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 matter".
Facts
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 following:
"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 claim.
Decision
The Court of Appeal unanimously decided that (c) was the correct interpretation of the language and therefore found for the buyer.
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.
Comment
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 [2015] 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.
Nobahar-Cookson & Ors v. The Hut Group Ltd [2016] EWCA Civ 128
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