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England and Wales High Court (Queen's Bench Division) Decisions


You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Highwater Estates Ltd v Graybill [2009] EWHC B40 (QB) (5 March 2009)
URL: http://www.bailii.org/ew/cases/EWHC/QB/2009/B40.html
Cite as: [2009] EWHC B40 (QB)

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IN THE HIGH COURT OF JUSTICE                                              Claim No: 8CH50066
QUEEN-�S BENCH DIVISION
MANCHESTER DISTRICT REGISTRY
MERCANTILE LIST


BETWEEN
                            HIGHWATER ESTATES LIMITED
                                                                                        Claimant
                                             -       and -�


                                      EVELYN GRAYBILL
                                                                                       Defendant


                                           Before:

                          HIS HONOUR JUDGE WAKSMAN QC

                             (sitting as a Judge of the High Court)


        Neil Berragan (instructed by Aaron & Partners LLP, Solicitors) for the Claimant
       Susanne Muth (instructed by Shammah Nicholls LLP, Solicitors) for the Defendant

                                 Hearing date: 5 March 2009


                               Approved Judgment
 I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this
      Judgment and that copies of this version as handed down may be treated as authentic.




                                                 1

INTRODUCTION

1.   In this matter, I am asked to determine a number of preliminary issues arising out of claims
     made by the Claimant company (-�Highwater-�) for breach of warranty and
     misrepresentation in relation to a written share sale agreement made on 20 June 2006 (-�the
     SPA-�).

2.   The Issues are as follows:
     (1)    Did a statement made in the Disclosure Letter dated 20 June 2006 (-�the DL-�)
            against Warranty 7.1 itself amount to an actionable contractual warranty?
     (2)    If such a statement was a representation, does any claim based upon it fail because
            it was not notified in time pursuant to and in accordance paragraph 3.1 of Schedule
            4 to the SPA (-�the Notification Clause-�)?
     (3)    If the statement was also a warranty does any claim based upon it fail because it
            was not notified in time pursuant to and in accordance with the Notification
            Clause?
     (4)    Are certain of the other breach of warranty claims time-barred because they were
            not notified in time pursuant to and in accordance with the Notification Clause?

BACKGROUND
3.   The target company was Majorstage Limited (-�Majorstage-�) whose entire share capital
     was sold by the Defendant, Mrs Evelyn Graybill to Highwater. Majorstage owned a
     substantial property called Peckforton Castle (-�the Castle-�) and its business was the
     operation of the Castle as a venue for conferences and weddings, with leisure and
     accommodation facilities. It was this property and business which was in effect being
     acquired by Highwater.

4.   The consideration payable by Highwater to Mrs Graybill was £4.9m. All of that sum has
     now been paid save for part of a sum of £250,000 payable by way of instalments. The last
     instalment has not yet fallen due. There was the usual price adjustment mechanism in the
     form of Completion Accounts.

5.   Following the acquisition Highwater made a number of complaints to the effect that the
     level of wedding business at the Castle was not what it had been led to believe and that
     there were serious problems with the fabric of and equipment at the Castle. The relevant
     claim letter is dated 4 June 2007 ie nearly one year after the acquisition (-�the Claim
     Letter-�). These proceedings were commenced on 24 June 2008. There are other disputes
     between the parties concerning the Castle but not within this action. One such dispute
     concerns a challenge to a decision of an expert who has determined the net asset value of
     Majorstage for the purses of the Completion Accounts and price adjustment process under
     the SPA.

6.   In relation to the wedding business it was said that the purchasers were told that as at the
     date of the SPA there were 150-200 wedding contracts whereas in truth there were at that
     time only 87, so 63 less than the lower figure of 150.




                                              2

THE EVIDENCE
7.   At this trial I received in the form of a hearsay statement, a witness statement dated 19
     December 2008 made by Mr Edwards, a solicitor with Aaron & Partners LLP, who act for
     Highwater in this action and who acted for it on the acquisition. I also heard from Mrs
     Graybill. She made a witness statement on 29 January 2009 and was cross-examined
     briefly upon it. I refer to her evidence in context below.

THE SPA
8.   This contained the following material terms:
     (1)    Clause 1: DEFINITIONS AND INTERPRETATION:
            (a)     A -�Claim-� meant -�a claim (whether in contract, tort or otherwise) by the Purchaser under
                    or in relation to the Warranties or the Tax Covenant or for misrepresentation-�;
            (b)     -�Disclosure Letter-� meant -�the disclosure letter (together with all the documents attached
                    or referred to in it) from the Vendor to the Purchaser signed and delivered immediately
                    prior to the execution of this Agreement-�;
            (c)     -�Warranties-� meant -�the warranties contained in Schedule 3 and references to a
                    Warranty are to be construed accordingly;
     (2)    Clause 5: WARRANTIES,
            (a)     By Clause 5.3, -�the Vendor warrant to the Purchaser that each of the Warranties are true
                    and accurate at the date of this Agreement-�;
            (b)     By Clause 5.4, -�The Warranties are qualified to the extent, but only to the extent, of those
                    matters fairly disclosed in the Disclosure Letter.-�
     (3)    Clause 6, LIMITATIONS ON VENDOR-�S LIABILITY, -�The Vendor-�s Liability for Claims
            shall be limited or excluded (as the case may be) as set out in Schedule 4 (Limitations on Vendor-�s
            Liability)-�;
     (4)    Schedule 4, LIMITATIONS ON VENDOR-�S LIABILITY, provides that
            -�3.     Time Limits for Bringing Claims
             3.1    The Vendor shall not be liable for a Claim unless it receives from the Purchaser written
                    notice of the Claim stating in reasonable detail the matter giving rise to the Claim and the
                    nature and amount of the Claim-�
                    3.1.2    on or before 31 October 2007 in respect of any other Claim.-�
     (5)    Clause 14: ENTIRE AGREEMENT.
            (a)     By Clause 14.1: This Agreement (together with the documents referred to in it or executed
                    at Completion) constitutes the entire and only agreement and understanding between the
                    parties with respect to its subject matter and replaces and supersedes all prior oral and
                    written agreements understandings representations and correspondence regarding such
                    subject matter.
     (6)    By Clause 14.2, -�Without limitation to the generality of Clause 14 .1, the purchaser represents and
            warrants that in entering into this Agreement, it has not relied upon, nor been induced to enter into
            this agreement by any representation or statement (whether of fact, intent opinion or otherwise)
            made by the Vendor or the Company or any of its officers, employees and advisers or agents (for the
            purposes of this Clause, each a -�Representation-�), which has not been included expressly in this
            Agreement.-�

9.   Schedule 3 contains a discrete list of particular warranties, grouped in the usual way, by
     reference to subject-matter; two such warranties are relevant here:
     (1)    Warranty 5.3: ASSETS: Condition
                    -�The machinery, plant, vehicles and equipment owned by the company are in satisfactory
                    condition and working order, given their age and usage-�;




                                                    3

      (2)       Warranty 7: CONTRACTS AND COMMITMENTS
                         -�7.1       The Company is not a party to any agreement, arrangement or obligation which:
                                    7.1.1   was made otherwise than in the ordinary and usual course of the
                                            business of the Company as carried on at the date of this Agreement; or
                                    7.1.2   is not terminable by the Company on 120 days notice or less, without
                                            payment of compensation; or
                                    7.1.3   Involves a capital commitment or annual expenditure in excess of
                                            £20,000.

THE DISCLOSURE LETTER
10.   This provided, among other things, as follows:
      -�1. We refer to the ..Agreement .. proposed to be entered into immediately following the delivery of this
          letter between the Vendor.. and the Purchaser relating to the sale and purchase of the whole of the issued
          share capital of Majorstage Limited.

      2.    This letter, together with all the documents matters and information contained or referred to in or
            attached to this letter is the Disclosure Letter as referred to in the Agreement and the Tax Covenant. In
            the event that any inconsistency exists between any provisions of either the Agreement or the Tax
            Covenant and any part of this letter, this letter shall prevail.

      3.    This letter makes disclosures for the purpose of limiting the scope of the Warranties, and the covenants
            contained in the Tax Covenant. The Warranties and the Covenants are made and given subject to the
            documents, matters and information contained in or referred to in or attached to this letter and the vendor
            or shall not be deemed to be in breach of any of the Warranties or Covenants in respect of the documents
            matters and information contained or referred to in or attached to this letter.

            Specific disclosures.

            Without prejudice to the generality of the disclosures above, we disclose to you the following-�.-�

            In relation to Warranty 7.1:

            -�The Company has approximately 150 - 200 contracts for weddings relating to various periods.

            The Company has a contract with [Western Telephones] for the provision of a telephone system. The
            term of this contract is seven years.-�


11.   The penultimate paragraph of the DL reads:

      -�The matters disclosed in this letter are listed against the paragraph numbers of the Warranties and
      Covenants to which the disclosure is considered most appropriate. But each disclosure weather made it
      generally or specifically, directly or by reference to any document or other source will apply to each of the
      Warranties and Covenants to which it is or may be appropriate. And no such disclosure will be restricted or
      limited in any way to the specific Warranty or Covenant to which it refers.-�


ISSUE 1: DID THE STATEMENT MADE IN THE DL AGAINST WARRANTY 7.1 (-�THE
WEDDING STATEMENT-�) ITSELF AMOUNT TO AN ACTIONABLE CONTRACTUAL
WARRANTY?
Introduction
12.   This question arises because paragraphs 14 and 15 of the Particulars of Claim allege that
      the Wedding Statement was a warranty and there was a breach of it because there were
      only 87 wedding contracts. It is not suggested that the Wedding Statement was a collateral


                                                          4

      warranty, given in exchange for the making of the main contract. Rather it is said that it
      was simply a term of the SPA, in warranty form though not one of the Warranties listed in
      Schedule 3. This is in addition to contending that it was a representation.

The Facts
13.   On the face of it the Wedding Statement is not obviously a qualification to Warranty 7.1.
      Such a contract would be made in the ordinary course of business, nor is it suggested that it
      was not terminable on less than 120 days notice, without payment of compensation,
      although presumably there would be some financial exposure if a wedding contract was
      cancelled near to the wedding date. No evidence on this point was adduced before me.
      Conceivably a wedding contract could have involved Majorstage in a capital commitment
      or annual expenditure in excess of £20,000 (ie for each wedding booked) but there was no
      real evidence on this point before me either. Mrs Graybill did say in evidence that wedding
      deposits of £1,000 would usually be taken although this would include an amount for
      accommodation as well, but I do not think I can thereby infer that a wedding contract
      would typically fall within Warranty 7.1.3.

14.   It is of course not unknown for a Vendor in a company sale (or his advisers) to disclose
      matters against particular warranties out of an abundance of caution. It is not clear whether
      this was the case here.

15.   It is common ground that there were numerous discussions between the parties prior to the
      sale of Majorstage as one would expect. In a six month negotiation period bookings were
      discussed, and lists of current bookings for all functions were produced to the Naylor
      family (the effective purchasers) and their advisers. They would have been provided with
      something like the list which can be seen at p170-171 of the Trial Bundle which is itself a
      revised version of an earlier list.

Mrs Graybill-�s Evidence
16.   In her oral evidence Mrs Graybill said that Mr Anderson of the valuers Edward Symons
      asked if she had a list of current bookings, which she did and he received it. She would not
      have said to him in the course of negotiations that she had 150-200 bookings. She would
      have referred him to the bookings set out in the list at that particular date. They had done
      142 weddings in the financial year 1 November 2004 to 31 October 2005 and the wedding
      business was growing so they would expect more in 2006. But the booking lists would go
      beyond the current financial year. On a day to day basis, bookings did not change very
      much. The main surge in bookings came after New Year and Valentine-�s Day. She did not
      accept that it was important to the vendors to know how many bookings she had, because
      she understood that they were very confident in their own operational abilities, ie once they
      had acquired the business, and they had worked for numerous hotels. She then said that
      they were interested in the figures, but were going to bring in their own management team
      anyway. They picked up the lists and saw the bookings and they knew they would have to
      honour them, but while still intending to run the wedding trade, their main objective was
      the conference business. For weddings they would need to know the bookings because they
      were confirmed contractual bookings. She was aware that she had to say how many
      contracts she had at the time of entering the SPA. She understood that the purchaser would
      seek to earn revenue from the wedding contracts -� though whether they would be
      profitable depended on them. Certainly, the contracts under her were profitable. In her
      witness statement she rejected the proposition that she was giving any kind of warranty as
      to future bookings by reference to what was said in the DL.


                                                5

17.   Taken in the round, I am not sure how far this evidence really assists. One can assume that
      the purchasers were interested in the booking figures because they asked for and saw the
      booking lists. Mrs Graybill understood that figures needed to be given, and at least some
      significance was attached to them. But to an extent she saw this in terms of what contracts
      would have to be fulfilled by the purchasers after they bought the company. I certainly do
      not think that this evidence provides any real support for the contention made here, namely
      that the Wedding Statement amounted to a term of the SPA (in addition to, or opposed to, a
      representation). The proximity of giving figures close to, or as at, the date of making the
      SPA does not impel that conclusion without more.

Was the Wedding Statement a representation?
18.   The question of a claim for misrepresentation is a separate matter but it is relevant here as
      well. Ms Muth for Mrs Graybill concedes that the Wedding Statement amounted to a
      representation but only of a very attenuated kind. It did not amount to some free-standing
      representation that there were 150-200 wedding contracts but served only as a qualification
      to Warranty 7.1. That does seem to me to be somewhat less than the admission contained
      in paragraph 10.2.1 of the Defence that -�the information in the Disclosure Letter
      constituted representations made by or on behalf of the Defendants-�, albeit that the claim
      based in misrepresentation here is denied later in the Defence on various grounds including
      non-reliance.

Analysis
19.   I am not asked in this trial to decide what representation if any is constituted by the
      Wedding Statement. But in my judgment the resolution of that issue does not affect what I
      do have to decide. Suppose that the Wedding Statement was a representation to the effect
      that there were 150-200 wedding contracts relating to various periods. That does not in
      itself entail the conclusion that such representation was also a term of the contract. The fact
      that it relates to a matter of some importance to the purchaser, without more, simply means
      that it could well be the subject of a representation. In reality of course, this DL would
      have been made available in draft unsigned form at least some time before execution, so it
      is perfectly meaningful to speak of a (pre-contractual) representation here.

20.   Nor do I consider that the evidence given by Mrs Graybill can possibly amount to evidence
      of her intention that there should be -�contractual liability in respect of the accuracy of the
      statement.-� (see Heilbut Symons v Buckleton [1913] AC 30). It simply does not go that far
      and of course the burden of establishing the term rests upon Highwater which chose to
      adduce no direct evidence of its own on the point at all.

21.   There are other reasons why in my judgment the parties should not be taken to have
      intended that a statement like this should constitute a separate contractual warranty (even
      assuming it amounted to a representation that there were 150-200 contracts for weddings
      for various periods):
      (1)    The logical place for such a statement, qua warranty, is in the list of Warranties in
             Schedule 3, where it would be subject to the same regime, procedural and
             otherwise, as all the other warranties; if Highwater had wanted to get Mrs Graybill
             on the contractual hook, as it were, an express Warranty in Schedule 3 was the
             obvious way to do it. Where one has a contractual structure which has a discrete list
             of Warranties, the inference, or at least starting point must be that if the parties had




                                                 6

      wanted to include a further warranty this is where it would go; (I note that the usual
      warranties were there given in respect of audited and management accounts);
(2)   Although the SPA expressly contemplates the possibility of claims in
      misrepresentation (although limited by Clause 14) in addition to claims for breach
      of the Warranties, that does not mean that an intention to have other warranties
      outwith the Schedule should be inferred. It is one thing to have the potential
      liability for a misrepresentation claim, and another to have a liability for breach of
      warranty. In a misrepresentation claim, there are various hurdles which the
      Claimant will face -� meaning, reliance, lack of reasonable care on the part of the
      Defendant (albeit that the burden will rest on the Defendant here) -� all the sorts of
      issues that have indeed arisen here. And here the Claimant has the additional hurdle
      of proving fraud. A claim for breach of warranty is much simpler and easier to
      prove;
(3)   The fact that the Wedding Statement is in the DL does not itself make it a term. I do
      not accept the proposition that Clause 14.1 of the SPA (see paragraph 8(5)(a)
      above) means that every part of the DL is thereby rendered a term of the SPA. The
      obvious purpose of Clause 14.1 is to limit the material which can be used to mount
      a claim in contract or misrepresentation in relation to the SPA. Typically, such
      clauses are used to prevent collateral warranty claims based on some pre-
      contractual discussion. But that does not mean that any statement within the
      permitted materials (including the DL) must then be a term;
(4)   Equally the fact that Clause 14.2 (see paragraph 8(6) above) excludes reliance on
      any representation which is not included expressly in the SPA, hardly means that
      any representation which is included, is also a further contractual warranty. Rather,
      the purpose of this clause is to cut down the type of misrepresentation claim which
      can be brought;
(5)   The whole thrust of this DL militates against the Wedding Statement being a
      further contractual warranty. Its purpose (as stated by Clause 5.4 of the SPA -� see
      paragraph 8(2)(b) above - and in the DL-�s Preamble -� see paragraph 9 above) is to
      qualify or limit what would otherwise be operative Warranties to the extent stated
      in the DL. So if the complaint is that there is an onerous contract which would
      otherwise entail a breach of a Warranty, it is no breach if purchaser was informed
      of the existence of that contract in the DL. It would of course have been open to
      the parties to agree, as is sometimes done, that the content of the DL itself is true, or
      even warranted to be true so as to become the subject of a further formal warranty .
      But that was not done here;
(6)   Paragraph 3 of the DL at p1 equally does not help Highwater. It simply resolves
      any inconsistency for the purpose of the making of disclosure; the same goes for
      paragraph 3 at p2 under -�General Disclosures-�. The point of that paragraph is
      simply to give wide scope to the material which can be called in aid to qualify any
      particular Warranty, here for example, to include information provided to advisers:
      the purchaser cannot complain that a Warranty is broken because of matter X if his
      advisers were told about matter X; the whole exercise is thus defensive in nature;
(7)   The penultimate paragraph of the DL (see paragraph 10 above) does not assist
      Highwater here. All it means is that if disclosure is given specifically against
      Warranty X, it must also be taken to be disclosure against (and hence qualify)




                                          7

               Warranties Y and Z as well, if it is or may be appropriate to them. It is not
               suggesting that disclosure also goes to some other warranty, not a Warranty.
      (8)      The fact that both parties have signed off on the DL takes the matter no further. It
               just means that it is an agreed document, important since on any view the
               Warranties may be qualified or limited as a result of the DL;
      (9)      Although not conclusive, the language of the Notification Clause, (see paragraph
               8(4) above), in referring to a -�Claim,-� suggests that the types of claim in
               contemplation by the parties are (a) claims for breach of Warranty and (b)
               misrepresentation;
      (10)     Mr Berragan referred me to Clause 6.2 of Schedule 4: -� The purchaser confirms to
               the Vendor that at the date of this Agreement it is not aware of any breach of
               Warranty or of any circumstances which might give rise to a Claim.-� I do not see
               how this helps Highwater. The apprehended Claim is still a claim for breach of
               Warranty or misrepresentation, not a claim for breach of some other warranty.

22.   For all those reasons, I reject the contention that the Wedding Statement constituted a
      contractual warranty within the SPA and I resolve Issue 1 against Highwater.

ISSUE 2. IF SUCH A STATEMENT WAS A REPRESENTATION, DOES ANY
CLAIM BASED UPON IT FAIL BECAUSE IT WAS NOT NOTIFIED IN TIME
PURSUANT TO AND IN ACCORDANCE WITH CLAUSE 3.1 OF THE SPA?
Introduction
23.   It is common ground that for the purpose of the Notification Clause in Schedule 3
      paragraph 5, the correct approach is to examine the claim as put in the Particulars of Claim
      and see whether that claim was properly notified in the Claim Letter, in other words
      whether it contained reasonable details of (a) the matter giving rise to that claim and (b) the
      nature and amount of that claim.
The Wedding Bookings Claim in the Particulars of Claim
24.   Paragraph 12 of the Particulars of Claim refers to the information contained in the
      disclosure against warranty 7.1 ie the Wedding Statement. It was said to have been a
      record and repetition of information given by the Defendant to the officers of the Claimant
      prior to the date of the acquisition. It said that the acquisition of the shares by the Claimant
      depended on the availability of a loan financed from its bankers. It went on to say "in
      proceeding with the transaction and the loans to finance it, both the Claimant and Barclays
      Bank PLC relied on the projections (including sustainable earnings figure of £620,000 on
      an annual basis), which in turn relied on the information given by the Defendant as to the
      number of wedding contracts.
25.   Paragraph 13 refers to information that £250,000 of advance booking deposits had been
      paid and that in the order of 150 weddings and functions were catered for in each year.
      The Claimant relied on this for the purposes of making its financial projections and
      purchasing the shares.

26.   Paragraph 14 reads thus: "the Defendant repeated in the disclosure letter by specific
      disclosure 7.1 the warranty and representation that Majorstage had 150-200 contracts for
      weddings. The Claimant relied on that information in entering into the SPA."




                                                 8

27.   Paragraph 15 alleges that this assertion was untrue because there were only 87 contracts,
      giving a shortfall of at least leased 63. Paragraph 16 alleges that the Defendant "knew or
      should have known that the number of bookings was not between 150 and 200;
      alternatively, the Defendant gave that information to the claimant without honest belief in
      its truth, without caring whether it was true or false, without any reasonable grounds for
      believing it to be true, and without having sought to verify it."

28.   Paragraph 17 recites that with an average profit of £6,156 per wedding, and a shortfall of
      63 wedding contracts, the value of that shortfall was £387,828.

29.   There then followed these paragraphs:
      18. The wedding contracts booked out at 20 June 2006 covered a period from 23 June 2006 until 24
      November 2007. The total amounts recorded as paid by way of deposit for the booked weddings was
      £171,464.50 as against the figure stated by the Defendant of £250,000.

      19. Making the assumption that the at least 63 weddings representing the shortfall against the figure
      represented/warranted by the Defendant would (if the statement had been true) have taken place in the period
      of 18 months up to 20 December 2007 (ie a slightly longer period than that covered by the actual bookings as
      at 20 June 2006), produces an annualised loss of profit of at least £258,552.

      20. Adjusting the figure for maintainable earnings for Majorstage downwards by this amount from £620,000
      per annum, reduces the maintainable earnings to £361,448. Applying the price/earnings ratio of 8 would give
      a value for the shares in Majorstage on a debt free basis of £2.89 million as against the SBA figure or £4.95
      million bracket (on the same basis). A difference in value of £2.06 million.

      21. The Claimant seeks damages in an amount to be assessed by the court for the loss arising from the
      Defendant-�s breaches of warranty and/or misrepresentation.


30.   So there is an allegation of negligent or fraudulent misrepresentation yielding a damages
      claim based on diminution of value of £2.06m being 40% of the entire contract price of
      £4.95m.
The Claim Letter
31.   This letter, sent on 4 June 2007 some 12 months after the SPA and 5 months before the
      cut-off date of 31 October 2007 reads as follows, insofar as is material to this issue:
      -�Majorstage Limited
      1.       As you know, we act on behalf of Highwater.. This letter sets out our clients claim-�s against you for
               breach of warranty under the Sale and Purchase agreement.

      3.3      Our clients have a substantial claim for damages for breach of warranty as set out below..

      7.       Clause 5 of the SPA provided for warranties to be given by you to Highwater, and for those
               warranties to be further developed or qualified by the contents of the disclosure letter.

      Breach of Warranty Claims
      35     Our clients believe that there have been breaches of the warranties as set out below, which entitle
      Highwater to compensation.

      Wedding bookings.

      48.     Disclosure 7.1 says "The company has approximately 150-200 contracts for weddings relating to
              various periods.".




                                                       9

      In fact, the total number of contracts for weddings, as at the date of completion was 87, a deficiency of at
      least 63 bookings compared to the position stated. Appendix 10 contains an analysis of historic profitability
      and the value of the shortfall of 63 contracts at an average profit of £6,156, a total of £387,828.

      Summary of warranty claims

      52. Accordingly, the total warranty claims amount to £738,407, and we await your response.

      Action required

      56.      Accordingly, we would request the following action from you

               56.1 Payment without further delay of the overdrawn loan account, currently £49,925, up to 10 May
               2007

               56.2 Confirmation without delay that you will not seek to take enforcement action in relation to the
               loan notes or the security relating to them..

               56.5. Your response to the breach of warranty claims and proposals for payment.-�

32.   The rest of the letter contained other allegations of breaches of warranty to which I shall
      refer below, which is why the total sum claimed was £738,407. The letter also alleged that
      certain loan notes from Majorstage had been unlawfully issued and that the final sums due
      under the SPA of £250,000 were not payable, and that charges given as security for the
      loan notes should be released.

33.   Appendix 10, which deals with the wedding bookings did indeed set out a total loss of
      profit figure of £387,799, which was based on taking the average profit from one wedding
      at £6,156 and multiplying it by the alleged shortfall of 63.

Improper Notification
34.   Mrs Graybill contends that there was no proper compliance with the Notification Clause
      because the Claim Letter makes no mention of any misrepresentation claim at all and the
      claim for diminution of value now made of £2.06m is not set out substantially or at all in
      the letter.

The Law
35.   There have been a number of cases dealing with clauses such as this. Some are referred to
      in the decision of the Court of Appeal in Forrest v Glasser 31 July 2006. That case is itself
      of limited assistance here since the key question concerned a clause which, in
      contradistinction to another clause which required detailed information about the claim,
      only required the bald information that a claim was going to be made.

36.   Although it is a first instance decision, I found the statement of principles set out by
      Gloster J in Nukem v AEA Technology 28 January 2005 to be most helpful:
               -�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



                                                          10

              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.-�
37.    In Laminates Acquisition Co. v BTR Australia, 31 October 2003, Cooke J noted that
       clauses of this kind are usually inserted to give some certainty to the party to be notified
       and a failure to observe their terms can rarely be dismissed as a technicality.

38.    The clause in Laminates was similar to the one here. The purchaser had to give -�written
       notice of such claim specifying (in reasonable detail to the extent that such information
       was available at the time of the claim) the matter which gives rise to the claim, the nature
       of the claim and the amount claimed..-� The parties in that case agreed (unsurprisingly)
       that the reference to the -�nature-� of the claim meant -�notification of what is being claimed
       and the basis for it by reference to the SPA -� namely the form and substance of the claim.-�
       They also agreed that the reference to -�amount claimed-� required a calculation on the part
       of [the purchaser] of the loss which was allegedly suffered.

39.    All the general observations set out above seem to me to be consistent with the modern
       approach to contractual construction taken in the well-known cases of Mannai Investment v
       Eagle Star [1997] AC 749,ICS v West Bromwich  [1998] 1 WLR 896 and BCCI v Ali  [2002] 1 AC 251,. 
       I of course follow that approach when considering this clause.

Analysis
Failure to mention misrepresentation
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. It is true that Highwater could not assert in the letter that the Wedding
       Bookings claim was a claim directly under Warranty 7.1 -� it was not -� but it tied it to the
       Warranties as much as possible by asserting that the DL -�further developed or qualified-�
       those 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


                                                       11

      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. It is
      noteworthy that when Highwater did decide that it had a claim in misrepresentation, it
      chose to articulate it in a later letter dated 22 April 2008 (too late for notification
      purposes). That letter referred back to the Claim Letter relating to various breaches of
      warranty and articulates what is quite clearly seen as a further and different claim in
      misrepresentation in relation to the Wedding Statement. It goes into considerable detail
      about that claim and the question might forensically be posed as to why all of this was not
      put into the Claim Letter. It is not suggested that this could not in fact have been done.

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.

44.   I do not accept the further argument made by Mr Berragan that if (as I have found) the
      Wedding Statement did not amount to a contractual warranty, it must follow that the Claim
      Letter should be taken to be referring to a claim for misrepresentation in relation to it since
      there was in truth nothing else left. That hardly follows. The fact that a party a asserts one
      claim which in fact is later found to have no basis does not mean that he was really
      asserting an alternative claim all the time.

Amount of the Claim
45.   I also take the view that the discrepancy between the amount claimed in the Particulars of
      Claim (£2.06m) and that claimed in the Claim Letter (£387,000) is a further ground for
      non-compliance. The sums are vastly different and the vendor might obviously take a
      different view when he knows that he is facing a claim of those proportions in relation to
      one particular matter. It is no answer to say that the Court will decide damages in the
      round. The Court might dismiss the claim altogether, but the vendor-�s need is to see what
      he is facing from the purchaser.




                                                12

46.   Mr Berragan says that the two amounts have the same starting point. I agree, but that is no
      answer when they end up at very different destinations. Moreover the type of damages
      claim is different. In the letter it is based on what profit Majorstage would have made if
      there were 150 bookings. In the Particulars of Claim it is the familiar -�overpayment-� claim
      based on an assertion that because of the matter complained of the true value of the
      company, as acquired by Highwater, is very much less than the price paid. That involves
      detailed explanations of how the price paid was arrived at and what the true value was,
      explanations in fact given in the letter of 22 April 2008 albeit that at that stage it was said
      that the claim was worth -�at least-� £800,000 and maybe up to £2m.

47.   Where a clause expressly requires the amount of the claim to be given and in truth the
      amount of the claim pursued in the Particulars of Claim is simply missing from the Claim
      Letter to a very substantial extent, which cannot be described as a mere difference in detail,
      the clause has not been complied with.

48.   Mr Berragan suggested that if this were the only item of non-compliance (which it is not)
      the Court could simply cap the claim as made in Particulars of Claim. I do not agree. The
      claims made are fundamentally different for the reasons given above, and on the facts of
      this case, the failure to state the amount of the claim is such that the whole claim as such
      has not been properly notified. To permit it to amend to make the claim as set out in the
      Claim Letter would probably not help Highwater since it wishes to put the claim now on
      the usual diminution in value basis. Moreover, a significant amendment of that kind gives
      rise to the further problem that a claim on that basis was not made within the contractually
      defined period for starting proceedings, namely 4 June 2008.

Conclusion on Misrepresentation
49.   For those reasons, the claim in misrepresentation was not properly notified in time, and I
      resolve Issue 2 against Highwater as well.

3.   IF THE STATEMENT WAS ALSO A WARRANTY DOES ANY CLAIM BASED
UPON IT FAIL BECAUSE IT WAS NOT NOTIFIED IN TIME PURSUANT TO AND IN
ACCORDANCE WITH CLAUSE 3.1 OF THE SPA?
50.   This does not arise given my conclusion under Issue 1. But I should add that even if the
      Wedding Statement was a warranty, there would have been insufficient notification
      because of the failure to state the amount being claimed.

4.  ARE CERTAIN OF THE OTHER BREACH OF WARRANTY CLAIMS TIME-
BARRED BECAUSE THEY WERE NOT NOTIFIED IN TIME PURSUANT TO AND IN
ACCORDANCE WITH CLAUSE 3.1 OF THE SPA?
INTRODUCTION
51.   There are four breach of warranty claims, made in paragraphs 22 -� 31 of the Particulars of
      Claim, of which Mrs Graybill complains proper notification was not given in the Claim
      Letter. I deal with each in turn. All relate to Warranty 5.3.

Water Supply
52.   The allegation in paragraph 23 of the Particulars of Claim is that the water supply at the
      Castle was not in satisfactory condition. Particulars are given. The claim is for the cost of
      rectification in the sum of £49,433 plus VAT.



                                                13

53.   The Claim Letter also says that the water supply was not in satisfactory condition by
      reference to Warranty 5.3. A report on it in the form of a letter is attached as Appendix 1.
      In paragraph 2 of that letter, it sets out the same matters as are in the particulars given
      under paragraph 23 of the Particulars of Claim save that it seems to suggest, or might
      suggest, that only one of the two pumps is broken whereas paragraph 23.4 of Particulars of
      Claim says that neither was in satisfactory condition. I do not think that this discrepancy,
      especially given the ambiguity in the report letter, means that the Claim Letter did not
      comply.

54.   The figure claimed in the Claim Letter is the same as that claimed in Particulars of Claim.

55.   Accordingly, this claim was duly notified.

Air heaters
56.   The Particulars of Claim allege at paragraph 26 that the oil-fired air heaters were corroded
      beyond repair due to rainwater entry. Rectification costs of £18,648.50 plus VAT were
      claimed. The body of the Claim Letter says the same about the corrosion, as does a letter
      report attached to it as Appendix 5. The amount claimed however was stated in the letter to
      be £15,173.50 plus VAT making £20,598. This was less than the amount stated in
      Particulars of Claim. The report annexed to the letter however included a further cost of
      £3,475 plus VAT which has clearly been brought into account in Particulars of Claim. So
      the actual figures claimed were as set out in Appendix 5 to the letter. In my view even
      assuming a discrepancy in the figures, the Claim Letter was compliant.

Bathroom Hot Water System
57.   Paragraph 28 of Particulars of Claim alleges that there was insufficient operating pressure
      to operate the showers and £41,915 plus VAT is claimed. The Claim Letter refers to the
      hot water system not working properly. It is apparent from the brief report at Appendix 6
      to the letter that there was an imbalance in the operating pressures of hot and cold water
      meaning, not that the showers did not work at all, but that one could not have a hot shower.
      It was accepted by Mr Berragan that paragraph 28 of the Particulars of Claim could be
      amended to make it clear (if it was not so from the heading -�Bathroom Hot Water
      System-�) that the complaint is the inability to have a hot shower. The words -�so as to make
      them hot-� needed to be added to the end of the first sentence of paragraph 28. If they are,
      then there is consistency between the claim in the Particulars of Claim and as summarised
      in Particulars of Claim (the costs claimed being the same). On that basis, as Ms Muth
      conceded any conceivable objection disappears.

Bedroom Heat Pumps
58.   Paragraph 30 of Particulars of Claim alleges that in relation to the air conditioning system,
      13 out of the Haier units were not working and 9 of the Airwell units were not working.
      The Claim Letter refers to repairs to the Airwell units and replacement of all of the Haier
      units as they were badly installed. On a reading of the report and related documents, all
      attached as Appendix 7, it would appear as if there was indeed something actually wrong
      with the Haier Units serving 13 rooms. In any event it seems that all the Haier units were
      replaced. Whether all had to be replaced or just those which seem to have had some fault is
      a matter that can only be dealt with at trial. At best there may be a discrepancy in the sense
      that the 13 were working to some extent but their installation and inability to obtain spare
      parts meant that they should be replaced. It is not possible to conduct a minute examination



                                                14

      of such matters on a trial of preliminary issues of this kind. In any event, I am quite sure
      that since the units have now gone, the claim presently advanced is likely to be based on
      precisely those papers which formed Appendix 7 to the Claim Letter, whatever they meant.
      Accordingly, the Claim Letter was compliant in respect of the Haier units. No complaint
      can be made in respect of the Airwell units or the sum claimed, which is the same in the
      Claim Letter and the Particulars of Claim.

Conclusion on Issue 4
59.   Subject to the amendment being made to paragraph 28 of Particulars of Claim, I conclude
      that all 4 breaches of Warranty were properly notified in the Claim Letter, and so I resolve
      this issue in favour of Highwater.

OVERALL CONCLUSIONS
60.   In the light of my conclusions on Issues 1 and 2 and subject to any further submissions
      made when this Judgment is handed down, the entire claim in relation to Wedding
      Bookings as set out in paragraphs 12 to 21 of Particulars of Claim should be struck out.
      There is also no need any longer for paragraph 9 which should also be struck out.

61.   I am grateful to Counsel for their succinct and clear written and oral submissions.




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