Privity of contract in drafting

When drafting an agreement, obligation should not be imposed on anyone who is not a party to the agreement.

For example, in a share sale and purchase agreement, obligation should not be imposed on a company secretary (who is not a party to the SPA) to provide directors’ resolution of a company.

This is because the company secretary is not contractually bound under the SPA.

The parties to the SPA would not have recourse under the SPA against the company secretary if the obligation is not fulfilled.

Instead of: “The company secretary of the Company shall provide a certified true copy of the directors’ resolution of the Company…”

the drafting should be something along this line:

“The Seller shall procure the company secretary of the Company to provide a certified true copy of the directors’ resolution of the Company…”

#malaysiancorporatelawyer

#contractdrafting

#mergersandacquisitions

This post was first posted on Linkedin on 11 October 2021.

Linkedin Post
Partial Share Sales in Malaysia: What Sellers Need to Know About Guarantees

In partial disposals, it’s common for sellers and buyers to agree that any existing guarantees given by the sellers to secure banking facilities of the target companies will be adjusted to reflect the post-completion shareholding. For public listed companies (PLCs) in Malaysia, this can affect the deal timeline if not …

Linkedin Post
M&A Break Fees: Practical Constraints in Malaysia

In M&A transactions, break fees refer to a pre-agreed sum payable if a party withdraws from a proposed transaction without any breach by the counterparty. In principle, break fees are intended to deter frivolous exits and to compensate the other party for transaction-related costs, including due diligence and advisory expenses. …

Linkedin Post
M&A Disclosure Letter: DIY or Get a Lawyer?

In M&A transactions, a disclosure letter sets out the exceptions and qualifications to the representations and warranties (R&Ws) given by a seller in a share sale and purchase agreement (SPA). Getting it wrong can turn an unintentional misstatement into a breach of contract, with serious legal and financial consequences. Should …