Warranty Claims in Business Sales and Acquisitions: Update
Claims made by buyers against sellers for breach of warranty are on the rise, making it more important than ever to be mindful of the wording, and the procedure to follow when making a claim for breach, of a warranty. The courts have adopted a strict approach in their interpretation of both.
- a requirement in a sale agreement requiring a notice of claim to be served on all of the sellers meant that the buyer’s service of a notice of claim on six out of seven sellers (on the last day of the warranty period) did not amount to valid service and, as a result, the claim was time-barred against all of the sellers;*
- a requirement for a buyer to summarise the nature of a claim, so far as it is known when bringing a warranty claim did not require full particulars of the claim, or every relevant warranty to be listed, so long as it was (on the whole) clear with sufficient detail to include other claims that might arise; **
- a buyer failed, in its notice of claim, to provide reasonable details of its claim (including the grounds, and an estimate) as soon as reasonably practicable after becoming aware of it (and in any event, before a [relevant date]) because it had not identified the specific warranties and parts of the sale agreement, nor had the buyer given notice as soon as reasonably practicable after it had become aware of the warranty claim;***
- a buyer failed to give full particulars of its claim on or before a [relevant date] when its notice of claim was given in respect of a number of alleged breaches, rather than specific details of the actual claim by reference to the sale agreement, an estimate of the amount claimed, and within the warranty period;****
- a buyer failed to provide in reasonable detail, the nature of its claim and the amount the buyer was claiming because the notice of claim was in respect of a contingent claim (for which the sale agreement did not provide) and stated that circumstances may give rise to a warranty claim, rather than that the buyer was actually making a claim; *****
- a buyer failed, in its notice of claim (sent on the last day of the warranty period), to provide reasonable detail of the nature of its claim and the amount claimed (including a calculation of the loss suffered) because it alleged an incorrect type of loss which it subsequently attempted to rectify after the end of the warranty period.******
- To give sellers clarity on the extent of potential liability, they should insist upon:
- prescriptive procedural requirements for notification of warranty claims; and
- reasonable periods within which warranty claims may be brought.
- Buyers should:
- audit for possible claims on a regular basis, and in advance of the end of any warranty period
- ensure that any notice of a warranty claim is:
- clear about its purpose, refer to those warranties alleged to have been breached, and give enough information to enable a seller to evaluate potential liability (including, where reasonably possible, a calculation); and
- notified to the correct individuals, in the correct manner with proof of service, and brought within the relevant warranty period.
For further information about this, please contact Corporate and Commercial Solicitor Nick Mayles. Nick is a highly experienced transactional corporate and commercial lawyer. If we can assist with any questions you may have in relation to your business, please get in touch by emailing email@example.com or call 01206 574431.
* Zayo Group International Ltd v Ainger and others 
** Triumph Controls UK Ltd v Primus International Holding Co 
*** Teoco UK Ltd v Aircom Jersey 4 Ltd 
**** Arani v Cordic Group Ltd 
***** TP ICAP Ltd v Nex Group Ltd 
****** Drax Smart Generation Holdco Ltd v Scottish Power Retail Holdings Ltd