It is customary in private M&A transactions in South Africa to incorporate specific provisions within a Sale and Purchase Agreement (SPA) to define and limit the Seller's liability. These limitations are usually heavily negotiated between the parties involved.
Limitations of liability usually take one or more of the following forms:
• One common approach is setting time limits for filing claims. For example, claims related to business warranty breaches may be limited to one to three years, while tax, environmental, or competition warranty breaches may have a longer limit up to six years.
• Parties often include de minimis limitations to prevent disputes over minor claims.
• A significant limitation involves capping the maximum damages a party can seek, expressed as a percentage of the purchase price (often as much as 100% of the purchase price) or as a fixed amount.
• Some provisions, like warranties on title and authority as well as fraud, are typically exempt from these limitations.
• SPAs often (almost always) exclude claims for indirect and consequential damages.
These provisions serve to strike a balance between protecting both the Seller and the Buyer, defining the scope of potential claims, and setting clear boundaries for liabilities.