How Do I Notify A Breach Of Warranty Claim?

In its recent judgment in Teoco UK Limited v Aircom Jersey 4 Ltd and another, the Court of Appeal considered the steps the claimant needed to take to provide a valid notification of claim under the warranties in a share purchase agreement (SPA).

When a business is sold, the seller gives the purchaser various warranties as to the business. These warranties (together with disclosures against them) give the purchaser crucial information about the affairs of the business (for example as to its solvency, borrowings, claims or potential claims against it, and tax liabilities) in order to assess its value. The warranties form part of the purchase documentation (share or asset purchase agreement) and give the purchaser contractual protection - if any of the warranties turns out to be untrue, then the purchaser may have a claim against the seller for breach of warranty and for any consequential reduction in the value of the business. However, it is common for the agreement also to contain limitations on the seller's liability under the warranties. These could include a de minimis financial level for claims, a cap on the seller's financial liability, a restriction on the period in which claims may be brought, and, as in this case, a requirement for the purchaser to notify potential warranty claims to the seller.

Background to the case

In this case, the purchaser issued court proceedings against the sellers for, inter alia, breach of warranties as to the tax position of some of the target companies. The purchaser valued the claims at c.£3.5m.

The sellers asked the court to strike the purchaser's claim, relying on various limitations of liability in the SPA:

First, the SPA provided that the purchaser had, as soon as reasonably practicable, to give the sellers notice, containing reasonable details of any matter or thing of which the purchaser became aware that indicated that the purchaser had or was likely to have a claim ("Early Warning"). Such Early Warning was not however a pre-condition to the liability of a seller, provided that the purchaser gave notice as described below. Secondly, the SPA required the purchaser to give notice of any claim setting out reasonable details of it, including the grounds on which it was based and an estimate of the value of the claim ("Notice"). Such Notice was to be given as soon as reasonably practicable after the purchaser becoming aware that it had such a claim, and in any event before 31 July 2015, failing which...