Can a Warranty Constitute a Representation?

March 10, 2017

Indemitsu Kosan Co Ltd V Sumitomo Co Corp [2016] EWHC 1909 (Comm)

When drafting a purchase agreement for an acquisition, it is usual to include certain warranties and representations that a purchaser may want to rely upon, although sellers will attempt to restrict this by removing any ‘representation’ language. In law there is a clear distinction between the two as follows:

Warranty – a contractual term, under which if the warranty is not performed, the purchaser may claim for a breach of warranty. The remedy for a breach of warranty is damages where the intention is to place the claimant in the position had a breach of warranty not occurred.

Representation – a representation is a statement of fact. If a representation is false and the purchaser relies on it, then there is a potential claim for misrepresentation and the contract may be rescinded.

There is however, conflicting authority as to when warranties could amount to representations. In Invertec Ltd v De Mol Holding BV [2009] it was held that warranties were also representations, whereas in Sycamore Bidco Ltd v Breslin & Anor [2012] it was held that express warranties did not constitute a representation and there was no reason to extend the words beyond their natural meaning.

In the Indemitsu Kosan case, the share purchase agreement included warranties, of which it became apparent post completion were untrue. The claimant was unable to bring a claim for breach of warranty as they were outside of the limitation period defined in the agreement and so decided to bring an action for misrepresentation in which the limitation period did not apply, on the grounds that representations were contained within the warranties and were capable of founding an action for misrepresentation.

The court granted a summary judgment dismissing the purchasers claim and found the following:

It is not enough that the subject matter of a warranty is capable of being a representation;
There will be no provision in the absence of an express provision; and
The agreement and warranty schedule is to be read as an entire document.

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