Newsletter-21

65 COMMERCIAL LAW Limitation of Liability The liability of the seller under an SPA is not unlimited. The par- ties include clauses that limit the liability of the seller especially in terms of time and amounts. To what extent the liability will be limited depends on the parties’ negotiations. Notwithstanding the foregoing, under nearly all of the SPAs, the parties agree that the limitation of liability of the seller shall not be applicable in certain cases, such as the following: (i) if the claim arises due to fraud or wilful misconduct by the seller; (ii) to the extent the claim relates to the title of that seller’s shares, as explained under the following sections; or (iii) to the extent a claim for reimbursement of any criminal or statutory fine or penalty is related to an event or circumstance that occurred prior to the closing. Time Limitations The first type of limitation in terms of time is the period in which the purchaser is required to notify the seller following when the pur- chaser became aware of the fact, matter, or circumstances giving rise to a claim. In practice, this period is usually regulated as between fifteen to thirty days. It is also possible to regulate that the period commences on the date when the purchaser became, or reasonably should have become aware of such fact, matter or circumstance. The awareness requirement may be applicable also to the subject company, affiliates of the purchaser or directors, employees or advisors thereof. The second type concerns the general time limitation, following the expiration of which the seller shall have no liability. This period is usually regulated separately for the claims arising out of different matters. For example, claims due to tax warranties are generally time- barred by six years following the closing date (subject to the legal pre- scription period applicable to tax claims under the applicable laws); other claims are time-barred by shorter periods, such as eighteen to thirty six months; and claims relating to the authority and organization of the seller, the seller’s ownership to and validity of the shares are not made subject to any time limitations due to their significance and core characteristics in a share purchase transaction.