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Noticeable difference – notice of SPA claim sufficient in light of recipient’s knowledge

14 June 2021

Based on the actual knowledge of the recipients and the commercial purposes of the notice provision, overturning the Judge, the Court of Appeal found adequate notice had been given of a tax indemnity claim.

A buyer gave notice of its claim under a tax indemnity by solicitors' letter. The letter (sent shortly before the relevant deadline) made reference to an ongoing "investigation by the Slovene Tax Authority ... into the transfer pricing practices" of a subsidiary of Outfit7 (the company sold, and best known for the popular Talking Tom and Friends app and media franchise).

At first instance, the judge held that the notice was inadequate on the basis that it did not provide "reasonable detail" of "the matter which gives rise to" the claim (as required by the contract). However, the Court of Appeal disagreed, concluding that reasonable detail had been provided by the buyer's letter.

In the court's view, what constituted "reasonable detail" must depend on all the circumstances, and those circumstances include what is already known to the recipient. In this regard, the court found that the knowledge of a notice recipient can be relevant to the question of whether the notice complied with the applicable contractual requirements, not just to the construction of the notice (as the sellers had argued).

On the facts of this case, it had been assumed (for the purposes of the proceedings) that the recipients had knowledge of the further detail which the sellers argued should have been included, namely information about the subsidiary's transfer pricing practices and the tax authority's position. In addition, the only further detail available was of a generic and limited nature. As a result, provision of that information would not have advanced any of the commercial purposes of the notice provision.

Ultimately, the court took a commercial approach to the interpretation of the relevant notice provisions. It was reluctant to find that the notice was deficient on the basis that the buyer had not gone through the "ritual" of spelling out certain information, in circumstances where the sellers accepted that the "missing" information would not have advanced the commercial purposes of the notice, and indeed was assumed to have been known to the sellers. The court's view was that a reasonable recipient of the notice, with the assumed knowledge of both parties, would have known which general facts the claim was based on.

Nonetheless, this case is also a reminder of the importance of careful compliance with contractual notice provisions, demonstrating that they may be subject to close scrutiny before the courts. Indeed, the court observed that where a contract prescribes that certain specific information must be included in a notice (by contrast with the requirement in the present case that "reasonable detail" simply be provided), and that specific information is omitted, it will be no excuse to argue that the information was already known to the recipient.

Judgment: Dodika v United Luck.

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