The English Court of Appeal decision in S&T (UK) Limited v Grove Developments Limited provides clarity on the procedure for serving contractual notices, and whether the party serving such notices should allow a reasonable time for a response, if the contract is otherwise silent.
In considering the Court's decision below, we also compare the clarified English law position with the position applicable in the UAE and offer some practical guidance on what steps a notifying party should follow.
Does a party need to allow a 'reasonable' interval between notices?
Grove engaged S&T to design and build a new Premier Inn Hotel at Heathrow, Terminal 4. Although the contractual completion date was 10 October 2016, it was not in dispute that S&T did not achieve practical completion until 24 March 2017.
Under the relevant notice provisions, before deducting liquidated damages for delay, Grove was required to give three distinct notices to S&T in a particular sequence. The first notice was a notice confirming that S&T had failed to complete the works by the contractual completion date (the "Non-Completion Notice"). The second was a notice in effect warning S&T that Grove "may require payment of, or may withhold or deduct, liquidated damages" (the "Warning Notice"). The third and final notice was a notice informing S&T that Grove would withhold or deduct, or require S&T to pay, liquidated damages at the rate stated in the Contract Particulars, or a lesser rate stated in the notice, for the period between the completion date and the date of practical completion (the "Deduction Notice").
On 13 October 2016, three days after the completion date, Grove served on S&T the Non-Completion Notice. Thereafter, on 18 April 2017, Grove informed S&T that Grove intended to withhold liquidated damages by issuing both the Warning and Deduction Notices on the same day. Although neither party disputed that S&T received the Deduction Notice after the Warning Notice, as the contract envisaged, S&T claimed that the Deduction Notice was invalid because only 8 seconds separated the notices. Indeed, allowing for the fact that "It took a couple of minutes for the notices to speed across the internet", as the Court put it, Grove sent the Deduction Notice before S&T had received, or could reasonably have received, the Warning Notice.
S&T contended that, by agreeing that Grove was obliged to provide two further distinct notices after the NonCompletion Notice, it must have been the intention of the parties that the Warning Notice would have a more meaningful purpose than merely acting as an administrative obstacle. As summarised in Sir Rupert Jackson's judgment, S&T's view was that "the warning notice is deprived of any possible use, unless the contractor has a brief period of time to do something about it". Given that the agreement clearly specified a sequence, permitting the employer to serve the two notices in such a quick succession as to be virtually simultaneous would only defeat the intention of the notice provisions.
Despite showing considerable sympathy to S&T's position, the Court accepted the validity of both Notices. It said:
"The procedure ... provides no obvious benefit to anyone, if the employer warns the contractor of what he may do just seven or eight seconds before he actually does it. At one point I was minded to allow S&T's appeal ... On reflection, however, I find it impossible to identify any specific period of time which should elapse between serving notice 2 and serving notice 3. To say that there must be a 'reasonable' lapse of time is unworkable and does not satisfy the requirements for an implied term ... Also, it would create huge uncertainty in future cases. Where the contract requires a specific period of time to elapse between notices, it says so in terms ... However surprising it may seem to a judge, clause 2.29 of the contract requires no more than the giving of notices in a specified sequence. Judges should not generally impose their notions of commercial common sense upon the parties to business disputes. Provided that a scintilla of time elapses after giving notice 2 and before giving notice 3, that is sufficient."
It may be surprising for the Court to support an interpretation which offers "no obvious benefit to anyone", but as Coulson LJ had remarked in his judgment at first instance, what was reasonable in this circumstance was unknowable. Coulson LJ had asked himself "[W]hat would that period be? An hour? A day? A week? Would it all depend on the facts? Such uncertainties would make the contract impossible to operate sensibly".
So, as a matter of English law, if a contract requires a series of notices, but specifies no particular time frame, they must go in order and may have mere moments between them. This is another example in the recent trend of the English Courts refusing to imply terms to give business common sense to contracts. If the parties want a particular period to follow a notice, they must specify what that period is. The Court will not do it for them.
How does the clarified English law compare to the position under UAE law?
Under UAE law, the essential principle is that parties enjoy autonomy to agree to whatever contractual provisions suit their bargain, provided such provisions are not contrary to the UAE's public policy. With this mind, it is tempting to think that the UAE courts would reach the same decision if a similar case came before them.
However, the courts in the UAE are generally less reluctant than the English courts to intervene in the parties' bargain. This is in part due to the pervasive nature of Article 246(1) of Federal Law No. 5 of 1985 (the "Civil Code"), which implies into the performance of each contract an overarching duty of good faith. In light of Article 246(1), it may be open for a party in the position of S&T to contend that, by serving two notices at virtually the same instant, the party in Grove's position had acted in breach of its duty of good faith; usually interpreted as requiring a party to have regard to the legitimate interests of, and not otherwise seek to exploit, the other.
In addition, under Article 265(2) of the Civil Code, if there is scope for interpretation within a contractual provision (for example, if the wording or meaning is unclear), the court will make an enquiry into the mutual intention of the parties beyond the literal meaning of the words. Generally, the court will therefore interpret the contract's terms according to what it considers are the parties' common intentions (but only to the extent that such an intention is demonstrated from the contractual terms as with English law, extrinsic evidence cannot be used or examined to determine the parties' intentions).
Accordingly, whether pursuant to the duty of good faith or as a matter of contractual interpretation, a UAE court is likely to be more willing to imply a term into a contract provided that a party issuing a notice expressly intended to warn the other party about a course of action should be required to wait a certain period of time before issuing the notice which gives effect to the course of action.
The Court of Appeal's decision in Grove Developments shows that the English courts will uphold the strict wording of the parties' bargain and will not generally interfere, even in cases where a party's conduct may not comply with the spirit or intention of the provisions. The Court will not imply a term simply because it's a good idea, or because the mechanisms in the contract may be of no benefit to anyone without the implication. Courts in the UAE, however, are likely to be much more sympathetic to such arguments.
It is common for contracts to require a series of notices, for example, to escalate a dispute through a tiered process or to terminate a contract. Under English law, there will be no implication of any period of time between notices, which may render some notices meaningless. Under UAE law there may be a requirement to allow a reasonable time, which may render some clauses hard to administer as it is hard to know when a reasonable time has passed. Under both systems, therefore, it is good practice to specify in the contract a timeframe for notices. Do not leave it to the law to fill in the blanks.