In a recent case, the Court of Appeal has barred warranty claims under a share purchase agreement (SPA) because of failure to give proper notice in accordance with the terms of the agreement.
Warranties are the key protection for a buyer of a company, and are statements made by the seller in the share purchase agreement. If these statements are not true, and absent seller protections applying, the buyer can bring a claim against the seller for breach of contract. Typically the agreement will contain numerous seller protections, including requirements that claims are brought within a specified period and that the buyer give written notice of the claims within that period.
It is common for the requirement that the buyer give notice to include wording requiring that the notice summarises in reasonable detail the nature of the claim, the grounds on which it is based and perhaps an estimate of the amount claimed.
In the recent case of Teoco UK Ltd v Aircom Jersey 4 Ltd  EWCA Civ 23, the Court of Appeal found that two letters from the solicitors for the buyer purporting to give notice of warranty claims were not valid, as they did not make reference to the particular warranties which the buyer considered had been breached. General references to “warranty claims or tax claims” were not sufficient.
The Court made its determination on the basis that the relevant share purchase agreement required that when giving notice the buyer set out “reasonable details of the Claim (including the grounds on which it is based)…”, and that setting out the grounds of a claim means that the legal basis of the claim has to be identified. The Court unanimously decided that as a general rule this would require specifying the warranties allegedly breached.
This case is a reminder that, while warranty claims are rare in the UK, if one does arise it is key to ensure that the buyer’s ability to claim is not lost through technical failures to comply with the share purchase agreement. When giving notice of a claim, great care should be taken to ensure that the requirements of the SPA are satisfied, and that claims and the grounds for them are adequately identified.
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