The decision to commence Court proceedings can be a daunting one. Litigation is expensive, time consuming and there is no guarantee of success. There are, however, alternatives to traditional costly Court proceedings:
Mediation is an effective tool used to resolve disputes of all values and complexities at a fraction of the cost of litigation. The usual format involves a mediator (usually a lawyer) bringing opposing parties together in one location for a day or half a day. There is often an “all parties” initial meeting followed by “shuttle diplomacy” during which the mediator will shuttle between the parties who will be located in separate rooms. The aim is for the mediator to try to narrow the issues and focus the parties’ minds on the legal and commercial realities of their dispute so that they may be more agreeable to settling. Mediation can be used whether or not proceedings have been issued.
2.“Shorter Trial”/“Flexible Trial” schemes
These are currently being piloted in the High Court and are aimed at enabling business related disputes to be resolved in a shorter and earlier trial, and at reasonable and proportionate cost – for instance by limiting disclosure and/or the length of the trial. The first dispute to go to trial under the Short Trial scheme was National Bank of Abu Dhabi PJSC -v- BP Oil International Limited  EWHC 2892 (Comm) and resulted in a $68 million dispute being decided in one day, with the whole claim being resolved within 9 months from commencement.
This option is generally provided for by contract before a dispute arises. However, parties can agree to have a dispute referred to arbitration after it has arisen. Arbitration clauses are particularly common in complex international commercial contracts. Whilst arbitrations are generally no less expensive than litigation, it is possible for parties to agree a short form procedure such that the dispute must be concluded within a relatively short period of time. In addition, arbitration provides an element of confidentiality and can therefore be an attractive alternative to Court proceedings.
Where a dispute is likely to be of a particularly technical or specialist nature, parties can opt in their contracts for the matter to be determined by an independent expert. The expert’s decision will be binding and will be almost impossible to challenge.
5.Early neutral evaluation
This involves the appointment of an impartial evaluator (usually a lawyer) to give a non-binding view on the strengths and weaknesses of each party’s case. Like mediation, it can be used either before or after proceedings have been issued and the aim is to provide the parties with a realistic and objective view on their prospects of success, which can then serve as a basis for negotiations.
Informal negotiation (whether in correspondence, on the phone or at a round-table meeting) can be a very cost effective way to resolve disputes.
This route can only be used for undisputed debts. The process is usually started by serving a statutory demand, giving the debtor 21 days to pay the debt. If they do not, it may be possible to present a winding up petition (if the debtor is a company and owes £750 or more) or a bankruptcy petition (if the debtor is an individual and owes £5,000 or more). The process does not, however, guarantee that the debt will be re-paid and cannot be used simply as a means of debt recovery.
As the above indicates, there are alternatives to costly Court proceedings which may be considered in relation to any appropriate commercial dispute or claim.
In many contracts, one or other party may rely on the benefits of membership of the European Union (EU) in order to make the contract profitable or even viable. For instance a contract may oblige parties to comply with EU Laws, or have a territorial aspect which refers to “the EU”, or it may benefit from EU subsidies or tariffs.
Brexit, when it happens, may therefore make such contracts more onerous, less profitable and in some cases, impossible to perform. Although the Courts will not find that a contract has been frustrated simply because it has become uneconomical, those contracting parties that might be adversely affected by the Brexit decision are likely to be asking their lawyers whether Brexit or associated events could amount to a “frustrating event” that could bring the contract to an end absolutely under the doctrine of frustration.
A frustrating event is a supervening outside event which is not due to the fault of either party and is so fundamental that it renders the contract impossible to perform, or makes performance so different from that which was originally contemplated that it would be unjust to hold the parties to their contractual liabilities.
The recent Court of Appeal decision in Armchair Answercall Limited v People in Mind Limited  EWCA Civ 1039 also considered the issue of foreseeability, and found that a frustrating event could not be one that the contracting parties could “reasonably be thought to have foreseen as a real possibility”. In this case, it was argued that the rejection by franchisees of a new method of business (where the franshisees then went on to set up their own rival company) was a “frustrating event” unforeseen by the contracting parties at the time the contract was entered into. The Court of Appeal disagreed. They found that the very fact the contracting parties had been negotiating with the franchisees to adopt the new model meant that it was always a possibility they might reject it. Accordingly, the rejection could not be considered a frustrating event and the parties were held to their contractual obligations.
Applying this issue of foreseeability to the Brexit scenario, whilst each case will depend on the facts and circumstances particular to it, it might be argued that the very existence of Article 50 could mean that the UK leaving the EU has always been technically foreseeable, but it might not have been actually foreseen or was not reasonably foreseeable by the parties. One can certainly anticipate arguments that the political movement to leave the EU was a marginal one until recent times and indeed the result of the 23 June 2016 referendum was unexpected in many quarters, even those supporting the movement to leave. Therefore, parties entering into contracts in previous years might not have been expected, on any reasonable basis, to foresee the result of the referendum. Therefore, assuming all other conditions for frustration are met, we expect to see such arguments coming into play once Brexit comes into effect.
The recent Court of Appeal decision has, however, come as a timely reminder that the doctrine of frustration will be applied strictly. If arguments of frustration do not work, there may be other options. For example, many contracts include force majeure clauses that are drafted sufficiently widely that a “Brexit” scenario may arguably entitle relief.
The recently reported decision of the High Court in IPSOS S.A. v Dentsu Aegis Network Limited (formerly Aegis Group plc)  EWHC 1171 (Comm) highlights the importance of ensuring that any provisions in a share sale and purchase agreement regarding giving notice of claims are followed precisely.
Under the terms of a sale and purchase agreement completed on 12 October 2011 (“the SPA”), Ipsos S.A. (“Ipsos”) purchased shares in various companies forming part of the same world-wide group from Dentsu Aegis Network Limited (“Aegis”).
In the SPA, Aegis had given a warranty that none of the companies faced potential claims from non-employees to the effect that that they should be treated as employees. Ipsos subsequently claimed that Aegis had breached that warranty because contract workers at a Brazilian company within the group were alleging that they should have been treated as employees but had not been. Ipsos issued proceedings against Aegis for breach of warranty. Aegis contended that there had not been a valid notice of claim and applied to the Court for the claim to be struck out.
The SPA contained two separate provisions dealing with notice of claims. The first provided that no warranty claim could be brought against Aegis unless Ipsos had given written notice of such a claim specifying in reasonable detail: (i) the matter which gave rise to the claim; (ii) the nature of the claim; and (iii) (so far as is reasonably practicable at the time of notification) the amount claimed. The time limit for giving notice of a warranty claim was two years from the date of completion. The second provision in the SPA related to third party claims and required Ipsos to notify Aegis of any claim it received from a third party which might result in a warranty claim.
On 14 August 2012, Ipsos wrote to Aegis giving notice of third party claims concerning the contract workers at the Brazilian company. This letter specifically stated that it was not a notice of a warranty claim. On 30 September 2013, Ipsos sent a further letter to Aegis giving further details of the third party claims. The letter did not state that a claim was being made for breach of warranty. Ipsos subsequently contended that, although it was not well drafted, this letter contained the information required under the SPA and was therefore sufficient to act as notice of a warranty claim.
In considering the matter, the Court stated that the starting point in such matters was that “the only true principles to be derived from the authorities is [sic] that every notification clause turns on its own wording”. However, there were said to be four broad propositions which derived from case law and which were potentially relevant to determining whether an alleged notice of claim satisfied the requirements under the notification clause. These were:
- The purpose of this type of provision is to ensure that sellers know in sufficiently formal terms that a claim for breach of warranty is to be made, so that financial provision can be made for it. Such a purpose is not served if the notice is uninformative or unclear.
- In construing any such notice the question is how it would be understood by a reasonable recipient with knowledge of the context in which it was sent.
- The notice must specify that a claim is actually being made rather than indicating the possibility that a claim may yet be made.
- The notice must specify any such matters which it is required to specify.
The Court held that the second letter from Ipsos failed to satisfy the above points in that (a) a reasonable recipient with knowledge of the previous correspondence and the context would not have understood it to be a claim notice; (b) there was no reference in the letter to a claim notice or any statement of a claim for damages for breach of warranty; (c) the letter did not specify “the matter which gives rise to the claim” as there was no attempt to specify the underlying facts, events or circumstances; and (d) the letter did not specify “the nature of the claim” as there was no real attempt to identify the form and substance of the claim. As such, the Court held that no claim notice in respect of the claim had been given and the claim was therefore time-barred.
This case demonstrates that in pursuing any claim it is vital to take careful note of any provisions specifying the form which a notice of claim must take. A failure to meet these requirements and set out the necessary details in the correct form at the outset may result in a claim becoming time-barred and the loss of the ability to bring a claim at all.
Where two businesses contract with each other on the standard terms of business of one of them, any exclusions or limitations of liability contained in those standard terms must be “reasonable” in order to be effective, pursuant to the Unfair Contract Terms Act 1977 (“UCTA”).
Exclusions/limitations commonly found in standard term business-to-business contracts include terms which exclude liability for any “indirect or consequential loss” and/or which limit liability to the contract price.
In the recent case of Saint Gobain Building Distribution Ltd (t/a International Decorative Surfaces) v Hillmead Joinery (Swindon) Ltd  EWHC B7 (TCC), the High Court found that such terms failed the reasonableness test under UCTA.
International Decorative Surfaces (“IDS”) supplied laminate sheets to Hillmead Joinery (Swindon) Ltd (“Hillmead”). Hillmead purchased the laminate sheets in order to manufacture bonded panels for an end customer. Hillmead’s ultimate customer had complained to Hillmead that the laminate finish on the sheets was inconsistent and Hillmead therefore claimed against IDS that the laminate sheets were defective. Hillmead claimed significant sums by way of damages, primarily for the loss of its business and anticipated business with its ultimate customer over a period of six years. The claim for loss of business very significantly exceeded the value of the invoices.
In defence of this claim, IDS sought to rely on a number of its standard terms in order to exclude or limit its liability. Amongst those were terms which stated that:
- IDS would not be liable for any loss of profit, loss of business, loss of goodwill, loss of savings, increased costs, claims by third parties, punitive damages, indirect loss or consequential loss suffered by the customer as a result of any breach; and
- IDS’s liability to the customer in any claim arising out of the contract or the goods supplied could not exceed the invoice price of the good concerned.
- Hillmead argued that these terms were unreasonable under UCTA.
- The court weighed up the following guidelines set out in UCTA for determining reasonableness:
- The relative strengths of the bargaining positions of the parties;
- Whether any inducement was given to the customer to agree the term, or whether the customer had an opportunity of entering into a similar contract with other parties without having to accept a similar term;
- Whether the customer knew or ought reasonably to have known of the existence of the term;
- If a term excludes or restricts liability if some condition is not complied with, whether it was reasonable at the time of the contract to expect that compliance with that condition would be practicable; and
- Whether the goods were manufactured, processed or adapted to the special order of the customer.
The Judge found that IDS was in a significantly stronger bargaining position than Hillmead. Further, there was no inducement for Hillmead to agree IDS’s standard terms and conditions. There was no evidence that the sheets had been manufactured to any special order.
On the question of whether the term limiting liability to the invoice value was reasonable, it was a crucial factor for the Judge that IDS was aware, at the time the contract was made, that Hillmead was intending to incur the expense of having the goods incorporated into finished products for onward sale. Accordingly, IDS was aware that any direct loss to be caused to Hillmead if the sheets were defective would be greater than the costs of replacing the goods/the invoice price. Taken together with his finding that IDS was in a significantly stronger bargaining position than Hillmead, this led the Judge to conclude that this term was unreasonable.
As regards the attempt to exclude all liability for consequential loss, this was also found to be unreasonable, based on many of the same factors on which the Judge relied in relation to the term limiting liability to the invoice value. The Judge took the view that if the less severe term of limiting liability to the invoice value was unreasonable then the more severe term of excluding all liability of any kind for consequential loss must also be unreasonable.
Whilst each case turns on its own facts, this case highlights the danger of attempting to impose exclusions which deny the buyer any remedy in certain circumstances. Suppliers should be aware that the Court is more likely to uphold the reasonableness of a clause which accepts some level of liability, whether direct or indirect, up to a reasonable cap. The invoice price may be considered a reasonable cap in some circumstances, but in many circumstances it will be insufficient.
The recent decision of the High Court in Dunbar Assets v BCP Premier Ltd  EWHC 10 (Ch) once again highlights the need to ensure that proceedings are served in accordance with the Civil Procedure Rules (“CPR”).
The Claimant was a banking institution providing lending to organisations and individuals looking for investment for developments. The Defendant was a construction management company which provided advice on proposed lending opportunities.
The Claimant issued a Claim Form on 18 December 2013 seeking damages in excess of £300,000 for breach of contract and other claims and on 3 March 2014 sent a copy of the sealed Claim Form by fax to the Defendant.
On 18 March 2014 the Claimant’s solicitors notified the Defendant’s solicitors that the Particulars of Claim would be served on 17 April 2014 (which was the last date on which the Claim Form issued on 18 December 2013 could, in ordinary course, be served). In response, the Defendant’s solicitors observed that the Claim Form appeared to have been served by fax on 3 March 2014 which would mean that the Particulars of Claim should be served prior to 17 April 2014. The Claimant’s solicitors responded saying that the fax on 3 March 2014 was for ‘information purposes only’ and that the Claim Form had not in fact yet been served.
The Claimant’s solicitors then sought an extension of time for service of the Claim Form and the Particulars of Claim and the Defendant’s solicitors agreed an extension of time for service of the Particulars but refused an extension of time for service of the Claim Form. In order to formalise this and other matters the parties agreed to a Court Order (“Consent Order”) which provided that the Claimant serve its Claim Form by 4pm on 3 April 2014.
Instead of serving the Claim Form on 3 April 2014 in accordance with the CPR, the Claimant’s solicitors emailed a copy of it to the Defendant’s solicitors. The Defendant’s solicitors subsequently responded pointing out that the Claimant had not complied with the Consent Order and that it was out of time for service of the Claim Form.
On 24 April 2014 the Claimant made an application for an extension of time to serve the Claim Form and/or relief from sanctions and/or that service by email should be permitted as good service pursuant to CPR Rule 6.15 (which makes provision for service by alternative means). The application came before a Deputy Master on 2 May 2014 and an Order was made that the emailing of the Claim Form should be permitted as good service. The Defendant appealed the Deputy Master’s decision and the matter came before the Court in December 2014.
The Court held that there had been no good reason for ordering that the Claimant’s emailing a copy of the Claim Form to the Defendant should be permitted as good service.
It was common ground that service by email was not good service and it was evident from the language of Rule 6.15 that an application for an order permitting service by an alternative method or place would only succeed if it appeared to the Court that there was a good reason to authorise such alternative service and the Court decided to exercise its discretion in favour of permitting it. This was a case where the Claimant had provided no explanation whatsoever for not serving the Claim Form properly. The Claimant had agreed that this is what it would do and had consented to an order requiring it to do it and there had been ample opportunity for it to do it. The Deputy Master had also referred to an absence of prejudice to the Defendant, a matter which he accepted was not enough on its own. However, there was arguably enormous prejudice to the Defendant if the order was made, because it would render a limitation defence unavailable. Accordingly, the Deputy Master had been wrong to conclude that on the facts of the case there was a good reason to make an order under Rule 6.15. The Court would not therefore exercise its discretion in favour of granting the order as the Claimant had not explained why the Claim Form was not served properly in accordance with the CPR and it would prejudice the Defendant by denying it a limitation defence.
The important point to note from this case is that it is vital to ensure that the procedural rules in relation to time limits and methods of service are adhered to when starting a claim. A failure to comply strictly with these rules may mean that a claim has not been properly served and, where there are limitation issues at play, may mean that the opportunity to bring a claim could be missed entirely.
The recent case of Comau UK Limited v Lotus Lightweight Structures Limited  EWHC 2122 (Comm) is an interesting decision from the Commercial Court in which the Court found against Comau UK Limited (“C“) which was seeking summary judgment of its claim for an award for loss of profit from a repudiatory breach of contract by Lotus Lightweight Structures Limited (“L“). The Court instead found that L had a real prospect of successfully defending the claim. The Court held that while C was entitled to seek damages for amounts due under a contract, where that contract permitted L to perform its obligations in different ways, the least onerous way would be applied and C would not therefore be able to get a better deal than it had bargained for.
C is part of the Fiat group, and had entered into a contract with L whereby C agreed to supply goods to L relating to the installation of a new product line. The agreement provided for L to pay by instalments over a period of time, which it failed to do in the amounts or on the dates specified. In February 2012, C served notice on L of the unpaid amounts and threatened to suspend service, pursuant to the terms of the agreement. L paid some of the amounts in March 2012 but further sums remained due and performance was suspended.
By August 2012, C had run out of patience and wrote to L giving notice of material breach of contract and requiring rectification within 30 days, failing which C would terminate. When L ignored this letter, C terminated the agreement on 8 October 2012. In the proceedings that ensued, L readily accepted liability for the unpaid invoices which led to termination of the agreement. However, the issue which came before the Court was whether L, by repeatedly failing to pay, had also committed a common law repudiatory breach of the agreement and whether C had a right to expected profits over the intended full length of the agreement.
While this was only a summary application, and therefore will be tried in detail in the coming months, the judgment outlined some useful practical applications of the law. The Court found that C had contractually terminated but had not proven a repudiatory breach and, as the agreement allowed L to terminate at will, this limited C’s proper expectation of profits under that agreement.
The Court noted that it was open to C to make it clear in its correspondence with L that it considered L’s failure to pay to be a repudiatory breach. C had failed to do so and its notices had merely dealt with contractual termination. The correspondence from C had gone as far to say “we reserve our right to recover these costs and losses incurred by us as a result of Lotus’s breach…” and “all our rights remain reserved” but this was deemed to be insufficient. This should sharpen the focus of any party intending to terminate a contract as to what its heads of claim should be as this case makes it clear that a claim for repudiatory breach must be expressly made.
C also claimed that it had an “expectation interest” to profits over the life of the agreement. However, the agreement contained a “termination for convenience” clause in favour of L which, in essence, provided that L could terminate the contract at any time during which it was not itself in breach. The Court held that this meant that, whatever C’s expectation, L had a contractual right to end that expectation.
As the circumstances were such that L could perform its contractual obligations in a number of ways, the Court followed the approach in Abrahams v Herbert Reiach Ltd  1 KB 477, that it is the least onerous way in which a party could perform its obligations which must be used as the measure of damages to be awarded. Accordingly, C would only be entitled to the amount it could have made until L terminated the agreement. This approach was applied even though L was not at the time of termination by C in a position to terminate the agreement itself, as it was in breach of its payment obligations.
This is a useful case that looks both at how a party should approach terminating an agreement and what damages a party may expect to be able to claim on termination in a situation where an agreement allows performance in differing ways. The final judgment should make interesting reading.
The recent case of Emirates Trading Agency LLC v Prime Mineral Exports Private Limited  EWHC 2104 (Comm) demonstrates the approach of the Court to dispute resolution clauses which require the parties to enter into good faith discussions to resolve their disputes.
Emirates Trading Agency LLC (“E”) had agreed to purchase iron ore from Prime Mineral Exports Private Limited (“P”) under the terms of a Long Term Contract dated 20 October 2007 (“LTC”). In the event, E failed to lift all of the iron ore expected to be taken up and P sought liquidated damages from E pursuant to the terms of the LTC. The next year E failed to lift any iron ore and, on 1 December 2009, P served notice of termination of the LTC and claimed $45,472,800 in respect of liquidated damages. P stated that if the claim was not paid within 14 days they reserved the right to refer the claim to arbitration in accordance with clause 11.2 of the LTC.
Meetings between the parties took place in Goa on 1 December 2009, 2 December 2009, 25 February 2010 and 9 March 2010. The claim was referred to arbitration by P in June 2010. E made an application to the Commercial Court in London, pursuant to section 67 of the Arbitration Act 1996, for an order that the arbitral tribunal lacked jurisdiction to hear and determine the claim brought P.
Clause 11.1 of the LTC provided that “In the case of any dispute or claim arising out of or in connection with or under this LTC… the Parties shall first seek to resolve the dispute or claim by friendly discussion. Any party may notify the other Party of its desire to enter into consuLTCtion [sic] to resolve a dispute or claim. If no solution can be arrived at in between the Parties for a continuous period of 4 (four) weeks then the non-defaulting party can invoke the arbitration clause and refer the disputes to arbitration”.
E submitted that clause 11.1 required a condition precedent to be satisfied before the arbitrators would have jurisdiction to hear and determine the claim and that this condition was not satisfied. E argued that the condition precedent was “a requirement to engage in time limited negotiations” and that this had not been satisfied because there had not been a continuous period of 4 weeks of consultations to resolve the claims. P submitted that the “condition precedent” suggested by E was unenforceable as it constituted an agreement to negotiate but that, if it were enforceable, it had been satisfied and the arbitrators did therefore have jurisdiction.
The Court held that on a proper construction of clause 11.1 of the LTC, there was a requirement to resolve a claim by friendly discussion and the use of the word “shall” demonstrated that this was intended to be mandatory. The friendly discussions were a condition precedent to the right to refer a claim to arbitration. However, the clause did not provide that the friendly discussions must last four continuous weeks but that if no solution could be found for a continuous period of four weeks then the arbitration could be invoked.
The issue for the Court then to decide was whether clause 11.1 was enforceable. The Court held that a dispute resolution clause in an existing and enforceable agreement, which required the parties to seek to resolve a dispute by friendly discussions in good faith and within a limited period of time before a dispute could be referred to arbitration, was enforceable. The reason for this was that such an agreement was neither incomplete nor uncertain and provided an identifiable standard, namely, fair, honest and genuine discussions aimed at resolving a dispute. The Court further stated that enforcement of such an agreement was in the public interest, first, because commercial people expect the Court to enforce obligations which they have freely undertaken and, secondly, because the object of such an agreement is to avoid expensive and time consuming arbitration.
The Court held that in this instance friendly discussions had taken place between E and P in good faith and with a view to resolving P’s claim and the arbitral tribunal did have jurisdiction to decide the dispute between the parties.