COVID-19 force majeure

COVID-19 Force Majeure and Frustration

COVID-19 has sent shockwaves throughout the business world. For some businesses the impact has been severe and they will find it difficult or impossible to perform contracts entered into before the onset of the pandemic.

In this blog we provide an overview of how businesses may be able to rely on force majeure or the doctrine of “frustration” so as to avoid liability for failing to perform their obligations as a result of COVID-19.

Contractual Position

If you are working under a contract governed by English law the starting position is that you must perform that contract. So, even if you are affected by COVID-19 you must still perform that contract and if you fail to do so you will be liable. There are two key exceptions to this rule: the operation of any force majeure clause in your contract and the common law concept of frustration.

COVID-19 Force Majeure

Unlike in other jurisdictions, English common law or statute does not recognise force majeure. So if your contract does not contain a force majeure clause you cannot use force majeure as a means to avoid liability for non-performance.

If your contract does contain a force majeure clause then you will need to check it to see how it deals specifically with each party’s rights and obligations. Key factors to consider are set out below.

Is COVID-19 covered?

Assuming COVID-19 is not specifically covered as a force majeure event, check if it is the type of event that would fall under general force majeure wording (e.g. pandemic or similar wording), or whether there has been a government decision or administrative action preventing performance that meets the political interference language which is commonly included in definitions of force majeure.

Should the party that wishes to claim force majeure have guarded against COVID-19?

Check if the contract excludes events that could have reasonably been provided against, avoided or overcome. In the COVID-19 context, the current pandemic is not likely to be foreseeable. On the other hand, parties who elected to enter contracts with reasonable knowledge of the virus’s potential consequences, such as in January of 2020 when the virus began to attract attention in China, may have a more difficult foreseeability argument.

Is COVID-19 the true reason for not being able to perform the contract?

The party that is seeking to rely on force majeure must usually establish that the force majeure event has prevented or hindered it from performance of the contract. This is mostly a factual question but, again, will also turn on the exact wording of the clause. For example, some force majeure provisions require performance to have been rendered impossible, so the burden on, for example, a contractor to show that it could not have sourced staff, equipment or materials from elsewhere will be high. Generally, force majeure clauses are not so generous as to offer relief where services or goods will simply be more expensive to perform or obtain.

Mitigation

The party that is claiming force majeure relief is usually under a duty to show that it has taken reasonable steps to mitigate or avoid the effects of the force majeure event. Check whether being able to rely on force majeure is conditional upon you mitigating the effects of COVID-19.

Notice requirements

Parties will wish to ascertain whether prompt notification is a contractual condition precedent to relief. In that situation, a failure to notify in the prescribed manner will result in a party being unable to rely on the provision. In other cases, a failure to notify will not prevent a party from relying on a force majeure provision and the only consequence will be a potential damages claim (if the other party has suffered a loss). The courts have not always taken a consistent approach to the interpretation of notice provisions, and clearly the safest course of action is to ensure strict compliance with any notice provisions in the prescribed manner and as soon as possible

What are the consequences of establishing COVID-19 force majeure?

In most contracts, establishing force majeure will lead to relief from performance, thereby avoiding the risk of a default termination, and an extension of time to target dates. Commonly, parties bear their own costs arising from any force majeure delay but there are exceptions where compensation may be payable after a certain duration or certain costs are payable from one party to another. Extended periods of force majeure can lead to a right for one or more parties to terminate the contract. If the parties do not wish this to happen, it is important to engage in discussions sooner rather than close to the deadline. It may be preferable for these to be held on a without prejudice basis.

COVID-19 Frustration

In the absence of a force majeure clause, a party to a contract may be able to rely on “frustration”. Frustration is a common law right that allows a party to be discharged from its contractual obligations if a change of circumstances makes it physically or commercially impossible to perform the contract or would render performance radically different from that agreed to when the parties entered into the contract. This test may be satisfied if the commercial purpose of the contract is no longer achievable. Delay caused by COVID-19 could in principle be a frustrating event, depending on the nature of the contract in question and the length of the delay.

The focus will be on the parties’ specific contractual obligations and whether they have ‘radically changed’ as a result of the spread of COVID-19 to the extent that requiring a party to comply with its strict contractual obligations would mean requiring it to do something fundamentally different from that which it originally promised to do. In other words, it will be important to identify the consequences of the pandemic on the parties’ ability to perform the specific contract in question. It is unlikely to be sufficient that circumstances have changed in society generally or that performance of the contract has become more onerous or expensive or even uneconomic.

Consequences of frustration

Frustration discharges a contract meaning that all current and prospective rights and obligations are cancelled. All sums paid by a contracting party before the frustrating event will be repayable, subject to the court’s discretion (broadly) to give credit for expenses incurred or benefits provided by the other contracting party.

If you have any questions or need help with any COVID-19 force majeure or frustration issues please contact Neil Williamson or call us on 0203 637 6374.


Commercial law firm London EM Law

Terminating a Contract - Tread Carefully

Terminating a contract may be the way forward especially when the other party has blatantly failed to meet its obligations. But don’t fall into the trap of thinking that terminating a contract is straightforward. Giving the correct notice and reasons for terminating a contract is a process to be carefully navigated if the adversely affected party wants to claim all possible compensation.

Examples of improper approaches to terminating a contract can be dramatic. In the case of Phones 4u Ltd v EE Ltd [2018], EE denied themselves a £200 million claim because of a badly drafted termination notice. Given the potential consequences it is generally assumed that an aggrieved party will take legal advice before going ahead with termination.

Most importantly you must act. Even a repudiation, meaning the most serious breach of contract, does not automatically end a contract. Termination rights can also be lost by delay. By the time an aggrieved party decides to assert itself it may be too late.

Things to be most wary of when terminating a contract

Terminating a contract without the right to do so

  • By terminating a contract you are refusing to perform any duties which may arise after termination.
  • If not justified by a contractual or common law right this refusal to perform is usually itself a repudiation.
  • The other party could accept the repudiation, terminate the contract and sue for damages.

Giving the wrong grounds for termination

This is what happened in the Phones 4u In that instance EE terminated its contract with Phones 4u on the basis of its rights to terminate for the other party’s insolvency. EE did not explicitly state in its termination notice that Phones 4u were in breach of contract. Even though EE had reserved its rights in the termination notice the judge nevertheless ruled that EE’s £200 million claim against Phones 4u for breach of contract could not now be pursued.

Not following the contractual termination procedure

  • The basic rule is that a party serving a notice to exercise a right must comply strictly with the contract.
  • Failing to comply may render a termination invalid even if the requirement is meaningless or pointless.
  • In the case Zayo Group Internaitonal Ltd v Ainger and other [2017] the court ruled that a requirement to leave the termination notice at a party’s old address was still valid. Because the notice wasn’t left at the old address on time the claim failed.
  • Serving an ineffective notice of termination could amount to a repudiatory breach as it communicates an intention to stop performing and may be accompanied by such action.

You can't take it back

It is also important to note that you cannot take back a termination notice:

  • Serving a termination notice communicates a party’s decision to exercise its termination right, which is not compatible with keeping the contract alive.
  • In two employment cases, the employee who gave a clear unequivocal notice to resign was then unable to withdraw that notice after an hour in the case of Riordan v War Office [1959] and a day in Southern v Frank Charlesly & Co [1981].

Terminating a Contract - Common Law Rights

Aside from express or implied termination clauses it is also important to consider common law rights when contemplating grounds for termination. The common law gives every contracting party the right to terminate on repudiation. A repudiation comes in different forms:

  • Breach of a condition.
  • Repudiatory breach of an intermediate term (or innominate term).
  • Renunciation, defined as, a party’s outright refusal to perform all or substantially all its obligations under a contract.
  • Impossibility, if a party makes it impossible to perform the contract.

Understanding repudiatory breaches of intermediate terms is key when assessing your possible right to terminate a contract. Generally speaking, a breach of an intermediate term is repudiatory if it deprives the aggrieved party of substantially all the benefit of the contract. This deprivation must also coincide with the time that the aggrieved party chose to terminate.

Final word

Terminating a contract must be done carefully if the aggrieved party wants to retrieve as much compensation as possible. As we say above the consequences of not doing so can be severe. Please get in touch with Neil Williamson or Joanna McKenzie if you need any help.

 


EM Law Unsigned Contract Lawyers London

Unsigned Contract? - it may be binding anyway

Surely the lack of a signature would suggest that the parties had not yet reached the point where they wished to be bound? However, where evidence exists to the contrary, for example where the parties have acted in accordance with the contract, this is not always the case. While every case will depend upon the individual facts, it is important to be aware that a written contract does not always need to be signed by both parties to be legally binding. This blog takes a look at the rules around unsigned contracts and examines the Court of Appeal case of Reveille Independent LLC v Anotech International Limited to see where the law stands today.

An unsigned contract - the starting point

A contract is a legally binding promise by one party to fulfil an obligation to another party in return for “consideration” i.e. something of value. A basic binding contract, whether written or oral, must comprise four key elements. These key elements are offer, acceptance, consideration and intention to create legal relations. Acceptance is a final and unqualified assent to an offer. It is made in response to an offer and must correspond exactly with the terms of the offer to be enforceable. Usually, a lack of signature on a contract would suggest that a party did not wish to be bound and had therefore not accepted the offer. However, whether a contract is signed is only one factor for the courts to consider when deciding whether or not the parties to a contract intended to be bound. The courts will look at all the evidence relating to the intention of the parties, including their conduct.

Acceptance by conduct may make an unsigned contract binding

Although it is generally considered that acceptance must be communicated to the offeror to be effective, conduct may sometimes be considered as acceptance. For example, where a supplier does not communicate acceptance of an order, but it delivers the goods ordered and requests payment anyway, this will generally be deemed as acceptance.  Conduct will only amount to acceptance of an offer if it is clear that the party did the act in question with the intention of accepting the offer; they must implicitly accept the terms. In the case of Brogden v Metropolitan Railway, for example, the House of Lords concluded that, in a situation where the parties had acted in accordance with a draft unsigned contract for the delivery of consignments of coal, there was a contract on the basis of that draft. As stated by Steyn LJ in G Percy Trentham Ltd v Archital Luxfer, “the fact that a transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations.” It should be noted, however, that there are some situations where a contract does have to be in writing to be legally enforceable. Common examples of this include a contract for the sale of land, a transfer of shares, or an assignment of intellectual property rights.

Reveille Independent LLC v Anotech International (UK) Limited (2016)

The case of Reveille Independent LLC v Anotech International (UK) Limited (2016) concerned a dispute over whether there was a binding contract in place between Anotech, a UK manufacturer of cookware, and Reveille, a U.S television production company. In the contract, Reveille agreed to permit the integration and promotion of Anotech’s cookware products into three episodes of its television series as well as grant a license to Anotech for certain US intellectual property rights. The parties began negotiations in January 2011 and on 16 February 2011 Reveille sent a “deal memo” to Anotech’s managing and sole director setting out the relevant terms. This deal memo stated that “it would not be binding on Reveille until executed by both Licensee and Reveille”.

Following further negotiations, on 28 February 2011 Anotech returned a signed version of the deal memo to Reveille, with handwritten amendments and additions. It was intended that this deal memo would be replaced by detailed, long form agreements however negotiations broke down and in July 2013 Reveille wrote to Anotech treating the contract as repudiated.

The judge at first instance concluded that by March 2012 Reveille was performing its obligations under the deal memo and Anotech knew this. He concluded that Anotech’s amended and signed offer, as set out in the deal memo, was accepted by conduct by Reveille thus a binding contract was in place. In May 2016, Anotech appealed this decision. The Court of Appeal stated that the High Court judge was right to focus on whether there were clear and unequivocal acts on Reveille’s part to constitute acceptance by conduct of Anotech’s counter-offer. The judge did not identify a date when the contract came into effect, but stated that the various acts on Reveille’s part, of which Anotech was well aware, led to a binding contract on the terms of the deal memo. Anotech’s conduct itself, for example its acknowledgement in emails that it had to pay Reveille, was also consistent with the existence of a binding contract. Reveille waived the provision that there would be no binding contract in the absence of its signature on the deal memo, and there was no prejudice to Anotech. Accordingly, the case was dismissed.

Case analysis

The case of Reveille Independent LLC v Anotech International (UK) Limited serves as an important reminder that an unsigned contract may still be legally binding. It also demonstrates the fact that a prescribed mode of contract acceptance can be waived by conduct. Therefore, the signature of both parties to a written contract will not always be a precondition to the existence of contractual relations, even where the contract explicitly states that it is. When deciding whether or not a contract has come into existence between commercial parties in negotiation, the court will be keen to preserve certainty and give due attention to what it considers to be the reasonable expectations of honest, sensible business people.

Final words

As you can see from the above, an unsigned contract is not as harmless as it may first seem. The Court of Appeal decision in Reveille Independent LLC v Anotech International (UK) Limited should be a timely reminder to parties who are negotiating a written contract not to assume that it is only binding when the document has been signed by both parties. If you have any questions about an unsigned contract or about contract law more generally please contact Neil Williamson.


Restraint of Trade EM Law

Restraint of Trade in Commercial Contracts

Individuals should be able to use their skills without undue restriction and businesses should be free to compete with other businesses. However, restraint of trade clauses are not uncommon within commercial contracts. This blog considers the general principles of restraint of trade and examines the different types of restraint of trade clauses that you may come across in your commercial dealings. 

What is a restraint of trade clause?

A restraint of trade clause is a contractual restriction imposed upon a business or an individual for a finite period of time. The purpose of a restraint of trade clause is to protect a business interest. In the employment context, restraint of trade clauses are usually used to prevent employees or directors leaving and immediately joining a direct competitor. However, in the commercial context, restraint of trade clauses can be much wider reaching. A restraint of trade clause in a Share Purchase Agreement may, for example, limit the activities of the seller to act in competition with the business sold after completion. Due to the general principle that individuals and organisations should be free to carry on their business however they see fit, restraint of trade clauses are generally unenforceable at common law. However, a court may decide to enforce a restraint of trade clause if it:

  • is designed to protect a legitimate business interest;
  • is no wider than is reasonably necessaryto protect that interest; and
  • is not contrary to the public interest. 

If these criteria are not met, the restraint of trade clause will be void and unenforceable. If these criteria are met, the clause will usually stand up in court. But what exactly do each of these criteria mean?

What are legitimate business interests?

The first task when drafting a restraint of trade clause is to make sure that you understand the nature and extent of the interest requiring protection. Although the categories of legitimate business interests are not closed, the most common legitimate business interests include:

  • Business relationships with clients
  • Goodwill of a company
  • Trade connections
  • Trade secrets and other confidential information

Is the restraint reasonable to protect that interest?

Once a legitimate interest has been identified, the restraint of trade must go no further than is necessary to protect that legitimate interest. The restraint must be reasonable as to the term of the restriction, the geographical area, and the scope of the activities covered. The term “reasonable” is generally taken to mean providing no more protection than is relevant and necessary to safeguard the relevant legitimate interest. With geographical area, for example, a restriction on a seller who operated solely in the UK from operating a similar business anywhere in the world would probably be unreasonable (although would depend on the type of business). With the term of the restriction, it is much harder to lay down a general rule. However, the courts do acknowledge that the longer the term of the restraint, the greater the chances are that it will be found unreasonable. Having said that, it is not unheard of for restraint of trade clauses in commercial contexts to last for 2, 4 or even 5 years. 

In Esso Petroleum Co Ltd v Harper’s Garage, Lord Hodson stated that in the case of agreements between commercial parties, the parties are usually taken to be the best judge of what is reasonable between themselves, meaning that the courts will be slow to interfere and find a restraint unreasonable. This also means that what might be reasonable in one context might be unreasonable in another. The burden of proof will be on the person enforcing the clause to show that the restraint goes no further than is necessary to protect the legitimate business interest.

Is it contrary to the public interest?

In the majority of cases, if a restraint of trade is reasonable between the parties, the courts will try to uphold it. However, on occasion, the courts will consider a restraint of trade from the perspective of “public interest” rather than that of the parties. Although it may crop up in the employment context, public interest is far less likely to be relevant in contracts between commercial parties. More relevant in the commercial context nowadays may be the interest of customers that under UK and EU competition law, competition is not unduly restricted. 

Different types of restraint of trade clauses

It is important to note that there are many different types of restraint of trade clauses. The type of clause you choose will depend upon the type of agreement you’re drafting. A sale and purchase agreement, for example, would typically contain restrictions on the sellers from soliciting existing customers or suppliers, soliciting existing employees, or competing with the business for a specified amount of time. A typical franchise agreement would contain restrictions on the franchisee applicable during the lifetime of the agreement and usually for a limited period thereafter. Typically, these would be not to solicit customers or employees, not to compete with the franchise business and not to represent themselves in any way connected with the franchisor. Non-solicitation and non-compete clauses are the most common types of restraint of trade. 

What happens if the restraint of trade is found to be unreasonable?

Where a restraint of trade clause is found to be unreasonable, it will be void and unenforceable. A court is unlikely to enforce a restraint of trade clause if the restrictions are inappropriate for the role, excessively long or entirely ambiguous. Where a restraint of trade clause is found to be unreasonable, the doctrine of severance may provide assistance. The doctrine of severance allows an unenforceable clause to be severed from the remainder of the agreement, with the remainder of the agreement remaining in force. Commercial parties will often include a severance provision in their contracts however this is not strictly necessary. The courts can apply the doctrine of severance without express authorisation in the contract. Nevertheless, it would be wise to include a severance provision in the contract to be safe.  

Final words

Businesses do not have complete freedom when drafting and inserting restraint of trade clauses into their commercial agreements. If you are considering a restraint of trade clause in one of your commercial contracts, you should make sure that it complies with the above requirements. If you have any questions about restraint of trade, or about any other commercial or contract law issue, contact Neil Williamson


EM Law Representations and Warranties

Representations and Warranties What's the Difference?

This blog takes a look at the difference between representations and warranties and offers some top tips on how to prevent confusion in your contracts.

What is a warranty?

A warranty is a promise that a particular statement made is true at the date of the contract. A breach of warranty gives rise to a claim for breach of contract - the main remedy being an award of damages. To give an example, in a contract for the sale of goods, a warranty may be given about the condition, age or history of the goods being sold. In a software supply agreement, a warranty is usually given that the software will be free from material defects at the time it is delivered.

What is a representation?

A representation, like a warranty, is a statement of fact but is one which is made during contractual negotiations in order to induce another party to enter into a contract. While representations are usually made prior to the contract they are often repeated and therefore form the basis of a contract.

So, what is the difference between representations and warranties?

The key difference between a representation and a warranty is the remedy available to the innocent party when there is a breach. If a warranty is found to be untrue, the innocent party will be entitled to damages. A breach of warranty does not allow the innocent party to rescind the contract, which would effectively set it aside and put the parties back in the position they were in before the contract was made. As a warranty is a term of the contract, normal breach of contract considerations apply. A breach of warranty will therefore only give rise to damages if the innocent party can prove that the breach resulted in a loss and that the loss was not too remote i.e. the loss was in the reasonable contemplation of the parties at the time the relevant contract was entered into. If damages are available, they will be assessed to put the innocent party back in the position they would have been in had the breach of warranty never occurred.

In contrast, if a representation is found to be untrue the innocent party will be entitled to bring a claim for misrepresentation, which if successful would allow the innocent party to rescind the contract. The right to rescind may be lost, though, if the innocent party affirms the contract, if a significant amount of time has passed, or if third-party rights would be infringed.

A breach of representation may also entitle the innocent party to damages, which in principle are wider in scope than the damages available under a breach of warranty. With a breach of representation, the innocent party will not have to prove that their losses were in the reasonable contemplation of the parties at the time the relevant contract was entered into. Instead, the losses must be “reasonably foreseeable”, which has been held by the courts to be a less onerous test than the test associated with a breach of warranty claim. The manner in which damages are calculated also differs for a breach of representation claim versus a claim for breach of warranty. Under a claim for breach of warranty, damages are usually assessed at the time of the breach. Under a claim for breach of representation, damages are assessed from the date the misrepresentation was made. This is usually an earlier date and so may give rise to a higher level of damages.

Given the potential to rescind the contract and the wider scope for damages, it is generally more advantageous for a party to be given representations rather than warranties. However, whether or not a party can insist on this will depend on the bargaining strength of both parties and the type of contract on the table.

Can warranties also be representations?

If you are familiar with contracts, you may have seen wording such as “the seller represents and warrants…”. Where the wording is clear cut, it is likely that the court will view the statement as both a representation and a warranty. However, where the wording does not expressly provide that a warranty is to take effect as a representation, an innocent party will struggle to argue that the warranty is also actionable in misrepresentation. Take the case of Sycamore Bidco Ltd v Breslin in 2012 as an example. In this case, the court held that various warranties in the share purchase agreement, which were not expressed to be representations, could not be representations.

The case of Idemitsu Kosan Co Ltd v Sumitomo Co Corp in 2016 further reiterated this point. Here, the court concluded that it was not enough that the subject matter of the warranty was capable of being a representation; there was no representation because there was no express provision to that effect. The fact that the agreement contained an entire agreement clause also made it clear that any pre-contractual understandings, communications or representations had not been relied upon or had been withdrawn before completion.

Representations and Warranties - final thoughts

Representations and warranties may appear similar on the surface but the remedies available can be completely different. The question of whether a statement is a warranty, a representation, or both will depend upon the wording used and the context of the contract in question. Careful drafting of representations and warranties, as well as any exclusion clauses, is therefore key!

If you have any questions about representations and warranties, or about any other contract law issue, please contact Neil Williamson.


EM Law Breach of Contract Claim

Breach Of Contract What Are We Entitled To?

Signing and dealing with contracts is an integral part of running a business. But have you ever considered what would happen if one of these contracts didn’t go to plan? Breach of contract disputes are one of the most common claims brought in courts today so knowing your rights when things go wrong can put you one step ahead of the game. This blog takes a look at breach of contract claims and considers what you can do if you ever find yourself in such a situation. 

What is a breach of contract?

A contract is a legally binding agreement between two or more parties. A breach of contract occurs where one party fails to perform an obligation imposed by another party under that contract. Typical examples of breaches of contract include:

  • Failing to perform obligations in whole or in part
  • Failing to pay for what has been provided
  • Failing to provide obligations on time
  • Providing defective goods or services 

Remoteness of damage

As in the law of tort, the law of contract accepts that not all losses flowing from a breach of contract are necessarily recoverable. If the court decides that a loss is too “remote” you will not be able to recover for that breach of contract. The traditional principles of remoteness are set out in the case of Hadley v Baxendale. The main question to ask here is whether the loss was the type of loss within the reasonable contemplation of the parties at the time the contract was made. If not, it is likely to be too remote and as a result not recoverable. So, for example, if I agreed to sell you 500 widgets for £50 and, unbeknown to me you had agreed to sell those widgets to someone else for £500, if I failed to sell those widgets to you, you would not be able to sue me for your loss of £450 because this loss would not have been in the reasonable contemplation of the parties at the time the contract was made (assuming 500 widgets generally sell for around £50!)  

Contributory negligence 

A defendant to a breach of contract claim may seek to argue that the loss suffered by the innocent party is partly down to them. If successful, a claim for damages here would be reduced to such an extent as the court thinks just and equitable having regard to the innocent party’s share in responsibility for the damage. 

Exceptions to the general rule

In a limited number of cases the court may also award damages which go beyond a strict measure of compensation. Examples of non-compensatory damages include nominal damages, aggravated damages, restitutionary damages and account of profits. Restitutionary damages may be awarded where there is a gain by the defendant but no measurable loss by the innocent party. Nominal damages are small, token sums which may be awarded where the innocent party has suffered no recoverable loss. 

Other possible remedies for breach of contract

In addition to claiming damages for breach of contract, the court has discretion to award a non-financial, equitable remedy. Equitable remedies are awarded at the court’s discretion and will only be granted if damages would not be adequate. These non-financial equitable remedies may include an order for specific performance or an injunction. An order for specific performance compels a party to perform its contractual obligation and an injunction compels a party to refrain from doing something that would be a breach of contract. 

Be careful not to waive the breach

Before pursuing a breach of contract claim, you need to make sure that you have not unintentionally waived the breach. Waiving a breach essentially means giving up your right to claim any sort of remedy and can be demonstrated by something as simple as your behaviour. Unfounded delay or waiting to bring the claim at a convenient time may be enough to constitute a waiver. 

Final thoughts

If you are thinking “there’s been a breach of contract what are we entitled to?” the first thing you should do is take legal advice. It’s important that you do not take steps that could jeopardise your claim or which could even put your own business in breach of contract. If you have any questions on breach of contract claims or dispute resolution more generally please contact Joanna McKenzie

Mitigation

The rule of mitigation requires a party who has suffered loss to take reasonable steps to minimise the amount of loss suffered. The question of what steps are ‘reasonable’ is generally fact-sensitive, but an innocent party cannot generally recover for any loss that could have been easily avoided. For example, where a seller fails to deliver goods for which a market substitute is available, the innocent party should attempt to purchase a replacement rather than sit back and attempt to claim for all losses. 

Remoteness of damage

What can I do?

Suing someone for breach of contract is not always an easy process. In order to make a claim you must first overcome a series of legal hurdles. After proving the existence of a contract and that the contract was breached, you must then prove that you have sustained a loss and that loss was a direct consequence of the breach of contract. This is often referred to as the ‘but for’ test, requiring the innocent party to prove that the loss would not have occurred but for the breach.   

What am I entitled to?

Once the above has been established, you can go on to consider what you might be entitled to. The basic remedy in English law for a breach of contract is an award of damages. An award of damages is essentially an award of money which aims to put the innocent party in the same position they would have been in had the contract been properly performed. Although there are no rigid rules for the quantification of damages in a breach of contract claim, the assessment of damages is essentially a question of fact. You should consider any revenue or profits you would have earned, any costs that would have been avoided and any non-financial benefit that would have been received, provided it was a major object of the contract. 

However, you should also be aware that not all losses flowing from a breach of contract are recoverable. The rules on mitigation, remoteness and contributory negligence may restrict, and in some cases entirely prevent, an award of damages.

Mitigation

The rule of mitigation requires a party who has suffered loss to take reasonable steps to minimise the amount of loss suffered. The question of what steps are ‘reasonable’ is generally fact-sensitive, but an innocent party cannot generally recover for any loss that could have been easily avoided. For example, where a seller fails to deliver goods for which a market substitute is available, the innocent party should attempt to purchase a replacement rather than sit back and attempt to claim for all losses. 

Remoteness of damage

As in the law of tort, the law of contract accepts that not all losses flowing from a breach of contract are necessarily recoverable. If the court decides that a loss is too “remote” you will not be able to recover for that breach of contract. The traditional principles of remoteness are set out in the case of Hadley v Baxendale. The main question to ask here is whether the loss was the type of loss within the reasonable contemplation of the parties at the time the contract was made. If not, it is likely to be too remote and as a result not recoverable. So, for example, if I agreed to sell you 500 widgets for £50 and, unbeknown to me you had agreed to sell those widgets to someone else for £500, if I failed to sell those widgets to you, you would not be able to sue me for your loss of £450 because this loss would not have been in the reasonable contemplation of the parties at the time the contract was made (assuming 500 widgets generally sell for around £50!)  

Contributory negligence 

A defendant to a breach of contract claim may seek to argue that the loss suffered by the innocent party is partly down to them. If successful, a claim for damages here would be reduced to such an extent as the court thinks just and equitable having regard to the innocent party’s share in responsibility for the damage. 

Exceptions to the general rule

In a limited number of cases the court may also award damages which go beyond a strict measure of compensation. Examples of non-compensatory damages include nominal damages, aggravated damages, restitutionary damages and account of profits. Restitutionary damages may be awarded where there is a gain by the defendant but no measurable loss by the innocent party. Nominal damages are small, token sums which may be awarded where the innocent party has suffered no recoverable loss. 

Other possible remedies for breach of contract

In addition to claiming damages for breach of contract, the court has discretion to award a non-financial, equitable remedy. Equitable remedies are awarded at the court’s discretion and will only be granted if damages would not be adequate. These non-financial equitable remedies may include an order for specific performance or an injunction. An order for specific performance compels a party to perform its contractual obligation and an injunction compels a party to refrain from doing something that would be a breach of contract. 

Be careful not to waive the breach

Before pursuing a breach of contract claim, you need to make sure that you have not unintentionally waived the breach. Waiving a breach essentially means giving up your right to claim any sort of remedy and can be demonstrated by something as simple as your behaviour. Unfounded delay or waiting to bring the claim at a convenient time may be enough to constitute a waiver. 

Final thoughts

If you are thinking “there’s been a breach of contract what are we entitled to?” the first thing you should do is take legal advice. It’s important that you do not take steps that could jeopardise your claim or which could even put your own business in breach of contract. If you have any questions on breach of contract claims or dispute resolution more generally please contact Joanna McKenzie


Mitigation

The rule of mitigation requires a party who has suffered loss to take reasonable steps to minimise the amount of loss suffered. The question of what steps are ‘reasonable’ is generally fact-sensitive, but an innocent party cannot generally recover for any loss that could have been easily avoided. For example, where a seller fails to deliver goods for which a market substitute is available, the innocent party should attempt to purchase a replacement rather than sit back and attempt to claim for all losses. 

Remoteness of damage


Contract Lawyers EM Law London

Contract Lawyers – If You Can’t Afford One Then At Least Do This

Contracts can be simple (for example a low value supply of services contract) or complicated (for example, a contract to explore for oil). You can read about different types of contracts by clicking our contract law page. But no matter what the subject matter or level of complexity is in a contract there are certain fundamentals that should be addressed. If they aren’t then one or more of the parties to the contract could be signing something they later regret, or the contract may not even be legally binding.

So, what should you look out for before signing on the dotted line?

Know who you are contracting with

With over 5 million businesses registered in England and Wales, it is important to check that you are contracting with the correct party. If the party you’re contracting with is a limited company, you can look them up for free at Companies House. You can check their name, registered office, and company number and you should make sure that these details are included in the contract. Why? Because if you don’t include at least the name and registered company number it can be difficult to establish later on exactly which business you contracted with. Not ideal if you are trying to enforce your rights under the contract. A company can change its name and registered office as many times as it likes but it cannot change its registered number.

Be clear about what is being sold

Most contract disputes arise because the contract is unclear about what is being supplied. It is easy to get bogged down in other legal or more technical aspects while forgetting that the fundamental point of a contract is to describe clearly what goods or services are to be supplied. It is also easy to be lazy and to think that a short description of the goods or services will suffice. It may do but bear in mind that if you fall out with the other party that other party’s contract lawyers are going to exploit the lack of detail or ambiguity in the contract. It is so much better to avoid this from happening in the first place and describe the goods or service to be supplied in detail.

Set out the payment terms clearly

For one of the parties, payment will be the whole object of the contract. Although seemingly obvious, many contracts are unclear about how pricing and payment mechanisms work. Ensure that your contract is clear about what is payable and when, and how prices can be changed. For example, if a consultant is being paid a “day rate” how many hours constitutes “one day”? If commission is being paid based on profit should that be gross profit or net profit? The contract should define what exactly “gross profit” or “net profit” means.

Start date and termination

Contracts should have a clear start date, whether that is the date that both parties sign the contract or a different specified date. Even more importantly, the contract should also contain a termination date or a mechanism that provides for how the contract can be ended. If termination is not dealt with then you are left relying on common law rights such as the right to terminate the contract for “repudiatory breach” i.e. serious breach of the contract or the right to terminate the contract on “reasonable” notice. What constitutes “reasonable” notice will depend on various factors relevant to the specific contract – bottom line, the position will be unclear. So avoid the problem in the first place and put in clear start and termination provisions.

The top four points are crucial – read on for some others that you should also think about….

Limiting and excluding liability

After dealing with the questions of who does what, and who pays what, you should think about whether your liability under the contract should be limited. If you are supplying to consumers then limiting liability is hard – we are not going to discuss that here – get in touch with our contract lawyers about this. If you are a supplying to a business then it would be standard for you to include a limit of liability clause so include one! The usual limit of liability that customers accept is the total cost of your goods / services or 12 months’ worth of those costs. You can also exclude liability for things such as loss of profits but you cannot exclude liability for causing death or injury, for fraud or fraudulent misrepresentation or breach of the terms implied by section 12 of the Sale of Goods Act 1979 or section 2 of the Supply of Goods and Services Act 1982. Limitation and exclusion of liability clauses should be carefully worded if they are to work properly so if it’s really important for you to include these clauses in a contract get in touch with one of our contract lawyers and pay for some advice! If it’s not that important for you then you can find example contracts on-line. Hopefully you won’t get inspiration from a poorly drafted one.

Intellectual property rights

Unless the contract says otherwise - if you are signing a contract with anyone other than an employee, that other party will own the intellectual property rights in whatever they supply to you. If, say, you are engaging a freelancer or consultant to carry out some creative work or software development work then having that other party own the intellectual property rights in the work they supply to you will not be ok for you – they will be able to hold you to ransom if you use their work in a product that turns out to be a money spinner or if you supply that product on to a client and you don’t want that client suing you. Same point as above: intellectual property rights clauses should be carefully drafted so either use one of our contract lawyers or hope for the best by seeing what you can find on-line.

Data Protection/ Confidentiality

You should always think about data protection / confidentiality and the extent to which these things should be provided for in the contract. If you will be disclosing sensitive information about your business or clients to the other party then you will need to include confidentiality clauses. If you will be sending or receiving personal data belonging to individuals who are not your staff or the staff of the other party then you should work out who is the data controller / data processor and include appropriate data transfer / data processor clauses in the contract. Sorry, but you will need one of our contract lawyers for that unless you are very confident that you know what you are doing – data protection compliance is hard. If you are not supplying / receiving other people’s personal data i.e. it’s just your and the other party’s staff that are exchanging their own personal data (name and contact details) when they email each other then you don’t need to worry so much about what is in the contract. You do though need to think about whether this type of exchange is covered in the privacy notice you have given to your staff – we aren’t going to go into more detail about GDPR / Data Protection Act compliance in this note.

Choice of Law/ Jurisdiction

Specifying that the laws of England & Wales apply and that the English courts have exclusive or non-exclusive jurisdiction is not so important in a contract where all the parties are based here. However, if you are signing a contract with a party who is based overseas it is crucial to include such provisions. If you don’t and there is a problem then you will have an argument with the other party as to which law should apply which you may lose and you may find yourself having to sue or defend in a foreign court.

Final thoughts

Our contract lawyers will ensure that you have proper contracts in place that not only protect you from risk but which help you do deals (because they are clear and balanced) and they will make you look professional (sorry but contracts prepared by businesses who have cobbled them together themselves tend to look pretty awful apart from anything else).

However, if you really need to cut corners then we hope that you find this a useful guide. If you focus on points 1 – 4 and then bear in mind points 5 – 8 you should be ok until your business takes off and then you can get in touch with us!

If you do want to talk about your contracts or any other legal support we can help you with please contact Neil Williamson.


Death Of Contra Proferentem Contract Lawyers London

Not The Death Of Contra Proferentem

However, following the recent case of Persimmon Homes v Ove Arup (Persimmon Homes), many have questioned whether the rule still exists. This blog takes a look at the contra proferentem rule and explains why we have not seen the last of it.

What is the contra proferentem rule?

“Contra proferentem” (literal translation from Latin is “against the offeror”), also known as “interpretation against the draftsman”, is a doctrine of contractual interpretation that provides: where a contract is ambiguous, the words will be construed against the party who put them forward. The logic behind this rule is that a party who imposes terms on another should make those terms clear and should be the one to suffer the consequences if they do not. Originating from the case of Canada Steamship Lines Ltd v The King in 1952, the relevance of the contra proferentem rule has been extensively debated over the past few years.

Initial debate

It was the comments of Lord Neuberger in K/S Victoria Street v House of Fraser in 2011 which sparked the initial debate on the relevance of contra proferentem. Although the case focused mainly on the effect of the Landlord and Tenant (Covenants) Act 1995, the Court of Appeal also commented on the usefulness of the contractual interpretation rules. Referring to contra proferentem, Lord Neuberger said “such rules are rarely of assistance when it comes to interpreting commercial contracts.” Instead, “the words used, commercial sense, and the documentary and factual contexts are and should be enough to determine the meaning of a contractual provision.” A similar stance was taken in Transocean Drilling UK Ltd v Providence Resources in 2016. In this case, the Court of Appeal reversed the initial judgement of the High Court, stating that the rule of contra proferentem had “no part to play when the meaning of the words is clear.” However, it was the case of Persimmon Homes in 2017 which caused the most stir.

Persimmon Homes

The comments of Jackson LJ in the case of Persimmon Homes cast the most doubt on the contra proferentem rule. In Persimmon Homes, a consortium of property developers brought a damages claim against project consultant, Arup, for failing to identify large quantities of asbestos on a development site that they had purchased. The developers and the project consultant had entered into two agreements, under which the consultant agreed to take out professional indemnity insurance and to limit their overall liability. The agreements also contained an exemption clause which stated “liability for any claim in relation to asbestos is excluded”. Relying on the contra proferentem rule, the claimants alleged that this did not exclude liability for negligence in failing to identify asbestos. However, the court did not bite. Instead, the Court of Appeal ruled that all liability relating to asbestos, including liability arising from negligence, was excluded. The court relied on the clarity of the language and concluded that the contra proferentem rule had a very limited role in relation to commercial contracts negotiated between parties of equal bargaining power.

Not the end

Despite numerous commentators citing the “death of contra proferentem” following Persimmon Homes we do not believe that this is the case. Firstly, in Persimmon Homes, Jackson LJ drew a distinction between indemnity clauses and exclusion clauses observing that where an indemnity clause is involved, the contra proferentem rule and the Canada steamship guidelines will continue to be of assistance.

Secondly, although the courts seem much less willing to listen to a contra proferentem argument when it is possible to interpret a clause’s meaning by, dare we say it, adopting a “common sense” approach or interpreting the clause in the way that the average businessperson would, there will still be times when the courts simply cannot work out what a clause is saying because it is truly ambiguous or it conflicts squarely with another cause elsewhere in the contract. It is in these cases that the contra proferentem rule will remain.

Finally, the case of Persimmon Homes involved two sophisticated commercial parties, who were capable of allocating risks as they saw fit. In cases where parties do not have equal bargaining power, the courts may be more willing to find that the contra proferentem rule applies. Where the courts cannot achieve protection for a weaker party through statutory provisions, the courts could use interpretive principles to avoid contractual oppression by the stronger party. This may be relevant in cases of consumer contracts, residential leases and insurance contracts.

Conclusions

So, despite what you may read, the contractual interpretation rule of contra proferentem is still relevant today and should not be forgotten. As a business, the main thing to take away from this is: make sure your contracts are clear and free of ambiguities! If you have any questions about contra proferentem, or contract law more generally, please contact Neil Williamson.


EM Law Contract Lawyers London

You want to sign a contract before your company is incorporated? Think again!

This blog explains the problems with pre-incorporation contracts and sets out what you can do if you find yourself in this situation.

What is incorporation?

A company does not legally exist until it is incorporated. Incorporation is the process by which a new or existing business registers as a company. Once a company is incorporated, it will receive a certificate of incorporation confirming its existence and showing the company number and date of formation. Before a company is incorporated, it cannot enter into commercial contracts. Consequently, nobody can sign a contract for that company as an agent. A contract entered into by a party on behalf of a company, where that company has not yet been formed, is called a pre-incorporation contract.

The law

The
general rule relating to pre-incorporation contracts is set out in section 51
of the Companies Act 2006. The section states that:

“A contract that purports to be made by or on
behalf of a company at a time when the company has not been formed has effect,
subject to any agreement to the contrary, as one made with the person
purporting to act for the company or as agent for it, and he is personally
liable on the contract accordingly.”

This means
that anyone who signs a contract on behalf of a company before that company is
incorporated will be liable as if they were the contracting party. Section 51
also has dual effect, as confirmed in the case of Braymist Ltd v Wise Finance.
As well as having personal liability, the person who signs on behalf of a
company can personally enforce the pre-incorporation contract.

What exactly is an "agreement to the contrary"?

There has
been some disagreement over the years as to the exact meaning of “agreement to
the contrary”. Thankfully, case law has provided some clarity. If you can prove
that there is an “agreement to the contrary” you may be able to negate
liability and get yourself off the hook.

In
Phonogram v Lane, Lord Denning took the phrase “subject to any agreement to the
contrary” to mean that for a person to avoid personal liability the contract would
have to expressly provide for his exclusion.  

In Royal
Mail Estates Ltd v Maples Teesdale, Mr Johnathan Klein took a similar but even
more restrictive approach. Mr Johnathan Klein stated that an “agreement to the
contrary” would only exist if it could be established that, by relevant words
properly construed, the parties intended that the contract would not take
effect as one made with that person. In other words, there was only a contrary
agreement if there was found to be an agreement between the parties by which
they intended to exclude the effect of section 36C(1), which is now section 51
Companies Act 2006.

In the
case the defendant firm of solicitors signed the contract “for and on behalf of
the buyer”. The contract related to the sale and purchase of a property in
London and included a clause which stated that the benefit of the contract was
personal to the buyer. As both parties were unaware that the company in
question had not in fact been incorporated Mr Klein concluded that the contract
was not drafted with section 36C(1) in mind. The terms in question were clearly
intended for a different purpose, which was to prevent or restrict a third
party from becoming a buyer by way of an assignment of sub-sale.

The fact that
the defendants here were a firm of solicitors shows just how easy it is to be
caught out by section 51. Proving that there was “an agreement to the contrary”
is a high hurdle to overcome.

What can I do to avoid liability?

As the
saying goes, prevention is better than cure. As the risk sits with the person
who has signed the contract, it is extremely important for that person to carry
out appropriate checks to confirm that the company in question has been
properly incorporated, and continues its corporate existence, before a contract
is concluded. If you have already signed a pre-incorporation contract on behalf
of a company, and you cannot prove an “agreement to the contrary”, you may
still be able to avoid personal liability as explained below.

  • Novation

A novation
is a three-way agreement that extinguishes one contract and replaces it with
another, in which a third party takes up the rights and obligations of one of
the original parties. In this scenario, the third party taking up those rights
and obligations would be the company. All parties to the original contract, as
well as the company, must consent to a novation for it to be valid. In
addition, consideration must be provided. The various promises between the
parties to the novation are generally regarded as adequate consideration
however some parties may prefer to novate under a deed just to be sure.

  • Ratification

Ratification
is a process by which a party can give retrospective authority to someone who
has entered into an agreement on their behalf. Although some commentators
suggest that ratification may be of assistance in these circumstances, we do
not consider that ratification is possible in the case of pre-incorporation
contracts. There are a number of conditions that must be met for an action to
be capable of being ratified. One of these conditions is that the principal
(here, the company) must be in existence at the time of the contract. As a
company is not legally in existence before it is incorporated, these conditions
will not be satisfied.

Final words

This blog should serve as a timely reminder of the risks of signing documents on behalf of a company; and in particular where a company itself is not in existence. If you have any questions about pre-incorporation contracts or contractual issues more generally please contact Neil Williamson or Joanna McKenzie or you can find out more about our legal services by clicking here.


Selective Distribution Agreements

Selective distribution agreements – a quick guide

This blog offers a quick guide on selective distribution agreements and what you should look out for when considering one. Our lead lawyer for selective distribution agreements is Neil Williamson. Please get in touch if you have any questions.

What is a distribution agreement?

A distribution agreement is a legal agreement between a supplier and a distributor of goods. There are various types of distribution agreement including exclusive distributorship, sole distributorship, non-exclusive distributorship and selective distributorship.

What is a selective distribution agreement?

A selective distribution agreement allows suppliers to appoint particular distributors according to their specific needs. The suppliers agree to supply only to approved distributors who meet specified minimum criteria and the distributors agree only to supply end users or other distributors or dealers within the approved network. These minimum specific criteria are often set out in a schedule at the end of the agreement. Such criteria may include having suitable premises, having adequate training of sales personnel and providing sufficient after-sales services.

Is selective distribution appropriate for my business?

There is no definitive list of products for which selective distribution has been found to be necessary. Past decisions of the Commission and the European Courts have however indicated that selective distribution is likely to be justified in the case of luxury goods such as perfumes and cosmetics, technically complex products such as photographic equipment, and products that combine the two such as high-quality watches.

Selective distribution is therefore not appropriate for all businesses. If the characteristics of the product do not require selective distribution or do not require certain minimum criteria, such a system would not be efficient. EU competition law also comes into play here. If a selective distribution agreement is found to prevent, restrict or distort competition within the internal market, the businesses involved may be liable to pay large fines. Individuals involved may even find themselves facing director disqualification or criminal sanctions for the most serious breaches.

How do I know if my selective distribution agreement is in breach of EU competition law?

Under Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), an agreement will be in breach of EU competition law if it prevents, restricts or distorts competition within the internal market. However, it is generally accepted that selective distribution agreements will not be caught by this restriction provided that three conditions are met. These conditions are set out in the case of Metro I. Firstly, selective distribution must be necessary for the products in question. Secondly, distributors must be chosen on the basis of objective, qualitative criteria. And thirdly, the conditions must be laid down uniformly and applied in a non-discriminatory manner. If these conditions are satisfied then Article 101(1) probably won’t apply and your agreement will not be in breach of EU competition law. If you think that your agreement is, or may still be, caught under Article 101(1) then the next step is to consider whether your agreement qualifies for an individual exemption under Article 101(3).

Individual exemption

Under Article 101(3) of the TFEU, a selective distribution agreement caught by Article 101(1) may still be valid and legally enforceable if it satisfies the individual exemption criteria. The criteria are as follows:
• The agreement improves the production or distribution of goods or services or promotes technical or economic progress;
• The agreement allows consumers a fair share of the resulting benefit;
• The agreement does not impose any restraints on competition other than those absolutely necessary to attain the above objectives; and
• The agreement does not substantially eliminate competition.

If you can satisfy all four criteria then your agreement will qualify for an individual exemption and will not be in breach of EU competition law. If your agreement does not satisfy all four criteria then all is not lost. Your agreement may still be caught by something called the “vertical agreements block exemption.”

Vertical agreements block exemption

For the purposes of EU competition law, a selective distribution agreement is a “vertical agreement”. A “vertical agreement” is an agreement entered into by two or more parties which operate at different levels of the production or distribution chain, relating to the conditions under which the parties may purchase, sell or resell certain goods or services. The “vertical agreements block exemption” (VABE) creates a general presumption of legality for “vertical agreements”, provided that the supplier’s market share is below 30% and that the agreements do not contain specific hardcore restrictions. Hardcore restrictions include:

Price-Fixing

A supplier cannot impose fixed or minimum prices at which distributors must resell the goods that have been supplied. Providing a list of recommended selling prices or imposing maximum selling prices may be acceptable provided that they do not amount to a fixed or minimum selling price as a result of pressure from or incentives offered by the supplier.

Certain territorial/customer sales restrictions

A supplier cannot apply any direct or indirect restrictions on the territories to which, or customers to whom, the distributor may sell the contract goods or services.

Cross supplying between distributors

A supplier cannot restrict authorised distributors from selling or purchasing the supplied goods to or from other authorised distributors in the network. This means that appointed distributors cannot be forced to purchase the goods exclusively from the supplier.

Excluded restrictions

When assessing whether your selective distribution agreement falls under the VABE you also need to look out for certain “excluded restrictions”. If your agreement contains certain “excluded restrictions”, the VABE will not apply to that specific restriction. However, the rest of the agreement may still benefit from the VABE exclusion if the above conditions are satisfied and the “excluded restriction” is severed from the agreement. Hardcore restrictions cannot be severed from an agreement in this way. The “excluded restrictions” are:

Buyer non-compete obligations if these extend beyond five years

A supplier cannot directly or indirectly restrict the distributor from manufacturing, purchasing or reselling any goods or services that compete with the supplied goods or services. A supplier also cannot insist that the distributor purchases more than 80% of their total purchases of that product from them.

Post-termination buyer non-compete obligations

A supplier cannot directly or indirectly restrict the distributor, after termination of the agreement, from manufacturing, purchasing or selling competing goods or services unless the obligation is limited to a maximum period of one year, it is necessary for the protection of know-how and the obligation is limited to the same point of sale from which the distributor has operated during the agreement.

Restrictions on sales of particular competing products

A supplier cannot directly or indirectly restrict an authorised distributor in a selective distribution network from selling the brands of particular competing suppliers.

Agreements of minor importance

Some selective distribution agreements may also be able to benefit from the Commission’s 2014 Notice on agreements of minor importance. The De Minimis Notice states that the Commission will not normally initiate proceedings against agreements between Small to Medium Enterprises. The Notice also states that larger companies should not face investigation where their market shares in the relevant markets do not exceed 15% for agreements between non-competitors and 10% for agreements between competitors. Where competition is restricted by the cumulative effect of the agreements, this threshold is lowered to 5%. An agreement can only benefit from the De Minimis Notice if it does not have as its object the prevention, restriction or distortion of competition. Agreements containing one or more of the hardcore restrictions are also unlikely to benefit from an individual exemption or the De Minimis Notice.

Online sales

If you’ve been keeping up-to-date with EU competition law then you’ve probably heard of the Coty case. In 2017 the Court of Justice of the European Union confirmed that luxury brands may restrict distributors in a selective distribution network from selling their goods through third-party online platforms such as Amazon and eBay, if:
• Distributors are chosen on the basis of objective, qualitative criteria;
• The criteria are applied uniformly and in a non-discriminatory fashion;
• The criteria do not go beyond what is necessary; and
• The restriction in proportionate in the light of preserving the luxury image of the goods.

In 2018 the commission expressly indicated that the Coty principles applied irrespective of the product category concerned and were equally applicable to non-luxury products.

This principle, however, should be followed with caution. In 2018 the Competition Appeal Tribunal confirmed the decision of the Competition and Markets Authority (CMA) against Ping Europe Limited. The CMA found that Ping, a manufacturer of golf clubs, had infringed competition law by entering into agreements with two UK retailers with clauses prohibiting them from selling the Ping golf clubs online. The CMA found that Ping’s commercial aim of promoting in-store custom fitting could have been achieved through less restrictive means. This landmark case sends an important signal that attempts by manufacturers to impose absolute bans on selling their products online are not permitted by law.

Final words

Selective distribution is an exciting and ever- developing system in the distribution and marketing world. Before entering into a selective distribution agreement you should carry out extensive research and consider your options carefully. If you have any questions concerning selective distribution agreements please contact Neil Williamson.