UK: News Update, Summer 1999 - General Commercial Law

Last Updated: 29 September 1999

COMPETITION LAW DEVELOPMENTS

UK

The Competition Act 1998

The Competition Act 1998 is now in place, and introduces a 'clone' of EC competition law in UK national law, as a separate system additional to EC competition law. When fully implemented in March 2000, it will wipe away much of the existing UK law on the subject (the Restrictive Trade Practices Act 1976, the Resale Prices Act 1976 and the Competition Act 1980). Its principal provisions include the following:

  • a prohibition on agreements which prevent, restrict or distort competition in the UK (vertical agreements, i.e. those between businesses at different levels of the supply chain, are not to be caught by this prohibition)
  • a prohibition on conduct amounting to an abuse of a dominant position in the UK (vertical agreements could be caught by this in certain circumstances)
  • any restrictive effect will need to be appreciable for the law to apply

The Office of Fair Trading will have the power to impose penalties for breach of the rules of up to 10 per cent of UK turnover, to order infringing agreements to be brought to an end, and to make urgent 'interim measures' orders, and third parties adversely affected by the prohibited conduct will have the right to sue those responsible for damages.

The Office of Fair Trading will have extensive new powers to obtain information and to carry out investigations, with obstruction, providing incomplete or misleading information etc. being punishable by criminal sanctions. 'Privileged' confidential communications between companies and their legal advisers will not have to be disclosed.

Points to watch: The Act will come into force on 1 March 2000, and there are transitional provisions to cover the period from November 1998 (when the Act became law) and that date. Detailed guidance notes and 'block exemptions' are currently being developed by the OFT and the DTI. We shall see a very different OFT as a result of this, a body with real powers which it plainly intends to use.

Relevant trading agreements and practices will need to be reviewed in the light of these changes, and that ought to be happening now in advance of the Act coming into force.

Change of name for the Monopolies and Mergers Commission

On 1 April 1999, the Monopolies and Mergers Commission was renamed the Competition Commission. For the moment, its functions remain the same as before determining public interest issues in relation to monopolies and mergers, but only acting on matters referred to it by other relevant bodies (e.g. the recent reference by the OFT of grocery supermarkets; the reference last year by the Secretary of State for Trade and Industry of the Manchester United/BSkyB merger) and only able to recommend action to other bodies. Those functions will continue even once the Competition Act 1998 is in force. At that point, however, the Competition Commission will gain a second role. A separate 'wing' of the CC will be the Competition Commission Appeal Tribunal, the body to which appeal will lie against decisions of the OFT made under the Competition Act.

Possible changes to UK merger control

Readers may have seen announcements in the press early in the year that the government is considering changing the way competition law merger control operates in the UK. At present, key decisions are taken by the Secretary of State for Trade and Industry, acting on advice from the OFT (in easy cases) and sometimes also from the Competition Commission (ex-MMC) in more difficult cases, and political discretions are central to the system. The changes which the government is considering would involve removing the role of the Secretary of State and leaving matters to be determined wholly by the OFT and the Competition Commission. If that were to happen, it would be the biggest change to UK merger control in over 30 years. It is clear, however, that the government's thinking on this is only at a very preliminary stage. No changes are expected this side of a general election at the earliest.

EC

On 1st May 1999, the Treaty of Amsterdam came into force, the practical effect of which is that all EC Treaty Articles have now been renumbered. The old Articles 85 and 86 are now Articles 81 and 82 EC! The content and the substance have not changed.

If an agreement or an abuse of dominant position affects trade between EC countries, then EC competition law (now Articles 81 and 82) come into play.

The European Commission's work towards changing the system of 'block exemptions' for vertical agreements (see above)(see endnote 1) has continued, with the changes expected to be in force by the end of this year. The changes will involve:

a single 'block exemption' for all types of vertical agreements not separate 'block exemptions' for different types of agreements (exclusive distribution, exclusive purchasing, franchising etc.) as at present

a more permissive regime than at present, with the system identifying clauses which are not permitted rather than those which are, and with a tighter standard of what is not 'block exempt' applying, the higher the market share is of the supplier under the agreement

certain types of restrictions (e.g. resale price maintenance, restrictions on the buyerÍs choice of downstream customers etc.) will be prohibited regardless of market share

The changes reflect a general acceptance of modern economic thinking that, where neither party to a vertical agreement has a dominant position in its market, vertical agreements are (with some qualifications) generally likely to be pro-competitive rather than anti-competitive.

As in the case of deciding what is 'appreciable effect' for an agreement, one of the most complex issues will be defining the 'market', both by type of product and geographically. Expert assistance is vital if you have exposure or anticipate problems in this area.

Possible changes to EC competition law procedures

At the end of April, the European Commission published a 'White Paper' on modernising the enforcement procedures for Articles 81 and 82. This is at a very much more preliminary stage than the proposed changes on vertical agreements, but it is a useful indicator of the way things are likely to develop.

There is an important recognition that the Commission's procedures for dealing with agreements notified for individual exemption under what is now Article 81(see endnote 1) are too bureaucratic and have not worked effectively for a long time. The Commission acknowledges that it should limit its enforcement activities to the most important cases and those with clear operation in several EC countries at once. This is not new. What is new is the acceptance that, to fill the resulting enforcement gap, more in the way of powers to enforce EC competition law should be delegated to national competition authorities such as (for the UK) the OFT. Quite how this will end up remains to be seen, but it would be reasonable to expect an even further enhanced role for the OFT as a result

Contact name: Jeremy Scholes

Agents' Entitlement To Commission

Disputes are common between sellers and their agents as to whether or not an agent is entitled to commission on a particular sale to a buyer introduced by them. A recent case gave some guidance (see endnote 2).

The goods concerned were three works, one each by Turner, Gainsborough and Constable, self-evidently making the 2.5 per cent commission at stake worth fighting for! The agent, an art dealer, was offered this commission to sell one or more of three works to a buyer introduced by him. The agent introduced the buyer for the Gainsborough. After some time, and although the agent had no part in the negotiations, the same buyer also bought the Constable. Was the agent entitled to the commission on the second sale?

The agent, an art dealer, was offered this commission to sell one or more of three works to a buyer introduced by him. The agent introduced the buyer for the Gainsborough. After some time, and although the agent had no part in the negotiations, the same buyer also bought the Constable. Was the agent entitled to the commission on the second sale?

The Court decided that whilst individual circumstances may vary, the normal test in such cases was whether the agent was 'an' or 'the' effective cause of the sale. With respect to what constituted 'introduction' the key criterion was whether it was the agent's actions that really brought about the relationship between the buyer and seller. In these particular circumstances this was shown to be the case.

Points to watch: This case demonstrates the importance of having clear statements in the agency agreement of when a sale could be attributed to the agent and when commission might be payable.

Contact name: Nick Bates

CONFIDENTIAL INFORMATION

A recent case (see endnote 3) establishes that although a company that is a victim of the disclosure of confidential information to a third party will have a remedy against the party who, in breach of fiduciary duty, disclosed this information, it will not have a remedy by way of constructive trust against the third party who benefited from the information, unless it can be established that the third party itself acted dishonestly.

In this case, the first defendant was a surveyor retained by the claimant, a property development company. Without the knowledge of the claimant, the surveyor, in breach of its fiduciary duty, disclosed certain information to the second defendant, a rival development company. Using this information, the second defendant purchased a site over which the claimant at the time of the disclosure had an option to purchase.

At first instance, the judge held that the second defendant's knowledge that the surveyor was in breach of fiduciary duty was sufficient to make it a constructive trustee of the site for the claimant. However, the Court of Appeal overturned the decision on the basis that, on the facts of the case, the second defendant had not participated in the breach of fiduciary duty, nor had owed any duty itself, nor had it acted dishonestly. The Court of Appeal held that it was inequitable to allow the claimant to recover simply on the basis that there was a degree of confidentiality in the information at the time it was disclosed to the third party. Accordingly, the claimant's remedy was against the surveyor only.

Points to watch: The case demonstrates the importance of ensuring that all confidential information remains so, as there will be no remedy against a competitor using the information, unless that competitor itself has acted dishonestly.

Contact name: Gwendoline Davies

UNFAIR CONTRACT TERMS

Many agreements and standard terms of trading contain clauses which seek to limit or exclude damages in the event of there being a breach by the party relying on that clause. To what extent can such a clause be challenged?

An architect of a property attempted to limit his liability for breach of contract or negligence to £250,000 (see endnote 4). The work was done negligently and the client tried to sue for a larger sum - was he restricted to claiming the £250,000 limit? The Unfair Contract Terms Act requires any such clause to be 'reasonable' and the Court had to consider which criteria were relevant in deciding what was reasonable. The Court highlighted the following as being important:

  • the client was aware that the clause was included when the contract was made
  • the £250,000 was not an arbitrary figure, reflecting as it did the likely cost of the works
  • the client could have appointed any architect and was therefore in a strong bargaining position

Points to watch: This is not an exhaustive list of the matters which may be taken into account. It is necessary for businesses to think carefully about the terms of their trading agreements in the light of the various legal provisions which can be used to set aside 'unreasonable' clauses. This is especially the case when the terms are on 'standard' printed forms particularly when dealing with consumers or, in the case of business-to-business transactions, when there is significant bargaining inequality. In these cases there is a greater chance that such clauses may be unenforceable.

Contact name: Alison Farrar

ENDNOTES

1. European Commission Communication on the application of EC competition rules to vertical restraints, 30 September 1998

2. Nahun v Royal Holloway and Bedford New College, Times 19 November 1998

3. Satnam Investments Ltd v Dunlop Heywood and Co Ltd and Others, Times 31 December 1998

4. Moores v Yakeley Associates, Technology and Construction Court, 28 October 1998 QBD PLC 98 9(11) 58-59

Walker Morris Client Newsletters can serve only to alert the reader to recent developments and to act as a preliminary, but no comprehensive guide. They should not therefore be relied upon in place of specific advice.

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.

 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.