Australia: Energy and Resources M&A Transaction Guide - Digging deeper into representations and warranties

Energy and Resources M&A Transaction Guide

Digging deeper into representations and warranties


  • This is the second volume of McCullough Robertson's Energy and Resources M&A Transaction Guide developed for the resources sector.


  • In Edition 4, we look more closely at representations and warranties in M&A transactions.


  • We'll wrap up this second volume of the Guide with a Masterclass in Brisbane and Sydney in 2018 where you can ask our expert panel any questions related to undertaking an M&A transaction. Dates will be announced in 2018, but you can register your interest for Brisbane here and Sydney here.

Negotiations around risk allocation form an integral part of any M&A transaction, with sellers seeking (to the greatest extent possible) to secure a clean exit and buyers seeking to hold sellers to account for their pre-contractual representations as to the state of the business or project. Often this results in a heavily negotiated set of representations and warranties in the transaction document, which the seller is obliged to stand behind or, in some cases, is supported by insurance.

In this article we take a closer look at typical representations and warranties in M&A transactions.

Key areas of warranty protection

Warranties typically fall into two categories, those relating to the seller and those relating to the business or assets for sale. Most M&A transactions will include the following key warranty areas:

Seller That the seller has the ability to enter into and perform the transaction document.
Title to the assets That the seller has title to the assets and is able to transfer those assets free of encumbrances.
Accounts That the accounts are a true and accurate record of the business accounts.
Records That current and full records (including financial records) exist and have been maintained in accordance with applicable laws.
Plant and Equipment That the plant and equipment being acquired are in good repair and are all the assets required to operate the business.
Tax That all tax liabilities have been disclosed, all taxes in relation to pre-completion liabilities have been or will be paid and all taxation laws complied with.
Environment That all environmental laws have been complied with and that there is no liability under any laws or in relation to any environmental approvals.
Employees That all relevant employment laws have been complied with and all employees and their entitlements have been disclosed.
Trading Arrangements That all material contracts have been disclosed, there are no existing breaches of the contracts and the contracts cannot be terminated as a result of the completion of the transaction.
Intellectual Property That all IP is lawfully used by the company.
Accuracy of Information That all material information has been disclosed.

Limiting warranties

While this list sets out the types of warranties you would expect to see in an M&A transaction, sellers will naturally seek to limit their post-completion risk exposure as much as possible. A way in which to do this is for a seller to qualify the warranties given. For example, warranties can be given 'to the best of the Seller's knowledge' or 'so far as the Sellers are aware'. These limitations have been further considered in Edition 2 of this Guide.

Seller's pre-contractual disclosures

During negotiations, a seller is likely to make various statements regarding the affairs of the company and the state of the business, for example in relation to the production capacity or profitability of the business. Such information can constitute a representation made by the seller to the buyer, which if untrue, can be the basis of a claim against the seller. This means that, in addition to seeking to limit warranties to the knowledge of the seller, a seller will also seek to ensure the agreement of the parties only includes those representations and warranties expressly contained in the transaction document. For sellers, care must be taken to ensure these clauses expressly exclude any statements not set out in the transaction document and for buyers, care needs to be taken to ensure all statements being relied upon are set out in the transaction document.

Indemnities for breach of warranty

Another matter to be aware of when negotiating your transaction document is that the jurisdiction of your transaction may impact on whether an indemnity will be given in respect of breaches of warranties under the sale agreement. An indemnity is essentially an agreement to cover loss and damage suffered by another and provides a separate right of action in addition to a buyer's contractual rights in the event of a breach of a warranty. An indemnity claim is generally considered to be an easier right of action for a buyer to pursue.

Generally speaking, what we are seeing is that indemnification in respect of warranty claims in:

  • US based contracts, is standard
  • Australian based contracts, has become relatively commonplace, and
  • UK based contracts, is uncommon.

A potential explanation for the above trends may lay in the approach taken by the judicial systems of the respective jurisdictions on the question of costs following litigation. In the US, the courts are bound by what is known as the 'American Rule', the basic premise of which is that legal fees are not ordinarily recoverable by the successful litigant in federal litigation in the absence of a statutory provision to the contrary. This means that an express indemnity by the seller covering the legal costs of a successful warranty claim by the buyer is highly desirable in a US based sale and purchase agreement.

Courts in the UK (and Australia) are bound by what is known as the 'English Rule', which in contrast to the American Rule, provides that costs follow the event (i.e. the unsuccessful litigant is required to pay the successful litigant's costs). Therefore the inclusion of an express indemnity is not required to the same extent as it is in the US.

Remedies for breach of warranty

Under general law, the remedy available to a buyer for a breach of warranty by a seller is typically damages (unless the warranty is considered a condition of the contract). Importantly, a buyer does not have a general law right to terminate the contract as a result of a breach of warranty by a seller (again, unless the warranty is a condition of the contract). Therefore, if the parties agree that termination of the contract is a remedy that is available to the buyer following breach of warranty by a seller, the contract must expressly state that the buyer may terminate the contract for breach of warranty.

Warranty and indemnity insurance

Warranty and indemnity insurance (W&I Insurance) is a means by which the seller can facilitate a clean exit from the business. W&I Insurance is also useful from a buyer's perspective, as it provides a certain level of security knowing that if a claim arises post-completion in relation to a warranty, the buyer can turn to the W&I Insurance to compensate it for its losses. W&I Insurance is particularly useful:

  • for sellers, to circumvent the need for an escrow or a holdback arrangement under the transaction document, and
  • for buyers, to provide greater protection by potentially providing a higher liability cap and extended periods of warranties than a seller may be willing to offer, and also greater certainty that any claims can be paid, particularly where the seller is in financial difficulty or leaving the jurisdiction following completion of the transaction.

W&I Insurance can be either:

  • a buyer-side policy, under which the buyer is the insured party and makes a claim directly against the insurance policy (not against the seller) in the event of a breach of warranty, or
  • a seller-side policy, under which the seller is the insured party and makes a claim against the insurance policy in the event of a successful claim by the buyer.

A hybrid version of the above, known as 'seller-initiated buyer-side' policy is also becoming more common, under which the seller arranges W&I Insurance prior to or at the time of signing the transaction document and hands the process (along with the premium) over to the buyer once the transaction has sufficiently progressed. The recourse under this arrangement is the same as the buyer side policy (i.e. the buyer is the insured party and makes a claim directly against the insurance policy).

In Australia the premium for W&I Insurance is typically around 1- 1.5% of the consideration of the transaction and can take up to one month to implement. As premiums vary across jurisdictions, consideration should be given to the jurisdiction in which the W&I Insurance is purchased.

Once the parties have agreed to take out W&I Insurance, the parties will need to consider whether W&I Insurance will cover the entire amount of any liability arising from a breach of a seller warranty or whether the seller will be responsible for a given amount of the liability before W&I Insurance responds. Careful consideration also needs to be given to any exclusions from the W&I Insurance and whether those are acceptable.


Representations and warranties are highly negotiated parts of transaction documents. Care needs to be taken to ensure that the transactions documents reflect the agreed position and that once representations and warranties are agreed, the parties to the transaction understand their continuing rights and obligations following completion.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions