The SCL ‘Annual Contract Law Update’ demi jubilee was led by Richard Stephens. His incisive round-up of 2014’s key contract cases (preceded by a rundown of 2013’s Matchbet v Openbet [2013] EWHC 3067 (Ch)) was split into thematic groups. Each was prefaced by a few words of wisdom from the likes of Groucho Marx and Emperor Justinian, and weaved in tips for practice and drafting advice for the IT industry in particular.
The update covered themes such as whether a contract exists, interpretation, reasonable endeavours and good faith. A few of these topics are briefly touched on below.
Have you got a contract?
We began at the beginning with King Hammurabi of Babylon’s legal code from 1750 BC which prescribes the need for contracts to be written and witnessed. 2014’s lessons, brought to us by Glencore Energy v Cirrus Oil [2014] EWHC 87 (Comm) and Acer Investment v The Mansion Group [2014] EWHC 3011 (QB), demonstrated that parties must take care that their conduct and correspondence does not lead to the accidental conclusion of a contract. Contracts may be formed and terms and variations agreed without formal writing or execution.
Indemnities
According to the laws of Lipit-Ishtar, when a man rents an ox and breaks its horn, he must pay one quarter of its value in silver in compensation. How would the drafting of an indemnity clause to this effect be construed by the courts in 2014? We were reminded that indemnity clauses used to be construed strictly in favour of the indemnifying party and against the indemnified party. Richard questioned whether this is still the case and discussed the meaning of indemnities. One recent case suggested that a claim under an indemnity was a debt and so there was no duty to mitigate losses. In another case, the judge said that a claim under an indemnity was a claim for damages. Drafting of indemnity clauses tends to fit into one of these two categories. The first of these interpretations (the debt category), provides an obligation to reimburse expenses after they have been incurred. The second (the damages category) provides an obligation to keep the indemnified party free from suffering any loss, expense or trouble. In practice, however, drafting is rarely clear-cut, and this is mirrored by the applicable case law. As a result, Richard reiterated the importance of considering what effect you want your indemnity clause to have, and of taking the time to consider how this can be achieved by limiting its scope and breadth. We also considered whether an indemnity is necessary at all. In Greenwich Millennium Village v Essex Services Group [2014] EWCA Civ 960, the matter went to the Court of Appeal on a point of construction of the indemnity, when a simple claim in damages for breach of contract may have been more easily won.
Termination
The update concluded with the problem of repudiatory breaches. Valilas v Januazaj [2014] EWCA Civ 436 demonstrated that whether a breach is a repudiatory breach depends on its nature and consequences. The courts will decide whether a breach goes to the root of a contract by looking at its practical results. Newland Shipping and Forwarding v Toba Trading [2014] EWHC 661 (Comm) emphasised the importance of considering carefully whether termination of a contract has taken place due to the acceptance of an anticipatory breach or under the general right to terminate (where this has not been excluded by the contract). Particular care should be taken when drafting termination notices to ensure that: claiming a repudiatory breach is justifiable; that formal requirements have been complied with; and that the notice is unambiguous. Overall, it is better to deal with termination and its consequences explicitly, rather than relying on a later assessment of whether a repudiatory breach has taken place.
This note cannot do justice to the number and breadth of cases covered in this session, which was invaluable in its scope and practical application to recent contract case law.
Kyla Taylor is a Trainee at Hogan Lovells International LLP and a member of the SCL Junior Lawyers’ Group committee.
