UK M&A transaction documents often contain an exclusion or limitation of the seller’s liability for “consequential”, “indirect” or “special” losses suffered by the purchaser.
For instance, a purchase agreement will often provide that the liability of the seller under the warranties does not extend to these types of losses.
It appears that purchasers often agree to an exclusion or limitation of this type on the assumption that such exclusion has a well-established and relatively narrow meaning which excludes only losses which arise in a small minority of cases. This assumption, although historically supported by decisions of the UK courts, has appeared over the past handful of years to be increasingly less tenable. A recent UK High Court decision in Star Polaris LLC v HHIC-Phil Inc. now casts further doubt on the appropriateness of making this assumption. If purchasers are to agree to exclusions of losses of the “consequential” or “indirect” type in UK M&A, it would be preferable to use more tailored and clearer language.