Take notice: Court of Appeal reverses High Court decision on validity of notice of warranty claim

Last year we reported on the High Court's decision in Drax Smart Generation Holdco Limited v Scottish Power Retail Holdings Limited [2023] EWHC 412 (Comm) that a purchaser's breach of warranty claim under a share purchase agreement (SPA) was time-barred by a clause that required the purchaser to notify its claim before a specified date "stating in reasonable detail the nature of the claim and the amount claimed (detailing the Buyer's calculation of the Loss thereby alleged to have been suffered)". 

The High Court found that the purchaser's notice of claim, given just before the contractual deadline, did not satisfy this requirement because the claim was quantified based on loss suffered by the acquired company, rather than on a reduction in value of the acquired shares. The court considered that the claim being based on the difference in value of the acquired company's shares was an important part of both the nature of the claim and the explanation required to provide reasonable detail of the claim.

In Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd [2024] EWCA Civ 477, the Court of Appeal allowed an appeal against the High Court's decision, finding that the relevant language and its commercial purpose did not require the purchaser to explicitly state that the damages claimed were based on a reduction in value of the acquired company's shares as a result of the alleged breach of warranty. Since the notice of claim had stated the amount claimed and provided details of the purchaser's calculation of that amount, nothing further was required. You can read more about the Court of Appeal's decision in our separate in-depth piece here.

What does this mean?

The Court of Appeal took a pragmatic approach to interpreting the contractual requirements for the notice of claim, reasoning that the notice provided had given the seller all the information it needed to assess its liability and consider the nature and value of the claim. 

However, the interpretation of a contract will always depend on the exact wording used. When negotiating the terms of an SPA, a purchaser should ensure that any contractual provisions setting out the information required to be included in a notice of claim are specific and easy to comply with.

When giving a notice of claim, a purchaser must ensure that any contractual requirements in the SPA are complied with and should provide as much information as possible to explain the nature of the breach and the value of the claim, including the type of claim made and the specific provisions of the SPA alleged to have been breached. 

Purchasers should also avoid leaving service of the notice of claim to the last minute so that there will be time to remedy any technical defects before expiry of the notice period.