Travis Perkins: Commercial Focus

Case Law

• High Court orders defendants to pay claimant’s costs due to the defendant’s unreasonable conduct of their disclosure exercise
  Cabo Concepts Ltd v MGA Entertainment (UK) Ltd and another [2022] EWHC 2024 (Pat)
• Test for mistake reconfirmed by High Court
  John Lobb S.A.S v John Lobb Ltd [2022] EWHC 2306 (Ch)
• Post-termination restrictions invalid as no legitimate interest to protect (Court of Appeal)
  Credico Marketing Ltd & Anor v Lambert & Anor [2022] EWCA Civ 864
• Court considered whether an order for indemnity costs was justified, in light of the defendants’ refusal to mediate
  Richards and another v Speechly Bircham LLP and another [2022] EWHC 1512 (Comm)
• The High Court considered the meaning of a payment clause
  BlackLion Law LLP v Amira Nature Foods Ltd [2022] EWHC 1500 (Ch)
• The High Court considered whether Heads of Terms represented a binding contract in terms of the potential lease
  Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd [2022] EWHC 1467 (Ch)
• High Court rules that a contract requirement for termination by written notice did not prevent informal novation
  Gama Aviation (UK) Ltd v MWWMMWM Ltd [2022] 4 WLUK 364
• Technology and Construction Court dismisses application for early specific disclosure after the Claim Form had been issued, but before it was served
  Balfour Beatty Regional Construction Ltd v Broadway Malyan Ltd [2022] EWHC 2022 (TCC

Legislation

Our latest updates in relation to the impacts on businesses as a result of Brexit, the Coronavirus pandemic and the Russian invasion of Ukraine, can be found in the Freethinking Hub on the Freeths website, in the Brexit Exchange, the Coronavirus Exchange and the Ukrainian Crisis Exchange. This review does not replicate the wealth of guidance on our website in respect of those issues.

• The Government has published its response to a consultation on the proposed Data Reform Bill

News

• Government publishes list of retained EU law on new dashboard
• Building owners reminded of duties under new Building Safety Act 2022
• Ministry of Justice consult on increasing the use of mediation in the civil justice system

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Case Law

High Court orders defendants to pay claimant’s costs due to the defendant’s unreasonable conduct of their disclosure exercise

Cabo Concepts Ltd v MGA Entertainment (UK) Ltd and another [2022] EWHC 2024 (Pat)

The Court ordered the defendants to pay the claimant’s costs on an indemnity basis due to the defendant’s unreasonable conduct of their disclosure exercise, which resulted in the adjournment of a four-week trial. The defendants were ordered to pay £578,444.17 on account of the claimant’s costs thrown away due to the adjournment.

Issues

Three weeks before the trial was due to start, it came to light that the defendant had missed some 84,000 documents during their data collection process whilst undertaking their disclosure exercise.

The main reasons for the defendant missing these documents (and the arguments relied upon by the claimant in order to justify an order for indemnity costs) were:

• Inadequate supervision of the e-disclosure process by the defendant’s solicitors and the defendant’s solicitors’ in-house document review provider (failure to follow e-disclosure guidance);
• Technical failures (use of Microsoft Outlook was not suited to the disclosure process); and
• Defective re-harvesting process after the deficiencies in the defendant’s disclosure process came to light, and the defendant’s subsequent conduct (lack of any proper audit trail).

The Judge made orders on consequential matters arising from the adjournment. The judgment addressed whether or not the defendant’s conduct of its disclosure exercise justified an order for indemnity costs in favour of the claimant. It also addressed whether the defendant should be required to pay costs on account of the claimant’s costs thrown away as a result of the adjournment.

Under CPR 44.3(1)(b), the Court has jurisdiction to award costs on an indemnity basis. This differs from standard costs in that indemnity costs are not subject to the requirements of proportionality, and any doubt as to whether costs were reasonably incurred is resolved in favour of the receiving party.

Decision

The Judge made an order for indemnity costs. Taking into account the leading authority, Excelsior Commercial and Industrial Holdings Ltd v Salisbury Hammer Aspden and Johnson (A Firm) [2022] EWCA 592 (QB), it was held that the defendant’s conduct in connection with the disclosure exercise was outside the ‘ordinary and reasonable conduct of proceedings’. Based on the guidance in Excelsior, the Judge held that a payment on account of £578,444.17 (45% of the total sum incurred in costs by the claimant in respect of the aborted trial) was a reasonable sum.

For more information, you can access the judgment here.

Comment: This decision highlights some important practical points to bear in mind when undertaking disclosure exercises. In this case, shortcomings in the defendants’ conduct of their disclosure exercise were held to justify requiring them to pay the claimant’s costs on an indemnity basis.

For further details, contact Louise Wilson.

 

Test for mistake reconfirmed by High Court

John Lobb S.A.S v John Lobb Ltd [2022] EWHC 2306 (Ch)

The High Court’s Chancery Division has overturned a previous decision and reconfirmed the existing test to void a contract for common mistake. The judge reiterated the required elements as follows:

1. A common assumption as to the existence of a state of affairs;
2. Neither party has accepted the risk that that state of affairs does not exist (e.g., they have not warranted that it does exist);
3. The non-existence of the state of affairs is neither party’s fault;
4. The mistaken state of affairs renders the originally intended contract performance impossible; and
5. The state of affairs may be fundamental to the contract’s consideration or to the circumstances necessary for performance.

For further details you can access the full judgment, here.

Comment: Taken together, these points show why it is often difficult to successfully make out a claim for mistake. It is particularly difficult to meet:

• Point 2, as the contract will usually contain some form of allocation of risk to one party of an assumed state of affairs turning out to be wrong (whether express or implied); and
• Point 4, as if the terms can still operate under the true (not mistaken) state of affairs, the test is not met. This is the case even if a party would not have accepted the terms as they were if they knew the true state of affairs.

For further details, contact Louise Wilson.

 

Post-termination restrictions invalid as no legitimate interest to protect (Court of Appeal)

Credico Marketing Ltd & Anor v Lambert & Anor [2022] EWCA Civ 864

In Credico Marketing Ltd v Lambert, the Court of Appeal held that there was no justification for a post-termination non-compete clause unless there was a clear proprietary interest to protect. By contrast, a non-compete operating during the term of the agreement was held to be reasonable, given the support and resources provided by the beneficiary of the clause in that time.

The ruling also reiterates some other useful principles:

• The courts are generally reluctant to interfere with what the parties agree, unless there is demonstrably unequal bargaining power;
• Preventing competition without a legitimate interest to protect is not in the public interest; and
• Protecting customer connections, confidential information and goodwill can justify restrictive covenants (although this is not an exhaustive list of potentially valid reasons).

For further details you can access the full judgment, here.

Comment: Any case involving post-termination restrictions have to be considered on their individual facts and prior case law only has limited benefit in any dispute. However, this case demonstrates that the Courts can be reluctant to uphold post-termination non-compete clauses unless there is a compelling reason.

For further details, contact Louise Wilson.

 

Court considered whether an order for indemnity costs was justified, in light of the defendants’ refusal to mediate

Richards and another v Speechly Bircham LLP and another [2022] EWHC 1512 (Comm)

The claimants made multiple offers to mediate, some of which were before the claim had been issued. The defendants indicated that mediation would not be cost effective or productive at that stage but said that they would keep some form of alternative dispute resolution in mind, to take place after disclosure. The defendants subsequently refused to mediate as the claim was, in their view, unmeritorious and doomed to fail.

The claimant’s claim succeeded at trial and they applied for an order that the defendants pay their costs on the indemnity basis due to the defendants’ unreasonable conduct in refusing to mediate.

Issues

The Court was required to consider whether an order for indemnity costs was justified, in light of the defendants’ refusal to mediate.

Decision

The Court determined that the defendants’ refusal to mediate was unreasonable. The defendants’ conduct indicated passivity towards alternative dispute resolution over a period of almost three years since mediation was first proposed.

However, the Court determined that an unreasonable refusal to mediate was only one factor to consider when determining the appropriate costs order. The defendants’ failure to engage with the claimants’ mediation proposals did not justify an award of indemnity costs.

The Court held that an order requiring the defendants to pay the claimants’ costs, up to and including trial, on the standard basis was a sufficient sanction.

For further details you can access the full judgment, here.

Comment: Paying costs on the standard basis may be a sufficient sanction, even where a party unreasonably refuses to engage in alternative dispute resolution.

For further details, contact Louise Wilson.

 

The High Court considered the meaning of a payment clause

BlackLion Law LLP v Amira Nature Foods Ltd [2022] EWHC 1500 (Ch)

The defendant client entered into a contract of retainer with the claimant law firm which specified that the defendant would pay the claimant a fixed fee “subject to the completion of the matter by 31 May 2017”. The matter did not complete by 31 May 2017 and a dispute arose between the parties as to the claimant’s fee. The claimant submitted that the wording set out above meant that additional charges may apply for work carried out after 31 May 2017. The defendant argued that it meant that no fee was payable if the matter did not complete by 31 May 2017.

Issues

The Court had to consider the meaning of the payment clause, which had two possible interpretations. The Court cited the decision in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and explained that if the drafting is unambiguous, the natural meaning of the words must be applied. However, where there are two possible interpretations of a clause, the Court can prefer the interpretation that is more consistent with commercial common sense.

Decision

The Court determined that the wording was unclear, and the claimant’s construction was more consistent with commercial common sense, considering the background context. The Court concluded that no reasonable business would agree to a contingent fee arrangement when, at the time the contract was signed, most of the work was done and the prospects of the project successfully completing were low.

The Court considered (obiter) whether it would have rectified the contract in the claimant’s favour if it had determined that the defendant’s interpretation was correct. The Court cited FSHC Group Holdings Ltd v Glas Trust Corporation Ltd (Rev 1) [2020] Ch 365 as requiring the parties to have the same actual intention and to have outwardly confirmed their shared understanding. The Court found evidence of a shared understanding that the fee was not contingent on the deal completing.

For further details you can access the full judgment, here.

Comment: Where there are multiple plausible interpretations of a clause, business common sense may be applied to determine the most appropriate interpretation.

For further details, contact Louise Wilson.

 

The High Court considered whether Heads of Terms represented a binding contract in terms of the potential lease

Pretoria Energy Company (Chittering) Ltd v Blankney Estates Ltd [2022] EWHC 1467 (Ch)

The claimant company entered into negotiations with the defendant farming business in 2013 with a view to the defendant granting the claimant a lease over some farmland. A document titled ‘Heads of Terms of Proposed Agreement’ was drafted. It contained provisions as to a 25-year lease of the land for a rent of £125,000 per annum.

The Heads of Terms were revised to include an ‘adherence amendment’ for the parties to agree to adhere to the Heads of Terms until a final agreement was signed, and a lockout provision to prevent the parties from entering into negotiations with anyone else for a set period of time. The ‘adherence amendment’ was later removed and the Heads of Terms were signed in November 2013. The parties agreed to a period of exclusivity until the end of July 2014.

Relations stalled during 2014 and no lease was entered into. The claimant spent money on a crop intended to fuel the plant. In November 2014, the defendant made arrangements for a third party to acquire the land.

The claimant submitted that the defendant was liable for breach of contract as they had agreed under the Heads of Terms to lease the land to the claimant. The claimant had acted and spent money in reliance on that agreement.

Issues

The Court had to consider whether the Heads of Terms represented a binding contract in terms of the potential lease.

Decision

The Court determined that the wording and drafting history of the Heads of Terms document, along with a lack of completeness in the Heads of Terms, made it clear that there was no intention to create legal relations.

The Court applied and considered a number of existing principles. By including a binding lockout clause, the rest of the Heads of Terms had to be non-binding.

For further details you can access the full judgment, here.

Comment: The judgment in this case provides a summary of the relevant legal principles which should be considered in assessing whether pre-contractual documents are legally binding and enforceable.

The case provides guidance on how to avoid creating legally binding agreements when drafting pre-contractual documents. The Court will look at the whole course of dealing between the parties.

For further details, contact Louise Wilson.

 

High Court rules that a contract requirement for termination by written notice did not prevent informal novation

Gama Aviation (UK) Ltd v MWWMMWM Ltd [2022] 4 WLUK 364

In this case, Company A (Supplier) had taken over from the original supplier a contract without any formal agreement in place to this effect; the Supplier was performing the original supplier’s obligations under the contract. When the Supplier then sought to recover unpaid sums under the contract from the customer, the customer submitted that an express clause in the contract with the original supplier meant that an informal novation was ineffective. The clause in question provided that:

“[The] agreement shall commence from the date of this agreement […] until such time as either party gives the other not less than three months’ notice in writing of termination of this agreement”.

The judge considered two competing meanings to the clause and favoured that which made business sense – the requirement for three months’ notice in writing applied only to unilateral termination. That is, it did not make sense to require three months’ notice where two parties agree to terminate a contract. Therefore, as the contract required no formalities for termination by agreement between the parties, this clause did not prevent the informal novation from taking effect.

The judge also considered that as the customer had been receiving (and paying) the Supplier’s invoices it would have been estopped from relying on this clause in any case.

Comment: This case highlights a number of risks which will be familiar to every Commercial lawyer when it comes to variations and novations inferred from the parties’ conduct. However, in doing so, it acts as a useful reminder of key principles such as:

• A novation can be inferred from conduct if it is necessary to give business efficacy to what happened in practice;
• The fact that the parties are negotiating a revised written agreement is not necessarily inconsistent with a finding that the original agreement has been novated by their conduct; and
• The presence of a clause stating that a contract cannot be varied orally will not prevent a court from finding that a contract has in fact been varied by their conduct.

For further details, please contact Rebecca Howlett.

 

Technology and Construction Court dismisses application for early specific disclosure after the Claim Form had been issued, but before it was served

Balfour Beatty Regional Construction Ltd v Broadway Malyan Ltd [2022] EWHC 2022 (TCC)

The Claimant made an application for early specific disclosure after the Claim Form had been issued, but before it was served.

Issues

The Court was required to consider the procedural basis for the application. It was common ground that PD 51U – the Disclosure Pilot – applied.

The only express provision for specific disclosure is contained in paragraph 18.1 of PD 51U, which provides that an order for specific disclosure can only be made after an order for Extended Disclosure has been made (i.e., generally a significant way through proceedings). The Claimant accordingly sought to rely upon the Court’s general right, under PD 51U, to control the disclosure process. The Judge was not persuaded by this argument.

The Court’s power to order early specific disclosure therefore fell within its general case management powers under CPR 3.1(2)(m). Accordingly, the Judge had to consider whether there was a good reason to order early specific disclosure, taking account of the factors identified in previous case law relevant to this issue.

Decision

The Claimant’s application was dismissed, primarily on the basis that it would rarely make sense for Pre-Action Disclosure to be ordered before the Pre-Action Process had been started (as was the case here, despite the Claim Form having been issued).

For further details you can access the full judgment, here.

Comment: The judgment in this case reinforces the general approach of the Courts that early specific disclosure will only be granted when it is appropriate to do so.

For further details, please contact Louise Wilson.

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Legislation

The Government has published its response to a consultation on the proposed Data Reform Bill

In September 2021 the Government launched its consultation (Data: a New Direction) to inform its development of proposals to reform the UK’s data protection laws.

These reforms ‘tweak’ UK GDPR rather than reinventing the wheel. This will be a relief to those who had feared for the UK’s hard-won adequacy status for receiving frictionless transfers from the EU. However, others might regard the Government’s programme for reform as a missed opportunity to radically liberalise the UK’s data protection laws, post-Brexit.

The Government assumes that organisations which currently comply with UK GDPR will also be compliant under the reformed law. Larger and more established organisations will be pleased to hear that the time and money they have invested in UK GDPR compliance to date will not therefore have been wasted.

For smaller businesses and start-ups undertaking UK GDPR compliance programmes for the first time, the reforms allow for a more proportionate approach that may lower the ‘barriers to entry’ to data protection compliance in some cases.

For his part, John Edwards (the recently installed UK Information Commissioner) broadly welcomed the scope of the reforms in a statement published on 16 June 2022.

As to timing, the Data Protection and Digital Reform Bill was introduced to Parliament in July but on 22 September 2022, following the announcement of the election of Liz Truss to the leadership of the Conservative party, a second reading of the Bill was withdrawn from the day’s House of Commons business ‘to allow ministers to consider the legislation further’.

Comment: The Government assumes that organisations which currently comply with UK GDPR will also be compliant under the reformed law. Larger and more established organisations such as TP will be pleased to hear that the time and money they have invested in UK GDPR compliance to date will not therefore have been wasted. However, it remains to be seen whether the Bill survives in its current form, or whether it is amended to include more radical changes. We recommend monitoring the Bill’s progress to get such changes on TP’s compliance ‘radar’ early.

For further details, please contact Luke Dixon.

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News

Government publishes list of retained EU law on new dashboard

The Cabinet Office has published a list of retained EU law on a new dashboard, which can be accessed at Gov.uk, Retained EU law dashboard. This lists the legislation by department and policy area and can be used to establish whether any retained EU legislation has been replaced, amended or repealed following Brexit.

Comment: The Truss Government is seeking to find more ‘benefits to Brexit’ so we can expect to see more divergence from retained EU law in the days to come. As such, this resource will provide a useful touchstone to understand how that process continues in respect of specific pieces of retained legislation.

For further details, please contact Rebecca Howlett.

 

Building owners reminded of duties under new Building Safety Act 2022

The Secretary of State for Levelling Up, Housing and Communities, Michael Gove, wrote to the major representative bodies for building owners reminding them of building owners’ duties under the Building Safety Act 2022 (BSA 2022).

The Secretary of State expects that responsible property owners will have advanced plans to act in accordance with all the provisions of the BSA 2022, as well as those yet to come into force. For example, updated fire risk assessments that reflect the latest guidance on proportionality such as avoiding unnecessary persons patrolling the building.

For more information, please visit Gov.uk here.

Comment: Whilst the BSA 2022 is now in force, not all of the provisions of this significant piece of legislation have come into effect. One section of the Act that has been brought into force covers leaseholder protections which places an obligation on building owners (of residential buildings more than 11m high) to pay for the costs of remediation works on unsafe cladding and other relevant defects, instead of passing these costs on to qualifying leaseholders. Any building owner that violates this section of the Act can face criminal charges.

More provisions of the Act will come into effect over the next 12-18 months, when building owners will be expected to appoint ‘accountable persons’ for high-rise residential buildings, who will have a duty to take all reasonable steps to prevent the spread of fire and/or structural failure.

For buildings with fire safety defects requiring remediation additional measures to allow the building to remain occupied may include communal fire alarms. It is expected that the proportionality and recoverability of such mitigation measures will continue to be an issue given the high costs of such measures.

For further details, please contact Amy Morley, Paul Burnley, Dilek Kahraman or Richard Adams.

 

Ministry of Justice consult on increasing the use of mediation in the civil justice system

On 26 July 2022, the Ministry of Justice launched a consultation on the UK Government’s proposal to introduce automatic referral to mediation for all small claims. Under this proposal, unless an exemption is granted by the Court, all parties to a defended small claim will be required to attend a free one-hour mediation appointment with HMCTS before the case can progress to a hearing.

The consultation closed on 4 October 2022.

For further information, visit Gov.uk here.

Comment: The results of this consultation will be interesting and could assist in reducing the number of cases that progress to trial.

For further details, please contact Louise Wilson.

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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.