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The devil is in the detail

LAW

When serving a notice it is vital to ensure it meets with the requirements of the contract it refers to and that means everything from the wording to the delivery method, writes Lindy Patterson

NOTICES come in many shapes and sizes, and construction contracts contain numerous forms: payment notices, notices of withholding, notices of delay, of non-completion, partial possession, suspension, termination and notices of adjudication and arbitration.

By issuing them, a party to a contract obtains rights that will affect the other party to the contract. Notices, once served, have important consequences.

But there are rules when drafting and issuing notices under a contract and there can be serious consequences if you fail to follow them.

Here are a few tips to help avoid some common pitfalls.

First is the question of content. In most contracts the clause dealing with the notice will tell you what a notice should contain. Take, for example, clause 8 of JCT 2005, which deals with termination.

Under clause 8.4.1, a notice of default is in most cases a precursor to termination of the contract by the employer.

The notice of default must specify the grounds of default and clause 8.4.1 identifies five types of contractor default.

The notice of default must make it quite clear which one (or more) of the five types of default is being relied upon.

It is also good practice to make reference to the clause in the contract on which you are relying and to adopt the wording used within that clause.

An example of how not to word a notice is provided in Shawton Engineering v DGP International (Court of Appeal, November 18, 2005). Although the wording of notices was not an issue in this case, the court commented on the adequacy of a notice sent by Shawton.

The notice stated: 'We regret that in the event that you do not carry out your contractual obligations we will place the matter in the hands of our solicitors with a view to considering options which may [include] determining the contract.' This notice did not indicate an intention to determine (or terminate) the contract, but an intention to take legal advice.

Perhaps Shawton chose that wording because it wanted to keep lines of communication open with a view to negotiating a solution.

But this should not be done by watering down the contents of the contractual notice. You cannot hedge your bets. If you do, you may lose your rights.

If the contents of a notice are not right, you run the risk it will be declared invalid.

This can have serious consequences. For example, if you proceed to terminate on the basis of what is later decided to be an invalid notice of default, you may well be held to have repudiated the contract and be liable in damages.

Also, where there are funders involved in the development they are often entitled to prior 'notice' of any notices. Either party serving certain contractual notices, particularly notices of default or termination, may be required to give notice first to the funders.

This requirement may not be set out in the building contract itself but will be contained within a separate contract between the funder, the employer and the contractor.

Another example of the consequences of an inadequate notice is the recent Scottish appeal case of Scrabster Harbour Trust v Mowlem (Court of Session, February 22, 2006).

In this amended form of ICE contract, Mowlem could only challenge an adjudicator's decision by starting arbitration proceedings within a specified period from the date of the decision.

Scrabster argued that a notice of arbitration served by Mowlem was invalid because it did not contain the content under the contract.

If so Mowlem was out of time to issue another. Luckily for Mowlem the Appeal Court found it did contain the necessary content.

Secondly, there's the question of how a notice is served.

Getting the contents of a notice right is not enough ? you must also ensure that service is effected in the correct manner and to the correct person.

So far as methods of service are concerned, JCT2005 provides that, subject to specific provisions regarding service, 'any notice or document may be given or served by any effective means'.

Following the case of Bernuth Lines Ltd v High Seas Shipping (Law, February 2, 2006) the phrase 'any effective means', arguably includes service by email.

Service of a notice of termination under JCT2005 by email will not be valid because the termination provisions specifically provide that service must be by 'actual, special or recorded delivery'.

It may be more diff icult for the party serving the notice to prove service by email than it is in the case of fax or post.

Failure to comply w ith such provisions regarding the way a notice is served can render that notice invalid.

In the 1990 case of Muir Construction v Hambly the contract (JCT'80) provided for service of the notice of termination by recorded delivery or registered post. In fact the notice was hand-delivered.

The court stated: 'Determination of employment is a fundamental step, wholly altering the rights of the parties.

'That being so, it would be undesirable if there were any doubt as to whether the contractor intended to give the notice, or as to whether the employer had received it.

'Even the preconditions for giving such a notice were dealt with in the contract at some length, and in some complexity?Having regard to that background, and the fundamental nature of the determination notice, it was unsurprising to find that the determination had to be in a specified way.' The court decided that the termination was invalid because of failure to serve the notice by the means set out in the contract. This was despite the fact that it was not disputed that the notice had been received.

The Scottish court in Muir Construction is in marked contrast to the decision of the English courts in Goodwin & Sons v Fawcett (1965), where a notice of termination that, under the RIBA form of contract, was required to be by registered post, had in fact been delivered by recorded post. While the court said these were different types of post, the service was held to be valid.

But the court did not set out in any detail the reasons for reaching its decision, other than to state that contracts must be construed in a common-sense and commercial manner.

Studying the contract provisions before you issue a contractual notice is vital.

Key points

When issuing a notice under a contract, ask yourself:

Are there funders involved?

If so do they require prior notice?

What does the cont ract state must be included in the notice?

Refer to contract clause number or specific terms of the contract relied upon.

How must the not ice be served?

When must the notice be served?