Case law: Failure to follow agreement when giving notice makes notice invalid

Thursday 14th April 2016

Businesses giving notice pursuant to provisions in commercial agreements should ensure they follow those provisions to the letter, or risk the notice being invalid, a recent ruling makes clear.

 

A corporate buyer signed an agreement to buy the entire share capital of a company from its shareholders. The agreement required the seller shareholders to disclose any disputes their company was involved in.

 

The sellers disclosed a dispute with a third party in which nothing had happened for a while. The buyer asked for, and the shareholders gave a warranty in the agreement in case the third party resurrected the dispute. The agreement said that if, in future, the third party did resurrect its claim the buyer had to give notice to the seller as soon as reasonably practicable.  The agreement set out in detail how such a notice had to be given – including that it could be hand-delivered or sent by post or recorded delivery.   

 

The third party resurrected the claim, and the buyer’s solicitor gave notice to the sellers. However, he did so by email and using the DX document exchange service. Neither of these methods was authorised under the agreement.

 

The company settled the claim, and then claimed against the sellers under the warranty.

 

The sellers argued the buyer could not enforce the warranty because the notice had not been properly given in accordance with the agreement.  The court agreed that the notice had not been validly served and the buyer could not claim under the warranty.

 

Operative date

  • Now

 

Recommendation

  • Businesses giving notice pursuant to provisions in commercial agreements should ensure they follow those provisions strictly, or risk their notices being invalid

 

Case ref: Hoe International Ltd v Anderson & Aykroyd [2016] CSOH 33

 

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Author: Paul Ridehalgh

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