Entries Tagged 'Contract' ↓

I’ve always been puzzled about the use of force majeure clauses in the context of disaster recovery agreements.  How can a clause which excuses non-performance when there is something going on beyond the reasonable control of the supplier have any place in a contract which hopes to protect the customer against exactly that - an uncontrollable event?

Those great folks at the Society for Computers and Law have commented on just this point in this useful explanation of the history and use of force majeure provisions.  Concluding that:

“From a business continuity planning point of view, force majeure clauses require detailed examination, since they will come into effect under many circumstances where a business continuity plan is invoked. If you fail to do this you are leaving the door wide open to unexpected withdrawal of key services at a critical point in time.”

Standard clauses which you may rightfully accept in other circumstances may not be acceptable when looking at disaster recovery or business continuity services.  Keep your eye out for them!

SCL: ‘Greater Force’ - or A Good Excuse for Non-Performance? [paid subscription required]

The OFT is consulting on revisions that it has made to its guidance on the Unfair Terms in Consumer Contracts Regulations 1999.

The guidance makes interesting reading and is a godsend for those of us who deal with consumer contracts. In particular, it contains an annex which sets out examples of clauses which were rejected by the OFT as being in breach of the regulations, and the final clause accepted by the OFT.

Reponses are required by 22 May 2007.

The Office of Fair Trading: Unfair contract terms guidance

The courts have once again had reason to consider a contractual obligation to act reasonably and in good faith in the case of Tramtrack Croydon Ltd v London Bus Services Ltd [2007] EWHC 107 (Comm). In the contract the parties had agreed to agree (acting reasonably) some particular financial arrangments and to refer any failure to agree to expert determination. Considering the authorities including Walford v Miles [1992] 1 All ER 453, the parties did not contest that the clause was unenforceable for lack of certainty, and the court went on to confirm this stating: “In those circumstances the Court can, in my judgment, decide, in the case of dispute, at least what they, and the expert, acting reasonably, are bound to take into account or ignore. An agreement such as this should not be construed to mean that the parties (or the expert) may legitimately take into account anything (however unreasonable or irrelevant) they choose, or that their contractual fate is to be determined by whatever the appointed expert happens (on whatever basis) to decide. Reasonableness is a criterion on which the Court (and the expert) can make a judgment; and, if the parties cannot agree whether it would be unreasonable to take into account, or to exclude, a particular consideration, the Court may determine the question.”

Yesterday, the European Commission published its long awaited “Green Paper on the Review of Consumer Acquis” - the body of rights held by consumers in the European Union.

The review covers the 8 main directives aimed at protecting consumers, including the familiar roll-call of the Unfair Terms in Consumer Contracts Directive, the Consumer Sales and Guarantees Directive, the Distance Selling Directive, the Doorstep Selling Directive and the Package Travel Directive. It pulls on a number of surveys which show that despite attempts at harmonisation, trade between member states in consumer goods is not what it could be - many businesses would like to sell to consumers in other member states but are fearful of doing so because of varying regulatory requirements, and many consumers who purchase goods from another member state are running into difficulties when their rights vary state to state.

The main objective of the review is to remove this stumbling block, allowing consumers and businesses within the European Union to trade without concern as to where the other party is based, primarily to benefit consumers by allowing for consistency, but also to reduce the burden of SMEs by creating a more predictable regulatory environment within the European Union.

The green paper is consulting on a number of issues including the proposed approach (either a vertical approach requiring the revision of individual directives, or a horizontal approach requiring the implementation of a framework addressing issues for all consumer contracts), the definitions of consumer and professional (recognising that there is not currently a consistent approach to this), the potential introduction of a general duty to act in good faith, and detailed questions regarding unfair terms, withdrawal, delivery, remedies and other issues.

Responses to the consultation are requested by 15 May 2007. The green paper can be found here.

The recent case of Marplace (No. 512) Limited v Chaffe Street [2006] revisits some of the issues raised in Football League Ltd v Edge Ellison (a Firm) [2006] EWHC 1462 regarding the scope of a solicitor’s duty to advise on the commercial aspects of a transaction, and caps on solicitor’s liability for negligence. The firm of solicitors advised a company on a corporate acquisition. For various reasons the acquisition went wrong and the solicitors were accused of negligence.

Ultimately the solicitors were found not to be negligent. The scope of a solicitor’s duty depended on the context of his instructions from his client. 

A solicitor may be duty bound to proffer unsolicited advice or seek further instructions for example, if they were not involved in the negotiation of a transaction but were simply instructed to implement that transaction, the solicitor must still point out any legal obscurities of which the client may be unaware, or point out any hidden pitfalls.

However, a solicitor is not under a duty to review the whole range of commercial considerations underlying a particular deal to which the client may have given insufficient thought. In this instance, the solicitors in question had been entitled to take the view that their clients were intelligent, sophisticated and experienced businessmen who were perfectly able to seek advice if they desired it.

The case went on to comment on the cap on liability.  The solicitors letter of engagement said “You agree that … our maximum aggregate liability to you in the event of professional negligence on any matter in relation to which we are instructed shall be £20 million… should you want to vary these limitations we shall be pleased to discuss it with you but we reserve the right to vary our fees accordingly”.

As context:

• Chaffe Street’s turnover was low - about £4 million.
• The amount of the limitation set by Chaffe Street with its various clients did vary from one transaction to another.
• Chaffe Street’s insurance at the time of the alleged breach was £25 million.
• Chaffe Street accepted that the Unfair Contract Terms Act applied to the cap on liability and therefore they were obliged to demonstrate it was reasonable.

The court did find that limitation was reasonable for the following reasons:

• The claimant was a sophisticated and wealthy consumer, and therefore the bargaining positions of the parties were equal. In particular the claimant was used to contracting with professionals and the basis of limitations of liability.
• The claimant was aware of the cap on liability and had in fact discussed it with Chaffe Street. It had not been imposed as a non-negotiable term (albeit the court recognises that it would have probably been difficult to switch solicitors at the time).
• The engagement letter made it clear that if the claimant wanted different limitations of liability then Chaffe Street was prepared to discuss that.
• Chaffe Street determined the £20 million limit on reasonable commercial principles taking into account insurance cover, expenses and circumstances of the transaction.

We don’t frequently get suggestions from the court as to what levels of limitation of liability will be reasonable under UCTA.  It’s always nice when one comes along!