On Friday 7 May 2021, the Court of Appeal (Underhill, Popplewell and Nugee LLJ) handed down judgment in Dodika Ltd & Others v United Luck Group Holdings Limited  EWCA Civ 638, allowing the appeal of United Luck against the judgment of Mr Peter MacDonald Eggers QC (sitting as a Deputy Judge of the High Court). Matthew Hardwick QC, instructed by Chris Yates and Anne Collins of Clifford Chance LLP, represented the successful appellant.
The dispute arose out of the $1bn December 2016 purchase by United Luck of the company which owned the globally successful “Talking Tom” mobile phone applications. Pursuant to the SPA: (1) the sum of $100m was held in escrow to meet potential claims under a tax covenant; and (2) the notification clause required United Luck to give written notice to the sellers stating “in reasonable detail the matter which gives rise to such Claim” by a cut-off date of 1 July 2019. In July 2018 the Slovene Tax Authority commenced an investigation into the transfer pricing practices of a group company based in Slovenia. The sellers’ representatives were kept fully informed of the progress of the tax investigation.
A week before the cut-off date, and at a point in time when the tax investigation remained incomplete, Clifford Chance (for the buyer) gave written notice to the sellers of a claim under the tax covenant (“the Letter”). The sellers contended that the Letter failed to give the requisite “reasonable details” and sought summary judgment and the immediate release of the $50m remaining in escrow. Although it was accepted (for the purposes of the summary judgment application) that the sellers had full knowledge of the course of the tax investigation, the Judge held that the Letter failed to provide the requisite reasonable details and granted summary judgment.
The Court of Appeal allowed the appeal. Nugee LJ held (at ) that (1) “…what is reasonable must depend on all the circumstances…” and “…those circumstances must include in particular what is known to the recipient…”; and (2) in circumstances where the sellers “…knew exactly…” to what transfer pricing practices the Letter made reference, to require an explanation of the same would “…elevate the requirement to state reasonable details into empty formalism…”. Popplewell LJ added (at  and ) that (1) the reasonable recipient with the (assumed) knowledge of both parties would have known the additional detail that it was suggested was necessary for a compliant notice; and (2) “…businessman would not expect or require further detail which served no commercial purpose. That would be the antithesis of what was reasonable…”.
The judgment of the Court of Appeal represents both (1) a firm restatement of the principle in Mannai Investment Co Ltd v Eagle Star Life Assurance Co. Ltd  AC 749 that (as expressed in notification cases at least since Laminates Acquisition Co v BTR Australia Ltd  EWHC 2540 (Comm)) the question is “…how this notice would be understood by a reasonable recipient with the knowledge of the context in which it was sent…”; and (2) a welcome rejection of the formalistic contention that compliance required the provision of details that satisfied no commercial purpose.
Click here to read the full judgment.