Notice clauses: Court of Appeal hands down judgment in TEOCO v Aircom appeal

The Court of Appeal has handed down judgment in TEOCO UK Ltd v Aircom Jersey 4 Ltd [2018] EWCA Civ 23, its latest ruling on the important subject of contractual notification provisions. John Jarvis QC and George McPherson (instructed by McGuireWoods LLP) represented the unsuccessful appellant/claimant, TEOCO.

TEOCO brought claims against the defendant, Aircom, for breaches of tax warranties and under a tax covenant pursuant to a share purchase agreement (SPA). The claims were based on alleged undisclosed tax liabilities of Brazilian and Philippine entities acquired by TEOCO under the SPA. TEOCO sought to give notice of its claims by two letters, in February and June 2015, which described the claims by reference to the contractually defined terms “Tax Warranties” (designating five warranties in the SPA) and “Tax Covenant”.

At first instance, Richard Millett QC (sitting as a Deputy Judge of the Chancery Division) granted the defendant’s application to strike out the claims on the grounds that TEOCO had failed to notify the claims in accordance with notice provisions in the SPA: [2016] EWHC 1074 (Ch). TEOCO obtained permission to appeal that decision on the following grounds:

1. Properly construed, the two notice letters served by TEOCO were “Notices of Claim”.
2. The notice letters complied with the requirement to set out “reasonable details of the Claim (including the grounds on which it is based…)”.
3. The Particulars of Claim were “in respect of” the Claims notified, as required.
4. TEOCO was not aware of the Philippines Claim, and was not therefore required to notify it, until TEOCO could conscientiously put it forward as a claim it was entitled to advance (as per the “conscientious businessman” test discussed in The Hut Group v Nobahar-Cookson [2016] EWCA Civ 128).

It was necessary for TEOCO to succeed on each of these grounds to win the appeal.

The Court of Appeal (Newey LJ giving the only reasoned judgment with which Sir Ernest Ryder and Lindblom LJ agreed) determined only ground (2) against TEOCO on the basis that “setting out” the grounds of the Claims meant that the legal basis of the Claims had to be identified. That could have been achieved without mentioning a warranty or other provision if recitation of the relevant facts had unequivocally indicated a specific warranty. But whilst the compendious reference to “Tax Warranties” included the two Tax Warranties relied on, it also encompassed other possibilities and did not therefore serve to identify the “grounds” of the claims.

In the sphere of contractual notification clauses, this decision marks an important new departure. To date, non-compliant notices have been found to be those which set out no or insufficient details by failing to identify (or wrongly identifying) the factual or legal details of the claim. This decision introduces a new risk for the unwary claimant: namely, that a widely framed notification which includes (as the Deputy Judge found) “ample details” of the facts underlying the claims and the legal grounds relied on, may still be deficient if the reasonable recipient cannot ascertain with certainty the legal grounds of the claims intended to be pursued.

The Court of Appeal declined to determine grounds (1), (3) and (4). The correctness of the Deputy Judge’s decision on those grounds, which create further traps for the unwary claimant, remains open to doubt. For the moment at least, they remain good law: the first instance decision, reported at [2016] EWHC 1074 (Ch), should therefore be studied with some care.

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