In ENER-G Holdings Plc v. Hormell1, the Court of Appeal upheld a decision that a claimant had served a warranty claim worth almost £2 million out of time under contractual limitation provisions. The case offers lessons for both those drafting contracts and litigators wishing to preserve rights.
ENER-G and Mr Hormell entered into a sale and purchase agreement (SPA) for the sale of shares. After completion, ENER-G identified warranty claims against Mr Hormell for nearly £2 million. The question for the court was whether ENER-G had served its claim in time under the SPA.
The SPA required ENER-G to give written notice of any warranty claim by the “second anniversary of completion”. This meant on or before 2 April 2010. Even if ENER-G gave notice in time, any claim would lapse unless it also issued and served a claim form “not later than the expiry of the period of twelve months after the date of the notice”.
Clause 13.2 of the SPA stated that any notice “may be served by delivering it personally or by sending it by pre-paid recorded delivery post [to the relevant party's designated address]”. Clause 13.3 deemed a personally delivered notice served on the business day on which it was delivered and a notice sent by pre-paid recorded delivery served two business days after posting. The SPA also stated2 the claim form could be served by the methods specified in clause 13.3 or by any manner allowed by law.
A process server left the necessary notice (the first notice) in the porch of Mr Hormell’s farmhouse on 30 March 2010. Mr Hormell was not home at the time. However, he found and read the notice before 5pm that day. A second copy of the notice (the second notice) was sent to Mr Hormell by recorded delivery the same day. Almost one year later, on 29 March 2011, a process server left the claim form in the letter box that served the farmhouse. Mr Hormell was away and did not open the letter box, or see the claim form, until 2 April 2011.
Mr Hormell argued that ENER-G’s claim form was served out of time. This was because ENER-G had validly served the first notice on 30 March 2010. Although it was not served by “delivering it personally”, this did not matter as clause 13.2 did not set out an exclusive code. Therefore, ENER-G had to serve the claim form within 12 months, i.e. by 30 March 2011. Although the claim form was left at the farmhouse on 29 March 2012, this was out of time as rule 6.14 of the Civil Procedure Rules (CPR) deems a claim form served two business days after being left at the relevant place. ENER-G advanced two principal arguments why its claim form was served in time:
- It validly served the first notice, and the claim form, by “delivering [them] personally” to the farmhouse. It did not matter that the process server had not handed either document to Mr Hormell. Each document was served when left at the farmhouse, i.e. on 30 March 2010 for the notice and 29 March 2011 for the claim form, and therefore within the 12-month deadline.
- Alternatively, ENER-G argued its first notice was invalid because it was not served on Mr Hormell personally in strict compliance with clause 13.2. But ENER-G’s second notice was valid and deemed served on 1 April 2010 under the SPA. That meant the claim form was also in time when deemed served on 31 March 2012 under the CPR. To succeed on this argument, ENER-G had to argue that clause 13.2 was exclusive and not permissive; therefore the first notice was not valid when it was left at the farmhouse.
“delivering it personally”
All members of the Court of Appeal rejected ENER-G’s first argument that the notice and claim form had been served by “delivering [them] personally”. Although individual process agents had delivered each document, that was not enough to satisfy the SPA. The SPA had to be read as demanding personal service and, therefore to be effective, the documents would have had to have been handed to Mr Hormell in the usual way. Neuberger MR made the point that the identity of the individual delivering the documents is largely immaterial. This reading was also consistent with an earlier Court of Appeal decision on a similar provision3.
Was clause 13.2 exclusive or permissive?
The majority of the Court of Appeal (Neuberger MR and Gross LJ) agreed with the judge at first instance that the methods of service permitted by clause 13.2 were not exclusive. On that basis, ENER-G had validly served the first notice on 30 March 2010 despite the fact that it had not been served by “delivering it personally”. The first notice was delivered when Mr Hormell read it. Longmore LJ dissented on this point.
The majority put emphasis on the fact clause 13.2 stated that “any such notice may be served” (emphasis added). They read the two forms of service the clause prescribed as providing the safest (but not the only) way to effect service. If served in another way, the server retained the risk that the recipient might never receive the notice.
In contrast, Longmore LJ was troubled by the fact that clause 13.2 specified two forms of service. He thought that it made little sense to specify particular forms of service if the clause was to be read permissively. He also noted the clause dealing with service of the claim form stated that it could be “served in any other manner allowed by law”. There was no such saving provision in clause 13.2. He went on to note that the contrary view:
“produces the rather more perverse consequences that the actual method of service which was not contractual (because not served on the defendant personally) effectively became a contractual method once it has come to the notice of the defendant and operates as a trigger for the second period […] at a time of which the claimant cannot be aware, with the result that his claim is unexpectedly barred.”
Parties often assume that the courts will be slow to strike down substantive claims based on perceived technicalities relating to notice and time limits. But this case is a clear illustration that the Court of Appeal has not lost sight of the need to ensure certainty. Gross LJ quoted Lord Nicholls4 on this point: “Inherent in a time limit is the notion that the parties are drawing a line. Once the line is crossed, a miss is as good as a mile.”
- This case illustrates, once again, the dangers of using language that is similar, but not identical, to the language of established regimes (such as the rules of court). All members of the Court of Appeal accepted that the reference to “delivering it personally” in the SPA required personal service of the notice. It is far from clear that this is what the draftsman had actually intended. (Clause 13.2 required that notice be served personally at the farmhouse, which the court acknowledged was difficult to reconcile with its reading.) At the very least, the expense of arguing the point could have been avoided by refinement of the drafting.
- Whenever a contract requires personal service (or personal delivery - this case suggests the courts will usually interpret this as the same thing), you should ensure you effect service by handing the relevant documents to the required recipient in person.
- It will reduce complexity to set out any contractual timetable by reference to a fixed start or finish date (rather than uncertain interim steps). ENER-G could have avoided many difficulties if the SPA had stated that it had to serve the claim form by the third anniversary of completion.n contrast, calculating contractual time limits by reference to separate triggering events has inherent risks. If the ultimate time limit is critical (as it was in this case), then it is prudent to assume that earlier arguable points will go against the party seeking to serve. ENER-G no doubt now regrets that, having given notice of its warranty claim, it left it to the last minute to serve its claim form.