Compliance with the letter, not the spirit, of notice provisions

23 November 2017

Author: Rachel Craig
Practice Area: Corporate - M&A

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Key practice point: A failure to comply strictly with notice provisions in an agreement renders the notice invalidly served – thus resulting in the content of the notice being null and void.

In Zayo Group International Ltd v Ainger and others [2017] EWHC 2542 (Comm), the Commercial Court dismissed the claimant’s breach of warranty claims because of the claimant’s failure to comply strictly with the notice provisions of the agreement pursuant to which the claimant alleged breach. This case serves as a clear statement that compliance merely with the spirit of the notice provisions in an agreement is not enough.

Background

Zayo Group International Ltd (“Zayo”) acquired the entire issued share capital of Ego Holdings Limited in May 2014 from a private equity fund and a number of management sellers. A number of warranties in the share purchase agreement (“SPA”) were given by the management sellers (the “Management Warranties”). Pursuant to the SPA, a claim for breach of any of the Management Warranties had to be served on the management sellers within 18 months of the SPA (being 5pm on Friday 13 November 2015).

Zayo alleged breach of certain accounts warranties in the SPA and sought to serve notices of claim on each of the management sellers on 13 November 2015. Notices of claim were delivered to six of the seven management sellers. A courier attempted to deliver the notice of claim to the other management seller, Sheree Jaggard, at the address recorded for her in the SPA but was told that she no longer lived there and had moved to New Zealand. The courier left the address, taking the notice with him, and delivered it to one of the other management sellers. Accordingly the notice of claim was not left at Ms Jaggard’s address for service by 5pm on 13 November 2015.

The management sellers argued that “a failure to comply with the requirements of a notification clause render the notice invalid with the consequence that any liability lapses.”

Judgment

The court held that “the commercial purpose of contractual notices in this area is that of commercial certainty” and further commented that the wording in the SPA “placed on [Zayo] the onus of compliance and allocated the risk of non-compliance to [Zayo].” Accordingly, Zayo’s claim for breach of warranty was dismissed because of Zayo’s failure to follow correctly the “clear and certain” service of notices provision in the SPA.

In considering the drafting of the SPA, the court found that what was required was “delivering the notice to the address (as opposed to personal service on the individual)” hence the fact that Ms Jaggard no longer lived at the address specified for her in the SPA did not matter. The court found that there was no obligation on Ms Jaggard to notify Zayo of any change of address; the SPA simply permitted her to do so with the use of “permissive not mandatory” language, and therefore the fact that Ms Jaggard had not notified Zayo of her change of service address was irrelevant. The court observed that Ms Jaggard’s failure to so notify Zayo meant that she ran the risk of a valid notice being delayed in coming to her attention, but confirmed that it did not affect the validity of the notice itself.

Furthermore, the court held that a claim for breach of any Management Warranty had to be made against all of the management sellers and agreed with the defendants, that “a failure to notify all…means that none of them have any liability.”

Zayo sought to argue additional issues relating to the alleged breach of Management Warranties but the court held that Zayo’s breach of the notice provisions was a “knock-out” issue meaning that the other issues which Zayo sought to raise were academic.

Practical points

Parties should carefully consider the language used when drafting notice clauses in an agreement and ensure they understand how such clauses would work in practice. This case highlights the need for a party to adhere to the letter, not the spirit, of notice provisions in an agreement and is a reminder of the potentially significant consequences of failing to do so. Given that Zayo did not seek to serve notice until the very last day, it had no time to remedy its breach of notice provisions. In practical terms, therefore, a party wishing to serve notice should do so at the earliest opportunity.

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