Kim Walker

Partner

11 February 2014

Chartered Institute of Purchasing & Supply South of England Branch

Agenda

Recent Case Law

Good Faith

Material Breach

Order of Precedence

Corporate Veil

Non-Circumvention and Non-Disclosure Obligations

Looking Ahead and what to expect in 2014

Consumer Rights

TUPE

Intellectual Property

Good Faith

Yam Seng Pte v International Trade Corporation [2013] EWHC 111 (QB)

Mr Justice Leggatt held

“I doubt that English law has reached the stage, however, where it is ready to recognise a requirement of good faith as a duty implied by law, even as a default rule, into all commercial contracts. Nevertheless, there seems to me to be no difficulty, following the established methodology of English law for the implication of terms in fact, in implying such a duty in any ordinary commercial contract based on the presumed intention of the parties”

Good faith

Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200

Was decided after Yam Seng Pte Ltd v International Trade Corporation

The Trust and Compass entered into a long-term catering and cleaning agreement

The Trust began to seek to levy excessive service credits. For example, it awarded itself:

– 30,860 service failure points and deducted £46,320 for out of date ketchup; and

– 56,360 service failure points and £84,450 for one-day out of date chocolate mousse

Good Faith

Mid Essex Hospital Services NHS Trust v Compass Group UK and Ireland Ltd [2013] EWCA Civ 200

Compass terminated the agreement on the basis that the Trust was in material breach of the agreement as it did not co-operate in good faith

The Court of Appeal held that there was no general duty to act in good faith and the obligation on the parties to co-operate with each other in good faith was limited to specific obligations

Good Faith

TSG Building Services Plc v South Anglia Housing [2013] EWHC (TCC)

The contract contained a requirement to work together in a spirit of “trust, fairness and mutual corporation” and “to act reasonably and without delay” in “all matters” governed by the contract

Held that the obligation to act in good faith was pervasive and, depending on the nature of the clause, could affect all aspects of the contract

However, the nature of the underlying right or obligation is important for the determination as to whether a good faith obligation exists

No implied term of good faith as the parties had gone as far as they wanted by imposing the express provisions

Good Faith

Where are we?

There is still no general doctrine of good faith

Courts will interpret express good faith provisions (although probably narrowly)

Existence of an implied duty is unclear

Short-form, relational, contracts most likely to attract it

Will be difficult to exclude an implied term. Best way of doing so is clear and comprehensive drafting, but probably not advisable

If you are going to refer to good faith, be clear as to its scope and meaning

Material Breach

Soccer Savings (Scotland) Ltd v Scottish Building Society [2013] CSOH 51

Football affinity savings scheme

The agreement contained a relatively standard data protection clause

Soccer Savings (Scotland) Ltd (SSSL) as the data controller did not register with the Information Commissioner and did not have the authority of the data subjects to distribute the data to third parties or to use their data to promote Scottish Building Society (SBS) as data was held by a “sister” company

Non-compliance with the Data Protection Act 1998 constituted a material breach of express terms

This entitled SBS to terminate. Was an example of a data protection failure causing the whole contract to fail

Be very careful when sharing data

Consider when re-tendering contracts

Order of Precedence

RWE Npower Renewables [2013] EWHC 978 (TCC)

Contained an order of precedence clause

Akenhead J did not rely on the order of precedence clause

Relied on the usual rules of construction instead

Confirmed that courts will consider contract documents as a whole, not part by part

Contracts will be construed in their entirety in the context of the “factual matrix”

Order of Precedence

To give an example

A contract contains an order of precedence clause, which states that the A document takes precedence over the B document

The A document required a powerhouse to be painted white but the B document required it to be painted black

That is on its face an irreconcilable ambiguity, which cannot be resolved by relying on the usual rules of interpretation

The order of precedence clause would therefore be relied upon

If documents A and B only differed in their definition of what constituted “white”, courts unlikely to apply order of precedence

Order of Precedence

Careful drafting is essential to avoid inconsistencies and ambiguities

Order of Precedence clauses are only one way of addressing the risk of inconsistency and ambiguity

Orders of precedence do not cure all issues with inconsistent documentation

Corporate Veil

2 recent Supreme Court cases dealing with this

Prest -v- Petrodel Resources Ltd & Ors [2013] UKSC 34

VTB Capital Plc -v- Nutritek International Corp & Ors [2013] UKSC 5

It is a fundamental principle of company law that a company has a separate legal personality from its members

Piercing the corporate veil means to disregard the company’s separate legal personality

The company’s members are fixed with the legal consequences of the company’s acts

Corporate Veil

Prest v Petrodel Resources Ltd & Ors [2013] UKSC 34

A court may, in certain circumstances and in the absence of specific statutory, pierce the corporate veil

It applies when someone is:

– Under an existing legal obligation, liability or subject to an existing legal restriction; and

– He deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.

The courts can pierce the corporate veil to deprive this person of advantage he would have obtained from the separate legal personality

Corporate Veil

VTB Capital Plc v Nutritek International Corp and others [2013] UKSC 5

The Supreme Court held that it would be contrary to authority and principle to extend the circumstances in which the corporate veil may be judicially pierced to enable a person controlling the company to be held liable, as if he had been the co-contracting party, to a contract where the company was a party but he was not, and where neither he nor any of the contracting parties intended him to be.

Non-Circumvention and Non-Disclosure Obligations

Dorchester Project Management Ltd v BNP Paribas Real Estate Advisory & Project Management UK Ltd [2013] EWCA Civ 176

The Court of Appeal held that:

– The effect of the deed was that, if the recipient proposed to disclose the confidential information to a third party, it was bound to procure that the third party would enter into a back-to-back agreement with it which imposed on the third party obligations of non-circumvention as well as obligations of non-disclosure.

– The back-to-back agreement would apply to confidential information supplied to the third party by the original disclosing party, as well as to that supplied by the recipient.

Any questions on case law update?

Review of reforms taking place in 2014

Consumer Rights Bill

Consumer Rights (Payment Surcharges) Regulations

Changes to TUPE

Intellectual Property Bill

Consumer Rights Bill

Consumer law is unnecessarily complex

The Unfair Contract

Terms Act 1977

The Unfair Terms in Consumer

Contracts Regulations 1999

The Supply of Goods

and Services Act 1982

The Sale of Goods Act 1979

The Supply of Goods Act 1973

The Sale and Supply of Goods

to Consumers Regulations 2002

The Enterprise Act 2002

The Consumer Protection from

Unfair Trading Regulations 2008

Consumer Rights Bill

Aims to modernise and simplify

It is still unclear when it comes into force. The Bill has been introduced to the House of Commons on 28 January 2014 and is currently with the Public Bill Committee

The Bill deals with 3 key areas:

Consumer sales;

Unfair terms; and

Private actions in competition laws

Who is affected?

Applies to business to consumer contracts (but may have wider impact)

It will not be possible to contract out of the provisions

Consumer Rights Bill

The Bill retains the existing minimum standards in relation to sale of goods. It essentiality re-states them.

Goods need to be of:

Satisfactory quality;

Fit for a particular purpose;

As described; and

Match any sample or model

Other requirements require that:

The goods to match the pre-contractual information about their characteristics;

Any installation of the goods to be carried out with reasonable care and skill or provided as discussed with the consumer;

Goods must be delivered within 30 days from the date of the contract unless both parties agree otherwise; and

The trader must have the right to supply the goods

Consumer Rights Bill

Remedies available to the consumer include:

Early right to reject the goods;

The right to repair or replacement; and

The right to a price reduction or the final right to reject

What remedies the consumer can rely on depends on the breach.

Consumer Rights Bill

Unfair terms

Unfair terms and unfair consumer notices will not be binding on the consumer.

The fairness test continues to apply.

Terms must be in plain and intelligible language.

Core terms must be prominent.

All terms must be transparent.

The list of grey terms includes 20 terms.

Consumer Rights Bill

The House of Commons Business, Innovation and Skills Committee has recommended the following amendments to the Consumer Rights Bill:

The definition of consumer to cover small businesses;

The period of 30 days for the early right to reject goods should be extended;

Curbing the ability offer deductions for use when goods are rejected;

Extending the short-term right to reject; and

Extending the final right to reject in relation to digital content.

Payment surcharges

In 2013, the Consumer Rights (Payment Surcharges) Regulations came into force to end excessive consumer payment surcharges

Payment surcharges are charges, in addition to the price of goods/services, which are imposed on consumers when they pay with a particular method of payment

From 12 June 2014, micro-businesses and new businesses will no longer be able to charge excessive payment surcharges

TUPE Amendments

TUPE protects employees when a business or undertaking for which they work transfers to a new employer.

New rules will arguably narrow the scope.

Changes summarised in The Procurement Bulletin.

Intellectual Property Bill

Announced in the Queen’s speech 8 May 2013

Clarify and simplify design law

The designer will be first owner of rights

NEW criminal sanctions for deliberate copying of UK or EU registered designs and forfeiture provision

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Kim Walker

Partner

kim.walker@thomaseggar.com

02380 831226