Abdulali Jiwaji and Bruno Rucinski examine warranty and misrepresentation claims in Thomson Reuters WestLaw

Sale and purchase agreements (SPAs) are often heavily negotiated. Buyers will typically spend a great deal of time obtaining assurances from the seller as to the nature and value of the assets or shares being sold. The terms of those assurances can be critical to the buyer’s decision, the structuring of the transaction and the consideration paid.

Sellers commonly give assurances in the agreement by way of warranty, and representations about the business may also be made during negotiations (which may or may not find their way into the final written agreement). What happens when the buyer later discovers that what it has acquired is not quite what it expected?

This article summarises the distinction between warranties and representations, concepts which can look similar in practice but carry materially different legal consequences, and sets out practical considerations when pursuing (or defending) post-completion claims, including the interaction between contractual and tortious remedies and the risks of fraud allegations. (Indemnities may also be given by the seller as a further risk-allocation tool but these are outside the scope of this note.)

Overview of Topic

.A warranty is a contractual promise. In a sale transaction, the seller will commonly give warranties in the SPA as to (for example) the target’s accounts, forecasts, compliance, employees and intellectual property. These assurances will have an impact on how the company is valued by the prospective buyer. If a warranty is breached, it gives rise to a claim in contract and (subject to the SPA’s contractual scheme) damages.

A representation is a statement of fact, law or opinion generally made before the contract is formed (though it may be incorporated into the SPA itself). If a pre-contractual representation is false, it may give rise to tortious liability for misrepresentation; and if incorporated as a contractual term, it may also found a contractual claim.

There are three types of misrepresentation:

• Fraudulent misrepresentation (founded on the tort of deceit), which occurs where a false representation is made knowingly, or without belief in its truth, or recklessly as to its truth;
• Negligent misrepresentation, either at common law (where a duty of care arises) or under s.2(1) of the Misrepresentation Act 1967 (where a contracting party makes a false statement without reasonable grounds for believing it true); and
• Innocent misrepresentation, where a representation is neither fraudulent nor negligent.

For a misrepresentation to be actionable, it must have induced the representee to enter into the contract. Remedies depend on the type of misrepresentation: rescission (subject to bars) and damages are available for fraudulent and negligent misrepresentation; and for non-fraudulent misrepresentation, including innocent misrepresentation, the court may award damages in lieu of rescission under s.2(2) of the Misrepresentation Act 1967.

Practical points

From the outset, for a buyer contemplating bringing a claim for breach, it will be crucial to map the potential causes of action onto the SPA architecture, analysing: (i) which statements are warranties only; (ii) which statements are expressly repeated as representations (if any); and (iii) which pre-contract materials could realistically be pleaded as representations. A careful analysis will reduce the risk of wasted efforts, for example pursuing a misrepresentation theory that may be neutralised by non-reliance language in the SPA.

Why does it matter?

• Equally, the early investigation by the buyer (and any responsive investigation by the seller) will need to focus on evidence gathering as to questions of inducement and knowledge/awareness, which will be key.

Why does it matter?

• Although warranties and representations can look similar (and the distinction may be blurred by drafting), the classification can have material consequences for limitation, contractual time-bars and the measure of damages.
• The burden of proof also differs. In a warranty claim, the buyer must prove breach, loss and causation. In a claim under s.2(1) of the Misrepresentation Act 1967, the buyer must prove a false representation, inducement and loss; the burden then shifts to the representor to show it had reasonable grounds for believing the statement was true. In addition, damages under s.2(1) have been treated as assessed on the same basis as deceit (rather than ordinary negligence), which can be materially claimant-friendly (Royscot v Rogerson [1991] 2 Q.B. 297).

Limitation and notice periods

1. A warranty claim (in contract) must generally be brought within six years of breach (or 12 years if the relevant obligation is contained in a deed). However, SPAs commonly impose shorter contractual notice and limitation regimes for warranty claims; courts will usually enforce them according to their terms and expect actual compliance, so long as the drafting is clear and not out of line with statutory controls (e.g. reasonableness controls where applicable).
2. In Arani v Cordic Group Ltd [2021] EWHC 829, the SPA permitted the seller to release funds from a retention account unless the buyer served a compliant notice within 16 months. The buyer’s purported notice was sent one day after the contractual notice period expired and was equivocal (reserving rights and suggesting only that a claim might be brought), and it failed to provide the required particulars. It was held invalid.
3. A later decision in the same proceedings shows the narrow circumstances in which such regimes may be avoided. In Arani v Cordic Group Ltd [2023] EWHC 95, although the warranty claim was outside the SPA’s 16-month notification regime, the SPA contained a carve-out disapplying that regime where the claim arose (or was increased/delayed) by fraud or wilful misconduct/concealment/misstatement. The Commercial Court held that the carve-out is not engaged merely because the background involves wrongdoing against a third party: the focus is on whether the sellers themselves dishonestly or wilfully gave the relevant warranties (or concealed/misstated the relevant facts) such that the breach falls within the carve-out (requiring proof against each seller). On the facts, the carve-out was satisfied and the claim was not time-barred.
4. Indeed, where the SPA requires particular content, the court will enforce that bargain. In Decision Inc Holdings Proprietary Ltd v Garbett [2023] EWCA Civ 1284, a clause requiring notice summarising the nature of the claim and (so far as reasonably practicable) the amount claimed required the buyer to state the amount claimed in respect of each alleged breach (not merely an omnibus figure), and non-compliance barred the relevant claim. Similarly, in Teoco UK Ltd v Aircom Jersey 4 Ltd [2018] EWCA Civ 23, a requirement for “reasonable detail” including the grounds of the claim was, on that wording, ordinarily satisfied only by identifying the specific warranty/covenant provisions relied upon; a generic reference to the agreement and attachments was insufficient.
5. By contrast, newer authority emphasises that broadly-worded notice requirements should not become a technical minefield. In Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd [2024] EWCA Civ 477, the Court of Appeal construed the notice clause by reference to its commercial purpose and resisted importing additional technical requirements (for example, that the notice must spell out the legal valuation basis later relied upon). In Learning Curve (NE) Group Ltd v Lewis [2025] EWHC 1889, the Commercial Court likewise warned against over-reliance on snippets from other cases on different drafting, and held that a clause requiring details of the “nature of the claim” and the “facts and circumstances giving rise to it” did not, on its wording, require the notice to identify each warranty by number. Further, in Dodika Ltd v United Luck Group Holdings Ltd [2021] EWCA Civ 638, the Court of Appeal held that a requirement for “reasonable detail” should be construed purposively, by reference to the clause’s commercial purpose and the factual context, including what the recipient already knew. A notice is not required to set out unnecessary detail where it would serve no commercial purpose.
6. Contractual notice regimes generally do not apply to tort claims for misrepresentation unless the SPA specifically provides for this. The limitation period for misrepresentation claims is generally six years from accrual (s.2 Limitation Act 1980), which would require analysis of when loss was first suffered (often the date of the contract). Fraud claims may be subject to an extended limitation period under s.32 of the Limitation Act 1980, so that time runs from discovery of the fraud/concealment or when the claimant could with reasonable diligence have discovered it.
7. Contractual notice periods do not apply to claims in tort for misrepresentation. In this case, the claim must normally be brought within six years of the date on which the cause of action accrued (Limitation Act 1980 s.2), and this requires a determination of when damage/loss is first sustained. This will often be when the contract is signed, so no different to the contractual period, but in some situations it might be possible to show that the damage occurred at a later date than the breach of contract.

Practical points:

• The buyer will need to run a “three-clock” analysis immediately on discovery of an issue: (i) contractual notice content/service requirements; (ii) contractual long-stop/time-bar; and (iii) statutory limitation for tort/misrepresentation (including whether any postponement arguments are even arguable). This needs to run alongside investigation and merits analysis.
• As a matter of good practice, any contractual notice should be approached almost as a mini-pleading exercise: work clause-by-clause through the SPA’s defined terms and notice requirements, and for each claim identify: (i) the specific warranty relied upon; (ii) the factual breach and relevant dates; (iii) why it is said to give rise to liability; and (iv) the loss claimed—ideally broken down claim-by-claim with a stated estimate where required (or, if genuinely not practicable, explain why and give the best good-faith estimate available). Sellers will of course look to identify defects in the content of a contractual notice when measured against the SPA requirements.

Disclosure as a defence to warranty claims

1. SPAs commonly provide that the seller is not liable for breach of warranty to the extent the relevant facts were “disclosed” (often by reference to a disclosure letter and/or a data room). Disputes frequently turn on whether disclosure was sufficiently clear and fair on the contractual definition.
2. In Atten Bidco Ltd v Assassa [2025] EWHC 2347, the SPA defined “Disclosed” by reference to matters “fairly disclosed” in or under the disclosure letter or data room, with sufficient detail to enable a reasonable buyer to identify the nature and scope of the matter. The court held that sellers could not rely on what was said in pre-signing meetings as “context” to make a data-room document “fair disclosure”: that would undermine the agreed disclosure mechanism and invite disputes about unrecorded conversations. On the facts, the management information uploaded shortly before signing did not fairly disclose the true seriousness of the issues, and the disclosure defence failed.
3. Sellers should also note the risk that factual disclosures pre-completion may be said to be representations, even if a disclosure letter is framed as purely qualifying warranties - the court has indicated there is no principle preventing factual statements in a (draft) disclosure letter circulated pre-signing from being pleaded as actionable representations in deceit, with the merits then being a matter for trial (Veranova Bidco LP v Johnson Matthey Plc [2025] EWHC 707).
4. Practical point:

• Where “Disclosure” is contractually defined (by reference to a disclosure letter/data room and a “fair disclosure” standard), courts are reluctant to let oral “context” do the work of disclosure.
• From both buyer and seller perspectives, discipline in ensuring that disclosures are properly recorded in the designated channel will help to reduce the risk of future disputes. Informal pre-signing communications (including email/WhatsApp) may later be scrutinised in the context of an argument about whether a matter has been fairly disclosed.

Contractual restrictions on misrepresentation claims

1. In addition to statutory limitation, sellers commonly seek to limit misrepresentation exposure through: (i) entire agreement clauses; and (ii) non-reliance clauses. These clauses can be effective (subject to statutory control), but their efficacy turns on drafting and the way the case is pleaded.
2. An entire agreement clause records that the written contract contains the entire agreement, preventing a party from alleging that pre-contractual statements are additional contractual terms. Such clauses may also address tortious misrepresentation expressly, but clear exclusion/non-reliance language is required, and it must satisfy s.3 of the Misrepresentation Act 1967.
3. In MDW Holdings Ltd v Norvill [2021] EWHC 1135 (Ch), an entire agreement clause stating that the SPA “supersedes and extinguishes” prior negotiations and representations was held to exclude pre-contractual liability but not, on its wording, to exclude tortious misrepresentation claims. That approach was reflected in Capital Green Recycling Ltd v Bird [2023] EWHC 760, where the court accepted that a misrepresentation claim could in principle be advanced notwithstanding an ‘entire agreement’ provision, but rejected the misrepresentation case for want of an actionable representation and reliance.
4. A non-reliance clause typically records that the buyer has not relied on any statement not set out in the SPA. Properly drafted, it may create a contractual estoppel defeating the reliance element of misrepresentation claims, subject to s.3 of the Misrepresentation Act 1967 and the reasonableness test.
5. In any event, contractual protections will not avail a party in respect of its own fraud: liability for fraudulent misrepresentation cannot be excluded as a matter of public policy, and exclusions/restrictions of liability for misrepresentation are in any event subject to s.3 of the Misrepresentation Act 1967 and the reasonableness test.
6. A recurring practical point is that fraud allegations are often deployed to try to defeat contractual time-bars or liability caps, but they must be properly pleaded, put and proved. In Inspired Education Online Ltd v Crombie [2025] EWHC 1236, the court rejected a deceit claim where the alleged fraud was not squarely put to the defendant in cross-examination; and, absent fraud/wilful concealment, the contractual maximum liability and threshold provisions applied.

Practical point:

• Fraud claims from a buyer perspective can be a powerful remedy, allowing a route through contractual restrictions in the SPA. But fraud claims can be pleaded only where there is a proper basis for this.
• From a buyer perspective, such claims must be analysed with discipline, including ultimately being ready to put the case squarely at trial in cross-examination.
• Depending on the facts, a claim may be advanced on a non-fraud basis, and where the disclosure process later throws up a proper evidential footing, the pleadings can be amended to advance a fraud case.

Parallel claims for misrepresentation under a sale agreement

In some situations, a buyer may try to sidestep the contractual framework, seeking a different measure of damages, to avoid a short contractual time-bar, or to defeat contractual caps, by pursuing misrepresentation claims in parallel with warranty claims.

A classic illustration is Man Nutzfahrzeuge AG v Freightliner Ltd [2005] EWHC 2347, where the buyer alleged fraudulent misrepresentations by an employee during due diligence. Even though the contractual warranty route was time-barred, the seller was held vicariously liable for the employee’s fraud on an agency/holding-out analysis. The case illustrates both the potential reach of deceit (including vicarious liability for an employee’s fraud) and the limits of relying on boilerplate contractual protections where fraud is alleged.

However, courts remain cautious about treating warranties as having a “dual quality” as both warranties and representations absent clear drafting. In Sycamore, the SPA and disclosure letter drew a clear distinction between warranties and representations, and it would have been uncommercial to deprive the seller of negotiated warranty limitations by re-labelling warranties as representations.

Recent authority illustrates three key points:

• Factual statements in pre-signing documents (including draft disclosure letters) may, depending on content and context, be pleaded as actionable representations for a deceit claim notwithstanding their primary contractual function (Veranova).
• Where the SPA provides that warranties take effect as representations and records reliance, a deceit/misrepresentation claim may be framed by reference to the warranties themselves and non-disclosure of matters they require to be disclosed (Care Tree Invest 2 Ltd v Bell [2023] EWHC 1151).
• However, such a claim will still fail if not properly run at trial (Inspired Education).

Practical points:

• If raising misrepresentation in parallel to a claim for breach of warranty, the buyer will need to identify the distinct factual representation case (eg what was said; by whom; when; to whom), the reliance mechanism, and how this avoids double recovery.
• The seller will need to be on the lookout for “re-labelling” designed to evade caps/time-bars.

Measure of damages

1. The general principle governing contractual damages is to put the claimant in the position it would have been in had the contract been performed. The orthodox measure is the difference between the value of the company as warranted and its actual value, assessed at completion or the contractual valuation date (often by reference to a hypothetical willing buyer and seller).
2. The general principle in tort is to restore the claimant to the position it would have been in had the tort not occurred. For misrepresentation, that typically means the difference between the price paid and the true value at the transaction date, plus consequential losses (subject to the relevant scope-of-duty/remoteness rules), and in deceit the claimant is entitled to all loss directly flowing from the fraud, subject to the distinct remoteness rules applicable to deceit.
3. Commercial Court authority illustrates how that valuation exercise is approached in practice. In Arani v Cordic Group Ltd [2023] EWHC 95, having held the claim was not time-barred by reason of the fraud/wilful misconduct carve-out, the court assessed loss by the orthodox share-sale measure at completion (“warranty-true” value less “warranty-false” value). In this it treated the transaction price as an important reference point and warned against allowing hindsight to drive valuation, while recognising that later evidence may be relevant insofar as it sheds light on what a reasonable buyer would have paid at the valuation date.
4. In MDW Holdings Ltd v Norvill [2022] EWCA Civ 883, the Court of Appeal addressed the extent to which subsequent events can inform the quantification of warranty damages and confirmed that (in deceit) where the claimant would still have proceeded with the transaction, the counterfactual is not “no deal” but “the deal on different terms”. The practical point is that both contractual and deceit damages may require the court to construct a credible counterfactual price/valuation, and disputes often turn on evidence of how the buyer would in fact have priced the risk had the true position been known
5. The measure of damages can be complex where warranties affect value rather than warrant value. In Sycamore Bidco Ltd v Breslin [2012] EWHC 3443, the court analysed how breached accounting warranties fed into the buyer’s valuation model and price-setting process, and assessed damages accordingly; the buyer’s attempt to reframe warranties as misrepresentations to escape the contractual cap failed because the SPA drew a clear distinction and the contractual allocation of risk would be undermined.
6. A similar approach was taken in Equitix EEEF Biomass 2 Ltd v Fox [2021] EWHC 2531. The court considered what a hypothetical open market purchaser would have paid if the warranties were true, as compared to the actual market value given the breaches. The court treated the actual sale price as strong evidence of market value where the transaction had been negotiated by experienced willing parties bargaining at arm’s length.
7. For damages in lieu of rescission under s.2(2) of the Misrepresentation Act 1967, the courts have emphasised that the remedy is not intended to be the monetary equivalent of rescission. In SK Shipping Europe Plc v Capital VLCC 3 Corp [2020] EWHC 3448, the court approached s.2(2) damages on the footing that they should reflect the compensatory consequences of affirming the contract, rather than recreating rescission by the back door.
8. Practical points:

• For seller and buyer, the key evidence will be in the contemporaneous valuation materials: drafts of the model, investment committee papers, bid documents, due diligence reports, and deal-team communications showing how price was set and how risks were priced. These must be reviewed and preserved. On this, important handwritten notes and annotations on hard copy documents may emerge through the disclosure process.
• Damages frequently turn on counterfactual pricing (the “deal on different terms”), and courts are wary of hindsight reconstruction without contemporary anchors.
• In SPA disputes, the battlelines will often be set early, for example: whether the claim routes have been mapped correctly (warranty/representation/fraud), whether notice and time-bar regimes have been complied with, whether disclosure has been recorded in the agreed channel, and whether reliance and valuation evidence has been preserved.
• Misrepresentation (particularly deceit and s.2(1) of the Misrepresentation Act 1967) may offer different remedies and, in some cases, may not be confined by the SPA’s contractual limitations; but the courts will scrutinise attempts to sidestep the contractual scheme (including “re-labelling”).
• From the survey of the recent case law above, the central point remains that the contractual allocation of risk as legislated for in the SPA will by and large be respected by the court.

Practical checklist (for buyer and seller)

• Map the claim routes early: identify warranties, any contractual representations, and any pre-contract statements that could realistically be pleaded as representations; focus early fact-gathering on knowledge and inducement.
• Beat the clock: diarise and test compliance with contractual notice/service requirements, contractual long-stops/time-bars and statutory limitation (including whether section 32 postponement arguments are realistically in play).
• Treat notice as a mini-pleading exercise: draft (or scrutinise) notices clause-by-clause; both content and service will be tested.
• Check the deal disclosure process: claims may turn on whether disclosures were through the agreed channel; informal communications may well be relevant as to fair disclosure and representation arguments.
• Watch out for fraud: fraud claims are not a shortcut—buyers should plead only with a proper evidential basis and trial discipline; sellers should test the pleaded case early and preserve the evidential record to respond to allegations of dishonesty and concealment.
• Preserve valuation and counterfactual evidence: contemporaneous models, investment committee papers, diligence outputs and deal-team documents often determine loss and the “deal on different terms” counterfactual; avoid hindsight-driven reconstruction.