Authors

Laurence Lieberman

Partner

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Stuart Broom

Partner

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Samantha Brendish

Senior Associate

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Authors

Laurence Lieberman

Partner

Read More

Stuart Broom

Partner

Read More

Samantha Brendish

Senior Associate

Read More

23 September 2020

Disputes Quick Read – 33 of 62 Insights

Disputes Quick Read: Care required when drafting SPA claim notices

  • QUICK READ

The recent decision of Dodika Limited & Others v United Luck Group Holdings Limited – in which we acted for several of the warrantors – highlights the strict approach that the English courts will adopt when assessing compliance with claim notification provisions in a Share Purchase Agreement (SPA).

Compliance with those provisions will generally be a condition precedent in order to enforce any claims for breaches of warranties or of a tax covenant.

Let's take a closer look at the the Dodika decision and what it means for similar cases in the future.

Case overview

In our clients' case, the buyer of Outfit7 (Talking Tom digital games developer) purported to serve a notice of a claim under a tax covenant. It relied on a transfer pricing investigation relating, in part, to pre-acquisition tax liabilities. By serving the notice, the buyer attempted to retain $50m of the sale consideration which was due to be released from an escrow account.

The SPA required a valid notice to "[state] in reasonable detail the matter which gives rise to such Claim, the nature of such Claim and (so far as reasonably practical) the amount claimed in respect thereof…".

The buyer referred expressly to the existence of the tax investigation, but the judge found that this was insufficient because it did not set out any detail about the underlying facts, events and circumstances giving rise to the claim (ie the underlying transactions or features of the transfer pricing practices that could give rise to additional tax liability).

The buyer contended that the sellers already knew about the underlying facts, events and circumstances because they were involved in responding to the tax investigation. This was not, however, a case where the wording of the notice was ambiguous and needed to be construed by the court. Reliance on the warrantors' knowledge could not "plug gaps" or add detail that should have been stated in the notice.

While the requirements of each notice will turn on the relevant clause of the SPA, this is a further illustration of the care required when drafting a formal claims notice.

A harsh outcome?

Some may view the result as harsh. Based on this analysis, a buyer may be unable to pursue a claim under an SPA where the seller already knows all of the relevant details and is not therefore misled or prejudiced by an insufficiently detailed notice.

But that was not the commercial bargain agreed between the parties. Where they have agreed a condition precedent, it must be complied with and the English courts will uphold that agreement.

Find out more

To discuss the issues raised in this article in greater detail, please contact a member of our Disputes and Investigations team.

In this series

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Disputes Quick Read: Disclosure Pilot Scheme – here to stay

21 July 2022

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Disputes Quick Read: Key changes to the Disclosure Pilot Scheme

13 September 2021

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Disputes Quick Read: UK Supreme Court rules on the territorial extent of the SFO's powers

26 February 2021

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Disputes Quick Read: Care required when drafting SPA claim notices

23 September 2020

by Multiple authors

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Disputes Quick Read: The importance of proper service

26 May 2020

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Disputes Quick Read: The latest on Unexplained Wealth Orders

7 May 2020

by Multiple authors

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Disputes Quick Read: Tomlin Orders – ensuring the confidentiality of settlement terms

27 April 2020

by Multiple authors

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Disputes Quick Read: Commercial Court's arbitral power shift

21 February 2020

by Andrew Howell

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Disputes quick read: pilot error?

13 February 2020

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Disputes Quick Read: Privilege waiver warning

2 July 2020

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Disputes Quick Read: Disclosure – out of control?

10 November 2021

by Alexandra Boreham

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Disputes Quick Read: Dealing in crypto? Be careful what you call it

7 April 2022

by Multiple authors

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