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

The Court of Appeal considered the construction of notice and time‑limit provisions in a share sale agreement, principally clause 6.7 (notice), clause 6.8 (commencement of proceedings), clause 5.9 (the indemnity) and clause 5.12 (disclosure and co‑operation). The central questions were whether the bracketed requirement in clause 6.7 (to specify details, circumstances and an estimate in good faith) applied to claims under the indemnity in clause 5.9 and whether notice could be given before any third‑party claim against the company had been made.

The court held that the bracketed words in clause 6.7 applied only to defined "Claim(s)" (warranty and tax warranty claims) and not to indemnity claims under clause 5.9. That construction reflected the defined terminology, the overall context of clause 6 read with schedule 4, and commercial common sense given the practical impossibility in many cases of supplying full particulars or a reliable estimate at an early stage (for example where an FCA s.166 review identifies potential liabilities).

The court also held that notice under clause 6.7.3 could be given in relation to a matter or thing that might give rise to an indemnity liability even before a claim by a third party against the company had been made. The appeal was dismissed.

Background and parties

This is an appeal from an order of Leggatt J (Commercial Court) refusing summary judgment sought by vendors/indemnifiers. The dispute arises under a share sale agreement dated 5 August 2008 for the sale of M2 Holdings Limited and its subsidiaries. The purchasers and certain group companies (Towergate entities) claimed under an express indemnity (clause 5.9) for losses arising from Financial Conduct Authority section 166 reviews which identified mis‑selling and gave rise to significant redress payments.

Nature of the application and procedural posture

• The vendors sought summary judgment dismissing the purchasers' proceedings on the basis that the purchasers had not complied with the prior notice requirements of the agreement.
• Leggatt J dismissed the vendors' summary judgment application. The vendors obtained permission to appeal to the Court of Appeal from Flaux LJ and appealed to the Court of Appeal (this judgment).

Issues framed

• Whether the bracketed words in the opening part of clause 6.7 (requiring specification of details, circumstances and an estimate in good faith) applied to an indemnity claim under clause 5.9 or were confined to defined "Claim(s)" (warranty and tax warranty claims).
• Whether notice under clause 6.7.3 must await the making of a third‑party claim against the company (i.e. whether notice was premature because no such claim had been made when the July 2015 notice was sent).
• How to resolve apparent drafting inconsistencies between clause 6.7 and schedule 4 (which provides different time limits for Tax Warranty/Covenant claims).

Court’s reasoning

• The court began from the ordinary approach to a professionally drafted agreement and the defined terms, but noted clause 6.7 contained a number of drafting defects and inconsistencies which required careful contextual construction.
• The defined term "Claim(s)" meant warranty or tax warranty claims and did not, on its face, include indemnity claims; the bracketed words in the opening part of clause 6.7 therefore more naturally applied to those defined Claims.
• Arguments that clause 6.7 should be read to require particulars and an estimate even for indemnity claims were rejected on textual and commercial grounds: in many indemnity situations (for example FCA s.166 enquiries) full particulars or a reliable estimate may not be obtainable at the time notice must reasonably be given.
• The court corrected a drafting error in clause 6.7 by construing the phrase "Taxation Covenant" as meaning the Tax Warranties, thereby avoiding an irreconcilable conflict with the seven‑year notice period in schedule 4 and preserving internal consistency.
• The court held that notice under clause 6.7.3 could validly be given of matters or things likely to give rise to an indemnity liability even before third‑party claims had been made, because clause 6.7 requires notice of any "matter or thing" which is wide enough to include prospective liabilities.

Relief sought The purchasers sought to maintain their indemnity claims. The vendors sought summary dismissal for failure to comply with contractual notice requirements.

Disposition The Court of Appeal dismissed the vendors' appeal and upheld Leggatt J’s construction that the bracketed requirement did not apply to indemnity claims and that the July 2015 notice was not premature.

The appeal is dismissed. The Court of Appeal held that (1) the bracketed words in clause 6.7 (requiring details, circumstances and an estimate in good faith) applied to defined "Claim(s)" (warranty and tax warranty claims) and did not extend to indemnity claims under clause 5.9; (2) notice under clause 6.7.3 may be given of any matter or thing likely to give rise to an indemnity liability even before any third‑party claim against the company has been made; and (3) the drafting error referring to the "Taxation Covenant" should be corrected in context so as to read consistently with schedule 4 (Tax Warranties), thereby preserving the intended time limits and commercial sense.

Appeal from the High Court of Justice, Queen's Bench Division, Commercial Court (Leggatt J, CL-2015-000912). Permission to appeal granted by Flaux LJ. This judgment is the Court of Appeal decision reported at [2018] EWCA Civ 2744.