Don’t count on co-operation in the contract

In Takeda v Fougera, certain information was required for the resolution of a potential tax issue in relation to a share purchase acquisition. The buyer contended that the SPA imposed an obligation on the seller to provide the buyer with certain information and documentation – the seller denied any such obligation.

The court considered two core issues:

1. Was the seller obliged under the express and/or implied terms of the SPA to provide the buyer with the information which it sought for the resolution of the tax issue?
2. Was the seller obliged under the express and/or implied terms of the SPA not wrongfully to interfere with, impede, hinder or obstruct the buyer’s efforts to obtain or procure said information?

The court found in the negative for both issues.

It was emphasised that the indemnity provision in the SPA amounted to a “carefully-calibrated risk allocation mechanism” whereby in some certain situations, some or all of a tax liability would end up being borne by the seller, while in others it would end up being borne by the buyer. This was considered commercial in nature and simply part of the deal in what had been negotiated by two sophisticated parties. The courts refused to read any implied term that the parties needed to co-operate in order to avoid the potential tax liability from being realised.

The buyer argued that there was an implied duty to cooperate and an implied duty not to obstruct the obtaining of information required to avoid the potential tax liability.

Noting the Supreme Court in Wood v Capita Insurance Services Ltd [2017] UKSC 24, [2017] 2 WLR 1095, the judge held that the court’s task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement when read in the context of the factual background known or reasonably available to the parties at the time of the agreement, excluding prior negotiations.

The buyer’s claims were rejected, noting that, properly interpreted, the SPA contained no obligation on the seller to provide the information and a further assurance clause had nothing to bite on. It was found that the implied terms claimed by the buyer, were not necessary to make the SPA workable and the drafting of the entire agreement clause reinforced this finding.

It is also worth noting that the court found that throughout the SPA, other provisions had dealt with the provision of information by one party to the other expressly. Therefore, where there was an absence of such provisions, the courts found that this was merely the result of carefully negotiated drafting.

This case suggests that the courts are hesitant to imply terms in a complex agreement which has clearly been drafted professionally, in detail and on behalf of sophisticated parties. Further, it demonstrates the importance including specific provisions around the obligations of each party in relation to providing information that may be necessary to the other. Whilst most SPAs usually contain a further assurance clause drafted in general terms, in which a seller covenants to do all things reasonably required to give effect to the agreement, any co-operation that either party may need to rely on should be included in express provisions, lest they find that they only be able to argue for or rely upon implied terms – which we have seen the courts are reluctant to read into the agreements.

Memery Crystal is a specialist international law firm based in London with a well-established history of acting for clients in the corporate sector. As an industry-leading advisor in AIM, Memery Crystal have again been included in “Band 1” in the most recent edition of the Chambers UK legal directory. Furthermore, the corporate team is also ranked in “Band 2” for M&A in Chambers UK.