• Contact Us

In the Case of a Breach of Warranty, What Does it Mean to be “Aware of the Matter”?

on Monday, 04 April 2016.

In Hut Group Ltd v Nobahar-Cookson it was decided that the buyer in a share purchase agreement triggered the start of the contractual time limit for warranty claims only when it became aware of the existence of its claim.

Not when it became aware of the facts on which its claim relied or only the possibility of a claim.

Background

In 2011, Mr Nohabar-Cookson and the trustee of his family trust (the Sellers) entered into a share purchase agreement with Hut Group Ltd (the Buyer) for the sale of a company called Cend. The Buyer later brought a claim for breach of warranty, claiming that the Sellers had breached the warranty given in the agreement regarding the management accounts of the company. The Buyer alleged that the accounts provided by the Sellers misrepresented the company's financial position.

The Sellers responded that the Buyer had exceeded the contractual time limit for bringing a warranty claim, which was 'as soon as reasonably practicable and in any event within 20 Business Days of becoming aware of the matter'. The Buyer had notified the Sellers of its claim more than 20 business days after it became aware of the issue with the management accounts.

However the Buyer argued that the 20 business days did not begin to run until it became certain of the existence of the claim. The Buyer had notified the Sellers of its claim within 20 business days of receiving advice from its accountants confirming that the issue with the accounts in fact gave rise to a claim, and so on its interpretation of the clause had not exceeded the time limit.

The Court of Appeal's Decision

At first instance the court found in favour of the Buyer, concluding that the Buyer could only be said to be 'aware of the matter' when it received the advice of its accountants that there was a claim. On appeal the court upheld this decision.

Interpretation of the clause as meaning awareness that there 'might be a claim' was rejected being too uncertain to be commercially viable. The court considered the argument of counsel for the Sellers that establishing awareness of a claim was similarly unviable, but did not agree. It determined that the difficulties of establishing awareness of a claim were no greater than the difficulties of establishing awareness of sufficient facts and that from a commercial perspective these two interpretations were equivalent.

However the court accepted the argument of counsel for the Buyer that the purpose behind the clause was to prevent the Buyer keeping claims 'up its sleeve', and ultimately concluded that this purpose would be better served by an interpretation focusing on awareness of claim rather than awareness of the underlying facts.

This was supported by application of the contra proferentem rule, which would support interpretation of the ambiguous clause against the party responsible for its drafting. This had been rejected by the first court on the basis that that the contract contained an equivalent clause relating to the other party and therefore its construction affected the parties equally. On appeal this reasoning was rejected and the rule was applied to support the narrower interpretation of the clause.

Best Practice

The case is a good reminder of the importance of clarity when drafting commercial agreements. It is also a warning to a party responsible for the drafting of an agreement that, even where wording appears to be neutral and affect all parties equally, if it is ambiguous and later involved in a dispute it may still be interpreted against that party.


For all enquiries please contact Richard Phillips in our Commercial Property Law Team on 0207 842 3335.

Please share this article if you think it will be of interest to a colleague. If you have been sent this article from a colleague, please subscribe to future law briefs so that you are kept up to date.