Member Article

Notifying a warranty claim

With Watson Burton LLP Law Firm

Warranties are contractual statements which take the form of assurances from a party as to particular facts or circumstances. Warranties often cover areas where there is little or no protection at common law. Breach of warranty can give rise to a claim for damages but does not allow for termination of the contract.

In the recent case of Forrest & Ors v Glasser & Whitley [2006] EWCA Civ 1086 the Court of Appeal was asked to look at what is required to successfully notify a warranty claim under a contract.

The Appellant (“F”) entered into a share subscription and acquisition agreement with the Respondents’ company (“G”). The agreement contained the following clauses:

“6.3 Any Claim…

6.3.1 which shall not have been notified in writing to the Company on or before the third anniversary of the Completion… shall be deemed to have been waived.

6.4 Without prejudice to… Clause 6.3 hereof [F] will notify [G] in writing as soon as reasonably practicable after the date upon which [F] became aware of a Claim against [G], such notification to be in sufficient detail to enable [G]… to identify the Claim and respond to it.“

F believed there were breaches of warranties regarding management accounts. An exchange of correspondence took place between the parties which referred to a potential warranty claim. On 24 November 2003 (the third anniversary of the completion) F’s solicitors wrote to G stating:

“We hereby give notice on behalf of the [appellants], of their intention to make a claim against you… out of the fact that the management accounts… were not in accordance with the warranties…”

G maintained that the claim was not notified properly because it did not state which entries in the management accounts were incorrect, or provide sufficient information as detailed in clause 6.4.

The Court indicated that the interpretation of each clause will depend on individual circumstances but ultimately held that clause 6.4 did not govern clause 6.3.1 due to the wording “without prejudice”. Therefore clause 6.3.1 was given its ordinary meaning and the Court held that a bare notification of a claim was all that was necessary. The appellants did not have to provide the amount of detail requested in clause 6.4.

This case will be of particular importance to those involved in drafting commercial contracts. It acts as a warning to ensure that the parties’ intentions are properly represented by the clauses within agreements and how the inclusion of seemingly insignificant wording can negate those intentions.

If you have any queries in relation to this article, please contact Marie-Louise Bozonet at Watson Burton LLP (marie-louise.bozonet@watsonburton.com).

This was posted in Bdaily's Members' News section by Ruth Mitchell .