Notice clauses are an important element of a contract and should specify how and when notice must be served. They require parties to inform each other if a specific event has happened or is about to happen. In commercial agreements, it is common to demand notice:
- If a party decides to terminate the contractual relationship;
- To exercise a right under the contract;
- To amend payment or supply terms; or
- In the event of a breach of contract.
A failure to comply with the terms of a notice clause may mean that the notice is not valid which can cause unnecessary delays and sometimes be fatal to the course of action that the party giving notice wants to follow. This is why it is important for parties to be aware of their obligations under a notice clause and to ensure that they are fulfilled.
What should a notice clause cover?
Notice clauses can be customised to suit the business needs of the parties. It is best practice for both the notice clause and the notice itself to be in writing to avoid any evidential difficulty in the event of a dispute regarding notice. A notice clause should cover the following factors:
1. Where & Who
The clause should explain where the notice should be sent and to whom it should be addressed. If the notice is to be delivered to a specific address, the clause should specify the process for informing the other party of a change to that address. If it is to be delivered by email, it is best practice to include more than one email address, or to specify a generic company email, such as ‘info@’.
When deciding to whom notice should be addressed it is advisable, where appropriate, to name a company position, such as company secretary, as opposed to an individual. Individuals may change position or leave the company. By addressing a notice to a specific position, you can ensure that there is always an appropriate recipient. If a notice clause does not specify where or to whom notice should be addressed, notice can be served at a company’s registered UK office.
2. Method of Service
A notice clause should also specify which method of service is to be used. Notice can be served by:
- Personal delivery;
- Email; and
The most appropriate method of service will vary depending on the circumstances of each contract and the needs of the parties.
It is more common to serve notice by post, DX, or email, as opposed to personal delivery as it’s more tasking. Service by post is usually appropriate for longstanding contracts such as leases where the anticipated date of service is relatively far in the future. This is because physical addresses are less likely to change than email addresses, which may be rebranded and become invalid. Service by email may be more appropriate where the parties to the contract have an ongoing relationship and already use email as their primary mode of communication.
3. Deemed Receipt
In addition to specifying the mode of delivery, notice clauses should explain when notice is deemed to be received. This is the point at which service is effected. It may also detail what evidence will be sufficient to prove this.
This is important if parties have specific deadlines or limitation periods to meet. For example, if a notice is served by email, then parties may agree that the email is deemed to be received when it is sent —subject to any agreement that an email sent outside of business hours is not deemed received until business resumes. The proof is usually that the email itself was sent. In theory, parties could choose to add an additional requirement that service is not effective until receipt of the email is confirmed, however, this would make it possible for the recipient to delay service which is an undesirable position.
When serving notice under a contract, parties must:
- Comply with the requirements detailed in the notice clause; and
- Make it clear to the recipient what they are giving notice of.
If a party fails to comply with the requirements of a notice clause, then the notice may be invalid, although this will not always be the case. In Hoe International Ltd v Andersen  CSIH 9, the Inner House confirmed that non-compliance with a notice clause may not be fatal to the validity of the notice, provided that the recipient is not prejudiced in a practical sense. This will depend on the purpose of the terms of the notice clause and why the notice was required to be served in a particular way. Usually, the more drastic the consequences of the notice are, the more appropriate it will be to enforce strict compliance of the contractual clause. While the courts may excuse non-compliance with a notice clause where it is negligible, it is still preferable for parties to comply with the terms as far as possible and to avoid the risk of any challenge to the validity of their notice.
Similarly, parties must make it clear that they are serving notice and what they are serving notice of. This could be highlighted in the subject of an email or at the outset of a letter with reference to the relevant contract which the notice is given under. Failure to do so may render the notice invalid as the Inner House found in Our Generation Limited v Aberdeen City Council  CSIH 42.
In this case, the sender attached a document entitled ‘Statement of Account’ to an email. The sender intended for this to constitute written notice, which would require payment from the recipient. However, there was nothing in the email or its attachment that would reasonably have drawn the recipient’s attention to the fact that something would happen if they did not respond. In light of this, the Court held that the email did not constitute contractual notice and that therefore, notice had not been served.
The consequences of not complying with a notice clause can be severe. It is essential that parties ensure that they fulfil any contractual requirements when serving notice. This should be straightforward provided that a notice clause is clear, well drafted, and appropriately tailored to suit the commercial needs of the parties to the contract.
If you would like to find out more about commercial contracts and the common issues our clients face, visit our Commercial Contracts video and article series.