Hoe International Limited Against (first) Martha Goodnow Andersen And (second) Sir James Alexander Frederic Aykroyd
| Jurisdiction | Scotland |
| Judge | Lord Menzies,Lord Malcolm,Lord Drummond Young |
| Judgment Date | 03 February 2017 |
| Neutral Citation | [2017] CSIH 9 |
| Court | Court of Session |
| Date | 03 February 2017 |
| Published date | 03 February 2017 |
| Docket Number | CA201/13 |
SECOND DIVISION, INNER HOUSE, COURT OF SESSION
[2017] CSIH 9
CA201/13
Lord Menzies
Lord Drummond Young
Lord Malcolm
OPINION OF THE COURT
delivered by LORD DRUMMOND YOUNG
in the cause
by
HOE INTERNATIONAL LIMITED
Pursuer and Reclaimer
against
(FIRST) MARTHA GOODNOW ANDERSEN
(SECOND) SIR JAMES ALEXANDER FREDERIC AYKROYD
Defenders and Respondents
Pursuer and Reclaimer: Sandison QC; Brodies LLP
Defenders and Respondents: O’Brien; Shepherd & Wedderburn LLP
3 February 2017
[1] In September 2012 the parties entered into a contract for the sale of the entire share capital in a company known as Speyside Distillers Company Ltd (hereinafter referred to as “Speyside”) by the respondents to the reclaimers. The transaction was embodied in a share purchase agreement dated 19 September 2012. The agreement contained a number of warranties granted by the defenders to the pursuer. Speyside had been in dispute with a third party, Chambers Finance Ltd (hereinafter referred to as “Chambers”), and one of the warranties related to possible liability to that company. On the same date as the share purchase agreement the sellers provided the purchaser with a disclosure letter. This contained statements about the current position in the dispute between Speyside and Chambers. These were to the effect that two actions had been raised by Chambers in 2011, but that both of these had been settled by agreement, and thereafter, although further claims had been intimated by Chambers, these had been investigated and Speyside had concluded that in fact money was due to it from Chambers.
[2] On 1 July 2013 agents acting for Chambers wrote to Speyside setting out a further claim against the latter company. The claim related to two matters: first, the alleged sale by Speyside, without authority and at an undervalue, of stock held to Chambers’ order, and secondly, alleged overcharging by Speyside for rent payable by Chambers for the storage of whisky. That claim was on its face contrary to the warranties and disclosure given by the defenders to the pursuer. On 10 July 2013 the pursuer’s agents wrote to the defenders, giving notice of the claim by Chambers that had been intimated on 1 July and purporting to intimate a claim for breach of the warranties contained in the share purchase agreement. Notice of any such claim was required by two clauses of the share purchase agreement, clauses 8.5 and 9.1. Clause 9 further provided that in the event of a claim for breach of warranty the defenders were entitled to conduct the defence of the claim. The defenders subsequently stated to the pursuer that they did not wish to conduct the defence of any claim by Chambers.
[3] The defenders maintain that the letter of 10 July 2013 was not issued in accordance with the provisions of clauses 8.5 and 9.1. Consequently they maintain that the pursuer has failed to give notice of the claim in the manner and within the time prescribed by the share purchase agreement. That is said to amount to a bar to the pursuer’s claim against the defenders. In November 2013 Chambers raised a commercial action in the Court of Session against Speyside in respect of the dispute intimated in July 2013. That action was subsequently settled. The settlement terms included the payment of compensation by Speyside to Chambers for the fair value of the whisky sold, which amounted to £725,048.40, and the fair value of the whisky casks, which amounted to £70,250. They further included waiver of a sum otherwise due to Speyside by Chambers, amounting to £83,686.10, the writing off of warehouse rents otherwise due to Speyside by Chambers amounting to £30,624.65, and expenses of £74,488.
[4] The pursuer asserts that the dispute between Chambers and Speyside existed at the date of the share purchase agreement and was not disclosed to the pursuer in either the share purchase agreement or the disclosure letter. The result, it is said, is that the defenders are in breach of the warranties contained in the share purchase agreement. That breach of warranty is said to have caused the pursuer a loss of £1,014,097.15, which is the total amount paid to Chambers in settlement of their action against Speyside. The defenders contest that claim on a number of grounds. For present purposes two grounds are material. First, it is said that the defenders were not given proper notice of Chambers’ claim as required by clauses 8.5 and 9.1 of the share purchase agreement. Secondly, it is said that the manner in which the notice was sent to the defenders did not conform to the requirements of clause 19 of the share purchase agreement, which deals with the giving of notice in terms of the contract. The essence of the dispute between the parties is accordingly whether the notice given by the pursuer to the defenders on 10 July 2013 was in accordance with the foregoing clauses of the share purchase agreement, both in its terms and in its manner of communication.
Provisions of the parties’ contract
Warranties
[5] The parties’ contract is for the sale of the entire share capital of Speyside by the defenders to the pursuer for an initial consideration of £3,500,000 and a deferred consideration of £500,000, the purchase price being subject to adjustment in terms of the contract. Schedule 5 to the contract contains a substantial number of warranties. These include warranties relating to possible claims against Speyside, including specifically claims at the instance of Chambers. Paragraph 9.1 of schedule 5 warrants that neither Speyside nor any of its subsidiaries was engaged in any litigation (as defined). Paragraph 9.3 provides as follows
“9.3 No such proceedings, investigation or inquiry as are mentioned in paragraph 9.1 … have been threatened or are pending and so far as the Sellers are aware there are no circumstances likely to give rise to any such proceedings”.
Paragraph 9.5 deals specifically with possible liability to Chambers. It provides:
“9.5 The Company and the Subsidiaries have no further liability to Chambers Finance in respect of the 7,500 hogshead of whisky or the liability in the sum of £500,000 alleged by Chambers Finance as referred to in the disclosure against Warranty 9.3 within the Disclosure Letter”.
Thus the agreement contains a warranty that no liabilities existed beyond those referred to in the disclosure letter. It is that warranty that is relied on by the pursuer in the present proceedings.
Disclosure letter
[6] The disclosure letter (paragraph 9.3) contained specific disclosures in relation to the warranty at paragraph 9.3 of schedule 5 to the share purchase agreement. These covered the dispute that had existed with Chambers. It was stated that Chambers had raised a court action against Speyside in 2011 claiming title to (or a pledge of) approximately 7,500 hogsheads of whisky stored at Speyside’s premises, but that following investigation and correspondence agreement had been reached to the effect that Chambers had an effective pledge of the whisky. A second action had been raised claiming that some whisky had been transferred to Speyside but not replaced, and in this case, again following investigation and correspondence, agreement had been reached and the action had been dismissed. The disclosure letter then continued:
“A number of other issues were discussed by Speyside and Chambers while the two court actions were going on. Chambers claimed that Speyside owed it up to £500,000, which related to insurance premiums, storage charges, and the sale of whisky to cover storage charges. Chambers did not raise a court action. Speyside carried out detailed investigations into Chambers’ claims and concluded that far from Speyside owing Chambers a substantial sum, in fact money was due to Speyside from Chambers. This was made clear in correspondence with Chambers’ solicitors. When agreement was reached on the dismissal of the court actions, around 2011, these other matters remained live, however, since then Speyside has worked amicably with Chambers, arranging the removal of Chambers’ whisky while invoicing and receiving payment for related charges. Throughout this period Chambers has made no mention of having any continuing claims against Speyside, nor has there been any solicitor correspondence threatening legal action.
In recent discussions and correspondence between Jim Gordon of Speyside and Robert Spiers of Chambers discussing their ongoing business relationship this matter has not been raised. Given the possible sale, Jim Gordon raised the issue of formally agreeing that all possible disputes between Speyside and Chambers had been resolved. Robert Spiers responded by email dated 26 August 2012 that he is perplexed by the conversation concerning litigation between Chambers and Speyside. Chambers’ solicitor also responded on 27 August 2012… saying that he is perplexed but if Tods Murray [Speyside’s solicitors] write to him, ‘he can discuss what, if anything, remains to be done, I assume at procedural level’.
There is a sum due to be paid to the Company by Chambers Finance.… This document has been intimated to Chambers but Chambers has not yet confirmed that this sum is finalized. As far as the Sellers are aware, Chambers accept that there is a sum due to be paid to the Company”.
Notice of claims under warranties
[7] The parties’ dispute relates to the requirements of the warranty provisions in the share purchase agreement. Two of these are material, clauses 8.5 and 19. Clause 8, which includes clause 8.5, is headed “Limitations on claims”. The expression “Claim” is defined in clause 1.1 of the agreement as “a claim for breach of any of the Warranties”, and the general purpose of clause 8 is to impose a number of restrictions relating to any such claim. Clause 8.5 is in the following terms:
“The Sellers are not liable for a Claim … unless the Buyer has given the Sellers notice in writing of such Claim…, giving reasonable details of all material aspects of such Claim …...
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