M&A Diligence: the importance of giving the correct notice for a breach of warranty
The recent case of Ipsos SA v Dentus Aegis Network Limited  EWHC 1171 reinforces the importance of strictly following the provisions of the sale and purchase… Read more
The recent case of Ipsos SA v Dentus Aegis Network Limited  EWHC 1171 reinforces the importance of strictly following the provisions of the sale and purchase agreement when providing notice of a breach of warranty to the seller. The buyer of the target company brought a claim against the seller for breach of warranty but the High Court adjudged in favour of the seller’s application for the warranty claim to be struck out due to the notice having not been served in accordance with the provisions of the sale agreement.
The sale agreement in the Ipsos case was rather strangely worded in that it contained two separate (and different) provisions dealing with notice of claims. The first of these stated that the seller would only be liable for a breach of warranty claim if written notice had been delivered “…specifying in reasonable details: (i) the matter which gives rise to the Claim; (ii) the nature of the Claim; and (iii) (so far as is reasonably practicable at the time of notification) the amount claimed in respect thereof…” The second notification provision simply provided that the buyer should notify the seller of any claim it received from a third party which might result in the buyer bringing a breach of warranty claim.
The facts of the Ipsos case were as follows: following receipt of a number of employment claims, the buyer notified the seller by letter of the claims, but specifically expressed in the letter that the letter did not constitute notice of a breach of warranty claim. Nearly a year later, the buyer followed up with a second letter relating to the same claims, but this time stating the letter was notification of a breach of warranty claim.
The court concluded that neither letter was a valid notice under the terms of the sale agreement. Noting that: “the only true principles to be derived from the authorities are that every notification clause turns on its own wording” the judge determined that the first letter was clear it was not a valid notification whilst the second was also invalid on the basis that it did not specify its purpose, the matter giving rise to the claim or any indication of the quantum of the amount claimed by the buyer.
The judgement was helpful in setting out a set of four principles to be applied when considering the effectiveness of any notice of a claim:
- as the commercial purpose of any such clause is to ensure the seller is aware of the claim and is able to provide financially for the claim, the notice cannot be uninformative or unclear in its intent;
- the notice should be able to be understood by a reasonable recipient with knowledge of the context in which it was sent;
- the notice should make clear that a claim is being made (rather than just the possibility that one might be made); and
- the notice should specify all matters which have been agreed will be specified.
For more information, please contact Andy Moseby, Corporate Partner