UK: Interpretation Of Conflicting Provisions Under A Share Purchase Agreement And Tax Deed

Last Updated: 28 May 2013
Article by Victoria Brett


In this case, the High Court had to decide the correct construction of conflicting provisions as to when and how claims were to be made under a share purchase agreement and tax deed.


The case concerns a claim by the purchasers of a ski holiday company seeking reimbursement from the sellers for payment of Swiss VAT and associated expenses (a sum of around Ł400,000) under a tax deed which formed part of the documentation to affect the share purchase.

In June 2007, Kuoni purchased a ski holiday company from the defendants pursuant to a share purchase agreement and tax deed. Whilst the target company was an English company, it largely operated through a subsidiary company in Switzerland. After the purchase completed, the Swiss tax authorities began to investigate the subsidiary's tax affairs and it transpired there was an outstanding VAT liability relating to the period from 2005-2010.

The tax deed:

Pursuant to Clause 2, the defendants agreed to pay tax liabilities of the target and its subsidiaries arising before completion of the sale.

Clause 5 said that written notice of any tax liability claim had to be served on any of the defendants within seven years of the end of the accounting period current at completion. It further stated that the limitations set out the SPA applied to a tax liability, but in the event of any conflict between the provisions of clause 5 of the tax deed and the limitations in the SPA, clause 5 of the tax deed should prevail.

The SPA:

Paragraph 2 said the defendants would not be liable for claims under the tax deed unless they were made within seven years of completion.

Paragraph 3 further stated that claims under the warranties and under the tax deed had to be made in writing within 30 days of Kuoni becoming aware of the liability and had to specify in "reasonable detail" the event, matter or default to which the claim relates, the nature of the breach and the amount claimed.

Kuoni's tax advisers only warned Kuoni that the target's subsidiary was likely to have to pay backdated VAT in November 2010 and at that stage exact figures were not available. At this time, the CFO of Kuoni informed one of the defendants about the potential tax liability of the subsidiary. On 16 December 2010, the Swiss tax authorities requested certain information from Kuoni and it was clear the liability was no longer contingent. However Kuoni's CFO was on holiday and only found out on 20 December, when he advised the defendants of the expected liability and emailed them preliminary figures. On 14 January 2011, Kuoni's solicitors gave the defendants formal notification of a potential claim under the tax deed. A dispute arose as to whether or not Kuoni had complied with the notification requirements.

Kuoni, submitted, in view of the conflict between the terms of the tax deed and the SPA, clause 5 of the tax deed should apply. The defendants argued that there was no conflict because the contractual provisions performed different functions, namely clause 5 of the tax deed set down the long stop date within which a claim had to be made whereas paragraph 3 of the SPA set out the requirements to be met in order for a notice of claim under the deed to have been made and Kuoni had not provided notice of the claim within the 30 day period specified.


The High Court ruled in favour of Kuoni, finding the notice provided under the tax deed was valid. The reasoning was as follows:-

  • Liability arose under the tax deed, not the SPA, and the tax deed set out limits upon that liability and also how notice was to be given and when.
  • The High Court acknowledged that the notice provisions and time limits for a claim in the SPA and tax deed conflicted. However, as clause 5 of the tax deed contained a specific provision to address a conflict situation, the provisions of the tax deed prevailed over those in the SPA (Rainy Sky "business common sense" approach followed).
  • The court may have taken a different view if the tax deed had not dealt with notice explicitly, but as clause 5 did contain a notice provision, the court did not need to look at the notice provisions of the SPA.
  • Even if the court was wrong in reaching this conclusion, Kuoni had served its notice within the 30 day time limit required by the SPA. Being "aware" of the liability meant having conscious knowledge and sufficient information. When Kuoni received advice from its tax advisers in November 2010, it was aware that a liability to tax was probably inevitable, Kuoni still had insufficient information to make a claim. Whilst Kuoni's junior staff had information from which the extent of the liability could be gleaned on 16 December 2010, the CFO (the "decision maker") was on holiday until 20 December a "conventional event in any business". Taking the commercial common sense approach, Kuoni was not aware of the relevant details until the CFO returned from holiday and saw the information request on 20 December 2010. Kuoni's notice of 14 January 2011 had therefore been served in time.


This case highlights the importance of ensuring consistency between the terms of the SPA and the terms of the tax deed. Ideally, tax specific provisions (especially limitation/ exclusions) should go in the tax deed and you should avoid having any overlap or duplication with general (non-tax) limitation/exclusions in the SPA. As a fall back, it is advisable to include wording in the tax deed that should there be any conflict between the SPA and the tax deed, the provision of the tax deed will prevail.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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