Contractual interpretation; limitation period for notifying claims
Towergate Financial (Group) Ltd & Ors v Hopkinson & Ors  EWHC 984 (Comm)The question
How will the court interpret a contractual time limit on notifying claims, in particular to notify “as soon as possible”?
The key takeaway
Very careful consideration should be given to notice clauses – all requirements must be met to ensure that a notice is valid and a party should not just consider any longstop date.
The case involved the purchase of the company M2 Holdings Limited and its subsidiaries (the Company) which took place in August 2008. In the share purchase agreement (SPA) for this deal, the sellers agreed to indemnify the buyers against any losses suffered as a result of or in connection with professional negligence claims, including claims regarding mis-selling which had occurred before the completion of the SPA.
The indemnity was limited by clauses 6.7 and 6.7.3 which stated that the sellers would not have any liability in relation to the indemnity unless the buyers notified the sellers “as soon as possible” and in any event prior to and on or before the seventh anniversary of the date of the agreement.
In addition, clause 5.12 regulated the conduct of claims related to the indemnity. The seller required the buyer to attempt to mitigate/avoid proceedings and to enable this, the buyer would disclose all relevant information and documents of the claim to the seller.
In July 2014, the FCA reviewed financial advice given by the Company and determined that there had been mis-selling which resulted in substantial liabilities being incurred. In July 2015 (and still within the seven-year anniversary of the date of the agreement), the buyer notified the seller of their obligations to indemnify them for these liabilities.
The seller refused to indemnify the buyer on the basis that they had not informed them “as soon as possible”. The buyer disputed this, arguing that the limitation only required them to notify the sellers on or before the seventh anniversary of the date of the agreement. They contended that the wording “as soon as possible” should not be considered, given:
- the tautologous and ambiguous nature of the clause, which required notice “prior to”, and “on or before the seventh anniversary”
- the undefined meaning of “as soon as possible”
- the lack of commercial justification for “as soon as possible” acting as a condition precedent.
The court held that the buyer failed in its claim for indemnification against the seller:
- the clause in dispute was not problematic and the obligation was not satisfied by providing notice within the seven years. The reasonable reader would understand that the clause created dual condition precedents: (1) to provide notice as soon as possible and, (2) in any case, provide notice within seven years from the date of the agreement.
- the commercial circumstances did not impact such an unambiguous term. The court dismissed the buyer’s suggestion that the existence of clause 5.12 negated the commercial justification for including the “as soon as possible” obligation.
- the lack of specific wording in the SPA regarding what constitutes “as soon as possible” did not make the limitation redundant. In this case, after the buyer was informed of the FCA review, they had given notice to their insurer of such claims, but did not inform the seller until a year later. Therefore, on the facts, the buyer had not given notice “as soon as possible” and were not entitled to indemnification.
This is a reminder that the court will give clauses their “natural and ordinary” meaning, even if the commercial consequences for one party are significant. It is also helpful guidance on the approach to contractual limitation clauses.
Any practical tips?
When drafting notice provisions, consider each of the requirements of the notice (eg timing, content and service) and whether each is intended to be a condition precedent (ie if it is not satisfied, the notice is ineffective). This is particularly important where there are significant commercial consequences of the notice (eg indemnities, contractual limitations, renewals/break clauses, etc).