Olswang CPD morning October 2013 - Commercial contracts quiz: answers and sources
1.
LATE PAYMENT
You are negotiating with an outsourcing provider and Appster’s CFO has told you to do your bit to
help cash flow. What’s the longest payment period you can negotiate, before statutory late payment
interest starts to run? (Private sector B2B contract)
a)
30 days from latest of performance/invoice/acceptance (Yes – for public sector contracts)
b)
you are free to negotiate any payment period you like
c)
60 days from latest of performance/receipt of invoice/acceptance unless you
expressly agree a longer period which is not “grossly unfair” (Yes – for private
sector contracts)
Late payment: what's new?
Late Payment of Commercial Debts Regulations 2013 and amending Regulations

New Regs update Late Payment of Commercial Debts (Interest) Act 1998 to reflect 2011 EU Late
Payment Directive

Changes “fine-tune” point from which statutory interest runs - latest of:
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day on which supplier performs
-
day on which purchaser has notice of amount (i.e. invoice)
-
day after acceptance/ verification of conformity by customer
PLUS: 30 days (public sector or private sector deals where contract silent) OR
PLUS: up to 60 days (private sector – express clause)
Over 60 days? Show payment period not “grossly unfair” (available for private sector only)
Late payment: practical tips

To “bullet-proof” a payment period of over 60 days plus

Period must not be “grossly unfair”; points to consider under the 2013 Regs:
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all the circumstances of the case
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in line with good commercial practice/ good faith/ fair dealing etc
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nature of the goods and services
-
objective reason for longer payment period
Sample drafting: “The parties agree that this payment period is fair and reasonable in all the
circumstances [or insert specific commercial justification here].”
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Late payment: what’s not new?
No change to the following aspects:

Statutory interest still at 8% over Bank of England base rate

Still possible to contract-out, provided alternative remedy for late payment is “substantial”

Still uncertainty over whether the Act applies to IP licences – include an express clause
2.
JURISDICTION
Your outsourcing contract states that disputes shall be subject to the exclusive jurisdiction of the
courts of England and Wales. Could the provider commence proceedings before a court in a
different EU Member State (the “Italian torpedo”)?
a)
No - an express exclusive jurisdiction clause is completely watertight
b)
Yes - but from 2015 this will not override the parties’ express submission to an
exclusive jurisdiction
c)
Yes - exclusive jurisdiction clauses are not worth the paper they’re written on
Jurisdiction: what’s new?




EU Regulation 1215/2012 has updated the Brussels Regulation on jurisdiction and the recognition and
enforcement of judgments in civil and commercial matters
Current rule: where a court is “second seised” it must stay its proceedings until the court first seised
has determined whether or not it has jurisdiction to determine the matter – this applies even where the
parties have expressly agreed to the jurisdiction of the second court. (The “Italian Torpedo” scenario)
New rule: any court other than the chosen court “shall stay its proceedings until such time as the court
seised on the basis of the agreement declares that it has no jurisdiction under the agreement”.
Bottom line: The new rule will help make an “exclusive” jurisdiction clause more watertight.
Jurisdiction: sample drafting
“Each party irrevocably submits to the exclusive jurisdiction of the courts of [England and Wales] over any
claim, dispute or matter arising under or in connection with this Agreement or its enforceability [or the legal
relationships established by this Agreement] (including non-contractual disputes or claims)[, and waives any
objection to proceedings in such courts on the grounds of venue or on the grounds that proceedings have
been brought in an inconvenient forum”]
3.
DISPUTE ESCALATION CLAUSES
You are considering the dispute escalation provisions for the outsourcing agreement. What’s the
courts’ current approach?
a)
Judges hate effective dispute escalation provisions because they’re worried they’ll be out
of a job
b)
The courts tend to uphold dispute escalation provisions because they want to give effect
to the mechanisms the parties have agreed
c)
Dispute escalation provisions will only be upheld if they are clear, unequivocal and
detailed
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Dispute escalation: recent decision
Wah (Aka Alan Tang) & anr. v Grant Thornton International Ltd & Ors. [2012]



High Court judgment on a jurisdictional challenge to an arbitral award.
The contract’s dispute escalation provided for referral to the CEO to facilitate a conciliation process,
which if unsuccessful would be followed by a reference to a panel of three board members for another
round of conciliation.
Claimants argued that such procedures were conditions precedent to any arbitration and that necessary
steps had not been taken, therefore the claimants argued that the tribunal lacked jurisdiction.
-
Held clause was not a precondition as too vague
-
No detail as to what form the process of conciliation should take
-
No detail on what the parties were required to do by way of participation in the process
Dispute escalation: practical tips
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4.
English law does not recognise an agreement to negotiate or an agreement to settle disputes amicably.
Such agreements are too uncertain to enforce.
In order to be legally enforceable, multi-tiered or escalating dispute escalation clauses should clearly
and unequivocally set out in detail the nature of any dispute escalation steps to be undertaken before
commencing proceedings.
E.g. With escalation to CEO, what steps must the CEO take to try to resolve the dispute?
Is the process clear?
For experts, how are these appointed and who pays their fees?
EXCLUSIONS
You manage to negotiate the following clause in your outsourcing agreement:
“the Customer shall have no liability whatsoever in contract, tort (including negligence) or otherwise
for any loss of goodwill, business, revenue or profits, anticipated savings or wasted expenditure
(whether reasonably foreseeable or not) or indirect or consequential loss suffered by the
Contractor…”
Will that clause protect Customer in all circumstances – e.g. if it deliberately fails to perform the
contract?
a)
Yes – if this is what has been agreed between the parties (the High Court’s conclusion)
b)
Prima facie it applies – but the courts often find reasons not to uphold exclusions in
cases of deliberate breach (
c)
Court of Appeal’s decision)
No – such an exclusion will never be effective
Exclusions: recent decision
Kudos Catering (UK) Ltd v Manchester Central Convention Complex Ltd [2013]

Court of Appeal claim for repudiatory breach of contract, lost profits of £1.3m

High Court: clause excluded all liability for loss of profit – literal interpretation
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
Court of Appeal: clause did not protect Customer from liability for non performance
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Too wide-ranging – left supplier with no sanction
-
Would reduce the contract to an unenforceable statement of intent “effectively devoid of
contractual content”.
-
No commercial justification for such a wide exclusion
-
Buried in “indemnity and insurance” clause
-
Poorly signposted for such a draconian clause
Exclusions: practical tips

Exclusion clauses do, in the absence of wording to the contrary, prima facie apply to intentional
breaches as they do to others.

Judicial hostility to clauses which exonerate a party from liability in the event they refuse to
perform the contract (as opposed to exclusions relating to defective performance).

Contractual interpretation depends not only on the wording of the exclusion, but also on its
contractual and commercial context.

In order to ensure that an exclusion clause is enforceable, always:
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Give the counterparty substantial remedy for a serious breach
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Spell out the commercial basis for excluding liability
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Bring the clause to the attention of the other party, and use accurate labelling
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Deal expressly with repudiation
Contact
Catherine Adam
Associate
+44 20 7067 3223
catherine.adam@olswang.com
This crib sheet is a non exhaustive guide to accompany the talks given at our October CPD morning.
Please contact us if you would like specific advice on the topics covered.
www.olswang.com/cpd-autumn-2013
© Olswang LLP 2013
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