MoFo SeMinar SerieS · 2016. 6. 13. · process leading to contract and so should be governed by...

Recent Developments in English Contract Law 2012:

Contracting Lessons

London 17 October 2012

MoFo SeMinar SerieS

© 2012 Morrison & Foerster (UK) LLP | mofo.com

Recent Developments in English Contract Law 2012: Contracting Lessons

Table of Contents

Presentations ..................................................................... 1

Case Summaries ................................................................ 2

Speaker Biographies ......................................................... 3

Articles ............................................................................... 4

MoFo Seminar.

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Contracting Lessons

17 October 2012

Morrison & Foerster (UK) LLP

This is MoFo. 2

Topics

Intention to create legal relations

Guarantees by e-mail

Battle of the Forms

Governing Law – non-contractual claims

Best and reasonable endeavours

Unreasonable withholding of consent

Good faith

Indemnities

Exclusion Clauses

Limitations of Liability

Online Liability

Online Terms & Conditions

This is MoFo. 3

Contract Formation

Topics



Battle of the Forms

Governing Law – non-contractual claims

Anthony Nagle

020 7920 4029

[email protected]

This is MoFo. 4


Background

B was founder, CEO and shareholder in EP

Share sale / acquisition of EP by Purchaser under a Sale and Purchase Agreement (SPA)

B was to have shares in new combined business

Investment Agreement not ready in time for closing of the SPA

Side Letter signed to detail arrangements for entering into the Investment Agreement

B claimed that the Purchaser failed to honour the Side Letter

Did the Side Letter constitute a legally binding agreement?

Barbudev v. Eurocom

This is MoFo. 5

Intention to create legal relationsHeld (High Court)

1. Agreement to agree? “opportunity to invest… on terms to be agreed”

Purchaser agreed “to negotiate the Investment Agreement in good faith”

Held that Side Letter was an agreement to agree

2. Certainty of terms? Essential key terms had not been finalised (e.g. B was to invest ‘not less than’

€1.65 million) / not comprehensive about all terms required for the Investment Agreement

Held that B could not invoke Side Letter as complete / enforceable contract

3. Intended to create legal relations? Despite contractual language, it was clear from construction of Side Letter that it

was not intended to be binding – envisaged a further binding Investor Agreement

Held that there was no intention to create legal relations at this stage

This is MoFo. 6

Intention to create legal relationsHeld (CoA)

Intended to create legal relations? Yes – because:

Side Letter was drafted by lawyers

‘Language of legal relations’ e.g. “in consideration of…”;

defined terms from SPA incorporated by reference;.

Side Letter referred to Contracts (Rights of Third Parties ) Act 1999 and it contained a governing law clause

Binding confidentiality provisions

However, even though there was an intention to create legal relations, it did not follow that Side Letter created a legally enforceable contract (i.e., it was an agreement to agree)

This is MoFo. 7


Lessons

Make absolutely clear whether or not document is intended to be legally binding

Be wary of incorporating legal language into a document that you do not intend / wish to have legal effect (e.g. comfort letters)

Be clear on intention!

This is MoFo. 8


s.4 Statute of Frauds 1677:

provides that certain transactions must be evidenced in writing and signed

s.4 covers contracts of guarantee

“No dusty relic”

Did e-mail chain amount to a signed written agreement?

Golden Ocean Group Ltd v. Salgaocar Mining Industries

Background

Ship charter negotiated and recorded in a series of e-mails

This is MoFo. 9

Guarantees by e-mailHeld Guarantees can be made by e-mail

Statute of Frauds contains no requirements that an agreement in writing required to satisfy the terms of the Statute of Frauds must be in one or even a limited number of documents – only that such agreement is in writing

“..it would be a serious blot on our commercial law if [the appellant] could avoid liability because its obligation is to be found written in two documents rather than one”

Electronic signatures - “an electronic signature is sufficient and a first name, initials or perhaps a nickname will suffice”

This is MoFo. 10


Lessons

Be careful when communicating by e-mail –they can be as binding as any other form of communication

If you’re not intending to be legally bound by specific e-mails, make them ‘subject to contract’

This is MoFo. 11

Battle of the FormsSpecialist Insulation Ltd v. Pro-Duct (Fife)

Background

Pro-Duct invited Specialist to submit a quotation for the supply of ductwork

After receiving Specialist’s quotation, Pro-Duct issued a P.O.

Specialist supplied ductwork to Pro-Duct

Dispute arose between parties relating to payments

Did a contract exist and, if so, on whose terms?

This is MoFo. 12

Battle of the FormsHeld

Specialist’s quotation stated it was subject to Specialist’s standard terms (available on request)

Pro-Duct counteroffer / P.O. incorporated Pro-Duct’s standard terms

Pro-Duct’s P.O. provided space for signature by both parties and had been signed by Pro-Duct before it was provided to Specialist

Specialist didn’t sign and return Pro-Duct’s P.O.

As Specialist had not signed Pro-Duct’s P.O., Pro-Duct’s standard terms were not incorporated into the agreement between the parties – Specialist’s terms prevailed

This is MoFo. 13

Battle of the FormsLessons

Scottish case, so persuasive rather than binding

Tekdata: Subjective intentions of parties give way to objective interpretation of their communications when viewed in circumstances of case

If you want your standard terms to be binding – don’t make their incorporation dependent upon a response

This is MoFo. 14This is MoFo. 14

Governing Law – Non-contractual claims

Kingspan Environmental v. Borealis A/S

Background

“Fit for purposes” / misrepresentation

Governing law clause in the contract:

“The General Terms shall be governed by the law of the country where Borealis is domiciled…”

Each invoice stated:

“All sales are exclusively governed by these general terms and conditions”

What law governed tortious claims?



Held

Danish law applied to the contract

“All sales” clause related to both contractual and extra-contractual claims

Statements, terms and undertakings were held to be product of same process leading to contract and so should be governed by law of contract chosen by parties for statements which led to contract

Rome 2 (although not in force at relevant time) makes clear that a contract can expressly state law to govern non-contractual claims



Lessons

Parties can agree contractually on the law that will govern their non-contractual obligations

Make clear in the governing law clause that it covers both contractual and non-contractual claims, e.g.:

“This Agreement and all matters (including, without limitation, any dispute relating to the existence, validity or termination of this Agreement or any contractual or non-contractual obligation) arising from it shall be governed by, and construed in accordance with, English Law.”

Need to cover non-contractual claims!

This is MoFo. 17

Commonly Used Terms – Interpretation

Topics

Best and reasonable endeavours

Unreasonable withholding of consent

Good faith

Tim Roughton

020 7920 4028

[email protected]

This is MoFo. 18

Best and Reasonable Endeavours

Clause 1 obliged: both parties to “co-operate together and use best endeavours to promote Jet2.com's

low cost services from [Blackpool Airport]” BAL to “use all reasonable endeavours to provide cost base that will facilitate

Jet2.com's low cost pricing”

Normal opening hours 07:00 to 21:00. For first 4 years, Jet2.com and other airlines allowed to operate outside normal opening hours

On 1 week’s notice, BAL notified Jet2.com it would no longer allow flights outside of normal operating hours

Did best/reasonable endeavours language = obligation to allow out-of-hours flights

Jet2com v. Blackpool Airport Background

15 year letter agreement allowed Jet2.com to operate from Blackpool Airport (BAL)

This is MoFo. 19

Best and Reasonable EndeavoursHeld (majority decision)

Best endeavours obligation to promote Jet2.com’s business obliged BAL to do all it reasonably could to help Jet2.com succeed and grow

Obligation extended to keeping airport open to accommodate out-of-hours flights

Obligor may have regard to own financial interest but ability for Jet2.com to operate outside of hours was fundamental to its business and therefore fundamental to the agreement

If it became clear that Jet2.com could never operate profitably from BAL, BAL would not have to incur further losses in seeking to promote failing business

This is MoFo. 20

Best and Reasonable EndeavoursDissenting opinion Positive commitment to run loss-making business for 15

years would require express obligation in clear terms

Object of best or reasonable endeavours obligation must be clear

Court must be able to recognise limits of obligation – here it could not

Obligation was too uncertain to be enforceable

Rather than simply “interpreting the contract”, to imply an obligation to operate out-of-hours amounted to “making the contract” which parties had not themselves made

This is MoFo. 21

Best and Reasonable EndeavoursLessons

Endeavours obligations always open to interpretation

Make express contractual provisions: be clear on objective of endeavours – if difficult, a reference to expert

determination can solve uncertainty

specify steps to be taken to comply with endeavours

stipulate criteria against which “reasonableness will be assessed – e.g. “taking all such steps and performing them in such a way as a well managed company would undertake to achieve a particular desired result for its own benefit assuming such company was acting in a determined, prudent and reasonable manner”

set cap on amount to be spent by performing party

Reasonable endeavours obligation to agree not generally enforceable

Be clear as to Objective!

This is MoFo. 22

Unreasonably Withholding ConsentPorton Capital Technology Funds v. 3M

Background

3M bought business selling BacLite product from Porton

Consideration = Cash plus earn-out payment based on net sales of BacLitefor 2009

SPA contained obligation on 3M to actively market BacLite and diligently seek EU regulatory approval

SPA prevented 3M from ceasing the BacLite business without the consent of Porton “not to be unreasonably withheld”

BacLite business was losing money – 3M sought consent to terminate business with settlement offer – consent refused – 3M terminated business

Porton sued 3M for breach of contract and loss of earn-out payment

This is MoFo. 23

Unreasonably Withholding ConsentIssue In refusing consent, was Porton entitled to consider only its own interests?

Existing precedents Burden is on requestor to show that consenter’s refusal is unreasonable

Do not have to show refusal was correct or justified, simply that it was reasonable in the circumstances

Consenter need usually consider only its own interests unless there is a significant disproportion between the benefit to the consenter and detriment of the requester

Cannot refuse consent on grounds wholly unconnected to subject-matter of agreement

This is MoFo. 24

Unreasonably Withholding ConsentHeldPorton’s refusal of consent was justified because: reasonable for Porton not to accept 3M’s settlement offer on face value – further

inquiry and investigation was required

reasonable for Porton to expect more from earn out than was offered by 3M

some of 3M’s own estimates for “lost sales” were higher than its own settlement offer

Lessons When giving consent, reasonableness is usually judged through eyes of

consenter without reference to requestor’s position

Include examples of what would be reasonable or unreasonable

If acting for requestor, consider adding language to interpret such provisions as requiring the interests of both parties to be considered and balanced

This is MoFo. 25

Good FaithCompass Group (t/a Medirest) v. Mid Essex NHS Trust

Background

Medirest provided catering and other services to NHS Trust under long-term facilities contract

Contract contained mechanism for Trust to determine service failure points and deductions

Contract contained obligation to co-operate in good faith:

“The Trust and the Contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust or, as the case may be, any Beneficiary to derive the full benefit of the Contract”

Medirest’s initial performance in first few months was poor

Trust aggressively applied service deduction regime (>50% of overall charges)

This is MoFo. 26

Good FaithExisting case law precedents

Unless person acts in bad faith it cannot be in breach of duty of good faith Manifest Shipping Co v. Uni-Polaris Shipping Co [2003]

A duty to recognise and have regard to legitimate interests of both parties in enjoyment of fruits of contract as delineated by its terms Overlook v. Foxtel[2002]

A duty to observe reasonable commercial standards of fair dealing, to be faithful to agreed common purpose and to act consistently with justified expectations Berkeley Community Villages v. Pullen [2007]

Obligation of utmost good faith has to take colour from commercial nature of contract CPC Group Ltd v. Qatari Diar Real Estate Investment Co [2010]

This is MoFo. 27

Good Faith

Held

Good faith obligation was drafted for benefit of Trust and “Beneficiaries” (Dept. of Health, GPs and health bodies) – therefore not open to Trust to interpret clause in self-interested manner

Purpose of contract was to provide important services to members of public – therefore Trust was in a real sense pursuing a common purpose with Medirest of benefit to public

Duty of good faith = broad obligation on Trust to act reasonably in conducting contract, in particular not taking unreasonable actions which might damage relationship with Medirest and thus undermine purpose of contract

This is MoFo. 28

Good Faith

Lessons

Good faith obligations can have far reaching consequences

Can be construed against party on which clause was

intended to confer benefit

May even override express contractual mechanisms

Make sure scope and purpose of good faith obligation is

carefully defined

Don’t be unreasonable in applying management of contract


Indemnities, Exclusions and Limitations of Liability

Topics

Indemnities

Exclusion Clauses


Deirdre Moynihan+44 20 7DeirdDeirdre Moynihan

020 7920 [email protected]


Indemnities

K/S Preston Street v. Santander (UK) plc

Background

K/S Preston Street prepaid its loan to Santander early

Santander argued that indemnities in Loan Agreement permitted it to recover losses, including all future losses calculated on estimated basis, resulting from early termination of Loan Agreement

K/S Preston Street disagreed and argued that it was not liable to pay amounts claimed by Santander under indemnities


Indemnities

Loan Agreement:

“In addition to any prepayment costs payable under para.9, the partnership shall indemnify the bank on demand against any cost, loss, expenses or liability (including loss of profit and opportunity costs) which the bank incurs as a result ofthe repayment of the loan during the fixed rate period or any further period during which the rate of interest applicable to the loan is fixed” (para.6ii)

“The partnership shall pay on demand … such sums as may be required to indemnify the bank against any loss or expense suffered in connection with the early break in termination or reversing, in whole or in part, of any hedging agreement or any other arrangement entered into by the bank with the partnership for the purposes of or in connection with fixing, capping the rate of or otherwise hedging interest payable under this agreement” (para.7v)


IndemnitiesHeld

The wording “indemnity against any cost, loss, expenses or liability” suggested that borrower was required to indemnify the bank in respect of a “crystallised liability or obligation falling with the class identified”

If bank is to be indemnified by borrower in respect of an expense, expense must have been incurred

If bank wanted to recover a sum in respect of future loss, then “incurs or to be incurred” or words to that effect should have been used

Because indemnity was “on demand”, it was difficult to see how borrower could be expected to indemnify bank on demand in respect of a loss that has not yet been incurred


IndemnitiesThe bank could only seek to recover costs, losses,

expenses or liabilities actually incurred prior to the date on which the demand was made.

Lessons

• Remember that the scope of indemnity and nature and extent of any losses recoverable will be dependent on wording of the indemnity!

• If indemnity is intended to cover future losses, say so!

• Include detailed provisions specifying procedure for making claims

• Consider when to make indemnity claim


Exclusion ClausesAir Transworld Limited v Bombardier

Background

Bombardier Inc. sold private jet to Angoil SA pursuant to aircraft purchase agreement (APA). Angoil assigned its rights under APA to Air Transworldpursuant to assignment agreement (AA). After unscheduled landing Air Transworld Limited rejected jet

Questions:

Did the exclusion clauses in the APA validly exclude Sections 13 and 14 of Sale of Goods Act 1979?

Did the Unfair Contract Terms Act 1977 apply to APA?


Exclusion Clauses

Sections 13 and 14 of Sale of Goods Act 1979 (“SGA”) imply certain terms into contracts for sale of goods:

the goods correspond with their description if the contract is for the sale of goods by description

the goods are of satisfactory quality

the goods are fit for purpose

These implied terms are “conditions”


Exclusion Clauses

Clause 4.1 of APA:

“THE WARRANTY, OBLIGATIONS AND LIABILITIES OF SELLER AND THE RIGHTSAND REMEDIES OF BUYER SET FORTH IN THE AGREEMENT ARE EXCLUSIVEAND ARE IN LIEU OF AND BUYER HEREBY WAIVES AND RELEASES ALL OTHERWARRANTIES, OBLIGATIONS, REPRESENTATIONS OR LIABILITIES, EXPRESS ORIMPLIED, ARISING BY LAW, IN CONTRACT, CIVIL LIABILITY OR IN TORT, OROTHERWISE, INCLUDING BUT NOT LIMITED TO A) ANY IMPLIED WARRANTY OFMERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE, AND B) ANYOTHER OBLIGATION OR LIABILITY ON THE PART OF SELLER TO ANYONE OF ANYNATURE WHATSOEVER BY REASON OF THE DESIGN, MANUFACTURE, SALE,REPAIR, LEASE OR USE OF THE AIRCRAFT OR RELATED PRODUCTS ANDSERVICES DELIVERED OR RENDERED HEREUNDER OR OTHERWISE.”


Exclusion Clauses

Existing case law precedents

“Once a condition, always a condition; hence apt and precise words must be used to exclude it; the words guarantee or warranty are not sufficiently clear” (Cammell Laird v. The Manganese Bronze & Brass Company [1934])

There is “long-established and high authority to the effect that if a seller wishes to exclude Sale of Goods Act conditions, he must do so by express exclusion of “conditions”. (The Mercini Lady [2011])


Exclusion Clauses

HELD (1):

The conditions implied by Sections 13 and 14 of SGA were validly excluded by terms of APA:

“whilst, on the authorities, the use of the word “warranty” … would not be sufficient to give rise to any exclusion of liability [for breach of the conditions implied by the SOGA], this part of Article 4.1 is only illustrative if the all embracing provision found in the first part of that Article.”

“no one reading [Article 4] could be in any doubt that every promise implied by law is excluded, in favour of the contractual promises set out in the APA.”

“this is, unlike all the preceding authorities …, a case where the words used to encompass contractual conditions implied by law and to adopt a different construction would amount to a distortion of the words used”


Exclusion Clauses

Were the AA and APA international supply contracts to which UCTA did not apply?

Did section 27 of UCTA and choice of law mean that certain sections of UCTA did not apply?

Was Air Transworld Limited dealing as a consumer?

What about the Unfair ContractTerms Act?


Exclusion Clauses

A contract is an international supply contract and not subject to UCTA only if:

(a) goods are at time of conclusion of contract in course of carriage, or will be carried, from territory of one State of another; or

(b) acts constituting offer and acceptance have been done in territories of different States; or

(c) contract provides for goods to be delivered to territory of a State other than that within whose territory those acts were done


Exclusion Clauses

Held (2):

Contracts were international supply contracts:

AA was relevant contract when determining whether UCTA was excluded

AA was international supply contract because:

acts of offer and acceptance occurred in Canada, Portugal and England

at time of conclusion, parties contemplated that private jet was to be carried from one state to another


Exclusion Clauses

Section 27 of UCTA:

“[w]here law applicable to contract is law of any part of United Kingdom, only by choice of parties (and apart from that choice would be law of some country outside of United Kingdom), Sections 2-7… of this Act do not operate as part of law applicable to contract”

Article 4.4 of APA:

“This Agreement shall be governed by and interpreted in accordance with the internal laws of England and Wales, excluding any conflicts of law provisions thereof”


Exclusion Clauses

Held (3):

Wording excluding any conflicts of law provisions of English law cannot be relied upon to dis-apply Section 27 of UCTA

The choice of English law as governing law was specific choice of parties as otherwise proper law of contract would have been law of Quebec or Canada


Exclusion Clauses

Held (4):

Although Air Transworld Limited was “alter ego” of its owner, Mr Mosquito, its business was owning and operating aircraft

UCTA did not apply to AA or APA and exclusion clause was

valid and enforceable


Exclusion Clauses

Lessons

Specifically refer to conditions in exclusion clauses

If using U.S. style wording in English law governed contracts, consider whether any drafting changes should be made to ensure that contract is enforceable under English law

Remember that UCTA does not apply if: the contract is an international supply contract

English law is governing law solely as a result of parties’ choice



Allen Fabrications v. ASD Limited

Background

ASD supplied clips and fittings to Allen for use in construction of rigid steel platform in workshop owned by Bembridge Marine Limited

One of Bembridge’s employees was seriously injured when part of platform gave way and he fell

Allen sued by Bembridge for negligence and/or a contribution and its sub-contractor for breach of contract and/or a contribution

Allen in turn sued ASD



Were ASD’s standard terms incorporated into contract between Allen and ASD?

Held (1):

ASD’s standard terms had been incorporated: Allen had credit facility with ASD and agreed to

be bound by ASD’s standard terms when opening account

Obiter, ASD’s standard terms were also incorporated via course of dealing and Allen’s arguments that clauses were not incorporated failed



Were exclusions and limitations of liability in ASD’s standard terms reasonable under UCTA?

Held

ASD’s standard terms were valid and enforceable and not unreasonable under UCTA: terms were not unusual in industry

although Allen was not aware of precise wording of ASD’s terms, Allen was aware that ASD had standard terms and that those terms would contain exclusions and limitations on ASD’s liability

exclusions and limitations in ASD’s terms were more generous than Allen’s own standard terms



Lessons

If trading on standard terms, ensure that:

the other party is made aware of your standard terms

the business follows any procedures that you have in place regarding notification and incorporation of standard terms (e.g. terms printed on invoices, etc.)



Avrora Fine Arts Investment v. Christie, Manson & Woods

Background

Avrora acquired painting “Odalisque” from Christies. Christies warranted that painting was by Kustodiev

Avrora subsequently alleged that “Odalisque” was not by Kustodiev and sued for breach of warranty, negligence and misrepresentation



Held

On balance of probabilities, “Odalisque” was not painted by Kustodiev. Christie’s was in breach of warranty and Avrora was entitled to cancel purchase and recover price paid

Wording in standard conditions of sale prevented duty of care arising

Christie’s had represented that, in its opinion, “Odalisque” was by Kustodiev

Standard conditions of sale subject to the UCTA because, by attempting to prevent an assumption of responsibility for attribution, the standard conditions attempted to “part company with reality”



Avrora’s claims for negligence and misrepresentation failed because wording in standard conditions excluded all liability except for that under the express warranty it had given, and exclusions were reasonable under UCTA

The reasonableness requirement was satisfied because:

Avrora had a remedy against

Christie’s

Avrora had some familiarity with

standard conditions

It was reasonable for Christie’s to exclude

other claims and liabilities


Limitations of LiabilityLessons

Carefully draft limitation and exclusion clauses

Consider relationship between express contractual warranties and other representations that may be made pre-signature by parties

This is MoFo. 54

Online Liability

Topics

Website Operator Liability


Sue McLean

020 7920 4045

[email protected]

This is MoFo. 55


Available Defences

Section 1 of the Defamation Act 1996: defence if not the author, editor or publisher; takes reasonable care in relation to its publication; or does not know, and has no reason to believe, that its actions caused, or contributed to, the publication

Regulation 19 of the E-Commerce Regs. 2002: defence if operator has no actual knowledge of any unlawful activity or information; and if, on obtaining actual knowledge of the unlawful information or activity, acts expeditiously to remove or disable access to the material

This is MoFo. 56


Who is an operator?“any person providing an information society service”

This is MoFo. 57


McGrath v. Dawkins

Background

Online argument between “Scrooby” (aka McGrath) and Jones

McGrath sued for defamation based on comments posted on Dawkins Foundation website and Amazon UK

Defendants applied for summary judgment. Foundation relied in part on basis that website was not operated by Foundation, but by a U.S. sister company

Amazon claimed protection of defences

This is MoFo. 58


Held (1)

Court accepted that if you clicked on “Home” button of .org website you were directed to .net website and to index of forum without notification

Court noted that law on liability for hyperlinks is uncertain

Refused to strike out claim. Was appropriate for question of liability to be considered at trial

Opens up possibility of liability via hyperlink

This is MoFo. 59


Lessons

Be careful when including hyperlinks, particularly where website includes links to a group company’s website or website closely connected to originating website’s business

Make clear to users when they are being re-directed to third party website

Include suitable disclaimers regarding content of linked third party websites

This is MoFo. 60


Held (2)

Amazon succeeded with Reg. 19 defence but not with s.1 defence

In terms of Reg. 19, it was accepted that Amazon did not have actual knowledge

In terms of s.1, it was accepted that Amazon was not an publisher and automated filtering did not make Amazon an editor

But, because posting was automated it was unclear whether Amazon had taken reasonable care

Refused to strike out claim

This is MoFo. 61


Tamiz v. Google Inc. and Google UK Limited

Background

Blog used Blogger.com to publish an article about Tamiz

A number of users posted comments anonymously below the article which Tamiz alleged were defamatory

Tamiz notified Google but it was not until weeks later that Google removed comments. In the meantime Tamiz brought claim

Google argued that it was not a "publisher" of the allegedly defamatory statements and sought to rely on available defences

This is MoFo. 62


Tamiz v. Google Inc. and Google UK Limited

Held

Court held Google’s role was purely passive. Notifying Google of material did not turn Google into a publisher

Google was analogous to owner of wall which had been covered overnight with defamatory graffiti: “owner could acquire scaffolding and whitewash the graffiti but that did not mean that the owner should be considered a publisher in the meantime”

Would also have had defence under Reg.19

How reconcile with Davison v Habeeb?

This is MoFo. 63


Lessons

Identify clearly what content is acceptable

Implement notice and take-down*

Keep appropriate & accurate records

Avoid monitoring/moderation*

Avoid exercising editorial control

*But watch this space!

This is MoFo. 64


Defamation Bill

Operator will have a defence if it can show did not post the material

Lose defence if poster anonymous and operator fails to respond to complaint notice in accordance with regulations

Moderation does not defeat defence

Court can order website operator to remove defamatory statement

EU Initiative

EU notice-and-action initiative announced in 2012 (in response to 2010 public consultation).

This is MoFo. 65


Unfair Terms in Consumer Contracts Regulations 1999

Applies to terms not “individually negotiated”

Any ambiguity will be interpreted in favour of consumer

Certain terms are highlighted as being potentially unfair

Ultimate requirement for assessing fairness is good faith

There must not be a significant imbalance between rights and obligations of parties

If the contract can continue to be binding without the unfair term, then it will continue to be so; but the unfair term itself will not be binding

All written terms must be in plain, intelligible language

This is MoFo. 66


Spreadex v. Cochrane

Background

5 year old ran up £50k on user’s spread-betting account

User had clicked to accept “U.S. based policy, Client Declaration, Customer Agreement, Risk Warning Notice and Order Execution Policy”

Spreadex demanded payment relying on clause 10.3 of its customer agreement: “You will be deemed to have authorised all trading under your account number”

Court to consider whether clause 10.3 was legally binding

This is MoFo. 67


Held

Court held there was no binding contract as there was no consideration

“we have the right at our absolute discretion to refuse to accept part or all of any bet”

“we reserve the right to reduce or remove altogether our online service at any time”,

“we reserve the right to close or suspend your account at any time”.

In any event, clause 10(3) contrary to good faith and unfair under the Unfair Terms in Consumer Contracts Regs. 1999

“..close to a miracle’” if Cochrane had actually read clause 10(3), “let alone appreciated its purport or implications”

This is MoFo. 68


Lessons

Try to make the contracting process as straightforward as possible

Make the terms easy to read – this applies to the format, as well as the wording

Try to limit the length of any terms and conditions to something manageable

Ensure that your contracting terms are binding

Avoid making your terms and conditions too one-sided

*watch out for Consumer Rights Directive

Less is sometimes more!

This is MoFo. 69

Questions

This is MoFo. 70

Speakers

Tim Roughton

[email protected]

Sue McLean

[email protected]

Deirdre Moynihan

[email protected]

Anthony [email protected]

http://www.mofo.com

Tab 2

Case Summaries


Morrison & Foerster LLP 17 October 2012


Contracting Lessons

Wednesday 17 October 2012

Morrison & Foerster (UK) LLP

Summary of Cases referred to during the Presentation


Morrison & Foerster LLP Ln-209632

i 17 October 2012

TABLE OF CONTENTS

1. INTENTION TO CREATE LEGAL RELATIONS ..................................................................... 1

2. GUARANTEES BY EMAIL ....................................................................................................... 3

3. BATTLE OF THE FORMS.......................................................................................................... 4

4. GOVERNING LAW – NON-CONTRACTUAL CLAIMS ......................................................... 5

5. MEANING OF “ALL REASONABLE ENDEAVOURS” .......................................................... 6

6. UNREASONABLE WITHOLDING OF CONSENT .................................................................. 8

7. MEANING OF “CO-OPERATE IN GOOD FAITH” ............................................................... 10

8. INDEMNITIES .......................................................................................................................... 12

9. EXCLUSION CLAUSES ........................................................................................................... 13

10. LIMITATIONS OF LIABILITY ................................................................................................ 16

11. LIMITATIONS OF LIABILITY ................................................................................................ 18

12. WEBSITE OPERATOR LIABILITY ........................................................................................ 19

13. WEBSITE OPERATOR LIABILITY ........................................................................................ 21

14. ONLINE TERMS AND CONDITIONS .................................................................................... 22


Morrison & Foerster LLP 1 17 October 2012

1. INTENTION TO CREATE LEGAL RELATIONS

Barbudev v Eurocom Cable Management Bulgaria EOOD and others [2011] EWHC 1560 (Comm)

The claimant (“B”) was founder, chairman and owner of 40% of the shares of EP, a Bulgarian cable television and Internet business. B and the other owners of EP sought to sell the business. The Warburg Pincus Group (W), of which all three defendants were members, was the well-known private equity investment firm. It was interested in investing in the Bulgarian cable market. In July 2005, negotiations for the sale of EP to W began.

Closing of the agreement for the sale of B’s company was conditional on execution of an investment agreement with B. However, the sale agreement further provided that that condition could be waived by written notice from either party. B was concerned about the ability of the purchaser to waive the signing of the investment agreement as a condition precedent to closing of the sale agreement. The parties therefore executed a side-letter, under which the purchaser agreed that, as soon as reasonably practicable after the signing of the sale agreement, it would offer B the opportunity to invest.

Following the share acquisition, a dispute arose between the parties. B submitted that he had made it clear that agreeing any deal would require him to retain an investment in the merged business. W contested that version of events and, on closing the sale, had waived the pre-condition of signing the investment agreement. The dispute centred around the side letter on ECMB notepaper and addressed to B.

At trial, the central point was whether the side letter constituted a legally enforceable agreement. It was held that the side letter signed by the parties was not a legally enforceable agreement because it was only an agreement to agree and the essential terms remained uncertain. B appealed against this decision.

HELD:

(1) The judge had been entitled to conclude that B had not been given an oral assurance, amounting to a collateral contract, that the side letter was a separate contract protecting his right to invest in the purchaser.

The judge’s conclusion was based almost entirely on his appreciation of the oral evidence of the witnesses: Mr Feuer, Mr Horvath and Mr Barbudev. The court was very reluctant to overturn such a finding, particularly when based upon oral evidence of witnesses the trial judge heard and saw and the appeal judges had not. To overturn it the appellant had to demonstrate that the judge’s conclusion resulted from a fundamental error concerning the evidence; that his conclusion was not possible on the evidence or that it was unreasonable. The court was not satisfied that any of those tests were met in this case. Therefore the appellant’s submission on this issue was rejected.

(2) Contrary to the trial judge’s conclusion, it was clear from the terms of the side letter itself that the parties intended to create legal relations. The leading case is now RTS Flexible Systems Limited v Molkerei Alois Müller GmbH & Co KG (which was discussed in previous update seminars). The court has to consider the objective conduct of the parties as a whole. It does not consider their subjective states of mind. In a commercial context, the onus of demonstrating that there was a lack of intention to create legal relations lies on the party asserting it and it is a heavy one. The court must have regard to all of the relevant circumstances and, in a business context, it should prefer the construction that is more consistent with business common sense

On this issue, the court disagreed with the trial judge for the following reasons.

(1) It is very clear from the terms of the Side Letter itself that the parties intended to create legal relations. For a start, it was drafted by Freshfields.



(2) Its language is that of legal relations; see e.g. the wording of the second paragraph and that of the third, starting “in consideration of you agreeing to enter into….”.

(3) The reference to the Contracts (Rights of Third Parties) Act 1999 and the agreement that the letter would be governed by and interpreted in accordance with English law all point to an intention to create legal relations between the parties.

(4) The parties clearly intended that the confidentiality agreement in the letter would be contractually enforceable between them, whatever might be the status of other parts of the letter.

(3) Even if the side letter was more than an agreement to agree, it was not sufficiently certain to be an enforceable contract. The essential terms were not dealt with. Identifying minimum sum of investment and the minimum amount of shares and shareholder debt was insufficient to create certainty as to the proposed relations between the parties.

As a result, the fact that the court found that there had been an intention to create legal relations did not ultimately assist Mr Barbudev. The court held that ‘the parties can have intended to create legal relations between themselves but it does not follow that the effect of the Side Letter is that it created a legally enforceable contract giving Mr Barbudev the right to purchase a 10% stake in the new, merged business for €1,650,000…To take an obvious example: two parties may orally agree to sell and purchase some land and in doing so may well have intended to create legal relations. But such a contract would be unenforceable in the absence of an agreement in writing (see Dhanani v Cranianski [2011] 2 All ER (Comm) 799).

Therefore, the court went on to hold that: ‘this Side Letter is, without doubt, no more than an “agreement to agree”. It is an agreement to offer Mr Barbudev “the opportunity to invest in the Purchaser on the terms to be agreed between us”. That is not the language of a binding commitment and no amount of taking account of the commercial context and Mr Barbudev’s concerns and aims can make it so. Moreover, the next phrase makes it clear that the terms of the Investment Agreement are not agreed; they are to be negotiated “…in good faith with you”…For these reasons, although I disagree with the judge on the issue of the intention of the parties to create legal relations, I agree with him that the Side Letter is not an enforceable contract. I would therefore dismiss this appeal.



2. GUARANTEES BY E-MAIL

Golden Ocean Group v Salgoacar Mining [2012] EWCA Civ 265

The Court of Appeal had to consider a chain of emails between Golden Ocean Group and Trustworth Shipping by which they had agreed a ten year charter of a valuable vessel. In the course of the email correspondence reference was made to the deal being “fully guaranteed by” an affiliate of Trustworth, Salgaocar Mining Industries Ltd (“SMI”). When Trustworth repudiated the charterparty, Golden Ocean Group had looked to recover from SMI under the purported guarantee. SMI contended that the guarantee was unenforceable under the Statute of Frauds 1677.

In its modern form section 4 of the Statute provides that guarantees must be in writing and signed: ‘No action shall be brought … whereby to charge the Defendant upon any special promise to answer for the debt … of another person unless the Agreement upon which such Action shall be brought or some Memorandum or Note thereof shall be in Writing and signed by the party to be charged therewith’.

The principal question which fell for decision in this case was whether a contract of guarantee is enforceable when contained not in a single document signed by the guarantor but in a series of documents duly authenticated by the signature of the guarantor. It is common in commercial transactions for a contract of guarantee to be contained in a single document, the question which arose in this appeal was whether it must be set out in a single document.

HELD: The court found that the exchange of a number of electronic messages could lead to the conclusion of an agreement in writing for the purposes of the Statue of Frauds, without the need for all operative terms to be contained within a single or limited number of documents: ‘The Statute contains no express indication that the agreement in writing required to satisfy its terms must be in one or even a limited number of documents. It is no doubt true that in 1677 a signed written agreement would often and perhaps always be contained in a single document… the purpose of the requirement that the agreement must be both in writing and signed by the guarantor is not so much to ensure that the documentation is economical but rather to ensure that a person is not held liable as guarantor on the basis of an oral utterance which is ill-considered, ambiguous or even completely fictitious…Subject to the requirement of signature …I can see no objection in principle to reference to a sequence of negotiating emails or other documents of the sort which is commonplace in ship chartering and ship sale and purchase’.

The court also found that the “signature” requirement was satisfied. The email in which the guarantee was concluded simply contained the name “Guy” (being from Guy Hindley, SMI’s broker) and SMI argued that this was only a “salutation, and moreover one delivered in a “matey” or familiar fashion”. However, the Court considered that “brokers may communicate with one another in a familiar manner but that does not detract from the seriousness of the business they are conducting. In my judgment Mr Hindley put his name, Guy, on the email so as to indicate that it came with his authority and that he took responsibility for the contents. It is an assent to its terms. I have no doubt that that is a sufficient authentication.” The Court said it had no doubt that this was sufficient to meet the underlying requirement of the Statute of Frauds, namely to authenticate the contents of the guarantee. Therefore, the Court of Appeal confirmed the High Court’s ruling that an exchange of emails can create an enforceable guarantee.



3. BATTLE OF THE FORMS

Specialist Insulation Ltd v. Pro-Duct (Fife) Ltd [2012] [2012] CSOH 79 (Scottish Case)

Pro-Duct (Fife) Ltd was employed as a subcontractor at Edgbaston cricket ground. It invited Specialist Insulation Ltd (“Specialist”) to supply the required ductwork. The parties purportedly contracted on standard terms (although the sub-contract was never signed by Specialist) around October 2010, but by July 2011 a dispute over payments due to Specialist had arisen. Specialist referred the dispute to adjudication. Pro-Duct challenged the adjudicator’s jurisdiction on the grounds that the sub-contract, containing the adjudication clause, had not been incorporated into the contract.

The adjudicator made an award of £85,000 plus VAT to Specialist and Pro-Duct refused to pay. Specialist issued enforcement proceedings to enforce the decision. In those proceedings, Pro-Duct continued to challenge the adjudicator’s decision, but instead of their previous grounds for doing so, they now argued that the sub-contract (which contained the adjudication clause) was not part of the contract between the parties because Specialist had not executed it. The sub-contract had been provided by Pro-Duct and was stated to be subject to Scottish law and jurisdiction.

Specialist’s standard conditions provided that any dispute should be referred to arbitration (not adjudication), and that those conditions should prevail in the event of any inconsistency with any other terms. The standard terms also stated that offers were accepted “subject to these Conditions of Sale to the exclusion of any conditions of the buyer, unless otherwise agreed in writing by the contractors.” There was no such agreement in writing.

Counsel for Specialist argued for a “last shot” approach to the problem. The last terms and conditions before completion of the contract by supply of the goods were those of Pro-Duct. They contained the adjudication clause, therefore it was part of the agreement. On Mr Maciver’s analysis the supply of the goods to the defender was a final and unqualified assent to the defender’s schedule of conditions as sent along with the purchase order.

HELD: The judge, Lord Malcom, considered the similarities between the present case and that of Tekdata, where Dyson LJ had looked at the whole circumstances of the case before him and observed that “The question of whose conditions were intended to apply must be determined objectively on the basis of the proper interpretation of the documents which comprised the contract viewed objectively in their context. The focus must always be on what the parties must be taken, objectively, to have intended at the time when the contract was made”.” Lord Malcom held that a similar exercise was appropriate in the present case as ‘in the absence of…execution and return, reliance upon the silence of both parties when the contract was performed is a shaky foundation for the proposition that both parties are to be taken as having agreed the defender’s terms and conditions.’ The facts indicated that neither party proceeded upon the basis that Pro-Duct’s terms and conditions were part of the agreement. At the outset Specialist made it plain that its standard terms applied, and that any inconsistent term would be part of the contract only if accepted in writing by them. Specialist had rejected the offer to sign a document purporting to incorporate Pro-Duct’s conditions.

In these circumstances the subsequent supply of the goods and their acceptance by Pro-Duct did not create an agreement which included Pro-Duct’s conditions: ‘The initial quotation was an offer to contract on certain terms, which could only be superseded on the written consent of the supplier. Assuming that the documents accompanying, though not referred to in the purchase order are to be regarded as potentially contractual documentation, they amounted to a counter-offer, which, amongst other things, set out a specific mechanism for their written acceptance. The goods were then forwarded without return of an executed agreement that the purchaser’s terms should apply. This conduct was referable to the terms of the original quotation. At that stage the purchaser remained free to reject the goods, but they were accepted without demur, thus completing the agreement.’ As a result, the purported reference to adjudication was inconsistent with Specialist’s standard terms, which required disputes to be referred to arbitration.



4. GOVERNING LAW – NON-CONTRACTUAL CLAIMS

Kingspan Environmental Ltd and others v Borealis A/s and another [2012] EWHC 1147 (Comm)

Borealis A/s was the Danish parent company of the other defendant and supplied borecene to the claimant companies in order to manufacture oil tanks for outdoor use. A substantial proportion of oil tanks that had been manufactured from the borecene supplied in 2002 and 2003 failed and so the claimants sued for breach of contract and misrepresentation.

The contracts were subject to Danish law but a question arose as to the tortious claims. Danish law does not have a doctrine of misrepresentation or a tort of negligence misstatement. However, it allows the court to take into account a much wider range of factors than are permissible in English law, in determining whether goods supplied are conforming. It therefore fell to be determined what law governed the question as to whether the claimants have any claim in misrepresentation, negligent misstatement or the like.

HELD: Although the general rule under s11(2) Private International Law (Miscellaneous Provisions) Act 1995, is that the applicable law in a case of tort or derelict should be the law of the country in which the events constituting the tort or derelict occur (which, in this case, was Northern Ireland) it was substantially more appropriate to disapply this rule and treat the questions of misrepresentation and misstatement as subject to the law of Denmark. The statements, terms and undertakings were all held to be part of the same process which led to the eventual contract and hence should be governed by the law governing that contract. This is particularly so given the close connection between a misrepresentation claim and a contractual claim.

Furthermore, although Article 12 of Rome 2 was not in force at this time, this states that “the law applicable to a non-contractual obligation arising out of dealings prior to the conclusion of a contract, regardless of whether the contract was actually concluded or not, shall be the law that applies to the contract or that would have been applicable to it had it been entered into”. Each invoice provided that “All sales are exclusively governed by these general terms and conditions” (the general terms being governed by Danish law) and this was held to cover both contractual and extra-contractual claims for statements which led to the contract, in line with Rome 2.



5. MEANING OF “ALL REASONABLE ENDEAVOURS”

Jet2.com Ltd v. Blackpool Airport Ltd [2011] EWHC 1529 (Comm)

The appellant, Blackpool Airport Ltd (“BAL”), owns and operates a commercial airport on the outskirts of Blackpool. The respondent, Jet2.com Ltd (“Jet2”), is a low-cost airline operating out of a number of domestic airports offering flights to various United Kingdom and European destinations. Jet2 entered into an agreement with BAL in September 2005, they signed a document described as a Letter Agreement setting out the terms on which Jet2 would operate from Blackpool over the course of the following 15 years. The key wording in the simple agreement was:

“Jet2.com and BAL will co-operate together and use their best endeavours to promote Jet2.com’s low cost services from Blackpool Airport and BAL will use all reasonable endeavours to provide a cost base that will facilitate Jet2.com’s low cost pricing.”

Blackpool Airport had certain published operating hours, between 7am and 9pm, but they were not mentioned in the agreement. The case turned on the extent to which Jet2 could insist on flying at times outside those operating hours. For over four years, it had been scheduling flights outside hours, but new owners of Blackpool Airport told Jet2 on October 22nd 2010 that from midnight on 29th October it would no longer accept flights outside hours. As a result, two of Jet2’s flights were diverted from Blackpool to Manchester at short notice causing considerable inconvenience to passengers and expense to Jet2. The problem for Blackpool Airport was that keeping the airport open for Jet2’s early and late flights was uneconomic. Jet2’s argument was that it was essential for a low cost airline to have as many flights as possible a day, particularly for aircraft based at the airport.

Jet2 brought proceedings against BAL seeking damages for breach of contract and a declaration that under the Letter Agreement it was obliged to accept aircraft movements outside normal opening hours. It also obtained an interim injunction against BAL, the effect of which was to require BAL to handle aircraft movements over the winter season 2010-2011 broadly in accordance with the flight schedules agreed for the winter season the previous year. At the conclusion of the trial the judge held that BAL was in breach of contract in refusing to handle flights outside normal opening hours, but he declined to grant Jet2 the declaration it sought. BAL now appeals against the judge’s decision.

HELD: The arguments turned on construction of the key wording quoted above and in particular the meaning of “best endeavours” and “all reasonable endeavours”. Lord Moore-Bick reviewed the cases on all reasonable endeavours (which was accepted by the parties as being the same thing as best endeavours). He made the point that the meaning is a question of construction in each case and not a matter of extrapolation from other cases.

‘In my view the obligation to use best endeavours to promote Jet2’s business obliged BAL to do all that it reasonably could to enable that business to succeed and grow and I do not think the object of the best endeavours is too uncertain to be capable of giving rise to a legally binding obligation. In my view the promotion of Jet2’s business did extend to keeping the airport open to accommodate flights outside normal hours, subject to any right it might have to protect its own financial interests.’ Lord Moore-Bick distinguished other cases on the grounds that the words were not used in the context of leaving open for later negotiation an aspect of an otherwise explicit commitment (Phillips Petroleum case) or obtaining consent from a third party (Yewbelle case).

Lord Justice Longmore summarised the case law by suggesting that: ‘The combination of these cases and the twentieth century cases referred to in my Lords’ judgments, to my mind, justify the conclusion that an obligation to use best endeavours should usually be held to be an enforceable obligation unless:

i) the object intended to be procured by the endeavours is too vague or elusive to be itself a matter of legal obligation; or



ii) the parties have, in the words of Potter LJ in Phillips Petroleum v Enron Europe Ltd [1997] CLC 329 at 343, provided no criteria on the basis of which it is possible to assess whether best endeavours have been, or can be used.

Lord Justice Lewison, dissented from the majority by arguing that the letter agreement was unenforceable as it fell into the first category (above) because the agreement was too open textured: ‘How is a court to define or recognise the limits of the obligation?...the obligation is so open textured that it could potentially have repercussions elsewhere…Leaving aside the question of flight times, to what else does the obligation extend… If a contract says nothing about a particular topic, then even if that topic is demonstrated by the admissible background to be an important one, the default position must surely be that the topic in question is simply not covered by the contract.’

However, Lord Moore-Bick maintained that: ‘the ability to schedule aircraft movements outside those hours was essential to Jet2’s business and was therefore fundamental to the agreement. In those circumstances one would not expect the parties to have contemplated that BAL should be able to restrict Jet2’s aircraft movements to normal opening hours simply because it incurred a loss each time it was required to accept a movement outside those hours, or because keeping the airport open outside normal hours proved to be more expensive than it had expected.’ The majority therefore, refused the central plank of BAL’s argument, that the obligation to use best endeavours did not require it to act contrary to its own commercial interests.

‘I think the judge was right to hold that its refusal in October 2010 to accept further aircraft movements outside those hours involved a breach of contract and that is sufficient to uphold his decision.’ Nevertheless, the majority did accept that the words “all reasonable endeavours” must impose a lesser obligation than an absolute commitment to provide longer hours throughout a 15 year period. However, because the exercise of determining whether best endeavours is highly fact specific, he refused to say precisely how many hours the airport had to be open in the future. Indeed, he put it that as a result of changes in circumstances: “this case may prove to be little more than a practice run for the next one”.

The key point in the decision is that a party under an obligation to use all reasonable endeavours cannot necessarily use cost or inconvenience as a ground for not doing something where performance is under its control and does not depend on cooperation from a third party.



6. UNREASONABLE WITHOLDING OF CONSENT

Porton Capital Technology Funds and others v 3M Holdings Ltd and another [2011] EWHC 2895 (Comm)

On 14 February 2007, the First Defendant (“3M UK”) agreed to buy the entire shareholding of Acolyte Biomedica Limited (“Acolyte”) under a Share Purchase Agreement (“the SPA”). The Claimants were some, but not all, of the shareholder vendors (“the vendors”), representing a total of 60.4% of the shareholding. The consideration for the shares was £10.4m in cash and an earn-out payment based on net sales for the calendar year 2009. Acolyte’s only commercial product, and the only one relevant to the present claim, was BacLite MRSA, a diagnostic assay used for the purpose of detecting MRSA.

As the product was not successful, in 2008 3M UK wrote to the sellers seeking consent to cease the business and offered them compensation of $1.07 million under the earn-out scheme. The sellers refused to give their consent unless they received the maximum compensation available under the scheme (£41 million). 3M UK ceased the business before 2009 so there were no sales in at year to be considered under the earn-out.

3M UK claimed the sellers had unreasonably withheld their consent and 3M UK had therefore been entitled to terminate the business. The product’s own failings and market meant that sales could only ever have been at the low value of $1.07 million according to 3M UK. The Claimants alleged that the failure and termination of the business involved breaches of contract on the part of 3M UK, that the wrongful termination was knowingly induced by the Second Defendant (“3M US”), and that the Claimants have lost their 60.4% share of the net sales which should have been achieved, which they claim would have been in the region of £32m or US$56.45m.

HELD: The Court held that the following four principles should be applied in deciding whether the sellers acted reasonably in withholding their consent:

(i) the burden was upon 3M UK to show that the sellers’ refusal to consent to the cessation of the Acolyte business was unreasonable;

(ii) it was not for the sellers to show that their refusal of consent was right or justified, simply that it was reasonable in the circumstances;

(iii) in determining what is reasonable, the sellers were entitled to have regard to their own interests in earning as large an earn-out payment as possible; and

iv) the sellers were not required to balance their own interests with those of 3M UK, or to have any regard to the costs that 3M UK might be incurring in connection with the on-going business of Acolyte.

In applying the principles set out above and finding that the sellers were reasonable in refusing their consent, the Court agreed that it was reasonable to suspect that some of the failure of the product was due to breaches of the SPA by 3M UK. It was also reasonable to expect that the sales in 2009 would be more than $1.07 million:

‘Although a considerable amount of information was provided by 3M to the vendors it was reasonable for them not to be satisfied thereby. The reasons for the failure of the business are complex and varied, as this lengthy trial has demonstrated. It was reasonable for the vendors not to accept all the explanations given at face value and to consider that further inquiry and investigation was required. It was also reasonable for them to suspect that the failure of the business had been contributed to by 3M’s own breaches of the SPA.’



‘The reasonableness of the vendors’ refusal is borne out by the fact that there were a number of 3M estimates at the time which exceeded the figure offered and that the figure was meant to be conservative. Further… I find that the achievable sales would have exceeded that figure. For these reasons, and those given by the Claimants, I conclude and find that the vendors’ consent was not unreasonably withheld.’

Having found in favour of the sellers in relation to the breach of contract claim, the Court held that damages should be calculated on a loss of profits basis, by reference to the net sales that would have been achieved in 2009 if 3M UK had not breached its obligations under the SPA. On the factual and expert evidence presented, the Court determined that the aggregate net sales of BacLite in 2009 would have been $2,152,000 but for the 3M UK breach, and awarded damages in the sum of $1,299,808 being the sellers’ 60.4% share of the aggregate net sales.

The judge confirmed that principles developed in landlord and tenant cases are applicable to commercial situations. This case is therefore a rare example of an instance where the Court has ruled on the reasonableness of giving consent in a commercial context.



7. MEANING OF “CO-OPERATE IN GOOD FAITH”

Compass Group UK and Ireland Ltd (t/a Medirest) v. Mid Essex Hospital Services NHS Trust [2012] EWHC 781 (QB)

A contract was entered on 1 April 2008 between the Claimant, Medirest, and the Defendant, Mid Essex Hospital Services NHS Trust (“the Trust”). Medirest delivers facilities management, including catering services, to the healthcare market. The Trust is an NHS hospital in one of the home counties of England. It offers acute and community based services. The contract was for the provision of catering services to the Trust mainly for patients but also covering other aspects such as the restaurant, hospitality and vending machines. In its form, the contract was a standard NHS contract coupled with a mechanism for service failure points and deductions. The latter was taken from a standard form for a private finance initiative (PFI) project, although this catering contract was not a PFI project. The cobbled together nature of the contract did not assist its use by either Medirest or Trust staff.

At the heart of the claim was a clause in a long-term facilities contract which obliged the parties, inter alia, to cooperate in good faith. The contract incorporated a mechanism which enabled deductions to be made from service payments in the event of performance failures by the party to the contract providing the service. Calculations made in accordance with this mechanism led to a poisoning of the relationship between the parties so that within eighteen months both sides purported to terminate the contract.

Clause 3 of the Conditions of Contract fell under the heading “Performance of the Services”. Clause 3.5 imposed a duty to cooperate in good faith:

“3.5 The Trust and the Contractor will co-operate with each other in good faith and will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the Trust or, as the case may be, any Beneficiary to derive the full benefit of the Contract.”

Clause 5.8 provided for the Trust to monitor Medirest’s performance and to levy payment deductions and award service failure points:

“5.8 The Trust or any beneficiary shall ascertain whether the Contractor’s provision of the Services meets the performance criteria as specified in the Service Level Specification or, if the criteria are not so specified, meets the standards of a professional provider of the Services. Where such performance criteria or standards have not been met by the Contractor in the performance of the Services then the Trust shall be entitled to levy payment deductions against the monthly amount of the Contract Price payable to the Contractor in accordance with the terms of the Payment Mechanism. In addition, the Trust may by notice to the Contractor award Service Failure Points depending on the performance of the Services as measured in accordance with the Service Level Specification. Service Failure Points which are agreed or determined to have been awarded in circumstances where such award was not justified shall be deemed to have been cancelled.”

HELD: Cranston J held that: ‘The starting point in cl 3.5 is cooperation, a well understood concept meaning to work together, or to act in conjunction with another person. The precise scope of the duty to cooperate will take its content from the circumstances and the nature of the contract concerned. In a long-term contract such as this the duty to cooperate necessarily required the parties to work together constantly, at all levels of the relationship, otherwise performance of the contract would inevitably be impaired. Importantly, any lack of cooperation in the relationship in this context could have significant ramifications for patient well-being. The duty to cooperate necessarily encompassed the duty to work together to resolve the problems which would almost certainly occur from time to time in a long term contract of this nature: Anglo Group plc v Winther Brown & Co Ltd (1997) TCC 413, 128, per HHJ



Toulmin CMG QC It also necessarily required the parties not to take unreasonable actions which might damage their working relationship.’

Cranston J declared that the contractual language conferred a discretion, and not an obligation, on the Trust to levy deductions. He said that law reports are now “replete with authorities” where a term has been implied in a commercial contract as a restriction on the exercise of a contractual discretion: the discretion must be exercised in good faith, and not in an arbitrary, capricious or irrational manner (Abu Dhabi National Tanker Co v Product Star Shipping Ltd2): ‘It seems to me unlikely that reasonable commercial parties would have contracted on the basis that the Trust could make absurd calculations, with the serious consequences which then could threaten, and still be regarded as acting in a manner compliant with cl 3.5 or rationally.’

As a consequence, he found that Medirest was entitled to terminate the contract, and that not only was the Trust in material breach, but that its conduct amounted to a repudiatory breach. Cranston J cited various examples of the Trust’s unreasonable conduct, including an assertion that a box of out-of-date ketchup sachets found in a cupboard (but of which there was no evidence that they had ever been brought onto a ward) attracted a deduction of £46,320 simply on the basis that they were out-of-date. The Trust also claimed a deduction of £84,450 for a chocolate pudding that was 24 hours out-of-date: ‘In my view the Trust’s material breaches of contract, including the obligation to cooperate in good faith, constituted a serious and continuing breach of its critical obligations, which went to the heart of what was meant to be a long term contract requiring cooperation… After many months of complaints it had refused to accept that its approach was fundamentally flawed. So there was a repudiatory breach.’



8. INDEMNITIES

K/S Preston Street v Santander (UK) PLC [2012] EWHC 1633 (Ch)

On 11 February 2004, the claimant obtained a loan for £2,260,000 for a term of ten (10) years at a fixed interest rate of 5.06%. In June 2011, the claimant notified the defendant that it intended to repay the loan in full. In September 2011, the defendant sought payment of £165,580.92 as losses suffered as a result of the early payment of the loan.

The loan agreement included the following terms:

“In addition to any prepayment costs payable under para.9, the partnership shall indemnify the bank on demand against any cost, loss, expenses or liability (including loss of profit and opportunity costs) which the bank incurs as a result of the repayment of the loan during the fixed rate period or any further period during which the rate of interest applicable to the loan is fixed.” (paragraph 6.ii)

“The partnership shall pay on demand, unless otherwise stated, the following fees and costs which the bank shall be entitled to debit to the partnership’s current or other account…Such sums as may be required to indemnify the bank against any loss or expense suffered in connection with the early break in termination or reversing, in whole or in part, of any hedging agreement or any other arrangement entered into by the bank with the partnership for the purposes of or in connection with fixing, capping the rate of or otherwise hedging interest payable under this agreement.” (paragraph 7.v)

HELD: The court held that the defendant was entitled to recover the sum found due in respect of losses which accrued down to the date on which the demand was first made or some later date (which would be the subject of a separate hearing).

The court reiterated Lord Hoffman’s principles of construction set out in ICS v West Bromwich Building Society [1998] 1 WLR 896 prior to considering the wording of the loan agreement. The court held that:

(1) paragraph 6.ii “imposes an obligation on the borrower if redeeming early to “indemnify” the bank in respect of any “cost, loss, expenses or liability”. The use of the word “indemnify” suggests that what is required is for the borrower to indemnify the bank in respect of a crystallised liability or obligation falling within the class identified. Thus it is, it seems to me, that, if the bank is to be indemnified in respect of an expense, the expense must have been incurred.”

(2) if it had been intended that the defendant should be entitled to recover a sum in respect of future loss, paragraph 6.ii would not have used the word “incurs” but would have used words or words to the effect of “incurs or to be incurred”.

(3) the analysis set out at (1) and (2) above is supported by the trigger for the indemnity: the defendant is entitled to the indemnity only “on demand” and the court was of the view that it was difficult to see “how it is that the borrower can be expected to indemnify the bank on demand in respect of a loss that has not yet been incurred”.



9. EXCLUSION CLAUSES

Air Transworld Limited v Bombardier Inc [2012] EWHC 243 (Comm)

Mr Antonio Mosquito controlled two companies: Angoil SA (an Angolan registered company) and Air Transworld Ltd (a Gibralter registered company). On 19 April 2007, the defendant, an aircraft manufacturer based in Canada, sold a private jet aircraft to Angoil SA under an aircraft purchase agreement (the “APA”). On 26 April 2007, the defendant, Angoil SA and the claimant entered into an assignment agreement (the “AA”), assigning the APA to the claimant.

In May 2010, the aircraft had to make an unscheduled landing in Algeria as a result of a fault with the engine pump. Following this the claimant wrote a letter to the defendant rejecting the aircraft and alleging that the aircraft did not correspond with its description, was not of satisfactory quality and was unfit for purpose within the meaning of section 13 and 14 of the Sale of Goods Act 1979 (the “SGA”). In response the defendant argued that the terms of the APA excluded any liability under the SGA and that there was no breach of the warranties included in the APA.

The key clauses in the APA were as follows:

“The warranty, obligations and liabilities of seller and the rights and remedies of buyer set forth in the agreement are exclusive and are in lieu of and buyer hereby waives and releases all other warranties, obligations, representations or liabilities, express or implied, arising by law, in contract, civil liability or in tort, or otherwise, including but not limited to a) any implied warranty of merchantability or of fitness for a particular purpose, and b) any other obligation or liability on the part of seller to anyone of any nature whatsoever by reason of the design, manufacture, sale, repair, lease or use of the aircraft or related products and services delivered or rendered hereunder or otherwise.” (Article 4.1)

“The parties hereto hereby acknowledge and agree that the limited warranties and the limitation of liability provisions contained herein and in the specification have been expressly agreed to in consideration of the purchase price and other provisions of this agreement. To the extent applicable laws do not allow the limitations set out in this article 4, such limitations shall not be applied or invoked.” (Article 4.3)

“This Agreement shall be governed by and interpreted in accordance with the internal laws of England and Wales, excluding any conflicts of laws provisions thereof.” (Article 4.4)

In addition, an express warranty in an appendix to the APA stated that the aircraft would be free from defects for a certain period after sale and the defendant’s liability would be to repair, replace or rework the defect.

The issues before the court were:

(1) whether the wording in Article 4 excluded the conditions implied by Sections 13 and 14 of the SGA;

(2) whether the Unfair Contract Terms Act 1977 (UCTA) applied to the APA and the AA either because the APA and the AA did not fulfil the requirements of an international supply contract or because the choice of English law as governing law APA and the AA was not solely as a result of the parties’ choice; and

(3) whether, if UCTA applied, the claimant was dealing as a consumer.

HELD: The court found that the wording in Article 4 was effective to exclude the conditions implied by the SGA and that UCTA did not apply to the APA or the AA.



(1) The court reviewed a line of previous authority finding that, for an agreement to be effective in excluding the conditions implied by the SGA, the agreement had to refer to the word “condition”.

(2) The court distinguished the wording in Article 4 from the wording in earlier cases on the basis that:

“the first two lines of Article 4.1 can only be read as saying that the defendant seller’s obligations are to be found exclusively in the APA and its Appendix. The following lines make it clear that resort is not be had to any other obligation or liability of any kind which arises in law. No-one reading this provision could be in any doubt that it was intended that the obligations resting on the seller, and the rights available to the buyer, were only to be found in the APA and in the specification in Appendix A to which it refers. Those obligations and rights are specifically said to be “in lieu of” any other obligations or liabilities which could arise.”

the remedies in Article 4.1 are said to be ““exclusive”, meaning that they are all that there is, and to be in lieu of all other warranties, obligations or liabilities, whether express or implied and whether arising in law, in contract, in civil liability or in tort, or otherwise. This is all embracing. There is plainly intended to be no room for the operation of any primary or secondary rights or obligations outside the terms of the contract itself.” Further, the remainder of the wording in Article 4.1 was exemplary and did not limit the generality of the earlier provisions.

“no person reading this Article could be in any doubt that every promise implied by law is excluded, in favour of the contractual promises set out in the APA.” The words used were apt and precise words, sufficiently clear to exclude the conditions implied by the SGA. To adopt a different construction would amount to a distortion of the words used.

(3) In holding that Article 4 was effective to exclude the conditions implied by the SGA, the court distinguished the wording in Article 4 from the following wording in other cases:

“sellers give no warranty express or implied as to growth, description or any other matters, and they shall not be held to guarantee or warrant the fitness for any particular purpose of any grain … or any other article sold by them, or its freedom from injurious quality or from latent defect” (Wallis v Pratt [1911] AC 394 (HL)).

A manufacturer’s warranty against defects for twelve months but “expressly exclud[ing] any other guarantee or warranty, statutory or otherwise”. (Baldry v Marshall [1925] 1 KB 260 (CA))

“not warranted free from defect, rendering same unmerchantable, which would not be apparent on reasonable examination, any statute or rule of law to the contrary notwithstanding”. (Cammell Laird and Company Ltd v. The Manganese Bronze & Brass Company Ltd [1934] AC 402 (HL))

“There are no guarantees, warranties or representations, express or implied, [of] merchantability, fitness or suitability of the oil for any particular purpose or otherwise, which extend beyond the description of the oil set forth in this agreement.” (The Mercini Lady [2011] 1 Lloyd’s Rep 442)

(4) UCTA did not apply because APA and the AA were “international supply contracts” under Section 26(4) of UCTA because the conditions specified in Section 26(4)(b) and alternatively Section 26(4)(a) had been fulfilled: (i) the acts of offer and acceptance took place in England, Canada and Portugal, fulfilling the requirements of Section 26(4)(b); and (ii) at the time of conclusion of the APA and the AA, the parties intended that, because the aircraft was to be exported from Canada



immediately following its delivery, the aircraft be “carried” from the territory of one state to the territory of another state, fulfilling the requirements of Section 26(4)(a).

(5) Section 26(4)(b) is intended to exclude cases where there is an international element in the formation of the contract. For UCTA to apply, all elements of offer and acceptance must occur in the same state.

(6) UCTA did not apply because English law was the governing law of the APA and the AA solely as a result of the “express choice of law clause” and absent such express choice, the APA and the AA would be governed by the law of Canada or the law of Quebec.

(7) The claimant could not rely on the wording in Article 4.4 of the APA to argue that the parties had agreed that Section 27 of UCTA has no application to the APA and the AA. Section 27(1) of UCTA is a “self-denying statute” which does not “lay down a unilateral or multilateral conflict of law rule”. Instead, Section 27(1) sets the limits of the application of specified sections of UCTA in the circumstances specified in that Section. Accordingly, “to disregard Section 27 would result in a distorted application of substantive English law, since the statute provides that, in the given circumstances, instead of applying the full gamut of provisions in UCTA, the provisions of Section 27 … are not to apply.”

(8) Even if UCTA applied to the APA and the AA, the claimant was dealing in the course of a business when in entered into the AA because, at the time of the execution of the AA, the nature of the claimant’s business was to own and operate aircraft. Applying the test in R&B Customs Brokers Ltd. V. United Dominions Trust Ltd [1988] 1 WLR 321, the purchase of the aircraft by the claimant was an “integral part of the business carried on by it”, being the “only business which it did carry on.”



10. LIMITATIONS OF LIABILITY

Allen Fabrications Limited v ASD Limited [2012] EWHC 2213 (TCC)

Bembridge Marine Limited (“BM”) engaged PB Structures (“PB”) to supply and construct a rigid steel platform at first floor level in BM’s new two-floor workshop. PB subcontracted the supply of the elements of the platform to the claimant. The claimant, in turn, subcontracted the supply of the grating and clips for the platform to the defendant.

After installation, one of BM’s employees was seriously injured when a section of the grating in the platform gave way and he fell approximately 3.4m to the floor. BM was sued and ordered to pay approximately £7m in damages. Thereafter, BM brought suit against a number of parties, including PB and the claimant. The claimant then sued the defendant alleging that for breach of contract and negligence. The defendant argued that it did not own any contractual or tortious duties to the claimant and, although there was no express incorporation of the defendant’s standard terms into the contract between the parties, the defendant sought to rely on various limitations and exclusions in its standard terms.

HELD:

(1) The defendant’s standard terms had been accepted by the claimant when the claimant obtained a credit account from the defendant in 2005. The defendant’s procedures for opening account required the completion of a written application form which contained an acknowledgement and acceptance of the defendant’s terms of trading as being the only terms which would apply to sales contracts with the defendant. Although the defendant could not produce a copy of the application form signed by the claimant, the court held that the clear likelihood was that the claimant did sign such a form and it was accordingly bound by the defendant’s standard terms.

(2) Even if the defendant’s standard terms had not been expressly incorporated, they had also been incorporated via a course of dealing between the parties.

The claimant argued that the limitations and exclusions of liability could not be incorporated via a course of dealing because they are “onerous” or “unusual” terms or ones which “abrogate statutory rights”.

In so arguing, the claimant relied on Interfoto Picture Library v Stiletto Visual [1989] QB 433 where Dillon LJ stated: “if one condition was particularly onerous or unusual the party seeking to enforce it must show that it (and not merely the standard terms generally) was fairly brought to the attention of the other party” (emphasis in original).

The court noted that it is not always clear what amounts to an “onerous” clause and that “the mere fact that a clause is a limitation or exclusion clause does not seem to me to render it onerous without more”. The court continued: “It might be said that if in very common use it is less likely properly to be regarded as onerous especially between two commercial parties since that is the business in which they knowingly operate. Furthermore, where the terms, if incorporated, would be subject to scrutiny under UCTA it can be argued that a somewhat more flexible approach to what is truly “onerous” could be taken.”

The court disagreed with the claimant’s argument in reliance on Interfoto, finding that (a) the terms at issue were not unusual in the industry; and (b) the claimant knew that suppliers like the defendant would (like the claimant itself) have limitation and exclusion clauses in their standard terms.

(3) The limitations and exclusions in the defendant’s standard terms were not unreasonable under UCTA: (a) both parties were significant commercial entities; (b) the claimant had appropriate



insurance in place for claims such as those made by BM and/or PB; (c) although the claimant may not have been able to negotiate different terms without a significant increase in price, the claimant’s commercial imperative was to acquire the goods at the cheapest cost and the defendant was not the only supplier of the goods; (d) the claimant was actually aware that terms limiting and excluding liability were commonplace in the industry and even though the claimant had not read the defendant’s standard terms, the claimant was broadly aware of what they would say; (e) the defendant’s standard terms did not exclude all liability per se; and (f) the defendant’s standard terms were more generous than the claimant’s.



11. LIMITATIONS OF LIABILITY

Avrora Fine Arts Investment Limited v Christie, Manson & Woods Limited [2012] EWHC 2198 (Ch)

The claimant purchased a painting called “Odalisque” from the defendant in 2005. The defendant warranted that the painting was by Kustodiev and had stated that the description of it in the catalogue was “on the basis of careful study” and represented “the opinion of experts”. The claimant alleged that Kustodiev was not the artist who painted “Odalisque”. The claimant sought to cancel the purchase pursuant to the warranty offered by the defendant and also alleged negligence and misrepresentation under the Misrepresentation Act 1967.

The defendant’s standard terms:

included an express warranty, valid for five (5) years, that the painting was the work of the artist named in the catalogue (the “Limited Warranty”); and

stated that aside from the Limited Warranty, the painting was sold “as is without any representation or warranty of any kind” and that “neither the seller, ourselves, our offices, employee[s] or agents, give any representation, warranty or guarantee or assume any liability of any kind in respect of any lot …”.

HELD: The court held that:

(1) on the balance of probabilities, the painting was probably not by Kustodiev.

(2) the defendant had breached the Limited Warranty and the claimant could cancel the purchase and recover the purchase price in accordance with the terms of the Limited Warranty.

(3) the defendant’s standard terms prevented a duty of care from arising: although they did not specifically refer to negligence, it was clear that the defendant was not assuming responsibility for negligence.

(4) the defendant had represented that it was its opinion that “Odalisque” was painted by Kustodiev. Accordingly, it had “impliedly represented that it had reasonable grounds” for holding that opinion.

(5) the defendant’s standard terms were subject to UCTA because they included a provision purporting to prevent an assumption of responsibility which “retrospectively [altered] the character of what [had] gone before” and “parted company with reality” insofar as they negated the defendant’s assumption of liability for the attribution of “Odalisque” to Kustodiev.

(6) the defendant’s standard terms were reasonable under UCTA: (a) the claimant was not left without a remedy; (b) it was reasonable for the defendant to exclude liability to prevent it from being exposed to a claim “in circumstances where the likelihood was that it had been correct that “Odalisque” was painted by Kustodiev”; and (c) the claimant was familiar with the defendant’s standard terms and could reasonably be expected to know of them.



12. WEBSITE OPERATOR LIABILITY

McGrath v Dawkins and others [2012] EWHC B3 (QB)

McGrath self-published a book and in an attempt to market his book, McGrath posted a purported review of a book by Prof. Stephen Hawking on Amazon UK’s website criticizing Prof Hawking’s book and ‘plugging’ his own book ‘The Attempted Murder of God: Hidden Science You Really Need To Know’, (under the name ‘Scrooby’). This ‘review’ generated a thread of comments. The most active participant in the thread was a Mr. Jones, who exposed McGrath as the author of the Scrooby book and during a heated debate, criticized him with words such as “fraud” and “phony” and labelled him a “creationist”. Jones then opened a thread on the richarddawkins.net website on the same topic. McGrath bought a defamation action, not only against Jones but also against Prof. Dawkins himself, The Richard Dawkins Foundation for Reason and Science and against Amazon UK. The defendants sought to strike out the claim.

The issue which was to be considered by the court was whether the defendants were responsible for the publication of the allegedly defamatory comments – The Dawkins Foundations relied on the point that it was not responsible for publication on the .net website because a U.S. company, rather than the Foundation, operated the website. Amazon claimed the protection of the typical ISP defences under section 1 of the Deformation Act 1996 and the Electronic Commerce (EC) Directive Regulations 2002 (“Reg. 19”).

HELD: In regard to the action against the Richard Dawkins Foundation, the court accepted McGrath’s contention that if you clicked on the “Home” button of the .org website, you were directed to the .net website and to the index of the relevant forum without any notification to the user that he/she had been switched to a different website – so a user would be unaware that the site was operated outside the UK. The court noted that English law on liability for hyperlinks is currently uncertain and held that it was appropriate for the question of liability to be considered at trial, thereby raising the possibility that the Foundation could be considered liable for Jones’s posts: ‘Even if the general English rule were… that a mere hyperlink does not render the operator of the linking website liable for the content of the linked site, the decision may well be a fact-sensitive one, especially when, as here, the two websites are very closely associated, the link is hidden, and the point of contact is the “Home” button which is normally regarded as taking you to the central hub of the same website you are already on. I therefore conclude that I am not satisfied at this stage that the 2nd Defendant was not answerable for the .net forum at the material time, and that it is a question fit for trial.’

In regard to the action against Amazon, for the purposes of the s. 1defence, it was accepted by the court that Amazon was not the editor or publisher of the comments – partly because the posting of comments was part of an automated process: ‘Amazon took no steps in relation to the content of any of the statements, and no part in any decision to publish it, except by way of the automatic process…’ However, the judge held that the very automation of the process meant that it was unclear whether Amazon had taken reasonable care in respect of the publication of the comments on its website, thus the court held that it was insufficiently clear that Amazon had taken reasonable care for it to succeed on a strike-out application in relation to McGrath’s Defamation Act claim: ‘I note the provisional view of Eady J in Metropolitan International Schools Ltd v. Designtechnica Corpn [2009] EWHC 1765 QB at para. 75 that it was difficult to comprehend how reasonable care could have been taken, when the publication took place without any human input on the part of the defendant (in that case a search engine rather than a website operator, but the point is a similar one here). The counter-arguments are not difficult to envisage (for example, that the automatic processes set a reasonable hurdle, or even that it might be reasonable in the context of a vast website like this to take no pre-publication steps at all) but I cannot say that the answer is obvious at this stage, so the attempt to strike out by reference to s.1 must fail.’

In terms of Reg.19, it was held that a corporation can have actual knowledge only through a human representative, and given the vast size and diverse nature of Amazon’s website there was no reason to suppose that anyone in Amazon was actually aware of these postings, let alone of their possible unlawfulness, prior to McGrath’s complaints. McGrath did not put forward any case for such actual prior



knowledge. The word “unlawful” in Reg. 19 has been held to import the further requirement that the defendant should also “know something of the strength or weakness of available defences”; see Bunt v. Tilley [2007] 1 WLR 1243. The fact that McGrath omitted to put forward a case on the merits, meant that it would not be possible for Amazon to investigate or adjudicate upon it, nor did the framers of Reg. 19 expect it to do so. Therefore, it was held that the Reg. 19 defence was bound to succeed in respect of Amazon’s liability for all the publications complained of against it.



13. WEBSITE OPERATOR LIABILITY

Tamiz v. Google Inc. And Google UK Limited [2012] EWCH 449

Google Inc. operates the blogging platform Blogger.com. “London Muslim” used Blogger.com to publish an article about the claimant, Mr Tamiz (‘Mr. T’). A number of users subsequently posted comments anonymously below the article. On 29 June 2011, Mr T wrote to Google complaining that eight comments were defamatory. On 11 August 2011, Google notified the article’s writer of Mr. T’s complaint, who subsequently removed the article and comments. In the meantime, Mr T sued Google for libel.

The issues included whether Google was the publisher of those words, and if so whether Google was protected from liability under the Reg. 19.

HELD: It was held that Google was not required to take any positive step in the process of continuing the accessibility of the offending material, whether or not it had been notified of a complainant’s objection, ‘The fact that an entity in Google Inc’s position may have been notified of a complaint does not immediately convert its status or role in that of a publisher.’ In these circumstances, Google should not be regarded as a publisher, or even as one who authorised publications. Google’s role as a platform provider was a purely passive one. The judge stated obiter that even if Google had been a publisher of the comments, it could have relied on the S.1 defence because it was not a commercial publisher and it had no effective control over people using Blogger.com. In addition, although there had been a delay between Mr. T’s letter of complaint to Google and Google’s notification to the blogger, Google had still responded within a reasonable period of time. The judge also stated that Google would have had a defence under Reg. 19. In order for the material to be unlawful, the operator would need to have known something of the strengths and weaknesses of the available defence: ‘…it cannot be right that any provider is required, in the light of the strict terms of Regulation 19, to take all such protestations at face value. Clearly more is required for a provider to acquire a sufficient state of knowledge to be deprived of the statutory protection.’ (Bunt v Tilley [2006] EWHC 407 (QB), [2007] 1 W.L.R. 1243 was considered –where a claim was struck out against three separate ISPs on the basis that “…persons who truly fulfil no more than the role of a passive medium for



14. ONLINE TERMS AND CONDITIONS

Spreadex v Cochrane [2012] EWHC 1290 (Comm)

Mr. Cochrane opened an online account with the online spread-betting company, Spreadex, who accepted bets on movements in the prices of, among other things, stocks, shares and commodities and their associated indexes. When signing up Cochran was asked to ‘to read our US based policy, Client Declaration, Customer Agreement, Risk Warning Notice and Order Execution Policy. Once read and understood, please click on “Agree” to signify your agreement to the terms.’ The Customer Agreement alone was 49 pages long.

Cochrane ticked to accept the terms and subsequently made a significant number of trades each month starting in November 2010. By the beginning of May 2011 he had generated a credit balance of more than £60,000. On 2 May 2011, he used his computer to make trades whilst staying at his girlfriend’s house, as he made his trades he explained it to his girlfriend’s five year old son ‘C’ as a kind of guessing game. At about 2.15 p.m. he made his last trade, leaving only two trades open, a matching buy and a sell in gold with a loss of about £9,000. He then left the house to drive his car to a garage for servicing and thereafter to spend the afternoon with a friend. In the event, because the friend was not feeling well, he stayed two days in his house, during which time - as the friend has confirmed - he did not use a computer. When he picked up his car and recharged his mobile telephone, he found a message from the claimant asking him to ring. On doing so, he was told that his account was in debit by almost £50,000: almost immediately he instructed the claimant to close out all his open positions. Returning to his girlfriend’s house and going on line he found that there had been numerous trades in his absence, not only in gold and silver but also in crude oil. His girlfriend said that his computer had been used by C, and C told him that he had been playing games on it.

Despite Cochrane’s explanation, Spreadex demanded payment of the losses and brought a claim for summary judgement relying on clause 10(3) “You will be deemed to have authorised all trading under your account number...”. The issue was whether clause 10(3) was legally binding on Cochrane.

HELD: The judge held that the online terms and conditions which Cochrane accepted did not constitute a contract as Spreadex was unable to point to any promise or commitment by it which might form part of such a contract and provide the consideration necessary to make it legally binding, since it reserved the right to refuse any bet: Clause 29(1) explicitly states that “We have the right at our absolute discretion to refuse to accept part or all of any bet”; to remove its online service: Clause10(15) “We reserve the right to reduce or remove altogether our online service at any time”; and to close the customer’s account at any time: Clause 29(2)”We reserve the right to close or suspend your account at any time.” The judge also held that the consideration necessary to support a contract, did not satisfy the test to be found in conduct alone as, ‘The provision of an on-line interactive platform is in effect simply a more modern equivalent of the expressed readiness of a potential contracting party (also covered in the Consumer Agreement) to enter into contracts by receiving and responding orally to telephone calls.’ Thus, there was effectively no commitment from Spreadex.

The judge held that Cochrane was a consumer within the meaning of the Unfair Terms in Consumer Contracts Regulations 1999 and cl.10(3) was not individually negotiated, so that it would not be binding on Cochrane if, contrary to the requirement of good faith, it caused a significant imbalance in the parties’ rights and obligations, to the detriment of Cochrane. Under Spreadex’s suggested pre-trade contract it would assume no obligations and Cochrane would have no rights. However, under cl.10(3) Cochrane would be made liable for any unauthorised trade on the account. The result was a significant imbalance in the parties’ rights and obligations. Without any limitation on the customer’s liability, that imbalance was contrary to good faith and unfair. (The judge commented that “a more appealing case might have been advanced if, for example, the clause had sought to fix the customer with liability for an unauthorised trade by a third party only if is facilitated by the negligence of the customer, even perhaps with a reversed burden of proof requiring him to establish the contrary”).



Also the manner in which Spreadex sought to incorporate cl.10(3) into the ‘contract’ was entirely inadequate and a further factor in rendering it an unfair term. The potential customer was told that four documents, including the Customer Agreement, could be viewed elsewhere on-line by clicking “View”. Many, one might suspect most, would have passed up on that invitation and proceeded directly to click on “Agree”, even though it was suggested that they should do so only when they had read and understood the documents. Even if, exceptionally, the defendant in fact chose to look at the documents, he would have been faced in the Customer Agreement alone with 49 pages containing the same number of closely printed and complex paragraphs. The judge held that it would have been ‘close to a miracle’ if Cochrane had actually read cl.10(3), ‘let alone appreciated its purport or implications.’

Tab 3

Speaker Biographies

Alistair Maughan

Attorney Bio

Alistair Maughan

Partner London 020 7920 4066 [email protected]

Alistair Maughan is a partner in Morrison & Foerster’s London office. He is co-chair of the Technology

Transactions Group and a member of the Global Sourcing Group.

Alistair focuses on commercial contracts and technology-based projects for major companies and public sector

organisations. His primary areas of expertise include advising on: commercial licensing and sales contracts in the

UK and Europe; agency and distribution contracts; service-based outsourcing transactions; contracts for the

supply and acquisition of technology equipment, services and software; advising on data security and data

privacy; advising on issues and contracts related to e-commerce; counselling public bodies on procurement policy

and procedures; and drafting, negotiating and advising on all types of technology contracts and issues.

His noteable transactions include advising Her Majesty’s Revenue & Customs on Europe's largest "second

generation" outsourcing; advising the UK police on its national fingerprint identification system and its project for

the delivery and operation of the national UK emergency mobile radio network; advising the world's largest

insurance broker on offshore outsourcing; and other transactions on behalf of government departments, banks,

global pharmaceutical companies and major professional services firms.

He edits MoFo’s UK Public Procurement Law Digest. http://www.mofo.com/files/Uploads/Images/UK-Public-

Procurement-Law-Digest.pdf

Alistair is a highly-regarded commercial lawyer with recommendations in Legal 500, Chambers Global and

Chambers UK, leading independent guides to the legal profession. Chambers UK awards Mr. Maughan the top

ranking for both Commercial projects and Information Technology, commenting that he "brings common sense to

the negotiating table". Other guides note that Mr. Maughan is “the best lawyer ever when it comes to acting for

the customer end of the market” and "absolutely excellent when it comes to advising customers on public sector

projects".

Alistair has a law degree from Leicester University, and qualified as a solicitor in 1987. He has practised law on

both sides of the Atlantic and is also admitted to the New York Bar.

Follow him on Twitter at #@ICToutsourcelaw. http://twitter.com/#!/ICToutsourcelaw

Susan McLean

Attorney Bio

Susan McLean

Associate London 020 7920 4045 [email protected]

Susan McLean is a senior associate in the London office of Morrison and Foerster and a member of the

Technology Transactions Group and the Global Sourcing Group.

Mrs. McLean advises on a wide range of non-contentious technology matters including outsourcing transactions,

information technology procurement, software licensing and development, and e-commerce. She has particular

financial services experience, having acted for a variety of customers and suppliers in the banking, insurance, life

and pensions and investment sectors.

Mrs. McLean also advises clients on legal issues affecting their online businesses, including their terms of use or

sale, privacy policies, cookies, website accessibility and social media. Mrs. McLean also regularly provides

support in relation to the IP and IT aspects of corporate deals. Clients range from fast growing tech companies to

large multi-nationals, such as Intel.

Most recently Mrs. McLean has advised a leading UK insurance company on the outsourcing of its network

services, advised a provider of insurance, pensions and investment products on the outsourcing of its IT

operations; advised a financial services company on its software licensing and services arrangements; advised

OpenLink, the leading developer of software solutions and support services for the financial services sector, on its

acquisition of CubeLogic and advised a leading online gaming company on its commercial arrangements.

Mrs. McLean received an LLB in Law from the University of Leeds in 1997 and graduated from the College of Law,

York with a distinction in 1998. She qualified as a solicitor in 2000.

Deirdre Moynihan

Attorney Bio

Deirdre Moynihan

Associate London 020 7920 4164 [email protected]

Deirdre Moynihan is an associate in the London office of Morrison & Foerster and is a member of the Technology

Transactions Group and the Global Sourcing Group.

She advises clients on general commercial and transactional matters with a particular focus on companies with

considerable intellectual property assets such as those in the digital media, IT, technology, life sciences and

pharmaceutical sectors. Ms. Moynihan advises on a variety of commercial agreements including hardware

acquisition agreements, software acquisition and maintenance agreements, digital cinema and digital conversion

projects, drug development and collaboration agreements, licenses and outsourcing agreements.

Recent experience includes advising:

Odeon cinemas on its project to roll out digital cinema;

Novartis on its exclusive collaboration, option and license agreement with Camurus, a research-based

pharmaceutical company headquartered in Sweden;

Intel on a number of transitional services agreements relating to its $1.4 billion acquisition of the wireless

division of Infineon Technologies;

a leading UK life insurance and pensions provider on a project for the consolidation of its IT services onto

a single platform; and

a multi-national financial services advisor on a number of hardware and services agreements.

Ms. Moynihan received her LL.M. from University College Dublin in 2006; her thesis was entitled “Restraining

Copyright: An Analysis of Copyright Misuse”. She was admitted to practice in England & Wales in 2007.

Anthony Nagle

Attorney Bio

Anthony Nagle

Of Counsel London 020 7920 4029 [email protected]

Anthony Nagle is an Of Counsel lawyer in the London office of Morrison & Foerster and is a member of the

Technology Transactions Group, Global Sourcing Group, and the EU Privacy Group.

Mr. Nagle's areas of expertise include a wide range of technology projects, including on-shore and offshore

outsourcing transactions, IT procurement and the supply and acquisition of technology equipment, biometric and

identification projects, privacy and data-sharing transactions, data breach issues, storage and customer data

migration projects, software licensing and development, disaster recovery solutions, cross-border trading,

distance selling and e-commerce. Mr. Nagle has particular experience advising clients in relation to complying

with the EU public procurement procedures and related tender and bid processes. He also counsels and supports

his clients in relation to escalation and dispute resolution issues in their on-going contracts.

Mr. Nagle has acted for global and domestic clients, including multinational companies, government departments

and agencies, and start-up companies. He recently advised on an IT transaction for one of the UK's biggest

insurance companies in respect of outsourcing its IT infrastructure in a number of countries in the Baltic region.

He has also recently advised on the procurement, build and maintenance of data centre storage systems for one

of the UK's biggest banks.

Other recent transactions include advising on a multi-country business process and biometric outsourcing

contract involving 200 countries; advising on the integration and re-baselining of two of the largest IT outsourcing

contracts in the UK public sector into a single contract; advising the National Policing Improvement Agency in

respect of its "second generation" outsourcing contract covering the provision of advanced biometric identification

and fingerprint technology to police forces and other criminal justice organisations in the UK; leading the team

defining the technical aspects of the Inland Revenue's second-generation outsourcing "ASPIRE" contract;

negotiating web hosting arrangements for one of the UK's leading national classified advertising web sites; and

advising a multinational company on the technical aspects of its global migration to a Voice Over Internet Protocol

(VOIP) network.

Mr. Nagle has written a number of articles and presented various technology law topics at seminars and

conferences. Mr. Nagle is a highly regarded commercial lawyer and is recommended in Legal 500 UK.

Mr. Nagle is a qualified solicitor in England and Wales. He completed his law degree (LL.B. Honours) at Thames

Valley University in 1994 and Nottingham Law School’s Legal Practice Course (Honours) at BPP Law School,

London, in 1995.

Tim Roughton

Attorney Bio

Tim Roughton

Of Counsel London 020 7920 4028 [email protected]

Tim Roughton is an Of Counsel in the London office of Morrison & Foerster and is a member of the Technology

Transactions Group and the Global Sourcing Group.

Mr. Roughton advises on a wide range of non-contentious technology matters including outsourcing transactions,

information technology (IT) procurement, software licensing and development and e-commerce. The primary

focus of his practice is technology and business processing outsourcing. He has acted for both suppliers and

customers in a number of high-profile outsourcing transactions.

Mr. Roughton’s outsourcing and IT experience includes advising Old Mutual, the Phoenix Group, Sun Life

Financial of Canada and other life and pension companies in relation to their business process outsourcing

agreements; advising Odeon cinemas in its project to roll-out digital cinema; advising Amadeus IT Group on its

contracts for reservation, inventory and departure control systems with many of its airline customers; advising a

major high-street bank on maintenance and cash replenishment of its ATM network; and other transactions on

behalf of financial services institutions, national retail companies and public sector organisations.

Mr. Roughton is recognized by Chambers UK as a leading individual for Information Technology law, noting that

he is "the best of both worlds: he has the intellectual and technical capabilities, together with a tough negotiation

style."

Mr. Roughton has drafted and negotiated various IT services agreements, hardware and software development

agreements, software licences and maintenance and support agreements. He has also advised small and

medium sized enterprises on internet start-up and data protection issues.

Mr. Roughton received a Masters in Engineering, Economics and Management from the University of Oxford in

1995 and graduated from the College of Law, Chester with a CPE in 1996 and an LPC in 1997. He qualified as a

solicitor in 1999.

Tab 4

Articles

1 © 2012 Morrison & Foerster LLP | mofo.com Attorney Advertising

Client Alert.15 June 2012

Online Businesses - Are your terms and conditions fair?

By Susan McLean and Alistair Maughan

Have you heard the one about the 5-year-old trader and the £50,000 losses? No, actually, it’s not a joke…

Two recent cases in Europe indicate how courts across Europe will apply rules on the enforceability of online

contracts. In one case, the UK High Court held that a man, who blamed his girlfriend’s five year old son for

running up £50,000 of losses in online spread-betting, was not bound by a provision in online terms and

conditions that made him responsible for trades made on his account. The online operator had to bear the loss

even though it’s not clear what more it could have done and, to the extent that any “fault” existed, surely it was

on the part of the careless online user.

The issue of enforceability of online contracts is a familiar one: how do online businesses ensure that their terms of

trading form binding contracts with their customers? The consequences of failing to implement the correct procedures

can be real – as the online spread-betting operator in the UK case described below found out to its (considerable) cost.

In Europe, various rules and regulations apply to online contracts depending on the country and sector (most countries’

financial services regulators have issued particular regulations, for example). Typically, the rules in Europe target:

the information which must be disclosed to online customers;

cooling-off periods for online purchases; and

the test of fairness (or otherwise) to be applied to online terms.

It has been left up to the courts to fill in the gaps by adjudicating on the procedures by which online contracts are formed

in the first place and to interpret the fairness requirements. These two recent cases – one a UK case and the other a

European Court of justice ruling on a Hungarian case – covered both the formation and fairness aspects of online

contracting.

Spreadex Limited v Cochrane

Mr. Cochrane opened an online account with the online spread-betting company, Spreadex, in October 2010. As part of

the account sign-up process, Cochrane was asked to “read our U.S. based policy, Client Declaration, Customer

Agreement, Risk Warning Notice and Order Execution Policy. Once read and understood, please click on “Agree” to

signify your agreement to the terms”. Cochrane ticked to accept the terms.

Cochrane made a significant number of trades each month. By the beginning of May 2011, he had a credit balance of

more than £60,000. On 2 May 2011, whilst staying at his girlfriend’s house, he used his computer to make trades and this

was witnessed by her five-year-old son “C”. Cochrane explained the trades to C as a kind of “guessing game”. Cochrane

left his computer at his girlfriend’s house for two days whilst visiting a friend. A few days later, Cochrane learnt that his

account was £50,000 in debit. Cochrane claimed that C had run up the losses whilst “playing” on Cochrane’s computer.


Client Alert.Cochrane explained the situation to Spreadex but Spreadex demanded payment of the losses and brought a claim for

summary judgment relying on clause 10(3) of its 49 page Customer Agreement which provided “You will be deemed to

have authorised all trading under your account number”.

The High Court rejected Spreadex’s application for summary judgment and held that clause 10(3) was not legally binding

because (1) it did not form part of a binding contract between Spreadex and Cochrane and (2) it was an unfair term.

On the issue of formation, the Judge held that the online terms and conditions which Cochrane had accepted did not

constitute a contract. For a contract to be formed under English law

(whether online or offline), there must be offer, acceptance and consideration (i.e., each party must obtain a benefit from the

contract). The Judge held that there was no consideration. The

online terms and conditions were so favourable to Spreadex (for

example, Spreadex could refuse to accept bets, it could remove

their online service at any time and it had the right to close or

suspend an account at any time) that there was effectively no

commitment from Spreadex.

On the issue of fairness, the Judge held that the contract had not

been drafted in accordance with the good faith requirements under

the Unfair Terms in Consumer Contracts Regulations 1999 and

there was a significant imbalance in the parties’ rights and

obligations arising under the contract that negatively impinged on

Cochrane’s rights. As the terms were not fair, they were not legally

binding on Cochrane. The Judge indicated in his judgment that if

the clause had only made Cochrane liable for unauthorised trades

where he had been negligent the provision may have passed the

fairness test, but making him liable for all unauthorised trades under

his account was not fair.

The Judge also said that Spreadex had not made sufficient effort to

inform Cochrane of the clause. The Judge believed that it was

unlikely that Cochrane would have reviewed all four of the

documents referred to during the acceptance process and would

have been "close to a miracle" if Cochrane had actually read clause

10(3) of the Customer Agreement, “let alone appreciated its purport

or implications”. In fact, the Judge believed that the 49-page Customer Agreement was an “entirely inadequate” way to

seek to make the customer liable for any potential trades he did not authorise.

No, we don’t know how to pronounce it, either.

This case arose when a Hungarian court asked the ECJ for a ruling on the Hungarian implementation of the Unfair Terms

Unfair Terms in Consumer Contracts

All countries in the EU are required to

implement the Unfair Terms Directive

(93/13/EEC) on unfair terms in consumer

contracts (“Unfair Terms Directive”). This

directive protects consumers from unfair

terms used by suppliers in two ways: firstly, it

requires that suppliers draft in plain and

intelligible language (the so-called

“transparency test”); secondly, it applies a test

of fairness to the substance of most terms

(the “fairness test”). The Unfair Terms

Directive also gives a list of terms which may

potentially be unfair.

The Unfair Terms Directive has been

implemented in the UK in the Unfair Terms in

Consumer Contracts 1999. Under the Unfair

Terms in Consumer Contracts Regulations

1999, "unfair" contract terms are not binding

on a consumer. A contractual term which has

not been individually negotiated is considered

unfair if, contrary to the requirement of good

faith, it causes a significant imbalance in the

parties' rights and obligations arising under

the contract to the detriment of the consumer.


Client Alert.Directive. Back in 2008, Invitel, a fixed-line telephone network operator in Hungary, varied its terms and conditions to

include a term which required consumers using money orders to pay additional fees. This led to a flood of complaints

and, eventually, to the highest court in Europe.

The core problem was that a Hungarian statute gives consumers a right to terminate if the supplier unilaterally varies the

contract charges. This is actually a mandatory provision of local law but the ECJ still found that the supplier must state

this right in the consumer contract in plain and intelligible language, and any failure to do so should be taken into account

by a national court when determining whether a term of a consumer contract is unfair.

The main elements of the ECJ’s findings were that:

a consumer must be given the opportunity to examine all the contract terms and their effects;

any supplier must always draft in plain and intelligible language;

suppliers must always inform consumer of any mandatory statutory or regulatory provisions which may set out a supplier's rights to vary fees and/or which provide a consumer with a termination right in these circumstances.

The ECJ’s decision is consistent with an earlier decision from January 2012 in a different Hungarian case in which it ruled that, in relation to a consumer contract, a national court in the EU has a duty (not merely a right or power)

to assess the fairness of a term even if the consumer has not challenged the fairness of that term. If the national court

considers a term to be unfair, it must not apply it unless the consumer wants it to be applied.

CONCLUSION

Although the Spreadex case is clearly unusual, it is a useful reminder that companies providing products or services

online need to be very careful when drafting their terms and conditions to ensure that those terms are enforceable against

consumers.

DRAFTING TIPS

Try to make the contracting process as straightforward as possible (e.g., are multiple sets of terms and policies necessary? Can all relevant issues be contained in one set of terms and conditions?).

Make the terms easy to read – this applies to the format as well as the wording itself (e.g., don’t make the wording too small or too closely printed).

Try to limit the length of any terms and conditions to something manageable (a consumer is more likely to read 5 pages than 49 pages – particularly if scrolling through terms online).

Ensure that your contracting terms are binding (in particular, that they are not drafted with such little commitment on your side that it could be argued that there is no consideration).

Avoid making your terms and conditions unreasonably one-sided. Whilst protecting your organization, try to make the provisions as reciprocal as possible, bearing in mind the responsibilities of each party.

Draft your terms and conditions in language which is as clear and simple as possible – avoid legal or technical jargon wherever possible.

Bring any unusual or onerous terms to the attention of the consumer.


Client Alert.If your organisation operates globally, before using any standard terms and policies in respect of your European operations make sure that you review those terms and policies in light of the local implementation of the Unfair Terms Directive and other applicable laws. What works in the U.S. or in other jurisdictions may not meet the requirements of applicable UK or other European consumer laws.

Contact:

Susan McLean

44 20 7920 4045

[email protected]

Alistair Maughan

44 20 7920 4066

[email protected]

About Morrison & Foerster:

We are Morrison & Foerster—a global firm of exceptional credentials in many areas. Our clients include some of the

largest financial institutions, investment banks, Fortune 100, technology and life science companies. We’ve been

included on The American Lawyer’s A-List for eight straight years, and Fortune named us one of the “100 Best

Companies to Work For.” Our lawyers are committed to achieving innovative and business-minded results for our clients,

while preserving the differences that make us stronger. This is MoFo. Visit us at www.mofo.com.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should

not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar

outcome.


Client Alert. 6 June 2012

"Bring Your Own Device" Brings its Own Challenges


The consumerisation of IT is the growing trend for information technology to emerge first in the consumer market and

then drive change in the industry generally. One of the most dramatic impacts of this shift is a rise in so-called “bring

your own device” strategies in both public and private enterprises.

In the past, the functionality of your work computer and phone tended to be streets ahead of what you used at home.

Remember the days when employees would show off their work PDAs, smartphones and laptops as perks of their job?

These days, increasing numbers of employees have better access to technology at home than they do at work, with

personal devices and apps that are user friendly and convenient in ways that their work equipment and systems are

not. Employees also wish to work differently (working remotely, outside regular hours, on the weekend, on vacation,

etc. are becoming the norm) and users want their business tools to enable this change. Employees also want to limit

their need to carry and manage multiple devices. The answer? Bring your own device to work.

In this Alert, we highlight some of the issues that organisations need to consider when formulating policies and

procedures designed to cope with the transition to a bring your own device strategy.

Understandably, IT departments have always been keen to retain absolute control over the office environment and

therefore resisted putting any non-company (i.e., non-trusted) devices on the company network. However, IT

departments are now under increasing pressure to support – and, indeed, encourage – the use of personal devices for

work purposes.

IT departments are embracing the trend on the basis that it can help save costs and change the perception of the IT

department as the department of “No”. It has also been shown that employees are more satisfied and productive when

they have more control over what tools they can use. Therefore, it is said to be good for business too, although some

commentators argue that the perceived benefits of “bring your own device” (or “BYOD”) have been overplayed.

Either way, this is not a passing fad. The analysts TechMarket View have recently reported that, in the UK alone, the

BYOD market will be worth £2 billion to UK software and IT services suppliers over the next five years; with five million

employees having adopted BYOD by the end of 2011 and an anticipated rise to around 9.5 million by 2016 – an

increase of 80%.

The BYOD trend leads to considerably more complexity for IT departments in terms of how they manage and support

end users. Organisations also need to grapple with the potential legal and regulatory issues raised by employees

using their personal devices for work purposes. Unhelpfully for organisations in regulated industries – especially

financial services – regulatory bodies have been slow to react and provide guidance on how BYOD applies in those

sectors.


Client Alert. DATA SECURITY

Data security and the risk of data “leakage” has always been a key concern for organisations. The use of company

phones, laptops and other mobile devices increases that risk – because, by their very nature, these devices are more

easily lost, stolen and accessed. The risk is further compounded when employees start using their personal devices

for business purposes as part of a BYOD strategy.

One of the key challenges in designing a strategy to implement BYOD successfully is how to ensure data security on

non-company equipment – primarily as a result of it being harder to keep track of where data may actually be, how

data is protected and the difficulty of policing the use of personal devices.

In addition, organisations now need to grapple with the different scenarios raised by their employees’ use of corporate

data in different applications, such as what happens if an employee puts corporate data into a non-corporate supported

location (e.g., an application like Dropbox – which is becoming increasingly popular for both personal and work

purposes). These types of third party application may not have been vetted by IT or the company’s in-house legal

team and their terms and conditions may allow the third party extensive rights in terms of the data stored and/or have

wide exclusions of liability for data loss. This is more likely to be the case where the applications were originally

developed as consumer tools and not intended to store sensitive corporate data.

It is probably not practical these days to take the policy position that sensitive corporate data cannot be stored on

personal devices. Even if an organisation takes this position, how likely is it that an employee will actually comply?

Many organisations approach this issue by understanding that users, and the content that they generate and consume,

vary in the level of information sensitivity depending on their functional roles and needs. An organisation needs to take

a nuanced approach to take account of individual users and the types of data accessed on their devices.

It is not simply a question of analysing how to ensure compliance with existing security policies – it may be that

different security policies are required to replace existing security controls that simply do not work in the context of

personal devices. Companies must understand that employees tend to value convenience over security and take this

into account when formulating security policies – if you make the policies too restrictive, employees will simply ignore

them or find a way to circumvent them.

Organisations also need to consider up-front the appropriate corporate response if a security breach occurs in relation

to a personal device. Most organisations will wish to deploy remote wipe capability, but they need to consider the HR

impacts of such a strategy, as discussed further below.

DATA PROTECTION AND PRIVACY

In addition to data security generally, the data protection and privacy implications of a BYOD strategy are considerable.

Most countries have laws specifically dealing with the use and storage of personal data and requiring organisations to

protect and ensure against the implications of loss of that data, together with rules regarding the retention and

destruction of personal data. Compliance with data protection laws becomes significantly harder if the device on which

that data is stored is not owned or controlled by the enterprise itself.

Of course, it is not just a question of compliance with data protection laws (and the legal penalties for failing to comply)

– there can also be huge reputational issues if a company is shown to be poor at safeguarding personal data.


Client Alert. OWNERSHIP OF DATA AND MATERIALS

There is also the question of who owns the data stored on a personal device. In terms of corporate data stored on an

enterprise-provided device, the question of data ownership is pretty straightforward. Similarly, it is generally clear cut

that any materials created by an end user using an enterprise-provided device will be owned by the enterprise because

they will have been created in the course of the end user’s employment.

However, the position is less straightforward when the employee uses a personal device for business purposes. To

what extent is there a split in the ownership of data between the employer and the end user, depending on the nature

of the data? An enterprise would not expect to own an employee’s photos or personal files, but what about an

employee’s contacts?

Also, when an end user creates materials using a personal device, who owns the intellectual property rights (“IPR”) in

that material? In some situations, it may be clear whether or not the material was created in the course of the end

user’s employment, but in others it may not be so clear – for example, if a software developer uses his personal

computer to create new code not at the request of the company but as a personal project, should his employer own the

copyright in that code? Typically, a company will require that all IPR created by an employee (whether at work or

outside work) is owned by the company but in this context it is even more important to ensure that this issue is covered

appropriately in the employee’s terms of employment.

LICENSING

The licensing implications of a BYOD strategy are often overlooked.

Organisations often forget to check, for example, the scope of their Microsoft licences within the enterprise when

employees use personally owned mobile devices or laptops to access a virtual desktop, either from home or the office.

Such use may not be permitted within the existing licence terms or may incur additional licence fees (as some licences

may be granted on a per device basis, rather than per user basis).

Licensing issues will need to be considered carefully when formulating a BYOD strategy to ensure that the organisation

remains compliant.

LEGAL AND REGULATORY COMPLIANCE

A major risk for any enterprise that allows non-standard devices in the workplace is how to ensure and demonstrate

regulatory compliance. This is a particular challenge for regulated industries such as healthcare, pharmaceuticals and

financial services. But there are other laws, such as the U.S. Sarbanes-Oxley Act (which imposes an onus on public

companies to closely monitor financial and accounting activities) where compliance becomes more difficult depending

on the more diverse the population of IT devices in use.

In considering regulatory compliance, there are several key issues that should be addressed. These include where the

data is stored, what the implications of that storage are and what happens if a device is lost or stolen or when

employees leave the company.

INDUSTRY STANDARDS

There is also the question of how to ensure compliance with applicable industry standards (for example ISO 27001,

PCI:DSS etc.). Organisations will need to carefully consider how to incorporate non-corporate assets into applicable

risk management strategies.


Client Alert. INVESTIGATIONS AND LITIGATION

Employers will clearly have less access to data stored on a personally owned device, but may need or want to obtain

access for the purposes of investigations or litigation. Organisations need to ensure that their employees agree to

make their personal devices available if the organisation reasonably requires them for investigation purposes or they

are subject to a discovery request in the context of litigation affecting the company. (Of course, even if an employee

signs a document promising to give access to the device in such circumstances, that doesn’t necessarily mean that a

court will enforce that agreement.)

INSURANCE

An issue that is sometimes overlooked is that of insurance. Organisations will need to check that their data

security/cyber risk insurance covers devices owned by employees to ensure that they are not exposed in the event of a

security breach. Any insurance policy which only covers devices owned by or leased to the organisation will need to

be revisited.

EMPLOYEE ISSUES

Many of the issues brought up by BYOD involve compliance with HR law, largely because many of the typical

corporate policies that exist in the workplace today were developed in a world before BYOD. Some of the issues that

will need to be carefully considered when formulating a BYOD strategy are as follows.

Who should own the device? Ownership will impact how the company approaches some of the risk and liability issues relating to the device.

Who should be responsible for the cost of personal devices used for work purposes? In some countries, the law requires an employer to provide all of the tools that an employee needs to carry out their job. Could this result in the employer having to reimburse an employee’s costs?

Should the BYOD programme be optional or mandatory? Typically, it is considered best to make it optional for employees to use their personal devices for work purposes, by allowing them to choose to use company-issued devices instead. This helps show that an employee’s decision to use a personally owned device (and to agree to the related terms and obligations imposed upon the employee in relation to its use) was voluntary.

If employees are only allowed to choose from a limited number of devices (which, for example, do not cater to employees with special needs due to disabilities) or the BYOD scheme is only open to certain types of staff (e.g., full-time staff only), the company will need to consider whether there could be a risk of discrimination claims.

Employers need to consider how responsibility for security is shared. Who is responsible for anti-virus updates, etc.? At a minimum, you would expect an employer to mandate certain appropriate security measures to be enabled by an employee before being able to use their personal device for work purposes. Policies also need to be very clear as to the procedure the employee must follow in the event of a lost or stolen device.

Employers also need to consider what happens if the device fails. Whose responsibility is it to fix or replace faulty devices?

The question of data protection and privacy compliance is not just an issue in terms of protecting customer data. It is also a key issue in terms of the personal privacy of employees. It is worth noting in this context that there are some countries where storing business data on a personal device may not even be permitted under applicable privacy laws, so a global BYOD programme may not be appropriate – it is likely to need tailoring to meet regional requirements.


Client Alert. o A number of data protection and privacy issues will need to be considered up-front. For example, to what

extent should the employer have access to an employee’s personal data stored on their device? Can data be appropriately segregated between corporate and personal data? Also, what kind of monitoring and audit access is going to be appropriate in terms of a device which is used for both personal and work reasons? To what extent is monitoring of an employee’s personal device even permitted under applicable privacy laws? What about unintentional consequences – for example, that the organisation may, in effect, be able to track an employee’s whereabouts, both during and outside work hours (using GPS and WiFi location data)?

o Another key issue to consider is to what extent should the employer be entitled to remotely wipe, brick or block devices in the event of a security incident? Although it is possible to wipe company data only where it is segregated from other data in an encrypted “sandbox”, some remote wiping software will not just wipe the company data, but all data on the device (including, for example, any personal photos and music files).

o In terms of data protection and privacy, simply including clauses in an employee’s contract of employment is unlikely to satisfy the requirements of applicable law. It will be important to bring any conditions that may be considered onerous to the attention of the employees. Particularly in the case of wiping, it is essential that employees are informed in the clearest terms of the potential risks and that employees sign up to appropriate clear, voluntary and express consents/waivers.

Employers also need to consider to what extent they should restrict anyone except the employee from using the device (e.g., should they prevent an employee’s family members from being able to use the device).

To what extent should the employer control the use of apps? A company may wish to blacklist particularly risky apps. What about apps that may be considered to affect productivity – should an organisation try to block these or restrict their use during working hours?

To what extent should an employer control the use of a camera on a personal device in the workplace?

How does an employer deal with the potential consequences of different personnel using different devices, particularly if this makes certain employees more productive than others?

To what extent can an employer control the use of a personal device by an employee? To what extent is an employer liable if an employee breaches copyright law by carrying out illegal downloads etc. on their device? What about if an employee accesses unlawful or inappropriate material?

If an employer has existing restrictions in place regarding the use of social media, are these really going to be enforceable on a device used for both work and personal purposes? Employers should also consider to what extent they are able to place restrictions on how employees use their personal device during work hours.

Another key concern is how to deal with corporate data that is stored on personal devices when an employee leaves the organisation. There is always a risk that a departing employee, particularly when leaving to join a competitor, may be keen to bring corporate data to their new job. If the employee is using company systems, any attempt to do so can usually be identified, but if the information is stored on a personal device this will be more difficult to police.

What are the implications for work-life balance? Across most of the EU, there is now a 48 hour limit on a working week, but how does that apply when studies show that 66% of people read e-mails 7 days a week and expect to receive a response the same day, and 61% of people continue to check e-mail while on vacation? The likelihood that employees will send and receive e-mails outside of work or office hours is clearly increased where the employee uses a personal device for work purposes (e.g., an employee may decide to leave their work phone at home whilst on vacation, but an employee won’t leave a personal phone at home).


Client Alert. On a related note, in the U.S., organisations need to carefully consider whether the use of a personal device for work purposes could impact an employee’s non-exempt status under the Fair Labor Standards Act and the potential consequences. Employees may be considered “working” if they send or receive e-mails outside of work or outside of office hours, triggering the potential for overtime payments. As above, this risk is greater where the employee is using a personal device for work purposes.

A final key consideration is how to inform, educate and train employees concerning the implications of using their personal devices for work purposes. Employees need to be reminded that all company policies continue to apply to their conduct when using a personal device for work (including policies relating to confidentiality, etc). It is important to get this right as arguably the best defence against data security breaches is well informed employees.

CONCLUSION

Organisations cannot resist the consumerisation trend. It is not a passing trend, but here to stay – and if an enterprise

tries to resist it, increasingly tech-savvy employees are likely to find a way to circumvent the restrictions imposed.

The key is to try to take a pragmatic approach and put in place appropriate policies to try to accommodate employees’

desire for increased flexibility and mobility, whilst limiting the potential risks created by such an approach. These

policies will need to be reviewed regularly and evolve over time to keep up-to-date with changes in technology and

applicable law.

BYOD is not just an IT department issue but also a business issue and organisations need to ensure that they do not

simply focus on the obvious IT risk and issues such as data leakage, etc., but collaborate with all relevant stakeholders

and consider all relevant legal, HR and finance considerations. We all want to work “smarter”, but this should not be at

the expense of working safely.

Contact:

Susan McLean

+44 20 7920 4045

[email protected]

Alistair Maughan

+44 20 7920 4066

[email protected]

About Morrison & Foerster:




Companies to Work For.” Our lawyers are committed to achieving innovative and business-minded results for our

clients, while preserving the differences that make us stronger. This is MoFo. Visit us at www.mofo.com.

Because of the generality of this update, the information provided herein may not be applicable in all situations and

should not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a

similar outcome.


Client Alert. 25 May 2012

Corporate Websites: Be careful who you’re linking with


The English High Court has opened up the possibility that, even if a website is not itself defamatory, if it hyperlinks to a

different website which is defamatory, the operator of the originating website could still be liable for alleged defamatory

postings on the hyperlinked website. This represents a further reason to be cautious about linking to external sites from a corporate website. The case also illustrates the issues faced by internet service providers (ISPs) in establishing defences

to liability claims under UK law.

The case which triggered this ruling is McGrath v Dawkins and others [2012]. The case arose after Chris McGrath self-published a book called The Attempted Murder of God: Hidden Science You Really Need to Know under the name

“Scrooby”. In an attempt to market his book, McGrath posted a purported review of a book by Professor Stephen

Hawking on Amazon UK’s website criticising Professor Hawking’s book and plugging his own book. This “review” generated a lot of comments and one of the most active participants in the thread was a Mr Jones. He exposed McGrath

as the author of the Scrooby book and, in the context of a heated online debate with McGrath, criticised him with such

words as “fraud” and “phony” and characterised him as a “creationist”. Jones then opened a thread on the richarddawkins.net website on the same topic.

McGrath brought a defamation action, not only against Jones but also against Professor Richard Dawkins himself, the

Richard Dawkins Foundation for Reason and Science and against Amazon UK. The defendants applied for a summary judgment ruling against McGrath. The Dawkins Foundation relied in part on the point that it was not responsible for

publication of the allegedly defamatory comments on the .net website because a U.S. company, rather than the

Foundation, operated the website. Amazon claimed the protection of the fairly typical ISP defences under Section 1 of the Defamation Act 1996 and regulation 19 of the UK e-commerce regulations.

THE STATE OF PLAY ON HYPERLINKS

One of the questions to be considered by the court was whether McGrath was entitled to bring a defamation claim against the Richard Dawkins Foundation as it did not operate the .net website (in fact, it was operated by a U.S.-based sister

company). The UK website, richarddawkins.org, had no open-access forum. The reason behind this was specifically to

protect the assets of the UK website operator from liability for defamation for third party contributions. The U.S. company would have been potentially liable for publications accessible in the UK but UK libel judgments are, in effect,

unenforceable against U.S. assets for constitutional reasons (the very reason why McGrath sued the UK company, rather

than the U.S. sister company).

McGrath accepted that the servers and registration of the .net website were located in the U.S. but still contended that the

.net website was run from the UK. In its judgment, the court accepted McGrath’s contention that, if you clicked on the

“Home” button of the .org website, you were directed to the .net website and to the index of the relevant forum without any notification to the user that he/she had been switched to a different website. The court noted that UK law on liability for

hyperlinks is currently uncertain and held that it was appropriate for the question of liability to be considered at trial,

thereby raising the possibility that the Foundation could be considered liable for Jones’s posts.


Client Alert. Whilst we await a full trial on the issues, this is a reminder that website operators should be mindful of their potential

liability for defamatory statements when including hyperlinks on their website. This is particularly the case where the website includes links to a group company’s website or a website that is closely connected to the originating website’s

business. In such circumstances it would be prudent, at a minimum, to make it clear to users when they are being re-

directed to a third party website.

ISP LIABILITY

The other interesting side to this case is the scope of ISP liability to which Amazon may have been exposed as a result of the posting of allegedly defamatory comments on its website.

Under UK law, there are a couple of areas that ISPs can look to for protection:

Section 1 of the Defamation Act 1996 provides that a person has a defence to an action for defamation if they: are not the author, editor or publisher of the statement complained of; take reasonable care in relation to its publication; or do not know, and have no reason to believe, that their actions caused, or contributed to, the publication of a defamatory statement. To protect intermediaries such as ISPs, companies providing equipment, systems or services to enable electronic communication are excluded from the definitions of “author”, “editor” or “publisher”.

Regulation 19 of the UK e-commerce regulations also protect ISPs by providing that an entity which hosts information provided by a recipient of the online service will not have any liability arising from its storage of the information as long as it has no actual knowledge of any unlawful activity or information; and if, on obtaining actual knowledge of the unlawful information or activity, it acts expeditiously to remove or disable access to the material.

Unfortunately for Amazon in this case, defendants generally face a harder task to establish the Section 1 defence to a claim under the Defamation Act, compared with the ISP liability defence under the e-commerce regulations. So it proved

in this case because Amazon succeeded with its Regulation 19 defence but not with the Defamation Act defence.

It was accepted by the court that Amazon was not an editor or publisher of the comments – partly because the posting of comments was part of an automated process. But the very automation of the process meant that it was unclear whether

Amazon had taken reasonable care in respect of the publication of the comments on its website. The court held that, on

the evidence so far before it, it was insufficiently clear that Amazon had taken reasonable care for it to succeed on a strike-out application in relation to McGrath’s Defamation Act claim.

For a related discussion on liability for third party defamatory statements published online, please see our article “Can You

Shoot the Messager? Social Media and liability in the UK for defamatory third party content”, which was published in our April 2011 edition of Socially Aware.

Contact:

Susan McLean

+44 20 7920 4045

[email protected]

Alistair Maughan

+44 20 7920 4066

[email protected]


Client Alert. About Morrison & Foerster:

We are Morrison & Foerster—a global firm of exceptional credentials in many areas. Our clients include some of the largest financial institutions, investment banks, Fortune 100, technology and life science companies. We’ve been


Companies to Work For.” Our lawyers are committed to achieving innovative and business-minded results for our clients, while preserving the differences that make us stronger. This is MoFo. Visit us at www.mofo.com.


not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar outcome.


Client Alert.18 May 2012

Planning for Outsourcing’s Exit

By Alistair Maughan and David Varney

As the average duration of outsourcing contracts continues to become shorter, the issue of exit grows in importance. By

tradition, best practice in negotiating exit terms has been: plan it early, and work hard to make it uncontroversial.

Sometimes, a case comes along and helps to remind us why a pre-contract focus on exit is important. A recent UK case, AstraZeneca v IBM, reinforces the importance of addressing the termination and exit provisions of an IT services

agreement at the time of signing, rather than when the time has come to exit that agreement.

BACKGROUND

The case arose out of a July 2007 Master Services Agreement (MSA) between IBM and global biopharmaceuticals

company AstraZeneca for the provision of IT services. AstraZeneca terminated the MSA in April 2011, triggering (so

AstraZeneca thought) various exit provisions, including an exit plan to bring the services back in-house or to transfer them

to another provider. This gave rise to a dispute between the parties regarding the interpretation of those aspects of the

MSA relating to IBM’s provision of exit services.

The English High Court reviewed the meaning of various outsourcing termination assistance and exit obligations. The court’s judgement is heavily centred upon judicial interpretation of the terms of the MSA, but nevertheless provides

some useful guidance for the negotiation and drafting of IT outsourcing contracts. The task of the court was to ascertain

the meaning which the MSA would convey to a reasonable person having all the background knowledge which would

have reasonably been available to the parties in the situation which they were in at the time of the contract, but excluding

their previous negotiations and declarations of subjective intent.

The court’s judgment will probably provide more encouragement to customers than to service providers because, for

example, it refused to limit artificially the bounds of IBM’s multi-client environment which IBM would have to deploy to

support AstraZeneca’s exit, and it allowed AstraZeneca to dictate the rate and shape at which individual services would

be transitioned away.

However, even though this was an English law case, the main lessons of this situation are universal:

Exit will generally always be a difficult time when emotions are likely to run high and the parties are clearly heading in different directions. The job of the Exit Schedule should be to remove controversy, not to fuel it.

Be very aware of how shared infrastructure (contracts, technology, personnel) can be split; understand the self-sufficiency plan.

It is amazingly common in the outsourcing industry for parties to agree in advance that an initially high-level exit plan will be turned into a detailed exit plan within a few months of contract signing – and then not to do so! This is a key trap to avoid.

Pay as much attention to defined terms in schedules and annexes as to defined terms in the main agreement.


Client Alert.SCOPE OF IBM’S EXIT OBLIGATIONS

One of the central issues in the case concerned IBM’s obligations to provide services to AstraZeneca after AstraZeneca

had terminated the MSA. IBM had to perform certain contractual obligations during the exit period, but was also obliged

to provide “shared services” to AstraZeneca for up to 12 months after the end of the exit period. Shared services were

services provided by IBM to AstraZeneca under the MSA which were shared with other customers of IBM. The MSA

provided that, if requested by AstraZeneca, IBM would provide the shared services for up to 12 months after the end of

the exit period, as any replacement supplier might experience difficulties taking on the provision of these shared services.

The MSA defined the concept of shared services by reference to “shared infrastructure”, which was not defined in the

MSA. The court found that the term “infrastructure” was used in the MSA to represent a variety of meanings, and held

that the meaning of “shared infrastructure” ought to be determined in light of the overall context of the MSA. IBM sought

to limit the services that it would need to provide to AstraZeneca during and after the exit period; the way in which shared

infrastructure was construed was important in this context.

IBM submitted that the shared services were limited to situations where IT infrastructure, such as servers or software, was

used by IBM for more than one customer. AstraZeneca claimed that shared services should be construed in a wider

sense and included the underlying services to these infrastructure components, such as staff, physical and logical

security, electricity supply and air conditioning required for the maintenance and effective use of data centres and server

rooms. The court found that the definition of infrastructure had been used inconsistently in the MSA but was wide enough

to include all the equipment, systems and facilities at IBM’s data centres.

RAMP-DOWN

The court also had to consider whether AstraZeneca had a right to select which of the shared services it required IBM to

continue to provide during the exit period. IBM submitted that AstraZeneca was not permitted to ramp down the services

as AstraZeneca saw fit. The court decided that the exit plan contemplated by the MSA meant that, by the end of the exit

period, those services which were being terminated were to be transitioned back to AstraZeneca or another supplier, and

there was no reason why these services could not be transitioned on an individual basis. Accordingly, it was held that the

terms of the MSA permitted AstraZeneca to select which services it wished IBM to continue to provide post-termination.

DURATION OF EXIT PERIOD

The court also ruled on the duration of IBM’s obligations to provide exit assistance to AstraZeneca. AstraZeneca

submitted that IBM was required to provide exit assistance until all responsibilities were transferred to AstraZeneca or a

successor supplier, irrespective of the end of the exit period; whereas IBM claimed that it had no obligations after the

expiry of the exit period (save in regard to the shared services which had not yet been transferred). The court held that,

save for its obligation in respect of the shared services, IBM was not under any contractual obligation to provide services

to AstraZeneca after the end of the exit period.

FIXED FEES?

The MSA provided that AstraZeneca would pay a fixed fee to IBM for termination assistance during the exit period, but the

value of this fixed fee had been left blank when the MSA was executed. At trial, IBM submitted that it could not provide a

valuation of the fee for the provision of exit services until AstraZeneca had submitted an IT transfer plan providing IBM

with an indication of what AstraZeneca required to transition the services, and how long AstraZeneca expected such


Client Alert.transition to take.

The court dismissed IBM’s argument, stating that IBM could set an initial fixed fee without this information from

AstraZeneca, although the court recognised that the provision of an IT transfer plan and the duration of the exit period

would influence the fixed fee, and that the amount of the fixed fee might change based on these dependencies.

IMPLICATIONS

This case highlights the need to remove any potential ambiguities from exit management provisions in an IT services

agreement at the time such an agreement is entered into. It should be considered at the time of negotiation that any

interpretation of contractual terms by the courts may act against a party’s interests. To avoid unclear wording and achieve

a clear contractual plan for exit provisions, an IT outsourcing agreement should provide a carefully detailed exit framework

which should be regularly reviewed and updated between the parties prior to the exit.

There are several key steps to follow when addressing exit issues in an outsourcing or IT services arrangement.

1. At a minimum, focus on the core underlying principles of exit management before the contract is signed.

2. If you agree to work from an initial high-level exit plan to a detailed exit plan within a few weeks or months of

contract start, do so and don’t forget it.

3. Any exit plan should distinguish between assets (of all types) which are used exclusively to support that customer,

and multi-client assets. Work out the self-sufficiency plan for both sets of assets.

4. Know how much input and assistance is required from the service provider on exit.

5. Agree in advance the cost implications. Try to resist confusing the cost and consequences of effecting a safe and

smooth exit with the implications (and possible claims arising from) the circumstances which led to termination.

There is no shame in paying for exit, even if it’s caused by service provider default, if the result is a smooth

transition to another platform with no loss of continuity.

Contact:

Alistair Maughan

44 20 7920 4066

[email protected]

David Varney

44 20 7920 4058

[email protected]


Client Alert.About Morrison & Foerster:




Companies to Work For.” Our lawyers are committed to achieving innovative and business-minded results for our clients,

while preserving the differences that make us stronger. This is MoFo. Visit us at www.mofo.com.


not be acted upon without specific legal advice based on particular situations. Prior results do not guarantee a similar

outcome.

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