Warranties and representations often appear in legal documents and may appear to be much the same thing. If you think that, beware!
A case decided by the Courts in 2012 (Sycamore Bidco Ltd v (1) Sean Breslin (2) Andrew Dawson 2012) decided that the difference was worth just over £12 million.
Warranties and representations are often used in the documentation concerning the sale of a business.
A warranty is a statement in a contract that typically sets out assurances about the state of a business. A representation is a statement which causes another party to enter into a contract. The important distinction between the two, and the one which allowed the buyer in the Sycamore Bidco case to re-claim £4.5million instead of £17 million, is that a warranty claim is based on contract and the buyer has to show that as a result of the statement being incorrect the buyer has suffered a loss – the buyer can then claim the loss which in the 2012 court case was valued at £4.5 million.
A representation claim is a claim where the buyer says that without that representation it would not have proceeded with the purchase and therefore would be entitled to un-do the contract and have the purchase price re-paid (in the Sycamore Bidco case, the £17 million).
In any situation where businesses are being bought or sold it is important to pay close attention to the exact drafting used in the sale documents and if you are thinking of buying or selling, or consider that what you thought you bought is not quite what you actually bought then please contact our team and we will be pleased to advise.