Stobart Group Ltd & Stobart Rail Ltd v Stobart & Tinkler [2019] EWCA Civ 1376

Was notice of a tax claim under a share purchase agreement effectively given?

The key takeaway

Notices given pursuant to commercial agreements must be drafted in full compliance with the terms required by such agreements.

The background

Stobart Group Limited acquired Stobart Rail Limited from Stobart & Tinkler pursuant to a share purchase agreement dated 7 March 2008 (the SPA).

The SPA stated that the sellers would not be liable for tax claims unless the purchasers had given written notice of such a claim within seven years of completion (Schedule 4, paragraph 6.3 of the SPA). The purchasers were also required to notify the seller’s representatives of any claim or circumstances which may give rise to a claim as soon as reasonably practicable (Schedule 4, paragraph 7.1 of the SPA). 

“Tax claim” was defined in the SPA as a claim by Stobart Group as buyers against the sellers. “Claim” was defined in the SPA as a potential claim by HMRC or other tax authority against Stobart Rail Limited.

On 13 March 2008 HMRC issued a claim against Stobart Rail Limited for unpaid national insurance contributions. Stobart Group’s solicitors notified Stobart & Tinkler of HMRC’s claim in accordance with paragraph 7.1 on 9 April 2008.

The seventh anniversary of completion fell on 4 April 2015. On 24 March 2015, Stobart Group Limited purported to formally notify the tax claim to Stobart & Tinkler under paragraph 6.3.

Stobart & Tinkler sought summary judgment in the proceedings commenced by Stobart Group and Stobart Rail, on the basis that the tax claim had not been notified in time. The High Court granted
Stobart & Tinkler’s application: it determined that the letter sent in March 2015 was not an effective notice under paragraph 6.3, but a notice of a potential claim under paragraph 7.1.

The decision

The Court of Appeal determined that the March 2015 letter purporting to notify the tax claim was ineffective, and dismissed the appeal. 

When construing unilateral notices, the Court held that the subjective understanding of the actual recipient was not relevant; the test is how a reasonable recipient with knowledge of the objective contextual scene would have understood the notice to operate.

The Court held that a reasonable recipient of the March 2015 letter, with knowledge of the factual context, would not have understood it to be a notification of a tax claim for the purposes of paragraph 6.3. This is primarily on the basis that the letter made no reference to a tax claim, did not refer to a claim being made under paragraph 6.3, and gave notice in terms of a potential claim. 

Why is this important?

This decision is a reminder of the importance of paying close attention to the wording of notices to ensure that they are clear and unambiguous, such that a hypothetical reasonable recipient would understand how the notice was intended to operate.

Any practical tips?

When providing notice pursuant to specific provisions of agreements, it is imperative that the specific requirements of that provision be strictly observed. The notice should make clear which provisions of the agreement are being relied upon and make any claim in unequivocal terms. Check (and check again) that any claim has been formulated in accordance with the appropriate defined terms of the agreement. The notice must then be in the required form and served in accordance with the contractual requirements.

Particular attention should be paid where there is potential overlap between similar provisions, to ensure that notice is not mistakenly presumed to have been provided under a different provision.