In Idemitsu Kosan Co., Ltd v Sumitomo Corporation [2016] the High Court held that statements of fact warranted by the seller to the buyer in a share purchase agreement were not representations and were therefore not capable of founding an action for misrepresentation.


Idemitsu and Sumitomo are large Japanese companies operating in the energy sector. Sumitomo and its wholly-owned subsidiary, Sumitomo Corporation Europe Limited (SCE), owned the entire issued share capital of Petro Summit Investment UK Limited (the Company) and on 12 November 2009 they entered into a sale and purchase agreement whereby they sold their respective shares in the Company to Idemitsu for around US$575 million (SPA).

Clause 6 of the SPA provided that SCE gave certain of the warranties in Schedule 4 to the SPA and that Sumitomo gave all of the warranties in Schedule 4. ‘Warranties’ was defined to mean the warranties given by Sumitomo in Schedule 4 and the language of clause 6.1 of the SPA was that ‘Each of the Sellers warrants to the Buyer in the terms of the Warranties…’

Idemitsu alleged that some of the matters warranted by Sumitomo were not the case when the SPA was entered into. Critically, however, Idemitsu had not notified Sumitomo of any claim for breach of warranty within the contractual time limit of eighteen months from completion and, therefore, no longer had a right to claim for breach of warranty under the SPA.  Instead, Idemitsu claimed damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967 for losses of US$105.9 million arising from the operation of a floating production, storage and offshore loading vessel.

Idemitsu’s case

Idemitsu argued that the statements of fact in Schedule 4 (the Warranties) were pre-contractual representations made by Sumitomo in order to induce Idemitsu to enter into the SPA. Sumitomo had made the representations by:

  1. providing Idemitsu with a copy of the final SPA prepared for signature and marked ‘Execution Copy’;
  2. offering to sign that final document; or
  3. signing that final document.

In reliance upon and induced by those representations, Idemitsu signed the final document and entered into the SPA.

Sumitomo’s case

Sumitomo applied for summary judgement under CPR Part 24 dismissing Idemitsu’s claim on the basis that it had no real prospect of success.

High Court decision

In reaching its decision the Court considered two primary issues. Firstly, the wording of the SPA and what the warranties were and what they were not. Secondly, what had been communicated by Sumitomo to Idemitsu prior to Idemitsu entering into the SPA.

What were the warranties?

The Court, when analysing the nature of the warranties, characterised them as promises, a contractual guarantee, that on a particular date certain matters of past or present fact concerning the Company, were the case.

There was conflicting authority on whether warranties were only contractual promises or were also representations, in the decisions of Arnold J. in Invertec Ltd v (1) De Mol Holding BV and (2) Henricus Albertus de Mol [2009] and Mann J. in Sycamore Bidco Ltd v (1) Sean Breslin and (2) Andrew Dawson [2012]. In the latter decision, Mann J. declined to follow Arnold J., who concluded in the Invertec case that warranties of past or present fact also amounted to representations of fact and that prior knowledge of the contents of the contract induced conclusion of the contract.

The Court followed the logic applied in the Sycamore case in finding that the warranties in the SPA were warranties and there was nothing in the SPA to suggest otherwise. 

In the Sycamore judgment, Mann J. gave the following reasons for coming to this conclusion:

  1. There is a clear distinction in law between representations and warranties which would be understood by the draftsman of a sale and purchase agreement.
  2. Warranties were strictly described as warranties and nowhere in the Sycamore sale and purchase agreement were they described as representations.
  3. When given their natural meaning the words of the warranty provision were words of warranty not representation. 
  4. The Disclosure Letter (referred to in the Sycamore sale and purchase agreement) distinguished between representations and warranties — “The disclosure of any matter shall not imply any representation, warranty or undertaking not expressly given in the Agreement …”
  5. Clause 8 of the Sycamore sale and purchase agreement contained “significant limitations on liability” in respect of the warranties. On the strict wording of the clause, it would not apply to a misrepresentation and thus significant protections would have been lost if the warranties were also representations.
  6. There was a conceptual problem in characterising provisions contained in the contract as being representations relied upon in entering into the contract. The timing does not work. Normally in a misrepresentation claim, the representation occurs prior to entering into a contract. That problem can be solved by an express provision making certain contractual statements representations. However, that was not the case.

Following Mann J.’s reasoning, the judge said that the act of concluding a contract which includes contractual warranties does not amount to or involve the making by the warrantor to the counterparty of any relevant statement.

Execution Copy representations

The Court considered what pre-contractual communication was made by Sumitomo to Idemitsu by providing the Execution Copy, offering to sign it, or signing it. It was right in principle that language found in the communication of a negotiating position, or in draft wording for a contract, or in an entire draft contract might amount to a pre-contractual representation. That possibility was recognised by the Court of Appeal in Eurovideo Bildprogramm GmbH v Pulse Entertainment Ltd [2002]. But, given the wording of the SPA, the judge said that it was artificial and wrong in principle to read Schedule 4 as a series of statements of fact made by Sumitomo, as if it had an existence independent of its function in the Execution Copy, which was to provide content to the Warranties. Sumitomo’s provision of, or offer to sign, or signature of, the Execution Copy, including the Warranties, cannot give it (Schedule 4) a different character at that stage than it was to have when the SPA was signed.

Sumitomo’s alternative contractual argument

Sumitomo argued, in the alternative, that Idemitsu’s claim had no real prospect of success because it would in any event be defeated either by clause 12.12 of the SPA or by paragraph 2.2(a) of Schedule 6 to the SPA (Limitations on Liability).

By clause 12.12.3(a), Idemitsu acknowledged and agreed with Sumitomo that it had not ‘relied on, or been induced to enter into, this Agreement by any representations, warranties or undertakings of any kind other than the Warranties (as modified by the Disclosure Letter)’. Paragraph 2.2(a) of Schedule 6 provided for the time limit on bringing claims under the Warranties (eighteen months from completion).

Idemitsu argued that clause 12.12.3(a) did not defeat its claim as it expressly saves (ie. did not preclude reliance upon or inducement by) ‘the Warranties (as modified in the Disclosure Letter).’ The Court did not accept Idemitsu’s argument. Reliance upon a representation, the content of which coincides with the content of one of the Warranties, is not the same thing as reliance upon the Warranty in question. The Court concluded that clause 12.12.3(a) was bound to defeat Idemitsu’s claim.

The Court also concluded that the Execution Copy claim was also defeated by clause 12.12.2, which provided that “All prior written or oral understandings, offers or other communications of every kind pertaining to this Agreement are abrogated and withdrawn.”

In relation to whether a claim for misrepresentation based on the alleged representations in Schedule 4 (the Warranties) was a ‘claim’ for the purposes of paragraph 2.2(a) of Schedule 6 (time limit for claims), the judge said that construing ‘claim’ as anything other than a claim under the Warranties as such was a ‘very forced construction’. In any event, the SPA was constructed so that no claims for misrepresentation were available in the first place. The judge, therefore, did not need to form a final view on the point (on the unlikely assumption that the claim could have survived clause 12.12.3(a), contrary to the judge’s conclusion on that point).


The Court concluded that Idemitsu’s claim had no real prospect of success and therefore Sumitomo's application succeeded and there was summary judgment under CPR Part 24 dismissing Idemitsu's claim.


This case reminds contracting parties of the importance of clearly identifying the parties’ intentions as to what is to be warranted and what should amount to a representation. Breach of warranty results in a claim based on breach of contract and the parties placed in the position that they would have been in if the warranty was true. A claim for misrepresentation can result in rescission and the parties returned to their pre-contract position or financial compensation to achieve the equivalent. The financial consequences can, therefore, be quite different.

The case provides an indication as to what view the courts will now take, given the previous conflicting authority. The courts are unwilling to infer representations from warranties provided in a SPA unless there is clear wording. The decision also emphasises the importance of a properly drafted entire agreement clause (clause 12.12 in this case), which was bound to defeat the misrepresentation claim.

Clearly defining warranties in a sale and purchase agreement and using consistent wording will help the seller to ensure that what is intended to amount only to a warranty will not, if false, be actionable as a misrepresentation and carefully drafted contracts are in the interests of both parties.

Finally, the case is a reminder of the importance of being aware of the contractual time limits on actions for breach of warranty under any individual contract.