More Underwhelming English Caselaw on “Warrants”

Via this IP Draughts post, we learn that another English court has held that if a set of statements of fact is introduced by warrants, those statements of fact do not also constitute representations giving rise to a claim for damages under the Misrepresentation Act 1967. Mark notes that this opinion is of limited interest, as it involves only a hearing of an application for summary judgment, before a deputy judge. But it’s still worth noting, as it involves one of my hot-button issues.

The case in question is  Idemitsu Kosan Co Ltd v Sumitomo Corporation [2016] EWHC 1909 (Comm) (27 July 2016). This will give you a flavor:

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.

The judge compared the 2012 High Court opinion by Justice Mann in Sycamore Bidco Ltd. v. Breslin with the 2009 High Court opinion by Justice Arnold in Invertec Ltd v De Mol Holding BV. Offering no relevant analysis, he sided with Justice Mann. Do I care? No. Here’s what I say in my, ahem, definitive article on this topic, Eliminating the Phrase Represents and Warrants from Contracts (here): “Justice Mann’s perfunctory analysis in Sycamore Bidco provides no reason to consign Invertec to oblivion.”

But the holding in Idemitsu Kosan is consistent with the conventional wisdom among English practitioners, who unfailingly quail at the prospect of using represents to introduce statements on fact, on the grounds that doing so would make available the remedy of rescission.

It follows that grousing about English caselaw does no good; instead, this is a drafting problem. The drafters of the contract at issue in Idemitsu Kosan failed. They could have expressed the intended meaning clearly, but instead the parties ended up in litigation. FAILURE.

To avoid this sort of fight, take two steps:

First, purge the one or more verbs used to introduce statements of fact of any implications for remedies. One way to do that is to include the following: The verb [or verbs] used to introduce a statement of fact in this agreement does not affect the remedies available for inaccuracy of that statement of fact. And if you can handle the extreme clarity and novelty, follow me and some of my consulting clients in using states instead of either or both of represents and warrants.

And second, if you want the remedies available under the contract to differ from whatever default remedies might be available under law, then say exactly what remedies you want! Electing instead to use misbegotten code is reckless and pathetic.

As Mark notes in his post, this is sure to come up at the 8 November panel discussion hosted by UCL Faculty of Laws (go here for information). Unless we switch to a bigger venue, it’s likely to be sold out, if it isn’t already.

(By the way, the U.S. caselaw bears no resemblance to the English caselaw. For more about that, see the article I link to above.)

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

5 thoughts on “More Underwhelming English Caselaw on “Warrants””

  1. 1/ When you brush the foam off the beer, aren’t representations and warranties at bottom conditional obligations? Example: ‘If any Widget isn’t new, Widgetco shall replace it with a new one’. Is anything gained by prefacing that statement of conditional obligation by language of declaration to the effect that ‘Widgetco states that all the Widgets are new’?

    2/ Not every false statement of fact in a contract has a ‘remedy’, but it usually has a ‘consequence’. For example, if the falsity of a fact statement in a closing condition lets a party opt not to close, it seems odd to call the right to opt out a ‘remedy’. But it’s a consequence. It seems wiser to speak of ‘remedies for and other consequences of falsity’ or just ‘consequences of falsity’.

    3/ The ‘conditional obligation’ formula doesn’t work if the drafter means not to specify consequences, but to let background law apply. In that special situation, and not otherwise, it’s necessary to identify the declaring party and pick a declaring verb, because (so to speak) background law needs to know who made the false statement in order to prescribe the consequences.

    4/ A good formula for that special situation is: ‘declaring party’ (eg Widgetco) + declaring verb (eg states) + statement of fact (eg ‘all the Widgets are new’). If the drafter wants to expressly leave ‘falsity consequences’ to background law, the drafter should add something like: ‘If any Widget is not new, the law specified in section X of this agreement will apply’.

    5/ The following may be a bridge too far, but isn’t agreement on a remedy just a specialized form of taking on an obligation, with a core logical structure like this: ‘The false declarant shall give the other party the named remedy’?

    6/ Idle curiosity: MSCD seems to eschew the term ‘conditional obligation’ in favour of ‘language of obligation used to express a condition’. Since it seem natural to call an obligation subject to a condition a ‘conditional obligation’, why the circumlocution? I don’t recall seeing an explanation in the book or on the blog. –Wright

    • Wright, thinking about the questions you raise, I am uneasy about the very concept of a conditional obligation. It seems to conflate several different categories.

      (1) X is conditional on Y. Eg closing is conditional on the closing documents being produced. The agreement coming into effect is conditional on the property receiving planning consent.

      There is an issue with this type of condition as to whether there is any express or implied obligation to achieve, or try to achieve, the condition, which should be addressed with explicit wording. But the condition, per se, is simply a switch, which is either flicked or not.

      (2) If X then there is an obligation to do Y. Eg if Brexit occurs, then the parties will renegotiate the contract. If unlicensed competition appears in the market, the licensee is excused from paying royalties. This seems to be what your comments started with.

      (3) An obligation to do X. If X does not occur, then Y (termination, damages, conversion of an exclusive licence to a non-exclusive licence, etc).

      (4) As a sub-set or variant of (3), a promise that X is true. If X is not true, then Y (as in (3)).

      My instinctive view is that “conditional obligation” is not a helpful concept as it is not clear which of the above senses is intended.

      Nevertheless, I have some sympathy with your comments in 1/ about a party declaring that a fact is true, or causing a party to be in breach of contract if a fact (which may be outside the declarer’s knowledge) is not true. It may be better, as I think you are suggesting, simply to state the consequences of that fact not being true. Perhaps a list of facts should be introduced as matters that are important to the other party. Or perhaps we don’t even need that and just need to say the consequences in clause X will flow if any of the statements listed in clause Y are not true.

      • Mark, First, I enjoy your comments on this blog and your posts on the IP Draughts blog. Thank you for them.

        Second, as to substance, I still think ‘conditional obligation’ is an intelligible and useful phrase. But I’ll leave that defense for another day, because my main thesis is what you summarized sympathetically as ‘[we don’t need to list facts, we just need to say] the consequences in clause X will flow if any of the statements listed in clause Y are not true’.

        Exactly so.

        But I think that observation has this corollary: With one exception, never use the formula ‘declarant + verb (= declares, represents, states, warrants) + fact’.

        The exception occurs when the drafter intends to omit from the contract any statement of the consequences of falsity and to leave the consequences to extracontractual background law.

        In that case only, the drafter must identify a declarant, or background law won’t know whom to zap. -Wright

  2. “Representations and warranties are different. A representation is a statement of fact; a warranty is a promise of fact. Admittedly, they can look very similar. Language such as “I am a licensed contractor” could be a representation, a warranty, or both. But despite similarity in appearance, and the occasional difficulty in distinguishing between them, their differences are substantial.”

    Professor Sepeniuk The Virtue of “Represents and Warrants”: Another View
    Stephen L. Sepinuck

    Stephen L. Sepinuck is Professor and Associate Dean for Administration at Gonzaga University School of Law.

    Professor Tina L Stark is among others who disagree with Mr Adams as to the position in the US. Mr Adams’ trenchant views are well known both as to the position in the US and also in the UK.

    I am an English lawyer and make no comment on US law other than to recognise that there is an argument either way and that mere assertions by one person that his view is correct does not make it so.

    The answer is, instead of uninformed criticisms of the English judgments, but to avoid the issue by, as Mr Adams suggests, careful drafting.

    • If you want to play in this sandbox, you’re going to have to do better than cite that article. It’s a sorry piece of work that I’ve made a point of not mentioning previously: it serves up congealed conventional wisdom without offering any support and without considering drafting realities. The same goes for Tina Stark’s arguments.

      “Mere assertions”? Have you read my article on the subject, the one I link to in my post? I assume not.

      You’re wasting your time with uninformed Disgusted-of-Tunbridge-Wells sniping. You’re welcome to instead fire up some brain cells and join me in the marketplace of ideas.


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