PROVING SERVICE BY FAX: OPERATOR OF A FAX MACHINE IS A “RESPONSIBLE PERSON”
In a judgment today in LBI EHF -v- RAIFFEISEN ZENTRALBANK ÖSTERREICH AG  EWHC 522 (Comm) Mr Justice Knowles CBE had to consider whether the fact that a party could not find a fax meant that it had not been served. This involved consideration of evidence from the sender and receiver.
- There was electronic evidence of the sending and receipt of the fax.
- The judge was able to infer that the sender had sent the fax to the correct number.
- The fax had to be received by a “responsible employee”. The person operating the fax machine was a “responsible employee”.
- The fact that the defendant could not find the fax was far from conclusive. It did not have an impressive system for the retention and distribution of faxes.
One issue in the case was whether there had been effective service of default notices. The agreement between the parties allowed service of notices by fax. However the defendant contended that it could not find the default notices and that it had not been properly served.
“Effective service of default notices
“(a) Any notice or other communication to be given under this Agreement … (ii) may be given in any manner described in sub-paragraphs (b) … below;
(b) … any such notice or other communication shall be effective … (iii) … if sent by facsimile transmission, at the time when the transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender’s facsimile machine) …”
The GMSLA provided by paragraph 21.1:
“Any notice or other communication in respect of this Agreement may be given in any manner set forth below to the address or number … set out in paragraph 4 of the Schedule and will be deemed effective as indicated: … (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender’s facsimile machine) …”
It was the evidence of Mr Ronald Wiesinger of RZB that on 7 October 2008 LBI had, after receiving a margin call, stated it was “unable to make any payments today”. This together with news of the appointment of a Resolution Committee to LBI caused RZB, on Mr Wiesinger’s evidence, to decide to terminate the trades on grounds of LBI’s default. RZB’s legal department drafted default notices and, on his evidence, his colleague Ms Jordan-Sima sent those notices by fax. I accept this evidence.
The available documentation includes transmission receipts marked “OK“. The receipt contains the number for LBI but commencing “0207” rather than “0044207”. I am prepared to accept that this does not show the way in which the number was dialled, but shows the answerback of the machine reached. Neither party called expert evidence on the point, so I am left to assess the matter with limited tools. I am influenced in my assessment by the greater likelihood of Ms Jordan-Sima dialling correctly rather than incorrectly. This was not, on Mr Wiesenger’s evidence, the first occasion on which the number had been dialled; it had been used for previous fax confirmations of trades.
Were the faxes received in legible form? On a balance of probabilities my conclusion is that they were. It is not in issue that the fax machine at LBI was still being used. Indeed it is LBI’s case that it was being checked from 7 October 2008 onwards. There is greater likelihood of the faxes being received in legible form than in illegible form.
Were the faxes received by a “responsible employee” of LBI? LBI contended that “responsible employee” means “an employee with responsibilities relevant to the default, i.e. someone who will recognise a … notice for what it is, and what steps will be taken as a result”. In my judgment that reads far too much into the phrase. It would allow the quality of the recipient’s systems and procedures to affect the position considerably. I cannot accept that the parties would intend the uncertainty involved.
Less ambitiously, reference was made to a remark in Henderson on Derivatives (Second Edition, 2010), discussing the 1992 ISDA Master Agreement. Mr Henderson writes: “who is a responsible official (presumably not the employee in the fax room)”. It may be that Mr Henderson’s remark drew particularly upon the word “official” (which is not the word in the present case). And Mr Henderson is right to point out that the use of fax to serve notices invites issues. But for my part I respectfully question why the employee in the fax room is not a “responsible employee”. The employee in the fax room has been given responsibility by his employer as the first point of receipt of this form of communication to his employer. Other forms of giving notice under the GMRA and GMSLA focussed on the moment of receipt or delivery rather than reading. This is why I cannot accept the submission of LBI that the words “responsible employee” means “someone who will appreciate what the … notice is and what it signifies”.
I accept that LBI has looked hard, not least in complying with its disclosure obligations in this litigation, to see whether it can find default notices from RZB for these trades. I do not accept that the fact that LBI has not found any notices is of much weight in an assessment of whether notices were received, when considered against the evidence I have identified above.
I was not persuaded that LBI had a reliable system for recording or storing faxes, so as to allow me to place much weight on the fact that the faxes were not to be found in a particular place. Mr Jonsson accepted that the fact that the legal department did not have a copy of a notice did not mean that it did not exist. It is a sign of his uncertainty on the matter that he contacted RZB to ask if they had sent default notices.”