15th February 2018
Walker Morris’ Head of Commercial Dispute Resolution, Gwendoline Davies, explains why notifying contractual warranty claims – and serving legal notices generally – can be a particularly tricky business. Gwendoline shares some practical advice.
Back in 2016, Walker Morris’ Corporate partner Richard Naish reported on the importance of clarity and accuracy when notifying breach of warranty claims. The issue has recently come before the courts again.
In Teoco UK v Aircom Jersey  the Court of Appeal was asked to determine whether the purchaser/claimant’s notification of a breach of SPA warranty claim – worth some £3.46 million – was valid.
The purchaser had bought group companies pursuant to a sale and purchase agreement (the SPA) which contained a tax covenant and various warranties under which the seller warranted that the companies had paid all tax due. As is typical, the seller’s liability was subject to notification of claims obligations which, in this case, required the purchaser to give notice: “setting out reasonable details of the claim (including the grounds on which it is based and the Purchaser’s good faith estimate of the amount of the claim)”.
In February 2015 the purchaser’s solicitors wrote to the seller, referring generally to the tax covenant, tax warranties and general warranties, alleging potential breaches and purporting to comply with the notification of claims obligations within the SPA. When the seller responded that the letter contained insufficient detail to constitute a valid notification, the purchaser’s solicitors wrote again, this time simply setting out a breakdown of tax allegedly due.
The High Court had previously concluded that the purchaser’s letters did not constitute valid notification of a claim because, without identification of the specific warranties alleged to have been breached, they did not set out the legal grounds for a claim. The Court of Appeal agreed and clarified as follows:
The notification of warranty claims obligations in the Teoco SPA were also time-limited: notice had to be given as soon as reasonably practicable after the purchaser became aware of a claim, and in any event on or before the longstop date of 31 July 2015. Legal proceedings also had to be commenced within six months of the date the seller was notified and, once a claim had been commenced, no new claim may be brought in respect of the same matter. (The purchaser therefore effectively had only one ‘shot’ at getting any claim right).
Such time limits and other claim restrictions are common, not only in relation to warranty claim notifications, but also in relation to the service of all sorts of contractual notices.
Most modern commercial contracts also contain separate, detailed service of notice clauses with additional obligations and requirements which, if they are not strictly complied with, can invalidate any notice. The consequences of that can be significant.
In the recent case of Zayo Group International Ltd v Michael Ainger & Ors  (incidentally, also a notification of warranty claim dispute) the claimant had left service of the relevant notices until the last minute. The contract in question provided for notices to be served on all seven defendants by hand at the addresses specified in the contract or such other addresses as may be notified in writing. When the courier arrived at the address of one of the defendants, he discovered that she no longer lived there and left without leaving the notice. The deadline for service expired later that day, so the claimant had no opportunity to further attempt service. When the claimant subsequently sought to bring proceedings, the High Court dismissed its claim in full and against all defendants, on the basis that service had not been validly effected.
A good tip, when it comes to the service of any contractual notice, is to remember the mantra: who, when and how? Immediately a party considers serving a notice, it should ascertain exactly:
The best advice is to leave the issue of warranty claim notifications – and indeed the service of legal notices generally – entirely to the experts. The consequences of getting any such notice wrong can be too costly to gamble. That is particularly the case where, as in Teoco, the potential claimant only has one bite at the cherry. Instructing specialist legal representatives to take on the risk for you reduces the chance of any problems arising.
 Teoco UK Ltd v Aircom Jersey 4 Ltd & Anor  EWCA Civ 23
 Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd  2 Lloyd’s Rep 423
 RWE Nukem Ltd v AEA Technology Plc  EWHC 78 (Comm)
 i.e. the objective test, established in the House of Lords case of Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd  AC 749, HL, which can (in some circumstances) save an otherwise defective notice if the reasonable recipient would nevertheless have been left in no doubt as to its meaning
  EWHC 2542 (Comm)