Contract Law Highlights of 2015

Transcription

1 Lunch & Learn Christmas Special Contract Law Highlights of December 2015 Alistair Maughan, Sue McLean, Sarah Wells, Mercedes Samavi 2014 Morrison & Foerster (UK) LLP All Rights Reserved mofo.com

2 Lunch & Learn 2 nd Monday of each month 45 minutes via webinar Unaccredited CPD points 2

3 Today Questions at the end. Or us afterwards Phones are muted to reduce background noise We ll unmute at the end

4 Today s Agenda Lots of Old Chestnuts Liquidated Damages Implied Terms Contract Interpretation Limitation of Liability 4

5 Liquidated Damages Cavendish Square Holdings v El Makdessi [2012 1st instance; 2013 Court of Appeal; 2015 Supreme Court] penalty is unenforceable tests: genuine pre-estimate of loss or commercial justification Court considers interpretation at time contract entered into Is there a genuine pre-estimate of loss? Is there a commercial justification? Is the provision extravagant or oppressive? Is the predominant purpose of the provision to deter breach? If relevant, was the provision negotiated on a level playing field? 5

6 Penalties Supreme Court Court of Appeal decision overturned these were not unenforceable penalties A new test: Primary or Secondary obligation? Is the clause a Primary obligation? Is the clause a Secondary obligation? If so, does it impose a remedy out of all proportion to the parties legitimate interests? Is it penal? Is a better question than Is it a genuine pre-estimate Reluctance to Interfere with Contracts 6

7 Implied Terms Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited and another [2015] UKSC 72 Landlord and tenant dispute Break clause exercised as of 24 January 2012 but rent paid for the quarter 25 December 2011 to 25 March 2012 Could the apportioned rent from 24 January to 24 March be recovered despite there being no express term to this effect? Held: No while lack of reimbursement could be capricious or anomalous, the contract is not unworkable, and the result is not commercially unreasonable Belize Telecom reasonableness vs. BP Refinery and obviousness or business efficacy 7

8 Lessons learnt Implied Terms Implication is different to the process of construction/interpretation of the contract. The courts should construe the express words, and then decide whether a term should be implied or not. One is not construing words when implying a term as the words are not there to be construed If you strike a bad bargain, don t expect the courts to rewrite its terms in your favour. A term will only be implied if it satisfies the test of business necessity or it is so obvious that it goes without saying Be specific the courts will not fill in the blanks 8

9 Contractual Interpretation Arnold v Britton and others [2015] UKSC 36 9

10 Contractual Interpretation Two stage test 1. Find the meaning that is most obviously gleaned from the language of the provision, through the eye of a reasonable reader 2. If the natural meaning is unclear, introduce tools such as commercial common sense to help with interpretation There are some caveats Cannot use second stage retrospectively Use second stage at the time the agreement was made, not at the time the claim is heard in court Practicalities Be clear when drafting contracts Discuss intentions and meaning before the contract is signed 10

11 Limitation of Liability Scottish Power UK Plc v BP Exploration Operating Company Ltd and other [2015] EWHC 2658 Dispute relating to failure to provide natural gas supplies Scottish Power claimed 85 million in damages Contract provided remedy for underdeliveries in full satisfaction and discharge of all rights, remedies and claims howsoever arising whether in contract or in tort or otherwise in law Exclusion clause neither party shall be liable to the other for any loss of use, profits, contracts, production or revenue, howsoever caused. 11

12 Limitation of Liability Default Gas was an exclusive remedy for underdeliveries The normal loss of non-delivery is the difference between the contract price and the market price. The exclusion clause didn t expressly exclude this loss. What it excluded was secondary / downstream losses Demonstration of application of the principles in Arnold v Britton - a renewed emphasis on the natural and ordinary meaning of the words Drafting points Be careful when agreeing exclusive remedy clauses - consider the potential implications of a complete failure to deliver over an extended period Be clear as to the types of losses you are intending to exclude. Evaluate what terms such as loss of use / production will be taken to mean 12

13 Lunch & Learn Alistair Maughan Partner, European Technology Practice T: (+44) Sarah Wells Associate, European Technology Practice T: (+44) E: Sue McLean Of Counsel, European Technology Practice T: (+44) Mercedes Samavi Associate, European Technology Practice T: (+44) E: 13