Idemitsu Kosan Co Ltd v Sumitomo Corporation

A contractual warranty is a promise, not a statement of fact, unless the agreement expressly gives it the additional character of a representation. Negotiation and prior knowledge of the warranty’s terms do not alter that analysis. A draft or execution copy may in principle contain pre-contractual representations, but only where the communication conveys more than an offer to enter into contractual warranties. Clear entire-agreement and non-reliance provisions may independently confine a buyer to contractual remedies. A speculative hope that disclosure may reveal a fraud claim is not a compelling reason for a trial under CPR Part 24.

Idemitsu bought the shares in a company from Sumitomo and its subsidiary under a share sale agreement. It claimed damages under the Misrepresentation Act 1967, s.2(1), alleging that contractual warranties concerning the company were misrepresentations. Idemitsu accepted that its contractual warranty claim was time-barred. It proposed amendments alleging that representations were made by providing, offering to sign, or signing the execution copy of the agreement. Sumitomo applied for summary judgment. The central questions were whether the warranties or the execution copy conveyed actionable representations, whether the agreement’s contractual protections defeated the claim, and whether there was any compelling reason for a trial.

Sumitomo’s application under CPR Part 24 succeeded. The claim was dismissed, both as originally pleaded and in its proposed amended form.

1. Nature of contractual warranties. A clause by which a party warrants a past or present fact is a contractual promise. It does not, without more, communicate a statement of fact capable of founding a misrepresentation claim. The court followed the reasoning of Sycamore Bidco Ltd v (1) Sean Breslin, (2) Andrew Dawson [2012] EWHC 3443 (Ch) at [203]-[211], and disapproved the contrary approach in Invertec Ltd v (1) De Mol Holding BV, (2) Henricus Albertus de Mol [2009] EWHC 2471 (Ch). The fact that the subject matter was factual did not establish that a relevant communication had been made. The court also left open the separate question concerning the first-instance rule of precedent described in Colchester Estates (Cardiff) v Carlton Industries Plc [1986] 1 Ch 80, because it agreed with the later decision.
2. Execution copy. Language in a draft contract may in principle contain a pre-contractual representation. Eurovideo Bildprogramm Gmbh v Pulse Entertainment Ltd [2002] EWCA Civ 1235 did not establish an absolute contrary rule. However, the execution copy here, read with the warranty provisions and related liability terms, communicated only Sumitomo’s willingness to give contractual warranties. Schedule 4 could not be treated as an independent set of representations. The court noted the possible difficulty of inducement where the alleged representation is made only by concluding the contract, referring to the obiter observations in Leofelis SA et al. v Lonsdale Sports Ltd et al. [2008] EWCA Civ 640.
3. Contractual exclusions. Clause 12.12.3(a) was clear. It confined Idemitsu to reliance on the contractual Warranties and defeated both versions of the misrepresentation claim. Reliance on a representation having the same content as a contractual warranty was not reliance on the Warranty itself. Clause 12.12.2 also abrogated and withdrew prior communications of every kind, including the alleged execution-copy communication.
4. The court did not finally determine whether the claim fell within the time limitation in paragraph 2.2(a) of Schedule 6. The authorities of Bottin (International) Investments Ltd v Venson Group plc et al. [2004] EWCA Civ 1368 and Bikam OOD, Central Investment Group SA v Adria Cable S.a.r.l. [2012] EWHC 621 (Comm) concerned agreements which expressly treated warranties as representations, unlike this agreement.
5. There was no compelling reason for a trial. The speculative possibility that disclosure might reveal a fraud or other conscious wrongdoing claim could not preserve an otherwise unsustainable action.