Thursday, August 9, 2012

The interpretation of time limit clauses in contracts

A claimant approaches a court one day after the limitation* period expires, in the mistaken impression that the limitation period had in fact not expired. This limitation period is set by a clause in a contract that is by no means a model of certainty or clarity. The question is whether the suit is time-barred. In ENER-G Holdings plc v Hormell, the Court of Appeal (Longmore, LJ dissenting) held that it is. The judgment, as we discuss below, is an example of a careful application of what Lord Grabiner has called the “iterative process” of contractual interpretation (see (2012) 128 LQR 41). What is, however, even more striking is that the argument that “Please hear my case, I was just one day late” was not even made by counsel for the appellant, and Gross, LJ took the opportunity to point out that sympathy has no place in the interpretation of contracts, particularly in relation to time limits that the parties have voluntarily agreed:

Strict time bars are an aspect of certainty; there is certainly nothing uncommercial about them and they are not infrequently encountered in commercial contracts. When there is a time bar, then, as Lord Nicholls observed in Valentines Properties Limited v Huntco Corporation Limited [2001] UKPC 14, at [20]
Inherent in a time limit is the notion that the parties are drawing a line. Once the line is crossed, a miss is as good as a mile.”
Mr. Bompas [counsel for the appellant], rightly, disclaimed any suggestion of seeking sympathy as to the operation of clause 6.3.7(a); his submissions were instead exclusively focused on the proposition that service of the proceedings was just in time, not just too late.

This was a case in which ENER-G was entitled to bring a claim for breach of warranty against Mr Hormell, provided it adhered to two notice requirements. First, by clause 6.3.3(b) of the Contract, ENER-G was required to give notice of its intention to bring the claim within “the second anniversary of completion”, ie 2 April, 2010. Secondly, by clause 6.3.7(a), ENER-G’s claim “should be deemed to have been irrevocably withdrawn and lapsed unless” proceedings in respect of it have been issued and “served on the seller not later than the expiry of twelve months after the date of that notice”.

Clauses 13.2 and 13.3, central to the case, defined “notice” in the following terms:
13.2 Service
Any such notice may be served by delivering it personally or by sending it by pre-paid recorded delivery post to each party (in the case of the Buyer, marked “for the attention of directors”) at or to the address referred in the Agreement or any other address in England and Wales which he or it may from time to time notify in writing to the other party.
13.3. Deemed service
Any notice delivered personally shall be deemed to be received when delivered (or if delivered otherwise than between 9.00 a.m. and 5.00 p.m. on a Business Day, at 9.00am on the next Business Day), any notice sent by pre-paid recorded delivery post shall be deemed to be received two Business Days after posting and in proving the time of despatch it shall be sufficient to show that the envelope containing such notice was properly addressed, stamped and posted.’
ENER-G sent notice of its claim in two ways. On 30 March 2010, a process server visited Mr Hormell’s farm, called Ringlane, and, finding that Mr Hormell was away, left a copy of the notice on a table in the porch, which Mr Hormell found and read on the same day [“the First Notice”]. ENER-G sent an identical copy of the notice by pre-recorded delivery on 30 March 2010 which, by virtue of clause 13.3 above, was deemed to have been served on 1 April, 2010. It served the claim form (the suit) in the same way: a process server left a copy at Ringlane on 29 March, 2011, but Mr Hormell found and read this only on 2 April, 2011, and, by the rules of the English CPR, the claim form was deemed to have been served on him on 31 March, 2011.

If the First Notice was effective, the limitation period of one year began to run on 30 March, 2010. If it was not, it began to run on 1 April, 2010 (the date of Second Notice). As the Master of the Rolls observes, ENER-G could therefore succeed if it proved either that:

(a)   The words “delivering it personally” in clause 13.2 mean that it must be delivered by some person, not that it must be delivered to Mr Hormell himself. If this is correct, the First Notice was validly served on 30 March 2010, but so was the claim form on 29 March 2011. When Mr Hormell discovered it was irrelevant on this construction; or
(b)   That the two modes of delivery prescribed in clause 13.2 are exhaustive and not illustrative. If this is correct, the First Notice would be ineffective and the limitation period would start to run only on 1 April, 2010 (when the second, valid, notice was deemed to have been served) and the claim would be in time.

The Court of Appeal unanimously rejected, and it is submitted correctly, the first contention. The words “delivered personally”, as Longmore LJ points out, are a reference to the recipient, not the sender. As the Master of the Rolls rightly observes, if it were a reference to the sender, even communication by post would be covered, because letters are delivered by a postman, and this was plainly not the intention of the parties who separately provided for service by post.

The case therefore turned on the second contention. The Master of the Rolls and Gross, LJ held that clause 13.2 is illustrative. This meant that although the First Notice was not in accordance with clause 13.2, the fact that Mr Hormell happened to find it and read it on 30 March, 2010 was sufficient to satisfy the notice requirement, and the clock began to run on that date. Longmore, LJ dissented, principally on the ground that parties who take the trouble to indicate two ways in which a document can be served must be taken to have excluded other modes of service.

As the division in the Court of Appeal indicates, there are strong arguments for both sides, not only on the language used in the contract, but also on the commercial consequences of each position. The strongest point in favour of the view that clause 13.2 is illustrative is the use of the word “may”. However, as against this, it can be said that the word “may” is used because the clause contemplates two modes of service (service may be either by X method or by Y method).

The obvious point in support of ENER-G – and the one Longmore LJ makes – is that two parties who identify two modes of service of the many available modes must be taken to have intended that they be served only in those ways. The answer of the Master of the Rolls is that the parties identified two modes of service not to exclude other modes, but to dispense with proof that service was complete or effective if the chosen modes are used. That is, if Mr Hormell or ENER-G sent a document by recorded delivery post, it was irrelevant whether this was actually received by the other party, because it is deemed to have been served two days after it is posted. In other words, the commercial purpose of clause 13.2 is to shift the risk of non-delivery from the sender to the recipient. Of course, such a risk does not exist for the other mode of service (“delivered personally”) on the Court’s construction of it because ex hypothesi it contemplates that the recipient must himself receive and sign for it. But the Master of the Rolls points out that while that is so in the case of Mr Hormell receiving notice, it would ordinarily be open to ENER-G to say that it was not served if the documents were delivered personally to an ENER-G employee or agent who lacked actual or ostensible authority to accept service. The commercial purpose of clause 13.2 is to foreclose that argument – again transferring the risk of non-delivery from the sender to the recipient.

All three members of the Court agreed that both views had some unattractive consequences. For instance, on the view of the majority, it was impossible for the claimant to know when the period of limitation began to run, because this depended on whether Mr Hormell happened to find the extra-contractual notice before the two days from the despatch of the contractual notice. But Longmore LJ’s view meant, hypothetically, that if ENER-G had sent an extra-contractual notice which Mr Hormell nevertheless happened to read, Mr Hormell could argue that notice was never served, even though he in fact received a copy.

On balance, it is submitted, with respect, that Longmore LJ’s view is correct. But the more important point made by this judgment is that the solution to disputes about contractual interpretation lies in an iterative process of construction, without any attempt to rewrite the contract in order to make it “fair” or “just”.

* I use the expression “limitation period” in a loose sense – the one year limit was created by the contract, and its effect was to extinguish the claim, not merely the remedy.

1 comment:

vswami said...

“Inherent in a time limit is the notion that the parties are drawing a line. Once the line is crossed, a miss is as good as a mile.”
It may be better said, ‘once the line is crossed, a miss is as good as ever’.
This, perhaps, is the only objective way of giving effect to a ‘contract’; in regard to not only the point of ‘limitation’ but to every other term or condition of a contract spelt out, especially unequivocally. As, otherwise, the very acting upon , besides enforcement of it, in line with the underlying principle of the law /jurisprudence, would be rendered impossible; and to the detriment of both parties, not just one of them.
Proceeding on the premise that on the said proposition there could be no better view, then should not the same hold good with all force to any time limit prescribed by a statute. Even so, for instance, in the income-tax regime, one has come to notice that in a series of tribunal and court cases the question of condoning, besides failure or default , delay has been gone into and adjudicated upon. Pointedly, those are cases of delay in complying with any of the requirements of the law, e.g. delayed filing of appeal. The erring party‘s defence is, of course, founded on the provision of law to the effect that time limit prescribed by law need not be strictly enforced where the delay is not without good or sufficient reason /cause; in such cases, the reason adduced being ‘beyond the control’ of the erring party.
If critically gone into, it will be realised that, the empowered authority, including the finally adjudicating authority, is duty bound and obligated to, by playing ‘fair’, take a strictly ‘objective’ view. For practical purposes, however, what is ‘objective’, in its ideal connotation, itself is a question, riddled with inevitable controversy/ intricate problems.
What then is the way or solution to remedy!
Ultimately, it is left to be researched on, to the end of finding any way or solution possible; so as to saving the directly concerned people from the hassle of unending litigation; in turn, from its cost, in terms of energy and money, to the nation as a whole .
The thrust of the viewpoints/ suggestion put forth in the comments in itatonline @CIT vs. Societex (Delhi High court), besides in certain related indiacorp blogs, also @swamilook, though in a somewhat different context, may be of indirect help.