UK: Noticing The Devil In The Detail

Last Updated: 12 November 2008
Article by Gregor Duthie

Over the past 12 months, the Scottish courts have twice ruled that seemingly minor errors in the content or timing of notices can render them invalid, resulting in potentially huge unforeseen costs. Understanding the potential pitfalls can help you safeguard against them.

The dangerous temptation when serving notice under a contract is to assume that the Notices provision is a standard "boilerplate" clause which does not require further review. However, on two separate occasions this year, the Court of Session has examined the dangers of such an approach. In one case, such a mistake would have resulted in unplanned expenditure of over £2 million.

The commercial norm

In the vast majority of cases, a contract will contain provision for how the parties are to inform each other of any subsequent actings or decisions. In the case of a limited company this will often require notice to be sent recorded delivery to the company's registered office and it will usually be deemed to have arrived 48 hours after posting. The following two cases serve to highlight the dangers lurking in this seemingly benign clause:

Timing of notices

In Carmarthen Developments Limited v Pennington, the courts examined the precise mechanisms of delivery of notices. Carmarthen Developments had entered into a conditional contract to purchase land from Mr Pennington. In terms of the contract, the purchaser had until 19 October 2007 to confirm the conditions had been satisfied, failing which the seller would be entitled to walk away from the deal at any time – provided that he did not receive prior notification that the conditions had been satisfied.

In terms of the contract, notices could be served:
  • To the parties, or to their solicitors;
  • By recorded delivery, by hand delivery, or by fax;
  • If sent by recorded delivery, notice will be deemed to have been served two days after posting;
  • If sent by fax between 9am and 5pm on a working day, notice will be deemed served upon full transmission;
  • If sent by fax after 5pm, notice will be deemed served at 9am on the next working day.

The Facts

The purchaser's solicitors prepared the relevant notice for transmission by fax on the morning of Friday 19 October, with the original notice being sent by first class post thereafter. Due to an oversight within the office, the fax copy was not sent and only the first class post was used to serve the notice.

In the background, meanwhile, the seller had made up his mind to exercise his right to walk away as soon as the longstop date of 19 October had passed. He instructed his solicitor that, if the purchasers had not served their notice by 5pm on Friday 19 October, then the seller's solicitor should fax notice that the seller was exercising his right to bring the contract to an end. His solicitor made special arrangements to send the fax from his own office on Saturday 20 October.

The seller's solicitors mail was not delivered to his office by the Royal Mail, but was collected from the sorting office by the solicitor on his way to the office each day.

The Implications

  • The purchaser's fax copy notice was not sent and was therefore not validly served prior to close of business on Friday 19 October.
  • The purchaser's original notice was not sent by recorded delivery and so there was no deemed time of receipt. Receipt of the notice would have to be a question of fact.
  • The seller's faxed notice was sent outside working hours, and so could not be deemed to have been received until 9am on the following Monday.

If the seller's solicitor received the purchaser's notice prior to 9am on Monday 22 October, then the purchaser's notice was served first and the contract was binding.

If the seller's solicitor received the purchaser's notice after 9am on Monday 22 October, then the seller's notice was served first and the contract was at an end.

After hearing evidence from the relevant parties, the court held that the purchaser's notice was served when it came into the seller's solicitor's possession i.e. when he collected his mail bag from the sorting office at 8.50am. Therefore, the purchaser had served notice that the conditions were satisfied before the seller's notice had been validly served and so the court found that the contract was binding. The seller is therefore bound to convey the land to the purchaser.

Timing of Notices - What you need to know

If you are required to serve notice by a particular date, it is not enough to know that it has been sent on time.

You must ensure that there is adequate provision for the notice to be received in time at the other end. If the contract specifies a period for "deemed" receipt, you must serve the notice in time for that period to pass.

Crucially, if there is no provision for deemed receipt, service will become a question of fact and you should take steps to make sure you are covered – either by hand delivery, or by ensuring that you obtain a fax transmission receipt or recorded delivery slip confirming service.

Form of Notices

In Ben Cleuch Estates Limited v Scottish Enterprise, the Court of Session considered whether a Tenant's break option in a lease had been validly exercised in a case where the notice had been addressed to the wrong party. If the court had concluded the notice was invalid the Tenants would have been bound in for the remainder of the Lease, at a rental cost in excess of £2,000,000.

The Facts

  • 1991 - Scottish Enterprise (then known as the Scottish Development Agency) took a lease of Enterprise House in Dundee from the then Landlords, Faraday Properties Limited
  • 1996 - Scottish Enterprise received notification that Faraday Properties Limited had sold Enterprise House to Fiscal Estates Investment Limited, who will be their new landlord
  • 2002 - Fiscal Estates Investments Limited sold their interest in Enterprise House.

Scottish Enterprise received formal intimation from Fiscal Estate's solicitors that the Landlord's interest had been sold to Pacific Shelf 1145 Ltd. This was a shelf company which, shortly after completion of the purchase, changed its name to Ben Cleuch Estates Limited. Scottish Enterprise received notification of the sale to Pacific Shelf 1145, but not of the subsequent change of name to Ben Cleuch Estates.

Ben Cleuch Estates Limited was a wholly owned subsidiary of Bonnytoun Estates Limited, and shared a common registered office address, and a common chairman. Bonnytoun Estates Limited employed managing agents in respect of their whole portfolio of properties. The managing agents issued the rental invoices which stated they were "Acting as agents of Bonnytoun Estates Limited", and referred to the Tenant as "Scottish Enterprise Whole property Ben Cleuch Estates".

  • 2003 - Scottish Enterprise decided to consider exercising their break option rather than continue in the Premises until 2016.

Prior to doing so, they entered into correspondence with the managing agents to see if the Landlord would offer any incentive for the break option not being exercised. The Landlord's proposal was issued by the individual who was chairman of both companies. However, his e-mails were signed "Chairman, Bonnytoun Estates" and the e-mail purported to attach "Bonnytoun's proposals to SE" (which were written on Bonnytoun Estates headed notepaper). The proposals included the following statement:

"I write to confirm that Bonnytoun Estates Limited ("BEL"), through its subsidiary Ben Cleuch Estates Limited ("BCEL") the Landlord, is prepared to make the following proposals to your clients Scottish Enterprise ("SE"). These proposals have been approved by the board of BEL.

SE hold the property from BCEL on a full repairing and insuring lease."

  • 2004 - SCottish Enterprise decided to exercise their break option and served notice to that effect. The notice was addressed to Bonnytoun Estates Limited at their registered office (For the Attnetion Of: the Chairman) and was copied to their managing agents.

The Implications

If the notice was validly served, Scottish Enterprise were free to vacate the premises with no further liability. If the notice was invalid, Scottish Enterprise would be tied in to the lease for a further ten years at a total cost of over £2,000,000.

The chairman (who is chairman of both companies) received the notice at the registered office (which is the registered office of both companies). However, he was advised that the notice was invalid since it was addressed to the wrong company, and so the Landlord sought to tie Scottish Enterprise in to the lease.

The notice provisions in the lease provided that any notice to the Landlord should be left personally or sent recorded delivery to the company's registered office. Scottish Enterprise argued that since the notice was received at the correct address, and was ultimately received by the chairman of the company, then the notice was correctly addressed to the Landlord (notwithstanding the inclusion of the reference to Bonnytoun, rather than Ben Cleuch Estates).

When the case first appeared before the courts, this argument was rejected: for the notice to be valid, it must be addressed to the correct parties, regardless of whether the correct recipient is already aware of the content of the notice.

On appeal, Scottish Enterprise were successful on the basis that the Chairman was personally barred from denying Bonnytoun were the Landlords. On the basis of the numerous items of correspondence sent on behalf of the Landlords, they had made out that Bonnytoun were to be regarded as the correct Landlords. However, it is crucial to note that the courts did not rule the notice was valid – merely that the Landlords were personally barred from objecting to the notice's invalidity.

Form of Notices - What you need to know:

In the correspondence prior to service of the notice, the chairman of Bonnytoun and Ben Cleuch Estates did not comment on the fact that the wrong Landlord was mentioned in the correspondence. He mentioned in court that he presumed anyone serving a notice "would have to go back to the source documents".

This is crucial to the service of any notice, and the original documentation should always be verified together with any amendments. In this case, the notification of change of Landlord should have been checked – a routine search at Companies House for Pacific Shelf 1145 would have disclosed the change of name to Ben Cleuch Estates and would have provided the correct details for service of the notice.

To ensure a notice is validly served:

  • Always check the original source documentation for the parties' details
  • Make sure that any amendments are kept with the source documentation
  • In the case of a company, ensure that the company's registered number is included within the documentation. Unlike the company's name, the registered number cannot be changed and can help to identify the correct parties in later years.

As can be seen from the Scottish Enterprise case, serving a notice is not simply a case of posting a letter and assuming it reaches the intended recipient. If the correct procedures are not followed, it can turn into a vew expensive exercise indeed. If there is any doubt, you should contact your professional advisers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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