Under Dutch Caribbean law, the term warranty is not a clearly defined legal concept. A warranty is a contractual provision that must be interpreted in order to establish its exact meaning and legal consequences, whereby the literal wording is not decisive per se. It is equally important which meaning the parties could reasonably ascribe to (the provisions in) the agreement in the given circumstances, and what they could reasonably expect from each other in that respect (the so-called Haviltex standard). Often, a warranty will be a statement about the existence or absence of certain facts and/or circumstances. A selling party is expected to at least issue warranties regarding its own authority, the target company and the shares. In addition, one can think of issuing a balance sheet warranty, warranties with respect to (material) contracts and disputes, and a general information warranty (for example, the warranty that the seller has shared all relevant information with the buyer and that all information shared is accurate, complete and not misleading). Which warranties are relevant and ultimately included depends on the specific business and the negotiation process between the seller and buyer.
For indemnities it is also true, that they are not clearly defined concepts under Dutch Caribbean law and that such contractual arrangements must be interpreted to determine their meaning and legal effect. With indemnifications, one can think, for example, of general indemnifications such as with respect to tax matters (e.g., that the company has paid all tax which has become due, made all tax returns and generally complied with all requirements of tax legislation). But also indemnifications for specific risks that emerged during the due diligence. It can then be agreed in the purchase agreement that a (possible) financial obligation of the target company (in case the specific risk actually manifests itself) will be passed on to the seller, thus placing the risk on the seller instead of (indirectly) on the buyer.
While warranties and indemnities both aim to transfer a financial risk to the seller, there are also important differences. For example, unlike a warranty, an indemnity usually refers to a specific event that is foreseeable at the time the purchase agreement is entered into that will have adverse financial consequences for the target company. Another difference is that, unlike in the case of an indemnity, knowledge of the buyer (e.g., by performing due diligence) adversely affects the scope of a warranty, meaning that a buyer cannot invoke a warranty in the event information in respect of such warranty is disclosed during the due diligence. One should be well aware of these and other nuances when drafting or reviewing a share purchase agreement under Dutch Caribbean law.