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Go green, come clean: The importance of accuracy in environmental warranties/disclosures

2 peoples hands holding a green seedling flower Print publication

13/09/2021

Why is MDW Holdings v Norvill of interest to all businesses today?

A business’ environmental credentials have hardly ever been of greater value, nor under such scrutiny, as they are today. For example, a recent survey carried out in the US [1] found that 78% of consumers were more likely to buy a product if it had ‘green’ credentials; that 75% of millennials would pay more for a green product; and that 76% of people would even switch from a preferred brand for sustainability. Investors and shareholders alike are increasingly demanding effective, positive action on the part of corporates and their suppliers/counterparties to help tackle climate change and to achieve Net Zero. A business’ sustainability therefore has an impact on its bottom line like never before.

Alongside the risks associated with ‘greenwashing’ [2], the case of MDW Holdings Ltd v Norvill [3] highlights why accuracy in relation to green claims – in this context, made in environmental warranties in a sale and purchase agreement (SPA) and in responses to due diligence enquiries – is essential.

Whilst the business in this particular case was a waste management company, sustainability and environmental impact are key issues of concern to all businesses. The practical takeaways from the case are therefore applicable across the board.

What practical advice arises?

The seller in this case had warranted that it had complied with all environmental obligations and that there had been no investigations, prosecutions or proceedings issued or threatened against it. That was not true. In response to the buyer’s due diligence process, no disclosures were made against those environmental promises. In a post-acquisition claim brought against the seller for breach of warranty and misrepresentation, the High Court found for the buyer and the following key takeaways arise.

  • Responding inaccurately (or, equally, failing to respond fully and accurately) to due diligence enquiries made in a corporate, real estate or any other transaction and/or providing environmental warranties which are untrue can amount to a breach of contract and/or to actionable misrepresentation [4].
  • In particular, providing only snippets of information about compliance with environmental obligations, or providing information in a piece-meal fashion so that it can only be ascertained via a process of extrapolation from a multitude of disclosed documents, is unlikely to constitute fair disclosure in accordance with most standard SPA contractual requirements.
  • Breach of environmental warranties/misrepresentation can result in a business’ value being artificially inflated. The warrantor/representor can therefore face liability to compensate the purchaser for any amount paid over and above the true value.
  • A common defence to a warranty claim is that it has not been properly notified. In this case that defence failed because buyer had met the relatively low threshold set by the notification clause in the SPA (i.e. that the nature and amount of the claim should be summarised insofar as it was known to the buyer and as far as was reasonably practicable).
  • Another common, and often decisive, defence to a warranty claim is limitation. That argument failed in this case because the warrantor’s/representor’s breaches were deliberate and dishonest, and fraud unravels all [5].
  • For notification and limitation clauses to be effective to bar warranty claims, they should be as clearly and comprehensively drafted as possible, with confirmation as to exactly the standard of information to be provided in any notification. Please see our earlier briefing for detailed advice concerning the service of effective warranty claim notices.
  • Where a buyer has knowledge of environmental breaches but proceeds with the transaction in any event, that knowledge can undermine any potential claim. However, this case indicates that partial knowledge on the part of a buyer may not suffice to establish a defence for the warrantor/representor – clear documentary evidence of more complete knowledge on the part of the buyer is likely to be required.

How we can help

Businesses today, whether or not they are operating within the environmental/waste sectors, face commercial, legal, regulatory and consumer protection drivers to ensure accuracy and transparency when it comes to environmental and sustainability commitments.

Walker Morris’ Planning, Environmental and Commercial Dispute Resolution specialists can assist from the outset, whether it be with the clear and effective drafting of environmental obligations or warranties, advising on the environmental aspects of large-scale projects or ESG [6] strategies, or providing comprehensive, cross-disciplinary advice and transactional assistance. Our cross-disciplinary teams can also offer risk management and effective dispute resolution advice if/when any warranty/misrepresentation claim or any other type of environmental litigation queries or concerns arise. Finally, Walker Morris can provide tailored training to staff at all levels within a business on any green-related area or issue.

If you would like any further advice or assistance in relation to any of the issues covered in this article, please do not hesitate to contact Alison Ogley or Claire Acklam, who will be very happy to help.

[1] GreenPrint survey, February 2021

[2] That is, the practice of making claims (often exaggerated) about a business’ environmental credentials and the sustainability of its products, services and environmental impact. See our recent briefing here on how can businesses ensure that their ‘green’ claims comply with consumer protection legislation for further information and advice in this area

[3] [2021] EWHC 1135 (Ch)

[4] This article focuses on the breach of contract/warranty aspects of MDW Holdings v Norvill. We will report separately with practical advice arising from the misrepresentation aspects of the case in due course – please watch this space!

[5] deliberate action on the part of a wrongdoer which involves dishonest conduct is seen by the law as being so serious that fraud can invalidate a contractual agreement, carve-out or any other legal bar or limitation

[6] Environmental, Social, Governance. See our recent briefing on addressing ESG challenges for further information and advice, and see also Claire Acklam’s development-focused briefing on the green agenda.

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