A recent Court of Appeal decision highlights the importance of ensuring that a notice of claim in relation to a warranty claim under a share purchase agreement complies with the requirements of the agreement and does not rely on the assumed understanding of the recipient. 


The appellant (the Buyer) acquired the share capital of Stobart Rail Limited (the Target) from the respondents (the Sellers). The share purchase agreement, as is usual, contained provisions in relation to the tax liabilities of the acquired business, including warranties and a covenant covering the circumstances in which the Sellers would pay the Target's tax liability incurred prior to the sale but recognised after the sale. 

As is also usual, there was a time limit for the Buyer to bring any claim under these provisions. The agreement provided that the Sellers would not be liable for any tax claims unless: "the Purchaser has given the Vendors written notice of such Tax Claim [a claim against the Sellers under the warranties or indemnity] (stating in reasonable detail the nature of such Tax Claim and, if practicable, the amount claimed) on or before the seventh anniversary of Completion..." (a paragraph 6.3 notice).

A separate notice provision in the agreement required the Buyer to give notice to the Sellers of any claim by a tax authority against the Target (stating how the liability arose and a reasonable estimate of the quantum) and also of any circumstances that might give rise to such a claim against the Target (a paragraph 7.1 notice).

The Target incurred a liability to tax of approximately £3.8 million in relation to conditional share schemes that it had concluded with employees. The Buyer issued proceedings to recover this amount under the share purchase agreement. The Sellers contended that the claim could not succeed because the Buyer had not given a paragraph 6.3 notice by 4 April 2015, the seventh anniversary of completion.

The material issue was whether a letter sent on 24 March 2015 (some 10 days before the 4 April deadline) was a compliant paragraph 6.3 notice. The Buyer argued that it was, whereas the Sellers argued that it was not, and that there was therefore a failure of the condition precedent to their liability.

At first instance, the court held that, on its proper construction, the 24 March 2015 letter was not an effective paragraph 6.3 notice, but was a paragraph 7.1 notice in respect of a potential claim by HMRC against the Target. The Buyer was therefore unable to pursue its claim and appealed to the Court of Appeal.


The Court of Appeal dismissed the Buyer's appeal against the first instance decision.

The court's starting point was the principle of construction for unilateral notices set out by the House of Lords in Mannai Investment Co Ltd v. Eagle Star Life Assurance Co Ltd [1997] AC 749. In this case, which concerned a tenant's notice exercising a break clause in a lease, the House of Lords stated:

"The question is not how the landlord understood the notices. The construction of the notices must be approached objectively. The issue is how a reasonable recipient would have understood the notices. And in considering this question the notices must be construed taking into account the relevant objective contextual scene."

A key part of the Buyer's argument was that it had previously given a paragraph 7.1 notice and that other correspondence between the Buyer and the Sellers would have put the Sellers on notice to expect a paragraph 6.3 notice. While the court acknowledged that the context in which the 24 March 2015 letter had been written was relevant, it was not decisive. The court examined the language of the notice and concluded that a person receiving the 24 March 2015 letter with knowledge of the terms of the share purchase would have understood it to be a paragraph 7.1 notice. It could not therefore be construed as a paragraph 6.3 notice. Defects with the notice which the court identified included:

  • there was no reference to a Tax Claim, nor to a claim being made by the Buyer under paragraph 6.3 or against the Sellers;
  • the notice was expressed in terms of a contingency, i.e. a "potential Liability to Taxation", and a "potential claim" whereas a compliant notice would have made clear that a claim was being pursued rather than indicating the possibility that a claim might be made; and
  • the detailed schedule setting out the "likely estimate" of the quantum of the claim was headed: "Summary of company exposure". In other words, it was a summary of the Target's exposure to HMRC, not of the Buyer's claim against the Sellers.


Although every notice provision will ultimately turn on its own wording, this case demonstrates the importance of ensuring that any notice clearly complies with the terms of the underlying provision. Where a Buyer serves a non-compliant notice and is out of time to serve a compliant notice, it is likely to find itself barred from bringing a claim regardless of the merits of that claim.

Stobart Group Ltd & Stobart Rail Ltd v. Stobart & Tinkler [2019] EWCA Civ 1376

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