Interpretation of time limit for warranty claim
COOKSON v THE HUT GROUP (CA) [2016]
The Court of Appeal (“CA”) confirmed the earlier Court’s decision regarding when the period for serving notice of a breach of warranty claim started to run. The appeal concerned what the phrase ‘within 20 days of becoming aware of the matter’ meant.
Facts:
- The facts are as we reported in March 2015 but essentially the contract excluded liability for both parties for a breach of warranty under a Share Purchase Agreement (“SPA”) unless notice of a claim was given within 20 Business Days “after becoming aware of the matter”. The High Court decided that The Hut Group (the “Buyer”) had given notice of a warranty claim within the specified time limit and so Cookson (the “Seller”) was liable for the breach.
- The Seller appealed, not against the original Judge's findings of fact, but about the state of the Buyer's awareness. The CA had to choose between three alternative constructions of the phrase “aware of the matter” that were put forward, namely that the Buyer:
- (a) was aware of the facts giving rise to the claim (even if unaware that those facts did give rise to a claim);
- (b) was aware that there might be a claim under the warranties; or
- (c) was aware of the claim, in the sense of an awareness that there was a proper basis for the claim.
Decision:
- The earlier Court’s decision was upheld with the wording in question confirmed as being interpreted as set out in (c). The Seller’s appeal was therefore dismissed.
- The appeal centred on the application of the contra proferentem rule which provides that where there is doubt about the meaning of a contractual provision, the words will be construed against the party who put them forward or who wishes to rely on them. The earlier Court had said this rule did not apply because both parties were subject to time-bars in similar terms, so that each was subject to the same limitation under the SPA.
- However, the CA said that the underlying rationale for the principle that, if necessary to resolve an ambiguity, exclusion clauses should be narrowly construed had nothing to do with who proposed the provision in question or which party was seeking to rely upon it. It went on to comment that such an ambiguity may have to be resolved by a narrow construction because an exclusion clause reduces the ambit of some important contractual obligation, or a remedy under the general law such as (in the present case) an obligation to give effect to a contractual warranty by paying compensation for breach of it. In addition, the parties are not to be taken to have intended to cut down their legal remedies for breach of important contractual obligations without using clear words to that effect.
- The CA made the point that, “Commercial parties are entitled to allocate between them the risks of something going wrong in their contractual relationship in any way they choose. [A narrow construction is not] simply to be mechanistically applied wherever an ambiguity is identified in an exclusion clause. The court must still use all its tools of linguistic, contextual, purposive and common-sense analysis to discern what the clause really means”.
Points to note:
- There was no reason to disapply the narrow construction approach merely because the contract contained an exclusion clause limiting the extent of contractual warranties given by either party. Moreover, an ambiguity in the meaning of a clause may have to be resolved by a preference for the narrower construction, if a linguistic, contextual and purposive analysis does not disclose an answer to the question with sufficient clarity.
- This decision emphasises the importance of clear drafting to avoid any ambiguities arising in the first place.