Bristows’ SnippITs - Mind the notices clause: when email isn't enough

This post is part of the Bristows’ SnippITs series, which pulls together the key practical takeaways from recent court decisions for the tech sector and beyond.

Notices clauses are often overlooked once a technology project is underway, particularly for less formal communications. The case of Hughes v CSC Computer Sciences Ltd highlights the importance of double checking your notices clause before pressing “send” and the stark consequences that can arise if you fail to do so. 

Key takeaways

1. When sending communications that arise from a provision under your agreement – always check the scope of your notice clause and determine if it bites.
2. Don’t assume that only communications described as “notices” count – depending on the wording of your notices clause, requirements to “approve”, “confirm” or “submit” could also fall within the scope of your notices clause.
3. When receiving an uncompliant notice, consider whether to challenge. Beware of responding positively to an uncompliant notice, which can lead to waiver/estoppel issues. 

Background and Key Clauses

This case involved the sale of a business (Fixnetix) from Mr. Hughes and others (the Sellers) to the buyers (CSC) under a Share Purchase Agreement. The Agreement contained an earn-out mechanism where $25m of the sale price was deferred and payable if Fixnetix’s performance met certain targets in the first 2 years.

As part of the Earn-Out provision in the Agreement, CSC was required to  “prepare and submit” to the Sellers its “determination of the relevant amount” for the earn-out at the end of each year (the Determination).

Then, if the Seller had any objections to the Determination, the same provision required the Sellers to “notify [CSC] in writing of its objections within 20 Business Days”. 

If the parties failed to reach an agreement following these objections, the Earn-out provision required the parties to follow a dispute resolution procedure (involving a binding determination by an independent accountant).

The other important clause in this case was the Notices clause, which provided that “any notice or other communication under or in connection with this Agreement” had to be sent either personally or by post or by fax to the relevant party, with a copy sent to the party’s solicitors.

The Dispute

CSC submitted the Determination for year 1 by email attaching an excel earn-out tracker showing its calculations. This concluded that Fixnetix had failed to meet the targets.

The Sellers were not happy with this but they responded saying that it was “not disputed” that the year 1 target had not been met. Instead they made a number of other allegations at this time, including one of fraudulent misrepresentation (which was later dropped).

The next year, CSC submitted the Determination for year 2 also by email. The Sellers raised objections to this within 20 business days but did not send a copy of the notice to CSC’s solicitors.

CSC responded a few weeks later saying that the Sellers had failed to comply with the notice requirements to raise an objection and were now outside of the 20 day window. 

In response, the Sellers stated that CSC’s Determinations had not been sent in accordance with the Notices clause so these were themselves invalid.  

The Court’s findings

The court had to first consider whether the Notices clause applied to CSC’s requirement to “prepare and submit” the Determinations and found it did:

• The Notices clause was drafted widely and applied to other communications, not just notices.
• While the Notices clause might not apply to every communication sent under the Agreement, Determinations were important documents of contractual significance (since they went to the sale price).
• The court rejected CSC’s arguments that the different language used in the Earn-out provision for its obligation to “prepare and submit” the Determinations against the Seller’s obligation to “notify” of its objections “in writing” meant that these communications should be treated differently. It was undesirable to draw such a distinction – both of these communications needed to comply with the Notices clause (and both hadn’t on the facts).

As the Determinations had been sent by email, this meant that they were not valid and the clock had not started ticking for the Sellers to raise objections. The Sellers were estopped from relying on the invalidity of the year 1 Determination (since they had responded at the time saying they had no objections). For the year 2 Determination, the court ordered specific performance, requiring that the parties entered into the dispute resolution procedure contained within the Earn-out provision.