Service Provisions and Limitation

The Court of Appeal was recently asked to consider the construction of service provisions in a share sale agreement and their consequence on a claim in respect of alleged breaches of warranties given by Mr Hormell to Ener-G Holdings Plc.

In Ener-G Holdings Plc v Hormell [2012] EWCA Civ 1059 (31 July 2012) the Appellant, Ener-G Holdings Plc (“Ener-G”) sought to appeal the decision of the court of first instance which found that Ener-G’s claim was time barred.

The agreement between the parties provided that Ener-G, as 'the Buyer', had to give written notice of any breach of warranty claim to Mr Hormell, as 'the Seller', by “the second anniversary of completion” which was 2 April 2010. The agreement went on to provide that the claim would be deemed to have been withdrawn and lapsed unless “proceedings in respect of that claim have been issued and served on the seller not later than the expiry of the period of twelve months after the date of that notice.”

The agreement provided that service of any notice “may” be effected by “delivering it personally or by sending it by pre-paid recorded delivery post to each party”.

Having decided that it had claims against Mr Hormell for breaches of warranty, Ener-G purported to serve notices on Mr Hormell by delivering a notice personally to Mr Hormell’s home address (using a process server) and by sending an identical notice by recorded delivery post on 30 March 2010. On 30 March 2010, the process server was unable to hand the notice to Mr Hormell (as he was not home) and instead left the notice in the front porch on a table. That afternoon Mr Hormell found the notice and read it. The notice sent by recorded delivery post was deemed to have been served pursuant to the terms of the agreement on 1 April 2010.

Ener-G commenced court proceedings in respect of the claim on 29 March 2011. The claim was then served by means of personal service and left at Mr Hormell’s home address. The claim was deemed served under the Civil Procedure Rules 1998 on 31 March 2011. 

Accordingly, if the notice delivered by the process server on 30 March 2010 was properly served, Ener-G’s claim was time barred as it was not served on Mr Hormell within 12 months of the notice. 

Ener-G argued that “delivering it personally” required that the notice be handed personally to the intended recipient. That did not happen and therefore the notice was invalid. The notice sent by recorded delivery post was valid and, as it was served on 1 April 2010, the claim was served in time and not time barred.

Mr Hormell argued that it was enough for the envelope containing the notice to have been left by the process server at his home address. The notice was therefore validly served on 30 March 2010 and the claim was served out of time and is time barred.

The court at first instance found that “delivering it personally” required that a notice be handed to the intended recipient and accordingly the notice delivered by the process server would not satisfy that requirement, however, the court at first instance went on to hold that the service provisions in the agreement were permissive rather than exclusive, referring to “may” rather than “must” or “shall” and therefore allowed either party to choose its method of service. The notice served by the process server on 30 March 2010 was validly served. Ener-G’s claim was therefore time barred.

The Court of Appeal held, by a split decision, that the court at first instance was correct both in that reference to “delivering it personally” required that a notice be handed to the intended recipient and in that the service provisions of the agreement were permissive, not exclusive, meaning that the notice served by the process server on 30 March 2010 was validly served. Ener-G’s appeal was dismissed, the notice was served on 30 March 2010 and its claim was therefore time barred.

The Master of the Rolls, Lord Neuberger, said “clear words would normally be required before one could ascribe to the parties an intention that a recipient who actually receives a notice in time should nonetheless be treated as not having received the notice at all”.

Lord Justice Gross agreed with the Master of the Rolls saying “I am conscious that the consequence of doing so is that the Appellant's proposed claims against the Respondent are time barred but I fear that by leaving service until so late in the day, the Appellant has been the author of its own misfortune.”

Lord Justice Longmore, dissenting with the majority view, held that he would have allowed the appeal saying “that it is counter-intuitive to conclude, when the parties have taken the trouble to spell out [how a notice can be served] that a notice can be served in any other way the deliverer of the notices chooses.”

This case highlights the difficulties parties can face when seeking to comply with provisions of an agreement that are unclear or permissive rather than exclusive, particularly where limitation is involved.

If you would like any more information on this subject, please contact Philip Vickers.