Another update on commercial contracts

Last month I attended a Lexis Nexis webinar on contract drafting for in-house lawyers.  Last Friday I was able to attend an update on commercial contract law aimed more at private practice commercial lawyers, but that would also be interesting for in-house lawyers.  The webinar was presented by Andrew Shindler of King & Wood Mallesons and by Paul Gardner of Osborne Clarke.  It covered two main themes of the new Consumer Rights Bill, and recent cases on contract law and the drafting lessons that arise from them.

The Consumer Rights Bill is currently waiting for Royal Assent; the speakers considered the new rights and remedies for the supply of goods, services and digital goods, as well as the forthcoming rules on unfair terms.

They then moved onto the cases of interest.  The first one was Dany Lions Ltd v Bristol Cars Ltd, which considered if a reasonable endeavours obligation to agree a contract with a third party was an agreement to agree and therefore unenforceable.  This case illustrated that when drafting, you need to provide for the objective of the endeavours AND the objective criteria by which the performance of the obligations will be evaluated.  It is also important to have specific terms defining the nature and extent of the obligations.

The next case to be considered was Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd, which considered a reference to “friendly discussions” in a dispute resolution clause.  The court said that it was enforceable  - it was not an agreement to agree but was a dispute resolution clause which provided that the parties had to seek agreement within a specified period.  One of the reasons the clause was enforceable was that, for policy reasons, the court didn’t want to interfere with pre-litigation dispute resolution procedures. The presenters made the point that dispute clauses form part of good faith obligations.

The next case was the very interesting case concerning the Innocent Drinks “Dude” logo of Fresh Trading Ltd v Deepend Fresh Recovery Ltd – this considered who owned the copyright in the Innocent logo and therefore if the creator was entitled to payment by allocation of shares.  The judge found there was no legal assignment of the copyright, but there was an equitable assignment – but this did not mean that payment was required. Therefore Innocent got its logo but did not have to pay for it.

The Transformers & Rectifiers v Needs case was a classic battle of the forms dispute – which neither side won as the judge said that neither party’s terms and conditions had been incorporated!

The Polypearl Ltd v E.ON Energy Solutions Ltd case considered limits on liability and the direct versus indirect loss conundrum.  In this case, the judge found that indirect loss of profits were excluded, but direct losses were covered by the agreement.  However, the cap on liability did apply to the direct losses.  The case therefore illustrates that if parties intend to exclude a particular type of loss the contract needs to say so.

The next case to be considered was Richmond v Chester which considered confidentiality obligations.  Confidentiality clauses tend to be seen as simple boilerplate clauses but it pays to devote a little more time to them.  In particular you need to ensure that if you need to disclose information to certain people, that you state the relevant exemptions in the contract.  In this case the disclosure to professional advisers was ok, but the disclosure to potential buyers of Chester’s shareholdings was not.  That said, there was no damage, so Richmond only received damages of £1!

There was extensive discussion of the Cavendish Square v Makdessi case on penalty clauses, which goes to the Supreme Court in July 2015.

The key learnings of the webinar are: sign contracts.  Once signed, keep a signed copy somewhere safe. Ensure that you have an effective procedure to incorporate terms and conditions.  And draft clearly, getting a lawyer to do the drafting, properly.  A bracket missing or the wrong use of the word “indirect” could cost millions.  Just having to go to court, even if you win, is expensive and time-consuming.

Area of Interest