Cancellation vs termination for serious breach
JONES v TATE (CA)
This case discussed the distinction between the right: (1) to have a contract set aside from the outset so that the parties are put back into the position they were in before the contract was made; and (2) to terminate a contract for serious breach, which simply brings the contract to an end in terms of future obligations...more

Right to cancel a contract in practice
ERLSON PRECISION HOLDINGS v HAMPSON
Here the Court decided on the right to cancel (or rescind) a contract from the outset, in which it was demonstrated that this right can apply where a change in circumstances has been dishonestly concealed, which was important in the context of the contract in question. It showed the dangers of deliberately withholding information and how a company can be found liable for its employees’ acts and omissions...more

Duty of good faith in long-term contracts
COMPASS GROUP (T/A MEDIREST) v MID ESSEX HOSPITAL NHS TRUST
This case sheds light on how important a contractual obligation to co-operate in ‘good faith’ can be. A duty of ‘good faith’ is a concept imposed in many continental European jurisdictions but which is poorly defined in English law and has been comparatively rare in commercial contracts...more

Approach to the interpretation of clauses with two possible meanings – common sense prevails
RAINY SKY v KOOKMIN BANK (SC)
The Supreme Court has confirmed that the Court will look to adopt a commercial approach when there are ambiguities in commercial contracts...more

Correcting contracts for mistake
DAVENTRY DISTRICT COUNCIL v DAVENTRY & DISTRICT HOUSING (CA)
The Court of Appeal ordered an outsourcing contract to be corrected where one party took advantage of the other’s failure to appreciate the meaning of one of the terms, even though the meaning from the drafting appears to have been pretty clear...more

What exactly does ‘consent not to be unreasonably withheld’ mean?
PORTON CAPITAL v 3M
This case revealed some interesting comments from the High Court when determining whether a party to a contract has withheld consent reasonably or not...more

A new Common European Sales Law (CESL)
As an update to the report we provided on some draft provisions being proposed to develop a European contract law (see July 2011), the European Commission has now published a draft Regulation proposing an optional Common European Sales Law (CESL), which will create a voluntary ‘28^th’ contract law for the sale of goods and ancillary services...more

February 2012

Event
IACCM/TRG ENGLISH COMMERCIAL CONTRACT LAW SEMINAR
On 2nd February 2012, in conjunction with the IACCM (International Association for Contract and Commercial Management), we organised another English Commercial Contract Law Seminar. Paul Golding spoke on the basics of commercial contract law including a review of recently decided cases and any resulting business implications. Click here for further details.

Event
IACCM - Ask the Expert - Managing Performance and Risk in Key Contracts
On 12th January 2012, Paul Golding led the IACCM's Ask the Expert call on the topic of Managing Performance and Risk in Key Contracts: Service Credits, Indemnities and Liability Limits – are they fit for purpose? This expert call looked at how these mechanisms are often used with a view to apportioning risk and discussed whether they actually serve this purpose in a Q&A format.

Claim under indemnity challenged
RUST CONSULTING v PB

This case demonstrates that just because you have the benefit of an indemnity from a third party, you cannot act without considering the interests of the indemnifying party…more

Not following termination procedure put innocent party in breach
GESNER v BOMBARDIER (CA)

A buyer who terminated for late performance without following the correct contractual termination procedure to the letter was itself found to be in breach…more

Liquidated damages – a penalty or not?
AZIMUT-BENETTI v HEALEY

The test for determining when a liquidated damages provision constitutes a ‘penalty’ and hence when it is unenforceable was considered in this case. The Court adopted a ‘commercial justification test’ and viewed the clause in question as seeking to strike a balance between the commercial interests of the parties…more

Meaning of ‘during this agreement'
INTERACTIVE INVESTOR v CITY INDEX (CA)

The term of a contract needs to be one of the most straight-forward provisions in an agreement. However, this decision shows there can be major problems if the provisions and terminology used regarding the overall duration of an agreement, the termination notice period and any exit assistance period are not thought through properly and drafted clearly and consistently…more

All reasonable endeavours – obligations not limited by commercial interests
JET2.COM v BLACKPOOL AIRPORT

The High Court was asked to consider whether an obligation to use ‘all reasonable endeavours’ required a party to act against its own commercial interests. In this case, the answer was ‘yes’…more

Right of first refusal or simply opportunity to negotiate?
ASTRAZENECA UK v ALBEMARLE INTERNATIONAL (Part 1)

This decision looked at when an exclusion clause applies to a deliberate breach of contract and demonstrates that great care is required when drafting and agreeing a ‘right of first refusal’…more

Application of loss of profit exclusion
ASTRAZENECA UK v ALBEMARLE INTERNATIONAL (Part 2)

In addition to the issues set out in Part 1 of the Albemarle case, the High Court had to consider whether the effect of an exclusion of liability for loss of profit would be to deprive one party of any substantial remedy for its real loss…more

Side letter not legally binding despite need for good faith
BARBUDEV v EUROCOM CABLE MANAGEMENT BULGARIA

Side letters are often signed in commercial transactions, sometimes when circumstances do not permit all the terms agreed to be incorporated into the formal contract. This case has highlighted that care must be taken to ensure that if a side letter is made with the intention to create a legally binding agreement, its terms must be sufficiently certain so that it is not treated as an unenforceable ‘agreement to agree’...more

Gross negligence – an English concept?
CAMARATA PROPERTY v CREDIT SUISSE SECURITIES

The meaning of ‘gross negligence’ was considered and whether it is a recognised concept in English law separate from simple negligence. The distinction is important since some civil law systems, such as in continental Europe, do not allow a party to exclude or limit its liability for gross negligence, whereas in England this is possible...more  

Delay, extensions of time and the prevention principle
ADYARD ABU DHABI v SDS MARINE SERVICES

This was a construction case in which the issue was whether a party could cancel certain shipbuilding contracts and reclaim sums it had already paid where there had been a delay in completing the ships.  Amongst other things, the Court addressed in what circumstances the shipbuilder was entitled to an extension of time where the customer had requested changes to the design, particularly given the fact that there was a contractually agreed mechanism for the shipbuilder to request an extension...more

Outright prohibition on selling via the internet deemed anti-competitive

On 3 March 2011, the Advocate General, legal advisor to the European Court of Justice, delivered an opinion in a case concerning Pierre Fabre, a French company which had absolutely prohibited its selected distributors from making sales over the internet. The case followed the introduction of the revised Vertical Agreements Block Exemption Regulation in 2010 which prohibit such outright bans...more

A European contract law for consumers and businesses

In April 2010 the European Commission set up an Expert Group on European contract law, comprising practitioners, judges and academics from across the European Union, to progress the development of a European contract law ‘toolbox’. The aim was to reduce costs and legal uncertainty in cross border transactions...more

Sale of Goods Act and implied terms not applicable to software supply contract
LONDON BOROUGH OF SOUTHWARK v IBM UK

LBS was unsuccessful in its claim that I had breached a contract to supply third party software because the software was, allegedly, of unsatisfactory quality and/or was unfit for purpose. The decision looks at several specific issues: the construction of an express warranty as to satisfactory quality in the light of other contractual terms, whether the Sale of Goods Act 1979 applied to a software licence and whether the Unfair Contract Terms Act 1977 applied to the exclusion of implied terms...more

Entire agreement clauses under spotlight again
AXA SUN LIFE SERVICES v CAMPBELL MARTIN & OTHERS (CA) Part 1

This dispute related to whether an entire agreement clause was effective to exclude claims for misrepresentation, breach of collateral warranties (effectively ‘side promises’) and/or implied terms and the application of the Unfair Contract Terms Act 1977 to the entire agreement clause. Similar cases have been before the High Court recently but seemingly this was the first time these issues had come before the more authoritative Court of Appeal...more

One-sided set-off and conclusive evidence clauses
AXA SUN LIFE SERVICES v CAMPBELL MARTIN & OTHERS (CA) Part 2

As well as issues relating to entire agreement clauses (see Axa v Campbell Part 1), this case also demonstrated that care is required when drafting unilateral set-off clauses and so called ‘conclusive evidence’ clauses in agreements containing standard terms as both may be subject to the reasonableness test under the Unfair Contract Terms Act 1977...more

Enforceability of unilateral clause to increase fees
AMBERLEY v WEST SUSSEX COUNTY COUNCIL (CA)

This case illustrated that where a party is seeking to rely on a unilateral right to increase its fees, very clear and precise drafting will be required to achieve that. A right to ‘review’ does not amount to a right to unilaterally increase!...more

English and Scottish law to diverge?

The law of contract in Scotland has long been independent from the law in England albeit that the differences are somewhat limited. However, the differences may be about to increase. The Scottish Law Commission has issued a discussion paper as part of its review of the law of contract. This paper focuses on how contracts are interpreted by the Courts and what evidence they take into account. It has been prompted by the developments taking place in the European Union, where proposals are currently being considered regarding various options which might be pursued with the objective of harmonising contract law throughout Europe...more

Refusing to perform may repudiate the contract
DE BEERS v ATOS ORIGIN
Those involved in contracts for IT services will be interested in this case because it deals with some of the key issues relating to the scope and management of IT contracts and termination. It illustrates how a complex software development contract can go wrong and how the supplier was held liable for damages for breach of the agreement by suspending work...more

Losses held not indirect
McCAIN FOODS v ECO-TEC
Many suppliers have a false conception regarding the extent to which they are covered by an exclusion of ’indirect or consequential loss’ which seeks to limit their exposure if there are problems with performing a contract. This decision illustrates some of the pitfalls of such wording, which did not reduce the damages at all because the losses claimed were held to be ‘direct’...more

industry-standard exclusions reasonable under UCTA
RÖHLIG (UK) v ROCK UNIQUE (CA)
Certain standard trading terms excluding various rights have been held reasonable under the Unfair Contract Terms Act 1977 (UCTA) and were therefore enforceable by a supplier...more

When is there a contract?
IMMINGHAM STORAGE v CLEAR (CA)
In this case, it was decided that a contract had been made between the parties when a signed quotation was accepted and that the wording “a formal contract will follow” did not make the agreement subject to contract...more

Contractor ‘benefits’ from mistake in sub-contractor’s tender at its cost
TRADITIONAL STRUCTURES v HW CONSTRUCTION
This case concerned a sub-contractor who made a critical mistake when submitting a tender. In this era of modern technology where bid documents are often copied from previous documents, mistakes can easily be made. When that happens the courts will sometimes have to consider the position of the two contracting parties...more

How long should you wait before terminating?
FORCE INDIA v ETIHAD AIRWAYS (CA)
A contracting party faced with serious breaches by the other side faces a difficult choice. Act prematurely and you risk purporting to terminate when you do not have the right to do so. You then lay yourself open to a claim for breach of contract and damages, not to mention ruining any possibility of a negotiated settlement and potentially allowing the party initially in breach to escape from its ongoing contractual commitments. Act too slowly and you risk having waived your rights even if the contract has the traditional waiver clause (whereby neither party waives the right to exercise its rights under the contract due to delay). This case looked at what a party must do in such circumstances...more

Is copying software functionality an infringement?
SAS INSTITUTE v WORLD PROGRAMMING
In short, the answer is no. Or at least it seems to be under English law. This case revisited the issue of whether producing the same functionality of another’s software by using ‘independently’ developed code would amount to copyright infringement as opposed to recreating that functionality by directly copying the source code of that software without consent...more

Unlimited liability if battle of the forms is lost?
GHSP v AB ELECTRONIC
This is yet another decision on the battle of the forms which highlights once again the dangers of starting work without fully agreeing terms. Here, the supplier failed to ensure the buyer had agreed to its terms and conditions and now faces unlimited liability against claims for its defective products...more

Rectifying mistake possible despite entire agreement clause
SURGICRAFT v PARADIGM BIODEVICES
Generally, contracting parties cannot extricate themselves from a poorly drafted contract because they later have second thoughts. However, the Courts can assist where there is a genuine mistake in the agreement and to give effect to the intentions of the parties...more

Retention of title clauses – how effective is yours?
ISHER FASHIONS UK v JET STAR RETAIL
This case suggested that a retention of title clause (often known as a ‘ROT’ clause) may not be effective if its operation is inconsistent with the overall trading relationship between the parties, such as where it appears in a contract for the supply of finished goods intended for immediate resale...more

Care needed when amending definitions
ERICSSON v HUTCHISON 3G UK
Here is just a brief note on a recent case which emphasises the care required when amending definitions whilst varying a contract...more

What types of damages are considered direct or indirect?
GB GAS HOLDINGS (CENTRICA) v ACCENTURE (CA)
This decision was an appeal against the High Court’s ruling that certain types of losses suffered by C were direct, including ex-gratia payments to customers, and were therefore not excluded by the liability clause set out in the contract. The question for the Court of Appeal was whether the range of direct losses claimed were indirect instead; if so, they would not therefore be recoverable...more

Meaning of ‘all reasonable but commercially prudent’ endeavours
CPC v QATARI REAL ESTATE
The meaning of an ‘endeavours’ obligation in this case was examined as it involved a very untypical phrase obliging a party to use “all reasonable but commercially prudent” endeavours. It provided the Court with an opportunity to review and summarise the conclusions from other recent cases on this topic...more

Economic climate excuse for contractual breach or termination?
GOLD GROUP v BDW and TANDRIN v AERO TOY STORE
Perhaps not surprisingly, the Courts have seen a number of cases in which contracting parties have sought to invoke the current economic difficulties as constituting force majeure and therefore excusing contractual breaches or even ‘frustrating’ a contract...more

Self-help remedy of ‘set-off’ clarified
GELDOF METAALCONSTRUCTIE v CARVES (CA)
There has always been some doubt as to the extent to which claims under different contracts can be offset against one another. The Court of Appeal has sought to clarify the issue and has potentially extended the scope of the self-help remedy of equitable set-off...more

Do not rely on terms being implied
DURHAM TEES VALLEY AIRPORT v BMI (CA)
This case emphasises the need for drafting to be explicit if a particular commitment is important rather than simply relying upon terms to be implied. Courts will not impose an obligation on a contracting party to ‘act reasonably’ when performing a contract...more

Take care when terminating for non-payment
DOMINION v DEBENHAMS
Following the Shell case, it is clear that taking care when purporting to terminate for breach is very important. This was a case involving termination for non-payment and again underlines the risk of being too hasty...more

Incorporation of contract terms
ROONEY v CSE BOURNEMOUTH (CA)
An aircraft maintenance company appealed against a decision that its standard conditions of trading were not incorporated into a work order form...more

How far does the duty to mitigate go?
LOMBARD NORTH CENTRAL v AUTOMOBILE WORLD (CA)
An innocent party is generally under an obligation to take action to mitigate its loss in circumstances where the other contracting party is in breach of contract. This case provides some guidance on the extent of that duty...more

Supplier's liability clause held unreasonable
KINGSWAY HALL HOTEL v RED SKY IT
A software supplier was held not to be able to rely on its limitation of liability clause and other clauses of its contract because of the way in which it had sold its products. Given that what the supplier did is not untypical, this decision may be very significant...more

How not to terminate a contract
SHELL EGYPT WEST v DANA OIL EGYPT
This decision highlighted the importance of selecting and making clear in communications the right termination option when seeking to end a contract and provides a useful reminder of the choices to be made when thinking about terminating...more

Replacing a sub-contractor in public contracts
WALL v CITY OF FRANKFURT
The European Court of Justice held that a change of sub-contractor (even if there is contractual provision for such a change) may, in exceptional cases, amount to a material amendment to the contract where the use of a particular sub-contractor was a critical factor in awarding the contract. In those circumstances, all necessary measures must be taken to restore the transparency of the procedure (possibly by way of a new award procedure)...more

How to determine standard terms of business under UCTA
YUANDA (UK) CO v WW GEAR CONSTRUCTION
The Yuanda judgment set out some useful guidance on the Unfair Contract Terms Act 1977 (UCTA) and when the parties are to be regarded as having contracted on one party's standard written terms of business...more

Need to revisit exclusion clauses
MARKERSTUDY v ENDSLEIGH
Liability clauses and the exclusions they contain are usually the most contentious terms in any commercial contract yet the parties are often still uncertain as to where liability will actually fall if there is a breach. This decision emphasises once again the need to be careful how exclusions are set out and to be crystal clear about which direct and indirect losses are excluded. But you thought your contract did that...more

Contract or no contract?
RTS FLEXIBLE SYSTEMS v MÜLLER (SC)
Anyone negotiating commercial contracts will recognise the scenario where, because of the urgent need to get on with the project, work is allowed to start without there being a fully concluded agreement on all of the terms of the contract. In the absence of a signed agreement in this case, a contract was initially found to exist, then on appeal the court said there was no contract and now the Supreme Court has held a contract was indeed in place after all...more

Contractual indemnity and duty to mitigate
CODEMASTERS v AUTOMOBILE CLUB DE L’OUEST
The Court was asked to interpret an indemnity in a licence agreement between a computer-game publisher and the organisers of the Le Mans race. Indemnities are worded in a variety of ways. They can range from wide-open coverage eg "all costs, losses, damages, expenses..." to more specific reference to the key areas of risk or to specific third party claims. Unless the contract provides otherwise, an indemnified party need not mitigate its loss...more

Rewriting the rules on remoteness?
SYLVIA SHIPPING CO v PROGRESS BULK CARRIERS
This case looks at the potentially differing rules on assessing remoteness of damages that can be claimed for breach of contract. An appeal from an arbitration award was dismissed and damages associated with the delay in readiness of a vessel, which resulted in the cancellation of a sub-charter, were held to be foreseeable and hence could be claimed...more

IT supplier found liable for fraud
BSKYB v EDS
The much awaited judgment in this high profile case has finally been delivered in favour of B with a possible award of at least £200m in damages. The High Court found an individual employee of E (now part of HP) had made a fraudulent misrepresentation.......more

Damages based on breaching party’s gain
PELL FRISCHMANN ENGINEERING v BOW VALLEY (PC)
This case was an appeal to the Privy Council (PC) from the Jersey Court of Appeal so it carries a significant degree of authority. It concerned the level of damages which might be awarded in exceptional cases where little or no direct financial loss has been suffered....more

Letters of intent
WHITTLE MOVERS v HOLLYWOOD EXPRESS (CA)
Traditionally Courts bend over backwards to find a contract exists where the parties had begun performance whilst negotiations continued. However, in recent years the Court of Appeal has indicated a firm departure from that approach and this is once again reflected in this case...more

December 2009

Meaning of ‘all reasonable endeavours’
CEP v STENI AS
Many agreements require a party to carry out certain obligations whose performance is satisfied by using ‘best endeavours’ or ‘reasonable endeavours’. In this case the term ‘all reasonable endeavours’ was referred to, which is not quite so common and is generally treated as meaning less than ‘best’ but more than ‘reasonable’...more

December 2009

Subject to contract’ may not always be effective
JIREHOUSE v BELLER
The significance of the words ‘subject to contract’, which are frequently used in correspondence and often stamped on drafts as a matter of course pending an agreed contract, was the main issue in this judgment. The words are meant to indicate the parties do not intend to be legally bound until an agreement is finally concluded, at which point these words are removed...more

December 2009

Application of English law to a US form contract
SEADRILL v GAZPROM
The High Court ruled that, despite a contract being derived from documentation originating from the US and using US terminology, the contract must be construed in accordance with English principles of contract law construction where the governing law of the contract is stated to be English law...more

November 2009

Broad liability exclusions and the dangers of terminating wrongly
LOBSTER PRESS v HEIDELBERG
This case highlighted several points of potential interest concerning the enforceability of contractual exclusions from, and limitations, upon liability. In particular, the decision featured warranty obligations limited to ‘repair or replacement’ and illustrated the danger of limitation and exclusion clauses that for different reasons could leave the other contracting party with little or no remedy...more

Exclusion of set-off rights
KAUPTHING v MILL and PETROPLUS v SHELL
The High Court confirmed that parties can exclude all rights of set-off. ‘Set-off’ arises where a debtor has a form of counterclaim against a creditor, which is used to reduce or extinguish the creditor's claim...more

Termination rights and refunding sums paid
GDYNIA v GEARBULK (CA)
The right to terminate a contract for breach is often one of the most valuable protections for any contracting party. It is therefore extremely important to be clear about the rights of termination - whether you are seeking to terminate or being faced with the threat of termination. Equally as key is understanding the consequences of termination...more

When do changes to public contracts bring about new contract awards?
PRESSETEXT
A difficult question for public authorities is whether a contract initially tendered under the Public Contracts Regulations 2006 needs to be re-advertised where there are post-contract amendments reflecting changes in circumstances...more

September 2009

Negotiations and drafts inadmissible as evidence?
CHARTBROOK v PERSIMMON HOMES (HL)
This House of Lords case has provided an important reminder of the need to ensure clear drafting of commercial contracts and of the primacy of the words used in the written contract. The so called ‘exclusionary rule’ that pre-contractual negotiations and drafts are inadmissible when interpreting a contract was confirmed...more

September 2009

Not notifying change of key personnel amounts to misrepresentation
FITZROY v ANGLO SWISS
The Technology and Construction Court held that failing to inform a customer of the forthcoming departure of a key team member amounted to fraudulent misrepresentation. It was also a possible breach of the duty to cooperate, which is implied into many, if not all, professional services contracts...more

September 2009

Drafting definitions and recitals requires care
OXONICA ENERGY v NEUFTEC (CA)
This decision concerned the interpretation of the definitions clause in a patent licence was at issue. The case has interesting implications for the drafting of commercial agreements and for the interpretation of the vast majority of existing commercial contracts...more

September 2009

Implied condition of satisfactory quality
BOMINFLOT v PETROPLUS
In relation to international sales contracts, the High Court clarified when the ‘term’ that goods will be of satisfactory quality implied by the Sale of Goods Act 1979 (SAGA) will apply in a free on board (FOB) contract and what that term means...more

July 2009

Excluding iability for deliberate breaches
INTERNET BROADCASTING CORPORATION (t/a NetTV) v MAR LLC
In this case, it was held that there is a presumption that a clause excluding liability for loss of profit should not cover liability arising from a deliberate decision to breach a contract (in this case a purported termination of a contract mid way through its term without cause) unless there was very clear and specific wording to show this was the parties’ intention....more