LHS Holdings Ltd v Laporte Plc

A contractual dispute notice must provide reasonable details of the grounds of dispute, assessed in the commercial context of the agreement and the information already supplied. The notice need not be drafted as a pleading or contain a complete case. Even if an item is inadequately particularised, that does not necessarily exclude it from the contractual expert-determination process where the agreement identifies the adjustments which may be considered. The parties may develop their detailed arguments during the agreed dispute-resolution procedure. Expert evidence is unnecessary where the notice uses ordinary, understood language and the issue is whether the contractual standard of reasonable detail has been met.

LHS Holdings Ltd appealed from an order of Rattee J in Part 8 proceedings. The dispute concerned a notice served by Laporte Plc under clause 5(C) of a share sale and purchase agreement, challenging draft completion accounts and the completion statement.

LHS accepted that the notice was generally valid but argued that several entries, including references to UK GAAP and pension adjustments, lacked reasonable details of the grounds of dispute and could not be referred to the expert under clause 5(D). Rattee J rejected the claim and declared the notice valid, subject to an immaterial qualification.

1. Appeal dismissed. The requirement in clause 5(C) that a Dispute Notice set out reasonable details of the grounds of dispute had contractual significance, but its effect was not to exclude an item from the expert process merely because the court later considered the details insufficient.
2. The so-called curate’s egg argument was inconsistent with clause 5(D), which expressly identified the adjustments the expert could consider and excluded adjustments not requested in the Dispute Notice or not affecting the Completion Statement. Adding a further exclusion for inadequately particularised adjustments was unjustified.
3. Reasonable detail had to be assessed in the commercial context, including the information contained in the draft Completion Accounts and Completion Statement and the purpose of initiating an expeditious dispute-resolution process. The notice was not a pleading and need not contain a fully formulated accountancy case.
4. The UK GAAP rubric and the statement that the pension adjustment’s basis of calculation was incorrect provided reasonable details in the circumstances. The notice identified the disputed items, and the parties had operated the contractual procedure for more than three months without apparent difficulty.
5. Expert evidence was unnecessary. The relevant expressions were ordinary and understood, and whether they supplied reasonable details was a question for the court.
6. The court declined to give detailed guidance to the expert. The sensible course was for the expert to identify the issues by reference to the parties’ submissions. The order for dismissal included costs, with the order below left undisturbed and leave to appeal refused.

• Court of Appeal (Civil Division): appeal from the order of Rattee J dismissed.
• High Court, Chancery Division: on 30 June 2000, declared the Dispute Notice valid for the relevant items, subject to an immaterial exception.