UK: Radar - December 2016: Contract & Commercial

Last Updated: 22 December 2016
Article by Taylor Wessing

Contract and commercial

High Court case involving questions of grounds for termination for repudiatory breach

The High Court considered questions of grounds for termination for repudiatory breach and held that:

  • a clause which allows a party to terminate for repudiatory breach will not normally exclude the common law right to terminate. If the parties want to exclude the right to terminate for specific breaches or to allow a 'cure' period before termination, they must do so expressly;
  • while you can cite a new ground for termination which the party may not have been aware of at the time of termination after you have terminated, you cannot do so if the breach could have been remedied had the party been put on notice of the nature of the breach (the Heisler principle). The High Court re-iterated that this applies to anticipatory breaches rather than to breaches already carried out. In this instance, the terminating party terminated for repudiatory breach by the Claimant for failure to deliver files to an external auditor. It later claimed the termination was justified on the grounds of poor performance. The Claimant argued that it could have put the performance issues right had it been on notice but the Court held that as the poor performance had already occurred, the Heisler principle did not apply and the terminating party could rely on poor performance as a grounds for termination;
  • an email exchange may constitute variation even where the contract stipulates that the contract can only be varied in writing signed by the parties. This is a reminder than any email negotiation must be titled 'subject to contract'.

Court of Appeal case on time limit for notifying warranty claim under SPA

In Nobahar-Cookson & Ors v The Hut Group Ltd [2016] EWCA Civ 128, the Court of Appeal considered the correct interpretation of a contractual time limit for notifying warranty claims under a SPA, which required the buyer to give notice of a claim "within 20 Business Days after becoming aware of the matter".

The Court of Appeal had to determine whether the phrase "becoming aware of the matter" meant:

  • aware of the facts giving rise to the claim (even if unaware that those facts did give rise to a claim);
  • aware that there might be a claim under the warranties; or
  • aware of the claim, in the sense of an awareness that there was a proper basis for the claim.

The Court of Appeal unanimously dismissed the appeal, concluding that the ambiguities in the provision should be resolved by adopting the narrowest of available interpretations, and that construction (c) should be preferred accordingly.

This decision is a further illustration of the importance of the provisions in a SPA which regulate how and when notice of warranty claims must be given, and the considerable scope for disputes if there is any ambiguity in the drafting of those provisions.

The analysis by Briggs LJ of the contra proferentem rule and the proper approach to the interpretation of exclusion clauses which apply to both parties is noteworthy, even if it was not expressly supported by the two other judges on the Court of Appeal. The point to take away may be that there is no reason to disapply the contra proferentem principle or a narrow approach to an exclusion clause simply because the clause limits the extent of contractual warranties given by both sides, as opposed to the party relying on the exclusion. The rule (or a similar approach) can be still be used to assist in resolving ambiguities, and in this case to reinforce the view that the narrower of several possible interpretations should be favoured.

Consumer protection compliance points for cloud storage providers

In June we looked at the CMA's consumer protection compliance points for cloud storage providers. If you are a cloud storage provider, the compliance checklist published by the CMA is extremely important. The CMA is urging cloud storage providers to review their contractual terms to ensure compliance with consumer protection law.

It is also worth noting how much emphasis consumers place on privacy and security. See our article for advice for cloud service providers who act as data processors on complying with the incoming General Data Protection Regulation.

From a business perspective, it's clear that there is a PR battle to be fought on top of compliance issues, to reassure consumers that their data will be secure and not used for any purposes which they have not agreed to.

High Court decision on whether warranties are also representations in SPAs

In Idemitsu Kosan Co Ltd v Sumitomo Corporation [2016] EWHC 1909, the High Court considered whether matters warranted by the seller to the buyer in an SPA were also representations capable of founding an action for misrepresentation under the Misrepresentation Act 1967.

The buyer alleged that some matters warranted by the seller in the SPA were untrue at signing. The buyer accepted that a contractual breach of warranty claim was time-barred under the SPA and instead pursued a claim against the seller for misrepresentation, contending that such claims were not subject to the SPA's contractual limitation period. The buyer argued that the statements of fact in the warranties were also by nature representations capable of founding an action for misrepresentation. The designation of those statements in the SPA as contractual warranties did not derogate from their inherent quality as representations. The buyer also contended that, by providing it with an execution copy of the SPA for signature and by signing or offering to sign it, the seller made actionable pre-contractual representations in the terms of the statements of fact contained in the SPA warranties.

The court dismissed the claim and held that where a contractual provision states only that a party is giving a warranty, that party does not, by concluding the contract, make any statement to the counterparty that is actionable as a misrepresentation. The court also found that while, in principle, it is possible for language used in the communication of a negotiating position or draft contract to amount to an actionable pre-contractual representation, in this instance the contractual warranties in the SPA concerning matters of fact did not amount to representations of fact. The court considered that it would be artificial and wrong in principle to read the warranty schedule in the SPA as if it had an existence independent of its function in the execution copy. By providing an execution copy of the SPA, the seller communicated nothing more than a willingness to give a certain set of contractual warranties in a concluded contract. The seller's prior provision or signature of the execution copy SPA could not give the warranty schedule a different character at that stage than it had when the SPA was concluded. The court also found that, in any event, the buyer's claim was defeated by the SPA's entire agreement clause.

Selling hardware with pre-installed software not necessarily unfair commercial practice

The CJEU ruled in a reference from France on a case involving Sony. An individual who purchased a Sony laptop with pre-installed Microsoft software, refused to sign up to the operating system and argued that he wanted to be reimbursed for the cost of the pre-installed software. Sony had refused to sell the computer without the software or reimburse the cost of the software but had said the customer could return the laptop and be reimbursed in full.

The reference to the CJEU asked whether it was an unfair commercial practice to sell a computer without an option to choose a version which did not include pre-installed software. The CJEU said it was not necessarily unfair as long as "such an offer is not contrary to the requirements of professional diligence and does not distort the economic behaviour of consumers". It would be up to national courts to determine this.

The CJEU also said it was not necessary to give individual pricing for the pre-installed software as failure to do so would be unlikely to cause the average consumer to make a decision they would not otherwise have taken.

The key is to ensure that material information is not omitted prior to purchase and that the consumer has the information required in order to take an informed decision. In this type of situation, the customer should be informed that the computer comes with pre-installed software and, while it may be possible to purchase something with the equivalent specification without the software, that particular model is not available without it.

AG Opinion on the meaning of "durable medium" and "providing" and "making information available" under PSD

This case looked specifically at what constitutes a durable medium and the difference between providing and making information available under the PSD but it does have relevance to consumer law which uses similar terms. For this reason, this summary does not go into detail about particular interpretation of Articles under the PSD but extracts some of the points which might be of interest with regard to consumer law.

The reference was made by Austria. The questions raised related to the use by a bank for ebanking purposes, of a customer mailbox to communicate changes to terms and conditions. Each customer is assigned their own inbox and emails containing notification of changes are sent to those inboxes which require a login and password. However, no additional communications are sent. This means that if the bank changes its terms and conditions, customers will not know about it unless they decide to login. The questions raised asked whether this complied with obligations to provide (rather than make available) information on a durable medium under the PSD.

Durable medium
There is nothing to prevent information provided by email as being held to be given in a durable medium (the Consumer Rights Directive explicitly states that email satisfies this requirement). The key issues under the PSD are whether the information can be personally addressed to the user and made accessible for future reference for an adequate period of time in such a way that the information cannot be changed. In this case, the fact that the information was stored in an inbox provided by the payment service provider meant that there were no guarantees of unchanged reproduction as the service provider technically had control. Nor could there be a guarantee that the customer would automatically be able to retain information in a safe format for future reference or use. There is a possibility that the inbox could be regarded as a portal and the durable medium criteria would be satisfied by transferring the document to a personal inbox or printing it out but the creation of a mailbox by the service provider creates the impression that the consumer has an independent storage space for the emails. If storage is only temporary, that would have to be indicated clearly to the consumer. The user would need complete control over their mailbox which would prevent the service provider modifying or erasing content in order to satisfy the requirement.

Providing vs making available
Recital 27 of the PSD deals with the difference between the two. Information is provided if its actively communicated at the appropriate time. Information is made available where the user has to be more proactive, for example, by requesting information. To make information available, it must, according to the AG, enter the sphere of awareness of the user. Effective transmission is key. Information placed in a bank's customer inbox does not leave the bank's sphere and, in that sense, the information is made available rather than provided. If an alert were sent to the customer's own private email address or to their phone, alerting them to a new email in the customer's bank inbox, that would be sufficient to constitute making the information available, even though the customer might then have to go through a number of steps to access it.

Employment Tribunal in London holds Uber drivers have "worker status"

In a decision which has potential to prove highly disruptive to one of the most disruptive business models of recent years, the Employment Tribunal held in October that Uber drivers have "worker status" and are not self-employed. Worker status would give Uber drivers the right to 5.6 weeks of paid vacation per year and to the national minimum wage (currently Ł7.20 per hour for the over 25s). It could also give rise to a right to pension contributions. This has very serious ramifications for businesses which are suddenly classed as having a workforce of "workers" rather than contractors and costs will either have to be swallowed by the business or passed on to consumers. Read more.

Avoid using "close of business"

A High Court decision has underlined that it is preferable to state exact times at which notice should be received rather than using a phrase like "close of business". The case involved a dispute between ExonMobil and Lehman Brothers. Lehman received notice at 6.02pm and argued that it should have been deemed to have been received on the following day as the reasonable person would expect close of business to be at 5pm. ExonMobil argued it would be 7pm. The judge rejected Lehman's arguments saying in the context of a financial business like Lehman, the reasonable person would be surprised to learn close of business was at 5.00pm. The onus was on Lehman to establish when close of business occurred and it failed to present evidence that this was at 5.00pm. There was also an argument over the closing time of "commercial banks", a phrase used in a proviso to the notice clause. Lehman suggested that this meant the working hours of a high street bank were relevant but the judge disagreed.

The moral of the story is that it's usually better to be clear. While the phrase "close of business" can give added flexibility, the judge said that the circumstances in which that might be useful are limited.

CJEU ruling on definition of "seller" in Sales and Guarantee Directive

The CJEU ruled in November, that the definition of "seller" in Article 1(2)(c) of the Sales and Guarantee Directive includes a trader who acts on behalf of a private individual if the trader has failed to inform the consumer that the owner of the goods is a private individual. This is true whether or not the intermediary is being paid by the seller. This is to ensure that the consumer has the benefit of consumer protection rights when led to believe they are entering into a business to consumer contract. Although the ruling related to the specific wording in the Sales and Guarantee Directive, it is likely a similar approach would be taken in other consumer protection Directives.

Read more on Radar

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.

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