This case involved the interpretation of a clause limiting liability, which imposed a time limit for serving a notice of a claim of breach of warranty.
The transaction leading to the dispute concerned the acquisition by the claimant (the Hut Group) of Cend Limited, a company owned by the defendants (Nobahar-Cookson). The defendants received both (i) shares in the claimant and (ii) cash in consideration for the share purchase under the share purchase agreement (“SPA”) completed in May 2011.
Following completion, both parties brought claims for breaches of warranties relating to the accuracy of accounts. The breaches of warranties by the Hut Group as to the accuracy of its own accounts were admitted and it sought to limit its liability under the SPA (though ultimately, due to fraud by the financial controller of the Hut Group this was not capped).
Regarding the Hut Group’s claim that the defendants had breached its warranties in relation to the accuracy of Cend Limited’s management accounts, the defendants sought to rely on the Hut Group’s failure to comply with the limitation of liability clause within one of the schedules to the SPA which provided that:
“[the defendants] will not be liable for any Claim unless [the claimant] serves notice of the Claim on [the defendants] (specifying in reasonable detail the nature of the Claim and, so far as practicable, the amount claimed in respect of it) as soon as reasonably practicable and in any event within 20 Business Days after becoming aware of the matter”
The decision in this case turned on the meaning of “becoming aware of the matter” and the judge was left to determine whether “matter” should be read to mean: (a) “claim”, as was put forward by the claimant; or (b) the factual matters forming the basis of a claim, as the defendants contended.
The judge agreed with the claimant’s construction because “becoming aware of the matter” was held to refer back to an awareness of the “Claim” in the first half of the clause and this construction provided the greater commercial certainty. The judge reasoned that the alternative approach (that the clock would start running when relevant persons became aware of certain facts even if they had no awareness that such underlying facts might give rise to a claim in the future) was an undesirable position.
Once it was determined that the test for when the clock began to run in terms of the limitation of liability clause was when the claimants became aware that there was a proper basis for a claim for a breach of warranty, the Court was then asked to address what facts would be sufficient to amount to this “awareness”. The court was faced with two sets of facts: (1) internal communications about the requirement for adjustments to Cend Limited’s management accounts; and (2) an internal memorandum to the claimant’s lawyers, summarising concerns and seeking advice as to the process for bringing a claim for breach of warranty.
The Court held that neither of these amounted to the relevant “awareness” and it would be the point at which the advice was received by the claimant from external advisors that the clock would begin to run. On this basis it was held that the claimant had given notice within the relevant time limit and its claim for breach of warranty was actionable.
Both parties ended up succeeding in their respective claims and the judge awarded a net payment in excess of seven million pounds to be made from the claimant to the defendants in respect of all claims and counterclaims.
This decision provides helpful guidance on the steps that might be deemed “awareness” of a claim and those which are merely preparatory.
As ever, the devil is in the detail, and parties should seek appropriate advice when drafting clauses seeking to impose time limits or to limit liability.