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 relationship broke down in 2008 and was terminated in December 2009 by R and Stoneygate. P issued proceedings for breach of contract, suing Stoneygate for arrears of commission due under the agreement, both before and after termination. R argued that post-termination commission was not payable, and that the agreement was not enforceable in any case as it was an unreasonable restraint of trade.

The High Court ruled in favour of R, ruling that the agreement was invalid and unenforceable – it was a restraint of trade on the grounds that it imposed substantial restraints on R over a significant period of time, on terms that were uncommon in the industry, and had been agreed by inequitable negotiation between P and R when R was 17 and had not received legal advice. The High Court also ruled that, even if the agreement was enforceable, post-termination commission was not payable under the terms of the agreement. P appealed to the Court of Appeal on a number of points.

The Court of Appeal ruled that:

1. on construction of the agreement, post-termination commission was payable in relation to arrangements procured by P and for which Stoneygate received payment after completion; and
2. the agreement was a restraint of trade, despite the fact that R’s primary occupation was as a footballer and his primary earning potential was not through the image rights that were the subject of the agreement – the exploitation of image rights was almost always going to be ancillary to another occupation, and was just as capable of protection under the restraint of trade doctrine as any other occupation.

Due to the fact that the agreement was a restraint of trade, P could not recover accrued entitlements as the agreement was unenforceable in the first place.

Simon Weinberg, a solicitor in the Commercial/IP/IT team at Matthew Arnold & Baldwin LLP and assistant editor of Upload-IT, commented, “In this case, it was extremely difficult for the courts to see past the fact that, when the agreement was negotiated and entered into, one of the parties was a 17-year-old without legal representation; the bargaining powers of the parties were unequal from the start, undermining the basis for the agreement. The fact that its terms restricted Rooney’s own exploitation of his image rights until he was 25 was always likely to lead to arguments of restraint of trade once he did receive appropriate legal advice. This case serves as a useful reminder that, when negotiating a contract, it is important to ensure that the other party has legal representation; if they do not have that legal representation and the agreement seems to be one-sided, there is a risk that the foundations of that agreement will be challenged in future. If you convince the other side to sign without legal advice, and the terms of the agreement seem too good to be true, they probably are.”

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.

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.”

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 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.

The High Court agreed with Playup’s claim. Givemefootball’s failure to deliver to the number of opted-in recipients amounted to a repudiatory (or fundamental) breach of contract. Playup was entitled to walk away from the contract. Buying in data did not satisfy the requirement to supply “opted-in” recipients. Although the agreement did not specify what a user should have opted-in to, it must have meant that they would have opted-in via the PFA website. The whole point of the agreement was to give Playup football access to the avid fans who were involved with the PFA Fans Awards rather than anyone who liked sport and could have come from another source, in order to maximise the chances of getting a positive response. Otherwise, Playup could have used its marketing budget for a cheaper and less targeted advertising campaign, such as through Google. “Targeted” had to mean just that and the other wording used in the contract reflected that purpose. The inclusion of the words “owned or controlled” by Givemefootball in relation to the databases was the result of careful drafting and did not infer bought in data.

The High Court added that the contractual requirement for data subjects to have provided prior consent to Givemefootball to receive direct marketing from Playup meant that the consent would have had to be made to Givemefootball rather than a third party data seller and the individual would have consented to receive the direct marketing from Playup or a class of which Playup was a member.

A lot of business is done in relation to marketing and promotional campaigns. Where one party agrees with another to run a targeted campaign, this decision makes clear that the campaign must be just that: targeted. That does not allow for buying in data from third parties to supplement the numbers, unless this still makes the campaign just as targeted.

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

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.

The High Court has agreed with H. In fact, H succeeded on another point, so the decision on the meaning of good faith is only persuasive rather than binding. However, the Court said that the contractual duty of good faith meant that the parties had to disclose all material facts to each other. CAL’s failure to mention that it needed to obtain funding from a third party were material facts and denied H the opportunity to make an informed decision. Although CAL had acted honestly, it still breached the clause. The Court added that it was not actually necessary to decide whether full disclosure would have altered H’s decision. The duty had still been breached and that was enough.

The Court of Appeal ruled that there was a breach of contract and that the Lowes were entitled to reject the staircase. The reason for the Court of Appeal’s ruling was that, under section 14 of the Sale of Goods Act 1979, the staircase had to be fit for purpose and of a satisfactory quality. This section had been implied into the contract for the staircase as the Lowes had relied on the skill and judgement of WMJL as the seller of the goods in question. The High Court had ruled that WMJL should at least have warned the Lowes that the design requested would need the approval of a building control officer to ensure compliance with building regulations, and the Lowes had relied on receiving this advice from WMJL – the Court of Appeal agreed with the High Court’s interpretation but ruled that it entitled the Lowes to reject the staircase. WMJL knew that the staircase, when provided as specified in the contract, would breach building regulations, and should have warned the Lowes of this, such that the staircase could not therefore be considered reasonably fit for purpose and the claimants were entitled to recover the price paid.

Barclays disputed that it owed Nylon any money for expenses, and issued legal proceedings to obtain a declaration from the High Court that Barclays was under no obligation to pay Nylon those expenses. The High Court agreed with Barclays and ruled that it was under no obligation to pay the expenses that Nylon had claimed.

Barclays also asked the High Court to confirm that Barclays did not have to pay Nylon its profits on its original capital investment, which Nylon rejected, again arguing that Barclays was obliged to do so under the terms of the LLP agreement. Nylon applied for a stay to bring an end to the proceedings brought by Barclays, which was initially rejected but appealed to the Court of Appeal.

The Court of Appeal has now rejected that application for a stay, saying that a satisfactory outcome could only be obtained by a full trial with evidence, entitling Barclays to continue with proceedings. However, in giving its ruling, the Court of Appeal noted that the parties had reached a settlement and had asked the Court of Appeal not to actually give its judgment on Nylon’s appeal. The Court of Appeal decided, however, that there was no reason why the judgment should not be given, despite the settlement that had been agreed.

The main implication from this ruling is that, whilst the parties had reached a settlement, the Court of Appeal still issued the judgment. However, the case is also a useful reminder of the need for clarity and certainty in drafting commercial agreements, including those that define investment relationships.

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.”

• the service of the claim form was valid;
• its standard terms and conditions had been incorporated by the purchase order; and
• section 52 of the Sale of Goods Act 1979 applied, allowing SSL to apply for injunctive relief.

The High Court ruled that service on the director in England was valid, as the director was senior enough in TTK’s company to be served with proceedings. However, SSL’s terms and conditions had not been incorporated into the joint venture agreement by the purchase order as TTK had never seen the terms and conditions, and therefore could not be bound by them. As a result, section 52 of the Sale of Goods Act 1979 could not apply as the applicable law was Indian law, and the High Court could not grant interim relief. TTK’s business and property were all based in India, and it had no English presence, such that any order of the English court would have to be enforced only in India. The High Court saw no reason why its jurisdiction could extend to this case. It stated that the action should have been brought in India.

Particularly when dealing with foreign-based companies, businesses should make every effort to ensure that the governing law and jurisdiction of any agreement is English law, if that is your preferred route. It must be remembered that terms and conditions can only apply if they are properly incorporated, which means that all parties must have actually seen them and had a chance to read them. In this case, the claimant seemed to forget these two points and spent time and money trying to obtain a judgment when an English court had no jurisdiction over the case at all. It proved a costly mistake. It is one thing to pay for a law firm to draw up decent terms and conditions, but that is only half the battle. The other thing to make sure that the terms and conditions actually apply.

FP issued proceedings for alleged breach of contract, infringement of copyright and passing off, claiming that the defendants had breached the trading agreement by adopting a logo that was a replica of the ‘Edge’ title logo used on the cover of the gaming magazine. The defendants were also accused of making statements that FP and the defendants were associated.

The High Court has ruled that the use of the obvious replica logo by the defendants had fundamentally breached the agreement, which allowed FP to terminate. In addition, their actions were considered by the High Court to be passing off (as FP had goodwill, there had been a misrepresentation and customers would be confused), as well as copyright in the logo having been infringed.  Furthermore, despite the fact that there had been passing off due to statements being made on the defendants’ website, their trade mark was also held to be revoked for non-use as the US-based defendants did not conduct any genuine business in the UK – despite having infringing statements on their website that were directed at UK customers.

In this case, the parties had entered into a contract under which Blackpool Airport Ltd (BAL) had to use all reasonable endeavours to provide a low cost base for Jet2, and under which both parties had agreed to use best endeavours to promote Jet2’s low cost services from BAL. The parties agreed before the case that the court should consider, for this case, the best endeavours and all reasonable endeavours clauses used in the agreement to have the same meaning i.e. that they should both be considered all reasonable endeavours clauses. Neither party obtained significant legal advice on the provisions of the agreement before entering into it.

The agreement 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 ongoing 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 High Court distinguished this case from other cases concerning endeavours clauses as the relevant clause here related to matters all within BAL’s control i.e. whether or not to schedule flights outside its published operating hours. Other cases in this area tend to be where the clause relates to matters outside of the relevant party’s control, and in such instances a party would be justified in not risking its commercial interests in an attempt to achieve a result outside its control. In this case, BAL was not justified as the result was entirely within its control.

This case is another instance where obtaining legal advice and ensuring stricter drafting of the agreement could have saved both parties significant amounts of time and money. It is always better to have an express obligation in an agreement rather than an obligation qualified by an endeavours clause, as it allows much less scope for arguments on interpretation. If the operating hours of the airport had been specified in the agreement from the outset, a dispute of this magnitude could have been avoided.

The ECJ ruled that the supplier had to not remove and replace but also install the replaced goods despite not having been responsible for the original installation as the goods had been faulty on delivery and consumers needed to have an absolute right for them to be put right without suffering loss. Alternatively, the supplier would have to bear the cost of someone else doing so. The ECJ further said that if only one remedy is possible then the seller cannot refuse to provide that remedy even if the cost of removing and reinstalling would be disproportionate to the value. In this case, the tiles cost €1,382 and the cost of removing and replacing was €5,830. The seller would not have been liable for the replacement if the reason for the defect was the poor installation (that the supplier was not responsible for), although proving who was at fault may not be easy.

There were a total of 218,100 claims made during 2010-11, compared to 236,100 in 2009-10. However, despite the decline, this year’s figure still represents a 44 per cent increase on 2008-09. The statistics reveal a fall in a number of claims: unfair dismissal, breach of contract, religion or belief discrimination, race discrimination, disability discrimination, and equal pay. 

However, the number of age discrimination claims rose sharply. This year, 6,800 age discrimination claims were filed – a rise of 31 per cent on 2009-10 and 79 per cent on 2008-09.

With levels of redundancy and unemployment still currently very high, these statistics will be of concern to employers, particularly as there is now more opportunities than ever for employees to bring age discrimination claims.

Employers should bear in mind that all employees – whether young or old – can potentially bring an age discrimination claim.

Recent legislation has been introduced to further clamp down on age discrimination. The Equality Act 2010, which took effect on 1 October 2010, prohibits direct age discrimination, indirect age discrimination, and age harassment in the workplace. Also, the default retirement age was abolished with effect from 6 April 2011, subject to certain transitional provisions. This means that, from this date, any dismissal because of age will constitute direct age discrimination under the Equality Act 2010, unless it falls within the transitional provisions. Total abolition of the default retirement age will take place on 1 October 2011.

The full affects of the abolition of the default retirement age have yet to be felt, but it will be unsurprising if next year’s employment tribunal statistics reveal a further rise in age discrimination claims.

In the meantime, it is essential that employers review their policies on redundancies, recruitment, employee benefits and pay to take into account these changes.

If you are concerned that your business may be open to age discrimination claims, please contact me at michael.delaney@mablaw.com.

• Failed to deliver the products within the timeframe required by the Distance Selling Regulations.
• Failed to respond or otherwise comply with consumers’ decisions to exercise their statutory rights to cancel their contracts under those Regulations.
• Failed to be available in a rapid and effective manner for consumers to contact him, as required by the Electronic Commerce Regulations.
• Misled as to the availability of the products and the timeframes, contrary to the Consumer Protection from Unfair Trading Regulations.

The OFT took action under the Enterprise Act and brought proceedings against the website operator after written undertakings previously given by it to offer refunds to customers were not complied with. The OFT has said that it will continue to monitor the website’s future practices.

The Court of Appeal has upheld the High Court’s decision to award summary judgment in favour of the US company. The purpose of the agreement had been to demarcate the field of goods rather than deal with the classes in which the goods could be registered. It was not necessary to imply a term dealing with this. The ruling will ensure certainty amongst contracts and in particular to give effect to coexistence agreements.

The Court of Appeal ruled that the contract set out the only circumstances in which a party could be excluded from a right to rescind, and the developer had breached another provision of the contract which did not exclude that right. As such, if a contract expressly qualifies a right to rescind, any other breach of the contract will not preclude that right, thereby making the rule that a party may not rely on their own breach (which has been reiterated in recent case law) irrelevant in such a case.

The Court of Appeal also considered whether the developer had waived the right to rescind by electing to affirm the contract. The Court of Appeal ruled that such decisions had to be made on a case by case basis but that, in this case, the developer was entitled to wait after the date for fulfilling the conditions had passed before serving notice to rescind, and in the meantime was entitled to continue to progress in other areas relating to the contract without waiving its right. It is important to note that the continued performance of a contract does not always mean that a party has waived its right. However, these areas must be handled very carefully and specialist legal advice sought to ensure that a contractual right is not deemed to have been waived.

As previously reported, the case centred on a franchise agreement for a recruitment consultancy. The High Court agreed that Antal had terminated the contract wrongly, and had itself breached the contract in doing so.

However, the claim for damages on the basis of a reduction in the company’s value as a result of the breach was rejected, with the High Court ruling that, unless the company had been put out of business by the breach, loss of value was not the correct measure for assessing the losses. The High Court’s reasoning was based largely on the fact that the value of the company before and after the breach was hypothetical, thereby making damages for loss of value difficult to assess. Since the company had chosen to pursue the valuation route rather than making a claim for loss of profits, the loss of profits route was barred to them, leaving them only with nominal damages.

The High Court said that Guna was in breach of the agreement and should have transferred the registrations. It struck out Guna’s competition law defence. For that defence to work, it should have produced detailed evidence. Instead, the evidence was only general and sketchy. These were complex issues and the arguments needed to be fully made out and argued with good supporting evidence. It may have been that Nelsons’ market share was very high and that its actions were not permitted in the circumstances, but this was not clear from the evidence presented. As the defence was uncertain, what was left was that Guna was in breach of contract.

The High Court agreed with MMP. The franchisee was responsible for the actions of its employee. It disagreed with the franchisee’s  argument that her actions were outside of the course of her employment and were a matter for her private life. This was about an employee who had misused personal data obtained from a CV obtained through her employment.  This was a breach of her employment contract, but MMP was still responsible.

However, the franchisor’s purported termination of the contract was wrongful and that action in itself was a repudiatory breach of contract as it showed an intention not to perform the contract. The reason was that the relevant clause which had been breached said that MMP must not “do anything to adversely affect our name, Trade Marks or other Intellectual Property”.  On a true construction of those words, Antal would have needed to provide evidence that MMP’s conduct had in fact damaged the Antal brand.  It had not provided that evidence.  A mere fear or concern of the harm or reputation that would be done was not sufficient on the wording used in the agreement.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “This case should act as a warning to businesses to be careful when selecting and managing their staff.  However, even more stark is the consequence of failing to have an agreement that says what the franchisor or other business thinks it says.  Care should be used before terminating an agreement, or the otherwise innocent party ends up being the wrongful party.  It should also have made the contract wording tighter by talking about damage to its reputation “in the franchisor’s opinion” so that it would not have to attain evidence to prove that the damage did actually occur.”

The RFU applied to the High Court for a “Norwich Pharmacal order” to be made against Viagogo – a court order that requires the disclosure of certain documents by the respondent to the applicant, including details of third parties against whom the applicant may have a legal claim. In this case, RFU wanted Viagogo to disclose personal data of those who advertised or sold tickets on its website in order to seek redress against wrongdoing.

The High Court granted the order, ruling that the RFU was genuinely seeking redress for the alleged wrongdoing. Viagogo had argued that the RFU was actually trying to damage Viagogo’s business, but this was rejected by the High Court. The High Court justified the grant of the order on the grounds that there was no straightforward or alternative means for the RFU to obtain the information in order to take action. Whilst the High Court took into account the provisions of Viagogo’s privacy policy, the High Court ruled that it was not breached by the order.

Under the provisions of the Directive, payment periods are limited to 30 days with interest at either a rate agreed between the parties or a default rate (8% above Bank of England base rate) payable on any late payments. A creditor can also claim a minimum fixed sum of €40 in case of late payment as well as compensation for the costs of recovering the payment.

Where a payment period is agreed in a contract, it can be specified to be up to 60 days provided it is not unfair on the creditor. However, a 60 day payment period is permitted in any situation where the debtor is a public body.

The Directive entered into force at legislative level on 16 March 2011, but European Union Member States have until 16 March 2013 to implement the Directive into each country’s laws.

Ofcom ruled that the clause was a breach of the Television Licensable Content Service licences for Sky Sport 1 and Sky Sports 2 and of the Communications Act 2003. Ofcom required the relevant clause to be removed from the agreement.

The High Court found that SR had breached the clause requiring him not to solicit TR’s customers, and this was shown by him having taken his Outlook contact list. This justified an injunction. However, the fact that he had set up in business within five miles should not be held against him as that clause was too wide to be enforceable. Although five miles was a reasonable distance given the nature of the business, most of SR’s work for TR had not involved recurring business and was therefore not capable of creating a customer connection worth protecting. The restriction on him from setting up in business within five miles was therefore unreasonably wide in the circumstances and so it was unenforceable. TR was already well protected by the other two restrictions.

The franchise agreement contained three different provisions in separate sub-clauses: the non-solicitation clause prohibited soliciting clients and staff for one year in respect of the Restricted Area; the non-supply clause prohibited supply of competing goods for one year in respect of the Restricted Area; and the non-compete clause prohibited engaging in a competing business in respect of the Restricted Area. The “Restricted Area” was defined only in the non-compete clause, by reference to the franchise territory but also some other surrounding areas. The agreement also contained a severability clause, which is often used to encourage a judge to treat each provision separately and remove any offending words.

The parties fell into dispute. They did agree that the non-solicitation clause was valid in all of the Restricted Area. However, the non-compete clause would be invalid if it extended to the whole of the Restricted Area as it was too wide. The High Court therefore had to rule on the ability to sever any offending words.

The High Court ruled that it would not sever the Restricted Area in order to save the unenforceable non-compete clause. If the Court would have reduced the wording so that the definition referred just to the original territory, this would have changed the meaning of the defined term in the other sub-clauses (the non-solicitation clause and non-supply clause), which did not need changing in order to make them enforceable. Therefore it was not possible to sever.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: “This case shows the danger of using the same defined term, and particularly defining the term itself, within particular sub-clauses if the intention by drafting separate sub-clauses is that offending unenforceable sub-clauses may be severed with the rest left intact.”

The High Court ruled that W was not entitled to anything under the 2005 agreement as, unless otherwise agreed between the parties, the term “introduce” in an agency agreement would mean that the agent had to be the effective cause of the introduction. In this case, W was not the effective cause, but it was someone whom he had introduced to CAI. CAI did not pay W to introduce his contacts, but CAI paid them directly. W was not introducing people who were running the project, but other people that W knew about who could make the relevant introductions. If W would have paid those other middlemen out of his own commission, the ruling may have been different.

In contrast, under the 2008 agreement, the High Court said that “pursuant to your initiatives” would be interpreted much wider and should not be interpreted the same way as “introduce”. W was therefore entitled to commission under that agreement. “Introduce” could only happen once, whereas lots of things could happen “pursuant to” initiatives.

This ruling shows how slightly different words can lead to totally different legal meanings. To avoid claims from more than one middleman for the same commission, and to clearly reflect what the parties really intend, they should use clear words in their contracts.

Atos failed to fully understand the complexity of De Beers’ requirements, resulting in significant delays to the project, but this was due, in part, to De Beers’ inability to finalise the scope of the project. There was misunderstanding on both sides and the project did not progress as well as had been hoped. As a result of the delays, De Beers decided to withhold payment of an interim invoice.

In response, Atos Origin refused to continue work on the project unless the contract was renegotiated, as it believed that the project had altered substantially in cost, specification and deadline. Atos Origin demanded that the contract be renegotiated to reflect the change in scope. Although negotiations took place, a variation to the original agreement could not be agreed and no further work took place.

Both parties claimed that the other had repudiated the agreement, breaching its terms by indicating that they no longer wished to be bound by it.

The High Court ruled that both parties had contributed to the failure of the contract. De Beers had not had a right to withhold payment of the interim invoice, but that non-payment did not amount to a repudiatory breach. However, in stopping its performance of its obligations under the contract, Atos Origin had committed a deliberate and wrongful breach of contract, which amounted to a wrongful repudiation of the agreement.

The High Court noted that Atos Origin did actually have a right under the contract to suspend work whilst waiting for De Beers’ payment, but the way in which Atos Origin communicated the threat to suspend services was an indication that Atos Origin was not willing to continue on the terms of the existing agreement, and would only proceed on their own terms.

The High Court ruled that De Beers was entitled to recover £4.4 million to cover the cost of modifying its old software system and purchasing a replacement system, less costs it would have incurred had Atos Origin not terminated the contract, totalling nearly £3 million. As such, Atos Origin was liable to pay De Beers some £1.4 million in damages, not including any claims for interest.

Simon Weinberg, a solicitor at Matthew Arnold & Baldwin LLP and assistant editor of Upload-IT, comments: “This case shows how important it is to be realistic and to have clear intentions in negotiations over an IT contract, together with commercial sensitivity in any subsequent renegotiation or variation. Suppliers must understand their customers’ requirements and ensure that they have the necessary expertise to fulfill their obligations under any agreement they enter into. At the same time, customers must limit the risk they expose themselves to, making sure that they participate in their project and that they are doing as much as possible to prevent the failure of the project.

“Here the High Court ascribed blame to both parties, and could so easily have ruled that no damages were payable. Business-critical IT contracts are essential to any business and can be expensive. It makes sense to negotiate them properly and to ensure the parties’ expectations are properly reflected in a clear written contract.”

The High Court originally and now the Court of Appeal decided that a contract had been formed between the parties. It was a question of construction as to whether the further contract to be executed was a condition of the contract being formed or a mere expression of the contract already agreed. The Court referred to D’s acceptance of the quotation with the statement that D “hereby accept the terms of your quotation subject to your Board approval” as showing that the only condition for the contract proceeding was C’s board agreeing to the deal. This was clearly done because C accepted D’s offer. Therefore, C’s statement that a formal contract would follow in due course was merely an indication that the parties’ contractual desires would be reflected in a further document.

This case could have been decided either way. On the facts, the courts decided that the parties had intended for a contract to have been formed. It was the change in circumstances to D that led to D’s claims. However, instead of the parties spending large legal cost, wasting management time and incurring aggravation and uncertainty in going to the Court of Appeal, the situation could have been avoided if the contract wording and processes had been clearer.

The High Court ruled against Amberley. The Court of Appeal (CA) has now dismissed Amberley’s appeal. The CA considered whether the parties intended to grant Amberley such a unilateral right, and noted that unilateral variation clauses are enforceable, even if they are detrimental to the other party. However, those clauses had to be clearly drafted in order to be enforceable. In this particular clause, the CA took a narrow interpretation as the wording was not clear enough for what Amberley had wanted. The CA ruled that Amberley only had the right to ‘review’ the rents as costs increased and not impose a unilateral increase. The contract gave no indication of what such a review would involve, who would perform it, how often or on what basis. The CA thought the contract meant that Amberley would conduct the review but if it wanted to increase rents following the review, it needed to get a resident’s approval before doing so.

This is an important case for businesses to be aware of. If a unilateral clause is intended, then the clause should state this specifically. Otherwise, there is a risk the courts will give the clause a narrow interpretation and rule that it is not unilateral.

The High Court ruled that all the losses were direct losses. The supplier was therefore liable for all the damages claimed.

There is nothing startling about the result. What is surprising is that many suppliers are still under a misapprehension about how much they are covered by a crucial clause which seeks to limit their exposure for something going wrong. A lot of businesses think that economic losses are indirect and they are therefore not liable for them. This is wrong. Physical damage or economic loss (such as loss of profits, loss of revenue, loss of reputation, etc) can be either direct or indirect. It depends on the circumstances according to an interpretation based on a legal case from 150 years ago.

Liability clauses go to the heart of why businesses have contracts – in order to give certainty. However, many people are trading under a misunderstanding of the level of the risk that they have accepted.

Under UCTA, any terms restricting a seller’s liability for breach of contract, where the buyer is either a consumer or deals on the seller’s standard terms and conditions, must comply with a reasonableness test. In the initial ruling, the High Court had issued summary judgment in favour of the seller on the grounds that deciding whether the clauses were reasonable or not did not require a full trial.

The Court of Appeal agreed with the High Court’s ruling, pointing out that both of these BIFA clauses had been ruled to be reasonable in previous cases in the Court of Appeal. Whilst reasonableness claims under UCTA are considered by the courts on a case-by-case basis, the ruling suggests that any attempt to claim that these BIFA clauses are not reasonable in future will require unusual circumstances to be present, the lack of which will mean the same conclusion – the clauses are reasonable. In respect of the set-off clause in question, the Court of Appeal said that the exclusion of the right to set-off did not stop the buyer from refusing to pay any incorrectly charged sums as the exclusion only stopped setting off against sums due. The Court also said that the wording of the nine month limitation clause stopped the bringing of cases whether the cause of action had been known or not before expiry of that period.

It is also worth noting that the Court of Appeal commented that although the relative bargaining power is one of the criteria under UCTA for deciding reasonableness, the relative size of the parties was not likely to be important in deciding whether the clauses were reasonable if a small but commercially experienced buyer had a number of competing suppliers to choose from. That was the case here.

That test for what constitutes an offer is whether a person with the parties’ knowledge of the background, acting reasonably, would have understood the document (or relevant part) in question to be an offer, by which the sender or producer of that document intended to be bound by it.

In this case a mistake was made in the initial offer letter. The Court of Appeal ruled that the mistake was obvious and clearly unintentional, and the recipient of such an offer would know it to be a mistake. As such, the recipient of the offer should not have considered it to be an offer, and should not have believed that they could issue an acceptance to it. Therefore, the relevant term of the contract referred to in the offer was yet to be agreed.

The full text of the judgment can be found here.

It remains to be seen how strictly the courts will construe this ruling. It shows that the Supreme Court is ensuring any relevant material is brought before a court in order that the court make an accurate decision, but may mean parties are increasingly concerned about the content of their without prejudice communications in attempting to agree a settlement agreement.

The advice has to be the same as when drafting any contract – clarity is key. When negotiating a settlement, make sure your communication is clear and in plain English to avoid any confusion.

For the full text of the judgment click here.

On appeal, the Court of Appeal has overturned the strike-out. It said that there was a real prospect of CSE establishing at trial that the terms and conditions were incorporated into the contract. The ultimate question was whether a reasonable person in the parties’ position would have understood the words as referring to CSE’s contractual terms as being the basis for doing the work.  The Court of Appeal thought that CSE’s interpretation was a more likely interpretation of the words used. One judge added that the phrase ‘terms and conditions available upon request’ must have been intended to have had some meaning.

This was only a ruling over an interim issue. This case shows that the argument that the terms applies had a prospect of success. As to whether or not the terms and conditions were actually deemed to have been incorporated must be decided upon at the full trial. It will be interesting to see what is decided there, because the outcome of this case may impact on how clearly people need to refer to or attach their terms and conditions when they want them to apply to their contracts. It will also be interesting to see what the court says over the fact that the terms were referred to below, rather than above, the signature box. The cost and management time spent on fighting this issue could, of course, have been avoided if the supplier had had clearer processes.

If you want to obtain advice about ensuring your terms and conditions are incorporated into your contracts, please contact us.

At a time when tuition fees are set for a huge increase, the question has to be asked: is this fair for students to lose out on owning potentially valuable intellectual property rights in this way?

The High Court ruled that the rights had reverted to the songwriters. The Court of Appeal has now agreed. The clause was not an agreement to re-assign to the copyright in the future but an automatic reverter provision. The Copyright Designs and Patents Act 1988 did not say that assignments had to be absolute – they could be for part of the copyright period. An assignment with an automatic reverter, as in this case, was a type of partial assignment permitted by the Act.

The European Commission is considering a new Directive on Consumer Rights. The Government asked businesses and consumers whether they agreed with an extension of laws concerning unfair contract terms to cover other elements of a particular transaction that may not be its core focus, such as holiday surcharges and luggage frees. The question posed by the Government was whether such charges needed to be justified as not being ‘unfair’ to the consumer.

It was not surprising that business responded negatively, arguing that market forces and competition already kept prices fair, and that additional regulation was not needed. Consumers argued that such ‘side-show’ charges were not necessarily paid attention to be consumers, and therefore they required protection in this area as well as the core charges.

The Government anticipates having the discretion to implement such regulations domestically if it chooses, rather than the issue being dealt with at EU level.

Under the contract, Ericsson was restricted during the wind-down phase from varying contracts and terms of employment, or recruiting or removing employees in relation to the project. It therefore claimed that the terms were damaging to its interests, and that those terms should apply only in the final 12 months of the contract. Hutchison, meanwhile, argued that the measures were needed to ensure the smooth transition of the project back in-house.

In deciding that the provisions should apply only within the final 12 months of the contract, Mr Justice Akenhead said that any outcome of the trial would not hinder either party to any great extent. On that basis, it sounds like this was a fall-out because of entrenched positions, and it could have been resolved…over a phone call?

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 car was advertised as a “1930 Speed Six Bentley”, and the defendant warranted that the car had a 1930 Speed Six engine. The car was bought by the claimant on hire purchase through three contractual agreements, each of which described the car as a “1930 Speed Six Bentley”. A year after receiving delivery of the car, the claimant discovered that the engine of the car was actually a 1927 reconstructed standard engine. The claimant claimed against the defendants for damages for breach of warranty and damages for breach of contract, the damages amounting to the hire purchase installments paid and the deposit submitted initially.

The court ruled that the value of the reconstructed engine was significantly lower than the original engine that the claimant believed they were purchasing. The pre-contract representations were inaccurate and misleading in relation to the engine, and the contractual agreements merely accentuated this inaccuracy. The claimant received all the hire purchase payments that she had made as damages, as she was entitled to rescind the contract and the payments were recoverable as reliance damages.

Eminence Property Investments Limited (EPIL) was selling a number of flats to Mr Heaney. The contract for sale incorporated the Standard of Conditions of Sale, which make time of the essence only in the event that a notice to complete is served on either party. In a situation where the purchaser failed to complete on receipt of such a notice, the seller would have the right to rescind the contract, retain the deposit and claim damages.

The seller served a notice to complete, but gave the incorrect date for the completion deadline, using 15 December instead of 18 December. The purchaser did not complete the sale contracts and, on receipt of a notice of rescission on 17 December, responded by stating that the expiry date for the notice to complete was wrong, and that in sending the notice of rescission the seller was itself rescinding the sale contracts, requesting the return of the deposit, and putting itself in repudiatory breach of the contract.

The High Court ruled that the notices of rescission were a repudiatory breach of the contract, as they were a clear refusal by the seller to perform its obligations under the contract.

However, the Court of Appeal has now rejected that view, ruling that the sending of the notices of rescission was not a repudiatory breach. The ruling stated that it was clear that the purchaser knew the seller wanted to enforce the contracts, and that the High Court was mistaken in not considering all of the facts. From a reasonable purchaser’s point of view, it was unclear what the seller’s intention was.

The test for a repudiatory breach was restated, in that it was whether, looking at all the circumstances objectively from the perspective of a reasonable person in the position of an innocent party, the contract breaker has clearly shown an intention to abandon and altogether refuse to perform the contract. In this particular case, it could not be said that there had clearly been shown to be an intention to abandon the contract. Motive is irrelevant if it is used just to show the subjective intention of the person involved.

Of most importance, though, is the Court of Appeal’s comment that each case must be entirely dependent on its facts. Citing previous cases as precedents to determine whether the contract had been repudiated in a subsequent case is of limited use. Whether or not any particular contract has been repudiated in any particular situation is fact sensitive.

In this particular case, a liquidated damages clause in a contract between AB and H’s subsidiary involved the subsidiary having to make a payment within a particular time or AB could terminate the contract and be paid 20% of the contract price. H guaranteed the payment of its subsidiary. AB terminated for default and sued H and H’s subsidiary. They refused to pay the 20% and argued that it was an unenforceable penalty. AB successfully sued for summary judgment.

The High Court stated that there was no arguable case of the liquidated damages clause being a penalty. It is possible for a liquidated damages clause to be neither a pre-estimate of loss nor a penalty. It could still be enforceable if it was commercially justifiable, as long as the main purpose was not to deter the other party from breach. A clause which was negotiated, as here, was likely to be seen as being commercially justifiable as providing a balance between the parties. Evidence of negotiation over the clause can be used to show whether or not a clause had a commercial purpose. In commercial contracts, what the parties have agreed should normally be upheld.

This case shows that anyone looking to agree a liquidated damages clause and later argue it is an unenforceable penalty are playing a dangerous game. Courts look to take a freedom of contract approach and uphold a negotiated agreement where possible. Parties wanting to ensure their liquidated damages clause is enforceable should keep clear records of negotiations. That said, a party wanting to enforce such a clause should not do anything to suggest that the clause may be a penalty by calling the clause a penalty or stipulating an amount that is out of all proportion.

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.’