Understanding Anglo-American contract models (part 5)

30 september 2020

The overwhelming majority of international transactions are laid down in English-language contract models entailing common law terminology. It is, however, important to reiterate here that common-law terminology in commercial contracts can be confusing for those with a civil law background. This results more than once in altering or striking specific phrases from the other side’s draft. As a result, parties end up in a legal arm-wrestling match, or they choose to avoid the mess by ignoring the issue. Obtaining a proper understanding of contract language will prevent a lot of anxiety and uncertainty.

Represents and warrants (not to be confused with the verb warrants and the noun warranty in commercial sales contracts!)

In Anglo-American contract models, the verbs represents and warrants (altogether or separately) merely serves as an instrument to introduce statements of facts. However, at a closer look, these fixtures are routinely used to introduce statements of future facts entailing some sort of obligation, warranty or indemnification. Please take note of the following example (retrieved from the SEC’s EDGAR system):

The Consultant warrants and represents that the consulting services under this agreement are clear to him and he has the knowhow, ability, experience, business contacts, reliability and skills required for rendering the services as per the Company’s requirements.

This clause is perfectly fine as it entails statements of fact.

The Consultant commits to be available to the Company as necessary according to the requirements of his position.

This is a future fact, more precisely, it is an obligation and should be given a different heading.

The Consultant commits to comply with all of provisions regarding the rendering of the services as dictated by the Company. The Consultant shall meticulously comply with the provisions of law.

Another future fact and should be given a different heading. It is also recommended to replace shall with will.

Another complicating factor is that the phrase represents and warrants significantly affect the available remedies when the contract is governed by English law. That is, the verb represents allows an aggrieved party to sue for tort remedies for misrepresentation and warrants allows an aggrieved party to bring a claim to court for breach of warranty.

It is relatively easy to fix the above-mentioned issues by: (1) replacing represents and warrants with states; (2) determining (each time) as to whether you are dealing with a future fact or something completely different; (3) being clear about the available remedies.