Too vague

Indemnity and warranties for outstanding tax liabilities

Teoco bought two companies from Aircom Jersey and Aircom Global. The sale agreement included an indemnity for any outstanding tax liability. Teoco later claimed in relation to tax owed by a subsidiary of one the companies it had bought.

In the High Court Aircom successfully applied to strike out the claim because Teoco had not followed the process set out in the agreement. Teoco appealed.

The Court of Appeal ruled that the letters from Teoco to Aircom had not satisfied the requirements of the agreement because they had failed to identify the particular warranties and provisions of the tax covenant on which the claims were based. The agreement required the legal basis of the claims to be identified and there was ‘real scope for doubt’ about which provisions Teoco believed to be relevant.

The appeal was dismissed.

Issue: 4640 / Categories: Tax cases