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02 December 2020
In acquisitions of group companies, the agreements entered into by the parties are often subject to termination clauses.
If the conditions of a termination clause are met, the beneficiary of such clause can choose between terminating the agreement and waiving its termination right in order to obtain the contract's performance.
A recent case before the Paris Court of Appeal provides an example of the issues that may arise when a termination clause is insufficiently accurate.
In 2008 a seller sold 100% of the shares of a holding company to a purchaser in consideration for a purchase price being paid in several instalments.
The seller and the purchaser also entered into a separate agreement, according to which the seller agreed to sell, and the purchaser agreed to buy, the seller's 50% interest in a subsidiary of the holding company at an agreed price at a later date. This agreement contained a termination clause, according to which such agreement would automatically become null and void if the last instalment of the purchase price of the shares of the holding company was not paid by 15 January 2015.
The last instalment was paid after the agreed date, but the seller did not want to implement the termination clause and instead asked the acquiror to purchase the 50% interest in the subsidiary as agreed. The purchaser refused and considered that the agreement had terminated automatically by application of the termination clause.
In December 2015 the seller brought an action against the purchaser before the Evry Commercial Court in order to obtain:
On 14 September 2017 the Evry Commercial Court ruled in favour of the seller. The purchaser appealed the decision in October 2017.
On 28 July 2020 the Paris Court of Appeal dismissed the purchaser's claims.
The Paris Court of Appeal ruled that:
The Paris Court of Appeal also stated that the mere inaction of the beneficiary of a termination clause for a certain period does not constitute an unequivocal act manifesting in a willingness to waive the clause.
Based on the facts of the case, the Paris Court of Appeal determined that the termination clause was to the sole benefit of the seller and that the seller had unequivocally demonstrated his willingness to waive the clause.
The purchaser's claims that the termination clause benefited both parties and that the agreement had terminated automatically were dismissed.
This decision is a reminder of the key principles which apply to termination clauses and that, when drafting such clauses, parties should:
Well-drafted clauses can help parties to avoid subsequent disputes and mitigate the risk of a court having to determine their common intention when signing the agreement.
For further information please contact Alain Levy, Gwenaëlle de Kerviler or Valérie Attia at AyacheSalama by telephone (+33 1 58 05 38 05) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AyacheSalama website can be accessed at www.ayachesalama.com.
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