High Court clarifies the need for timely action in share purchase disputes

Insight

25.06.2020

What does “as soon as possible” really mean? If a party has an obligation to give notice of a possible dispute within a set time period and, in any event, as soon as possible, will the notice be valid if it is given after a delay but within that prescribed notice period? This was the key issue considered, in this case in the context of a share purchase agreement (SPA), in the recent High Court judgement in Towergate Financial (Group) Ltd and other companies v Hopkinson and others [2020]. In this briefing, Jolyon Connell and Georgina Hammond consider the judgment and some of the key lessons for businesses.

The facts

In August 2008, Towergate purchased the entire share capital of M2 Holdings Limited (M2) from two trustees, Mr Hopkinson and Mr Howard (the Trustees). The Trustees gave indemnities to Towergate in the SPA, including an indemnity against any losses arising from claims against M2 for financial mis-selling. The SPA also contained a notification clause which stated that the Trustees would not be liable for an indemnity claim unless written notice (of the relevant “matter or thing” which they knew or ought to have known might give rise to a claim under the indemnity) was given “as soon as possible” and, in any event, before the seventh anniversary of the SPA.

By early 2013, the FCA had informed Towergate of possible issues in relation to historic financial advice provided by M2. Towergate notified their insurers shortly thereafter. By 2014, the FCA’s review concluded that negligent advice had in fact been provided by M2. In July 2015, Towergate served on the Trustees notice of possible claims under the indemnity. Those claims, for sums exceeding £50m, were served before the seventh anniversary of the SPA. But were they served “as soon as possible”?

The judgement

The Judge concluded that the indemnity clause was clear: in addition to the requirement that the notice be given before the seventh anniversary of the SPA, it must also be given "as soon as possible". This meant that notice should have been given at the point at which there was an identifiable matter or thing which might give rise to a claim under the indemnity provision. Towergate’s notification to its insurers in March 2013 clearly marked their knowledge of an identifiable “matter or thing” for these purposes. As a consequence, notice was late and Towergate’s claim under the indemnity failed.

Key lessons

The judgment in Towergate serves as a reminder to pay careful attention to the relevant timing requirements (under an SPA, contractual indemnity or any other relevant document) when considering a claim. As the Court made clear in this case, where an obligation is to take action “as soon as possible” reliance on a subsequent long-stop date is likely to unravel.
The courts' interpretation of the SPA will be guided primarily by the wording of the SPA itself. It is therefore important to ensure that the drafting of the SPA is clear and that it accurately reflects its true commercial purpose (and the parties’ respective wishes, which may differ). If you are unsure, seek legal advice in advance.
The Towergate judgment follows other recent judgments concerning strict adherence to timelines in disputes over SPAs. For instance, the judgement in the Idemitsu Kosan Co. Ltd v Sumitomo Corporation case: in this case, the buyer did not discover that a warranty within the SPA was untrue until it was too late to bring a breach of warranty claim, so instead sued for misrepresentation (for which the limitation period can be longer). The buyer argued that the warranties in the SPA constituted statements of fact which were actionable as misrepresentations. However, the Judge in Idemitsu dismissed this argument, finding that there is no actionable misrepresentation made where a contract states only that a party is giving a warranty. Again, therefore, the timing provisions were held to strictly apply.
Any party which considers that it may have grounds to bring a possible future claim – or that it might in due course be subject to such a claim – should seek legal advice as soon as possible. As highlighted by the Towergate judgment, delay can prove very costly indeed.

If you require further information about anything covered in this briefing, please contact Jolyon Connell, Georgina Hammond, or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.