David Quest KC and Phil Hinks successful in breach of warranty dispute in the Court of Appeal

The Court of Appeal has today handed down judgment in Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd [2024] EWCA Civ 477.

The dispute arises out of an agreement (the SPA) for the sale and purchase of shares in a company which is now known as VPI Power Limited (the Company).  By the SPA, Scottish Power sold its shares in the Company to Drax.  One of the assets of the Company was a site in Kent which is a potential location for a new power station.  In order for any such power station to be built, it would need to be connected to the national electricity grid.  The SPA contained warranties to the effect that the Company was sold with the benefit of an option to acquire an easement over neighbouring land for the purposes of connecting the site to the national electricity grid.  However, after completion of the SPA, it transpired that the Company did not have the benefit of that option or any easement over the neighbouring land.

Drax claimed against Scottish Power for breach of warranty and for an indemnity for losses that it and the Company had suffered.  Scottish Power applied for summary judgment on the claim on the basis that (i) as regards the warranty claims, they had not been notified to Scottish Power in accordance with the notice of claim provisions of the SPA, with the consequence that they were barred, and (ii) as regards the indemnity claim, it was notified to Scottish Power out of time, with the consequence that it was also barred.

At first instance, Simon Birt KC (sitting as a deputy High Court judge) found in favour of Scottish Power in respect of the warranty claims, and in favour of Drax in respect of the indemnity claim.  Both sides appealed.

The Court of Appeal allowed Drax’s appeal in respect of the warranty claims and dismissed Scottish Power’s appeal in respect of the indemnity claim.  Of particular note for future disputes about whether a claim has been notified in accordance with notice of claim provisions is the following observation by Males LJ at [50]:

“Whether a notice is sufficient to satisfy the requirements of any given clause must depend primarily on the language of the clause. Commercial parties are free to impose whatever requirements they wish. However, where they use broad and general terms such as ‘the nature of the claim’ and ‘in reasonable detail’, those requirements should be interpreted in the light of the commercial purposes of such clauses, including those identified in Dodika. It is important that Notice of Claim clauses should not become a technical minefield to be navigated, divorced from the underlying merits of a buyer’s claim. While a seller’s interest will always be to knock the claim out if it can on the technical ground that the notice is insufficient, courts should not interpret such clauses as imposing requirements which serve no real commercial purpose unless compelled to do so by the language of the clause.”

The upshot of this decision is that all of Drax’s claims will now proceed to trial.

David Quest KC and Phil Hinks acted for Drax, instructed by Marko Kraljevic of Clyde & Co.

The full decision appears here.