Dodika Ltd & Ors v United Luck Group Holdings Ltd [2020] EWHC 2101 (Comm)

“INTRODUCTION The Sellers have agreed to sell, and the Buyer has agreed to buy, subject to the terms and conditions of this agreement, all of the issued shares in the capital of the Company as at Completion … AGREED TERMS 1. Definitions and interpretation 1.1. Definitions In this agreement: … “Claim” includes a claim, action, proceeding or demand under or pursuant to this agreement … “Sellers’ Representatives” means Samo Login and Iza Login … 7. Seller warranties … 7.3 Each of the Warranties, the Tax Covenant and the Indemnities is given subject to any limitations, exceptions or exclusions expressly provided for in this agreement including those contained in schedule 4 … 20. Miscellaneous … 20.10 Each Seller irrevocably appoints the Sellers’ Representatives (acting alone or jointly) to negotiate, determine and agree any matter between the Buyer and the Sellers (including, for the avoidance of doubt, the Buyer and all of the Warrantors alone) including to: (a) give or receive any notice or consent or make any agreement; (b) take any other action in connection with such matters … SCHEDULE 4 Limitations … 2. Time limits 2.1 The rights of the Buyer in respect of: (a) any Warranty Claim shall only be enforceable if the Buyer gives written notice to the Warrantors stating in reasonable detail the matter which gives rise to such Claim, the nature of such Claim and (so far as reasonably practical) the amount claimed in respect thereof on or before the First Claims Escrow Release Date; and (b) any Indemnity Claim or Claim under the Tax Covenant shall be enforceable if the Buyer gives written notice to the Warrantors stating in reasonable detail the matter which give rise to such Claim, the nature of such Claim and (so far as reasonably practical) the amount claimed in respect thereof on or before the Second Claims Escrow Release Date … 12. Contingent liability The Warrantors shall not be liable for any Warranty Claim or Claim under the Tax Covenant to the extent such liability is, at the time when written notice of the Warranty Claim or Claim under the Tax Covenant is given, contingent only or is otherwise not capable of being quantified and the Warrantors shall not be liable to make any payment in respect of such Warranty Claim or Claim under the Tax Covenant unless and until the liability becomes an actual liability or (as the case may be) becomes capable of being quantified. For the avoidance of doubt, this paragraph shall not operate to avoid liability under a Warranty Claim made in respect of a contingent liability where the Buyer has given notice of such Warranty Claim within the time limit specified in paragraph 2 … SCHEDULE 7 Tax Covenant 1. Definitions and interpretation 1.1. In this schedule, unless the context requires otherwise: … “Event” means any event, transaction (including the execution of, and Completion of, this agreement), action or omission; “Income, Profits or Gains” means revenue profits, chargeable gains and any other similar measure by reference to which Tax is chargeable or assessed … 1.2 References to “Tax Liability” include not only a liability of a Group Company to make payment of Tax (an “Actual Tax Liability”) but also … and so that the amount of the Tax Liability will be: (i) in the case of an Actual Tax Liability the amount of Tax payable by the relevant Group Company … 2. Covenant 2.1 The Warrantors severally covenant to pay to the Buyer an amount equal to: (a) any Tax Liability of a Group Company which has arisen or arises: (i) in consequence of an Event which occurred on or before Completion; or (ii) in respect of any Income, Profits or Gain which were earned, accrued or received on or before Completion or in respect of a period ending on or before the Completion Date … 2.2 The Warrantors covenant to pay to the Buyer an amount equal to any reasonable costs and expenses properly incurred by the Buyer and/or a Group Company in connection with any successful claim under this schedule … 3. Exclusions 3.1 The covenants at paragraph 2 do not apply in respect of a Tax Liability of a Group Company, and the Warrantors will not be liable for any breach of the Tax Warranties in respect of a Tax Liability, to the extent that … [there follow exclusions (a) to (o)] SCHEDULE 8 Provisions relating to the Claims Escrow Account 1. Definitions In this agreement: … “Claims Escrow Amount” means the sum of US$100,000,000 to be credited to the Claims Escrow Account by the Buyer on Completion … “Claims Escrow Claim” means a Claim by the Buyer under this agreement notified to the Sellers in accordance with this agreement on or before the Claims Escrow Release Date; “Claims Escrow Release Date” means either of the First Claims Escrow Release Date or the Second Escrow Release Date, as the context requires … “First Claims Escrow Release Date” means 31 December 2018 (or, if that is not a Business Day, the next Business Day after that) … “Second Claims Escrow Release Date” means 30 June 2019 (or, if that is not a Business Day, the next Business Day after that); 2. Claims Escrow Account 2.1 On Completion: (a) the Buyer shall transfer the Claims Escrow Amount to the Claims Escrow Account … 2.2 The following provisions shall apply in respect of the Claims Escrow Account: (a) following Completion the Buyer and the Sellers’ Representatives shall promptly give, or join in giving, all such instructions as re necessary to ensure the operation of the Claims Escrow Account, and the application of the Claims Escrow Sum and Related Interest in accordance with this schedule 4. Release of balance of Claims Escrow Sum First Claims Escrow Release Date 4.1 Subject to clause 4.3, there shall be paid on the First Claims Escrow Release Date to the Sellers’ Solicitors’ Bank Account the amount (if any) by which the Claims Escrow Sum exceeds US$50,000,000 less: (a) the amount of all Claims Escrow Claims which have not then been finally determined; (b) any amount which the Buyer has notified in accordance with paragraph 3.1 but which has not then been withdrawn from the Claims Escrow Account (which amount shall be paid to the Buyer); … plus the Related Interest. Second Claims Escrow Release Date 4.2 Subject to clause 4.3, there shall be paid on the Second Claims Escrow Release Date to the Sellers’ Solicitors’ Bank Account an amount equal to the Claims Escrow Sum less: (a) the amount of all Claims Escrow Claims which have not then been finally determined; (b) any amount which the Buyer has notified in accordance with paragraph 3.1 but which has not then been withdrawn from the Claims Escrow Account (which amount shall be paid to the Buyer); … plus the Related Interest. 4.3 If a Claims Escrow Claim made by the Buyer in good faith has not been finally determined on or before: (a) in respect of a Warranty Claim, the First Claims Escrow Release Date; or (b) in respect of an Indemnity Claim or a Claim under the Tax Covenant, the Second Claims Escrow Release Date, (i) if the Sellers’ Representatives request for an opinion from Qualifying Counsel in accordance with the provisions of paragraph 4.4 and the Buyer and the Sellers’ Representatives are in receipt of an opinion from a Qualifying Counsel that concludes, on the balance of probabilities, that the Claims Escrow Claim is likely to be successful; or (ii) if the Sellers’ Representatives do not give written notice to the Buyer of their intent to request for an opinion from Qualifying Counsel on or before the relevant Claims Escrow Release Date, then the amount standing to the credit of the Claims Escrow Account on the day prior to the relevant Claims Escrow Release Date which is equal to the amount of the Claims Escrow Claim shall remain in the Claims Escrow Account (in addition to, in the case of a Claims Escrow Claim not finally determined on or before the First Claims Escrow Release Date, any other amount retained in the Claims Escrow Account pursuant to paragraph 4.1) until such Claims Escrow Claim is finally determined in which case: (c) if finally determined in favour of the Buyer, it shall be paid in accordance with paragraphs 3.1 and 3.2; (d) if finally determined in favour of the Warrantors or the Sellers (as applicable), it shall be paid to the Sellers’ Solicitors’ Bank Account as soon as reasonably practicable …”

“In the general documentation (masterfile) and in the specific or country-specific documentation, the Taxable Person claims and through a functional analysis states that the parent company Outfit7 Limited, UK, performs only “entrepreneurial functions”, i.e. the most significant/essential entrepreneurial functions. Subject to clarifications provided by the Taxable Person, the lat[t]er performs only operational functions and is a low-risk routine service provider which operates on the operational level only. In addition, the documentation provided by the Taxable Person includes clarifications on the legal rights and obligations of the Taxable Person and its parent company or other affiliate in mutual transactions which are governed by business collaboration agreements. In light of the foregoing, the tax authority shall, in this particular tax inspection case, verify the legal and operational basis which covers the functions of the Taxable Person and its parent company or other associates in their interactions and collaborations (i.e. controlled transactions) and the regulation method of controlled transactions both in terms of contractual obligations and amounts of compensation. In accordance with the above, the tax authority has thus called upon the Taxable Person in Points II and III of its request to provide it with all agreements and other operational and legal arrangements which give rise to rights and obligations, powers and functions of associates in controlled transactions. As far as transfer pricing is concerned, the Taxable Person stated on page 11 of the general documentation (masterfile) provided thereby that the main fixed asset of the Outfit 7 Group was intellectual property (intellectual property rights or IPR) in the form of the Talking Tom and Friends characters and brands based thereon. As stated by the Taxable Person, the IPR are held by its parent company, Outfit 7 Limited, UK, which also recognises them as IPR intangible assets (patents, brands, copyright) or as final products (games and video content). In addition, the Taxable Person also stated that the main source of revenue of the Outfit 7 Group was the sales of software (games, direct royalties) and advertising space (indirect royalties). As shown in the claims of the Taxable Person, the main source of revenue is the ownership of intangible assets in the form of IPR of various forms. The Taxable Person also claims that the legal owner of the above rights is its parent company Outfit 7 Limited, UK. Since the ownership of the IPR as the most important source of revenue of the Outfit 7 Group is also significant in terms of taxation, the tax authority called upon the Taxable Person in Points II, III and, in particular, in Point IV, to provide it with all agreements that clearly show the legal ownership of the IPR. In Point IV of its request, the tax authority randomly selected four projects which in kind constitute mobile applications or computer games whose legal owner is, as claimed by the Taxable Person, its parent company Outfit 7 Limited, UK, namely Talking Tom Cat, Talking Tom 2, My Talking Tom and My Talking Tom 2. On the sample of the aforementioned products of the Outfit 7 Group, the tax authority seeks to verify in detail the legal ownership of both copyright in the form of a computer program and graphic design of the main character (Talking Tom), which the Taxable Person itself regards as the main character pertaining to intangible assets of the Outfit 7 Group in the form of IPR, in addition to the legal ownership and right of use of all models and brands arising from copyright material. In its description of the various stages of individual projects in the general documentation (masterfile) regarding transfer pricing, the Taxable Person stated that its parent company Outfit7 Limited, UK, was in charge of strategic and other key decisions on the launch of the project, progress made on the project and final products of the project and provided the tax authority with the functions of persons managing and collaborating in the project, including their level of involvement in the project. The Taxable Person highlighted as a relevant circumstance the fact that the management (composed of the senior management of its Cyprus-based parent company Outfit 7 Limited, UK, whereby various individuals, in many cases, also hold roles in the subsidiary) confirmed all project implemented by the Taxable Person, whereby the senior management was actively involved in the project implementation project, made final decisions, made arrangements and approved all projects, whereby the senior management made all strategic decisions and directed the company. In the country-specific documentation, the Taxable Person provided the tax authority with numerous functions of the Taxable Person including key programming and video content creation, legal and marketing functions, that the Taxable Person supposedly performed on operational level only, whereas its parent company performed it on the controlling and management levels. Within the meaning of the presented mutual functions and roles, the Taxable Person drew up a functional analysis which (generally speaking) shows that all strategic (management) and controlling (supervision) and some operational functions were performed only by its parent company Outfit 7 Limited, UK. The Taxable Person also stated that it only performed operational functions and that it acted as an on-demand programming company … In light of the foregoing, it is of essence for the tax inspection to establish which one of the parties in a controlled transaction performs functions, uses fixed assets and assumes risks. In accordance therewith and subject to the aforementioned legal basis, the tax inspection shall verify the capacities and competences of Human Resources of affiliated judicial persons whose employees, as stated by the Taxable Person, perform operational, supervision or management (strategic) functions in controlled transactions. The Tax Authority shall also review the legal and operational bases that give rise to the contractual obligations of persons who actually perform various functions by reviewing employment or management agreements of persons who are actually involved in projects and perform the functions that the Taxable Person declared for each controlled transaction.”

“The Taxable Person requested to be informed of relevant facts and evidence in the Tax Inspection in its written request subject to the Tax Authority’s Tax Inspection Expansion Decision no. DT 0610-2686/2018-11-01314-09 of 27/03/2019 which served to extend the Tax Inspection of the Taxable Person to corporate tax for the period between 01/01/2013 and 31/12/2014. In the rationale of this decision and on the basis of documentation provided by the Taxable Person and data from tax accounting records and publicly-accessible data, the tax authority established that the selected transfer pricing method mentioned in the transfer pricing documentation was most likely not appropriate. Due to the likelihood that the transfer pricing method selected by the Taxable Person was not appropriate, the tax authority suspects a reduction of tax liabilities as a result of failure to pay taxes also in the period that the tax inspection under Decision No. DT 0610-2686/2018-1-01314-09 of 23/ 07/2018, does not include. As a result, the tax inspection shall be extended to the 2013 and 2014 financial year since this constitutes the only way of correctly establishing the facts regarding the functions and risks of the Taxable Person and estimated them in compliance with the arm’s length principle.”

“So, yesterday (14/05) I spoke again to Cimerman, who told me that he and Šmigic had examined the request and decided not to respond to the request, and the reason that Cimerman gave for this was that they had already told us everything at the meeting anyway, that they had provided us with a fairly detailed notice, which in their opinion is more than enough at this point. He emphasized that they had no other documentation or basis than what we have already seen in the case file, which concluded the conversation. We believe that, by being unwilling to explain in writing and in sufficient detail the reasons and grounds for their position and their reasonable suspicion that there would be additional tax assessments for the periods of 2013 and 2014, the inspectors acted in conflict with the rules of procedure for conducting a tax inspection …”

“… the Tax Authority should have provided clarifications to the Appellant, which support documentation (such as the exact employment agreements, service performance agreements, management and project group meeting minutes), that the Appellant has provided during the Tax Inspection, showing that the main activity of both associates is the development of intangible assets. In addition, if these intangible assets are in the form of intellectual property, it shall also provide substantive clarifications on the intellectual property that it had in mind and why it feels that the Taxable Person has been contributing to the generation of these intangible assets to the extent that allows for the conclusion that the transfer pricing method used by the Appellant is not appropriate, not to mention why it feels that this particular method is non-compliant with the Rules on Transfer Prices or OECD Transfer Pricing Guidelines. The fact that the Tax Authority obviously missed the fact, that, in its transfer pricing documentation, the Appellant did not use the cost-plus method, as referred to in the ON [Official Note], but the net margin method, renders its entire clarification even more unclear.”

“Dear Sirs CLAIMS IN RESPECT OF POTENTIAL TAX LIABILITY We are instructed by United Luck Group Holdings Limited, the Buyer in a sale and purchase agreement dated 21 December 2016 relating to the issued share capital of Outfit7 Investments Limited (the “SPA”). We refer to the SPA and to an escrow agreement dated 28 December 2016 between the Buyer, Samo Login, Iza Login, and JPMorgan Chase Bank, N.A. (the “Escrow Agreement”). Defined terms in this letter shall have the meanings given to them in the SPA. In accordance with clause 15 (Notices and other communications), paragraph 2 of Schedule 4 (Limitations) and paragraph 6.1 of Schedule 7 (Tax Covenant) of the SPA, we hereby give you written notice, as Warrantors, of Claims under the Tax Covenant of the SPA. Such claims relate to an investigation by the Slovene Tax Authority (the “Tax Authority”) into the transfer pricing practices of Ekipa2 d.o.o. (“Ekip”), a Subsidiary Undertaking of the Company and a Group Company. Tax Authority Claim The relevant chronology of the Tax Authority investigation is as follows: A. The Tax Authority initiated an investigation into Ekip’s transfer pricing practices for the period 2015 to 2017 in July 2018. B. In October 2018, Ekip appointed KPMG to advise it in respect of the Tax Authority investigation. C. On 17 December 2018 and 22 February 2019, on the request of the Tax Authority, Ekip submitted information to the Tax Authority for the purposes of its investigation into the 2015 to 2017 period. D. On 27 March 2019, following receipt of the requested information from Ekip, the Tax Authority extended its investigation to cover Ekip's transfer pricing practices for the period 2013 and 2014. E. On 10 May 2019, on the request of the Tax Authority, Ekip submitted information to the Tax Authority for the purposes of its extended investigation. F. The Tax Authority investigation remains ongoing. G. To date, the Tax Authority has declined to issue a statement of motivation for its investigation. The Tax Covenant Pursuant to paragraph 2.1(a) of Schedule 7 (Tax Covenant) of the SPA, the Warrantors covenant to pay to the Buyer an amount equal to: “any Tax Liability of a Group Company which has arisen or arises: i. in consequence of an Event which occurred on or before Completion; or ii. in respect of any Income, Profits or Gains which were earned, accrued or received on or before Completion or in respect of a period ending on or before the Completion Date”

“any reasonable costs and expenses properly incurred by the Buyer and/or a Group Company in connection with any successful claim under the Tax Covenant”

“… it is not uncommon for an application under Part 24 to give rise to a short point of law or construction and, if the court is satisfied that it has before it all the evidence necessary for the proper determination of the question and that the parties have had an adequate opportunity to address it in argument, it should grasp the nettle and decide it. The reason is quite simple: if the respondent’s case is bad in law, he will in truth have no real prospect of succeeding on his claim or successfully defending the claim against him, as the case may be. Similarly, if the applicant’s case is bad in law, the sooner that is determined, the better. If it is possible to show by evidence that although material in the form of documents or oral evidence that would put the documents in another light is not currently before the court, such material is likely to exist and can be expected to be available at trial, it would be wrong to give summary judgment because there would be a real, as opposed to a fanciful, prospect of success. However, it is not enough simply to argue that the case should be allowed to go to trial because something may turn up which would have a bearing on the question of construction: ICI Chemicals & Polymers Limited v TTE Training Limited [2007] EWCA Civ 725.”

“The court should still consider very carefully before accepting an invitation to deal with single issues in cases where there will need to be a full trial on liability involving evidence and cross examination in any event, or where summary disposal of the single issue may well delay, because of appeals, the ultimate trial of the action … Removing road blocks to compromise is of course one consideration, but no more than that. Moreover, it does not follow from Lewison J’s seventh principle that difficult points of law, particularly those in developing areas, should be grappled with on summary applications; … Such questions are better decided against actual rather than assumed facts. On the other hand it may be possible to say that the trajectory of the law will never on any view afford a remedy …”

“83. We cannot accept the Judge’s reasoning as to the construction of the letter. While it is true, as Mr Field submitted, that the letter was plainly intended to be a notice pursuant to cl. 11.5.1, it patently failed to meet the requirements of that clause. Of the three passages to which Mr. Field draws attention, only the words “further details” even begin to support the contention that the letter is to be understood as making reference to some previous communication of grounds. However, in our view, those words are far more readily explicable as being a reference to the assertion in the first sentence of the quoted passage that the management accounts were materially inaccurate and did not take into account certain matters that they should have been taken into account. Reading the three paragraphs together, we see no answer to the appellants’ contention that the reference to the provision of particulars is prospective rather than retrospective and that there is nothing whatever to support the notion that what had passed at the meetings was incorporated. Indeed, coming as it did so soon after the meeting of Dec. 11, it seems to us that this letter - which we are told was professionally drafted - was couched in language designed not to refer to what had passed at the meetings: a conclusion that would be consistent with the stance adopted by the plaintiffs as to the meetings having been without prejudice. 84. In any event we cannot accept that, even if it could be said that the letter implicitly incorporated a reference to the meetings, this would have constituted compliance with the clause. This is because in our view it is plain that the clause requires that the grounds known to the purchaser shall themselves be set out in writing. We have already said that this would allow incorporation of another document but we cannot accept that it could be satisfied by a bald reference to an earlier oral exchange. 85. Our conclusion is that the Judge was wrong to hold that Senate had complied with cl. 11.5.1. It follows that, unless Senate can make good its alternative argument (raised in the amended respondent’s notice) to the effect that the clause imposed no obligation to give written notice of facts and matters which were already known to the vendors. Senate’s claim should have failed by reason of their failure to give proper notice of their breach of warranty claim. That requires a consideration of the authorities to which we were referred.”

“90. … As we have already pointed out, the Judge defined the purpose in these terms, to which we now add our emphasis: The clear commercial purpose of the clause includes that the vendor should know at the earliest practicable date in sufficiently formal written terms that a particularised claim for breach of warranty is to be made so that they may take such steps as are available to them to deal with it. We agree. He also suggested that: The commercial purpose may not be sensibly served if an uninformed and uninformative notice is given at the earliest conceivable moment. The implication, with which we agree, is that the notice should be informative. 91. It does not stop there. Certainty is a crucial foundation for commercial activity. Certainty is only achieved when the vendor is left in no reasonable doubt not only that a claim may be brought but of the particulars of the ground upon which the claim is to be based. The clause contemplates that the notice will be couched in terms which are sufficiently clear and unambiguous as to leave no such doubt and to leave no room for argument about the particulars of the complaint. Notice in writing is required in order to constitute the record which dispels the need for further argument and creates the certainty. Thus there is merit in certainty and accordingly, in our judgment the point taken by the appellants is not a matter of mere technicality and it is not without merit.”

“2. No claim … shall be brought against the Vendor in respect of any Agreed Assurances … unless the Purchaser shall have given to the relevant Vendor written notice of such claim specifying (in reasonable detail, to the extent that such information is available at the time of the claim) the matter which gives rise to the claim, the nature of the claim and the amount claimed in respect thereof (detailing the Purchaser’s calculation of the loss thereby alleged to have been suffered by it or the relevant member of the Purchaser's Group): … on or before 31 March 2000.”

“29. I was referred to Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 and encouraged to adopt the more flexible approach to construction of Notices than had previously been the case in the light of the Judgments of Lord Steyn at pages 767–8 and Lord Hoffmann at pages 779-780. The question is how this notice would be understood by a reasonable recipient with knowledge of the context in which it was sent … each notice clause has to be construed for itself and in the light of the commercial context in which it is found and the commercial purpose it is intended to serve. Notice clauses of this kind are usually inserted for a purpose, to give some certainty to the party to be notified and a failure to observe their terms can rarely be dismissed on a technicality. The comments of Stuart-Smith LJ in Senate Electrical are apposite … The notice provision here does not require “particulars” of the grounds of claim for breach of warranty but some information relating to the claim, as set out in the paragraph, which can be seen as equivalent, or analogous to that required in Senate Electrical. 30. The starting point here must be, regardless of the proviso dealing with the need for legal proceedings within a specific time, that the terms of the notice provision are clear in debarring claims which have not been notified within the required period. Thus the clause begins “No claim … shall be brought … unless …”

“35. When regard is then had to the other requirements of paragraph 2, in my judgment the letter of 28 March 2000 makes no attempt to comply with the terms of the clause, leaving aside for one moment the question of the extent of the information available to Laminates at the time of the claim. 36. The only information supplied in relation to “the matter which gives rise to the claim” is to be found in the list attached to the letter, in the subpoena enclosed with an earlier letter and in the restricted “update” of October 22nd, 1999, to which “Claims previously noticed” in that list might have been intended to refer. In essence, BTR had been informed that the Department of Justice had instituted an investigation into price fixing activities, from which it could be assumed that the Department suspected that there was a price fixing arrangement which operated between 1994 and 1999, the parties to which and the terms of which remained wholly unspecified.”

“41. It was argued by BTR that for adequate notice to be given of “the matters giving rise to the claim” now being pursued in the Particulars of Claim under paragraph 10(D) of Schedule 7, the letter has to specify not only the price fixing Agreement alleged, but the potential consequences in the shape of past and future costs of the investigations, Formica’s potential liability to fines, penalties and costs in criminal proceedings, and to damages and costs in civil proceedings, should any such be brought. This I do not accept, but in my judgment such information was required in connection with “the amount claimed” and the “Purchaser’s calculation of the loss thereby … suffered” however approximate any estimate would be, or at the very least information which set out the potential heads of loss. There was nothing to stop Laminates from setting out its losses in the manner adopted in paragraph 50 of the ReAmended Particulars of Claim.”

“42. I heard expert evidence from both parties which explored the question of what BTR would be expected to understand, as a reasonable recipient of the information supplied by Laminates, with the benefit of advice from US Antitrust Counsel. I find that on receipt of the various pieces of information which were given by Laminates to BTR, BTR would know that the Department of Justice had an informed suspicion that Antitrust violations had occurred, that Formica was a potential target of such price fixing or anti-competition allegations and that, in all probability, at some time after 28th December 1999 it would know that one of the other four major competitors was not such a target. Additionally, on receipt of the totality of this information, BTR would know that there was a risk of criminal prosecution of Formica and a risk of civil litigation involving treble damage suits against it. There was a difference between the experts as to the degree of risk involved — as to whether such litigation was almost inevitable or not. A substantial number of Grand Jury Investigations do not lead to prosecution — the percentage which do is highly variable from year to year. If a company is indicted, there is a strong likelihood that civil liability suits will follow and if there is a conviction, it is almost certain that this will take place. Without a prosecution, however, the question of civil suits, launched by an opportunistic plaintiffs’ antitrust Bar appears largely to depend upon the obtaining of knowledge of a Grand Jury price fixing investigation. BTR, it is accepted, might have anticipated but could not have known that the Investigation would be the subject of public disclosure by Formica in its 10-Q and 10-K reports and even with such disclosure, it could not be said that civil litigation was inevitable. On the basis of the evidence which I heard from the experts, it appears to me that BTR might well have expected disclosure to be made and that there was, at the very least, a good chance of treble damages civil litigation then being pursued. 43. The experts agreed that on the information provided BTR could form no judgment on whether or not there was any real prospect of liability in respect of any allegations of Antitrust or anti-competitive practices. Thus the purpose of notice under the clause was not met. BTR could not even begin to assess the position and take any steps of the kind referred to in paragraph 30 of this Judgment. 44. In the context of what BTR could be expected to know, it seems to me that Laminates’ expert is right in saying that once the 10-Q and 10-K disclosures were made in November 1999 and 27th March 2000, the prospect of civil litigation was high because the HPL market was small, consisting of four players, because one player had been eliminated as a target by the Department of Justice, because Formica was the second largest player and because there were $1billion worth of sales per annum in that market. Regardless of any proper basis for a claim, Formica would be seen as a ripe target by the entrepreneurial, contingency fee opportunist Antitrust Bar in the USA. 45. This is however, in my judgment, nothing to the point. Whatever assumptions or judgments BTR might make with the benefit of advice from US Antitrust counsel, the question is still whether or not the terms of paragraph 2 of Schedule 8 were met in the shape of the notices which were given. It was not for BTR to make judgments about the matter giving rise to the claim, the nature of the claim or the amount claimed - it was for Laminates to give notice with the required degree of specificity. What BTR might think, having received the subpoena and perhaps obtaining knowledge of disclosure of Formica’s and other’s Securities Filings is irrelevant when notice in writing was required with the specific elements to which paragraph 2 of Schedule 8 refers. Laminates did not claim against BTR for a price fixing arrangement as a breach of Warranty 10(D), giving the information required by paragraph 2 of Schedule 8 . 46. Given the absence of any of this information and the need for Laminates to establish compliance with the conditions precedent, it is for Laminates to show that the qualification given by the passage in parenthesis in paragraph 2 applies and that it has furnished in reasonable detail, to the extent that information was available to it, the information which paragraph 2 requires …”

“10. From these cases the following propositions can be distilled. i) Every notification clause turns on its own individual wording. ii) In particular due regard must be had to the fact that where such notification clauses operate as a condition precedent to liability (as in this case) it is for the party bringing a claim to demonstrate that it has complied with the notification requirement in that it gave proper particulars of its claims and did give those specific details as were available to it (see paragraph 30 of the judgment in the Laminates Acquisition case). iii) That wording must, however, be interpreted by reference to the commercial intent of the parties; that is to say, the commercial purpose that the clause was to serve. In a case such as this “the clear commercial purpose of the clause includes that the vendor should know at the earliest practical date in sufficiently formal written terms that a particularised claim for breach of warranty is to be made so that they may take such steps as are available to them to deal with it”; in other words “that the notice should be informative”; see per Stuart-Smith L.J. in Senate Electrical at paragraph 90, citing with approval (and with his emphasis) from the decision of May J at first instance. iv) Where the clause stipulates that particulars “of the grounds on which a claim is based” are to be provided: “Certainty is a crucial foundation for commercial activity. Certainty is only achieved when the vendor is left in no reasonable doubt not only that a claim may be brought but of the particulars of the ground upon which the claim is to be based. The clause contemplates that the notice will be couched in terms which are sufficiently clear and unambiguous as to leave no such doubt and to leave no room for argument about the particulars of the claim” (per Stuart-Smith LJ in Senate Electrical at paragraph 91) v) In all cases it is important to consider the detailed claim being made in terms of both the breach complained of and the remedy being sought, to ensure that it was a claim which was properly notified. 11. In this case the language of the notification clause is slightly different from that in the clauses dealt with in both the Senate Electrical and Bottin cases in that the particulars required by paragraph 2.4 of Schedule 9 of the Agreement are not particulars of the matters giving rise to the claim relied upon but, rather, particulars of those claims themselves, including “details of the specific matter as are available to the Purchaser in respect of which such Claim is made”

“6.3 Any Claim by the Subscribers: 6.3.1 which shall not have been notified in writing to the Company on or before the third anniversary of the Completion Date, or the sixth anniversary in the case of matters relating to Taxation; and 6.3.2 in respect of which court proceedings have not been issued and served on the Warrantors within 12 months of the date of notification of such claim to the Company (except that the time limits shall not apply in respect of Claims arising from fraud or wilful misconduct or wilful concealment by the Warrantors, the Company or any of its officers or employees) shall be deemed to have been waived. 6.4 Without prejudice to the provisions of clause 6.3 hereof, the Subscribers will notify the Company and the Warrantors in writing as soon as reasonably practicable after the date upon which the Subscribers became aware of a Claim against the Warrantors, such notification to be in sufficient detail to enable the Company and the Warrantors to identify the Claim and to respond to it.”

“We hereby give notice on behalf of the [appellants], of their intention to make a claim against you … The claim arises out of the fact that the management accounts of [GW Ltd] dated 31 October 2000 and provided to our above named clients by you. . . were not in accordance with the warranties given in clause 5 of the Subscription Agreement dated 24 November 2000 and paragraph 5 of schedule 2 thereto and as repeated in clause 5 and schedule 4 of the Agreement for the Acquisition of part of the issued shared in Glasser Whitley Limited dated 2 January 2001. We shall be writing to you further in due course, however, the purpose of this letter is formally to notify you of the claim.”

“In my respectful judgment the fact that the letters did not incorporate the preceding correspondence and e-mails and did not refer to them is neither here nor there. The recipient will have read the notification letters against the background of what had gone before them. That is the context. That context has to be considered in order to decide what a reasonable recipient would understand when he read the letter. In my judgment the judge was wrong to exclude consideration of the antecedent correspondence.”

“31. Assuming I am wrong in my conclusion that no particulars of the claim need be specified in the notice, then the antecedent correspondence makes it plain what claim is being asserted … 32. Against that background any reasonable recipient of the solicitor’s letters would have understood that the appellants were notifying a claim under the warranty clause. The recipients would have had, moreover, sufficient information to identify the warranty concerned and the particular inaccuracies to which the complaint related. When the proceedings were launched, the particulars of claim identified the same inaccuracies, namely work in progress and overstated creditors. Thus the respondents had all the information they needed by November 2003 to know the nature of the claim made against them and to prepare to meet a claim in respect of work in progress and overstated creditors. They could safely close their books on any other claim. If I were in any previous doubt about it, there is an ample sufficiency of information in the antecedent exchanges for the letters of 24 November to constitute valid notification pursuant to clause 6.3.1.”

“40. In my view the clause here required the prior notice to state whether a claim was being made in misrepresentation by express reference to that cause of action. That is especially so where the notice on its face is clearly confining itself to claims for breach of the warranties … 41. Mr Berragan contends that the simple reference to the failure to state that the correct number of bookings was 87 (and not 150-200) was sufficient. In relation to this clause I disagree. It may have constituted the “matter” giving rise to the claim but the clause does not stop there. The “nature” of the claim must surely require a reference to the type of claim it is. In many cases the claim may be a straightforward breach of warranty and then no doubt what is required is a reference to the relevant warranty broken, how broken and so on. But the Notification Clause here specifically contemplates misrepresentation claims as well. Such claims are different from warranty claims for the reasons given above. And that is especially so where a fraud claim is being made. It would be absurd to suggest that notice of this should not be given. The riposte that it is not required here because Mrs Graybill would realise from what was said in the letter that since she knew the correct figures, it would be said that she knowingly or recklessly made the Wedding Statement, is no answer. The vendor needs to know what he faces in sufficient detail to enable him to deal with it properly. In my judgment even within the confines of the “matter giving rise to the Claim” there should have been a reference to the statement being made negligently or fraudulently (albeit that the burden in relation to reasonable care rests upon the Defendant) and reliance, but if I am wrong about that, such matters should unquestionably have been included under the rubric of the “nature” of the claim. A vendor’s approach to a claim (and the legal advice given) is very likely to differ depending on whether it is a “straight” breach of warranty claim or the more complex claim in misrepresentation. 42. I agree that it is not necessary for a Claim Letter to go into as much detail as a Particulars of Claim might need to do. But that does not render the Claim Letter sufficient here … 43. Given that the commercial purpose of such clauses is to enable the vendor to know in sufficient detail what he is up against (not least because it might then enable the parties to settle without recourse to litigation) I cannot see how a claim letter which confines itself to breaches of warranty without any reference to misrepresentation at all, can comply with the Notification Clause here.”

“62 The commercial purpose of the Notice Clause must be judged by reference to the language used by the parties, and having regard to the nature of and background to the transaction. It is clear that the intention was to ensure that SHG, and Mr Harrison, were informed if there were any Warranty Claims (and/or claim(s) under the Tax Undertaking or the Indemnities), and if so, of the nature and potential quantum of such Claim(s) (and/or claim(s) under the Tax Undertaking or the Indemnities), within the specified time-limit, so that they were, at least, put on notice that SHG was exposed to, and might (if proceedings were commenced) have to defend, such claims, so that they had to ensure that the Warranty security was maintained in accordance with clause 6.7 of the SPA, and with the result that SHG could not close its files on the transaction. It would, however, not be correct to approach the construction of the Notice Clause with any preconception that, for example, the parties must have intended that a notice would enable SHG immediately to identify and embark on a detailed investigation of each package in respect of which figures in the June CVRs allegedly made insufficient allowance for anticipated costs. SHG would have received the Letter in the knowledge that, if any Claim thereby notified was to be pursued, proceedings in respect of such Claims would have to be issued and served within six months, and that detailed particulars of any such Claims would have to be given in those proceedings. 63 In my judgment the stipulation that “the nature of the Claim” be specified “in reasonable detail” requires, as a minimum, that the notice should identify the contractual provision under which the Claim is said to arise. It would not, in my judgment, have been sufficient for a notice to state simply, “ROK hereby notifies you that it has a Claim for breach (or breaches) of Warranty (estimated at £x)”

“3.1 No Seller Warranty Claim, … Indemnity Claim … shall be brought against the Seller unless (and the Seller shall only have liability in respect of any such Claim if) the Purchaser shall have given to the Seller written notice of such Claim … (a ‘Claim Notice’) specifying in reasonable detail: (i) the matter which gives rise to the Claim; (ii) the nature of the Claim; and (iii) (so far as is reasonably practicable at the time of notification) the amount claimed in respect thereof (comprising the Purchaser’s good faith calculation of the loss thereby alleged to have been suffered) …”

“22. Fourthly, in the present case (as in other cases) requirement of the notice of a claim is matched by a requirement for certain matters to be specified in the notice. The use of the word ‘specifying’ in §3.1 suggests very strongly that it is not sufficient that the matters referred to in (i)-(iii) may be inferred. 23. The notification provisions in the Laminates case were in similar terms to those in the present case. Thus §2 in Schedule 8 of the contract in the Laminates case was substantially similar to § 3.1 of Schedule 5 in the present case; and there were similarities between the ‘Conduct of Litigation’ notice in §3 in the Laminates case and §5 of the SPA in the present case. 24. In the course of his judgment Cooke J at [31] considered the need to specify the matter which gives rise to the claim, the nature of the claim and the amount claimed. The notice must specify ‘the matter which gives rise to the claim’. This must mean the underlying facts, events and circumstances, which constitute the factual basis on which the claim is posited … the notice must specify ‘the nature of the claim’. The parties agree that this must mean notification of what is being claimed and the basis of it by reference to the SPA – namely the form and substance of the claim … the notice must set out the ‘amount claimed’. This specifically requires a calculation on the part of [the purchaser] of the loss which is allegedly suffered. The Judge noted, in that case as in this, that the obligation in the Claim Notice included a requirement of ‘reasonable detail’.” detail’.”

“4. Notice of Claims No Seller shall be liable for any Claim unless the Purchaser has given notice to the Seller of such Claim setting out reasonable details of the Claim (including the grounds on which it is based and the Purchaser’s good faith estimate of the amount of the Claim (detailing the Purchaser's calculation of the loss, liability or damage alleged to have been suffered or incurred)). 5 Time limits for Claims 5.1 No Seller shall be liable for any Claim unless the Purchaser has given notice of such Claim in accordance with paragraph 4, as soon as reasonably practicable after the Purchaser Group becomes aware that the Purchaser has such a Claim, and in any event on or before 31 July 2015.”

“I start with the helpful summary of the legal principles in this area contained in the skeleton argument of Mr Jarvis Q.C. and Mr George McPherson for the Purchaser, much of which I gratefully adopt, as follows. (i) Every notification clause turns on its own wording: Forrest v Glasser [2006] 2 Lloyd's Rep 392 per Ward LJ at [24]. The court is therefore required to construe the clause by focusing on the meaning of the relevant words in their documentary, factual and commercial context: Arnold v Britton [2015] AC 1619 per Lord Neuberger at 1627G-H. (ii) A notification clause which imposes a contractual time limit on the bringing of claims is a species of exclusion clause. If necessary to resolve ambiguity, such a clause should be construed (like any other exclusion clause) narrowly. This is because parties are not lightly to be taken to have intended to cut down the remedies which the law provides for breach of important contractual obligations without using clear words having that effect: Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128 per Briggs LJ at [18]. (iii) The commercial purpose of a notification clause includes ensuring that sellers know in sufficiently formal terms that a claim for breach of warranty is to be made, so that financial provision can be made for it: Ipsos S.A, v Dentsu Aegis Network Ltd [2015] EWHC 1171 (Comm) per Simon J at [19]. It follows that where such financial provision has already been made as part of the parties’ bargain, there is a less compelling commercial rationale for requiring the notifying party to supply “chapter and verse” as to the nature of the claim being notified. (iv) In construing a notice of claim, the question is how it would be understood by a reasonable recipient with knowledge of the context in which it was sent: Laminates Acquisition v BTR Australia Ltd [2004] 1 All ER (Comm) 737 per Cooke J at [29]. (v) The notice must specify that a claim is actually being made (whatever wording is used), rather than indicating the possibility that a claim may yet be made: Laminates at [33]. (vi) Where a notification clause contains a requirement to specify “reasonable detail”, what constitutes reasonable detail will depend on the nature of the Claim, bearing in mind that it is unlikely to have been the parties' intention, at the time of contracting, that the details to be provided should be as extensive as those that would be required, after further investigation, in the legal proceedings to be issued and served within six months of the notice: ROK Pic (in administration) v S Harrison Group Ltd [2011] EWHC (Comm) per Richard Siberry Q.C. (sitting as a Deputy High Court Judge) at [67]; see also Forrest v Glasser per Ward LJ at [25].”

“The Vendors shall not be liable in respect of a Tax Claim unless the Purchaser has given the Vendors written notice of such Tax Claim (stating in reasonable detail the nature of such Tax Claim and, if practicable, the amount claimed) on or before the seventh anniversary of Completion in respect of such Tax Claim unless a Tax Authority is [un]able to assess the Company in respect of the Liability to Taxation or other liability giving rise to the relevant Tax Claim because of fraudulent conduct.”

“The final principle which emerges from the cases is that, although every notification provision is likely to turn on its own wording, see for example Ipsos SA v. Dentsu Aegis Network Ltd [2015] EWHC 1171 (Comm) and the cases referred to at [16], the purpose of notification in this type of contract is to make clear in sufficiently formal terms that a claim is being made against the vendors, see also Senate Electrical Wholesalers Ltd v. Alcatel Submarine Networks Ltd (formerly STC Submarine Systems Ltd) [1999] 2 Lloyds L.R 423, at [90].”

“2.1 The Warrantors severally covenant to pay to the Buyer an amount equal to: (a) any Tax Liability of a Group Company which has arisen or arises: (i) in consequence of an Event which occurred on or before Completion; or (ii) in respect of any Income, Profits or Gain which were earned, accrued or received on or before Completion or in respect of a period ending on or before the Completion Date …” (i) in consequence of an Event which occurred on or before Completion; or (ii) in respect of any Income, Profits or Gain which were earned, accrued or received on or before Completion or in respect of a period ending on or before the Completion Date …”

“It was not for BTR to make judgments about the matter giving rise to the claim, the nature of the claim or the amount claimed - it was for Laminates to give notice with the required degree of specificity. What BTR might think, having received the subpoena and perhaps obtaining knowledge of disclosure of Formica’s and other’s Securities Filings is irrelevant when notice in writing was required with the specific elements to which paragraph 2 of Schedule 8 refers.” (3) The letter dated 24th June 2019 did not identify what facts unearthed during the Tax Investigation were being relied on by the Defendant in support of its Claim for breach of the Tax Covenant. In presenting a Claim, the Defendant will have reviewed the Tax Investigation and will have formed (or at least would be expected to have formed) a view as to which of the facts emerging from the Tax Investigation it relied on in support of its Claim. Without any indication of what those facts were in the relevant notification, the Sellers would be none the wiser. Unless such facts were identified, the Sellers were not in a position, even in a general sense, to assess the prospects of liability for breach of the Tax Covenant (having regard to, for example, the temporal limits of or the exclusions applicable to the Tax Covenant) or otherwise to deal with it (Laminates Acquisition Co v BTR Australia Ltd [2003] EWHC 2540 (Comm); [2004] 1 All ER (Comm) 737, para. 43). (4) If the letter dated 24th June 2019 were to provide reasonable detail of the facts, events or circumstances giving rise to the Claim for breach of the Tax Covenant, it should have provided details, for example, of the particular features of Ekip’s transfer pricing practices during the relevant period or specific transactions, the Event or Events which occurred on or before Completion in consequence of which, and/or any Income, Profits or Gains earned, accrued or received on or before Completion or in respect of a period ending on or before the Completion Date in respect of which, the Tax Liability of a Group Company has arisen or may arise in the future. Mr Choo-Choy QC suggested a number of matters which could have been referred to in the notification which could have given rise to the Defendants’ Claim. There may well have been additional or other matters on which the Defendant relied in support of its Claim. There was no such information in the letter dated 24th June 2019. (5) If asked on the basis of what general facts the Defendant’s Claim was being made, a reasonable recipient reading the letter would say “I am not certain” or “I do not know”