The recently reported decision of the High Court in IPSOS S.A. v Dentsu Aegis Network Limited (formerly Aegis Group plc)  EWHC 1171 (Comm) highlights the importance of ensuring that any provisions in a share sale and purchase agreement regarding giving notice of claims are followed precisely.
Under the terms of a sale and purchase agreement completed on 12 October 2011 (“the SPA”), Ipsos S.A. (“Ipsos”) purchased shares in various companies forming part of the same world-wide group from Dentsu Aegis Network Limited (“Aegis”).
In the SPA, Aegis had given a warranty that none of the companies faced potential claims from non-employees to the effect that that they should be treated as employees. Ipsos subsequently claimed that Aegis had breached that warranty because contract workers at a Brazilian company within the group were alleging that they should have been treated as employees but had not been. Ipsos issued proceedings against Aegis for breach of warranty. Aegis contended that there had not been a valid notice of claim and applied to the Court for the claim to be struck out.
The SPA contained two separate provisions dealing with notice of claims. The first provided that no warranty claim could be brought against Aegis unless Ipsos had given written notice of such a claim specifying in reasonable detail: (i) the matter which gave rise to the claim; (ii) the nature of the claim; and (iii) (so far as is reasonably practicable at the time of notification) the amount claimed. The time limit for giving notice of a warranty claim was two years from the date of completion. The second provision in the SPA related to third party claims and required Ipsos to notify Aegis of any claim it received from a third party which might result in a warranty claim.
On 14 August 2012, Ipsos wrote to Aegis giving notice of third party claims concerning the contract workers at the Brazilian company. This letter specifically stated that it was not a notice of a warranty claim. On 30 September 2013, Ipsos sent a further letter to Aegis giving further details of the third party claims. The letter did not state that a claim was being made for breach of warranty. Ipsos subsequently contended that, although it was not well drafted, this letter contained the information required under the SPA and was therefore sufficient to act as notice of a warranty claim.
In considering the matter, the Court stated that the starting point in such matters was that “the only true principles to be derived from the authorities is [sic] that every notification clause turns on its own wording”. However, there were said to be four broad propositions which derived from case law and which were potentially relevant to determining whether an alleged notice of claim satisfied the requirements under the notification clause. These were:
- The purpose of this type of provision is to ensure that sellers know in sufficiently formal terms that a claim for breach of warranty is to be made, so that financial provision can be made for it. Such a purpose is not served if the notice is uninformative or unclear.
- In construing any such notice the question is how it would be understood by a reasonable recipient with knowledge of the context in which it was sent.
- The notice must specify that a claim is actually being made rather than indicating the possibility that a claim may yet be made.
- The notice must specify any such matters which it is required to specify.
The Court held that the second letter from Ipsos failed to satisfy the above points in that (a) a reasonable recipient with knowledge of the previous correspondence and the context would not have understood it to be a claim notice; (b) there was no reference in the letter to a claim notice or any statement of a claim for damages for breach of warranty; (c) the letter did not specify “the matter which gives rise to the claim” as there was no attempt to specify the underlying facts, events or circumstances; and (d) the letter did not specify “the nature of the claim” as there was no real attempt to identify the form and substance of the claim. As such, the Court held that no claim notice in respect of the claim had been given and the claim was therefore time-barred.
This case demonstrates that in pursuing any claim it is vital to take careful note of any provisions specifying the form which a notice of claim must take. A failure to meet these requirements and set out the necessary details in the correct form at the outset may result in a claim becoming time-barred and the loss of the ability to bring a claim at all.
Where two businesses contract with each other on the standard terms of business of one of them, any exclusions or limitations of liability contained in those standard terms must be “reasonable” in order to be effective, pursuant to the Unfair Contract Terms Act 1977 (“UCTA”).
Exclusions/limitations commonly found in standard term business-to-business contracts include terms which exclude liability for any “indirect or consequential loss” and/or which limit liability to the contract price.
In the recent case of Saint Gobain Building Distribution Ltd (t/a International Decorative Surfaces) v Hillmead Joinery (Swindon) Ltd  EWHC B7 (TCC), the High Court found that such terms failed the reasonableness test under UCTA.
International Decorative Surfaces (“IDS”) supplied laminate sheets to Hillmead Joinery (Swindon) Ltd (“Hillmead”). Hillmead purchased the laminate sheets in order to manufacture bonded panels for an end customer. Hillmead’s ultimate customer had complained to Hillmead that the laminate finish on the sheets was inconsistent and Hillmead therefore claimed against IDS that the laminate sheets were defective. Hillmead claimed significant sums by way of damages, primarily for the loss of its business and anticipated business with its ultimate customer over a period of six years. The claim for loss of business very significantly exceeded the value of the invoices.
In defence of this claim, IDS sought to rely on a number of its standard terms in order to exclude or limit its liability. Amongst those were terms which stated that:
- IDS would not be liable for any loss of profit, loss of business, loss of goodwill, loss of savings, increased costs, claims by third parties, punitive damages, indirect loss or consequential loss suffered by the customer as a result of any breach; and
- IDS’s liability to the customer in any claim arising out of the contract or the goods supplied could not exceed the invoice price of the good concerned.
- Hillmead argued that these terms were unreasonable under UCTA.
- The court weighed up the following guidelines set out in UCTA for determining reasonableness:
- The relative strengths of the bargaining positions of the parties;
- Whether any inducement was given to the customer to agree the term, or whether the customer had an opportunity of entering into a similar contract with other parties without having to accept a similar term;
- Whether the customer knew or ought reasonably to have known of the existence of the term;
- If a term excludes or restricts liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; and
- Whether the goods were manufactured, processed or adapted to the special order of the customer.
The Judge found that IDS was in a significantly stronger bargaining position than Hillmead. Further, there was no inducement for Hillmead to agree IDS’s standard terms and conditions. There was no evidence that the sheets had been manufactured to any special order.
On the question of whether the term limiting liability to the invoice value was reasonable, it was a crucial factor for the Judge that IDS was aware, at the time the contract was made, that Hillmead was intending to incur the expense of having the goods incorporated into finished products for onward sale. Accordingly, IDS was aware that any direct loss to be caused to Hillmead if the sheets were defective would be greater than the costs of replacing the goods/the invoice price. Taken together with his finding that IDS was in a significantly stronger bargaining position than Hillmead, this led the Judge to conclude that this term was unreasonable.
As regards the attempt to exclude all liability for consequential loss, this was also found to be unreasonable, based on many of the same factors on which the Judge relied in relation to the term limiting liability to the invoice value. The Judge took the view that if the less severe term of limiting liability to the invoice value was unreasonable then the more severe term of excluding all liability of any kind for consequential loss must also be unreasonable.
Whilst each case turns on its own facts, this case highlights the danger of attempting to impose exclusions which deny the buyer any remedy in certain circumstances. Suppliers should be aware that the Court is more likely to uphold the reasonableness of a clause which accepts some level of liability, whether direct or indirect, up to a reasonable cap. The invoice price may be considered a reasonable cap in some circumstances, but in many circumstances it will be insufficient.