The High Court has refused an application for summary judgment on a claim of deceit in relation to the sale of a business, or alternatively to strike out the claim.
The claimant had acquired a health business from the defendants. It claimed that it had not been told prior to the transaction that one of the business’s key customers had triggered a price review clause in its contract with the business in relation to a pharmaceutical product, which led to a substantial reduction in the price at which the product was supplied. The claimant brought claims for breach of warranties given in the Share Purchase Agreement, and a claim for deceit in relation to representations allegedly made in a draft of the Disclosure Letter. The defendants applied for summary judgment on the deceit claim, or alternatively to have it struck out, arguing that the Disclosure Letter did not give rise to any actionable representations.
After considering a number of previous cases dealing with the distinction between warranties and representations, the Court suggested that the proposition of law that emerged was that giving a contractual warranty does not, without more, amount to making an actionable representation. Providing contractual documents that are not themselves warranties could involve making representations but would not always do so.
The defendants argued that it would be artificial and wrong in principle to read the Disclosure Letter as if it had an existence independent of its function in the transaction, namely to qualify the warranties. Nor could different principles be applied because the claimant was alleging fraud: an allegation of fraud cannot turn something that is not a representation into something that is.
The claimant submitted that there is no legal principle which automatically precludes the existence of a representation simply because it is based on a draft Disclosure Letter. The question of whether the Disclosure Letter contained actionable representations was a complex issue that should be determined at trial.
The Court was not persuaded that it should grant summary judgment or a strike out in the defendants’ favour. In its view, the claimant’s case on misrepresentation had real prospects of success. There was nothing inherently implausible about saying that a Disclosure Letter provides factual information that the recipient might reasonably rely on, just because its primary contractual function is to qualify warranties.
The Court rejected the defendants’ argument that if Disclosure Letters could contain representations, parties to such transactions might be unable to control their exposure to claims. The allegation the claimant would have to make out was one of fraud, which was why contractual stipulations about the absence of representations, or excluding liability for them, might not operate. The Court noted that there are policy reasons why it is difficult for a party to exclude liability for its own fraud.