Most IT contracts contain a formal notice clause. Usually found at the end of a contract, this clause will generally stipulate who the supplier and customer should address notices under the contract to, where they should be sent, and the possible methods of delivery, among other things.
The recent decision in Hoe International Limited v Martha Andersen and Sir James Aykroyd, a Scottish Court of Session case, illustrates the importance of strictly complying with such clauses.
Hoe International Limited (the Buyer) purchased all the shares of a company from Martha Andersen and Sir James Aykroyd (the Sellers) in September 2012.
The share purchase agreement contained a notice clause. It specified that any notices required to be sent to the Sellers’ solicitors: 1) by personal delivery, pre-paid first class post or recorded delivery; 2) marked for the attention of a specific person; and 3) to a specific address. Service by email was specifically excluded.
After the sale, the Buyer received a letter of claim from a third party against the company which the Buyer considered amounted to a breach of a warranty the Sellers had provided at the time of sale. Notice of a warranty claim required to be given before an action could be raised.
The Buyer’s solicitors sent a notice of the warranty claim to the Sellers’ solicitors by way of letter sent by DX (courier service) and email. The letter enclosed a copy of the letter of claim received.
The Buyer subsequently raised an action against the Sellers for breach of warranty. Among other defences, the Sellers argued that the notice was invalid because it did not contain sufficient information and was not sent in accordance with the notice clause in the share purchase agreement. Lord Woolman dealt with these arguments separately.
Did the notice contain the required information?
Lord Woolman held that the notice provided all details known to the Buyer at that stage, and a reasonable recipient would have known that a claim was being made and what the claim was about, because a copy of the third party’s letter was enclosed. Therefore that argument of the Sellers failed.
Was the notice served correctly?
The Sellers also argued that the notice was not served correctly because: 1) it was sent by DX and email; 2) it was not marked for the attention of the individual set out in the notice clause; and 3) the envelope did not give the full postal address of the Sellers’ solicitors.
The Buyer’s position was that a sensible commercial person would consider that service by DX was sufficient. The method of sending was immaterial, as the result would be the same, being that the letter would still have reached the Sellers’ solicitors.
However, Lord Woolman concluded that the notice clause specified exactly what constituted a valid notice, and that the parties did not intend to allow deviation from that. Therefore, he found that the Buyer had not served a valid notice.
Points to remember
Although this case concerned a notice sent under a share purchase agreement, the same principles would apply to a notice served pursuant to an IT contract.
The decision illustrates that the consequences of not sending a notice in the correct way are significant. Here, the Buyer lost their right to pursue their warranty claim against the Sellers (although the decision is being appealed).
Whether you are a customer or a supplier, it is equally important to send valid notices under an IT contract. For example, if a customer sent a notice when seeking to terminate an IT contract with a supplier, that could lead to it continuing to the customer’s cost. Additionally, if a supplier issued a defective Excusing Cause notice under the contract that would mean that it lost the protection afforded by those provisions.
Therefore it is vital that all parties to IT contracts thoroughly review notice provisions, and take legal advice, before serving any notices under the contract. We would recommend following the notice provisions to the letter to avoid any possible arguments that the notice has not been validly sent.
On September 28, 2016