Breach of warranty is not misrepresentation
12 / 08 / 2016
In the recent case of Idemitsu Kosan Co Ltd v Sumitomo Co Corp, the buyer in a share purchase agreement alleged that some of the warranties given by the seller were untrue as at the date of completion. Despite the statements of fact being designated as warranties, the buyer claimed that they also amounted to representations capable of founding an action for misrepresentation.
The court granted summary judgment dismissing the buyer’s misrepresentation claim. It held that where a contractual provision states only that a party is giving a warranty, that party does not, by concluding the contract, make any statement to the counterparty that is actionable as a misrepresentation. While, in principle, language used in the communication of a negotiating position or draft contract might amount to an actionable pre-contractual representation, contractual warranties in the SPA concerning matters of fact did not amount to representations of fact.
- Keep an eye on warranty periods in the SPA – the buyer was unable to pursue a more straightforward claim for contractual breach of warranty on the basis that it was time-barred by the terms of the SPA;
- Consider a professional negligence claim if the advisers should have made the client aware of the relevant time period for breach of warranty claims.