Paul Harper: When is a strict rule of thumb not a a strict rule of thumb?

Over the years the rule of thumb for following notice provisions in contracts has been to take things literally. The courts have favoured a strict approach to the interpretation of contractual terms, which means following things to the letter. If your contract says: notice must be given by a letter delivered by first-class post as the clock strikes 11am, don't let anyone tell you that 11:15am or another delivery method will do just as well.

Paul Harper is a Partner at Lindsays
Paul Harper is a Partner at Lindsays

Unless, perhaps, that person is a senior judge. A recent Court of Session (CoS) ruling says that failure to comply with the strict notice requirements of a contract may not, in fact, invalidate the notice.

The case is potentially important for any individual or business that is party to a commercial contract in Scotland – ie pretty much every business here. Because the question of whether or not notice has been given correctly can have serious financial consequences – such as finding you’re locked into a costly contract you thought you had ended.

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The main legal issue here is whether the decision marks a general shift in direction, or just a specific response to a particular case. The practical issue is what businesses and individuals should do in light of this ruling.

Previously, the courts took a strict approach to interpretation, focusing on the wording of the relevant clause as the main indicator of what was in the minds of the contracting parties when they agreed what notice was to be required. “The purpose of interpretation is to identify what the parties have agreed, not what the court thinks they should have agreed,” said Lord Neuberger, President of the Supreme Court, in Arnold v Britton [2015]. So, this latest decision in Hoe International Ltd v Andersen [2017] is surprising.

The case concerned a term in a commercial contract which stated that any notice “shall be sent by pre-paid first-class post or recorded delivery”, marked for the attention of a named individual and sent in an envelope marked with the full postal address of the other party’s solicitors. The notice sender – an agent for Hoe – failed to meet these conditions, however, the notice was indirectly delivered to the intended recipient. The Court of Session held that the notice was valid, despite the fact it was not served by the method required by the contract.

It noted that when deciding if a notice had been served properly, the fundamental question is: “if a particular formal requirement [for service] is not complied with, is the would-be recipient prejudiced, in a practical sense?... If there is no prejudice, insisting on strict compliance for its own sake serves no useful purpose.”

According to the CoS ruling, the interpretation of whether or not any particular notice was served “properly” depends upon several factors, such as the purpose and consequences of the notice; whether it reached the correct recipient; and whether the recipient experienced any prejudice due to how the notice was served.

The Court noted the importance of looking at commercial factors and pressures, and for businesses to have certainty over when a notice is, or isn’t, valid.

Ironically, its decision may have introduced more uncertainty. Formerly, if a notice did not comply with the strict contractual terms, one was certain it was not valid. But as notices can now be valid without conforming to the terms of the contract, it is difficult for businesses to know how far from the contract they may deviate before becoming invalid. The result of the case may in fact be more litigation; not less.

One certainty the case does provide is the importance of reviewing contracts and taking advice before sending any notice. Even if the new ruling has relaxed the requirements for those giving notice, being relaxed and giving notice just don’t fit together. Individuals, businesses and their agents should still comply with the strict terms of the contract, if at all possible, to be absolutely certain the notice is valid.

Paul Harper is a Partner at 
Lindsays