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Annulment Based on Fraud, Despite Due Diligence

Prior to a transaction, a potential buyer nearly always engages a law firm to assist with performing a due diligence investigation into the target company. The purpose of such due diligence investigation is to identify the (possible) risks and give certain recommendations in connection with these risks. In Dutch Caribbean case law it has been established that a due diligence implies a strong investigative duty for the purchaser, and it will be harder for the purchaser to argue that the share sale and purchase agreement was entered into under the influence of error.

However, it has also been established that a due diligence investigation does not automatically mean that the counter party cannot invoke annulment based on fraud in relation to the share sale and purchase agreement. An agreement can be annulled if it was concluded on the basis of fraud. Fraud is deemed to be present if someone induces another person to perform a specific legal act by intentionally providing him with inaccurate information, by intentionally concealing any fact he was obliged to disclose or by any other artifice.

Even though a case of fraud is harder to prove than a case of error, the possibility to annul the share sale and purchase agreement exists for a purchaser, despite having performed a due diligence investigation, if the seller has intentionally concealed something that he was obliged to disclose.