Developments in contract: Notification clauses

​​A brief summary of the principles, recent developments and practical tips relating to contractual requirements to give prior notice of claims.

Principles

  • Parties are free to provide in their contracts that certain procedural requirements must be met before a claim can be made under contractual warranties. It is common to see provisions requiring the party making the claim to issue advanced notice of that claim to the other party.

  • Claim notification requirements often stipulate that the notice must be issued within a certain period following execution of the contract or a particular event, and that the notice must contain certain information, for example the grounds for the claim and an estimate of its value.

  • The English courts will generally interpret these requirements literally and insist on compliance with them in order for the claim to be valid.

Recent developments

  • In Hopkinson & Ors v Towergate Financial (Group) Ltd & Ors the Court of Appeal considered the construction of the indemnity provisions contained in a Share Sale agreement. The defendants (who were the indemnifying parties) claimed that the prior notice of claims required was not given. The Court held that the claimants' notification of a claim under the indemnity had not breached the terms of the agreement and was valid.

  • The issues in this case arose out of inaccurate drafting and the incorrect use of defined terms, which the defendant argued cast doubt on the reliability of a purely textual analysis of the clause in dispute.

  • The Court held that if there is an obvious error in the drafting of the clause, the court can interpret the clause by correcting any obvious errors.

  • The court also held that the construction of a clause should accord with commercial common sense and concluded that it makes perfectly good commercial sense to distinguish between warranty claims and indemnity claims in terms of the level of detail that can sensibly be given in a notification. In the case of claims under an indemnity, at the time the notice is given, the party issuing the notice may “not be in a position to specify details and circumstances, or to give an estimate in good faith of the amount of the claim, in the same way as it would be expected to do when making a claim for breach of warranty."

What this means

  • Parties should ensure that they are in agreement as to the meaning and use of any defined terms and should ensure they understand in which circumstances a notification of claims is required and the express requirements of such notification.

  • If sub-clauses are added to a contract, then the parties must check that there are no drafting consequences that create ambiguity in the clause as a whole. This is particularly important where standard form drafts are used.

  • The court is more likely to interpret contractual clauses as accurately drafted than cast doubt, for the benefit of one clause, over the whole agreement.

  • When it comes to interpretation of a clause, parties should bear in mind that “every notification clause turns on its own individual wording.”

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.