Serving contractual notices under the FIDIC form of contract
Parties must always ensure that any contractual notice is validly served. As a general rule, you should always read the contract carefully and ensure that any notice is served in the correct way and on the correct people. If the words of the contract impose a condition precedent about how notices are to be served, you might find that your right to terminate is lost, even if the notice was delivered into the hands of the other party.
This was another issue that came before Mr Justice Akenhead in the Obrascon Huarte Lain SA v Gibraltar case.
Was the notice served on the correct address?
Mr Justice Akenhead had to consider whether the termination notice had been correctly served. The termination notice letter was delivered by hand to OHL’s site office in Gibraltar where it was signed for by one of OHL’s employees. It was dispatched promptly by the site office to the main Madrid office. Sub-Clause 1.3 required all notices called for in the Conditions to be delivered by hand or sent by mail or courier to OHL’s Madrid office. There was also the following wording:
“However: (i) if the recipient gives notice of another address, communications shall thereafter be delivered accordingly; and (ii) if the recipient has not stated otherwise when requesting an approval or consent, it may be sent to the address from which the request was issued.”
Was service of the termination notice at the site office effective?
Throughout the project correspondence had been frequently sent to OHL’s site office without any objection being made by OHL. Indeed, the Sub-Clause 15.1 notices were sent to the site office. The project was being run by OHL from the site office as from late 2009. The project manager was based there. In these circumstances, in effect and in practice, the parties operated as if the site office was an appropriate address at which service of notices could be made.
In discussing this point, Mr Justice Akenhead referred to the adoption of a “commercially realistic interpretation” on what parties agree and noted that the courts in the past have been slow to regard non-compliance with certain termination formalities, including service at the “wrong” address, as ineffective, provided that the notice has actually been served on responsible officers of the recipient. He gave a number of examples including Worldpro Software Ltd v Desi Ltd,1 where the notice provision stated:
“Notices permitted or required to be given hereunder shall be in writing and shall be delivered by hand or despatched by registered airmail, facsimile, or cable, shall be deemed given upon receipt thereof, and shall be sent to the parties at the following address…”
The actual termination letter was handed over physically by one director to another. Mr Justice Ferris held that there had been valid service, saying:
“There is no provision for despatch by ordinary, recorded delivery or registered post. It would be quite wrong, in my view, to treat successful service by any of these means, or delivery by hand to the managing director of WorldPro, as having no effect. Regard must be had… to the subject matter and the object to be fulfilled.”
The decision
The Judge concluded that in relation to termination clauses in engineering and building contracts in general and specifically in relation to the Contract in this case:
(i) Termination is a serious step. There needs to be substantive compliance with the contractual provisions to achieve an effective contractual termination;
(ii) Generally, where notice has to be given to effect termination, it needs to be in sufficiently clear terms to communicate to the recipient clearly the decision to exercise the contractual right to terminate;
(iii) It is a matter of contractual interpretation, first, as to what the requirements for the notice are and, secondly, whether each and every specific requirement is an indispensable condition compliance without which the termination cannot be effective. That interpretation needs to be “tempered by reference to commercial common sense”;
(iv) In the FIDIC Contract here, neither Sub-Clause 1.3 nor Sub-Clause 15.2 used words such as would give rise to any condition precedent or make the giving of a notice served only at OHL’s Madrid office a precondition to an effective termination;
(v) The primary purpose of Sub-Clause 1.3 is to provide an arrangement whereby notices, certificates and other communications are dispatched effectively to and received by the contractor;
(vi) The primary purpose of a Sub-Clause 15.2 termination notice is to ensure that the contractor is made aware that its continued employment on the project is to be at an end.
Therefore, the service of a Sub-Clause 15.2 notice at the Madrid office of OHL was not an indispensable requirement. Provided that service of a written Sub-Clause 15.2 notice was actually effected on OHL personnel at a sufficiently senior level, then that would be sufficient service to be effective. There was no doubt that the notice was received by OHL on the day in question and its contents were immediately passed on to the senior directorate. Thus the notification went through to all the relevant senior people within OHL. Therefore, it followed that the termination notices had been validly served and that the employer had validly terminated the Contract pursuant to Sub-Clause 15.2.
Conclusion
From a practical point of view, it is important that all parties are aware of the correct address to which communications should be sent. Care must be taken by both parties to ensure that those working at the place to which communications are to be sent are also aware of this. For example, there is little point in giving a formal registered office address if that registered office is not used on a regular basis as this may mean that the notices and the like are not dealt with within either the contractually required or a reasonable time, if they are dealt with at all.
Care must also be taken to ensue that proper procedures are in place to monitor fax machines, to the extent they are still used, and computers. In the case of Bernuth Lines v High Seas Shipping,2 arbitration proceedings were served at an email address which appeared in the Lloyds Maritime Directory and on the company’s website. The email was received, but then ignored by the clerical staff. The Judge held that the service was valid and the failings of the internal administration were the responsibility of the company concerned.
The wording of the clause in Obrascon enabled the Judge to adopt what he termed a “commercially realistic interpretation”. Had the clause expressly included words such as: “the notice shall only be valid if…”, then the position may have been different.
Here those words were not present, but it is always better to check what the contract requires before the notice is served; it may just save you the time, expense and trouble of having to justify the steps you took to serve that notice before a court or tribunal.