Stobart Group Ltd & Anor v Stobart & Anor (Rev 1)

A unilateral contractual notice is construed objectively. The question is how a reasonable recipient, with the admissible factual context, would understand the words used. The recipient’s actual understanding is generally irrelevant, save where an estoppel arises.

Where a share purchase agreement distinguishes a tax authority’s claim against the company from the purchaser’s contractual claim against the vendors, a notice must clearly identify which claim it gives. A notice of a potential tax liability, coupled with a request for the vendors to conduct dealings with HMRC, does not clearly state that the purchaser is making its own contractual claim. Notification provisions promote commercial certainty and failure to meet a condition-precedent notice requirement is not a mere technicality.

Under a share purchase agreement, the respondents had given tax covenants covering pre-completion tax liabilities of the acquired company. Paragraph 6.3 of schedule 4 made the vendors’ liability for a Tax Claim conditional upon written notice by the purchaser within seven years of completion. Paragraph 7.1 separately required notice of a claim or potential claim by HMRC against the company.

The appellants sought approximately £3.8 million in respect of tax liabilities arising from employee share arrangements. They relied on a letter dated 24 March 2015, sent shortly before the contractual deadline. Phillips J held that the letter was a paragraph 7.1 notice of a potential HMRC claim, not a paragraph 6.3 notice of a Tax Claim by the purchaser against the vendors. The appellants appealed that construction.

1. Appeal dismissed. The letter of 24 March 2015 was not a compliant notice under paragraph 6.3 of schedule 4 to the SPA. No Tax Claim had been notified within seven years of completion. The respondents were therefore discharged from liability and were entitled to summary judgment on that issue.

2. A unilateral notice must be construed objectively. The court asks what a reasonable recipient would understand from its language in the relevant admissible factual context: Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749. The order in which language and context are analysed does not matter, provided that both are balanced: Wood v Capita Insurance Services Ltd [2017] UKSC 24.

3. Actual subjective intention or subsequent conduct could not alter the notice’s construction. Although a demonstrated common understanding may assist in construing an agreed contractual term, that principle did not permit the appellants to treat the recipients’ alleged understanding as substituting for the words of their unilateral notice. In any event, there was no evidence that either respondent understood it to be a paragraph 6.3 notice when received.

4. The SPA deliberately distinguished an HMRC claim against the company from a Tax Claim by the purchaser against the vendors. A paragraph 7.1 notice might precede a paragraph 6.3 claim, but did not itself constitute one. Notification clauses require sufficiently formal and unambiguous communication that a contractual claim is being made, rather than that one may later be made: Senate Electrical Wholesalers Ltd v Alcatel Submarine Networks Ltd [1999] 2 Lloyds L.R 423 and Laminates Acquisition Co v BTR Australia Ltd [2003] EWHC 2540 (Comm).

5. The letter referred to a potential liability and claim, requested confirmation under paragraph 7 concerning discussions with HMRC, and described the company’s estimated exposure. Read as a whole, it was a compliant paragraph 7.1 notice, not a defective paragraph 6.3 notice. The prior correspondence and the approaching deadline did not change that conclusion, since a compliant paragraph 6.3 notice could still have been served before expiry.

• Court of Appeal (Civil Division): Dismissed the appellants’ appeal in [2019] EWCA Civ 1376.
• High Court, Business and Property Courts, Commercial Court: Phillips J granted the respondents’ Part 24 applications and dismissed the appellants’ cross-application, holding that the 24 March 2015 letter was not an effective paragraph 6.3 notice.