The Only Certainty with Notices is now Uncertainty: Are Some Notices now Skeleton-Keys that Will Open Any Lock?
Date: 03/03/2017 | Business & Professional Services, Construction, Corporate, Dispute Resolution, Employment & HR, Healthcare, Planning, Real Estate, Residential Development
Up until the recent decision of the Inner House of the Court of Session in Hoe International Limited v Anderson & Aykroyd [2017] CSIH 9 if a contract set out strict conditions on how a notice should be served, then the approach taken by the court was quite simple – if any notice served had not complied with any of the strict conditions of the contract then the notice would be deemed to be invalid. The decision in HOE International casts doubt over that.
The Case: HOE International Ltd v Anderson [2017] CSIH 9
The case concerned a claim for breach of warranties under a share purchase agreement. The agreement in question placed a requirement on the buyer to give notice to the seller’s representative of any claim under breach of warranty in writing. As is the case in many contracts the share purchase agreement set out the clear requirements for any notice served in terms of the agreement. The two relevant requirements (there were others that the court deemed not to be relevant here) in this instance were that any notice should (i) be sent for the attention of [‘MH’] at the firm of solicitors and to the postal address specified in the agreement; and (ii) be delivered personally, sent by pre-paid first-class post or recorded delivery.
Sometime after completion of the purchase the buyer’s solicitor sent a notice of a warranty claim to the seller’s solicitor. However, it was addressed to “SC” rather than “MH” and sent by DX.
The Seller’s solicitor argued that the notice was invalid as it had been sent for the attention of the wrong person and by DX (rather than by pre-paid first class post or recorded delivery). It had failed to comply with the contractual requirements.
The Judge at first instance agreed with the sellers. Strict and specific terms for the service of a notice must be complied with or the notice will be deemed invalid.
However, on appeal the Inner House determined that the strict notice provisions did not need to be complied with and found the notice to be valid. The failings of the notice did not prejudice the recipient of the notice and a common sense approach should be taken, the court said.
The Decision
The Inner House established that as the notice was essentially informative rather than ‘executive’ (ie to change the contractual relationship between the parties) that the strict notice provision did not need to be adhered to. The purpose of the notice could be achieved without ‘undue strictness’ in terms of the requirements. The recipient of the notice would not be prejudiced by the failings of the notice.
Curiously the Judgement stated that as the notice provisions clause covered the requirements for all sorts of notices served under the agreement that it must be interpreted ‘flexibly’ and in accordance with ‘commercial common sense and having regard to the purpose of the individual notice in question’. The judgement, unfortunately, does not go into great detail about exactly what types of notices can be served without adhering to a notice provision – though, presumably, a good place to start would be to determine if the failings of the notice would prejudice the recipient of it.
Interestingly the judgement determined that delivery by DX could be considered, in this instance, to be personal delivery because ‘a representative of DX system passed the letter to Tods Murray, the designated recipient’. That seems surprising given that DX is in effect a mail system where the delivery of the notice will have been as part of a general mail delivery. How can certainty as to delivery be shown.
Going forward?
Though this judgement will undoubtedly be seen by many as the courts taking a common sense approach it does cast doubt and uncertainty over what notices can now be challenged by a recipient, if that notice has not been served in accordance with the notice provisions in the contract.
Since the decisions in Mannai Investment Co Ltd and Ben Cleuch Estates Ltd parties to a contract had been able to follow a simple rule when it came to following notice provisions; if the sender of the notice had failed to follow the exact notice provisions of the contract then it was said that they had “failed to use the right key, and accordingly the lock will not turn”, that meaning that the notice would be invalid. The decision in Hoe International Limited v Anderson & Ackroyd means that we now have a position in which some notices can be treated as skeleton keys.
It will be interesting to see if this decision is taken to the Supreme Court.
If you are anticipating having to send a notice of any kind under a contract, or you have received one that you are at all unsure about, please contact Magnus Miller or Sheila Webster to discuss what this case means for you.
