Nobahar-Cookson v The Hut Group Ltd  EWCA Civ 128
1.The take away points
- Warrantors often negotiate contractual limits on their liabilities under warranties including a time limit by which they must be told of a potential claim.
- Corporate lawyers: To minimise the risk of litigation, be really specific when drafting exclusion clauses. Try to avoid any ambiguity. If in doubt, a second pair of eyes might assist.
- If there is ambiguity about a provision which cannot be resolved by looking at the language and context, the contra proferentem rule can be used to help resolve that. The narrower of several possible interpretations will be the right one.
- Once the sale process has completed, buyers need to pay careful attention to any exclusion clause which may limit a warranty claim and make sure they fully and promptly comply with its provisions (notwithstanding that in this instance, the seller's appeal was dismissed).
The buyer, The Hut Group Limited (THG) agreed to buy a company called Cend from the seller, Mr Nobahar-Cookson (NC). The share purchase agreement (SPA) contained warranties. THG and NC subsequently made warranty claims against each other which concluded at first instance in a judgment in THG's favour of £4.3m and £10.8m in favour of NC on its counterclaim.
3.The Court of Appeal's decision
THG's breach of warranty claim alleged that Cend's management accounts failed to give a fair view of its financial position. NC relied on a contractual time limit for warranty claims and appealed on a point of construction relating to the contractual time limit for such claims. The relevant clause of the SPA provided that:
"The Sellers will not be liable for any Claim unless the Buyer serves notice of the Claim on the Sellers (specifying in reasonable detail the nature of the Claim and, so far as is practicable, the amount claimed in respect it) as soon as reasonably practicable and in any event within 20 Business Days after becoming aware of the matter."
"Claim” was defined in the SPA as meaning “any Warranty Claim” which in turn was defined as “a claim by the Buyer for breach of a Warranty”.
The issue on appeal was what "aware of the matter" really meant ie:
- aware of the facts giving rise to the Claim (even if unaware that those facts did give rise to a claim)
- aware that there might be a claim under the warranties; and,
- aware of the Claim, in the sense of an awareness that there was a proper basis for the Claim.
The parties agreed the appeal should be allowed if the Court preferred either of the first two constructions.
The appeal centred on the contra proferentem rule which (put simply) states that where a word or phrase is ambiguous and there is doubt about the meaning of a contractual provision, the words will be construed against the party who is seeking to rely on them. Lord Justice Briggs firstly noted that the rule was not limited to exclusion clauses (although this particular case did concern an exclusion clause). He found that the rule applied only if "linguistic, contextual and purposive" analysis does not firstly resolve the question with sufficient clarity. There was also no reason to disapply the rule just because both parties benefitted from exclusion clauses under the SPA. The appeal was dismissed. The Court concluded that the ambiguities in the SPA should be resolved by adopting the narrowest of the possible interpretations (ie 3). The rationale is that parties were not taken to have lightly reduced remedies which the law allows for breach of contractual obligations without being really clear.