Warranties and representations

What are “warranties and representations” ?

In everyday business situations the word “warranty” is often used to mean a promise of quality and is often supported by repair or replacement obligations.

 

However, in contract law the same word has been given at least two technical meanings by the courts:

a) an undertaking of fact given under a contract and,

b) a term which is not of fundamental importance to a contract and therefore, unless agreed otherwise, the breach of which will not automatically lead to a right of termination.

 

In relation to the first meaning of contractual undertakings of fact, we often find a heading “representations and warranties” in contracts. Is there a difference between the two? Yes, there is. Although our U.S. cousins may not always be of the sameopinion, under English law a representation is a pre-contractual statement of fact made and constituting an inducement to enter into a contract. A warranty relates to a contractualundertaking.

 

This long-established difference under English law was confirmed recently in the case of Sycamore Bidco Ltd v (1) Sean Breslin (2) Andrew Dawson [2012] EWHC 343 (Ch) where the court held that statements made in a contract were not representations because the parties had not expressly referred to them as such. In the Sycamore case the judge described “a conceptual problem” in treating contractual provisions as representations. In order to make a claim for misrepresentation, it is essential that the claimant was induced by therepresentation to enter into the contract. There is therefore what the judge called “a timing problem” because something that

is contained in the agreement (and therefore has no effect until the agreement is signed) cannotbe said to have caused the agreement to be entered into. However, the judge left open the door to contracting parties

expressly providing that certain statements were to be treated (also)as representations.

 

It is critical in drafting contract to identify where and undertaking is a “warranty” or a “representation” or both. The difference is important since, in addition to any damages awarded, misrepresentations claims, if successful, could lead to a rescission of the contract whereas a breach of warranties could lead at worst to termination.