English law’s predictability, strength of judicial precedent, and emphasis on upholding and respecting parties’ commercial bargains means it continues to be an attractive choice of law. It has also survived the macro-economic storms imposed by Brexit and Covid-19 in recent years.
New challenges have arisen which the courts are having to grapple with due to the emergence of new technology such as the ownership of digital assets, smart contracts, and AI generated contracts. Despite this, English law has proven itself to be adaptable to change.
Although the pipeline for the year ahead looks relatively dry, there is only one substantive Supreme Court case which appears to have a narrow application (Herculito Maritime Ltd v Gunvor International BV – relating to a proper interpretation of a charter agreement and bills of lading for a vessel in respect of losses due to a seizure by pirates), and nothing significant is expected in the lower courts. However, there are a few important cases to be aware of from 2023 when reviewing or drafting commercial contracts which are summarized below:
Iterative approach by the courts
1 A dispute regarding the lease of commercial premises in Whitechapel and Liverpool. The landlord claimed £400K in service charges (significantly higher than in the previous years), which the tenant objected to as “excessive” and included “unnecessary items and expenses outside the scope of the service charge provisions.”
The landlord relied on a provision in the lease which allowed it to certify “the amount of the total cost and the sum payable by the tenant” and that amount would be “conclusive” in the absence of “manifest of mathematical error or fraud.” The tenant argued that the certificate was conclusive as to the landlord’s costs but not the tenant’s liability.
The Supreme Court disagreed with both arguments and provided its own interpretation of “pay now, argue later” – the certificate was conclusive as to the amount payable (subject to manifest error or fraud), but the tenant could subsequently dispute liability for the payment.
What does this mean for you?
There may be a trend towards a more contextual approach around contract interpretation, however there is no substitute for clear and precise drafting in determining a clause’s meaning. And, considering the contract as a whole is very important.
Implied / Express Terms
2A property developer (Mr. Barton) concluded an oral contract with Foxplace, a company that owned property (Nash House). The oral contract related to Mr. Barton finding a buyer for Nash House for Foxplace. The only express term agreed was that Mr. Barton would be paid £1.2m if he found a buyer and the property was sold for £6.5m. The sale was for £6m, and Foxplace claimed they owed nothing to Mr. Barton.
The Supreme Court found Mr. Barton was not entitled to anything as the £1.2m to be paid was contingent on the property being sold for £6.5m, and so there was no agreed obligations to pay in any other circumstances. There could be no implied terms as it would cut across the parties’ agreement.
What does this mean for you?
English courts prize certainty and party autonomy over judicial intervention. A lesson to include comprehensive express terms.
Exclusion of “loss of profits”
3EE provided MNVO services to Virgin Media. Virgin exercised its rights under the contract to received 5G services from Vodafone. Virgin also transferred its non 5G customers to Vodafone which EE claimed breached the exclusivity provisions within the MVNO agreement (the agreement however contained a clause excluding all liability for “loss of anticipated profits” – which would nullify damages if Virgin was in breach).
- The claim could not be characterised as a “loss of revenue claim” (the claim from EE must factor costs of services which makes it a loss of profits claim).
- The wording of the exclusion clause was clear, prominent and did not take away from the commercial effect of the agreement.
What does this mean for you?
An exclusion clause for “loss of profits” does not shield a party from all liability, however it can still significantly affect your ability to recover your losses should something go wrong.
Unfair Contracts Terms Act (UCTA)
4The purchase of 30 large coaches, 4 of which caught fire due to a defective cooling system. The purchase agreement was in standard form and excluded the implied term as to satisfactory quality.
The question for the court was whether the exclusion clause was potentially unreasonable and so unenforceable? The court concluded it was:
- Equal bargaining strength of the parties: may be in relation to the price but that does not mean also in relation to the terms. One party is having to rely on the standard terms of the other party.
- When an exclusion clause denies a party of any reasonable remedy (and the risk is not insured), the clause is likely to be unreasonable.
What does this mean for you?
It increases the chances of exclusion terms in standard terms being successfully challenged as being unreasonable. These clauses should be looked at carefully to see if the risk can be covered by insurance, or if they can be negotiated.
Liability Caps
A failed IT project between Drax (customer) and Wipro (provider). Drax claimed for 4 categories of loss: (a) misrepresentation, (b) Additional expenditure resulting from poor quality of work, (c) losses caused by delay to the project and (d) damages from termination.
The exclusion clause contained a cap on damages based on the charges “in the preceding 12 months from the date the claim first arose.” The question was whether this applied to all of Wipro’s claims or a separate cap for each claim. The court found in favour of Wipro that it applied to all claims.
The court based its interpretation on the wording on the clause which referred to “total liability” and did not contain any wording to suggest a per event cap (coupled with some commercial sense).
What does this mean for you?
Annual caps are easier to work with within agreements. Per event caps can be problematic and difficult to draft, leaving the door open for courts to interpret them in their own way.
Time is of the essence
5An agreement for the development and supply of software for a new car configurator. Clause 5.8 of the Development Agreement stated: “Time shall be of the essence regarding any date for delivery by the Supplier of any good or service specified in this agreement and the Completion Date.” The effect of the clause is to allow the customer to terminate if the goods are not delivered by the supplier in accordance with the delivery date. The court found that the detailed implementation plans imposed contractually binding dates.
What does this mean for you?
It is necessary to include specific tangible milestone delivery dates which would be contractually binding.
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