Contract drafting - with cooperation in mind
Author: Tim Moss
Applies to: England and Wales
When buying or selling a company, how far do you have to go to cooperate with the other party after completion?
The recent case of Takeda Pharmaceutical Company Limited v Fougera Sweden Holding 2 AB  EWHC 1995 (Ch) suggests that if you are the party which wants co-operation from another, you had better draft it expressly into the agreement.
These preliminary proceedings arose out of the sale of a Danish company (the target) by a Swedish company (the seller) to a Japanese company (the buyer) under a sale and purchase agreement (SPA). One live issue at the time of the sale was whether or not the target was liable for withholding tax (WHT) on interest on monies borrowed from the seller. The SPA contained indemnity provisions under which a payment of WHT to the Danish tax authorities by the target would be indemnified by the seller, subject to limitations and exclusions including a time limit which expired on 30 September 2017. The SPA also contained a covenant for further assurance by the seller and an entire agreement clause.
The buyer argued that the SPA imposed an obligation on the seller to provide information with which the buyer might challenge the levying of WHT. The obligation arose either because of the further assurance covenant taken with the indemnity provisions, or because there were implied terms to that effect. For its own commercial and confidentiality reasons the seller did not wish to provide that information.
The judge found the SPA to be a complex and detailed agreement professionally drafted on behalf of sophisticated and well-resourced parties. There could be no dispute as to the principles to be applied in interpreting the SPA. In Wood v Capita Insurance Services Limited  UKSC 24, the Supreme Court recently settled 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 judge rejected the buyer's claims. Properly interpreted, the SPA contained nothing requiring the seller to provide the requested information and so the further assurance clause had nothing to bite on. The implied terms were not necessary to make the SPA workable and the strong form of the entire agreement clause reinforced this finding.
This reinforces the difficulties a party will face in asking the court to imply terms in an agreement which has been professionally drafted on behalf of sophisticated parties. It also suggests that parties and their advisers need to give careful thought to their drafting when they are hoping for, relying on or dependent on co-operation from the other side after completion of a deal. Express terms will always be better support than arguing for or relying upon implied terms.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.