08/05/2019

The requirement for strict technical compliance with notice provisions has been extended beyond guarantees, particularly where there is some immediate and material consequence that flows from the notice being issued.

  • The Victorian Supreme Court has held that a written notice to terminate a call option deed was invalid because it was addressed to a party’s solicitor instead of the party, as was required under the deed’s notice provisions
  • The Court held that strict compliance with the notice provisions was required in this instance because it resulted in the immediate loss of a valuable right (a right to repurchase the units).  This consequence made the notice akin to a notice enlivening a guarantee rather than a notice merely informing a party of certain facts (see our previous client update: “The Importance of Compliance with Form (Santos Limited v BNP Paribas)”).
  • Given the courts’ strict approach to interpreting notice provisions, we recommend strict compliance with any form and wording requirements in notice provisions.

Facts

JPA Finance Pty Ltd (JPA) and Gordon Nominees Pty Ltd (GNPL) were parties to a call option deed which entitled GNPL to purchase back 20 units in a trust it had transferred to JPA in consideration for a $2.1 million loan. 

Under the call option deed, GNPL indemnified JPA for JPA’s costs arising out of the negotiation, preparation and execution of the call option deed. 

JPA claimed to have incurred legal fees owing to it in connection with the deed and made several demands on GNPL to repay those fees. 

JPA served a statutory demand on GNPL in relation to the unpaid legal fees.  The failure by GNPL to comply with this constituted an “Insolvency Event” under the call option deed and gave rise to JPA’s right to terminate the call option deed by written notice to GNPL. 

JPA purported to terminate the deed by sending a letter by fax and email to GNPL’s solicitors (Notice). 

The notice provision in the deed provided that any notice to GNPL should be addressed to GNPL either by fax or letter with the following details:

To GNPL:
Gordon Nominees Pty Ltd
C/- Efron & Associates
Address: Suite 10, Level 1
600 Lonsdale Street
Melbourne VIC 3000
Facsimile: 03 8640 0777

However, the Notice was addressed as follows:

Our ref: JPA002-004
6 November 2017
Oren Polichtuk
03 8640 0777

By Facsimile Transmission
Copy by email to: oren@efronlaw.net
Dear Oren
Re: Notice of Termination.

JPA hereby terminates the Call Option Deed with immediate effect pursuant to section 7.1 of the Call Option Deed…

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 a valid and effective notice under the deed. 

Court’s decision

The Court held that the only way the Notice did not comply with the notice provision is that it was addressed to JPL’s solicitor “Mr Oren Polichtuk”, rather than GNPL. This was held even though the Notice was addressed to the specified fax number. Accordingly, notice was not given in accordance with call option deed and the option was still valid.

The Court reasoned that strict compliance with the notice provisions was required in this instance given that it resulted in GNPL’s immediate loss of a valuable right (i.e. a right to repurchase the units).  This consequence made the Notice akin to a notice enlivening a guarantee, rather than a notice merely informing GNPL of certain facts. This was the case even though: (1) the deed required notices be sent “care of” their solicitors; (2) the Notice was addressed to the correct fax number; and (3) GNPL had provided evidence that it had received the Notice.

Written by Ben Macdonald, Luca Del Ciotto and Richard Harmer 
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