RWE Nukem Ltd v AEA Technology Plc

Contractual warranty damages compensate the claimant for the difference between the value of the business as warranted and its actual value. They do not compensate for an opportunity to contract on different terms. A warranty notification clause must be construed according to its wording and commercial purpose. Where it is a condition precedent, the claimant must identify the relevant warranty, explain the alleged breach in general terms, particularise the supporting facts and indicate the resulting liability or loss, so far as reasonably possible. The adequacy of notice depends on the nature of the claim, the facts known to the vendor and whether meaningful quantification is realistic. Contractual indemnity provisions must be read as a coherent scheme. Express deemed-recovery provisions operating in the calculation of loss are offsets, not thresholds.

RWE purchased AEA Technology’s nuclear engineering business under an agreement containing warranties, disclosure provisions and indemnities relating to customer contracts. The agreement required written particulars of warranty claims within 24 months of completion and commencement of proceedings within six months thereafter.

Four preliminary issues arose. They concerned the recoverability and proper measure of warranty damages, whether claims concerning pension arrangements and two customer contracts had been adequately notified, when liability under an indemnity arose, and whether specified deemed-recovery figures operated as offsets or thresholds.

1. Warranty damages. Claims seeking damages for the loss of an opportunity to conclude the agreement on more favourable terms were demurrable. A warranty became binding when the agreement was made, so its breach could not have caused the claimant to lose an opportunity to alter that agreement. Contractual damages were to place the claimant in the position it would have occupied if the warranty had been fulfilled. For inaccurate business warranties, the relevant measure was generally the difference between the warranted value and the actual market value.

2. Notification clause. Each notification clause depended on its own wording and commercial purpose. Since paragraph 2.4 of Schedule 9 operated as a condition precedent, RWE had to show that it had given proper particulars of the claims and the specific matters available to it. A compliant notice would ordinarily identify the warranty, explain in general terms why it was breached, particularise the factual basis and indicate the liability or loss alleged. The pension and KFK Sodium claims were materially different from the complaints in the September Letter and were not adequately notified. The PFR LMD claims were adequately notified, despite the absence of express references to every warranty paragraph.

3. Indemnity timing. Liability under Schedule 19 generally arose only when the relevant contract had completed under paragraphs 9.1.1 and 9.1.2. For the PFR LMD contract, paragraphs 9.2 and 9.3 provided a relaxation: after the two-year period, a sum became payable once it was objectively clear that a certain sum would be due, subject to agreement or arbitration determining the amount. The issue was left for a declaration in an appropriate form.

4. Deemed recovery. The figures in paragraphs 7.3.2 to 7.3.5 were mandatory adjustments in calculating losses, recoveries or expenses under the indemnities. They operated as offsets, reducing the sums payable, rather than as thresholds disregarded once actual recoveries exceeded them. This construction gave effect to the contractual allocation of risk, including the 90 per cent/10 per cent sharing mechanism.

The PFR LMD claim was later abandoned, making reconsideration of that issue academic.

First-instance determination of four preliminary issues in the High Court (Commercial Court). The judgment records no prior appellate decision.