Are all warranties created the same?

In Eurocopy plc v Teesdale [1992] BCLC 1067, the Court of Appeal suggested that actual knowledge, derived from sources outside of a disclosure letter, could undermine a claim for breach of warranty in a share purchase agreement despite any express provision to the contrary.  Consequently, it is considered best practice for a share purchase agreement (or any other acquisition agreement) to set out clearly the agreed position and the extent to which a buyer’s knowledge should qualify any warranties.

But does this apply to any other commercial contracts?

Given the principles that gave rise to an arguable defence in Eurocopy plc v Teesdale [1992] BCLC 1067 were of interpretation, causation and damages, in our opinion, these apply equally to any commercial contract that contains warranties.

While the outcome of these principles may vary depending on the facts, especially the warranties themselves, the nature of the breach and damage, whether the parties knew about the breach when they made the contract, together with the commercial context, the questions that should be asked are similar to those that are asked in any breach of contract claim as follows:

  1. What does the warranty mean, considering all the information that was available to the parties when they made the contract?
  2. Did the parties really intend one party to promise what they both knew to be unachievable?
  3. What is the difference between the value of what was promised and what was received?

In Eurocopy plc v Teesdale [1992] BCLC, it was arguable that the claimant received exactly what was promised because it knew of the breach when it negotiated the contract price.  Further, even if this defence is not upheld, a party who, in any event, had led the other to believe it would not complain of a breach of contract might be estopped from doing so.

If you would like to discuss any of the matters raised in this article please contact Sing Li.