Drafters Beware: Key 2023 English Court Cases That May Affect Your Commercial Contracts in 2024 and Beyond…

Although the general principles of English contractual law did not see a dramatic overhaul in 2023, parties to commercial contracts should still be aware of a number of cases in 2023 that tweaked, clarified or confirmed areas likely to be relevant to English-law governed agreements.

In this alert, we briefly summarise some of these key contractual cases of the year, dealing with a variety of issues, including: (i) the effectiveness of clauses excluding liability; (ii) parties’ abilities to use force majeure to avoid their obligations; (iii) the availability of implied terms; and (iv) termination for delay.

The High Court upheld an exclusion clause where it was clear and unambiguous; no room for an UCTA reasonableness enquiry as terms were subject to negotiation.

Summary

In Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies PLC [2023] EWHC 2506 (TCC), the English High Court considered an exclusion of liability clause that the claimant asserted was unreasonable under the Unfair Contractual Terms Act 1977 (“UCTA”) or otherwise ineffective to exclude the liability of loss of profits and wasted expenditure (that it purported to do). The Court found in favour of the defendant that the exclusion clause was effective to limit the defendant’s liability for loss of profits and wasted expenditure. In doing so, the Court confirmed that where the scope of an exclusion clause is clear and unambiguous in excluding certain (but not all) liability, the Court will look to give effect to the parties’ intention (as shown by the wording) even where there was imbalance as to the parties’ bargaining power. Further, the Court found that section 3 of UCTA (which provides that any exclusion of liability in certain business-to-business contracts must satisfy the requirement of reasonableness) had no applicability to the parties’ agreement because the contract had been negotiated and was therefore not made on one party’s “standard terms of business”. The Court followed the principles set out by the Court of Appeal in African Export-Import Bank v Shebah Exploration & Production Co Ltd [2017] EWCA Civ 845 that the relevant question is whether there have been more than “insubstantial variations” to the parties’ habitually used terms. The Court found that the parties’ access to legal advisors and the multiple drafts of the agreements that were circulated prior to signing evidenced that these were not the defendant’s standard terms of business.

Key takeaway

Parties should be extremely wary of relying on construction arguments, implied terms or UCTA to protect them from unfavourable exclusion of liability clauses, particularly where terms are clear or negotiated.

The High Court rejected defendant’s force majeure argument arising from impact of Brexit; judgment shows importance placed on contractual wording and enquiry of facts.

Summary

In April, the High Court granted summary judgment to the claimant in PD Teesport Ltd v P&O North Sea Ferries Ltd [2023] EWHC 857 (Comm) and in doing so rejected the defendant’s argument that a force majeure event had arisen from Brexit that released the defendant from its contractual obligations. Although the High Court found that Brexit could be an event that fell within the scope of the contract’s force majeure clause, there was no evidence that the consequences of that event had, in fact, affected the claimant, which was a requirement of the relevant force majeure clause.

Key takeaway

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.

The Supreme Court refused a claim based on implied terms and unjust enrichment where the claimant argued the contractual terms did not satisfactorily cover the ultimate factual outcome.

Summary

The Supreme Court handed down its judgment 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 the contractual payment.

Key takeaway

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”.

An English High Court decision confirmed the validity of a contractual termination in circumstances where the parties had made “time of the essence” in a multi-deadline project.

Summary

In July, the High 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. 

Key Takeaway

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. 

Conclusion

While English law contractual principles took somewhat of a backseat to this year’s more high-profile judgments on the Quincecare duty, litigation funding, the UK Government’s Rwandan policy and Prince Harry’s voicemails, the English courts continued to deliver decisions of interest to all commercial contract drafters. We await further developments in 2024 in a continuously refined area.