Legal Briefing

Service failure? The law on notices and its application in recent Scottish cases

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Scotland | 01 November 2016

A number of cases have come to court in Scotland in the last 12 months regarding whether or not notices have been validly served.

There is an established legal framework for determining that question, which every lawyer should bear in mind before drafting and serving a notice.

Before turning to the recent cases, it is helpful to consider the key principles:

1. Is the provision governing service of the notice mandatory or permissive?

In Yates Building Co Ltd v R J Pulleyn (1976) the appellants entered into agreements in which they were given the option to purchase plots from the respondents.

According to the contract, the option was ‘exercisable by notice in writing given by or on behalf of [the appellants] to [the respondents or their solicitors]… such notice to be sent by registered or recorded delivery post to the registered office of [the respondents] or the offices of their said solicitors’.

The notice was sent by ordinary post. It was received by the respondents but rejected by them as it had not been sent by registered or recorded delivery post.

The Court of Appeal held that the question was whether the notice clause was mandatory or permissive. If the former, it required to be followed exactly, but the latter would be satisfied if the notice was served substantially in accordance with the general intent of the clause.

The court found that the mandatory requirements were that the notice required to be firstly in writing and secondly given to the respondents or their solicitors. However, the requirement for the notice to be sent by registered or recorded delivery post was not deemed mandatory.

It was for the benefit of the appellants so that they could be sure of their position. If the letter was sent by one of the methods in the clause then there would be clear evidence of postage and the time of doing so. If not, and the respondents could prove that they never received it, or received it too late, then the appellants would not have exercised the option. However, as the respondents had received it, it had been validly served.

2. If mandatory provisions are not precisely followed, it is irrelevant that the notice is received

In Muir Construction Ltd v Hambly Ltd (1990) the pursuer served a notice on the defender purporting to terminate the contract between them. They did so pursuant to a clause in the contract that stated that the pursuer ‘may by notice by registered post or recorded delivery to the [defender]… forthwith determine the employment of the [pursuer] under this contract. However, the pursuer hand delivered the notice to the defender.

Lord Prosser held that the notice was not valid. The words ‘may’ and ‘determine’ were intended to be read in an integral way with the words lying between them, and those words were intended to qualify the power to terminate the employment in a mandatory way. There was a genuine purpose in the service of the notice being formal in the context of terminating employment: ‘precise words in a carefully structured provision are intended by the parties to have a precise effect in a carefully structured procedure.’

3. The reasonable recipient test

In the House of Lords case of Mannai Investment Co. Ltd v Eagle Star Life Assurance Co. Ltd [1997], the lease between the parties set out that the tenant could terminate the lease by serving not less than six months’ notice in writing to the landlord or their solicitors. This would mean that the lease would expire on 13 January 1995. However, the tenant’s notice stated that the termination date was 12 January 1995.

The court found that the notice was effective. The clause didn’t require the tenant to use any particular form of words in the notice. If it had, then the tenant would have required to comply with those: ‘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’.

Here, the tenant simply needed to unambiguously convey an intention to terminate the lease on 13 January. Even though there was an error within the notice, it required to be construed objectively. How would the reasonable recipient have understood the notice in the context? The court held that the purpose of the notice was to inform the landlord that the tenant wished to terminate the lease. The reasonable recipient would have had no doubt that the tenant wished to do so on 13 January and had simply wrongly stated 12 January.

4. A strict approach is taken when there is a unilateral power to terminate or alter a contractual relationship

In Scrabster Harbour Trust v Mowlem Plc (2006) the respondents served a notice of arbitration on the appellants that did not comply with all of the requirements of the relevant arbitration code. The court held that the notice was valid.

If a contract gave one party the unilateral right to bring the contract to an end, or alter it, then they must comply with the agreed conditions for its exercise.

However, a distinction could be drawn between that and a power exercisable by both parties to refer a dispute to arbitration. In the context of the contract as a whole, it could not have been the parties’ intention that the failure to comply with the arbitration code would render the notice invalid.

5. If it is mandatory provision, the court will not re-write it for the parties

In Ben Cleuch Estates Ltd v Scottish Enterprise [2006] the tenant was required ‘to give the Landlords at least one year’s written notice of termination’ of the lease. The tenant served a break notice addressed to the parent company of the landlord and sent to the registered office of both companies.

It was held by Lord Reed that the break notice was not valid. The determining factor was the proper application of the clause. The parties had agreed ‘on the key which is to be capable of turning the lock: if the tenant has not used the right key, then the lock will not turn’.

If they had intended that the break clause simply required that the tenant should show a clear intention to the landlord to terminate the lease, then they could have said so in the lease. It was not for the court to re-write the lease for them. A notice addressed to a party other than the landlord and sent to the registered office of the other party could not be regarded as a notice to the landlord.

Recent Scottish cases

Hoe International Ltd v Martha Andersen and Sir James Aykroyd (2016)

The pursuer purchased the shares in a company from the defenders. They subsequently served a notice of warranty claim on the defenders’ solicitors by way of letter sent by DX and email, enclosing a copy of the letter of claim received from the third party. The defenders’ solicitors received this letter and responded to it.

The SPA set out that the pursuer required to give the defenders ‘notice in writing… giving reasonable details of all material aspects of [the warranty claim]… known to the [pursuer], including the [pursuer]’s bona fide estimate of the amount thereof and detailing the [pursuer]’s calculation of the loss alleged to have been suffered by it’.

There was also a notice clause, which stipulated that notices to be given under the SPA ‘shall’ be sent by personal delivery or pre-paid first class post or recorded delivery. Further, any notice to be given to the defenders was deemed to have been properly given if sent to the defenders’ named representative at a specific address.

The defenders argued that the notice was invalid because it did not contain sufficient information, and because it was not sent in accordance with the notice clause.

Lord Woolman found that the notice contained sufficient information as ‘the reasonable recipient would have been in no doubt’ that the notice complied with the SPA. It provided all the details known to the pursuer at that stage.

However, he held that the notice hadn’t been validly served as it didn’t comply with the notice clause. It specified exactly what constituted a valid notice, and the parties did not intend to allow any deviation from that. As such, the notice wasn’t effective: ‘To borrow Lord Reed’s words, I hold that Hoe failed to use the right key, and accordingly the lock will not turn.’

This case is currently subject to appeal.

West Dunbartonshire Council v William Thompson and Son (Dumbarton) Ltd (2016)

Was a notice issued by landlords, and delivered to tenants, but addressed to ‘Wm Thompson & Sons Ltd’ rather than the full name of the company, sufficient to trigger rent review provisions in a lease?

The relevant clause stated: ‘Any written notice or intimation given by the Landlords to the Tenants… shall be validly given under the hand of an officer of the Landlords and a certificate by the giver of such notice or intimation that the same shall have been either delivered or posted, duly addressed to the Tenants, shall be sufficient evidence as to the receipt thereof.’

The parties agreed that the letter had been received by a director of the tenants.

The court referred to Mannai and Ben Cleuch in finding that the notice was not effective, as it was not ‘duly addressed to the Tenants’. As it didn’t meet the strict requirements for formal validity, the court was unable to proceed to the next step of applying the reasonable recipient test.

Regent Quay Development Company Ltd v Tyco Fire & Integrated Solutions (UK) Ltd (2016)

In contrast, the court did proceed to apply that test in this case. There were two errors in a break notice, being that the heading did not mention all of the units occupied by the tenants, and the lease was not defined correctly.

The issue for the court was how the notice should be construed, and in doing so, the court had to determine how the reasonable recipient would have understood it, as set out in Mannai. The court set out what the reasonable commercial landlord would have known before opening the notice, including that the parties’ rights and obligations were contained in the original lease as varied, and that the tenant did not have any right to terminate their tenancy in relation to individual units.

Accordingly, no reasonable landlord in the circumstances would have been misled by the content of the notice, and there would have been no reasonable doubt what the tenant was intimating.

Balgray Ltd v William [2016]

Did sending a notice addressed to someone who was not the landlord of an agricultural holding constitute giving notice to the landlord? The notice, which was sent pursuant to a statutory provision, wasn’t addressed to the landlord or their registered office, but to the company secretary and director of the landlord, at his home, from where the landlord operated.

The court determined that the statutory provision was mandatory, and it set out that notice required to be given “to the landlord”. As the notice wasn’t given to the landlord, it was invalid. It didn’t matter that the notice came to the attention of the directing mind and will of the landlord.

Conclusion

Before drafting and serving a notice it is vital to carefully examine the provision, whether statutory or contractual, which governs its service. If it is mandatory then it should be followed precisely, especially when the power which is being exercised is unilateral and has the effect of bringing a contractual relationship to an end. However, minor defects in a notice aren’t necessarily fatal in certain circumstances as the court may consider what the reasonable recipient would understand from the notice.

In all cases, the safest option is to follow the provision to the letter.

Iain Rutherford is a Partner and Monica Ross is a Senior Solicitor in the business disputes and asset recovery team at Brodies LLP. For more information, please contact Iain on 0131 656 0165 or at iain.rutherford@brodies.com, or Monica on 0131 656 0035 or at monica.ross@brodies.com.