The High Court has found that a claimant could not pursue an indemnity claim under an SPA because it had not notified the defendants of its claim “as soon as possible”, as it was required to do under the contract: Towergate Financial Limited v Hopkinson  EWHC 984 (Comm).
The notification provision considered by the court contained language which is common to many commercial contracts. It required notification “as soon as possible and in any event prior to” a long-stop date (in this case, seven years from signing the SPA). The court construed the clause as containing two separate conditions: notification had to be given within the long-stop date and as soon as possible.
While each case will turn on its own facts, including the wording of the clause in the context of the agreement, a party faced with a similar clause may be prevented from bringing its claim if it fails to give notice as soon as possible, even if it notifies within the long-stop date.
The decision continues a recent trend of cases requiring strict compliance with notice requirements in SPAs (previously covered in our posts here and here) and emphasises once again that parties need to be vigilant in issuing notices which comply with the contractual provisions.
James Robson, a senior associate in our disputes team, considers the decision further below.
In August 2008, the buyers entered into an SPA to acquire a company which provided financial advice to retail customers. The purchase price was £9.9 million. The SPA contained certain indemnities given to the buyers by the sellers, including an indemnity in respect of professional negligence claims for mis-selling financial products.
To claim under the indemnity, the buyers had to give notice under Clause 6.7 of the SPA. This clause provided that there would be no liability unless:
“… notice in writing … is given … as soon as possible and in any event prior to … on or before the seventh anniversary of the date of the Agreement.”
Certain professional negligence claims stemming from mis-selling had come to the buyers’ attention in early 2013. The buyers issued notice to their insurers in relation to those claims in February 2014. But the buyers only issued a notice to the sellers under the contract on 29 July 2015, shortly before the seventh anniversary of the SPA.
In a trial of preliminary issues, the court had to decide whether the buyers’ delay in issuing the notice meant that their claim under the indemnity was timed out.
The parties agreed that timely notice under Clause 6.7 was a condition precedent to bringing a claim. However, they disputed two points:
- Did Clause 6.7 only impose a requirement to give notice within seven years from the date of the SPA, or did it contain an additional condition to do so “as soon as possible”? and
- Had the buyers given notice “as soon as possible”?
The High Court (Cockerill J) determined both questions against the buyers. Accordingly, their claim for an indemnity failed.
What was the proper construction of the clause?
The court found that the clause contained two conditions: notice must be given on or before the seventh anniversary of the date of the SPA and, separately, as soon as possible.
The court’s decision turned largely on the construction of the specific clause in the SPA. However, the court made a number of findings which are of more general interest given that the language used in Clause 6.7 is common amongst notification provisions in SPAs (and commercial contracts more broadly):
- The court referred to a line of authority in relation to exclusion clauses and condition precedents which say that if there is ambiguity, such clauses should be resolved against the party seeking to rely on them (since the parties are not lightly to be taken to have intended to cut down the remedies provided for breach of important contractual obligations without using clear words to that effect). However, the court found Clause 6.7 was not ambiguous – so the cases were not applicable.
- The court rejected an argument that the words “as soon as possible” were insufficiently certain to be a condition precedent. The court did not spell out precisely what is needed to comply with the requirement, but found it was not obscure phraseology. The court noted that similar wording is used in the Civil Procedure Rules and is common in commercial contracts.
- The court considered the case law in this area, including a case from 2007, AIG v Farday  2 Lloyd’s Rep IR 267. In AIG, the court construed a clause in an insurance contract on standard terms which required notification to be made “as soon as reasonably practicable and within 30 days” – and held it was a single condition. The buyers relied on AIG as being analogous with the wording in Clause 6.7. However, the court did not accept that argument. It distinguished AIG on three grounds:
- the clause in AIG appeared in a set of standard terms and conditions offered by an insurer whereas this was an individually negotiated contract between businesses;
- a party might think notification within 30 days was as soon as possible, given the short time period. But there could be no such confusion in Clause 6.7, given the ultimate long-stop date was seven years; and
- the trigger event which started the time period running in the clause in AIG (knowledge of loss) was the same whether you were considering the “as soon as practicable” condition or the “30 days” condition. In the current case, by contrast, the trigger was different: the “seven year” condition began on the date the SPA was signed, whereas the “as soon as possible” condition began when a matter or thing occurred which might give rise to an indemnity claim.
Was notice given “as soon as possible”?
The court had no hesitation in holding that the notice given in July 2015 was not given “as soon as possible”. In reaching its decision, the court was looking for the point at which the buyers knew of any matter or thing which they knew, or any reasonable person would know, might give rise to a claim under the indemnity. The court took into account the following factors (amongst other things):
- The buyers had prepared detailed spreadsheets in 2013 identifying potential claims.
- The business had instructed specialist consultants to evaluate the issues in mid-2013.
- The business had developed detailed internal estimates of claims by February 2014.
But what really swayed it for the court was the fact that the buyers had notified their insurers in February 2014, and then again in March, April, October and December 2014, of potential claims. That notification was made under a provision in the insurance contract requiring notice to be given to the insurers “as soon as practicable”. There was therefore an obvious – and unexplained – delta between the date of notification to the insurers (February 2014) and the date of notification under the SPA (July 2015).