In Sycamore Bidco Ltd v Breslin & Anor [2012] EWHC 3443 (Ch), the High Court has considered whether express warranties in a share purchase agreement could found an action for misrepresentation in the alternative to a claim contractual claim for breach of warranty.
The case involved the acquisition of the entire issued share capital of the target company by a private equity backed Newco, in which certain directors and senior managers of the target company took a minority stake as part of a management buy-out structure. The court was also required to determine whether the MBO team’s knowledge of facts giving rise to a breach of warranty was attributable to the buyer as a result of the MBO team becoming directors of the buyer prior to completion of the acquisition, and whether such knowledge precluded the buyer’s claim for breach of warranty.
The court held that the express warranties were only warranties and not representations. The drafting in the agreement consistently drew distinctions between representations and warranties. Furthermore the limitation of liability clause in the agreement related only to warranties, and it cannot have been the intention of the parties that the same wording should give rise to limited liability when the words were considered as warranties, but unlimited liability if the words could also be considered to be representations. There was difficulty in arguing that representations that can be found only within an agreement could induce a party to enter into that agreement. However, on the facts, the court found that there had been various breaches of warranty.
The court also held that the buyer had not acquired actual knowledge of the facts giving rise to the breaches of warranty merely as a result of members of the MBO team who were aware of the relevant facts becoming directors of the buyer.
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