hill dickinson contentious business update winter 2015

winter 2015

contentious business update

hilldickinson.com

Civil justice reforms begin to bite

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Law in action

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Notice of termination: kids’ play

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Leap of faith?Duty of good faith in commercial contractsNotwithstanding that many other jurisdictions across Europe and the rest of the world acknowledge that there can be implied into a commercial contract a general duty of good faith between the parties, the courts of England and Wales have remained reluctant to follow suit and rule likewise. In the absence of an appropriately drafted express contractual clause, as Bingham LJ stated in the case of Interfoto Picture Library Limited –v- Stiletto Visual Programmes Limited (1988) 2 WLR 615:

‘… English law has characteristically committed itself to no such overriding principle but has developed piecemeal solutions in response to demonstrated problems of unfairness.’

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Welcome to the winter edition of Hill Dickinson’s contentious business update. The aim of this publication is to provide an informative, readily understandable summary of recent legal developments that may impact on your organisation.

In addition, our ‘law in action’ section gives a flavour of the actual work we do with a real-life example of one of our recently handled matters, with practical commercial advice.

In this edition, we lead with some interesting commentary on recent developments in contract law, looking at how the concept of good faith can form part of a contract and deal with a number of other important decisions and developments in the fields of trade marks law, mis-selling claims, defamation and late payment of debts. Our law in action piece provides some useful and practical guidance on the battle of the forms.

We do hope that you find this edition of Hill Dickinson’s contentious business update to be of interest and helpful to you. If you have any enquiries or feedback, please do not hesitate to contact our editor:

Moya Clifford [email protected]

ContentsLeap of faith? Duty of good faith in commercial contracts

Decisions spell trouble for pictorial trade marks

Behaving irresponsibly


Combatting late payment and freeing cash flow

Law in action


Hedging their bets: no advice, no common law duty of care

Changes to Alcohol Duty Regulations

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Welcome

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However, recent cases have suggested that there might be some judicial momentum for the implication of a term of mutual good faith into a commercial relationship in circumstances where it is justified. We explore these developments below.

The first case is that of Yam Seng Pte Limited (Yam Seng) –v- International Trade Corp Limited (ITC) (2013) EWHC 111 (QB). The dispute arose out of a distribution agreement between the parties whereby Yam Seng had certain exclusive rights to distribute Manchester United branded fragrances and other products. The rights were attached mainly to duty free sales as opposed to domestic ones. Yam Seng terminated the agreement approximately 17 months before its scheduled conclusion alleging that ITC breached the contract by undercutting prices and disclosing false information. The High Court judge hearing the case, Leggatt J, recognised that certain categories of contracts in English law already imply a duty of good faith, for example employment contracts, those between partners and those evidencing a fiduciary relationship. But he confirmed that in terms of implying such a duty into all commercial contracts English law was ‘swimming against the tide’ when compared to other jurisdictions.

While the judge in Yam Seng accepted he could not identify that a duty of good faith should be implied into the contract by operation of law he said there was no difficulty in there being a duty of good faith implied in fact. He referred to the two traditionally accepted criteria used to imply a term in fact being (i) that such implication is so obvious it goes without saying and (ii) that the term is necessary to give business efficacy to the contract. These factors were to be assessed as against the relevant background to the making of the contract. Importantly the judge stated that this relevant background should include a consideration of the parties’ ‘… shared values and norms of behaviour.’ He provided, by way of example, the generally accepted norm that all contractual relationships have an underlying expectation of mutual honesty, yet there is rarely any such express term within the concluded contract.

In addition to an underlying expectation of honesty the judge also referred to there being ‘… fidelity to the parties’ bargain.’ The contract must be given a construction that promotes the values and purposes expressed or implicit within it since it is not possible to cater for every eventuality.

Newsletter content correct as at December 2014.

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Examples of how these two ideas might be demonstrated were:a. parties being prohibited from

knowingly making false statements;

b. the correcting of information provided to a party when it becomes evident that it was untrue; and

c. in so-called ‘relational contracts’ such as joint ventures, franchise agreements and long-term distributorships the sharing of information relevant to the performance of the contract.

The judge stated that the usual hostility to the concept of a duty of good faith ‘… to the extent that it still persists, is misplaced.’

In applying these considerations to the facts in question, it was found that ITC was in breach of the contract entitling Yam Seng to terminate the contract.

There was a great deal of legal commentary on the importance of the Yam Seng decision and much speculation as to whether the decision was a one-off or whether it would be more generally followed introducing a general duty of good faith into English contract law. In two subsequent cases, the Yam Seng reasoning was not followed - TSG Building Services plc -v- South Anglia Housing Ltd [2013] EWHC 1151 (TCC) and Compass Group UK and Ireland Ltd (trading as Medirest) -v- Mid Essex Hospital Services NHS Trust [2012] EWHC 781 (QB) and it was felt that there was little chance that Yam Seng was anything more than a blip but then in July 2014 Mr Richard

Spearman QC, providing judgment in Bristol Groundschool Limited (Bristol) –v- Intelligent Data Capture Limited (IDC) (2014) EWHC 2145 (Ch) cited with approval the case of Yam Seng and the issue was back on the agenda again.

In Bristol Groundschool, Bristol provided specialist training to commercial pilots and IDC provided the training material to do so. Bristol claimed damages for breach of contract and copyright infringement against IDC. IDC countered that Bristol had infringed its copyright by secretly downloading information which amounted to a breach of the duty of good faith.

Although the judge determined that the specific circumstances of the case as a whole precluded him from awarding damages on the counterclaim in IDC’s favour, he ruled that the agreement was a relational contract as identified by Leggatt J in Yam Seng, and that it did contain a duty of good faith which extended beyond but certainly included a requirement of honesty. He suggested the relevant test for assessing whether there had been such a breach would be to consider whether the conduct would be deemed commercially unacceptable by a reasonable and honest person in the context in question. While concluding that Bristol’s actions were commercially unacceptable they could not be categorised as a repudiatory breach of contract. Nevertheless it is clear that the approach in Yam Seng was definitely approved.

While it cannot be said that these decisions will lead to a general judicial acceptance of there being an overriding contractual duty of good faith in law, they do suggest that if a duty of good faith is not specified in the contract, where appropriate factual circumstances exist, the court might imply such a term into a commercial contract.

Practical considerationsThe cases do throw up a number of issues – should you be including an express term of good faith in a contract? Should it be specifically excluded? Can it apply to one party but not another? Has there been dishonest behaviour by one party which may require the inferral of a duty of good faith? Does a specific term of the contract require an express requirement of good faith e.g. the exercise of termination rights. What is clear is that uncertainty is never a good thing when it comes to contract law.

These cases do serve to re-enforce the generally accepted notion that each case and contract will be determined upon its own unique facts and until the Court of Appeal or the Supreme Court intervene on the issue, conflicting decisions at first instance while of interest to academics, can cause confusion to those involved in drafting contracts.

If you would like further advice about drafting commercial contracts, or any of the issues raised in this article, please contact us.

Stewart Burrows [email protected]

contentious business update winter 2015

Decisions spell trouble for pictorial trade marks...In two separate judgments, but conjoined appeals, the Court of Appeal reversed previous decisions to allow Cadbury UK’s trade mark registration for the colour purple and upheld the cancellation of Mattel UK’s trade mark registration for a Scrabble tile. Both decisions addressed the question of whether there was ‘a sign’ registrable as a trade mark in accordance with Article 2 of the Trade Marks Directive 2008/95/EC (the Directive).

The lawIn order to be compliant with Article 2 of the Directive and avoid an application to register a trade mark being contested before the Intellectual Property Office, a trade mark must be; 1. a sign 2. capable of being represented graphically (i.e. sufficiently clear, precise and objective) and 3. capable of distinguishing the goods/services of one undertaking from those of others. The directive was at the heart of the following decisions.

Societé des Produits Nestlé SA -v- Cadbury UK Limited [2013] EWCA Civ 1174Cadbury applied to register a trade mark for its famous dark shade of purple (Pantone 2685C) ‘… applied to the whole visible surface, or being the predominant colour applied to the whole visible surface, of the packaging of the goods’ for all chocolate products. Nestlé opposed the application on the basis that the description lacked distinctive character and five years of litigation ensued.

The High Court originally found that Cadbury was entitled to register the mark in respect of goods for which there was evidence of acquired distinctiveness - namely chocolate in bar, tablet and drinking form. Nestlé appealed, submitting that the court had made errors in its assessment of the requirements under Article 2 of the Trade Marks Directive 2008/95/EC; specifically that the colour purple did not constitute a sign, nor was it capable of graphical representation.

The Court of Appeal allowed the appeal on the basis that the requirements of

Article 2 had not been met. The mark did not have the clarity, precision and objectivity required for graphical representation. The word ‘predominant’ could apply to different ‘permutations, presentations and appearances’ and to allow its registration would offend the principle of certainty.

Cadbury sought permission to appeal to the Supreme Court but permission was refused.

Despite this, most people know precisely what colour is being referred to when described as Cadbury purple. What Cadbury have not achieved is sole and exclusive rights to use the colour as a trade mark.

JW Spear & Sons Limited & Ors -v- Zynga Inc. [2013] EWCA Civ 1175In the second case, the claimants were companies in the Mattel group, owner of the UK trade mark consisting of the shape of a Scrabble playing tile. The mark was described as a ‘… three dimensional ivory-coloured tile on the top surface of which is… a letter… of the Roman alphabet and a numeral in the range of 1 to 10.’ The defendants applied for the mark to be cancelled on the ground that it encompassed too many options and did not comply with the requirements of Article 2. The High Court granted summary judgment in favour of the defendants and which Mattel appealed.

The Court of Appeal dismissed the appeal and went on to confirm both the reasoning of the High Court and the Court of Appeal’s Nestlé decision. The

tile mark was not one sign as required by Article 2, but covered numerous other potential signs. It was also deemed that there was no graphic representation of a ‘sign’ as required by Article 2 that met the requirements of clarity and objectivity. As such, if registered, it would amount to a monopoly on all conceivable ivory-coloured tile shapes that bore any letter and number combinations.

Looking aheadThese two landmark trade mark rulings have ramifications for anyone wishing to register a mark in the UK, especially where it concerns colours, sounds or smells beyond the conventional trade name or logo. Applicants must exercise increased caution when drafting their trade mark applications to ensure that their trade mark descriptions meet the necessary level of descriptive clarity and specificity required by the Directive. Descriptions which are capable of different permutations of the mark, could lead to a proprietor’s monopoly and as such the courts are keen to restrict the registration of marks that lack precision or clarity. It will be of interest to see whether Cadbury now file a new application, in which it would have to clearly define how ‘predominant’ its shade of purple will be. Mattel, on the other hand, may attempt to register a number of specific Scrabble tiles as separate trade marks.

This will all be spelt out in time!

If you would like further advice about trade marks, or any of the issues raised in this article, please contact us.

Daniel Keating [email protected]

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BackgroundThis should be the final decision in a long-running libel dispute between Gary Flood and Times Newspapers Limited.

Back in the summer of 2006, The Times published an article alleging that there were strong grounds to believe that Gary Flood had abused his position as a police officer by accepting bribes from some of Russia’s most wanted suspected criminals to sell highly confidential intelligence.

Gary Flood issued proceedings and after a number of trips to the High Court, the Court of Appeal and the Supreme Court, it was decided that publication in the newspaper was protected as it was responsible journalism on a matter of public interest. However, the decision was not so clear for the online version of the article.

After publication of the allegations in the hard edition of the paper and also online, the Metropolitan Police launched an investigation and concluded that there was simply no evidence that the claimant had accepted bribes as alleged. The paper was informed of this in September 2007 and all it did at that stage was to mark the online edition: ‘… this article is subject to a legal complaint.’ What it did not do, and should have done, was to change the text to report the outcome of the

findings of the police. It was only in October 2009 that the paper

reported the outcome of the MPS’s findings and so, from

September 2007 to October 2009, the online edition of

the paper was still

alleging that there were strong grounds to believe that Gary Flood had abused his position, when the Metropolitan Police had found that there was no such evidence.

DecisionThe court heard evidence from the claimant and his wife to decide what damages to award for the online publication from September 2007 to October 2009. The court awarded Mr Flood £60,000 - of which £15,000 was awarded as a deterrent to others from acting as the paper had done in this case.

Defamation ActIt will be interesting to see what impact the Defamation Act 2013 (the Act) will have on these sorts of cases. The Act brings in the ‘single publication rule’, meaning that an online publication of a newspaper article will be treated, for the purposes of limitation, as being published at the date of the article in the hard edition of the paper. This means that Gary Flood would have had to take action over the online publication by the summer of 2007, but in fact the decision of the Metropolitan Police, which vindicated him, was not made until September 2007. Therefore, if he were suing over the same allegations today - now the new Act is in force - he would have to rely on the court’s discretion before being allowed to bring proceedings.

Online defamationWhile the law is seen as being slow to catch up with modern technology, in fact the courts are taking issues of online publication seriously.

This is not the first case where reputations have been attacked online. In the 2012 decision of Cairns -v- Modi No 2 [2012] EWHC 756, the court recognised that the ‘percolation phenomenon’ of stories online was a factor in assessing damages. This means that people publishing online, including Twitter, Facebook and blogs, need to take particular care as to what they publish.

The real message to take from this litigation is that, in terms of online publications, it is important to act quickly and responsibly. Where publication continues online, so does the risk of liability and therefore so does the duty of a publisher to act responsibly.

As the judge found in this case: ‘It is possible to pursue journalism said to be in the public interest and demonstrate consideration for the subject whose reputation may suffer in the event of publication.’

If you are affected by any of the issues raised in this article, please contact us.

Hanna Basha [email protected]

Behaving irresponsiblyThe court’s award of damages in the defamation case of Flood -v- Times Newspapers Limited [2013] EWHC 4075 (QB) shows the importance of a publisher acting responsibly.

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The implementation of the civil justice reforms heralded a much stricter approach to compliance with rules, practice directions and orders being taken by the courts. This harsher approach led to a flood of satellite litigation where parties sought to take procedural advantage of opponents and harsh sanctions were imposed in a draconian way by the courts for relatively minor breaches. However, the courts have now tempered their approach somewhat. We look at how this more moderated position will impact on commercial parties.

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Comply or face the consequencesIn what was one of the most eagerly awaited decisions of last year, the Court of Appeal set the standard for implementation of the civil justice reforms in the case of Andrew Mitchell MP -v- News Group Newspapers Limited (NGN) [2013] EWCA Civ 1526. The facts of this case have been well publicised - MP Andrew Mitchell was alleged to have insulted a policeman by referring to him as a ‘[BLEEP]ing pleb’. He disputed that allegation and issued defamation proceedings against one of the newspapers which reported it.

In June 2013 the court listed a case management and costs budgeting hearing. NGN filed and served its costs budget seven days before the hearing as required by the rules. However, Mr Mitchell’s solicitors failed to do so and provided his budget only the afternoon before the hearing. NGN submitted that it had not been allowed time to consider that budget. At first instance it was held that there had

been substantial default with ‘no adequate excuses’. Applying the new rules implemented in CPR 3.14 (by analogy given that they were not in fact applicable to this case) Mr Mitchell was treated as having filed a budget limited to only the applicable court fees, dramatically less than the costs claimed (the differential was more than £500,000(!)). Not surprisingly Mr Mitchell appealed this decision.

The Court of Appeal upheld the first instance decision and set the tone for the court’s approach to implementation of the reforms. Prior to the implementation of the reforms,

it had been identified that one of the main causes of delay and

increased costs in litigation was the non-compliance with court

rules, orders and practice directions. Without doubt, the reforms gave

the court specific powers to ‘enforce compliance with rules, practice directions and orders’ and to ensure that litigation is ‘conducted efficiently and at a proportionate cost’ (CPR Part 3.9(1)) but what happened next was not entirely unexpected. Parties involved in litigation began taking advantage of any procedural default by their opponent and sought the most

stringent of sanctions which the courts enforced, relying doggedly on the Mitchell decision. The knock-on effect of this was that parties were making many more applications to court for extensions of time rather than fall foul of the Mitchell decision – increasing costs rather than decreasing them. In addition, there were real concerns in a number of arenas about the impact of the reforms on the justice of the case and also about the consistency with which the courts were applying the new rules.

A more reasoned approach?In July 2014, recognising that the Mitchell decision was having harsh consequences in practice, in the cases of Denton, Decadent and Utilise (Denton -v- TH White Ltd, Decadent Vapours Ltd -v- Bevan, Utilise TDS Ltd -v- Davies [2014] EWCA Civ 906) the Court of Appeal clarified the guidance given in the Mitchell case and replaced it with a new, more flexible three-stage test for dealing with instances of non-compliance with court rules.

That test now requires:

1. Assessment of the seriousness and significance of the breach of court rules.

2. Consideration of whether there is a good reason for the breach of court rules.

3. Evaluation of all circumstances of the case.

In addition, a strong warning was given to parties trying to take unreasonable tactical points against their opponents, with heavy costs sanctions being imposed.

This has meant in practice that there has been reference to the ‘rigour’ of the Mitchell decision having been ‘tempered’ by Denton but that does not mean that we are back to the position before the reforms were implemented.

Recent examples of how the Denton test has been applied include:

1. Altomart Limited -v- Salford Estates (No.2) Limited [2014] EWCA Civ 1408 – where a respondent’s notice of appeal was served 22 days late, as the appeal hearing was not listed in the immediate future, there was no reason to think that the appellant would suffer undue prejudice if the extension was to be granted.

The court’s approach was that in the absence of other factors, it would not be right to refuse relief simply to penalise the respondent.

2. Caliendo -v- Mischcon de Reya [2014] EWHC 3414 (CH) – late service of a notice of funding had not resulted in a serious adverse effect on the efficient conduct of the litigation and relief from sanction was granted.

3. Lictor Anstalt -v- Mir Steel UK Limited [2014] EWHC 3316 (CH) – permission to serve of a witness statement at trial and 19 months late was refused. There was no good reason for the default which would have disrupted the conduct of the litigation.

Whilst a more moderate approach has been approved, the old approach of approved ‘non-compliance’ has not been reinstated. The courts have retained via the Denton test a large degree of discretion in assessing whether to grant relief from sanction, which means that compliance with court rules remains highly advisable.

What does this mean for commercial parties?The removal of a contributing factor to the delay and cost of legal proceedings can only be viewed as a welcome development, although parties involved in litigation must be prepared themselves to comply and abide by the rules. There is now some scope for flexibility as the civil procedure rules have been amended with effect from 5 June 2014 allowing the parties to agree in writing an extension of time for up to 28 days provided any extension does not affect any hearing date.

Reducing cost and delay along with the increased transparency that costs budgeting (also implemented by the civil justice reforms) means that commercial parties can now certainly be more confident that their disputes will be resolved quicker and with more certainty as to costs than previously.

If you require any further information in relation to any of the issues raised in this article, please do not hesitate to contact us:

Moya Clifford [email protected]

The Late Payment of Commercial Debts Regulations 2013 and Late Payment of Commercial Debts (No 2) Regulations 2013 (the Regulations) came into force in the UK on 16 March 2013 and 14 May 2013 respectively… and made further amendments to the Late Payment of Commercial Debts (Interest) Act 1998. The Regulations implemented the replacement EU Directive 2011/7/EU (the Directive), which seeks to tackle the late payment of debts in commercial transactions.

PurposeLate payments are seen by the EU as a major hindrance to the free movement of goods and services in the single market and can considerably distort competition. In particular, with regards to larger corporations forcing SME’s, who are in a weaker position financially, to accept payment terms detrimental to their cash flow and are more likely to suffer a damaging effect when payment is delayed. The Directive is essentially an aid to SME’s and aims to combat late payment in commercial transactions and restrict the abuse of freedom to contract, in relation to payment terms, where this results in a ‘grossly unfair’ disadvantage to the supplier.

HowThe amendments imply, into all commercial contracts, a maximum term for payment of the debt.

Where the contract is silent on the payment terms, the Regulations imply, into the contract, a default period of 30 days for payment of the debt, beginning with the later of:

(a) the day on which the supplier performs its obligation under the contract;

(b) the day on which the purchaser has received the invoice; or

(c) where there is a procedure for verification, when the procedure is complete (up to a maximum of 30 days).

Where a payment period is stated in the contract, it should not exceed the maximum set by the Regulations:

Business to business contracts – the payment period must not exceed 60 calendar days from the points stated at (a) – (c) above.

Public sector contracts – the payment period must not exceed 30 calendar days from the points stated at (a) – (c) above.

Parties, in business to business contracts, are still free to agree a longer payment period, provided that it is not ‘grossly unfair to the supplier (see further below).

Grossly unfairUnfortunately, the Regulations provide little guidance as to the meaning of ‘grossly unfair’, except so far that it states that all circumstances of the case should be considered, which should include:

• anything that is a gross deviation from good commercial practice and contrary to good faith or fair dealing;

• the nature of the goods or services in question; and

• whether the purchaser has any objective reason to deviate from the 60 day payment period.

The Regulations do not specify the remedy to be granted in the event that a payment term is found to be ‘grossly unfair’. This appears to have been left to the discretion of the courts. Only time will tell what approach the courts will adopt in determining whether a

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payment term is unfair and what the consequences will

be. It is likely that the courts will, in most cases, substitute the payment term with the default 60 day period or any other period it considers appropriate in the circumstances.

EffectThe Regulations only affect contracts entered into in England, Wales and Northern Ireland after 16 March 2013. However, the Directive requires all member states to implement the Directive into their national law.

Therefore, in cross border contracts with businesses

of other member states, similar provisions regarding payment periods will be implied in to those contracts.

It remains to be seen what impact the new regulations

will have, if any, on combating the

late payment of debts in the UK. Parties are still free to negotiate

extended terms for payment

and in a majority of small business to business contracts, trading in fast

moving consumer goods, payment periods rarely exceed 60 days. However, larger enterprises will need to take further consideration when

demanding extended payment terms from smaller

suppliers. Consideration will need to be given to whether the request is good commercial practice or contrary to fair dealing, taking into consideration the goods or services in question. Even if the payment term is individually negotiated and agreed with the supplier, the purchaser still runs the risk that the court will deem the payment period as ‘grossly unfair’ and order a shorter term, which could result in longer period from which late payment interest can accrue.

Conversely, the benefit for suppliers who are SME’s dealing with larger corporations is that the Regulations give them a commercial justification

for arguing for payment terms within the statutory maximum. However, SME’s must be cautious in trying to change contractual terms with larger corporate buyers: who will find that those buyers will simply switch to an alternative supplier. In reality, many suppliers will want to avoid endangering trading relationships or damaging good relationships by charging late payment costs and interest.

The flip side of the Regulations is that, if effective, suppliers (large or small), which utilise large numbers of suppliers, will see an impact on their working capital; effectively by increasing debt and reducing short-term liquidity.

Solution?In an economy where purse stings are still being pulled tight; despite the green shoots of recovery, it is clear that the directive and the Regulations do not offer a single solution to combating late payment and improving cash flow.

One solution, by the Department for Business Innovation and Skills, was the introduction of the ‘Prompt Payment Code’, which aims to drive a change in payment culture. Signatories undertake to pay suppliers on time, within the terms set out in the contract; not to change payment terms retrospectively; provide suppliers with advice and clear guidance on payment procedures and advise a supplier promptly of any disputes. It will be interesting to see if there is any appetite for voluntary regulation on this basis. As at November 2014, the number of signatories to the Prompt Payment Code total 1214.

If you require any further information or assistance in relation to any of the issues raised in this article, please do not hesitate to contact us.

Philip Sheard [email protected]

Paul Gamble [email protected]


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In this section we describe an interesting recent case we have been involved in, explaining the issues involved, how we handled it and highlighting points of legal and practical interest. In almost all contractual disputes, the key issue to first consider is to understand precisely the terms of the contract. This may seem a simple question to answer but, in practice, when each party is seeking to incorporate its own standard terms and conditions (T&Cs) into the contract, is not always straight-forward to establish which T&Cs apply and therefore what the actual terms of the contract are. However, given that each party’s T&Cs will invariably seek to enhance each their own position, the importance of establishing that its own T&Cs are actually incorporated into the contract cannot be overestimated and is likely to have a major impact on the parties’ respective positions in any dispute they later become involved in.

We recently advised a company who had supplied machinery to a corporate customer who was to use the machinery in its own manufacturing process. The supplier’s T&Cs were, as would be expected, drafted in the supplier’s favour and therefore, amongst other things, sought to significantly limit their liability for any losses the customer may incur as a result of using the machinery. On the other hand, the customer’s T&Cs were much less favourable to the supplier and instead provided that the supplier was to have unlimited liability for any losses the customer may incur.

The machinery experienced a fault which meant that the customer’s business activities were significantly disrupted and consequently it lost substantial orders and revenue as a result. The customer sought to claim

these losses from the supplier on the basis that its own T&Cs applied to the contract and therefore argued that the supplier was exposed to unlimited liability arising from the supply of the faulty machinery.

It was therefore of paramount importance that we could establish that the supplier’s T&C’s applied to the contract so as to protect the supplier from a significant claim which had the potential to effectively end the supplier’s business.

Throughout the course of dealings between the supplier and its customer leading up to the agreement to supply the machine, each party had provided the other party with their own standard terms of business and therefore each party considered that their own T&Cs applied to the contract.

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Law in action: win the battle … win the war?

The various points in time when each party provided their T&Cs to the other party included:

• The supplier providing a specification for the machine to the customer at the outset of the relationship.

• The customer indicating an intention to proceed with an order for the machine and emailing a request for a quotation.

• The supplier providing a quotation for the machine.

• The customer submitting a purchase order for the machine.

• The supplier providing a delivery note for the machine.

• The supplier providing an invoice for the machine.

• The customer paying the invoice sent by way of a compliment slip.

Each of the documents above included a provision that the document was provided ‘subject to that party’s own standard terms of business’.

In such a situation, where each party argues that the contract incorporated their own T&Cs, a resolution can be found in the legal principle known as of the ‘battle of the forms’. The battle is considered to have been won by the party who fired the ‘last shot’ before the contract was concluded, that is, the last party to put forward T&Cs that were not explicitly rejected by the recipient before the contract came into force.

Although this matter was eventually resolved without court proceedings being commenced, in practice the court will look at the exchanges between the parties and will determine which party acquiesced to the others terms. Usually the last communication exchanged by the parties prior to the contract being formed which was not explicitly rejected by the recipient will be held to constitute the applicable terms (i.e. this would be the ‘last shot’).

In our case, we were able to successfully establish that it was the supplier’s T&Cs which were incorporated into the contract given that the supplier’s invoice was the last document which was provided before the machine had been delivered and the contract had effectively been formed. This was despite persuasive argument from the customer that in paying for the machine and indicating that payment was subject to its T&Cs, in fact its own T&Cs applied.

Had the customer been able to establish that its T&Cs applied, the outcome could not have been more different for the supplier which would then have been potentially liable for the customer’s significant losses - which it claimed it incurred as a result of the allegedly faulty machine.

There are a number of drafting and procedural tactics which businesses can employ to help persuade the court that its standard terms should apply, for example, by referring to their standard terms in as many pre-

contractual documents as possible in order to maximise the chance of firing the ‘last shot’ or by including a provision in its standard terms stating that the terms will prevail over any terms issued by the other party. Whilst such tactics are not guaranteed to be successful, they will at the very least strengthen a business’s position.

Litigation may be described as a war with various distinct battles along the way. However, the party that wins the important ‘battle of the forms’ may ultimately improve their prospects of success in the litigation as a whole.

If you are affected by any of the issues raised in this article or if you require a review of your T&Cs and contracting processes, please contact us.

James Stephenson [email protected]


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It is surprising how often the issue of what amounts to reasonable notice of termination of a contract arises in practice. The issue frequently arises from parties starting to do business together without formalising their arrangement and, in particular, not agreeing definitive notice periods to bring the trading arrangement to an end.

The High Court decision Hamsard 3147 Ltd (t/a Mini Mode Childrenswear) -v- Boots UK Ltd [2013] EWHC 3251 (Ch) throws some light on how this issue will be decided by the court.

BackgroundFrom February 2009, the claimant, Hamsard, designed, manufactured and supplied children’s clothing to the defendant, Boots. The relationship had evolved through a series of pre-existing trading relationships, most notably a 2007 supply contract (later varied) between Boots and Hamsard’s predecessor, Mini-Mode, which included an 18 month notice period on termination. This 18 month notice period had been agreed between Boots and Mini-Mode in return for extended payment terms.

No formal written contract existed between Hamsard and Boots, as Hamsard simply continued the supply of the stock from Mini-Mode. Due to Hamsard’s precarious financial state, the relationship between the parties was not intended to be long-term in nature.

In November 2009, Boots gave Hamsard nine months’ notice of termination of the agreement. Hamsard alleged that nine months was insufficient and argued that the notice should have been 18 months - on the basis that the 2007 supply contract provided for 18 months’ notice. Such a period reflected the design and

production cycle for the goods provided to Boots and Hamsard claimed damages for wrongful termination.

Boots rejected Hamsard’s position, arguing that the relationship was one of necessity, because Hamsard had effectively stepped into Mini-Mode’s shoes and no detailed terms had been agreed between the parties. Boots further argued that the 2007 supply contract was irrelevant and so it was for the court to decide what was a reasonable period of notice in these circumstances.

DecisionIn the High Court, Norris J decided that nine months’ notice of termination given by Boots was reasonable and that no damages were due to Hamsard.

In making his decision, Norris J set out five guiding principles for determining what constitutes reasonable notice:

1. regard must be given to the particular facts of the specific case;

2. consideration should also be given to the general circumstances and practices of the trade in which the parties are involved;

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3. what is ‘reasonable notice’ is to be judged as at the time when the notice is given;

4. the circumstances pertaining at the time the contract was made are still relevant as it reflects the common purpose of the parties; and

5. the degree of formality in the relationship between the parties, specifically the more relaxed the relationship, the less likely it is that the law will imply a lengthy notice period.

Applying the above principles to the circumstances of the case, Norris J held that nine months was reasonable notice as:

1. The contract between the Hamsard and Boots was informal, short-term and subject to constant temporary adjustment. A period of nine months’ notice was all that was needed to wind down their current relationship, especially when it had been recognised by both parties that the current season would be the final one supplied by Hamsard, and there was to be no long-term relationship between the parties going forward. Indeed, it was viewed that Hamsard must have anticipated the notice to terminate.

2. There was no relevant trade practice to support what would be a reasonable period of notice.

3. The notice period of 18 months, which had previously been agreed in the 2007 contract, was irrelevant, as it had been given to Hamsard’s predecessor by Boots on re-negotiation of increased payment terms, and so was not a pre-estimate of what was reasonable.

4. The contract was poorly performed by Hamsard at the time notice was given, as they had financial difficulties, communication had all but broken down and suppliers were expressing serious discontent.

5. Hamsard had previously suggested a shorter notice period than nine months during prior negotiations with Boots.

CommentThe importance of parties agreeing formal written contracts, which include clear termination clauses that provide for what period of notice should be given on termination, cannot be understated. That said, the commercial realities often dictate that this is not always possible.

Without an express provision in the contract, it is a matter of establishing what period of notice is ‘reasonable’ in the circumstances… something which the parties may struggle to agree on. Fortunately, this recent case does provide some much-needed guidance on how a court would determine what a reasonable period of notice is, although it very much depends on the individual circumstances of the case and specifically the nature of the relationship between the parties. Where it is not possible to agree a formal contract parties should at least be aware of the different considerations that will apply when it comes to termination – trade practice, nature of the contractual relationship and what intention (if any) is expressed in negotiations.

This is a frequently recurring issue: do not be caught on the wrong side of it.

If you require any legal advice in relation to any of the issues identified in this article, please do not hesitate to contact us to discuss the matter further.

Alex Smith [email protected]


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Hedging their bets:no advice, no common law duty of care

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In previous editions, we have looked at the LIBOR scandal. Here, we look at where the claims involving LIBOR manipulation have got to and get up to speed with recent developments in respect of alleged mis-selling of interest rate hedging products.

LIBOR claims settledInvestigations into the manipulation of LIBOR (London Interbank Offered Rate) by both the FSA and the European Commission, led to a number of financial institutions receiving significant fines for their conduct.

Following the decision of the Court of Appeal in the conjoined appeals of Graiseley Properties Limited –v- Barclays Bank Plc & Deutsche Bank AG –v- Unitech Global Limited (2013) EWCA Civ 1372, to allow the statements of case to plead that the financial institutions in question implied that the LIBOR would be efficient and not manipulated, the legal world eagerly awaited what was one of the most hotly anticipated trials in Graiseley that was scheduled to take place in 2014. The decision allowing the allegations to be aired was welcomed by the thousands of customers with similar complaints however it remained the case that the mere entitlement to plead such allegations did not overcome the

remaining difficulties in establishing liability and adducing evidence for substantial damages. The cases were seen as test cases and it was hoped by both sides that clarity would result.

With only weeks to go to the big day, and while some of the finest minds of the Bar were rehearsing their decisive legal arguments, the news broke that the parties had concluded a confidential resolution of matters. While the exact terms of the agreement are unknown it is understood that Barclays agreed to restructure the debt of Graiseley as part of the settlement which led to Graiseley withdrawing the litigation.

The settlement avoids the bank from having to undergo a very public and very expensive trial. It also means that other customers and businesses who are contemplating similar LIBOR linked claims are still without a legal precedent which fixes wrongdoing on the financial institutions.

The news regarding settlement of Graiseley was quickly followed a week or so later with settlement in the case of DST –v- Barclays Bank Plc, in which a Portuguese based construction and property company sought damages of 11.1 million euros for similar complaints of manipulation of LIBOR and EURIBOR. The terms of settlement are again unknown with Barclays merely stating that a commercial agreement had been reached. Notwithstanding the continued absence of a legal precedent, these settlements might be seen as encouraging to those customers that remain dissatisfied.

The only other LIBOR linked case presently in the public forum is that of Deutsche Bank –v- Unitech. As investigation into the roles played by other financial institutions in the alleged manipulation of LIBOR and other global benchmark rates continue, we wait with interest to see how the Unitech case develops.

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Interest rate hedgesTo recap then, despite the Financial Conduct Authority’s (FCA) implementation of a review of the sale of interest rate hedging products, some cases are still seeing the inside of a courtroom.

While the LIBOR scandal has dominated the headlines there are still those attempting to recover damages for the mis-selling of interest rate products not linked to LIBOR where settlement has not occurred via the FCA review. It remains the case that in this area of litigation the banks continue to defeat claims by reference to the contents of the contracts themselves which prevent reliance upon what went before the agreement such that the claiming party is contractually estopped (prevented) from pursuing a claim.

In late 2013, the Court of Appeal handed down judgment in Green and Rowley -v- Royal Bank of Scotland. The appellants sought to overturn the first instance decision by arguing the mere existence of the Conduct of Business (COB) rules gave rise to a corresponding duty of care at common law.

The appeal was dismissed. The Court of Appeal confirmed there was nothing to justify imposing a common law duty of care on banks to advise on the nature of the risks inherent in a regulated transaction such as an interest rate swap. The bank in this case did not transgress from providing information about the product to giving specific advice. Without the provision of advice there was neither a justification nor a requirement to impose a common law duty of care which was independent but also co-extensive with the statutory remedy provided by Section 150 of the Financial Services and Markets Act 2000 (FSMA 2000). This decision was welcomed by the banks. It highlights the detailed analysis of evidence required before commencing a court action in such a claim. However, it is clear that it is highly fact sensitive. The appellants did not seek to appeal the factual finding that the bank did not provide advice and they conceded at first instance (possibly incorrectly) that they were time-barred from pursuing an action in accordance with Section 150 of FSMA 2000. As such they could not rely on a breach of the COB rules.

The decision in fact has not signalled the end of such claims but demonstrates the extensive factual analysis that needs to be undertaken before such claims can proceed.

In the recent case of Crestsign Limited –v- National Westminster Bank Plc (2014) EWHC 3043 (Ch) further guidance was given on the interaction between the bank’s duty of care and the contractual terms.

Although the judge, Mr Tim Kerr QC, decided that due to the disparity between the parties’ knowledge and expertise there was sufficient evidence to establish that the bank did owe a duty of care when advising Crestsign in respect of the full nature of the product offered, he nevertheless determined that the bank had successfully excluded liability for such a breach of duty by clauses set out within the contract which had sufficiently been brought to the attention of Crestsign. In particular, he ruled that It could reasonably have been expected that Crestsign would rely upon the skill and judgement of the bank’s representative when recommending certain products. A bank which undertook to explain the nature and effect of a product owed a duty to take reasonable care to do so as fully and properly as the circumstances dictated. He explained that if a contractual clause states that no advice was given it is to be construed by the court, as either a basis clause or an exclusion depending upon its content and context. If advice is given outside the terms of a contract an assumption of responsibility for that advice might arise but it can be negated by an appropriate disclaimer.

In the circumstances of this case documents had been produced for Crestsign specifically identifying that the relationship between the parties was one in which advice was not being given. These clauses were drawn to the attention of Crestsign and were properly meant to have legal and binding effect as part of the contract. Mr Kerr QC did not find anything wrong with the resulting situation which was one where the bank’s representatives was effectively saying to the claimant ‘although I recommend one of these products as suitable the bank does not take responsibility for my recommendation; you cannot rely on it and must make up your own mind.’

As a result of the various disclaimers drawn to the attention of the claimant, Crestsign was contractually estopped from asserting there existed a duty of care upon which it intended to rely.

This case highlights that in the absence of a LIBOR element to a claim and a specifically identifiable misrepresentation, and where the basis of the claim vests in a consideration of common law principles only, the courtroom remains a precarious hunting ground for claimants.

Tailored business loans – are the floodgates about to open?Finally, it is worth looking at the position regarding Tailored Business Loan (TBL). TBLs are a variable, fixed or structured loan which was provided by several of the main banks. They are a form of interest rate hedging product where the hedge is embedded into the loan and is not a separate product. They are not classified as derivatives and are not regulated by the FCA. Their sale did not fall within the FCA review announced in 2012. While seemingly straightforward products, customers encountered problems when they requested early repayment, or were forced to make early repayment by breaching a lending condition. The customers faced paying significant breakage costs of which they were unaware. Despite much pressure from consumer groups and MPs, TBLs remain outside the FCA review. However the Financial Ombudsman Service (FOS) may have signalled a change in attitude. FOS has overturned its original decision and ruled, in favour of a Scottish hotelier, that he was mis-sold a TBL. The hotelier attempted to exit the loan but was requested to pay breakage costs (not previously explained) - the equivalent of 16% of the loan. This decision has been welcomed by TBL customers. While each case is fact specific, it signifies that the door to redress for the mis-selling of TBLs may no longer be completely closed.

This is a developing area and if you are affected by any of the issues raised in this article or require any further information, please contact us:

Stewart Burrows [email protected]

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About Hill DickinsonThe Hill Dickinson Group offers a comprehensive range of legal services from offices in Manchester, Liverpool, London, Sheffield, Piraeus, Singapore Monaco and Hong Kong. Collectively the firms have more than 1300 people including 180 partners.

The information and any commentary contained in this newsletter are for general purposes only and do not constitute legal or any other type of professional advice. We do not accept and, to the extent permitted by law, exclude liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this newsletter. Whilst every effort has been made when producing this newsletter, no liability is accepted for any error or omission. If you have a particular query or issue, we would strongly advise you to contact a member of the dispute resolution team, who will be happy to provide specific advice, rather than relying on the information or comments in this newsletter.

Changes to Alcohol Duty Regulations 2014Are you involved in the supply and carriage of alcohol or aware of the implications of the new duty regulations implemented by HMRC from 1 November 2014? Are your procedures and policies compliant?

Forthcoming events for 2015Annual in-house lawyers forum – update on contract, employment and intellectual property law. September and October 2015

To register, please contact Moya Clifford: [email protected].

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A series of new regulations came into force on November 2014 that place stringent due diligence requirements on businesses involved with the supply and carriage of alcohol and will affect hauliers.

The new regulations will principally affect traders and oblige them to:

• consider the risk of alcohol duty fraud within their supply chains;• conduct and record reasonable and proportionate checks to establish

transactions that may lead to duty fraud, or involve goods on which duty may have been evaded;

• have procedures in place which will enable appropriate, firm action to be taken where a risk of fraud is identified; and

• have effective anti-fraud policies in place to ensure that regular checks are conducted to avoid issue with HMRC.

We would strongly urge that hauliers adopt the same approach and comply with the regulations.

Hill Dickinson and expert investigators SKS (GB) Limited have extensive experience of protecting haulier clients from HMRC’s increasingly intrusive approach to alcohol transportation and recovery of duty on alcohol goods. HMRC are undoubtedly focusing on hauliers as an ‘easy target’ for duty assessments. In a recent case, a haulier was assessed for a duty payment of £250,000 on the carriage of ten loads of alcohol on which the profit for the haulier was less than £1000. There is therefore a significant financial and reputational risk to hauliers.

We have the unique capability to review and make compliant your existing procedures and policies, as well as making your business a difficult target for HMRC in any potential action.

Simon Ellis [email protected]

Alex Smith [email protected]

hill dickinson contentious business update winter 2015

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general duty of good

concept of good faith

leap of faith

english law

common law duty of carechanges

term of mutual good

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