Travis Perkins Commercial Focus – Winter 2022

Case Law

• Termination at will and duties of good faith
  Optimares SpA v Qatar Airways Group QC SC [2022] EWHC 2461 (Comm)
• Supreme Court considers scope of Creditor Duty for directors
  BTI 2014 LLC v Sequana SA & Ors [2022] UKSC 25
• ‘Reasonable Endeavours’ – what can be expected to overcome Force Majeure
  MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406
• Paddington Bear’s Audit Worries
  Pixdene Ltd v Paddington & Co Ltd [2022] EWHC 2765 (IPEC)
• The court may, in exceptional circumstances, conduct parts of an application for an injunction against persons unknown in private
  XXX v Defendants Unknown [2022] EWHC 2776 (KB)

Legislation

• Brexit Freedoms Bill introduced to Parliament
• Building Safety Act 2022: Health and Safety Executive (HSE) consults on Building Inspector Competence Framework (BICoF)

News

• DCMS Secretary of State announces plan to replace UK GDPR
• Data Protection/Marketing: Updated guidance on the Privacy and Electronic Communications Regulations 2003 (PECR)
• Execution of documents: updated Law Society/City of London Law Society (CLLS) note on electronic signatures
• The upsides of the Royal Institute of Chartered Surveyors (RICS) Sustainability Report 2022

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Case Law

Termination at will and duties of good faith

Optimares SpA v Qatar Airways Group QC SC [2022] EWHC 2461 (Comm)

The High Court has reiterated a long understood principle of contractual interpretation, being that a duty to act in good faith in relation to the performance of a contract does not prevent you from exercising a contractual right to terminate a contract at will. This is because a right of termination is not seen as a responsibility or obligation so, without express wording to the contrary, the exercise of such a right won’t be affected by obligations regarding performance. The Court was also guided by the fact that the termination right was said to apply “notwithstanding anything to the contrary” in the agreement.

For more information the full judgement is available here.

Comment: As ever with cases of contractual interpretation, this is specific to the particular wording of the agreement here. However, it provides some useful drafting considerations:

• ‘at will’ rights to terminate are often controversial and can be watered down in negotiation. Before signature, they should be reassessed to ensure that when they can be exercised remains clear. Any qualifications should be clearly set out and objectively measurable. Ideally, they will be unqualified rights, with wording of the type used in this case stating that they apply “notwithstanding anything to the contrary in this agreement”; and
• duties to act in good faith are often narrowly interpreted. If such a duty is intended to go beyond the relevant supply of goods/services and also apply to clauses relating to the operation of a contract (for example, issues of change control, termination, or assignment) then we would recommend that this be expressly stated within the clause itself.

For further details, contact Rebecca Howlett.

 

Supreme Court considers scope of Creditor Duty for directors

BTI 2014 LLC v Sequana SA & Ors [2022] UKSC 25

In a landmark judgment for company directors, the Supreme Court has clarified the scope of the so-called ‘Creditor Duty’ and when this duty will be triggered. This is particularly important in the current climate of financial instability and provides a ‘guiding light’ for directors on how to minimise the risk of personal claims against them where their company is, or may be, at risk of insolvency.

For more information, please visit the Freeths article here and the full judgement is available here.

Comment: This case reaffirms the requirement on directors to ensure that they are considering the interests of company creditors from the stage of at least the company bordering on insolvency or an insolvent liquidation or administration becoming probable. Had the Supreme Court found in favour of BTI, it is likely that the directors would have been liable for certain losses suffered by the company’s creditors, potentially to the sum of the dividend paid out.

For further details, contact Louise Wilson.

 

‘Reasonable Endeavours’ – what can be expected to overcome Force Majeure

MUR Shipping BV v RTI Ltd [2022] EWCA Civ 1406

The Court of Appeal has found that an obligation to use ‘reasonable endeavours’ to overcome a Force Majeure event included accepting payments in Euros, rather than the contractually stipulated Dollars. This was necessary because economic sanctions prevented payment being made in Dollars.

On the facts of the case that is a relatively ‘common sense’ solution. Indeed, the court appears to have in part been persuaded by the paying party’s pragmatism. They offered to adjust the payment to ensure that the receiving party was not out of pocket as a result of any associated currency transfer costs or fluctuations.

However, the principle here is an interesting one. An alternative form of payment is relatively straightforward, but how far should a party be expected to bend to accept performance other than what was originally agreed? It is one thing to use reasonable endeavours to navigate the Force Majeure event (and therefore facilitate the original intended outcome of the contract), quite another to say it requires you to substitute some other outcome entirely.

For more information you can access the full judgment here.

Comment: As ever with Force Majeure issues, this case is very sensitive to the drafting of the clause in question. There is no statutory or otherwise codified meaning of a ‘Force Majeure Event’ for us to fall back on in UK contract law. The fact the substitute action was only the payment of an alternative currency may mean this idea is of limited broader applicability, but that is not certain.

Either way, this is a useful reminder that this ‘boilerplate’ clause can be vital and deserves proper attention, particularly as we continue to live in very volatile times.

There are too many potential considerations when drafting a Force Majeure clause to list them all here now. However, we think perhaps one of the most useful to bear in mind is that it is often as helpful to state what is not considered to be Force Majeure as it is to say what is.

For further details, contact Rebecca Howlett.

 

Paddington Bear’s Audit Worries

Pixdene Ltd v Paddington & Co Ltd [2022] EWHC 2765 (IPEC)

The Intellectual Property Enterprise Court has given us some useful drafting reminders in this recent case. It seems that, after dining with the Queen, Paddington has had to come down to Earth and turn his mind to the issue of royalty disputes and audits.

In short, the clause in question permitted a third-party auditor to inspect the defendant’s documents on prior written notice during normal working hours.

Whilst simple enough in theory, the court concluded this meant the clause:

• did not give the claimant a right to inspect or receive copies of the inspected documents (as it referred to the audit being carried out by a ‘third party auditor’)
• envisaged physical inspection by the third-party auditor at a place under the defendant’s control (as there was no need to specify ‘normal working hours’ if the intention was for the inspection to take place elsewhere)
• nevertheless, had an implied term that the auditor could take copies of inspected documents (as the auditor would otherwise have had to complete their report from memory, or confined to the defendant’s data room); and
• meant the documents to be inspected should not be redacted (except for legally privileged information).

The court further suggested (but did not rule) that you would need to give at least ten business days’ notice of an audit for it to be ‘reasonable’. However, it was also noted that the number of documents involved and time of year it would take place could be factors in assessing this.

This case is not revolutionary and matters of contractual interpretation are always very fact specific. However, it is a useful reminder that the courts will assume that all the text which has been included in a clause has been included for a reason. Here, the reference to “normal working hours” is commonplace drafting but ended up dictating where the inspections should take place. As such, whenever reviewing or making amendments, it is vital to take a moment to consider what possible further inferences could be drawn from the changes being made.

While on the topic of audits it is also worth turning your mind to ‘why’ an audit clause might be contained within an agreement, and how the use of such audits is evolving. The last decade has seen several ESG related laws which require companies to exercise some oversight of their supply chains, covering issues such as Modern Slavery and Bribery. This trend is only set to continue, with environmental issues such as Extended Producer Responsibility and the Plastic Tax now leading the charge.

Audits can be a key tool in supply chain management, so now is a good time to consider the scope and meaning of any such standard clauses. Giving ten days’ notice of an audit may be appropriate for resolving a commercial dilemma, but it will be sorely lacking if the aim is to investigate Modern Slavery allegations.

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

Comment: This is an example of a case where expensive litigation and the court’s intervention could have been avoided if the agreement between the parties included clear and comprehensive obligations on both sides. The learning point is that it is important for each party to consider what rights and obligations it needs from the audit provision and seek specialist legal advice to negotiate appropriate wording which achieves this desired outcome and avoids the need to seek the court’s assistance in interpreting such provision later down the line.

For further details, contact Kishan Pattni or Joanna Kawalec.

 

The court may, in exceptional circumstances, conduct parts of an application for an injunction against persons unknown in private

XXX v Defendants Unknown [2022] EWHC 2776 (KB)

In March 2022, the claimant was victim to a cyber-attack in which the defendants accessed the claimant’s computer systems, encrypted its data and downloaded its files and other information. The defendants requested the claimant pay US$6.8m for the decryption of its files and for the non-disclosure of the information in those files. The claimant subsequently applied for interim injunction (without notice to the defendants, whose identity was unknown), which was granted with an Order preserving the anonymity of the claimant. The interim injunction and an application for summary judgment were served on the defendants at the email addresses specified in their ransom note. The claimant applied for the substantive hearing to be held in private and for an order that its identity should not be disclosed.

The court reviewed the evidence in private, as conducting the hearing in public would defeat the purpose of protecting the claimant’s identity. The court concluded that the public interest in open justice was outweighed by the damage that would potentially follow from the disclosure of the claimant’s identity and ordered that the claimant should remain anonymous. The court was satisfied that service by email to the email addresses provided by the defendants was satisfactory service and that, there having been no response by the defendants to the interim injunction or the summary judgment application, this was an appropriate case in which to grant summary judgment and a permanent injunction restraining the defendants from using or disclosing the claimant’s data.

Comment: In exceptional cases, the court will permit a private hearing if it is necessary to protect the claimant’s identity to deal justly with the case.

For further details, contact Louise Wilson.

 

Legislation

Brexit Freedoms Bill introduced to Parliament

On 22 September 2022, the Retained EU Law (Revocation and Reform) Bill otherwise known as the ‘Brexit Freedoms Bill’ (Bill), was introduced to Parliament. The Bill reflects the Government’s intention to repeal or amend all retained EU law and to re-establish the supremacy of domestic law.

With effect from the end of 2023, all retained EU law will either be restated, replaced, or revoked. Any EU law following the end of 2023 will be known as ‘assimilated’ law. Before that date, Government departments and the devolved administrations must determine which retained EU law should expire and which should be preserved. Given that there are over 2,400 pieces of retained EU law listed in the Government’s retained EU law dashboard, this is a huge undertaking in a relatively short period of time. The Bill does however include an extension mechanism which would allow the Government to extend the review period until 23 June 2026.

In November 2022 the Bill was called “not fit for purpose” by the Government’s own independent assessor, the Regulatory Policy Committee. The Committee has therefore issued a call for written evidence on the Bill and the Committee is scheduled to conclude its consideration shortly. Notwithstanding this, the Bill was passed by the House of Commons on 18 January and is now being considered by the House of Lords.

Further information on this topic can be found on the Government’s website here.

Comment: The impact this Bill could have on the UK legal landscape is ‘potentially’ huge. However, how much of that potential is realised will likely be one of the hottest political issues of the year. At this stage, it is much too early to speculate on where we will end up, but we will be watching closely.

For further details, contact Rebecca Howlett.

 

Building Safety Act 2022: Health and Safety Executive (HSE) consults on Building Inspector Competence Framework (BICoF)

Under a newly published consultation draft from the HSE, the BICoF has been proposed. Some of the proposed changes are:

• the creation of four new registration classes for individual building inspectors:
  • Class 1 – Associate/Assistant
  • Class 2 – Standard
  • Class 3 – Complex/Higher-risk Buildings
  • Class 4 – Manager
• clarification on the competencies that building inspectors must demonstrate for each class.

The final BICoF is scheduled to be published in April 2023, coming into force by April 2024.

Comment: As part of new building control reforms, all building control professionals and private sector building control organisations will have to register with the Building Safety Regulator (BSR) in order to perform building control work in England. Registration will open in October 2023 with relevant sections of the Building Safety Act 2022 coming into force in April 2024. The BSR will provide for different classes of building inspectors according to qualifications and experience and register those individuals as a building inspector, or a building inspector of a particular class (as listed above), if they are satisfied that the individual meets certain criteria.

For further details, contact Paul Burnley or Richard Adams.

 

News

DCMS Secretary of State announces plan to replace UK GDPR

Michelle Donelan MP, Secretary of State for Digital, Culture, Media and Sport, has announced the Government’s plan to replace the UK GDPR with a ‘British data protection system’.

The Secretary states that the new system is intended to:

• be business friendly
• be consumer friendly
• protect consumer privacy
• keep data safe
• be simpler and clearer to navigate; and
• retain data adequacy for the UK.

The announcement can be found at Conservatives.com here.

Comment: This suggests that the Data Protection and Digital Information Bill, currently awaiting its second reading, will be further paused (and potentially withdrawn). That bill was criticised by some for not being ambitious enough, however there remains the very difficult question of quite how much leeway the Government has when it comes to diverging from the EU’s GDPR. That is, how much ‘ambition’ the UK’s adequacy decision from the EU can bear.

For further details, contact Luke Dixon.

 

Data Protection/Marketing: Updated guidance on the Privacy and Electronic Communications Regulations 2003 (PECR)

The Information Commissioner’s Office (ICO) has published new guidance on how to comply with the requirements under the PECR when carrying out direct marketing by email and live calls:

• Guidance on direct marketing using electronic mail
• Guidance on direct marketing using live calls

Comment: The guidance is provided as a series of helpful FAQ-style responses, delivering greater clarity on a number of key issues such as the scope of the ‘soft opt-in’.

For further details, contact Luke Dixon.

 

Execution of documents: updated Law Society/City of London Law Society (CLLS) note on electronic signatures

The Law Society and CLLS have published a further version of their note on the execution of documents using electronic signatures. Amendments to the 2016 version include the insertion of new paragraphs on:

• remote signings
• implications of the E-commerce Directive 2000/31, and the Brexit related Trade and Co-operation Agreement; and
• use of a common seal.

The note has also been generally updated to reflect developments since 2016, including the Law Commission’s report on electronic execution of documents, and changes in practice adopted by HM Land Registry, HMRC and others.

Comment: This guidance serves as a useful touchstone in respect of any questions as to the validity of different forms of execution, particularly when it comes to the electronic signature of documents with specific signing requirements such as guarantees, interests in land and assignments of copyright. It is good to see the Law Society continuing to update this, as electronic signatures will only become more prevalent.

For further details, contact Rebecca Howlett.

 

The upsides of the Royal Institute of Chartered Surveyors (RICS) Sustainability Report 2022

RICS has published its 2022 findings on sustainable practices in the construction industry and provides invaluable insight into the effectiveness of current methods of reducing carbon emissions.

Some of the key findings include:

• a growing demand for ‘green buildings’, that has not been met by the supply of such buildings; and
• the low-availability and high cost of lower carbon materials.

The growth of technologies used by practitioners to analyse their carbon footprint in projects has allowed greater insight into the energy costs needed to lower carbon usage.

For further details, visit the Sustainability Report via the RICS website here.

Comment: Should TP want to make changes to their existing or new buildings as a result of the findings, recommendations and comments in the report we would advise that they speak to or appoint a consultant who specialises in this field.

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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.