Commercial law update In house lawyers forum – spring 2013

Can I…

1. claim misrepresentation for breach of

warranty?

2. exclude liability for a failure to

perform (at all)?

3. justify this ‘penalty’ clause?

4. refuse to disclose information when

audited?

5. charge whatever I like (if the contract

lets me)?

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• can I claim misrespresentation for

breach of a ‘warranty’?

• Sycamore Bidco v Breslin (2012)

• ‘warranties’ in a share sale agreement that

the

– ‘accounts are true and accurate’ & that

– ‘warranties are true and accurate’

• remedies available

– breach of express warranty- contractual

damages, limited to £6 million

– misrepresentation - rescission or tortious

damages: £16 million value of company

• express warranties here were NOT

representations – why?

– it is necessary to find something in the

SPA capable of making a warranty

provision also a representation

– ‘warranties’ and ‘representations’ were

referred to separately in the SPA and the

disclosure letter

• express warranties here were not

representations – why?

– the parties negotiated limitations of

liability for warranties but these

wouldn’t apply to representations -

“strange and uncommercial state of

affairs”

• had wording or facts been different, so

would the decision

– invertec Ltd v De Mol Holding BV (2009)

• so, what does this mean in practice? A

‘warranty’ may need something extra to

justify a claim for misrepresentation

• if buying – will the seller ‘represent

and… warrant’?

• if selling – remember to extend limit on

liability to torts

Can I limit liability for repudiatory breach?

• Kudos Catering v Manchester CCC (2013)

• previous cases on this

– Nettv v MarHedge (No) – CFI

– Astra Zeneca v Albermarle (Yes) - CA

Can I limit liability for repudiatory breach?

• Kudos Catering v Manchester Central

Convention Centre (2013) CA

– held – yes in principle you can exclude

liability for deliberate breach, but here

the clause was in the ‘indemnities’

section - not sufficiently obvious given

how onerous it was (so you need to be

explicit)

• a clause specifying a particular remedy

on breach of contract may be an

(unenforceable) penalty if

– it is extravagant or oppressive or

– if its aim is to deter breach

• hence commonly used ‘genuine pre-

estimate’ of loss wording

• recent cases have accepted a

‘commercial justification’ test. What is

a ‘commercial justification’?

a) you will take [x] days of consultancy

services, but if you don’t take them

you will in any case pay for any days

not taken

b) if you (seller) breach a restrictive

covenant… we will not pay you for the

rest of our shares and you will be

forced to sell the rest of the shares to

us at net asset value

If you are in breach (of obligation to pay in

instalments, title transferring at the end)

c) … we won’t transfer title in the asset

(due on last instalment) but you

will pay us all of the monies due to

us in respect of that asset (i.e. we

keep both the asset and the

payments for it)

a) E-Nik v Dept for Communities and loc

govt (2012) Cited M & J Polymers v

Imerys (2008) Burton J

b) Cavendish Square Holdings BV v El

Makdessi (2012)

c) Cadogan Holdings v GPS LLC (2013)

• all were enforceable as there was a

commercial justification for them, other

than to deter breach

Transport for Greater Manchester v Thales

Transport & Security (2012)

• what types of information needed to be

disclosed?

• obligation to keep (and allow audit of)

records ‘relating to’ performance of its

obligations

– included cost information (even though

fixed price contract –as evidence of poor

performance)

– included information about non-

performance

• no reason not to disclose because

sensitive information or personal data

included (but could be redacted)

… if the contract lets me?

• agreement reached by A and B to pay Y

– “all charges…including tuggage,

pilotage, port dues...and all other

charges levied by Y”

• Y charged US$ 3.3 Million including

charges “to facilitate smooth

operations” – enforceable?

Yilport Konteyner Terminali Ve Liman

Isletmeleri AS v Buxcliff KG & others (2012)

• held - implied term that discretion must

be exercised ‘reasonably’

– but that ‘reasonably’ would be decided

on facts, no obligation to keep receipts,

A & B to show charges were

unreasonable

Yilport Konteyner Terminali Ve Liman

Isletmeleri AS v Buxcliff KG & others (2012)

• must exercise discretion honestly and in

good faith but not “arbitrarily,

capriously or unreasonably”

• if the beneficiary of warranties consider

making them also ‘representations’ (do

you want ‘warranties’ at all?)

• if giving warranties – ensure you also

limiting liability for claims at tort (e.g.

non-fraudulent misrepresentation)

• if excluding liability for repudiatory

breach – be explicit

• if using a ‘penalty clause’ consider what

commercial justification there may be

(& ideally state it)

• if receiving title after payment of

instalments – insert explicit provisions to

recover monies paid (otherwise deposits

may be forfeited without affecting your

obligations)

• don’t accept widely drawn obligations

to pay – but if you do – seek to ensure

they’re justified. A harmless sounding

‘reasonably’ can sometimes make a

significant difference

• and most importantly – if you’re looking

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don’t have the budget to instruct

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