key risk areas and link these to the acquisition team’s work

• If a potential disclosure has been flagged be suspicious and think about asking for an indemnity. The hasty buyer and his legal team working against the clock may be too keen to simply delete the potential disclosure.

More speed less haste in this case may have been the answer…