“co-operate with each other in good faith and… take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust… to derive the full benefit of the Contract.”

Medirest argued that the clause should be interpreted widely – that it included a general obligation to co-operate in good faith, and a restricted obligation to take reasonably necessary action to transfer information and allow for full benefit from the agreement. The Trust argued with this interpretation, and said that both obligations were restricted to the transfer of information and to allow for the full benefit of the agreement, so there was no general duty to co-operate in good faith.

The agreement contained a provision that allowed for service credits (a reduction in fees payable to Medirest) if Medirest failed to perform any of its obligations under the agreement, and the Trust could terminate if service credits reached a certain level. On the flip side, Medirest could terminate the agreement if the Trust committed a material breach. The Trust argued that it was entitled to service credits, and Medirest disagreed, resulting in each party serving the other with notice of termination of the agreement.

The High Court ruled that the clause set out above did contain a general contractual duty to act in good faith. The High Court noted that the services to be provided were catering services within a hospital, so on-going co-operation was an inevitable part of the contractual relationship; it interpreted the clause as it understood the parties’ intentions to be when entering into the contract – to co-operate in good faith.

The High Court went on to say that the Trust had abused its contractual powers in relation to service credits. The High Court said that the purpose of service credits was to make sure performance was at a consistently good level, but not to get discounts in the fees payable to Medirest, and the Trust’s calculations of service credits often went beyond what was reasonable. The Trust acted arbitrarily, capriciously and irrationally in the way in which it carried out the credits.

The result was that Medirest were entitled to terminate the agreement as the excessive service credit calculations were material breaches of the agreement. In fact, Medirest argued that the Trust’s breaches were repudiatory i.e. the breaches were sufficiently serious to go to the heart of the ability to carry on the contract and allow Medirest to treat the agreement as terminated with immediate effect, and giving Medirest the right to sue the Trust for damages.

Simon Weinberg, a solicitor in the Commercial/IP/IT department at Matthew Arnold & Baldwin LLP, commented, “This case is a cautionary tale not to abuse powers that you might have under a contract. The High Court has made clear that service credits are a defensive right, not an offensive right, and, unless performance by the other party warrants it, excessive service credits will not be considered appropriate. A contractual party with the benefit of service credits needs to use their common sense when they impose service credits under the contract, unlike the Trust in this instance. The Trust seemed to completely disregard the duty of good faith and destroyed any commercial relationship it had with Medirest. Even if there is no specific duty of good faith within an agreement, such an aggressive stance is not advisable in any contractual relationship and is inevitable road to disagreement and possible litigation.”

The contract did not specify the operating hours of the airport. Initially, the airport opened or stayed open outside of its published operating hours for early or late flights respectively, as it seemed common ground between the parties that Jet2 needed flexibility to operate. However, BAL made an operating loss over that period and, after four years, refused to accept flights that were scheduled for arrival or departure outside of its published operating hours, giving Jet2 just one week to comply.

Jet2 issued proceedings against BAL for breach of contract. BAL argued that its ”all reasonable endeavours” obligation did not oblige it to act against its own commercial interests – i.e. to allow the flights to continue to run outside of its operating hours despite the airport making a loss as a result.

The High Court ruled that BAL had breached the agreement, rejecting BAL’s justification of protection of its commercial interests. The High Court ruled that the initial intention of the parties in the agreement could not have been for BAL to change what it did on an on-going basis based on what profit it was making as a whole – this profit was affected not just by Jet2’s flights, but also by a number of other problems it faced. The High Court stated that those other problems should have been considered in a risk assessment by BAL before entering the agreement, and did not justify BAL restricting or stopping performance of its obligations under the agreement if it became unprofitable.

The Court of Appeal has recently upheld the High Court’s ruling. In doing so, the Court of Appeal has highlighted that, in interpreting “endeavours” clauses, courts should consider whether the clauses have sufficiently clear objective criteria to place obligations on the parties. Otherwise, they could be unenforceable. The Court of Appeal ruled that the relevant clauses in this particular contract were sufficiently certain, although one of the judges did dissent from this view. The Court of Appeal also agreed that BAL’s losses, which it used as evidence to support its decision to stop flights running outside of operating hours, was not enough to justify its actions; rather, the Court of Appeal said that if it had become obvious that Jet2 could never operate profitably from Blackpool Airport, BAL would have been justified in not spending more money to promote it.

Simon Weinberg, a solicitor in the Commercial/IP/IT team at Matthew Arnold & Baldwin LLP, commented, “This ruling highlights several points for commercial parties to consider when looking to include endeavours clauses in a legal agreement between them. The first is that, whilst endeavours clauses are useful, it is often much better to insert fixed obligations in the contract; although this is sometimes difficult, it is much more certain for the parties in interpreting their obligations going forward.

“The second is that, whilst it is understood that best endeavours usually means a party has to incur some cost in performing its obligations in order to comply, it is a question of fact in each instance. Here, BAL had breached the best endeavours clause but the Court of Appeal set out a situation where BAL would have been justified in its actions.

“Finally, this case again shows the need for legal advice in negotiating and drafting a commercial agreement; neither of the parties in this case received significant legal advice and it has since cost them substantial amounts in time and money to get to this point. Good lawyers will help to avoid problems of interpretation in contracts in the long term by drafting an agreement with clarity whilst also understanding the commercial reality of what the parties are trying to achieve.”

The High Court has dismissed that argument. It argued that no promissory warranty or misrepresentation applied on the facts. It stretched belief to suggest that an issue such as that would not have been reflected in an updated draft of the agreement or a side letter. There was not even a note of the meeting. Ghanem’s position was all the more unlikely given that its lawyer had been present at the meeting. The Court said that what had seemed to have happened was that Ghanem had been under a misapprehension based on what it had wanted to happen and it had been comforted by what Jaguar said that it did in practice. However, that was not the same thing as saying that Jaguar had made a legally binding promise.

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.

Attributing that knowledge to the parties allowed the High Court to imply a term. In this particular case, the High Court stated that if its ruling went any other way the tenant would receive a “windfall” that was not intended or expected, although the facts of this case were specific. The legal principle attributed to the parties here was that adding to the property covered by a tenancy would constitute the grant of a new lease. The High Court ruled that this was part of the knowledge available to the reasonable observer of the contract.

This ruling sets out a clear principle about implying terms into contracts in general – clear and well-established legal principles are attributed to the parties of a contract in deciding whether to imply a term into that contract.

BIS is consulting in five areas:

1)      the consolidation and simplification of consumer law investigatory powers so that officers’ powers are transparent to enforcers and businesses alike;

2)      making it easier for Trading Standards Services to tackle rogue traders operating across local authority boundaries;

3)      enabling officers to present cases in County courts to encourage more use of civil enforcement to avoid over-reliance on criminal prosecutions;

4)      allowing local authorities more flexibility in training their Trading Standards staff which provides assurance to businesses of officers’ competence and focuses on local needs; and

5)      removing restrictions on how Trading Standards Services calibrate their measurement standards, by enabling competition and thereby reducing costs to local authorities.

The laws under review in the consultation do not all apply across the UK so any proposed changes to the law will have to take regional differences into account. The consultation will run until 20 June 2012.

The High Court sided with Jet2. The email had not been a valid notice. The contract had not provided for a specific form of notice that had to be given, but in light of the seriousness of the email (as SC sought to suggest it could bring about termination) it had not been identified in such a serious way. There was nothing to suggest that SC had intended the email to act as such at the time it had been sent. The Court also ruled that SC did not have a common law right to terminate for late payment as time for payments had not been of the essence and there was nothing in the contract to suggest this was the case.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP, comments: “This is the classic case of an agreement that started off well turned sour when it became unprofitable for one of the parties and that party not following a process that would justify termination. Where one party purports to terminate the contract and the other party does not agree with that, it inevitably leads to an all or nothing situation where either one party is justified in terminating for the other’s repudiatory breach or the party terminating is itself in repudiatory breach for terminating. Getting the process of termination right is therefore critical to the outcome.”

The Commissions have made the recommendation in the hope that it will form part of the “Consumer Bill of Rights” that is due to be published by the Government later this year. They also highlight that the law is currently not easy for consumers to use and is different throughout the UK.

Force India fell behind in payments and, unbeknown to Force India, Aerolab, with its parent company Fondmetal Technologies (Fontech), began working for Lotus (operated by the two Malaysia Racing Team companies), a competitor of Force India in F1. In doing so, Aerolab put all the CAD files it had created for Force India onto a hard drive and kept it at its own premises with a model Force India F1 car, blocking Force India’s access to its servers. Aerolab and Fondtech then issued proceedings in Italy to recover the amounts owed by Force India, and began using Force India’s CAD files as a starting point for the work for Lotus.

Aerolab then took some photos of the Lotus F1 model it was working on, but, as the model was incomplete, used some of Force India’s wheel rims and tyres to make the model look complete. Whilst the photographs were intended for internal use only, they were actually made public, and Force India issued proceedings for:

1)    breach of the confidentiality and exclusivity clauses of its agreement with Aerolab and its parent company Fondtech;

2)    equitable breach of confidence against Lotus and Michael Gascoyne (who was previously Chief Technical Officer at Force India but then moved to Aerolab); and

3)    copyright infringement against Lotus.

Aerolab counterclaimed for the money owed to it by Force India.

The High Court ruled in favour of Force India as follows:

1)    Breach of agreement and confidence by Aerolab and Fondtech

Force India had committed a repudiatory breach of the agreement with Aerolab by not paying the fees due under that agreement. Aerolab had accepted that breach and had not breached the exclusivity provisions in the agreement by working for Lotus as it had only started work after the repudiatory breach. However, the confidentiality provisions were ruled to have survived termination.

The High Court pointed out that employees moving from Force India to Lotus could use information that was part of general skill, knowledge and experience in their new role, and that some of Force India’s pleadings were not as specific as to what amounted to confidential information as they could have been. It was agreed between the parties that some of the CAD files had been used as a starting point by Aerolab, misusing Force India’s confidential information, but the High Court ruled that this was not the same thing as using the confidential information to create the Lotus designs. Given the huge differences between the resultant F1 cars that had been produced by Force India and Lotus, the High Court decided that misuse could only be proved in relation to the use of the CAD files as starting points. However, the CAD files still had a high value within the F1 industry, and awarded Force India equitable compensation for that misuse by estimating what fee Force India would have received for giving consent to Lotus to use the CAD files as a starting point. The High Court awarded €25,000 in compensation to Force India, but Force India owed nearly €850,000 in unpaid fees to Aerolab and Fondtech, so that compensation was set off against the much larger amount owed.

2)    Claims against Mr Gascoyne and Lotus

Force India claimed that Mr Gascoyne, and therefore his new employer Lotus, had induced Aerolab’s breach of the agreement. The High Court ruled that, on the evidence, Mr Gascoyne, and therefore Lotus, had no liability. As such, this claim was dismissed.

3)    Claim for copyright infringement

The High Court decided that each CAD file was a literary and artistic work, and, when they were created for Lotus, they reproduced substantial parts of Force India’s works. This reproduction happened in Italy, outside of the jurisdiction of the English courts. However, Lotus then made further copies of the Lotus CAD files in the UK, which amounted to copyright infringement, but only in relation to a few of the F1 car parts about which infringement was pleaded by Force India. 

Force India therefore succeeded in the claims that it brought to the High Court, but was still left with a huge award against it for the fees it had left unpaid under the agreement with Aerolab.

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.”

A admitted the debt but brought a counterclaim for misrepresentation; B denied any misrepresentation or breach of contract and argued that the contract itself excluded the right to bring claims for misrepresentation. The agreement contained warranties in a schedule, with the main body of the agreement setting out the process in the event of a breach of warranty together with a contractual liability cap. The agreement also contained an entire agreement clause. On that basis, B applied to strike out that part of the counterclaim.

A argued that clear and precise wording was required to limit liability for misrepresentation, that the agreement did not include such wording and that the wording it did include should be construed restrictively. B argued that any misrepresentation claim was subject to the liability cap and that the entire agreement clause excluded claims for pre-contractual negotiations anyway, with the only remedies available being for breach of contract.

The High Court ruled that the agreement involved a calculated allocation of risk and remuneration, and that the wording of the agreement showed that A was relying on contractual warranties in entering into the agreement rather than anything else, such as representations made in the pre-contractual negotiations. The High Court ruled that it would be “uncommercial” to interpret the agreement to mean that a claim could be brought without reference to the limitation of liability provision, and that claims for misrepresentation were excluded by the entire agreement clause anyway. The High Court said in passing (although this part of the ruling is not binding) that even if a misrepresentation claim was not excluded by the entire agreement clause, it would still be subject to the liability cap under the contract.

Simon Weinberg, a solicitor at Matthew Arnold & Baldwin LLP, comments: “The ruling is an interesting reminder of the importance both of entire agreement clauses, making sure that the terms of an agreement are limited to what is contained in the written contract, and also of a cap on liability. Whilst the facts of this case were in relation to a share purchase agreement, they could equally have referred to any commercial agreement, and show how vital it is not only to have a written agreement but also clauses that restrict liability to that written agreement alone. Whilst the relevant clauses in this case were perhaps not drafted as thoroughly and precisely as they could have been, the court showed a ‘commercial’ approach to interpreting those clauses.”

The High Court has ruled that, where an exclusion clause did not specifically make reference to “conditions”, the exclusion clause was still sufficient to exclude the implied conditions of the SGA. The exclusion clause in question related to the sale of an aircraft by Bombardier to Angoil (which assigned its rights under the supply agreement to Air Transworld) and consisted of two parts:

1)    limiting the seller’s warranties, obligations and liabilities to the contract exclusively; and

2)    specifically excluding “warranties of merchantability and fitness for purpose”.

The High Court ruled that the general wording in the first part of the clause was sufficient to exclude the conditions implied by the SGA. Even though it mentioned “warranties” (which in legal terms are not the same as “conditions”), it said that the “obligations” and “liabilities” were wide enough to capture conditions too. The second part of the clause was drafted in a way that simply gave non-exhaustive examples of what could fall within the first part of the clause. The first part of the clause was considered by the High Court to use words that were precise and sufficiently clear to exclude the implied conditions under the SGA. Established case law had previously ruled clearly that exclusion clauses need to refer specifically to “conditions” to achieve this, but the High Court distinguished those other cases and came to a decision that the SGA conditions had not been excluded would be to distort what (in its view) was the clear meaning of the clause.

Another interesting aspect of the case was the dismissal of Air Transworld’s claims that the exclusions of the SGA conditions were unreasonable under the Unfair Contract Terms Act. The High Court said that this was an international supply contract and therefore the exclusions were not subject to the reasonableness test. There were a number of reasons why it satisfied the test of being an international supply contract, including (a) the acts of entering into the contract took place in different countries, (b) the supply of goods was from one country to another and (c) English law was the governing law only by the parties’ choice (otherwise it would have been Canadian law). What was particularly interesting was that the court commented that it would have been an international supply contract if the assignment to Air Transworld turned it into an international supply contract even if the original contract with Angoil had been purely domestic. Those comments are actually not legally binding but persuasive only as the judge did not have to decide the case on that basis, but merely made those comments as observations.

Simon Weinberg, a Solicitor at Matthew Arnold & Baldwin LLP, comments: “Despite this ruling, it is still recommended that these sorts of exclusion clauses still refer specifically to “conditions” to avoid any risk of confusion. The High Court recommended that too. Also, parties should consider carefully whether the contract is an international supply contract and therefore whether the Unfair Contract Terms Act tests apply.”

The High Court agreed with P&G. If the exchange rate had been intended to be fixed, it would not have been included in such a casual and elliptical way. It was also not necessary to imply a term into the contract to fix the exchange rate. Accordingly, the general rule – that a payer must provide enough of the agreed currency of payment to cover the current of account at the prevailing exchange rate when payment was due – applied.

The Raspberry Pi is a credit-card sized, low-cost computer that is designed to help teach children (and adults) to program. The £22 computer is sold uncased and without a keyboard or monitor, and has been created by volunteers drawn mainly from academia and the UK technology industry.

The computer went on sale this week and its launch is timely given that the Department for Education has just announced that it is considering making changes to the way computing is taught in schools, with the aim of placing greater emphasis on skills such as programming.

In his recent speech outlining the aforementioned changes, the Secretary of State for Education praised the Raspberry Pi, saying “Initiatives like the Raspberry Pi scheme will give children the opportunity to learn the fundamentals of programming… This is a great example of the cutting edge of education technology happening right here in the UK.”

As well as the Government, the Raspberry Pi has naturally created a lot of interest amongst the general public and its launch has been covered by the BBC and the national press. The demand to purchase the new computer has been so overwhelming that The Guardian newspaper even reported that as soon as it went on sale it sold out, crashing the websites selling it in the process! Distributors Premier Farnell reported that its website received half a million hits in 15 minutes, and RS Components said that it was the greatest level of demand it had ever received for a product at any one time.

For those who have been unable to purchase one, don’t worry – more will become available soon, and an even cheaper £16 version will go on sale later in the year.

Ted Mercer, The Partner who did the work, comments, “It has been very exciting to work on the OEM, commercialisation and distribution contract to enable the Raspberry Pi to go on sale and we wish it every success in inspiring a new generation of schoolchildren to learn to program.”

Ofcom’s research has shown that, on switching, one in five customers lose their broadband for a week and more than 130,000 customers have experienced issues with the wrong phoneline being taken over, either when switching or moving house. The research also shows that 500,000 households had their services slammed in the year-period in which the research was carried out.

Ofcom’s proposals include:

-          making sure switches are verified by an independent third party to protect from slamming;

-          simplifying the switching process to avoid confusion;

-          making the new service provider responsible for the switching process;  and

-          addressing the technical problems that can be experienced when switching.

Whilst telecoms service providers have, on the whole, expressed their support for the proposals, some have also expressed their concern that an independent service provider to verify switches could add to costs.

Ofcom is consulting on the proposals until 23 April and will report on the consultation in Autumn 2012.

The investigation follows the granting of an enforcement order by the High Court in August 2011 against Ashbourne Management Services Limited, a gym management company, following an application by the OFT. The order related to the use of unfair contract terms and debt collection practices that amounted to unfair commercial practices.

If the OFT finds that its concerns are justified, it can take enforcement action itself, make recommendations for action to the Government or refer the market to the Competition Commission.

-          The establishment of an extended warranties comparison website.

-          The provision of more accessible information.

-          Doing more to make sure that consumers get the correct information on extended warranties.

The OFT will now consult on whether to accept the undertakings rather than ask the Competition Commission to undertake a full investigation of the market, and expects to reach a final decision before Summer 2012.

Which?, however, has criticised the proposals as not going far enough. It says that the extended warranties are worse value today than previously as appliances are more reliable than ever. Providing more information does not solve the problem that the extended warranties give, according to the consumer rights group.

The FSA states in the guidance that it is concerned at the number of unfair clauses it comes across in consumer contracts, such as rights to unilaterally alter or terminate a contract, rights to transfer obligations under a contract and contractual terms that are not in plain English. Whilst the FSA’s guidance is intended only for firms regulated by the FSA, it is a useful reminder to everyone involved in commerce as to what unfair terms are and how businesses can avoid imposing an unfair term on a consumer. The FSA can take action against businesses registered with it for unfair contractual terms, for example by obtaining a court injunction to prevent an unfair term being used any further by the business. The Office of Fair Trading (OFT) can also take action in the wider market place against offending practices.

The FSA sets out that, if a business can specify a valid reason within the contract itself as to why terms might be unilaterally altered, the right to unilaterally alter the contract is less likely to be considered unfair. A right of alteration is unlikely to be valid if it is, for example, in the business’s absolute discretion or to cover “unexpected” costs. In addition, stating that the contract can be altered “for any valid reason” will not be enough. If a business does alter a term that has a significant impact on the consumer’s obligations under a contract, such as varying charges payable by the consumer, the consumer should be informed of the change as soon as possible and given the chance to terminate the contract with immediate effect, without charge or other “practical” barriers put in place by the business to prevent the contract coming to an end.

Similarly, in relation to the transfer of obligations to third parties, the business should make sure that the guarantees provided to the consumer by the third party are the same as or better than those offered by the business itself – they key is stability and certainty for the consumer. The guidance states that consumers should be adequately informed of any transfer in good time for the consumer to fully understand the impact on the contractual relationship.

Simon Weinberg, a solicitor in the Commercial/IP/IT team at Matthew Arnold & Baldwin and assistant editor of Upload-Commercial/IP/IT, commented, “This guidance, whilst useful, does not necessarily tell us anything new. It is an important reminder for businesses of the requirement to have contractual terms that do not unfairly prejudice the consumer. It is not just the risk of an injunction to prevent the future use of those terms that should be taken into consideration – in addition, businesses should remember the bad press that can come with an injunction and the knock-on effect on consumer goodwill to an offending business. At a time when margins are tight and goodwill is essential to survival in the marketplace, getting contractual terms in order is an easy way to avoid the risk of an FSA or an OFT investigation, and all the reputation damage that can come with it.”

The Government’s actions are intended to take effect later this year, and will implement the Consumer Rights Directive, which was approved by the European Union in October last year.

The background to the proposed Common European Sales Law (“CESL”) is that the CESL would be an optional law designed to sit alongside a Member State’s already existing domestic contract law.  The CESL would be used by parties to govern cross-border transactions where at least one of the parties is based in the EU and where both parties have expressly agreed to its application.  The CESL could be used where contracts exist for the sale of goods between businesses and consumers and also for transactions as between businesses where at least one of the parties is a small or medium enterprise (or “SME”).  I thought I would provide a quick update in relation to the proposals.

Current UK position

 In December 2011, the House of Commons submitted a formal response to the European Parliament Council in which it said that the House of Commons does not consider that the EU proposal to introduce a CESL complies with the principles of subsidiarity and proportionality (see below) in accordance with EU Treaty law and therefore challenges the EU Parliament’s validity of such proposals. 

The House of Commons said that not enough detailed information had been provided by the Commission in relation to procedural requirements and that the European Commission had also failed to provide a detailed analysis as to why a CESL needs to be established.  In putting forward its proposals, the House of Commons said that it had taken on board the concerns that had been expressed by various UK based organisations about the effect that the CESL would have on business/consumer contracts.

Subsidiarity and proportionality

The Treaty on European Union (the “TEU”) states that all institutions of the Union shall apply the principles of proportionality and subsidiarity as laid down in the Protocol.

In the context of European law, “subsidiarity” is the principle that action at EU level should be undertaken only where the objectives cannot be delivered by action at local, national or regional level (as defined in Article 5(3) in the Treaty on European Union).

The principle of proportionality is that “the content and form of European Union action shall not exceed what is necessary to achieve the objective of the Treaties (Article 5(4), treaty on European Union). 

Concerns

Many UK organisations have expressed concerns that the establishment of the CESL would add confusion and legal complexity to business/consumer contracts.  There may be added legal uncertainty if it is the case that each Member State could apply its own, different interpretation of the CESL. Further, there is a real risk that the CESL could replace national consumer laws. If there is a choice of applicable law, confusion is enhanced as there is always the possibility that the CESL might offer less protection than the domestic laws of that particular Member State.   Currently, it is felt by UK enterprise that the lack of a common sales code does not prohibit consumers or businesses from engaging in cross border trade to any great extent.

The House of Commons is determined that the implementation of the CESL should not be rushed.  It remains to be seen how other member states react to the CESL proposal.   Of particular interest are the statistics provided in the EU’s own Flash Eurobarometer survey (no 300) dated March 2011 where nearly 80% traders surveyed across all  27 EU Member States said that harmonised consumer law in the EU would make “little or no difference to their cross-border trade”.  However, the same survey also found that retailers appeared to be more open to sell their products or services in other EU countries if regulations were harmonised.

It was envisaged by the European Commission that the CESL would be implemented by the end of 2012. Watch this space for updates……

Viagogo – the website – had objected to the hand over, saying that to do so would be disproportionate and infringe its users’ data protection rights. The Court of Appeal disagreed. The rights had to be balanced and the RFU was entitled to know about who was infringing its contract terms. The Court of Appeal therefore ruled that it was right to grant the RFU a “Norwich Pharmacal Order” against Viagogo to reveal the data. Whether or not the England rugby body used that data to take action against the sellers or the people who had provided the tickets to the sellers was irrelevant to the ruling.

The ruling is an important reminder that exit provisions in agreements are not something to worry about later; rather, they are just as important as those provisions of an agreement which are intended to have immediate effect. If exit provisions have not been agreed, the party receiving the services is at serious risk of being without those services for a period of time until another provider is found, with potentially catastrophic impacts on its business. Similarly, the service provider may suddenly be without a revenue stream without any form of transition period to balance the impact.

The ruling also shows the importance of not just having exit provisions within an agreement, but to make sure that those provisions set out the requirement for an exit plan which clearly defines what happens to the services on termination – in an IT contract, for example, this should include the specific hardware and software that is needed, the level of support and maintenance that will be provided, how long the transition services will be provided for and how much those transition services will cost.

In Apple’s business model, it calls itself an agent and gets a commission on the sale price. In genuine agency situations, the supplier is free to tell the agent what price to sell at. However, if it is not a genuine agency situation, this is forbidden. The EU rules as to what amounts to a genuine agency are complex. They include looking at who bears the financial risk or commercial risk in the sale of the books.

The Commission will now investigate. If found guilty, the parties to anti-competitive arrangements can be fined up to 10% of their turnover, the agreements are unenforceable and third parties can sue for damages.

1. the oral agreement had been breached when Graham sought to exploit the sauce for his own commercial gain; or, alternatively
2. the information given to Graham when Bailey demonstrated the recipe to him attracted a duty of confidence which had been breached when Graham commercialised the sauce.

Graham argued that he had arrived at the recipe through his own hard work and experimentation, and that the claims were an attempt to take advantage of his commercial success when marketing the sauce.

The High Court ruled that there was no breach of contract and no breach of a duty of confidence on the grounds that:

-          the evidence established that Graham had developed the source himself and that there had been no agreement between the parties. The agreement that Bailey and Williams alleged existed made no sense as there was no reason for Bailey to enter into such an agreement to reveal his secret recipe in order for Graham to take it to market. The burden of proof was on Bailey and Williams to prove that the agreement existed – they had failed to do so and therefore no breach of contract was possible; and

-          Bailey had failed to prove that the sauce recipe had been imparted to Graham in circumstances that gave rise to a duty of confidence. In any case, the recipe that was the subject of Bailey’s claim was not sufficiently certain to have a duty of confidentiality attached to it.

The dragons’ investment was well protected and just as well that Graham did not need to face their fire…

The High Court ruled that, based on Foxtons’ terms and conditions, all Foxtons had to do to receive commission was for there to be an unconditional exchange of contract with the purchaser. As that had happened, it was entitled to commission, even though completion did not take place.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “Following this case, estate agents should check their terms and conditions to make sure that they are entitled to commission should there be exchange of contracts but no completion.”

The High Court initially and now the Court of Appeal sided with Digby. There were constant references to “sole agency” in the contract, but its meaning was not straightforward. The term was not defined anywhere in the contract. There was an obligation on Digby to promptly inform GEG of all enquiries or discussions but this was to enable GET to take part in those negotiations. The contract provided that GEG would earn commission if it had negotiations concerning the property. The Estate Agents Act 1979 and the Estate Agents (Provision of Information) Regulation 1991 collectively required the agent to provide clear information to the vendor about what sole agency meant in the manner prescribed in the Regulations, but this was not done. It did not describe commission as being payable if the lead “was introduced by another agent during that period”. GEG was therefore in breach of the statutory requirements and D did not have to pay commission.

The Supreme Court said that where there was ambiguous wording, it did not need to conclude that a particular interpretation would produce an absurd or irrational result before having regard to the commercial purpose of the agreement. Neither interpretation flouted business common sense here. It was still appropriate to prefer the interpretation which was most consistent with business common sense. It was important to look at what a reasonable person with all the background knowledge reasonably available to the parties at the time of the contract would have understood the contract words to mean. The bank’s interpretation would produce a surprising and uncommercial result. On the bank’s interpretation, guarantees would cover every situation other than the one in which the buyer would need it most – the insolvency of the shipbuilder. The bank had no commercial reason for why the buyer would have agreed to that and so the buyer’s interpretation made more business commercial sense as it was consistent with the commercial purpose of guarantees.

1. an offer;
2. acceptance of that offer;
3. consideration – ie something provided by each party to the other; and
4. an intention between the parties to create legal relations.

In this case, an oral contract was agreed for a fixed two year term, and this was not disputed. However, the parties ended up in court as they disagreed on whether it had been agreed that the contract could be terminated on three months’ notice. The County Court initially ruled that the three month notice period for termination had been agreed, but the decision was appealed to the Court of Appeal.

The Court of Appeal upheld the ruling and dismissed the appeal. On the evidence that had been provided, the Court of Appeal agreed that the County Court was entitled to conclude that a three month termination provision was part of the oral contract.

Simon Weinberg, solicitor at Matthew Arnold & Baldwin LLP and assistant editor of Upload-IT, commented, “This is not a ground-breaking ruling in itself. However, it is a useful reminder, if a reminder is needed, that relying on oral contracts is risky. Conversations can be interpreted in a number of ways – they rarely lead to any certainty and only increase the risk of relying on them in order to enter legal relations. Written agreements are safer, and the parties to proceedings such as these will, in hindsight, have preferred to spend money on the certainty of a written agreement in the first place rather than spend much more time and money on having a court decide what they had actually agreed.”

The High Court has sided with the previous owners of the pharma business. Applying the principles from landlord and tenant cases in relation to interpretation of the phrase “not to be unreasonably withheld”, it said:

• The burden had been on 3M UK to prove that the refusal of consent was unreasonable.
• The sellers did not have to show that their consent was justified – only what someone in his position would reasonably have done in the circumstances. It was no surprise that the sellers had viewed 3M UK’s statements and profit projections with scepticism and it was reasonable for them to expect far clearer evidence of future figures.
• In deciding what was reasonable, the sellers only had to consider their own interests in earning as large a payment as possible. This was the case unless the benefit to one party was so disproportionate to the detriment of the other.
• The sellers did not have to balance their interests with anyone else’s in coming to that conclusion.

Following a failed claim by DDC in the High Court to have the contract rectified for mistake, the Court of Appeal upheld DDC’s appeal. The Court of Appeal’s ruling ordered the rectification of the agreement, based largely on the behaviour of DDH’s chief negotiator – it seems that, if DDH had been unaware of DDC’s mistake in their understanding of the final agreement, and had never sought to rely on that mistake, the Court of Appeal would have denied the appeal and not ordered for the contract to be rectified. Rectification is the discretionary remedy of correcting mistakes made in recording agreements.

The ruling can be considered from two points of view. On the one hand, DDC were extremely lucky to get away with rectification when they did not understand the consequences of a contract that they were entering into – this case should be a reminder to parties to a contract to make sure they get legal advice in good time to properly understand its terms before signing it. On the other hand, DDH’s chief negotiator should have made it absolutely clear to DDC that the agreement did not reflect the commercial understanding – his knowledge of the mistake and his failure to inform DDC resulted in his organisation being liable to pay DDC the £2.4m that a correctly worded contact would have required plus the costs of the litigation. This case shows the danger in relying on the terms of an agreement when you know it is interpreted differently by the other side.

E accepted that, by a literal reading of the commission agreement, commission was not payable. Instead, he argued that the purpose of the share sale was to achieve the same result as was intended by the initially envisioned but aborted property sale, and the agreement should be read as such – that the share sale was the effective sale of the property. The High Court had initially rejected his claim.

The Court of Appeal has now agreed with the High Court’s ruling on the basis that, whatever the purchaser and L intended to achieve by the share sale agreement, it was not relevant to the construction of the commission agreement. The key to understanding the commission agreement was to look at its language, and by that interpretation, the literal meaning was clear – L did not need to pay any commission to E. Neither E nor L had considered the sale of the property by means of a share sale, so they cannot have intended the commission agreement to deal with such a situation.

Simon Weinberg, a solicitor at Matthew Arnold & Baldwin LLP and assistant editor of Upload-IT, comments: “When the High Court decision came out, we helped a number of estate agents update their terms and conditions to seek to avoid the effects of the Estafnous case. The appeal court’s decision to uphold the lower court’s ruling further emphasises the need for estate agents to make sure that their terms and conditions allow them to get commission if the shares in a company owning the property are sold rather than the property itself.”

The complaint was that the website had been misleading as it had not set out that the surcharges were not optional in order to make a purchase from the website. It was also argued that the website was misleading in the way it set out VAT on purchases, as the price quoted was with the figure excluding of VAT, whereas in all cases VAT would apply.

The ASA upheld both parts of the complaint, ruling that there had been a breach of the CAP Code in terms of misleading advertising and pricing. The CAP Code is the code of practice aimed at ensuring adverts, including material written on businesses’ own websites and social networking websites, are fair and not misleading. The ASA is a regulator in charge of enforcing the CAP Code.

This issue is increasingly in the public eye. The Office of Fair Trading recently told travel companies to make credit and debit card surcharges clearer on their websites. In addition, the Consumer Rights Directive recently adopted by the European Union requires pricing to be more clearly set out.

Many people may be under the misapprehension that they have until the Consumer Rights Directive is brought into force under English law (likely to be about two years from now) before they have to make all charges clear up front in an online order process. In fact, as this ruling shows, failure to be up front and clear on pricing is already a breach of the CAP Code and the ASA enforces the CAP Code even for something said on an organisation’s own website. Although a breach of the Code does not have legal effect, it can result in bad publicity and an inability to obtain advertising space in the future.

One particular area of concern for some businesses is the requirement on businesses to seek the express consent of the consumer to any extra payment in addition to the main payment obligation. If there has not been express consent but it is inferred by using default options which the consumer is required to reject in order to avoid the extra payment obligations, the consumer may be refunded for the extra payment.

The UK Government will have two years to implement the Directive, but it may well do so before that, as it has already signalled its desire to amalgamate consumer laws into a single Consumer Bill of Rights, which the Government hopes will be less confusing for consumers and businesses than the plethora of laws that exist today.

The full text of the Directive can be found here: http://register.consilium.europa.eu/pdf/en/11/pe00/pe00026.en11.pdf.

The High Court originally and now the Court Appeal have ruled in favour of Bombardier. Although Bombardier should not have been late, the contract provided for a clear procedure to deal with the material default. Gesner had not followed it. Accordingly, Gesner was the one in breach. 

This case shows the dangers of getting contract enforcement wrong. If you don’t follow the procedures set out in the contract, the victim can end up becoming the villain.

On a trial of preliminary issues, the High Court ruled that S and then Rossetti had been commercial agents and had the protection of the Commercial Agents Regulations. Those Regulations implement the European Union’s Commercial Agents Directive, which provides for the agent to be entitled to additional compensation beyond the ordinary common law position on termination of the relationship. The Court also decided that the transfer from S had amounted to an assignment and the agency contract had effectively lasted for four years, regardless of the change of agency. The agreement was therefore terminable on at least three months’ notice, as that was what the Regulations provided.

In addition, the High Court decided that the agents could act for more than one competing principal and that was not forbidden by the Regulations and the agreement between the parties had not prohibited the agent from representing a competing supplier. A requirement under the Regulations to act dutifully and in good faith did not stop the agent from representing more than one competing principal, but the agent must act openly, not take advantage and act loyally.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “People often enter into agreements with agents informally. This case shows that if they want to stop their agents from representing competing suppliers, they need to set this out in a written agreement.” 

The OFT’s response to the consultation can be found here: http://www.oft.gov.uk/shared_oft/consultations/consumer-landscape/Consumer_Landscape.pdf.

The results of the survey from the Chartered Institute of Arbitrators can be found here: http://www.ciarb.org/conferences/costs/2011/09/28/CIArb%20costs%20of%20International%20Arbitration%20Survey%202011.pdf.

More to the point, though – how can WikiLeaks cry foul over breach of confidentiality, when leaks have been the whole basis of its publications?

The case involved the provision of services by workers to Autoclenz, which in turn had a contract to provide valet services to British Car Auctions. In the contracts between Autoclenz and the individual workers, they were described as providing the services as subcontractors on a subcontract basis, they could provide a substitute worker (subject to complying with the standards set out in the agreement), there was no mutuality of obligation and the workers could refuse work. In addition, they wore BCA’s rather than Autoclenz’s overalls (as had been worn previously). Although Autoclenz provided the cleaning products and equipment and arranged insurance cover, Autoclenz deducted a fixed amount for the cleaning products and equipment and insurance cover from payments. The workers were responsible for paying tax and national insurance to HMRC. On the key relevant issues of control, mutuality of obligation and personal service, HMRC took the view that the workers were self-employed. Everything seemed to point in that direction.

The workers claimed to have been employees, though, and claimed employment rights. The matter ended up before the Supreme Court, which ruled that they were in fact employees. The workers were therefore entitled to minimum wage and statutory annual leave. Of most importance to businesses and service providers is the approach the Court took to considering whether to disregard the terms stated in the written contract. The Court said that those terms needed to reflect the reality of the position from inception and throughout, and the actual agreement of the parties – rather than the stated position in writing. The Court dismissed an argument that it could only set aside the stated position if there was an intention to mislead; an intention to mislead was not relevant. The Court said that all the evidence of the situation should be examined, including the written terms and how the parties conducted themselves in practice. The mere fact that a particular provision, such as a right of substitution, is not exercised does not mean that it is not genuine. But the evidence of how the parties conduct themselves can be so persuasive as to set aside what has been agreed in writing.

In this case, the following four key terms were what had really been agreed: (1) valet workers would perform services for Autoclenz within a reasonable time and in a good and workmanlike manner; (2) the workers would be paid for that work; (3) they were obliged to carry out the work offered to them and Autoclenz was obligated to give them that work; and (4) the workers must do the work personally and could not provide a substitute.

The Supreme Court argued that one critical difference between employment and ordinary commercial contracts is inequality between the parties. In an employment situation, the person obtaining the services often finds it easier to dictate terms. Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, questions that reasoning. He says: “There are many situations where there is inequality of bargaining power in a commercial contract context and that does not mean that they are really employees. It’s just the fact of the commercial matter that some commercial entities find themselves in a position that they have to accept terms imposed by the other party.”

Paul adds: “The case does, however, provide useful guidance on whether someone is an employee or self-employed. This can have important tax and employment rights consequences. Although the case provides guidelines, each case must be judged according to its own particular circumstances. As can be seen in this case, it is possible for HMRC and the courts to come to different conclusions as to the status of the service provider. MAB provides assistance in helping clients through this tricky area. Please contact me if you would like our help on this.”

Amanda Smith issued proceedings against Headline Publishing alleging fraud, breach of contract, misrepresentation and negligence on the grounds that Headline Publishing had deliberately attempted to get a negative report from a barrister that would allow it to refuse to publish the book. She alleged that there had been a breach of contract because the book had not been published.

The High Court ruled that Headline Publishing had not committed any fraud, misrepresentation, breach of contract or negligence by failing to publish the book. Due to the privacy and libel issues the book contained, Headline Publishing was entitled not to publish the book.

So all’s well that ends well – as far as the publisher is concerned anyway.

A contractor was employed to perform building works on a property. The contract included a limitation clause which stated:

“No action or proceedings under or in respect of the [contract] shall be brought against the Contractor after:

(i)                   the expiry of 1 year from the date of Practical Completion of the Services; or

(ii)                 where such date does not occur, the expiry of 1 year from the date the Contractor last performed Services in relation to the Project.”

Dean Construction (DC) never formally certified practical completion, and Inframatrix Investments (II) issued proceedings, claiming that the works were defective.

The Technology and Construction Court (TCC) ruled that II’s claim had been issued more than 1 year from the date on which DC last performed the services under the contract. The TCC therefore struck out the claim.

Whilst this ruling is only in respect of a strike out application by DC, it should be noted that the TCC clearly ruled that the bespoke limitation period applied and could be relied on by DC. This is a reminder that, if a business wants a specific limitation period to apply to a contract, it must expressly state that limitation period in the contract, but once it is stated, provided it is reasonable, the limitation period can be relied on. Crucially, though, it must be reasonable– otherwise, the attempted limitation may not be enforceable under the Unfair Contract Terms Act.  What is reasonable depends on the facts of the case.