Contract law update

In Barclays Bank plc v UniCredit Bank AG and another [2012] EWHC 3655 (Comm), the High Court had to ask whether consent to terminate certain finance transactions had been refused in a "commercially reasonable manner". The court imposed an objective standard of reasonableness; would a reasonable commercial man have reached the same decision? It is unusual to question reasonableness of consent in the context of finance transactions. The matter will be appealed in 2014.

In Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd (trading as Medirest) [2013] EWCA Civ 200 the Court of Appeal asked whether a discretion to self-award payment deductions on breach was subject to an implied term that such awards would not be exercised in an arbitrary, capricious or irrational manner. The court found no such term. Only an explicit statement of such would have improved the claimant's case.

Guarantors' liability

Two major cases in 2013 considered the liability of guarantees or sureties. In Aviva Insurance Ltd v Hackney Empire Ltd [2012] EWCA Civ 1716, the Court of Appeal found that loans made to a contractor by a principal keen to ensure that the job was completed did not affect the guarantor's obligations because they were not payments pursuant to the contract which had been guaranteed.

In Close Brothers Ltd v Ridsdale and others [2012] EWHC 3090 (QB), the High Court considered the effect of variations to a loan agreement. If they constituted a new agreement the guarantors would not be liable. The court confirmed that it had to look at the substance of the variations - were they amendments of the original obligation? Were they a new agreement? In this instance, the guarantor remained liable but an express clause would have avoided the litigation.

Determining penalties

Remarkably in Cavendish Square Holdings BV and another v El Makdessi [2012] EWHC 3582, the High Court upheld a restrictive covenant for a minimum of eight and a half years. The court decided that there was, on the facts, no penalty or restraint of trade. Crucially there was commercial justification, the restraint was not extravagant or oppressive, the prime purpose was not to deter breach and negotiations were on a level playing field.

Do note though that the High Court held that contractual compensation in return for early termination of a fixed term contract is not a penalty (Henning Berg v Blackburn Rovers Football Club and another [2013] EWHC 1070).

Transparent drafting

In Transport for Greater Manchester v Thales Transport & Security Ltd [2012] EWHC 3717 (TCC) the High Court needed to consider what information and documents must be disclosed and which may be withhold under an "audit clause" - a right of access to information held in relation to the contract. The agreement in question provided a right to inspect all "accurate, up-to-date and complete records relating to the performance of obligations under this agreement" and "such other information, records or documents" reasonably requested. A dispute arose as to what this meant. Clearly, draftsmen should expressly identify information which should and need not be disclosed, especially if a party wishes to be able to withhold particularly sensitive information.

In Belfairs Management Limited v Sutherland and Anor [2013] EWCA Civ 185, the Court of Appeal had to construe whether a warranty in a share purchase agreement that the target company was not a party to any "agreement, arrangement or commitment" which could not be readily performed, referred only to concluded agreements or to all agreements included proposed agreements in negotiation at the time of the warranty. The court found that the warranty should be interpreted on an objective basis and therefore it preferred the wider interpretation. In doing so it rejected the trial judge's assertion that a warranty could require a subjective assessment even where the warranty was not expressly qualified by the warrantors' knowledge or belief.

Exclusion clauses

In Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013] EWCA Civ 38, the Court of Appeal limited the meaning of a clause excluding all liability for loss of profits so that it did not, in the circumstances, apply where the customer had refused to perform the contract.

By contrast, in Elvanite Full Circle Ltd v AMEC Earth & Environmental (UK) Ltd [2013] EWHC 1191, an exclusion clause and a cap on liability were held reasonable under UCTA as well as clauses exclusions of claims brought later than one year after the event and indirect losses.

Corporate veil

In a landmark decision in the Supreme Court, it was held that a court may pierce the corporate veil when a person seeks to avoid an obligation or liability deliberately by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage of such a veil (Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34, 12 June 2013, Lords Neuberger, Walker, Lady Hale, Lords Mance, Clarke, Wilson and Sumption).

Contracts in good faith

In Yam Seng PTE Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB), a distribution agreement was found to have implied terms not to undercut duty free prices and not to give knowingly false information. The judge concluded that the courts routinely imply certain obligations, including to act honestly, to cooperate and not to exercise a contractual discretion arbitrarily, which are in fact aspects of good faith. He also highlighted that this was easier if the agreement was skeletal and not professionally drafted, and also if there were common industry assumptions.

By contrast in TSG Building Services plc v South Anglia Housing Ltd [2013] EWHC 1151 (TCC), the court found that an express good faith clause did not extend to acting reasonably when terminating the contract. However, it could not imply a duty of good faith.

"Subject to contract"

In Newbury v Sun Microsystems [2013] EWHC 2180 (QB) acceptance by an employee of a letter from an employer to an employee containing a settlement sum amounted to a binding settlement agreement. In the absence of the words "subject to contract" (or similar) the unintended offer was capable of acceptance. The words "without prejudice save as to costs" did not prevent such acceptance.

Additional legislation

In Overy v Paypal (Europe) Ltd [2012] EWHC 2659 (QB), the court had to consider the definition of "consumer" under the Unfair Terms in Consumer Contracts Regulations 1999, and whether they or UCTA 1977 rendered certain standard contractual terms unfair or unreasonable.

In fact, as the buyer had a business purpose which was not negligible or insignificant he could not be construed as a consumer. The court also stated, obiter, that a buyer who had given a seller the impression that he was acting for business purposes was not entitled to consumer protection.

Covering all terms

The Court of Appeal was asked to enforce a supply agreement in circumstances where parts of the contract have not yet been agreed (MRI Trading AG v Erdenet Mining Corporation LLC [2013] EWCA Civ 156). Unusually, the court ignored the often fatal formulation "shall be agreed", because there was clear intention that the contract should be enforceable and there had been part performance by the parties. The court read the missing terms as obligations to do what would be reasonable and, helpful to this interpretation, an arbitration clause provided a mechanism for determining what was reasonable, if this could not be agreed.

The Court of Appeal, in Dorchester Project Management Ltd v BNP Paribas Real Estate Advisory & Property Management UK Ltd [2013] EWCA Civ 176, needed to interpret a confidentiality deed which provided that the recipient of confidential information could disclose the information to third parties if they were bound by back-to-back obligations of non-disclosure.  Since the agreement was badly drafted, the court was entitled to take a less literal and more purposive approach when interpreting it. 

Sovereign immunity

In Apex Global Management Ltd v Fi Call Ltd and others [2013] EWHC 587 (Ch), two adult Saudi Arabian princes claimed immunity from suit under the State Immunity Act 1978 and the Diplomatic Privileges Act 1964 on the basis that they are part of the sovereign's household. In this case, immunity was restricted to the case of "a regent, heir to the throne or a person broadly exercising the sovereign's or head of state's functions in a full time capacity on his behalf". The court held further that the above statutes must be construed as excluding immunity relation to professional or commercial activities which are outside official functions. On appeal, that point was relaxed so that sovereign immunity may extend to commercial activities outside UK (Al Saud and another v Apex Global Management Ltd [2013] EWCA Civ 642).

Correct signatures

In Hamid v Francis Bradshaw Partnership [2013] EWCA Civ 470, an individual signed and became party to a contract personally, even though he had signed the letter above and below the trading name of a limited company.  There was nothing to indicate that the name was the trading name of the company, rather than the trading name of the individual.

In Derek Hodd Ltd v Climate Change Capital Ltd [2013] EWHC 1665, the Court corrected a mistake as to the name of a party.  The party was identified as Climate Change Group Limited - a dormant company – but the court agreed that the contract must necessarily have been with Climate Change Capital Limited, the main operating company.

 

The lessons are endless; our capacity for error and dispute will keep the courts busy year and year.