Hopkinson & Ors v Towergate Financial (Group) Ltd & Ors

A contractual notice clause in a share sale agreement must be construed as a whole, with regard to its purpose and commercial context, particularly where the drafting is defective. Defined terms ordinarily retain their defined meaning. A requirement to provide details and a good-faith estimate applied to warranty and tax claims, but not to claims under a separate indemnity. Notice of an indemnity matter could therefore be given before a third-party claim had been made or liability had crystallised. An obvious drafting error was corrected by reading ‘Taxation Covenant’ as ‘Tax Warranties’, avoiding conflict with the agreement’s tax provisions. Notification clauses turn on their own wording.

Purchasers and group companies claimed an indemnity from vendors and their spouses under a share sale agreement following reviews under section 166 of the Financial Services and Markets Act 2000 into historic financial advice.

The defendants sought summary judgment, arguing that the notice was invalid because it lacked claim details and a good-faith valuation, and because no third-party claim against the company had yet been made. Leggatt J dismissed the application. The defendants appealed. The central issues were whether clause 6.7.3 required notice of an accrued claim and whether it incorporated the detailed notice requirements in the opening words of clause 6.7.

Appeal dismissed. Lord Justice David Richards gave the judgment, with which Lord Justice Underhill and Sir Patrick Elias agreed.

1. The bracketed requirement in clause 6.7 to specify the details and circumstances giving rise to the Claims, together with a good-faith estimate of their amount, applied to Claims in the defined sense. It did not extend to claims under the clause 5.9 indemnity. Although defined terms ordinarily govern a professionally drafted agreement, clause 6.7 was poorly drafted and had to be read in context and in light of its commercial purpose.
2. There was an obvious drafting error in clause 6.7.1. Applying the approach in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, the reference to ‘Taxation Covenant’ was construed as a reference to the ‘Tax Warranties’. That construction avoided the incoherent result of reducing the notice period provided by Schedule 4 by five years.
3. Clause 5.12 served a distinct purpose. Its disclosure obligation enabled the indemnifiers to take steps to avoid, dispute, resist, mitigate or defend a possible claim. It did not determine the content of the separate time-bar notice under clause 6.7.3.
4. The second ground also failed. Clause 6.7.3 required notice of the relevant matter or thing giving rise to a possible indemnity claim. The words were wide enough to cover prospective liability and circumstances preceding any claim against the company. Clauses 6.11 and 6.12 reinforced that conclusion.
5. Authorities concerning other notification clauses gave no assistance because each clause depends on its own wording. The appeal was dismissed.

• Court of Appeal (Civil Division): In Hopkinson & Ors v Towergate Financial (Group) Ltd & Ors [2018] EWCA Civ 2744, the defendants’ appeal was dismissed.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Leggatt J dismissed the defendants’ application for summary judgment. The defendants appealed with permission.