Don’t delay if relying upon an indemnity
Towergate v Hopkinson (High Court) [2020]
A recent case in the Court of Appeal has highlighted the importance of strictly adhering to express contractual conditions when seeking to rely on an indemnity clause
Facts:
The sellers sold a company in August 2008 whose business was to provide financial advice. The share purchase agreement (SPA) contained indemnity provisions, under which the sellers agreed to reimburse the buyer for losses it suffered in connection with complaints of historic mis-selling of financial products by the company.
The relevant indemnity clauses in the SPA stated that the buyer had to give written notice to the sellers of the relevant matter or thing, which it knew or any reasonable person would know might give rise to a claim under the indemnity, as soon as possible and in any event on or before the seventh anniversary of the date of the SPA.
The Financial Conduct Authority (FCA) notified the company in July 2014 that it would be conducting a review into the mis-selling of financial services by the company during the sellers' period of ownership. In anticipation of having to make an insurance claim, the buyer notified its insurers of the FCA's review. However, it did not notify the sellers of the FCA's review until the 29th July 2015, over a year later and less than two weeks before the seventh anniversary of the date of the SPA. The question was whether the notification had complied with the provisions of the indemnity?
Decision:
The court was unequivocally in favour of the sellers. The wording of the indemnity clauses in the SPA were, in the court's view, 'perfectly clear' and 'not ambiguous'. There was a dual condition precedent to relying on the indemnity:
- the notification [to the sellers] must be made as soon as possible; and
- in any event, before the seventh anniversary of the date of the SPA
The words ‘as soon as possible’ should not simply be disregarded. The court acknowledged that whilst there may well be some scope for argument about the exact point at which a notice had to be given the court said that the best interpretation of the clause is that it is intended to denote a matter or thing which may give rise to such a claim. Time started running when the buyer became aware of the 'relevant matter or thing', which in this case was when it became aware of the FCA's review, a year before it notified the sellers. This was evidenced by the fact it had notified its insurers far in advance of notifying the sellers. Clearly therefore, it could not be argued that the buyer had given notice to the sellers 'as soon as possible'.
Points to Note:
- This case highlights the importance of complying strictly with the provisions of any indemnity. If in doubt it is better to err on the side of caution and serve a notice sooner rather than later.
- A factor in this case was probably the fact that the contractual limitation period here was very long (7 years) and the period between the buyer becoming aware of the FCA review and notifying the sellers was not a matter of a few days or even months but almost a year. A delay of a few days in the context of a 30 day notification requirement might have been viewed differently and in this respect it may well be worth considering the case of Heritage Oil v Tullow (CA) from 2014.