Philp & Anor v Cook

A contractual notification requirement may extinguish the underlying liability for an unnotified warranty claim, rather than merely bar the remedy. Where the clause is properly construed in that way, the claim cannot be used as an equitable set-off. The court must construe the particular contract in its own context. Clause headings do not control interpretation where the agreement provides otherwise. The distinction between contractual provisions which extinguish liability and statutory limitation provisions which merely bar the remedy remains material. A contractual time bar is not confined to freight cases. A general clause preserving other remedies does not preserve an unnotified warranty claim where its wording concerns remedies for an existing breach.

The Sellers sold their company to the Buyer under a share purchase agreement. They remained liable as guarantors of the company’s bank loan and obtained an indemnity from the Buyer. After the business failed, the Sellers paid £130,000 to the bank and claimed reimbursement under the indemnity.

The Buyer sought to rely on alleged warranty breaches by way of equitable set-off, although she had not notified those claims within the two-year period required by clause 8.3. The Exeter County Court struck out the Buyer’s counterclaim but held that the alleged breaches could still provide a defence by way of set-off. The issue on appeal was whether clause 8.3 extinguished the underlying warranty claims or merely barred proceedings to enforce them.

1. Appeal allowed. The Buyer’s alleged warranty claims could not be relied on by way of equitable set-off against the Sellers’ claim under the indemnity.
2. Clause 8.3 had to be construed according to ordinary contractual principles and in the context of the agreement itself. Its heading could not assist the Buyer because clause 1.2 provided that headings did not affect interpretation. The definition of “Claim” was not tied to the commencement of court proceedings.
3. The words “are not liable for a Claim unless” were apt to extinguish the underlying liability when the required notification was not given within two years. They did not merely bar the monetary remedy while leaving the claim available as a defence. The reasoning in Aries Tanker Corporation v Total Transport Ltd [1977] 1 WLR 185 was of general application and was not confined to freight cases.
4. The distinction drawn in Aries Tanker Corporation v Total Transport Ltd between a contractual time bar which extinguishes a claim and a statutory limitation which bars only the remedy was material. Filross (1999) 31 HLR 456 concerned a statutory limitation and therefore did not govern this contractual provision. The relevant reasoning of Lord Denning MR in The Brede [1974] QB 233 was inconsistent with Aries Tanker Corporation v Total Transport Ltd and was not followed.
5. Clause 7.3, including its reference to other remedies, dealt with remedies for breaches of warranty and did not preserve an extinguished claim for use by way of set-off. The Buyer had been represented by solicitors and there was no sufficient basis for construing the clear notification provision in her favour.

• High Court (Queen's Bench Division): on appeal, Mrs Justice May DBE allowed the Sellers’ appeal from the order of Recorder Christopher Gardner QC.
• Exeter County Court: on 14 February 2017, the Recorder struck out the Buyer’s counterclaim but refused summary judgment because he considered that the alleged warranty breaches could still be relied on by way of equitable set-off.