UK: COT's Top Four Commercial Issues - July 2018

Welcome to this month's edition of our commercial review. For those of you heading off on summer breaks, we bring you some topical news on hotel booking sites, alongside case law updates on implied terms, reasonableness and basis clauses and a refresher in force majeure clauses.

Enjoy.

CMA enforcement action on hotel booking websites

If you're looking to book a last minute holiday this summer, you are probably familiar with messages telling you to 'Book now! One room left!' on hotel booking sites. This may become a thing of the past, with the Competition and Markets Authority (CMA) launching enforcement action against hotel booking websites late last month.

The CMA opened its investigation into hotel booking websites in October 2017 following concerns that common practices may be breaching consumer law. The CMA was concerned that the clarity, accuracy and presentation of information on sites could be misleading consumers and pressuring them into making uninformed purchasing decisions rather than taking time to find the best deal for them. In particular, the investigation examined:

  • Search results: the factors behind the ranking of search results and whether those factors were relevant to the customer's requirements;
  • Pressure selling: whether claims about how many people were looking at the same room, how many rooms were left or how long a price will be available for created a misleading impression of room availability or rushed customers into making a booking decision;
  • Discount claims: whether claims about discounts offered customers a fair basis for comparison; and
  • Hidden costs: whether sites included all costs in the price first shown to customers or whether there were hidden costs applied during the booking process.

Following its investigation, the CMA announced that it will be taking enforcement action against booking sites to address its concerns that some are breaking consumer protection laws, either by securing legally binding commitments that those sites concerned will change their business practices or, if necessary, taking them to court. Some cases have been referred to the Advertising Standards Authority for further investigation into misleading statements like "best price guarantee" and the CMA has also sent warning letters to sites, demanding that they review their terms and practices for fairness and compliance with consumer protection law.

To avoid falling foul of consumer protection laws, businesses should keep in mind the following:

  • Under the Consumer Protection from Unfair Trading Regulations 2008, an action is considered to be misleading if the overall presentation of information in any way deceives or is likely to deceive the average consumer about the existence or nature of the product, the nature of the sales process or the price and the manner in which the price is calculated (even if that that information is factually correct), and it causes or is likely to cause the average customer to enter into a transaction which it wouldn't have taken otherwise;
  • Any commercial practice that omits or hides material information, or otherwise provides material information in an unclear, ambiguous or untimely manner and causes or is likely to cause the average customer to enter into a transaction which it wouldn't have taken otherwise is considered a misleading omission and is prohibited under consumer protection law;
  • False statements that a product is available for a limited time, or will only be available on particular terms for a very limited time in order to elicit an immediate decision and deprive customers of sufficient opportunity to make an informed choice are considered unfair practice in all circumstances.

Implied terms

A recent case in the Court of Appeal (Bou Simon v BGC Brokers LLP [2018] EWCA 1525 (Civ)) provides a useful reminder that it is not appropriate to seek to imply a term in a commercial contract because it seems fair to do so with the benefit of hindsight. The case also provides insight into the circumstances where words that are deleted from a previous draft of a contract during negotiations can be taken into account in determining whether a term should be implied into a contract.

BGC Brokers made a payment to Mr Bou-Simon under a loan agreement which would be repayable if he became a partner as intended.  Mr Bou-Simon subsequently resigned without becoming a partner.  BGC claimed it was entitled to the money on the basis that there was an implied term in the agreement with Mr Bou-Simon that, if he left employment within an initial period as he did, the money became repayable in full. The judge at first instance agreed with BGC.

The Court of Appeal disagreed. It took the view that the judge at first instance had implied a term in order to reflect the merits of the situation as they now appeared rather than to the obvious intentions of the parties at the time of contracting. In fact, the matter should be looked at from the perspective of the reasonable reader of the agreement knowing all the circumstances at the time it was made. In this case, the implied term was not necessary to make commercial or practical sense of the agreement. It was also significant that the agreement would require significant re-writing to require repayment in the circumstances BGC were claiming.

The decision is also interesting for its discussion on deleted provisions in draft agreements. This was relevant because the parties had specifically deleted similar provisions from an earlier draft of the agreement. Mr Bou Simon claimed that the deleted wording demonstrated a clear intention by the parties not to include this term. In the event, the Court of Appeal rejected the implied term without reference to the deleted term, and so did not need to decide whether or not the deletions could be taken into account, but nevertheless expressed some interesting 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 relevant surrounding circumstances and not merely part of the course of negotiations.  Singh LJ, however, suggested that a wider approach may be justified where "consideration of deleted words may negative the implication of a term in the form of deleted words".

Reasonableness and basis clauses

The case of First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396 ("First Tower") has provided some much needed clarity to the question of whether or not basis clauses are subject to reasonableness.

Basis clauses are used widely in contracts to define the basis on which the parties are contracting, the scope of responsibility of the parties and, in particular, whether they have relied on any representations from the other side in entering into the contract. These clauses are often used by parties to avoid claims of misrepresentation, as the courts will uphold them and they will not be subject to any reasonableness test, as long as they clearly cover the duties in dispute.

Prior to First Tower, the key factor in deciding if the reasonableness test in the Unfair Contract Terms Act 1977 ("UCTA") applied was whether the basis clause was drafted as an exclusion clause or a no primary obligation clause.

In IFE v Goldman Sachs [2006] 1 Lloyd's Rep 264 Toulson J distinguished the two types of clauses using a car salesman as an example:

  • An exclusion clause is where the salesman makes a representation that the mileage reading was accurate, and later makes a statement that the representation cannot be relied on and therefore excludes liability for that representation.
  • A no primary obligation clause is where the salesman makes a statement that the mileage is a particular figure but that he has no idea about the accuracy of the reading and thus makes no representation about the accuracy of the reading.

Exclusion clauses were subject to reasonableness, whereas no primary obligation clauses were not. The cases of Peekay Intermark Ltd v Australia and New Zealand Banking Group [2006] 1 CLC 582 and Springwell Navigation Corp v JP Morgan Chase Bank [2010] 2 CLC 705 identified that basis clauses drafted as no primary obligation clauses arguably gave rise to a new kind of contractual estoppel, whereby if parties were free to agree the basis on which they were dealing then they would be held to their bargain and not subject to reasonableness.

First Tower held that a statement of non-reliance on a representation should be treated as exclusion clause and subject to the reasonableness test. Lewison LJ suggested in First Tower that the test for deciding whether a clause was an exclusion clause or a no primary obligation clause was to ask what the position would be in the absence of the clause i.e. whether or not that party could claim that a pre-contractual representation had been made and claim damages for negligent misrepresentation. On this basis, many basis clauses may now be subject to a reasonableness test regardless of whether they are drafted as exclusion clauses or no primary obligations clauses.

Notwithstanding this, Lewison LJ appears to think that in the majority of cases where both parties are sophisticated the test will be easily satisfied. However, the position may be different where one party is an individual or an SME. It is therefore entirely possible that the same clause may satisfy the reasonableness test in a contract with a sophisticated institutional investor and fail it in a contract with an SME.

Voldemort strikes back – a refresher in force majeure clauses

Whilst disappointingly this not the next part in the Harry Potter series, it is an important reminder that in order to rely on a force majeure clause: 

  1. under common law the force majeure event must be the sole cause of the failure to perform an obligation; and 
  2. when considering secondary obligations usually found in force majeure clauses (e.g. reasonable endeavours to avoid, overcome and mitigate the force majeure) consideration must be given to the interests of the other party in addition to your own.

 
The defendant Tullow was operating oil fields in Ghana and had hired from Seadrill, the claimant, a deepwater rig called West Leo. As Mr Justice Teare accurately states in his opening paragraph "drilling for oil is a risky business" and during the contract period two events happened which meant that there was no further work for West Leo: (1) a moratorium was imposed by the Government of Ghana in May 2015 which meant that no new wells could be drilled; and (2) in early 2016 the Government of Ghana refused drilling in a region called the Greater Jubilee Field where West Leo was due to drill.

The force majeure clause stated that:

"Neither the company nor the contractor shall be responsible for any failure to fulfil any term or condition of the contract if and to the extent that fulfilment has been delayed or temporarily prevented by an occurrence, as hereunder defined as a Force Majeure…and which by the exercise of reasonable diligence, the said party is unable to prevent or provide against. Both parties shall use their reasonable endeavors to mitigate, avoid, circumvent or overcome the circumstances of the Force Majeure." "Drilling Moratorium" was listed as a Force Majeure event.

Tullow ceased to pay the daily rate of hire and terminated the hire contract by reference to the force majeure clause in the contract (i.e. the drilling moratorium). Tullow's argument was undermined slightly by Seadrill's discovery, during the disclosure process, of Tullow's "Project Voldemort" which Seadrill alleged was a project devised by Tullow to find a way out of the West Leo contract due to the fall in oil prices and the hire rate of an oil rig – therefore counsel for Seadrill argued that Tullow's reliance on the force majeure clause was not legitimate. Naturally we assume that Tullow's management are big Harry Potter fans - not that the spirit of the project was analogous to the cunningness of Lord Voldemort's character.

The question that the judge asked himself was whether the moratorium was a force majeure event and, if so, whether Tullow had exercised reasonable endeavours to remedy or avoid the force majeure. If not, Seadrill was entitled to payment at the contract rate ($277.4 million in total).

On a reading of the clause the judge found that the question was whether "a force majeure was the cause" of Tullow being unable to fulfil its obligations - the judge acknowledged that although there were two causes of Tullow's lack of drilling programme, the refusal by the Government to let Tullow drill in the Greater Jubilee region (which was not a force majeure) was the effective cause of Tullow's failure to perform.  While the moratorium prevented Tullow from drilling a new well and completing it with West Leo, Ghana's failure to approve the Greater Jubilee plan was a greater impediment to the Tullow's plans.

In relation to the reasonable endeavours obligation, which due to the judge's finding in respect of causation was purely academic, Seadrill argued that: (i) Tullow had several wells requiring workovers in October 2016 when West Leo was otherwise idle; and (ii) Tullow failed to assign West Leo to those wells and so did not satisfy the reasonable endeavours obligation.

Tullow argued on the other hand that there was no business case for working on any of the wells suggested by Seadrill or that it was not in Tullow's commercial interests to do so. However the judge stated that the mere fact that a step is contrary to the commercial interests of a party is insufficient to show it has exercised reasonable endeavours and the party cannot ignore the commercial interests of the other party in the force majeure being avoided or circumvented.

In considering whether a party can rely on a force majeure event, the ultimate question is one of construction and so although the force majeure boilerplate often gets overlooked – where the commercial contract concerns "risky business" it is important to consider causation and what would or would not be expected from each party when exercising "reasonable endeavours".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions