When is notice of a claim under a SPA sufficient?

Nichola Evans, Partner

The Court of Appeal recently overturned the decision of the High Court on whether a party had given proper notice of a claim under a Sales and Purchase Agreement (SPA) taking a pragmatic view on what needs to be provided.

In the case of Drax Smart Generation Holdco Limited v Scottish Power Retail Holdings Limited [2024] EWCA Civ 477 the court was faced with a fairly complicated SPA agreement totalling 225 pages. If the Buyer wished to make a claim for breach of warranty then a claim had to be made within a certain period of time and give  “in reasonable detail” the nature of the claim and the amount claimed (detailing the Buyer’s calculation of the Loss thereby alleged to have been suffered)’.

The Buyer made a claim and although the notice which the buyer gave extended over nine pages the Seller argued that it did not comply with the clause. When the case got to the High Court the judge at first instance agreed that the notice did not comply with the clause, the information was insufficient and struck out the claim. The Court of Appeal disagreed.

The nature of the claim was whether the company had the benefit of an Option Agreement. The Court of Appeal felt that the claim was “straightforward” and that  “a simple statement that Scottish Power had failed in its obligation to ensure that the Company had the benefit of the…..Option Agreement would have told Scottish Power all that it needed to know”. Further in terms of quantum “all that was required by the Notice of Claim clause was a statement of ‘the amount claimed (detailing the Buyer’s calculation of the Loss thereby alleged to have been suffered)’. That must refer to a calculation put forward in good faith, otherwise it would not be the buyer’s genuine calculation”. The court felt that a higher bar would “serve no commercial purpose and merely introduces a trap to defeat what may be a valid claim”.

Parties to SPAs are free to agree terms and warranty clauses can vary. Parties need to ensure that the clauses are appropriate for the situation so that if there is a dispute in the future it is one on the substance of the matter and not as to the form of the notice to save parties spending thousands of pounds to determine if a claim can proceed. Further if a claim is likely to be made it may be worthwhile taking legal advice to ensure that proper notice is given to avoid this kind of litigation.

Contact our dispute resolution team on 0161 832 3434.