The recent Court of Appeal decision in Teoco UK Ltd v Aircom Jersey 4 Ltd  EWCA Civ 23 serves as a reminder of the importance of complying with a notice of claims provision when giving notice of a breach of warranty or indemnity provision under a share purchase agreement (‘SPA’).
Warranties and Indemnities
When selling a business, the seller typically warrants that various statements in relation to the business (specified in the SPA) are true. Should it transpire that these statements are not true, this may give rise to a breach of warranty and a claim for damages by the buyer.
In addition, the seller may make agree to indemnify the buyer against losses should certain specified events occur.
Limits on the seller’s liability will often be negotiated, including a cap on the total amount of claims, de minimis limitations providing that claims must pass a certain value threshold in order to be actionable, and time limits, providing that claims must be notified to the seller and brought within a specified period.
The buyer acquired the entire issued share capital of Aircom International Limited from the Sellers. The SPA contained general warranties, tax warranties and an indemnity in respect of tax. The SPA also provided the seller would not be liable for any such claim unless the Buyer gave written notice “setting out reasonable details” of the claim, “(including the grounds on which it is based”) by 31st July 2015.
In February 2015, the claimant’s lawyers sent a letter to the defendant notifying them of purported tax liabilities, said not to have been disclosed by the buyers. A further letter followed in June 2015, providing additional details of the claims.
The Court of Appeal upheld the High Court judge’s decision that the February and June letters failed to satisfy the requirements of the SPA, as they did not identify the particular warranties and tax indemnity provisions on which the buyer’s tax claims were based.
The buyer’s generic references to potential “Warranty Claims or Tax Claims” did not validly identify the legal basis of the claim pursuant to the requirements of the SPA, as the letters encompassed a number of other possibilities and left scope for doubt about the specific breaches alleged.
This decision highlights the importance of complying with the requirements of a notice of claims provision. While each notification clause will turn on its own wording , as a general rule, buyers should ensure that the notice of claim unequivocally sets out the particular warranties or indemnity provisions which form the legal basis of the claim.