The Court of Appeal has recently looked at exclusion clauses in
the context of a contractual term in a share purchase agreement
requiring the buyer to give notice of a warranty claim to the
seller "within 20 Business Days after becoming aware of the
A share purchase agreement will invariably include a seller
protection setting out time limits on the buyer's right to
bring a claim. In this case, the agreement in question included the
"The Sellers will not be liable for any Claim [defined as
"a claim by the Buyer for a breach of Warranty"] 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 of it) as soon as
reasonably practicable and in any event within 20 Business Days
after becoming aware of the matter."
The buyer brought a claim for breach of certain management
accounts warranties given by the sellers in the share purchase
agreement. The sellers argued, among other matters, that the claim
was time-barred as the buyer had failed to give notice of the claim
within the required period.
The Court of Appeal had to determine whether the phrase
"aware of the matter" meant: (a) aware of the facts
giving rise to the claim (even if unaware that those facts did give
rise to a claim); (b) aware that there might be a claim under the
warranties; or (c) aware of the claim, in the sense of an awareness
that there was a proper basis for the claim.
The buyer had become aware of the facts which gave rise to the
claim, namely falsification of the target's documentation and
accounting records, more than 20 business days before giving notice
of the claim, but it was not until within that period that it had
had the opportunity to take professional advice from its
accountants and determine that it had a proper basis for making its
The Court of Appeal unanimously decided that (c) was the correct
interpretation of the language and therefore found for the
The court held that the meaning of an ambiguous exclusion clause
should be worked out from a linguistic, contextual and purposive
interpretation of the clause. If that analysis did not disclose an
answer with sufficient certainty, the ambiguity should be resolved
by preference for the narrowest available interpretation.
The court held that linguistically the words did not favour one
interpretation over another. However, a purposive interpretation of
the clause narrowly favoured construction (c). The purpose of the
provision was to prevent the buyer pursuing claims previously kept
up its sleeve, rather than to force the buyer towards analysis and
the obtaining of advice about known facts. This purpose was better
served by an interpretation which focused on the buyer's
awareness of the claim rather than its awareness of facts which
might give rise to a claim. That conclusion was significantly
reinforced by being the narrowest of the available interpretations
of an ambiguous exclusion clause.
This decision offers a useful reminder of the principles which,
faced with an ambiguous exclusion clause, the court will apply in
interpreting it. Along with Teoco UK Ltd v. Aircom Jersey 4
Ltd  EWHC (Ch), it is a reminder of the importance of
clarity in the contract terms which regulate when and how a party
must give notice of any warranty claim.
Dentons is the world's first polycentric global law firm. A
top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm
is committed to challenging the status quo in delivering consistent
and uncompromising quality and value in new and inventive ways.
Driven to provide clients a competitive edge, and connected to the
communities where its clients want to do business, Dentons knows
that understanding local cultures is crucial to successfully
completing a deal, resolving a dispute or solving a business
challenge. Now the world's largest law firm, Dentons'
global team builds agile, tailored solutions to meet the local,
national and global needs of private and public clients of any size
in more than 125 locations serving 50-plus countries.
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The seminar will take place on 31 March 2017. It aims to provide German companies with an overview of the latest developments in relation to insurance coverage, banking transactions and legal aspects of doing business with Iran.
The employment landscape is one that is constantly shifting. Employers who fail to keep up with the changes do so at their peril.
We are pleased to invite you to this seminar, designed to help in-house counsel and HR practitioners get to grips with key recent and forthcoming developments in employment, pensions and immigration law and practice and what they mean for your workforce.
An assignment of rights under a contract is normally restricted to the benefit of the contract. Where a party wishes to transfer both the benefit and burden of the contract this generally needs to be done by way of a novation.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).