Providing a party with an improperly particularised notice of warranty claim in the context of a share purchase agreement (SPA) can often give rise to a dispute in itself and, in some cases, even a potential basis upon which a claim can be struck out. This, in turn, can create unnecessary applications to the court that can so easily be avoided, simply by particularising a notice with sufficient detail to avoid allegations that the notice falls short of the relevant SPA requirements.
This point is well illustrated in the recent decision of TP ICAP Ltd v NEX Group Ltd  EWHC 2700 (Comm). In this case, whilst the High Court declined to strike out the breach of warranty claim under a SPA, on the grounds that the buyer’s notice did not in fact fail to meet the requirements of that agreement, this clearly demonstrates how failing to dot all the “i’s” and cross all the “t’s” can prompt the other side to seek to take advantage of alleged technical failings.
What did the High Court say?
On the facts of TP ICAP Ltd, the Defendant seller and the Claimant buyer were parties to an agreement for the sale and purchase of the entire issued share capital of ICAP Global Broking Holdings Ltd, with a consideration exceeding £1 billion. The SPA contained various warranties, although these warranties were subject to contractual limitations, including that the seller would not be liable in respect of a seller warranty claim unless the buyer had given the seller written notice before a specified date “...stating in reasonable detail” the nature of that claim.
In making an application to strike out, it was argued before the High Court on behalf of the seller that the buyer’s claims for breach of warranty were the subject of invalid contractual notices and, as such, that the notice of the claim failed to comply with a contractual limitation of liability. In particular, the seller argued that the names of specific individuals said to have knowledge of any non-routine investigations against company employees must be identified in a notification of claim.
In rejecting the seller’s arguments, Mr Justice Knowles applied the reasoning from the Court of Appeal (CA) decision in Dodika Ltd and Others v United Luck Group Holdings  EWCA Civ 638. This case concerned the question as to whether a notice given by the buyer in relation to a potential claim under a tax covenant complied with the requirements of the SPA.
The CA found that a notice of claim given by the buyer did not lack “reasonable detail” in circumstances where the recipient already had knowledge of the underlying facts, events and circumstances giving rise to the claim. The CA also held that what constitutes “reasonable detail” will depend on the specific circumstances, but to require the buyer to provide details of which the recipient was already aware, where the additional detail available would not have advanced any commercial purpose if included in the notice, does not make a notice “unreasonably deficient”.
What are the key takeaways for Claimants?
Prior to issuing any notice of a breach of warranty claim, a Claimant should always secure expert advice, to ensure that the notice is sufficiently detailed in compliance with the SPA requirements. By ensuring that the notice cannot be left open to criticism, the Claimant will not be exposed to the potential risks of an application to strike out by the Defendant based on allegations of invalidity.
Even though it is clear that the courts are reluctant to apply an overly restrictive approach in the construction and interpretation of contractual notification clauses, by adding any detail necessary to avoid any suggestion of deficiency by the Defendant is often the best way to minimise any risks.
What are the key takeaways for Defendants?
In certain circumstances, a Defendant may have a clear basis upon which to complain about the shortcomings of a notice of warranty claim in the context of a SPA and, when considering the question of compliance of a notice with the contractual requirements, that the claim should be struck out because of this. However, much will depend on the factual matrix and the specific contractual notification language used, where caution should always be exercised.
Even though every notification provision is likely to turn on its own wording, the purpose of notification in this type of contract is simply to make clear in sufficiently formal terms that a claim is being made against the seller. The fundamental question is, therefore, what a “reasonable recipient”, with knowledge of the underlying context, would understand by the notice. This means that a failure to strictly observe any terms will rarely be dismissed as a technicality.
The matters contained within this article are intended to be for general information purposes only. This blog does not constitute legal advice, nor is it a complete or authoritative statement of the law in England and Wales and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, either express or implied, is given as to its’ accuracy, and no liability is accepted for any errors or omissions.
Before acting on any of the information contained herein, expert advice should always be sought.
© Melissa Worth, November 2022