Validity of notice to terminate

3 July, 2012

The recent case of Fitzhugh v Fitzhugh [2012] EWCA Civ 6941 may have left pragmatists aghast, but should serve as a lesson to the diligent lawyer wanting to avoid a potential claim.

 

The Facts

Following the death of their father, four sons were appointed as administrators of his estate.  Two of the sons subsequently died, leaving Anthony and Harry acting.  Anthony and his partner Karen (“A & K”) were granted a licence by the administrators (Anthony and Harry) to keep animals on a part of the estate for an annual licence fee of £1.

 

The licence contained the following termination clause, 4(b):

“If the licensee commits any grave or persistent breaches of this licence and the licensor having given written notice to the licensee of such breach the licensee fails within such period as the licensor may specify to rectify such breaches if capable of rectification.”

 

A & K failed to pay the licence fee and Harry instructed solicitors who wrote to A & K requesting payment of the licence fee within seven days (the notice). Despite the notice, A & K still failed to make payment and Harry issued proceedings to terminate the licence.

 

The High Court held that the notice was effectively served, taking the pragmatic approach that as one of the licensors (Anthony) was also one of the joint licensees (both Anthony and Harry were administrators of the estate), he would be unlikely to join the action, and serve notice for breach against himself.  Anthony appealed.

 

Decision

The key question that the Court of Appeal had to decide was what would a reasonable person, having all the background knowledge reasonably available to the parties at the time the licence was made, believe was meant by the term ‘Licensor’.

 

The court decided that a reasonable person would conclude two things: firstly, the licence did not give any indication that there should be a disparity of meaning between the word ‘licensor’ in clause 4(b) and the rest of the licence; and secondly, although this strict interpretation could (and would) give rise to practical difficulties and unwanted expense, there was no basis to conclude clause 4(b) was unworkable. 

 

The licence was the best evidence of what was intended by the parties at the time the contract was made and the court held that it did not have the power to improve the terms of the licence simply because it was cumbersome or expensive.  So long as its terms were workable they should be adhered to. 

 

When coming to this decision the court felt that it was important to distinguish between Anthony’s role as a licensee (in his personal capacity) and his role as licensor (as administrator of his father’s estate).  Anthony was only acting as licensor in his role as administrator and as a result it was possible for him to serve notice, without prejudicing his rights to challenge the justification of the notice at a later date as licensee.  If he was not willing to do this then Harry could apply to the court to seek his removal as an administrator.

 

Practical Points

In this case the court held that it was necessary for both licensors to give notice under a contract, even though one of the licensors would effectively be serving notice on himself (although in different capacities).  The obvious practice point from this case is that it is important to carve out who is required to give notice under a contract where multiple parties are involved. This case also serves as a reminder that it is important to get all the terms of the contract right, not just the notice / termination provisions.  Unless the contract, as drafted, is completely unworkable the court will not come to the rescue of an aggrieved party.

 

1Link to judgment: Fitzhugh v Fitzhugh [2012] EWCA Civ 694

 

 

 

Reviewed in 2015