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Warranty Claims: notification provisions and contractual time limits

23/05/2024

Richard Ascroft, Guildhall Chambers

Introduction

  1. Clauses requiring written notice of a warranty or other claim to be given by a specified deadline are a common feature of share purchase and other sale agreements. Often they are followed by a requirement that any claim be commenced within a further specified period of the giving of any notice of claim.
  2. What follows is intended to highlight some of the potential pitfalls in seeking to comply with such provisions.
  3. The variety of wording in such clauses and the effect of non-compliance has generated significant jurisprudence over the sufficiency of notices given in this context, including a number of decisions from the Court of Appeal, the most recent of which is Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd [2024] EWCA Civ 477.
  4. Although it is possible to extract from the case law general principles informing the court’s approach to construction of individual notification clauses (and determination of the sufficiency of notices served in purported compliance with such clauses), ultimately, it must, as Robin Knowles J observed in TP ICAP Ltd v Nex Group Ltd [2022] EWHC 2700 (Comm), at [14], be kept in mind always that each decision is in the context of the contract language, notification language, and context under consideration in the particular case, and which are different from case to case in ways that may be very material.
  5. Generally (and subject to the specific contractual wording in any given case), a contractually required notice of claim ought to make clear that a claim is being pursued, rather than indicating the possibility that a claim may yet be made: Laminates Acquisition Co v BTR Australia Ltd [2004] 1 All ER (Com) 737 (at [33]). A reference to a “potential liability” in a notice of claim can prove fatal: see Stobart Group Ltd and anr v Stobart and anr [2019] EWCA Civ 1376 at [47]-[48].

General principles – Interpretation

  1. By way of general observation, the proper meaning of notice provisions in a sale agreement falls to be determined in accordance with the principles applicable to all other kinds of contract (as to which see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at 912F -913G per Lord Hoffmann, Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, at [21] to [26]; Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900; Arnold v Britton [2015] AC 1619) and Wood v Capita Insurance Service Ltd [2017] UKSC 24; [2017] AC 1173).
  2. In summary, the Court is seeking to determine the objective meaning of the words used by the parties having regard to (i) the natural and ordinary meaning of such words; (ii) the document as a whole and its purpose; (iii) the admissible background known to the parties at the time the relevant agreement was entered into; and (iv) commercial common sense. What the parties may have subjectively thought the meaning was is irrelevant to this process.
  3. Because a clause containing a contractual limitation period for the notification or bringing of claims is regarded as a form of exclusion clause (see Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128; [2016] 1 CLC 573, at [9] and [17] per Briggs LJ (as he then was)), any ambiguity in such a clause remaining after the linguistic, contextual and purposive analysis required by the clutch of cases starting with Mannai Investments may be resolved by favouring the narrowest of the competing interpretations: Nobahar-Cookson v Hut Group (supra) at [16]-[21]); Towergate Financial (Group) Ltd and ors v Hopkinson and ors [2020] EWHC 984 (Comm); [2020] 2 BCLC 649 at [67] where Cockerill J identifies other authorities to like effect.
  4. A notice given in purported compliance with a contractual notification clause is unilateral in nature. In construing such a notice, the court is not, therefore, construing agreed contractual wording but wording used by one party. Construction of unilateral notices remains, however, to be approached objectively (Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, at 767G per Lord Steyn): how would the reasonable recipient (with knowledge of the context in which it was sent) have understood the notice?
  5. Although the question of construction of a unilateral notice and the question of compliance with contractual requirements are in principle different questions, the knowledge that the actual recipient has (being part of the admissible background context) can be relevant to both, depending on the specific wording of the contractual clause: Dodika v United Luck Group Holdings Ltd [2021] EWCA Civ 638 at [33]-[34] per Nugee LJ.
  6. Where, however, the relevant notification clause requires any notice given thereunder to contain specific information, a notice which fails to include it will be invalid; the fact that the recipient knew the omitted information will not cure the invalidity. The requirement to include the prescribed information is treated as an indispensable condition.
  7. The example given by Nugee LJ in Dodika (at [33]) by way of illustration was a contract entitling one party to give a notice in relation to one of several properties. If the contract required the notice to specify the address and postcode of the property concerned, the failure to do so would render the notice non-compliant even if the recipient knew the address and postcode already. If the contract did not require the address and postcode of the property the subject of the notice to be specified, but simply for the property to be identified, reference in the notice to the property by its name or description (even in potentially quite vague terms) might suffice if the reasonable recipient, circumstanced as the actual parties were, could be left in no doubt which property was being referred to.

Clauses requiring notification of claims in “reasonable detail”

  1. Contractual notification clauses frequently require the notice of claim to state identified matters in “reasonable detail”. Examples include:

Laminates Acquisition Co v BTR Australia Ltd [2004] 1 All ER (Comm) 737 (Notice to specify “in reasonable detail, to the extent that such information is available at the time of the claim, the matter which gives rise to the claim, the nature of the claim and the amount claimed in respect thereof (detailing the Purchaser’s calculation of the loss thereby alleged to have been suffered by it or the relevant member of the Purchaser’s Group) . . . on or before 31st March 2000”)

Nobahar-Cookson v The Hut Group Ltd (supra) (notice to “[specify] in reasonable detail the nature of the Claim and so far as is practicable, the amount claimed in respect of it) as soon as reasonably practicable and in any event within 20 Business Days after becoming aware of the matter”)

Dodika v United Luck Group Holdings Ltd (supra) (Notice to state “in reasonable detail the matter which give rise to such Claim, the nature of such Claim (so far as reasonably practical) the amount claimed in respect thereof before the Second Escrow Release Date”)

Stobart Group Ltd and anr v Stobart and anr [2019] EWCA Civ 1376 (Notice to “stat[e] in reasonable detail the nature of such Tax Claim and, if practicable, the amount claimed) on or before the seventh anniversary of Completion)

TP ICAP Ltd v Nex Group Ltd [2022] EWHC 2700 (Comm) (Notice to “stat[e] in reasonable detail the nature of the Seller Warranty claim and, if practicable, the amount claimed) . . . on or before the second anniversary of Completion”)

Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd (supra) (Notice to state ‘in reasonable detail the nature of the claim and the amount claimed (detailing the Buyer’s calculation of the Loss thereby alleged to have been suffered)’)

  1. What is reasonable depends on all the circumstances: Dodika at [35] per Nugee LJ. Such circumstances will include in particular what is already known to the recipient: ibid.
  2. In Dodika the notified claim related to a tax liability said to arise out of an investigation by a tax authority into the transfer pricing policies of a subsidiary of the company acquired by the buyer. It was contended on behalf of the sellers (warrantors) that the notice of claim should have included reference to the fact that the relevant policy consisted of a 15% mark-up based on an assumption that it was a low-risk service provider. As these details were already known to the sellers, their inclusion in the notice of claim would, said Nugee LJ (at [35]), not have conveyed any new or different information to them, or to identify anything they could not identify for themselves. To require a notice of claim to state what the sellers already knew was, said Nugee LJ, to elevate the requirement to state matters in reasonable detail into “empty formalism”.
  3. The detail required in a notice of claim must also be informed by the purposes behind the notice, as Popplewell LJ explained in his concurring judgment in Dodika.
  4. The purpose of a notice clause such as that in Dodika was, said Popplewell LJ (at [46]), to:
[E]nable the recipient to make such inquiries as it is able, and would wish, to make into the factual circumstances giving rise to the claim, with a view to gathering or preserving the evidence; to assess so far as possible the merits of the claim; to participate in the tax investigation to the extent desirable or possible with a view to influencing the outcome; and to take into account the nature and scope of the claim in its future business dealings, whether by way of formal reserving or a more general assessment of the potential liability.

  1. None of the additional detail which the sellers said was required in the notice of claim would, said Popplewell LJ, have advanced any of those purposes. Businessmen would not, he said, expect or require further detail which served no commercial purpose.
  2. In Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd (supra) the seller of the shares had successfully challenged in the court below the sufficiency of a detailed notification of claim running to some 9 pages insofar as it related to an alleged breach of warranty claim.
  3. Different contractual notification of claims time limits applied depending on the nature of the claim but for the purposes of the appeal the applicable time limit was 30 June 2021. The relevant notice was given on that date. In the meantime Drax had in fact disposed of the shares in the company acquired by it to a third party (VPI).
  4. The alleged breach of warranty arose out of an option to acquire an easement which had been granted in favour of the wrong party, meaning that its purported exercise by the company (the shares in which were the subject of the SPA) was of no effect. The relevant notice of claim recorded that the losses arising out of the breach were yet to crystallise but estimated them as either (i) the cost of acquiring the necessary easement and the additional costs which would be incurred as a result of the longer route over the relevant land which the grantor would insist upon (together estimated to be £8.1 m); or (ii) the costs of a compulsory acquisition (estimated to be £6.7m).
  5. The purchaser’s claim as originally pleaded claimed losses on the same basis (which were losses suffered by the company in which the shares were acquired and not losses suffered by the purchaser of the shares).
  6. The claim was defended on various grounds including that the notice of claim had not sufficiently notified ‘the nature of the claim and the amount claimed’ as required under the contract.
  7. The purchaser’s response was to seek to amend the claim to plead a loss suffered by it, consisting of the difference between (a) the warranted value of the company acquired by the purchaser (i.e. with the benefit of a valid option agreement) and (b) its true value (i.e. without the benefit of a valid option), evidence of the difference in value alleged to be the cost of obtaining a valid easement and the increased costs of the new route.
  8. At first instance the court held that difference in the value of the shares was something that should have been notified in the notice of claim and that the notice was therefore non-compliant.
  9. On appeal Males LJ said this (at [50]):

Whether a notice is sufficient to satisfy the requirements of any given clause must depend primarily on the language of the clause. However, where they use broad and general terms such as ‘the nature of the claim’ and ‘in reasonable detail’, those requirements should be interpreted in the light of the commercial purposes of such clauses, including those identified in Dodika. It is important that Notice of Claim clauses should not become a technical minefield to be navigated, divorced from the underlying merits of a buyer’s claim. While a seller’s interest will always be to knock the claim out if it can on the technical ground that the notice is insufficient, courts should not interpret such clauses as imposing requirements which serve no real commercial purpose unless compelled to do so by the language of the clause.

  1. After noting (at [51]) the need to remember that notice of claim clauses are essentially exclusion clauses, Males LJ went on (at [52]) to hold that a fair reading of the notice given made clear that the loss claimed consisted of a future liability to VPI 1. In his judgment (at [54]) the “nature of the claim’ was straightforward and (at [55]) he could see nothing in the language of the clause or in its commercial purpose which required Drax to spell out, as a part of a statement as to the nature of the claim, that the damages claimed would be based on the difference in value of the relevant company as a result of not having the benefit of the option agreement.
  2. Concluding that it was unnecessary to state in the notice of claim that the losses were based on a difference between the value of the shares as warranted and as they were is perhaps unsurprising, given that that is the conventional measure of damages in a claim for breach of warranty (as appears from cases such as Lion Nathan Ltd v C-C Bottlers Ltd [1996] UKPC 9; [1996] 1 WLR 1438 at [9]; MDW Holdings Ltd v Norvill [2022] EWCA Civ 883 at [24]), a point made in support of Drax’s appeal (see the judgment at [45]).
  3. A convenient summary of broad principle appears in the judgment of Gloster J (as she then was) in RWE Nukem Ltd v AEA Technology plc [2005] EWHC 78 (Comm) at ¶ 10) where she distilled the following further relevant propositions from authorities to which she had been referred:

(1) where a notification clause operates as a condition precedent to liability for breach of warranty, it is for the party bringing the claim to demonstrate that it has complied with the provision;

(2) the wording of the notification clause must be interpreted by reference to the commercial intent of the parties; that is to say, the commercial purpose that the clause was to serve;

(3) in all cases it is important to consider the detailed claim being made in terms of both the breach complained of and the remedy being sought, to ensure that it was a claim which was properly notified.

  1. The notification clause with which Gloster J was concerned in RWE is summarised in paragraph 13 above.
  2. As to that the learned judge said this (at [11]):

In my judgment what has to be notified in relation to any particular claim in the present case will be largely dependent on the nature of the Claim, the facts known to the vendor at the date of the notice, and whether it is realistic to put any monetary quantification on the amount claimed. I do not think one can lay down too rigid a formula for ascertaining what precise particulars or details have to be notified; the answer is that it will all depend. However, . . . I would expect a compliant notice would identify the particular warranty that was alleged to have been breached; I would expect that, at least in general terms, the notice would explain why it had been breached, with at least some sort of particularisation of the facts upon which such an allegation was based, and would give at least some sort of indication of what loss had been suffered as a result of the breach of warranty . . .

  1. Whether or not it is necessary to identify in any notice of claim the specific warranties (or other terms) said to have been breached was subsequently considered by the Court of Appeal in Tesco UK Ltd v Aircom Jersey 4 Ltd [2018] EWCA Civ 23; [2018] BCC 339. There the relevant notification clause was in these terms:

No Seller shall be liable for any claim unless the purchaser has given notice to the Seller of such claim 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 (detailing the purchaser’s calculation of the loss, liability or damage alleged to have been suffered or incurred)).

  1. The time limit for notification of claims was “as soon as reasonably practicable after the purchaser group becomes aware that the purchaser has such a claim, and in any event on or before 31 July 2015”.
  2. At first instance the judge held that the notices relied upon by the purchaser were non-compliant for a number of reasons including that:

(1) a reasonable recipient would not have understood them to be giving notice of claims rather than notifying their existence or potential existence;

(2) they did not set out “reasonable details of the claim (including the grounds on which it is based . . .)” because they did not identify the relevant warranties said to have been breached;

(3) in respect of one of the claims, it had not been notified as soon as soon as reasonably practicable after the purchaser became aware that it had such a claim.

  1. The focus of the appeal was confined to (2) above. After referring to the passage from Gloster J’s judgment in RWE Nukem and other authorities, Newey LJ (giving the only reasoned judgment of the court) upheld the judge’s decision that the failure to identify in the notices the specific warranties said to have been breached was fatal. He accepted the submission for the seller that the contractual wording of “setting out” of the ”grounds” of the claim meant that the legal basis of the claim had to be identified, adding, however, “It is not inconceivable that, exceptionally, that could have been achieved without mentioning a warranty or other provision in terms (if, say, recitation of the facts [in the notice] had unequivocally indicated a specific warranty”.
  2. It is, therefore, undoubtedly good practice to identify in any notice of claim the terms of the relevant agreement said to have been breached, even though in Drax Smart Generation, Males LJ doubted in passing (at [54]) whether that is necessary.
  3. In Laminates Acquisition Co v BTR Australia Ltd (supra) Mr Justice Cooke identified (at [30]) the purpose of the relevant notice provision (again summarised in paragraph 13 above) as to ensure that the vendor was provided with a warning of future legal proceedings against it with sufficient information and time to enable it to make enquiries, to make an informed assessment of the claim, decide what to do about it, take precautionary steps (such as notification to insurers and preparation of defence material), make provision in its accounts or obtain withdrawal of the claim or satisfy or settle it before legal proceedings were issued. To do any of those things, said Cooke J, necessitated some particularisation of the claim.
  4. Sometimes the commercial purpose or purposes behind the notice provision will be expressly referred to in the relevant contract. Thus, in T&L Sugars Ltd v Tate & Lyle Industries Ltd [2014] EWHC 1066 (Comm), cl 11.1 of the sale agreement (no doubt drawing upon the decision in Laminates Acquisitions) required notification of a claim to set out “such information as is available to [the purchaser] as is reasonably necessary to enable the [seller] to assess the merits of the potential claim, to act to preserve evidence and to make such provision as [the seller] may consider necessary.”

“As soon as possible and in any event on or before [a specified period or event]”: a dual condition precedent?

  1. Such formulations can be a trap for the unwary as a failure to notify a claim as soon as possible will not necessarily be cured even if notice is given before the long stop date or event.
  2. In Towergate Financial (Group) Ltd v Hopkinson (supra) the relevant clause in the SPA required notification of claims to the warrantors “as soon as possible and in any event . . . on or before the seventh anniversary of the date of [the SPA]”.
  3. The SPA was dated 5 August 2008 and the notice of possible claims was given by letter dated 29 July 2015 (less than a week before expiration of the seventh anniversary).
  4. It was common ground that the giving of notice in accordance with the relevant clause was a necessary pre-condition to any liability on the part of the Defendants (ibid at [31] and [62]). The Claimants contended that by giving the notice before the relevant anniversary they had complied with the condition precedent; the Defendants said that the condition had not been met as the notice had not been given “as soon as possible”.
  5. The dividing line between the parties was, therefore, whether the clause contained a dual condition (as soon as possible/7 years) as the Defendants contended or a single condition (7 years) as the Claimants submitted.
  6. The judge (Cockerill J) was of the view (ibid at [77]) that on its face (as a matter of pure linguistic analysis), the clause “plainly imports a dual condition: as soon as possible and in any event seven years”. After considering the commercial purpose of the clause and its context she remained unpersuaded that those factors required any revision to the result which simple linguistic reading offered (ibid at [90]-[91]).
  7. Although there was authority on a similarly worded clause rejecting the dual condition approach (AIG v Farraday [2007] 1 All ER (Comm) 527), that was a case:

(1) which involved an insurer’s standard terms and conditions not an individually negotiated contract between businessmen (Towergate at [105]);

(2) where the relevant notification had to be given “as soon as reasonably practicable and in any event within 30 days” giving scope for confusion as an unwary reader might (looking at matters “very charitably’) be misled into thinking that 30 days was intended to define as soon as possible, a suggestion which would be ‘plainly absurd’ in the context of a 7-year longstop (Towergate at [107]).

  1. This proved fatal to the claim as it was apparent from the evidence that at a much earlier date than the letter giving notice the Claimants knew (or any reasonable person would have known) matters which might have given rise to a claim.

Quantification of loss

  1. Where the relevant clause requires notification of the estimated loss, this can present difficulties. Depending on the wording of the warranty or warranties said to have been breached (and any contractual remedy specified in the contract), frequently expert evidence may be required properly to quantify loss. There are dangers in under-estimating for the purposes of a required notification letter the losses said to arise out of the alleged breach: see Highwater Estates Ltd v Graybill [2009] EWHC 1192 (QB) where the court held that a discrepancy between the amount claimed in the notification letter (£387,000) and in the subsequent proceedings (£2.06m) was a further instance of non-compliance with the contractual requirements of the notice.
  2. The decision in Highwater ought now, however, to be read in light of the observations of Males LJ in Drax Smart Generation (supra). After observing (at [56]) that any calculation or estimation of loss set out in a contractual notice of claim must be advanced in good faith, Males LJ went on (at [58]) to say this:

It is true that the draft Amended Particulars of Claim now put forward a different basis, i.e. difference in value, on which the damages calculation is based. However, so long as what is put forward in the Notice of Claim is a genuine estimate, it is a matter of fact ‘the Buyer’s calculation of the loss thereby alleged to have been suffered’ which is all that the clause requires. There is nothing in the clause to set in stone the calculation of the loss which is stated in the Notice of Claim. If further reflection indicates that the calculation is legally unsound, or capable of improvement, there is nothing in the clause and no good reason to insist that the buyer should be held to the way in which the calculation was formulated in the Notice of Claim. On the contrary, the notice has served its purpose by preventing the claim from becoming barred . . .

Proceedings after notification of warranty claims

Contractual time limits for service of claim

  1. A contractual time limit within which a warranty claim must be commenced will frequently use the words “issued and served”.
  2. In Ener-G-Holdings plc v Hormell [2012] EWCA Civ 1059; [2013] 1 All ER (Comm) 1162, the buyer was required to give written notice of any breach of warranty claim to the seller by the second anniversary of completion (i.e. by 2 April 2010). Proceedings in respect of such claim were required to be issued and served on the seller not later than the expiry of 12 months after the date of the notice.
  3. The mechanics for giving notice in the share purchase agreement were as follows:

13.1 Any notice or other communication under this Agreement shall be in writing and signed by or on behalf of the party giving it.

13.2 Any such notice may be served by delivering it personally or by sending it by pre-paid recorded delivery post to each party (in the case of the Buyer, marked ‘for the attention of directors’) at or to the address referred to in the Agreement or any other address in England and Wales which he or it may from time to time notify in writing to the other party.

13.3 Any notice delivered personally shall be deemed to be received when delivered (or if delivered otherwise than between 9.00 am and 5.00 pm on a Business Day, at 9.00 am on the next Business Day), any notice sent by pre-paid recorded delivery shall be deemed to be received two Business Days after positing and in proving the time of despatch it shall be sufficient to show that the envelope containing such notice was properly addressed, stamped and posted.

  1. Clause 14.2 of the agreement was headed “Proceedings” and provided as follows:

The parties agree that the documents which start any legal proceedings relating to a dispute (“Proceedings”) and any other documents required to be served in relation to those Proceedings may be served on any party in accordance with this Agreement. Those documents may, however, be served in any other manner allowed by law. This clause applies to all Proceedings wherever started.

  1. The buyer sought to give notice of its warranty claim to the seller in two different ways. First, a process server was instructed to deliver a notice (the first notice) in an envelope addressed to the seller at his home address referred to in the agreement (no other address having been notified under cl 13.2). No one was at the home address when the process server attended (on the afternoon of 30 March 2010), so he left the envelope in the front porch on a table. The seller later the same day (and before 5.00 pm) found the envelope and read the notice inside.
  2. The second way in which the buyer sought to give notice of the claim was by sending (on 30 March 2010) an identical copy of the first notice by recorded delivery in an envelope addressed to the seller at his home address. By virtue of cl 13.3 of the agreement that was deemed received on 1 April 2010.
  3. The claim form (and response pack) used to initiate the subsequent claim was left by a process server at the buyer’s (empty) house at 4.20 pm on 29 March 2011. Under CPR 6.14, the claim was deemed served on 31 March 2011 (although the documents were not in fact received until 2 April 2011 when the seller opened the letter box).
  4. If the first notice was validly served on 30 March 2010, the time limit for service of proceedings expired on 30 March 2011, meaning that the claim was not issued and served in time. As to that the judge at first instance concluded that although the first notice was not the subject of personal delivery within cl 13.2 of the agreement (that required delivery to the seller personally and was not satisfied by leaving the notice at his house), cl 13.2 did not purport to be exclusive as to the manner in which service of the notice could be effected. In circumstances where the notice had been received by the seller and read by him before 5.00 pm on 30 March 20112 , it would, said the judge, be wholly contrary to common sense to say that the seller did not have notice on that date. As the subsequent claim form was, by virtue of CPR 6.14, deemed served on 31 March 2011, the proceedings had not been served within 12 months from the date of service. On appeal, the Court of Appeal upheld the judge’s decision (albeit only by a majority in relation to whether or not cl 13.2 was exclusive as to the permitted modes of service of the notice).
  5. The key takeaway from this decision is not leave service of any proceedings issued following service of a contractual notice of claim until the last minute.
  6. In T&L Sugars Ltd v Tate & Lyle Industries Ltd (supra) the High Court (Flaux J) held, in a clause in a share and business sale agreement deeming any notified warranty claim to have been irrevocably withdrawn unless “legal proceedings in respect of [it] were commenced by being both issued and served”, meant issued and served in accordance with the CPR, not delivered and received in some non-legal sense (as Green J had held in respect of a similarly worded clause in Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2013] EWHC 3261 (QB)).
  7. In concluding that “served” in the relevant clause (cl 11.3) meant served in accordance with the CPR Flaux J relied upon the following reasons.
  8. First, the word was used in the phrase “has issued and served proceedings”. Clearly, said Flaux J, the word “issued” in that phrase must mean issued in accordance with English procedural rules (since the only proceedings permitted by virtue of the exclusive jurisdiction clause were before the English courts), in other words issued and sealed by the court in accordance with CPR 7.2. “Issued” in that context could not have some ordinary, non-legal meaning, for example sending of a draft claim form and Particulars of Claim, as sometimes happens to facilitate settlement before proceedings are formally issued. On the basis that “issued” in that context meant issued in accordance with the CPR, it would be “very odd” if “served” in the same phrase did not also connote served in accordance with the CPR.
  9. Secondly, when cl 11.3 talks about proceedings (which by necessity means proceedings before the English courts) being “issued and served”, the natural meaning of the word “served” in that context is “served in accordance with the procedural rules in force in England at the relevant time”. He rejected as uncompelling Green J’s reasoning in Ageas to the effect that the parties as reasonable businessmen would have intended “served” to have some ordinary meaning of delivered and received. Had that been the case, different words would have been used.
  10. Thirdly, Flaux J agreed with counsel for the seller that the relevant contract envisaged two separate regimes, one for the giving and receipt of contractual notices and the other for issue and service of proceedings.
  11. Fourthly, although he agreed that the purpose of a clause such as cl 11,3 was to bring to the attention of the seller the existence of a warranty claim, within a relatively short period (there 12 months) so that the seller would know, once the time limit had passed and no proceedings had been issued and served, that it was free from the risk of proceedings, that did not, said Flaux J, assist in answering the question what step or steps had to have been taken to serve proceedings within the meaning of the clause.
  12. Fifthly, contrary to Green J’s reasoning, he did not consider the absence of clear words making it plain that service in accordance with the CPR was contemplated assisted determination of the proper meaning.
  13. Finally, although he agreed with Green J that the contract had to be construed as whole as part of the “unitary exercise” of construction in accordance with Rainy Sky v Kookmin Bank [2011] 1 WLR 2900, the presence of the exclusive jurisdiction clause made it quite clear that the proceedings referred to in cl 11.3 must be before the English courts and the clear distinction drawn in the agreement between the giving and receipt of contractual notices and the service of proceedings, all pointed to service meaning service under the CPR.
  14. As to when service was effected, Flaux J held it was the date service was actually effected in accordance with CPR 7.5 not the (later) deemed date of service under CPR 6.14. That rule (CPR 6.14) was looking at when service will be deemed to have taken place for the purpose of other steps in the proceedings thereafter, beginning with the filing of an acknowledgement of service.

Summary

  1. Whether acting for a buyer or a seller, it is useful to ask at least the following (non-exhaustive) questions:
  2. What does the language used in the relevant notification clause require?
  3. Does it specify matters which must be included in any notice of claim? If so, they fall to be treated as conditions precedent and if not included will render the notice non-compliant.
  4. What is/are the purpose/s of the notification clause? Are they met by what is included in the notice?
  5. What does the recipient know?
  6. Does the notice of claim actually assert a claim or merely raise the possibility of a claim? If the latter, it is likely to be non-compliant.
  7. Is any quantification of loss advanced in good faith?
  8. What is the time limit for the giving of a notice of claim? Note the dual conditions precedent in formulations such as “as soon as possible and in any event on or before the 3rd anniversary of completion”.
  9. Does the relevant agreement make express provision as to the manner in which any notice of claim is to be given?
  10. By what date must any proceedings be issued and served?

Richard Ascroft

23 May 2024

  1. Though as it appeared that the price obtained by Drax for the shares on their sale to VPI did not appear to have been affected by the inability to obtain an easement (and nor had it been suggested that Drax had any liability to VPI as a result of the absence of any easement), Males LJ did observe (at [53]) that the pleaded claim did seem “surprising”. ↩︎
  2. And was even discussed between the seller and his solicitor on the same day (30 March 2010): see judgment at first instance at [16]. ↩︎

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Richard Ascroft

Call: 1995

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