Warranty and indemnity claims: step by step move through four stages once a target company, or a purchased business unit, turns out to differ from what the agreement described: notice within the contractual time limit, quantification of the loss, negotiation against the agreed limitations, and referral to arbitration or court if no settlement follows. Missing the notice deadline typically extinguishes the claim, regardless of its underlying merit.
Who this concerns
The buyer under a share purchase agreement or asset purchase agreement who has discovered, after completion, that a warranty given by the seller was untrue when made. This covers financial warranties (accounts, working capital), operational warranties (contracts, employees, permits) and tax warranties, as well as standalone indemnities for identified risks flagged during due diligence.
It also concerns the seller receiving such a claim. A seller facing a warranty notice is not passive: the response window, the burden of proof and the available defences are set by the agreement, and a poorly drafted or late response can waive rights that would otherwise have been available.
A third group sits behind both: warranty and indemnity insurers, escrow agents and guarantors named in the transaction documents. Where any of these are involved, the claims process runs on two tracks at once, the contractual track between buyer and seller, and the notification track under the insurance policy or escrow agreement, and the two rarely have identical deadlines.
What the law says
Under Swedish law as it currently stands, the starting point is freedom of contract. A share purchase agreement is not a consumer sale, and the parties are free to displace the default rules on notice, limitation periods, materiality thresholds and the measure of damages almost entirely by agreement. The consequence is that the "law" governing a given claim is, in practice, the warranty and indemnity clause itself, read against the disclosure letter and any data room index incorporated by reference.
What general contract principles still supply, in the absence of contrary drafting, is the underlying duty to notify a defect within reasonable time, a concept close to what is known in Swedish practice as reklamation, the obligation to raise a complaint promptly once a defect is discovered or should reasonably have been discovered. Most professionally drafted agreements displace the "reasonable time" standard with a fixed number of business days, precisely because "reasonable" is unpredictable in a dispute. Where the agreement is silent, that general standard fills the gap, and it tends to favour the seller because it shortens the effective window for the buyer to act.
How it works in practice
Reading the notice clause before anything else
Before drafting a claim, the buyer needs to know three things from the agreement: the length of the notice period, what triggers it (discovery of the breach, or discovery of the loss, which are not the same event), and the required form of notice. Agreements frequently require notice "in writing, with reasonable detail of the breach and a good faith estimate of the loss", and a notice that omits the estimate can be challenged as defective even if it was timely.
Drafting and serving the notice of claim
The notice should identify the specific warranty said to have been breached, the facts giving rise to the breach, and a calculation, even a provisional one, of the loss. Vague notices that simply reserve rights "in respect of matters arising from the transaction" are a common and avoidable failure point, because they invite an argument that the real claim, when it eventually arrives, is a different and untimely one.
Substantiating the loss
The buyer then needs to build the evidentiary file: the warranty as drafted, the disclosure letter and data room extracts relevant to that warranty, internal records showing the actual position, and a damages calculation tied to the warranty's specific measure (often the diminution in value of the shares, sometimes a direct loss basis for indemnities). This stage is where most claims are won or lost before any negotiation starts.
Testing the claim against the limitations
Every agreed limitation applies before the seller's exposure is assessed: de minimis thresholds per claim, an aggregate basket before any claim is payable, a liability cap, and time-bar provisions specific to categories of warranty (tax warranties typically run longer than general business warranties). A claim that survives the notice requirement can still fail entirely on the basket or the cap.
The seller's response
A seller receiving a notice will typically dispute either the breach itself, the causal link between the breach and the loss, or the quantum. Sellers frequently also raise a disclosure defence, arguing the matter was fairly disclosed in the data room and therefore excluded from warranty cover regardless of its accuracy. Whether disclosure was sufficiently specific to bar the claim is one of the most litigated points in this area.
Negotiation and the settlement window
Most agreements build in a negotiation period before either party may escalate. This window is where most claims resolve, because litigation or arbitration costs and delay tend to exceed the value in dispute for all but the larger claims. A realistic settlement position depends on the strength of the paper trail built at the substantiation stage, not on the size of the headline claim.
Escalation to arbitration or court
Where the agreement provides for arbitration, as most Swedish share purchase agreements do, the claim moves to a request for arbitration under the chosen rules and seat. Where the agreement is silent or provides for court jurisdiction, the claim proceeds as ordinary civil litigation. Either route requires the same evidentiary file built earlier, now presented as pleadings rather than correspondence.
What changes when the seller, the guarantor or the escrow agent sits outside Sweden
Where the seller is a foreign holding company, notice under the agreement must reach a validly appointed address for service, and delivery rules for cross-border notice are frequently the point a claim first goes wrong. Where a parent guarantee sits behind the seller's obligations, enforcement against the guarantor may require a separate recognition step in the guarantor's home jurisdiction even after a Swedish arbitral award or judgment is obtained. Where funds are held in escrow with an agent outside Sweden, release instructions typically require either joint written agreement or a final and binding decision, and the escrow agreement's own notice mechanics can run on a timetable independent of the share purchase agreement.
Documents required at each stage:
- the share purchase agreement and any amendments, in the version signed at completion
- the disclosure letter and the data room index it incorporates
- the notice of claim as served, with proof of delivery
- internal records evidencing the breach and the resulting loss
- any third-party claim documentation, where the loss arises from a claim by a customer, supplier or authority
- the escrow agreement and insurance policy, where either exists, read for their own notice deadlines
What to check before treating a claim as viable
- whether the notice period has already run from the date the breach was, or should have been, discovered
- whether the loss as calculated clears the de minimis threshold and contributes meaningfully to the aggregate basket
- whether the matter was disclosed, and if so, how specifically, in the data room
- whether the liability cap for this category of warranty has already been exhausted by other claims
- whether a warranty and indemnity insurance policy exists and, if so, whether it, rather than the seller, is the correct addressee of the notice
Frequently asked questions
What happens if the notice deadline is missed?
In most professionally drafted agreements, the notice period operates as a strict time-bar rather than a guideline: a claim notified after the deadline is generally treated as extinguished, without regard to whether the underlying breach actually occurred. Some agreements carve out fraud or wilful concealment from this bar; most do not extend it for any other reason.
Can a claim be brought after completion if the loss was only discovered later?
Yes, provided the loss is discovered, and notice is served, within the overall claims window set by the agreement, which usually runs for a fixed period from completion rather than from discovery. A loss that crystallises after that window closes is generally not recoverable, which is why buyers often push for longer survival periods on warranties covering slower-moving risks such as tax or environmental liability.
Does a warranty and indemnity insurance policy change the claims process?
It changes who receives the notice and, often, who controls the negotiation, but it does not remove the underlying steps. The policy will have its own notice period, frequently shorter than the buyer expects, and its own requirements for supporting evidence, which need to be checked separately from the share purchase agreement itself.
The numbers
The relevant figures in any given claim, the notice period, the overall claims deadline, the de minimis threshold, the basket and the liability cap, are not set by default rule. They are negotiated line items specific to that transaction, and they vary enough between agreements that citing a typical figure would misstate the position for any individual reader. What can be said with confidence is the structure: a shorter notice period paired with a longer overall claims window is common for warranties expected to surface quickly, such as accounts warranties, while tax warranties are routinely given the longest survival period because tax assessments themselves can be reopened well after completion.
Where it usually goes wrong
The most common failure is treating the notice requirement as a formality rather than a substantive precondition. A notice that is timely but lacks the detail the agreement requires can be challenged on the same footing as one served late.
The second is misreading the disclosure defence. A matter referenced anywhere in a large data room is not automatically "disclosed" for warranty purposes; most agreements require disclosure to be fairly specific to the warranty in question, and a general reference buried in an unrelated folder rarely meets that standard, though sellers routinely argue that it does.
The exception that reverses the whole analysis is fraud. Contractual limitations, notice periods, baskets and caps are, as a matter of Swedish contract principle, generally not available as a defence against a claim founded on fraudulent misrepresentation. Where a buyer can show the seller knew a warranty was false when given, the negotiated limitations that would otherwise decide the outcome largely fall away, and the claim is assessed on ordinary principles of liability instead.
A further limit worth noting: none of the above applies once the seller entity has been dissolved and no guarantor or insurance stands behind it. At that point the claims process described here has nothing left to run against, and the only remaining question is whether a claim exists against directors, advisers or an insurer on an entirely separate legal basis.
What to do next
This covers the mechanics: what to check before serving notice, what the notice needs to contain, and where a claim typically breaks down against the agreed limitations. It does not tell you whether a specific claim clears its own basket, survives its own disclosure defence, or is worth the cost of arbitration against the amount actually recoverable, and that assessment requires the agreement, the disclosure letter and the loss calculation in front of a reader who works with these clauses regularly.
The contracts and transactions practice at Lodline handles warranty and indemnity claims on both sides of the table. Where the underlying issue is a delivery failure under an ongoing supply relationship rather than a completed sale, the same step-by-step logic applies with different deadlines, set out in the supply agreement delivery failure procedure. For an initial view on whether a specific claim is worth pursuing, get in touch; we reply within two hours on business days.