Whilst lawyers (hopefully) know what they mean when drafting a clause in an agreement, actually understanding what the wording means in practice can be tricky. A recent case has helped clarify the practical effects of the language used in a reasonably common clause from a share purchase agreement.
The relevant clause set out how a buyer had to give notice of a warranty claim to a seller.
The clause said that the buyer had to give the seller a written notice “specifying in reasonable detail: (i) the matter which gives rise to the Claim; (ii) the nature of the Claim; and (iii)… the amount claimed in respect thereof“.
Helpfully, the judge considered what these words actually meant and what the buyer had to do in order to comply with this clause.
The judge said that by including these words the parties had clearly intended them to add something although it was impossible to define what this actually meant in abstract terms. However, the judge was prepared to say what the words did not mean: they did not require the buyer to give as much detail as possible in the light of the available information. What constitutes “reasonable detail” in each case will depend on the nature of the claim.
“…the matter which gives rise to the claim…”
This means that the underlying facts, events and circumstances which make up the basis on which the warranty claim is founded must be set out in the buyer’s notice.
“…the nature of the claim…”
These words mean that the buyer’s notice must set out what is being claimed and the basis of it by reference to the agreement – the form and substance of the actual claim.
“…the amount claimed…”
The buyer must provide a calculation of the loss which it claims to have suffered as a result of the breach of warranty.
Had the buyer complied?
In this case, the letters which the buyer had sent to the seller setting out details of a potential warranty claim did not satisfy these requirements. Rather than explaining the underlying facts, events or circumstances giving rise to the alleged claim, the letters were more a description of events. They failed to identify either the form or substance of the purported claims and a reasonable recipient with knowledge of the context in which the letters were sent would not have understood them to be a claim notice in accordance with the agreement.
Check your own clause
As the judge pointed out in this case, the specific requirements of each clause will depend on the actual wording used in that clause; each clause must be considered separately. However, as much of the wording used in the clause in this case is reasonably standard, it should form a useful checklist for a buyer intending to give notice of a warranty claim.