Representation or Warranty?

A recent English High Court decision reminds us the vital differences between representations and warranties – features that are commonly, but unwisely, glossed over when drafting agreements.

Sycamore Bidco Ltd v Breslin involved the sale and purchase of a company by shares. After completion of the transaction, the buyer discovered errors in the target company’s audited accounts, resulting in an overvaluation of the target company and an inflated purchase price. The relevant accounts were the subject of express warranties in the share purchase agreement (SPA) as to their accuracy. The buyer sued for breach of warranty and claimed, in the alternative, that the breached warranty was also a false representation that had misled him into entering into the SPA.

For the buyer’s claim for breach of warranty, the maximum claim for damages was around £6 million. Had the alternative claim for misrepresentation succeeded, damages may have equalled or exceeded the purchase price of £16.75 million…

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