Another Depressing English Case on “Warranties”

Via Mark Anderson, I learned of the opinion of the High Court of Justice, Chancery Division, in Sycamore Bidco Ltd v. Breslin. I paid it just enough attention to see that it exemplifies an unhealthy English approach to contract drafting and contract interpretation.

The contract at issue contained the following language:

5. Seller Warranties

5.1 The Sellers severally warrant to the Buyer in the terms set out in Part B of Schedule 4, and the Warrantors severally warrant to the Buyer in the terms set out in Part C of Schedule 4, subject to the provisions of clause 8.

5.2 Each Warranty is to be construed as a separate and independent warranty and, save as expressly provided otherwise in this agreement, will not be limited by reference to or inference from any other Warranty or by any other provision of this agreement and subject to clause 8, the Buyer will have a separate claim for every breach of Warranty ….

Here’s some of what the court had to say:

202. It is to be noted that the claimants do not rely on anything other than the terms of the warranties in the SPA as amounting to representations for this purpose. There is no reliance on any pre-contract representations; the warranties are relied on as both warranties and representations.

203. It does not seem to me that they have that dual quality. I find that they are warranties only, and not representations, for the following reasons:

(i) There is a clear distinction in law between representations and warranties, and that would be understood by the draftsman of the SPA. That is likely to be the case in any transaction of this nature, but is also apparent from the SPA itself. Representations are referred to in clause 16.3, and Warranties (with a capital “W”) are referred to elsewhere.

(ii) The warranties in this case are clearly, and at all times, described as such, and are nowhere described as representations. Those giving the warranties are described as “Warrantors” (again with a capital “W”). The relevant wording is always in terms of warranties.

(iii) The words of the warranting provision (clause 5) are words of warranty not representation. There is a legal distinction between the two and (subject to a point made about a later reference to representations, as to which see below) there is no reason to extend the words beyond their natural meaning. In order to make the relevant material a representation one has to find something in the SPA which is capable of doing that. It is not enough that the subject matter of the warranty is capable of being a representation. One has to find out why those words are there. One finds that in clause 5; and what one finds is words of warranty, not words of representation.

So the court treats warranty as a misapplied term of art. (For more about misapplied terms of art, see this 2012 post.) That’s nothing new: see this 2009 post regarding another comparable English case.

This isn’t a matter of right and wrong. Instead, it’s a matter of which approach to contract interpretation offers the best chance of avoiding confusion.

The literal-minded English approach has simplicity going for it, but that’s outweighed by the fact that it’s inconsistent with how people communicate. That’s why no U.S. court has adopted the approach of the English courts. And that’s why section 2-313(2) of the Uniform Commercial Code states that “It is not necessary to the creation of an express warranty that the seller use formal words such as ‘warrant’ or ‘guarantee’ or that he have a specific intention to make a warranty.”

I won’t trot out my entire analysis here. It features prominently in the forthcoming third edition of A Manual of Style for Contract Drafting. And you can find components on this blog: in reverse chronological order, my three most recent posts on represents and warrants are here, here, and here.

As regards contract drafting, you can rely on misapplied terms of art to convey your intended meaning, or you can make your meaning explicit. To opt for the former approach is to abdicate your responsibilities as a contract drafter.