In 2007, the engineering company applied to register a trade mark for OMEGA in the UK in classes 9 and 14 on the trade marks register. Class 14 of the register covered several things including watches. It was the application in that class that the watch company officially opposed with the trade marks registry. Whilst the parties were battling it out on that front, the manufacturing company applied to the High Court for summary judgment against the watch company’s breach of contract for opposing the trade mark application.

The High Court agreed with the manufacturing company. The court said that the words in the original agreement were sufficiently clear and it did not matter which classes on the register the use or application were in – classes on the register were purely for the registry’s administration purposes. It was the specification for which the goods to be used that mattered. The High Court added that someone who had consented to another’s use of the trade mark in a particular way could not later oppose that use or registration, unless they agreed something different.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case shows that courts will enforce trade mark co-existence agreements between businesses that have overlapping brands. Parties should also ensure that the agreements are not specific to any particular class of goods or services but are described in terms of the goods or services themselves. They should also seek to ensure the agreements are future proofed, where possible, because co-existence agreements entered into a long time ago can have an impact many years down the line, as the watch company found out to its cost here.’

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

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

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

The High Court agreed that the contract was in restraint of trade and it was therefore void. It had been entered into when the footballer was just 17 years old. He had no commercial experience and was unsophisticated in financial and contractual matters. The terms of the agreement had been dictated by P and there had been no negotiation as to the terms. The contract was for a long period of time and did not provide for different commission rates according to revenue levels. Rooney and S had not taken independent legal advice as to the terms of the agreement. In those circumstances, the contract was unreasonable and unenforceable. However, P was entitled to receive payment on a restitutionary basis for services provided for which it had not yet received commission.

In this case, G supplied products to Ford. E was a supplier of components to G. E’s products were defective, causing G to incur big losses. G wanted to claim those losses from E. The question was whether E’s terms (which severely limited its liability), G’s terms (which required E to have unlimited liability) or some other terms applied? Each side referred to their own terms and conditions applying in their relevant order documents. However, it was clear that the parties did not agree to the other side’s terms. They were both hoping to negotiate a mutually agreeable limit on liability, but this was not done.

On these facts, the High Court ruled that neither party’s terms and conditions applied. It was clear that they were not accepting the others’ terms. There was clearly a contract, so which terms did apply to the contract? The court said that the terms implied at law – ie in the Sale of Goods Act – applied because of the clear deadlock.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case highlights the dangers of entering a contract without agreeing the terms. Parties often hope for the best if there is a sticking point, but if and when something does go wrong and one party suffers big losses that they want to claim from another, that is generally not the best time to agree what to do. Consequently, the parties can end up in dispute, costing them management time and money.

‘In this particular case, with the court finding that neither terms apply and the underlying legal position did, that would involve no limit on liability. That means that G effectively won. Is that what E would have wanted from the stalemate?’

The High Court noted that reasonable endeavours and best endeavours fell short of an absolute obligation to do something. Two recent conflicting court decisions were cited as to whether all reasonable endeavours meant something that was the same as best endeavours or whether it was a middle ground between reasonable endeavours and best endeavours. The Court here decided that it was a middle ground. Unlike best endeavours, all reasonable endeavours does not always require the person giving that obligation to sacrifice its own commercial interests. This particular case was even clearer, because of the use of the words ‘but commercially prudent’, which made it absolutely clear that a decision should be made without foregoing its own commercial interests. It should have taken all reasonable steps to secure the planning permission as long as those steps were commercially prudent. The High Court added that the clause would only allow the parties to consider the commercial interests rather than its other interests such as its political interests.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘There are lots of uses of different endeavours wording in commercial contracts. What they actually mean depends a lot on their own particular commercial context. The difficulty comes for parties trying to interpret those terms in that particular context. This is exacerbated by court decisions that seem to say something a bit different in each case. The broad principle is that reasonable endeavours is to do what someone in your position should reasonably do, and best endeavours involves going further than you might want to. The grey area comes in the middle, and in particular where exactly ‘all reasonable endeavours’ sits on the spectrum. This case says that it is somewhere in between.

‘I recently had to advise on a contract that said ‘best reasonable endeavours’. I gave a practical suggestion around the particular issue, because who knows what a court would make of that one?!’

The Commission’s Green Paper proposes seven alternatives:

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

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

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

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

The High Court sided with P. The level of know-how and assistance provided by P to its franchisees totally justified the restrictive covenants. The restrictive covenants were no more than necessary to protect P’s business. Those provisions were therefore not void at common law or contrary to competition law as they were essential to maintain P’s goodwill. The injunction was justified and the other side’s claim for damages was dismissed.

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

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

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

The High Court sided with Dominion. Although Dominion was late in paying, that did not give Debenhams an automatic right to end the contract. It all depended on how important timing for payment was. The contract was silent as to whether time was of the essence. In cases like this, courts have to look to whether timing was an essential part of the contract. Sometimes it would be and other times it would not be. On the particular facts of this case, the Court decided that time was not of the essence. Debenhams’ position was not helped by the contract containing a clause which provided for late interest on payments – an indication, thought the Court, that the parties had already agreed an express remedy.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘To some extent this case turns on its own facts. However, the key principle is that important terms should be clearly agreed in contracts at the outset. Failure to state whether time is of the essence or not then leads to uncertainty and for courts to impose their own position.

‘Another common mistake that I see people make is to underestimate the importance of the words “time is of the essence” in contracts and not realise the full legal implications of that phrase. It is sometimes assumed that the phrase just means that time is quite important. However, it actually means that even a one minute delay could entitle the other party to terminate the contract and claim damages.’

In this particular case, Caja de Madrid, a Spanish mortgage lender, had a contract term saying that interest would be rounded up to the nearest quarter of a percentage point. Ausbanc, a consumer group, argued that the term was unfair. The matter went to the highest Spanish court. Caja de Madrid said that it was a core term and so should not be assessed for fairness, but Ausbanc countered that the Spanish laws implementing the Directive had not made that proviso and so it could be assessed.

The question was whether Spanish laws could bring the Directive into law in a more consumer-beneficial way than was provided for under the Directive. The European Court of Justice said that it could. That Directive was one that ensured consumers had minimum rights, but there was nothing to stop each country from increasing the benefit for consumers by the way they implemented the laws. The UK implemented the Directive with the exemption, so the consumers would be unable to challenge it here. However, the case is interesting if the Government ever wants to change English law to give consumers more protection. A key reason for the banks winning their high-profile bank charges case a few months ago was that those terms were core to the bargain and so could not be challenged under English law.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case shows the scale of the damages that can be incurred if something goes wrong, which frequently does happen with IT projects. That is why it is important for a supplier to have a good contract in place at the outset so as to be protected against a catastrophic event that could cause disproportionate losses. In most cases, it is possible to cap liability, although the clause needs to be well-drafted to comply with the law. If the clause does not work legally, courts often refuse to uphold them.‘

The High Court ruled that 0.5% over base rate could not amount to a substantial remedy in the absence of other special circumstances. The clause was therefore void and replaced by the statutory rate. Just because a replacement rate is significantly less than the statutory rate does not automatically make it void. A genuinely negotiated replacement rate should not be set aside lightly. As the standard JCT contract provided for a 5% rate, that indicated that that rate was about right for those construction contracts, even though that was 3% less than the statutory rate. It may be possible to have an even lower rate than 5% above base rate, but 0.5% above base rate clearly went too far here.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This decision suggests that a rate of just under the statutory rate will probably be upheld and a rate close to base rate will probably be void. However, there is a grey area in between and the decision could depend on what a particular judge thinks is fair and reasonable on the facts of the particular case, including whether there was a negotiated inducement for the lower rate and the risks being assumed by the parties. For example, a bad payer may attract a higher rate because of the increased risk, but it may be reasonable for a good debtor to demand a lower rate.’

This case was decided based on its own facts, but the High Court agreed with Westminster that the only sensible construction of the disputed phrase was to say that it was when the other things were done. There could be no other sensible meaning when considering the other provisions in the schedule, including the fact that there was a pilot stage at all and that Westminster had to provide 8 roofs for 6 months during that phase. The roofs for 15 years therefore had to be a separate additional obligation to that.

The Court of Appeal has ruled that the contract was not too vague so as to be enforceable. It was sufficiently certain. Where possible, courts should look to uphold contracts even if not every detail was included. It was also unnecessary to imply a term into the contract providing that the Airline would operate the aircraft in a way that was reasonable in all the circumstances. In deciding whether a breach of contract had occurred, the only question was whether the Airline had in a real and genuine sense been flying its aircraft there. The question as to how many times this happened was entirely a matter for the Airline’s discretion.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘This case gives a practical reminder that parties to a contract should ensure that their contracts contain sufficient detail. Don’t rely on something to be implied. If the Airport had wanted the Airline to have a certain number of flights a week, it should have said so in the contract.’

The High Court agreed with her side of the story. It said that the threats and intimidation were the principal reason for her entering into the agreement, and that it was clear to all those present at the meeting at which she agreed to enter the agreement that she was reluctant to do so. Mr Antonio was unable to show that he had not forced her to enter into the agreement through threats and intimidation. The fact that two years had elapsed following the date on which she had entered into the agreement did not mean that she had affirmed (or accepted) the contract, as the duress had continued during that time.

Could the bank claim restitution?

The Court of Appeal concluded that although the swaps contracts were invalid and void there is no longer any general public policy rule of English law that either prevents or restricts the right to claim restitution.  If, however, such a claim is inconsistent with the express provision of a statute then English law will not permit the claim as a matter of public policy.  This is because a common law claim for restitution cannot be allowed to circumvent legislation whose object and effect is to bar such a recovery. Here there was no such legislation and so the bank could claim in restitution.

Could the local authorities rely on a change of position defence?

The Court of Appeal pointed out that at no stage did the local authorities think the transaction was a gift that would never have to be repaid.  If the contracts were void, then the cause of action for restitution arose at the moment the moneys were paid to the local authorities. The court concluded that justice required that the local authorities repay the money.  The local authorities received the money and took the risk (in good faith) that the investments may go up as well as down.  Accordingly a change of position defence did not succeed.

Comment

This case demonstrates the flexibility of the law of restitution and will provide comfort to lenders. 

• A lender is able to recover borrowed sums even where a contract has been held to have been void.
• Restitution cannot be used where legislation prevents recovery, but where a contract has been held to have been void, this is not a bar to a claim in restitution.
• Where money has been lent under a void contract and the borrower is aware that the money has to be repaid, the borrower takes the risk that an investment may go up as well as down and so justice requires that they repay the borrowed money. 

 Haugesund Kommune and Narvik Kommune v DEPFA ACS Bank and Wikborg Rein & Co [2010] EWCA Civ 579

The High Court said that the warranty did not apply because no operating documents had been provided by the time of the contract. There was therefore a disconnect between what Red Sky provided in its contracts and its actual processes. Instead of the contractual warranty, implied warranties applied based on the Sale of Goods Act and Supply of Goods and Services Act (notwithstanding that the contract terms had purported to exclude those terms) as no other reasonable warranty applied. The software was not of satisfactory quality or fit for its purpose. In addition, the exclusions and proposed cap on liability did not apply because, in deciding upon reasonableness, the judge took account of the fact that the parties were not of equal bargaining power, the standard terms had sought to exclude the statutory implied terms without providing reasonable replacements, and Kingsway did not know of the existence of the exclusions and limitations on liability. The judge sided with the customer to a large part based on its inability to satisfy itself with the system unless there were clear demonstrations or operating documents.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This case does not directly affect the UK. However, any case involving the rights and wrongs of web site scraping is interesting because there have been so few of them. Many people, particularly search engines and comparison web sites, scrape other people’s sites. They run a risk of being sued, but the law is not 100% certain in this area as many sites don’t want to have the negative PR of be seen to challenge people’s access to their sites. In Europe, though, Ryanair has been throwing its weight about to try to stop online travel agents from scraping its site which it says contravenes its site terms of use, but there is as yet no definitive ruling that is binding on England.’

Well, very. 

Ask any comedian.  Funny words at the wrong time doesn’t get a laugh, but with comic timing they do.

Ask Gordon Brown.  Of all the times to make a gaffe like that, it’s in the closing stages of a close election campaign.  Without being political about this, Gordon Brown and his party would admit that it may have been better timing to have made a gaffe 8 days after an election rather than 8 days before.

Ask Reeves & Neylan.  They kindly invited me to an event on Tuesday at which Justin Webb, the leading BBC political journalist, spoke about the parallels between the UK and the US elections.  The event had been organised a long time ago, but what great timing to have had it just over a week before the election.

And what even better timing to have been one of the privileged few at Justin Webb’s talk less than 24  hours before Gordon Brown’s gaffe.  He talked about the importance of the TV debates.  He also said that he was surprised that there had not YET been a major gaffe by one of the major players in the campaign.  Well, players don’t get much more major than the PM himself!  Justin Webb talked about the age of always on media – how a camera may continue to roll or a microphone continue to pick things up or somehow something picked up by someone else on a recording device, all when the person had dropped their guard.  I don’t think Justin Webb could have been more on the money and given a greater prediction of the events that would unfold just hours after he spoke.  Now that’s what I call timing and it was a privilege to be there to hear what a great commentator was saying, so thanks again to Reeves and Neylan for the invite.  I’ll certainly be listening out again for what Justin Webb tells us from now on.  But will he get it right every time?

It all comes down to timing again.  Hearing Justin Webb give his timely prediction just hours in advance added to what he said.  If he’d have said it 10 years ago, it would have had less effect.

At MAB, timing is important.  Because we know that timing is important to our clients.  Getting that contract agreed or reviewed in time.  Or whatever our clients’ advice is.

And when clients are in a contract, timing can be so important.  There might be critical times in a contract.  The contract may say “Time is of the essence”.  What does this mean?  Time is important?  No.  It’s more than that.  It means that even if the contract has been going for 5 years, even if you are one second late in breach of a “time is of the essence” clause, the other party could terminate the contract immediately for your fault.  A lot of lay people don’t realise that.  A lot of people also don’t realise the implications of other expressions that they may assume to have a normal everyday meaning, but where courts have given the words a particular meaning that many non-lawyers don’t appreciate.  “Best endeavours” means more than just doing your best, and could put your business in jeopardy.  “Including” is often used but unless it says “without limitation” the phrase may be used in a restrictive way rather than just by way of examples. 

Back to timing.  It’s not just about performing the contract.  It’s getting notices right.  If you don’t send a notice on the right date and purport to terminate a contract earlier than you should otherwise have done, you may be in fundamental breach of contract yourself, even if the other party had originally been at fault.  You could be sued yourself when you were the wronged party.  All because of getting timing wrong.

Timing is important in contracts in other ways. 

As to timing when dealing with lawyers, getting lawyers involved as early as possible is generally a good idea. Whether that’s for entering a contract, conducting yourself in a contract or getting out of one.  You can always choose not to use your lawyer for everything, but the earlier the better because at least you’re then aware of the risks and can take a reasoned decision.

The High Court said that Kall Kwik breached a duty in negligence to MGB, causing harm. Because this was a case of financial loss, MGB had to show that there sufficient proximity (or closeness) in their relationship, the loss was reasonably foreseeable as a consequence of a breach, and it was just and reasonable in all the circumstances to impose a duty of care. MGB succeeded in doing that. Kall Kwik had assumed a responsibility in acting as an adviser in helping MGB over the financial issues associated with the franchise, and it had breached that duty. All in all, the High Court decided that it was fair to hold Kall Kwik liable.

The High Court came to this conclusion despite two exclusions of liability. In the franchise agreement itself, there was an exclusion of liability, but this related to the claim for misrepresentation in inducing MGB to enter into the agreement and not for negligence in relation to performance of the agreement itself. In addition, Kall Kwik had produced a cash flow document (which contained the figure of £15,000 for the re-fitting costs) that had a disclaimer against responsibility for the contents except in the case of fraud and there was a note advising recipients to carry out their own verification of the contents; however, the Court said it was not the cash flow on which MGB had relied but the discussions about fitting costs.

MGB also successfully claimed against Kall Kwik for breaching an ancillary agreement to the main franchise agreement because of Kall Kwik’s failure to transfer certain customer data as promised.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of Upload-IT, comments: ‘Franchisees often enter into one-sided franchise agreements just to have the opportunity to share in the success enjoyed by the franchisor. The franchisor generally helps the franchisee to establish its business so that the relationship ends up being a win-win situation for both of them. Inevitably, the franchisor gives the franchisee assistance and advice. Even if the franchise agreement is one-sided, this case shows that the franchisee may be able to claim under the legal head of tort rather than breach of contract. From a franchisor’s point of view, they should look at their agreements and ensure that their liability clauses are drafted as widely as possible to seek to limit liability for claims made against them under tort.’

This is where a business should typically look to its force majeure clause in its contract. This is the clause that (if properly drafted) usually sets out the contractual rules and procedures for “events outside the control of the parties” or for “Acts of God” or some such.

A properly drafted force majeure clause should set out:
a) what constitues an event of force majeure;
b) how the parties agree to deal with it in terms of costs and liabilities;
c) how time works (e.g. are obligations frozen, cancelled or pushed off?);
d) a procedure for notifying each other; and
e) whether any consequences follow (e.g. termination) if the event continues for too long.

Do you have a properly drafted clause?

The High Court ruled that account of profits could sometimes be claimed for breach of confidentiality, but not in this case. It all depended on the circumstances. Duties of confidentiality related to a big range of possible situations. As to whether an account of profits was available as a remedy depended on the particular type of situation and whether it would be just and equitable that the defendant should retain absolutely no profit from that particular type of situation. The nature of a duty of confidentiality could apply in the following big variety of situations:

• Akin to a fiduciary duty.
• Akin to an intellectual property right.
• Arising out of a contractual duty.
• In relation to use of private information obtained from a stranger, and therefore a situation similar to tort.

In this case, there was no fiduciary relationship or intellectual property right type situation and so an account of profits was not appropriate. The relationship was based on a contractual relationship. Therefore, damages was the appropriate remedy rather than V&P having the right to claim an account of profits.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This case was decided on its own facts. However, it shows the great importance of getting termination notices right. Otherwise, you could lose out on a right to claim damages or other remedies. It is easy to mess up without having professional help.’

The High Court refused to grant the tenant’s claim. HB had an honest belief in the statement based on the commissioner report. The judge added that there was no duty to keep the other person continually updated of changes in circumstances; what mattered was the state of affairs when the contract was concluded. None of the statements were false when made; HB believed them to be true and had reasonable grounds for that belief. There was no lack of reasonable belief from HB to continue to rely on the original report, but even if there was it was not a fraudulent misrepresentation if the belief was held honestly. A duty to correct would only arise if HB knew that previous representations that it had made had since become false or was reckless as to whether they were still true.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This case does not really change the law in a great way. However, hopefully it will settle a few frayed nerves that there may have been following the High Court’s recent decision to grant a claim that a salesperson’s fraudulent misrepresentation had caused EDS to have potential hundreds of millions of pounds of liability to Sky.’

The Supreme Court decided that the parties had acted as if virtually all of the contract was in effect. It ruled that there were just two other possibilities: that there was no contract at all (the Court of Appeal’s position) or that the contract was partially in force (the High Court’s position). The Supreme Court said that the other two possibilities were not credible, so the parties were deemed to have accepted the written contract and waived the requirement for it to have to be entered into in writing.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘As highlighted by the Supreme Court, this is a common scenario – agreeing the terms of the contract and then never getting around to signing it. If you want to avoid the costs of going all the way to the Supreme Court and the uncertainty involved with that (as demonstrated by each of three courts taking the three different possible lines open to them), then it’s best to dot the i’s and cross the t’s.’

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This case impacts on anyone who deals with consumers for long-term contracts. The impact is serious. The OFT has clearly taken the view here that three year terms without the right to cancel are too long. The business in question presumably thought it had a debt owing and sent the matter to debt collectors. However, since the OFT considered the clause to be unfair, its tactics in pressurising the consumers to pay up was deemed to be aggressive. Breach of the 1999 Regulations only mean that a term is unenforceable, whereas breaching the 2008 Regulations would amount to a criminal offence. For now, we don’t know what a court will decide – only that the OFT doesn’t like what AMS has done – so it will be worth watching the outcome from the courts.’

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘It’s rare for courts to rule that frustration occurs, because they like to ensure contracts are honoured where possible. This case doesn’t create new law, but confirms that a mere adverse change in the economic climate is not a ground to claim frustration and get out of a bad bargain. If the parties want to avoid a contract in those circumstances, it’s still open to them to draft an appropriate get-out in the contract itself to cover those circumstances.’

The High Court ruled that the total liability in contract included liability for contractual interest. However, any interest applied by statute was a discrete statutory liability arising from the exercise of the court’s discretion and was therefore not covered by the contractual cap on liability.

The High Court also ruled on other matters that emphasised the need to draft exclusions or limits on liability absolutely clearly beyond doubt. Failure to do so could result in the liability clause being interpreted against the person looking to rely on it.

One clause said: ‘Neither party shall be liable to the other for any indirect or consequential loss (including but not limited to loss of goodwill, loss business[…]) arising out of or in connection with this Agreement.’ Endsleigh argued that the specific types of losses in brackets could apply to direct or indirect losses, but the court rightly disagreed. The phrase ‘including but not limited to’ gave a clear indication that those losses were a type of indirect or consequential loss.

More surprising, perhaps, was the court’s interpretation of the following clause: ‘Endsleigh will not be liable to Markerstudy for any indirect or consequential loss or loss of profit or loss of business arising out of…’ The court ruled that only indirect loss of profit or business was covered by the exclusion. Endsleigh argued that the specified types of loss were free-standing from the phrase ‘any indirect or consequential loss’ and could therefore be direct or indirect loss of profit or loss of business, but the court rejected that argument too.

I would say that some of the court’s findings here are surprising. However, what is not surprising is that if someone wants to exclude or limit its liability, the clause has to be drafted very clearly – more so, perhaps, than many people realise. Failure to do this could result in not having liability limited or excluded in the way intended. Since the liability clause nearly always crop up in the event of a dispute, it is arguably the most important clause in the contract, but the one drafted incorrectly most often.

That was the situation faced by Kolmar in this case. It did agree to pay the extra amount and then sought a recovery of the overpaid sums in restitution. The High Court awarded victory to Kolmar. It was important that Kolmar had clearly agreed to purchase at an agreed price and that it had only agreed to revised price based on illegitimate pressure that left it with no practical choice. The Court decided that it had no real alternative but to agree to the supplier’s demands and get its redress later.

On 26 January 2010, the Technology and Construction Court in London ruled that EDS had “deceitfully induced” Sky into entering into a contract for new Customer Relationship Management technology for use in Sky’s call centres. The contract value was not a small matter either – £54 million is a lot of money by anyone’s standards. Damages payable by EDS are still to be assessed but, based on comments from Sky’s barristers, are likely to exceed £200 million.

Other postings on our website have already showcased, in other contexts, the nature of spiralling court fees due to court rules – and this case demonstrated again that, particularly in technology matters, this is ever more true.  The fees spent by each side far exceeded the value of the contract. The case itself was huge in every sense of the word, being one of the largest cases ever to come to trial in an English court. There were 70 witnesses called and over half a million documents were scrutinised.

In this case, Mr Justice Ramsey found from the evidence that:
(i) the head of the CRM practice at EDS had been dishonest (the key words) in the EDS bid to win Sky’s business;
(ii) EDS had made an actionable misrepresentation to Sky in order to induce Sky into a form of settlement agreement after the project failed;
(iii) EDS was in breach of contract for the whole time it was the systems integrator;
(iv) but for EDS’ deceit (the crucial ‘but for’ test), Sky would have contracted with PwC instead; and
(v) it was untrue that Sky had failed to mitigate its loss after EDS had been removed as systems integrator. (It is a requirement of English contract law that the innocent party to a breach of contract mitigate its loss, else it cannot recover that loss from the breaching party, to the extent of its failure to mitigate.)

So – if this is landmark IT case, why is it also of such great significance to anyone contracting for any type of goods and services? The reason is that any business that has sales-people who are “economical with the actualité ” (in the words of the late Alan Clark) when securing a deal – will be called to account if that deal goes wrong. And most crucially any caps on liability (or exclusions of liability) which were carefully placed into a contract will be ignored. Damages could (and frequently will) be huge – as in this case.

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

The High Court has sided with Sky and the cap on liability in the contract does not apply. Consequently, the losses claimed by Sky could far exceed the contract price, although a separate hearing will take place to ascertain the amount of losses. In itself, this case is a massive result, even though full details of the judgment are yet to be published.

Paul Gershlick, a Partner at Matthew Arnold & Baldwin LLP and editor of www.Upload-IT.com, comments: ‘This is the biggest IT case for many years. As an indication of how big this case has been, the combined legal fees of the parties so far has exceeded the contract price of £50m! Regardless of the hundreds of millions involved, though, this case has massive implications. Liability clauses need to be very carefully drafted to try to limit a party’s liability. For example, many clauses try to limit liability to x% of the contract price. However, no liability clause can exclude or limit liability for fraudulent misrepresentations.

‘Although we have not yet seen the finer points of the judgment and it may also yet be overturned on appeal, this case will send shock waves through the entire IT industry, and indeed any industry where salespeople operate and stretch the truth. If they promise something which is not true and the other party enters into a contract in reliance on those promises, that other party may be able to claim unlimited damages if the thing promised does not materialise. There will be a lot of businesses that should now be concerned about the legal implications created by their sales staff.’

The shareholders agreement gave certain shareholders the right to force one particular shareholder to buy their interest out at the greater of two valuation methods and the ambiguity concerned whether a price reduction mechanism applied to both valuation methods. On the face of the agreement the price reduction method only applied to one of the valuation methods. The price for the departing shareholders’ shares would be £2,673,940 instead of £5,142,195 if the price reduction mechanism applied.

The issues for the Court to consider were whether there was an error or absurdity produced by the ordinary meaning of the language used in the clause and, secondly, if there was, whether it was clear that reasonable people in the position of the parties at the time would have objectively intended, in effect, that the price reduction mechanism applied to both valuation methods.

There was no doubt about the natural meaning of the words chosen and no room for inferring an obvious mistake. There was no obviously wrong date or number. One valuation might appear favourable to the selling shareholders but it did not make the structure arbitrary and irrational, nor were there any obvious defects of omission. Whilst the particular provision appeared generous, the Court could not evaluate the commercial good sense or the economic consequences of the clause in the wider context of the overall merger.

This case reaffirms the position that Courts are unwilling to amend the wording of commercial agreements where there is a complex merger in which both parties are legally advised. Great care must be taken when preparing complicated and detailed provisions in shareholder and joint venture agreements.

Bishops Wholesale Newsagency Limited and others v Surridge Dawson Limited [2009] EWHC 2578 (Ch)

The High Court, however, ruled that Etihad was too late to object and its behaviour following the name change suggested that it had accepted the change. Accordingly, it was deemed to have acquiesced in the change and so lost a right to terminate. Therefore, its attempt to terminate amounted to a wrongful repudiation of the contract and meant that it had acted in breach of contract, rather than the other way round. The court awarded the team US$4.6 million in damages for the breach.

Paul Gershlick, editor of www.Upload-IT.com and a Partner at Matthew Arnold & Baldwin LLP, comments: ‘This case shows the importance of not delaying when exercising rights under a contract. Otherwise, you could end up in breach rather than the other party who committed the initial transgression.’

The High Court ruled that the effective termination date was January 2007, so the agent was in time to make a claim. There was little in the way of initial written contract or clear termination notice. Everything had been dealt with in an informal way. The termination date had been left vague because although the supplier had wanted to bring the sales function in-house, it wanted to leave open the possibility of the agent continuing to act for one more season until the right staff were recruited. The main selling for the Spring/Summer 2007 season had concluded in October 2006, but there was continuing commercial activity beyond that date. In November, the supplier sent an email to the agent about a particular customer’s request for some dresses. In addition, customer queries regarding the Spring/Summer 2007 season were passed to the agent to deal with, up until January 2007. Both of those things showed that the agent had continuing authority to negotiate beyond January 2007. The Court said that although the Regulations defines the agent’s role by reference to a continuing authority to negotiate, an agency contract does not terminate when an agent stops negotiating sales, if the agent is still carrying out agency duties, as here.

Paul Gershlick, editor of www.Upload-IT.com and a Partner at Matthew Arnold & Baldwin LLP, comments: ‘This case highlights the importance of agreeing everything clearly in writing. Even if parties to a contract start off intending only to have good relations, this does not always turn out to be the case further down the line. That’s when the value of a good contract is noticed. There is a further reason for principals to have contracts with their agents: under the Commercial Agents Regulations, they may be worse off if they don’t stipulate in writing that the indemnity alternative applies rather than compensation – agents could be able to claim for more money on termination, and that’s something principals should seek to avoid.’

The Court of Appeal disagreed with the High Court’s analysis. The traditional analysis of offer and acceptance applied unless it was clear that their common intention was for some other terms to apply. The parties had opportunities to agree to a single set of terms and conditions but had never done so. It could not be inferred from the facts that the parties never intended for S’s terms and conditions to apply. Although a long-term relationship and parties’ conduct may displace traditional offer and acceptance analysis, that was not strong enough here.

Paul Gershlick, editor of www.Upload-IT.com and a Partner at Matthew Arnold & Baldwin LLP, comments: ‘This case shows the importance of having clear contracts so everyone knows the terms on which they are dealing. This is especially so if the contract goods or services are complex or worth significant sums of money as they are more likely to end up in dispute. Sometimes people refer in their quotations, order forms and order acknowledgements to their own terms and conditions applying, without ever getting to the bottom of which set of terms really do apply. The parties in this case have ended up incurring significant time and legal expense in going to court – time and money that could have been better used elsewhere. Far better if they would have had clear contracts instead.’

The High Court initially and now the Court of Appeal have ruled that H was entitled to the commission. The test was whether the purchaser had become a purchaser as a result of the introduction by the estate agent. Y had viewed the property four times during the period in which H was the agent and Y had purchased the property as a result of H’s introduction. There was a causal link between the introduction and the ultimate purchase.

Paul Gershlick, editor of www.Upload-IT.com and a Partner at Matthew Arnold & Baldwin LLP, comments: ‘Estate agents will be pleased to see that they have finally had a case decided in their favour, after the Foxtons and Estafnous cases went against them in the last year. Looking at all of these three cases together, it is vital that estate agents get their terms and conditions professionally looked at to make sure that they are fully protected from the situations in those cases, and to avoid them losing their commissions.’

The Office of Fair Trading wanted to bring a test case to see if banks’ current account charges were fair. In particular, it was concerned on behalf of consumer bodies that overdraft charges were excessive. Several banks co-operated and they fought a test case that eventually went to the Supreme Court (previously known as the House of Lords). Rather than fight the entire battle as to the issue of fairness of the actual terms, the initial skirmish looked to resolve whether the overdraft charges were excluded from an assessment of fairness. The issue was whether the charges were part of the price or remuneration and so should not be considered.

The High Court and Court of Appeal ruled that the terms were in plain, intelligible English, but  sided with the OFT on the fairness point. Now, in one of its first judgments since being formed, the Supreme Court has given its landmark judgment that affects millions of people. It has gone the other way and sided totally with the banks on this issue.

The Supreme Court said that the banks were correct in saying that the charges were part of the payment in exchange for a global package of services. The Court of Appeal had no basis for having said that some bits of the goods or services or price were ‘essential’ items and more important than others. Any monetary price or remuneration or goods or services provided would fall within the exemption. Banking services were part of a package of services and the price paid by consumers included the charges for going overdrawn. It is irrelevant that the charges are contingent or not incurred by the majority of customers. Even if some goods or services are ancillary to the overall banking service, if the charges for them are under the same contract then they are all part of the price for the purposes of the exemption.

The Supreme Court added that the OFT was wrong to argue that the admin charges were default charges – consumers were not in breach of contract by going overdrawn, but it was expected that they may go into overdraft from time to time and they would have to pay a charge for using that part of the service. Those charges were an important part of the banks’ revenue streams and were not intended to be seen as consumers defaulting on the contract.

As Lady Hale from the Supreme Court said, consumer law aims to give consumers informed choices rather than to protect them from making choices that may be unwise for them. Paul Gershlick, editor of www.Upload-IT.com and a Partner at Matthew Arnold & Baldwin LLP, says: ‘This is a great result for the banking sector and most banking customers – banks would otherwise have had to charge for their other services in other ways and a different result could have spelt the end of free retail banking. The judgment is also good, because there has been a lot of uncertainty in the business world about charging extra ‘admin’ costs. This ruling shows that as long as the charges are presented in a clear way with the contract terms, if they form part of the same overall contract for the goods or services, their amount cannot be challenged. The aim of the 1999 Regulations is to protect consumers from terms which they may not be aware of in the small print, but consumers should be taken to have given enough attention to what they have bought and what they are paying for that.’

The High Court had ruled that although each of the two provisions were not a problem, the combined effect of the termination of the licence and transfer of shares at market value once the licence had been terminated would be to deprive W’s creditors of the value of the licence. Accordingly, this would breach the ‘anti-deprivation rule’ and not be permitted under insolvency laws.

The Court of Appeal has now reversed that decision. The purpose of the rule was to invalidate contractual provisions which expressly or had the effect of disapplying a provision of the Insolvency Act 1986 – it did not have any wider application. The High Court had been wrong to look behind the wording of the contract and assess the overall commercial effect of the joint venture agreement and licence in combination. There was nothing in either the joint venture agreement or the licence which offended against the 1986 Act. The Act did not stop one party from providing that contracts or licences were terminable upon the other’s insolvency event. Similarly, the Act did not prevent someone from purchasing (for value) the other’s assets if that other became insolvent.