The distinction between warranties and representations is not always clear. It is particularly important however when you consider that the remedies available for each can result in a substantial difference in the sum recoverable in a dispute situation. This point was highlighted in the recent High Court case of Sycamore Bidco Limited v Breslin  EWHC 3443 (Ch). The decision serves as a useful reminder that you should always be careful to clearly distinguish between warranties and representations in a contract.
Sycamore Bidco Limited (the Claimant) purchased a company from Sean Breslin and Andrew Dawson (the Defendants) in November 2007, for a purchase price of over £16 million. Post-completion, the Claimant discovered various errors in the financial accounts, which they claimed meant that the company had been over-valued and purchased at too high a price.
The share purchase agreement (the SPA) contained several express warranties, for example that the accounts (i) were accurate, (ii) showed a true and fair view of the company affairs and (iii) were prepared in accordance with generally accepted accounting principles. The SPA also contained a warranty that "save as fairly disclosed by the Disclosure Letter, the Warranties are true and accurate in all material respects.".
The Claimant claimed not only for breach of contract, but also for misrepresentation, arguing that each warranty in the SPA was also a representation. The Claimant maintained that the misrepresentation had induced them to purchase the company, which they would not have done had the accounts been correct.
Valuing the claim
Whether or not the warranty amounted to misrepresentation was crucial because the difference in the damages potentially available to the Claimant was substantial. The key is that damages for breach of warranty put the Claimant back into the position they would have been in if the relevant warranties had not been breached, whereas damages for misrepresentation aim to restore the Claimant to their pre-contractual position. In this case the warranty damages claim was for around £6 million, whereas damages for misrepresentation could potentially have been as high as the £16 million purchase price.
The Judge (Mann J) did not uphold the claim for misrepresentation, and found that the warranties were not representations in this case. The salient points which led to Mann J's decision were as follows:
The Claimant could therefore only be awarded damages on the basis that there had been a breach of warranty.
The outcome of this case is perhaps not surprising. However, it turns very much on the facts and in reality, the question of whether a statement is a warranty, a representation or can be construed as both, will depend entirely on the language used within the contract in question on a case by case basis. If you are the party benefiting from warranties, it may be useful to expressly state that the warrantor has made representations in the terms of the warranties which have induced the other party to enter into that agreement. On the other hand, a warrantor should not accept contractual language that purports to blur the line and turn a warranty into a representation (i.e. the old and seemingly innocuous "warrants and represents")!