A brief summary of the principles, recent developments and practical tips relating to provisions requiring notice to be given before claims under a contract are made.
- Parties are free to stipulate in their contracts that certain procedural requirements must be met in order to make a claim under warranties in that contract. It is common to see provisions requiring the party making the claim to issue advanced notice of that claim to the other party.
- Claim notice requirements often stipulate that the notice must be issued within a certain time limit e.g. after the contract is signed or after a particular event, and that the notice must contain certain information e.g. the grounds for the claim.
- The English courts will generally interpret these requirements literally and insist on compliance with them in order for the claim to be valid.
- It is worth remembering that the Unfair Contract Terms Act 1977 can apply to a business-to-business contract where one of the parties is contracting on its standard terms, and that procedural requirements of this nature may be caught (in which case they will be enforceable only in so far as they are deemed to be reasonable).
- In Teoco v Aircom, the Court of Appeal confirmed the need for strict compliance with any claim notice requirements.
- In this case, the purchaser of shares in a target company was required to notify the sellers of any post-completion breach of warranty claim and to set out in the notice the “grounds” of the claim.
- Both the High Court and the Court of Appeal said that this required the purchaser to identify expressly in the notice the specific warranty or warranties which were said to have been breached and that the purchaser’s failure to do so was fatal to its claim.
- This follows Zayo Group v Ainger and ors, in which the court held that a requirement to serve the vendors with a claim notice by a certain date meant each and every vendor needed to be served and the failure to serve one invalidated the notices served upon the others.
What this means
- Parties should not ignore procedural requirements when drafting their contracts. These requirements should be considered and negotiated in the same way as other more substantive provisions of the contract, particularly as they can significantly impact upon the success or failure of a post-contractual claim, as the Teoco case demonstrates.
- Parties should consider whether they are more likely to make a claim under the relevant provisions (for example, a claim for breach of warranty in a sale and purchase agreement is more likely to be brought by a purchaser than a vendor) and to try to make the drafting as favourable to their position as possible, bearing in mind the possibility of a claim later on.
- When bringing a post-contractual claim, parties should ensure that any procedural requirements are met. Where there is any ambiguity as to the requirements, parties should err on the side of caution (eg by including more detail about their claim than appears necessary from the contract), in order to mitigate the risk of failing to satisfy these requirements. There is a balance to be struck, however, as only the claim as set out in the notice can then be brought once the deadline for claim notifications has expired.
- Where a notice provision requires “reasonable detail” of the claim to be included in the notice, enough information must be given to allow the other party to investigate and asses the claim. This will include an estimate of the value of the claim, even if not expressly stated in the relevant clause.