WWW.LAWYER-MONTHLY.COM 35 rather than attempting to “reverse engineer” the asserted basis of valuation after the event for the sole purpose of quantifying a claim. As someone who has acted as an expert witness in numerous cases, what role do you believe expert testimony plays in resolving W&I disputes? If a matter cannot be settled between the parties, then a process of litigation or arbitration will typically ensue. As part of this process, the parties will invariably need to appoint expert witnesses in relevant disciplines, including accounting. Often, the parties will have been directed to enter a mediation process along the way, at which expert input is often sought, and experts may present their views on loss before a mediator. They may also be encouraged to have a meeting of opposing experts to try and narrow differences and potentially assist in enabling the parties to settle. However, if all else fails and a full hearing occurs, then the expert witnesses for each party will give oral testimony on their written expert evidence submitted during the process. absence of material adverse change to trading, financial position and (less commonly) prospects of the target. Other non-accounting breaches that I have encountered, and which nonetheless involve assessment of financial damage by forensic accountants, include a range of regulatory breaches, breach of “no threatened litigation” warranties and tax covenant breaches. What common pitfalls do you see companies encounter when addressing W&I claims, and how can they be avoided? When considering making a W&I claim following an acquisition through a Sale and Purchase Agreement (SPA), it is important that a company intending to make a W&I claim seeks both legal and accounting advice. First, the company needs legal advice on whether the warranty it may think has been breached has in fact been breached from a legal perspective. This will involve the company assembling the fact pattern behind its view of breach and then being challenged by lawyers as regards possible defences. Such defences might involve a different legal interpretation of a warranty, a challenge to the veracity of the facts or exceptions provided for in the SPA. Other defences to a W&I claim which constitute potential pitfalls for a claimant company include “disclosure” and “knowledge”. If information has been fairly disclosed to the company during the transaction process, which is indicative of a warranty breach, then this will fetter a claim. Similarly, if it can be demonstrated that the acquirer had prior knowledge of the facts, for example through its due diligence, that will also frustrate a potential claim. When it comes to quantum, a common challenge that we see is that the basis of valuation an acquirer is asserting it used for the purposes of the transaction cannot be substantiated. This is vital because the standard basis of quantifying loss in relation to a warranty claim (other than where the remedy for loss is on a “£ for £” basis) is the difference between the value of the target entity with the warranties true versus the value of the entity with the warranties false (i.e. valuing the target in its actual state, with the alleged breaches). In such a situation, it is important that the claimant can demonstrate the basis of valuation employed in the transaction,
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