Share Purchase Agreements often contain provisions requiring a vendor to indemnify a purchaser in certain circumstances, provided that the purchaser claims under the indemnity within a specified time limit. The recent case of Kuoni Travel Ltd v. (1) John Boyle and others  EWHC 877 (QB) raised some interesting questions about the correct construction of such provisions and the notification obligations imposed on a purchaser.
In June 2007, Kuoni Travel Limited (“K“) entered into an agreement (the “Agreement“) to purchase CV Travel Holdings Limited from various individual vendors (the “Defendants“). Several years later, K had to pay backdated Swiss value added tax and associated expenses in the sum of approximately £400,000 and sought reimbursement from the Defendants. The Defendants argued, amongst other things, that K did not provide a valid notice of the claim in accordance with the Agreement so the Court had to consider whether or not K served notice on the Defendants within 30 days of becoming aware of the potential liability.
In determining when K became “aware” of the relevant details of the claim, the Court held that awareness, in its ordinary meaning and in the context of the case, meant conscious knowledge acquired in the ordinary course of a competently run business. Employees have a variety of tasks to do and should not be expected to have single minded concentration on one particular issue. It should be more than merely knowing that a potential issue exists.
Further, it should be the awareness of the person who has responsibility for the issue. There was only one individual at K who would be responsible for deciding to serve the notice, but that individual could not have been aware of the relevant details until he had sufficient information.
It was argued that the decision maker at K demonstrated that he had received sufficient information by contacting one of the Defendants to keep him informed of the potential liability and the fact that it may give rise to a claim. Mr Justice Mackie however, commended K for keeping the Defendants informed before they had a legal obligation to do so. The legal obligation arose only after K had received advice from its principal tax advisers. At that stage, K may have been aware that liability was inevitable but the calculations had not been finalised, tax registration had not taken place and no demand for tax had been made. By the time certain junior employees had sufficient information, Ks decision maker was on holiday. When Ks decision maker returned from holiday he sent the Defendants further details of the potential liability, and Ks solicitors gave formal notice of the claim to the Defendants 24 days later.
The Court held that K could not have been aware of the relevant details until the decision maker returned from holiday and had access to sufficient information. The 30 day period commenced at that point, being 20 December 2010 and the notice was served within the 30 day time limit in the Agreement on 14 January 2011.
It is interesting and perhaps a little surprising, given that senior employees are now accustomed to checking emails when out of the office, that the Court decided that Ks decision maker could not have been aware of the potential liability until he returned from holiday. It will be interesting to see if similar facts are presented before the Court in the future whether the result will be the same. Further, the Court concluded that in this particular case there was only one individual that had responsibility for deciding to serve the notice. However, companies are structured and managed differently.
If nothing else, the case highlights the importance of identifying decision makers and putting in place adequate reporting systems to ensure that those decision makers are kept up to date with important business matters so that they can make critical decisions as and when required.