We live in a vastly different world from that of our forefathers; in no field of human interaction is this more illustrated than that of ‘communication’. How we communicate with each other, these days, would have been almost unthinkable only 25 years ago.
Email is probably the number-one communication method used in business today – but what about its validity under the law? You’re required to ‘serve notice’ under a term of the lease. Can you do it by email? If the lease says you’re required to ‘serve notice in writing’, is an email considered ‘in writing’? These are just two of many questions regarding email, raised in this article.
Email: is it an effective or unpredictable method of service? The long-accepted and trusted practice is to serve a formal notice under the terms of a lease by way of personal service or via the postal service. The introduction of the facsimile machine resulted in some parties embracing technology by accepting facsimile transmission as an efficient and appropriate method of service.
The evolution of communication has resulted in email being a preferred method of business communication, and is relied upon by some as an acceptable method for service of a formal notice. Most will agree that email is fast, convenient and an efficient way for business to communicate.
At a time when the use of the traditional postal service and facsimile as a means of communication is in decline, the question for consideration is whether email has become a real and effective replacement for traditional mail and facsimile, or remains an imperfect method for service of a formal notice under a lease. The fact that an email is in your sent box may not mean the email has been received into the intended inbox, or read by the recipient.
The giving of notice
In the context of a lease, the need to serve a formal notice in accordance with the notice provision of the lease generally arises in the context of options, market review, default, termination and when vacating the shop. A failure to serve the notice in accordance with the notice provision in the lease may result in a party forfeiting their valuable right and suffering significant financial loss. It is in the interests of both tenant and landlord to ensure their notice is effectively served on the other. Whilst specific clauses in the lease may make reference to the requirement for a party to give a notice in writing, the majority of leases will include a specific notice clause as part of the standard boilerplate provisions of the lease.
The notice clause is intended to bring certainty to communication between the parties to the lease. The notice clause will generally set out the key requirements that must be satisfied in order for a notice given under the lease to be valid and served within time. The clause will often specify the form of notice, the permitted methods of service and the deemed time of service.
The requirement for the notice to be in writing is intended to remove any doubt as to the reason for giving the notice and the intended outcome. The notice clause will generally impose a presumption of deemed service. Service of a notice will be deemed to have occurred at a particular point in time, leaving the recipient exposed to the possibility that service is deemed to have occurred even in circumstances where the notice has not been received.
Time of service
This is often a contentious issue, particularly where the notice is given near the end of the period specified in the lease for the giving of notice. Most leases provide a method to calculate the date of service having regard to the method of service. For example, the lease may deem that service by post occurs on the third day after posting. Whilst most leases specify the time of service, where service is affected personally, using the postal service or a facsimile machine, it is common for a lease not to specify a time of service where the notice is served by email. This apparent omission may occur for a number of reasons including the desire not to accept service by email or a simple failure to keep the precedent lease current.
Where the lease specifically permits service of a notice by email, it will generally deem receipt of the notice to occur at the time the email is sent, at a nominated time such as the time the email is read or by reference to the time appearing on a delivery receipt. But there are problems in respect of each of these scenarios. Unlike a facsimile, an email may not result in evidence of receipt being provided by the recipient’s mail server or a read receipt being provided when the email is opened in the mail box. More often than not, the intended recipient will ignore the request for a read receipt.
The nature of email means there is no guarantee that an email reaches the inbox of the intended recipient at the time it is sent or at all. If the email address is not generic (such as the centre manager, property manager, company secretary or the like) but in the name of a particular person there is a risk that person may be ‘out of the office’ or has departed the organisation. Is it reasonable for the sender to assume that somebody in the organisation will monitor the mail box and read the email?
In some instances the sender’s email may bounce back or, even worse, be relegated by the mail server to junk email or accidently deleted by the recipient without being read. This may be disastrous if the failed delivery occurs on the last day on which the notice may validly be served or after the notice period has expired.
The lease may deem the time of service to be either the time the email enters the recipient’s email server or when the email comes to the attention of the recipient.
Neither rule creates certainty for the sender or the recipient. In Bauen Constructions Pty Ltd v Sky General Services Pty Ltd [2012] NSWSC 1123 the Supreme Court of NSW was required to determine the time of receipt of an email providing notice under legislation dealing with security of payments. The email was sent on 21 June 2012, but delivery was delayed due to the operation of the recipient’s spam filter resulting in the recipient not becoming aware of the email until 12 September 2012. The Court, having regard to the legislation, held that receipt occurred when the email was capable of being retrieved by the recipient rather than opened or read, and therefore the email was deemed to have been served on 21 June 2012.
The intricacies and peculiarities of email as a method of communication cause uncertainty and unforeseen consequences for both the sender and the recipient when relying on email as a method of service. The choice of the method for deeming service by email will generally be fair to one party but unfair to the other party. But the same criticism can also be made in respect of a letter sent by ordinary post.
Service of a formal notice by email
In the haste to give notice, it is not uncommon for the sender of the notice to disregard the intricacies and mandatory requirements of the notice provision in the lease. If the notice clause is expressed in mandatory terms, the parties must ensure they comply with the requirements of the clause.
Where the notice clause specifically prohibits service of a formal notice by email, the parties sometimes ignore the restriction and use email as their preferred means of communication. In these circumstances there is a risk that a party may later seek to argue that the course of conduct means the parties have consequently agreed to use email as a method of preferred communication and waived the prohibition in the lease.
In many instances, the notice provision in the lease may not specifically mention service of a notice by email. In such circumstances, the question is whether the lease permits or precludes the giving of a notice by email.
In the decision of Kavia Holdings Pty Limited v Suntrack Holdings Pty Ltd [2011] NSWSC 716 the Supreme Court of NSW considered the question of whether the service of a notice by email was effective service having regard to the terms of the lease.
The facts of the case related to the purported exercise of an option by email for a further term of 20 years under the lease relating to Jordans restaurant at Harbourside Shopping Centre in Darling Harbour. The lease inter alia required that all notices “shall be in writing and may be given to or served upon a party hereto by being left at that address specified as that party’s address in the relevant Item of the Reference Schedule … Any … notice may be signed on behalf of the party giving the same by a director, manager, secretary or acting secretary of such party.”
In determining the issue, Pembroke J noted it was incorrect to argue a requirement of strict compliance with the notice provision of the lease. The answer to the question of whether service by email is effective service is to be determined from the proper construction of the clause. On the issue of determining the meaning of the actual clause, Pembroke J noted, “I do not see any value in speaking of strict compliance or exact compliance; compliance is required, the fair meaning of the contractual requirement should be understood and given effect, and undue exactitude or the creation of difficulties which the language does not yield on a fair reading are not appropriate.” The Court considered the context of the clause and held the primary requirement that the notice be in writing was satisfied by the email. The use of the word ‘may’ in the language of the clause did not impose a mandatory requirement for physical delivery.
In answer to the question of whether the notice was signed, the Court found that the requirement for signing was satisfied by setting out the senders name and email address both of which are “readily and rapidly verifiable”. In considering the question of signing, Pembroke J noted the intention was to identify the sender and authenticate the communication and “any other conclusion would produce a capricious and commercially inconvenient result that might have wide-reaching and unintended consequences in modern-day trade and commerce.”
A recent English decision dealt with a similar issue to Kavia but the context of the clause delivered a different result. In Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Ch) the bank served a notice by email during the days falling immediately before Christmas and received an ‘out of office’ reply. The bank then attempted to contact the intended recipient by telephone and when the telephone was not answered left a voicemail message. On the evidence before the Court, the recipient did not read the email or listen to the voicemail message until after the time for service had expired.
The contract pursuant to which notice was given provided that notice “may be given in any manner set forth”. The contract required the notice to be in writing and served in person, by telex (when was the last time you received a telex?), facsimile, registered mail or “electronic messaging system”.
The Bank argued the use of the word ‘may’ meant the methods of service were not mandatory or limited. The Court disagreed noting that ‘may’ in the context of the clause mandated the methods of service and meant that the person serving the notice could use one of the listed methods of service, but not a method that was not set out in the clause.
The Court held that the words ‘electronic messaging system’, incorporated in a 1992 draft of the document, did not include email. The Court noted that, in 1992, an email was not a common method of communication and it was not possible to say that the words ‘electronic messaging system’ had evolved to include an email. The Court held that the clause did not permit the notice to be served by email.
In answer to the question of whether the notice was served within time, the Court found the recipient did not have actual notice until after the notice period had expired. The Court expressed the view that actual communication of the subject matter of the notice was necessary. Why two sophisticated corporations agreed to a notice period expiring during the Christmas period is beyond comprehension and bad commercial practice.
Attachments to the email
The type of format selected to attach a document to an email may cause a problem for the recipient. Whilst most recipients can deal with Word, Excel, PDF and JPEG, the use of other software may result in the recipient being unable to open the attachment.
If the attachment is an integral part of giving notice, the inability of the recipient to open the attachment may result in the notice being invalid and therefore ineffective as formal notice under the lease.
Drafting considerations
If the lease is to permit service of a formal notice by email, the clause should require the use of a generic mail box and specify the relevant email address. The clause should specify the time for deemed service and limit the format that may be used for any attachment to the email.
In C & P Syndicate Pty Ltd v Reddy [2013] NSWSC 643, whilst the notice provision did not specifically permit service of a notice by email, the fact that a special condition in the sale of land contract referred to execution of the contract “via fax or emailed pdf copy” was construed as the parties having contemplated the giving of notice in writing and the exercise of a put option could be effected by email.
The decision in Reddy demonstrates the importance in attaining continuity of drafting by ensuring that all provisions of the lease are consistent. An operative clause requiring a party to give notice in writing should be consistent with the requirements of the boilerplate notice clause.
Conclusion
There is no doubt that business has embraced the use of email and email has become an accepted and preferred means of written business communication. But just like the ordinary post, system error and human error mean that email is not a real substitute for personal service.
For this reason, consideration should be given to the question of whether the lease should specifically include or exclude service of a formal notice by email. Some may consider it sensible and practical to specifically exclude email for service of a formal notice whilst retaining email as an acceptable method of engaging in routine day-to-day communication.
Where email is accepted as a method of giving formal notice, the lease should require the notice to be sent to a generic email address such as the Centre Manager and/or the Company Secretary. If you intend to rely on email as a method of serving a formal notice it may be prudent to pick up the telephone, confirm receipt of the notice by the recipient and keep a diary note of the conversation.
The email address for service should be set out in the lease and monitored on a daily basis. The parties must have a practice in place to routinely ensure the email address remains current and any change of address is notified to the other party in writing.
The message to take away is that best practice requires a conservative approach when serving a formal notice. Compliance with the requirements of the notice provision in the lease remains the sensible and safest approach.
Timing is everything! It is erroneous to treat email as providing the opportunity to delay the giving of notice until the last day of the notice period. Waiting to give notice at the last possible moment can only increase the chance of giving notice out of time and result in the loss of a valuable right.
While the practicalities of giving a formal notice such as determining the time of service and proving delivery are neither refined or settled, there is no doubt that the popularity of email will see email continue as the preferred method of business communication. SCN
Disclaimer: This article is not intended to be a substitute for obtaining legal or other expert advice and no responsibility is accepted for any action taken as a result of any material in this article. Information and advice relating to your specific commercial dealings can be obtained by contacting HWL Ebsworth Lawyers.
John Morrison is Special Counsel, NSW office of the national HWL Ebsworth Real Estate and Projects Group. John has extensive experience in the area of shopping centre retail leasing throughout Australia and New Zealand.
He has advised a number of well-known national landlords and tenants. John has acted
for REITs in high-volume retail leasing and the disposal and acquisition of shopping centres.
