A recent court case highlights the risks of not following to the letter the notices provision in an agreement.
The court found that the buyer of a company did not validly serve notice of its claim for breach of warranty against one of the sellers. The addressee had moved on without leaving a forwarding address, and the courier had brought the notice back.
The result of invalid service was that the claim failed against all the sellers.
The case is relevant to businesses or individuals who have signed a commercial agreement and want, or need, to bring a claim under the agreement, or to terminate the agreement.
What is a "notices clause"?
Commercial contracts will almost always contain provisions regulating what is to happen should one party wish to sue the other or to terminate the agreement. The party proposing to sue, or to terminate, will often be required to give written notice to the other party.
To give certainty to both parties, the notices clause in the agreement will usually:
- set out the methods by which the notice must be delivered (e.g. by hand/courier, post, air-mail, email, etc.); and
- provide when the notice is deemed to be served - which will depend on the method of delivery used.
What happened in this case?
The case concerned a share purchase agreement. The sellers gave the buyer a number of warranties about the company that they were selling. The buyer alleged that some of the warranties were untrue and sought to bring a claim for breach of warranty against the sellers.
The agreement required the buyer to give notice to the sellers of any warranty claim - and there was a time limit for doing that. The buyer was right up against it. In fact it was trying to get the notices delivered on the very last day on which notice of claim could be given.
The notices clause said that notices could delivered to the sellers by hand to the address stated for each of them in the agreement, or to such other address as that seller might provide.
If the notice was delivered by hand (which included delivery by courier), the notice would be deemed to be received at the time of delivery.
What did the buyer do to try to serve the notices?
A fleet of motorcycle couriers was engaged to deliver the notices by hand.
This succeeded for six out of the seven sellers. But, on attempting to deliver the notice to one of the sellers, the courier was told that the person no longer lived at the address. The courier left, taking the notice away with him.
Result - invalid service of notice
The court found that the notice was not validly served.
It said that, where a courier was used, notice was served by delivering the notice to the address and leaving the notice there by one means or another. For example, he could have posted it through the letter box, or pushed it under the door or left it with a person at the address (whoever that might be).
There was a bit of debate in court about what would happen if the address no longer existed e.g. if the building had been demolished. The buyer argued that surely the courier should not have to leave a confidential and commercially sensitive notice of claim on the rubble of the former building in order for the notice to be effective.
Actually, said the court, that would indeed be the result in such an extreme scenario.
(Which makes me wonder what the courier would be expected to do if the house had been replaced by a section of the HS2 track.)
Did it matter that the seller had failed to tell the buyer about her change of address?
No. There was no obligation on the seller to notify a change of address. If someone chose not to do so, they would run the risk that a valid notice may be delayed in coming to their attention. That would not, however, have affected the validity of the notice had it simply been left at the original address.
Drastic effect of invalid service
In this particular case, the failure to serve on just one seller resulted in the breach of warranty claims failing against all of the sellers. That was because of the way the share purchase agreement was drafted. So that wouldn't be the result for every agreement.
But, at the very least, invalid service on one person would result in the notice being ineffective for its purpose (whether that was to notify a claim or to terminate the contract).
What does this mean for you?
This case illustrates the risk of severe consequences where a party doesn't strictly comply with the contractual notices requirements. The case was about a breach of warranty claim, but notices provisions are equally relevant where one party wants to terminate a contract.
Notices clauses are often regarded as "boilerplate" provisions - words at the back end of agreements that are regarded as technical, tedious and only the lawyers care about.
However, we are seeing an increase in the number of cases that reach court where lots of money is at stake and these unloved boilerplate provisions are at the heart of the dispute.
If you are thinking of bringing a claim or terminating an agreement:
- do as much advance preparation as you can so that you know what's required to comply strictly with any technical conditions to bringing that claim or serving a notice to terminate;
- don't leave it till the last minute: check what the time limits are and diarise. That reduces the risk of something going wrong and may even buy you enough time to have another go if it does.