The Court of Appeal has held that a general reference to breaches of warranty was insufficient to comply with a requirement to notify the grounds on which a claim was based.

Teoco UK v Aircom Jersey & another [2018] EWCA Civ 23 concerned an SPA that required the purchaser to notify any claim by a certain date, “setting out reasonable details of the claim (including the grounds on which it is based…)”. The purchaser notified claims arising out of non-disclosure “against the Tax Warranties or General Warranties”, but reserved its position “as to which particular head of Claim it would fall under”. The notice included a vague reference to outstanding investigations by an accountant and discussions with tax authorities.

The judge at first instance held that the notice was invalid because it did not adequately identify the specific warranties that had allegedly been breached. The Court of Appeal agreed. Newey LJ held that the grounds of a claim meant the legal basis for it. In general, this would require the claimant to allege a breach of a specific contractual provision. There could be exceptions where the notice set out facts that unambiguously pointed to a specific warranty or included an obvious error that did not mislead the defendant. However, in this case, no such exception applied. Rather, there was real scope for doubt as to which provisions of the SPA were relevant. The wording of the notice must not only be wide enough to include the relevant provisions, but also narrow enough to exclude with certainty the possibilities that were not being relied on. Accordingly, the Court of Appeal upheld the judge’s decision to strike out the claim.

This decision is likely to encourage sellers to incorporate specific requirements into SPAs regarding the contents of a notice of claim, with a view to narrowing the scope of any such notices to the relevant breaches alleged.

However, the Court of Appeal appears to have been influenced by an impression that the claimant was deliberately seeking to “keep its options open” rather than commit to a specific claim. Purchasers in future cases may be able to buy some time by explaining in detail why they are unable to specify at the outset which provisions they rely on. For instance, they may require specific information from the defendant or a third party in order to particularise their case. Purchasers would nevertheless be well advised to cite the provisions relied on where they can be identified, and in any event to ensure that their notice complies with the relevant contract and clearly states that a claim is being made.