11/07/2019

In May 2019, we provided an update regarding the Victorian Supreme Court extending the requirement for strict technical compliance with notice provisions beyond guarantees (see G+T Insight). The Victorian Court of Appeal has overturned the trial judge’s decision, holding that courts will favour a ‘commercially sensible construction’. Specifically:

  • a written notice to terminate a deed was valid when the notice was addressed to a party’s solicitor instead of the party as was strictly required under the deed’s notice provisions;
  • whether strict technical compliance is required is a matter of construction of the entire contract, having regard to the commercial purpose of the provisions; and
  • notice provisions should be interpreted in a way that a reasonable commercial person would construe them (eg a reasonable commercial person would consider addressing a notice to a party’s solicitor as satisfying the notice requirements).

This decision reflects a commercially sensible construction of notice provisions. That said, we still recommend parties strictly comply with form and wording requirements in notice provisions.

Facts

JPA Finance Pty Ltd (JPA) purported to terminate a call option deed it had entered into with Gordon Nominees Pty Ltd (GNPL) by sending a letter to GNPL’s solicitors. The notice provisions in the deed provided that any notice to GNPL should be addressed to GNPL either by fax or letter.  GNPL asserted that the notice was not a valid notice as it was not served in accordance with the notice provisions.  JPA sought a declaration from the Court that the notice was valid and effective.

In the Victorian Supreme Court, the Court held the notice was not made in accordance with the deed because it was addressed to the solicitors of GNPL and not GNPL itself. This made the notice invalid and as such did not result in termination of the deed. The Court held that strict compliance with the deed’s notice provisions was required in this instance because termination resulted in GNPL’s immediate loss of a valuable right.

Court of Appeal decision

On appeal, the Court of Appeal overturned the trial judge’s decision and found that the notice was valid on the following basis:

  • Whilst it was formally addressed to GNPL’s solicitor rather than GNPL, it was quite clear that the notice was directed to the attention of GNPL through its solicitors. 
  • The evident commercial purpose of the ‘addressed to’ requirement of the notice provision was to ensure that notices were directed to the attention of the parties (even if through their respective solicitors).
  • Although the need for certainty may be a relevant commercial purpose justifying the need for strict technical compliance with notice provisions, this will depend on the nature of the contract. In this instance, even though valuable rights were concerned, there was no evident commercial purpose in requiring strict technical compliance with the notice provisions.
  • While formally addressed to GNPL’s solicitor, the notice was headed ‘Re: Notice of Termination’ followed by a description of the deed which named GNPL and JPA as parties.  The notice also referred to GNPL as ‘your client’. 

Given the above, the Court of Appeal held that it was clear that the substance of the notice requirements was satisfied and that a more commercially sensible construction was appropriate.

Written by: Ben Macdonald, Luca Del Ciotto and Dean Paganis

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