Can an SPV be misled before it exists?

Transactions are regularly structured through special purpose vehicles (SPVs). An SPV is often established at the end of the negotiations, just before signing the agreement. The other party to the agreement provides information and raises certain expectations during the negotiations. The individuals negotiating for the SPV do not necessarily become officers of the SPV once it is established. Examples of legal structures using SPVs are:

  • contracts to design, build, finance, maintain and operate (DBFMO contracts);
  • securitizations;
  • mergers & acquisitions.

After having entered into the agreement, the SPV may discover that the other party withheld certain information during the negotiations, thereby violating a disclosure obligation. The other party may have also made false statements. This may result in the SPV having a less favourable position that originally intended. Can the SPV then invoke error? Or is this not possible, as the SPV did not exist during the negotiations?

The same questions apply to the interpretation of the contract. Can an SPV rely on expectations about the meaning of certain provisions if they were raised before the SPV was established?

In the 2017-2018 Proceedings of the Dutch Association of Corporate Litigation (Geschriften vanwege de Vereniging Corporate Litigation, published end of July 2018) I defend the position that an SPV has pre-contractual rights. It would be unacceptable for the other party to an agreement to have a licence to provide incorrect information. Although many lawyers would probably agree with this position, the legal grounds for the pre-contractual rights of a non-existing party are not clear. In my contribution to the Proceedings, I examine three legal grounds:

  1. acting on behalf of a legal entity in formation;
  2. acting on behalf of a principal whose name will be given in due time;
  • attribution of knowledge.

My conclusion is that one size does not fit all. Different legal grounds will apply in different situations, and a broad interpretation or analogous application will often be required. But the SPV certainly need not remain empty-handed.

For more information with regard to this subject, please contact Branda Katan.

The post “Can a SPV be misled before it exists?” is a post of www.stibbeblog.nl


Branda Katan
All posts by Branda Katan

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