Zayo Group International Ltd v Ainger & Ors

Contractual notification clauses must be construed according to their own wording, read in the contractual and commercial context. Where a clause makes timely notice a gateway to liability, compliance is essential. A notice requirement for service at an address is not generally satisfied by a mere attempt to deliver where the contract requires the notice to be left at that address.

Where a share sale agreement requires notice of a warranty claim to state the nature of the claim and a reasonable estimate of the amount claimed, those are separate requirements. The estimate must reflect the proper measure of loss. For breach of share warranties, the usual measure is the difference between the value of the shares as warranted and their actual value. A contractual provision excluding liability where an accounting provision was made may transfer the risk of inadequacy of that provision to the purchaser.

The claimant purchased the entire issued share capital of Ego Holdings Limited and brought management warranty claims against seven former managers under a share purchase agreement. The defendants applied to strike out the claims or obtain reverse summary judgment. The claimant also sought permission to amend its pleadings, principally by replacing claims for sums paid by the acquired company with diminution-in-value claims.

The principal issues concerned timely service of the notice of claim, the effect of failing to notify one management vendor, the content and adequacy of the notice, the proper measure of loss, the effect of provisions made in the accounts, and whether accounting-standard issues could be summarily determined.

1. Service on the fifth defendant. Under clauses 12.1–12.3 of the SPA, courier service required delivery of the notice to the specified address, meaning that the notice had to be left there. A mere attempt to deliver was insufficient. The courier took the notice away after being told that the fifth defendant had moved, and did not leave it at the address before the deadline. The notice was therefore invalidly served and the claim against her was dismissed.
2. Effect on the other defendants. The first sentence of paragraph 3.2 of Schedule 6 required notice to be given to all the management vendors. Read with the “claim against one, claim against all” provision in paragraph 3, failure to serve one vendor meant that none of the management vendors had liability. The claims against all defendants were therefore dismissed.
3. Content of notice. The second sentence of paragraph 3.2 imposed three separate requirements: reasonable detail of the nature of the claim, a reasonable estimate of the amount claimed, and reasonably sufficient details enabling the vendors to exercise their other rights. The first three claims were advanced by reference to sums paid by the acquired company, rather than diminution in the value of the shares. They therefore did not provide a reasonable estimate of the recoverable loss. The power-usage claim also failed to quantify the alleged diminution and did not identify what the accounts should have shown.
4. Measure of loss and amendments. The proper measure for breach of share warranties was the difference between the value of the shares if warranted and their actual value. The pleaded indemnity-style claims disclosed no reasonable grounds and had no real prospect of success. Permission to amend was refused because the proposed claims had not been notified within the contractual period.
5. Accounting provisions. Paragraph 5.1 of Schedule 6 excluded liability where a provision or reserve for the relevant liability had been made in the accounts, even if the purchaser considered it inadequate. The NMC and H3G claims would therefore also have failed on that basis.
6. IAS 37.14. Interpretation and application of accounting standards were ultimately matters for the court, although expert accountancy evidence might assist. The Lift and Shift issue was unsuitable for summary determination because the parties disputed the factual and accounting implications. It would not have been struck out or summarily determined on that ground.

The defendants’ applications succeeded on the determinative service issues. The claimant’s applications to amend were refused.

First-instance decision. No appellate history was stated in the judgment.