The U.K. Approach to “Representations” and “Warranties”

Via the InHouse Blog I learned of a briefing paper written by Leon N. Ferera, John R. Phillips, John Runnicles, and Jeffery D. Schwartz of Jones Day entitled “Some Differences in Law and Practice Between U.K. and U.S. Stock Purchase Agreements.”

It touches on various subjects of interest to me, but what caught my eye in particular was its discussion of representations and warranties.

Longtime readers of this blog will be aware that I’ve been waging a battle against use in contracts of the phrases represents and warrants and representations and warranties. (Click here for the relevant post.) We’ve moved beyond the “magic words” approach to contract interpretation exemplified by the 1625 English case Chandelor v. Lopus, and it’s entirely counterproductive to regard these phrases as having any bearing on whether a party can bring an action for misrepresentation or an action for breach of warranty, or both.

Although I’m not sure how many people I’ve won over, for U.S. purposes the law is clearly on my side. I’ve attempted to persuade a couple of U.K. and Canadian lawyers of the righteousness of my approach, but they weren’t convinced. Their approach is summed up in the Jones Day briefing paper:

In the U.K., it is common for the seller to resist giving representations as well as warranties and to delete the word “representation” from the agreement. The deletion of the term “representation” is considered, in some quarters, to minimize the risk of a tortious claim for damages under the Misrepresentation Act 1967 and to remove the possibility that the buyer will attempt to rescind the agreement ab initio under the provisions of that Act.

I’ve been uncertain how to handle this resistance. Given that the “magic words” approach is, as a matter of semantics, indefensible, I was sure that things weren’t as clear cut as my U.K. and Canadian interlocutors were suggesting. But I wasn’t about to embark on extensive research of English and Canadian case law.

Given that context, I was please to see the following in the Jones Day briefing paper:

In reality, the simple categorization of a statement as a warranty (without any further provisions) probably has little bearing on whether the statement is susceptible to being treated as a representation for purposes of that Act. Accordingly, a well-advised seller will always seek to exclude the remedies of tortious claims and rescission by express provision to that effect (see “Pre-Contractual Representations” below), rather than by arguing that those rights are excluded by virtue of simply characterizing the statement as a “warranty” and not a “representation.”

This advice is consistent with one of my mantras: If you want to accomplish a given contract goal, address it directly rather than relying on courts to breathe the intended meaning into obscure language. And it’s enough to allow me to be more assertive in telling U.K. lawyers that it’s wrongheaded for them to rely on the “magic words” approach.

For U.S. purposes, I’ve recommended that one use just representation (and represents). Representation can be used with all assertions of fact, whereas in the U.S. the concept of warranty for the most part applies only in the context of a sale. Also, warranty is unhelpfully broad, in that it can also be used to express an obligation.

I’d like to be able to recommend to U.K. lawyers that they too use just representations rather that representations and warranties or just warranties. I’d be interested to hear the views of U.K. (and Canadian and Australian) lawyers.

It’s clear that such a change would meet with stiff resistance. But since the conventional wisdom is so misguided, a dramatic change is perhaps in order.

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.

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