Earn-Out Considerations and Notice Requirements: Lessons from Hughes v CSC Computer Sciences Ltd

The High Court in Hughes v CSC Computer Sciences Ltd [2025] EWHC 302 has held that the general notice provisions in an SPA applied to the service of the defendant buyer’s determination of an earn-out consideration. The buyer was found to have failed to comply with the notice clause and, as a result, service of the determination was deemed invalid.

Case Background

The dispute centred around the calculation of earn-out consideration due under schedule 10 of the SPA. Paragraph 2.1 of schedule 10 required the buyer (CSC) to "prepare and submit" its determination of the earn-out to the sellers (H) by a specified date, whilst clause 20 required "any notice or other communication" to be delivered personally, by post, or by fax. CSC delivered the determination via email.

The Claimants' Argument

H argued that CSC's determination was invalid because it was not delivered in accordance with clause 20 of the SPA. It was submitted that the wording of clause 20 was clear in that “any notice or other communication under or in connection to the SPA” was to be delivered in accordance with this clause. The delivery of the determination was “other communication” and, therefore, was subject to the provisions of clause 20.

The Defendant’s Argument

CSC contended that the relevant provision for delivery of the determination was not clause 20, but paragraph 2.1 of schedule 10 which required CSC to simply “submit” the determination.

Further, CSC sought to rely on the wording “in writing” used throughout paragraph 2.1. For example, if the Claimants wished to object to a determination, they were required to "notify the purchaser in writing of its objections". CSC argued that the use of this language in relation to some provisions, and not in relation to others, demonstrated the parties’ intention that different clauses would be subject to different notice requirements.

The Court's Findings

The High Court found in favour of the Claimant and held that the determination was subject to clause 20. Consequently, the determination was deemed invalid due to improper service. The Court emphasised the importance of adhering to the literal wording of the SPA and commercial common sense.

At paragraph 44 of the Judgment, the Judge cited the following reasons for the decision:

1. Clause 20 did not just refer to notices and included the general wording “and other communications.”
2. For clarity and certainty, it was undesirable to distinguish between different forms of communication.
3. It was logical for communications of contractual significance, including determinations, to be subject to the formalities laid down in the notice provision.

As a result of the Court deeming the determination invalid, it was further held that the contractual timeframe for the Claimant to object to the determination had not been triggered and therefore the Defendant was unable to obtain order against the Claimant for specific performance.

Commentary and Conclusion

This decision highlights the importance of accurate and considerate drafting in SPAs. It is arguable that, had the notice provision not referred to ‘any other communications’, the Judge may have interpreted the clause as relating just to the service of notices, thereby finding in favour of the Defendant.

Alternatively, had the SPA specifically excluded the service of determinations from the notice clause and provided for a specific method of service under schedule 10, this may have provided the clarity and certainty that Judges often seek to instil in commercial contracts.

Hughes v CSC Computer Sciences Ltd serves as a crucial reminder for practitioners and clients alike to ensure all contractual provisions in SPAs are drafted carefully and with due consideration.