Arron Banks loses libel claim - It is in the public interest for defamatory statements about him to be published

Litigation | Defamation

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A much anticipated judgment was handed down today (13 June 2022), which saw Arron Banks lose his high profile claim against journalist Carole Cadwalladr.

Arron Banks, who was famously described as one of the “bad boys of Brexit”, has a colourful reputation. However, he successfully persuaded the court that although a tweet by Cadwalladr had not met the threshold for causing serious harm to his reputation, a talk given by Cadwalladr had caused serious harm to his reputation - overcoming one of the key thresholds to bringing a defamation claim.

After a preliminary hearing to determine the meaning of publications (a process commonly seen in libel cases which can often narrow the issues and potentially avoid trial - albeit not in this case), Cadwalladr abandoned a defence of truth. This meant she had to accept the court’s meaning of her publication that “on more than one occasion Mr Banks told untruths about his secret relationship he had with the Russian Government in relation to acceptance of foreign funding of electoral campaigns in breach of the law on such funding” was untrue - she did not intend to mean that this was important.

This meant Cadwalladr had to rely upon a defence of public interest.

What is a public interest defence?

A public interest defence allows a defendant to avoid criminality if they disclose classified information that they believe is in the public’s best interest.

While typically used by journalists, this defence may also be employed more often, as we move forward in its new era of social media where every individual can potentially publish to the world at large.

However, the requirements for a public interest defence are stringent. It requires a defendant to establish that:

  • they believe they were publishing in the public interest;

  • that belief was reasonable, having regard to all of the circumstances; and

  • there had there been a significant change in circumstances since the original publication, such that any defence should cease to apply

The court’s decision

The case was heavily contested and Mr Banks was found to have given evidence which was evasive and lacking in candour, which undoubtedly did not help him. Evasive or potential unreliable evidence given by a claimant can be the death knell for any claim. That is especially because appeals on findings of fact are notoriously almost impossible to bring successfully.

However, fundamentally, the burden to establish a public interest defence is on a defendant and it was accepted that she believed the publication was in the public interest.

Most importantly the court found that she had intended to convey a less serious, albeit still defamatory, meaning and it was not so obvious that the meaning she intended to convey was not the correct one as to bar the defence.  That meant that the public interest defence was considered against her intended meaning, not as found by the court or argued by Banks.

In all the circumstances, and having reasonable grounds to have believed her intended meaning to be true, she succeeded in establishing a public interest defence.

That said, there was a significant change of circumstances when the National Crime Agency and Electoral Commission documents were published that rendered the reasonable belief that Cadwalladr had, no longer reasonable. However, crucially, no serious harm was established as arising from the defendant’s publication after that date.

What can we learn from this case?

The public interest defence, as set out in the Defamation Act 2013, is a new defence and this is an important test of the applicable principles.

It has also been seen by many as being a test of journalistic freedom where reasonable reporting is undertaken based upon the best available information but later turns out to be incorrect.

Some have viewed Bank’s case as a powerful, wealthy individual targeting an individual journalist; while others have taken the view that something was published which was untrue and a journalist should not be allowed to get away with even an innocent mistake of that nature.  Bank’s history with Brexit means this case is fraught with political history and judgments.  This is perhaps one of the best examples of why, unlike the USA, jury trials for defamation are a thing of the past.

Just as Johnny Depp lost in the UK, but won in the US based upon an almost identical alleged libel, Bank’s case may have played out differently before a jury. We will never know.

The key takeaway for journalists, whether they are high-profile professional ones, novices or potentially amateurs, can see the public interest defence as being open to them.

What should you do to if you’re planning to use a public interest defence?

Anyone seeking to publish and rely upon this defence must do their homework.  It’s clear that the scope of research that the defendant had undertaken, as well as the diligent show, were vital in establishing the reasonableness of the belief that she then in turn had.

It may also be that this will also be a positive judgment for the standard of journalistic investigation, and research prior to publication may potentially be able to take the benefit of this defence.

Finally it is important to address some of the other comment about this case and libel law. Although libel cases are often expensive, to think of them as only for the rich is wrong; libel law and the same principles are there to protect anyone. Every business or individual has a reputation that can be seriously harmed by others and therefore protecting those is key.

It is also important not to lose sight of the fact that many people can be, and are, defamed by press, media or members of the public - business can be ruined or reputations smashed. Libel and slander laws must strike a balance; and the legal sector must help shape the law and protect wronged parties.

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Daniel is a highly regarded experienced specialist commercial litigator and defamation expert.

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A simple guide to the Quincecare duty in banking claims – What is it and how to bring a claim?

Guide

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The Quincecare duty of care was established in the case of Barclays Bank Plc v Quincecare back in 1992, but the authority has only recently received renewed headline attention following the Supreme Court decision in Singularis v Daiwa Capital in 2019. 

What is the Quincecare duty of care? 

The Quincecare duty of care is an implied negative duty imposed on the bank to refrain from making or executing a customer payment when the bank is “put on inquiry” when there are reasonable grounds to believe that instructions may be an attempt to misappropriate funds. 

When a bank is put on inquiry, it has a positive duty to take action and investigate the instruction and any other suspicious/unusual circumstances surrounding the account. 

If the bank fails to make these inquiries then it will be liable for a breach of the Quincecare duty and, as a consequence, this cause of action gives the customer the right to a claim in negligence against the bank. 

There are certain pre-emptive conditions for the Quincecare duty to exist: 

  • The duty is currently only owed to the bank’s business customers, which have a separate legal entity. Consequently, the duty exists to protect a company from the misappropriation of funds by its trusted agent, such as a company director who is normally authorised to withdraw the company’s money; 
  • The existence of fraud is also a precondition for a Quincecare duty claim, and so it provides a helpful and an alternative remedy to recover the misappropriated funds. 

What sort of activity should put a bank on inquiry? 

The objective test is of a reasonable banker and it is fact dependent. A bank will be expected to have sophisticated systems in place to detect the fraud, which might take many forms and can be disguised by some unusual transaction patterns or simply take an obvious form of some questionable payment details.  

These transactional triggers, as well as other obvious signs, should put the bank on inquiry and drive further internal investigations while delaying the payment or ensuring that a receiving bank withholds the payment pending the outcome of these enquiries. 

What about a sole director/owner who controls the company? 

These types of companies are particularly vulnerable to being defrauded by its directors and therefore, banks must monitor these entities and their transactions much more carefully.  

In the particular case of Singularis Holdings Ltd (In Liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC, the sole shareholder, chairman and president of the company instructed the bank to transfer $200m to unconnected third parties, which turned out to be unauthorised by the company. The fraud perpetrated by the company director stripped the company of its assets and deprived the creditors of a legitimate claim against the company. 

The Supreme Court decided that despite the fact that the perpetrator of the fraud was the beneficial owner of the company, there was no principle of law to prevent the company from suing a third party, such as a bank for breach of a duty owed to the company. Consequently, the liquidators’ claim succeeded and the company was able to claim its misappropriated funds from Daiwa Capital.  

Can the company’s creditors bring a claim against a bank? 

The short answer is – no. However, administrators and liquidators can bring a claim on behalf of the company, which provides an alternative remedy for the company’s creditors. 

Are there any defences to a Quincecare duty claim? 

Yes, although they are limited. The Quincecare duty can be expressly excluded by a contractual agreement, albeit we are not aware of any successful exclusion defences that have succeeded in the courts so far. 

Alternatively, if it was impossible for a bank to detect the fraud, and the operation of the bank account did not raise any suspicions that would require the bank to perform further investigations/enquiries, that is likely to be a sufficient defence for the bank.   

How realistic is it to expect the banks to be liable when there are millions of banking transactions performed every day?   

It is a matter of public policy and banks are expected to play an active role in reducing and uncovering financial crime. They are expected to have sophisticated systems in place to monitor suspicious transactions and to train their staff to challenge their customers when there are reasonable grounds to do so. If banks fail to investigate suspicious activities, which later lead to the financial losses for the companies, then banks will be held liable for their breach of the duty of care that they owe to their customers. 

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Catherine advises on all aspects of commercial litigation and alternative dispute resolution. She acts for a diverse range of clients in high value and complex cases ranging from contractual disputes, fraud and investigations, financial services disputes, negligence claims and insolvency-related litigation.

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The Terminator: Termination guidance for CIGA Moratorium monitors

Case Law Update

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Re Corbin & King Holdings Ltd and other companies; Minor Hotel Group MEA DMCC (a company incorporated under the laws of Dubai) v Dymant and another [2022] EWHC 340 (Ch)

The courts have given their first judgment on moratoriums under the Corporate Governance and Insolvency Act 2020 (CIGA), clarifying when monitors of moratoriums should terminate them because the company is unable to pay pre-moratorium debts.  The case involved the company that operates restaurants including the Wolseley and the Delaunay in London.  It’s a perfect example of a CIGA moratorium being used to constrain secured creditor action.

The key takeaways:

  • the monitor can factor in the possibility of third party funding to discharge critical debts and aid rescue as a going concern;

  • the monitor has a degree of latitude in judging whether to terminate (required if they think that the company is unable to pay debts to which the moratorium does not apply). However, that latitude is not unlimited.  If the company doesn’t have the immediate prospect of receiving third party funds, or doesn’t have assets capable of immediate realisation, to discharge those debts the monitor must terminate, and

  • the court will conduct a ‘balance of harm’ excise when deciding whether to exercise its discretion to terminate a moratorium or not.

In this case Minor Hotel Group (Lender), an associate of the Corbin & King group’s parent company (Parent), had lent Parent a secured loan with secured guarantees granted by the operating companies (OpCos) and:

  • Parent failed to repay the loan when due and Lender served a demand;

  • a credit fund (Bidder) offered to buy Parent and OpCos for an amount equal to the loan.  That offer was rejected and the directors of the OpCos implemented a CIGA moratorium;

  • Lender made demands against each of the OpCos under their guarantees and appointed administrators over Parent;

  • the Bidder made an offer to Parent’s administrators to purchase the OpCos.  Lender put Parent’s administrators on notice that they would challenge any action by the administrators if they accepted the offer.  Lender also applied to the court for orders terminating the moratoria of the OpCos, on the basis that the monitors’ failure to terminate them had unfairly harmed Lender’s interests, and Lender wished to appoint administrators over the OpCos; and

  • the OpCo guarantees were contracts involving financial services and therefore outside the moratorium, and the OpCos remained bound to pay them, which they could not.  However, the monitors did not terminate the moratoria as they considered it likely that the OpCos would be rescued as a going concern and that the loan would be repaid in full in the reasonably near future.

Lender also sought an injunction to restrain repayment of the loan, arguing that accepting the Bidder’s offer would breach a shareholders’ agreement. That application was unsuccessful.

The court clarified the matters a monitor should consider as follows:

  • a monitor’s duty to terminate a moratorium arises once the monitor thinks that a particular state of affairs exists, which allows a degree of latitude. A decision will only be open to challenge if it was made in bad faith or was clearly perverse – if no reasonable monitor would have reached it.

  • the statutory test for monitors considering whether a company is unable to pay relevant debts involves a flexible and commercially realistic approach in the circumstances as a whole.  In this case that included the Bidder’s offers, and TopCo’s subsequent ability to discharge the loan, thereby relieving the OpCos of their guarantee liability; and

  • the question to be addressed is whether the company is unable to pay a presently due pre-moratorium debt in respect of which it does not have a payment holiday.  This is to be distinguished from the question of whether the company is unable to pay its debts as they fall due for the purposes of cash-flow insolvency (which introduces any element of futurity).

The court held that the monitors’ decisions in this case were ones which no reasonable monitor, who applied the correct test, would have reached.  It was obvious that Parent’s administrators could not accept the Bidder’s offer to purchase OpCos without an open market sale process – which made immediate realisation impossible.  In contrast, a later revised offer of interim funding to replace the loan could have properly caused the monitors to think that the loan was able to be repaid.

However, the court still had a discretion to terminate the moratorium, even if it reached the view that the monitors ought to have done so.  Conducting a balancing exercise based on the facts at the hearing, the court assessed the harm suffered by Lender to be less than the harm suffered by the OpCos if Lender was able to commence insolvency proceedings; given that each OpCo was trading successfully and there was an immediate prospect of the loan being repaid and the OpCos’ guarantee liabilities falling away.  Accordingly, the court decided to allow the OpCo moratoria to continue.  In reality the loan was then actually repaid and the OpCos rescued as going concerns.

Following the rationale of this judgment the following guide appears to be a sensible start for a monitor considering whether a company is able to pay pre-moratorium debts that are due and not caught by the payment holiday and whether they should terminate a moratorium:

  1. the company should be considered able to pay debts that are reasonably likely to be paid within five business days;

  2. consider whether the company can pay the debt itself out of cash resources; and

  3. if not, consider whether the company either has the immediate prospect of receiving third party funds or has assets capable of immediate realisation to pay it. Immediate receipt / realisation is a matter of commercial judgment – although anything over five business days will require specific assessment.  Consideration should also be given to whether the debt will be discharged by co-obligors.

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Guides & Advice

Ban on evicting commercial tenants extended - this time until March 2022

Updated 17 June 2021 - On 16 June 2021 the Government confirmed that the evictions ban on commercial tenants for non-payment of rent will be extended again until the 25 March 2022 and a new piece of legislation to boot

This further extension of the commercial tenant evictions ban will help those worst affected by the pandemic, such as bars and restaurants, who are still suffering due to ongoing restrictions, due to reduced capacity and some venues not being able to open some 16 months on and being forced to close.

In an effort to lessen financial pressure on tenant businesses, the Government has also extended the restriction on the use of the Commercial Rent Arrears Recovery (CRAR) process by landlords until 25 March 2022. This measure does not, it seems, increase the total number of days' outstanding rent required for CRAR to be used, namely:

• 457 days (between 25 March 2021 and 23 June 2021), and

• 554 days (between 24 June 2021 and 30 June 2021).

The Government is also planning on introducing a new Act of Parliament to deal with the accrued arrears of businesses forced to close during the pandemic – effectively forcing landlords to agree on a payment plan with their tenants who have been forced to close through COVID or be thrust into an arbitration process where an agreement may be imposed upon them.

Can commercial tenants be evicted?

No, the commercial eviction ban means that tenants cannot be evicted for non-payment of rent until 25 March 2022. However, this only applies to disputes regarding rent arrears. If a commercial tenant is in breach of the covenants in their lease, the landlord may still take action against them (and the outcome could include forfeiture of the lease).

We help commercial landlords and tenants to resolve property disputes fairly and with commercial objectives in mind, whether this relates to non-payment of rent or breach of covenant – get in touch to find out how we can support you.

How will the business evictions ban extension help tenants?

The commercial evictions ban extension will continue to provide a much-needed lifeline for those businesses still struggling, particularly those in the hospitality sector, helping them get back on their feet after months of restrictions and closures.

However, it is important to stress that this extension will only delay the landlord’s rights; it does not affect a landlord’s right to forfeiture after the March 2022 extension ends and commercial tenant evictions will once more be possible from this point onwards. The new act of parliament is essentially creating a ring fence around accrued debt during periods of closure and businesses are being encouraged to prioritise new and future rent.

As a landlord, is there anything I can do about the commercial evictions ban?

Many commercial landlords have shown flexibility, understanding and commitment to protecting businesses during an exceptionally challenging time. However, with yet another delay, the extension of the commercial evictions ban will significantly impact their own cash flow in some cases.

It is important that landlords use upcoming months to assess their position and seek to resolve the matter with their tenants. At the moment, there is little detail on the proposed new act and no date given as to when it will come into being, so for some this will mean continuing to issue proceedings at court for debt claims of arrears accrued before being forced into arbitration.

But for many others, continuing to negotiate with their tenants to reach an agreement on unpaid rent may be the most commercially astute way forward (particularly if the alternative is to force the tenant into an insolvency situation).  Either way, landlords would be well advised to grasp the nettle now, as doing nothing is not a helpful strategy.

If a negotiated solution is reached, it’s important to remember that:

  • any voluntary arrangements, including monthly rent payments or rent holidays, are properly and legally documented to protect both parties;
  • new agreed terms are clear and binding and do not prejudice any other lease provisions; and
  • the arrangements do not require either a lender or bank consent.
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Our commercial property disputes team can help you through these difficult situations and guide you towards a solution - contact James Fownes, Martin EdwardsJustine Ball or another member of the property disputes team, for advice and support. 

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND. 

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064. 

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Your summer guide to recovery and resilience in COVID-19

Your updated summer guide to recovery and resilience

As the UK takes its first steps to ease the current national restrictions and looks forward to an increase in economic activity and recovery it is vital that businesses are prepared in every aspect.

To support businesses and people navigate their way out of the last year and the current national restrictions, unlock their potential and drive for a brighter future, we have updated our guide to recovery and resilience.

From financial considerations, employees, leadership and premises, to supply chain implications, health and safety and protecting your private wealth, our guide highlights what organisations and individuals should consider when moving from survival to recovery to thrive.

Financial considerations

Whether a large corporate with a highly structured board, an SME or an owner-managed business, the financial viability of a business is key to its future success.   However, as the thoughts turn to the roadmap out of lockdown once again, and what the future may look like, businesses that have got through the last year should consider a range of measures to enable them to cope with what is likely be a recession for some industry sectors of the UK. Prudent business owners will be well aware of the predictions and while there will be a bounce back it may take some time for confidence and stability to return from customers and suppliers.

Your employees

Managing a workforce of any size can have its challenges, let alone one that is recovering from a global crisis. Many businesses will have furloughed employees or made the difficult decision to make a number of their workforce redundant. For those businesses that haven’t, it’s highly likely they will still face having to make difficult choices, albeit further down the line.

The knock-on effects of the COVID-19 outbreak have changed the way employers engage with and effectively manage, their employees. The processes, policies and guidelines that worked previously may no longer be fit for purpose for your business, or for your workforce, in the new working landscape. With the rollout of the COVID vaccine facilitating the gradual return of employees back into the physical workplace, this in itself will bring a host of new opportunities and challenges.

Buildings, workspaces and leases

As the world and economy move forward out of lockdown, owners and investors of real estate as well as occupying tenants will have to consider the adjustments they now need to make whilst the restrictions around social distancing continue.
They will need to find new ways of working and inevitably different ways to use their space over the coming months and, at the same time, consider how to manage the cost of premises in these changed circumstances.

Suppliers and supply chain

Many businesses have struggled to comply with their contractual obligations as a result of the COVID-19 pandemic and may have been forced to rethink their supply chains. A focus in recent years on minimising costs, reducing inventories and maximising asset utilisation has often resulted in a reduced ability to cope with disruption. Whilst the impact of the COVID-19 pandemic is unprecedented in modern times, disruption to the global economy is an increasing risk, whether due to political events such as Brexit, US-China trade tensions, or climate change.

Private wealth, family businesses and family

The effects of COVID-19 will undoubtedly have a huge impact on our economy for years to come, with many businesses collapsing under the strain and the level of unemployment set to rise significantly. However, what is less widely reported on is the effect it is having and will continue to have, on families and personal wealth. We’ve already seen that the pandemic has led to an increase in people looking at how they may pass on their wealth to the next generation –and even more so for those that own family businesses.

Compliance – Health and safety

Employers have clear duties under existing health and safety legislation. Obligations to comply with health and safety at work, and to manage and control workplace risks, includes protecting workers and others from the risk of COVID-19 infection in the workplace. That duty is to do everything “reasonably practicable” to manage these risks. The onus of demonstrating that everything reasonably practicable has been done falls to the employer. The best way to demonstrate compliance with the law is usually to follow government and industry-led guidance wherever possible.

Leadership

Strong leadership is a cocktail of authenticity, collaboration, passion, compassion, and a great deal of bravery. We all know the best results occur when we are pushed out of our comfort zones and the ingredients are shaken up, and COVID-19 has done exactly that. With government guidance signalling the UK’s route out of current national restrictions, the time for positive leadership is now. It’s time to take control of what we can and create an environment with enough certainty where people can feel safe enough to flourish centre stage.

We are here to help

The team here at Shakespeare Martineau remain committed to supporting our clients and our communities throughout these challenging times, with

the depth of experience, collaborative ethos and the creative know-how to lead positively to the future.  We are able to offer advice and solutions on a range of subjects for life and business - from employment and general business matters, through to director’s responsibilities, insolvency, restructuring, funding and disputes to issues affecting family businesses, personal wealth planning and family law. Do contact us on 03300 240 333

 

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Post-COVID challenges | Contracts at breaking point

The coronavirus pandemic has highlighted to many businesses the fragility of their supply chains, whether they be local or global and, in addition to Brexit, many of these businesses supply chains are being pushed to breaking point. As the world recovers from the pandemic at different rates, business will undoubtedly face a number of issues.

Last year, businesses suddenly faced insurmountable difficulties trying to secure supply of products that they had formerly taken for granted. As a result, many were forced to compromise, try to reach accommodations with their counterparts, or otherwise, were simply unable to either produce or supply goods and services they had committed to.

Whilst many hope that a return to normality is around the corner, anyone managing risk for a business of whatever size, will not only have to take a close look at those supply chains to understand their future resilience, but also their rights and obligations to prepare for the future. From suppliers being forced to prioritise customers, to downsizing or closing down manufacturing facilities or supply chains, the difficulties will be significant.

 “Anyone thinking the issues that plagued our supply chains in the past year will magically disappear will be in for a nasty surprise”

A global head of risk engineering, and a voice of industry, noted the above recently – and it is undoubtedly true. The problems for businesses meeting their contractual obligations does not stop with supply of either materials or the final product. Skill-shortages have also been impacted, again, potentially affected by Brexit. As employees have been forced to find jobs in other sectors, there are gaps in critical business chains. From shortages of protective equipment, to absences of products as diverse as toilet paper to pasta, or hand sanitiser to bicycles, an uneven pattern of contract performance is clearly here to stay.

Contract disputes

Many businesses sensibly held off from litigation in 2020, protected by central government funding, drawing on reserves, or otherwise seeking to maintain relationships. As the economy heats up and recovery comes forth, few businesses will have that luxury, with funding falling away and reserves here to be trained.

Lessons from previous supply chain issues show being at the front of the queue, to not only understand but to protect and enforce your rights of contract, will be critical to a business’ survival; goodwill and past favours are quickly forgotten. Whilst no business wants to destroy long healthy relationships, the need to take steps to protect themselves will only become more stark as we continue through 2021.

Suez Canal blockage

Subsequently, the impact of these problems for many businesses may have been highlighted and or/accelerated by the recent blockage of the Suez Canal, after one of the world’s largest container ships ran aground, severing a vital trade artery and disrupting global shipments.

The Ever Given container ship, which is almost as long as the Empire State Building is tall, was wedged across the southern end of the canal, which is one to busiest shipping lanes in the world. Within hours shipping was backed up at both ends of the canal and, inevitably, moving such a ship was not light work. The container ship was eventually freed after six days.

To put the level of disruption into numbers, according the Suez Canal Authority, almost 50 per cent of the vessels that passed through the canal in February were container ships, carrying food, fuel and manufactured goods to Europe.

Lloyd's List estimated that, during the blockage, the value of the goods delayed each hour was US$400 million, and that every day it took to clear the obstruction would cause a disruption of an additional US$9 billion worth of goods.

Review your contracts and supply chain

Although many may think this was a rare incident, it takes little imagination to realise the potential impact this, and other global events, can have on any business.

Now that the UK has finally left the EU customs union and single market, and as the economy slowly starts to bounce back from the impact of the pandemic once again, now is the time to review your supply chain and network.

Our guide to recovery and resilience highlights the proactive steps you can take to ensure that you to get the products, parts and raw materials you need to continue to trade and deliver revenue.

Contact us

If you’re experiencing issues with your supply chain, with businesses struggling to meet the requirements of their contracts, our litigation & dispute resolution team can help - contact Daniel Jennings for guidance and support.

Our litigation team is ranked as a Leading Firm in the Legal 500 2021 edition.

Our updated guide to recovery and resilience covers everything you need to navigate your business out of lockdown, unlock your potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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News

COVID-19 Vaccines | Best Endeavours Contracts and the Law – What is the Reality?

The Headlines

Press and television news has been full in recent days of the dispute between AstraZeneca and the European Commission over supply of vaccines to the European Union. Indeed, the press has been particularly excited by demands that vaccines manufactured in the United Kingdom should be sent to the European Union and that AstraZeneca has a legal obligation to supply such a vaccination.

AstraZeneca in its turn has denied the same and has referred to its contract as being a “best efforts” contract based upon a schedule for deliveries.

This is an important and high profile news story.  Best efforts contracts are common in supply arrangements but the question is what is the legal position based upon what we currently understand. On 29 January 2021 a redacted version of the contract was published.

Based upon the European Commission’s statement, the European Commission has been notified of a delay in performance of the contract; the delay being a delay compared to the forecast that was laid out within a contract. Both of these are particularly significant.

The European Commission in turn has suggested that the new schedule that has been provided is not acceptable to the European Union, however, the situation is not as straightforward as it may seem.

In response to AstraZeneca asserting that it is complying with its contract by reasonable best efforts, the European Commission on 27 January stated: “the view that the company is not obliged to deliver because we signed a best effort agreement is neither correct nor is it acceptable”. Of course, what is acceptable is different to what is correct or lawful.

The contract

This contract is an unusual species of contract being an advance purchase contract. The agreement being made in advance, for example, of development of vaccinations or the authorisation for their usage are a supposed balanced risk between supplier and purchaser and therefore, do not fall into the realm of standard form supply contracts. They are inherently more uncertain that many other contracts can be.

The contract is based on Belgian law and that must be noted – the intricacies of Belgian law are another important matter. However we can form a view.

Best reasonable efforts are defined as “in the case of AstraZeneca, the activities and degree of effort that a company of similar size with a similarly-sized infrastructure and similar resources as AstraZeneca would undertake or use in the development and manufacture of a vaccine at the relevant stage of development or commercialisation, having regard to the urgent need for a vaccine to end a global pandemic which is resulting in serious public health issues, restrictions on personal freedoms and economic impact, across the world but taking into account efficacy and safety.”

In short, reasonable best efforts is quite complicated to understand hence why a dispute has arisen even beyond the normal grandstanding.  We are used to seeing Best Endeavours clauses, or Reasonable Endeavours clauses. Here, however, we have a “hybrid” clause but which is inherently vague and uncertain.

Reasonable efforts

The one thing that is clear in this argument is that there is no precedent to determine what best reasonable efforts, that would be undertaken in a global pandemic, are.

Those best reasonable efforts are critical at present when considering the “Initial Europe Doses” – those are what are potentially delayed. In respect of these AstraZeneca committed at clause 5.1 to use those best reasonable efforts to manufacture those within the EU for distribution. The EU there means the EU 27 countries and does not include the UK.

Manufacture of the vaccine as defined is referred to at clause 5.4 and for that clause alone EU is said to include the UK. We therefore have a contract where the initial doses the EU has ordered are to be manufactured in the EU, and the vaccine is to be manufactured in the EU and UK. To say the drafting is unhelpful seems a fair comment; however that clause 5.4 seems to apply to later doses of the vaccine, not the initial doses Europe is demanding now.

Ultimately, therefore, it appears probable that Best Efforts alone do not absolve AstraZeneca of responsibility for supply; however it must use its Best Reasonable Endeavours to manufacture the doses in question in the EU, and appears to be doing so. The European Commission argument therefore seems far less certain that it is arguing.

What appears clear is, however, that Best Efforts remains an extremely loose and nebulous term, beyond the mere every reasonable effort and which therefore would create some potential issues; however, further, that in common with many contracts, provisions in regarding to timing and abilities to vary the terms of the contract are crucial.

Supply

AstraZeneca has provided the notice it is required to of difficulties in supply and therefore seems to be following process.

What has caused most comment seems to be whether AstraZeneca should or must divert supplies being made in the UK and provided to the UK to the EU. On this contract that is not open and shut for anyone. Neither the Best Reasonable Endeavours clause being debated in the media nor the contract has itself expressly required any supply to be diverted. The argument seems to centre on whether in the context of the pandemic and the issues it is defined to cause; Best Reasonable Endeavours means AstraZeneca supplying less products to another party suffering the same consequences from the pandemic or not.

From a lawyer’s perspective given the obligations regarding location of manufacture for the Initial Europe Doses is it does not have to go that far – the contract requires Best Reasonable Endeavours to manufacture in the EU 27 countries and in that context AstraZeneca seems to have a sound argument that it must do that and diversion of supplies made in other locations, at least for initial doses may not be required. Of course the redacted sections including for time of delivery as well as the specific orders could affect that and we could only reach a final view then. Neither party has any knock-out blow disclosed today however.

A timely reminder to all

It seems improbable that this dispute will find itself in a litigation and if were litigated, appears to be a matter which would fall to the Belgian Courts to determine; it serves as a timely reminder, however, of the need for careful examination of all terms of the contract upon a dispute arising in regard to it and that parties’ views upon what provisions of a contract determine a dispute or are even directly relevant can be very different to those which actually will determine liability.

The terms of an international supply contract are inherently and inevitably complex; indeed, the advance purchase agreements may be some of the most complex that one can envisage given the sheer number of uncertainties at the time of execution. What is not in doubt, however, is the importance of a party properly understanding both the full extent of its obligations; the circumstances in which it can vary or avoid any obligations; and the consequences of any breach of the same, as well as understanding what conduct would or would not amount to a breach of the same.

The final point is, however, of course, whether an obligation upon a party to exercise its Best Efforts to comply with one contract would require it to breach another contract.

In English law, it is difficult to envisage any circumstance where a Best Endeavours obligation would require a party to engage in any form of conduct that was unlawful; albeit negotiating a variation to the terms of other obligations would be a different matter. One can envisage a situation where a party is to required at least explore the possibility of varying other contracts, even if it must ultimately comply with them if no variation can be agreed.

Clarification of terminology

Best Endeavours in English law "means what the words say; they do not mean second-best endeavours". There is no absolute obligation involved but those best endeavours “must at least be the doing of all that reasonable persons reasonably could do in the circumstances".

Reasonable Endeavours in English law are less burdensome, commonly thought to be "what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done to try".

Best Reasonable Endeavours seems closest to All Reasonable Endeavours in English law – a compromise meaning “a middle position somewhere between the two, implying something more than reasonable endeavours but less than best endeavours".

Ultimately an endeavours clause should always be considered in light of any specific obligations identified in the contract and will normally give way to those obligations, hence the view above.

A final word…. for now?

As to this dispute, in all probability it will never see a court determine it – the uncertainties and risks for both parties are probably too great.  However it does highlight how all contracts can fall into disputes even where parties think terms have been drafted perfectly.

The team here at Shakespeare Martineau has lawyers with considerable experience on international supply contracts having arbitrated international supply disputes in London, Switzerland and Hong Kong.

Contact us

For further advice regarding possible disputes or with concerns over any contract, contact Daniel Jennings or another member of the litigation & dispute resolution team in your local office.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Blog

Tighter rules on witness statements from 6 April: More likely to result in statements of truth?

On 6 April 2021 new rules come into force relating to witness statements for use at trials in the Business and Property Courts.

CPR Practice Direction 57AC takes aim at “the phenomenon of the over-long, over-lawyered trial witness statement”[1] that does not properly reflect the evidence that a witness would realistically have given the court orally from the witness stand.

This issue,” says the Witness Evidence Working Group, “is endemic in the litigation of well-funded, document-heavy, business disputes that is the core function of [the Business and Property Courts]”.

While many of the new rules make good sense, they are based upon an assumption that the practice of giving evidence in chief – and replicating that in written form – is the best way to put a witness’ unadulterated recollection of events before the court. Had the rules gone further, imposing on legal representatives a role similar to that played in the disclosure process, better evidence might yet be achieved.

What has changed?

In many respects the new Practice Direction simply restates existing principles in relation to the content of witness statements, with a much greater emphasis on enforcing them. Witness statements should only address disputed issues to be determined at trial, should not contain legal argument, and should not walk through a detailed narrative of (or quote at length from) the disclosed documents.

However, in addition to what a witness statement contains, the Practice Direction places a new emphasis on how it is produced. In the words of the Appendix (known as the Statement of Best Practice):

“Witnesses of fact and those assisting them to provide a trial witness statement should understand that when assessing witness evidence the approach of the court is that human memory… is not a simple mental record of a witnessed event that is fixed at the time of the experience and fades over time, but is a fluid and malleable state of perception… and therefore is vulnerable to being altered by a range of influences…”

Essentially, the courts want to ensure – as much as possible – that a witness statement represents a genuine recollection of events they witness with one of their primary senses, rather than a re-construction influenced by any number of factors including: the documents disclosed in the dispute; questions posed by their own legal representatives; the statements of fellow witnesses; or, the points they think need to be made in order to ‘win’ the case.

Preparing a witness statement

To this end, the Practice Direction and Statement of Best Practice provide (among other things) that:

  1. A witness must identify what documents, if any, the witness has referred to or been referred to in the course of providing their statement;
  2. A witness may use a document to refresh their memory but only if they created or saw it while the facts evidenced by the document were still fresh in their mind;
  3. Legal representatives should make a record or notes of the evidence obtained from a witness and used in the preparation of their statement; and
  4. When a legal representative is conducting an interview to obtain evidence from a witness they should “avoid leading questions where practicable, and should not use leading questions in relation to important contentious matters.”

The amendments generally make sense, especially in a world in which commercial litigation is typically characterised by large volumes of contemporaneous documents that generally speak for themselves.

But one wonders whether, with point four above, the Witness Evidence Working Group took an unduly pessimistic view of the impact that legal representatives have on the process of producing a witness statement, or alternatively might have overlooked the role that they may already play in the production of recollection-based, rather than reconstruction-based, statements.

“No leading questions” - A lost opportunity?

The new Practice Direction should (assuming all legal representatives are equally scrupulous) eradicate both purposeful and unintentional witness coaching that may occur through the process of creating a statement. Legal representatives know the issues in dispute. They would rather that witnesses giving evidence on their client’s behalf avoid ‘saying’ anything in their statements that might give the opposing party the upper hand, or a foothold for launching an attack, on any particular issue.

This is where avoiding leading questions, and the point that “the preparation of a trial witness statement should involve as few drafts as possible” – both from the Statement of Best Practice – come into play. The point is that a witness should speak for themselves.

All of this assumes that a witness, by default, is more likely to engage in a process of recollection rather than reconstruction unless otherwise influenced by reviewing documents, leading questions, or a heightened awareness of the issues in dispute. But witnesses are capable of saying what they think they need to say for their party’s case without any intervention whatsoever. If legal representatives get out of the way of that process as much as possible, will that necessarily result in more accurate witness evidence being put before the court?

Credibility of a witness statement

From a legal representative’s perspective, the credibility of a witness is more important for their client’s case than is their being seen to say the right thing. If a witness is giving the version of events that they think the client or their lawyer wants (unwittingly or otherwise) rather than their honest evidence, they should be found out at trial under cross-examination by a capable barrister. The witness may well resile from their written position while on the witness stand and adopt a clearer and truer account, but the truth of it might matter little if their credibility is shot. By then it is too late; it doesn’t matter whether their revised position is true or not. It is now inherently less trustworthy.

Testing the reliability of a witness' account

Arguably a legal representative, as an officer of the court, best serves both the court and their client by testing the reliability of a witness’ account while they are putting it down in writing – helping the witness themselves to differentiate between their own reconstructions and recollections. This requires probing and intervention. The Working Group’s Implementation Report envisages the exploration of the reliability of recollection, but to limited ends:

“There is room for the quality and reliability of a witness’s recollection to be explored as part of any ‘proofing’ process, by reference to what appear to be the facts of the case based on the documents, for example so as to inform advice to be given on the merits or a decision whether to serve evidence from that witness.”

So a lawyer can probe a witness but if their evidence appears unreliable then, rather than exploring the reconstruction vs. recollection issue, their evidence might best be ‘left out’ of the proceedings altogether. This hardly seems the best way for a court to get to the bottom of a dispute.

An alternative approach

This entire problem arises from the Civil Procedure Rules’ approach of equating modern witness statements with evidence in chief. In times past a witness would have taken to the stand and given their evidence orally. But that is not to say that unguarded and spontaneous evidence is best evidence. Much would depend on the quality of a witness’ performance rather than the truth of what they might have to say.

Disclosure is a prime example of a process in which a lawyer’s duty to the court trumps their client’s desire to present their case in the most favourable terms. In this regard, English law has created a culture in which, generally speaking, the courts trust legal representatives to get their clients to give proper disclosure. This almost always requires some steering by lawyers.

One wonders whether the Working Group has missed an opportunity to establish a similar culture with witness evidence, in which legal representatives do not simply avoid putting words into the mouths and ideas into the minds of witnesses, but carefully test and challenge them on their existing ‘recollections’ – on behalf of the court – to weed out existing reconstructions. With their duty to the court in mind legal representatives could easily steer witnesses away from reconstructions and towards true recollection.

Only in this way might the court make sure that witness evidence is best evidence before it is tested fully by the rigours of cross-examination. Under the new rules however this would not be permissible. Waiting until trial for the first time to properly test a witness’ ‘recollection’ helps no one.

We can help

If you’re involved in a trial in the Business and Property Courts and need some advice or support with preparing witness statements, then we can guide you through the process - contact George Fahey in our litigation team.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

 

[1] Factual witness evidence in trials before the Business & Property Courts: Implementation report of the Witness Evidence Working Group dated 31 July 2020

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Guides & Advice

Commercial tenant CVAs | What landlords need to know

With England starting 2021 in another national lockdown, and many businesses forced to close their doors once again, it’s likely there will be an increase in businesses entering Company Voluntary Arrangements (CVAs).

What is a CVA?

A company voluntary arrangement (CVA) provides a framework for a debtor company to reach a binding settlement with its creditors for pre-arrangement debts, often at a figure less than their full value.

The impact of CVAs for commercial landlords

The restrictions introduced as a result of COVID-19 have further highlighted the problems landlords have been facing. This is particularly true for those in the retail sector, with many of the usual remedies for recovering rent from their commercial tenants now restricted:

  • An evictions ban on commercial tenants for non-payment of rent is currently in place until 30 June 2021.
  • There is currently a stay on possession proceedings. Although now expired, this means landlords have to file and a reactivation notice confirming they wish to have the case in question listed, relisted, heard or referred.
  • There are limitations on commercial rent arrears recovery, depending on the length of time for which rent has been unpaid.
  • The presentation of statutory demands and winding-up petitions, save in certain carefully designated circumstances, is currently prohibited.
What are the options if a commercial tenant enters a CVA?

Many might consider that the above restrictions have created a charter for tenants to avoid their contractual obligations. However, where struggling businesses are building up significant rent arrears, their landlords have some important recovery options still available to them.

1. Recovery from former tenants and their guarantors, or from existing guarantors or potentially sub-tenants.

If the tenant entered a lease agreement before 1996 its landlord may be able to pursue the original / previous tenants for breaches. However, if the lease was granted on or after 1 January 1996 there are restrictions. For example, there must be an authorised guarantee agreement (AGA) in place with the previous tenant and, even then, that route can only be pursued for certain types of claim.

In addition, only the immediately preceding tenant can be pursued (not the original tenant). It is therefore worth checking carefully for the availability of former tenants and also current guarantors (e.g. parent company / director guarantees).

2. Landlords may hold a deposit

In addition to holding a deposit, subject to the contractual wording of this deposit, landlords may also be able to draw down funds or consider revisiting any other security the tenant may have provided.

3. Court proceedings

As debt claims are not prohibited, landlords can still bring proceedings in the country courts or High Court in order to recover any rent arrears. Furthermore, while statutory demands are currently restricted for use against businesses, they are not restricted for individuals or sole traders, meaning an enforcement option still remains.

While there is understandable sympathy for business that are struggling during this difficult times, the British Property Federation has made it clear that landlords are businesses too. The pension funds of millions of individuals are invested in the commercial property sector alone. Therefore it’s essential that all parties work together.

The government has published a code of practice for the commercial property sector to encourage commercial tenants and landlords to work together.

This is in addition to the RICS Commercial Rental Independent Evaluation Service, which offers support with fair and structured negotiations, helping to avoid issues ending up in court.

The Corporate Insolvency and Governance Act 2020

Rent is only one obligation that struggling businesses have – they are also likely to owe sums to suppliers, employees and HMRC. When businesses reach this level of financial difficulty they will likely seek restructuring options, with one options being the moratorium procedure introduced by the Corporate Insolvency and Governance Act 2020.

This gives viable businesses who are currently struggling some protection from court or other enforcement action, offering a period of time to reorganise their operations or seek reinvestment. It is a short-term option where existing management stays in place, but are overseen by a qualified insolvency practitioner who acts as monitor.

It remains to be seen whether this is an effective solution for struggling businesses, many of whom are currently being supported by financial relief from the chancellor in the form of the furlough scheme and financial support.

The moratorium only suspends a landlord’s rights of action for a limited time - it does not affect the general obligations of the tenant under a lease. However, these obligations may be varied by other restructuring options available, such as a CVA.

CVAs - making arrangements

Like the new moratorium, a CVA also leaves the debtor company under the control of its directors, with the arrangement managed by an insolvency practitioner.

With certain CVAs involving substantial property portfolios, the only creditors adversely affected by the scheme of arrangement are landlords and local authorities. All other creditors paid in full. This ensures that the CVA receives the necessary majority of 75% of creditors voting for approval.

Under a CVA, a landlord may be forced to receive a reduction in the contractual rent payable under leases and closures of unprofitable stores. The only recourse available to the landlord is to assert in the courts that the CVA contains a material irregularity, or unfairly prejudices their interests as a creditor.

In the widely reported Debenhams case Discovery (Northampton) Ltd & Ors v Debenhams Retail Ltd & Ors [2019] EWHC 2441, the court decided that treating landlords differently to trade suppliers does not amount to unfair prejudice. As a result, they may be justified by carrying out a balancing exercise to determine the overall fairness of the CVA proposal.

However, the judgment did reassure landlords that a CVA cannot restrict the right of a landlord to forfeit a lease.

To minimise the risk of a vacant property, in certain circumstances, a landlord may wish to consider a turnover-based rent agreement. This takes into account the uncertain nature of future trading. This may also be favoured by the tenant as it may give them the flexibility it needs to survive.

The importance of having a proactive debt recovery strategy

Under a CVA the landlord will often recover a substantial proportion of the rent they are owed under its lease. This is a better outcome to what would be the case if the tenant were to enter liquidation or administration. However, while CVAs may not seem immediately attractive, landlords should consider other potential alternatives too.

Before a tenant enters administration

If there is a risk of tenants entering administration or liquidation, being proactive and issuing letters before taking any legal action and/or court proceedings for the debt should always be the first port of call. It’s also like to work to a landlord’s advantage if the tenant is keen to avoid judgments that may breach its banking covenants or other commercial arrangements.

Following administration or liquidation

If a business is forced into administration or liquidation, a landlord’s claim will now most likely rank alongside other unsecured creditors behind HMRC, after having regained its preferential status in relation to certain tax liabilities with effect from 1 December 2020.

However, if the tenant enters a formal insolvency process, ongoing rent can be demanded as an expense of the administration or liquidation if they remain in occupation of the premises,

As we emerge from the pandemic and more commercial properties face risk of closure and lying vacant, landlords may choose to consider more open dialogue with their tenants, particularly around turnover-based rent agreements, rather than taking the more traditional option of enforcement action.

Contact us

We’re here to help you through these difficult situations and guide you towards a solution - contact Sean Moran in our corporate restructuring and insolvency team, or James Fownes in our commercial property disputes team, for advice and support.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Guides & Advice

A life line for many businesses in a landmark Supreme Court judgment

The Supreme Court has today handed down judgment in the coronavirus business interruption insurance test case brought by the FCA and, by dismissing the insurers’ appeals, has found in favour of thousands of small businesses across the UK.

Indeed, the judgment strengthens the position for policyholders as the Supreme Court has widened the interpretation of some of the cover wording in the prevention of access clauses. It has gone a bit further than the High Court did.

The issue of whether business interruption policies cover losses caused by the pandemic is one of the most controversial legal issues resulting from the coronavirus crisis. Today’s judgment has unanimously rejected the insurers’ appeals and found in favour of the many businesses whose claims have been refused by insurers particularly on the issue of the interpretation of disease, prevention of access and trends clauses.  For policies with wording identical to those in the case (and similar policy wording) this decision now sets out how those business interruption insurance wordings should be interpreted and, most importantly, applied.  For example, the Supreme Court says that a disease clause for “any occurrence of a notifiable disease within a radius of 25 miles of the Premises”, will now have to provide cover caused by any illness because of Covid-19 that occurs within that 25mile radius.

The decision on causation is going to make it harder for insurers to reject claims. The ruling on trend clauses also helps the policyholder maximise the pay-out.

Businesses affected by coronavirus who believe they have business interruption insurance coverage should now be revisiting their policies, assessing them against the Supreme Court’s judgment and looking to getting their insurers to pay out.  If a business is yet to make a claim it’s essential to seek expert support in gathering together the right supporting evidence for aspects such as lost revenues, forecasted revenues and any expenses incurred. Paying close attention to information for the claims process from individual insurers is also vital to ensure the correct formatting and timings are followed, and to boost chances of claims going smoothly.   Policyholders should carefully consider how the Supreme Court’s judgment applies to the wording of their individual policies.

Steven Skiba, legal director and commercial disputes specialist comments “The appeal ruling has landed firmly in favour of businesses. This final word from the Supreme Court means that businesses and insurers are no longer in the dark when it comes to handling business interruption claims related to the coronavirus pandemic.

As a result of the case being fast-tracked for an appeal in order to provide further clarity, many struggling businesses have still not received a pay-out. However, with the UK now in a third national lockdown, it’s likely that this decision will have come too late for some but for others now is the time to have another look at those policies and, if a claim exists, make contact with the insurers.”

Contact us

For further information, please contact Steven Skiba or a member of the litigation team in your local office.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

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Guides & Advice

Standing to bring a public procurement claim

Public procurement claims can often be challenging for many reasons and one specific challenge is establishing whether or not a claimant has ‘standing’ to bring a claim in the first place. A recent decision in the High Court which was endorsed by the Court of Appeal has highlighted the meaning of ‘standing’ and how it can be interpreted.
What is Standing in a public procurement claim?

Standing generally refers to whether a party has a right to bring a claim and this has been tested recently in a very public case. The case involves public procurement - the process public bodies follow when awarding contracts to third parties. To ensure that contracts are awarded fairly and to the best bidder, public bodies have to follow a legal process which is set out in the Public Contract Regulations 2015. Where public bodies fail to follow this process, this can lead to a contract being voided or damages being paid out to parties who lost the opportunity to bid or have their bid fairly considered.

It is important to note though that even if there has been a breach of procurement rules, not everyone can bring a claim; only those which have ‘standing’.

The case - Community R4C Limited v Gloucestershire County Council

The team recently acted for Community R4C (CR4C), in a procurement claim against Gloucestershire County Council (GCC). CR4C claimed that GCC had failed to follow procurement rules when it awarded a £600m contract to a third party for the construction and operation of a waste incinerator in Gloucestershire.

Not only did CR4C say that GCC had acted unlawfully, but it also claimed that it would have made a successful bid if it had been given the chance to do so.

Before the court could decide whether GCC had breached procurement rules, it had to decide if CR4C had ‘standing’ to bring a claim. This considered whether:

  1. CR4C was an ‘economic operator’ which means whether it offered waste treatment services on the market and
  2. CR4C could have satisfied GCC’s tender requirements.

The court also had to decide if CR4C was out of time for bringing a claim, which it would be if it failed to bring a claim within 30 days of knowledge of any potential breach.  Importantly for CR4C, the court decided that CR4C’s claim was not out of time; it could not have known any sooner than it did about the changes to the contract. GCC had in effect kept this ‘secret’ for around three years.

However, on the evidence available, the court decided that ultimately, CR4C did not have ‘standing’ to make a bid for the contract.

The test applied by the court on Standing

In deciding whether CR4C had standing, the test used by the court was whether it was more likely than not that CR4C could show it had standing (i.e. 51% or more). It decided that it did not meet this threshold (or the threshold outlined below) and this has since been supported by the Court of Appeal when it decided to refuse CR4C’s application for permission to appeal.

The alternative test

The alternative test which CR4C said the court should have used was whether it had more than a ‘fanciful chance’.  CR4C reasoned that a less demanding test should apply where there had not been an opportunity to tender and as such it was being asked to show that it could have met a hypothetical tender, at a hypothetical date, with a hypothetical consortium of companies. The balance of probabilities test actually applied by the court and subsequently confirmed by the Court of Appeal would have meant having a viable bid ‘ready to go’ without knowledge that a contract would be put out to tender.  Ultimately this proved to be an insurmountable challenge, as it would for most new market entrants.

What will this mean for disputes in the future?

It appears the courts have set a high bar when deciding if a claimant has standing to bring a procurement claim. As a consequence, it is likely to make procurement claims even more challenging; particularly for parties who are new to the market or pioneering a new type of service/product.

It remains to be seen whether this approach will be followed, particularly in light of potential changes to public procurement law following the UK’s departure from the EU.

On the upside, the court’s finding that CR4C could not have known about the changes to the contract, until three years after they were carried out, is an encouraging finding for parties considering bringing claims in future and who may be concerned about their claim being time barred.

Contact us

For further information, please contact Tim Speed or Alex Ryan or a member of the litigation team in your local office.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

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Guides & Advice

10 practical tips for directors in litigation

Litigation is always stressful; for many directors it is a rare event that distracts from their real jobs and consumes resources.

One of the critical stages during litigation is the disclosure process, which is where the two sides go through their own documents and prepare the evidence that will be relied upon at trial. This can be a demanding process for everyone involved.

In partnership with Jasper van Dooren of KLDiscovery, litigation specialist Max Rossiter considers key points that directors need to be aware of when dealing with disclosure.

1. Do you know where your data is held?

We all access a wide variety of data sources on a daily basis - we send and receive emails, make phone calls and join colleagues for virtual meetings. All this information is available at your fingertips, regardless of where in the country you log in from, however, having continuous access to your files does not automatically mean they are stored locally on your device. Knowing the location - are your emails stored locally on a server at your office or in the cloud hosted on the other side of the world? - is paramount when asked to search and collect potentially-relevant documents.

2. What type of data do you need for the disclosure process?

For the majority of cases, email data is the predominant source of evidence, but keep in mind that this may change based on the parameters of the case and the relevant time period. Recent years have seen an exponential growth in alternative communication tools used such as WhatsApp, Skype, Teams and Slack. In addition to the communication data, relevant documents can reside in a variety of locations, such as files stored in a shared project folder, phone calls that are recorded, records from financial systems, saved CCTV footage and pictures stored on mobile phones. Do involve your IT department in this conversation, as they might be aware of old systems that are no longer in use.

3. Custodians of your data – who, what, where and how

Before you delve into exploring the different data sources available within your business, you should identify the potentially-relevant individuals (custodians) that might hold relevant material early on in the process. This is an effective way to limit the scope of the disclosure exercise by steering you to, or away from, certain data sources, as most likely the targeted custodians will not have access to all data within your business. It will also prompt the conversation of where the custodians are located and how this may influence the data acquisition, both from a legal and technical perspective.

4. Missing data – the consequences for you and for the opposition

Data will go missing or be deleted during the course of running a business. Given that litigation often occurs years after the relevant events, it is not surprising that certain documents might not be available. However, expect the other side to make a fuss about this if the data that they want is no longer available. Don’t worry – as long as the documents were not deleted while the dispute was on going you are likely in the clear. The courts recognise that the disclosure process is meant to be proportionate - just make sure you have a clear understanding of which documents have been deleted and why.

5. How are you planning to access your data?

Being able to access your data from anywhere in the world is unfortunately not the same as collecting your data in a defensible manner, a requirement for disclosure. The first step is to find out who manages your data sources identified as potentially relevant. If your company outsources its IT services, we would highly recommend to reach out to this partner as soon as possible. This will give you an understanding of if and how they can help with the collection exercise, and if so, how long this will take. Many IT companies do a great job keeping the infrastructure up and running, but they might not have the resources to collect the information quickly, as is often required during litigation. Alternatively, if IT is managed in-house, include your head of IT as soon as possible in conversations, as they will be a valuable asset during the early conversations while you prepare for disclosure.

6. Sensitive documents and how to handle them

Sometimes, especially in cases where dishonesty is alleged, the other side might request that you search through the personal data of your employees, which could involve searching their text messages or personal emails to see if they contain information that is relevant to your case. In general it is a good idea to deal with these conversations head on and give your employee the chance to explain anything that could be found on their personal devices, or to decline the search. It is important to involve your solicitors or in-house counsel in this process as well in case there are any employment issues that could arise, such as the employee feeling worried that your solicitors might access their bank details or personal photos. Often a short conversation between the employee and your solicitors will reassure them that the solicitors have no interest in reviewing those documents, and will not share anything irrelevant with their employer.

7. Disclosure – a moving target

Unfortunately, disclosure is not a linear process. A lot of thought is put into the approach during the outset of each matter, but new facts, issues or documents can be uncovered during the process that requires the initial approach to be amended. In general it is suggested to collect data with a relatively wide, but proportionate scope. Agreed keywords and date ranges will be applied at the next stage to filter down this larger set before review commences. The main benefit of this approach is that if the scope of the disclosure changes for whatever reason, you can simply amend the filtered criteria, rather than recollecting data and putting an unnecessary burden on your business.

8. Key disclosure documents and what to expect

The way in which disclosure is dealt with in the English courts has recently changed. As a result, a senior team member in your business will have to be responsible for liaising with your solicitors to access the documents required and to guide the disclosure process. This individual will be required to sign a certificate setting out what searches were undertaken and the limitations/changes to the searches that had not been initially considered, as well as how the parameters might have changed over the course of the disclosure process. You should identify this person quickly and ensure they have the necessary time and authority to deal with third party providers and internal business units to get the documents they might need.

9. Remote working

With the Covid-19 pandemic more people are now working remotely, away from their usual office. This can be problematic for numerous reasons – key documents might only be available at the office, and key people that understand a business’ systems are may no longer be physically available. However, our experience has shown that with careful planning, remote working is not a problem - as long as people are adequately prepared. Key business units and individuals should be made aware that the disclosure process is ongoing and that they might get a phone call by the solicitors asking for help with certain documents. It might also be worthwhile at the start of the process to introduce the junior team members who will be actually carrying out the searches to the junior solicitors who will be reviewing the documents. This way they know who they can speak to quickly if they need something specific.

10. Wildcards and how to deal with the unexpected

Litigation is unpredictable, and the disclosure process especially can throw up wildcards, as it is often the first time the parties have had a deep dive through the documents surrounding the case. The key thing to remember is that while this process might be new to you, the solicitors you have instructed have likely dealt with these issues before. It is therefore best to deal with things quickly and decisively and keep your lawyers informed. This will enable them to best guide the process and also ensure that the disclosure is carried out in accordance with the law. It was never intended, and nor is it, a perfect process, and the courts and case law recognise this.

We can guide you through the litigation process

We understand how daunting the disclosure process can seem. Our team of specialist dispute resolution lawyers provide clear and pragmatic advice at every stage; keeping our clients’ commercial objectives in mind and helping them to make the right decisions for their business.

If you’re in the middle of litigation, or about to start the disclosure process, we can help. Contact a member of our commercial disputes team to discuss the best course of action to secure a positive outcome for your business, as quickly and cost-efficiently as possible.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

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Guides & Advice

Brexit | what does the future hold for dispute resolution?

The Brexit transition period is rapidly coming to a close, but there are still questions surrounding the future relationship between UK and European law, particularly in the area of international dispute resolution. Looking ahead to 31 December, what could any changes mean for UK businesses and how can they prepare?

What will happen to cross-border judgments after Brexit?

Without an applicable agreed treaty between the UK and the EU, the recognition and enforcement of cross-border judgments will differ considerably due to disparities in the local laws of EU member states. As such, UK businesses would have to seek legal advice in the foreign jurisdiction where the UK judgement is to be enforced.

This could lead to a host of complexities, causing delays, increased costs and general uncertainty regarding the enforcement of a judgment.

Is there a solution?

The 2007 Lugano Convention could be a solution to this issue, maintaining the status quo on the enforcement and recognition of judgments for businesses trading with the EU. Simply put, the convention offers automatic mutual recognition of court judgments, as long as they comply with set procedural formalities.

Having applied to accede to the convention as an independent member, the UK now needs the agreement of all signatories. Although Denmark, Iceland, Norway and Switzerland have given their support, the EU – at present – has not. Only time will tell as to whether this solution will be accessible.

Rejoining the 2005 Hague Convention

An Instrument of Accession has also been deposited by the UK to rejoin the 2005 Hague Convention on Choice of Court Agreements. The Convention requires signatory states to recognise each other’s judgments where disputes have to be litigated in the courts of another signatory state - these are currently the EU, Mexico, Singapore and Montenegro.

However, the Hague Convention does have limits, with contracts where one party is a ‘consumer’, or which contain asymmetrical jurisdiction clauses not falling within the scope of the Convention.

London as a centre for commercial disputes

English law’s reputation for being transparent, fair and impartial has placed London as a global centre for resolving commercial disputes. However, this status isn’t set in stone, with other jurisdictions looking to take over London’s position. Something that will be made easier should the UK/EU deal fail to prioritise the strong judicial cooperation that the country has previously enjoyed.

Now is the time to act

For businesses that have already secured a judgment against an organisation in the EU, now is the time to make the most of the transitional period, with UK judgments still automatically recognised in the EU.

Those which haven’t yet issued court proceedings, or are in the middle of the process, should consider seeking professional advice from a lawyer in the state of intended enforcement. Foreign rules on enforcement may impact the management of UK court proceedings.

As the end of the Brexit transition period approaches, UK businesses should keep an eye on the status of the 2007 Lugano Convention accession and investigate whether their contracts are eligible under the Hague Convention. For organisations that can, it would be prudent to take advantage of the existing EU regime in order to avoid any potential future difficulties.

We can help

If you have obtained a judgment against a person or entity that will have to be enforced in the EU, we can help you to enforce that judgment now or advise you on the implications of delaying enforcement beyond 31 December 2020.

For further guidance on how you can prepare for the changes, contact George Fahey on 0207 264 4523. Alternatively, you can get in touch online or visit our international arbitration lawyers page to learn more.

Our Brexit & Beyond hub contains the latest news, articles, briefings, commentary and webinars concerning the legal implications of Brexit, ensuring that you have all the information to drive your strategic thinking now and in the future

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

How can we help?

Our expert lawyers are ready to help you with a wide range of legal services, use the search below or call us on: 0330 024 0333

SHMA® ON DEMAND

Listen to our SHMA® ON DEMAND content covering a broad range of topics to help support you and your business.

Agriculture: diversifying or leasing your land to create habitat banks

6 Jul

Peter Snodgrass, Partner & Head of Agriculture
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Guides & Advice

Corporate disputes: Protecting businesses from post-COVID-19 fallout

Corporate disputes: Protecting businesses from post-COVID-19 fallout

The pandemic may have caused a host of unprecedented circumstances for company directors, but that doesn’t mean they can avoid claims made against them by shareholders.

In fact, failing to respond effectively to the crisis could lead to a rise in disputes raised by disgruntled shareholders.

The importance of decision-making

COVID-19 has forced directors to make quick decisions in order to survive. Whether adapting business models to fit changing consumer habits or following government guidance and making the most of the emergency funding available, these decisions have been hugely challenging.

However, the current state of the economic environment means that high-level decision-making will be scrutinised more than ever. If company shareholders believe more could have been done to protect the finances of the business, then a claim could be filed against the directors.

Staying logical

With very little time to prepare, it’s possible that lockdown led to some business leaders making ill-informed decisions based on panic rather than sense.

For example, if a company took out emergency funding while such finance was at higher rates than usual, then it could have a long-term impact on its financial position. In addition, government-backed business loans may have given some directors the dangerous impression of “free money”, causing them to spend, rather than save.

Unfair prejudice or Derivative claims

Should there be evidence of mismanagement, shareholders can choose to file an “unfair prejudice” claim against their fellow shareholders (who often may be the directors) or a derivative claim against the business’ directors.

The Companies Act 2006 provides that shareholders can use an unfair prejudice claim or a derivative action if they believe decisions were made by the directors (or director/shareholders as appropriate) that weren’t in the interests of fellow shareholders.

Wrongful trading - knowing when to stop

In an attempt to lessen financial pressure, some directors may have continued trading when they shouldn’t have, resulting in wrongful trading.

Under the Insolvency Act 1986, directors have a duty to mitigate the potential loss to the company’s creditors if there is no reasonable prospect of the business escaping insolvency. If a director is reported by shareholders for wrongful trading, then it could result in prosecution.

Protecting against claims

Directors must keep in mind that they are answerable to shareholders in all areas of decision-making, ensuring the correct processes are followed, including:

  • Backing up choices with logical reasoning and good financial grounding
  • Documenting the business measures taken and why
  • Recording financial evidence such as figures for losses and predicted revenues
  • Keeping active and open lines of communication with shareholders
  • Seeking expert legal advice to resolve any disputes at an early stage

Why you need to take action now

By taking a logical approach to decisions, rather than a rushed one, you can put yourself in the best position to avoid any disputes that raise their head post-pandemic.

Contact us

If you would like guidance or advice with avoiding claims made against you by your shareholders, or need help defending a dispute raised by a disgruntled shareholder, then our team of corporate disputes specialists can help – no matter what stage of the process you’re at. Contact Barry Jervis in our commercial disputes team.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential and make way for a brighter future. Further advice in relation to COVID-19 can be found on our dedicated coronavirus resource hub.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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A tale of a Section 21 and a gas safety certificate

A tale of a Section 21 and a gas safety certificate

On 18 June 2020 the Court of Appeal handed down a welcome judgment for landlords in the case of Trecarrell House Ltd v Rouncefield [2020] EWCA Civ 760, judging that late service of a gas safety certificate does not prevent a landlord from serving a section 21 notice.

The background  to the case

Ms Rouncefield was granted an assured shorthold tenancy (“AST”) by her landlord Trecarell House Limited in February 2017. At the time of granting the AST the landlord did not provide Ms Rouncefield with a gas safety certificate before she occupied the property. Sometime later in November 2017, Ms Rouncefield was provided with a gas safety certificate dated January 2017.

The landlord later served Ms Rouncefield a section 21 notice under the Housing Act 1988 in May 2018 and then issued possession proceedings -  Ms Rouncefield defended the claim.  The basis of Ms Rouncefield’s defence was that the landlord had failed to provide her with a gas safety certificate and comply with either regulation 36(6)(b) or 36(7) of the Gas Safety (Installation and Use) Regulations 1998 when she was granted the AST and before she occupied the property.

The district judge dismissed Ms Rouncefield’s defence and granted a possession order, however, the possession order had been overturned on appeal in the county court on the basis that the landlord could not rely upon a section 21 notice where compliance with regulation 36(6)(b) or 36(7) was not done at the start of the tenancy. The landlord appealed this decision to the Court of Appeal

The Court of Appeal decision

The Court of Appeal by a majority decision allowed the landlords appeal, concluding that a failure to provide a gas safety certificate to a tenant before they occupied the property is capable of being remedied by giving the tenant the relevant gas safety certificate before serving a section 21 notice.

This is a welcome judgment for many landlords as there was a danger that tenants would be granted what amounted to fully assured tenancies in cases where a landlord might only have been slightly late providing the tenant with a gas safety certificate. The court decided that this could not have been Parliament’s intention as it would have been a draconian sanction for landlords.

Contact us

Should you require further advice on possession proceedings and section 21 notices then please contact Gary Ekpenyoung, Habib Khan or another member of the housing litigation team in your local office.

We have launched our guide to recovery and resilience, helping to support businesses and individuals unlock their potential, navigate their way out of lockdown and make way for a brighter future.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

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Compliance – Health and safety

Contact us today Home Our Thoughts Thoughts & Insights Your guide to recovery & resilience | Compliance – Health & Safety

Your guide to recovery & resilience | Compliance – Health and safety

H&S

Employers have clear duties under existing health and safety legislation. Obligations to comply with health and safety at work and to manage and control workplace risks includes protecting workers and others from the risk of COVID-19 infection in the workplace.

That duty is to do everything “reasonably practicable” to manage these risks. The onus of demonstrating that everything reasonably practicable has been done falls to the employer. The best way to demonstrate compliance with the law is usually to follow government and industry-led guidance wherever possible.

Health and safety legal obligations cover employees and third parties and the potential physical interaction between them when they visit your working environment as well.

This guide looks in more detail at what you should consider when moving from survival mode towards recovery and thrive. As we enter this next phase, by supporting each other in business we can make way for a brighter future.

What is the current guidance on returning to work?
Government guidance remains that employees should work from home where possible. If it is not possible, employees can and should return to work unless they work in one of the sectors which are required to remain closed. This advice was introduced during the government briefing on 10 May 2020.

Businesses planning on returning to work will have to review and assess what the risks to employees and others will be from a return to work as lockdown restrictions are eased, taking account of any guidance.

Detailed government guidance has been issued on a sector specific and work type basis for businesses to control the risks of COVID-19 in the workplace. Some businesses may work across a number of work types such as offices, factories and outdoors and therefore may need to consult more than one of these guides.

Each business will have differing needs and requirements when considering whether and how they should reopen and allow employees and others to visit their place of work. This guidance is to protect and support employees with their physical work and their mental health. Businesses can access and read the detailed guidance here.

If employees or third parties (such as customers or suppliers) are returning to your working environment, remember your overriding obligation to reduce the risk of COVID-19 as far as “reasonably practicable”.

Don’t forget the value of risk assessments

Risk assessments are a key part of this process and will allow businesses to assess the working environment to identify and evaluate the hazards and risks (including at risk persons such as vulnerable and/or shielded people), determine appropriate and proportionate controls and record those steps before implementation.

Risk assessments should address all aspects of the working environment including shared office resources (such as kitchens, canteens and printers) and personal office resources (such as desk spaces).

Remember that risk assessments not only help create the practical solutions to ensure that you comply with your ongoing health and safety obligations but also create the necessary audit trail to demonstrate that compliance. Keep your risk assessments up to date and review and update where necessary. Do not disregard employees who continuing to work at home in this process.

Some common issues
Most risk assessments will address concerns and practical steps to deal with:

Engagement should be encouraged with individuals to ensure practical steps are taken to manage individual risks and concerns.

Practical suggestions
Each work environment is different and businesses should consult the most up to date guidance or seek industry or legal advice on the steps they are or are proposing to take.

Practical solutions currently being envisaged:

Policies and procedures
Ensure staff and third parties are aware of your policies and procedures when visiting the working environment including your own guidance on how the working environment should operate now to mitigate risk. Hygiene
Provide and promote handwashing and sanitising facilities and enhanced cleaning function in the office to maximise hygiene standards (particularly in communal spaces). Use of PPE
Consider the use of PPE in the working environment and where that would be appropriate and how your policy will meet the needs and expectations of those visiting. Physical environment
Review the physical working environment and what controls and measures can be taken to maintain as far as reasonably practicable social distancing of 2m and avoid crowding. Staggered return
Consider a staggered, phased or rota return for work where social distancing may prove problematic due to space or access constraints. Different working patterns
Consider staggered start times or shift working and liaising with other occupants in shared buildings where joint access is used to agree a common approach. Working practices
Consider the need to reduce or limit time spent on face to face contact and how to promote remote working practices in the work environment. A full list of the guidance produced by the government can be found here. If in doubt, remember to take professional or industry led advice on best practice and the latest guidance given the evolving situation.

A full list of the guidance produced by the government can be found here.

If in doubt, remember to take professional or industry led advice on best practice and the latest guidance given the evolving situation.

Contact us
In response to the pandemic we created our coronavirus hub which includes advice, guidance and insight to help you navigate through these uncertain times. As we all begin to adapt and prepare for the future, our hub will evolve to provide you with further help and resources for surviving, reviving and beginning to thrive in life and business, throughout the challenging times ahead.

Our free legal helpline offers bespoke guidance on a range of subjects, from employment and general business matters through to director’s responsibilities, insolvency, restructuring, funding and disputes. We also have a team of experts on hand for any queries on family and private matters too. Available from 10am-12pm Monday to Friday, call 0800 689 4064.

For legal support in relation to the coronavirus or any other matter, get in touch with your team today.

From inspirational SHMA Talks to informative webinars, we have lots of educational and entertaining content for life and business visit SHMA® ON DEMAND.

James Woolstenhulme
James Woolstenhulme

Partner View full profile

Barry Jervis
Barry Jervis

Partner & Head of Litigation & Restructuring View full profile

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It is possible, however, in certain circumstances to find relief for breaches either in the contract itself or through the operation of the law of frustration.

My business is struggling to comply with its contractual obligations – what are my options?

Our advice is to check your contracts carefully.  There are generally three potential situations that could help.

General termination clauses

Contracts often allow either or both party to terminate a contract, but this is usually restricted to certain circumstances.

There may be general no fault termination clauses which enable one or more of the parties to terminate the contract regardless of whether or not there has been a breach of the contract. To ensure termination is effective, it is very important to follow the procedure set out in the contract.  Failure to do so could lead to a dispute as to whether termination has in fact taken place.

Where there has been a breach it is important to remember that not all breaches entitle a party to terminate a contract and so it is vital to check the wording of any termination clause carefully before seeking to terminate (otherwise the purported termination may itself be a breach which can lead to claims).

Force majeure clauses

If a party’s ability to comply with a contract is affected due to coronavirus, this may be covered by a force majeure clause in the contract. The effect of a force majeure clause is that in certain circumstances only, where an extraordinary event outside of a party’s control prevents, stops or delays it from being able to comply with its contractual obligations, it may suspend these obligations and/or terminate the contract. Typical examples include floods, droughts, earthquakes, terrorism, wars, plagues etc.

If a contract does contain a force majeure clause, its wording will need to be considered carefully to see whether or not it covers coronavirus (it may for example refer to “epidemics or pandemics”).

If a contract does contain such a clause, it does not automatically allow a party to suspend performance of its obligations and/or terminate the contract. It depends on the circumstances of each matter and party will also have to show that it has not just become more difficult or unprofitable to perform their obligations but that coronavirus and or the lockdown has had a significant impact on their ability to comply with their obligations.

Law of Frustration

If your contract does not contain a force majeure clause, the law of frustration may assist.  However it is harder to rely on than force majeure.

Frustration comes into play where an event that was unforeseen at the time the contract was entered into makes compliance with a contract impossible or transforms the obligation to perform into a totally different obligation from that which the party originally signed up to.  It is therefore important to consider when the contract was entered into and what could reasonably have been foreseen at that time.

It is also important to note that frustration will not apply where compliance with the contractual obligations is still possible but has just become more difficult or costly.  If applied, it allows the contract to be automatically terminated and current and future contractual obligations fall away (but importantly not responsibility for past obligations). Unlike force majeure, it does not allow for suspension.

How can my business best prepare to avoid breaches or potential litigation?

Businesses will be in a position to recognise if they are currently or likely to struggle in future to comply with any contractual obligations due to coronavirus. Businesses should also be taking all reasonable steps to comply with their obligations as a failure to do may affect their ability to rely on force majeure or frustration.

It is vitally important to check contracts now to see what they say about suspending the performance of obligations under the contract and/or terminating the contract altogether. Some contracts will contain reporting requirements which will require a party to notify other parties where a force majeure event impacts the contract.

Also remember that the other contracting party may also be struggling and may welcome a suspension or termination by agreement.

Ultimately, businesses should consider their position and their options to safeguard themselves from potential claims. This is not a straightforward area and can prove costly if a business gets it wrong.

Contact us

To discuss any of the issues raised here please contact Alex Ryan or Tim Speed.

You can register for one of our online webinars or contact the events team for more details or for more general business advice in relation to coronavirus visit our dedicated resource hub.

For advice or guidance on any other legal issue, a member of our team can help – please click here to discuss.

Things are changing on a daily basis and it is fair to say that we do not yet know how long the present crisis will last or ultimately what the lasting impact will be.

You will have seen the far-reaching measures proposed by our government and governments across the globe with a view to assisting businesses at this difficult time. We are yet to see how impactful those measures will be but fundamentally, businesses are seeing significant issues in the here and now.  Cash flow is likely to be the single greatest issue for businesses, both with the supply chain issues, movement of people and reduced spending both by consumers and on a business to business basis.  We would recommend that businesses take a close look at their cash requirements for their ongoing trading.  Businesses should also look at regular and discretionary expenditure and ask the question, “do I really need to spend this money now?”

Businesses will also have to look at their supplier network.  Will the supply chain hold up and will businesses be able to get the products, parts and raw materials that they require to continue to trade?

Further disruption will come both from the measures to reduce potential transmission of the virus by preventing free movement of people and the closing of schools.  This will undoubtedly lead to customer volume disruption but also potential labour shortages within businesses employee groups.  There will be people who are ill, people who will need to self-isolate, people who will need to stay at home to look after children and/or dependant relatives. Hopefully most businesses will have a business continuity plan in place (“BCP”), if they do not, we would advocate looking at this as a matter of urgency.

When looking at viability going forward, it is also important to keep stakeholders in mind. It is likely that the banks will be “sympathetic” and there will likely be statutory measures to prevent certain sorts of enforcement.  However, it is always sensible to be open and engaged with your lender and other stakeholders.

We at Shakespeare Martineau have a specialist national team of advisory and restructuring professionals that can help you through these difficult times.  If we could give one piece of advice, it would be don’t bury your head in the sand and have early conversations with our team about what options are available and how we can help your business.

As with the virus (and most other medical matters), the earlier an issue is diagnosed the more options are available by way of treatment.

To discuss any of the above issues please contact Andrew Taylor, National Head of Restructuring on 0121 631 5326 or 07734 553 369, Michael Mulligan on 020726 44432 or 07976 414259, Sean Moran on 0116 631 5325 or 07834 129693.  We have a team of specialists in our restructuring team and wider corporate and commercial team ready to help.

All the latest views and insights on coronavirus.

The 2020 edition represents the ninth edition of the Incoterms® rules.  The differences between the editions are not by any means radical but do highlight the attention paid by the ICC to industry consultation on market usage, addressing misuse of the Incoterms and the increasing prominence of security considerations in the carriage of goods.

Brief Introduction to the Incoterms®

Incoterms were first published in 1936 by the ICC to introduce clarity and consistency in the interpretation of trade terms internationally and to reduce the number of disputes.  Parties to a commodity sale contract need not draft bespoke arrangements to cover the terms required for delivery, duty payments and insurance arrangements for the transport of the goods. A standard form contract can be incorporated in to the supply contact to cover these issues, the Incoterms®.

The 11 trade terms used in Incoterms® 2020 can be seen as escalating in degrees by relation to the allocation of risk and cost to buyer and seller.  By this measure EXW (Ex Works) represents the minimum obligation for the Seller and DDP (Deliver Duty Paid) represents the maximum obligation. Incoterms® beginning with “C” or “F” are contracts where the obligations of the seller are undertaken in the country of embarkation.  Incoterms beginning with “D” are contracts where the seller is responsible for the goods in the destination country and bears the risk and costs of their transportation.

Differences between the Incoterms® 2020 and 2010 Editions

It is now possible under FCA (Free Carrier) to select and option for the carrier to issue a bill of lading with an on board notation even though the goods are delivered by the seller to the buyer prior to loading on a ship simply by handing over the goods to the carrier.  It would appear that this change was due to the pressure of banks concerns where letters of credit were in place.

The ICC took the opportunity in the latest edition to reorder the articles of the Incoterms® to ensure that the cost consequences of the terms are consistently displayed and to give more prominence to delivery and risk issues. Additionally more emphasis is placed on explaining how the incoterms® are to be used and address the confusion and bad practice noticed in the usage of the terms.

The minimum insurance cover which the seller is to obtain under term CIP (Carriage and Insurance Paid to) differs between the two editions.  In the 2020 Incoterms®, therefore, the minimum insurance cover now differs between the CIP and CIF (Cost Insurance and Freight).

The Incoterms® now expressly allow for the transport of goods by the seller or buyer themselves rather than assuming they would enter into a contract of carriage with a third party in FCA (Free Carrier), DAP (Delivered at Place), DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid).

The three letter initials for the previous rule DAT (Delivered at Terminal) has been changed to DPU (Delivered at Place Unloaded).  The reason for this change is to emphasise that the destination for the goods could be a place where it is possible to unload the goods rather than limiting the destination to a terminal (however widely “terminal” was defined in the 2010 edition.

The security related requirements for each Incoterm® rule are now more prominent and clear allocation of such obligations are included in articles A4 and A7 of each rule.  More prominence has also been given to the costs requirements of the security obligations.

Common areas of Confusion in the Use of Incoterms®

As we have seen one of the main themes of the changes made to the 2010 edition is to reduce the confusion seen in practice.  Examples of confusion I have seen in the use of Incoterms® include:

It often seems that the meaning of incoterms® are only inferred from the flowcharts that accompany them rather than from a review of the articles.  Whilst it is hoped that the changes made in the 2020 edition will make the application of the correct term easier it will still require engagement with the published terms by the procurement team rather than a scan of the out of date quick reference chart taped to a filing cabinet.

For any further information, do contact partner Ian Griffiths on 0121 237 3010, ian.griffiths@shma.co.uk or another member of the energy team.

There are many reasons why getting a speedy response from the other side is advantageous to the litigation process.  However, it is often the case that once liability has been admitted, document disclosure is not forthcoming. This can lead to deadlock until the Court orders disclosure.

Why don’t parties disclose in a timely fashion?  The more cynical amongst us could think that certain parties are abusing the process by not disclosing in a timely fashion to push the claim towards limitation and benefit from the increased costs that litigation brings with it.

But even if the cause is not such an abuse of the process, disclosure delays can mean that the defendant is unable to put forward a reasonable offer as many of the claimed items remain unsubstantiated.

A recent case brought into the spotlight the little used Civil Procedure Rule 31.5 (3).  The district judge adjourned the Cost and Case Management Hearing (CCMH) due to the claimant’s failure to comply with this rule – an adjournment that could now lead to months of further delay. The Claimant was hit with the wasted costs of the CCMH and ordered to comply with Rule 31.5 (3) within 7 days, or face further sanctions.

Civil Procedure Rule 31.5 (3) places a duty on parties to serve a report, outlining which documents exist, where they are and the likely costs involved in giving standard disclosure.  Whilst standard disclosure usually takes place within four weeks of the CCMH, if Rule 31.5 (3) is followed, the process could be sped up significantly.  It also assists the parties in amending their cost budgets to reflect how much time is required in that phase of the budget to fully comply with disclosure, before the CCMH.

Our view is that this obligation should be placed on the parties much sooner than 14 days before the CCMH and instead should be at the same time as service of the Claim Form.  At that point, the claimants solicitor will have undertaken a risk assessment of the likelihood of the claim succeeding and/or will have either been provided the documents to support that risk assessment, or been told by their client which documents they are in possession of to support their claim. To get hold of such a report, verified by a statement of truth, would certainly assist the parties in negotiating a settlement much quicker and possibly even avoid the need for the CCMH altogether.  This surely has to be a win-win situation for both sides.

For further information on this and to find out more about Civil Procedure Rule 31.5 please contact Rav Johal, partner in our litigation and dispute resolution team on +44 (0)121 214 1266.

For advice or guidance on any other commercial or legal issues, a member of our team can walk you through everything. Click here to discuss.

Cartels can appear in all areas of the economy. As long as there is competition, there is also the risk of collusions, which can then negatively impact on both customers and competitors.

The aim of the ECDA is to provide victims of cartels with the advice they need in terms of opportunities and risk, and to support them in enforcing their claims. To do so, a collection of law firms from across Europe have come together, allowing them to use their antitrust law expertise in a more collaborative way.

Often, victims of cartels don’t realise they have been affected by price-fixing agreements. In order to combat this, ECDA members, such as ourselves, will look out for potential cartel structures and highlight them early on. This ensures businesses are alerted as soon as possible about their entitlement to claim damages and can plan to secure their claims quickly. The ECDA is also available to give both legal advice and further assistance, should a case be brought to court.

James Woolstenhulme, partner in the commercial disputes team at law firm, Shakespeare Martineau, said: ‘By working together, we are able to take advantage of improved collaboration as well as the different places of jurisdiction. This allows us to handle cases with a pan-European dimension in a flexible manner and provide advice at a cross-border level.’

Professor Christian Held, first chairperson of the ECDA and partner of the law firm Becker Büttner Held (BBH), added: ‘Only rarely are cartels purely national constructs, they usually have a European dimension.’

For more information about the ECDA, contact James Woolstenhulme on +44 121 631 5306 or another member of the dispute resolution team.

For advice or guidance on any other commercial or legal issue, a member of our team can walk you through everything. Click here to discuss.

What is ADR?

Alternative dispute resolution or ‘ADR’ for short is simply anything ‘alternative’ to court or arbitral proceedings. Mediation is probably one of the most common forms of ADR, but there are other forms: expert determination, adjudication, early neutral evaluation, conciliation and even a good old fashioned off-the-record negotiation, to name a handful.

What are the benefits of ADR?

The ongoing nature of some commercial agreements means that, if a dispute arises, formal dispute resolution proceedings might sensibly be seen as a last resort. By providing for the parties to undertake some less formal stages of dispute resolution before beginning litigation or arbitration, a multi-tiered dispute resolution procedure clause providing for ADR can help protect the relationship between the parties, and can save them significant amounts of time and money when compared with litigation or arbitration.

Institutions need to be aware of the pros and cons of ADR. These can, to a large extent, depend on the specific ADR mechanism in question. However, institutions should recognise that the use of ADR to settle a dispute can have numerous benefits, for example:

Saving time – Reaching a resolution through the litigation process can often take many months or even years, whereas ADR can usually take place in much shorter timescales. The saving of the amount of senior manager time engaged (for example, Estates Directors in the context of complex construction disputes) can be very significant.

Saving costs – Resolving a dispute through ADR is likely to be cheaper than doing so through the courts / arbitration, partly as a result of the shorter timescales involved.

Flexibility, choice and control – ADR is often more flexible, enabling parties to reach solutions that are not based on a ‘win/lose’ outcome, and instead being focused on the solution (i.e. as opposed to the ‘rights and wrongs’). The parties are free to ‘bespoke’ the process to suit their needs and to reach settlement based on their interests, rather than having solutions imposed on them.

Confidentiality – The parties can agree that the ADR process is confidential, which can give them the freedom to air sensitive commercial issues on a full and frank basis. In my experience, this can be useful for institutions looking to ensure that disputes are resolved within a protected forum, which preserves confidentiality thereby minimising or avoiding the risk of any reputational damage.

Maintaining business relationships – Unlike litigation, which is adversarial in nature, ADR can enable the parties to a dispute to settle by consent, potentially increasing the likelihood of preserving ongoing business relationships.

Likelihood of settlement – My experience is that ADR can give rise to very good prospects of achieving settlement. I am not alone, given that the 8th Mediation Audit produced by the Centre for Effective Dispute Resolution (CEDR) in July 2018 refers to an aggregate settlement rate of 89% for mediation (an impressive statistic by anyone’s standards!).

Benefits without settlement – Even if the ADR process doesn’t result in settlement, it can still give rise to other benefits, such as narrowing the issues in dispute, testing the strengths and weaknesses of each party’s case and keeping channels of communication open.

What sorts of steps do multi-tiered dispute resolution clauses include?

Over the many years I have dealt with construction disputes, it is fair to say that the instances in which ADR has been considered and used have often occurred outside the scope of the parties’ agreed dispute resolution mechanism.  That said, based on my more recent experience it is becoming clear that the growing confidence in ADR to achieve a resolution without the need for recourse to formal proceedings has led to an increase in the popularity and use of multi-tiered dispute resolution clauses.

A multi-tiered dispute resolution clause is one which might say that in the event of a dispute arising, the parties must follow a sequence of processes. For example, the clause might provide that, first off, the parties must arrange for director representatives of each party to meet to seek to resolve the dispute. If that doesn’t resolve the dispute, the next step might be to have chief executives (or some other senior representatives) to meet. If that doesn’t resolve the dispute, the next step might be for the parties to engage in a mediation before court or arbitral proceedings are commenced.

The recent case law

Given the increase in the popularity of multi-tiered dispute resolution clauses, it is perhaps unsurprising that the Technology and Construction Court (TCC) has recently had to decide a dispute which had arisen in relation to the construction and enforcement of just such a clause.

In the case of Ohpen Operations UK Ltd v Invesco Fund Managers Ltd ([2019] EWHC 2246 (TCC)) the TCC provided useful guidance on the key factors.

The guidance is useful both to litigators dealing with disputes but also to those drafting multi-tiered dispute resolution clauses. Certainly, this case will be of interest to in-house counsel who will undoubtedly be at the ‘coal face’ in advising on contracts / agreements, many of which are likely to contain multi-tiered dispute resolution clauses.

So, what was the case about in a nutshell?

Invesco argued that its contract with Ophen contained a valid, binding and applicable ADR clause which included a mandatory tiered dispute resolution clause, part of which required a mediation prior to the commencement of proceedings. On this basis, Invesco said the court should exercise its discretion to stay the proceedings i.e. temporarily halt the court claim Ohpen had commenced, pending referral of the dispute to mediation.

Ohpen disagreed and opposed the stay. Its position was that, as a matter of construction of the contract, the relevant dispute resolution provisions were not applicable outside a certain period or following termination of the contract (the contract having been terminated by one of the parties).

What was the court’s decision?

Having considered a raft of earlier cases, the court provided guidance as to the key principles where a party seeks to enforce an ADR provision:

“(i) The agreement must create an enforceable obligation requiring the parties to engage in alternative dispute resolution.

(ii) The obligation must be expressed clearly as a condition precedent to court proceedings or arbitration.

(iii) The dispute resolution process to be followed does not have to be formal but must be sufficiently clear and certain by reference to objective criteria, including machinery to appoint a mediator or determine any other necessary step in the procedure without the requirement for any further agreement by the parties.

(iv) The court has a discretion to stay proceedings commenced in breach of an enforceable dispute resolution agreement. In exercising its discretion, the court will have regard to the public policy interest in upholding the parties’ commercial agreement and furthering the overriding objective in assisting the parties to resolve their disputes.”

Applying those principles to the facts in the Invesco and Ophen case, the TCC decided that the proceedings should be stayed. In summary, it concluded that:

1. The contract contained a dispute resolution clause that applied to the parties’ dispute
2. The clause created an enforceable obligation which required the parties to engage in a mediation
3. The clause operated as a condition precedent to the commencement of proceedings. Although the term ‘condition precedent’ was not actually used in the clause, the meaning of the clause was clear i.e. the right to commence proceedings would arise only on the failure of the dispute resolution procedure to resolve the process and that included the need to mediate.
4. The mechanism was sufficiently clear and certain.
5. In all the circumstances, the court considered that a stay of proceedings was appropriate to enable a mediation to take place.

As to when the court should exercise its discretion to stay proceedings, the TCC emphasised that:

“There is a clear and strong policy in favour of enforcing alternative dispute resolution provisions and in encouraging parties to attempt to resolve disputes prior to litigation. Where a contract contains valid machinery for resolving potential disputes between the parties, it will usually be necessary for the parties to follow that machinery, and the court will not permit an action to be brought in breach of such agreement.”

What are the top tips?

When drafting a multi-tiered dispute resolution procedure clause it is sensible to consider:

Who the dispute should be referred to. Discussions between the parties’ representatives are most likely to be successful when the individuals in question are familiar with, and have responsibility for, the products, services or projects. However, they must also have sufficient authority within the institution to be able to take the decisions necessary to resolve the dispute, or, indeed, the decision to refer it to mediation and subsequent court or arbitration proceedings.

Setting a timetable for the phases of the procedure, as this helps prevents deliberate delays.

The terms of any dispute resolution mechanism need to be clear and unambiguous. On a practical level it is worth considering:

whether the dispute resolution clause should apply to all disputes or only certain types; and
whether provisions relating to timing are realistic (for example, it is probably not sensible to include short timescales in respect of high value complex construction disputes).

To reduce the risk of the negotiation and mediation provisions being held unenforceable, it is important to express the obligations as being a condition precedent to litigation or arbitration.

Make sure the negotiation and mediation process is sufficiently clearly identified, by reference to objective criteria which the parties are required to engage in, prior to litigation or arbitration. The process to be followed must not only be clearly identified, but also must not leave the procedure open to being further agreed (being mindful that ‘agreements to agree’ are unlikely to be enforceable).

When a dispute has arisen, it will be necessary to take a careful look at the dispute resolution clause in play. If there is any doubt as to whether the clause in question gives rise to a watertight obligation to follow set processes before court / arbitral proceedings are commenced, either from the perspective of the institution wanting to engage in ADR (and avoid court / arbitral proceedings) or to avoid ADR and proceed straight to formal proceedings, it is worth seeking legal advice from a litigation specialist.

Economy Energy and E (Gas and Electricity), as well as consultancy firm Dyball Associates, were found to have been involved in anti-competitive behaviour through colluding to avoid competing for customers. An argument was made that they were a combined family enterprise, but this was rejected.

Our associate partner in the commercial disputes team, Tim Speed, explores what this could mean for other suppliers with similar arrangements:

Putting the customer first

This significant financial penalty highlights Ofgem’s determination to put the customer first. By clearly demonstrating its expected standards, Ofgem is showing that its overall strategy places customers’ rights to find better deals at the forefront. Without ‘healthy competition’, customers could be trapped in deals with their supplier.

Clamping down

Ofgem’s activity over the last 18 months has focused on penalising suppliers who provide poor customer service and who demonstrate anti-competitive behaviour. This is likely to continue and it is expected that Ofgem will continue to penalise suppliers they find to be in breach of competition law, and will continue to tighten up the energy supply market in the years to come.

Considering existing arrangements

Suppliers who are currently involved in arrangements that potentially reduce ‘healthy competition’ in the market must consider their next steps carefully. Ofgem appears to be closely monitoring such activities and have proven that they will do whatever is necessary to encourage competition and improve customer service.

Ofgem has laid down a marker.  The £870,000 penalty should deter other suppliers from entering into, or continuing, anti-competitive agreements, but whether it will remains to be seen.

1. The “New Deal” for consumers

The EU Commission has proposed a “new deal” for consumers which will consist of a proposal for an omnibus general consumer protection law. This will consolidate a number of piecemeal consumer protection rules: the Unfair Commercial Practices Directive, Consumer Sales and Guarantees Directive, Unfair Contract Terms Directive, the Misleading and Comparative Advertising Directive, Injunctions Directive and the Consumer Rights Directive. The new package will update this legislation and provides for the following highlights:

a) Penalties for EU consumer law breaches

The real problem with the current consumer protection rules has been the difficulty of enforcement, and how dissuasive the remedy is for breach. Following from the success of the sledgehammer approach to dealing with competition and data protection infringements, the proposal introduces a maximum fine under national law, for widespread infringements, of at least 4% of the trader’s annual turnover.

In addition, breaches will entitle consumers to apply civil remedies such as contract termination and damages for victims of unfair commercial practices.

This means that consumers will be able to get meaningful redress for breaches which might otherwise only be enforceable by a local Trading Standards Office.

b) Transparency requirements for online marketplaces

Online marketplaces will be obliged to provide more transparency to consumers. This will require, as a minimum, informing users of the main parameters for ranking of offers via a search query. In addition, the consumer rights that all online shoppers have become used to i.e. pre-contractual information and the 14-day right of withdrawal, will be extended to “free” digital services where the consumer provides personal data.

2. Proposal for a Regulation on online intermediation for business users

This second notable proposal is interesting in the context of the commercial regulation of businesses.

It is pretty well understood that consumers might be entitled to protection from being misled by traders and online marketplaces gaming the system. In addition to this, however, the second proposal is aimed at preventing online marketplaces from gaming business users.

While online platforms and intermediaries offer efficiencies in terms of access to cross-border consumer markets, there is a concern that the concentrated power of the marketplaces themselves need regulating.

The Commission’s findings are that platforms terms and conditions are generally found to be unclear – even for legal professionals – and users report frequent and arbitrary changes to them.

In addition, while the majority of SMEs explain that their position in search results has a significant impact on their sales, many internet users do not trust that search results are the most relevant to their query.

Again, the highlight of this proposal is transparency. Terms and conditions must be in clear and unambiguous language and any changes will have to be informed to users with a notice period of 15 days in principle. The platforms must state the reasons for delisting business users’ goods/services or for suspending or terminating their accounts. In addition, platform providers will be required to clearly inform users of the general criteria determining how goods and services are ranked and the use of contract clauses demanding the most favourable range or price of goods and services offered by business (i.e. “most favoured customer” clauses) on the platform.

Digital marketing is almost, by definition, an exercise in the practice of the dark arts of the manipulation of business and customer preferences. This proposal will have the scope to disrupt the online marketing industry – everyone from Amazon, Ebay, Booking.com and Facebook – through to the government’s G-Cloud Digital Marketplace.

It will be interesting to see how much of this proposal retains its shape after the lobbying process.