What is an adequate Contractual Notice?

Vivergo Fuels Limited v Redhall Engineering Solutions Limited [2013] All ER (D) 156(DEC) TCC, Ramsey J

Facts

Redhall was one of the principal contractors for Vivergo on the Saltend Bio-fuels Plant.  Vivergo was not happy with Redhall’s progress.  Under the Institute of Chemical Engineers Contract there was a two stage termination process.  Vivergo served an initial letter by way of notice of breach.  The letter did not say that it was a notice nor referred to the clause nor referred to the provisions of the contract.  It did record that the Engineer considered that Vivergo was in material breach of contract by its failure to produce a revised programme when required.  A few days later, Redhall tabled a revised programme for approval but Vivergo and its Engineer ignored this and served a second notice purportedly on the basis that Redhall had failed to commence remediation of the notified breach, and thus determining the contract.

Having lost an adjudication, Vivergo sought a declaration from the TCC that it had acted correctly.  Redhall defended and counterclaimed on the basis of repudiatory breach.

Held

1. The original notice of material breach was a valid legal document.  Even though it had not said that it was a notice nor used the language of notification, and even though it had not referred to the relevant clauses or indicated the consequences of non-compliance, nevertheless it was sufficiently clear in the circumstances that Redhall must have understood what was being said.
2. Under the IChemE form, if the Contractor failed to make regular and diligent progress (which included failing to provide a programme) or alternatively was in material breach (likewise by failing to provide a programme) then a preliminary notice could be given identifying the breach.  If the contractor then did not then within 14 days commence and diligently pursue rectification of the notified breach, the Employer became entitled to determine the contract forthwith by a further notice.
3. The court found that by serving its programme revision Redhall had commenced rectification and therefore the second notice, by which Vivergo determined the contract, was itself a repudiatory breach of contract which Redhall had accepted.  Vivergo therefore lost.

Comment

The Judge gave a useful summary of the law relating to contractual notices:

a)    these are to be interpreted in the same way as contractual documents i.e. objectively but considering how a reasonable reader would understand the document;

b)    the reader can be expected to have the terms of the contract in his mind when reading the Notice – (this is rather unrealistic given that few commercial men memorise the small print of their legal documents);

c)    the Notice must be sufficiently clear and unambiguous as to leave a recipient in no reasonable doubt as to its meaning and effect; and

d)    the Notice must not only identify the default but also either indicate the seriousness of the situation or alternatively make a link to the contractual clause permitting termination.

The Judge followed the leading case of Mannai Investments v Legal Star.

Very worryingly, for those on the receiving end, the Judge found that it was not necessary to use the words “notice” or “notify”, nor to refer to contractual provisions, nor to spell out the consequences of ignoring the notice.  In other words every letter from the other side should be read with suspicion.

Nevertheless the Judge did insist that where a contract requires firstly a default notice then secondly a termination notice, those 2 must be connected both in subject matter and in time.  (Vivergo tried unsuccessfully to argue that notices given in October were relevant to the final notice given in April the following year).

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