How many times have you signed a contract without really taking a close look at what the notices clause says all the way down there in the back of your standard boilerplate? Well, you aren’t alone.
In a recent case, Lehman Brothers International Europe -vs- Exxonmobil Financial Services BV (2016) EWHC 2699 (Comm), a notice clause that required a notice to be given before “close of business” led to significant and expensive litigation. The question was whether a notice given at 6.02 p.m. was valid.
The case was one of the many arising from Lehman Brothers’ failure in 2008. In this instance, Exxon Mobil was required to provide a valuation notice by ‘close of business’ on a certain day. They did so at 6.02 p.m. of that day. The liquidators of Lehman Brothers claimed that this notice had been given outside the contractual window and so was invalid.
The court in this instance decided that, in the context of the parties’ business, close of business actually meant 7.00 p.m. The very fact that it took many years of litigation to get to an answer, means that the victory for Exxon came at significant cost.
So, what should you do to ensure that you do not find yourself having to explain to your board of directors why the other side is claiming your notice was invalidly given?
- Prior to signing a contract read the notice clause and make sure that it includes all of the relevant details to specify what should be in the notice, where and how it should be sent, what constitutes receipt, and defines a business day – including a time for close of business. This is especially important in international transactions, where different countries have different holiday regimes and close of business customs.
- Check what constitutes receipt of the notice and make sure that your business processes will react to receiving a formal notice through this channel. You do not want to be the recipient of a notice only for it to sit in the mail room or in an unattended fax intray or email inbox. Formal contractual notices will usually come with strict deadlines, and courts are generally reluctant to favour applicants whose internal systems have failed them if the party giving notice has complied with the terms of the notice clause.
- If you are seeking to use the notice clause in one of your contracts, comply with it pedantically. If the notice clause says to fax the notice, then find a fax machine! It may be worth identifying your existing high value contracts and checking to make sure (before any dispute is on the horizon) that the notice clause still works and doesn’t refer to using telexes or faxes as the only method of giving notices. If the parties are on good terms, a variation to fix the notices clause to facilitate the notices process will usually be very easily negotiated.
It might seem unglamorous and slightly obvious, but good notice processes are a crucial aspect of legal risk mitigation. You will thank yourself for this diligence when you are required to send a default notice and the process is crystal clear!
Should you have any queries or need any clarifications with respect to the above, please do not hesitate to contact Rosa Nduati-Mutero.
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