Scottish court confirms need for strict compliance with notice requirements specified by contract

Lawyers for Hoe International Ltd had argued that any "sensible commercial person" would think service via DX sufficient, given that the result would be the same as if the notice was posted. However, Lord Woolman disagreed, given the level of detail about modes of service set out in the contract.

"[The contract] specifies exactly what constitutes a valid notice," the judge said.

"The exclusion of email demonstrates that the parties regarded the mode of service as important. Instantaneous communication was not sufficient. Further, they prescribed when service was deemed to occur which could not apply in the case of service by DX without rewriting the contract," he said.

Litigation expert Craig Connal QC of Pinsent Masons, the law firm behind Out-Law.com, said that the case demonstrated the importance of complying with contractual clause requirements.

"The result may come as a surprise to commercial parties, some of whom may have viewed the Scottish courts as centres of sensible pragmatism," he said. "After all a notice with the correct information, addressed to the correct entity at the correct location – and accepted to have been received there, and acted upon – has been treated as invalid for use of DX rather than Royal Mail."

"The message is clear" said Connal, "to borrow the Court's words if you want to avoid expensive litigation, you must pay close attention to all the requirements of the contract, including any formal notification requirements, and follow them precisely"..

Hoe International, a wholesale distributor of alcoholic spirits, had purchased the entire share capital of Speyside Distillers Company Ltd in 2012. The share purchase agreement contained various warranties relied on by Hoe, including one in relation to outstanding claims. In particular, the sellers confirmed that a previous dispute involving a third company, Chambers, had been settled and that Chambers had no further claim against the company.

When, in 2013, Chambers began a claim against Speyside, Hoe notified the sellers' solicitors as required by the contract. It did so by DX and by email. The sellers then had 28 days to confirm whether or not they wished to defend the claim. When they declined to become involved, Hoe settled Chambers' claim and then began an action against the sellers for breach of warranty, which the sellers resisted on the grounds that Hoe's notice did not contain all the required information and had not been "served by the means prescribed" by the contract.

Lord Woolman rejected the first of these points, on the grounds that the letter "provided all the details known to Hoe at that stage". However, he agreed with the sellers that the notice had not been served correctly and was therefore invalid.

The judge referred back to a 2006 judgment given by Lord Reed, in a case concerning the validity of a contractual break clause. Lord Reed had acknowledged that his refusing to uphold the break clause "may be thought to confer an adventitious bonus on the pursuers, enabling them to take unmeritorious advantage of the defenders' error when they realised perfectly well that the defenders intended to exercise their entitlement under the break clause".

"This criticism however misses the point that the parties had agreed, as it were, on the key which is to be capable of turning the lock: if the tenant has not used the right key, then the lock will not turn. The absence of confusion or prejudice on the part of the landlord is irrelevant," Lord Reed said in that judgment.

"To borrow Lord Reed's words, I hold that Hoe failed to use the right key, and accordingly the lock will not turn," Lord Woolman said.