The Court of Appeal has held that a letter sent by a party to a share purchase agreement did not constitute a notice of a claim under tax covenants in the agreement. The result was that the claim was not properly notified within the contractual time limit and was therefore time-barred: Stobart Group Ltd & Anor v Stobart & Anor [2019] EWCA Civ 1376.

The decision follows a number of cases in recent years in which warranty claims have been struck out for defective notice (for example, see our posts here and here). It appears to be the first such decision at appellate level since the Supreme Court clarified the proper approach to contractual interpretation in Wood v Capita Insurance Services Ltd [2017] UKSC 24, and demonstrates that the courts' traditional strict approach to the interpretation of contractual notices has not been altered by that decision.

The decision emphasises that a court called upon to interpret a purported notice will do so on an objective basis, asking what a reasonable recipient would have understood by it. It will usually not be open to a party to argue that there was a shared subjective understanding by the parties as to what the document intended (except in the rare cases where estoppel is arguable).

While the required content of a contractual notice will vary in each case, the court pointed out that the purpose of notification in this type of contract is to provide commercial certainty by making it clear in sufficiently formal terms that a claim is being made against the sellers. The decision therefore serves as a reminder of the need to ensure that such notices are drafted in terms that leave no room for doubt not only as to the fact that a claim is being made but also the nature and contractual basis of the claim. That will in most cases include a need to clearly identify the contractual notification provision(s) under which the notice is being given.

Matthew Eglezos and Jan O'Neill, a Senior Associate (Australia) and a Professional Support Lawyer in our disputes team, outline the decision below.


The respondents (the Sellers) agreed to sell the entire issued share capital of Stobart Rail Limited (SRL) to Stobart Group Limited (the Buyers). The share purchase agreement (SPA) contained various tax warranties and covenants dealing with the Sellers' liability for tax incurred prior to the sale, as well as provisions for the Buyers to claim against the Sellers under such warranties and covenants (defined as a "Tax Claim"). Paragraph 6.3 of the SPA provided that the Sellers were not liable in respect of a Tax Claim unless the Buyers gave written notice of it within seven years of the sale completion (which meant a deadline of 4 April 2015).

Separately, the SPA also included provisions dealing with the possibility of a claim, demand or notice being received from HMRC or other tax authorities in respect of tax for which the Sellers might be liable (defined as a "Claim"). Paragraph 7.1 required the Buyers, if they became aware of any such Claim, to notify the Sellers of this within 10 business days.

The SPA therefore drew a distinction between two different types of notices:

  • the paragraph 6.3 notice, which related to a claim made by the Buyers against the Sellers (a "Tax Claim"); and
  • the paragraph 7.1 notice, which related to a claim made by a tax authority against SRL (a "Claim").

On 9 April 2008, the Buyers sent a letter to the Sellers notifying them, pursuant to paragraph 7.1 of the SPA, that HMRC had issued a Claim against SRL in relation to unpaid national insurance contributions.

Many years later, on 24 March 2015 (11 days before the seven year deadline for notification of Tax Claims), the Buyers sent a further letter to the Sellers (the "March 2015 Letter"). That letter gave notice "pursuant to the SPA" of a "potential Liability to Taxation under the Tax Covenant". It provided information as to the likely quantum of "the Claim" and asked whether "pursuant to paragraph 7" the Sellers wished to have continued conduct of discussions with HMRC in relation to "the Claim". No reference was made to paragraph 6.3 of the SPA or the term "Tax Claim".

In High Court proceedings brought by the Buyers to recover the amount of SRL's tax liability, the Buyers argued that the March 2015 Letter constituted notification of a Tax Claim under paragraph 6.3 of the SPA. The Sellers argued that it constituted only a further paragraph 7.1 notice, not a paragraph 6.3 notice, and that because no Tax Claim was notified within the seven year period the Buyers were time-barred from bringing the claim. The trial judge agreed with the Sellers and granted summary judgment on the issue.


On appeal, the Court of Appeal upheld the trial judge's decision, concluding that the March 2015 Letter was not a notice under paragraph 6.3 of the SPA and the claim was therefore time-barred. Lord Justice Simon gave the judgment of the court (the Master of the Rolls and Lord Justice Hickinbottom agreeing).

Approach to construction

In approaching the interpretation of the March 2015 Letter, the court noted that its task when construing a unilateral contractual notice was similar to when construing agreed contractual terms – that is, to ascertain the objective meaning of the language used. The question to be answered was what a reasonable recipient of the notice would have understood it to mean.

As made clear by the Supreme Court in Wood v Capita, the court could be assisted in ascertaining that objective meaning by considering both the ordinary meaning of the language used and the relevant context (or factual matrix) known to the parties. The Buyers sought to argue that the trial judge had erred by considering the language of the document first, rather than the surrounding context. The court rejected this, referring to the opinion expressed by Lord Hodge in Wood v Capita to the effect that it does not matter whether the language or the factual context is analysed first, so long as the court balances the indications given by each.

The court also rejected a submission by the Buyers that an objective approach to construction of a notice should not be adopted where the facts demonstrated that the parties held a common subjective understanding as to what was intended by the document. In particular, the Buyers sought to rely on an earlier letter sent by their solicitors to the Sellers in February 2015. That letter noted that the Buyers currently had a right to notify a Tax Claim under paragraph 6.3 but proposed that the approaching seven year deadline for issuing such notices be extended by 2 years while discussions continued with HMRC. That extension proposal was not taken up by the Sellers. The Buyers argued that the Sellers were therefore aware they should expect to receive a paragraph 6.3 notice before the seven year deadline expired and that this demonstrated that it was the parties' common understanding that the subsequent March 2015 Letter constituted that notice.

The court held that there was no authority supporting the submission that a subjective common understanding could displace the objective criteria for the purposes of interpreting contractual notices. A recipient's subjective understanding might be relevant where an estoppel was arguable, but in this case the trial judge had rejected an estoppel argument by the Buyers and leave to appeal had been refused on that aspect of the claim.

Further, the court considered that the Buyer's submission raised the difficulty of requiring the admission of evidence of the recipient's subsequent conduct. There was no such evidence in this case and an attempt to admit it would fall foul of the well-established rule that post-contractual conduct cannot be relied on to aid the interpretation of a contract.

The court also commented that, in any event, the fact that the Sellers may have been expecting a paragraph 6.3 notice before the claims deadline did not necessarily demonstrate that they must have understood the March 2015 letter to be that notice, given that there were then still 10 days remaining for such a notice to be served.

Analysis of the document

Turning to the terms of the March 2015 Letter, the court considered it important that:

  • it was drafted by a lawyer and expressly adopted the definitions of the SPA, but made no reference to a "Tax Claim" or to a claim being made by the Buyers under paragraph 6.3 or against the Sellers;
  • on the contrary, it gave notice in terms of a contingency, by referring to a "potential" taxation liability and a "potential claim";
  • the enquiry as to whether the Sellers wished to continue discussions with HMRC "pursuant to paragraph 7" made clear that it was a paragraph 7.1 notice and not a paragraph 6.3 notice; and
  • a schedule attached to the letter supporting the estimated quantum of the claim was entitled "Summary of company exposure", which clearly referred to SRL's exposure to HMRC.

The court concluded that, on an ordinary reading of its language, the letter was not even a defective paragraph 6.3 notice but, rather, a compliant paragraph 7.1 notice.

The court then considered whether various features of the factual background relied on by the Buyers altered that conclusion. Having rejected the Buyers"s main argument based on the February 2015 lette , the court was not convinced that any of the other contextual factors justified a departure from the natural meaning conveyed by the language used in the document.

It therefore concluded that a person receiving the March 2015 Letter with knowledge of the terms of the SPA would have understood it to be a notice under paragraph 7.1 (and not paragraph 6.3), with the effect that the claim was time-barred.

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