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Buyers beware! Warranty claim time limits can bite

Buyers of businesses need to be aware of any restrictions or requirements governing warranty claims. Very often the timescale for making a warranty claim following the purchase of a business can be severely restricted by the share purchase agreement; there may well be a requirement on the buyer to notify a claim within a short time of becoming aware of it.  The details to be given can also be specified.

The High Court has recently considered whether a buyer's warranty claim was barred by a contractual limitation of liability that required the buyer to serve notice of the claim, specifying in reasonable detail the nature of it and, so far as it could, the amount claimed, within 20 business days of becoming aware of the matter.

The seller argued that the 20 day period began to run when the buyer became aware of the factual grounds for the claim, and that, on the facts, the buyer's notice of claim was served out of time. The seller also disputed the validity of the buyer's notice on the basis that it did not contain sufficient detail concerning the warranty claim and its amount.

The Court rejected the sellers' defence based on its complaints about the buyer's notice of claim.  It decided that on a proper construction of the clause, "becoming aware of the matter" meant "becoming aware of the claim", with the effect that the 20 day period started to run when the buyer became aware that there was a proper basis for putting forward a claim.

Applying that interpretation, the buyer's notice was served in time. In relation to the adequacy of the contents of the notice, the court considered that "not much was contractually required" by the clause and that, on the facts, the buyer's notice contained sufficient information relating to the claim.

The decision serves as a useful reminder to buyers of businesses to be aware of the specific detail of the warranty claim provisions of their agreement and to make sure they comply with them, and for sellers to check that a buyer has met the specific details of the warranty provisions of it makes a claim.  If in doubt, get advice. 

Speak to our Dispute Resolution team on 01274 306 000.

 

About the Author

James Staton

Partner

James is a Partner and Head of the Dispute Resolution team and primarily handles commercial…

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