The Court of Appeal has upheld a High Court decision striking out claims for breach of warranty on the basis that they were not notified in accordance with the relevant mandatory contractual provisions: Teoco UK Ltd v Aircom Jersey 4 Ltd  EWCA Civ 23.
Every notification clause will of course turn on its own wording. However, this decision suggests that a purchaser who is required to give notice setting out the grounds on which a claim is based will generally be wise to identify the legal basis of the claim, including the particular warranty or other provision relied on. An attempt to frame such a notification widely, with a view to keeping the purchaser’s options open to make claims in the future, may well backfire.
Tom Henderson, a senior associate in our disputes team, outlines the decision below.
The background to the claim is set out in our post on the High Court decision, here. In summary, the claimant purchaser claimed damages for breach of various warranties contained in a sale and purchase agreement (SPA) entered into with the defendant sellers. The sellers applied to strike out parts of the claims on the basis that the purchaser had not complied with the notification requirements under schedule 4 of the SPA. These required the purchaser (among other things) to give notice “setting out reasonable details of the Claim (including the grounds on which it is based and the purchaser’s good faith estimate of the amount of the Claim…”.
Mr Richard Millett QC, sitting as a deputy judge of the High Court, found that the notices given were not properly compliant with various aspects of schedule 4 of the SPA, including this requirement.The purchaser appealed the decision to the Court of Appeal.
The purchaser argued that there was no general principle that particular warranties must be identified where a notification clause provides for details to be given of a claim. It was also argued that schedule 6 of the SPA put in place a scheme whereby the sellers did not need to make separate financial provision for each individual claim and whereby the purchaser had to obtain and provide to the sellers a barrister’s opinion on the likely chance of success of the claims, which would naturally include details of the legal grounds of the claims. Accordingly, the purchaser argued, there was no need to specify in the notification which warranties had been breached.
The sellers, in supporting the High Court’s decision, emphasised the wording of the SPA: it required the “grounds” of a claim to be “set out” – this language necessitated explicit identification of the specific warranty breached and the legal (not just factual) basis of the claim; the possibility of inference would not suffice. Further, paragraph 12 of schedule 4 made provision for an opportunity for the sellers to remedy the “matter or thing” giving rise to a claim. Without such specificity in the notice, the sellers argued, they would not know the warranty breached so would not be able to put it right.
The Court of Appeal dismissed the purchaser’s appeal. Giving the lead judgment, Newey LJ (with whom Sir Ernest Ryder and Lindblom LJ agreed) held that the language of “setting out” of the “grounds” of a claim meant that the legal basis of the claim had to be identified. It was “not inconceivable” that, exceptionally, that might be achieved without mentioning a specific warranty, eg where the relevant facts included in the notice unequivocally pointed towards a specific warranty. But that was not the case here. Instead, the widely framed references in the notices had created real doubt as to the grounds of the claim since they “encompassed a multitude of other possibilities”. Such an approach was consistent with the importance of certainty.
The court said it was possible to imagine circumstances in which reference to a wrong warranty might not invalidate the notice “if a reasonable recipient would not have been misled by the error and would have understood which warranty the Purchaser was intending to rely on”. However, this was not a case where the wrong warranty was identified.
The court also dismissed an argument that the contra proferentem principle meant that the clauses should be construed in the purchaser’s favour. In Nobahar-Cookson v The Hut Group Ltd  EWCA Civ 128 (considered here) Briggs LJ accepted that ambiguity in an exclusion clause may have to be resolved by a narrow construction. However, he observed, “The court must still use all its tools of linguistic, contextual, purposive and common-sense analysis to discern what the clause really means”. In the present case, Newey LJ said, these tools lead the court to a conclusion that, in general at least, the purchaser should have specified the particular warranties.
Finally, the court rejected the seller’s argument based on schedule 6. The mere fact that an opinion later obtained from a barrister might include reference to the particular warranties was not significant in interpreting the notification requirements.