Contract Law: legal issues to bear in mind when negotiating contracts. Jayne Bentham Paolo Caldato

Transcription

1 Contract Law: legal issues to bear in mind when negotiating contracts Jayne Bentham Paolo Caldato 14 May 2015

2 What will this session cover? Some drafting pitfalls Governing law and choice of forum clauses just boiler-plate, right? Limitation of liability clauses and the law of unintended consequences Termination for convenience and more on the law of unintended consequences What if I do not bother executing a written contract at all? 1 / B_LIVE_EMEA1: v1

3 Governing law and choice of forum clauses Masri v Consolidated Contractors Dispute concerning the profits arising from an oil concession in Yemen One-page contract drafted and signed by parties in a hotel room in London, on headed notepaper of an English company in the CCC group (headquartered in Greece and Lebanon) Contract had no governing law or choice of forum clause Dispute arose in 2004; our client brought a $30 million+ claim for breach of contract, asserting that the contract was governed by English law Seven years later, the dispute settled, after: Four-year jurisdiction battle (multiple trips to Court of Appeal, House of Lords) Five-year enforcement battle across 12 jurisdictions with over 30 judgments 2 / B_LIVE_EMEA1: v1

4 Governing law and choice of forum clauses Air Transworld Limited v Bombardier [2012] EWHC 243 (Comm) Gilbraltarian claimant sought a declaration that it had validly rejected an aircraft from the Canadian defendant, relying on implied terms of SGA1979 Contract was based on Bombardier s standard agreement and excluded implied terms, but claimant said these cannot be excluded under UCTA Late in negotiations, governing law clause changed as part of horse-trading from laws of Quebec to laws of England and Wales Judge found that the agreement was an international supply contract, meaning that UCTA did not apply and the Claimant s case failed entirely Under laws of Quebec, it might have succeeded owing to difficulty in excluding implied good faith obligations. 3 / B_LIVE_EMEA1: v1

5 Governing law and choice of forum clauses Air Transworld Limited v Bombardier 4 / B_LIVE_EMEA1: v1

6 Governing law and choice of forum clauses Specialist advice resources available from Simmons & Simmons Governing Law, Jurisdiction and Enforcement Risks microsite Comprehensive practical guide Country-specific tear-sheets Summary flow-chart to walk you through the process (soon to be interactive!) Updated at least every six months Enforcement-Risk 5 / B_LIVE_EMEA1: v1

7 Governing law and choice of forum clauses Summary Governing law and forum clauses need to reflect the risks arising out of the location and nature of the assets and counterparty DON T focus only on where you are based As Lord Bingham observed too truly It is one thing to recover a favourable judgment; it may prove quite another to enforce it The House of Lords, July 2009 (Masri v Consolidated Contractors) The Governing Law, Jurisdiction and Enforcement Risk elexica microsite contains everything you need 6 / B_LIVE_EMEA1: v1

8 Limitation of liability AB v CD [2014] EWCA Civ 229 CD owned the intellectual property rights in a mining and metals e-marketplace AB obtained a licence to market the platform in the Middle East The licence contained a clause capping any recoverable damages and excluding liability for loss of profits CD sought to terminate the licence; AB: Disputed CD s contractual right to do so Sought an interim injunction requiring CD to continue to perform its obligations under the licence 7 / B_LIVE_EMEA1: v1

9 Limitation of liability AB v CD [2014] EWCA Civ 229 High Court: injunction refused: AB had an adequate remedy in damages Court of Appeal: appeal allowed and injunction granted: There is a distinction between the primary obligation (and commercial expectation) of contractual performance and the secondary requirement to pay damages for breach The claimant would still need to show that, absent the limitation clause, a breach (or threatened breach) would give rise to a substantial risk of the claimant suffering a recoverable loss 8 / B_LIVE_EMEA1: v1

10 Limitation of liability Summary Limitation of liability clauses are not the agreed price for a breach and do not excuse the primary obligation of contractual performance Careful quantification needs to be taken at the drafting stage to ensure that the other party is left with adequate recourse to damages in the event of a breach Where a party to a contract stipulates that if he breaches his obligations his liability will be limited or the damages he must pay will be capped, that is a circumstance which in justice tends to favour the grant of an injunction to prohibit the breach in the first place. Laws LJ, AB v CD [2014] EWCA Civ 229 Otherwise, on breach, damages may not be an adequate remedy, and injunctive relief may be needed to give effect to the parties commercial expectations 9 / B_LIVE_EMEA1: v1

11 Termination for convenience Comau UK Limited v Lotus Lightweight Structures Limited [2014] EWHC 2122 (Comm) Claim for lost profits following an alleged common law repudiatory breach of contract Comau had contracted to provide goods and services to Lotus The contract contained the following clause: In addition to any other rights of Lotus to terminate the Contract Lotus may, at its option, and provided it is not then in breach of any payment obligation to [Comau] under the Contract immediately terminate the whole of the Contract but not only part at any time and for any reason, by giving written notice to [Comau] 10 / B_LIVE_EMEA1: v1

12 Termination for convenience Comau UK Limited v Lotus Lightweight Structures Limited [2014] EWHC 2122 (Comm) Lotus delayed payments and Comau subsequently terminated the contract and brought proceedings (and summary judgment) to recover its loss of profit The court found that Comau s expectation interest of profit for the duration of the contract was unfounded: Lotus could have terminated the contract at any stage by exercising a termination for convenience clause Damages must be assessed on the least onerous obligation Comau s quantification of loss was too high and that it would only recover nominal damages at best even if it succeeded at trial 11 / B_LIVE_EMEA1: v1

13 Termination for convenience Summary Such clauses may significantly limit any recoverable compensation following breach of contract The Court is required to assume that the party in breach would terminate for convenience, at the earliest possible date, if entitled to do so The plaintiff cannot prove a contract for performance of the more onerous obligation. Atkin LJ, Abrahams v Herbert Reiach Ltd [1922] 1 KB / B_LIVE_EMEA1: v1

14 Contracts by conduct Reveille Independent LLC v Anotech International (UK) Ltd [2015] EWHC 726 (Comm) Alleged contract between Reveille (US TV company) and Anotech (UK cookware distributor) for certain IPR and product placement rights concerning three episodes of MasterChef US Short-form agreement negotiated, but was intended to be replaced in due course by a long-form agreement (but never was, owing to negotiation breakdown) Short-form agreement stated to be: Binding only if fully-signed (which it wasn t; only the defendant had signed) Subject to an unfulfilled condition precedent concerning resolution of a brands conflict with Gordon Ramsay 13 / B_LIVE_EMEA1: v1

15 Contracts by conduct Reveille Independent LLC v Anotech International (UK) Ltd [2015] EWHC 726 (Comm) Reveille alleged that the short-form agreement was binding, and alleged breach of contract by Anotech Question for the court was whether there had been acceptance by conduct and whether that acceptance had been effectively communicated to the defendant The fact that work envisaged by the short-form agreement had been carried out did not necessarily mean that there was acceptance by conduct, but was very good evidence to suggest such acceptance had occurred High Court found that there had been acceptance by conduct, and the condition precedent had been waived 14 / B_LIVE_EMEA1: v1

16 Contracts by conduct Summary Conduct can constitute acceptance even where the parties had envisaged acceptance by signing a written contract For conduct to constitute acceptance, it must be done with the clear (to the counterparty) intention of accepting the offer The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. Steyn LJ, G Percy Trentham Ltd v Archital Luxfer [1993] 1 Lloyds Rep 25 Where a written contract provides for a prescribed (non-conduct) method of acceptance, evidence will be needed that the offeror has waived that requirement The more significant and lengthy the work, the more likely to have been acceptance by conduct 15 / B_LIVE_EMEA1: v1

17 Key Contacts Jayne Bentham Partner Sign up to elexica and receive TMT legal updates and resources: elexica.com Paolo Caldato Supervising Associate Follow us on 16 / B_LIVE_EMEA1: v1

18 Contract Law: legal issues to bear in mind when negotiating contracts simmons-simmons.com This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name Simmons & Simmons or one or more of those practices as the context requires. The word partner refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP s affiliated practices. For further information on the international entities and practices, refer to simmonssimmons.com/legalresp. Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address. 17 / B_LIVE_EMEA1: v1

19 elexica resources relevant to this session Our dedicated Governing Law, Jurisdiction and Enforcement Risk microsite provides a multijurisdictional guide to key choice of law and forum topics Visit the Events page for forthcoming seminars and training days and the Training page for video recordings, podcasts and slides Request a demo Contact elexica@simmons-simmons.com or speak to your usual Simmons contact to find out more. 18 / B_LIVE_EMEA1: v1