Share purchase agreements – when is a warranty a representation?
06 December 2016
When buying or selling company shares, the share purchase agreement (SPA) will contain extensive warranties and representations about the company which the seller will make to the buyer. A breach of a warranty or representation can have serious consequences so they should be considered carefully.
Contractual promises
A warranty is a promise which is made in a contract by one party to another, while a representation is a statement of fact made by one person to another which induces the other to enter into a contract.
This distinction is important because damages for a breach of warranty and damages for misrepresentation are calculated differently – generally speaking, a claim for misrepresentation will be more favourable to a buyer of shares than a claim for breach of warranty.
Warranties by their nature are also statements of fact, eg “there are no litigation claims in the company”.
Can a breach of warranty also be a misrepresentation?
In the case, Idemitsu Kosan Co. Ltd v Sumitomo Corporation, a buyer of shares discovered that one of the warranties was untrue and tried to claim that the warranty was a representation as they were time-barred from bringing a warranty claim under the SPA.
The court held that a warranty contained in a share purchase agreement does not automatically amount to a representation by its mere insertion in the SPA. In order for a warranty to be a representation, it is important that the representation is communicated before the contract is signed.
What is clear from the decision is that it is likely to be difficult to bring a successful claim that a breach of a warranty in the SPA is also a misrepresentation, if the SPA does not expressly include a provision that the warranties are also to take effect as representations.
Entire agreement clause
A seller of shares should therefore not agree to such a provision and, furthermore, should ensure that the SPA includes a comprehensive ‘entire agreement’ clause so as to exclude any claim for misrepresentation, whether arising from pre-contractual statements or from the warranties.
Do you have any other questions? If so, be sure to get in touch. Our team of expert lawyers will be more than happy to help.
Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
For almost three decades, Willans has advised a nationally renowned specialist in trade supply and home and commercial improvements. Here, in the first of a series of articles, we reflect…
We’re excited to announce our official partnership with Gloucester Rugby, which has been confirmed for the next three seasons. The partnership will include providing legal advice on commercial matters such…
The autumn budget has brought about a number of changes, some of which relate to inheritance tax and agricultural and business property relief, as well as employers’ national insurance contributions…
By clicking Accept you are agreeing to the use of all cookies which will allow us to provide you with the most relevant experience when visiting or re-visiting this website. This means that your personal preferences will be remembered when you use this website. You can change your consent or choose specific settings by clicking "Cookie Settings". By clicking "Reject All" we will not use any non-essential cookies. Essential cookies will still be used for the website to function properly. Please see our cookie policy and privacy notice for more information about how we process your personal data.
Our website uses cookies to improve your experience while you navigate through our website. Out of these cookies, the cookies that are categorised as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyse and understand how you use our website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies but it may affect your browsing experience on our website. You can find our cookie policy here.
Necessary cookies are absolutely essential for our website to function and enable core functionality such as security and accessibility. These cookies do not store any personal information. You can block these cookies by changing your browser settings, but this may affect how the website functions.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Cookie
Duration
Description
__cf_bm
30 minutes
This cookie, set by Cloudflare, is used to support Cloudflare Bot Management.
mgref
1 year
This cookie is set by Eventbrite to deliver content tailored to the end user's interests and improve content creation. It is also used for event-booking purposes.
yt-player-headers-readable
never
The yt-player-headers-readable cookie is used by YouTube to store user preferences related to video playback and interface, enhancing the user's viewing experience.
yt-remote-cast-installed
session
The yt-remote-cast-installed cookie is used to store the user's video player preferences using embedded YouTube video.
yt-remote-connected-devices
never
YouTube sets this cookie to store the user's video preferences using embedded YouTube videos.
yt-remote-device-id
never
YouTube sets this cookie to store the user's video preferences using embedded YouTube videos.
yt-remote-fast-check-period
session
The yt-remote-fast-check-period cookie is used by YouTube to store the user's video player preferences for embedded YouTube videos.
yt-remote-session-app
session
The yt-remote-session-app cookie is used by YouTube to store user preferences and information about the interface of the embedded YouTube video player.
yt-remote-session-name
session
The yt-remote-session-name cookie is used by YouTube to store the user's video player preferences using embedded YouTube video.
ytidb::LAST_RESULT_ENTRY_KEY
never
The cookie ytidb::LAST_RESULT_ENTRY_KEY is used by YouTube to store the last search result entry that was clicked by the user. This information is used to improve the user experience by providing more relevant search results in the future.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Cookie
Duration
Description
_ga
2 years
The _ga cookie, installed by Google Analytics, calculates visitor, session and campaign data and also keeps track of site usage for the site's analytics report. The cookie stores information anonymously and assigns a randomly generated number to recognize unique visitors.
_gat
1 minute
This cookie is installed by Google Universal Analytics to restrain request rate and thus limit the collection of data on high traffic sites.
_gid
1 day
Installed by Google Analytics, _gid cookie stores information on how visitors use a website, while also creating an analytics report of the website's performance. Some of the data that are collected include the number of visitors, their source, and the pages they visit anonymously.
_s
1 year
This cookie is associated with Shopify's analytics suite.
G
1 year
Cookie used to facilitate the translation into the preferred language of the visitor.
vuid
2 years
Vimeo installs this cookie to collect tracking information by setting a unique ID to embed videos to the website.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Cookie
Duration
Description
VISITOR_INFO1_LIVE
6 months
YouTube sets this cookie to measure bandwidth, determining whether the user gets the new or old player interface.
VISITOR_PRIVACY_METADATA
6 months
YouTube sets this cookie to store the user's cookie consent state for the current domain.
YSC
session
Youtube sets this cookie to track the views of embedded videos on Youtube pages.