The inclusion of representations and guarantees in a contract helps to spread the risk between the two signatories. Representations and guarantees also become the basis for security and protection for termination or modification of the contract. If one of the representations made is imprecise, the guarantee contained identifies the action that the signatory can take against the other. In most cases, if a representation is false, the guarantee of the other person involved in the contract allows the transaction to be terminated or refused. Everyone involved in the negotiations on technology contracts must deal with this, but do we really understand all the conditions, the implications of the representations and guarantees that we discuss for so long? This important provision helps to establish common pathways where the parties have provided involuntary guarantees and are not in dispute. But if it is neglected, it can have profound consequences. In an acquisition or merger agreement, the entity that buys or acquires the other entity is likely to want the other entity to accept a certain number of assurances and guarantees in the agreement. These questions could include: representations and guarantees are often used in acquisition, joint venture, publishing, employment and loan contracts. In a loan agreement, the borrower participating in a financial transaction will provide the lender with insurance and guarantees to convince the lender to issue a loan. However, if the borrower`s representation no longer applies, the lender may apply the penalties under the contract. Since the rights of appeal arising from these two rights are totally different, it is essential that the contracting parties carefully design them in their treaty. In the case of Idemnitsu Kosan Co Ltd/Sumitomo Co Corp, the Tribunal questioned whether safeguards could be challenged as representations.
The Court responded in the negative and found that the insurance and guarantees were different. In determining whether it is a guarantee or representation, there is the intention of the parties. This contribution builds on the negotiation of over 100 SaaS service agreements to highlight the really important issues. If a SaaS provider is not willing to give you at least the repetitions and guarantees in the example above, be careful. You may have good reasons, but you need to make sure you hear those reasons and agree. Conversely, if you are the one who gives reps and guarantees, make sure you understand the relevant parts of your service and your ability to stick to it. While a comprehensive discussion of the pros and cons of the most frequent representations and guarantees goes beyond this contribution, I can give some indications.