In Drax Smart Generation Holdco Limited v Scottish Power Retail Holdings Limited [2023] EWHC 412 (Comm), the High Court considered whether to dismiss a buyer’s warranty and indemnity claims under a share purchase agreement because its notice of the claims failed to comply with the requirement of a claims notification clause to state in reasonable detail the amount claimed, and the buyer’s calculation of the alleged loss suffered.
The High Court has considered whether to grant summary judgment dismissing a buyer’s warranty and indemnity claims under a share purchase agreement because its notification of the claims failed to comply with a clause which required the buyer (as a condition to the seller’s liability) to give written notice “…stating in reasonable detail the nature of the [claim] and the amount claimed (detailing the [buyer’s] calculation of the Loss thereby alleged to have been suffered)…” before a specified date (Notice Limitation).
The buyer’s purported notice comprised a nine-page solicitor’s letter. There was no dispute concerning the detail provided of the events giving rise to the claims, or whether the notice properly identified the relevant clauses of the SPA. However, in respect of the warranty claims, the seller contended that the notice did not state in reasonable detail the nature of the claim and the amount claimed (detailing the buyer’s calculation of the loss suffered) because it failed to notify any claim for loss based on diminution in value of the acquired shares.
Agreeing with the seller, the court found that where the buyer’s warranty claim was based on the diminution in value of the acquired shares, that ought to have been identified in its notice of claim. Stating in reasonable detail “the amount claimed (detailing the [buyer’s] calculation of the Loss thereby alleged to have been suffered)” required the buyer to explain that the calculation of its loss was the difference between the warranted value of the acquired shares, and their actual value. In fact, a different basis was identified in the notice, namely that the buyer bore a liability for losses suffered by the acquired company.
However, the court declined to dismiss the indemnity claim, finding that the buyer did not have to identify an ascertained sum for the purposes of its claim within the time limits specified in the Notice Limitation. The SPA contained two independent requirements. The first (in the indemnity itself) required a written demand for an ascertained sum, the second (in the Notice Limitation) required a notice of the indemnity claim, stating in reasonable detail the nature of the claim and the amount claimed. The SPA set specific time limits in respect of the second requirement, but no such limits applied to the first. In the circumstances, the requirement in the Notice Limitation to state the amount claimed in reasonable detail did not demand identification of an ascertained sum.
Lessons to be learned
Clearly the lesson to learn he is that it’s really crucial to follow “to the letter” the terms of any share purchase agreement when giving notice of warranty claims.
Here, there was an obvious need to include detail of the diminution in value of the acquired shares due to the breach of warranty – actually that is pretty standard, and I’m not sure why the buyer’s solicitor did not include that in their 9-page letter. I guess that’s why lawyers have insurance of course.
Had they set out in reasonable detail the diminution claim, then this claim would not have been dismissed.
In February 2023, I taught on the important of the disclosure letter and warranties in my course with MBL Seminars.
When you’re selling a business, it’s super important that your solicitor knows what they are doing and are experienced enough to handle the transaction.
If you need any help or support, get in touch.
