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The Court of Session has just issued a timely reminder about how a very simple (and avoidable) administrative slip can be fundamentally fatal to certain types of contractual claim.

We are talking here about contractual claims where the contract includes a specific 'Notice' Clause, for example: where a claim shall be predated by a particular notice; or the underlying cause of action involved the service of a notice (e.g. termination or variation).

Often these Notice clauses include specific requirements in respect of who a Notice requires to be addressed to; what the permitted method(s) of service are; and whether there are particular time limits for service. Such Notice clauses often appear in contracts for the sale and purchase of businesses or shares, the sale and purchase of certain moveable assets, and in high-value contracts for the provisions of services (e.g. oil & gas and construction in particular).

In Hoe International Limited v Anderson & Aykroyd (2016) CSOH 33, the court considered whether a claim was fatally undermined due to a failure to comply with the precise terms of a Notice clause in the underlying contract.

The contract in question was a Sale and Purchase Agreement (SPA) in respect of the entire share capital of a distillery company. The Seller had made certain warranties to the Buyer about what claims may be outstanding against the distillery company (as is quite normal). Sometime after completion, a third party claim was made against distillery company. The Buyer, considering the Seller to be in breach of warranty, intimated a claim against the Seller under the SPA. The SPA had Notice provisions to the effect that the Seller would not be liable for such a claim unless a prior written Notice containing certain details had been intimated on the Seller by the Buyer.

There were arguments about whether these details were properly included within the Notice issued by the Buyer. However, those arguments are quite case specific and not the focus here.

Crucially, the Notice clause also mandated that the Notice be sent to the full address of the law firm acting for the Buyer, marked for the attention of a particular solicitor, and sent by first class post, recorded delivery or personal service. The clause specifically stated that email would not be appropriate.

In fact, what the Buyer had done was serve the Notice by DX (ie, Document Exchange) mail and email. The Buyer had not marked the envelope for the attention of the specific solicitor and had not used the law firm’s full postal address.

Now, the practical consequences of sending a Notice by DX are pretty much the same as sending a Notice by first class post i.e. an envelope will make its way, probably next day, to the desk of the recipient. There was no dispute about the fact that the Notice had actually been received. The Notice had even been sent by email too for good measure.

The Notice was held to be invalid.

It was irrelevant that the departure from the terms of the Notice clause was extremely technical and made absolutely no practical difference to the fact that the message in the Notice had been communicated to the recipient. The Notice was invalid and any claim relying upon was bound to failure.

That may seem like a pretty harsh result. However it is actually consistent with previous Scottish authority as discussed in Lord Woolman’s judgement. For those dealing predominantly with English contracts, this isn’t just a quirk of Scots Law either. It is quite consistent with the authorities in England where a similarly strict attitude has been adopted in relation to the validity of contractual Notices of various types, including termination Notices, where there has been a failure to conform with the administrative requirements of a Notice clause.

Lord Hoffman’s well-known example in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd (1997) UKHL 19 is a useful illustration:

“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 that the tenant wanted to terminate the lease.”

There may well be arguments to make depending on the clause, the administrative failure in question, and also the type of Notice being served. However, the administrative requirements of the Notice are absolutely crucial and should be considered with extreme caution by a party serving any contractual Notice, particularly if it is a preliminary requirement of a claim.

On the other side of the coin, if you are in receipt of a claim that relies upon a particular Notice having been served (and in a particular manner) then it is certainly worth double-checking that the Notice provisions were fully complied with. If the claimant slipped on the proverbial banana skin at the outset, it’d be in the interests of the defender to notice.

Robert McDiarmid, Senior Associate

Chambers UK 2018

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