Warranties: Know Their Limits

In its judgment in Decision Inc Holdings Proprietary Limited v. Garbett and El-Mariesh,¹ the High Court of England and Wales provided guidance on the interpretation of two types of warranties commonly found in sale and purchase agreements (SPAs): warranties as to the accuracy of a company's records and warranties as to no material adverse change in respect of turnover and/or prospects.

The claimant in the case was ultimately successful. However, buyers should take note that, despite being provided with misleading information about the company's financial performance, the claimant was not able to make out its claims for breach of warranty as to the accuracy of the company's records or as to no material adverse change in respect of turnover. The sometimes surprisingly narrow interpretation of the scope of warranties must be appreciated, so that buyers can ensure they actually have the recourse they think they will.