The Buyer Is Holding Back the Last Instalment of Your Business Sale Price Over Warranty Claims

A buyer can deduct warranty claims from the last instalment only as far as your share purchase agreement allows, and any other set-off turns on a separate claim and the governing law. Holding back the final instalment of the price after the shares have been transferred depends first on a contractual right to deduct from that hold-back, and the DIFC Court of First Instance has held buyers to the terms of that right: which breaches it covers, by when they had to be raised, and what has to be proved for each one. In Ajial National Education Company v The Securities House Company [2021] DIFC CFI 105, the buyers of a company that ran two private schools withheld the whole final instalment, a quarter of the price, citing a long list of warranty claims. After a five-day trial the Court of First Instance allowed deductions on six of the fifteen heads it decided, ordered the balance paid with interest from the time it should have been paid, and rejected the sellers' own claim for salaries they had paid for the period after completion.

Read that as a warning to both sides. The buyers' right to retain was real, and it succeeded where a warranty was proved untrue and the loss was measured properly. The sellers' right to be paid was real too, and buyers who withheld everything, when their own case had shrunk to about half of the hold-back by trial, were ordered to pay interest on the balance from the due date. One fact framed the whole dispute: the agreement was governed by the laws of Kuwait, with the DIFC Courts given exclusive jurisdiction, so the Court heard expert evidence on the disputed points of Kuwaiti law, and nothing in the judgment applies the DIFC Contract Law to the agreement.

The table sets out the buyers' complaints, largely as the Court grouped them, and the sellers' salary claim.

Can the buyer keep back the last instalment after the shares have been transferred?

Yes, if the agreement gives it that right, and in Ajial only within the right. Completion did not end the buyers' protection in Ajial. The price was payable in four stages: an advance before signing, a payment on signing, the largest payment at completion, and a hold-back of a quarter of the price payable one year after completion. The buyers could reduce the hold-back for amounts incurred under a reimbursement clause, which obliged the sellers to make good losses arising out of any breach of warranty, and the warranties were given at signing and repeated as if made again at completion.

What the clause covered decided much of the case. The Court emphasised that the right to deduct was limited to losses arising out of breach of a Warranty, a defined term meaning the representations and warranties in Schedule 5, and that no breach of any other provision gave a right to deduct. The buyers' reliance on pre-completion covenants, including a duty to transfer licences into the company's name and a duty to notify adverse events, therefore had no relevance to the hold-back.

Which law decides whether the buyer may deduct?

The law the agreement chose, so identify it before anything else. Clause 24 of the Ajial agreement gave the DIFC Courts exclusive jurisdiction over any dispute but provided that the agreement was governed and construed in accordance with the laws of Kuwait. There was no jurisdiction dispute, but the Court heard expert evidence of Kuwaiti law on disputed points, and a gap in that evidence ended one argument. The buyers floated a set-off for breaches that were not warranty breaches, and the Court declined to let it be advanced, because no such case was pleaded and there was no evidence of Kuwaiti law on any variety of set-off, adding that in the event it probably did not matter much.

Interest was approached differently. The Court said that in principle interest is governed by DIFC law as the procedural law of the forum, on which basis it would run from the due date, and then found that the Kuwaiti law evidence led to the same answer. Contract reasoning from Ajial cannot be lifted into an agreement governed by another law without checking which law supplied each step.

Jurisdiction is now a question for Dubai Law No. 2 of 2025. The Ajial claim was issued in December 2021 and decided in 2023 under the earlier Judicial Authority Law, Dubai Law No. 12 of 2004, which Article 43 of the 2025 Law supersedes. Under Article 14(B) the DIFC Courts have jurisdiction over civil and commercial claims where the parties expressly agree to it in writing, before or after the dispute arises, provided the agreement is made by specific, clear and express provisions. Whether a particular clause meets that test turns on its words.

Which warranty claims can reduce the hold-back under a share purchase agreement?

On a clause like Ajial's, only losses arising from breach of the defined warranties, which left two kinds of complaint outside the deduction right. The first was breach of other obligations, such as the pre-completion covenants. The Court said a buyer could still bring a separate damages claim for such a breach and, subject to evidence of the governing law, set it off against the price, but the Ajial buyers had pleaded no such claim.

The second was dissatisfaction with how the business had been run. The warranties were statements about the accounts, compliance and the information supplied, speaking at signing and completion, not promises that the schools were staffed or equipped the way the buyers wanted. The Court observed that, in some respects at least, the buyers' real complaint was a lack of expenditure that required them to recruit extra staff to run the schools in a manner which suited their ambitions, and it treated new full-time vice-principals as a choice the buyers made to conform with their notion of sound administration rather than a legal requirement.

Disclosure narrows the field further. The agreement excluded claims about any matter fully, fairly, accurately and specifically disclosed in the disclosure letter, and the letter treated material uploaded to the virtual data room as disclosed. The book-supply complaint failed partly because the buyers had full disclosure of that contract and knew it was with the first seller rather than the company.

By when must the buyer have raised its warranty claims?

Before the hold-back fell due, at the very latest, on the Ajial wording. The deduction clause let the buyers deduct if the sellers were unable to cure a loss within thirty business days, and in any event no later than fifteen business days before the hold-back was paid. The Court read that as wording strongly suggestive of time limits and notification requirements: because the right was a right to deduct from a payment due one year after completion, the losses must have become known to the buyers, and been notified to the sellers, before that date. Complaints raised for the first time after the due date could not justify a deduction.

That was enough to defeat the fire-safety head, which also failed on its merits. It was first notified in November 2022, more than two years after the uncontested part of the hold-back fell due, about work not carried out until August 2021 at the earliest. The Court also drew a line on how a buyer may restate its case: raising new factual complaints was not allowed under the contract, but re-labelling an existing complaint under a different warranty was. The Ajial buyers restated theirs several times. Letters in 2020 valued the claims above the whole hold-back, a schedule served in November 2022 still did, and a position paper served weeks before trial dropped three claims, with two more abandoned at trial and the total down to about half.

Deadline warning. On a clause like the one in Ajial, a complaint the buyer has not notified before the hold-back falls due cannot justify keeping it back. Diary the cure period and the due date when the agreement is signed, and keep every buyer letter with the date it arrived.

The cards below restate the three gates a deduction had to pass in Ajial.

What must the buyer prove, and who carries the burden?

The buyer, on each head, on the balance of probabilities. That was not in dispute in Ajial, and it is where many of the buyers' heads failed. Three patterns recur in the reasons.

Reports without their authors. The buyers relied on a post-completion audit by a well-known firm that said building assets were overstated by buildings already demolished. Nobody from the firm gave evidence, it gave no statement identifying the buildings or what it had been told, the buyers' witness could not say which buildings had gone, and one building mentioned was still standing. Only an overstatement the sellers' own witness accepted survived.

Inference instead of evidence. On facility management the buyers' witness reasoned that someone at holding-company level must have supervised the work. The Court accepted that there may have been some supervision but found no evidence from which to infer any level of cost, and said that choosing a figure would be pure speculation.

Recommendations treated as law. An inspector's report asking for kindergarten teaching assistants was not shown to impose a legal requirement. The buyers' own Kuwaiti law expert agreed that a legal requirement would be published in some official format, as the ministerial resolution on laboratory assistants and librarians had been.

Which warranty claims succeeded, and why?

The ones that matched a recognised accounting or legal standard to proved facts. Two findings decided five of the six successful heads.

First, a true and fair view was treated as a separate promise from compliance with accounting standards. The accounts warranty had two limbs: preparation in accordance with applicable law and IFRS, and a true and fair view of assets and liabilities. The Court accepted the buyers' expert that the second limb is distinct, so accounts prepared in accordance with IFRS can still breach it, and held that where staff at holding-company level did relevant work for the schools beyond a de minimis amount, the company's accounts should have carried an appropriate charge for it. The accounting function for the schools was centralised at holding-company level, and a group IT manager divided their time among the group's twenty schools. Apportioned shares of both, and salary-transfer bank charges booked at that level, were breaches.

Second, the compliance warranty was tested against the minimum the law required. A published ministerial resolution required laboratory assistants and a librarian, and one school had neither. The Court found a breach to the extent of one full-time laboratory assistant, the minimum compliance it could identify rather than the two the buyers said a school of that size needed, and one librarian.

How is the buyer's loss measured: once, or times the price multiple?

In Ajial it depended on what the untrue warranty did to the price, and the case shows both measures. Where a breach overstated earnings, both experts accepted that the loss could be measured by multiplying the overstatement by the multiple used to price the business, because, as the Court found from the buyers' own evidence, they would have applied the same multiple to a lower earnings figure had they known the truth. The dispute was which multiple. The buyers' expert used an implied multiple of 11.9, taken from an enterprise value that included the construction cost of two new school buildings. The Court preferred the sellers' expert: those construction costs had nothing to do with earnings, and the buyers' own negotiator had priced the business at 10 times earnings and then added a separate sum for the new buildings. It applied 10, and declined the sellers' invitation to go lower for want of evidence.

The figure multiplied was what the accounts should have shown, not the staffing the buyer later chose. The Court rejected measuring the accounting head by the salaries of two accountants the buyers hired, using instead the share of a central accountant's day spent on the schools, priced by reference to those hires' pay, and said the later hiring of facility managers reflected the buyers' own decision about the level of service.

A balance-sheet overstatement was treated differently. The original reasons multiplied every successful head by 10, including the agreed overstatement of building assets. On the sellers' application to correct an accidental slip or omission, made four days after judgment and answered by no evidence from the buyers, the Court issued an amended judgment on 28 September 2023 multiplying only the earnings heads and deducting the asset overstatement once. That correction increased the sum awarded by more than a quarter.

Key takeaway. In Ajial the multiple applied to earnings only. Understated costs were multiplied by the multiple the buyers had actually used, and, once the judgment was corrected, an overstated asset was deducted only once. Check which kind of item each head is before accepting a buyer's arithmetic.

Can the seller's own warranties defeat the seller's claims?

Yes, and Ajial shows how. The sellers had paid teachers' salaries for the period after completion, following a practice of paying them before the summer holidays, and claimed them back as payments made on the buyers' behalf. The buyers relied on the working-capital warranty, under which the sellers warranted that the company's bank accounts held enough cash at completion to fund all its expenses through 31 August 2019, including monthly expenses. Monthly salaries fell within that, and the claim failed. A seller who pays the company's running costs after completion should first check whether a warranty already promised that the company could meet them.

The sellers' other separate claim fared better. The buyers accepted liability for the cost of keeping certain letters of guarantee in place and disputed only the amount. The Court accepted the sellers' figures as the only evidence it had, gave the buyers credit for a sum already paid, and refused interest because the sellers had not vouched for the payments.

Will the seller recover interest on the withheld price?

In Ajial, yes, from the time the balance should have been paid. The buyers' Kuwaiti law expert said that where the court has to decide a disputed amount, interest runs only from the final ruling. The Court read the experts' joint report as agreeing that if the grounds for withholding were without merit or unjustified, interest runs from the time payment should have been made. It held that the amount due did not depend on its discretion: the hold-back was due on a fixed date subject only to the right to deduct for warranty breaches, the buyers had sought to justify keeping all of it, their case had fallen to about half, nothing had been paid, and only a fraction was justified.

Interest therefore ran on the balance from the end of June 2020 to the end of August 2023, at the undisputed Kuwaiti law rate, with judgment debt interest from the judgment. The Court reached the same decision whether it applied DIFC procedural law or Kuwaiti law.

Common mistake. Withholding the whole hold-back when only part is genuinely disputed. In Ajial the buyers kept back everything, their own claims fell to about half by trial, and interest ran from the due date on the whole balance the Court found payable.

What changes if the agreement is governed by DIFC law?

The agreement's own deduction clause still comes first, but the DIFC Contract Law fills the gaps, and Ajial, decided on Kuwaiti law evidence, says nothing about how. The version the DIFC legal database serves is the consolidated version of March 2024 of DIFC Law No. 6 of 2004, which incorporates amendments made in 2022 and 2024.

Article 11 lets the parties exclude the Law or vary the effect of its provisions except where the Law provides otherwise, so a carefully drafted retention clause governs. Article 91 recognises contractual set-off, created by the contract where there would otherwise be none, and transaction set-off, available where both parties are solvent, both claims arise out of the same or closely connected transactions, and the creditor has defaulted in performing the very obligation for which it seeks payment, even if a claim is unliquidated. Article 118 gives interest on a sum not paid when due, from the due date to payment, whether or not the non-payment is excused, at the average short-term bank lending rate to prime borrowers for the currency of payment at the place for payment. Article 123 sets a six-year limitation period for breach of contract, which the original agreement may shorten to not less than one year but not extend. None of these was applied in Ajial.

What does a buyer need to make a retention stick?

A buyer has a legitimate right to keep back what the agreement allows, and Ajial shows the deductions that held. Each was tied to a defined warranty, proved by evidence the Court accepted or admitted by the sellers, and measured by what the untrue statement did to the price. The heads that failed missed at least one of those steps: a covenant presented as a warranty, a complaint first raised two years late, an audit report with nobody to speak to it, or a loss priced by the cost of staff the buyers later chose to hire.

Two further points protect the buyer's own position. Paying the part that is not genuinely disputed limits the interest exposure, because interest in Ajial ran on the whole balance withheld without justification. And a buyer relying on a breach that is not a warranty breach needs a pleaded counterclaim and evidence of a foreign governing law on set-off, which the Ajial buyers did not have.

The cards restate how the Court turned findings into figures.

What should the seller assemble before demanding the balance?

A file that answers each head in the order the Court will test it.

1. Diary the hold-back due date and every contractual step before it, including any cure period and any last date for notifying losses.
2. Collect every letter in which the buyer raised a complaint, and record for each the date it was first raised, the warranty named and the loss claimed.
3. Check each complaint against the defined warranties, and separate covenant complaints, which on a clause like Ajial's cannot reduce the hold-back.
4. Match each warranty complaint against the disclosure letter and the data room index.
5. For accounts complaints, obtain accounting evidence of what the accounts should have shown, and resist losses priced by staffing the buyer chose to add.
6. Test the buyer's multiple against the one it actually used to price the business, and sort the heads into earnings items and asset items.
7. Review your own claims against your own warranties, especially working capital, before you make them.
8. Demand the undisputed balance in writing with interest from the due date, and line up expert evidence early if the agreement chose a foreign law.

How long did Ajial take, and what happened to the appeal and costs?

More than four years from the due date to the end of the costs dispute. The hold-back fell due in June 2020, the claim form was issued in December 2021, the trial ran for five days from 31 July 2023, and judgment followed on 7 September 2023, amended on 28 September 2023. Searches on 15 October 2026 of the DIFC Courts' published judgments and Court of Appeal listings, and of the Conflicts of Jurisdiction Tribunal's published decisions, found no appeal and no Tribunal decision in the claim. The judgment reserved costs. The sellers applied for their costs in May 2024, and a consent order of 15 October 2024 recorded that the parties had settled all the sellers' costs on confidential terms and that the proceedings were withdrawn or discontinued.

That chronology is one case's, not a forecast. Two related problems sit outside this guide: money held by an escrow agent rather than the buyer, where release also turns on the escrow instructions, and shares transferred for support rather than a cash price. Both are covered in the guides listed below.

What do sellers and buyers in this position get wrong?

The expensive mistakes are about sequence. Sellers tend to argue the merits of each complaint before checking whether it falls within the deduction right and was raised in time, when in Ajial those two questions disposed of parts of the buyers' case without any argument about the schools. Buyers tend to treat a hold-back as security for every grievance about the business they bought, when on a clause like Ajial's it secures warranty losses only. Both sides can leave the governing law too late, though in Ajial the absence of Kuwaiti law evidence ended one argument before it began. Every statement here about Kuwaiti law is the Court's account of the evidence in that case, and the searches for later history are bounded searches of published material, not a court-file certificate.

Frequently Asked Questions

Can the buyer withhold the whole hold-back if its warranty claims add up to more than the hold-back? It can try, but only proved losses within the deduction right count. In Ajial the buyers valued their claims above the whole hold-back and withheld all of it, their own figure fell to about half by trial, and the Court allowed deductions on six of fifteen heads, ordering the balance paid with interest from the time it should have been paid.

Does the transfer of the shares at completion end the buyer's right to rely on the warranties? Not under an agreement like Ajial's, where the warranties were given at signing and repeated as at completion, and the hold-back was payable a year after completion subject to the buyers' right to deduct. What limits the right to deduct is the agreement's own timetable, which in Ajial meant losses had to be known and notified before the hold-back fell due.

Can the buyer deduct for breach of a pre-completion covenant? Not under a clause like the one in Ajial, which limited deductions to losses from breach of the defined warranties. The Court said a buyer could bring a separate damages claim for another breach and, subject to the governing law, set it off, but that needs a pleaded claim and, where the agreement chose a foreign law, evidence of that law on set-off.

What if the buyer raises a new complaint after the hold-back fell due? On the Ajial wording, a complaint raised for the first time after the due date could not justify a deduction, and a fire-safety complaint first notified more than two years later failed for that reason as well as on its merits. Re-labelling an existing complaint under a different warranty was allowed.

Is the buyer's loss the cost of fixing what was wrong with the business? Not necessarily. In Ajial the loss for an accounts breach was the charge that should have appeared in the accounts, multiplied by the earnings multiple used to price the business, and the Court refused to measure it by the salaries of the two accountants the buyers later hired, using their pay only to price the central accounting time the schools had used.

Will I get interest on the part of the hold-back the buyer should have paid? In Ajial, yes, from the time it should have been paid, because the hold-back was a fixed sum due on a fixed date and the withholding was unjustified. Under an agreement governed by DIFC law that says nothing different, Article 118 of the DIFC Contract Law gives interest from the due date whether or not the non-payment is excused, though Ajial did not apply it.

My agreement chooses a foreign law but gives the DIFC Courts jurisdiction. What does that mean in practice? Where the clause is the express written agreement that Article 14(B) of Dubai Law No. 2 of 2025 describes, the DIFC Courts have jurisdiction, but the law you chose still governs the contract. In Ajial disputed points of Kuwaiti law were proved by expert evidence, and the Court refused a set-off argument because no evidence of Kuwaiti law on set-off had been led.

I paid company expenses after completion. Can I claim them back from the buyer? Check your own warranties first. In Ajial the sellers' claim for salaries paid for the period after completion failed because they had warranted that the company held enough cash at completion to fund its expenses through 31 August 2019.

This article is for general informational purposes only and does not constitute legal advice. Consult a qualified advocate for advice on your specific situation.

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