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What is a contractual warranty or representation and what happens if these are breached?

Contract disputes | Dispute Resolution & Litigation

What are Warranties?

Purpose of a contract warranty

In usual course the Vendor will provide a contract warranty under a Jersey contract for the purpose of providing protection for the Purchaser against the risk of unknown liabilities. They will provide written assurances from the Vendor to the Purchaser as to the condition of the company, business or asset that is being purchased.

Remedy for breach of a contract warranty 

In circumstances where the Purchaser discovers after completion that assurances are shown to be untrue, the Purchaser will have a claim for contractual damages to the extent that it can prove loss resulting from the breach of warranty.

What are Representations?

Purpose of a representation

A representation is a statement of fact made by the Vendor which induces the buyer to enter into the contract.

Remedy for breach of representations

In circumstances where the representation is untrue, the Purchaser may make an application to set aside the contract and/or claim damages for any resulting loss. An award of damages in this case is to restore the Purchaser to the position that it would have enjoyed had the misrepresentation never been made.

Can a Jersey contractual warranty also amount to a representation?

The Purchaser’s lawyers will often draft a contract on the basis that the warranties are also representations. As such, in these circumstances the Purchaser may have a claim under both heads.

What happens if the Vendor’s lawyer removes reference to the warranties also being representations?

There is scant authority in Jersey on the issues as to the impact and implications as to the removal of mention of representations from the SVA.  If one looks in to England & Wales on the subject, the question also appears not to have been resolved. The closest to a clarifying decision was in the case of Indemitsu Kosan v Sumitomo. This case determined that if mention of representation was removed from the contract it was held not be actionable as a misrepresentation. The buyer could only action on warranty breach. Whilst the decision appears sound, this case was heard in the High Court and, as such, is not necessarily a final determiner of the position.

Does it matter?

Understanding and differentiating between Representations and Warranties can make a big difference on the way that a claim is argued in the Royal Court, the remedies available and the amount of damages that can be claimed.

A successful claim under Mis-Representation

A successful claim may allow the buyer to rescind the contract.  The effect of rescission is to put the parties in the position they would have been in prior to the contract being made.

A successful claim for breach of Warranty

A breach of warranty would not normally entitle the buyer to terminate the contract.  The buyer would only be able to claim damages.

For further information on breach of contractual warranties and or representations contact the Parslows Jersey dispute Resolution and litigation team on + 44 01534 630530.

Please note that the information provided on this website is for general information purposes only and is designed to provide you with an outline of the legal services we offer.  Whilst we endeavour to ensure our information is correct and useful, we make no representations or warranties regarding the accuracy or completeness of the information offered.  Information on our website does not constitute legal advice and Parslows Jersey accepts no liability for any loss or damage arising out of, or in connection with, the information found in this website.  Please consult a lawyer at Parslows Jersey in the event that you require professional assurance that our information, and your interpretation of the same, is correct.

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