Dodika Ltd & Ors v United Luck Group Holdings Ltd

A contractual claims-notification clause must be construed according to its wording, commercial purpose and factual context. Where compliance is a condition precedent, the notice must state in reasonable detail the factual basis of the claim, its contractual nature and, so far as reasonably practicable, the amount claimed. A reference merely to an ongoing tax investigation does not identify the facts, events or circumstances giving rise to the alleged tax liability. A recipient’s prior knowledge may inform construction, but cannot supply grounds omitted from the written notice. The requirement is flexible and does not demand pleading-level detail, but a bare or uninformative notice is invalid.

The claimants, sellers and warrantors under a sale and purchase agreement, sought summary judgment concerning the release of US$50 million held in escrow. The defendant had notified claims under the tax covenant based on an investigation by the Slovenian Tax Authority into a group company’s transfer-pricing practices.

The claimants contended that the notice failed to comply with paragraph 2.1(b) of Schedule 4 because it did not state in reasonable detail the matter giving rise to the claims or, so far as reasonably practicable, the amount claimed. The defendant relied on the investigation, its chronology and the representatives’ knowledge. The central issue was whether the notice was contractually compliant.

1. Summary judgment. The court could determine the contractual construction issue summarily. The defendant had no real prospect of successfully defending the claim on the notice issue, and there was no compelling reason for a trial.
2. Condition precedent. Compliance with paragraph 2.1(b) of Schedule 4 was a condition precedent to enforcement of a claim under the tax covenant. Without a valid notice, there was no Claims Escrow Claim and the escrow funds could not be retained on that basis.
3. Construction. The clause was to be construed objectively, by reference to its language, structure, commercial purpose and factual context. Commercial certainty was important, but the provision did not demand rigid or inflexible compliance. Any genuine ambiguity would be resolved in favour of the defendant, but there was no ambiguity here.
4. Required content. The phrase “the matter which give rise to such Claim” referred to the facts, events or circumstances forming the factual basis of the claim. A compliant notice had to identify, in reasonable detail, the facts relied on, the contractual basis of liability and, so far as reasonably practicable, the quantum. It need not resemble a pleading, but it had to allow the recipient to assess liability, including temporal limits and exclusions, and to investigate, obtain advice, notify third parties or deal with the claim.
5. Amount. The notice clause qualified the obligation to state the amount by the words “so far as reasonably practical”. If quantification was not reasonably practicable, no estimate was required. Whether quantification was reasonably practicable was a triable issue, so the absence of an estimate did not itself invalidate the notice.
6. Application. The notice identified only the existence and chronology of the Slovenian investigation. It did not identify the underlying transfer-pricing facts, relevant transactions, pre-completion events, income, profits or gains, or the alleged basis on which a tax liability might arise. The representatives’ knowledge could inform the objective construction of the notice, but could not import omitted grounds into it.
7. Disposition. The letter was invalid and non-compliant. Summary judgment was entered for the claimants. The form of order was to be discussed with counsel.