Claire Ward, CEO of the IPF, says, “It is unacceptable that patients’ health and lives are being put at risk by this failure in the supply chain. Pharmacists are sometimes wrongly getting the blame when the fault lies in other places.”

Paul Gershlick, a Partner and Head of Pharmaceuticals and Life Sciences at Matthew Arnold & Baldwin LLP, says: “This is a massive issue. It needs sorting. Anything that Parliament can do to address it is crucial. People’s lives are being put at risk, with at least one reported death arising out of the supply chain problems. Whether the issue is with too many drugs being exported to take advantage of commercial opportunities arising out of differential prices in different countries, or suppliers withholding supplies so that they can sell more in other countries at a higher rate, a solution is needed to protect patients’ interests. The All Party Pharmacy Group at Parliament has recently held an enquiry into the issue, and we look forward to their findings in June.”

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP, comments: “I have given quite a lot of training on the Bribery Act. The new legislation has taken the UK from having some of the most lenient legislation to the strictest anywhere in the world. For example, there is no defence to facilitation payments – routine payments made to local officials that enable organisations to do business in a particular country. It is therefore not surprising that the OECD has no problem with the new law. It is a concern, though, that it has raised issues surrounding its implementation. However, nearly a year after the law was implemented, we still await a high-profile public prosecution under the new regime.”

The report can be accessed here http://www.oecd.org/dataoecd/52/19/50026751.pdf.

The Group is holding an enquiry into the supply chain problems and is due to report back after Easter.

One MP, Huw Irranca-Davies, has asked the Health Secretary to consider putting legal obligations on the supply chain and he has questioned the assessment that has been made on the impact of the shortages on patients and pharmacies. The initial response to Mr Irranca-Davies was disappointing, as Simon Burns, the Health Minister, said that the Government was cautious about increasing regulations on the supply chain and admitted that the Government had not yet carried out an impact assessment. He added that information was not held centrally.

In a follow-up, Mr Irranca-Davies asked the Minister to explain why the Department of Health did not hold more information on the shortages. But Mr Burns’ reply showed a lack of appreciation for the problem, saying that the Government did not want to put additional data return burdens on pharmacists.

Mr Irranca-Davies is now looking for Primary Care Trusts to provide evidence of the delays and their effects on patients. He would like to use this as evidence in the case for action.

The Independent Pharmacy Federation is also encouraging pharmacists to bring the matter to their MPs’ attention.

Paul Gershlick, a Partner and Head of Pharmaceuticals and Life Sciences at Matthew Arnold & Baldwin LLP, comments: “These supply shortages are serious. I applaud Mr Irranca-Davies for his tenacity in trying to keep the issue on the agenda. There are reported cases of people not getting medical treatment when they need them because of the supply chain being strangled. Whether it is the suppliers with a concern about losing profits overseas and so strangling supply, or some pharmacists or others in the supply chain causing the issue through exporting to make money, the net result is that patients are suffering. Whilst the Government is right to keep bureaucracy to a minimum, it is disappointing that they do not seem to have appreciated the impact of the issue, but I hope that Mr Irranca-Davies’s actions will help to bring it further up the agenda. It is to be hoped too, that the All Party Parliamentary Pharmacy Group’s enquiry into the issue, chaired by Kevin Barron, will also help.”

The Telegraph reported last month that there has been at least one death as a result of this issue, when a Staffordshire pharmacist said a patient had died after it took one week to get the medication he needed.  The patient had been very ill with an immune disorder disease, and it took about a week to get his medication – which tragically proved too long in his case.

Paul Gershlick adds: “This is why the issue needs to be taken seriously.  It’s not just about an inconvenience – it’s about life and death.”

Whilst the Government is trying to arrest this decline, the Portas Review, which aims to identify what the Government, local authorities and businesses can do to promote the development of more prosperous and diverse high streets, is only just underway and a resurgence in the high street may be some way off.

However, whilst traditional retail suffers, online shopping is booming in the UK.

According to recent statistics published by the Organisation for Economic Co-operation and Development (OECD), the UK has a higher proportion of adults who shop online than any other OECD country. The statistics revealed that 60 per cent of UK adults bought something online in 2011 – twice the average of the OECD’s 34 member states, which include the US, Germany, Australia and France. And UK consumers are spending a lot of money online too: according to the Interactive Media in Retail Group (IMRG), the UK spent £68.2bn on the internet in 2011, which is equivalent to £2,180 for every adult in the country.

And this is not an isolated statistic.

The latest figures from the IMRG Capgemini e-Retail Sales Index reveal that shoppers in the UK spent a total of £6bn online during January 2012, equivalent to £118 per person, reflecting a year-on-year growth of 16 per cent.

When compared with the high-street and wider retail sector, online retail is not just proving resilient in the economic gloom, but is positively flourishing.

An article in the Financial Times this week looked at how manufacturers of household and personal goods in the UK and US are hoping to expand their online presence and are now looking at ways to use social media to target customers. Whilst some companies, such as Heinz, Thorntons and Asos, are already marketing or selling items through their Facebook pages, Reckitt Benckiser has just launched a washing-up liquid product which is exclusively sold on Facebook.

There is no doubt that the use of Facebook can help to develop the retailer-customer relationship; by doing so, it could be argued that retailers’ desire to make the shopping experience more personal is a return to the ‘good old days’ when local shopkeepers in the high street butcher’s or baker’s shop knew their customers by name.

Are we going back to the future?

BT Openreach has already been the subject of price-setting by Ofcom on two occasions, which Ofcom argues is justified because BT Openreach has a dominant position in the market. Ofcom’s proposal has been submitted to the European Commission, which has a month to comment; if the proposal is approved, the changes will come into effect in April 2012.

The European Court of Justice has backed up the French Competition Board’s decision. The ECJ looked specifically at the question of selective distribution networks. It said that establishing those networks are not prohibited by Article 101 if resellers are chosen based on objective criteria, where those criteria are applied uniformly and non-discriminately, where the characteristics of the products need to preserve the quality and ensure proper use, and the criteria only go as far as is necessary. However, provisions within those networks may still end up offending against competition law. The ECJ has not accepted arguments relating to the need to provide individual advice to customers and to ensure their protection against incorrect use of products in the context of non-prescription based products to justify an Internet sales ban. Contract provisions that effectively prohibited Internet sales meant that the benefit of the block exemption did not apply. That said, it would still be for the national court to ascertain whether the contract had an individual exemption, as the failure of an agreement to fall within block exemption parameters does not automatically mean that it will not be found to be individually exempt on other criteria.

China is an important growth market for the UK, with its worldwide food and drink imports having continued in a positive trend in July to just under £5bn, up from £4.4bn in June. With 2010 figures for UK food and drink exports to China up 28.5% on 2009 figures, manufacturers are increasingly looking at opportunities in this market.

In a joint initiative with the Food & Drink Exporters Association (FDEA) and UK Trade & Investment (UKTI), FDF’s support will ensure companies benefit from an enhanced and strongly branded UK presence at the show; a specially organised trade development visit for non-exhibiting companies to give them a taste of the market; and a meet the buyer initiative enabling companies to meet key customers from the retail and food service sectors.

Charlotte Lawson, Director of Member Services at FDF, said, “The UK manufactures many of the world’s best loved food and drink brands, and demand for our products abroad continues to grow. China, with its growing middle class, has turned from an export country to an import destination. As a growth market for the UK, China cannot be ignored.

“Working with FDEA and UKTI, FDF wants to help UK food and drink manufacturers take the Chinese market by storm by significantly enhancing the UK presence at the FHC exhibition in Shanghai. We aim to support Britain in her endeavour to double trade with China by 2015 to some 62 billion pounds, by supporting business building initiatives which enable UK food and drink manufacturers to gain access to this market.”

So, the message from the FDF seems clear – the Eastern markets are full of promise – maybe we have heard that said somewhere before? Let’s hope UK businesses can achieve something great in these troubled times.

In 2009, the High Court ruled in Internet Broadcasting Corporation (t/a NetTV) v Mar LLC (t/a MARHedge) that there is a rebuttable presumption that an exclusion clause should not apply to a deliberate personal repudiatory breach of a contract. In that case, the High Court ruled that extremely clear drafting would be needed for a court to rule that the parties intended an exclusion clause to cover a deliberate personal repudiatory breach. The Court had said that there was a presumption that a party would not intend to limit their liability for really serious deliberate breaches (such as deliberately walking away from a binding contract).

What happened in this case?

In this case, AstraZeneca (AZ) and Albemarle International (AI) entered into an agreement for AI to supply a product called DIP to AZ that AZ then distilled to produce propofol. AZ foresaw that it might, at some point in the future, be more beneficial to be supplied with propofol rather than DIP, and the agreement contained a provision that, if AZ did want to make such a change to its process, it would give AI first refusal on the supply of propofol.

AZ later told AI of its intention to enter into an agreement with a third party (“S”) for the supply of propofol. AI objected as it wanted to continue to supply and cited the first refusal provision in the agreement. Negotiations ensued, but, despite AI matching the third party offer of supply, no agreement was reached, and AI served notice to terminate for AZ’s breach of the first refusal provision which had not been remedied on demand. During the negotiations, AZ attempted to stockpile the goods, whilst AI refused to supply two additional orders made by AZ under the agreement, although this did not affect AZ’s operations. Things got rather messy as allegations were thrown around about who was breaching the agreement.

AZ issued proceedings against AI for breach of contract as AI had failed to supply the two additional orders. AZ argued this was a repudiatory breach entitling AZ to terminate the agreement and claim damages. AI denied the claim, and further argued that any liability it might have was, in any case, limited by an exclusion clause in the agreement. AZ argued that AI could not rely on the exclusion clause because (following the ruling in the NetTV case) the breach was deliberate and repudiatory. AI then counter-claimed for breach of contract due to the alleged failure to give it first refusal on the right to supply propofol, but AZ denied liability.

The ruling

The High Court ruled that AI was, on the facts, in breach to AZ for its failure to fulfil one of the two additional orders and was liable in damages for that breach. However, it went on to rule that failure in respect of one or two orders did not amount to a repudiatory breach of a minimum three year contract.

Meanwhile, AZ was also liable for failing to honour the first refusal provision and AI was entitled to terminate the contract as a result of that breach. However, despite that liability, the High Court had to decide whether the exclusion clause excluded or limited the liability of either party and in particular whether AI could claim for its loss of profits despite an apparent provision excluding liability for lost profits. Meanwhile, although AI’s failure to supply was not serious enough to be repudiatory and although the breach was not deliberate (as AI had had legal advice that suggested that it would not be breaching the agreement in the circumstances by failing to supply), the court went on to consider the issue of deliberate repudiatory breach anyway.

Right of first refusal

Where AZ had decided to move to buying propofol rather than DIP and it was considering an offer to supply from a third party, AZ was under an obligation to provide AI with full details so that AI could match the opportunity. Of course, issues may arise in the course of negotiating that could mean that AI would not supply on the terms offered by S, but if AI was willing to match the terms that AZ was minded to accept from a third party (as happened here) then AZ was obliged to accept AI’s offer. The right of first refusal clause had to mean something. AZ was obliged to provide full disclosure of the terms of the proposed deal with S and act in good faith to AI. The only sensible construction of a right of first opportunity was to give AI sufficient opportunity and right to match the offer and not just as AZ was about to award the contract to S. AZ was in breach of the right of first refusal clause, and AI had rightly given AZ 30 days to remedy the breach and then rightly terminated the contract when the breach was not remedied.

Waiver

The court added that AI’s willingness to continue negotiating after that 30 day period had expired did not amount to a waiver of its rights. It could still terminate despite not exercising that termination right immediately.

Deliberate Repudiatory Breach

The High Court ruled that, if there had been a repudiatory breach by AI, it had not been deliberate as AI had followed legal advice that it was acting within its contractual rights (albeit the legal advice had been incorrect). As such, there was no question that the exclusion clause applied and limited AI’s liability. However, the Court went on to consider what would have been the position had the breach been deliberate and repudiatory. It said that the decision in NetTV had in fact been misguided, and that deliberate repudiatory breaches should not be treated any differently from any other breach. The High Court said that, although it was not necessary to consider whether or not an exclusion clause applied to a deliberate personal repudiatory breach, it would be inclined not to follow the NetTV ruling if it did.

Limited “Contra Proferentem” interpretation of exclusion clause in relation to breach of right of first refusal provision

The exclusion clause said “No claims by AZ of any kind whether as to the products delivered or for non-delivery of the products, or otherwise, shall be greater in amount than the purchase price of the product…; and failure to give written notice of claim within 60 days from the date of delivery, or in the case of non-delivery, from the date fixed for delivery, shall constitute a waiver by AZ of all claims with respect thereto. In no case shall AZ or Albermarle be liable for loss of profits or incidental or consequential damages.”

AZ argued that it was not liable for AI’s lost profits arising out of its breach of the right of first refusal provision. However, the Court ruled that, in line with English law rules of interpretation on liability clauses, the exclusion clause had to be construed against the party seeking to rely on it if there was the slightest bit of doubt in the meaning (a rule known as “contra proferentem”). AZ’s interpretation would have meant that the first refusal provision would have been no more than a statement of intent, leaving AZ with no incentive to comply with it, which a court would always seek to do everything to avoid if there is no alternative construction.

In this case, the alternative construction was that the second sentence in the exclusion clause (ie the exclusion of lost profits) had to be read in the same light as the first sentence within the same paragraph – ie applying to late or non-delivery of DIP products. On that interpretation, it was not intended to deal with loss of profits arising out of not giving AI the opportunity to supply propofol.

Comment

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments, “This ruling is important because it deals with four important issues relating to commercial contracts – deliberate repudiatory breach, the meaning of rights of first refusal, waiver during contract negotiations and contra proferentem.

 ”The ruling in NetTV stated that deliberate repudiatory breaches can, in some circumstances, be covered by an exclusion clause but only if express words are used. This ruling suggests the opposite, in that liability would be restricted or excluded for deliberate repudiatory breach just as much as with other forms of liability. Those comments are not strictly binding on future cases, as the High Court did not need to make a ruling on that issue, as it had already ruled that the breach was not deliberate or repudiatory anyway. This uncertainty is not particularly helpful for businesses that need to know how to draft contracts going forward, but the best advice would be to draft appropriate wording to reflect the level of risk the parties are willing to take and not leave it to the courts to decide.

“The part of the ruling dealing with the narrow interpretation of an exclusion clause against the party seeking to rely on it – the ‘contra-proferentem rule’ – which meant that breach of the right of first refusal provision in the agreement was not covered by the exclusion clause is actually just a very useful reminder of existing rules. Exclusion clauses should be professionally drafted by specialist lawyers. A party to a contract should play devil’s advocate when drafting an exclusion clause and try to understand what a court might see from the outside looking in, rather than just looking on what might be beneficial for the business itself.

“The interpretation of the phrase “right of first refusal” was also extremely useful. That phrase is sometimes used in a contract but this ruling gives real insight into what that actually means.

“Finally, the decision that one party had not waived its rights of termination when it continued to negotiate for a few weeks in good faith was also helpful.

“All in all, this is a major judgment that affects all commercial dealings. We will have to see, though, whether the ruling will be appealed.”

Some would argue, however, that most consumers in the EU do not pontificate in the supermarket aisle and read the label word by word, before popping a product in the trolley or basket. Those consumers are finding it tough in these austerity times and do not really care where the food comes from or how much mono-sodium glutamate it contains. What really drives what food they buy is down to one key ingredient – price. And as we all know, with the huge increases in commodity prices (particularly the oil price) food prices in the EU have gone up a long way in the last few years. Sorry EU, but the consumer’s main concern is, and probably always will be, price – and the cheaper the better. In any event, here in the UK we are much better than some of our EU partners at providing nutritional information on labelling. As the UK’s Food and Drinks Federation (“FDF”) has pointed out in a response to the EU Food Information Proposal. Terry Jones, Director of Communications at the FDF, said:

“The UK food manufacturing sector is well ahead of other EU states on labelling, and we are pleased with the outcome of MEP’s votes on some aspects of the proposal, namely: nutrition labelling, the exemptions granted for small packs and some aspects of the broader approach on legibility – despite moves to introduce a mandatory minimum font size.”

Terry Jones went on to say:  “We are disappointed that MEPs have voted in favour of the mandatory extension of existing rules (e.g. for single ingredient products) on country of origin labelling (COOL), without considering calls from several member states, the European Commission and industry for an impact assessment to define if this would bring added value to the consumer, and the costs, feasibility and practicability of industry to implement such rules.”

So, there you have it. Mum used to know best, but now it seems our MEPs do. They govern what goes on our food labelling. Perhaps the MEPs will also vote in favour of issuing healthy eating menu cards to all EU consumers, so we all know what to cook with our “EU compliant labelled” food? I would not put it past them. As for industry, well, as the statements above indicate, it is yet more red tape and, no doubt, additional compliance costs for their businesses at a time when they can ill afford it. Still, it should keep the label manufacturers happy – or to put it another way – one man’s [labelled] meat is another man’s poison.

In this case, S supplied goods to J with a retention of title clause. That clause stated that in the event of J becoming the subject of a formal insolvency procedure, S could by notice prevent J from selling or parting with possession of any of those goods. In the meantime, as in most contracts, it was implicit that the buyer could deal with the goods. However, J did actually go into administration. S failed to serve notice to prevent further dealing with the goods. S claimed that J’s subsequent dealings amounted to wrongful interference with its goods.

The High Court initially, and now the Court of Appeal, disagreed with S. The contract did allow S to terminate J’s right to deal with the goods if J went into an insolvency procedure, but that express termination right – that had not been exercised – clearly showed that the parties did not intend that the right should terminate automatically in an insolvency event. The Court added that it was open for the supplier to state the basis on which the buyer could deal with the supplier’s goods. They could agree that the buyer’s right to deal with the goods in the ordinary course of its business would be limited by express contractual provision, but unless the parties expressly agreed to that the court would not imply such a term. The Court said that trading in an insolvency process was not in the ordinary course of business.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “This case shows that a court would be likely to uphold an automatic restriction in the supply contract on the buyer from dealing with the goods if the buyer goes into an insolvency type process. It is open for the supplier to agree the basis on which the buyer can deal with goods that remain owned by the supplier. Traders should look at their own standard terms and conditions and get them updated as necessary without delay.”

Ed Davey said, “ Our objective is to introduce a final Bill in the Second Session, although we will look at the opportunity for introducing the Bill earlier if parliamentary time allows. One reason for publishing the draft Bill as soon as possible is that if parliamentary time allows, we may be able to make it a first Session Bill, but that is not within my control.”

The background to the draft Bill which will set up a “supermarket ombudsman” is that the Groceries Supply Code of Practice was recommended by the Competition Commission following its market inquiry into the supply of groceries and report in April 2008. The Commission concluded that, although the exercise of buying power by grocery retailers was in general a good thing for consumers, it could raise concerns in certain circumstances. For instance, if retailers transfer excessive risks or unexpected costs to their suppliers in the hope of gaining a competitive advantage, it is likely to blunt suppliers’ incentives to invest in new capacity, products and production processes. Which in turn could be bad for consumers, and the Code of Practice is intended to remedy the problem.

The groceries supply code will apply to all companies active in the sector with an annual retail groceries turnover of £1 billion or more. Its provisions are now included in all retailers’ contracts with their grocery suppliers. It gives suppliers greater security, which should encourage them to invest in their operations. In essence, the code is about introducing clear standards and greater certainty.

The Competition Commission concluded that the code would be far more effective if it was enforced by an adjudicator. The idea is to dispel the climate of fear among suppliers, who felt they risked being black listed by the big supermarkets if they invoked the previous Code of Practice. The Commission does not have the power to establish an ombudsman. After failing to win agreement amongst the retailers to establish such a body on a voluntary basis, it asked the previous Government to act. The Coalition Government agrees that the Code of Practice needs to be independently monitored and enforced if it is to succeed.

The “supermarket ombudsman” will act as arbitrator in disputes arising under the code, and will have investigatory powers and, one assumes, powers to fine and censure retailers in the more serious cases of code abuse. We will know more when the draft Bill is published.

But who will ultimately benefit from the new Code and the appointment of an ombudsman? The consumer, the food supplier or both? Only time will tell. But one thing is for sure, the large grocery retailers in the UK will not be hiding under their duvets in fear of the new Bill. The Government will not want to risk being too onerous on them. After all, with a weak UK economy forecast for the foreseeable future, the last thing any Government will want to do is to alienate a sector which continues to increase trade and revenue even in these times of austerity. The big supermarkets provide UK plc with a lot of tax revenue, which is much needed in the Treasury coffers in the current climate. The ombudsman may be on his way, but he is unlikely to be changing too much any time soon.

On appeal, the Court of Appeal has now ruled that B’s argument that there should be an implied term was wrong. The contract had provided that the product would be tested by an inspector at the time of loading and that decision was final and binding unless there was a manifest error. The Court of Appeal said that the implied term would render such an inspection meaningless. It could not possibly have been impliedly agreed by the parties. The parties had clearly had a desire for contractual certainty.

However, that was a pyrrhic victory for P as it lost on the other point. The implied term of Section 14 of the Act was not excluded by Clause 18 because of the poor wording of that Clause. Under English law, there was a difference between ‘conditions’ and ‘warranties’. Section 14 of the Act was a ‘condition’, but Clause18 did not exclude ‘conditions’.

This can be the danger of using a contract not written with English law in mind. This problem often arises when people use a US-originated contract and substitute the words ‘English law’ instead of the other US governing law. Unless exclusion clauses are drafted properly to reflect English law requirements, they may not work. That’s what one of the parties found out to its cost here.

The High Court ruled that S had been in breach of contract and KDP had been right to terminate. The Court of Appeal has now upheld that decision. The agreement had required a full and accurate report every six months, including details of who the end users were, the contracts with them, the pricing and costs deductions. Those reports had not been provided. KDP had acted properly in provide notice of the breach, the required cure and the intention to terminate if not properly cured. KDP then properly terminated when there had not been an adequate correction after that first letter.

Mark Weston, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case shows the importance of getting the process right when a party is aggrieved about the other party’s failure to perform its obligations under the contract. Too often, businesses either terminate too early without proper warning, or don’t terminate when they should, or don’t set up their exercise of their right to terminate properly. If they get that process wrong, they could face a claim for their own breach of contract. That’s what S sought to argue here. However, because KDP had involved its lawyer at the earliest stage and followed their advice, it got the result it wanted.’

The move seems like a step in the right direction for small businesses. If nothing else, the problem of late payment is in the public eye for all to see. The only issue? So many amendments have been proposed to the Late Payment Directive that MEPs may not vote on it until next April, at the earliest. There will therefore be a delay. But then, how important is it if things are late?

M-Tech’s objection here was that Oracle had conducted its business in a way in which it was not possible for traders to ascertain whether the goods had originated inside the EEA or outside. In particular, it had deliberately chosen not to make publicly available its database of product serial numbers – and those could have identified where the goods had been first marketed.

The High Court had awarded Oracle summary judgment but on appeal the Court of Appeal agreed that M-Tech had an arguable case. It thought that it was possible that Oracle’s actions amounted to an artificial partitioning of the European market, contrary to the Treaty on the Functioning of the European Union (previously the EC Treaty), with the aim of maintaining price differences in each country rather than any legitimate wish to protect its brand. The Court of Appeal did not award victory to one party or the other, but said that M-Tech’s arguments warranted a full trial and the case should probably end up being referred to the European Court of Justice to make a ruling.

The High Court ruled that Umbro had breached the licence by allowing Dick’s to dip into the off-field market. However, it also agreed that Hudson Bay had breached the licence by doing likewise the other way. The Court of Appeal has now agreed with the High Court’s ruling. The reasoning turned on pockets. FIFA (the regulatory body) had regulations which said that on-field clothing could not have pockets; in contrast, off-field clothes generally did have pockets. There were other differences such as the size of logos, but that was the main distinguishing design difference. Hudson Bay argued that it had asked for authorisation to stock a design without pockets, which had been agreed to by the head of Umbro’s US subsidiary. However, that person did not have actual or ostensible authority to bind Umbro UK, which was the party to the licensing agreement. That lack of authority was borne out by other surrounding facts in the case, such as the delay in executing the original agreement which had been negotiated by Umbro US so that Umbro UK people could sign it.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case is interesting because of the sporting subject matter. But it raises another more serious point. When someone wants to get something approved or agreed by the other party in a contract, they should ensure that the individual they are dealing with has authority to bind that other party. Where in doubt, this should be checked with a board director.’

The High Court ruled that the retention of title clause was ineffective. A retention of title clause needs to be interpreted in the context of a commercial bargain as a whole. Here, the clause was part of a contract for the sale of stock designed for resale rather than the sale of goods designed for use by a business. The clause was ineffective because it was inconsistent with the parties’ intention for stock to be sold on to customers. The Court added that the termination clause did not help the clause to be enforceable. The Court was particularly influenced by the way the contract had been performed as Sandhu had at no stage sought delivery up of the stock but sought instead to recover monies for the value of the stock sold from the administrators. A retention of title clause is not a right to priority over sales actually made (which would act as a charge) but a right to recover possession of goods.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘Our insolvency lawyers often see cases where clients wish to rely on retention of title clauses when their customers have suffered an insolvency type event. Often, those clauses do not give adequate protection. However, we also see clauses which have been inadequately drafted and try to go further than is allowed and this can render the entire clause ineffective.

‘Given the current fragile state of the economy, retention of title clauses are being closely examined at the moment due to the risks of customers defaulting on payment. They should be closely reviewed and updated by suppliers as necessary in light of the ever-changing case law in this area. It should also be realised that those clauses have limitations to their use and should be seen as one tool in a supplier’s armoury that may include short (or no) credit periods, parent guarantees and risk insurance.’

The big news is that companies that fail to register their energy use by next month will be hit with fines that could reach £45,000 under the little-known rules. 

Those that do participate in the Carbon Reduction Commitment (CRC) initiative by declaring their energy use will face charges for every ton of greenhouse gas they produce.  These payments are expected to average £38,000 a year for medium-sized firms, and could reach £100,000 for larger organisations.

Many businesses are (understandably) aggrieved at this prospect fines which will put pressure at a time when bottom lines are shrinking.

Any company or public sector organisation that consumes more than 6,000 megawatt hours (MWh) of energy a year – meaning a power bill of about £500,000 – must register its energy use by the end of next month.  From April 2011, they will need to buy permits for each tonne of carbon dioxide emitted. For those using 6,000MWh, that could mean £38,000.

Of about 4,000 organisations estimated to qualify for the scheme, only 1,229 have registered to date.   Missing the Sept 30 deadline leads to an immediate £5,000 fine, and £500 for each day after that, up to a maximum of £45,000.

Another 15,000 smaller organisations are also required to register and could be expected to buy permits in the future. If they miss the September deadline, they face fines of £500.

For more information click here for the Environment Agency (who administer the scheme).

DSS argued that, as claimant, Honda should bear the burden of proving that trade mark infringement had occurred rather than for DSS to have to show that it had done no wrong. It also said that Honda’s claim was totally speculative and lacked particularity. In this preliminary legal action, DSS applied to strike out Honda’s claim.

The High Court refused to strike out Honda’s claim. All Honda needed to do was to allege that DSS had used Honda’s trade marks and that it had not consented to DSS’s use. It was for DSS to have the burden of proving its defence – ie that the goods had been put onto the market in the EEA by Honda. It was not for Honda to prove that DSS had parallel imported the goods from outside the EEA. It was also sufficient for Honda to make generalised claims and there was no legal requirement on it to make trap purchases as evidence of wrongdoing, even if that was the preferred method in practice for brand owners to show trade mark infringement. A trade mark owner could bring proceedings if it had a reasonable suspicion of infringement even if it did not have any hard evidence. As soon as the brand owner has not consented to the specific use by the dealer, it was then for the dealer to prove its defence that the brand owner had consented to the products being supplied in the EEA. In answer to DSS’s claim that brand owners could make frivolous claims without sufficient evidence, the Court responded that there was a sufficient disincentive to that because the claimant would be penalised by costs orders if its claim failed.

R tendered alone for a possible contract, and C clubbed together with another supplier. C went into liquidation and its rights were taken by J. R won the tender. J claimed that R had breached the prohibitions in its agreement with C and that if it had been unable to do what it did, then it would have had to bid with C (now J) and they could have won the bid together. R claimed that the prohibition was an unenforceable restraint of trade and breached Article 101 of the Treaty on the Functioning of the European Union (formerly Article 81 of the EC Treaty).

The High Court ruled that the restriction was unenforceable under EU competition law and granted R summary judgment on the issue. The wide scope of the restrictions and the people affected as well as what was covered by C’s ‘confidential information’ meant that if R had information relating to C or its business practices, finances, dealings and clients received from C, it would breach the contract if any group company made contact with C’s existing or prospective clients. It was very wide in time and unlimited in geography. It went further than could reasonably be required to protect C’s confidential information. This breached Article 101, as it amounted to an agreement that had the object or effect of distorting competition and which could affect trade between Member States of the EU. Since the parties were not operating at a different level of supply – as C was not purchasing or supplying to R but merely assisting clients with obtaining supplies – a possible block exemption for vertical agreements under Article 101(3) did not apply to exempt the arrangement.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case should act as a warning to commercial entities that want to agree non-compete provisions. If they are too wide in scope, they could infringe EU competition law. That in turn could entail large fines, unenforceable agreements and third parties suing for damages.’

The Commission’s Green Paper proposes seven alternatives:

• Simply publish findings and recommendations as a possible way forward in the future without any particular change now.
• Have a toolbox for legislators, such that it would act as a referencing tool for any new legislation introduced by Member States. This would not really create harmonisation or certainty, however.
• The Commission to issue a Recommendation to encourage Member States to incorporate the laws into their own laws. This could allow a gradual implementation over time, although there would be no common consistent approach and implementation would be patchy and incoherent.
• Establishing a 28^th contract law regime. In effect, this would be a new optional contract law that could be used as an alternative to those within each Member State. The system could therefore run in parallel to existing contract law regimes.
• Minimum harmonisation of European contract law. Not everything would be harmonised, but some bits would be. Member States could still retain stronger rules, but this solution would require minimum standards as a base.
• Full harmonisation, in which the new EU law would replace the contract laws of all Member States.
• A full civil code. This would involve full harmonisation of all civil laws – not just contract law, but tort and property law too.

The consultation also considers a number of relevant issues including the scope of contract law issues affected (such as rights, remedies, incorporation, formation of contracts, validity), whether it should just apply to cross-border contracts or purely domestic contracts as well, and whether business-to-business contracts as well as business-to-consumer contracts should be affected.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘Previous attempts to create a standard EU contract law have been resisted. However, the Commission would like to push this through again. They talk about a time of crisis for the European economy, and this new approach would present a historic opportunity to drive economic growth by easing the cost of cross-border transactions. They believe now is the time to make that quantum leap. It will be interesting to see whether or not each country wants to radically change the way they do business, though.’

The consultation closes on 31 January 2011. A link to the Green Paper can be found here: http://ec.europa.eu/justice_home/news/consulting_public/news_consulting_0052_en.htm.

The High Court sided with P. It ruled that there was a mistake in the agreement that had not reflected the parties’ intentions. It could therefore be rectified. The entire agreement clause was irrelevant to that. The purpose of the clause is to limit terms outside of the contractual document applying, but this does not stop an incorrect document from being amended to reflect the true agreement.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case makes clear that parties will not be bound by a document that did not reflect what they had intended. The document should show what the parties agreed and should not be applied rigidly if it does not do that. In reaching its judgment, the High Court made clear that rectification can occur whether or not there is a common mistake (where both parties are mistaken) or unilateral mistake (where one party makes a mistake and the other party knows about it).

‘However, parties should not assume that getting rectification is an easy option. In order to create certainty of contract, the burden of proving that a document is wrong is very much on the person claiming that. Rectification is only allowed where there is convincing proof or a high degree of conviction so that the court is sure that there was a mistake. It therefore pays to ensure that the contract is properly drafted in the first place, in order to avoid the expense, uncertainty and difficulty of having to prove that it was wrong later.’

The legal importance of the decision is that it is the first reported authority in which commercial agents and their principals have been found to have a mutual duty of trust and confidence akin to a contract of employment.

I will write a longer post shortly.

Asda has been able to legitimately buy goods from the EU for sale elsewhere in the EU, but as Tesco found out when it lost its battle to stock Levi jeans in 2002 it is an unlawful use of trade marks to buy goods from outside the EU for sale in the EU unless the brand owner has agreed to this.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘Umbro could be in trouble if they are found to be abusing a dominant position in the market by refusing to supply customers and this keeps the price artificially high for consumers. However, it may be that Asda has sold the shirts at low or negative profit in order to prove a point and make a case, and that Umbro is merely making a reasonable level of profit.’

• Agreement as to the actual or minimum resale price.
• Restrictions on the territories or customers to whom the buyer may sell, subject to certain exemptions such as an exclusive territory reserved to the supplier or another distributor.
• Restrictions on members of a selective distribution system from selling to end users.
• An prohibition on the buyer not to supply competing goods if that prohibition is indefinite or more than five years.

The Commission’s Guidelines, which need to be read alongside the new Regulation, contain particular points around use of the Internet. Receiving orders on a web site is generally considered to be passive selling, and passive selling cannot be restricted. This is also the case where a customer opts in to be automatically informed about developments and this leads to a sale. It is unacceptable to have a provision that prohibits a distributor from preventing customers in another territory from viewing its web site or automatically re-routing those customers to another distributor. However, a web site can have a link to another distributor’s site. Likewise, you cannot terminate a customer’s Internet transaction once it is clear from credit card data which shows an address not within the distributor’s own territory.

A further web development is that a distributor cannot be required to have a limit on the amount of Internet sales as a proportion of its overall sales. However, one new development which appeals to operators of selective distribution networks is that the supplier can require the buyer to sell a certain absolute amount (in value or volume) off-line in a bricks and mortar shop. The supplier can also require the buyer’s web site to be consistent with the supplier’s overall brand.

The Guidelines also consider the extent to which Internet advertising would be active or passive selling. Banner advertising or advertising on third party web sites addressed to certain customers is active selling, as is paying search engine service providers or other online ads where (in each case) the advertising is directed to users in a particular territory.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘It’s good news in terms of certainty that the previous rules have been largely replicated. One interesting change of emphasis is on Internet selling. The European Commission is keen to promote and enhance trade between Member States and the latest rules try to prohibit restrictions on distributors from using the Internet to obtain what are seen as ‘passive sales’ from customers in other countries.

It is important for businesses to conform with competition law, because I have often had to advise clients against use of terms that they do not realise infringe competition law. Failure to comply with the law in this area could have serious implications: fines of up to 10% of global turnover, an unenforceable agreement, and the right for third parties to sue for damages.’

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘People generally know that agreements between competitors may be anti-competitive. What they don’t realise is that if they agree certain things with different levels of the supply chain then that can also be unlawful. Specifically, setting agreed or minimum resale prices with a customer is absolutely prohibited. I have had to warn many clients of the dangers of those sorts of provisions in supply contracts, as they could be fined big amounts, sued by third parties and find that their contracts are unenforceable for having a provision that is considered to be anti-competitive. It’s not always popular advice, but someone has to say it as it is!’

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘It is already well established law that economic hardship is not a cause of force majeure. This case reinforces that, and in a modern context. Parties should not get away with arguing that the economic downturn is a justification for getting out of their contracts. However, it would still be open to the parties to expressly agree to have some specific wording into their contract covering a right to get out in such a situation, even if economic hardship would not be covered by a traditional force majeure clause.’

In this case, Sun accused M-Tech of buying Sun’s products from China, Chile and the US and selling them in the UK without Sun’s consent. It therefore sought summary judgment against M-Tech. M-Tech raised a number of arguments.

The High Court dismissed M-Tech’s arguments and sided with Sun, awarding it summary judgment. It said M-Tech’s arguments had no real prospect of succeeding at a full trial. The judge was satisfied that the goods were first put on the market outside of the EEA and M-Tech had not produced any evidence to support its suggestion that they had been subsequently imported into the EEA with Sun’s consent.

M-Tech also raised another interesting legal argument, which was dismissed by the judge. It claimed that Sun’s distribution agreements which protected its trade mark rights infringed EU competition law and were therefore prohibited as they carved up the market. Sun was prepared to accept that its agreements may have infringed EU competition law, but argued that there was no connection between any such breach and its ability to enforce its trade mark rights. The judge was willing to accept Sun’s argument that the disappearance of any sort of secondary reseller market for Sun’s equipment was not because of its network of illegal agreements. Therefore, in the judge’s view, there was no real prospects of success between M-Tech’s argument that Sun should not be able to enforce its trade mark rights on EU competition law grounds.