Recent Court of Appeal decision on notice of claim provision under Share Purchase Agreements (SPA)

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The Hopkinson decision: Should W&I insurers take an interest in SPA notification provisions?

Published 15 January 2019


Parties to Share Purchase Agreements (‘SPAs’) increasingly buy Warranty & Indemnity (‘W&I’) insurance, passing the risk of losses arising from breaches of warranties and indemnities in the SPA from the seller to insurers.  What used to be the first barrier to recovering those losses, namely, whether the buyer’s notice of its claim complied with the SPA’s notice provision, is now less contentious.  That is because a claim under an insurance policy is inherently less adversarial in nature than a claim against a defendant seller facing allegations of breach.  Insurers are less likely to turn down a claim on the basis a notice might arguably not comply with the SPA notice clause.  What matters more from an insurer’s perspective is establishing whether a loss is genuine and is “covered” under the terms of the policy.  However, it would be a mistake for either insurers or the buyers of “Buyer-side” W&I policies to relax and we discuss why that is by reference to the decision in Hopkinson & Ors v Towergate Financial (Group) Ltd & Ors.[1]

Notice clauses under SPAs

SPAs are drafted largely without regard to the existence of a W&I policy. When an SPA has wording to reflect the W&I position, it tends to be a ‘bolt-on’ clause, typically to recognise that the buyer’s right to claim losses against the seller is extinguished to the extent that those losses are covered by the W&I policy.[2]

Notice clauses are frequently drafted in stringent terms to reflect the desire of all sellers to walk away after the purchase, free of the threat of future litigation. The following wording would be fairly typical (our emphasis):

The Seller shall not be liable in respect of any claim under the Warranties unless Notice of the claim to be brought is given in accordance with this clause and the service provisions in clause [x] within 2 years of the date of completion. A Notice under this clause must provide details of the claim and its quantum by reference to the Warranty(ies) which are said to have been breached.

However, notice clauses come in many different guises, often heavily negotiated and reflecting the parties’ bargaining power. The clause typically gives the seller a complete defence where a buyer fails to comply with the notice provision.

Why this is important to W&I insurers is because the insurance is usually drafted to cover contractual liabilities under the SPA. The strength of the notice clause may determine whether there is cover under the policy since, to put it starkly, no contractual liability means no insurance cover.

In SPA disputes, courts are often asked to decide whether a notice of claim is compliant with the notice provisions in the SPA.  Each decision turns on the facts and the wording of the clause, which makes it difficult to identify rules of construction. One principle generally followed is the courts will try to adopt a commercial approach to their interpretation to reflect the commercial context in which they are negotiated.  Because each notice clause is individually negotiated, tried and trusted “boiler-plate” wording is uncommon. That leads to contractual uncertainty as we explain below.

The issues in Hopkinson v Towergate Financial

The case dealt with the seller’s potential liability under an indemnity in the SPA which covered “mis-selling” claims (“the Indemnity”). An FCA investigation concluded there had been mis-selling prior to the sale and the buyer sought to claim under the Indemnity in respect of all mis-selling claims identified by the FCA. The buyer sought to comply with the notice provision by referring to the conclusions of the FCA and describing the prospective claims that the FCA indicated might be brought. However, the seller argued that the notice provision required the buyer to provide details of the claims and their value.  At the time of the notice that was not possible because no claims had in fact been brought and their value was uncertain. The Defendants appealed, having failed at first instance to strike out the claim for a failure to comply with the notice provision.


It is well established that “every notification clause turns on its own individual wording”.[3] Recent cases have focused on the form and timing of the notification, and its compliance with the relevant notice clause. Hopkinson focuses on the interpretation of the notice clause itself.

The court will interpret a notification provision by reference to its wording (and not consider other documentation) where that wording is clear and well-drafted.  Where documents have been “negotiated and prepared with the assistance of skilled professionals”, the court will assume that those professionals knew what they were doing and the wording they produced reflected the contractual intentions of the parties.  However, negotiations can mean that ‘standard form’ clauses get welded together or adapted leading to incoherent wording.  This may in turn lead to disputes over the effect of the clause on the notice given by the buyer.

In Hopkinson, the notice clause was poorly drafted such that the Court of Appeal concluded “it [was] unwise to proceed on an assumption that its language has been chosen with care”. ‘Compound’ notice clauses, (i.e. one clause setting out different notification requirements for different classes of claims) can be difficult to interpret and in Hopkinson, it was indeed not wholly clear which elements of the overarching compound clause applied to different types of claim. The court took a purposive approach to contractual interpretation and took into account the commercial context, noting the impossibility of the buyer having sufficient knowledge of the likely, but prospective, “mis-selling claims” to provide details of them, including their number and value as the seller/defendant argued was required under the notice provision. The court went onto find that the parties intended that the mis-selling claims notified under the Indemnity had less stringent notice requirements than those applying to claims under the general warranties. Circumstances, such as the FCA inquiry, raised the real possibility that mis-selling claims would follow. The court found the parties intended mis-selling claims, which were notifiable at a stage when it would be impossible to provide detailed information of the likely claims still to be brought, to be covered under the Indemnity.

This is typical of the courts’ approach to the interpretation of notice provisions in SPAs; a court will seek to give an interpretation which reflects the commercial intent of the parties. It was not a surprising result one might think, but where the wording of the notice provision is not clear in its application (and it frequently is not), and where contractual liability hangs on compliance with the clause, disputes are inevitable.


W&I insurers often face significant liabilities when claims are brought against W&I policies.  Under current W&I policy wording that liability can be zero if the claims which might be otherwise brought under the SPA are barred for a failure to comply with the SPA notice provision.  We suggest that it might be time for W&I insurers to get actively involved – in drafting, interpreting, pricing – and contesting – the strength of this crucial clause.  All parties benefit from clearly drafted contractual provisions. Hopkinson went to the Court of Appeal  before the court had even begun to deal with the substantive merits of the claim under the Indemnity.

Working together, our specialist Transactional Liability team advises insurers on underwriting, due diligence, coverage and claims issues in the M&A context.

Richard Highley

[1] [2018] EWCA Civ 2744

[2] This limitation of the right to make claims against the seller will not operate to prevent claims against the seller where the seller has been fraudulent, or there has been wilful misconduct.

[3] RWE Nukem Ltd v AEA Technology plc [2005] EWHC 78 (per Gloster J)


Richard Highley

Richard Highley

London - Walbrook

+44 (0)20 7894 6470

Key Contacts

Richard Highley

Richard Highley

London - Walbrook

+44 (0)20 7894 6470