The importance of a compliant claim notice

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Posted in:Banking and Finance|July 17, 2015 | Join the mailing list

When a share purchase agreement (“SPA”) includes trading warranties given by a seller to a buyer, it is common for these warranties to be limited by various means, including the manner in which a claim for a breach of warranty can be brought. Typically,
in order to bring a claim for breach of warranty the buyer will have to notify the seller of such a claim in a prescribed form, in accordance with the SPA.

The importance of carefully following the notice requirements in relation to a breach of warranty claim was highlighted in the case of Ipsos SA v Dentsu Aegis Network Limited.

In the case, heard by the High Court, Dentsu sold shares in the target company to Ipsos and gave various warranties, including some which stated that no member of the target company’s group was facing any employment claims. After completion some employees of
the target company’s subsidiary brought employment claims against their employer and Ipsos issued proceedings against Dentsu for breach of warranty.

The SPA provided that no warranty claim could be brought against Dentsu within two years of completion unless Ipsos gave Dentsu a written claim notice specifying in reasonable detail the nature of the claim, the matter giving rise to the claim and (as far as
it was reasonably practicable) the amount claimed. Additionally, Ipsos was required to give Dentsu notice as soon as practicable on becoming aware of any claim, action or demand by a third party that might give rise to a warranty claim.

Dentsu argued that the claim for breach of warranty was barred as Ipsos had failed to serve an effective claim notice, in accordance with the SPA. However, Ipsos claimed that it had given a valid claim notice as it had sent Dentsu two letters. The first letter
notified Dentsu of the employment claims being brought but expressly stated that it was not a claim notice. The second letter provided further details of the employment claims and stated that Ipsos might claim from Dentsu for breach of warranty.

Dentsu argued that the letters did not comply with the notice provisions within the SPA and the Court agreed. The Court found that the first letter was not a claim notice, “not least because it expressly stated that it was not”. As regards the second letter,
the Court held that a reasonable recipient, with knowledge of the first letter, would not have understood this to be a claim notice either. The second letter did not refer to the relevant clause of the SPA requiring a claim notice to be served, nor did it
refer to it being a claim notice.

If you have a potential warranty claim or wish to challenge the validity of a warranty claim brought against you, please contact
Keith Kennedy, Partner in the Corporate and Commercial Department at or by telephoning 0161 829 2599.

The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice.  No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees.  Professional legal advice should
be obtained before taking, or refraining from taking, any action as a result of this article.

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