The Court of Appeal recently upheld the first instance decision in Ener-G Holdings plc v Philip Hormell(1) that a breach of warranty claim was out of time, because the claimant had not complied with the contractual notice provisions. The Court of Appeal confirmed the first instance finding that the notice clause was non-exclusive, despite providing for two specific methods of service. Accordingly, other methods of service could be used.
ENER-G Holdings plc, the claimant, acquired shares from Philip Hormell, the defendant, pursuant to a share purchase agreement, which was concluded on April 2 2008.
The defendant, as seller, gave a number of representations and warranties in the share purchase agreement. The parties agreed a strict time limit during which any claims for breach must be brought. The claimant was required to serve notice of a claim by the second anniversary of completion (April 2 2010) and thereafter had one year to serve the claim form on the defendant.
Clause 13 of the share purchase agreement provided for notices to be delivered personally or to be sent by recorded delivery. It further provided that notices delivered personally were deemed received when delivered (unless outside business hours), while notices sent by recorded delivery were deemed delivered two business days after posting.
The claimant wished to pursue a claim for breach of warranty. It arranged for a process server to deliver a notice of claim on the defendant and sent the notice by recorded delivery on March 30 2010. The notice was left on the defendant's porch. The defendant received the notice that day, before 5:00pm, and discussed its contents with his solicitor.
The claimant issued a claim form on March 29 2011. Again, a process server was instructed to effect service. On this occasion, he posted the documents through the defendant's letterbox. The defendant did not see the claim form until April 2 2011, when he emptied the letterbox.
If this did not constitute personal service under Clause 13.2, it was common ground that by virtue of Civil Procedure Rule 6.14, service of the claim form occurred two business days after March 29 2011 (ie, on March 31 2011).
The court considered what constituted "delivering [the notice] personally" for the purposes of Clause 13.2 and whether the contractual provisions for serving notices were exclusive.
The claimant argued that it had brought and served its claim in time on the following alternative grounds:
- 'Personal delivery' meant delivery by an individual, rather than delivery to an individual. Therefore, the first notice was served on March 30 2010 and the claim form was served on March 29 2011.
- Alternatively, the claimant submitted that (if the first argument failed) Clause 13.2 was exclusive as to the methods of service. The first notice would therefore not have been effectively served until April 1 2010 (by recorded delivery), because the leaving of the document by the process server was not 'personal delivery' within the meaning of Clause 13.2. Therefore, as the claim form was served at the latest on March 31 2011 (two business days after posting through the letter box), it was served within a year of the notice of claim.
The defendant contended that neither document delivered by the process servers was by personal delivery under Clause 13.2, but that did not matter, because it was not an exclusive clause. Methods of service other than those set out in the share purchase agreement were therefore permitted. The first notice was deemed served on March 30 2011; the defendant in fact had notice of it. The second notice was deemed served on March 31 2011, two days after it was posted through the defendant's letterbox.
The court had to consider whether the notice provisions in the contract were exclusive or whether methods of service outside of the contract, but compliant with the Civil Procedure Rules, were permitted.
The High Court held that neither notice delivered by process server was delivered personally in accordance with Clause 13.2 of the agreement, but this did not matter, because the clause was non-exclusive. The defendant had notice of it and discussed its contents with his solicitor. The first notice was therefore deemed to have been served on March 30 2010 under Civil Procedure Rule 6.3(c) or Civil Procedure Rule 6.23(1) (leaving a document at a specified place).
Therefore, the date by which the claimant needed to have served the claim form was March 30 2011. The proceedings were posted through the defendant's letter box on March 29 2011 (and had not come to the defendant's attention until April 2). The proceedings were not deemed served, under either Clause 13.2 or the Civil Procedure Rules, until March 31 2011. Service was therefore out of time.
The Court of Appeal upheld the High Court decision by two to one, with Lord Justice Longmore dissenting (on whether the methods of service in Clause 13.2 were exclusive). The master of the rolls followed the Court of Appeal's earlier decision in Bottin (International) Investments Ltd v Vension Group plc,(2) which held that personal delivery "qualified the delivery to the recipient of the notice" rather than the person delivering the notice. The claimant's first argument therefore could not succeed.
In relation to the claimant's alternative proposition that Clause 13.2 was exclusive rather than permissive, the master of the rolls upheld the High Court decision, but noted that he had not found the point easy. In holding that the clause was permissive, the court took a purposive approach to the construction of the clause with regard to the share purchase agreement as a whole. The master of the rolls relied on the use of the word "may" in Clause 13.2, as well as referring to other clauses in the agreement which lent support to the proposition that the methods of notice set out in that clause were not intended to be exhaustive.
The fact that the Court of Appeal upheld this decision in relation to the non-exclusivity of the notice clause may come as a surprise. However, it was clear that this was not an easy conclusion for the court.
This case provides a salutary lesson for contract drafters, as well as those subsequently responsible for construing a contract. Notice clauses are generally standard form clauses, which may be reviewed late in the day or entirely overlooked in the heat of negotiations. The case demonstrates the importance of ensuring that notice clauses are drafted clearly to reflect the parties' intentions. Parties must be able to understand exactly what the requirements are under the contract in order to serve documents correctly and within the specified time limits.
Where parties intend to specify certain methods of contractual service (to the exclusion of other methods), they need to do so in language that leaves no doubt. On a more practical level, the case also emphasises that leaving the service of documents until the last minute can have disastrous consequences.
(1)  EWHC 3290 (Comm). For further details please see "Time waits for no claimant: contractual time bars and notice provisions".
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.