Share Purchase Agreement

Can a Warranty Clause in a SPA (Share Purchase Agreement) Also Be a Representation?

A breach of a warranty or representation in a share purchase agreement can have serious consequences. Read on to know more!

A well-known case, Sycamore Bidco Ltd v. Breslin (2012), analyzed the same question of whether the warranty clause in a SPA can be considered as a representation. Apart from this clause, there are many important clauses in the share purchase agreement. 

Sycamore Bidco Ltd vs Breslin [2012] 

In this case, the High Court considered whether the express warranty clause in SPA could also serve as the foundation for a claim of misrepresentation. Although both are often listed together in the contract clauses of a share purchase agreement. 


A party’s representation of fact or opinion is referred to as a representation. It typically serves as a pre-contractual statement rather than an actual contractual term. The person receiving the representation may be entitled to a countermeasure for misrepresentation. Furthermore, the contract may be void in the event of a breach of representation. The contract could be revoked in this case. Also returning the parties to their pre-contract positions or damages could be given as possible countermeasures.


An assurance or guarantee made in a contract is known as a warranty. Only damages can be sought as compensation for a warranty breach. Damages are assessed to place the claimant in the same position as it would have been in if the guarantee had been upheld. 

Facts Of The Case

The facts of the Sycamore case are the ones available after their acquisition. The target company’s buyers claimed they discovered mistakes in its finances. The value that the buyer placed on the discrepancy was that the turnover was about £300,000 over-estimated. The relatively standard warranty clause in a SPA stated that the accounts had been prepared under generally accepted accounting practices.  Also said that they ‘showed an accurate and fair assessment of the situation as of the day they were created, including profits’

The buyer, therefore, filed a lawsuit for breach of warranty (worth around £6 million). But he also added that the breach of the warranties was a misrepresentation that had persuaded it to complete the acquisition. 

Warranty & Representation Damages

Damages for a warranty breach are meant to put the party who was mistreated in the same situation as if the warranty had been true. If the buyer had known the accurate turnover data, the relevant amount in this scenario would have been the price reduction that the buyer would have anticipated paying. 

According to calculations that were made by using the financial models of the private equity firm, it was used to estimate an initial offer price, which came to be approximately £4.75 million. Damages for misrepresentation are meant to put the party back in the same situation as if the misrepresentation hadn’t been made.

In this case, the buyer argued that if they had been aware of the actual turnover figures,  they would not have agreed to the contract at all and the amount of the damages would have been the same as the cost of the acquisition.

 Because of this, the buyer could expect to recover about £12 million in this case. In the case of a stock or membership interest sale, the seller’s representations and warranties referred to assurances in the firm and, in some cases, the seller’s equity stake in the business. The main objective of seller warranties and representations is to transfer risk from the customer to the seller. 

Court Judgment 

In this case, The High Court ruled that the express warranties were just warranties and did not include representations. The following are the reasons the Court provided for finding a warranty breach: 

  • The share purchase agreement (SPA) and disclosure letter both clearly stated and identified the warranties as such. There was a discrepancy between warranties and representations in the disclosure letter
  • There were significant limitations on liability under the warranties in the SPA. Also, there was no such protection against misrepresentation
  • The judge noted that the warranties could serve as representations as well
  • Then based on this wording, the sellers would have been left without a substantial part of their protection, and they stated that this is an unusual and uncommercial state of events that hardly seems to have been planned

Misrepresentations typically come from a statement made to induce the signing of a contract by a third party. The judge ruled that the timing in this case “does not work”. Since the claimant could not have been persuaded to sign the contract since the only representation claimed is to be found in the contract itself. 

The Court further reviewed the expertise of the finance director who had prepared the accounts. Other management members who were aware of the facts leading to the warranty breach could be considered to have ‘actual knowledge’. ‘[Newco] was actually aware of the facts that truly constituted a claim for breach of warranty and no culpability under the warranties in that regard,” the SPA states’.

The Court ruled that the knowledge they had acquired while serving as directors of the target would not ‘suddenly magically be treated as knowledge of [Newco] for purposes of the SPA’.

It was acknowledged that this defied common sense and, if the point were to be accepted, would render guarantees mostly useless. This case made it clear that it is important to consider the warranties and disclosures that are a crucial component of business sales seriously. And the potential consequences of not giving the subject enough thought were also seen.


It is clear from the Sycamore Bidco Ltd v. Breslin [2012] judgment that certain and precise, language is required to prevent warranties from giving rise to accusations of misrepresentation. If warranty clauses in a SPA are meant to be relied upon as representations, this must be made very clear, along with the necessary limitations. 

Otherwise, you need to eliminate any language that implies a representation. In other words, the contract should clearly specify the parties’ intentions. They should also express if they want guarantees in the agreement to also be enforceable as representations. Our experienced legal experts at Vakilsearch can be your best bet to make your SPA agreement pitch perfect and help your share transaction be completely hassle-free.


Also read

Why Are Waiver & Amendment Clauses Important In A Share Purchase Agreement?



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