A recent English High Court decision, while not binding in New Zealand, illustrates the difference between representations and warranties in sale and purchase transactions. The case is a useful reminder to draft warranties and consider the inclusion or exclusion (as the case may be) of representations in such transactions. In Sycamore Bidco Ltd v Sean Breslin ( EWHC 3443 (Ch)), the plaintiff was an acquisition vehicle which acquired the shares in a company called GAS. After the sale, it was discovered that GAS's accounts were materially overstated by 4.3%. The plaintiff argued that the respondent was liable for breach of warranty as to the accuracy of the accounts. The plaintiff also argued that that warranty also acted as a representation, and that therefore it was entitled to claim either contractual damages for breach of warranty, or remedies in tort for misrepresentation (in this case, significantly more than damages for breach of warranty). The High Court of England and Wales rejected that argument.
The respondent argued that the warranties weren't representations as GAS did not state that they "warranted and represented" the state of affairs; they simply "warranted" that the figures were true and fair and had been reached by using generally accepted accounting practices.
Earlier High Court of England and Wales decisions (see for example Invertec Ltd v De Mol Holding BV  EWHC 2471 (Ch) and Bikam OOD v Adria Cable Sarl  EWHC 621 (Comm)) had assumed that it was possible in principle for warranties to also amount to representations. In the present case however the court held that Invertec had been wrongly decided, and failed to mention Bikam OOD.
The court held that the warranties in the agreement were not representations because:
- They were not worded as representations; GAS "warranted" but did not "represent and warrant"
- The agreement limited GAS's liability for breach of warranty but was silent on its liability for misrepresentation. The court thought that it would be a "strange and uncommercial state of affairs" for GAS, or any seller, to limit their liability for warranty claims while remaining liable without limit for misrepresentation
- The court recognised certain conceptual issues with treating a provision in the agreement, which was not expressly recognised as a representation, as a representation that induced entry into that very agreement. Because counsel for the plaintiff did not claim that the representation was made at an earlier time (i.e. before the agreement was signed), the timing did not work for the plaintiff to claim that it had entered into the agreement as a result of the representation having been made.
The court went on to find that the overstatement of turnover was material; that it did not present a true and fair view of GAS's affairs, and was not prepared in accordance with generally accepted accounting principles. Even though the profit and net asset figures were accurate, the plaintiff was awarded £4.75m for breach of warranty.