Strict compliance with contractual notice requirements: not so pink and blue

Strict compliance with contractual notice requirements: not so pink and blue

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Author: Ben Zielinski

Applies to: Scotland

A recent decision of the Inner House of the Court of Session suggests that the law on strict compliance with contractual notice requirements might not be quite so black and white (or pink and blue) as perhaps thought.

Nearly twenty years ago, in the leading case on contractual notices, Lord Hoffmann said, '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'.

While it may be a frivolous example, this famous dictum exemplifies the principle that, if the contract sets out strict conditions that a notice given under that agreement must meet, they must be complied with; if they are not, the notice will be invalid. This principle had been applied in many Scottish cases over the years with notices being held to be invalid where, for example, they were served personally when the contract required service by registered post, or where they were addressed to the wrong company.

In an opinion delivered this month, however, the Inner House said that, when deciding whether strict compliance was required with a contractual notice condition, the court should be slow to adopt a strict approach and should instead take a purposive approach applying appropriate commercial common sense.

HOE International Ltd v Andersen [2017] CSIH 9

The case in question concerns a claim for breach of warranties under a share purchase agreement. The agreement required the buyer to give the sellers' representative (a firm of solicitors) notice of any claim for breach of warranty in writing. The agreement set out a number of requirements for any notices given under it. Relevantly, these included that the notice should:

  • be sent for the attention of ['MH'] at the firm of solicitors and to the postal address specified in the agreement; and
  • be delivered personally or sent by pre-paid first-class post or recorded delivery.

A few months after completion of the purchase, the buyer's solicitor sent a notice of a warranty claim to the firm of solicitors, but marked it for the attention of 'SC' rather than 'MH', and sent it by DX. The sellers argued that the buyer had failed to give valid notice of the claim because (i) the notice had not be sent for the attention of the person and to the address specified; and (ii) it had not been served by one of the prescribed methods.

On the face of it, the sellers' argument seemed well-founded and, at first instance, the judge agreed, concluding that the parties had not intended to allow deviation from the contractual requirements. However, on appeal, the Inner House disagreed and held that strict compliance was not required in this case. As a result, the notice was found to be valid.

In arriving at this decision, the court said that the contractual notice requirements should be construed purposively, taking account of commercial considerations. Both the purpose of the notice and the purpose of the requirements were to be taken into account. In this case, the purpose of the notice was primarily to notify the sellers of the existence of a claim. This, the court said, was at the less drastic end of the scale, compared to, say, a break notice under a lease or a notice terminating a contract, and therefore there was no overwhelming argument in favour of rigid formality.

With regard to the purpose of the requirement, it was said that it was obviously important that any notice should arrive in the hands of someone with authority to act on behalf of the recipient, but that other requirements of an essentially formal nature may not be important. The fundamental question was whether the would-be recipient is prejudiced if the requirement is not complied with, and the court concluded that: 'If there is no prejudice, insisting on strict compliance for its own sake serves no useful purpose.'

Comment

The Inner House's approach in this case may have some attraction, allowing the court to reach what could be considered a fair and commercially sensible outcome in all the circumstances. However, the purposive approach to construction, advocated by the court, makes it hard to know - without going to court - whether, in any given situation, a notice that does not strictly comply with the requirements set out in the contract is valid or not.

There is no detailed guidance on which types of notice would tend to require strict compliance and which would not, other than that the more drastic the consequences of a notice, the greater the need for strict compliance. Also, as the court itself recognised, this approach leads to the result that some types of notice given under a contract may require strict compliance in order to be valid, while other types of notice, given under exactly the same contract, may not.

In many cases, the purpose of the requirement will be to ensure that the notice gets to the right person. If, as suggested, the relevant question is whether the recipient is prejudiced by the non-compliance, then it is hard to see why strict compliance with the prescribed method of service would ever be required, so long as the notice did, in fact, get to its intended recipient timeously. However, that proposition is clearly at odds with previous cases, where notices that reached the correct person were nevertheless held invalid because the wrong method of service was used or the notice was wrongly addressed.

What this means for senders and recipients of contractual notices?

It would certainly not be safe for senders of notices to conclude from this decision that strict compliance with contractual requirements does not matter. Care should still be taken because strict compliance is still the only way to make sure that the notice will be valid. However, this decision may provide a lifeline to parties who have sent notices that do not strictly comply with the contractual requirements.

For recipients, the position is more complicated. Whereas previously, a recipient of a clearly non-compliant notice might have felt reasonably comfortable disregarding it, such an approach would now seem to be far more dangerous. A court might well find the notice valid, notwithstanding the non-compliance, on the basis that the consequences of the notice were not sufficiently drastic and/or that no prejudice had resulted from the non-compliance.

Ben Zielinski is an Associate in the Commercial Dispute Resolution team in Shoosmiths' Edinburgh office.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the Author

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Ben Zielinski

Senior Associate

03700 868127

Ben is an associate in our dispute resolution and compliance team. Ben specialises in commercial disputes and is based in our Edinburgh office. He is qualified as a solicitor in both Scotland and England & Wales. Ben advises on a wide variety of commercial disputes including, in particular, information technology and energy sector matters.

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