The Court of Appeal has considered whether the sellers under an agreement (SPA) for the sale of shares in a letting agency (Target) could rely on information provided to the buyer outside the disclosure letter to defeat the engagement of a clause which disapplied the contractual limitations on the sellers' liability for breach of warranty claims if there had been negligent non-disclosure.
The Target's main business was enabling private landlords to advertise properties for rent through on-line platforms, including Rightmove and Zoopla. The buyer alleged breach of a warranty in the SPA that the Target was not in default of any agreement to which it was a party, on the grounds that the Target had breached a restriction in the platforms' contractual terms which prevented it from advertising lettings on behalf of other commercial lettings agents.
While the buyer accepted that it had not given the sellers notice of its warranty claim within the six-month time limit imposed by the SPA, it argued that this did not matter, because clause 6.2 of the SPA disapplied the limitation in relation to any warranty claim involving "negligent non-disclosure".
The buyer contended that there had been negligent non-disclosure because the relevant restriction in the platforms' contractual terms was not mentioned in the disclosure letter. The sellers contended that they could rely upon disclosures made outside the disclosure letter, and as the buyer was made aware of the platforms' terms before entering into the SPA, it could not argue there had been a non-disclosure.
The Court of Appeal unanimously upheld the judge's finding that clause 6.2 was not confined to disclosure through the disclosure letter. Its reasons included that:
- There was no reference to the disclosure letter in clause 6.2 and, given that it was referred to elsewhere in the SPA, it was to be inferred that the absence of the reference in clause 6.2 was intentional.
- There was no sense in asking whether there was negligent non-disclosure by reference to the disclosure letter if in fact there had been disclosure in another communication, given that the purpose of the disclosure letter was to limit the scope of the warranties for the sellers' benefit, whereas the purpose of clause 6.2 was to provide an exception to the limitations on liability for the buyer's benefit.
Case: Butcher v Pike [2021] EWCA Civ 1407 (04 October 2021) (Arnold, Coulson, Popplewell LJJ).
Source: Practical Law
Written by Steven Mather, a business solicitor acting on company sales and purchases. This is general information about the law, not legal advice on your situation.
