Warranty Claims Notification

In the recent case of Learning Curve (NE) Group Ltd v. Richard Lewis and Melanie Probert the issue of alleged breach of warranties and indemnities in a sale purchase agreement (SPA) came under scrutiny. Whilst the case was very much decided on its facts, the judgement contains some timely reminders and advice for those involved in drafting SPAs and those making a warranty claim.

The facts

Richard Lewis and Melanie Probert sold the share capital of AP Cymru (trading as MPCT) to Learning Curve Group (LCG) under a sale and purchase agreement (SPA) in October 2021.

MPCT, funded largely by the Education and Skills Funding Agency (ESFA), was later audited, leading to a clawback of £783,325 for overclaimed funding as a result of breaches of the applicable ESFA funding rules.

LCG alleged the breaches of ESFA rules were breaches of warranties in the SPA and claimed losses exceeding £6.9m. The claim was later increased to £10.2m.

The defendants raised multiple defences, including inadequate notification of claims and improper service of proceedings.

The issues

Notification of claims

Under the terms of the SPA, warranty claim notices had to describe the nature of the claim, the facts and circumstances behind it along with a bona fide estimate of loss.

LCG sent two notices: the first identified the nature of the claim, relevant facts and certain warranties allegedly breached. The second gave an estimated loss of £6.9m. Later, in proceedings, LCG alleged breaches of five additional warranties and increased its claimed loss to £10.2m.

The defendants argued that:

• the extra warranties were invalid because they were not listed in the notices; and
• LCG’s claim was capped at £6.9m since that figure was given in the notice.

The judge rejected both arguments. He stressed that every notification clause must be interpreted on its own wording. Here, the clause required only the “nature of the claim” and supporting facts, not identification of the specific warranties. Therefore, the additional warranties were not excluded. Likewise, the £6.9m figure was only required as a bona fide estimate, not a ceiling on recoverable loss.

Service of the proceedings

The SPA required warranty or indemnity claims to be both issued and served by 14 February 2023. LCG issued the claim form and had it hand-delivered that day, but the defendants were away and only saw it later.

The defendants argued service was late, either:

• under the SPA’s notice provisions (effective 15 Feb when they returned), or
• under CPR 6.14 (deemed service two business days later, i.e. 16 Feb).

LCG argued service was effective on delivery, per CPR 7.5.

The outcome

The judge agreed with LCG. He held that:

• “Service” in the SPA must mean service under the CPR, not the SPA’s contractual notice provisions.
• Under CPR 7.5, service occurs when the delivery step is completed (14 Feb), while CPR 6.14 deals only with deemed dates for later procedural steps.

Therefore, the claim form was validly served on 14 February 2023 and was in time.

Comment

In recent cases, the courts have taken a pragmatic approach to notice clauses and appear less willing to enforce very strict, technical failures if the notice otherwise gives sufficient detail. However, careful drafting of SPAs is still absolutely essential and the courts will look closely at each SPA, its purpose, what it requires in terms of notice and whether the notice meets those requirements.

For those involved in drafting either an SPA or a subsequent warranty claim, attention needs to be given to the type and level of information required and any limits on later recovery. The provisions which are included in an SPA are often subject to the negotiating strengths of the parties but consider whether notices need to be a condition precedent to liability.

Notices often require a “bona fide estimate” or “calculation of loss”. An estimate does not automatically limit or cap what can ultimately be claimed, unless the clause says so explicitly. Also pay particular attention to the notice provisions. Many clients may treat these as boilerplate but experienced lawyers know how important and determinative these can be in later litigation.

If you would like to discuss any of the issues arising in this post, please get in touch.

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