Judge rules company failed to serve valid notice of claim as parties ‘did not intend to allow deviation from provisions on service’

A judge in the Court of Session ruled that while the pursuers had given proper notice to the defenders that a claim existed, it was not served by the means prescribed in the share purchase agreement between the parties.

Lord Woolman heard that in 2012, the pursuer Hoe International Ltd purchased the entire share capital of Speyside Distillers Company Ltd and that the terms of the bargain were set out in a share purchase agreement dated 19 September 2012.

On the same date the sellers, Martha Andersen and Sir James Aykroyd, the defenders, provided Hoe with a disclosure letter which mentioned a company called Chambers Finance Limited, for whom Speyside had stored a significant quantity of whisky.

It narrated that disputes had arisen out of this arrangement and that the parties had resolved their disputes in 2011 by means of extra judicial settlement, but added that there were still outstanding matters.

Chambers asserted that Speyside owed it a further sum of about £500,000 in respect of excess insurance premiums, storage charges, and the unauthorised sale of whisky to cover those charges, but Speyside maintained that in fact liability travelled in the opposite direction and that Chambers owed it a sum of money.

However, it added, Chambers had made no mention of having any continuing claims against Speyside, nor had there been any solicitor correspondence threatening legal action, and it went on to state that Chambers had accepted that there was a sum due to be paid to the company.

The share purchase agreement also stated that the sellers warranted that Speyside had “no further liability” to Chambers in respect of the 7500 hogshead of whisky or in the sum of £500,000 alleged by Chambers as referred to in the disclosure letter.

But the sellers’ belief that Chambers had no further claim on Speyside proved unfounded.

On 1 July 2013 Chambers’ solicitors sent a letter of claim to Speyside and on 10 July 2013 Hoe’s solicitors sent a letter by DX and email to the sellers’ solicitors in which they stated: “Please find enclosed a copy of correspondence intimating a claim by Chambers against Speyside… This letter constitutes notice as required by clauses 8.5 and 9.1 of the share purchase agreement”.

Clause 8.5 stated that the sellers were not liable for a claim unless the buyer gave notice in writing, including reasonable details of the claim known to the buyer and a calculation of the loss alleged to have been suffered by it, while clause 9.1 provided that the buyer required to notify the sellers in writing as soon as reasonably practicable after becoming aware of a potential claim.

Under clause 9.2 the sellers had to intimate in writing within 28 days of receiving such a notice whether or not they intended to defend the claim, while clause 19 stipulated the requirements for a valid notice.

Hoe sought to enforce the warranty against the sellers, concluding for declarator, implement and damages.

The sellers defended the action on the merits, but they also took a preliminary point, arguing that Hoe’s letter of 10 July was deficient in two respects, as it did not supply all the information required by clause 8.5 and was not served by the means prescribed by clause 19.1.

The defenders maintained that Hoe’s letter of 10 July 2013 failed to comply with the contractual requirements because it did not (a) identify which warranty or warranties were relied upon; (b) state whether and to what extent Hoe adopted the claim letter; or (c) include Hoe’s own bona fide calculation of loss.

Lord Woolman observed that the clause 8.5 had a “twofold purpose”: the first was to give notice to the sellers that a claim existed; and the second was to furnish them with sufficient information to determine whether they wished to defend any action.

He concluded that the “reasonable recipient” would have been in “no doubt” that Hoe’s letter of 10 July 2013 complied with clause 8.5.

“The letter provided all the details known to Hoe at that stage. As the claim related to the period when the sellers had control of Speyside, they were best placed to assess the validity of Chambers’ claim,” Lord Woolman said.

“It was unlikely that Hoe could usefully have investigated the claim in the limited time available. With regard to the merits, it would have had to make enquiries of the sellers. There is a degree of absurdity in requiring Hoe to make enquiries of the sellers in order to relay the same information back to them.”

He added: “Put short, the reasonable recipient would have known that a claim was being made (Hoe’s cover letter) and what the claim was about (the claim letter from Chambers’ solicitors). He or she would be able to tie it in exactly to the disclosure letter.”

However, the judge ruled that Hoe failed to serve the notice by the correct means.

Clause 19 stated that notice required to be sent by pre-paid first-class post or recorded delivery to the sellers’ solicitors, and expressly stated that email was not be deemed to be appropriate and would not be deemed to be lawful or effective.

The sellers submitted that Hoe’s letter was deficient in three respects: first, it was sent by DX and email; second, Hoe did not mark it for the attention of the sellers’ solicitor; and third, the envelope did not give the firm’s full postal address.

The judge observed that the parties had specified how a notice had to be served “in some detail”.

In a written opinion, Lord Woolman said: “I conclude that the parties did not intend to allow deviation from the provisions of clause 19. It specifies exactly what constitutes a valid notice. The exclusion of email demonstrates that the parties regarded the mode of service as important. Instantaneous communication was not sufficient. Further, they prescribed when service was deemed to occur which could not apply in the case of service by DX without rewriting the contract. For the reasons outlined, I hold that Hoe did not serve a valid notice.”

He put the case out By Order to discuss further procedure in the light of his opinion.