Main Issue
A relatively recent case, Education 4 Ayrshire Ltd v South Ayrshire Council [2009] CSOH 146, concerns the issue of what happens when a contract clearly provides how and when a notice of delay or claims should be given but the parties do not follow the precise form of the notice provisions.
Facts
Education 4 Ayrshire Ltd, an SPV (special purpose vehicle) set up for the purpose of a PPP, entered a project agreement with a local authority, South Ayrshire Council, for the design and construction of six schools in Ayrshire.
The notice provisions in the Project required notice of any claim for time or compensation to be sent within a specified timeframe to the Chief Executive of the Council. Communications were sent but not in precisely the correct form.
The SPV conceded that compliance with the notice requirements was a condition precedent to entitlement to the relief sought and that only a letter dated 2 May 2007 to the chief executive of the defenders could be relied upon as a notice. The SPV submitted that there could have been no doubt as to what was intended to be conveyed by the letter of 2 May 2007 where the defenders had been kept fully informed of the relevant developments, albeit through reference to a letter from the building contractor (employed by the SPV). Therefore, the Authority could have inferred from the communications what was going on. Further, it was argued that all that was lacking in the letter of 2 May 2007 was a formal statement that the SPV were claiming for an extension of time, for payment of compensation and/or for relief from their obligations under the project agreement and to require such wording would be unduly formalistic.
Held
Lord Glennie disagreed, holding that where the parties have laid down in clear terms what has to be done by one of them to claim certain relief, the Court should be slow to seek to relieve that party from the consequence of their failure. Strict compliance with the contract requirements is necessary. The failure to give a valid notice was therefore fatal to the contractor’s claim. The relevant clause required that a notice be sent within a particular time to the chief executive of the defenders giving notice of what claim the pursuers were making, which the letter from the SPV did not do; it did not matter that, at certain levels, employees of the defenders might have been aware of what was going on or that the SPV’s letter when read with a letter from the building contractor referred to therein, claiming an extension of time and compensation, would have enabled the defenders to infer that the claim by the building contractor against the pursuers was going to be passed up the line to them, when the purpose of the clause was to avoid such uncertainty.
Comment
A good theoretical decision in favour of pacta sunt servanda and adherence to what the parties have agreed strictly, it has to be wondered whether this is the right practical decision given that effectively notice, albeit in a different form, had been given. Certainly, I have seen this decision take effect on elements of a recent multimillion pound NPD hospital project, which may have delayed the deal.
The case serves as an important lesson for contractors, not just those involved in PPP / PFI, to take special notice of notice requirements under contracts.
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