Service of contractual notices
HOE v ANDERSEN [2016]
The Courts have always traditionally been ridiculously strict on insisting that in order to be valid, contractual notices must be served precisely in accordance with the provisions of any notice clause even where it was quite clear that the notice had effectively been brought to the attention of the party to be served. This Scottish case represents the first time a senior Court has taken a more pragmatic approach and begins to offer some hope for those who do not precisely follow the requirements of a notice clause.
Facts:
- The parties had entered into a Share Purchase Agreement which required the buyer to give the sellers' representative (a firm of solicitors) notice of any claim for breach of warranty which should:
- be sent for the attention of a named individual at the firm of solicitors and to the postal address specified in the Agreement; and
- be delivered personally or sent by pre-paid first-class post or recorded delivery.
- A few months after completion of the share purchase, the buyer's solicitor sent a notice of a warranty claim to the firm of solicitors, but marked it for the attention of a different individual and sent it by DX (a form of private postal service used by many law firms to deliver documents).
- The sellers argued that the buyer had failed to give valid notice of the claim because:
- the notice had not been sent for the attention of the person and to the address specified; and
- it had not been sent by one of the prescribed delivery methods.
Decision:
- The judge in the first Court where the case was heard agreed with the sellers, concluding that the parties had not intended to allow a deviation from the contractual requirements. However, on appeal, the higher Court disagreed and held that strict compliance was not required. As a result, the notice was found to be valid.
- The higher Court said that the contractual notice requirements should be construed taking account of commercial considerations including the purpose of the notice and of the specific requirements. Here, the purpose of the notice was primarily to notify the sellers of the existence of a claim. The Court said this was at the less ‘drastic’ end of the scale compared to a notice terminating a contract and therefore there was no overwhelming argument in favour of adhering to the formalities rigidly.
- It went on to say that it was clearly important that any notice should arrive in the hands of someone with authority to act on behalf of the recipient, but that other requirements of an essentially formal nature may not be important. The fundamental question was whether the recipient is adversely affected if the requirement is not complied with and the Court concluded that, “If there is no prejudice, insisting on strict compliance for its own sake serves no useful purpose”.
- Whilst appearing to categorise notices according to their purpose and importance for the relationship between the parties, the Court commented that, “the Court should … be slow to hold that failure to comply with a formal requirement is fatal … even in cases where the purpose of the notice is drastic [provided there had been no actual prejudice] ”.
Points to note:
- This was a Scottish case which, although from a senior Court, is somewhat at odds with a long line of English decisions. It remains to be seen whether the English Courts are prepared to follow down the same path.
- Nearly twenty years ago in the leading case on contractual notices, the Court said, “If the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been”. This decision is an obvious and welcome departure from that stance.
- It is clearly still sensible to try to follow any contractual notice provision to the letter but this case does at least offer some hope for a party who does not do so but still effectively serves a notice in such a way that it comes to the attention of the intended recipient; this has to be a good thing.
- Even if it has not strictly complied with the notice provision, it will certainly be easier to argue that a notice should be valid, where it is dealing with something like a breach of warranty claim rather than exercising an option to terminate or extend a contract.
- If you are the recipient of a notice served other than strictly in accordance with the notice clause, whilst you may have an argument that the notice is invalid, depending on the context, it may not be sensible to place reliance upon it being successful.