High Court rejects indemnity claim under SPA due to a failure to notify the claim “as soon as possible”

The High Court has found that a claimant could not pursue an indemnity claim under an SPA because it had not notified the defendants of its claim “as soon as possible”, as it was required to do under the contract: Towergate Financial Limited v Hopkinson [2020] EWHC 984 (Comm).

The notification provision considered by the court contained language which is common to many commercial contracts. It required notification “as soon as possible and in any event prior to” a long-stop date (in this case, seven years from signing the SPA). The court construed the clause as containing two separate conditions: notification had to be given within the long-stop date and as soon as possible.

While each case will turn on its own facts, including the wording of the clause in the context of the agreement, a party faced with a similar clause may be prevented from bringing its claim if it fails to give notice as soon as possible, even if it notifies within the long-stop date.

The decision continues a recent trend of cases requiring strict compliance with notice requirements in SPAs (previously covered in our posts here and here) and emphasises once again that parties need to be vigilant in issuing notices which comply with the contractual provisions.

James Robson, a senior associate in our disputes team, considers the decision further below. Continue reading

Our new publication: Covid-19 Contract Disputes Guide

The economic disruption caused by the Covid-19 pandemic inevitably exposes businesses to heightened legal risk. In particular, counterparties may seek to delay, avoid performance and/or terminate agreements. This may be either because Covid-19 has legitimately prevented them from performing their contractual obligations, or because they are seeking to use the pandemic as an excuse to extricate themselves from a bad deal.

We have published a guide which provides a general overview of the common bases for avoiding contractual obligations in commercial contracts, including a comparison of the key rights and remedies. Click here to access the guide.

High Court gives guidance on availability of summary judgment and frustration in contractual disputes

A recent High Court decision is a good example of the court’s willingness to deal with questions of contractual interpretation on a summary basis in an appropriate case, without the need for a full trial. However, it also highlights the difficulties that will be faced in successfully striking out a defence based on the common law doctrine of frustration, which is likely to be of particular interest in the context of the COVID-19 pandemic: Natixis & Anor v Famfa Oil Ltd [2020] 2 WLUK 330.

The following factors (in particular) were highlighted as making the present case suitable for determination by summary judgment: the claim involved a short point of contractual construction; the factual matrix was not in dispute; the agreements were sophisticated, complex and drafted by skilled professionals; and it was appropriate to interpret the contracts principally by a textual analysis.

However, the court was not prepared to summarily strike out a defence based on the doctrine of frustration. Having regard to the need to take a multi-factorial approach to this question, the court held that the relevant factors (including the parties’ knowledge and expectations at the time of entering into the contract, in particular as to risk) could only properly be investigated at trial following disclosure and the exploration of oral evidence in cross-examination.

For more information see this post on our Banking Litigation Notes blog.

Calderbank offer without express time limit could be accepted after hearing had started

The High Court has held that a “without prejudice save as to costs”, or Calderbank, offer to settle detailed assessment proceedings, which did not include a time limit for acceptance, could be accepted after the detailed assessment hearing had commenced: MEF v St George’s Healthcare NHS Trust [2020] EWHC 1300 (QB).

Where an offer to settle is made under CPR Part 36, the rules provide that the court’s permission is required to accept the offer once trial has started. A Calderbank offer, in contrast, is subject to common law rules, and the court refused to “read across” the restriction on acceptance from Part 36.

The claimant was therefore able to accept the defendant’s offer during the assessment hearing as it contained no express cut-off date for acceptance. While it was agreed that the offer would lapse after a reasonable time, the court did not accept this meant by the start of the assessment hearing.

This case serves as a useful reminder that parties making a Calderbank offer may wish to include an express time period for acceptance, or ensure that they review the offer regularly and withdraw it if necessary. Continue reading

COVID-19: Our new quick reference tool to help assess the availability of force majeure relief under English law

As a result of the COVID-19 pandemic, many commercial parties have been reviewing their contractual arrangements to consider whether there are grounds for excusing non-performance or suspending or terminating their contracts.

Against that background we have developed a new interactive tool which is designed to assist clients and contacts of the firm in evaluating the availability of force majeure relief under English law, either in respect of a party’s own contractual obligations or those of its counterparty, as a result of the COVID-19 pandemic or related circumstances.

Created using Neota Logic’s automation platform, the new tool takes the user through a series of questions relevant to their circumstances to help guide their assessment of whether force majeure relief may be available.

Please click here to access the tool: https://www.herbertsmithfreehills.com/forcemajeure.

Natasha Johnson
Natasha Johnson
Partner
+44 20 7466 2981
Anna Pertoldi
Anna Pertoldi
Partner
+44 20 7466 2399
Emma Schaafsma
Emma Schaafsma
Partner
+44 20 7466 2597
Sarah Hawes
Sarah Hawes
Head of Corporate Knowledge
+44 20 7466 2953
Richard Mendoza
Richard Mendoza
Senior Associate
+44 20 7466 2024
Maura McIntosh
Maura McIntosh
Professional Support Consultant
+44 20 7466 2608

New COVID-19 podcast – Force majeure considerations in a potential second wave of COVID-19

In this latest episode of our Navigating COVID-19 podcast series, Sarah PollockEmma Schaafsma and Julie Farley consider the force majeure implications of a potential second wave of COVID-19 infections and the resulting re-imposition or tightening of lockdown measures.

Many contracting parties have already been affected by force majeure events arising out of the pandemic and the associated restrictions.  As the focus starts to shift toward the gradual easing of lockdown measures, those parties who have claimed force majeure relief will be preparing to resume performance as soon as the impact of the force majeure event comes to an end.  However, it is also important for contracting parties to prepare for any second wave force majeure situation, and the podcast will share some practical tips of actions that can be taken.

Our podcast is available on iTunes, Spotify and SoundCloud and can be accessed on all devices.

The relevant issues are also discussed in this recent blog post.

High Court finds claim for lost profits arising from damage caused by London riots not prevented by force majeure or exclusion for indirect or consequential loss

The High Court has held that the London riots of 2011 did not give rise to a force majeure defence to claims for failing to secure a warehouse from break-ins and arson attacks. Nor did the claims fall within an exclusion clause relating to indirect or consequential losses: 2 Entertain Video Ltd v Sony DADC Europe Limited [2020] EWHC 972 (TCC).

A force majeure clause typically excuses a party from liability where it is prevented from performing some or all of its obligations under the contract due to some event or circumstance beyond its control. In light of the global COVID-19 pandemic, force majeure clauses are being turned to more than ever. This decision highlights the difficulty of relying on force majeure where the relevant event or circumstance was foreseeable – even where, as here, the clause in question does not contain refer to unforeseeability. Although there is no general requirement under English law that an event must be unforeseeable to give rise to a claim for force majeure relief, the more an event is foreseeable the more it may be possible to guard against it having an impact on contractual performance, and the more a failure to do so may be seen as the real cause of non-performance. (For a high-level overview of the approach taken to force majeure clauses in key jurisdictions, please see our recent publication, COVID-19: Force majeure: A global perspective.)

The decision also illustrates the court’s approach in interpreting contractual exclusions of liability for indirect or consequential losses, which is a matter of some debate in the case law. While each case will turn on the wording of the clause in the context of the agreement and the relevant background, it may be difficult to persuade a court that losses that are foreseeable as arising naturally from the breach fall within an exclusion for indirect and consequential losses.

Although the decision is not radical from a legal perspective, it is an important reminder that contractual mechanisms such as force majeure clauses and exclusions of liability have their limits. Continue reading

Commercial Court interprets indemnity clause in SPA to exclude damage which occurred pre-execution

The Commercial Court recently dismissed a claim to recover the cost of repairs to two offshore transmission cables linking the Gwynt Y Môr offshore wind farm in North Wales with the National Grid, which the claimant had sought to recover under an indemnity for “Pre-Completion Damage” in a business sale agreement: Gwynt Y Môr OFTO PLC v Gwynt Y Môr Offshore Wind Farm Ltd [2020] EWHC 850 (Comm).

Although the indemnity did not expressly state that “Pre-Completion Damage” was limited to damage occurring after the agreement was signed, the court found that this was the clear interpretation of the clause based on a textual analysis including the tense used. On the facts, the cables had failed as a result of ongoing corrosion, and no relevant “damage” for the purposes of the indemnity had occurred between signing and completion.

As well as giving a useful illustration of how the courts will approach the interpretation of an indemnity in a business sale agreement, the decision reinforces that careful consideration is required when drafting indemnities to ensure that there is absolute certainty in what the indemnity is intended to cover. In particular, there should be no room for doubt as to whether an indemnity is intended to cover the pre-signing period, the period between signing and completion, or both. Continue reading

Unjust enrichment: High Court finds claimant entitled to restitution of the value of services provided in anticipation of a contract

The High Court has held that a supplier of soft toys was entitled to restitution of the value of the services it had provided to a toy designer, in anticipation of a contract to mass produce the developed toy. The judge further found that a claim in restitution for services provided in anticipation of a contract, unless such services are provided gratuitously or in such a way that indicates they were provided speculatively and at the provider’s risk, may still succeed “even if the idea of an enduring benefit to the defendant is essentially a fictional one”: Dowman Imports Ltd v 2 Toobz Ltd [2020] EWHC 291 (Comm).

Given the amount of work undertaken by the claimant in the development of the toy, the defendant’s encouragement and acceptance of the development services to advance the toy concept, and the defendant’s behaviour towards the claimant, the court held that the claimant had made out its claim in restitution. The defendant’s counterclaim, in respect of an initial sample order of the toys which the defendant alleged were defective, was dismissed.

Although the decision does not establish new legal principles, it illustrates that the absence of a concluded contract will not necessarily preclude a remedy where a party has performed services for the defendant – in particular where the defendant requested the services or accepted them when offered, knowing that such services were not intended to be given freely. Continue reading

Low oil price – high disputes risk: The scope for disputes in a world of low oil prices

Oil prices have collapsed since the start of the year, driven down by concerns around oversupply, compounded by the collapse in demand caused by COVID-19 and the price war between Russia and Saudi Arabia.

This briefing published on our website looks at the implications of low oil prices on certain key trading and operational agreements for oil companies, and considers the scope for disputes to arise. It considers the position under English law, which is commonly adopted by parties in the oil and gas industry, but many of the same themes apply to contracts governed by other common law systems.

James Baily
James Baily
Partner
+44 20 7466 2122
Craig Tevendale
Craig Tevendale
Partner
+44 20 7466 2445
Steven Dalton
Steven Dalton
Partner
+44 20 7466 2537
Paula Hodges QC
Paula Hodges QC
Partner
+44 20 7466 2027
James Robson
James Robson
Senior associate
+44 20 7466 2641