Radar - December 2018: UK legislation and case law

Here are some of the other highlights from the UK in terms of legislation and case law.

Legislation

Automated and Electric Vehicles Act 2018

The Automated and Electric Vehicles Act 2018 (AEVA), was enacted on 19 July 2018, although the majority of its provisions will not come into effect until implementing regulations are made. The AEVA deals with liability in relation to self-driving vehicles.

Key terms include:

• Insurers will be liable for damage caused by an automated vehicle in self-driving mode where the vehicle is insured and an insured person or other person suffers damage as a result of an accident.
• Owners are liable where the vehicle is not insured.
• Owners will not be liable to the person in charge of the vehicle where the accident was caused wholly due to that person's negligence in allowing the vehicle to drive itself where it was not appropriate to do so.
• Insurers will be able to exclude or limit liability in cases where unauthorised software changes are made.
• Where the manufacturer of the vehicle or other third party is responsible for the damage or injury, the insurer or owner will still have a liability to the injured party but they will be able to recover against the manufacturer under existing laws including product liability laws.

Business Contract Terms (Assignment of Receivables) Regulations 2018

The Business Contract Terms (Assignment of Receivables) Regulations will apply to all contracts entered into on or after 31 December 2018.

Regulation 2 provides that, subject to certain exceptions, any prohibition on, and any condition or restriction imposed on, an assignment of receivables (ie any right to be paid under a contract for the supply of goods, services or intangible assets) is invalid.

The new Regulations only affect contracts to which the law of England and Wales or Northern Ireland applies. Certain specific types of contract are excepted from their scope. One of the exceptions applies to contracts which are entered into for the purposes of, or in connection with, the acquisition, disposal or transfer of an ownership interest in a firm (wherever incorporated or established) or of a business or undertaking or part of a business or undertaking.

In order to avoid the risk of any restriction or prohibition on assignment in such contracts becoming invalid, the Regulations require a statement disapplying Regulation 2 to be included in the contract if it also contains a prohibition or restriction of assignment. In addition, strictly, this clause is not necessary if, at the time of the assignment, the supplier to whom the receivable is payable is a large enterprise (as defined in Regulation 3).

It is worth bearing in mind that these regulations may also have an impact on deeds of novation. Because deeds of novation extinguish the original contract and replace it with another identical one, any changes in the law which have occurred since the original contract was entered into may have an unexpected and undesired effect. If, for example, a share purchase agreement is entered into before the regulations come into force but is novated on or after 31 December, any prohibition or restriction on the assignment of receivables will become invalid unless steps are taken to address this issue.

Case law

High Court 'right to be forgotten' ruling

In April, we looked at a High Court ruling which considered the application of two individuals to have links to details of previous criminal convictions removed from google search results. One application was upheld and the other was dismissed. The ruling was significant as it was the first judgment in the UK to deal with the impact of the Google Spain case and provide guidance as to the approach the courts may take when conducting analysis of competing rights where data erasure is requested. In future, applicants will most likely seek to rely primarily on the Article 17 GDPR right to erasure, but elements of the Google Spain case and its application are likely to remain relevant.

High Court looks beyond contract structure at relationship of parties to construe copyright ownership

The High Court looked behind a structure set up for tax avoidance purposes and held that a service company arrangement was, in fact, an employer/employee relationship. As such, the source code created by the service company was owned by the company ostensibly receiving services. The service company only had a single employee who created the source code at the request of the recipient company. The court construed the service contracts in accordance with principles in Wood v Capita and held that the true relationship was one of employer/employee. It was an implied term of the contracts that the service company would make the source code available to the recipient company. The judge accepted that even if the formalities of assignment had not been observed, there was an assignment of copyright in equity, and a contractual obligation to deliver up the source code.

Court of Appeal overturns mixed data disclosure decision

As we reported in July, the Court of Appeal overturned a High Court decision in an appeal by the GMC relating to disclosure of a medical report.

The GMC had commissioned a medical report in relation to a claim by a patient that his GP, a Dr B, had failed to diagnose his cancer in the time he should have done. The patient made a request for disclosure of the full report to the GMC. This was treated as a subject access request under the Data Protection Act 1998. Dr B applied for an injunction preventing the report's disclosure, on the basis that it contained his personal data and that the SAR had been made solely in contemplation of litigation. The injunction was granted by the High Court but Court of Appeal overturned the decision.

While this decision relates to previous data protection law, subject access has not changed significantly under GDPR, so the judgment remains relevant.

The judgment is likely to be welcomed by data controllers who have their wide discretion as to what to disclose confirmed. It is also likely that data subjects making requests for disclosure of mixed data, will benefit from the decision that contemplation of litigation as a motivating factor behind the SAR, is not to be given special weight in mixed data cases where balancing interests of the requester and the third party have to be assessed.

Court of Appeal decision on exclusion of misrepresentation clauses

The Court of Appeal held that non-reliance clauses in contracts amount to exclusions of liability for misrepresentation and, as such, fall under s3 of the Misrepresentation Act 1967 and are subject to the reasonableness test under UCTA. Previous decisions have somewhat confused the issue which the Court of Appeal has now clarified. This does not mean the clause will automatically be unreasonable, nor that the parties cannot choose to give up the right to claim that their agreement to the contract was obtained by misrepresentation.

Widely drafted B2B limitation clause upheld

The Court of Appeal upheld a High Court decision that a widely drafted limitation and exclusion clause was not unreasonable under UCTA. The clause, in a B2B contract for a fire protection system installed in a factory, was described by the High Court judge as being at the most far-reaching end of the spectrum" but it had been properly drawn to the attention to the attention of the purchasers who were of equal bargaining power. On appeal, the purchasers argued that the clause was so unusual as to require notice "over and above the norm".

The Court of Appeal held that that the suppliers had done enough to draw the attention of the purchasers to the limitation clause, by including it at the front of the quotation and contract and making it clear that the clause might be detrimental to the purchasers. The parties were of equal bargaining power, the fire protection system was not bespoke, and there was no inducement to agree to the clause. Of particular importance was the genuine offer by the suppliers to reduce the scope of the limitation clause for a higher purchase price which would cover acquiring insurance.

High Court decision restates key principles of common mistake

The High Court restated the key principles of the law of common mistake.

By way of reminder, the common law of mistake renders a contract void if both parties shared a wrong belief as to an essential fact relating to the contract when the contract was made.

While the existing case law derives from higher courts, it has been somewhat confused and the re-statement of the common elements of the law of mistake is helpful. The judge set them out as follows:

• There must have been, at the time of conclusion of the contract, an assumption as to the existence of a state of affairs substantially shared by the parties.
• The assumption must have been fundamental to the contract.
• The assumption must have been wrong at the time of conclusion of the contract.
• By reason of the assumption being wrong the contract or its performance would be essentially and radically different from what the parties believed to be the case at the time of the conclusion of the contract. Alternatively, the contract must be impossible to perform having regard to or in accordance with the common assumption. In other words, there must be a fundamental difference between the assumed and actual states of affairs.
• The parties, or at least the party relying on the common mistake, would not have entered into the contract had the parties been aware that the common assumption was wrong.
• The contract must not have made provision in the event the common assumption was mistaken.

In this instance, the contract was not voided as the mistake in question did not render the agreements radically different from what the parties understood, nor impossible to perform. In addition, the contracts allocated risk to the defendant in the event that the assumptions made in the contract were false.

Supreme Court upholds the use of 'no oral modification' clauses

In June, we looked at the Supreme Court decision which overturned a Court of Appeal Decision and upheld the use of 'no oral modification' (NOM) clauses. The Court of Appeal had held that a NOM clause would not prevent a valid oral variation of an agreement. The Supreme Court held that the function of NOM clauses is to prevent attempts, including abusive attempts, to undermine written agreements by informal means, to avoid disputes around intention and variation, and to make it easier for contracting parties to control how contracts are made and varied. The Court recognised that there is always a risk that a party will act on a contract as varied orally in which case the doctrine of estoppel may be used. This highlights the need for contractual variations to be made in writing and in accordance with procedures set out in the original contract.

Court of Appeal holds digitally supplied software is not goods for purposes of Commercial Agency Regulations

In April, we looked at the Court of Appeal decision which overturned a High Court decision and held that software supplied in intangible form cannot be classified as goods for the purposes of the Commercial Agency Regulations 1993 (Agency Regulations).

The issue of whether or not the supply of software counts as a supply of goods or services has been clarified under EU and UK consumer law, which has created the new digital content category of contract. There have not, however, been equivalent updates in relation to business to business supplies. This creates an anomaly between consumer and commercial contracts which is particularly significant to the application of the Commercial Agency Regulations 1993 (Agency Regulations). The Agency Regulations provide commercial agents with certain protections (including against unfair termination) where they sell or purchase goods on behalf of their principal. They do not apply to the sale and purchase of services.

The Court of Appeal decision is unsurprising but gives welcome clarification following the High Court's ruling. An agent selling or purchasing digitally supplied software will not have the benefit of additional protection under the Agency Regulations.