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The High Court has recently prevented a buyer from bringing a breach of warranty claim against the seller under a share purchase agreement (SPA) because the buyer had failed to serve proper notice on the seller as required under the SPA.
The case is a reminder that where a buyer is intending to bring a breach of warranty claim against the seller, it must ensure that it complies with the requirements of the SPA and that any notice of claim that it serves on the seller is clear and would be understood by a reasonable person with knowledge of the context to be notice of a claim.
In the case, the limitation of liability clause in the SPA required the buyer to give the seller written notice of any claim it was intending to bring, specifying in reasonable detail:
– The nature of the claim;
– The matter giving rise to the claim; and
– The amount claimed.
These kind of requirements are standard for clauses limiting a seller’s liability under warranties given in a share or business sale.
Further, case law in the area suggests that a notice must specify that a claim is actually being made, rather than simply indicating that a claim may be made. The question here is how a notice would be understood by a reasonable recipient with knowledge of the context in which it was sent.
In the case, the buyer had written to the seller twice before bringing its claim but it had failed to state in either letter that it was serving notice of a warranty claim for damages. The court decided that the buyer had not given valid notice of the claim to the seller. A reasonable recipient with knowledge of the previous correspondence and business context would not have understood the buyer’s letters to constitute a notice of claim. The buyer’s warranty claim therefore failed.
The High Court’s decision suggests that the courts will look for strict compliance with the requirements of the SPA. Buyers looking to pursue claims against sellers should be careful to ensure they comply with any requirements.
If you would like to discuss the issues raised, please contact our Corporate Commercial team.