The Court of Session has recently illustrated the importance of strictly complying with notice clauses. In Hoe International Limited v Martha Andersen and Sir James Aykroyd [2016] CSOH 33, the Court confirmed that compliance with the terms of mandatory notice provisions in a contract must be to the letter if a notice is to be considered valid.
Facts
Hoe International Limited (‘HIL’) contracted with Andersen and Aykroyd (‘the Sellers’) to purchase the whole share capital of Speyside Distillers Company Limited (‘Speyside’). A condition of the share purchase agreement ('Agreement') between the parties was that the Sellers must disclose to HIL any disputes Speyside had been involved in. Pursuant to this, the Sellers disclosed a seemingly lifeless dispute with Chambers Finance Limited (‘Chambers’) and consequently, the Agreement included a warranty from the Sellers that Speyside had no further liability to Chambers with regard to this dispute. In order to rely upon this, the Agreement stated that HIL would have to provide notice to the Sellers as soon as reasonably practicable if it became aware of any claim under the warranty.
It transpired that the dispute was in fact not at an end. HIL received a letter to this effect and pursuant to its obligations under the Agreement, notified the Sellers’ solicitors of the claim. The Sellers settled the claim out of court; however, HIL then sought to enforce the warranty against them. The Sellers argued that HIL did not serve valid notice in accordance with the Agreement and so there was no liability under the warranty provision.
The Agreement’s notice provisions explained the process for giving notice to the Sellers, and required hand delivery, first class post or recorded delivery. It was also required that the notice was marked for the attention of a specific person and to a specific address. HIL sent the notice by Document Exchange (‘DX’) and email, neither of which the Agreement permitted.
It was HIL’s position that a sensible commercial person would think that service by means of DX was sufficient as the result would be the same as if it was served in accordance with the terms of the Agreement - that the letter would be placed on the Sellers’ solicitor’s reception desk.
Decision
Relying on various Scots law authorities, it was held by Lord Woolman that the Agreement was decisively specific on how notice was to be served and HIL did not adhere to the specifics it set out. The notice was served incorrectly and was therefore held to be invalid. Lord Woolman held that authorities in this area have been clear and consistent; namely that if strict compliance is required under the contract, it shall be required in practice also. Quite simply, Lord Woolman stated that HIL “failed to use the right key, and accordingly the lock will not turn”.
Comment
Often overlooked as a boilerplate clause, this case is a helpful reminder to carefully review notice provisions both during contractual negotiations and when they are required to be used, to avoid potentially invalid notices being served when such an occurrence could be so easily avoided. The repercussions of not sending a notice in the correct way may be significant, and you should carefully check you are precisely adhering to any conditions set out in any contractual notice provisions. In the words of Lord Woolman (citing Lord Reed in Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382): “The clear moral is: if you want to avoid expensive litigation… you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely”.
This case clearly indicates that the Courts are conscious of strictly following the provisions of a contract with no deviation. Despite the fact that in this case the letter was clearly received and understood, the failure to strictly follow the provisions of the contract defeated the practical outcome being achieved.
This article was co-authored by Tom Gates, trainee solicitor.
