A recent High Court case has again confirmed the necessity, when drafting notice of a breach of warranty, in following provisions detailing the content for such a notice set out in the sale and purchase agreement (SPA). In Ipsos S.A. v Dentus Aegis Network Limited  EWHC 1171 the buyer brought a claim against the seller for breach of warranty. The seller successfully applied for the claim to be struck out, or alternatively summary judgment entered against the buyer, because notice had not been served in accordance with the SPA.
The SPA contained two different provisions dealing with notice of claims. The first provision set out how the buyer should notify the seller of a breach of warranty claim (a Warranty Claim). The SPA provided that the seller would only have liability for a Warranty Claim if the seller received written notice of the claim “…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…”. A second provision obliged the buyer to notify the seller of any claim it received from a third party, which in turn might result in a Warranty Claim (a Third Party Claim). In this case, the buyer notified the seller of a Third Party Claim in relation to employment claims it had received. The letter specifically stated that it was not notice of a Warranty Claim. Approximately a year later, the buyer sent another letter relating to the Third Party Claim. The buyer contended the second letter was notification of a Warranty Claim.
Whilst noting that his starting point was “…that the only true principles to be derived from the authorities are that every notification clause turns on its own wording” the judge determined that four broad propositions could be derived from case law and were potentially relevant.
- The commercial purpose of the notice provision was to ensure the seller knew in sufficiently formal terms that a claim was to be made and could make financial provision for it. That purpose could not be served by an uninformative or unclear notice.
- Would the notice be understood by a reasonable recipient with knowledge of the context in which it was sent?
- Did the notice make clear that a claim was actually being made, rather than indicating the possibility that a claim may be made?
- Were certain matters required to be specified in the notice?
The court concluded that, on the facts, the second letter did not satisfy any of the above criteria. The original letter was clear it was not notification of a Warranty Claim. The second letter did not clearly specify its purpose, the matter giving rise to the claim, or the amount claimed. The judge concluded that a “…reasonable recipient of the letter with knowledge of the previous correspondence and the business context in which it was written would not have understood it to be…” notice of a Warranty Claim.
Impact - the judgment emphasises the importance of ensuring notification of a Warranty Claim meets the requirements for notice detailed in the underlying agreement. It also highlights some general principles the court may apply when considering the effectiveness of such a notice. Where, as in this case, an agreement provides for notice to be given in more than one situation it is also important that the notice states which provision it relates to. In addition, consideration should be given to whether it is prudent to cross-refer to previous correspondence. In this case, the second letter made it clear that it was to be read as part of continuing correspondence. That correspondence included a clear statement (in the first letter) that it was not intended to be notice of a Warranty Claim.