Archive for the ‘Commercial’ Category

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What do you mean they didn’t sign an NDA?

05/01/23 – If you’re having a meeting or discussion with a third party which may involve you disclosing confidential information you should of course make sure that you get the third party to sign a non-disclosure agreement (NDA).  Although the detailed terms of NDAs vary, they generally have two principal functions: to impose an obligation on the party receiving the information to keep it confidential; and to ensure that the receiving party only uses the information for a specific purpose, typically to consider whether to proceed with the transaction or arrangement that is being discussed.

But what if you disclose confidential information to a third party without having an NDA in place?

Although the circumstances were slightly unusual, this is what happened to fintech vendor Clearcourse when they were negotiating for the purchase of E-Novations in August 2020.  The CEO and part-owner of E-Novations, Manoj Jethwa, left the meeting room to collect some papers from his office next door.  During Mr Jethwa’s absence, the representatives of Clearcourse had what was later described as an ‘unguarded and candid’ conversation about the negotiations, their (unflattering) views of Mr Jethwa, and the likelihood of Mr Jethwa being fired if the purchase completed.  Mr Jethwa heard the representatives’ conversation through the wall between his office and the meeting room.  Mr Jethwa also took a screenshot of the live CCTV footage from the meeting room, but claimed that there was no audio recording.

Following completion of the purchase, a dispute arose in relation to the sale and purchase agreement.  In response to an ultimatum from Clearcourse to settle the dispute, Mr Jethwa shared the CCTV screenshot, with the following text message: “You should know this doesn’t do you any favours.  Whilst I walked out and what you both say should be of interest for social”.  In other words, Mr Jethwa threatened to make public via social media the conversation that he had overhead from his office.

Perhaps surprisingly given the nature of the discussions it appears that the parties had not signed an NDA.  Clearcourse therefore made a successful application to the High Court in April 2022 for an ‘interim non-disclosure order’ (or ‘INDO’) injunction, restraining Mr Jethwa from disclosing the overheard conversation or any recording of it.  Shortly afterwards there was a full High Court hearing to decide whether the INDO should be continued, when the Judge confirmed that he was satisfied that Clearcourse would ‘more likely than not’ succeed with its underlying claims for breach of confidence and misuse of private information, and continued the injunction – for the full judgement see Clearcourse Partnership and others v Jethwa [2022].

Looking at these two types of claim in turn:

Breach of confidence

For a claim for breach of confidence, the claimant must establish that:

  1. the relevant information has the necessary quality of confidence
  2. the person looking to disclose or use the information came to know of it in circumstances importing an obligation of confidence and
  3. there has been unauthorised use, or a threat to use, the information to the detriment of the claimant.

Circling back to the conversation overheard by Mr Jethwa during the course of the negotiations, the Judge was satisfied that a reasonable person ‘would appreciate that a conversation held behind closed doors, between individuals on the opposite side to him in a business negotiation on these subjects, was both private and confidential’. The Judge emphasised that the duty of confidence does not only arise when a person seeks out the confidential information, but also when confidential information ‘comes to the knowledge of a person in circumstances where he has notice, or is held to have agreed, that the information is confidential, with the effect that it would be just in all the circumstances that he should be precluded from disclosing the information to others’.

Misuse of private information

For a claim for misuse of private information the following two limbs must be satisfied:

  1. the claimant must establish that they have a reasonable expectation of privacy regarding the information in question and
  2. the court needs to balance the claimant’s right for privacy against the rights of others, such as the other party’s right to freedom of expression.

In Clearcourse, the Judge (dealing with limb 1) held that Clearcourse’s directors ‘would regard their conversation, behind closed doors, as giving rise to a reasonable expectation of privacy’, and (dealing with limb 2) that there was no justification for the disclosure of it by Mr Jethwa, whether on the grounds of his right to freedom of expression or otherwise.

Key takeaways

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Direct marketing to business contacts

29/11/22 – The Information Commissioner’s Office (ICO) recently published new guidance on email marketing and phone marketing.  The guidance is supplementary to the ICO’s Guide to the Privacy and Electronic Communications Regulations (PECR) and (124-page) draft Direct Marketing Code of Practice.

Direct marketing is a fiddly area, with different rules depending on whether you’re using email/text, phone, post or (perhaps less likely) fax, and also whether you’re marketing to companies, sole traders/partnerships, or individuals.  This post takes a look at the rules for direct marketing by UK businesses of their own products and services, either by email or text/voice messaging services (such as WhatsApp or LinkedIn), or by phone.  It is not exhaustive, and there are additional rules if for example you are selling pensions or claims management services, marketing to children etc.

What’s the relevant law?

The law applicable to direct marketing is set out in the Privacy and Electronic Communications Regulations 2003 (PECR) and to a lesser extent the UK GDPR and Data Protection Act 2018. The ICO provides extensive, plain English overviews of all areas of marketing law.

Direct marketing by email/messaging services  

If you’re looking to market to a contact by email or using a text or voice messaging service then you either need to obtain the contact’s consent or you need to check if you can use the so-called ‘soft opt-in’ exemption.

Consent. For consent to be valid it needs to be freely given, specific, informed and unambiguous. In practice this means no pre-ticked checkboxes, and making sure the consent covers the type of communication you’re using – obtaining consent for marketing by email does not entitle you to send them a WhatsApp. The consent also needs to be separate from other consents, so you can’t include marketing consent in the tickbox wording used for accepting your terms of service.

Soft opt-in exemption.  To use the soft opt-in exemption, you need to meet all of the following criteria:

  1. You must have obtained the contact details yourself. You cannot for example use an email address obtained by someone in your marketing department.
  2. The contact details must have been obtained as part of a sale or negotiation, i.e. the contact must either be an actual customer or a prospect who has previously expressed an interest in your products or services.
  3. The marketing content must relate to products or services which are similar to the ones that your contact has previously purchased or been interested in.
  4. The contact must have had an opportunity to opt-out of receiving marketing messages when you obtained their details, and they must continue to have that option, e.g by including a ‘click to unsubscribe’ link in the message.

A few things to bear in mind:

 Direct marketing by phone

In short, you do not consent for making direct marketing phone calls, whether to individuals or to businesses, unless either of the following applies:

  1. The phone number is listed on the Telephone Preference Service (TPS) or the Corporate Telephone Preference Service (CTPS).
  2. Your contact or the business has previously objected to receiving marketing calls.

If the phone number is listed on TSP or CTPS you can still get consent to receive marketing calls. The ICO have suggested that any consent for overriding a TSP/CTPS listing should aim to meet the GDPR-style, opt-in standard that applies to direct marketing by email.

When making a direct marketing phone call, you must display your phone number (or a valid alternative number), say who is calling (and provide contact details if asked), provide clear information about the marketing, and make it easy for the recipient to object or opt out.

 

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Dealing with overdue invoices – some options

09/11/22 – When I’m asked by a client to help with an invoice that they’ve been chasing without success, they assume the next step is for me to fire off a letter before action, ideally threatening fire and brimstone, and then issue legal proceedings.  There are times when this is appropriate, but there are also a number of options available to suppliers before, or even instead of, asking a lawyer to help.  This article takes a brief look at some of the options.

Confirm when the payment actually became overdue

Your invoice may state ‘PAYABLE WITHIN 14 DAYS’, but unless you have previously agreed 14-day payment terms with the customer then this will not be enforceable – you cannot unilaterally add your payment terms to a contract that has already been formed.  Instead check the invoicing and payment terms that were agreed with the customer. This should be straightforward if there’s a written agreement, or if the customer agreed to your Ts&Cs.  If not, then it may be that the customer’s PO incorporated their purchasing Ts&Cs, and the customer’s payment terms apply.

Once you’ve confirmed the correct due date, check that you’ve done what the contract requires you to do, e.g. issued the invoice with the correct information included, sent the invoice to the correct contact at your customer, attached any required delivery receipts, timesheets, acceptance certificates etc.

Find out why the customer hasn’t paid

Sending repeated reminders and demands for payment is all well and good.  But make sure to ask your customer why they haven’t paid your invoice.  You may discover that there’s a problem with your product or service that you didn’t even know about, and that you can now look to fix.  Or your customer may have a cashflow problem, in which case it may be in your interests to try to agree extended payment terms.  If conversations are verbal, make sure to confirm them in writing.

Charge the customer for using you as a credit facility

Many commercial agreements have a late payment clause entitling the supplier to charge an agreed rate of interest on amounts which are overdue.  Although these are mainly used when making a formal debt recovery claim, you can invoice the customer for contractual late payment interest at any time payment is overdue.

If your agreement does not have a late payment clause (or if the contractual late payment clause does not provide a ‘substantial remedy’), then you are automatically entitled to claim statutory interest plus fixed compensation under the Late Payment of Commercial Debts (Interest) Act 1998 (as amended).  The rate of statutory interest is calculated as the Bank of England base rate plus 8% (so currently 11%), and can be charged from the date that the amount became overdue until the date of actual payment.  The fixed compensation depends on the amount of the debt – it is currently £40 for debts of less than £1,000; £70 for debts of £1,000 or more, but less than £10,000; and £100 for debts of £10,000 or more.  For these purposes each overdue invoice will normally constitute a separate debt.  Again, you can invoice your customer for statutory interest and fixed compensation as soon as a payment becomes overdue.

A contractual late payment clause may include an obligation for you to give the customer advance notice before you invoice them for interest.  There is no such requirement when invoicing for statutory interest and compensation, but it would normally be a good idea to do so.

Serve a statutory demand

If the amount owed is more than £750 and you don’t believe that the debt is disputed, then consider serving a statutory demand on the customer.  Following service of the demand, the customer must either pay the debt within 21 days, or ask the court to set aside the statutory demand because the debt is disputed.  If the customer fails to do either, you can ask the court to wind up the customer.  Although a very effective credit control tool, the relationship with your customer is perhaps unlikely to recover.

Issue legal proceedings yourself

Money Claim Online (MCOL) is a portal operated by HM Courts & Tribunals Service for the recovery of debts of up to £100,000.  It is intended to be used by non-lawyers as well as lawyers, and there are plenty of guidance notes to help users put together their claim.  Fees range from 5% to just over 10% of the amount of the claim.  As with all legal proceedings in the UK, before using MCOL you must first have tried to settle the dispute with your customer, including sending a letter before action with detailed information about your claim and giving the customer an opportunity to respond.

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Checklist: Service levels

Issues to consider when drafting, reviewing or negotiating service levels include:

Service levels

Service credits

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Government’s response to the Law Commission’s report on Electronic execution of documents

12/03/20 – The UK government has issued a Statement in response to the Law Commission’s report on Electronic execution of documents.  My article on the Law Commission’s report can be accessed here.

Key takeaways from the government’s Statement:

  1. The government agrees with the report’s conclusion that businesses and individuals can feel confident in using e-signatures in without the need for primary legislation.
  2. The government accepts the report’s recommendation that an Industry Working Group should be established to consider, in particular, the security and technology of electronic signatures.
  3. The Industry Working Group will also be asked to consider the question of video witnessing of electronic signatures.
  4. In accordance with the report’s recommendation, the government will ask the Law Commission to undertake a broader review of the law of deeds. The timing for the review will however be subject to government and Law Commission priorities given the existing volume of law reform work.

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CMA alleges resale price maintenance by guitar firm Fender

22/10/19 – The Competition and Markets Authority (CMA) has made a provisional finding that Fender Musical Instruments Europe Limited operated a policy between 2013 and 2018 which required online retailers to resell Fender’s guitars at or above a minimum price.  This practice constitutes illegal resale price maintenance (RPM) under:

The CMA’s findings are provisional, and no final decision will be made as to whether there has been a breach of competition law until the CMA has considered any representations from Fender.

In August 2019 the CMA issued a £3.7 million fine to Casio for illegal RPM in relation to online sales of digital keyboards and pianos.

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Law Commission’s report on Electronic execution of documents

25/09/19 – Following a project focusing on uncertainties regarding the formalities around the electronic execution of documents, the Law Commission issued its report on Electronic execution of documents on 6th September 2019.

Key takeaways:

  1. Electronic signatures can be used to execute documents, including where there is a statutory requirement for a signature.
  2. An electronic signature is capable in law of being used to execute a document (including a deed), as long as the signatory intends to authenticate the document and any relevant formalities, such as witnessing, are satisfied.
  3. English courts have traditionally been flexible in recognising different form forms of signature, including electronic signatures such as a name typed at the bottom of an email, or the ticking of an “I accept” box on a website.
  4. The approach of the UK courts is consistent with the EU eIDAS Regulation (EU/910/2014), which states that an electronic signature cannot be denied legal validity because it is electronic.
  5. There is uncertainty whether deeds can be witnessed remotely via video witnessing.  The Law Commission’s view is that it is not currently legally permitted.

The Law Commission’s recommendations include:

  1. Establish an industry working group to consider practical and technical issues around electronic signatures, and provide best practice guidance for their use in different types of transactions.
  2. Industry working group to review video witnessing of deeds, and government to consider appropriate legislative reform.
  3. Review the law of deeds, and consider whether deeds remain fit for purpose (whether executed on paper or electronically).
  4. Government to consider codifying the law on electronic signatures to improve the accessibility of the law.

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Legal know-how: “subject to contract”

The phrase “subject to contract” should be used when you are negotiating what you expect may in the future become a binding contract, but not yet.  So when negotiating a letter of intent or heads of terms, it is a useful way of making it clear that, although the key terms of the transaction are being put in writing, you don’t intend to be legally bound unless and until those terms are then confirmed in a more formal, detailed agreement.  And anyone who has bought or sold a house in the UK will be familiar with offers being “subject to contract” (or “STC”), making it clear that, although an offer to purchase a property may have been accepted by the seller, there is no commitment to proceed with the transaction until the parties exchange contracts.

So far, so straightforward.  But it should be borne in mind that using the “subject to contract” phrase is not conclusive, but creates a presumption that the parties do not intend to create legal relations (ie enter into a binding contract), and that the behaviour of the parties may result in the protection offered by the “subject to contract” to be lost.   So, for example, in the case of RTS Flexible Systems Ltd v Molkerei Alois Müller1, Müller had sent a letter of intent to RTS, together with a draft contract which included a clause limiting RTS’s liability in the case of certain disputes.  The draft contract also included a clause stating that the contract would not be binding unless it was signed and executed by the parties, ie that it was subject to contract.  The contract was never signed, but RTS proceeded with its supply obligations with the consent of Müller.  A dispute arose which included a claim by Müller against RTS for failing to supply equipment of the correct specification.  Müller argued that the draft contract (with the clause limiting RTS’s liability) did not apply since the draft included the clause confirming that it was not binding unless signed and executed.  The Supreme Court disagreed, and decided that the parties had proceeded with the project as if the draft contract did apply, and they had therefore, by their conduct, waived the clause in the contract that stated it would not take effect unless signed.

So to summarise:

 

Note 1: RTS Flexible Systems Ltd v Molkerei Alois Muller Gmbh & Company KG (UK Production) [2010] UKSC

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Best and reasonable endeavours

If you are involved in negotiating commercial agreements, you are likely to have come across situations where either you or the other side is unwilling to agree to an absolute obligation (eg “the Distributor shall achieve sales of the Software of at least £1 million in the first 12 months….”), but agrees to use its “reasonable endeavours”, or even “best endeavours”, to do so.  And, in our example, it may only be if and when the £1 million sales target is not reached that the parties consider what the words “reasonable endeavours” or “best endeavours” actually mean.

Disputes as to the meaning of “reasonable endeavours” and “best endeavours” (as well as their numerous variants, eg “all reasonable endeavours”, “commercially reasonable endeavours” etc) have ended up in the courts with perhaps unsurprising frequency. But because each of the court cases turns on its facts, and in particular the specific obligation which is the subject of the reasonable/best endeavours qualification, there are no one-size-fits-all definitions.

The best we can do (no pun intended) is to look for some general principles from the cases, and then to consider how we can apply those principles to at least reduce the risk of the endeavours obligations in our agreements ending up in court.

Some guidance from the courts….

  1. Back in 1980 the Court of Appeal said that a best endeavours obligation required the contracting party “to take all those steps in their power which are capable of producing the desired results … being steps which a prudent, determined and reasonable [person], acting in his own interests and desiring to achieve that result, would take” [1].
  2. Then in 2007 a court suggested that a key difference between “reasonable” endeavours and “best” endeavours is that a reasonable endeavours obligation does not require a party to sacrifice its own commercial interests” [2], whereas, by extension, a best endeavours obligation may require a party to do so.
  3. The principle of a party having to sacrifice its own commercial interests was illustrated in the Jet2.com v Blackpool Airport case last year [3]. The agreement between the operator of Blackpool Airport (BAL) and the low cost airline Jet2.com included a provision that BAL would use its best endeavours “to promote Jet’s low cost services”. The Court of Appeal decided that BAL was obliged to continue to operate the airport outside BAL’s standard opening hours for Jet2.com flights even if this resulted in BAL running at a loss.
  4. But a best endeavours obligation is not absolute, and does allow the relevant party to have some regard for its own commercial interests; in the words on one judge a best endeavours obligation would not require action resulting in “the certain ruin of the Company or … the utter disregard for the interests of shareholders” [4].
  5. In contrast to best endeavours, a court has held that a reasonable endeavours obligation entitles the relevant contracting party to balance the obligation against all relevant commercial considerations, ie where the party has a number of courses of action available to it, the party need not pursue a course of action which would lead to commercial disadvantage. (The exception to this is where the agreement provides for the specific measures that the party needs to take, in which case the obligation to take those measures, or at least to try to do so, will prevail irrespective of any commercial disadvantages).
  6. Although “all reasonable endeavours” is often used as a halfway-house or compromise between “reasonable endeavours” and “best endeavours”, the courts have suggested that it should be considered to be more akin to a “best endeavours” obligation. In one case in 2008 it was decided that “all reasonable endeavours” was in fact equivalent to “best endeavours” [5].

…and putting them into practice

  1. Work on the basis that an endeavours obligation (whether “best”, “reasonable”, or “all reasonable”) will always be subject to differences of opinion – one party’s opinion as to what is reasonable, or even possible, may not be shared by the other party.
  2. Keep in mind that a best endeavours obligation (and in many situations, an all endeavours obligation) may require the relevant party to sacrifice its own commercial interests in order to satisfy its endeavours obligation. If this is not acceptable to the party, qualify the best endeavours obligation with appropriate language, eg “use all reasonable, but commercially prudent, endeavours”.
  3. Agree what actual steps are required in order to satisfy the endeavours obligation (and/or what steps are not required to be taken), and when those steps should be taken. Using our distributor sales target example, try to agree what the distributor needs to do as part of their endeavours obligation, eg employ a specific number of sales staff during a specific period, spend a minimum amount on advertising/online marketing, attend specific conferences/marketing events etc.
  4. Where the endeavours obligation will, or is likely to, require the relevant party to incur expenditure, agree a limit on the amount of that expenditure. So in our example, instead of (or possibly in addition to) outlining the activities that the distributor is obliged to undertake, include a fixed cap on the amount of money that the distributor is required to spend in trying to achieve the sales target.

 

Notes:
1. IBM United Kingdom Ltd v Rockware Glass Ltd [1980] FSR 335
2. Rhodia International Holdings Ltd v Huntsman International LLC [2007] EWHC 292
3. Jet2.com Limited v Blackpool Airport Limited [2012] EWCA Civ 417
4. Terrell v Mabie Todd and Co. Ltd [1952] 69 RPC 234
5. Hiscox Syndicates Ltd v The Pinnacle Ltd (2008)

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