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Articles 29th Nov 2023

Travis Perkins Commercial Focus – Autumn 2023

Case Law

Legislation

News


Case Law

Limitation of liability provisions

Drax Energy v Wipro [2023] EWHC 1342 (TCC)

This case provides a useful example of how the court interprets limitation of liability provisions in commercial contracts, especially where there are multiple provisions which purport to limit a party’s liability in varying degrees.

Issues

The parties entered into an agreement whereby Wipro provided software services to Drax, an energy supplier. Owing to various reasons, Drax terminated the agreement for Wipro’s alleged repudiatory breaches.

The court was required to determine preliminary issues concerning the interpretation of two limitation of liability clauses, which sought to limit Wipro’s liability to Drax. These were:

Clause 33.2 – “Subject to clause … 33.3, … the Supplier’s total liability to the Customer … arising out of or in connection with this Agreement … shall be limited to an amount equivalent to 150% of the Charges paid or payable in the preceding twelve months from the date the claim first arose. If the claim arises in the first Contract Year then the amount

  • Shall be calculated as 150% of an estimate of the Charges paid and payable for a full twelve months“.
  • Clause 33.3 – “The Supplier’s total aggregate liability arising out of or in relation to this Agreement for any and all claims related to breach of any provision of [a data protection clause] shall in no event exceed 200% of the Charges paid or payable in the preceding twelve months from the date the claim first arose or £20m (whichever is greater)“.

The court was asked to decide if, on a true construction, Clause 33.2 provided for a single aggregate cap which applied to Wipro’s liability or multiple caps with a separate financial limit applying to each of Drax’s claims. If there were multiple caps, the court was also asked to decide which cap applied to each of Drax’s claims.

Decision

The court held that it should construe the words in the context of their documentary, factual and commercial context. In particular, the court held that where there are two possible constructions, it is entitled to prefer the construction which is consistent with business common-sense and to reject the other.

When considering the clause in question, the court drew on the leading Supreme Court decision of Triple Point Technology v PTT [2021] AC 1148. Here, the limitation clause did not apply to any liability resulting from “fraud, gross negligence, negligence or wilful conduct”. The Supreme Court held that the word “negligence” had a wider meaning and therefore the claim in Triple Point Technology was not subject to the limitation. The modern approach, therefore, was to consider if the clause in question plays a contextual role when deciding what the parties had objectively intended.

In this case, the different interpretations of the clause impacted the maximum possible liability; being either £132m or £11.5m. The court held that the correct interpretation of the language used in and around Clause 33.2 was that there was a single cap (and by default that the maximum possible liability was £11.5m) on the partial basis that “both parties [were] large corporations which obviously had professional advice and assistance in the making of the [agreement]” (para 79 of the judgment).

For more information, please see the judgment here.

Comment: Although very fact-specific, this case shows the potential challenges that commercial parties can face when drafting limitation of liability clauses. In particular, the clauses must be clear as to whether the limitation covers all claims, so as to produce a single cap (similar to Clause 33.2) or whether it is intended that each separate type of claim is individually subject to the cap (similar to Clause 33.3).

For further details, please contact Louise Wilson or Josh Middleton.

Topalsson GmbH v Rolls-Royce Motor Cars Ltd

[2023] EWHC 1765 (TCC)

This case provides a useful example of the issues to consider when negotiating a contract, where there are various deadlines and deliverables over many years, and how to ensure that their contents are binding on all parties to the contract.

Issues

In 2019, Rolls-Royce Motor Cars Ltd (RRMC) entered into a contract with Topalsson Gmbh (Topalsson) whereby Topalsson would supply digital twin engine software to RRMC. This specific software allows prospective car buyers to view photorealistic renderings of cars, as well as what certain upgrade options would look like.

The contract between the parties covered the design, licencing and implementation of a digital twin solution for use in relation to the launch of a new Rolls-Royce model in 2020. The total value of the contract was €9 million.

There was disagreement between the parties on an appropriate project delivery method. RRMC insisted on a ‘waterfall structure’, whereas Topalsson found an ‘agile’ methodology preferable. The parties ultimately agreed on the ‘waterfall structure’ and this was made an express term of the contract.

The project encountered many delays, and several delivery deadlines were postponed. Because of this, RRMC sought to terminate the contract in April 2020. Topalsson issued proceedings against RRMC in September 2020, claiming damages for unlawful termination and lost profits.

The court was faced with numerous issues, but the most relevant are:

  • Was the project timeline binding?
  • Did Topalsson deliver on time?
  • Did RRMC impede or prevent Topalsson from performing the contract?
  • Was RRMC entitled to terminate the contract?

Decision

Was the project timeline binding?

The court reviewed all relevant documentation pertaining to the contract. The contract contained a ‘time of the essence’ provision, which stipulated that timely performance of the contract is an essential obligation of the parties. However, delivery deadlines were spread across several documents, in particular, an ‘Implementation Plan’ and a ‘Project Plan’.

The Implementation Plan was found not to contain binding deadlines because it was too vague. The court found that this document was merely indicative and did not specify any dates with certainty. The Project Plan, however, set out deadlines with ‘clear milestones’ which were expressly agreed between the parties and referenced on numerous occasions. Therefore, the court found that the Project Plan imposed binding deadlines on the parties.

Did Topalsson deliver on time?

The contract provided for a ‘Go Live’ event to occur by a certain date. This term was, however, not defined by the parties. The court found that, without an express definition, expert evidence was required.

The court found that Topalsson did not deliver and install the software in accordance with the deadline as laid down in the ‘Project Plan’, and therefore, that it failed to achieve the ‘Go Live’ event within the required timeframe.

Did RRMC impede or prevent Topalsson from performing the contract?

The court noted that the project delivery method was a cause of friction between the parties. Topalsson argued that RRMC’s preferred ‘waterfall’ structure caused delays, and therefore impeded Topalsson in performing the contract. However, because the contract expressly required the project to proceed pursuant to the ‘waterfall’ structure’, the court found that RRMC could not have impeded and/or prevented Topalsson from performing the contract. Although Topalsson believed that the ‘waterfall’ structure would be suboptimal, in the circumstances, to meet its deadlines, this was not a relevant consideration to the court in deciding this question.

Was RRMC entitled to terminate the contract?

Because of the foregoing findings, the court held that RRMC was entitled to terminate the contract with Topalsson pursuant to section 7 of the agreement, and also at common law, on the ground of Topalsson’s repudiatory breach.

For more information, please see the judgment here.

Comment: Whilst the facts of this case are specific to the contract in question, the court’s decision serves as a reminder that clarity and consistency is needed when drafting agreements; especially where there is an ongoing exchange of supplementary documents (such as implementation plans and timelines).

These quasi-contractual documents are often drafted by non-legal members of a project team. If key terms are not defined in these documents, or a party’s obligation is not clear, it could open the door to costly disagreements down the line.

For further details, please contact Louise Wilson or Josh Middleton.

Regulators crack down on ‘greenwashing’

ClientEarth v Shell plc and others [2023] EWHC 1897 (Ch)

As Environmental, Social and Governance (ESG) issues continue to rise up the corporate agenda, regulators are tightening guidelines to prevent companies overstating or misrepresenting the environmental impact of their products or services.

Stricter standards

The G20 has recently supported proposed global rules, set by the International Sustainability Standards Board (ISSB), to tackle corporate greenwashing. In August 2023, the Government also announced that it will implement the new ISSB rules. It is expected that this will increase regulatory obligations placed on companies wishing to promote their sustainability credentials.

Linked with this increased scrutiny, it is also anticipated that there will be an increase in formal action against companies in respect of greenwashing claims. The UK Advertising Standards Authority has already brought more than 20 enforcement actions since March 2023, in respect of misleading statements published by the companies surrounding their ESG credentials.

Rise in court proceedings

There has also been a rise in claims brought before the courts arising from ESG issues. These are often brought within the group litigation framework, and as such, the values of these claims are often substantial.

In addition to claims in respect of greenwashing, the courts are also dealing with matters such as environmental pollution, climate change and corporate misconduct. As is shown by the recent case of ClientEarth v Shell plc and others [2023] EWHC 1897 (Ch), although dismissed by the court, ESG litigation could potentially re-define the relationship between a company’s board and its public shareholders.

The ClientEarth v Shell judgment can be found here.

Comment: Travis Perkins should familiarise itself with the increasing number of regulations relating to ESG issues. As regulation increases, ESG litigation is likely to also increase. Careful reviews of a company’s sustainability agenda, and any publication relating to ESG issues, will be needed to ensure that it is protected from potential enforcement action.

For further details, please contact Louise Wilson or Josh Middleton.


Legislation

Retained EU Law Bill receives Royal Assent

The Retained EU Law (Revocation and Reform) Act 2023 has received Royal Assent.

The Act does not include the ’cliff-edge’ proposed in the original Bill (which would have meant retained EU Law would have automatically dropped away at the end of the year). However, it still allows the Government to make major changes to the content and operation of retained EU law. The extent to which these powers will be used remains to be seen.

We will continue to provide updates in this area.

Comment: Some legislation has now been identified by the Government and will drop-away at the end of this year. However, these first changes are essentially an ‘administrative’ clean-up of the statute books post-Brexit rather than a material change to the status of the EU Retained Law. It is not clear that there is currently the political will to enact the rapid legislative change which was originally proposed in respect of this Act.

For further details, please contact David Lane.

Government introduces Terrorism (Protection of Premises) draft bill

Introduced in May, many expected the ‘Protect Duty’ bill to come into force later this year or early next year.

If approved in its current form, it will require persons who are responsible for ’qualifying premises’ to take various steps to mitigate against the risks posed by a terrorist incident.

The definition of ’qualifying premises’ is wide and includes retail premises where these premises are accessible to the public and they can hold 100 or more members of the public. Whilst the extent of the steps required will vary depending on whether the premises are regarded as ’standard duty premises’ or ’enhanced duty premises’, under the draft Bill responsible persons must register their premises with the regulator, undertake a risk assessment, and provide staff training as a minimum.

Any failure to comply carries the risk of civil fines or criminal sanctions if a responsible person fails to comply with an enforcement notice.

Comment: The Home Affairs Select Committee conducted pre-legislative scrutiny of the draft Bill and published a report in July 2023. While the Committee welcomed the Government’s intention behind the bill, it expressed serious concerns about its proportionality, especially in relation to the impact on small businesses, voluntary and community-run organisations. The Government is yet to respond to this report.

For further details, please contact Daniel McNally or Paul Burnley.

Building Safety (Leaseholder Protections etc) (England) (Amendment) Regulations 2023 brought into force

The Building Safety (Leaseholder Protections etc.) (England) (Amendment) Regulations 2023 (2023 Regulations) came into force on 4 August 2023. The Regulations introduce:

  • A new landlord certificate with information and evidence about the building safety status and costs.
  • New rules and exceptions for the evidence that landlords need to show to charge leaseholders for building safety works.
  • New ways for landlords to get money back from other landlords or freeholders who are partly responsible for the building safety problems.
  • New powers for Homes England to help landlords or leaseholders pay for building safety works.
  • New timings for landlords to give the landlord certificate to leaseholders and buyers.
  • New chances for landlords to appeal against a tribunal decision on building safety costs if they have tried hard to get the evidence.

Comment: The amended regulations are intended to improve transparency, accountability, and fairness in the building safety regime though it remains to be seen whether that will be the case in practice, especially after the uncertainty and confusion caused by the original regulations. 

For further details, please contact Paul Burnley or Richard Adams.

Building safety Higher-Risk Buildings (Management of Safety Risks etc) (England) Regulations 2023 made

On 9 August 2023, the Government published the Higher-Risk Buildings (Management of Safety Risks etc) (England) Regulations 2023 (SI 20023/907) (Regulations).

The Regulations focus on the assessment of building safety risks. It imposes on the Building Safety Regulator (BSR) a duty of responsibility in relation to the management of potential risks in occupied higher-risk buildings. The Regulations are to be read in conjunction with section 83 of the Building Safety Act 2022 (BSA 2022).

These Regulations specify the requirements for building assessment certificates, identifying and managing building safety risks, mandatory occurrence reporting, engagement with residents and resident duties, appeals, compliance notices, the managing and storage of golden thread information and ancillary provisions around when and how information and documents are shared.

Comment: These Regulations are intended to support accountable persons in complying with their duties under the Act by ensuring the effective management of fire and structural safety risks within occupied higher-risk buildings.

For further details, please contact Paul Burnley or Richard Adams.

BSA 2022: consultation response on changes to procedures applicable to building control professional and HSE guidance.

In January 2023, the Government launched a consultation on various aspects of the new building control regime under the BSA 2022.

Following this, the Health and Safety Executive (HSE) published guidance on the new building control approval process for higher-risk buildings. Parties will need to follow the new building control regime if:

  • They intend to build a new higher risk building;
  • They intend to create a higher risk building by change of use, alteration or extension; or
  • They plan to undertake building work to an existing higher-risk building.

Under the legislation, the Building Safety Regulator (BSR) will carry out functions of building control. There will be multi-disciplinary teams (MDT) overseeing the whole process, from construction to the completion certificate application stage.

The following secondary legislation came into force on 1 October 2023:

  • Building (Approved Inspectors etc and Review of Decisions) (England) Regulations 2023 (SI 2023/906) – the Building Safety Regulator will be the only building control authority for all higher-risk buildings.
  • Building (Higher-Risk Buildings Procedures) (England) Regulations 2023 (SI 2023/909)(Higher-Risk Buildings Procedures Regulations 2023) – provides details of the building control regime for when higher-risk buildings are being designed and constructed or when building work is being done to an existing higher-risk building.
  • Building Regulations etc (Amendment) (England) Regulations 2023 (SI 2023/911), – amends the Building Regulations 2010 (SI 2010/2214) (BR 2010) to support the new higher-risk building control regime.

For further information, please see the consultation outcome here.

Comment: Now that this secondary legislation is in force, many buildings will be caught under this new regime and will be overseen by the BSR. Higher-risk buildings include buildings that are at least 18m in height or have at least seven storeys and contain at least two residential units. Care homes and hospitals meet the definition, but only during design and construction stages.

For further details, please contact Paul Burnley or Richard Adams.

Economic Crime & Corporate Transparency Act 2023

Having finally received Royal Assent on 26 October 2023, its significance is twofold in that it not only amends the ‘identification principle’ in order to make it easier to prosecute companies and partnerships (organisations) for certain economic criminal offences, but it also introduces a new strict liability offence of “failing to prevent fraud”.

Following the case of Tesco Supermarkets Ltd v Nattrass in the 1970’s, it was only possible for an organisation to be held liable for a criminal offence which required a specific mental state to exist at the time it was committed if the person responsible was also the “directing mind and will” of that organisation. This was known as the ‘identification principle’.

However, as this was notoriously difficult to prove, section 196 of the new Act has been introduced to overcome this hurdle and make it easier to hold organisations to account for the criminal acts of its staff. As a result of this change, organisations will be held liable in the following circumstances;

  • An organisation will be guilty of a “relevant offence” if that offence is committed by a “senior manager” acting within the actual or apparent scope of their authority.
  • “Senior Manager” is defined as an individual who plays a significant role in either making the decisions about how the whole or a substantial part of the activities of the organisation are to be managed or organised OR the actual managing or organising of the whole or a substantial part of those activities.
  • “Relevant offences” are set out in Schedule 12 of the Act which includes bribery, fraud, money laundering, theft, and tax offences amongst others. Also included are “attempts” and a “conspiracy” to commit these acts as well as circumstances where there has been “aiding, abetting, counselling, or procurement” of these offences.
  • An organisation cannot be held criminally liable under section 196 if the act or omission which forms part of the relevant offence takes place outside the UK unless it would be guilty of that relevant offence in the location where the act took place.

Section 199 of the Act also introduces the new “failure to prevent fraud” offence. Essentially, an organisation will be guilty of this offence if an “Associated Person” commits fraud AND this is intended to benefit the organisation or any person or subsidiary to whom services are provided on behalf of the organisation. “Associated Person” is broad in its definition as it includes any employee, agent, or subsidiary of the organisation, as well as any others who perform services on its behalf.

The definition of “fraud” is also set out in schedule 13 of the Act and includes fraud by false representation, fraud by abuse of position, and fraud by false accounting as well as the “aiding, abetting, counselling or procuring” of these offences.

However, unlike the similar failure to prevent bribery and tax offences which have been in force for some years now, this new offence will only apply to larger organisations which meet at least two of the following criteria during the financial year which precedes the offence:

  • More than 250 employees.
  • More than £36 million turnover.
  • More than £18 million in aggregate assets on its balance sheet.

Organisations will only have a defence if they can prove that they had reasonable “prevention procedures” in place to prevent fraud OR that it was not reasonable for the organisation to have such prevention procedures in place. In a similar way to what happened when the Bribery Act was introduced, the Government are due to publish guidance in the near future to help organisations understand what procedures are to be considered reasonable.

As is the case for like offences, organisations who are convicted of this offence are liable to receive an unlimited fine.

Comment: Whilst Travis Perkins will be regarded as a large organisation for the purposes of section 199, this specific section is not yet in force. This will not happen until the Government has published its guidance on what organisations need to do to minimise the risk of fraud (and therefore be in a position to avail themselves of the “reasonable procedures” defence should this materialise). In our view, this guidance is likely to be published in 2024 and mirror the guidance that was issued for bribery in 2011 (which referred to the “six principles”). If that is correct, then the following will need to be considered/implemented going forward; there needs to be top level commitment within the organisation; an anti-fraud risk assessment needs to be undertaken; safeguards need to be implemented that are proportionate to the level of risk identified; due diligence should be undertaken on “associated persons”; internal training should be provided; monitoring and the carrying out of regular reviews of these safeguards should also be carried out.

For further details, please contact Daniel McNally or Richard Adams.


News

Government announces indefinite extension to use of CE marks

The Government has announced that the use of CE marking is to be extended indefinitely for most products.

The UK Conformity Assessment (UKCA) mark was going to replace CE marking from the end of 2024. However, following a series of delays, the deadline for that transition has now been dropped. As CE markings also allow sales into Europe, UKCA markings are likely to see significantly less use following this change.

The Government’s announcement does not currently cover certain construction and medical products, as they are managed by other departments. It remains to be seen if they will follow suit and also drop the UKCA requirement.

Comment: This change simplifies product design, approval and packaging requirements. It should therefore help to decrease product costs. We expect that applications for UKCA markings will decrease for new products over the coming months as producers rely on the wider European mark. However, the full impact of this change has not yet been seen commercially within the market.

For further details, please contact David Lane.

Net zero changes: what you need to know

The Government has recently announced some changes to its net zero plans, which aim to reduce greenhouse gas emissions to zero by 2050. These changes are intended to make the transition to a low-carbon economy more “affordable and realistic” for households and businesses, while still meeting the UK’s international commitments. The key changes are as follows:

  • Petrol and diesel cars: The ban on the sale of new petrol and diesel cars will be moved back from 2030 to 2035, giving consumers more time and choice to switch to electric vehicles.
  • Fossil fuel boilers: The ban on installing new fossil fuel boilers, including gas, oil and coal, will be delayed from 2026 to 2035. Some exemptions will be granted for households that will face difficulties or high costs in switching to low-carbon alternatives.
  • Landlords and energy efficiency: The policies forcing landlords to upgrade the energy efficiency of their properties will be scrapped, but incentives will be offered to encourage voluntary improvements. This means Landlords will not have to comply with mandatory standards for their rental properties but may benefit from tax breaks or subsidies if they choose to make them more energy efficient.
  • Lifestyle changes: The Government has ruled out some unpopular measures that would interfere with people’s lifestyles, such as taxes on meat and flying, car sharing schemes, and rules requiring the use of multiple recycling bins.

The Government claims that these changes are possible because the UK has already over-delivered on reducing emissions and has more flexibility to take a “pragmatic and realistic approach”.

Comment: Recent by-election results promise to make climate policy and legislation a key battleground for UK politics. As such, we expect further announcements in this area as each party looks to identify the issues which most resonate with the British public. This creates unwelcome but inevitable uncertainty from a business planning perspective.

For further details, please contact David Lane.


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.

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