A US company (Third Party Claimant belonging to the same group as the Respondents) agreed to purchase shares in a business it wished to acquire from two other US companies (Claimants). For this purpose, two consecutive share purchase agreements governed by New York law were executed. Payment under the second agreement was made by way of a promissory note guaranteed by Respondent 3. Respondent 2 subsequently replaced the Third Party Claimant as the purchaser. Claimants initiated the arbitration to recover the price of the second agreement, which had not been paid. Respondents counterclaimed by accusing Claimants of failing to disclose that at the time of the due diligence they were negotiating with another company the sale of rights that Respondents considered to be part of the target business. Those rights were transferred to the other company (X) on the day prior to the closing pursuant to a document entitled 'Amendment No. 1'. The arbitral tribunal held that, in failing to disclose this transfer, Claimants had breached representations and warranties made in the share purchase agreements. Claimants argued that the first of the two agreements contained a time limitation barring Respondent 2 from bringing claims relating to representations and warranties.

Une société américaine (le tiers demandeur, qui appartenait au même groupe que les défendeurs) s'était engagée à prendre une participation dans une société qu'elle souhaitait acquérir auprès de deux autres sociétés américaines (les demandeurs). À cet effet, deux conventions de cession d'actions successives, régies par la loi de New York, avaient été signées. Le paiement prévu par la seconde convention avait été effectué au moyen d'un billet à ordre garanti par le défendeur 3. Le défendeur 2 avait ensuite remplacé le tiers demandeur en tant qu'acheteur. Les demandeurs ont engagé l'arbitrage afin de recouvrer le montant de la seconde convention, demeuré impayé. Les défendeurs, en retour, ont accusé les demandeurs de n'avoir pas divulgué qu'au moment de l'audit ils négociaient avec une autre société la vente de droits faisant partie, à leurs yeux, de l'entreprise cible. Ces droits avaient été cédés à l'autre société (X) la veille de la réalisation, conformément à un document intitulé « Amendment No. 1 ». Le tribunal arbitral a jugé qu'en ne divulguant pas cette cession, les demandeurs avaient violé les déclarations et garanties de la convention de cession d'actions. Les demandeurs soutenaient que la première des deux conventions prévoyait un délai de forclusion empêchant le défendeur 2 de formuler des réclamations concernant les déclarations et garanties.

Una empresa estadounidense (demandante tercerista perteneciente al mismo grupo que los demandados) acordó comprar acciones en una empresa que deseaba adquirir y que era propiedad de dos otras empresas estadounidenses (demandantes). A tal fin, se firmaron dos acuerdos de adquisición de acciones consecutivos regidos por la ley de Nueva York. El pago con arreglo al segundo acuerdo se realizó mediante un pagaré garantizado por el demandado 3. El demandado 2 ulteriormente sustituyó al demandante tercerista como comprador. Los demandantes iniciaron el arbitraje para recuperar el precio del segundo acuerdo, que no había sido pagado. Los demandados presentaron una demanda reconvencional acusando a los demandantes de no haber revelado que, en el momento de la diligencia debida, estos estaban negociando con otra empresa la venta de derechos que los demandados consideraban como una parte de la empresa objetivo. Estos derechos se transfirieron a la otra empresa (X) el día anterior al cierre de conformidad con el documento titulado «Amendment No. 1». El tribunal arbitral consideró que, al no revelar esta transferencia, los demandantes habían infringido las declaraciones y garantías estipuladas en los acuerdos de adquisición de acciones. Los demandantes alegaron que el primero de los dos acuerdos incluía un plazo de prescripción que impedía al demandado 2 interponer un recurso relativo a las declaraciones y garantías.

'5. Contractual time limitation for Counterclaims and Third Party Claims

In the January Purchase Agreement, each party agreed in Section 8.04(b) that the "sole and exclusive remedy with respect to any and all claims relating to the representations and warranties in Article III . . . and the covenants contained in this Agreement to be performed prior to the Closing shall be pursuant to the indemnification provisions set forth in this Article VIII". Written notice of such a claim was required to be given prior to April 30, 2000, i.e. "thirty days after the date [which cannot be later than March 31, 2000] on which the representation, warranty, covenant or agreement on which such claim or action is based ceases to survive . . ." (Section 8.03).

It is conceded that written notice of the Counterclaims and Third Party Claims was given after that date, to wit, in October 2000. Thus, unless the time deadline was tolled, the claims based on representations and warranties would be barred by the Agreement. The issue, then, is whether there has been a tolling.

Section 8.03, which appears in Article VIII entitled "Indemnification," provides in pertinent part as follows:

Indemnification by the Seller. (a) The Seller agrees, subject to the other terms and conditions of this Agreement and on an after Tax basis, to indemnify the Purchaser and its Affiliates (including, without limitation, the Company) (as used in this Section 8.03, each a "Purchaser Indemnified Party") against and hold each Purchaser Indemnified Party harmless from all Losses arising out of (i) the breach of any representation or warranty of the Seller contained in Article III, (ii) the breach by the Seller of any covenant or agreement of the Seller contained herein, (iii) the actions taken by the Company prior to the Closing Date and described in Section 3.20 of the Disclosure Schedule. . . . Anything in Section 8.01 to the contrary notwithstanding, no claim may be asserted nor any action commenced against the Seller for breach of any representation, warranty, covenant or agreement contained herein, unless written notice of such claim or action is received by the Seller describing in detail the facts and circumstances with respect to the subject matter of such claim or action within thirty days after the date on which the representation, warranty, covenant or agreement on which such claim or action is based ceases to survive as set forth in Section 8.01, irrespective of whether the subject matter of such claim or action shall have occurred before or after such date. (Emphasis added.)

"Losses" are defined in Section 1.01 of the January Purchase Agreement as follows:

"Losses" of a Person means any and all losses, liabilities, damages, claims, awards, judgments, costs and expenses (including, without limitation, reasonable attorney's fees) actually suffered or incurred by such Person.

Thus, [Seller] agreed to indemnify [Purchaser] from all "Losses" resulting from [Seller]'s breach of the representations and warranties contained in the January Purchase Agreement.

The first issue presented by the Parties is whether the above quoted provisions of Section 8.03, as amplified by the rest of Article VIII, apply only to indemnification for losses suffered by the purchaser by reason of third party claims against the purchaser. If so limited, the time deadlines in Article VIII would not apply to a direct claim against Claimant [1] for breach of the representations and warranties resulting in direct damages to Respondent No. 2 and Third Party Claimant. Such Parties assert that this is the proper construction of Article VIII and that therefore their notice to Claimants of their breach of contract claims was not untimely . . .

Article VIII has ambiguities within its subsections. The "hold harmless" clause in Section 8.03 quoted above would suggest that the Section is designed to protect the indemnified party (in this case the purchaser) from losses to third parties. Section 8.04(a), setting forth "Indemnification Procedures," lends further credence to this view:

Section 8.04. Indemnification Procedures. (a) A Seller Indemnified Party or a Purchaser Indemnified Party, as the case may be (for purposes of this Section 8.04, an "Indemnified Party"), shall give the indemnifying party under Section 8.02 or 8.03, as applicable (for purposes of this Section 8.04, an "Indemnifying Party"), prompt written notice of any claim, assertion, event or proceeding by or in respect of a third party as to which it may request indemnification hereunder or as to which the Seller's Threshold Amount or the Purchaser's Threshold Amount, as applicable, may be applied as soon as is practicable and in any event within 45 days of the time that such Indemnified Party learns of such claim, assertion, event or proceeding: provided, that the failure to so notify the Indemnifying Party shall not affect rights to indemnification hereunder except to the extent that the Indemnifying Party is actually prejudiced by such failure. The Indemnifying Party shall have the right to direct, through counsel of its own choosing, the defense or settlement of any such claim or proceeding at its own expense; . . . If the Indemnifying Party elects to assume the defense of any such claim or proceeding, the Indemnified Party may participate in such defense, but in such case the expenses of such Indemnified Party shall be paid by such Indemnified Party. Such Indemnified Party shall provide the Indemnifying Party with access to its records and personnel relating to any such claim, assertion, event or proceeding during normal business hours and shall otherwise cooperate with the Indemnifying Party in the defense or settlement thereof, and the Indemnifying Party shall reimburse such Indemnified Party for all its reasonable out-of-pocket expenses in connection therewith. If the Indemnifying Party elects to direct the defense of any such claim or proceeding, such Indemnified Party shall not pay, or permit to be paid, any part of any claim or demand arising from such asserted liability, unless the Indemnifying Party consents in writing to such payment or unless the Indemnifying Party, subject to the last sentence of this Section 8.04(a), withdraws from the defense of such asserted liability, or unless a final judgment from which no appeal may be taken by or on behalf of the Indemnifying Party is entered against such Indemnified Party for such liability. If the Indemnifying Party shall fail to defend against such claim or proceeding, or if, after commencing or undertaking any such defense, the Indemnifying Party fails to prosecute or withdraws from such defense, such Indemnified Party shall have the right to undertake the defense or settlement thereof, at the Indemnifying Party's expense. If such Indemnified Party assumes the defense of any such claim or proceeding pursuant to this Section 8.04(a) and proposes to settle such claim or proceeding prior to a final judgment thereon or to forego appeal with respect thereto then such Indemnified Party shall give the Indemnifying Party prompt written notice thereof and the Indemnifying Party shall have the right to participate in the settlement or assume or reassume the defense of such claim or proceeding.

Such language would appear to refer to third party claims. But a close reading leads to the conclusion that the Section is not so limited. It extends also to claims as between the parties to the January Purchase Agreement. Section 8.04(a) covers "any claim, assertion, event or proceeding by or in respect of a third party . . . or as to which the Seller's Threshold Amount . . . may be applied", which includes claims for breach of Article III representations and warranties to the purchaser and its affiliates (emphasis added).1

Furthermore the word "Losses" is defined as including "any and all losses . . . damages . . . actually suffered or incurred" (January Purchase Agreement §1.01). Here, Respondents are seeking "losses" and "damages" resulting from Claimants' breach of contract, i.e. the breach of the representations and warranties resulting from [Claimant 1 ] entering into Amendment No. 1. There is no limitation in the definition of "Losses" to third party claims. Moreover, Section 8.03 need not be interpreted as limited to the "hold harmless" concept. The Section reads in pertinent part: "The Seller agrees . . . to indemnify the Purchaser . . . against . . . all Losses arising out of . . . the breach of any representation or warranty of the Seller." A straightforward reading of such language appears to cover the claims asserted by Respondent No. 2 and Third Party Claimant and would, in accordance with Section 8.03, be subject to the time limitations in Article VIII.

Finally, the word "indemnify" is defined in Black's Law Dictionary (Sixth Edition) to be "To restore the victim of any loss, in whole or in part, by payment, repair or replacement". While "indemnify" includes the concept of "hold harmless", Black's Law Dictionary also defines the word as "to compensate". That definition is not confined to third party claims.

In Promuto v. Waste Management, Inc. , 44 F. Supp. 2d 628, 650-51 (S.D.N.Y. 1999), the court interpreted a similar provision in a purchase agreement and held that indemnification covered the parties' claims against each other and not just third party claims. This holding was based on language similar to the Agreement at issue here, providing that indemnification was the purchaser's exclusive remedy for breach of any representation, warranty or covenant.

Other subsections of Article VIII are relevant to the issue. Section 8.04(b) provides:

Each party hereto hereby acknowledges and agrees that from and after the Closing, its sole and exclusive remedy with respect to any and all claims relating to the representations and warranties contained in Article III and Article IV and the covenants contained in this Agreement to be performed prior to the Closing shall be pursuant to the indemnification provisions set forth in this Article VIII. In furtherance of the foregoing, each party hereto hereby waives, to the fullest extent permissible under applicable law, any and all other rights, claims and causes of action it may have, from and after the Closing against the other parties hereto or its officers, directors, employees, agents, representatives and Affiliates relating thereto.

If Respondents are correct that the Article VIII Indemnification provisions are limited to indemnification for third party claims, the "sole and exclusive remedy" language, and the implementing "waiver of any and all other rights" clause, would lead to an anomaly. That is, under Respondents' view of Article VIII, Respondents' sole and exclusive remedy would be against Claimants for losses to a third party. All other "rights, claims and causes of action", including those asserted by Respondents here, would be waived. The Arbitral Tribunal does not find that Respondents contracted away a direct damage claim against a breaching party for damages caused by a breach of the Agreement. See Promuto cited above.

Accordingly, it can reasonably be concluded that Article VIII applies to Respondent No. 2 and Third Party Claimant's breach of contract claim and is subject to the time limitations in that Article.

That leaves the issue of tolling, that is, whether on the facts in the record the time limitations in Section 8.03 have been extended so as to make Respondent No. 2 and Third Party Claimant's notice a timely one.

The Parties argue strenuously on each side of the issue. Claimants point to a number of facts showing that Respondents were provided with Amendment No. 1 in the fall of 1999, well before the deadline of April 30, 2000, along with other facts that would put a reasonable person on notice before that date.

Respondents stress a number of facts allegedly demonstrating that Claimants concealed the transfer of the . . . Rights to [another company]. Respondents start with the two Officer's Certificates which falsely attested that there was no change in the business or the representations and warranties. They then point out that after [Seller] sold the business in October 1999 it did not leave copies of any of the correspondence or memoranda concerning Amendment No. 1 and did not leave any copy of Amendment No. 1 itself . . . Although a representative of [Seller] provided . . . counsel to [Purchaser] with a large number of . . . contract files, Amendment No. 1 was not included in the documents provided . . .

It has long been the law of New York that the doctrine of equitable tolling allows a claim to be asserted after the applicable limitations period "where some action on the [defendant's] part made it such that the [plaintiffs] were unaware that the cause of action existed". Meridien Int'l Bank Ltd. v. Liberia, 23 F. Supp. 2d 439, 446 (S.D.N.Y. 1998). This doctrine "was developed in the context of actions based in fraud, but it has been applied in cases alleging causes of action other than fraud where the facts show that the [defendant] engaged in conduct, often itself fraudulent, that concealed from the [plaintiff] the existence of the cause of action." Id.

Under the doctrine of equitable tolling, until a party has actual knowledge or should have known of its claim, the statute of limitations does not begin to run. The same principle must be applied to the contractually shortened limitations period contained in Section 8.03 of the January Purchase Agreement. Section 8.03 provided the parties with approximately fourteen months within which to assert a claim based upon a breach of an express warranty, representation or covenant. That time period does not begin to run until Respondents knew or had reason to know of their claims.

In addressing the question of what constitutes knowledge of a claim, the New York Court of Appeals has stated that "knowledge of the fraudulent act is required and mere suspicion will not constitute a sufficient substitute". Erbe v. Lincoln Rochester Trust Co. , 3 N.Y.2d 321, 326, 165 N.Y.S.2d 107, 111 (1957). See also Juman v. Louise Wise Services, 174 Misc. 2d 49, 55, 663 N.Y.S.2d 483, 487 (N.Y. Sup. Ct. 1997) (limitations period "will not bar an action unless it conclusively appears that the plaintiff had knowledge of facts from which the alleged fraud might be reasonably inferred"), aff'd, 254 A.D.2d 72, 678 N.Y.S.2d 611 (1st Dep't 1998).

. . . . . . . . .

On this record, the Tribunal concludes that [Purchaser] did not have sufficient knowledge to have made a claim by April 30, 2000, essentially because Claimants were not forthcoming in advising of Amendment No. 1 and indeed certified to just the opposite. Even assuming arguendo that [senior vice-president of Purchaser]'s communications with [an officer of Company X] in the late fall of 1999 and his receipt of an incomplete copy of Amendment No. 1 at that time can be construed as actual notice (as opposed to "mere suspicion") of [Seller]'s breach of its express representations and warranties, under New York's equitable tolling rules the time to assert indemnification claims would not begin to run until that time. Since it is undisputed that Respondents gave notice of their claims on October 5, 2000, they are well within the time period as tolled and that time period is not a bar to Respondents' breach of contract claims.2'

1
Seller's Threshold Amount is defined in Section 8.03(b) of the January Purchase Agreement.

2
Respondents and [Purchaser] argue that by its terms Section 8.03 of the January Purchase Agreement does not apply to implied obligations, such as the implied obligations of good faith and fair dealing, which it is claimed exist independently of the express provisions contained in Article III, and that accordingly the time limitations in Article VIII are not applicable to a claim brought on such implied obligations. In view of the conclusion set forth above that Respondent No. 2 and [Purchaser] are not time barred, the Arbitral Tribunal has determined that it is not necessary to address such argument.