In the first three parts of our series on the Boiler Plate Clauses of a contract, we discussed clauses such as Assignment, Severability and Force Majeure. In Part 4 of this series, we discuss another significant clause – the notice clause.
The Notice Clause
Boiler plate clauses are important because they affect your legal rights under the contract as much as other clauses. Although boiler plate clauses seem standard, they can still be tailored to meet your specific contracting requirements. A quick read of any commercial contract will show that there are multiple clauses that require one party to provide a written notice to the other party(ies). Delivery of such a notice means that the particular responsibility of the first party has been fulfilled. But what if the other party disputes the issuance and delivery of such a notice? It is therefore essential to have a ‘Notice’ clause in a contract which will set forth the mechanism in which the notices and other communication are to be served and exchanged between the contracting parties, mention that all such communications will be in writing and also specify the time period within which a notice is deemed to have been delivered.
In Dinesh Chadha vs. Hotel Queen Road Pvt. Ltd. (CS(OS) No. 225/2009), the services of an employee were held to be terminated illegally, arbitrarily and in violation of the terms of employment. As per the terms of the appointment letter, the services were terminable on giving a three months’ notice from either side. The Defendants claimed that they had given an oral termination letter to the Plaintiff. The Delhi High Court held that since there was no evidence on record to show that any notice of termination was given to the employee, the termination was held to be illegal.
Essentials of a Notice Clause
A Notice clause should address the following concerns:
- Which form the notice should take;
- What method of delivery is appropriate;
- When notice is effective;
- Who must receive the notice;
- How changes to the address or contact person to which notice should be sent shall be communicated. The forms of notice selected should reflect what the parties are comfortable with. For some agreements, or, for certain provisions, parties may prefer to provide that notice is effective upon actual receipt.
A well-prepared Notice clause puts an obligation on each party to update the identity of who must receive the notice and where. It lays down the agreed method of communication between the parties and states how notices are to be communicated i.e. whether by fax, email, courier or post. Further, the clause must also specify the person who must receive any required notices. Is the notice to be sent to one person or multiple people? It is critical that the notices clause be specific to avoid any future ambiguity.
There is a continual shift towards new and other acceptable forms of communication due to constant upgrades in technology. If new forms of communication between the contracting parties such as secure website etc. are acceptable to the contracting parties, then safeguards to ensure receipt should be considered (for instance, an original must follow or some form of confirmation shall be sought like a ”read” receipt). Therefore, one must carefully draft the Notice clause when electronic communication is permitted, to contain such methods as well as their delivery and receipt.
Another important aspect that one must consider while drafting a Notice clause is that if the clause designates multiple addressees and recites that notice is effective upon receipt, will the notice be effective upon delivery to the first recipient or the last recipient? There can be two arguments, one that the notice is effective as to each person upon that person’s receipt, and effectiveness is not impaired by the failure of any other designated recipients to have received the notice. On the other hand, the listing of multiple addresses could be interpreted as evidencing the parties’ intention that all parties receive the same information before any action is taken. The ambiguity should be resolved by carefully drafting this clause at the outset. Failure to comply with such a Notices clause could impact the ability of the party to seek a remedy under the contract.
The Notice clause addresses the notice requirement in two ways. First, it includes an obligation to give the notice in writing and second, it deems each of the permitted methods of delivery of notice to be in writing. Deeming each method of delivery to be in writing is particularly important because it avoids disputes as to whether the sender’s chosen method of delivery meets the standard of ‘in writing’. With the advent of computer facsimile transmissions and e-mail, the issue now arises whether notices delivered by these electronic media constitute a ‘writing’ and whether they fulfil the dual purpose of authentication and evidence. Thus, a Notice clause in a contract eliminates or substantially reduces any disagreement about or evidence of communication delivery or receipt.