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SPAs: Breach of warranty claims

Print publication

05/05/2015

In The Hut Group Ltd v Nobahar-Cookson and another [1] the main point arising from the buyer’s claim centred on the buyer’s compliance with the following notice provision:

“The Sellers will not be liable for any Claim unless the Buyer serves notice of the Claim on the Sellers (specifying in reasonable detail the nature of the Claim and, so far as practicable, the amount claimed in respect of it) as soon as reasonably practicable and in any event within 20 Business Days after becoming aware of the matter.” [Emphasis added]

The sellers argued that (1) the required notices were not given in time and (2) even if they had been given in time, they were not valid because they did not contain sufficient detail. The points at issue concerned principally (1) what was meant by “becoming aware of the matter” and (2) the level of detail required to be included in the notice.

“Becoming aware of the matter”
The High Court held that the 20 business day period did not start to run until the buyer was aware that there was a proper basis for a warranty claim (as opposed to when it became aware of the underlying facts). It held further that “becoming aware of the matter” meant “becoming aware of the claim”.

The Court said that the courts will not be predisposed to interpret the relevant notification provision in a way that favours the notifying party if a deadline is particularly tight and that, as a matter of commercial sense, without knowing that a claim has a proper basis, a party to an SPA would not expect to (or wish to) have to notify the other party of it.

“Reasonable detail the nature of the claim”
The Court held that this wording set a relatively low threshold as to the amount of information to be provided. If more information is required, less general and more prescriptive language should be used.

WM comment
Buyers should ensure that the trigger for the notice period beginning to run is drafted in clear terms. The trigger should be expressly linked to the buyer’s actual knowledge that it has a proper basis for putting forward a claim under the relevant warranty. Mere knowledge of the facts giving rise to the potential claim is not sufficient.

A requirement for the buyer to include in its notice “reasonable details of the nature of the claim” is likely to be interpreted as imposing a relatively low standard regarding the level of information that must be provided.

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[1] [2014] EWHC 3842 (QB)

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