Construction of Time-Bar on Warranties Contained Within

Case: Ageas (UK) Limited v Kwik-Fit (GB) Limited [2013] EWHC 3261 (QB)

BACKGROUND

It is generally for a seller to negotiate contractual limitations on its liability when giving warranties in a corporate acquisition.  Limitations will also include a cut-off date for the buyer to notify the seller of any potential claims under those warranties or a time period of when legal proceedings for a breach of warranty must be commenced and served on the seller, after which time, the claim will be withdrawn and no longer enforceable.

The Civil Procedure Rules (the ‘CPR’)

CPR 6.14 deals with the rule for calculating the date of deemed service of a claim form following despatch.  Under this rule, deemed service will be on the second business day after despatch under CPR 7.5(1) regardless of the method of service used.

The date of deemed service under CPR 6.14 is the date on which a claim form will be legally treated as having arrived, irrespective of when (or whether) it in fact arrived.  The date will determine the timetable for the next steps in the case.

CPR 7.5 provides that where a claim form is to be served within the jurisdiction, the claimant must “complete the [prescribed] step” in relation to the chosen method of service before 12:00 midnight on the calendar day four months after the date of issue of the claim form.  7.5 also sets out appropriate steps for each method of service, which includes:

  • First class post, DX or other service which provides for delivery on the next business day.  Posting, leaving with, delivering to or collection by the relevant service provider.
  • Fax.  Completing the transmission of the fax.
  • Other electronic method.  Sending the e-mail or other electronic transmission.

Interpretation

A court will use an objective test for ascertaining what the parties’ intention was when entering in to a commercial contract i.e. to give effect to what the parties stipulated in the agreement.  The test of the reasonable business person is adopted so if a clause has more than one potential meaning, a court will look at the language used and ascertain what a reasonable person, with all the background knowledge which would reasonably have been available to the parties, would have understood the parties to have meant.

FACTS

In August 2010 the claimant (AUK), completed the purchase of the entire issued share capital of Kwik-Fit Insurance Services Limited (Target) from Kwik-Fit (KF), the defendant.  Various warranties given by KF concerning the preparation and accuracy of the Target’s annual and management accounts had been included in the Share Purchase Agreement (‘SPA’).  Following completion, AUK alleged Target had wrongly accounted for sums received under a debt purchase facility agreement resulting in Target’s assets and liabilities being misstated in the accounts.  As a consequence, AUK brought a claim against KF for breach of warranty.

Various limitations as to KF’s liability for breach of warranty were contained within Schedule 4 of the SPA with one providing that AUK were to give written notice to KF of any warranty claims within one year of completion of the acquisition, which would have been 2 August 2011.

Further, a clause within the SPA provided for the manner in which all “notices, requests, demands or other communications” under the SPA could be given.  Deemed service provisions were also included that would apply where a method of service specified by the clause was used by a party.  Where a method of service was used that was not provided for by the clause the deemed service provisions would not apply.

A fax of its written notice of its warranty claim was sent by AUK on 28 July 2011 (‘Notice of Claim’).  The Notice of Claim complied with the requirement of the SPA and delivery took effect on 28 July 2011.

Also contained within Schedule 4 was a time limit for commencing and serving legal proceedings in respect of a notified warranty claim in the following terms:-

“3.Any claim for breach of Warranties other than the Tax Warranties which is made within the relevant time limit specified above shall, unless previously satisfied, settled or withdrawn, be deemed to be withdrawn and no longer enforceable unless legal proceedings in respect thereof are (i) commenced by validly issuing and serving legal process within six months of the making of such claim and (ii) being pursued with reasonable diligence.”

The wording of Schedule 4(3) therefore required AUK to commence and serve legal proceedings by 28 January 2012.  On 18 January 2012 AUK issued a claim form in respect of its claim (‘Claim Form’).  AUK then sent, as a consequence of receiving written confirmation from KF’s solicitors that they could accept service of proceedings on KF’s behalf, AUK sent the Claim Form to KF’s solicitors by fax, email and DX on 26 January 2012.

Regardless of the fact that KF were aware of the Claim Form having been issued on 26 January 2012, they submitted the warranty claim was time barred under Schedule 4(3) of the SPA on the basis that the Claim Form had not been served in time in accordance with the requirements of the SPA and contended that:-

  • The word “serving” legal proceedings in Schedule 4(3) of the SPA was to be understood in the context of domestic procedural law.  Therefore, CPR 6.14 was the regime governing the service of proceedings for breach of warranty as contemplated by Schedule 4(3);
  • In applying the principles and requirements of CPR 6.14, service of the proceedings was not completed until 30 January 2012, which was two days outside of the contractual deadline of the SPA.

AUK’s argued that:-

  • If the CPR was to be imported into the SPA then CPR 7.5 was the relevant rule for determining when service occurred and not CPR 6.14.  By CPR 7.5 the relevant date of service was 26 January 2012 and therefore within the time limit set by Schedule 4(3) for serving the Claim Form; and
  • The Claim Form could be served by virtue of the general notices provisions clause of the SPA as such clause provided that a document sent by fax during normal business hours on a working day was deemed to be served on the day of transmission.  By applying those provisions, service of the Claim Form took place on 26 January 2012, within the time limit of Schedule 4(3).

DECISION

It was held that AUK had complied with the service requirements of the SPA.  The Judge’s decision was based on the construction of Schedule 4(3), on which he made the following findings:-

  • Determining what the parties to the agreement meant by the language used.  Whilst the phrase “serving” was capable of bearing a number of different meanings covering points in time before, on or after receipt, the Judge considered that the ordinary meaning of the phrase was delivery in a form which brings the contents of the document being served to the actual attention of the intended recipient;
  • There were no clear words within the SPA that evidenced an intention to treat a person who had actually been served as being deemed not to have been served at all.  The draftsman had not linked service to the CPR or any of its rules.  In the absence of clearly expressed contractual intent, it would be wrong to interpret the SPA as departing from the natural meaning of the phrase “serving” as delivery;
  • The parties, and a reasonable person, considering the word “serving” in Schedule 4(3) in the context of the SPA as a whole would treat that phrase as meaning actual delivery.  The construction of the phrase was consistent with the purpose that Schedule 4(3) was designed to achieve, namely bringing to KF’s actual attention the existence of a warranty claim within an abbreviated period, so that once the time limit had passed, it would know that it was free from the risk of proceedings;
  • The Claim Form had been validly served and was in time under the terms of the SPA as it was common ground that the Claim Form had been delivered and received by KF on 26 January 2012, which was two days before the contractual deadline.

The Judge also made the following findings on how AUK had put its case:

  • Applicable rule of the CPR – the rule governing service would be CPR 7.5 and not CPR 6.14 as the purpose behind Schedule 4(3) of the SPA was to indicate to AUK what it must do in order to bring its claim to the attention of KF.  This was also a purpose of CPR 7.5.  In applying the test of CPR 7.5 AUK had completed three of the different steps stipulated in the rule on 26 January 2012, which was before the contractual cut-off date for serving legal proceedings under the SPA;
  • Did the contractual notice clause apply to service of legal proceedings – a claim under Schedule 4(3) was a “communication” for the purposes of the contractual notice provisions under the SPA and therefore the provisions within that clause were capable of applying to the service of a legal claim;
  • Were the requirements of the contractual notice clause met? – the Judge found that service of the Claim Form was validly effected under the general notice provisions clause in the SPA.  It did not matter that the requirements of the clause had not been strictly observed by AUK.

COMMENTS

This case highlights the importance that parties who enter into a commercial agreement should not assume that the court will import the CPR or CPR concepts into their agreement.  The judgment is instructive in highlighting the possible scope for debate and argument regarding the effective date of service due to the different rules which bear upon service under the CPR.  If it is intended that the CPR will apply, draftsmen should consider referring to the relevant section of the CPR or reproduce the relevant wording from the CPR in the document.