cpd seminar 2009 - dla piperfiles.dlapiper.com/files/upload/cpd seminar 2009 ppt.pdf · ts&c...

CPD Seminar Technology, Sourcing & CommercialBest Practice & Contract Update

Mark O'Conor, Partner

Duncan Pithouse, Partner

Siobhan Mullens, Associate

Technology, Sourcing and Commercial

21 October 2009

CPD Seminar - Technology, Sourcing and CommercialBest practice - lessons learnt from the public sector

Mark O'Conor, Partner & Location Head


21 October 2009

21 October 2009TS&C CPD Seminar 3

Four aspects

�Developing caselaw

�New model terms

�New Directive

�Application to other sectors?


Public sector procurement in context

�"best practice plus an advert"?

�requirement to procure goods of services

�e.g. technology, systems integration, BPO and BPR

�to meet a policy or statutory imperative

�seeking value for money

�sought through competition in order to secure best possible

contract�

decision made to award to lowest price bid, or more usually

the most economically advantageous bid


These concerns are set against the backdrop of procurement law�

The underlying legal basis for the Procurement Directives is

found in Article 28 of the EC Treaty, which prohibits restrictions

on the free movement of goods. �

According to the preamble of the Directives they are designed

to supplement Article 28 by introducing in the public and utilities sectors a "real opening up of the market and a fair

balance in the application of procurement rules". �

The fundamental objective behind the Directives is to enhance

the free movement of goods in the public and utilities sector by

ensuring non-discriminatory treatment of competing suppliers.


Developing caselaw

�Supply community is happier to challenge

�On what basis?

�Lianakis vs Dimos Alexandroupolis�

Case C-532/06 European Court of Justice 24 January 2008

�Letting International v London Borough of Newham�

[2008] EWHC 1583 (QB),

�Henry Brothers (Magherafelt) Ltd and Scott & Ewing (t/a

Woodvale Construction Company Ltd) v Department for

Education for Northern Ireland (no 3 Remedies) �

[2008] niqb 153 - building law reports

�Pressetext Nachrichtenagentur GmbH v Austria, �

Case C-454/06,. Judgment 19 June 2008


Lessons from the caselaw

�Fairness, transparency, proportionality and non-discrimination

�front-loading the process, front-loading the decision making

(this is challenging)�

use the right criteria at the right time - evaluate the tenderers,

then the tender (Lianakis)�

make sure bidders know what the criteria are (transparency)�

keeping within the scope of the advertised agreement

(Pressetext)


New Model Terms

�These terms have history

�CC88 - z series - PFI model agreement

�They represent a balance of interests, negotiated over years

(CSSA, FEI and latterly Intellect with OGC and PUK) �

Last summer's changes - mandatory data security wording�

Recent changes (version 2.3)�

carbon reduction commitment �

option for direct agreement with key sub-contractors�

financial distress - key sub-contractor notifies Authority if they have

not been paid�

express open source language�

tighter controls for processing of personal data outside of the EEA


The new Remedies Directive

�Directive 2007/66/EC on 20 December 2007. Member States

have until 20 December 2009 to implement the new Directive

into national law. �

Implications for:�

Contracts not yet entered into�

Contracts entered into�

declaration of ineffectiveness�fine�damages


Application to other sectors?

�who signs up to these terms?�

in IT procurement it’s the same key players as you'll find in financial services, utilities, BPO, HRO

�the deals are similar

�status of "model terms" - mandatory?

�useful concepts to be applied elsewhere?

�keep a watch on the developing terms

�keep up with what is becoming "market"

�monitor the evolution of standards


Further reading, common questions and other issues �

Remedies Directive�http://ec.europa.eu/internal_market/publicprocurement/remedies/remedies_en.htm�

Implied tendering contract�Blackpool and Fylde Aero Club Ltd v Blackpool Borough Council [1990] 3 All ER

25�Fairclough Building Limited v Borough Council of Port Talbot [1992] 62BLR 82�

OGC's guidance�

http://www.ogc.gov.uk/procurement_policy_and_application_of_eu_rules_european

_procurement_directives.asp�PLC papers - http://www.practicallaw.com/3-376-3565

Thank youCPD Seminar Technology, Sourcing & CommercialLessons learnt from the public sector

Mark O'Conor, Partner & Location Head


21 October 2009

CPD Seminar - Technology, Sourcing and CommercialContract Update




21 October 2009


Introduction

�An interesting year!

�Number of relevant judgments that impact on contract drafting

�Impresses the need to draft from a judge's perspective, in case

of any disputes, as that is how the wording will be interpreted

�Look at some of the facts and consequences via a series of

case studies


Points We'll Cover

�Admissibility of pre-contract negotiations

to aid interpretation

�Enforceability of minimum

purchase/volume commitment

obligations

�Tests for the incorporation of implied

terms


Case Study - Retro Retail

�The facts:�

Retro Retail need to implement a new accounting system�

decides to source accounting services from a skilled and experienced

provider, Terrific Technology

�the parties agree pricing based on:�

volumes of Retro Retail's transactions�minimum volume of transactions leading to a minimum spend�standard audit revealed over charging by Terrific Technology

�The issue:�

the interpretation of the clause that describes how much Terrific

Technology should be paid


Formula to be interpreted

The charges payable are an amount equivalent to:

25% of the Actual Volume in

excess of the Minimum Volume

less costs


The formula to be interpreted (cont.)

�But does this mean:�

[25% of AV-MV] less costs?�

25% of [(AV-MV) less costs?�

[25% of AV] - [MV less costs]?

�By way of illustration, if the Actual Volume is 100, the minimum

volume is 50 and costs are 20, the answers would have been:�

30�

7.5�

- 5


Evidence of the parties' intention

�Notes of the negotiation

meetings held pre-contract

signature demonstrate what the

parties had intended the formula

to mean

�Those notes support Retro

Retail's view

�But a court will NOT look at

those documents…


Rules of interpretation

�The actual test:�

what is the meaning conveyed to a reasonable person, having the

knowledge available to the parties at the time

�What does this actually mean?

�"The meaning conveyed to a reasonable person"

�"what did the parties mean to say?"

�

�"what does the document say?" �

�Words have their "natural and ordinary" meaning

�But strict meaning yields to business common sense


Rules of interpretation (cont.)

�"… having the knowledge available to

the parties at the time"�

Excludes: �

records of pre-contract negotiations �

declarations of subjective intent

�But will take into account:�

commercial context�

pre-contractual evidence illustrating a

fact

�Where do you draw the line?


Lessons to take away

�The result: "the parties are sometimes held bound by contract

in terms which, upon a full investigation of the course of the negotiations, a reasonable observer would not have taken

them to have intended".

�Test a formula and include a worked example in the contract

�Use carefully defined terminology and, if necessary, a 'private

dictionary'

�Keep notes of meetings and contract drafts

Relevant case: Chartbrook Limited v Persimmon Homes (HL)


Enforceability of minimum volume/commitments

Back to the case study…�

Terrific Technology 'won' their argument - their interpretation

applies

�But is the minimum spend commitment enforceable?

�(Minimum) payments due as a result of a breach of contract

are subject to the enforceability test for penalties

�An obligation to pay which is independent of an obligation to

purchase becomes a debt action - penalties not applicable


Enforceability of minimum volume/commitments (cont.)�

The minimum payment obligation is not

a penalty because:�

is commercially justifiable�

not oppressive�

freely negotiated�

not designed to deter a breach of

contract

�From a drafting perspective:�

de-couple the payment and purchase

obligation�

"tick the boxes" on the justifications

Relevant case: M&J Polymers v Imerys Minerals


Implied terms

�Finally, how to deal with a missing payment term…

�March '09 - a move from necessity to reasonableness?�

…is that what the instrument, read as a whole against the relevant

background, would reasonably be understood to mean?"

�"A contract can work perfectly well in the sense that both parties can perform their express obligations but the consequences wouldcontradict what a reasonable man would understand the contract to mean."

�June '09 - the ultimate test is one of necessity:- is the implied

term necessary to make the contract work?


Implied Terms - drafting tips

�They won't be implied easily - only where necessary

�Avoid the need for implied terms!

Relevant case: A-G of Belize and Ors v Belize Telecom Limited and Ors (PC)


More points we'll cover

�Relationship between UCTA 1977 and the Misrepresentation

Act 1967 (in context of International Supply exclusion)

�Meaning of "International Supply Contract" under UCTA 1977

�Cumulative/exclusive

remedies clauses and

the danger of bringing

wrong action


Case Study - Luxe Lorries

�The facts:�

Laser Logistics need to replace its lorry fleet for journeys on the continent�

placed an order for a left hand drive fleet with Luxe Lorries, having been

swayed by pre-contractual conversations �

fleet was to be made and delivered in UK by Luxe Lorries, then transported to and used in France by Laser Logistics

�On delivery, the pre-contractual promises were not met

�Laser Logistics sued under the contract AND sought to rescind the

contract for misrepresentation �

BUT contract included a term preventing misrep actions

�The issue:�

Was the term unreasonable under UCTA ?


Interpreting UCTA: Questions

�Was the contract an

International Supply Contract?

�Did UCTA reasonableness requirements apply to provisions

controlling liability for

misrepresentations in

International Supply Contracts?


Interpreting UCTA: Court of Appeal answers�

International Supply Contracts�

The requirement for the goods to be carried across national boundaries can be satisfied where this is the commercial objectof the contract.

�It is not necessary to cross national boundaries in fulfilment of the

contract itself.

�Carve out for International Supply Contracts�

"UCTA reasonableness" does not apply where interpreting provisions excluding/limiting liability for breach of contract or liability for misrepresentation in International Supply Contracts.

Relevant Case: Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd (CA)



�A contract fulfilled within one country can still be classified as

international where that is the commercial context

�Contracts can be tougher at excluding both contractual liability

and liability for misrepresentation where they are international

�Entire agreement clauses often need to be reasonable to be

enforceable but sufficient contractual remedies need to be available to innocent party also


Cumulative remedies

Back to the case study…�

Luxe Lorries successfully knocked out the misrep claim made

by Laser Logisitics�

But Luxe Lorries had another contractual issue to deal with…�

contracted with Premier Parts for components for 50 new lorries by the end of the year

�under the contract Luxe Lorries could terminate for excessive delay

�termination for delay would trigger a refund of payments

�BUT the LDs/refund would be Luxe Lorries' sole remedy

The issue:�

whether or not a claim by Luxe Lorries for additional damages would succeed


Action for repudiatory breach

�Court had to answer three questions:

�One: did the contract prevent common law

claims/repudiation?

�Two: did the contract exclude the right for damages based

in common law/repudiation?

�Three: could this particular action be successful?


OneOneOneOneOneOneOneOneOneOneOneOneOneOneOneOneOneOneOne: did contract prevent common law claims/repudiation?�

The clause limited the remedy to a refund for certain events,

including delay and non-delivery which caused the basis of the claim (be it under contract or for acceptance of a repudiatory

breach)

However CA concluded:�

while the contract contained no express reservation of the right to terminate at common law "clear words are needed to oust common

law rights" �

therefore the common law right to bring an action for the ship

builder's repudiatory breach remained

Relevant Case: Stocznia Gdynia SA v Gearbulk Holdings Ltd (CA)


TwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwoTwo: did contract exclude right for damages based in common law?�

Clause limited compensation for damages

arising from delay/non-delivery to a refund

�CA said party must be able to "recover

compensation in the form of damages

for the loss of benefit"

�CA concluded that no real contractual

compensation was afforded the customer

and no clear words excluded the right to common law

damages, so common law damages could be claimed



ThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThreeThree: could this particular action be successful?�

The termination notice served by customer was the cause of

the difficulty

�The notice terminating the contract spoke about termination for breach

of contract - specifically the right to

terminate for delay

�There was no mention of accepting a repudiatory breach or

bringing an action in common law

�Customer had to go to CA to overturn ruling that by failing to

mention the common law action in the notice, it had excluded it




�Remedies for breach of contract are NOT the only remedies

�Remedies can lie in common law AND for breach of contract

for the same event�

You can exclude/limit many (but not all) additional common

law remedies �

Watch for inconsistencies between clauses: cumulative

remedies; liquidated damages; service credits; indemnities;

entire agreement�

Seek litigator advice

before serving

a termination notice


Other Developments

�Fraudulent misrepresentation (and breach of implied term)

�Companies Act 1985

�House of Lords - Supreme Court

�Countdown to VAT changes

Next seminar: 11 November - commercial and contractual

trends

Thank youCPD Seminar Technology, Sourcing & CommercialBest Practice & Contract Update

Mark O'Conor, Partner




21 October 2009

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