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Blog / Let’s get contractual: English courts provide clarity and certainty in commercial contract litigation


28 March 2019

While certain UK cabinet ministers have been criss-crossing the globe exhorting the value of “innovative” jams and other British goods in an attempt to sweeten the pot for potential post-Brexit trading partners, one of the country’s greatest commercial exports has sadly received much less press coverage – its common law. Despite the rampant uncertainty surrounding the United Kingdom’s exit from the European Union, one thing has held steady throughout – the popularity of the English courts as a venue for international dispute resolution and the certainty that precedent-based English law can provide for contractual parties. The case law on contracts emanating from these courts is one of the most perennially sought-after topics among Lexology subscribers, so in this post we take a look at a few judgments that have really resonated with contributors and readers lately – and their implications for businesses.

Variation

When a case raises “truly fundamental issues in the law of contract” according to the UK Supreme Court, heads far and wide will inevitable turn in its direction; enter Rock Advertising v MWB Business Exchange Centres. The court’s decision puts to bed any lingering doubts over the enforceability of ‘no oral modification’ (NOM) clauses in commercial contracts, overturning the previous case law against them as being “entirely conceptual”. The Supreme Court brought things back to earth by upholding a NOM clause in a licence to rent serviced office space, nodding to the perfectly valid commercial reasons why a party may wish to prohibit subsequent oral variation of a contract (eg, to avoid any chance of misunderstanding); this should bring welcome assurances to companies seeking to ensure that the business relationship stays strictly within the formal bounds of the written agreement. Osborne Clarke provides an insightful overview of the case here. DAC Beachcroft considers the verdict’s impact on the construction industry, while DLA Piper frames its own review from the perspective of the energy sector and Womble Bond Dickinson examines the consequences for lenders.

Formation

While not breaking the same ground as Rock Advertising, the Supreme Court gave a much-needed shot in the arm to the principles surrounding the formation of oral contracts in Wells v Devani. The dispute centred on a phone call between an estate agent (Devani) and a property owner (Wells) wherein both agreed that Devani would sell the property at a given rate of commission. But Wells cried foul, claiming no intent to create legal relations due to the lack of an agreed trigger for payment falling due. The Supreme Court disagreed, finding that the combination of the parties’ words and conduct giving effect to those words amounted to a binding contract. RPC provides an impeccable summary here, while Hardwicke delves a little deeper into the details here. Notably, the court also touched on that persistently murky question in English law: when can a term be implied in a contract?

The Court of Appeal has also emphasised the importance of actions taken off the back of agreed terms before a formal agreement is signed in Arcadis Consulting (UK) Limited v AMEC (BCS) Limited, finding that a letter of intent constituted an interim contract once Arcadis began to perform work under its auspices – see Bird & Bird’s write-up here, while Charles Russel Speechlys breaks down the case for the construction industry here.

Meanwhile, the High Court’s decision on a strike-out application in Rosalina Investments Ltd v New Balance Athletic Shoes (UK) Ltd underlines the due regard that must be given to the entirety of the parties’ communications and intentions in determining whether a binding contract has been formed by correspondence. The case stemmed from the negotiation of a new product endorsement agreement between New Balance and former Premier League footballer Marouane Fellaini – the talks ultimately fell through and New Balance pulled out, yet Fellaini’s management claimed that a new contract had been concluded through the circulation of emails and draft agreements over several months. Examining the content of the correspondence, the judge found that no such contract existed, pointing to the parties’ consistently stated need to sign the agreements exchanged between them and the fact that several crucial terms had yet to be agreed. CMS provides a tidy review of the case here.

The High Court considered similar circumstances in Rotam Agrochemical Co Ltd v GAT Microencapsulation GmbH and reached a similar conclusion that no binding agreement existed following negotiations between two companies to produce an agricultural herbicide; Addleshaw Goddard provides a report here.

Frustration

We inevitably wheel back around to Brexit: most prominently, perhaps, is the High Court’s recent decision in the spat between the owners of Canary Wharf and the European Medicines Agency (EMA), which due to the United Kingdom’s departure from the European Union sought to terminate the 25-year lease on its London headquarters on the grounds of contract frustration. In denying the EMA such satisfaction, the court reaffirmed the difficulty of successfully establishing frustration. Vinson & Elkins walks you through the essentials of the case here, while Allen & Overy takes a deeper dive into the doctrine of contract frustration here. Rather than attempting to jump this high bar in litigation, availing of force majeure and material adverse change clauses – if drafted correctly – may be a more advantageous way out of contractual obligations when unforeseen events arise; Travers Smith takes an insightful look at these in the context of Brexit here.

… And further illumination

This is of course just a small clutch of cases that have made their way through the English courts; to keep abreast of all the latest developments in the case law on all things contractual, be sure to subscribe to Lexology’s Company & Commercial newsfeed and have a gander at our Company & Commercial content hub.