Home Doors (GB) Limited v France

A contractual claims-notification clause requiring particulars of a claim within a specified period and proceedings within six months prevents a claimant from repeating the same claim to restart the proceedings period. Separate claims may be notified separately.

A warranty that a balance sheet reasonably reflects a company’s assets and liabilities ordinarily warrants each balance-sheet item to the extent that it contributes to the overall picture. A disclosure qualifying an inaccurate figure may substitute the disclosed figure for the figure shown, rather than remove the warranty altogether.

Where the agreement provides a prima facie measure of compensation for a warranty breach, the recoverable loss may be adjusted according to the actual consequences. The provision is not penal merely because it specifies a contractual basis for compensation.

Home Doors (GB) Limited purchased the shares in Aqualux Products Ltd from Michael Charles France and 3i Plc under a share sale agreement containing warranties concerning the company’s accounts and assets.

Home Doors alleged that Aqualux’s stock had been materially overstated and claimed damages for breach of warranty and misrepresentation. The High Court tried six preliminary issues concerning the effect of a notification letter, the scope and qualification of the warranties, and the measure of damages.

The claimant and defendant appealed aspects of the decision of His Honour Judge Norris QC dated 14 December 2001. The central issues before the Court of Appeal were whether the same notified claim could be revived by a later letter, what the balance-sheet warranty covered, and how damages were to be assessed.

1. Appeal and cross-appeal dismissed. The Court of Appeal upheld the judge’s answers to the preliminary issues. Permission to appeal to the House of Lords was refused.
2. Clause 4.5.3 required written particulars of a specific claim within the applicable period and proceedings within six months after that claim. Once the letter of 3 December 1998 had given particulars of the stock claim, the claimant could not repeat essentially the same claim in a later letter so as to restart the six-month period. The clause did not prevent a genuinely separate claim from being notified separately. Whether particulars were sufficient was a question of fact.
3. The warranty that the balance sheet reasonably reflected the company’s assets and liabilities extended to each balance-sheet item to the extent that it contributed to the overall picture. An overstatement of one item could constitute a breach, although a compensating breach might affect the damages.
4. The disclosure letter did not remove the stock warranty. It fully and fairly disclosed that the figure of £1.9 million was incorrect and, by stating that the warranty was qualified accordingly, substituted £1.6 million as the warranted figure. On the assumed facts, the damages could therefore be no more than the difference between £1.27 million and £1.6 million.
5. The prima facie measure of loss was the shortfall between the warranted stock figure and the actual stock figure under clause 4.2. The final measure could be more or less, depending on the actual consequences, including stock written off or additional financing costs.
6. Clause 4.2 was not a penalty clause. Applying the approach in Clydebank Engineering & Shipbuilding Co v Don Jose Ramos [1905] AC 6, a provision is penal only if the stipulated sum is extravagant or unconscionable. The agreed basis for compensation was neither.

• Court of Appeal (Civil Division): appeals from the judgment and order of His Honour Judge Norris QC dated 14 December 2001 were dismissed. No order as to costs.
• High Court, Chancery Division, Birmingham District Registry: six preliminary issues concerning the share sale agreement were determined in favour of the conclusions upheld on appeal.