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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Teoco UK Ltd v) Aircom Jersey 4 Ltd & Anor  EWCA Civ 23 (18 January 2018)
Cite as:  EWCA Civ 23,  STI 361,  STC 518,  BCC 339
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
Mr Richard Millett QC (sitting as a Deputy High Court Judge)
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LINDBLOM
LORD JUSTICE NEWEY
| TEOCO UK LIMITED
|- and -
|(1) AIRCOM JERSEY 4 LIMITED
(2) AIRCOM GLOBAL OPERATIONS LIMITED
Mr Michael Fealy QC (instructed by DLA Piper UK LLP) for the Respondent
Hearing date: 20 December 2017
Crown Copyright ©
Lord Justice Newey:
"20.1 Each Group Company [i.e. Aircom UK, Aircom Austria or a subsidiary] has since 11 February 2011 and, so far as the Sellers are aware, in the last 7 years submitted to all relevant Tax Authorities by the dates required by law all relevant Tax computations and returns required for the purpose of Tax and each such computation and return was true and accurate in all material respects and so far as the Sellers are aware, is not likely to be the subject of any dispute with any Tax Authority.
20.2 Each Group Company has since 11 February 2011 and, so far as the Sellers are aware, in the last 7 years paid all Tax due from any Group Company in connection with any Event occurring on or before the date of this agreement (to the extent such Tax has fallen due for payment) and there is no outstanding Tax liability of a Group Company in respect of which the date for payment has been postponed by agreement with the relevant Tax Authority.
20.3 Each Group Company has maintained and has in its possession or under its control all records and documentation that it is required by any Tax Statute to maintain and preserve.
20.4 Each Group Company is and has in the last 4 years been resident for Tax purposes only in the jurisdiction in which it is incorporated and does not have a permanent establishment in any other jurisdiction.
20.5 To the extent required by generally accepted accounting principles, provision or reserve was made in the Accounts in respect of every Tax liability for which any Group Company at the Accounts Date was liable or accountable."
"(a) Liability for Taxation to the extent that it arises from or by reference to any Event occurring on or before Completion or in respect of any gross receipts, income, profits or gains earned, accrued or received by the Company [i.e. Aircom UK or Aircom Austria] or a Subsidiary on or before Completion whether or not such liability has been discharged on or before Completion;
(b) Liability for Taxation, including liability for payments in respect of Taxation, which arises solely as a result of the non-payment of Tax by the Sellers or by any person who has been treated prior to Completion as connected with either the Company or any Subsidiary (except a Group Company or a member of the Purchaser Tax Group) …."
"The liability of the Sellers under or in respect of any claim for breach of this agreement shall be limited by, and all claims for breach of this agreement shall be dealt with in accordance with, the provisions set out in schedule 4."
"4. Notice of Claims
No Seller shall be liable for any Claim unless the Purchaser has given notice to the Seller of such Claim setting out reasonable details of the Claim (including the grounds on which it is based and the Purchaser's good faith estimate of the amount of the Claim (detailing the Purchaser's calculation of the loss, liability or damage alleged to have been suffered or incurred)).
5. Time limits for Claims
5.1 No Seller shall be liable for any Claim unless the Purchaser has given notice of such Claim in accordance with paragraph 4, as soon as reasonably practicable after the Purchaser Group becomes aware that the Purchaser has such a Claim, and in any event on or before 31 July 2015.
5.2 No Seller shall be liable for any Claim (other than a Claim which has been previously satisfied or settled) unless legal proceedings in respect of such Claim have been commenced by being both properly issued and validly served on the Seller within six months of the date the Seller was first notified of such Claim. No new Claim may be made in respect of the matter or thing giving rise to a Claim.
10. No double recovery
Any payment made by or on behalf of a Seller in respect of any Claim shall satisfy and discharge any other Claim which is capable of being made against such Seller in respect of the same matter or thing, but only to the extent of the payment made. In respect of a Tax Claim the Purchaser shall be entitled to make a Claim under the Tax Warranties or Tax Covenant but not both.
12. Right to remedy
No Seller shall be liable in respect of any Claim to the extent that the matter or thing giving rise to such Claim is capable of remedy and is remedied within 60 days of the date on which notice of such Claim is given in accordance with paragraph 4. The Purchaser shall procure that such Seller is given the opportunity within that 60 day period to remedy the relevant matter or thing and shall provide, and shall procure that each relevant Group Company provides, all reasonable assistance to a Seller (at the cost of such Seller) to remedy the relevant matter or thing.
13. Claims handling: information and access
The Purchaser shall, as soon as reasonably practicable, give notice to a Seller containing reasonable details of any matter or thing of which the Purchaser Group becomes aware that indicates that:
13.1.1 the Purchaser has or is likely to have a Claim;
Such notice shall not be a condition precedent to the liability of a Seller in relation to any Claim, provided that such Claim is notified in accordance with paragraph 5.1."
"obtain a written opinion, from a commercial barrister …, that … the Purchaser has a more than likely chance of success and … provide a copy of such opinion to the Sellers together with the Purchaser's estimate."
"1. Claim relating to Aircom International America Latina Ltda ('Aircom Brazil')
In the course of a review by PricewaterhouseCoopers ('PwC') relating to the tax affairs of Aircom Brazil, it has come to our clients' attention that tax exposures may exist arising from, inter alia, intercompany arrangements between Aircom Brazil and [Aircom UK], deriving from management services and recharges. The basis of these potential Brazilian tax liabilities and an initial estimate of their possible quantum are set out in the preliminary report prepared by PwC, a copy of which is enclosed herewith. It is our understanding that these liabilities were not disclosed, or deemed to have been disclosed, to our clients, or to PwC, during either preliminary discussions, or specifically against the Tax Warranties or General Warranties given by the Seller in the SPA and are therefore Warranty Claims; as to which particular head of Claim it would fall under, our clients' position is reserved. Subject to further investigation by PwC and dependent upon the outcome of any discussions with the Brazilian Tax Authorities, the quantum of this particular Claim would appear to be in excess of GBP 3,600,000.
2. Claim relating to Austrian Loans
An advance … has, as a result of the SPA, become repayable. The advance was not disclosed to our clients during the course of discussions between the Purchaser, Purchaser Guarantor and the Sellers, and their respective professional advisors, nor specifically against the General Warranties. Accordingly this also amounts, without limiting the generality of such Claim, to a Claim under paragraph 21.1 (absence of third party borrowings) of schedule 3 of the SPA. At this time the quantum of this particular Claim would appear to be of the order of EUR 350,000.
3. Claim relating to Aircom International Inc. ('Aircom Philippines')
In the course of a review by BDO relating to the tax affairs of Aircom Philippines, it has come to our clients' attention that tax exposures may exist arising from, inter alia, withholding tax payments on invoices due from Aircom Philippines to Aircom UK. It is our understanding that these liabilities were not disclosed, or deemed to have been disclosed, to our clients, or to BDO, during either preliminary discussions or specifically against the Tax Warranties or General Warranties given by the Seller in the SPA and are therefore Warranty Claims; as to which particular head of Claim it would fall under, our clients' position is reserved. Subject to further investigation by BDO and dependent upon the outcome of any discussions with the Philippines Tax Authorities, the quantum of this particular Claim would appear to be in excess of GBP 200,000.
In respect of all matters relating to the Claims set out above our clients rights remain entirely reserved."
"This letter constitutes further notification in accordance with Schedule 4 to the SPA, providing further details of the Purchaser's Claims as outlined in [the February Letter]. …
1. Claim relating to Aircom Brazil
The [February Letter] outlines the possible existence of tax exposures in relation to Aircom Brazil amounting to Claims under the Tax Warranties and the Tax Covenants of the SPA.
Calculation of the liability is contained in an excel spreadsheet entitled 'Brazil - Intercompany transactions - Tax Liability 06-01-15 (Summary of Contingency)' (a copy of which is enclosed), showing that the potential liability could be as much as R$16,819,106.50 which, as at 31 May 2015 (at a rate of R$0.2067 to £1.00), is approximately £3,476,509.32. Please see the 'Summary of Brazil Tax Issue (26.06.2015)' enclosed for further details. Both of these documents have been prepared by Samantha Stoddard, TEOCO's Finance Director - Americas.
3. Claim relating to Aircom Philippines
Further to the details provided under this item in the 19 February 2015 Letter, we are instructed that Aircom Philippines is subject to two tax exposures as follows:
A. Management & Consultancy Fees
The tax exposure in this respect is $358,179.
Please see enclosed 'Summary of Philippines tax issue' (the 'Summary') prepared by David Usher, TEOCO's Finance Director - Asia Pacific and Middle East & North Africa, for further details. You should note that the references to 'BIR' in the Summary are to the Bureau of Internal Revenue of the Philippines.
B. Tax exposure on Improperly Accumulated Earnings (IAET)
The total IAET exposure is $192,665 comprised of:
(i) $188,673 (see the enclosed file entitled 'Aircom Tax exposure June 16 (David) v3' prepared by David Usher for further details); and
(ii) $3,992 in respect of a fine for SEC (see the enclosed file entitled 'SEC scale of fines excess RE (Noemi Jun 15)' prepared by BDO Philippines for further details.
The total Philippines tax exposure is therefore estimated to be $550,884.
Further to the prior correspondence, … this letter provides both proper notification and reasonable details of the Purchaser's Disputed Deferred Payment Claims pursuant to Schedule 4 of the SPA.
In accordance with Schedule 6, paragraph 2.1 of the SPA, the Purchaser will be notifying you of its Disputed Payment Claims Estimate in addition to providing a written opinion of Mr Richard Perkoff of Counsel (as agreed) in respect of its Disputed Deferred Payment Claims, on 30 June 2015. You will appreciate that apart from [an immaterial exception] our clients will be seeking recovery of all costs incurred by them in relation to these Claims including, without limiting the generality of the foregoing, all legal fees (including those of counsel) and all accountancy fees, all of which continue to accrue, together with interest…."
"That is, in summary, either because the February and June letters were not notices under paragraph 4 [of schedule 4 to the SPA] at all, or else failed to comply with the requirements of paragraph 4, or else, and in any event, because the Purchaser has failed to bring proceedings in respect of such Claims as were notified in the February and June letters, either in time or at all, which is a condition of the Sellers' liability under paragraph 5.2."
i) A reasonable recipient of the February and June Letters would not have understood them to be giving notice of the Brazil and Philippines Claims under paragraph 4 of schedule 4 to the SPA rather than notifying their existence (or potential existence) under paragraph 13 of that schedule (see paragraphs 42-44 of the judgment);
ii) Even supposing that the February and June Letters would have been taken as intended to give notice of the Brazil and Philippines Claims under paragraph 4 of schedule 4, they did not satisfy the requirements of that paragraph as regards either claim, since they did not set out "reasonable details of the Claim (including the grounds on which it is based…)". "[T]he grounds of a claim must", the Judge said, "include identification of the Warranties said to be breached (or the basis of the trigger of the Tax Indemnity)" (paragraph 35(iii) of the judgment). With regard to the Brazil Claim, the Judge expressed the view that it was "fatal that the February letter did not identify the Warranties said by the Purchaser to have been breached", the "omnibus reference to Warranty Claims or Tax Claims" being "not nearly sufficient to inform the Sellers, as the reasonable recipients, of what they had done wrong and what consequences flow" (see paragraph 46). Again, there was "still no reference to particular Warranties" in the June Letter and it "retained the omnibus reference to claims under the Tax Warranties and the Tax Covenant, between which the Purchaser was required to choose (and had not chosen)" (paragraph 50). Turning to the Philippines Claim, the Judge said (in paragraph 56) that "the June letter, like the February letter, still failed to identify the Warranties said to have been breached and still failed to elect between breach of Warranty and a claim under the Tax Indemnity";
iii) In any event, the proceedings as brought were not, as regards the Brazil Claim, "in respect of" the Claim as intimated in the February and June Letters (see paragraphs 49 and 52 of the judgment). With regard, for example, to the February Letter, the Judge said (in paragraph 47):
"even if it were possible to read the February letter as making a contingent Claim in respect of the Brazilian Tax Claims, that is not the Claim that was made in the proceedings once they were commenced"; and
iv) The Purchaser failed to comply with paragraph 5.2 of schedule 4 as regards the Philippines Claim. In the Judge's opinion, "the Purchaser was well aware that it had the [Philippines] Claim from September or November 2014 and failed to notify it as soon as reasonably practicable thereafter in compliance with paragraph 5.1 to Schedule 4" (paragraph 68 of the judgment).
Setting out details of the claims and their grounds
"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 complaint. Notice in writing is required in order to constitute the record which dispels the need for further argument and creates the certainty. Thus there is merit in certainty and accordingly, in our judgment the point taken by the [vendor] is not a matter of mere technicality and is not without merit."
"In my judgment what has to be notified in relation to any particular claim in the present case will largely depend on the nature of the Claim, the facts known to the vendor at the date of the notice, and whether it is realistic to put any monetary quantification on the amount claimed. I do not think one can lay down too rigid a formula for ascertaining what precise particulars or details have to be notified; the answer is that it will all depend. However, consistent with [counsel for the vendor's] submissions, I would expect that a compliant notice would identify the particular warranty that was alleged to have been breached; I would expect that, at least in general terms, the notice would explain why it had been breached, with at least some sort of particularisation of the facts upon which such an allegation was based, and would give at least some sort of indication of what loss had been suffered as a result of the breach of warranty, or, in other words, in the language of paragraph 1 of Schedule 9, some sort of description of the 'liability for breach of the Warranties' that it was alleged that [the defendant] had incurred."
"The absence of a reference to paragraphs 15.1 and 16.1 of Schedule 6 to the Agreement is not in my view fatal. The nature of the claim is, in my judgment, adequately summarised in paragraph 17 of the September Letter, although, it is fair to say, not in an entirely satisfactory fashion."
"upon the basis that there remains a principle that an ambiguity in its meaning may have to be resolved by a preference for the narrower construction, if linguistic, contextual and purposive analysis do not disclose an answer to the question with sufficient clarity".
"Ambiguity in an exclusion clause may have to be resolved by a narrow construction because an exclusion clause cuts down or detracts from the ambit of some important obligation in a contract, or a remedy conferred by the general law such as (in the present case) an obligation to give effect to a contractual warranty by paying compensation for breach of it. The parties are not lightly to be taken to have intended to cut down the remedies which the law provides for breach of important contractual obligations without using clear words having that effect: see Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd  AC 689 per Lord Diplock at 717H, applied in Seadrill Management Services Ltd v OAO Gazprom  EWCA Civ 691, by Moore-Bick LJ at para 29."
Briggs LJ also, however, observed (at paragraph 19):
"The court must still use all its tools of linguistic, contextual, purposive and common-sense analysis to discern what the clause really means."
Lord Justice Lindblom:
The Senior President of Tribunals: