Purpose of Notice Clauses
In many situations, a business contract requires that the other party be notified of the exercise of legal rights under a contract. That is, be given fair warning in advance.
Contract notice provisions set out the means by which one party can bring to the attention of another party matters which must be brought to their attention under the contract, by giving "notice".
Designated Methods of Service
Notices clauses designate methods to bring notices issued under a contract to the attention of the other parties. They fix a method and means to deliver documents required to be formally served, in compliance with the terms of the contract.
In other words, where a contract requires a recipient to be made aware of the facts and matters in question, a notices clause defines the way it may be brought to their attention.
Just because a contracting party knows about a notice doesn’t mean that they have been properly served under a contract. The difference between the two can make all the difference.
Agreed Method to serve Notices
A notices clause sets up agreed methods by which the other party can be served under a contract. If that method has been adopted, it doesn’t matter if the notice actually comes to the attention of the party or not.
Failures to adhere to Notices Clauses
When serving documents under a contract which contains a notices clause failure to comply with its terms can cause real problems. If the parties have agreed to a specific method of service in a notices clause, and the method of service is not adhered to:
- service of the notice may not be effective, and
- may place the party issuing the notice in repudiatory breach of contract.
Actual notice and Constructive notice
When a notice is sent the recipient in accordance with the terms of the clause, the party should receive actual notice of the notice communicated.
Including a notices clause:
- limits scope for objections by the party that they have not been properly served with documents issued under the contract
- means that the recipient will have constructive notice of the matters set out in it, whether it was actually received or not
Types of Contractual Notices
Depending on the type of contract, the types of contractual notices which may need to be sent include:
- formal notice that performance of an obligation under a contract is required
- requiring a party to remedy a breach of contract within a relatively short period
- notice of termination of a contract, where the right exists
- exercising rights under the contract. such as a right to exercise an option
- update a register of secured interests, where transmission of a security interest has taken place
- make a demand for payment of a debt due under a contract or interest
- a demand for delivery of documents required to be delivered.
Are they necessary?
Strictly speaking, no.
But they promote certainty of bringing notices to the attention of the other party. They save the hassle of a small problem turning into a large problem.
Provisions in a Notices Clause
A notices clause may designate:
- the mode of delivery of communications, such as
- hand delivered
- first class prepaid post
- email (not recommended).
- the address required to transmit the notice, such as the registered office of the party
- the person(s) to which the notice must be sent
- when the notice is deemed to be received
- the language which must be used in the notice, such as English. The language is specified where there is an international dimension to the contract.
Email addresses should not usually be used as a mode for delivery of notices under a contract. The consequences of contractual notices are usually too serious to leave to the ups and downs of email, and email address which are current at the date of the contract falling out of use over time.
This notice provision contains an email example to allow notice by email. It's not recommended.
Example: Notices Clause
A simple form of a notices clause might read:
Any notice under this agreement shall:
- be in writing
- marked to the attention of “The Directors”
- be deemed to be received when sent to a party’s registered office by:
- first class prepaid post, 3 days after it is posted;
- by courier or by hand delivery, upon delivery if delivered before 4.00pm on any business day, and the next business day if delivered after 4.00pm.
This clause does not apply to the service of any proceedings or other documents in any legal action or, where applicable, any arbitration or other method of dispute resolution.
For the purposes of this clause, "writing" shall not include email.
There is a material difference between “shall deliver” and “may deliver”. The first is obligatory, the second form is permissive. It becomes open to say that “may deliver” means that the list of methods of service of notices is not exclusive, whereas with the form, “shall serve” is.
Exclusivity of method of service of notices:
- requires clear wording because of the consequences;
- means that, regardless of the actual knowledge of the intended recipient, any mode of service other than those specified in the clause will not be adequate.
Courts will give effect to exclusivity of the method – notwithstanding the consequences – if that is the deal that the parties have made.
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