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Share purchase agreements and limitation periods

The recent case of Towergate Financial (Group) Ltd & Ors v Hopkinson & Ors [2020] has provided some guidance in relation to the wording of contractual limitation clauses and their interpretation into corporate share purchase agreements (SPAs).

A contractual limitation period is a form of exclusion clause often incorporated into an SPA and provide that the buyer is to notify the seller within an agreed period of any warranty or indemnity claims that come to light following completion.

The case involved a claim in relation to pension reviews carried out by the sellers through their company M2 Holdings Limited for their clients. Following a review of historic transactions by the Financial Conduct Authority (FCA), it subsequently transpired that several reviews had been carried out negligently and actually there was a significant level of compensation being paid out to clients. As a result, the buyer notified the seller of an intention to enforce a personal indemnity in the SPA given by the vendors for liabilities and costs in excess of £50 million, notice of which was served the week before the seventh anniversary of the SPA.

The SPA contained a clause whereby a notice of any claims arising out of or in connection with any liabilities must be served on the sellers 'as soon as possible' and in any event before the seventh anniversary of the date of the SPA. The defendants put their case that as notice had not been served 'as soon as possible' the claimants could not rely on the indemnity. The question arising therefore, was based on the construction and interpretation of the two time periods contained in the limitation clause.

The court subsequently ruled against the buyer. The courts held that the two time periods were not mutually exclusive, and instead favoured a dual interpretation that although the claim must be within the 7 year period, details must also be notified to the seller as soon as possible. Additionally, the uncertainty of the trigger 'as soon as possible' argued by the buyer was not enough to render it unclear. There was a clear obligation for the buyer to raise a potential claim under the indemnity when it became aware of the possibility that it would have a claim although full details could not be ascertained at that point. Indeed the buyer had notified its insurers in 2013 of such a possibility and in 2014 the FCA had determined that negligent advice had been given by the sellers. The court's view was that there was no justification to delay the notification of the claim to the full seven year limitation.

The case highlights the importance of clarity and careful drafting- any ambiguity may be left open to interpretation leaving scope for a dispute to arise. The notice requirements should be easily identifiable, and the buyer should be aware of its obligations to comply with such requirements under the SPA or risk losing the right to bring what otherwise would be an entirely legitimate claim.

For more information contact Nick Hodgson in our Corporate department via email or phone on 0333 207 1139. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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