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5 July 2024
Disputes Quick Read – 11 of 102 Insights
Notice of Claim: What constitutes 'reasonable detail'?
- Quick read
What constitutes "reasonable detail" in a notice of a claim for breach of warranty under a share purchase agreement (SPA)? There have been several judgments in recent years grappling with that question, the most recent of which was the Court of Appeal's decision in Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd [2024] EWCA Civ 477.
In that case, the Court of Appeal held that the requirement in the notice of claims clause to state the nature of the claim in reasonable detail did not require the notifying party to set out the precise basis on which damages were claimed. The judgment highlighted the nuances in interpreting 'reasonable detail' required for such notices, balancing technical compliance against commercial realities and purposes.
A contractual notice of claim should not be a trap to invalidate legitimate claims through technicalities. The Court emphasised that such notices do not need to spell out every aspect with detailed specificity, especially if such detail would not serve any commercial purpose or aid in assessing liability. The purpose of a notice clause within an SPA is to allow the recipient of the notice to investigate the claim and take legal advice.
Lord Justice Males, who delivered the leading judgment, confirmed: "While a seller's interest will always be to knock the claim out if it can on the technical ground that the notice is insufficient, courts should not interpret such clauses as imposing requirements which serve no real commercial purpose unless compelled to do so by the language of the clause." This, of course, contains similar reasoning to the Court of Appeal's decision a few years ago in Dodika Ltd & Ors v United Luck Group Holdings Ltd [2021] EWCA Civ 638.
The precise requirements of a notice will depend on the terms agreed by the parties under the SPA, but seeking to draw together some themes on the preparation of notices, key considerations should include:
- Clarity and detail: Notifications should provide 'reasonable detail' about the nature and amount of the claim, with a focus on the information needed to fulfil the commercial purposes of the notification.
- Recipient knowledge: What constitutes 'reasonable detail' may depend on what information is already known to both parties. That said, while that might aid construction of a notice in due course, it is better to err on the side of caution and include more detail.
- Commercial purpose over form: Notices should allow the recipient to understand the claim it faces, assess its liability and to seek legal advice.
- Narrow construction: Notice clauses can be exclusionary in nature; therefore, any ambiguity may warrant narrow construction against the party seeking to exclude liability – typically, favouring claimants over respondents.
The judgment in Drax suggests that a claimant providing a notice of claim may be afforded some leeway where the recipient argues that a notice is insufficiently detailed as long as enough information is provided to fulfil the commercial purpose of the notification by allowing recipients to assess the claim. However, each case will turn on its facts, and the key point is that a notice of claim should be prepared in accordance with the notice provisions contained within the SPA.
If you'd like to know more about what this might mean for you or your business, reach out to a member of our Disputes and Investigations team.
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