This article has been written by Arushi Agarwal pursuing the Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho. This article has been edited by Ruchika Mohapatra (Associate, Lawsikho).
Table of Contents
Introduction
The notice clause assists the parties to bring certain matters to each other’s consideration which affects their contractual norms, directly or indirectly. This clause generally contains:
- The issues and/or matters relating to or affecting the provisions in the contract for which it is necessary to inform the parties through serving a notice; and
- The manner of serving such required notice(s).
Parties need to give each other a notice for various purposes under a transaction such as:
- Notice of overdue payment;
- Notice initiating a dispute;
- Notice of change of address;
- Notice of termination;
- Notice to have a waiver in writing;
- Notice for renewal.
This article will give you practical insights into how to draft a notice clause in a contract and it will also provide you with a checklist of items that should be considered while drafting a notice clause
Why does a notice clause exist in a contract?
A notice clause in a contract primarily serves two purposes:
- Sets a parameter to determine if notice was properly and timely given;
- Creates a framework for parties to a contract for communicating among themselves.
A proper notice clause in a contract will clearly indicate the procedure to be followed for valid delivery of the notice and a ‘deemed delivery; provision so that chances of disputes by a dishonest party claiming non-receipt of notice are minimized.
What are the different types of notices?
A notice clause in a contract can be of two types-
- Generic– Generic notice sets a structure for giving notices. To whom the notice is to be given, by whom it is required to be given, by when should it be given, at what address should a notice be given etc. for all types of notices.
- Specific- Specific notice refers to those that are given only for a particular purpose such as a termination notice.
Key points to consider while drafting a notice clause in a contract
To draft an effective clause, consider the following points which should be provided for:
- How to deliver the notice i.e., the mode of delivery such as courier, email etc. ?
- When will the notice be considered as delivered?
- What will happen if there is a disruption in delivery of said notice?
- How and to whom should the notice be addressed?
- What should be the format of the notice?
- Procedure to be followed for initiation of change of address or name/designation of the recipient of either party in such a situation, the arty whose address other details are going to change can notify the other party by sending a notice as per the contract
How to draft the notice clause?
- Whom should the notice be addressed to?
While addressing the notice to an individual, ensure his or her name is correctly spelled, and it is sent to the address as stated in the contract. Make sure to clearly state the address on which correspondence or notices are to be sent.
If the notice is sent to a corporation or an organisation, do not draft the notice clause requiring the notice to be addressed to a recipient’s personal name because the person might leave the organisation, or his designation might change later. Such notice might accidently be ignored, Therefore, the best practice is to mention the recipient’s designation or office such as the Company Secretary, The Chief Financial Officer etc.
Sample Clause– “Any notices provided must be in writing and be addressed to the Company Secretary of the Company and will be deemed effective upon personal delivery or the next data after sending by overnight courier, whichever is earlier to the registered office of the Company.
This notice clause precisely states the address at which the other party is supposed to send the notice, the designation of the addresses and the time at which it will be considered to have been served.
- How is the notice to be given?
For ensuring evidence of delivery, specify the mode of delivery, such as email, by post speed post, register post, personal service, courier etc. Select a method that provides you evidence of the delivery of notice; you don’t want to be in a situation where the other party denies receipt of the notice. That will enable a dishonest or defaulting party to delay legal proceedings and prolong a default.
For instance, consider a notice which was sent through email, however it was not delivered to the other party because it was not sent due to a system error or crash of your organisation’s email server or a wrong email ID, which you didn’t know about.
How will you mitigate the risks? It can be done in the following ways:
- To completely avoid such situations, always opt for such methods of giving notice where you get evidence of delivery. For instance, in case of a Registered Post with Acknowledgment Due (RPAD) anything that is sent through the post will require the signature of the party receiving it and the acknowledgement of such receipt by the receiving party is sent back to the sender.
Sample Clause
“Any notice required or permitted to be govern hereunder shall be given in writing and shall be delivered (a) in person, (b) by certified mail, postage prepaid, return receipt requested (c) by facsimile or (d) by a commercial overnight courier that guarantees next day delivery and provides a receipt.”
- Format of the notice
In some contracts the scheme of the notice language, especially in cross-border contracts is to be looked at in detail as when and by whom the notice is to be signed is mentioned in a few contracts.
- Changes in the details of parties
Ensure that all notice clauses include the procedure to amend the details of the parties. This will be necessary to invoke in the event of a change in the address, legal entity’s name (e.g., In the event of a merger) or the designation of the officer to whom the notice is sent.
When you need to change any details in the notice clause pursuant to the above events, information about such changes must also be intimated in writing as per the terms of the notice clause.
If you deviate from this method, make sure there is written acceptance of service of the notice and the fact that the notice is served under the contract, even though it deviates from the format specified.
- When will the notice be considered delivered?
The most important component of a notice clause is to categorically state when a notice clause is deemed to be delivered and received called a deemed service or deemed delivery clause. This prevents the other party from arguing that it did not receive the notice.
You must specify a mechanism for such deemed delivery in the notice clause. One such mechanism could be that the notice will be considered delivered if it is entered to the person at the address listed in the agreement within a specified number of days after it has been sent.
Similarly, if it is sent by email or fax, receipt of a confirmation that the fax has been sent successfully or an email-tracking receipt by a software will be sufficient.
In the absence of such a clause, defaulting parties would have the power to delay proceedings by resorting to such arguments,
Specify a range of delivery methods for delivery of the notice, do not restrict delivery methods. For example, if you specify only postal service delivery as a valid method, a postal strike can cause a delay in the delivery of the notice. For an innocent party, this increases the time it needs to wait before taking the next step in litigation or arbitration proceedings.
If you also provide email as one of the methods to deliver a notice, you can send an email and then supplement it with a physical notice, If you have an electronic ‘read receipt’ for the notice, you may be able to present a stronger argument in court that the date of the ‘read receipt’ of the email is the time from which the countdown starts.
Ensure that the notice clause is not cumbersome and does not require multiple methods to be collectively used, else it makes serving notices itself a complex task. As a conservative party, you may still use multiple methods to deliver a notice i.e., one in electronic format and one in physical format.
The sample clause below provides multiple methods of delivery of notice and include deemed delivery provisions as well
- Sample notice clause in a technology transfer agreement
- Any notice required or permitted to be given under this Agreement will be in writing and will be delivered by hand or overnight courier with tracking capabilities or mailed postage prepaid by first class, registered or certified mail addressed as set below unless changes by notice so given:
- Brilliant Medical Services 222 Park Avenue New York, NY 20134 U.S
Attention: General Counsel and Corporate Secretary
- Any such notice will be deemed delivered on the date received.
- A Party may add, delete, or change the person or address to whom notices should be sent at any time upon written notice delivered to the Party’s address in accordance with this Agreement.
What are the consequences of erroneous drafting of a notice clause?
The most common dispute that arises with respect to a notice is whether it was effectively delivered or not. In the landmark judgment of Ener-G Holdings Plc v. Philip Hormell (decided by the UK Court of Appeals), the notice clause of the agreement stipulated that the “notice should be personally delivered”. Thereby the appellant went personally to the respondent’s house and kept the notice on the front porch table. However, this notice was not deemed to be delivered because “personally” doesn’t mean to just leave the notice at the premises of the person. It means that the notice should be given “in person” delivering it in the hands of the respondent. Consequently, the notice was held to be “not delivered” as it was not given as per the manner stated in the agreement. When a notice is hand-delivered, a signature of the recipient on a copy of the notice is obtained, so that it can be presented in evidence subsequently if required.
Conclusion
A notice clause is of vital importance in any contract as it supports and regulates the communication between parties and holds them accountable. It allows for a contract to be enforced in a better manner. From a legal point of view, the time of fulfilment of the notice requirement is relevant. Where the timing of a notice is of essence, it does make sense to stipulate that a notice shall be deemed to be delivered upon either delivery or dispatch. What matters is whether the applicable law follows the ‘receipt theory’ or the ‘dispatch theory’ to determine if a message was on time. The parties, through this clause, can remind each other about the work, duties, and obligations that are required to be performed by them and decrease the chances of there being any miscommunication between them.
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