Get yourself noticed
The courts have made clear that when it comes to the details of contractual notices, parties need to get it right, explains Julian Acratopulo
The notice provisions in
a contract are often as prickly as they are potentially pernicious. Prickly because of the need to comply precisely with the small print – as Lord Hoffman put it, ‘if the clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease’ (Mannai Investment v Eagle Star Life Assurance [1997] AC 749). Potentially pernicious because the penalty for a petty error can be huge. To make matters worse, there is often pressure because of the tendency to leave notices to the last minute. Disputes about the validity of notices abound.
Means of service
In Greenclose Ltd v National Westminster Bank [2014] EWHC 1156 (Comm), the issue was whether an interest rate collar had been extended. Extension would have been lucrative for one party, but correspondingly expensive for the other. Notice was required by 11am on
30 December, and it was only shortly before that time that the party sought to give notice.
It tried to serve the notice by fax, only to find the fax switched off for the holidays (albeit that no fax number was provided in the contract, and so such a notice would have been ineffective in any event). It tried telephoning, only to find that no one answered. The question was whether its voicemails and emails were sufficient.
In Greenclose, the interest rate collar was subject to the 1992 International Swaps and Derivatives Association (ISDA) Master Agreement (the 2002 agreement is substantially the same). Section 12(a) provides that notice ‘may be given in any manner set forth below… to the address or number or in accordance with the electronic messaging system details provided (see the schedule) and will be deemed effective when indicated’. It then lists five means (six in the 2002 Master Agreement, including email), such as delivery in person or by courier and certified or registered mail.
The question in Greenclose was, does section 12(a) require notice to be given by one of the five means specified, or are they merely options which do not exclude the use of other methods? Does ‘may’ mean ‘must’?
The court decided that section 12(a) is mandatory. Notices must be served by one of the means set out in the section; nothing else will do. The wording might start with the generally permissive ‘may’ but, in the judge’s view, when this is followed by a list of options, it indicates that the only choice is between the options listed. In this context ‘electronic messaging systems’ does not include email, and the failure to include a fax number means that is also not one of the permitted options.
Content requirements
Similarly, as the Court of Appeal recently made clear in Treatt plc v Barrett [2015] EWCA Civ 116, there may be dangerous pitfalls relating to the content of a contractual notice. Time pressure and complications around service do not detract from the need to also comply with contractually agreed requirements as to content.
An earn-out notice setting out profit and loss reports must therefore be prepared by reference to audited accounts,
if that is what the contract provides.
No matter that the accounting year of the relevant company had changed, extrapolation
from a combination of previous audited accounts and unaudited management accounts was
not good enough. The court concluded that the contract had provided for audited accounts for a reason. Accordingly, there needed to be objective figures available, even if that required the special preparation of audited accounts for the purposes of the notice.
The message from the courts is clear: when it comes to contractual notices, parties need to get it right. A case, perhaps, of more haste, less speed? SJ
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Key points
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Julian Acratopulo is a member of the London Solicitors Litigation Association (LSLA) committee and a partner at Clifford Chance