A temporary resolution has been found to the liability cap impasse between the Big Six and the venture capital industry, allowing deals to proceed by deferring legal argument on due diligence liability until a real problem emerges.
The breakthrough involves venture capital firms effectively claiming that they have signed contracts under duress.
The British Venture Capital Association is advising members who sign an engagement letter that incorporates the Big Six’s non-negotiable terms – a cap on liability and a proportionality clause – to send a side letter to the accountancy firm.
In the letter the BVCA member would say that the main agreement had been signed ‘only because you have insisted that you are unable to agree to any other (in our view, more appropriate) provisions without breaching the agreement which you have entered into with your competitors’.
The draft letter continues: ‘We do not consider that the terms on which you have insisted are fair or reasonable and we reserve all rights we may have to challenge the same.
‘We strongly object to the fact that you are unable to agree to terms other than those set out in the Agreement, which we regard as anti-competitive.’
If necessary, the letter will allow the venture capital firms to argue later in court that they had no choice but to sign unfair contract terms, and to ask the court to overturn the agreement and impose fairer terms.
KPMG partner Alan Comber, the ‘unofficial’ chairman of the Big Six working group, said that this was a ‘sensible’ way for business to proceed with BVCA members.
Agreeing to differ, see analysis page 6.