Time Runs Out for Claim

A recent case shows how important it is to make sure that when a time limit for taking action is specified, it is not inadvertently breached.

When a company was sold, the purchase agreement specified that some of the consideration was to be deferred. This is a common protection for a buyer who wishes to avoid being sold a ‘pig in a poke’ as it normally allows the purchase price to be reduced if the business turns out to be worth less than was originally thought.

The contract specified that if any claim were made against the seller, notice of claim had to be made within two years of the date of the completion of the sale and court proceedings in pursuit of the claim had to be served within a year of the original notice. The agreement included detailed provisions as to how the notice could be validly served.

Three days before the expiry date, the buyer sought to serve a notice of claim on the vendor. The notice was taken by hand to the vendor’s home. The vendor was not in. Finding no letter box and being unable to put the notice under the door, the process server left the notice on a table in the porch. The vendor found it on his return home on 30 March 2010 and contacted his solicitor about it that day. The notice had also been despatched by recorded delivery the same day. The agreement stipulated that a notice sent by recorded delivery was deemed to have been received two days later.

The buyer decided to take court proceedings and again the relevant notice was delivered by hand. Again, the vendor was absent, but this time a letter box was present, and the notice was posted through it on 29 March 2011. It was found by the vendor on 2 April 2011.

The buyer argued that the posted notice of claim would be considered to have been received (via the relevant clause in the agreement) on 1 April 2010, and was a valid notice. It was therefore ‘in time’. The second notice was deemed to have been received on 1 April 2011 and was again ‘in time’.

However, the vendor took a different view. He argued that the first, hand-delivered notice was validly served. He had seen it and called his solicitor about it. The relevant date for service was therefore 30 March 2010. The second notice had been deemed to be served on 1 April 2011 and was therefore invalid because it had been served more than a year after the first notice.

The court agreed with the vendor. It defied common sense to conclude that the first notice had only been served on him at a time after he had already contacted his solicitor about it (30 March 2010). As the second notice was served more than a year after that, it was invalid and the claim was time-barred.

As a general rule, it is very dangerous to miss an agreed deadline and it is usually prudent not to leave things undone until the last minute. In this case, a potentially sizeable loss may have occurred, which could have been avoided had the second notice been served a couple of days earlier.