Serving notice under a contract? ASAP means ASAP

02 September 2020

Author: Rachel Craig
Practice Area: Corporate - M&A

Law_books_(2)

The recent judgment in Towergate Financial (Group) Ltd & Ors v Hopkinson & Ors [2020] EWHC 984 (Comm) is an important reminder for contracting parties to comply with all the requirements of notice clauses to ensure that a notice, when served, is valid. The case is yet another example of how the courts seek to give contractual clauses their “natural and ordinary meaning”, even if this results in significant commercial consequences for one or other party.

Background

M2 Holdings Limited (“M2”) and its subsidiaries provided financial advice to retail customers. The entire issued share capital of M2 was sold to one of the claimants, Towergate Financial (East) Holdings Limited (the “Buyer”) pursuant to a share purchase agreement dated 5 August 2008 (the “SPA”). The SPA included a specific indemnity in relation to claims for professional negligence against M2 and its group including but not limited to claims or complaints arising from the mis-selling of certain financial products (the “Specific Indemnity”).

The SPA further provided that written notice of any claim under the Specific Indemnity (such notice to specify the details and circumstances giving rise to the claim and a good faith estimate of the total amount of such claim) was to be given by the Buyer as soon as possible and in any event on or before the seventh anniversary of the SPA.

In a letter dated 29 July 2015, just a few days before the seventh anniversary of the SPA, the Buyer served notice of a claim under the Specific Indemnity.

The issue before the Court

The claimants (which include the Buyer) contended that in giving notice of a claim under the Specific Indemnity in the letter dated 29 July 2015, which was before the seventh anniversary of the SPA, the Buyer had complied with the SPA. The seller defendants, on the other hand, argued that the Buyer had not complied as notice was not given as soon as possible. Citing relevant precedents, the Buyer further contended that the words “as soon as possible” did not create a separate condition precedent which must be fulfilled because the words were insufficiently certain in the context of the degree of certainty required for a condition precedent.

The Court was therefore asked to consider:

  • Did the SPA impose a condition precedent as to the time by which notice of a claim under the Specific Indemnity must be given?
  • If so, what is that time – is it prior to the seventh anniversary of the SPA or as soon as possible? If the latter, what circumstance triggers the commencement of the period “as soon as possible” and how soon after that must notice be given?
  • Did the Buyer comply with any condition precedent as to the time by which notice of the Specific Indemnity claim had to be given?

The Court’s decision

The Court’s view was that there was agreement in respect of a), i.e. that both parties accepted that the SPA incorporated some form of condition precedent. The question then became whether it was a dual condition (of as soon as possible / 7 years) or a single condition (of 7 years). After hearing both parties’ arguments, the Court favoured the defendant sellers’ interpretation of a dual condition to notify as soon as possible and in any event within 7 years, noting that, while the drafting in the SPA may not have been perfect, it was still “perfectly clear”.

Furthermore, the Court was of the view that the time for “as soon as possible” began to run at a time when there was an identifiable matter or thing in relation to which a claim under the Specific Indemnity may arise.

Finally, the Court reviewed the chronology of events leading up to the Buyer serving notice of the claim under the Specific Indemnity. At which point did the Buyer know (or would a reasonable person know) any matter or thing that may give rise to a claim under the Specific Indemnity? Given that the Buyer had made notifications to its insurers in relation to potential relevant claims, (albeit that the trigger for notification to insurers was different to that of the Specific Indemnity in the SPA), the court concluded that “there can only be one answer to the question of whether the Claimants by this stage knew any matter or thing, which they knew or any reasonable person would know might give rise to a claim under the indemnity.” Whilst there may still have been work to do in establishing “a really robust estimate of the liabilities”, the Court’s view was that the Buyer had sufficient “meaningful and useful information” to serve notice of a claim under the Specific Indemnity sooner than it did. Accordingly, the Court held that the Buyer had not complied with the condition precedent as to the time by which notice of the Specific Indemnity claim had to be given.

As such, the Buyer’s claim for an indemnity against the sellers – the quantum of which was potentially significant – failed.

Practice points

Contracting parties, and lawyers involved in drafting individually negotiated contracts, are reminded that, if asked to do so, courts will seek to interpret contracts so as to give clauses their “natural and ordinary” meaning.

Parties wishing to serve notices under contracts should consider the various requirements for validly serving notice in a given situation and ensure that these are met, bearing in mind the potentially significant commercial consequences, as in this instance, where a notice is not validly served.

If you have any queries, the Corporate team at Carson McDowell would be happy to help.

*Please note that this information is for guidance purposes only and does not constitute, nor should be regarded as, a substitute for taking legal advice that is tailored to your particular circumstances.

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