Commercial Litigation

Penalty Rule principles restated

In the consolidated appeals in El Makdessi and ParkingEye the Supreme Court has restated the principles underlying the penalty rule. Allowing the appeal in El Makdessi; holding that the relevant contractual clauses were not unenforceable penalties. Dismissing the appeal in ParkingEye; holding that the £85 parking charge was not an unenforceable penalty and did not breach the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCR 1999).

When considering whether a clause is a penalty it is necessary to ask:

  1. is there a justification for the clause(s); and if there is;
  2. whether the clause is unconscionable or extravagant. 

This decision does not change the law regarding penalties but does clarify the 'true test' from previous authorities over the past century. For the full judgment please click here.

An unwelcome decision for traders. No jurisdiction over successive road carriers

In British American Tobacco Denmark A/S and others v Kazemier Transport BV, and British American Tobacco Switzerland SA v H Essers Security Logistics BV and another [2015] UKSC 65 the Supreme Court has clarified that jurisdiction cannot be founded against sub-contractors under the Convention on the Contract for the International Carriage of Goods by Road 1956 (CRM) by relying on the presence in England of, and proceedings against, the main contractors and/or a provision in the main contract for English jurisdiction. 

The claimants contracted under a framework agreement with an English company, Exel Europe Ltd (Exel), for the carriage of cigarettes. The framework agreement provided for English law and exclusive jurisdiction of the English courts.

Exel subcontracted the carriage to two Dutch companies again contracting on English law and jurisdiction.  Two CRM consignment notes were issued and signed by or on behalf of the respective sub-contractors. The containers were allegedly: i) highjacked in Belgium and; ii) cigarettes stolen from the second container in Denmark.

The claimants brought proceedings in England against Exel and sought to join the sub-contractors to the proceedings.  The case considered CRM articles 31.1, 34 and 36 and despite the commercial logic of recognising a jurisdiction to receive claims against all three carriers in one set of proceedings, the Supreme Court found that the language of the CRM 'points clearly in the other direction'.

It was held that the subcontractors (as successive carriers under the CRM) could not be bound by a choice of court clause (contained in the framework agreement), or any other contractual clause not evidenced by the CRM consignment note.  Further jurisdiction arguments by the claimants under CRM Article 31.1 and Article 6.1 of the 2001 Brussels Regulation also failed. Allowing the appeal the Supreme Court restored the order of the High Court setting aside the proceedings against the sub-contractors.  This case means that for relationships governed by the CRM that if you want claims against sub-contractors to be heard in a particular forum that consignment notes issued to sub-contractors must include an appropriate jurisdiction clause.   For the full judgment please click here.

Consumer

Revised Pricing Practices Guide out for consultation

The revised Pricing Practice Guide (PPG) has been published in draft for consultation. It is available to download here and the closing date for responses is 6 January 2016.

The revised PPG is significantly different from the existing guide and is likely to directly impact upon the way businesses approach pricing promotions.  It is particularly relevant to grocers as it is intended to provide clarity in respect of certain promotional practices which were identified by the CMA in its response to the Which? super-complaint including:

  • establishing an earlier reference  ('was' price)
  • setting out whether, and in what circumstances, it is appropriate and not misleading for the prices of individual products to change before and during a volume promotion
  • clarifying the circumstances in which stating an end date for promotions would be appropriate and the specific application of this to online purchases.

The key change is a shift from a prescriptive to a principles based approach. The result is that some of the well established guidelines are gone. For example, there is no longer  the "28 day rule" in respect of establishing a reference price for promotions such as "Was £20, now £10".

In our view, the revised PPG provides retailers with little practical guidance and does not provide the clarity requested by the CMA. We therefore anticipate that businesses will be required to develop their own guidelines to ensure that marketing teams understand what is and what is not acceptable from a consumer protection law perspective.

Intellectual Property

IPEC awards substantial additional damages for flagrant breach of copyright

A recent Intellectual Property Enterprise Court (IPEC) decision highlights the importance of ensuring promotional/illustrative images (e.g. of products sold online) are independently created or validly licensed for use.  Additional damages in the value of twenty times the compensatory damages were awarded where a flagrant breach of copyright was found.  The decision demonstrates how a copyright infringement claim presents an effective cause of action to prevent the unauthorised use of product images by a competitor, and also provides useful guidance on how the level of compensatory damages can be calculated in practice.

Facts

The claimant, Absolute Lofts, is a provider of loft conversion services in the London area.  Following the completion of conversions, Absolute Lofts, with the permission of the home owners, takes photographs of the completed works to publish on the Absolute Lofts website to attract new business and customers.

The first defendant, Artisan, was also, between early 2010 and April 2015, a provider of loft conversion services under its sole director and shareholder, the second defendant, Mr Ludbrook. In May 2014, Absolute Lofts wrote to Artisan complaining of Artisan’s use of 21 images on its website that had been taken from the Absolute Lofts website.  The website was shut down in the middle of May 2014 and those 21 images were removed and subsequently replaced by 21 licenced images (purchased from a stock photograph library). The website then went live again, and was active until Artisan went into liquidation in April 2015.

Decision

Mr Ludbrook admitted that Artisan infringed Absolute Lofts’ copyright in the 21 images, and accepted joint liability with Artisan for the infringement. This left two issues for determination.

  • The amount of compensatory damages

Judge Hacon made his assessment of the calculation of damages according to the user principle (which both parties agreed should be applied).  This assessment is made on the theoretical basis of “what the parties would have agreed as willing licensor and willing licensee”, on the premise that the parties would have entered into negotiations immediately before the acts of infringement.

In this instance, it was assumed that Mr Ludbrook would have known he needed images for Artisan’s website that would need to be sourced elsewhere, and that he wished to use Absolute Lofts’ images. Short of taking the photographs himself, Mr Ludbrook had two options: to arrange a photographer to take the photographs; or to purchase images from a photographic library.

Absolute Lofts contended it would have cost Artisan around £9,000 to commission a professional photographer, whereas Artisan estimated it to be between £700 to £1,000. Judge Hacon found the representations of experts for both parties unhelpful, as they were based on the false premises that: Mr Ludbrook wanted professional shots on Artisan’s website, where the photographs used by Absolute Lofts (whilst adequate) were not of a professional standard; and Mr Ludbrook would have contemplated paying for customised photographs of actual loft conversions, which seemed highly unlikely.  Judge Hacon noted Mr Ludbrook was “prepared to use the cheapest images that looked good enough and could pass for photos of loft conversions done by Artisan”.

As regards the second option, when faced with Absolute Lofts’ letter before action in May 2014, Mr Ludbrook sourced images from a photographic library, at the cost of £300. On this basis, Judge Hacon commented that this was “as good a guide as any”, and an initial sum of £300 was awarded to Absolute Lofts.

  • Entitlement to, and the amount of, additional damages

Absolute lofts sought additional damages under with s.97(2) of the Copyright Designs and Patents Act 1988 (CDPA) or, alternatively, under art.13(1) of Directive 2004/48/EC on the Enforcement of Intellectual Property Rights (Enforcement Directive), which imposes requirements as to the nature of the measures, procedures and remedies a Member State must make available with respect to the enforcement of intellectual property rights.

Judge Hacon was directed to Nottinghamshire Health Case NHS Trusts v News Group Newspapers Ltd in which it was held that additional damages in accordance with s.97(2) CDPA could be awarded due to a “couldn’t care less” attitude on the part of the defendant.  Although on cross-examination, Mr Ludbrook maintained that he gave three original photographs to the website designer, Mr Bhatti, and trusted him to source the additional photographs, Judge Hacon took the view on balance that Mr Ludbrook either knew that the copies of photographs on Artisan’s website were infringing copies or had reasonable grounds to know they were. This was sufficient to engage both s.97(2) CDPA and art.13(1) Enforcement Directive.

Where both s.97(2) CDPA and art.13(1) Enforcement Directive are at play, Judge Hacon held here that a successful claimant is entitled to rely on either (i.e. to choose whichever would provide for greater damages).  Although, he commented that he was unsure that the reference to unfair profits under art.13(1) Enforcement Directive will often be different to those assessed under s.97(2) CDPA.

Reinforcing the wording of art.3(2) Enforcement Directive that the sanctions “shall be effective, proportionate and dissuasive”, and demonstrating that an element of deterrence is more likely to be necessary where there has been knowing infringement, Artisan was ordered to pay additional damages of £6,000

Comment

Although there is relatively little explanation from Judge Hacon in reaching the final sum awarded, this judgment is important in clearly demonstrating the clout which a claim for additional damages under s.97(2) CDPA or art.13(1) Enforcement Directive for flagrancy of breach can have.  In future, this decision will impact upon instances where defendants admit liability or are found liable, not only where they have knowingly breached, but also where insufficient due diligence was conducted and they are believed to have “not cared less” or been reckless as to the source of the original materials.   

Insolvency Procedure

Criminal proceedings for failure to notify BIS of redundancies

BIS has recently announced the details of criminal proceedings it has brought against:

  • three directors of City Link, which went into administration last Christmas; and
  • one director of Sports Direct and an insolvency practitioner, following the administration of USC at the start of 2015, pursuant to section 194 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA).

These are understood to be the first proceedings of their type and relate to the failure of the relevant companies to notify the Secretary of State in accordance with section 193 of TULRCA of their intention to make more than 20 redundancies at one establishment within the required timescale.  At least 30 days' notice is required to be given where between 20 and 99 redundancies are proposed and 90 days' notice where more than 100 redundancies are proposed.

The timescales for notification mirror those which apply under TULRCA in respect of consulting with employees / employee representative about proposed redundancies, where the failure to do so usually leads to a protective award being made against the employer.  Those awards are considered fairly toothless in an insolvency scenario as they generally rank as unsecured claims; therefore the criminal proceedings can be seen as further evidence of the Government wanting to apply more pressure to those dealing with employees in distressed situations to comply with their legislative obligation, no matter what the circumstances might be.

The proceedings against the City Link directors were not successful because it was decided on the evidence that there had been no intention to make redundancies at any time before City Link entered administration, as the directors believed a sale of the business preserving the jobs would be achieved in the administration.

The USC case goes to trial in March 2016.

RIP the exemption from the Jackson Reforms for insolvency litigation?

In February 2015, the Government announced that the exemption applying to insolvency proceedings, which permitted the continued recovery from the losing party of conditional fee agreement success fees and after the event insurance premiums, would remain in place for the foreseeable future.

With the Government declaring an intention to review the way forward for the insolvency profession at the end of 2015, Lord Justice Jackson, in delivering the 2015 Mustill Lecture on 16 October 2015, strongly advocated the removal of the exemption on a number of grounds of principle.  Next move to the Government…..

Rise in petition costs and Official Receiver's fees

As of 16 November 2015, petition costs and Official Receiver's fees in bankruptcy and compulsory liquidations have risen.

A deposit is paid when an insolvency petition is presented to help pay for the costs of the administration of the case. The case administration fee is a fee charged by the Insolvency Service in every bankruptcy and winding up case on the making of a bankruptcy or winding up order. The case administration fee is partly discharged by the deposit paid on presentation of the petition.

The increased fees are as follows:

  • Creditors' bankruptcy deposit petition – from £750 to £825;
  • Bankruptcy administration fee – from £1,850 to £1,990;
  • Company winding up deposit – from £1,250 to £1,350; and
  • Company winding up administration fee – from £2,400 to £2,520.

The fee paid by individuals petitioning for their own bankruptcy will not change from £525.  For further details please click here

Defamation and Privacy

WM Morrison Payroll Disclosure Group Litigation v WM Morrison Supermarkets PLC

On 27 October 2015 lawyers acting for the WM Morrison Payroll Disclosure Group were granted a Group Litigation Order (GLO) by Master Fontaine in the Queen’s Bench Division.

The GLO enables employees of Morrisons (and subsidiary companies Kiddicare and Farmers Boy) to pursue breach of privacy claims against the supermarket. Some 2,000 employees are thought to have joined the group litigation to date.

The case stems from the unlawful disclosure of personal data by a former senior employee at Morrisons’ head office who leaked bank, salary and national insurance details online following a grievance he had with the business. The individual responsible has been convicted and jailed. However, 100,000 employees were affected by the data leak and they are able to pursue civil claims against Morrisons.

Morrisons has already incurred £2m in dealing with the initial data leak. The current claim by affected employees is likely to significantly increase that liability. Damages for breach of privacy are typically lower than damages awarded for libel. However, under Section 13 of the Data Protection Act 1998, there is scope to specifically award compensation for distress, as well as damages for loss, following a data breach. Issues are likely to focus on whether Morrisons took adequate steps to prevent the data loss.

The case will return to the High Court in February 2016 for further directions.