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Fight the Power: Court of Appeal on share sale notices – David Lascelles & Alexander Bryant


Drax Smart Generation Holdco Limited v Scottish Power Retain Holdings Limited [2024] EWCA Civ 477

A contractual notice of claim for breach of warranty under an SPA set out a legally flawed measure of loss.  The Particulars of Claim follow suit.  Can the Particulars then be amended to plead the correct measure?  Or is the deficient notice fatal to the whole claim?

These were the key questions before the Court of Appeal in the recent case of Drax.

Background facts

Pursuant to the SPA, Drax acquired the shares in an energy company from Scottish Power for £702million.   As part of the SPA, Scottish Power warranted that the benefit of an option agreement would be assigned to Drax.

Following the sale, Drax gave notice to Scottish Power that they intended to bring a claim under the SPA including for breach of warranty in respect of the latter’s purported failure to assign the option agreement.

The relevant part of the notice provision was: “the Seller shall not be liable for a claim unless the Buyer has notified the Seller of the claim, stating in reasonable detail the nature of the claim and the amount claimed (detailing the Buyer’s calculation of the Loss thereby alleged to have been suffered)”.

Drax, in its notice of claim, set out in detail the relevant terms of the SPA, the factual basis of the claim as well as the basis for the quantification of damages and estimates of alleged losses.  Its quantification of loss was, however, erroneously based on the loss to the target company for making good the lack of an option rather than the loss to Drax as purchaser of that target.  This is an all-too-common error in quantification and one which has given rise to previous successful strike-out applications.

In their Particulars of Claim, Drax reiterated the contents of the notice of claim, including the erroneous basis for the quantification of damages and estimates of the losses suffered.

In response, inter alia, Scottish Power alleged that Drax had not sufficiently notified ‘the nature of the claim and the amount claimed’.

Drax accepted that its originally pleaded claim for loss could not proceed but applied to amend to rely upon the proper measure of loss, namely the difference between the warranted value of the target (i.e. with the benefit of the option) and the true value (i.e. without it).

Scottish Power applied to strike the claim out and to resist the amendments, relying on the alleged lack of due notification.

High Court decision

Simon Birt KC sitting as a High Court judge granted Scottish Power’s application.   The Judge held that the notice of claim did not set out in reasonable detail the nature of the claim or the amount claimed as it did not set out the claim based on difference in value of the shares.  The claim was therefore dismissed.

Court of Appeal decision

The Court of Appeal reversed the decision.  It held sufficient notice had been given:

  1. There was nothing in the language of the notice clause which required Drax to set out the basis for the quantification of damages in the notice of claim. All that was required was a simple statement that Scottish Power had failed in its obligations to ensure that the Drax had the benefit of the option.  This would have told Scottish Power what it needed to know. It may even be that Drax would not have had to identify the terms of the agreement which Scottish Power had allegedly breached [54] – [55].
  2. Requiring Drax to spell out, as part of a statement as to the nature of the claim, that the damages claimed would be based on the difference in value of the shares would have served no commercial purpose and merely introduced a trap to defeat what might be a valid claim [55].
  3. So far as the amount of the claim was concerned, all that was required by the particular notice clause was a statement of “the amount claimed (detailing the Buyer’s calculation of the loss thereby alleged to have been suffered)”. The calculation in the notice had to be put forward in good faith, otherwise it would not be a genuine calculation, but good faith was not challenged.  Drax had undoubtedly stated the amount claimed and said how it was calculated.  It had therefore put forward “the Buyer’s calculation of the Loss thereby alleged to have been suffered” [56].
  4. It did not matter that the draft Amended Particulars put forward loss on a different basis. There was nothing to set in stone the calculation of loss in the notice of claim. If further reflection indicates that the calculation is legally unsound, or capable of improvement, there is nothing in the clause and no good reason to insist that the buyer should be held to the way in which the calculation was formulated in the notice of claim. On the contrary, the notice has served its purpose by preventing the claim from becoming barred, and the parties will move forward promptly (if they cannot resolve the matter) to litigation, with a claim form required to be properly issued and validly served within the stated time limit within the SPA.  At that stage the formulation of the claim and the possibility of amendment will not be determined by the agreement but by the CPR.

The Court of Appeal offered the following justification for why a simple statement as to the nature of the claim was all that was required [54]:

A simple statement that Scottish Power had failed in its obligation to ensure that the Company had the benefit of the …Option Agreement would have told Scottish Power all that it needed to know, not least as the parties had been in correspondence about this very issue for over a year. If Scottish Power was in any doubt about its contractual obligations, including which terms required it to provide the Company with the benefit of the …Option Agreement, it had only to read the Agreement or to ask a lawyer for advice.  If it wished to investigate whether it had a defence to the claim, perhaps on the ground that the problem with the option agreement had been disclosed to and accepted by Drax, it would know in which files to look or which individuals to ask.  If it wished to assess its potential liability, including the likely basis on which damages would be assessed, it would be able to obtain legal advice.  In practice, of course, it is likely that Scottish Power had already done all these things as a result of the parties’ previous correspondence.


The Court of Appeal’s decision diverges from several recent cases on SPA notices, including where the buyer has erroneously relied upon the target’s loss rather than its own.

It bucks the trend of such case law by rejecting the need for excessive particularisation of a prospective claim and indicates that a notice will not necessarily need exactly to mirror the claim brought.

The decision is particularly useful as the issue arising (erroneous conflation of purchaser and target loss) and the wording of the notice provisions in the SPA are commonplace.  Hence, whilst each case must turn on its facts and contract-wording, the decision will likely have far reaching practical effect.

The decision will be welcomed by buyers (and their lawyers).

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