Contracting parties should take notice of the latest interpretation ruling
In the case of Zayo Group International Limited v Ainger and others, the High Court has adopted a literal interpretation of notice provisions in a commercial agreement. As a result, the court held that the claimant had failed to give proper notice of its warranty claim, and that its claim should be dismissed.
The case concerned a share purchase agreement (SPA) by which Zayo purchased the entire issued share capital of E Limited (the ‘Company’) from the seven defendant managers of the Company (the ‘Management Vendors’). Zayo alleged that the defendants had breached the Management Warranties in the SPA and sought to make a claim against them.
Paragraph 3.2 of Schedule 6 of the SPA provided:
“No Management Vendor shall have any liability for a Management Warranty Claim except in circumstances where [Zayo] gives notice to the Management Vendors before [5pm on 13 November 2015].”
Clause 12 of the SPA allowed delivery of notice by hand (including by courier) to each defendant at their individual address as set out in the SPA “… or such other address as may be notified in writing … by the relevant [defendant] to [Zayo].” Deemed receipt would occur on delivery. On the very last day for service (13 November 2015), Zayo engaged couriers to serve notice of its warranty claim on each of the defendants at their respective addresses set out in the agreement. Six of the couriers successfully delivered the notice. However, when the courier engaged to serve the fifth defendant (‘SJ’) arrived at her address, he was told that she no longer lived there. The courier left the address without leaving the notice. The 5pm deadline then passed. The court was asked to assess if notice had been validly served on SJ. Zayo argued that SJ’s failure to notify a change of address meant that the courier’s attempt to serve the notice should be deemed sufficient.
What did the court decide?
The court held that notice had not been validly served on SJ. Clause 12 was clear and unambiguous. It was readily apparent from its express language that notice would be served by delivering it to SJ’s address as specified in the agreement, including by merely leaving the notice at the address. The requirement for the defendants to notify any change of address was permissive only (shown by the use of “may” not “must”). If a party chose not to notify a change of address, they would bear the risk that a notice would not come to their attention, but that would not affect the validly of the notice having been left at their previous address. The court said:
…there is nothing uncommercial or unbusinesslike about such a construction. Indeed, certainty is promoted and the parties know where they stand”.
Accordingly, there was no breach of the SPA by SJ failing to notify a change of address. Notice would have been validly delivered to her if the courier had merely left it at her former address. Strict compliance with the express wording of the notice provisions was required even if that would not have actually resulted in the notice coming to the attention of the intended recipient.
As SJ had not received notice of the claim as required by the agreement, the court held that Zayo could not pursue its claim for breach of the Management Warranties against her. The court also considered the wording in paragraph 3.2 of Schedule 6. The court said that the clause was unambiguous. It was clear that none of the defendants would have liability for breach of the Management Warranties unless Zayo gave notice of its claim “to the Management Vendors” (plural) by the specified deadline. As SJ had not received notice, Zayo had fallen foul of paragraph 3.2 of Schedule 6. Accordingly, the court ordered that Zayo’s claim against all of the defendants be dismissed.
What are the implications?
Two take away points come out of this ruling.
First, this is another in a line of cases this year demonstrating that the English courts are now consciously taking a more robust approach to the interpretation of commercial agreements negotiated between commercial parties with the benefit of legal advice. The courts are giving effect to the express words agreed by the parties where this interpretation accords with business common sense. Previously, the courts would have been more willing to take notice of the fact that Zayo was, arguably, let down by its courier and that SJ complicated matters somewhat by failing to notify a change of address. In such circumstances, it may have been possible to persuade the court to take a more contextual rather than textual approach to interpretation and to adopt a more flexible construction of the notice provisions. Any attempt at such persuasion is now less likely to succeed.
Second, this case illustrates that how the courts approach the interpretation of agreements is not an issue of mere academic interest. It has a direct bearing on the rights and obligations of the parties. Contracts should be drafted with this in mind. Contracting parties must mean what they say and be aware that, where an interpretation dispute arises, any appeal to a court to override the express wording of the agreement and ‘do justice’ may well be unsuccessful.