Most contracts contain a clause – usually in the section known as the “boilerplate” which is where many fairly standard clauses are placed – which deals with the giving of formal notices under that contract.  It’s often an area which is not heavily negotiated because understandably, business people are more concerned with the commercial aspects of the contract.  A dispute which was heard in the High Court recently has highlighted the need to pay careful attention to these clauses; both when they are being agreed and also when one party seeks to serve a notice on the other.

The case of Zayo Group International Ltd v Ainger & Ors [2017] EWHC 2542 (Comm) (13 October 2017) concerned a business sale contract.  The US business Zayo Group LLC (Zayo) had agreed to purchase the shares of UK-based Geo Networks Limited (Geo) and a number of its associated companies.  Following completion, Zayo alleged that certain members of Geo’s management team who were parties to the contract had breached warranties they had given in the contract.  Zayo valued its claim for these warranty breaches at over £2.4 million.

It took Zayo nearly 18 months to decide they had a claim and that was the time limit agreed under the contract for making warranty claims.  On the very last day available to give notice of their claims, Zayo’s solicitors sent formal notices to each of the members of the former management team, setting out details of their claim.  Zayo believed they had complied with the requirements for serving notices which were set out in the contract.

One of the notices, however, was not actually delivered.  A courier took it to the address of the defendant which was contained in the contract, but that person had since moved to New Zealand.  She hadn’t given any notification of this relocation, nor was she required to under the contract.  The notice clause simply said that the notice had to be delivered to the address given in the contract.  Had the courier, on being told that the defendant had left the house, simply posted the notice through the letterbox, the notice would have been deemed to have been properly delivered and served in time, because that is all the contract required.  But the courier had no idea of this, so having been told that the addressee had moved, he drove off with the notice.

The consequences of this proved to be fatal to Zayo’s claim.  The contract provided that none of the management team would be liable for a warranty claim unless all of the management team had been given notice of the claim.  In this case, only six of the seven members of that team had been effectively served with the notices of claim.  The Judge was clear in his finding that the claim should be struck out and – unless it is appealed – Zayo has lost its opportunity to recover the loss of £2.4 million it alleged it had suffered.

There are a few lessons which every business can take from this case:

1.         Make sure you think about the wording of notice provisions in any contract you are planning to enter into.  Discuss this with your legal advisers and ensure the final wording reflects how you would actually like things to work in practice.

2.         Remember that this is almost invariably a double-edged sword.  You may need to use the notices provision in future as well as finding yourself on the receiving end of a contract notice.  Put yourself in both positions and think through the practical consequences.

3.         If you have to serve a formal notice under a contract, that will usually mean you have a material issue with the other party and quite probably, there will be a significant financial aspect to this.  It makes sense to get your solicitors to review and advise you on the steps you need to take to ensure any notice is properly served.  As Zayo found out to their cost, what might seem like an insignificant issue could turn out to invalidate your entire claim.

http://www.bailii.org/ew/cases/EWHC/Comm/2017/2542.html