Idemitsu Kosan Co Ltd v Sumitomo Corporation

Factual and Procedural Background

The Plaintiff ("Idemitsu") claims damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967 against the Defendant ("Sumitomo"). Sumitomo applied under CPR Part 24 for summary judgment to dismiss the claim, arguing it has no real prospect of success and there is no other compelling reason for a trial.

Idemitsu and Sumitomo are large Japanese companies with interests in the energy sector. In November 2009, Sumitomo and its wholly-owned subsidiary, Sumitomo Corporation Europe Limited ("SCE"), sold the entire share capital of Petro Summit Investment UK Limited ("the Company") to Idemitsu under a sale and purchase agreement dated 12 November 2009 ("the SPA"). The purchase consideration was approximately US$575 million. The Company held interests in offshore oil and gas fields, including a 30.82% interest in the North Sea Ross Field and a 2.4% interest in the Blake Field.

Idemitsu alleges that the Company was subject to substantial liabilities arising from a dispute concerning operating expenses of a floating production vessel. The SPA was governed by English law and provided exclusive jurisdiction to the courts of England and Wales.

Clause 6.1 of the SPA contained warranties given by the Sellers to the Buyer regarding matters of past or present fact about the Company, detailed in Schedule 4. Idemitsu alleges some warranties were false, constituting breaches. However, it accepts it did not notify Sumitomo of any claim within the 18-month contractual limitation period for warranty claims.

Idemitsu's claim raises whether the warranties were solely contractual promises or also actionable misrepresentations under the 1967 Act. There was conflicting authority on this point from first instance decisions. Idemitsu clarified its case to allege that representations were made by Sumitomo prior to or contemporaneous with the SPA's execution, specifically by providing or signing the Execution Copy of the SPA, which contained the warranties.

The court considered whether Idemitsu's clarified claim had a real prospect of success and whether the claim should be dismissed summarily or proceed to trial.

Legal Issues Presented

1. Whether the warranties contained in the SPA are solely contractual promises or also actionable representations under section 2(1) of the Misrepresentation Act 1967.
2. Whether representations were made by Sumitomo prior to or contemporaneous with the execution of the SPA by providing or signing the Execution Copy.
3. Whether contractual provisions in the SPA, including Clause 12.12.3(a) and Schedule 6, preclude or limit Idemitsu's claim for misrepresentation.
4. Whether there is any compelling reason to refuse summary judgment and allow the claim to proceed to trial despite its low prospect of success.

Arguments of the Parties

Appellant's Arguments (Idemitsu)

• The warranties in the SPA were also representations of fact capable of founding a misrepresentation claim under the 1967 Act.
• The inclusion of the warranties in the SPA as contractual promises did not negate their quality as representations.
• Sumitomo made actionable representations by providing, offering to sign, or signing the Execution Copy of the SPA prior to its conclusion.
• Clause 12.12.3(a) does not defeat the claim because it expressly saves reliance on the warranties, which Idemitsu alleges also constitute representations.
• There may be a basis for alleging fraud or wilful misconduct following further disclosure.

Appellee's Arguments (Sumitomo)

• The warranties are solely contractual promises and do not amount to representations capable of founding a misrepresentation claim.
• The act of concluding a contract containing warranties does not constitute making a statement to the counterparty for misrepresentation purposes.
• Idemitsu's claim is barred by Clause 12.12.3(a), which excludes reliance on any representations or warranties other than the warranties contained in the SPA.
• Clause 12.12.2 abrogates all prior communications, including any pre-contractual representations alleged to arise from the Execution Copy.
• Idemitsu failed to notify any claim within the 18-month limitation period under Schedule 6, precluding recovery for breach of warranty.
• There is no compelling reason to refuse summary judgment; speculative allegations of fraud are insufficient to avoid dismissal.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Invertec Ltd v De Mol Holding BV [2009] EWHC 2471 (Ch)	Whether contractual warranties can also constitute actionable representations for misrepresentation claims.	The court respectfully disagreed with Arnold J.'s view that warranties also amount to representations, holding that warranties are contractual promises only and do not give rise to misrepresentation claims absent express provision.
Sycamore Bidco Ltd v Sean Breslin & Andrew Dawson [2012] EWHC 3443 (Ch)	Distinction between warranties and representations; warranties do not constitute misrepresentations.	The court followed Mann J.'s reasoning that warranties are not representations and that a claim based solely on contractual warranties cannot found a misrepresentation claim.
Colchester Estates (Cardiff) v Carlton Industries Plc [1986] 1 Ch 80	Rule on following or not following first instance precedent.	The court considered whether to depart from Mann J.'s decision but concluded that the rule of precedent should apply, following Mann J. over Arnold J.
Eurovideo Bildprogramm Gmbh v Pulse Entertainment Ltd [2002] EWCA Civ 1235	Pre-contractual representations can arise from negotiation correspondence or draft contracts.	The court acknowledged that pre-contractual representations can exist but distinguished the present case as the Execution Copy did not amount to such representations independent of the warranties.
Leofelis SA et al. v Lonsdale Sports Ltd [2008] EWCA Civ 640	Consideration of inducement and timing of representations.	Used to illustrate difficulties in claiming inducement solely from contract conclusion; supported the view that warranties are not representations.
Bikam OOD, Central Investment Group SA v Adria Cable S.a.r.l. [2012] EWHC 621 (Comm)	Where warranties are expressly stated to be representations, claims in misrepresentation may arise.	The court noted the absence of such express terms in the present SPA, distinguishing this case from Bikam OOD.
Bottin (International) Investments Ltd v Venson Group plc [2004] EWCA Civ 1368	Claims for misrepresentation may be treated as claims under warranties where parties agree.	The court distinguished this case on the basis that here no such agreement existed, supporting the conclusion that misrepresentation claims are not available.
Government of the United Arab Emirates v Allen [2012] EWHC 1712 (Admin)	Statements of fact in warranties may be capable of founding misrepresentation claims if made as statements.	The court held that capability alone is insufficient without the actual making of a relevant statement, which was not found here.

Court's Reasoning and Analysis

The court began by examining the nature of the warranties in the SPA, concluding that a warranty is a contractual promise and not, by itself, a statement or representation capable of founding a misrepresentation claim. The court rejected the argument that the inclusion of warranties in the SPA amounted to representations made by Sumitomo to Idemitsu. It emphasized the distinction between contractual warranties and representations, noting that warranties are promises enforceable under contract law, whereas representations are statements of fact that induce a party to enter into a contract.

The court considered conflicting first instance authorities and preferred the reasoning of Mann J. in Sycamore Bidco, which held that warranties do not also constitute representations unless expressly stated. The court found Arnold J.'s contrary view in Invertec Ltd unpersuasive.

Turning to Idemitsu's clarified case that representations were made by Sumitomo through providing, offering to sign, or signing the Execution Copy of the SPA prior to its conclusion, the court analyzed whether this conduct could amount to actionable pre-contractual representations. It acknowledged that pre-contractual representations can arise from negotiation documents but concluded that here the Execution Copy merely communicated a willingness to enter into a contract containing warranties. The court held that Schedule 4 of the Execution Copy, which sets out the warranties, cannot be read independently as statements of fact constituting representations.

The court also considered the SPA's entire agreement and limitation clauses. Clause 12.12.3(a) precludes reliance on any representations other than the warranties contained in the SPA, which defeats Idemitsu's claim. Clause 12.12.2 abrogates all prior communications, including any alleged pre-contractual representations. Additionally, the claim is barred by the contractual limitation period for claims other than tax claims, as Idemitsu did not notify Sumitomo within 18 months.

Finally, the court rejected Idemitsu's contention that there was a compelling reason to allow the claim to proceed to trial based on speculative allegations of fraud or wilful misconduct, finding no evidential basis to justify such an exception.

Holding and Implications

The court's final decision is to grant summary judgment in favor of the Defendant.

DISMISSED: Idemitsu's claim for damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967 is dismissed on the basis that it has no real prospect of success. The warranties in the SPA are contractual promises only and do not constitute actionable representations. Furthermore, contractual provisions preclude reliance on any representations other than the warranties, and the claim is time-barred. No compelling reason exists to permit the claim to proceed to trial.

The direct effect is that the Plaintiff's claim is conclusively dismissed at summary judgment stage. The decision does not establish any new precedent beyond affirming the distinction between warranties and representations in the context of share purchase agreements and the application of contractual limitation and entire agreement clauses.