VALID OR NOT – WHAT MAKES A NOTICE VALID

30.08.19

A typical building contract or professional appointment can require notices to be issued covering many different circumstances.  These can range from notices of commencement to notices of completion, and all manner of issues in between.  It is, however, often the case that a notice can have serious consequences and that can lead to the recipient of the notice challenging whether or not it is valid.

In Stobart Group Ltd & Anor v William Stobart & Anor [2019] EWCA (Civ) 1376 a claim for payment of £3.8m under a share purchase agreement turned on the validity of a notice. The court’s approach to that issue provides helpful guidance to those administering building contracts and professional appointments.

Background

Stobart Group had purchased shares in Stobart Rail from William Stobart and Andrew Tinkler. The share purchase agreement provided that Stobart Group should give notice to the seller if it received a tax demand by HMRC (there was no time limit for this type of notice) (“Tax Demand Notice”) and Stobart Group should give a separate, distinct notice if it was making a claim against the seller to meet the tax demand (this notice had to be served within seven years of the sale otherwise the seller would not be liable) (“Tax Claim Notice”).

Ten days before the expiry of the seven year period, Stobart Group served what it considered to be a valid Tax Claim Notice.  The seller challenged the validity of that notice.

The appeal court agreed with the judge at first instance that the notice which had been served was not a Tax Claim Notice, but instead a Tax Demand Notice. That meant the seller was not liable to pay the £3.8m. 

Points to note

In line with previous authorities, the court sought to apply an objective test in construing the notice which had been issued by Stobart Group.  This meant that:

  • what Stobart Group subjectively intended the notice to be; and
  • what the seller understood from the notice,

were both irrelevant.      

The court concluded that a reasonable recipient of the notice who was aware of the terms of the share purchase agreement would have understood it to be a Tax Demand Notice. The notice which had been issued made no reference to the relevant clauses under the share purchase agreement nor that it was a claim being made by the Stobart Group.  Instead, it referred to Stobart Group’s potential exposure to HMRC. There was also still time after the issue of the Tax Demand Notice for Stobart Group to have issued a Tax Claim Notice.    

Lessons to be learned

This case demonstrates that certainty is a fundamental requirement in dealing with contractual notices. Complying with the terms of the contract in relation to notices is essential.  Strict compliance can relate to not only substance of the notice (for example, whether it refers to the correct contractual clauses to clarify what the notice is), but also form (how notice is given).  As with the Stobart case, it may not always be possible to cure an invalid notice, meaning that a claim becomes barred or entitlement is lost.