Warranties and Indemnities in a Queensland Business Sale: Caps, Claim Periods and Disclosure

Key Takeaways

• A warranty is a statement of fact the buyer must prove untrue; an indemnity pays a defined loss on a defined trigger.
• Five warranty groups take most of the negotiating: title and capacity; accounts; tax; material contracts; employees.
• Claims run on the agreement's own notice and claim-period clauses, which the Federal Court has enforced.
• Sellers negotiate caps, baskets, claim periods, knowledge qualifiers and disclosure; buyers want a full-price cap on title and tax.
• No clause removes statutory liability for misleading or deceptive conduct.

1. 1.What is the difference between a warranty and an indemnity?
2. 2.Which warranties get the most attention in a sale agreement?
3. 3.How does a warranty claim arise after completion?
4. 4.What limits do sellers negotiate, and what does a buyer push back with?
5. 5.Where does warranty and indemnity insurance fit?
6. 6.Can the agreement exclude liability for misleading or deceptive conduct?
7. 7.What only your own deal can settle
8. 8.What happens next
9. 9.Frequently Asked Questions

The warranties and indemnities schedule allocates the risk that something is wrong with the business after completion, and so how much of the price in the heads of agreement is at stake for the seller. Warranties are statements of fact and indemnities are promises to make good defined losses, with caps, time limits and disclosure around both. None of it removes liability for misleading or deceptive conduct under s 18 of the Australian Consumer Law (ACL) in the Competition and Consumer Act 2010 (Cth) (CCA). Here is how Astris Law in Brisbane reads one.

What is the difference between a warranty and an indemnity?

A warranty is a statement of fact and an indemnity is a promise to pay. If a warranty is untrue the buyer claims damages for breach of contract, proving that the statement was false, that the falsity caused loss and that the matter was not fairly disclosed; the loss is usually the gap between the price paid and what the business was worth. An indemnity makes good a defined loss when a defined event happens, so a tax indemnity pays the tax without the buyer having to prove a breach of warranty. Courts read indemnities strictly and resolve ambiguity against the party relying on them (Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424), so a specific indemnity needs a precise trigger and measure of loss.

Which warranties get the most attention in a sale agreement?

Five groups of warranties take most of the negotiating effort. Title and capacity warranties say that the seller owns what it sells, that it has power to sell it and that the shares or assets are unencumbered; if one fails the buyer may not have acquired what it paid for, so these usually carry the full-price cap and the longest claim period. The accounts warranty says that the last accounts give a true and fair view; the price is usually a multiple of earnings, so this warranty converts most directly into a claim for the difference in price.

Tax warranties carry the most weight in a share sale, because the company's tax history comes with it, as the Australian Taxation Office tells buyers. Their claim period is set against the Commissioner of Taxation's power to amend under s 170 of the Income Tax Assessment Act 1936 (Cth): broadly two years after notice of assessment for individuals and for small and medium business entities with straightforward affairs, four years for others and no limit for fraud or evasion. A warranty that expires before that window closes leaves the buyer carrying the gap.

The material contracts warranty says that each key contract is on foot, that no counterparty has given notice to terminate or renegotiate and that no major customer has signalled it is leaving; sellers usually try to confine it to written notice actually received. Employee warranties matter for the same reason in a share sale, since accrued leave, unpaid superannuation and award underpayments stay inside the company. An underpayment found in diligence is the usual candidate for a specific indemnity, because once disclosed it is unlikely to support a warranty claim.

How does a warranty claim arise after completion?

A claim starts when the buyer finds something after completion, and from there the agreement fixes what a notice must say, when it must be given and when proceedings must follow. The Federal Court has enforced those terms: in Optic Security Australia 2 Pty Ltd v YC Investments (NT) Pty Ltd [2023] FCA 495 a buyer that gave notice well after it first believed it had a claim was held to have notified late, so the contractual bar on proceedings applied.

Behind the contractual timetable sits the statutory one: six years for a simple contract under s 10(1)(a) of the Limitation of Actions Act 1974 (Qld) and, since 1 August 2025, six years for a deed made on or after that date. The parties can agree a different period: in Price v Spoor (2021) 270 CLR 450 the High Court held that the Act confers a benefit a party can bargain away, and the case is generally read as allowing the parties to agree a shorter period too.

What limits do sellers negotiate, and what does a buyer push back with?

Seven protections recur in sale agreement schedules, and each has a usual buyer response.

Baker McKenzie's Global Private M&A Guide records fundamental warranties almost always capped at the full price in Australian private deals and general warranties usually at 30 to 50 per cent. Other surveys report different figures from different samples, so no published range is a benchmark for your deal.

The disclosure letter has to do real work, as Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Trial) [2025] FCA 314 shows: the Federal Court held that placing documents in a large data room did not qualify a warranty that all material information had been disclosed, because disclosure has to be made in a form and context that lets the buyer grasp its significance.

Where does warranty and indemnity insurance fit?

Warranty and indemnity insurance moves the warranty risk to an insurer so the seller's cap can fall to a nominal figure. Clifford Chance's What's Market Australia 2025 puts typical mid-market cover at three years for general warranties and seven for tax and title. Insurers exclude matters within the buyer's actual knowledge at inception, so a problem found in due diligence falls outside a standard policy and usually becomes a specific indemnity backed by a retention. Where there is no policy, a retention is the usual way of securing the seller's exposure.

Can the agreement exclude liability for misleading or deceptive conduct?

No, and the point is worth settling early because sellers often assume otherwise. Section 18 of the ACL applies to a sale of business assets:

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Shares are financial products, and s 131A of the CCA keeps the Commonwealth ACL away from their supply, so a claim about a share sale is usually brought under s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) or s 1041H of the Corporations Act 2001 (Cth), which mirror s 18. None of them can be excluded by agreement. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, [130] the joint judgment said that neither an entire agreement clause nor a clause denying reliance on pre-contractual representations will necessarily prevent misleading pre-contractual information from being a contravention. The clauses do narrower work than exclusion: an entire agreement clause confines the contractual claim to the document, and a non-reliance clause is evidence that the buyer relied on nothing outside it, which goes to causation, as French CJ treated it in Campbell.

What only your own deal can settle

A schedule is only ever as good as the deal around it. Shares or assets, insured or not, how much of the price is deferred and what diligence turned up all change what a sensible cap, claim period or retention looks like, and the same numbers protect one seller and expose another. That assessment has to be made on your agreement and your figures. Jamie Nuich can look at the marked-up schedule with you on (07) 3519 5616.

What happens next

1. Read the notice and claim-period clauses the day something is found, and diarise both dates.
2. Give notice in the form the agreement requires, usually within days rather than weeks, and before any instalment or retention is released.
3. Pull the diligence record and the disclosure letter to test whether the matter was disclosed.
4. If part of the price is deferred, check whether the agreement allows set-off and what dispute step it attaches.
5. If nothing is resolved within the agreed period, start proceedings before the contractual and statutory bars fall.

Frequently Asked Questions

How long do warranties last after a business is sold?

As long as the agreement says. Title and tax warranties usually run longer than general business warranties; on insured deals Clifford Chance's 2025 review puts typical cover at three years for general warranties and seven for tax and title.

Can a sale agreement exclude liability for misleading or deceptive conduct?

No. Section 18 of the ACL applies to an asset sale and the equivalent provisions of the ASIC Act and the Corporations Act apply to a share sale, whatever the contract says; entire agreement and non-reliance clauses go to reliance and causation only.

Does putting documents in the data room count as disclosure?

Not by itself. In Bridging Capital Holdings Pty Ltd v Self Directed Super Funds Pty Ltd (Trial) [2025] FCA 314 the Federal Court held that placing documents in a large data room did not qualify a warranty that all material information had been disclosed. Disclosure has to be made in a form and context that lets the buyer grasp its significance, which is the work the disclosure letter does.

This article is for general information purposes only and does not constitute legal advice and should not be relied on as such. While we take reasonable care to ensure the accuracy of the information provided, we make no representations or warranties as to its completeness, currency or reliability. We accept no liability for any loss or damage arising directly or indirectly from the use of, or reliance on, this website's content. You should always seek professional advice tailored to your specific circumstances before acting on any information in this article. Liability limited by a scheme approved under Professional Standards Legislation.

Astris Law is not a registered tax agent and does not provide tax advice. References to tax law in this article describe the legal framework only. For tax advice specific to your circumstances, consult your registered tax agent or accountant.