10 Oct

God is in the Detail

In Momonakaya v the Ministry of Defence [2019] EWHC 480 (QB) (05 February 2019)

the High Court held that a minor breach in relation to a Part 36 offer did not necessarily invalidate the offer.

Here, the breach was in relation to CPR 36.22(7) which provides:

“(7) If at the time the offeror makes the Part 36 offer the offeror has applied for, but has not received, a certificate, the offeror must clarify the offer by stating the matters referred to in paragraph (6)(b) and (c) not more than 7 days after the receipt of the certificate”.

Reference to the certificate is to a Compensation Recovery Unit certificate and the reference to (6)(a) and (b) is in relation to the gross amount of compensation and the name and amount of any deductible amounts by which the gross amount is reduced.

The certificate had not been received and therefore the offeror should have provided that information, but here failed to do so.

However, both parties were aware of the CRU figure from a previous, expired, certificate, and due to the period that had elapsed since the accident there would be no more deductions; this is known as the five-year rule.

The defendants successfully argued that the solicitors instructed by the claimant therefore had as much understanding and knowledge and ability to appreciate the position as the defendant itself in terms of such deductions.

Here the court concluded:

“…the failure to comply with that one sub-rule in r.36.22(7) is de minimis. It is not of any lasting consequence; no prejudice has been suffered. There was clarity between all parties as to what was being agreed and therefore I have come to the conclusion that Part 36 does apply so as to stay these proceedings.”

02 Sep

Court of Appeal Reinvigorates “Private Dictionary” Principle

The Court of Appeal has handed down judgment in NHS Commissioning Board v Dr Vasant and others, dismissing the NHS’s appeal and accepting the Respondent dentists’ case that the written variation of their General Dental Services Contract with the NHS to include Intermediate Minor Oral Surgery (IMOS) services, was sufficiently certain to give rise to a valid contract. The practical effect is that the contract to provide the IMOS services is of indefinite duration and cannot be terminated by the NHS without cause. The NHS had argued that the variation which consisted solely of the addition of the words “Providing an Advanced Mandatory Service in the form an of Intermediate Minor Oral Surgery (IMOS) service” was too uncertain to give rise to a valid contract because it failed to specify the nature of the service and any of the arrangements for its provision, including price. Recourse could not be had – so the NHS argued – to extrinsic material either to incorporate or imply terms into the contract because this was precluded by a combination of a No Oral Modification Clause and an Entire Agreement clause.

Lewison LJ (with whom the other members of the Court agreed) held that the effect of the No Oral Modification Clause in conjunction with the Entire Agreement Clause was indeed to preclude further terms being incorporated by a previous course of dealing into the contract. However, Lewison LJ accepted the Respondents’ argument that the phrase “IMOS service” was well-known to the parties because the dentists had provided the service pursuant to an earlier contract and that, according to the private dictionary principle, this extrinsic evidence was admissible to give meaning to the phrase. This applied in particular to the description of what constituted an IMOS service which was contained in the appendix to the parties’ earlier contract as well the statement in the same document that a fee would be negotiated between the parties. This principle was not affected either by the No Oral Modification Clause or the Entire Agreement Clause. Nor did the provision stating that fees would be negotiated render the description void for uncertainty as the courts will readily imply a term that a fair price will be paid for services into a continuing contract for services.

31 Mar

That’s enough LADs: Court of Appeal concludes that liquidated damages may not be recoverable after termination

The facts of Triple Point Technology Inc -v- PTT Public Company Ltd are actually of little relevance here, save to note that Triple Point was engaged by PTT to provide certain software solutions under a contract that had key milestone dates and a provision for liquidated damages. The work was divided into key phases, and Triple Point achieved completion of Stages 1 and 2 of Phase 1 late and then continued to work on the remainder of the work. The parties then fell into dispute over the payment of invoices, Triple Point suspended the works and PTT terminated claiming Triple Point had wrongfully terminated. Although not a construction contract, it is easy to see how these facts are similar to scenarios which occur frequently on construction projects when a construction project goes wrong, it usually goes into delay before any termination. The employer will then be left trying to recover their losses which will include both the extra over cost of having another contractor complete the works and the losses stemming from delay.

Issues in dispute – when might LADs apply?

In the original case (before the TCC), the judge awarded $3,459,278.40 as liquidated damages for delay pursuant to Article 5.3 of the contract. On appeal, Triple Point argued that Article 5.3 was not engaged because that Article only applies when work was delayed, but nonetheless completed and then accepted by the employer. They submitted that the clause does not apply in respect of work which the employer never accepted, as in this case.

Sir Rupert Jackson considered three different options in respect of the validity of liquidated damages clauses in the event of termination of the contract, which I have converted into a visual for the purposes of this article:

LADs forever?

The Court of Appeal had no difficulty in rejecting option (iii), despite it having been preferred in Hall v Van der Heiden (N0 2) [2010] (a pure construction case) which was in turn followed by the High Court of Hong Kong in Crestdream v Potter Interior Design [2013] and, the High Court in GPP Big Field LLP v Solar EPC Solutions SL [2018] (regarding the construction of a solar facility). Sir Rupert Jackson held that “If they are correct, it means that the employer and the second contractor can control the period for which liquidated damages will run.” It will be of interest to readers to note that the relevant contract in Hall was a JCT Minor Works Building Contract (with contractor’s design).

Best of both?

The orthodox position was, arguably until this judgment, option (iii), where the measure of damages was split. There is considerable logic behind this interpretation but the Court noted that there are some difficulties, suggesting that “It may be more logical and more consonant with the parties’ bargain to assess the employer’s total losses flowing from the abandonment or termination, applying the ordinary rules for assessing damages for breach of contract.”

Sir Rupert Jackson concluded that option (iii) may apply, depending on the wording of the clause.

No LADs!

In the present case then, the Court of Appeal concluded that the wording of the relevant clause of the contract was inconsistent with an intention for it to apply in circumstances where the works were not completed by the original contractor. The Court followed British Glanzstoff Manufacturing Co. Ltd v General Accident, Fire and Life Assurance Co. Ltd [1912] in which the Court of Sessions had concluded that the clause allowing unliquidated damages on termination was an alternative to the remedy of liquidated damages for delay under clause 24.

It should be noted that again, Sir Rupert Jackson was keen to emphasise that this was a matter of the interpretation of the precise clause in the contract before the court: “In some cases, the wording of the liquidated damages clause may be so close to the wording in Glanzstoff that the House of Lords’ decision is binding. That is a decision of our highest court, which has never been disapproved.” He did, however, go on to conclude that the present case was one such case and that he considered Glanzstoff to be binding to the extent that the liquidated damages provision fell away in respect of works not completed at the point of termination. This meant that PTT could recover LADs for the late delivery of stages 1 and 2 of phase 1 but had to prove actual losses for the remainder of the works.

Another case of it depends

Sir Rupert Jackson and the Court of Appeal were charged with applying the law to the facts in respect of the specific case before them. The judgment does this in the clearest terms but does not, despite what some commentators may claim, set down new and conclusive rules about entitlement to claim LADs as apart of damages following the termination of a building contract. At paragraph 110 of the judgment, Sir Rupert Jackson stated “In my view, the question whether the liquidated damages clause (a) ceases to apply or (b) continues to apply up to termination/abandonment, or even conceivably beyond that date, must depend upon the wording of the clause itself. There is no invariable rule that liquidated damages must be used as a formula for compensating the employer for part of its loss.”

So what now?

If you are already in contract and the building works are in delay and you are considering terminating the contract (whether you are the employer or the contractor), it is important to get advice on all aspects of the prospective termination, including the likely basis of calculating damages for delay following this most recent judgment.

If you are not yet in contract and want certainty going forward, it is important to remember that the Courts will always look to give effect to the intentions of the parties when interpreting contracts. Clear and effective drafting in the schedule of amendments to your standard form building contract (or in your bespoke building contract) will be critical to ensure that you do not have any surprises in the event of termination coupled with delay.

16 Jan

Who has the burden of proof in bailment?

Volcafe Ltd and others (Appellants) v Compania Sud Americana De Vapores SA (Respondent) [2018] UKSC 61 On appeal from [2016] EWCA Civ 1103

Damage to coffee beans in transit. The Hague Rules must be read against the background of the common law rules on bailment . The Supreme Court reminded us of the two fundamental principles in the law of bailment: (i) a bailee of goods is only under a limited duty to take reasonable care of the goods, but (ii) the bailee nonetheless bears the legal burden of proving the absence of negligence.

 A contract of carriage governed by the Hague Rules is a contract of bailment unless excluded by the Rules and the Hague Rules do not exclude them.

The question of the burden of proof, which in accordance with ordinary principles of private international law are matters for the law of the forum .

The cargo owners brought a claim against the carriers for breach of their duties as bailees to deliver the cargoes in the condition recorded on the bill of lading and, alternatively, breach of article III, rule 2 of the Hague Rules for failure to “properly and carefully load, handle, stow, carry, keep, care for, and discharge the goods carried”. They alleged negligence by the carriers for failing to use adequate or sufficient Kraft paper.

The carriers pleaded “inherent vice” on the ground that the coffee beans were unable to withstand the ordinary levels of condensation forming on such a voyage.

The Supreme Court restored the judge’s factual findings (Donaldson LJ). Given the absence of evidence on the weight of the paper used, the Court decides that the carrier has failed to discharge its legal burden that it was not negligent.

12 Nov

Non Disclosure Agreements

Sir Philip Green has been named by Lord Peter Hain as the person who successfully sought an injunction to prevent a newspaper from printing allegations of sexual harassment and racism against him. The complainant had taken the decision to settle the potential claims with Sir Philip and had signed a non-disclosure agreement (“NDA”).

The old adage goes that “everything hidden is meant to be revealed, and everything concealed is meant to be brought to light”. In short, NDAs often don’t work because secrets will out. We cannot help talking about them, and the bigger the secret, the more the talk. For example, consider Donald Trump’s alleged NDA with Stormy Daniels, over his alleged affair.

Lawyers have tried to compel opposing parties to keep secrets for years, and are still trying to do so. NDAs of varying widths and lengths have been developed, sometimes with the best of intentions, just to resolve clients’ disputes and ensure that truly confidential and sensitive information is protected – but sometimes to avoid public opprobrium, and side step regulatory intervention, particularly when allegations of harassment or discrimination were made.

It should be borne in mind that the rules of procedure in the Employment Tribunal provide robust and tested controls to protect the anonymity of a claimant. With this in mind, the Women and Equalities Select Committee chair Maria Miller MP has called for a deep review of their use and legality, following the committee’s report on sexual harassment in the workplace.

But what is the best way of addressing the problem of abuse of NDAs while accepting that enforceable settlements are also in the public interest? And is any of this viable in an age of social media and the readiness of parliamentarians to use their privilege to name the alleged wrongdoer?

A similar problem emerged a few years ago with “super-injunctions”, where the courts ordered that the very existence of an injunction also had to be kept confidential.
The press hated these and sought to use social media and parliamentary privilege for others to say things that the press could not.

That problem was addressed not by legislation but by those involved — judges, lawyers and the media — forming a working group to put in place practical proposals to deal with the abuse of such injunctions. The gagging orders used to be notorious, but now it is rare to hear of them. A balanced overall approach may also be suitable here.

There certainly should be clear judicial guidance on the extent to which the press, who will not be parties to the NDAs, are ever bound to observe their terms. It is one thing to accept confidentiality willingly, it is quite another to, in effect, impose that same duty on a stranger to a contract.

Lawyers have a really important role to play. Barristers are required to act with honesty and integrity, to maintain public confidence in the profession, and to be open and co-operative with regulators. Similar obligations are imposed on solicitors by the Solicitors Regulatory Authority.

03 Oct

Deleted Words from a Draft

Bou Simon v BGC Brokers LLP [2018] EWCA 1525 (Civ).

The question for the Court was whether the trial judge had been correct to imply a term into a loan agreement requiring the appellant broker to repay a loan made by his employer in circumstances where he left the firm before the completion of the ‘initial period’ defined in his employment contract. The trial judge had found that such a term should be implied, applying the test in Marks & Spencer v BNP Paribas Securities [2016] AC 742. The Court of Appeal disagreed. It held that the judge had succumbed to the temptation warned against by Bingham MR in Philips Electronique [1995] EMLR 472 of implying a term to give effect to the merits of the situation as they appeared to the judge, rather than to the obvious intentions of the parties at the time of contracting.

The decision of the Court of Appeal is interesting for its discussion about the circumstances in which deleted words in draft agreements are admissible in determining whether a term should be implied into a contract. This question arose because, in a draft of the loan agreement, the employer had specifically put forward an express term similar to that which the judge implied, but the employee indicated that he did not agree to the inclusion of the term, which was subsequently deleted from the draft. In the event, the Court of Appeal rejected the implied term without reference to deleted term, and so did not need to decide whether or not the deletions could be taken into account, but nevertheless expressed some obiter views on the question.

According to Asplin LJ, deleted words from a draft agreement should only be admitted for the purpose of implication if they were part of the admissible background for the purposes of construing the express terms (para 30). She held that even if the parties had deleted a term which was identical to that which was sought to be implied, this fact could not be relied upon in order to rebut the proposed implication unless it was part of the relevant surrounding circumstances and not merely part of the course of negotiations.

Singh LJ, however, suggested that a wider approach may be justified. He indicated that he saw force in the suggestion in Lewison, The Interpretation of Contracts, that “the consideration of deleted words may negative the implication of a term in the form of deleted words.” (para 33). He also pointed out that, in circumstances where (post Marks & Spencer) it was now clear that the process of implying a term was different from that of construing express terms, the fact that the deletions may not have been admissible for the purpose of construction may not be determinative (para 34).

06 Aug


P&P Property Ltd v Owen White Catlin and Dreamvar (UK) Ltd v Mishcon de Reya [2018] EWCA Civ 1082

The Court of Appeal’s Judgment, handed down on 15 May 2018, in these cases means that both the seller’s solicitor and the buyer’s solicitor will automatically be in breach of trust, if property sale funds are paid to a sham seller, even if neither firm has been negligent.

The decisions in both cases are fact sensitive. In P&P the purchaser sued the seller’s solicitors Owen White Catlin (OWC) for breach of warranty of authority, breach of undertaking, negligence and breach of trust. To understand the final decision it is important to note two things. Firstly, the solicitor acting at OWC, Joyce Lim, accepted the vendor “Mr Harper” as her client despite the anti-money laundering (AML) check being referred because it wasn’t possible to identify him at the property address or verify his date of birth; nor did she check the credentials of the firm in Dubai who purported to verify his address. Secondly, Ms Lim herself signed the contract “on behalf of the Seller”.

The court referred to a “genuine completion”. The authority of the seller’s solicitors to release the purchase monies, which are held on a bare trust for the purchaser, to their own client depends upon “completion” occurring, explained Patten LJ. However the solicitor does not have authority to make that payment unless the transaction is a genuine sale; the exchange of purchase money for forged documents will not amount to completion: “nothing can come of nothing”. The rationale is that the seller’s solicitor does not have authority to release it to their client because they are not acting for the owner and supposed seller of the property.
A more controversial decision (literally because there is a compelling dissenting judgment from Gloster LJ on this point) was the decision to refuse relief to P&P’s own solicitors Mishcon de Reya (MdR) under section 61 Trustee Act 1961. The decision to refuse relief was upheld on the basis of the inequality of the position between MdR and its client, principally because MdR was insured.

The claim in negligence brought by P&P against OWC did not succeed – the Court of Appeal explaining that the “assumption of responsibility” is the foundation of liability in negligence and this is not one of those rare categories of cases where solicitors acting for a seller assume a duty of care to the buyer.

03 Jul

Contract is not void for common mistake

Triple Seven MSN 27251 Ltd v Azman Air Services Ltd [2018] EWHC 1348 (Comm).

In a recent decision, the High Court found that two five-year aircraft lease agreements were not void on the grounds of common mistake, where it was understood that the aircraft would be used to undertake airlifts for the Hajj and Umrah pilgrimages and the required regulatory approval was not obtained.

At the time of the contract the parties had shared a mistaken common assumption about the possibility of obtaining approval, when in fact approval had already been refused.

However, the court found that the mistaken assumption was not sufficiently fundamental. It did not render the lease agreements “essentially and radically different” from what the parties had understood, nor impossible to perform, and therefore the agreements were not void due to the common mistake. In any event, the lease agreements allocated the risk of not obtaining approval, which meant the doctrine of common mistake could not apply.

The court considered the leading cases on the pre-requisites for a contract to be held void on the grounds of common mistake, and distilled the following six principles:

  1. At the time the contract was made, the parties must have substantially shared an assumption as to the existence of a certain state of affairs.
  2. That shared assumption must have been fundamental to the contract.
  3. That shared assumption must have been wrong at the time the contract was made.
  4. By reason of the assumption being wrong, the contract or its performance would be essentially and radically different from what the parties believed to be the case, or impossible to perform, having regard to the shared assumption. In other words, there must be a fundamental difference between the assumed and actual states of affairs.
  5. The parties, or at least the party relying on the common mistake, would not have entered into the contract had the parties been aware that the shared assumption was wrong.
  6. The contract must not have made provision in the event that the common assumption was mistaken.

Accordingly, Triple Seven were awarded damages for breach of contract in the sum of approximately US$ 22 million.

22 May

Formal written requirements for the validity of variation of a simple contract

Formal written requirements for the validity of variation of a simple contract- Rock Advertising Limited v MWB Business Exchange Centres Limited [2018] UKSC 24

A No Oral Modification clause “NOM clause” has been used to prevent an oral modification. “What the parties to such a clause have agreed is not that oral variations are forbidden, but that they will be invalid. The mere fact of agreeing to an oral variation is not therefore a contravention of the clause. It is simply the situation to which the clause applies. It is not difficult to record a variation in writing, except perhaps in cases where the variation is so complex that no sensible businessman would do anything else. The natural inference from the parties’ failure to observe the formal requirements of a No Oral Modification clause is not that they intended to dispense with it but that they overlooked it. If, on the other hand, they had it in mind, then they were courting invalidity with their eyes open.” (per Sumption LJ)

“The NOM clause will remain in force until they both (or all) agree to do away with it. In particular it will deprive any oral terms for a variation of the substance of their obligations of any immediately binding force, unless and until they are reduced to writing, or the NOM clause is itself removed or suspended by agreement. That fully reflects the autonomy of parties to bind themselves as to their future conduct, while preserving their autonomy to agree to release themselves from that inhibition.” (Per Briggs LJ)

24 Apr

Intention to create legal relations

Intention to create legal relations Jeffrey Ross Blue v Michael James Wallace Ashley [2017] EWHC 1553 (Comm) 26 June 2017

In July 2017 Leggatt J had to decide whether a ‘gentleman’s agreement’ made at the Horse & Groom public house between Newcastle United owner and Sports Direct boss, Mr. Mike Ashley, and former Investment Banker, Mr. Jeffrey Blue, had formed a legally enforceable contract. Mr. Blue claimed that during conversations on an evening of drinking Mr. Ashley had agreed to pay him a bonus of £15 million if, within three years, he helped to raise Sports Direct shares from £4 to £8. Mr. Blue agreed to provide his consultancy services.

“where parties intend to create a contractual obligation, the court will try to give it legal effect. The court will only hold that the contract, or some part of it, is void for uncertainty if it is legally or practically impossible to give the agreement…any sensible content”.

Mindful of the unreliability of evidence based on recollection, Leggatt J was unable to find, on balance, that an agreement was reached between Mr. Ashley and Mr. Blue. There was no intention to create legal relations. He reached that conclusion for eight main reasons:

(a) the public house setting;

(b) the purpose of the occasion being to secure enthusiastic support from ESIB rather than to discuss an incentive for Mr. Blue;

(c) the nature and tone of the conversation was not serious but more akin to “banter”;

(d) the lack of commercial sense in throwing so much money at Mr. Blue when far less would have sufficed;

(e) the incongruity with Mr. Blue’s role in that it would have been an “inherently absurd” and “fanciful” idea that Mr. Blue alone could just “get” the share price to double;

(f) the vagueness of the offer;

(g) the perceptions of the ESIB witnesses was that the offer was not serious and;

(h) Mr. Blue probably did not perceive the agreement as serious as he did not think it necessary to make any written record and waited nearly a year before mentioning the agreement to Mr. Ashley.