Beware notice provisions in Share Purchase Agreements


22nd July 2020

The recent High Court judgment of Towergate Financial (Group) Ltd and other companies v Hopkinson and others [2020] EWHC 984 (Comm) warns of the importance of having clear and unambiguous notice provisions in a Share Purchase Agreement (SPA), and following them to the letter.

The Towergate case – background facts

Towergate purchased M2 Holdings Limited for £9.9m in 2008.

After the sale, the Financial Conduct Authority (FCA) investigated instances of historic mis-selling of financial products pre-dating the sale to Towergate.

In order to rely on the indemnity given in the SPA against certain liabilities for professional negligence claims, Towergate had to give written notice of a claim:

 “…as soon as possible and in any event prior to:

  1.  …;
  2. …; and
  3. in relation to a claim under the indemnity [for a claim of professional negligence] on or before the seventh anniversary of the date of [the SPA].” (Emphasis added)

Towergate gave notice pursuant to the above clause shortly before the seventh anniversary of the date of the SPA (the “Indemnity Notice”).

Issue 1: Was there a dual requirement for notice?

In addition to the requirement that the Indemnity Notice be given on or before the seventh anniversary of the date of the SPA, was there also a requirement that it must be given “as soon as possible”?

The judge had no difficulty in concluding that although the wording was imperfect, the meaning  of the clause was that which was clearly indicated by its language: there was a dual requirement for notice to be given “as soon as possible” and “before the 7th anniversary of the SPA”.

The judge also considered the commercial purpose of each of the requirements and found that the two different time limitations had different points of focus: “as soon as possible” was to provide early notice to enable a defence to be undertaken promptly, whereas “before the 7th anniversary of the SPA” was to provide a longstop date.

Issue 2: Had Towergate given the Indemnity Notice "as soon as possible"?

The judge interpreted “as soon as possible” to be the point at which Towergate had “meaningful and useful information.” The Judge decided that Towergate had not served the Indemnity Notice at the time of becoming aware of meaningful and useful information, in particular:

  1. Towergate had informed its insurers of the FCA’s investigation two years prior to serving the Indemnity Notice; and
  2. Towergate could not point to any acquisition of meaningful and useful information at the time that it served the Indemnity Notice, save for the looming seven year limitation date.

Lessons

The judgment meant that Towergate’s claim for an indemnity against professional negligence failed. It is worth noting that the liabilities and costs in question were potentially more than £50m.

This case serves as a warning that notice provisions of an SPA must be carefully scrutinised and any ambiguity clarified when the terms of the SPA are negotiated in the first place.

This article has been co-written by Nicola Diggle and Helen Dent.

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