One-sided contract term of the day (4): warranting a ‘good deal’

We continue our series highlighting IP Draughts’ “favourite” one-sided provisions in contracts.  These provisions are often found in contracts where there is an imbalance of power between the parties, and where the party with the power (let us call him the “Patron”) seeks to reduce a sometimes theoretical risk by imposing it on the other party (the “Supplicant”).

Today’s one-sided term is:

The Supplicant is not aware of any fact or matter not disclosed in writing to the Patron which directly affects the Business, the disclosure of which might reasonably affect the willingness of a reasonable institutional investor to apply for shares in the capital of the Company or the price at or terms on which an institutional investor would be willing to subscribe them.

This warranty appeared in a draft investment agreement that IP Draughts recently reviewed, in respect of a university spin-out company.

The warranty is very broad and general.  In effect, it is asking the warrantor (the Chief Executive of the Company) to bear the risk that the investor has made a bad investment decision.

There is no safe way of disclosing against this warranty, other than a Joe-90 style brain dump of all information known to the Warrantor.

In IP Draughts’ view, the correct response to this warranty is to delete it, and not to attempt any finessing or fine-tuning of the words.  In agreements where such a warranty appears, there are likely to be plenty of other, more specific warranties that the investor can rely on.

IP Draughts’ scoring for extremeness: 10/10

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Filed under Contract drafting, General Commercial

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