Pursuing a vendor warranty claim post-completion
Warranty claims are contractual and governed by the notice, time limit, and liability cap provisions in the SPA. Claims must be particularised correctly to preserve rights and avoid the knowledge-based defences typically baked into the contract.
This is an 8-step workflow for bringing a warranty claim under a share or business sale agreement after completion, including notice obligations and quantum preparation.
Before you start
- Executed share purchase or business sale agreement
- Completion accounts and completion statement
- Disclosure letter delivered before completion
- Evidence of the breach discovered post-completion
The workflow
Review the warranty and limitation clauses
Map the relevant warranties, the notice provisions (time limits, content requirements), the de minimis / basket thresholds, and the liability cap.
Analyse the disclosure letter
Check whether the matter was fairly and specifically disclosed. General disclosure of data room contents is often insufficient — look for specific disclosure.
Quantify the loss
Quantify loss on the measure set out in the SPA — typically diminution in value or a damages measure. Engage a forensic accountant early where loss is complex.
Consider tax gross-up and insurance
Check tax gross-up clauses and whether warranty & indemnity insurance responds. Notify the W&I insurer within the policy timeframes — often 30 days.
Draft and serve the warranty notice
Serve a notice strictly in accordance with the SPA — reasonable detail of facts, grounds, and (where required) quantum. Errors in notice content often defeat claims.
Engage in pre-action correspondence
Many SPAs require a good-faith attempt to resolve claims before proceedings. Prepare a pre-action protocol letter and without-prejudice settlement proposal.
Consider alternative causes of action
Assess parallel causes — misleading or deceptive conduct under s 18 Australian Consumer Law, and common law fraud where warranties were given knowing they were false.
Issue and manage proceedings
If unresolved, issue proceedings in the Federal Court or relevant state Supreme Court. Retain escrow, set-off, and specific performance claims as strategic options.
What you will have at the end
Either a negotiated settlement paid out of the escrow account or via direct payment, or a judgment for damages for breach of warranty.
Common issues
- Notice served late or with insufficient detail, defeating the claim
- Fairly disclosed matters that reduce the claim or remove it entirely
- Quantum measured on the wrong basis (cost of cure vs diminution in value)
- W&I insurance notification missed, excluding cover
- Over-reliance on warranty claim where s 18 ACL is the stronger pathway
Run this workflow on a real matter
Quillio drafts SPA warranty notices to the specificity required by the agreement and cross-checks against disclosure letter content. See /practice-areas/commercial-lawyers.
This workflow is a general guide. Warranty regimes are bespoke to each transaction — the SPA drafting controls the outcome.
Try this workflow with Quillio.
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