Lessons from Aruba for your SPA
In an acquisition, you rely on warranties in the share purchase agreement. Yet, in practice, things often go wrong when expecting what a guarantee does and does not cover. A recent ruling from
Court of First Instance of Aruba of 5 February 2025 (ECLI:NL:OGEAA:2025:48) shows that a balance sheet guarantee only confirms the debt position on the reference date and does not automatically place the contractual risk of ongoing disputes on the seller. This is relevant for your business if you are doing deals within contract law and international trade, especially when litigation or liability is involved.
Core topic
Antilla bought all the shares in Tierra del Sol Real Estate N.V. and Tierra del Sol Golf Course N.V. from FMV on 31 December 2022. Prior to the SPA, Antilla did due diligence from May to December 2022. In the SPA, the effective date was 31 December 2022 and Article 5.6 contained a balance sheet guarantee on liabilities as at completion. The SPA also contained a provision that the buyer buys the shares based on its own due diligence and that no further representations and warranties were made outside the SPA. The accounts payable showed a debt to Strong Cactus Ltd of USD 62,500, based on a previously homologated agreement. Antilla later argued that FMV breached this warrant because the Court of Appeal had ruled that TdS was liable for damages to SC, to be specified by state. FMV disputed that Article 5.6 did more than confirm what was on the balance sheet on 31 December 2022.
The Court applied the Haviltex standard. It also weighs heavily in commercial, detailed negotiated contracts between professional parties. The decisive factor remains what the parties mutually could reasonably ascribe to the wording and expectations. In this case, clause 5.6 qualified as a general balance sheet guarantee covering liabilities and provisions as at 31 December 2022. That guarantee does not cover the outcome of an ongoing dispute after that date.
Due diligence coloured the scope of the guarantee. The seller had filled its duty of disclosure by providing documents about creditors in suspension of payments and by pointing to conservatory attachments, while the buyer knew that an appeal was pending. The emphasis then shifts to the buyer's duty to investigate. The buyer could have assessed the potential financial risk and negotiated a firmer guarantee or specific indemnity for the SC risk. Since that did not happen, Antilla could not argue in retrospect that Article 5.6 shifted the contractual risk for the dispute with SC to FMV. The claim was dismissed and Antilla and TdS were ordered to pay the litigation costs.
This ruling highlights that the Haviltex standard and the emphasis on the text of the SPA together determine how a guarantee is interpreted. A general balance sheet guarantee may disappoint your company if a claim after closing exceeds a balance sheet item. The combination of due diligence, duty of disclosure and duty of investigation is critical to the liability and success of a subsequent claim. Those who want to control risk must contract it explicitly and precisely, not rely on general wording.
Tips & tricks
For your business, this means that in the case of an acquisition in contract law, you should not assume that a general balance sheet guarantee is sufficient if there is a dispute or litigation. If due diligence points to a claim that may exceed a recognised provision, make explicit who bears the risk, for example through a specific indemnity or an adjusted price. Make the claims mechanism concrete and consider an escrow to secure recourse. In the case between Antilla and FMV, an escrow was set up, but that does not remove the need to sharply define the risk allocation in the SPA.
As a seller, secure a strong position by carefully fulfilling your duty of disclosure. Provide complete information on pending disputes and creditors. Confirm clearly in the SPA which guarantees do apply and limit general statements by a reliance provision as in Article 5.16. As a buyer, ensure that your duty of enquiry is visibly translated into negotiated clauses covering your liability risks, especially in international trade where local proceedings and attachments may play a role.
More information.
If you want to be sure that your SPA, warranties and indemnities really cover the intended risk in a dispute or procedure, in the Netherlands or internationally, contact the Corporate & Commercial Litigation team below button.
We help you negotiate clear clauses, set up escrow and conduct liability litigation.
