Mark Hughes & Ors v CSC Computer Sciences Limited

Contractual notice provisions may apply to a determination even where the contract uses less formal language such as “submit”. Broad provisions governing notices and other communications ordinarily include communications of contractual significance, particularly where certainty is important.

Waiver by election requires a choice between mutually exclusive courses of action. Where an invalid determination can simply be ignored, no election arises. Estoppel may nevertheless prevent reliance on invalidity where there is a clear representation, reliance and resulting inequity. The court’s discretion to order specific performance turns on the balance of justice, including delay, prejudice and the parties’ ability to use the agreed dispute-resolution procedure.

The claimants represented the sellers of Fixnetix under a share purchase agreement providing for deferred consideration linked to revenue targets. The defendant sent Year 1 and Year 2 earnout determinations by email. The claimants challenged the figures, but the communications did not comply with contractual notice provisions.

The claimants sought declarations and specific performance requiring the parties to use the contractual dispute-resolution procedure. The principal issues were whether the notice provisions applied to the determinations, whether the claimants had lost the right to rely on defective service through election or estoppel, whether the Year 2 dispute notice was valid, and whether relief should be granted.

1. Application of the notice provisions. Clause 20 of the SPA applied to the determinations. Its reference to “notices or other communications” was broad, and the determinations were communications of contractual significance. Applying the contractual construction principles summarised in Lamesa Investments Ltd v Cynergy Bank Ltd, the court held that certainty and commercial common sense supported that conclusion.
2. Invalid service. Neither determination complied with Clause 20 and neither was validly served.
3. Election. Waiver by election requires two mutually exclusive courses of action. The authorities including The Kanchenjunga and Delta Petroleum v BVI Electricity Corpn supported that requirement. The claimants were not required to choose between accepting or rejecting the determinations. They could ignore invalid determinations, in which event the contractual period for disputing them would not begin. There was therefore no election. The Happy Day was not inconsistent on its facts.
4. Estoppel. In relation to Year 1, the claimants’ statement that the figures were not disputed represented that the determination was validly served. Reliance made it inequitable for them to resile from that position. They were therefore estopped from relying on invalidity. In relation to Year 2, disputing the figures did not unequivocally represent that the determination was valid. The claimants could challenge both service and substance, and CSCL had not shown reliance sufficient to establish inequity.
5. Year 2 dispute notice. The issue of compliance with the dispute notice did not arise. Since the Year 2 determination was invalid and was not saved by election or estoppel, the contractual clock had never started.
6. Relief. The balance of justice favoured specific performance for Year 2. The claimants had challenged the figures promptly, the explanation for later delay was accepted, and the extent of prejudice caused by lost documents or personnel remained uncertain. The parties were required to commence and engage in the Schedule 10 dispute-resolution procedure.