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Warranty Claims - Buyers Beware!

Gateley Legal

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A string of recent cases have shown that the success of a buyer's claim for breach of warranty may turn not on its merits, but instead on whether or not the buyer has complied with the relevant contractual notice provisions in the share or asset purchase agreement.

By not leaving enough time to make sure the notice of claim satisfies these clauses a buyer is at risk of having its claim defeated on a technical point.

Notification requirements are often drafted as conditions precedent to the seller’s liability. The provisions usually specify the trigger for notification, the deadline to serve the notice, recipient, method of delivery and the level of detail that must be given regarding the nature of the claim. 

Don’t let your claim be defeated by a technical error

The general rule is that each notification clause will turn on its own individual wording; the buyer must ensure that it strictly follows the specific requirements in the relevant agreement or risk its claim being rejected, regardless of the strength of the underlying claim. MDW Holdings Ltd v Norvill [2021] EWHC 1135 (Ch) serves as a reminder of this and that a notice meeting the relatively low requirements of the applicable clause in this case "the nature of the Claim (in so far as it is known to the Buyer) and, so far as is reasonably practicable, the amount claimed….." may not be sufficient to comply with stricter requirements set out in a notification clause in another agreement. In TP Icap Ltd v Nex Group Ltd [2021] EWHC 1375 (Comm) the Court found that a buyer’s notice failed to meet the requirement that it state, “in reasonable detail the nature of the [claim] and, if practicable, the amount claimed” and the claim was struck out.

As the judge in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] UKHL 19 said: "if the clause had said that notice had to be on blue paper, it would have been no good serving notice on pink paper", however clear the terms of the notice may be.

Putting together the information required for a notice of claim is not a process that can be rushed; a notice must be informative and clear. It will form the basis of any proceedings commenced against the seller; the detail given should be accurate and the warranties breached correctly identified. Failing to do this gives the seller the opportunity to argue that the notice does not accurately set out the claim subsequently issued. 
Insufficient time to fully consider claims puts the buyer at risk of the notification provisions not being complied with. In the months running up to the end of the notification period a buyer should take time to consider whether it has any potential warranty claims, it should not be left to the weeks and certainly not days before the deadline.

As soon as a buyer (or in the case of a corporate entity anyone within the organisation) becomes aware of facts that might give rise to a warranty claim, the circumstances of the claim should immediately be discussed with a litigation solicitor. 

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