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Service of contractual notices during a pandemic
Practical Law ANZ Practice Note w-024-9820 (Approx. 5 pages)
Service of contractual notices during a pandemic
by Practical Law New Zealand
| Law stated as at 21 Sep 2020 • New Zealand |
This note considers issues that may arise when serving contractual notices during a pandemic (or other public health emergency) such as the 2019 novel coronavirus disease (COVID-19). At 11:59pm on 21 September 2020 New Zealand (except for Auckland) entered Alert Level 1 of New Zealand's 4-level COVID-19 alert system. Consequently, this note will no longer be maintained.
Scope of this note
This note considers issues that may arise when giving contractual notices during a pandemic (or other public health emergency) such as the 2019 novel coronavirus disease (COVID-19). In particular, it considers the issues that may arise if the designated address for service is an office that is closed due to the effects of the pandemic and alternative methods of service.
Service of contractual notices
Contractual notices are generally served in accordance with the notice provision in the contract in question. Typically, where a notice clause is included in an agreement it will be prescriptive (or mandatory), meaning that the provision must be complied with to effect valid service under the contract. Permissive notice clauses, which do not mandate how notices are to be served, are uncommon in practice. Where a notice clause is permissive or not unambiguously prescriptive (mandatory), relevant legislation and common law principles of service and receipt of notices will be relevant to determine whether the notice was validly given or received. The notice clause will usually state an address for service of notices under the contract and it may permit electronic service. For a standard form notice clause that contains mandatory service provisions and more information, see Standard clause, Notices and the drafting notes to that document.
During a pandemic such as the COVID-19 outbreak, issues may arise with service of contractual notices, in particular:
- The office specified for service under the contract may be closed (see How can a contractual notice be served if the destination office is closed or inaccessible?).
- Sending physical notices via the postal service may be impossible (see If the contract stipulates service of notice by post, could a party use an alternative method during the COVID-19 pandemic?).
How can a contractual notice be served if the destination office is closed or inaccessible?
This question raises several issues, including the following:
- What does the contract require? Check whether the contract requires service by the method that is now problematic, or just permits service by that method. If the notice clause is permissive, rather than mandatory, then it is possible that service by a method other than that stated in the notice provision will be effective. For more information, see the drafting notes to Standard clause, Notices.
- If other methods of service are possible, you could use one of those. For example, if the contract permits notice by email, can the notice be sent by that method? It is important to carefully consider the notice provision to ensure that email service is available for the type of notice that is to be sent. For example, some notice clauses permit email service for some notices but not others (such as notices of termination).
- Is it possible to follow the specified method? For example, postal service is still possible while the postal service is working and can deliver letters to the specified address. In this case, there may be deemed receipt, although this will depend on the specific notice clause. In that case, a practical solution is often to follow the contract to the letter and, at the same time, send copies of the notice by whatever methods are most likely to bring the notice to the other party's attention.
- Might the notice be valid, despite a departure from an (impossible) method? The risk is that a departure from the required method could make the notice ineffective. Minor slips in a notice are sometimes excused, but not always, and this is likely to depend on the type or contents of the notice. Whether strict compliance is required with notice provisions is one of construction of the contract, in particular by reference to the commercial purpose of the provisions in question. Strict compliance with the notice clause may, for example, be essential where the notice is to terminate the contract and the consequences of terminating the contract are serious (see Practice note, Termination of contracts: Comply with contract provisions for termination and notices).
- Is there an obvious way to make the notice clause (and the contract) workable again? If it is not possible to use the methods specified in the contract, check to see whether the contract allows an identifiable exception in the current situation. This permission might be found:
- in the express terms, interpreted so as to achieve the contract's commercial purpose; or
- under an implied term, consistent with the express terms and implied as necessary to make the contract work, as discussed in Practice note, Express and implied terms. Has the other party agreed to accept non-compliant service? If a party has, by words or conduct, shown that it will not insist on delivery of notices as specified in the contract, it may have lost the right to insist on compliance. This can happen, even without the consideration or formality necessary for a binding variation, by waiver or by estoppel (see Practice note, Variation of contracts: Other ways that rights and obligations can change).
- Can you now agree a new temporary method of service? If both parties may need to serve notices while travel and contact are restricted, they may agree a temporary change to the permitted methods of service. Even a temporary change, to be fully binding on both parties, should be supported by consideration and comply with any variation clause, as discussed in Practice note, Variation of contracts.
- How will you prove service? Whatever method of service you use, keep records to show what you did, when, and who can verify it; especially if the contract's provisions on deemed date of service don't cover everything you have done to serve the notice and bring it to the other party's attention.
If the contract stipulates service of notice by post, could a party use an alternative method during the COVID-19 pandemic?
Mandatory provisions for service of a notice under a contract will be applied strictly and, if the terms are not followed, the notice may be invalid. Notices for termination often fall within the mandatory class because of their importance to the relationship between the parties.
In applying these principles to the current position, we make the following observations:
- The postal service has not been suspended and New Zealand Post is now delivering all post.
- From 11:59pm on 21 September 2020, New Zealand (except for Auckland) will be at Alert Level 1 of New Zealand's 4-level COVID-19 alert system. Auckland is at Alert Level 2.5 (Alert Level 2 but with extra restrictions) until 11.59pm on 23 September 2020 when it will move to Alert Level 2. For more information, see Checklist, COVID-19: Key New Zealand legislation and legislative instruments. Given this, it may be that even if a notice can be delivered to an address, there may be no-one at the address to receive it, especially in Auckland.
How the courts would interpret the notice provisions in a contract in the light of the current restrictions is an open question. The court's decision would likely turn on the facts of each case and issues, including the nature of the notice clause, the nature of the parties and the resources available to them (for example, if the parties are individuals or organisations, their respective sizes). However, there is no indication or guarantee as to whether the courts might relax any mandatory notice provisions (when applicable) where the only person who could give or receive a notice was self-isolating as a result of being infected with the COVID-19 virus.