The recent case of Ener-G Holdings PLC v Philip Hormell ([2011] EWHC 3290 (Comm)) raises some interesting points in relation to Notice provisions. Notwithstanding the fact that the case is due to be appealed, it is a reminder of the care and attention to detail that is required when co-coordinating the process of serving notices in compliance with contractual provisions, and often under the pressure of impending deadlines.

Background

The case concerned a share purchase agreement. As is fairly usual, the agreement provided that notice of warranty claims had to be given within a set period (here, two years from completion) and, in addition, that following notice of a claim, proceedings had to be issued within another a time limit (here, one year from the date of the notice), otherwise the claim would lapse. Completion occurred on 2 April 2010.

The buyer served notice of a claim. In a belt and braces approach, it was served, as permitted by the agreement, both by personal delivery (Notice 1) and post (Notice 2). Under the provisions of the agreement, Notice 1 would be deemed received on the date of delivery (30 March 2010), and Notice 2 would be deemed received two days later (1 April 2010).

Approximately one year later, on 29 March 2011, the buyer issued proceedings by means of personal delivery. The provisions of the agreement relating to issue of proceedings provided that they could be issued in accordance with the terms of the agreement (that is, in compliance with the Notice provisions), or by any other means permitted by law, such as under the Civil Procedure Rules (CPR).  

The Court had to decide whether the issue of proceedings was within one year of the notice of claim. As such, it was necessary to work out when each was served. Based on the facts of the case, it is easiest to do this by working backwards from the issue of proceedings.  

When were proceedings issued?

On 29 March 2011, when the package containing the proceedings was personally delivered, there was no-one at the seller's address, and the package was left to await their return. Based on case law, the Court held that, for personal delivery to an addressee to be valid, it must be personally delivered to the addressee (or someone who can accept it for them), that is, it is not the act of delivery that must be personal, but the receipt. Therefore, in cases of personal delivery, if there is no one available to take receipt, delivery will be ineffective.

As such, personal delivery of the proceedings was ineffective. However, as the agreement expressly provided for service of proceedings (as opposed to simple notices) to also be by any method permitted by law, under the CPR, receipt was deemed to be two days after they were left at the seller's address, that is, 31 March 2011.

For service of proceedings to be within the prescribed one year anniversary of the notice of claim, the notice of claim would therefore have had to be served no earlier than 31 March 2010.  

When was notice of the claim?

On the date of personal delivery of Notice 1, there was no-one at the seller's address to take delivery, and, for the reasons given above, it was held that such delivery was ineffective. However, the Judge held that the Notices clause was drafted in such a way that it was not the exclusive method of service for notices (which is what the buyer contended), and it was therefore held that the notice of claim was validly delivered when the seller later returned to his address on the day of delivery, took receipt of the notice and discussed it with his solicitor (these facts not being in dispute), it being clear that the seller had plainly received it. Therefore, as it was held that notice of the claim was effectively served on 30 March 2010, service of the proceedings on 31 March 2011was more than one year later, and out of time. It was held that the warranty claim had therefore lapsed.  

The issues

The case raised two important issues which, if decided differently, would have resulted in the warranty claim not lapsing:

  • the Notices clauses was construed as not limiting the delivery method of notices to those specified within it. If it had been held to be exclusive, the additional method of service, essentially, evidence of actual delivery, would not have been effective, Notice 1 would not have been validly served, and the buyer could then have relied on the delivery of Notice 2 instead. As Notice 2 was deemed delivered on 1 April, the deemed service of proceedings under the CPR on 31 March 2011 would have been within the one year deadline; alternatively
  • if it had been held that for personal delivery to be effective, delivery did not have to include delivery to a person but could simply have been delivery to the relevant address, personal delivery in each case would have been effective, and both the notice and proceedings would have been validly served, and in time.

Comment

As noted above, the case is due to be appealed. As the Judge commented in his conclusion, the decision he reached was not an easy one, and it will be interesting to see what outcome is reached on appeal. Nonetheless, the case is a useful reminder of the intricacies surrounding contractual notice provisions. For example:

  • boilerplate provisions are easy to overlook, but contain the machinery to give effect to substantive provisions. It is important to ensure their drafting is consistent with the rest of the agreement and that they are certain enough to work as the parties expect them to;
  • running a dual track approach can seem like a safe option to ensure that if one route fails, there is an alternative, but it in terms of strategy this can add complexity, particularly where the outcome of one stage in a process impacts a later stage;
  • when timing is tight, personal delivery can seem like the safest option, but if no-one can take effective delivery, it might not be as fail-safe as it seems. Ensure those tasked with delivery understand the issues, and, at the drafting stage, consider including other provisions to allow for speedy delivery, such as fax or, possibly, e-mail;
  • deadlines often add pressure which can derail even a straight forward procedure. Where possible, leave sufficient time to consider the process carefully, think about strategy, and take appropriate action. In particular, post completion events scheduled for a considerable time after closing can be lost sight of; consider diarising them for sufficient time before they occur to take stock well before the deadline - comments in the Ener-G case suggest the Courts will not be sympathetic to those who "leave it to the last minute", particularly where there has been a long lead-in time.