What are warranties?

Thank you to Tim Gower, Solicitor, at berg who has written this article for us on what exactly a warranty is.

A recent High Court case has clarified what exactly a warranty is. The facts and context of the case were quite technical, but stripped back, the below explanation of what a warranty is should prove quite useful.

The starting point is the definition of a warranty which, put simply, is essentially a promise that is enforceable against a person who provides one by way of a claim for “breach of warranty”. When warranties are given, sometimes there are limitations on bringing a warranty claim, both in terms of time, and loss flowing from, any breach of warranty.

Warranties are statements of fact and may cover many things. For example, in the context of the sale of a business, the buyer may seek a warranty from the seller that the business being purchased is not involved in any active litigation.

By their nature warranties are also statements of fact e.g. ‘the business is not involved in any active litigation’. So, do warranties “double up” as representations?

A representation is a statement of fact which, if false, may give rise to a claim against the person who made it for “misrepresentation”.

Getting into the technicalities, a claim for misrepresentation would typically have to be brought within 6 years of the date on which the cause of action arose. This would normally outlast the time within which a warranty claim may be brought, due to the limitations that are usually placed on bringing such claims (referred to above). So, if a warranty claim is not brought within the period it must be brought within, is it possible to sue on a breach of the warranty being a misrepresentation instead?

The Courts have wrestled with this argument and there has been a lack of clarity for some time, but the High Court in Idemitsu Kosan Co Ltd v Sumitomo Co Corp [2016] EWHC 1909 (Comm) has come up with a more definitive answer - no.

The Court said that ‘where a contractual provision states only that a party is giving a warranty, that party does not, by concluding the contract, make any statement to the counterparty that is actionable as a misrepresentation’.

So, what is a warranty? A warranty is only a warranty if in the circumstances it says it is only a warranty. If the context allows for a warranty to be interpreted as a warranty and a representation, a breach of such a term is more likely to be actionable as both a breach of warranty and as a misrepresentation. In other words, as always, what a contractual provision amounts to is a matter of interpretation.

To find out more about the issues raised in this post, or to discuss any queries regarding warranties get in touch with Tim Gower or call 0161 464 8759.