The High Court of Justice has recently held in Ipsos SA v Dentsu Aegis Network Limited that a breach of warranty claim must fail because of defects in the notification process for bringing claim. The case is a stark reminder that it is essential to comply with contractual notice provisions in all respects.
Under a share sale and purchase agreement dated 26 July 2011 (SPA), Aegis sold and Ipsos bought shares in companies in the Synovate Group which conducted a worldwide business in market research.
The SPA contained warranties from Aegis to Ipsos, including regarding employment related claims. Specific disclosures were made in a disclosure letter; and Ipsos agreed that it would not be entitled to claim in respect of any fact, matter or circumstance which caused any warranty to be breached if fairly disclosed in the disclosure letter.
In March 2014 Ipsos issued legal proceedings against Aegis in the following terms:
“Contrary to paragraph 17.24 of Schedule 3 to the SPA (‘Seller Warranty 17.24’), [Aegis] breached a number of Brazilian Labour laws by failing to treat a number of individuals as employees and subsequently failing to offer them the benefits and mandatory contributions to which they were statutorily entitled.”
The defendant, Aegis, sought to have either the claim struck out or summary judgment entered against Ipsos on the ground that Ipsos had not complied with the notice provisions in the SPA and as such its warranty claim must fail.
The notice provisions
The key provisions discussed were clauses 3.1, 5.1 and 5.3 of the SPA. Clause 3.1 concerned claims brought by the buyer against the seller and clauses 5.1 and 5.2 concerned third party claims against the buyer and its group.
Clause 3.1 said as follows:
“No Seller Warranty Claim, … Indemnity Claim … shall be brought against the Seller unless (and the Seller shall only have liability in respect of any such Claim if) the Purchaser shall have given to the Seller written notice of such Claim … (a ‘Claim Notice’) specifying in reasonable detail: (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 (comprising the Purchaser’s good faith calculation of the loss thereby alleged to have been suffered) … such Claim Notice to be given by:
(A) in the case of a Seller Warranty Claim…, or an Indemnity Claim, the second anniversary of Completion … provided that the liability of the Seller in respect of any such Claim shall absolutely determine (if such Claim has not been previously satisfied, settled or withdrawn) if legal proceedings in respect of such Claim shall not have been commenced within six (6) months of the service of the relevant Claim Notice (the ‘Proceedings Commencement Period’) …”
Clause 5.1 said as follows:
“If the Purchaser (or any member of the Purchaser’s Group) becomes aware of any claim, action or demand made against it (or any member of the Purchaser’s Group) by a third party (a ‘Third Party Claim’) which will or may give rise to a Seller Warranty Claim (other than a Tax Warranty Claim), an Indemnity Claim or an Interim Covenant Claim, the Purchaser shall:
(A) as soon as practicable, notify the Seller by written notice specifying (in reasonable detail) the matter which may or will give rise to the relevant Claim and that there will or may be a relevant Claim as a result of the Third Party Claim …”
Clause 5.3 said as follows:
“Any failure by the Purchaser to comply with the provisions of this paragraph 5 shall not prevent any relevant Claim by the Purchaser or extinguish any liability of the Seller in respect of the relevant Claim in question but shall be taken into account in calculating any such liability of the Seller to the extent that such liability is increased by such failure.”
The disputed notice of claim
Ipsos wrote to Aegis in August 2012 to notify Aegis of claims made against the target company. The letter stated that it was not a notice of claim. Ipsos wrote again a year later in September 2013 giving detailed information regarding a number of employment related claims against the target company.
Aegis argued that neither letter was a valid notice of a claim under clause 3.1 of the SPA; all the letters did was purport to give notice of third party claims under clause 5.1 of the SPA. Ipsos argued that a reasonable person with knowledge of the background would have read the September 2013 letter as notice of a claim against Aegis.
The Court’s decision
The Court said that a contractually effective notice needed to make it clear that a claim was being made and that no reasonable recipient with knowledge of the matter would have interpreted Ipsos’ letters as constituting notice of a claim against Aegis under the SPA. Furthermore, neither letter contained the detail specified in clause 3.1 of the SPA. Since Ipsos was time barred from making a new claim, its claim against Aegis failed.
The decision emphasises the importance of complying, in detail, with contractual notice provisions. Such provisions will differ from contract to contract so there is no substitute for checking notices against the detailed contractual terms in each and every case.
David Robinson, Partner, Fladgate LLP (email@example.com)