A Further Reminder To Carefully Consider Notice Clauses

Date Added 14.02.18

At the end of last year, Zayo Group International Ltd v Ainger and others[1] became the latest in a growing list of cases concerning notification provisions in share purchase agreements.

The defendants in this case were seven senior managers of Geo Holdings Ltd, who in 2014 sold the entire share capital of the company to Zayo Group International Ltd. In 2015 Zayo alleged that the managers had breached warranties contained in the share purchase agreement and notified six of the seven managers of Zayo’s intention to bring a claim against them. Zayo did not properly notify the seventh manager, Ms Sheree Jaggard. When the courier arrived at her specified address at 2:24pm on 13 November 2015 he was told that Ms Jaggard no longer resided at the address, so the courier left taking the notice with him. The deadline for Zayo to notify each of the seven managers was 5pm on 13 November 2015. Time limits to notify sellers of a warranty claim are not unusual in a share purchase agreement.

Clause 12 of the agreement stipulated that receipt of a notice would be deemed to take place on delivery by hand (including courier) to all of the managers at their specified address. The clause provided that if a party required notices to be served at a different address, then they could notify the other parties of this in writing. Zayo argued that its attempt should be acknowledged as compliance with the notification provision, as Ms Jaggard had not given any notice regarding a change of address.

The High Court held the service of notice to be invalid. The fact that Ms Jaggard was made aware of the notice by other managers was not relevant. The court took a literal approach to the interpretation and confirmed that it was clear that the option to change service address was permissive because it used the word “may” not “must”.

Therefore, Zayo could not bring a warranty claim against any of the seven managers because of its failure to strictly adhere to the terms of the notices clause. The decision may have been different if the courier had posted the notice through the letter box.

Last week the case of Teoco UK Ltd v Aircom Jersey 4 Ltd[2], was heard in the Court of Appeal where the High Court’s decision to strike out Teoco’s claim for breach of warranty in a share purchase was confirmed. The notice lacked “reasonable details” of the claim (which were required under the sale agreement) and was therefore not regarded as a proper notice.

In the 2016 case of Nobahar-Cookson & Others v The Hut Group Ltd[3]a clause requiring a buyer to notify the seller of a claim “within 20 Business Days after becoming aware of the matter” was strictly interpreted against the buyer, which once again relieved the seller of a potential warranty claim.

The decision in Zayo and those in the Hut Group and Teoco, are a reminder of why attention needs to be paid to notice clauses, despite such clauses appearing to be innocuous. The trend of judicial decisions against those making claims means that:

  • Notice provisions should be drafted and read carefully;
  • Conditions setting out how notices can be served must be strictly adhered to if the right to pursue a contractual remedy under an agreement is not to be lost.

When thinking about buying or selling a company or a business, Talk to Tollers, our team of highly experienced solicitors will ensure you are aware of all the implications regarding notification clauses.

 


[1] Zayo Group International Ltd v Ainger and others [2017] EWHC 2542 (Comm)

[2] Teoco v Aircom Jersey & Another [2018] EWCA Civ23

[3] Nobahar-Cookson and others v The Hut Group Ltd [2016] EWCA Civl28

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