Mcmullen Group Holdsings Limited V. John Harwood
| Jurisdiction | Scotland |
| Judge | Lord Hodge |
| Neutral Citation | [2011] CSOH 132 |
| Court | Court of Session |
| Published date | 12 August 2011 |
| Year | 2011 |
| Date | 12 August 2011 |
| Docket Number | CA151/10 |
| OUTER HOUSE, COURT OF SESSION [2011] CSOH 132 | |
| CA151/10 | OPINION OF LORD HODGE in the cause McMULLEN GROUP HOLDINGS LTD Pursuer; against JOHN HARWOOD Defender: ________________ |
Pursuer: Connal, Q.C.; McGrigors LLP
Defender: Moynihan, Q.C. Borland; MacRoberts LLP
12 August 2011
[1] The pursuer ("MGH") entered into a Share Purchase Agreement ("SPA") dated 4 April 2008 with the defender ("Mr Harwood") by which Mr Harwood sold to MGH the entire share capital of Systems Aluminium Limited ("SAL"). The purchase price entailed an initial consideration of £2,135,000 and a deferred consideration of £80,000. MGH withheld payment of the latter sum when disputes arose between the parties. In this action MGH sues Mr Harwood under the SPA for payment of (i) £2,215,000 and (ii) £45,000, relying on certain warranties and indemnities.
[2] I have heard a debate over three days on the motion of Mr Harwood in which his counsel, Mr Moynihan QC, sought to restrict the matters which needed to be determined by proof. As the debate raised different challenges to specific parts of MGH's case under different provisions of the SPA, I will have to consider each challenge in turn. In order to give shape to that exercise I start by setting out the structure of the relevant parts of the SPA. The relevant terms are set out in the Appendix to this opinion.
The Share Purchase Agreement
[3] The SPA is governed by the law of Scotland (clause 17.1). Clause 1 deals with definitions and interpretation. I set out relevant definitions and provisions from this clause and a condition precedent in favour of MGH (clause 2.4) in Part 1 of the Appendix.
[4] When agreeing the sale of the shares each party sought to protect its or his interests through specific provisions in the contract. MGH obtained three remedies which are relevant to this debate. First, it received certain indemnities (clauses 5.8 and 5.10). Secondly, it gained the benefit of certain warranties (clause 5 and Part 4 of the Schedule). Thirdly, it obtained a discrete category of remedies which counsel described as "indemnified warranties" (clause 5.8(j) and paragraphs 5.14 to 5.30 (among others) of Part 4 of the Schedule). I set out the relevant provisions of clause 5 and the relevant warranties from Part 4 of the Schedule in Parts 2 and 3 respectively of the Appendix.
[5] Mr Harwood also sought to protect his interests (a) in relation to the indemnities through what his counsel presented as a condition precedent in clause 5.9, and (b) in relation to the warranties and indemnified warranties by limitations of liability (Clause 5.7 and Part 7 of the Schedule). In relation to both warranties and indemnified warranties the notice provisions of paragraphs 6.3 and 13 of Part 7 of the Schedule apply. In relation to indemnified warranties clause 5.9 also applies. I set out the relevant parts of these provisions in Part 4 of the Appendix.
[6] Other relevant provisions are (i) clause 12.2 dealing with waiver, (ii) clause 15 dealing with notices, and (iii) the entire agreement clause (clause 16). I set out those provisions on Part 5 of the Appendix.
[7] The lengthy summons covers the three distinct categories of claim to which distinct notice and timetable conditions apply. So far as relevant to the debate they can be analysed as follows:
| Category of claim | Notice/Timetable conditions | Article of Condescendence |
| Indemnity cls 5.8(g) and (h) | Clause.5.9 | Part of Art 3 and Art 4 |
| Warranty Sch Part 4: Para 2.4 Para 2.2(a) & 5.3 Para 5.11 Para 5.12 | Schedule Part 7 paras 6.3 and 13 | Arts 14 and 17 Art 15 Part of Art 3 and Art 16 Art 18 |
| Indemnified Warranties Clause 5.8(j) and Sch Part 4: Para 5.17 Para 5.19 Para 5.20 Para 5.21 Para 5.24 Para 5.25 Para 5.26 Para 5.28 Para 5.30 | Clause 5.9 and Schedule Part 7 paras 6.3 and 13 | Arts 5 to 13 And in particular: Art 5 Art 6 Art 7 Art 8 Art 9 Art 10 Art 11 Art 12 Art 13 |
The defender's challenges
(i) The exclusion of averments which denied that clause 5.9 was a condition precedent
[8] Mr Moynihan contended that MGH's averments in article 3 of condescendence that clause 5.9.3 was not a condition precedent to any liability of Mr Harwood under the indemnities at clauses 5.8(g) to 5.8(j). He submitted that where a liability was contingent upon a condition, whether that condition were suspensive, resolutive, statutory or contractual, and satisfaction of the condition was put in issue, it was for the pursuer to aver with appropriate specification either (a) compliance with that condition or (b) waiver of that condition.
[9] In support of that contention he referred by way of analogy to cases concerning the relevancy of averments relating to prescription and limitation, namely, Pelagic Freezing (Scotland) Ltd v Lovie Construction Ltd and Another [2010] CSOH 145, Lord Menzies at paragraphs 86 and 93-95; Santander UK PLC v Allied Surveyors Scotland PLC [2011] CSOH 13, Temporary Judge Wise at paragraph 34; and AS v Poor Sisters of Nazareth 2007 SC 688, the Lord President (Lord Hamilton) at paragraphs 28 and 32. This criticism applied equally to the provision of a prescribed form of notice and the time limits referred to below. In short, MGH in its pleadings had not engaged with the contractual provisions but had adopted a formulaic approach of asserting substantial compliance through the general correspondence between the parties. There were no averments of compliance with or waiver of the specific conditions. That was insufficient and irrelevant.
(ii) The exclusion of averments in Articles 5-18 of Condescendence
[10] Mr Moynihan submitted that with the exception of the claims in articles 9 and 10 of condescendence, MGH had failed to comply with the contractually prescribed notice provisions in relation to warranty claims.
[11] He submitted that the contract drew a clear distinction between the exchange of information under clause 5.9 (see Appendix Part 2) and the more formal requirements of notices in clause 15 (see Appendix Part 5). Clause 15.4 provided that notices were to be sent to Mr Harwood care of his solicitors for the attention of Mr Robert Burns and at the stated fax number. Similar arrangements were prescribed for notices to MGH and each party was empowered to notify the other in writing of a replacement address or fax number. Clause 15.1 required that notices and communications should be given in writing and the definition of writing in clause 1.3.1 excluded electronic communication. He submitted that none of the notices, on which MGH relied in relation to these articles of condescendence, complied with clause 15.4 and that undermined its claims under the warranties and the indemnified warranties.
[12] He submitted that where there was an obvious commercial purpose for a specific form of notice being prescribed, compliance with that condition required that notice be given in that form. In this case the contract provided a general exchange of information between MGH and Mr Harwood and, separately, there were time limits for notices and the commencement of proceedings in paragraphs 6.3 and 13 of Part 7 of the Schedule and strict requirements for the service of notices under clause 15.
[13] He referred to Education 4 Ayrshire Ltd v South Ayrshire Council 2010 SLT 253, Lord Glennie at paragraphs 17 and 19. That case concerned the construction of a clause in a building contract which required a contractor to give notice of a claim for an extension of time. While it was conceded by counsel in that case that the requirement to give notice was a condition precedent, Lord Glennie's reasoning supported the view that the concession was well made and further that strict compliance with the terms of the provision was expected.
[14] He turned to the general limitations in paragraph 6.3 and the time limits in paragraph 13.1 of Part 7 of the Schedule, submitting that they were deliberately provided and offered the mutual benefit of certainty to the contracting parties. As much of MGH's claim depends on those provisions I set them out below as well as in the Appendix. Paragraph 6.3 provided:
"The Purchaser shall not be entitled to make a claim under the Warranties (other than the Warranties relating to Taxation to which the provisions of clause 6 of the Tax undertaking shall apply): - ...
in the absence of wilful dishonesty on the part of the Vendor or its agents, unless the Purchaser has given written notice of the circumstances giving rise to the claim in question to the Vendor (including sufficient detail to enable the Vendor to identify the nature of the claim together with an estimate of the likely amount of the claim to the extent that the Purchaser can reasonably provide such) as soon as reasonably practicable after it becomes aware of those circumstances ..."
Paragraph 13.1 provided:
"The Vendor shall have no liability in respect of any claim under the Warranties unless notice in writing of such claim has been given to the Vendor within 60 days of the purchaser or the Company or any of their respective officers becoming aware thereof."
[15] He submitted that paragraph 6.3 required MGH to give written notice of the circumstances giving rise to the claim in question. This was required both to alert Mr Harwood to the claim and also to give his solicitor a communication which was clearly a notice which stood out from the correspondence involving exchanges of information under clause 5.9. It also benefited MGH as its formality tied in to the time limits in paragraph 13. It was clear that paragraph 13 was a condition precedent of a claim and that time started running under paragraph 13.1 when any of MGH, SAL and their respective officers became aware of a claim. Again, the formality of the notice in writing, which clause 15 prescribed, had the benefits to both parties which the same requirement had in relation to paragraph 6.3.
[16] Mr Moynihan submitted that the repeated use of varying formulae to the effect...
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