Caveat emptor – what does it mean in practice?

English Law Focus

Caveat emptor – what does it mean in practice?

Richard Catling
Partner,
Corporate Commercial

Anna Robinson
Senior Knowledge Lawyer (Consultant),
Corporate Commercial

Caveat emptor, or “buyer beware”, is a well-known principle of English contract law that places the burden on the buyer to investigate the quality and suitability of the goods or services they are purchasing and where necessary seek contractual protection against any risks identified. In the context of share purchase agreements (SPA), this means that the buyer is expected to conduct due diligence on the target company and its business, assets, liabilities, and prospects, and to rely on their own enquiries rather than on any representations or warranties made by the seller outside or inside the contract.

In the vast majority of cases in order for a buyer to have protection against any issues such protection would ordinarily be provided for in the SPA and if there is no provision for such protection the buyer will have no recourse against the seller. However, caveat emptor is not an absolute rule and there are several exceptions and limitations to its application in English law governed SPAs. These include:

Statutory protections: The buyer may have recourse to statutory remedies under various laws, such as the Misrepresentation Act 1967, the Sale of Goods Act 1979, the Unfair Contract Terms Act 1977, and the Consumer Rights Act 2015, depending on the nature and circumstances of the transaction. These laws may provide the buyer with rights to rescind the contract, claim damages, or challenge unfair or misleading terms in the SPA.

Contractual protections: The buyer and the seller may agree to include various contractual protections in the SPA, such as warranties, indemnities, disclosures, limitations of liability, and dispute resolution mechanisms. These provisions may allocate the risk and responsibility for certain matters between the parties and provide the buyer with remedies in case of breach or misrepresentation by the seller. The scope and extent of these protections may depend on the bargaining power and sophistication of the parties, the size and complexity of the transaction, and the market practice and expectations in the relevant sector or jurisdiction.

Common law and equity: The buyer may also rely on common law and equitable doctrines, such as fraud, mistake, duress, undue influence, estoppel, and fiduciary duties, to challenge the validity or enforceability of the SPA or to seek relief from the court. These doctrines may apply in situations where the seller has acted dishonestly, negligently, or unconscionably, or where the buyer has been induced to enter into the SPA by false or misleading statements or conduct.

The buyer should always conduct thorough and appropriate due diligence on the target company and its affairs, and negotiate the terms of the SPA carefully and diligently, to protect their interests and avoid potential disputes or liabilities.

Therefore, while caveat emptor remains a fundamental principle of English contract law, it is not a complete defence for the seller or a complete risk for the buyer in SPAs. The buyer should always conduct thorough and appropriate due diligence on the target company and its affairs, and negotiate the terms of the SPA carefully and diligently, to protect their interests and avoid potential disputes or liabilities. The seller, on the other hand, should be aware of their statutory and contractual obligations and liabilities, and disclose any material facts or issues that may affect the value or performance of the target company or the SPA. Both parties should seek professional legal advice to ensure that their rights and obligations are clearly defined and enforced in the SPA.

For further information,
please contact Richard Catling and
Anna Robinson.

^{Published in}^{May 2025}