22 January 2018 - Post by:Jason Rix
In Teoco v Aircom, the Court of Appeal found that letters sent by the purchaser, Teoco, to the sellers, Aircom, under a share purchase agreement did not constitute valid notice of intention to bring a claim for breach of warranty and accordingly the claim had been correctly struck out.
The relevant provision specified that the seller would not be liable for any claim unless the purchaser had: “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)).”
Both sides, and the court, recognised that “every notification clause turns on its own individual wording”. However, there are principles that can be derrived from the decision both at first instance and before the Court of Appeal.
Requirements for effective notice
- The particular warranties and provisions on which the claims were based should be explicitly identified.
The Court of Appeal held that the requirement of “setting out” the “grounds” on which the claim was based meant that the legal basis of the claim had to be identified. It noted that, exceptionally, this could be done without mentioning the specific warranty but, in general, explicit reference to specific warranties was required. On the facts there was real doubt as to which warranty might be relevant. Adding to this doubt, the seller could only claim under either a tax warranty or a tax covenant and it failed to specify under which it was claiming. The Court of Appeal found that this error alone was enough to dismiss the claim.
- The notice must be sufficiently certain.
The underlying commercial purpose of contractual notices in this area is that of commercial certainty (see eg Senate Electrical v Alcatel).
- Intention to bring a claim must be clear.
The High Court held that a reasonable recipient of the letters would not have understood them to be giving notice of the claims, rather than notifying of their existence or potential existence.
- Some particularisation of the facts and some indication of what loss had been suffered is needed.
The High Court held that there must be sufficient information to notify the sellers of what they had done wrong and what consequences were to flow (see eg RWE Nukem).