Last week Chancellor Strine of the Delaware Court of
Chancery issued an opinion in GRT,
Inc. v. Marathon GTF Technology, Ltd., No. 5571-CS (Del. Ch. July 11, 2011),
addressing whether a provision in a joint venture contract that particular representations
would survive for one year and thereafter terminate along with any remedy for
breach effectively operated to shorten the statute of limitations with respect
to claims relating to those representations. Courtesy of John Reed, a
partner in DLA Piper's Delaware office, below is a brief summary of the case and a
few key takeaways.
The provision at issue stated that certain
"representations and warranties ... will survive for twelve (12) months after
the Closing Date, and will thereafter terminate, together with any associated
right of indemnification ... or the remedies provided ..." The
plaintiff-investor argued that the Survival Clause should not be read as
shortening the time period in which a claim for breach must be brought, but
instead only as shortening the period of time in which a breach may occur
subject to the ordinarily applicable three-year statute of limitations.
The Chancellor rejected the argument and held that "the contract plainly
shortened the three-year statute of limitations applicable to breach of
contract claims to one year."
The Chancellor did not review parole evidence because he
determined there was no other reasonable interpretation. The opinion is
detailed and acknowledges that there are scholarly writings suggesting the
issue is not entirely clear (which begs the question of whether the Chancellor
is correct that there is just one "reasonable" position), but he distinguishes
those authorities. In any event, there are some drafting lessons to be
learned in order to ensure a client's intent and expectations will be satisfied
and to avoid having to litigate the issue.
The Chancellor suggested there are at least four distinct
possible ways to draft a contract addressing the life span of the contract's
representations and warranties:
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