The importance of getting written notices right

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A recent decision of the Victorian Supreme Court of Appeal has highlighted the importance of parties to a contract giving appropriate written notices in accordance with the terms of the contract.

In Umbers v Kelson,the Court found that a purchaser’s purported notice to terminate a sale of business contract was not effective.  The vendor was awarded damages for the loss of the purchase price.

The contract contained a subject to finance clause which allowed the purchaser to end the contract if the purchaser did not obtain financing by the approval date.  In order to exercise this right to terminate, the purchaser had to satisfy several obligations, including serving written notice on the vendor ending the contract.

Prior to the last date on which the purchaser could exercise this termination right, the purchaser sent a letter to the vendor seeking an extension to the date by which the purchaser could terminate the contract under this finance condition.  The letter stated that “in the event an extension is not agreed to, you may treat this letter as written notice ending the contract”.

Although the vendor was prepared to grant the extension, a break-down in communication meant that the acceptance was never conveyed to the purchaser. However, both parties treated the contract as continuing as evidenced by subsequent meetings between the parties. At a later date, the purchaser purported to terminate the contract because of its failure to obtain the finance and subsequently the vendor sold the business to another party for less than the price the purchaser had agreed.

In the Court of Appeal, the key matter for consideration was whether the letter sent by the purchaser to the vendor constituted a legally effective termination of the contract. 

The Court of Appeal agreed with the Supreme Court that the purported termination of the contract by the purchaser was legally ineffective. The Court asserted that the letter requesting the extension left the question of whether the contract was to be ended entirely in the hands of the vendor. The Court noted that, on the other hand, in the event that the vendor did agree to the extension, the letter did not purport to end the contract.

The Court held that a termination notice must be unequivocal in its terms. In the Court’s view, the letter was ambiguous and a reasonable person would not have understood the letter as ending the contract.

To read the case in full, click here.

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