Ageas (UK) Ltd v Kwik-Fit (GB) Ltd [2013] EWHC 3261 (QB)

Case No HQ12X00185

[2013] EWHC 3261 (QB)

IN THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 25/10/2013

Before

MR JUSTICE GREEN

Between

AGEAS (UK) LIMITEDClaimant

KWIK-FIT (GB) LIMITEDDefendant

Simon Salzedo QC and David Scannell (instructed by Shoosmiths LLP) for Claimant

George Bompas QC and David Mumford (instructed by Baker & McKenzie LLP) for Defendant

Hearing Hearing dates: 3 October 2013

Judgment

Mr Justice Green :

Introduction

[1]This judgment concerns the trial of a preliminary issue relating to the interpretation of notice provisions under a share purchase agreement. Specifically, the issue focuses upon the meaning of the word “serving” of legal proceedings in respect of a claim for breach of warranty. Although this judgment addresses particular words used in a particular agreement it appears from previous case law that the clause and the phrase in dispute is not untypical of other share purchase agreements.

The companies involved and the warranties relevant to the underlying claim

[2]The Claimant is a company incorporated in England and Wales. It is the holding company for the insurance operations of Ageas in the United Kingdom. Ageas provides a range of personal and commercial line insurance products.

[3]The Defendant is a well known company also incorporated in England and Wales. It provides automotive repair, testing and maintenance services together with associated services including, at the relevant time, motor insurance. The Defendant was the vendor of the entire issued share capital of a company, Kwik-Fit Insurance Services Limited (KFIS), to the Claimant.

[4]KFIS was a broker procuring motor and home insurance for its customers. It did this pursuant to contracts entered into with those customers. Periodically KFIS also entered upstream contracts with insurance companies for the provision of insurance to its downstream customers. Under these contracts KFIS would pay the premium due under each policy supplied by the insurer. It would then seek to recover such sums from its downstream customers. In these downstream contracts customers generally had an option to defer the payment of premiums and/or to make payments in instalments. Such outstanding sums to KFIS were debts due.

[5]On 27 July 2007 KFIS concluded a Master Debt Purchase Facility Agreement (“DPFA”) with Barclays Bank Plc (“Barclays”) with a view to improving its cash flow and shortening its cash cycle. Under this agreement Barclays purchased from KFIS “Eligible Debts” and “Restricted Debts”. Both terms were defined in the DPFA but it is not necessary for me to go into any detail about them.

[6]On 1 July 2010, by a Share Purchase Agreement (“SPA”), the Claimant agreed to purchase the entire share capital of KFIS from the Defendant for a consideration of circa £215m. The SPA contained warranties in Clause 7. Clause 7.1 provided as follows:

“7.1 In consideration of the Purchaser entering into this Agreement the Vendor warrants to the Purchaser that each of the Warranties is true and accurate as at the date of this Agreement (as qualified by the matters Disclosed in or by the Disclosure Letter or the Disclosure Documents) and, each of the Warranties listed at paragraph 1 of Schedule 3 will be true and accurate on the day of Completion. The Vendor acknowledges that the Purchaser is entering into this Agreement in reliance on the Warranties (as so qualified).”

[7]Completion occurred on 2 August 2010.

[8]Schedule 3 contained the warranties relevant to this claim. Paragraph 3 of Schedule 3 is entitled “Accounts and Records” and contains in sub-paragraphs 1 and 2 warranties relating to “The Annual Accounts and Historic Accounts”, and to the “Management Accounts”:

“3.1 The Annual Accounts and Historic Accounts 3.1.1. The Annual Accounts and Historic Accounts: (a) were prepared in accordance with GAAP; (b) give a true and fair view of the assets, liabilities and financial position of the relevant Target Group Company as at the Accounts Date in respect of the Annual Accounts and as at the date to which such accounts are drawn up to in respect of each of the Historic Accounts and of its profits for the financial year ended on the Accounts Date in respect of the Annual Accounts and ended on the date to which such accounts are drawn up to in respect of each of the Historic Accounts and (c) properly provide for all Taxation in respect of profits, gains or income of the Target Group arising or accruing or deemed to arise or accrue on or before the Accounts Date, and any transactions of the Target Group effected or deemed to be effected on or before the Accounts Date. 3.1.2 The bases, accounting policies, practices and methods adopted for the purpose of preparing the Annual Accounts and Historic Accounts were the same as those adopted in preparing the audited accounts of each Target Group Company in respect of the two financial years preceding the financial year ended on the Accounts Date in respect of the Annual Accounts and ended on the date to which such accounts are drawn up to in respect of each of the Historic Accounts. 3.1.3 Neither the Annual Accounts nor the Historic Accounts are affected by any extraordinary or exceptional items. 3.2 Management Accounts The Management Accounts have been prepared on a consistent basis with the Annual Accounts. The Management Accounts do not materially mis-state assets or liabilities or items of income and expenditure or profits or losses as at the date and for the period to which the Management Accounts relate.” 3.1.1. The Annual Accounts and Historic Accounts: (a) were prepared in accordance with GAAP; (b) give a true and fair view of the assets, liabilities and financial position of the relevant Target Group Company as at the Accounts Date in respect of the Annual Accounts and as at the date to which such accounts are drawn up to in respect of each of the Historic Accounts and of its profits for the financial year ended on the Accounts Date in respect of the Annual Accounts and ended on the date to which such accounts are drawn up to in respect of each of the Historic Accounts and (c) properly provide for all Taxation in respect of profits, gains or income of the Target Group arising or accruing or deemed to arise or accrue on or before the Accounts Date, and any transactions of the Target Group effected or deemed to be effected on or before the Accounts Date. 3.1.2 The bases, accounting policies, practices and methods adopted for the purpose of preparing the Annual Accounts and Historic Accounts were the same as those adopted in preparing the audited accounts of each Target Group Company in respect of the two financial years preceding the financial year ended on the Accounts Date in respect of the Annual Accounts and ended on the date to which such accounts are drawn up to in respect of each of the Historic Accounts. 3.1.3 Neither the Annual Accounts nor the Historic Accounts are affected by any extraordinary or exceptional items. The Management Accounts have been prepared on a consistent basis with the Annual Accounts. The Management Accounts do not materially mis-state assets or liabilities or items of income and expenditure or profits or losses as at the date and for the period to which the Management Accounts relate.”

[9]The “Management Accounts” were defined in Schedule 8 of the SPA as follows:

““Management Accounts” means the Management Accounts of the Target Company and each of the Subsidiaries for the period from the Accounts Date until the Management Accounts Date in the Agreed Form AF1B”

[10]The subsidiaries referred to in that definition were further defined in Schedules 2 and 8 of the SPA to include a wholly-owned subsidiary of KFIS, The Green Insurance Company Limited (“TGIC”).

The nature of the claim for breach of warranty

[11]The Claimant alleges that KFIS erroneously accounted for certain sums advanced to it by Barclays under the DPFA. The effect, it is alleged, of this mistaken accounting was to inflate the value of KFIS by mis-stating its assets and liabilities.

[12]In essence the Claimant alleges that, between July 2007 until Completion of the SPA on 2 August 2010, KFIS and TGIC wrongly accounted in their profit and loss accounts for an aggregate sum in excess of £3m. It is alleged that in so doing the companies over the same period overstated the value of their assets. The sum represented KFIS’s and TGIC’s time on cover Bad Debt arising for motor and home insurance policies which KFIS and TGIC had notified to Barclays. In fact, it is alleged, Barclays had never been required by the DPFA to purchase the aforesaid portion of those companies’ Bad Debt. It is contended further that Barclays never assumed ultimate responsibility or liability in respect of such Bad Debt as was apparently believed to be the case by KFIS and TGIC. The Claimant also contends that KFIS and TGIC wrongly accounted for the aforementioned portion of their Bad Debt in a manner which affected their common misapprehension of the DPFA. In consequence the warranties set out in the SPA Schedule 3 paragraphs3.1 and

3.2 (set out above) were not true and accurate as at the date of the SPA. It is further alleged that in breach of the warranties the Management Accounts materially mis-stated the assets, liabilities and/or profits of both companies as at the date and for the period to which the Management Accounts related. In consequence of these alleged breaches it is said that the Claimant suffered loss and damage. It alleges that the total level of wrongly-accounted-for pre-completion Bad Debt exceeded £3m and that the Claimant valued KFIS using a 5-year discounted cash flow forecast model which relied, inter alia, upon the statements relating to the assets and profits of KFIS and TGIC as set out in the Annual Accounts, the Historic Accounts, and the Management Accounts. As a result of this Ageas states that it overvalued KFIS by approximately £17.5m.

[13]Schedule 4(2) of the SPA provides that the maximum aggregate liability of the Vendor for all claims under the warranties shall not exceed £5m. In the present case Ageas acknowledges that it must confine its claim in damages to the sum of £5m in consequence of this clause. It does, however, claim interest upon the amount of £5m.

Procedural History: Identification of the preliminary issue

[14]I turn now to the relevant procedural history in relation to the matter before me.

[15]By letter of 27 November 2012 Baker & McKenzie LLP (Baker & McKenzie), acting for the Defendant, suggested the determination of certain preliminary issues. At that point in time Baker & McKenzie considered the nub of the case to concern a question of the true meaning and effect of the DPFA. It believed that a resolution of preliminary issues could facilitate a settlement.

[16]At a case management conference held on 22 January 2013 an order was made by consent to the effect that a preliminary issues hearing be listed with four issues defined for determination. The issues were in the following form: “(a) The construction and operation of the Debt Purchase Facility Agreement, with particular reference to the nature and effect of the Bad Debt (re)charge notified to the Bank in the monthly Final Settlement Reports; and (b) whether the Bank was entitled to be repaid the same or otherwise recover it from Kwik-Fit Insurance Services Limited; and (c) whether the Claimant complied with the notice requirements of the Share Purchase Agreement; and (d) whether the Claimant complied with [the] service requirements of the Share Purchase Agreement, as pleaded in paragraphs 21 to 27 of the Amended Defence dated 15 June 2012”.

[17]On 17 September 2013 Baker & McKenzie conceded preliminary issues (a) – (c). This left only preliminary issue (d) set out above, to be determined.

[18]The outstanding disputes in the action now concern preliminary issue (d) and, if a claim survives the determination, whether the alleged mis-statements give rise to a breach of warranty. In this respect the Claimant is, in effect, put to proof of the materiality of the accounting mis-statements, and the quantum of its loss.

The preliminary issue: Relevant provisions of the SPA

[19]The central provisions relevant to the preliminary issue are contained in Schedule 4 to the SPA entitled “Limitations”.

[20]Schedule 4(1.3) provides:

“1.3 the Vendor shall not be liable for any breach of the Warranties unless a written claim has been made by the Purchaser to the Vendor within one year of Completion giving notice as described in Clause 9.1 of the relevant facts and the Warranty or Warranties which are alleged to have been breached.”

[21]Schedule 4(3) is the pivotal provision for the purpose of the preliminary issue and lays down a time period within which legal proceedings must be commenced and served if the claim for breach of warranty is not to be deemed withdrawn and no longer enforceable: “Any claim for breach of Warranties other than the Tax Warranties which is made within the relevant time limit specified above shall, unless previously satisfied, settled or withdrawn, be deemed to be withdrawn and no longer enforceable unless legal proceedings in respect thereof are(i) commenced by validly issuing and serving legal process within six months of the making of such claim and

(ii) being pursued with reasonable diligence.” (The words at the heart of this preliminary issue are in italics).

[22]Schedule 4 does not set out any particular mechanism whereby legal proceedings are to be served on the Defendant. Clause 15.17 of the SPA is entitled “Notices”. The operative part of the clause is in the following terms:

“All notices, requests, demands or other communications under this Agreement to or upon a party must be in writing and may be given by delivery or by being sent by first class recorded mail or air mail to the registered offices from time to time of that party or by facsimile transmission to the numbers specified below. Any such notice, request, demand or communication shall: 15.17.1 if delivered personally, be deemed to have been received at the time of such delivery or if delivery is not on a Business Day on the Business Day following such delivery; 15.17.2 if given by first class recorded mail posted in the same country as the country of address, be deemed to have been received on the second Business Day after the date of posting; 15.17.3 if given by air mail posted from a country different to the country of address, be deemed to have been received on the tenth Business Day after the date of posting; and 15.17.4 if given by facsimile transmission, be deemed to have been received upon production of a transmission report showing complete transmission of the relevant document to the appropriate number (or if the time of such transmission is not during normal working hours on a Business Day in the recipient country, at the commencement of normal working hours on the next Business Day in the recipient country).”

The facsimile numbers of the parties are – Vendor: +44(0)1506864286 Purchaser: +44(0)2380644678 Any party may by notice in writing to the other specify a different or additional address or facsimile number for the service of notices or copies of notices. For the avoidance of doubt, notices and other communications under this Agreement may be given by other means (including email) but such other means shall not benefit from the presumption of delivery set out in this Clause 15.17. All notices or communications to the Vendor shall be clearly marked on the exterior and on the first page “For the urgent attention of the Financial Director” and shall be copied to the Vendor’s Solicitors (facsimile number +442076280027)… clearly marked on the exterior and on the first page “Urgent: Ref: K056/017/JPU”. All notices or communications to the Purchaser shall be clearly marked on the exterior and on the first page “For the urgent attention of the Company Secretary” and shall be copied to the Purchaser’s Solicitors (facsimile number 03700866801) clearly marked on the exterior and on the first page “Urgent Ref SBW. SDP. Fortis”.” The facsimile numbers of the parties are – Vendor: +44(0)1506864286

Purchaser: +44(0)2380644678

[23]Clause 16 of the SPA provides that the Agreement should be governed by and construed in accordance with English Law and the parties, expressly waiving their rights to any other forum to which they may be entitled, irrevocably agree that the courts of England are to have exclusive jurisdiction to settle all disputes which may arise out of or in connection with this Agreement provided that the clause shall not preclude the enforcement of or giving effect to any judgement of an English Court in any relevant foreign jurisdiction.

[24]Finally, Clause 15.8 contains an entire agreement clause which, inter alia, purports to exclude implied terms.

Common ground key facts

[25]The key chronological facts relevant to the preliminary issue are not in dispute.

[26]The claim was notified to the Defendant by a letter dated 27 July 2011. This letter constitutes the Notice of Claim required by Schedule 4(1) to the SPA. It also adheres to the requirements set out in Clause 15.17 of the SPA. In particular it is headed “for the urgent attention of the Financial Director” and it is copied in to the Defendant’s Solicitors citing the reference number referred to in Clause 15.17. The letter is stated to be a “Notice” and expressly refers to Clause 15.17 and Schedule 4(1.3). It provides that the Claimant gives notice as soon as practicable of the relevant facts in the warranties which are alleged to have been breached by the Vendor. It then proceeds to identify the warranties alleged to have been breached, it explains how the breach has come about, it avers that the purchaser relied upon the warranties in entering into the SPA, it asserts an entitlement to compensation from the Vendor and it provides a figure by way of quantum. Finally, it acknowledges the limitation in the Agreement at Schedule 4(2) (see paragraph [13] above). The notice of claim was sent by First Class recorded post on 27 July 2011. It was faxed to the Defendant on 28 July 2011.

[27]By virtue of Clause 15.17.4 of the SPA (the facsimile service provisions) the deemed delivery date of the Notice of Claim was therefore 28 July 2011.

[28]As already set out, Completion occurred on 2 August 2010 and, accordingly, the period of one year thereafter, within which a Notice of Claim was to be served, expired on 2 August 2011. It follows that the Notice of Claim was a valid and timely notice within the requirements of the SPA.

[29]Under Schedule 4(3) (see paragraph [21] above), the reference to the period “within six months of the making of such a claim” is a reference to a six month period following the delivery date of the Notice of Claim.

[30]The period of six months following 28 July 2011 therefore expired on Saturday 28 January 2012. It follows that the Claimant had to commence and serve legal proceedings by that date.

[31]On 10 August 2011 Baker & McKenzie wrote to the Claimant informing it that Baker & McKenzie acted for the Defendant. By a letter of 19 January 2012 Baker & McKenzie confirmed that it was instructed to accept service of proceedings on behalf of the Defendant.

[32]The claim form was issued on 18 January 2012.

[33]The claim form was sent to Baker & McKenzie on Thursday 26 January 2012 by fax, email and DX.

[34]It is common ground that the Defendant was aware of the claim against it on 26 January 2012. It is also common ground that the claim was, when measured by reference to the Civil Procedure Rules (“CPR”), both validly issued and validly served. There is accordingly no procedural point that the Defendant can take under the CPR to challenge either the validity of the claim form or its service on procedural grounds.

Relevant principles of construction

[35]The starting point is to consider the relevant principles of interpretation. The basic approach to construction of a commercial agreement is summarised in the judgment of Lord Clarke of Stone-Cum-Ebony in Rainy Sky v Kookmin Bank

[2011] UKSC 50

;

[2011] 1 WLR 2900

. At paragraph [14] Lord Clarke, having observed that the principles to be applied have been discussed in many cases, said that:

“…those cases show that the ultimate aim of interpreting a provision in a contract, especially a commercial contract, is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant. As Lord Hoffmann made clear in the first of the principles he summarised in the Investors Compensation Scheme case [1998] 1 WLR 896, 912H, the relevant reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.”

[36]At paragraph [21] Lord Clarke addressed the common problem of contract clauses which can bear multiple meanings. He stated the following:

“The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and reject the other.”

[37]He proceeded (paragraph [23]) to state that where the parties had used unambiguous language the court would apply it notwithstanding that the end result may be “…a most improbable commercial result”. Where such a consequence flows from unambiguous language then that is the result that the court will find; but where it is ambiguous the court will adopt the less literal approach described above to achieve “business common sense”.

[38]In the context of commercial transactions certainty is undeniably important. It enables the parties to know where they stand and to take commercial decisions in the light of such knowledge. As

Lord Justice Gross stated in Ener-G Holdings Plc v Hormell [2012] EWCA Civ 1059 at paragraph [58]:

“strict time bars are an aspect of certainty; there is certainly nothing uncommercial about them and they are not infrequently encountered in commercial contracts”

. In Valentines Properties Limited v Huntco Corporation Limited

[2001] UKPC 14

at [20] Lord Nicholls observed:

“Inherent in a time limit is the notion that the parties are drawing a line. Once the line is crossed, a miss is as good as a mile”

. It is no part of the function of the court to rule according to sympathy. Lord Justice Gross agreed in Ener-G Holdings at [60]: “pleas of hardship in this area are untenable”.

[39]With particular regard to typical notice provisions the underlying commercial purpose is to enable the other party (i.e. the person entitled to receive notice) to be put in possession of all the relevant facts and matters germane to the requirement to give notice. Lord Justice Gross in Ener-G Holdings Plc (at [60]) thus stated of the nexus between actual knowledge and service:

“…however, there is much to be said for reducing the risk of a person, who has actually received a notice and become aware of its contents, asserting that he has nonetheless not been properly served. A construction which serves to reduce this risk may be thought to have obvious attraction as giving effect to the underlying commercial purpose of any typical notice provision.”

[40]Similar sentiments were expressed by Lord Neuberger, Master of the Rolls, at paragraphs [31] and [32]. He emphasised 2 points of relevance to the present case.

[41]First, he concluded (as did Lord Justice Gross) that the purpose of the notice clause in the case before him was “…to ensure that Mr Hormell was notified within the two year period of a warranty claim, so that he would know that he was free of any such claim if he received no such Notice within the two year period” [31].

[42]Secondly he observed that “…clear words would normally be required before one could ascribe to the parties an intention that a recipient who actually receives a notice in time should nonetheless be treated as not having received the notice at all” [32]. The underlying premise is that if the recipient has actual notice, and the purpose of the notice provision is thereby satisfied, before the Courts will conclude that the parties intended an inconsistent conclusion (viz., that contrary to the actual facts the recipient is to be treated as not having received notice) there will need to exist clear contractual words leading to that conclusion. Lord Neuberger viewed the fact that the recipient was in actual receipt of notice of the relevant facts as indicating a “strong commercial argument” (ibid [33]) that the notice was served in accordance with the terms of the relevant agreement.

[43]Notwithstanding the above there can, in some cases, be a distinction to be drawn between a recipient having specific knowledge of relevant facts and matters, on the one hand, and proper service, on the other. A person entitled to service might discover all of the relevant facts and matters through a circuitous means, for example by being told of them by a third party. However, that cannot convert the receipt of the relevant information into a proper notice: see the example given by Lord Justice Gross in paragraph [60] of Ener-G Holdings Plc.

The construction argument: Defendant’s submissions

[44]I turn now to consider the arguments of the Defendant in the present case.

[45]The Defendant’s arguments were cogently advanced by Mr Bompas QC. He takes as his starting point the uncontroversial proposition that the exercise of construction is concerned with determining what the parties to the contract meant by the language used, which involves asking what a reasonable person having all the relevant background knowledge which would reasonably have been available to the parties would have understood the parties to have meant. He also points out that a time bar in a commercial contract such as the SPA is intended to provide the parties with certainty and, echoing case law, he submits that a “miss is as good as a mile”. He emphasises that the Court is not engaged in sympathy votes but only in an objective exercise applying normal canons of construction which then lead to an outcome, which might be that the notice is in or out of time. There is no room for sentiment.

[46]With particular regard to Schedule 4(3) of the SPA his argument is, distilled to its essence, simple and relies upon the inferences that he says should be drawn from the phrases “legal proceedings”, “validly” and “legal process”.

[47]These phrases, he submits, indicate that the concept of “serving” is to be understood in the context of domestic procedural law. They are phrases used in the specific context of threatened and actual legal proceedings arising (by virtue of the exclusive jurisdiction clause) in the English Courts, and a reasonable businessman would so understand them. He submits that as such these terms must be read in the context of the CPR which would be the regime governing the proceedings that are specifically contemplated by the clause.

[48]In the present case the six month period commenced from 28 July 2011 and therefore the last day of the prescribed six months was 28 January 2012. What was required to be done by 27 January 2012 was that “legal proceedings” had to have been “commenced” by the Claimant “validly issuing and serving legal process”. Mr Bompas QC submitted that the expressions “legal proceedings” and “legal process” in Schedule 4(3) were terms of art. He submitted in particular that the phrase “legal process” denotes the formal document service of which is required in order for the other party to become compelled in the legal proceedings and answerable to the court. Accordingly, the expressions “issuing” and “serving” convey the doing of that which is formally necessary within the legal process to compel the other party to the relevant legal proceedings. He also submitted that this was reinforced by the adverb “validly”.

[49]The upshot of these submissions was that by virtue of CPR 6.14 service was only completed on 30 January 2012, since this was the date that took account of the deemed two day extension and the exclusion of weekends which is set out in that rule.

[50]The concept of “service” is well understood and refers to the requirements and principles laid down in CPR 6.14. This provides that:

“A claim form served within the United Kingdom in accordance with this Part is deemed to be served on the second business day after completion of the relevant step under rule 7.5(1)”

[51]It follows, inexorably from this, that 30 January 2012 is more than six months after the Notice of Claim and, so submits the Defendant, the Claimant has failed to comply with the service requirements of the SPA. This is accordingly a complete bar to the claim.

Analysis of the construction argument

[52]Notwithstanding the cogent and attractive arguments of Mr Bompas QC, I am unable to accept this construction of Schedule 4(3).

[53]First, the perspective from which the provision must be interpreted is that of the parties, not the reasonable lawyer. Neither party submitted to me that simply because the critical word in dispute - “serving” - concerned an aspect of legal process that the relevant perspective was to be altered to that of a lawyer or even a business man with a lawyer permanently hovering at his shoulder whispering advice. Lord Clarke in the passage cited at [35] above in Rainy Sky v Kookmin Bank referred to the process of construction as involving determining “what the parties meant that the language used” and the “parties” are the parties to the agreement, not third party advisers. This has some significance in the present case because whilst the word “serving” used in Schedule 4(3) and the surrounding phrases (“legal proceedings” etc) refer broadly to legal concepts the draftsmen has neither defined those terms in the SPA nor linked them to any specific procedural rule save to say that English law governs.

[54]This is especially the case with a phrase such as “serving”. The expression is one which can bear a number of different and conflicting meanings covering points in time before, on, and after receipt. For instance it can mean dispatch in the sense that a document is “served” from the point in time of its dispatch or sending and therefore prior to its receipt. In such cases the modes of dispatch are frequently spelled out (fax, DX, first class recorded post, etc). The parties by this method in effect agree a risk transfer away from the sender and on to the other party: see the discussion of such clauses in Ener-G Holdings Plc (ibid) at paragraphs [23], [29], [30], [35] per Lord Neuberger MR. Alternatively, the phrase “service” (and its cognates) might be read simply to mean delivery in a form which brings the contents of the document being served to the actual attention of the intended recipient. In such circumstances a document or other instrument will be served only when it is proven that the intended recipient was in actual possession of the document or instrument in issue. This is in my view the normal meaning of the concept of “service”. And yet further it is possible that “service” (and cognates) may be treated as having occurred at a point of time after actual receipt by the inclusion in the contract of provisions which define service as having occurred, for example, “x” days or hours following proof of actual receipt. This analysis shows that the phrase “serving” is not a term which necessarily imports a fixed or technical meaning. Its ordinary meaning is delivery upon and receipt by the intended recipient, but that can be modified by contractual provisions. This is not, in my view, one of those cases where the parties have carefully and deliberately chosen a very precise legal term of art which, accordingly to consistent case law, should be accorded its technical meaning and which the parties would accordingly understand as having a precise legal meaning: see the discussion of legal terms of art in Lewison, The Interpretation of Contracts (5th edition, 2011) section 5.08 et seq.

[55]The facts are not in dispute. The Defendant did receive the claim on 26 January 2012 and the claim was a valid one in the context of the CPR both in terms of issue and service. It is not contended that even if (on the Defendant’s analysis) the claim is deemed to have been served on 30 January that would in any way invalidate the service under the CPR.

[56]Put shortly, on 26 January a valid claim was served on the Defendant and this was two days before expiry of the contractual deadline in Schedule 4(3). It was accordingly a valid service of the claim and was in time under the SPA.

[57]This conclusion is supported by the following additional considerations.

[58]Purpose: First, it accords with the purpose which, in my view, Schedule 4(3) was designed to achieve, namely, the bringing to the actual attention of the vendor the existence of a warranty claim within a relatively abbreviated period of time such that, once the time limits had passed and no notice or proceedings had been served, it would know for all relevant commercial purposes that it was free from the risk of proceedings: see the discussion of case law at [39-42] above. This makes perfectly sound commercial sense. The corollary of the point (that it allows the vendor to know when it is free from the risk of claims) is also true. The purpose of the clause is also to make the vendor aware that there are claims and that it is not free of the risk of litigation. If the vendor knows that the Notice of Claim has been followed up with legal proceedings within the six month period then it can act accordingly. A company in the position of the Defendant might, by way of illustration, need to make provision for a possible liability, it might need to make an announcement to the market, or notify its insurers or shareholders. My construction of the SPA is in line with this purpose and the date upon which the vendor had this relevant knowledge (in this case that proceedings were on foot) was 26 January 2012.

[59]Absence of clear words importing a contrary intention: Secondly, there are no clear words in the agreement which can be pointed to which ascribe to the parties an intention to treat a person who has actually been served as being deemed not to have been served at all: see the case law referred to at [42] above. The draftsman did not link service to the CPR, or to any particular rule therein. The draftsman could have added to the phrase “commenced by validly issuing and serving legal process” words which made clear that the phrase “serving” was to be construed in a strictly legal sense and not as a term in common or ordinary usage. For instance the draftsman could have added:

“in accordance with the Civil Procedure Rules in force at the relevant time”, or, “as those terms are applied in Civil Procedure Rules”

. The use of such words would at least have made clear that “serving” was to be treated as a legal term. Indeed the draftsman could have been more precise by adding:

“…in accordance with the time limits set out in Civil Procedure Rules r. 6.14” which would have had the beneficial effect of directing the parties to a specific rule about the point in time when service was deemed effected. He could have been even more explicit and used terms such as “the legal proceedings are to be deemed to have been served on the second business day after delivery of the said proceedings”

. But he did none of these things. Mr Bompas QC, for the Defendant, argued that the phrases “validly”, “legal proceedings” and “legal process” were sufficient to indicate that a formal, legalistic, meaning was to be attributed to the word “serving” and, moreover, that this led one directly into the CPR and in particular r.6.14 thereof. But, notwithstanding the attractive way in which the argument was put, I do not agree. The key word is “serving” and this has a meaning which, even if viewed as a legal term, can be variable and context dependant. In this case the parties did not define the term by reference to the CPR or any part thereof and, as the discussion of the CPR below (see in particular paragraphs 63-80) demonstrates, even a broad reference to the CPR could be a recipe for debate and argument which might befuddle a reasonable businessman. In the absence of clearly expressed contractual intent which confirms that “serving” is an artificial concept involving a two day deeming extension plus the exclusion of weekends (only business days) I have concluded that it would be wrong to interpret the agreement as departing from the natural meaning of the phrase “serving” as delivery.

[60]Certainty: Thirdly, this conclusion creates greater certainty than the Defendant’s construction. On the Defendant’s construction what prima facie is a straightforward clause becomes a trap for the unwary. Without any express language to put the parties on notice the word “serving” imports a concealed extension and an exclusion. It is only possible to determine that a document (the claim) delivered and received towards the end of a working week is in fact to be treated as having been served after the weekend by drawing inferences from surrounding terms such as “validly”, “legal proceedings” and “legal process”. From these broad and unspecific terms, and from the fact that the contract is subject to English law and jurisdiction, it is argued that the parties are to be presumed to have intended that they should then go searching in the CPR for r.6.14 for a gloss on Schedule 4(3). But this is very far from apparent from its wording. Further, and importantly, the Defendant’s interpretation assumes that the only part of the CPR to which reference is to be made is r.6.14. But if Mr Bompas QC is correct and the CPR is imported this then serves to trigger a complex debate about the interrelationship between CPR rr. 6.14 and 7.5 and how they then relate to Schedule 4(3). This was the subject of detailed submissions by both parties during the hearing. Mr Bompas QC submitted that the relevant provision in the CPR was r.6.14, whereas Mr Salzedo QC contended that the relevant provision was r.7.5. These lead in opposite directions. It seems to me to be signally unlikely that the parties intended, sub silentio, to raise a legal hornet’s nest which would need to be resolved before it could be determined when service had occurred even assuming that the CPR was incorporated so as to guide the construction of the word “serving”. This is the antithesis of certainty. These points serve to highlight the importance of adopting an interpretation which facilitates, not undermines, legal certainty.

[61]Construing the agreement as a whole: Fourthly, regard should be had to a construction of the agreement which views the process of interpretation as a “unitary” exercise taking into account the agreement as a whole (see the citation at [36] above). With specific regard to the word “serving” this and cognate phrases are found throughout the SPA in a context where they clearly refer to delivery. For example paragraph 8.3.7 of Schedule 3 (warranties) states that so far as the vendor is aware there are no current contingent or anticipated claims or disputes or outstanding orders or notices “whether served by a landlord, adjoining owner, any local authority, any local planning authority or other body or person” (italics added) which affect the properties. Paragraph 8.3.10 also in the warranties schedule uses the phrase “served” twice in relation to notices, orders, proposal, applications, requests or schedules of dilapidations. In Schedule 6 (tax covenants) paragraph 1.5.2 refers to the “service” of notices by HM Revenue & Customs pursuant to section 743 of the Corporation Tax Act 2010. In all of these contexts, which involve at least on some occasions the service of formal documents with legal consequences, the concept of service is used to connote delivery, or at the very least cannot sensibly be said to import some unwritten deeming extension or preclusion of non-business days. In my judgment the parties, and a reasonable person, considering the word “serving” in Schedule 4(3) in the context of the SPA as a whole would treat that phrase as meaning actual delivery. And as to this, as I have already observed, it is common ground that the claim was in fact delivered and received on 26 January 2012 i.e. within the 4 month time limit.

[62]Strictly speaking in view of my conclusion on the main point of construction the two alternative ways in which Mr Salzedo QC put his case do not arise. Nonetheless, I have set out my conclusions upon them not least because they do bear in some measure upon the conclusion that I have already arrived at.

The CPR point: Interrelationship between CPR rr.6.14 and 7.5

[63]I have referred to this already above. Put shortly, Mr Bompas QC submitted that properly construed Schedule 4(3) necessarily took one to the CPR and to r.6.14 in particular which had the effect of adding four days to the date of actual delivery thereby taking the date of service to 30 January 2012, which was out of time. Mr Salzedo QC submitted that if, contrary to his main submissions on construction, Schedule 4(3) imported the CPR then by virtue of the operation of CPR r.7.5 the relevant date for service was still 26 January 2012, which was in time.

[64]It is clear from the CPR that there are two different sets of rules which bear upon service. This means that if Mr Bompas QC is correct and the CPR is to be imported into the SPA to guide the interpretation of Schedule 4(3) the next question is: Which rules governing service apply?

[65]CPR r.6.14 creates deemed service periods:

“Deemed Service 6.14 A claim form served within the United Kingdom in accordance with this Part is deemed to be served on the second business day after completion of the relevant step under rule 7.5(1).”

[66]CPR r.6.14 thus deems a claim to have been served upon the Defendant at a point in time which will necessarily post-date actual receipt of the claim form in issue.

[67]CPR r.7.5, however, creates a different regime and treats service as having occurred upon the happening of a “step required”. The relevant part of the rule is as follows:

“Service of a claim form 7.5-(1) Where the claim form is served within the jurisdiction, the claimant must complete the step required by the following table in relation to the particular method of service chosen, before 12.00 midnight on the calendar day four months after the date of issue of the claim form.”

The rule then includes a table with two columns, the first of which is headed “Method of service”. The methods, not surprisingly, refer to: post, delivery at a relevant place, personal service, other electronic means of service. For each type of “Method of service” a “step required” is specified.

[68]The Claimant submits that it is r.7.5 which determines the question whether a claim form has been validly served.

[69]The commentary accompanying the text of CPR r.6.14 in the Supreme Court Practice (note 6.14.3) states as follows:

“It is important to notice that the question whether there has been compliance with a time limit fixed by r.7.5 for service of a claim form within the jurisdiction…is determined, not by inquiring as to whether the deemed day for service fell within the period, or whether personal service was effected within it (as was the case before October 1, 2008), but by asking whether the “step required” was “completed” within the period. Consequently, the problems encountered under the former rule, and dealt with by the Court of Appeal in cases such as Godwin v Swindon BC [2001] EWCA Civ 1478; [2002] 1 WLR 997, CA, and Anderton v Clwyd CC (No. 2) [2002] EWCA Civ 933; [2002] 1 WLR 3174, CA, are avoided.”

[70]The “problems” referred to in the quotation said to be attributable to the “formal rule” arose whereby the Defendant had to be deemed to have been servedwithin the four month or six month period following the issue of proceedings as appropriate for the service then to be treated as being within time.

[71]CPR r.7.4 governs the time by which the Particulars of Claim must be served. It includes within the rule a cross reference to r.7.5 and an indication of the purpose of r.7.5:

“Particulars of claim must be served on the defendant no later than the latest time for serving a claim form. (Rule 7.5 sets out the latest time for serving a claim form.)”

The words in parenthesis indicate that r.7.5 governs the date of service.

[72]The definition of “service” in the CPR Glossary (White Book Volume 1 (2013) page 2929) as “Steps required by rules of court to bring documents used in court proceedings to a person’s attention” is also consistent with the conclusion that service is effected by the taking of the “required steps” in r.7.5. In my view it is not coincidence that the phrase used in the Glossary is “steps required by rules of court” and the trigger for service in a relevant rule of court (viz., r.7.5), is “step required”. In the Glossary “service” is in my view a concept linked back to that in r.7.5, not r.6.14.

[73]This then begs the question as to the purpose behind the deeming provision in CPR r.6.14. As to this the purpose of the provision is to identify the point in time upon which the Defendant is deemed to have been served for the purpose of identifying consequent steps in the litigation. This is the view of a number of authors. For example, the authors of Blackstone’s Civil Practice 2013 (page 301), commenting upon the inter-relationship between CPR r.6.14 and r.7.5 state as follows:

“[15.1](b)…the new rules distinguish between steps taken by the claimant to effect service (“the relevant steps”) and the deemed date of service. It is the relevant steps under r.7.5, i.e. the dispatch or delivery of the claim form, not deemed service, which must occur within the four-month period for service of the claim form in the jurisdiction. The effect of this stage is to give the claimant full control of meeting the four-month deadline. Deemed dates of service are now primarily of use in computing the time for taking the next steps in the litigation. … [15.24] The effect of this rule is to give the claimant complete control over compliance with r.7.5, provided he is satisfied he knows the defendant’s address. He need not concern himself about whether the claim form gets to the Defendant on time. Two business days after the relevant step has been taken, the defendant is deemed served.”

[74]Other commentators take the same position. See for example McQuater, “Service: The Civil Procedure Rules” [2008] 4 JPIL 326, 332-333: “By CPR Pt 6.14, a claim form will be deemed served on the second business day after completion of the relevant step under CPR Pt 7.5(1). The significance of this, under the new rule, is not whether service has been validly effected in time but, rather, for the purposes of calculating when the acknowledgement of service and/or defence will be due”.

[75]And yet further Professor Zuckerman in “New Provisions for Service - A great improvement threatened by discretion” (2009) 28(1) CJQ 1, at p.3 states:

“…compliance with the four-months’ deadline for service within the jurisdiction is determined only by asking whether the “step required” for effecting service by a particular method of service was “completed” by midnight on the day of the expiry of the four months period for service…”

[76]In relation to CPR r.6.14 Professor Zuckerman states: “This provision does not create a presumption of fact. It has nothing to do with facts. It is merely an indication of the starting time for calculating the period for responding to the claim” (ibid p.4).

[77]It is therefore apparent that there are two forms of “service”. They serve different purposes. The deemed service in CPR r.6.14 operates to fix the point in time from which subsequent steps in the litigation must be taken, including but not limited to acknowledgment of service and service of a defence. Mr Salzedo QC submitted that the purpose of r.7.5 was to ensure that the process of the court was not abused and that the Defendant was placed in a position where he was able to know the case he must ultimately meet. Provided that the Claimant took the step required within the requisite time then the claim was validly served and the fact that time did not begin to run for the Defendant until a few days after was neither here nor there. I agree with this analysis.

[78]What flows from this in the context of the present case, assuming that the CPR is to be relied upon as a guide to construction of the Schedule 4(3)?

[79]In my view the following points are relevant. First, the fact that there are two concepts of service makes it ever increasingly improbable that the draftsman intended to incorporate into the SPA the CPR as a guide to interpretation since the process of inferential incorporation involves not just bringing into consideration the CPR but then also making a selection between two different and competing concepts of service. I rely upon this to add weight to the conclusion that I have already arrived at that the CPR is not a concept that is used to construe the SPA. Secondly, insofar as it is necessary to choose a regime of service to apply to the SPA I would choose r.7.5. The reason for this is that a purpose behind Schedule 4(3) is to indicate to the Claimant what it must do in order to bring the claim to the attention of the Vendor. This is also a purpose of r.7.5. I have already referred above to the definition of “service” in the Supreme Court Practice Glossary as “steps required by rules of court to bring the documents used in court proceedings to a person’s attention”. It might also be said that a purpose is to enable the Claimant to know what it must do to be able to avoid its claim being “deemed to be withdrawn and no longer enforceable” (within the terms of Schedule 4(3)) and this also would tend towards adoption of the r.7.5 regime, and not that in r.6.14, as the applicable guide to construction.

[80]Applying the test in CPR r.7.5 the Claimant adopted three of the different steps stipulated in the rule namely email, DX and fax. These steps were taken on 26 January 2012, before the cut-off date.

The Clause 15.17 argument

[81]Finally, I should deal with the third way in which Mr Salzedo QC put the Claimant’s case.

[82]The Claimant has also contended that the word “service” read in the context of the SPA means that the claim could be served by virtue of the notice provisions in Clause 15.17 of the SPA. I have set out the terms of Clause 15.17 above at [22]. If this is so then by virtue of the operation of Clause 15.17.4 (facsimile transmission) the service of the claim on 26 January 2012 by fax will be deemed to have been served on that day and will accordingly be in time.

[83]In the course of argument the following questions arose as to this provision:(1) Does the clause apply to the service of a legal claim?

(2) Is the service of a claim in accordance with Schedule 4(3) “under this Agreement”?

(3) If (1) and (2) are answered “yes”, were the formal requirements of the clause met?

[84]My conclusions on these questions are as follows.

[85]Does the clause apply to the service of a claim? Mr Bompas QC submitted that it was not apt to cover the communication by way of service of legal process documents such as a claim. In my judgment the clause is capable of applying to the service of a legal claim. A claim served under Schedule 4(3) is a “communication” other than a notice, request or demand. The concept of a “communication” is necessarily broad and is apt to cover the transmission of claim documents from the Claimant’s solicitors, on the Claimant’s behalf, to the Defendant’s solicitors, on the Defendant’s behalf. Clause 15.17 is drafted broadly and there is nothing in the SPA to suggest that legal process (i.e. the claim) which has to be served under Schedule 4(3) is excluded.

[86]Mr Bompas QC also argued that Clause 15.17 only applied to mandatory notices, requests etc. It is true that there is no obligation on the Claimant to make a claim for breach of warranty; and even if it serves (as it did) a Notice of Claim there is no obligation thereafter upon it to translate that Notice into legal action. I hence agree with Mr Bompas QC that the service of legal process is not mandatory. But the clause does not limit itself to mandatory notices etc. and there is no obvious reason why it should do so. On the contrary the service of a claim under Schedule 4(3) is an important step in relations between the parties and, notwithstanding that it is not mandatory, it remains appropriate that it should be at least capable of being transmitted under the contractually mandated regime set out in Clause 15.17.

[87]Mr Bompas QC also contended that the regime could not be used by an agent and that only the principal parties could use Clause 15.17. In the event the claim form was sent by the Claimant’s solicitors by fax, DX and email to Baker & McKenzie who had expressly indicated that they were authorised to accept service on behalf of the Defendant. This is wholly unremarkable. Commercial clients regularly instruct professionals to act on their behalf, not only on legal matters but also in a wide range of other matters, for instance relating to planning or tax. I can also see no reason why the communicating person cannot be an agent of the “party” provided of course that it acts with authority. There is no suggestion that the communications sent by the solicitors were lacking in authority from their clients who were the parties in issue.

[88]Is the service of a claim in accordance with Schedule 4(3) “under this Agreement”? It was submitted for the Defendant that the service under Schedule 4(3) was not “under” the Agreement. I respectfully disagree. The service was pursuant to Schedule 4(3) and there is no reason why this should not be therefore considered to be a communication “under” the Agreement.

[89]If(1) and

(2) are answered “yes”, were the requirements of the clause met? The facts relating to this are not in dispute: i) On 27 July 2011 Ageas wrote to the Defendant “For the Urgent Attention of the Financial Director” setting out a Notice of warranty claim pursuant to Schedule 4(3). The letter was sent, inter alia, to the fax number set out in Clause 15.17. It was copied to the Defendant’s then solicitors (Dickson Minto) and the reference code set out in Clause 15.17 was set out. ii) On 10 August 2011, Baker & McKenzie responded to this letter indicating that they acted for the Defendant. They included on the front cover of the fax sheet the relevant references referred to in Clause 15.17. They concluded the letter by saying that “we fully reserve KFGB’s rights, including to recover its costs from you”. The reference to the recovery of costs is an indication that the Defendant was aware, as inevitably it would have been, that litigation was a possibility. The fax number given on the front page of the fax was however not that set out in Clause 15.17 but was the normal Baker & McKenzie fax. iii) On 18 January 2012, Shoosmiths on behalf of the Claimant, wrote directly to Baker & McKenzie asking them to confirm whether they had been instructed to accept service of proceedings on their client’s behalf. iv) On 19 January, Baker & McKenzie responded and stated: “We confirm that we are instructed to accept service of proceedings on behalf of our client”. v) On 26 January, Shoosmiths sent by DX, fax and email copies of the Claim Form (issued out of the Queens Bench Division on 18 January 2012). This was sent direct to Baker & McKenzie. It did not have upon it the formal reference code that was upon the first letter in the chain and it was not sent to the fax number referred to in Clause 15.17.

[90]Is this in compliance with the formal requirements of Clause 15.17? The Defendant says “no”, even if they are wrong in their submissions in relation to questions(1) and

(2) above because the communications were not sent strictly in accordance with the rubric in the clause.

[91]It is true that the final fax which included the claim was not addressed to the Defendant as opposed to its solicitor; it was not sent to the fax number set out in Clause 15.17; it did not contain upon it the relevant code marking; and, it was not marked “For the urgent attention of the Financial Director”.

[92]Does this matter? In my view it does not. Clause 15.17 permits any party to specify a different or additional address or fax number for the service of notices or copies of notices. Further, the clause expressly states that notices and other communications may be given by other means but adds that the use of such other means do not benefit from the presumption of delivery set out in this Clause 15.17.

[93]In the present case the Defendant authorised Baker & McKenzie to accept service on its behalf. Baker & McKenzie accepted service by fax to its own fax number and in my view this was clearly authorised by the Defendant. It was entirely aware that the communication of the claim in this way was the follow-on step from the service of the Notice of Claim in July 2011 and it of course knew that the Notice of Claim was marked with the requisite markings. In my view the Defendant had identified a different address than that of the Defendant for service (i.e. that of Baker & McKenzie itself) and a different fax number. Further, either:(i) the markings set out on the original Notice of Claim served to satisfy the requirement for the inclusion of appropriate codes and marking because that was the first in a sequence of linked communications and it was only necessary to include the markings once; or

(ii) Baker & McKenzie on its client’s behalf waived the requirement by continuing to act in the proceedings without ever raising the point; or

(iii) the communication constituted an alternative means of communication which, although not benefiting from the presumption of delivery, makes no difference because it is common ground that actual delivery occurred on 26 January 2012.

[94]It follows that in my judgment service of the claim was validly effected under Clause 15.17 within time.

Conclusion

[95]The preliminary issue was framed in the following way:

“Whether the Claimant complied with [the] service requirements of the Share Purchase Agreement, as pleaded in paragraphs 21 to 27 of the Amended Defence dated 15 June 2012”

[96]I would answer the issue: The Claimant did comply with the service requirements of the Share Purchase Agreement.

[97]I will hear submissions as to the next steps to be taken in relation to this claim, and as to whether it is appropriate to embody the answers to the preliminary issues (disputed and undisputed) in formal declarations.