Entire Agreement clauses; the last word

Dispute Resolution - 1 minute read

In this recent case, the High Court considered whether warranties made about a company being sold to the buyers were also representations.

The difference is important; each gives rise to very different remedies. For misrepresentation you can argue for rescission (undoing the contract) and for breach of warranty, financial compensation. The distinction was critical here, because the two claims had different time-frames within which proceedings could be brought. Under the contract, the time-frame for breach of warranties had expired. A misrepresentation claim could, however, still be brought. The buyer argued that the statements of fact in the warranties were also representations.  The court held that, in principle, it is possible for communications in negotiations or a draft contract being circulated to amount to an actionable pre-contractual representation. But in this case, it held that the warranties were not representations of fact. 

Lessons? When selling, have a robustly drafted Entire Agreement clause that puts beyond doubt that any statements made previously are superseded by the sale contract.

The case: Idemitsu Kosan Co Ltd v Sumitomo Co Corp [2016] EWHC 1909

Sellers of shares in a company should ensure that the share sale agreement does not say or imply that warranties given by the seller are also representations, and that it contains a robust 'entire agreement' clause - or risk being liable for misrepresentation as well as breach of warranty if the warranties are false