Contract Law Review 2011
As ever, contractual disputes have kept the English courts busy in 2011. Here is a quick roundup of some of the highlights.
The construction of contracts is all about common sense.
It may all sound obvious, but as the Supreme Court made clear in its judgment in Rainy Sky SA & Ors v. Kookmin Bank[1], the correct approach to the construction of ambiguous contracts is to adopt the construction which is most consistent with business commercial sense. That may be not be the natural reading of the clause in question.
> Read our fuller analysis of Rainy Sky SA & Ors v. Kookmin Bank
Granting rights of first refusal requires careful consideration.
Rather than being mere unenforceable agreements to negotiate, in AstraZeneca UK Limited v. Albemarle International Corporation & Anor[2] the Commercial Court held that a right of first refusal in a pharmaceutical supply contract was enforceable. As the Judge put it (and consistently with the Supreme Court’s subsequent approach in Rainy Sky – see above), "Where parties have troubled to put a specific clause in their contract, then so far as possible the Court should strive to give it some meaning commercially".
Limitation clauses and deliberate breach.
In the same case, the Commercial Court threw out an argument that there was a strong presumption against a limitation clause applying to a case of deliberate breach. Again, it is simply a question of construction of the clause: if a party wants to ensure that limitations do not bite in a case of deliberate breach, they need to say so.
> Read our analysis of AstraZeneca UK Limited v. Albermarle International Corporate & Anor
More scraps on jurisdiction clauses
In Berliner Verkehrsbetriebe (BVG) Anstalt des öffentlichen Rechts v. JP Morgan Chase Bank NA[3] the ECJ shut the door on an attempt by a company to rely on Article 22(2) of Council Regulation 44/2001 to override the contractual jurisdiction clause in the agreement. Article 22(2) provides that where the validity of decisions of the organ of a company is the object of the proceedings, the member state where the company has its seat will have jurisdiction. However, the ECJ ruled that the Article must be interpreted narrowly so that it only applies to proceedings whose object was the validity of the company’s decision, not where the company pleads that a contract is void. Loophole closed.
More recently, the Commercial Court reaffirmed in Aizkir Navigation Inc. v. Al Wathba National Insurance Co.[4]the rule in Sinochem International Oil (London) Ltd v. Mobil Sales & Supply Corp & Anor (No.2)[5] that where a jurisdiction clause is silent as to the exclusivity of the chosen jurisdiction, it can nonetheless be found to be exclusive.
> Read our analysis of Aizkir Navigation Inc. v. Al Wathba National Insurance Co
Don’t take entire agreement clauses for granted.
AXA Sun Life Services plc v. Campbell Martin Limited & Ors[6] serves as a useful reminder of the risks in assuming that boilerplate clauses in an agreement will exclude certain claims without giving the scope of the clause further thought. The clause stating that the contract would "supersede" "any prior provisions, agreements, representations, undertakings or implications, whether made orally or in writing…relating to the subject matter of [the] agreement" was held to preclude claims for breach of collateral warranty but not liability for pre-contractual misrepresentation. The Court of Appeal reiterated that clear language is required to expressly preclude liability for misrepresentation, such as a statement of the parties’ agreement that no representations have been made, or that there has been on reliance on any representations (or a combination of these).
> Read our analysis of AXA Sun Life Services plc v. Campbell Martin Limited & Ors
Between commercial parties, the courts can uphold very short contractual limitation periods.
Short contractual limitation periods can be an effective way of limiting the risks of claims. In Inframatrix Investments Ltd v. Dean Construction Ltd[7], the Technology & Construction Court struck out a claim for allegedly defective building work in the face of a clause in a bespoke commercial contract which barred claims after “the expiry of 1 year from the date the Contractor last performed Services in relation to the Project”. Similarly, dealing with a contract on standard terms (those of the British International Freight Association, “BIFA”), in a[8] the Court of Appeal has decided that a clause requiring a claim to be brought within 9 months was reasonable. The question of UCTA reasonableness is to be determined by reference to the circumstances at the time the contract was entered into and, in the context of freight forwarding, the court noted that time bar clauses are prevalent in contracts of carriage and had been negotiated by BIFA.
Lawyers Andrew Howell, Duncan Bryden
1 [2011] UKSC 50
2 [2011] EWHC 1574 (Comm)
3 (Case C-144/10)
4 (2011) QBD (Comm)
5 [2000] 1 Lloyd’s Rep 670
6 [2011] EWCA Civ 133
7 [2011] EWHC 1947
8 [2011] EWCA Civ 18
