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The importance of agreed rules

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It doesn’t matter how good your claim under an agreement is if you don’t follow the rules set out in that agreement for bringing the claim, as a buyer found to its cost in a recent case[1].

The deal

The buyer bought a company from a group of sellers made up of a private equity investor and seven members of the management team. The sale agreement contained a number of commercial warranties about the target group and, as is usually the case on these transactions, those warranties were given by the Management Vendors but not the investor.

After completion the buyer issued proceedings relating to various alleged breaches of the warranties.

Serving the notice (or not)

The sale agreement set out the steps which the buyer had to follow when bringing a warranty claim against the Management Vendors, including how notice of that claim had to be given. In this case, it was agreed that, under those provisions, notice of the claims had to be served on the Management Vendors by 5pm on 13 November 2015.

On that day, the buyer successfully served notice on six of the seven Management Vendors. The seventh, Ms Jaggard, had moved away from her notification address set out in the sale agreement but had not told the buyer. The courier attended her address before 5pm on 13 November but, being told she no longer lived there, he left taking the notice with him. The courier later returned at around 8pm and left a copy of the claim form at the address.

The agreement contained provisions which deemed a notice to have been served when left at the specified address. So if the courier had simply left the notice at Ms Jaggard’s address when he first arrived there, the court would have accepted that the notice had been validly served – even though both the buyer and the courier knew that Ms Jaggard no longer lived there.

The agreement did contain a (typical) provision that a party “may” notify another of an alternative address for service. But the court said this didn’t mean Ms Jaggard had to tell the buyer if she moved. If she chose not to do so, she would run the risk of a notice being validly served at the old address in accordance with the provisions in the agreement even though she would be unaware of that notice. The buyer tried to argue that a term should be implied into the agreement requiring Ms Jaggard to notify the buyer if she moved but the court refused to do this.

So the notice of claim had not been left at the specified address before 5pm and therefore the notice had not been validly served on Ms Jaggard.

But the buyer could still proceed with its claim against the six other Management Vendors who had been validly served, right? Well, not exactly…

The sting in the tail

In this case the sale agreement said: “No Management Vendor shall have any liability for a Management Warranty Claim except in circumstances where the Purchaser gives notice to the Management Vendors”.

The court said this meant that ‘no Management Vendor’ (singular) would have any liability except where the buyer gave notice to the ‘Management Vendors’ (plural). So failing to notify all of the Management Vendors meant that none of them had any liability. As Ms Jaggard had not been validly served, no Management Vendor (ie none of the defendants) was under any liability to the buyer. So the claim against each of the Management Vendors was dismissed and the buyer was unable to recover any losses arising from the (alleged) breaches of the warranties.

Points to note

The case is a reminder that notice provisions in an agreement must be strictly followed. If the courier had simply left the notice at Ms Jaggard’s original address before 5pm, it would have been deemed validly served under the provisions in the agreement.

And the case is yet another reminder to buyers that leaving warranty claims until the last minute is never a good idea!

This blog post was written by partner Sophie Brookes. For further information, please contact Sophie:

T: 0161 836 7823

E: Sophie.Brookes@gateleyplc.com 

[1]  Zayo Group International Ltd v Ainger and others [2017] EWHC 2542 (Comm)

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