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The High Court has found that a buyer’s notice of claim failed to comply with the requirements set out in the tax covenant to an SPA in a USD 1 billion transaction: Dodika Ltd v United Luck Group Holdings Ltd [2020] EWHC 2101 (Comm). As a result, sums held in escrow were released to the sellers unconditionally.

There have been increasing numbers of M&A related claims in the English courts turning on whether notice has been given in accordance with contractual requirements. Dodika serves as a reminder that failure to comply with a contractual requirement can be fatal to a buyer’s claim, even where the seller is already aware of the matters which give rise to the claim.

It is generally better to provide too much rather than too little detail and so buyers are generally well advised to be as fulsome as possible when sending claims notices. In practice, this means allowing sufficient time for a full notice of claim to be drafted – buyers should not leave the preparation of the notice until the very end of the claims limitation period, where this can be avoided.

Of course, the requirements in any given case turn on what has been agreed between the parties. One interesting feature of Dodika is the court’s review of recent authorities arising out of disputes concerning the validity of SPA notice of claims provisions. Though the deputy judge noted that one must not place too much reliance on the interpretation of particular contractual wording in other cases, he considered that the authorities establish that notice of claims clauses are based on the desirability of commercial certainty and they must be construed objectively with that purpose in mind.


In December 2016, the defendant (ULGH) purchased shares in Outfit 7, the holding company of a group specialising in mobile device applications, from various sellers for the price of USD 1 billion. Under the SPA, USD 100 million of the price was held in escrow to be released in two tranches, on 31 December 2018 and 1 July 2019 respectively. In the event that a claim was made under the SPA before each tranche was to be released to the sellers, the tranche would remain held in escrow until the claim was determined. If the claim was determined in favour of ULGH, the claim would be satisfied out of the escrow amount.

The SPA required ULGH to bring claims by giving written notice to the sellers stating in reasonable detail the matter which gave rise to the claim, the nature of the claim and (so far as reasonably practical) the amount claimed in respect of the claim.

Under the SPA’s tax covenant, the sellers promised to reimburse ULGH for any tax liabilities of the target group arising out of events that occurred before completion.

Tax investigation

In July 2018, the Slovenian tax authorities initiated an investigation into one of the target group’s companies regarding its transfer pricing practices. Representatives of the sellers were informed of the ensuing investigation and its material developments, had access to relevant documents, attended important meetings and were involved in strategy discussions.

The tax investigation remained unresolved in June 2019.

On 24 June 2019, ULGH sent a letter to the sellers which purported to give written notice of a claim under the SPA. The notice referred to the tax investigation and provided a chronology, which in summary explained that:

  • the Slovenian tax authorities had initiated an investigation into the group company regarding the transfer pricing practices for the period between 2015 to 2017;
  • the group company had appointed an accountant for the purpose of this investigation;
  • the group company had provided information to the tax authorities in relation to the investigation for the period 2015 to 2017;
  • the tax authorities had expanded the investigation to cover the period 2013 to 2014;
  • the group company had provided information in relation to the expanded investigation; and
  • the investigation was still ongoing and the tax authorities had declined to issue a statement of motivation for the investigation.

The notice also stated that it was not possible to quantify the amount claimed at that stage.

The proceedings

The final tranche of the purchase price was not, therefore, released from escrow to the sellers on 1 July 2019. The sellers issued proceedings seeking declarations that ULGH’s purported notice of a claim did not comply with the claim notification provision under the SPA.

The sellers then applied for summary judgment, alleging that the purported notice was defective because it failed to quantify the claim and failed to provide reasonable detail about the matter which gave rise to the claim.

ULGH resisted the application for summary judgment. It contended that its letter dated 24 June 2019 constituted valid notice and that, even if it did not, this should not result in the claim being contractually barred because, as a matter of fact, the sellers were fully aware of the circumstances in which the claim arose because they had been involved in the group company’s response to the tax authorities.


The High Court (Mr Peter MacDonald Eggers QC sitting as a deputy High Court judge) granted the sellers’ application for summary judgment, finding that the 24 June 2019 letter did not satisfy the notification requirements under the SPA because it failed to give reasonable detail about the matters which gave rise to the claim. The final tranche of the purchase price therefore had to be released from the escrow account to the sellers.

The quantification requirement

The deputy judge noted that the notification provision did not absolutely require the claim to be quantified. Instead, a claim was required to be quantified “so far as reasonably practical”. At the time the letter was sent, the amount of any tax liability resulting from the tax authorities’ investigation remained contingent.

The sellers had provided little evidence in their summary judgment application as to the extent to which it was reasonably practical to state the quantum of the claim. Instead, the sellers complained that ULGH had not even attempted to quantify the claim.

The deputy judge held that, if it was not possible to quantify the claim, ULGH was not required to attempt to quantify it or to provide an estimate. That was the effect of the “so far as reasonably practical” qualification. However, he was unable to conclude whether it was reasonably practical to quantify the claim based on the evidence before him. On that basis, ULGH had a real prospect of success on the issue and it could not be determined summarily.

Reasonable detail of the matter which gave rise to the claim

The sellers’ case was that the 24 June 2019 letter had not provided any details about the matters which gave rise to the claim. The letter had focused on the tax investigation, but the sellers argued that this was not the correct approach. The matters which gave rise to the claim were, argued the sellers, the transfer pricing practices resulting in the tax authorities’ investigation, not the investigation itself.

The sellers advanced this argument notwithstanding that the relevant transfer practices had been adopted during their control of the target group. They asserted that, because the investigation had continued after ULGH had taken control of the group, it was incumbent on ULGH to identify the practices which formed the subject of the tax investigation.

The deputy judge accepted this argument. He held that “the matter giving rise to the claim” meant the facts, events or circumstances on which the claim was based. The words “giving rise to” pointed to the factual reasons why a tax liability accruing before completion would or might accrue. The tax investigation would not itself give rise to a tax liability. It was not enough for the 24 June 2019 letter to leave the sellers to infer which facts were relied on by ULGH as the basis of a claim by reference, in general terms, to what was being investigated by the tax authorities. The sellers required sufficient detail to deal with the claim, including for example to investigate the matters which allegedly gave rise to a claim. A valid claims notice was therefore required to identify the specific transfer pricing practices or transactions which ULGH, having reviewed the tax investigation, relied on in support of its claim against the sellers.  The 24 June 2019 letter did not do so.

Accordingly, the 24 June 2019 letter failed to comply with the contractual requirements and compliant notice of the claim had not been given in time. It was therefore contractually barred.

Sellers’ existing knowledge

ULGH argued that the matters giving rise to the claim would have been obvious to the sellers. The sellers’ representatives were aware of the tax investigation and had been involved in responding to it. ULGH did not claim that this rendered the contractual requirements redundant. Instead, ULGH argued that the 24 June 2019 had to be construed having regard to the background information which was available to both parties. The sellers’ knowledge was an issue which would have to be determined at trial, so the application for summary judgment should be rejected.

The sellers’ answer to this was simple: whatever the parties’ shared knowledge, that could not via an interpretation exercise rectify the lack of reasonable detail in the 24 June 2019 letter. The deputy judge accepted that submission. Even if the sellers in fact knew of all of the exchanges between the tax authorities and the group company, that could not render the 24 June 2019 letter compliant with the SPA notification requirements.

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Andrew Cooke

Partner, London

Andrew Cooke

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Andrew Cooke

Partner, London

Andrew Cooke
Andrew Cooke