DRAFTER BEWARE: NOTABLE COURT DECISIONS FOR CONTRACT DRAFTERS TO CONSIDER BEFORE CONCLUDING AGREEMENTS

The reliance on court judgements for guidance by legal personnel and any other member of the public still stands as one of the most reliable means of being  legally informed. During the year of 2023, the English Courts made certain determinations that will greatly inform the way parties to commercial agreements going forward will have to perceive certain legal principles.

Principles that may need a paradigm shift in understanding will fall under the following categories:

1.    The effectiveness of clauses excluding liability.

2.    Enforceability of Force Majeure.

3.    Implied terms

4.    Termination for Delay

Exclusion Clauses

In the Case of Pinewood Technologies Asia ltd v Pinewood Technologies PLC (2023) EWHC 2506  the court considered an exclusion clause that the claimant asserted was unreasonable under the law or otherwise ineffective to exclude the liability of loss of profits and wasted expenditure.

It was decided that any exclusion of liability in certain business to business contracts must satisfy the requirements of reasonableness. That being stated the authority needs to ne weary of how some of our clauses are drafted e.g. those pertaining to the termination for convenience.

Force Majeure

In PD Teesport Ltd & P&O North Sea Ferries Ltd (2023) EWHC 857 (Comm) the court in this case granted a summary judgement (equivalent to a default judgement in the Zambian Jurisdiction) and in so doing rejected the defendant’s argument that force majeure event had arisen from Brexit. Which activities had released the defendant from their contractual obligations. Even though the court found that Brexit could be an event that fell within the scope of the contracts force majeure clause, there was no evidence that the consequences of that event had, in fact affected the subject agreement.

The case continues to demonstrate the high hurdles that parties must reach to successfully assert the applicability of a force majeure clause, notwithstanding the dramatic and business-affecting global and national events of recent years. The judgment is also clear that the question of whether a force majeure clause has been triggered is a question of interpretation of that specific clause and evidence of the impact of the events on the parties in question.

Implied Terms

The Supreme Court of England in Barton and others v Morris and another in place of Gwyn Jones (deceased) [2023] UKSC 3 in January 2023 finding no basis to either imply a “reasonable remuneration” provision into an agreement or award such remuneration to the claimant on the basis of unjust enrichment. In this case, the parties had agreed that the claimant would be paid a certain fee if the property was sold for over £6.5 million but had made no contractual provision for any other outcome. The property sold for £6 million, and the claimant sought reasonable remuneration for his services. The Supreme Court rejected both of the claimant’s arguments (although by a 3-2 split), deciding that: (i) an implied terms was not necessary to give business efficacy to the agreement as it is a business practice for parties to agree a high fee on completion of certain conditions with a risk of no reward if those conditions are not met; and (ii) a claim based on unfair enrichment was not applicable as the claimant was unable to prove that the parties had a common assumption that the property would, in fact, sell for an amount that triggered This case is an important reminder of the importance of being clear and comprehensive when drafting commercial contracts. Contract drafters should cater specifically for any payment to be made in the event of alternative factual outcomes. The courts will be reluctant to imply terms unless necessary and, as the judgment concludes, “unfair enrichment mends no-one’s bargain”.the contractual payment.

Termination for Delay

In July 2023, the High English Court issued its judgment in Topalsson GmbH v Rolls-Royce Motor Cars Limited [2023] EWHC 1765 (TCC), which decided that Rolls Royce was entitled to terminate a software development agreement where the claimant had failed to meet certain deadlines in the “go live” plan. The case turned on the Court’s interpretation of a specific clause of the agreement that provided that “time shall be of the essence regarding any date for delivery … of any good or service specified in the agreement and the Completion Date”. The Court found that the effect of this clause was that Rolls Royce was entitled to terminate if it could show that the claimant had missed any one of the various agreed delivery dates. 

Although the outcome of this case turned on the interpretation of the contractual clause and the circumstances of the missed deadlines, the case serves a valuable lesson to parties of the serious effect of providing that “time is of the essence” – notably that it will usually mean that any failure to meet these deadlines is sufficient for a non-defaulting party to terminate the agreement. Agreements should be clear on the key deadlines, mechanisms for amending these and the consequences of failing to meet them. This case also provides a further caution to parties seeking to terminate agreements – ensure that the grounds relied on for termination are legally and factually valid. Rolls Royce initially purported to terminate the agreement for delays in respect of delivery dates that were found to have been previously extended by the parties – the claimant affirmed the agreement but otherwise could have claimed that Rolls Royce’s purported termination was itself a repudiatory breach of the agreement.

It is very important to have these decisions at the back of your mind as you draft and have contracts executed, this will help secure the interests of your client in any given transaction.