Bikam OOD Central Investment Group SA v Adria Cable SARL

Commercial parties may allocate risks and limit liability through negotiated contractual terms. Limitation clauses are construed as part of the agreement as a whole, having regard to language, context and commercial common sense. They are not subject to a general rule of restrictive construction.

Where contractual warranties are also described as representations, and the agreement confines remedies for those warranties to a contractual indemnity and cap, a claim under section 2(1) of the Misrepresentation Act 1967 based on the same statements may be excluded or confined. The court must determine the parties’ intention from the agreement read as a whole.

The claimants sought payment of the second tranche of the price under a share purchase agreement. The defendant admitted the debt but counterclaimed damages under section 2(1) of the Misrepresentation Act 1967, alleging that statements repeated in Schedule 2 of the agreement were false and induced the transaction.

The agreement described the Schedule 2 statements as both representations and warranties. It confined claims for breach of the sellers’ warranties to a contractual indemnity containing a financial cap, and contained entire-agreement and waiver provisions. The claimants applied to strike out the misrepresentation counterclaim or obtain summary judgment, alternatively seeking a declaration that the contractual cap applied.

1. Application allowed. The defendant’s misrepresentation counterclaim, insofar as based on the Schedule 2 statements, was excluded by the proper construction of the share purchase agreement. The application was determined on the pleaded facts because the issue was one of contractual construction and no evidence was likely to assist.
2. Under [2011] UKSC 50, contractual construction is a unitary exercise. The court considers the language used, the relevant background and what a reasonable person would have understood the parties to mean. If two constructions are available, business common sense may favour one.
3. There is no general rule that exclusion or limitation clauses must be construed restrictively. Commercial parties are entitled to apportion risk as they choose. The agreement involved a calculated allocation of risk and remuneration, which should not depend on the way a claimant framed its cause of action.
4. Clauses 1.1 and 7.1 expressly treated the Schedule 2 Sellers’ Warranties as both representations and warranties. Clause 7.3 referred to reliance on the Sellers’ Warranties, rather than acknowledging reliance on separate pre-contractual representations. Clause 9.10 confined claims for breach of those warranties to the contractual regime.
5. Clauses 21.1 and 21.2, read with the other provisions, showed that the parties intended their rights concerning the Schedule 2 statements to be contractual rights within the SPA’s limitations. It would be uncommercial to permit an uncapped claim based on the same obligations merely because it was pleaded under the 1967 Act. Clause 17 did not prevent the parties from excluding or confining rights provided by law.
6. The court expressed doubt whether a representation appearing only in a contract could fall within section 2(1), but did not decide that issue. Alternatively, if the statutory claim were available, it would have been subject to the cap in clause 9.3.3 because the alleged untruths constituted breaches of the Sellers’ Warranties.