Drax Smart Generation Holdco Limited v Scottish Power Retail Holdings Limited

Notice-of-claim clauses in share purchase agreements are contractual limitation provisions. Their requirements must be interpreted primarily from their wording and in light of their commercial purposes, including finality, evidence preservation, assessment of merits and potential liability. They should not become technical traps or require detail serving no real commercial purpose.

A notice is sufficient where it identifies the underlying contractual failure and gives a genuine, good-faith calculation of the loss claimed. It need not state that damages will be formulated by reference to diminution in share value. The notified calculation is not necessarily final. Where an indemnity claim falls within both a new, shorter claim category and an existing reorganisation indemnity category, the shorter period does not displace the longer period without clear contractual language.

Drax acquired shares in a company from Scottish Power under a share purchase agreement. The company did not obtain the benefit of an option agreement needed to secure an easement for a proposed power station. Drax notified Scottish Power of claims based on breach of warranty, breach of contract and contractual indemnity.

The High Court, in [2023] EWHC 412 (Comm), held that the notice was insufficient for the warranty and other breach claims because it did not identify a diminution-in-value claim, but sufficient for the indemnity claim. Drax appealed the first conclusion. Scottish Power appealed the second. The central issues were whether the notice satisfied the contractual requirements and which contractual notification period governed the indemnity claim.

Both appeals were determined in Drax’s favour. Drax’s appeal was allowed, Scottish Power’s appeal was dismissed, summary judgment was refused, permission to amend was granted, and both ways of putting the claim were to proceed to trial.

1. Notice-of-claim clauses are contractual limitation provisions. Their sufficiency depends primarily on the contractual language, read in the light of the clause’s commercial purposes. Those purposes include finality and certainty, preservation of evidence, assessment of merits and potential liability, and appropriate accounting or reserving. Broad requirements such as stating the nature of the claim in reasonable detail should not be construed as creating a technical minefield or requiring detail with no real commercial purpose. The court applied the approach in Dodika Ltd v United Luck Group Holdings Ltd [2021] EWCA Civ 638 and approved the exclusion-clause reasoning in Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128.
2. The notice sufficiently identified the nature of the claim. It set out the underlying contractual failure: the Company should have had the benefit of the option agreement but did not. It was unnecessary to identify, as part of the nature of the claim, that damages would be calculated by reference to the diminution in value of the shares. That additional requirement served no commercial purpose and would create a trap capable of defeating a potentially valid claim.
3. The notice also stated the amount claimed and detailed Drax’s calculation of the alleged loss. The requirement referred to a genuine calculation made in good faith. The notice’s two alternative estimates were sufficient, even though the loss had not crystallised. The notice did not set the damages calculation permanently. Drax could reformulate its case in later pleadings, subject to the Civil Procedure Rules.
4. The indemnity claim was both a Damhead Creek II Option Agreement Claim and a Reorganisation Indemnity Claim. The variation deeds expressly removed relevant claims from the shorter Relevant Claim period, but did not remove reorganisation indemnity claims from the existing seven-year period. Objectively, the deeds therefore did not shorten that seven-year period merely because the claim also fell within the new category.
5. The court indicated that no claim, and therefore no notification of a claim, under clause 11.1 arose until a demand for payment had been made. That view was unnecessary to the result because the demand was within the seven-year period. The case-management decision concerning declaratory relief was left undisturbed.

• Court of Appeal (Civil Division): On cross-appeals, allowed Drax’s appeal, dismissed Scottish Power’s appeal, dismissed the application for summary judgment, granted permission to amend, and directed that both claims proceed to trial.
• High Court of Justice, Business and Property Courts of England and Wales, London Circuit Commercial Court (KBD): In [2023] EWHC 412 (Comm), the Deputy Judge dismissed the warranty and other breach claims as insufficiently notified, but held that the indemnity claim was not barred.