Travis Perkins: Commercial Focus – Autumn 2021

Cases

• Liquidated damages after termination
  Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29

• Liquidated damages on part-completion
  Eco World – Ballymore Embassy Gardens Co Ltd v Dobler UK Ltd [2021] EWHC 2207

• “Hard-nosed” commercial negotiation is not duress
  Pakistan International Airline Corporation v Times Travel Ltd [2021] UKSC 40

• Restraint of trade can be reasonable for non-contractual legitimate interests
  Harcus Sinclair LLP and another v Your Lawyers Ltd [2021] UKSC 32

• Contract negotiations can be subject to contract without express label
  Jamp Pharma Corporation v Unichem Laboratories Limited [2021] EWHC 1712

• 400% increase in interest rate was a penalty
  Ahuja Investments Ltd v Victorygame Ltd and another [2021] EWHC 2382

• Onerous terms not incorporated where “buried” in standard terms
  Blu-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619 (Comm)

Legislation

• UK government consultation on major proposed reform to competition and consumer policy
• International data transfers: The UK’s new International Data Transfer Agreement

News

• UK Government consultation on data protection reforms
• Modern slavery: EU guidance on due diligence and UK Parliament publishes first statement
• CMA guidance for businesses making environmental claims

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Recent Case Law

Liquidated damages after termination

Triple Point Technology, Inc v PTT Public Company Ltd [2021] UKSC 29

July saw the publication of the long-awaited judgment in the liquidated damages case Triple Point Technology v PTT, heard in the Supreme Court in November 2020. This case concerns what happens to liquidated damages in the circumstances where a contract is terminated with the works unfinished, so that they are never completed. The Court of Appeal decision back in 2019 had said that liquidated damages only applied in respect of works that had actually been completed, and that the customer was only entitled to general damages for delay in respect of any uncompleted works.

The Supreme Court overturned the finding of the Court of Appeal, ruling that liquidated damages applied up to termination of the contract regardless of whether works remained uncompleted at that point. The Court took the view that this interpretation was consistent with commercial reality and the accepted purpose of liquidated damages clauses, that being to provide a predictable and certain remedy for a given event. The Supreme Court also confirmed the position that liquidated damages only accrue up to termination, and that the customer’s remedy beyond termination is to claim general damages for breach.

Comment: The Supreme Court’s decision very much reaffirms the conventional approach to liquidated damages, and the clarity provided will be welcome for those dealing with such provisions. However, this case, as well as the Eco World case considered below, highlights the need to consider carefully all the possible outcomes when drafting a contractual provision.

For further information, please contact Lindsey Clegg.

 

Liquidated damages on part-completion

Eco World – Ballymore Embassy Gardens Co Ltd v Dobler UK Ltd [2021] EWHC 2207

Following Triple Point, there has already been another judgment on liquidated damages, this time looking at whether a clause was void as a penalty because it did not deal with the possibility of only part of the works being completed on time. This case related to the design, supply and installation of façade and glazing on residential apartment buildings. Two of the three buildings were taken over by the customer six months before practical completion, but the liquidated damages clause did not provide any reduction for part-completion. The customer claimed this made them void as a penalty.

The court did not agree, and it is of particular interest that yet again the judgment highlights the fact that the liquidated damages clause was negotiated by both the parties, and that each party had the benefit of external advice. The courts seem very reluctant to interfere with these types of provisions when negotiated by commercial parties. In addition, the court considered the broader test for penalties, as set out in the Makdessi and Parking Eye cases. It found that there was a legitimate interest in enforcing the obligation to complete the works as a whole, since there were follow-on trade contractors involved in other works, and there would be disruption to the project as a whole. In addition, it found that the level of damages (£25k per week) would not have been unreasonable or disproportionate to the likely losses for late completion of any one of the blocks concerned.

Comment: This does highlight a potential issue in contracts where works can be divided up into sub-sections, and it is worth considering in such situations whether the works should be described in the contract as separate deliverables, with separate delivery dates etc., or whether the works are all reliant on each other and should be considered as a whole for the purposes of liquidated damages. 

For further information, please contact Lindsey Clegg.

 

“Hard-nosed” commercial negotiation is not duress

Pakistan International Airline Corporation v Times Travel Ltd [2021] UKSC 40

A recent Supreme Court case looked at the scope of the economic duress doctrine, in the context of one contractual party pressuring the other to waive claims for non-payment of a contract, by use of the threat not to continue that contract on its expiry. Even though the decision not to continue the contract would have had a major impact on the other party and likely put them out of business, this did not constitute lawful act duress, but was merely “hard-nosed commercial negotiation”. The court noted that, given that English law does not contain a general principle of good faith or of inequality of bargaining power, pressure applied by one negotiating party to another would rarely amount to the illegitimate pressure required to meet the definition of lawful act duress.

Comment: This case is reassuring for those who are involved in regular contract negotiations, as it indicates that the usual negotiating levers that businesses employ are likely to be acceptable, although it is a useful reminder that there is a limit beyond which the doctrine of duress will apply.

For further information, please contact Louise Wilson.

 

Restraint of trade can be reasonable for non-contractual legitimate interests

Harcus Sinclair LLP and another v Your Lawyers Ltd [2021] UKSC 32

A restraint of trade is valid only where it seeks to protect a valid interest and does not go beyond what is reasonably necessary to protect that interest. A recent Supreme Court case looked at a non-compete undertaking contained in a non-disclosure agreement, and whether it could be justified on the basis that it protected interests beyond the confidentiality of the information being disclosed. In this case the relevant interest was the ability of a law firm to act for other claimants in a group action. The Supreme Court found (in contrast to the earlier Court of Appeal decision) that it was legitimate to take into account those interests beyond the subject matter of the immediate contract that were within the party’s intent at the date of the contract, and that the non-compete was not, therefore, an unlawful restraint of trade.

Comment: It is a challenge, when dealing with restraint of trade provisions such as non-compete undertakings, to determine how broad a restraint can be whilst still being valid. A key element of this is the legitimate interest being protected, and so it is useful to see judicial consideration of the scope of interest that can be taken into account.

For further information, please contact Josh Middleton.

 

Contract negotiations can be subject to contract without express label

Jamp Pharma Corporation v Unichem Laboratories Limited [2021] EWHC 1712

It is a recurring theme in commercial contracts law that the label used in a contractual document is not decisive as to how a cIause is interpreted. See, for example, clauses which can be a penalty despite not being labelled as such (Unaoil Ltd v Leighton Offshore [2014]), and clauses which are not a penalty even when they are so labelled (Triple Point v PTT [2019]).  A recent High Court case looked at the status of an addendum to an agreement, where that addendum had not been signed, but had not been expressed as being “subject to contract”. The court held in this case that the parties had demonstrated their intention not to enter into a binding agreement until the addendum had been signed.

Comment: The question in such cases turns on the fundamental principle of intention to contract, and the “subject to contract” qualifier typically indicates the absence of that intention.  In this case the absence of intention was evidenced, not by an express qualifier, but by the fact that the parties had specifically said that they would not proceed until the addendum had been signed.

For further information, please contact Rebecca Howlett.

 

400% increase in interest rate was a penalty

Ahuja Investments Ltd v Victorygame Ltd and another [2021] EWHC 2382

Although this case is about a loan agreement, the decision turns on the usual test for penalties as set out in Makdessi and Parking Eye; that is, is a legitimate interest being protected, and is the clause exorbitant, extravagant or unconscionable? This will therefore be of interest more broadly as an illustration of the application of that test. In this instance, the interest rate under a loan agreement was increased from 3% per month to 12% per month if the borrower defaulted on the loan. The court’s view was that this was so obviously extravagant, exorbitant and oppressive, that it could take that decision even though the borrower had not provided evidence of market rates.

Comment: It is helpful to see a firm indication of what might constitute a penalty in a given situation, particularly since many cases on penalties end in a judgment that the provision in question was not a penalty, as the courts are reluctant to interfere with a negotiated agreement between two commercial parties. Interestingly the judge here commented that he would have been willing to accept a default interest rate of double the pre-default rate on the basis that a defaulting borrower constitutes a greater credit risk, but would require justification for any level higher than that. 

For further information, please contact Louise Wilson.

 

Onerous terms not incorporated where “buried” in standard terms

Blu-Sky Solutions Ltd v Be Caring Ltd [2021] EWHC 2619 (Comm)

A recent High Court case covers a couple of useful points in relation to the incorporation of terms, particularly where onerous terms are included in standard terms and conditions. The case in question looks at a provision for early cancellation fees included in a supplier’s standard terms. The customer had electronically signed a purchase order which referenced the T&Cs on the supplier’s website, but the customer had not accessed or read those terms.

The court held that the T&Cs were incorporated into the contract, as they were accessible if the customer had sought to access them, but that the early cancellation fees clause was onerous, and the supplier had failed to draw sufficient attention to it. The judge described the T&Cs as “not in any way user-friendly” and the clause in question as “cunningly concealed in the middle of a dense thicket”, and therefore held that the onerous clause itself was not incorporated.

Comment: This is a useful reminder not only that onerous clauses in standard terms must be signposted, but that the courts are often unsympathetic where terms are drafted in an overly complex or legalistic way, even in B2B contracts.

For further information, please contact Josh Middleton.

 

Legislation

Consumer protection reform in the pipeline

In July 2021 the Department for Business, Energy and Industrial Strategy published a consultation on reforming competition and consumer policy. The consumer aspect of the consultation has two primary focuses. Firstly, it seeks to increase the protection of consumers online, with the headline aspects being around subscription contracts (including opt-in for auto-renewal and providing simple cancellation mechanisms), online exploitation of consumer behaviour and strengthening pre-payment protection. Secondly, the consultation considers greater enforcement powers as well as fines for breaches of consumer protection law, and improving and extending the use of ADR (alternative dispute resolution mechanisms such as mediation) in consumer disputes.

Comment: Although this is still very much at the discussion stage, businesses will need to have an eye for how the proposed changes will affect their business in the future. In particular, the aspects around pre-payment protection may have a possible impact on the ability for online retailers to specify that contracts are not formed until dispatch of goods (commonly used to handle mismatches between online stock levels and reality in the warehouse). 

For further information, please contact Rebecca Howlett.

 

International data transfers: the UK’s new International Data Transfer Agreement

Following the ICO’s announcement earlier in the year that it would be producing its own equivalent of the standard contractual clauses, the model International Data Transfer Agreement (IDTA) was published in draft form in August as part of a new ICO consultation International transfers under UK GDPR.  The consultation also covers a number of questions including on the interpretation of the territorial scope of GDPR when dealing with international transfers, and seeks views on the draft IDTA as well as a proposed risk assessment tool for use in assessing international transfers.

Comment: Our review suggests that the IDTA has been designed to be user-friendly, with a tabular approach suited for the non-lawyer, and is intended to cover a number of scenarios including cross-referencing linked agreements (such as a services agreement) and multi-party arrangements.  The design is to be welcomed, and we await the outcome of the consultation which closed in October.

For further information, please contact Luke Dixon.

 

News

UK Government consultation on data protection reforms

The UK Government kicked-off a consultation on 9 September 2021 on further reforms to the UK data protection regime. The DCMS intends this consultation to be a first step towards delivering a pro-growth and trusted data regime, post-Brexit.

The proposed reforms cover several areas, including:

• reducing barriers to responsible innovation in sectors such as AI/machine learning;
• reducing barriers on businesses and delivering better outcomes for people, such as new thresholds for data subject access requests and liberalising the regulation of cookies;
• boosting trade and reducing barriers to data flows, including new international data partnerships with certain third territories, permitting the repetitive use of derogations for data transfers and an exemption for “reverse transfers” between the UK and origin territory of that data; and
• reform of the UK ICO, to include new objectives and a clearer strategic vision for the regulator; improving accountability mechanisms, and refocusing its commitments away from handling a high volume of low-level complaints and towards addressing the most serious threats to public trust and inappropriate barriers to responsible data use.

The DCMS has also named John Edwards as its preferred candidate to be the UK’s new Information Commissioner. Mr Edwards is currently New Zealand’s Privacy Commissioner. The DCMS stated that Mr Edwards will have a clear mandate to take a balanced approach to promote further innovation and economic growth on the one hand, and to protect data rights on the other.

Comment: The new mandate set out by the DCMS represents a shift in emphasis from the UK ICO’s traditional role, which was primarily to uphold data rights. Together with the proposed reforms, there is a clear intent on the part of the Government to ensure data protection regulation facilitates business as well as addressing the more serious failures in compliance.

For further information, please contact Luke Dixon.

 

Modern slavery: EU guidance on due diligence and UK Parliament publishes first statement

In July 2021 the European Commission published guidance on due diligence for businesses to address the risk of forced labour in their operations and supply chains.  It covers considerations such as what policies should cover, what risk factors may arise in a supply chain, and considerations when carrying out in-depth risk assessments and addressing any risks identified.

Meanwhile, closer to home, the UK Parliament has published its first modern slavery statement, setting out how it is addressing slavery and human trafficking within its supply chains.

Comment: Whilst the European document does not apply to the UK itself, it does provide useful reference material as to what modern slavery due diligence may look like in a responsible business.  Likewise, any modern slavery statements published by the UK Government provide a useful indicator of its view on what a modern slavery statement should look like, particularly given the likelihood of stricter legislation being introduced at some point in the relatively near future.

For further information, please contact Rebecca Howlett.

 

CMA guidance for businesses making environmental claims

Following the consultation held earlier in the year relating to misleading claims made about the environmental impact of products (so-called “greenwashing”), the Competitions and Markets Authority has now published a new Green Claims Code, together with supporting guidance. The Code applies to claims by businesses whether they are made to consumers or to other businesses.  It sets out six key principles. Some of these reflect similar requirements for advertising more generally, such as the requirement for claims to be truthful and accurate, clear and unambiguous, not omit or hide important information, only make fair and meaningful comparisons and be capable of being substantiated with robust, credible and up-to-date evidence. However, more specific to the environmental arena, the Code includes the requirement for claims to consider the full life cycle of a product, rather than focussing on one aspect which could by itself be misleading.

Comment: Although responsible businesses are likely already meeting these requirements in the main, any organisation making environmental claims about its products should review the claims made to ensure they are compliant with the new Code. This is particularly important as the CMA has also announced that it will be carrying out a full compliance review of misleading green claims and will be bringing enforcement against businesses making misleading claims.

For further information, please contact Joanna Kawalec.

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If you would like to ask any questions regarding anything covered in this update, please do not hesitate to contact Rebecca Howlett or Jessica Brickley.

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.