Pillsbury Winthrop Shaw Pittman

‘Reps and warranties’: one could cost more than the other under English contract law

By Raymond L Sweigart and Christopher D Gunson

Contractual representations and warranties are often grouped together, referred to in shorthand as ‘reps and warranties’. The differences between the two concepts are often forgotten, but the distinction is important: a representation is a statement of fact made by one party to another party that, if untrue, may create grounds for a claim under tort for misrepresentation; a warranty is a contractual promise that, if untrue, may create a cause of action for breach of contract.

The measurement of damages for each cause of action is different, and a failure to appreciate the distinctions when entering into a contract governed by English law could be quite expensive, as recently illustrated by the English High Court decision in Sycamore Bidco Ltd v Breslin & Anor, [2012] EWHC 3443 (Ch).

According to the findings of Mr Justice Mann, the claimant Sycamore was formed for the special purpose of acquiring from the defendants all the shares in a private limited company known as Gissings Group Ltd, the principal asset of which was an operating subsidiary known as Gissings Advisory Services Ltd, for an amount in excess of £16m. The share purchase agreement (SPA) contained an express warranty that the acquired company’s accounts gave a true and fair view of the company’s finances and had been prepared in accordance with generally accepted accounting principles…

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