Warranty Claims: The Importance Of Complying With The Contractual Requirements

Another recent case on warranty claims under a share purchase agreement highlights once again the importance of ensuring that any warranty claim is made strictly in accordance with the claims notification provisions in the agreement. Although every notification clause turns on its own wording, this High Court decision is a useful reminder of the principles which the court will apply.

Facts

Under the terms of the relevant share purchase agreement the notice of claims clause provided:

"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 was 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))."

A separate provision required the buyer to give notice to a seller containing "reasonable details of any matter or thing of which the Purchaser's Group becomes aware that indicates that ... the Purchaser has or is likely to have a Claim". However, it stated that this notice was not "a condition precedent to the liability of a Seller in relation to a Claim provided the Claim is notified" as set out above.

The buyer claimed damages for breach of various warranties contained in the share purchase agreement. The sellers applied to strike out two heads of the claim, on the basis that the buyer had not complied with the notification requirements. The buyer relied on two letters it had written to the sellers in support of its case that it had given a valid notice of claims.

Decision

The court agreed with the sellers that the buyer had not given valid notice of its claims. In reaching its decision the court gave a useful summary of legal principles relevant to interpreting warranty claim notice provisions and made the following observations:

there is a significant difference between notifying a party of a claim and notifying a party that a claim may be made; where the agreement requires the buyer to give some level of detail of the claim, the notice should identify the particular warranty that is alleged to have been breached and state why, with some particularisation of the facts on which the alleged breach is based; the fundamental purpose of a contractual notice in these types of circumstances is commercial certainty; and proper compliance with contractual notice requirements is not...