A recent case highlights the potentially perilous interaction between contractually agreed limitation periods and provisions governing the service of notices and claims.(1) In order to avoid claims being time barred, it is essential that service provisions are both carefully drafted and meticulously followed.
Limitation periods serve to balance claimants' interests in having as long as possible to bring proceedings and defendants' interests in moving on, free from the threat of what may be regarded as 'stale' claims. Time bars arise at the conclusion of limitation periods, acting as a guillotine to exclude liability after a given time.
Parties to commercial transactions often negotiate specific limitation periods, contracting out of the default periods provided by procedural law. Similarly, parties will often agree on provisions that govern the manner in which service of notices or consequent legal proceedings should be effected, including rules on when such service is deemed to have taken place.
Although a contractually agreed limitation period may more accurately reflect the competing interests in any given case, that will be little consolation to a claimant that has the misfortune of falling on the wrong side of the resultant time bar. The fall will be especially painful if it is the result of confusion over contractually agreed service provisions, as it was in this case.
ENER-G Holdings plc and Philip Hormell entered into a share purchase agreement whereby ENER-G purchased shares from Hormell. The agreement contained a number of representations and warranties, as well as a strict limitation period for bringing claims for alleged breaches of those provisions.
There were two temporal hurdles to clear when bringing such claims:
- ENER-G had to give written notice of claim to Hormell by the second anniversary of completion (ie, April 2 2010).
- A claim in respect of which such notice had been given would be deemed to have lapsed and to have been irrevocably withdrawn unless "proceedings in respect of that claim ha[d] been issued and served on the Seller not later than the expiry of the period of twelve months after the date of that notice".
The share purchase agreement also set out the following provisions on notices and service:
Any… notice may be served by delivering it personally or by sending it by pre-paid recorded delivery post to each party (in the case of the Buyer, marked 'for the attention of directors') at or to the address referred in the Agreement or any other address in England and Wales which he or it may from time to time notify in writing to the other party.
13.3 Deemed Service
Any notice delivered personally shall be deemed to be received when delivered (or if delivered otherwise than between 9.00am and 5.00pm on a Business Day, at 9.00am on the next business Day), any notice sent by pre-paid recorded delivery post shall be deemed to be received two Business Days after posting…
14. Governing Law & Jurisdiction…
The parties agree that the documents which start any legal proceedings relating to a dispute ('Proceedings') and any other documents required to be served in relation to those Proceedings may be served on any party in accordance with this Agreement. These documents may, however, be served in any other manner allowed by law. This clause applies to all Proceedings wherever started."
On March 30 2010 a process server left ENER-G's written notice of claim on a table in the front porch of Hormell's residential address (as referred to in the share purchase agreement).
ENER-G maintained that leaving the notice in the front porch amounted to personal service for the purposes of the agreement, and that the notice was therefore served on March 30 2010. If (for whatever reason) that was not effective, personal service for the purpose of the contractual provision ENER-G relied on the fact that the notice had also been sent by recorded delivery which, under the terms of the agreement, would be deemed to have been served on April 1 2010.
Hormell denied that leaving the notice of claim in such a manner amounted to personal service. However, he argued that the notice provisions of the agreement were not exhaustive and that the notice had been served on March 30 2010 – not because he had been personally served under the agreement, but simply because he had received it on that day. The significance in this divergence of reasoning becomes apparent in considering what happened one year later.
By the following year there had been structural changes at Hormell's property. There was a stone wall with locked gates and closed-circuit television cameras. There was no doorbell or intercom and it was no longer possible to access the front door. When the process server attended on March 29 2011, he was unable to access the property and therefore posted the documents through a letterbox by the locked gates. Hormell was away from home and did not receive the documents until April 2 2011.
The first question for the court was whether the personal delivery of the notice and the claim form to Hormell's residential address amounted to personal service. If so, the notice and proceedings were served on March 30 2010 and March 29 2011, respectively, and there was no time bar. However, if the process server had not succeeded in serving the notice and proceedings personally (for the purpose of the agreement), the position was more complex and required further analysis.
The judge referred to the three significant canons of construction to be taken into account in such cases:
- If there are two possible constructions of a document, the court is entitled to prefer the construction which is consistent with business common sense.(2)
- The need for certainty is of utmost importance in commercial transactions, so that parties know where they stand and can act accordingly.(3)
- Tight deadlines, where time is of the essence, are entirely appropriate in commercial transactions; where there are such deadlines, they should be construed strictly, or at any rate without soft-heartedness.(4)
Taking these principles into account, the judge found that neither the notice nor the proceedings had been personally served. For the purposes of the share purchase agreement, he held that it was necessary to deliver "personally to [the other] party at the address". In reaching this conclusion, the judge was influenced by previous authority on the point.(5) He also had regard to the drafting of the clause and the express requirement that notice be delivered "personally… to each party".
Exclusivity of contractual notice provisions
The judge therefore had to consider how service had been effected and when it had taken effect.
ENER-G argued that the contractual provisions for serving notices were exclusive. If leaving the notice in the porch on March 30 2010 was ineffective, as the judge had found, the effective date must have been April 1 2010 - that is, the date on which the registered post notice was deemed to have been served under the alternative service mechanism for which the share purchase agreement provided. On this basis, the claim form had been served within the one-year limitation period (as, under the deemed service provisions of the civil procedure rules, it would have been served on April 1 2011).
However, Hormell argued that the contractual notice provisions were not exclusive and that, as the terms of the share purchase agreement did not preclude other methods of service of notices, service of the notice took place as a matter of fact on March 30 2010, with deemed service of the claim form on April 1 2011 falling outside the one-year period.
The judge agreed and found the notice provisions in question to be non-exclusive. He relied on the drafting of the agreement and the inclusion of the permissive word 'may', rather than the mandatory 'must.' However, above all, he was attracted by the "simple proposition" that in circumstances in which Hormell had received and had notice of the contents of the notice on March 30 2010 - and had telephoned his solicitor and discussed its contents - it would be "wholly contrary to common sense" to suggest that he did not have notice for the purposes of the contract.
In reaching this conclusion, the judge was mindful of the arguments to the contrary based on procedural certainty. However, he did not consider that this required him to find the procedure to be exclusive. If a party wanted to achieve procedural certainty, it would follow the provisions as far as possible. In the judge's view, it should not necessarily preclude a party that was prepared to take a risk from giving notice in another, less formalistic way.
The finding that the service provisions in the share purchase agreement were non-exclusive is perhaps surprising. Although the contract contained the permissive word 'may', the two methods of serving the notice to which express reference was made were the only methods to be expressly contemplated. If other valid methods of service of the notice had been envisaged, they would presumably have been expressly referred to, along with a corresponding deemed service provision. The non-exclusive interpretation given in this case - which allows for effective service at the time of actual receipt - undermines the agreed concept of deemed service and the concomitant certainty that such provisions were presumably designed to achieve. The High Court decision is due to be considered by the Court of Appeal later in 2012.
The case also highlights the importance for prospective litigants of assuming the most cautious and conservative approach to the interpretation of such limitation and service provisions, particularly in circumstances where there is real ambiguity or uncertainty in the drafting of the clauses. As the judge noted in this case, a miss is "as a good as a mile". That will rarely be a risk worth taking.
For further information on this topic please contact Matthew Dando at RPC by telephone (+44 20 3060 6000), fax (+44 20 3060 7000) or email ([email protected]).
(1) ENER-G Holdings plc v Philip Hormell  EWHC 3290 (Comm).
(2) Rainy Sky SA v Kookmin Bank  UKSC 50.
(3) The Scaptrade  QB 529.
(4) Valentine's Property Ltd v Hunto Corporation Ltd  UKPC 14.
(5) Kenneth Allison Ltd v AE Limehouse & Co  AC 105; Bottin (International) Investments Ltd v Venson Group plc  EWCA Civ 1368.