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English contract law cases of 2023: A year of plain sailing

This has been another year of calm stability. Our summary contains little more than cautionary tales and vignettes based on the application of established principles of English contract law.

Two contract cases reached the Supreme Court (Barton v Morris and Sara & Hossein1) but neither makes fundamental changes to our understanding of the law. Both are more of a gentle nudge on the tiller rather than a complete change of tack.

There is good reason for this. English contract law is in good shape after a major overhaul at the end of the last decade; settling the rules on interpretation (Wood v Capita) and making significant revisions to the approach to the implication of terms in fact (BNP Paribas), penalties (Cavendish) and illegality (Patel v Mirza).2

English law’s predictability, depth of judicial precedent and emphasis on upholding and respecting parties’ commercial bargains means it continues to be an attractive choice of law. It has also weathered the macro-economic storms of the last couple of years, such as Brexit and the Covid-19 pandemic. As those events pass into the distance, the decision to keep a steady course, and avoid radical interventions,3 seems to have paid off.

The pipeline for the year ahead also looks relatively dry. There is only one substantive contract case before the Supreme Court4; which appears to have narrow application, and nothing significant is currently expected in the lower courts.

That is not to say that all the loose ends have been tied up. For example, the concept of “indirect and consequential loss” remains unsettled, arguments rage over the meaning of “gross negligence” and no one knows if a claim under a commercial indemnity is limited by foreseeability and mitigation.

The courts are also having to grapple with challenges of new technology such as the ownership of digital assets, smart contracts and contracts formed by autonomous AI agents. However, despite its stability, English contract law has also proven itself to be adaptable to change. With the help of the Law Commission to chart a course,5 there is reason to be hopeful that years of plain sailing lie ahead.

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Contract Law Cases Review 2023

Iterative approach allows Court to go its own way

A dispute arose regarding a lease of commercial premises in Whitechapel and Liverpool. Towards the end of the term of the lease, the landlord claimed £400,000 in service charges (a significantly higher amount than in the preceding or subsequent year). The tenant objected, claiming that the charge was excessive and included unnecessary items and expenses which fell outside the scope of the service charge provisions.

The landlord relied on a provision in the lease which allowed it to certify “the amount of the total cost and the sum payable by the tenant” in relation to the service charge. That amount would be “conclusive” in the absence of “manifest or mathematical error or fraud”.

The parties put forward two competing interpretations of the certification provision.

  • The landlord argued that the provision was clear and unambiguous – the certificate was conclusive of both the amount of the service charge and the sum payable by the tenant. This approach gives effect to the ordinary and natural meaning of the provision, and it accords with commercial logic.
  • The tenant argued that the certificate was conclusive as to the landlord’s costs but not the tenant’s actual liability. Otherwise the landlord would be the sole judge of any disputes outside the permitted defences of manifest error or fraud.

The Supreme Court described both interpretations as “unsatisfactory”. One solution was, subject to manifest error or fraud, a “pay now, argue never” regime. The other would cut across the natural and ordinary meaning of the certification provisions and was an “argue now, pay later” regime.

The Court, by majority decision, preferred its own interpretation and concluded that the certification process imposed a “pay now, argue later” regime. The certificate was conclusive as to the amount payable (subject to manifest error or fraud), but the tenant could subsequently dispute liability for that payment.

Lord Briggs, dissenting, noted the attractiveness of this approach but found no basis for it in the lease; the “court does not in such circumstances have carte blanche simply to make up a solution of its own. It must choose between genuinely available constructions, rather than mending the parties’ bargain”.

What does it mean for you?

This decision is part of a general trend towards a more contextual approach to contractual interpretation. However, there is no substitute for clear and precise drafting. The words used are still the most important factor in determining a clause’s meaning and considering the contract as a whole is vital. Do not expect contextual or iterative interpretation to come to your aid.

“Adopting an iterative approach, this interpretation is consistent with the contractual wording, it enables all the provisions of the leases to fit and work together satisfactorily and it avoids surprising implications and uncommercial consequences” Lord Hamblen, paragraph 57

Where can you read more?

See Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd [2023] UKSC 2 and our client briefing here.

Silence is... golden?

Mr Barton, a property developer, concluded an oral contract with Foxpace, a company which owned a property, Nash House. Foxpace wanted to sell Nash House and the oral contract concerned Mr Barton’s finding a purchaser for Foxpace. The only express terms agreed were found to be that if Mr Barton introduced a purchaser to Foxpace, and Nash House was sold to that purchaser for £6.5m, then Mr Barton would be paid £1.2m.

This situation played out except that, due to an HS2 related issue discovered in the conveyancing process (and not due to any dishonesty on the part of Foxpace), the eventual sale to the purchaser was for £6m.

Foxpace’s position was that Mr Barton was owed nothing as Nash House was sold for less than £6.5m. Mr Barton sued. Was he entitled to any, reasonable, remuneration in these circumstances?

A 3:2 majority of the Supreme Court held that he was not. The majority’s view was that the parties’ agreement that Mr Barton would be paid an amount (£1.2m) upon the happening of a particular event (a sale for at least £6.5m) necessarily meant that there was no agreed obligation to pay in other circumstances. Accordingly, nor could there be an implied term in fact to different effect, as that would cut across the parties’ agreement. Nor could there be a claim in unjust enrichment – the enrichment of Foxpace was not unjust if that was simply the outcome of the parties’ agreement. On the facts, there was also no basis upon which to imply a payment term under any statute, or by way of application of cases on estate agency.

What does this mean for you?

On the majority’s reasoning, the parties’ agreement as to the circumstances of payment (and therefore, necessarily, arguments as to implied terms and restitution) was, essentially, to be treated as exclusive of payment in other circumstances. This, perhaps, is illustrative of the general tradition of English contract law which prizes certainty and party autonomy over judicial intervention. Though the result may seem stark, the case is a lesson in the value of appropriately comprehensive express terms.

“I do not consider that there is to be found in this court’s judgments on this appeal any fundamental disagreement about the underlying legal principles… The real difference between us concerns whether the express term…was a complete statement of the circumstances in which he was promised some reward under the agreement, or only a partial statement…” Lady Rose, paragraph 107

Where can you read more?

See Barton and others v Morris and another [2023] UKSC 3.

An exclusion of "loss of profits" means loss of profits is excluded

EE provided MVNO services to Virgin Media. When 5G arrived, Virgin exercised its right under the contract to obtain 5G services from Vodafone. However, Virgin also transferred its non-5G customers to Vodafone – something EE alleged to be a breach of the exclusivity provisions in the MVNO agreement.

The problem for EE was that the agreement excluded all liability for loss of “anticipated profit” which largely nullifies the damages available if Virgin was in breach. The judgment contains a persistent and determined – but ultimately unsuccessful – attack on the exclusion clause. The key points are:

  • The claim could not be characterised as a “loss of revenue” claim. In accordance with the expectation principle, EE cannot claim for “pure” loss of revenue – i.e. its claim must factor in the cost of providing the relevant services which makes it a loss of profits claim.
  • EE’s attempt to reformulate its claim as a claim for “unlawfully avoided charges” was interesting but entirely unsuccessful.
  • The clause should not be depreciated because it turns the contract into “a mere declaration of intent” (see Kudos v Manchester Convention Centre [2013] EWCA Civ 38). While the effect of the exclusion is to partly nullify the effect of the exclusivity provision, its wording is clear, well signposted and does not denude the agreement of all commercial effect. There is therefore no reason to apply a strained construction on the words (as happened in Kudos). In practice, EE might have been able to get an injunction given the exclusion clause meant damages would not be an adequate remedy (see AB v CD [2014] EWCA Civ 229).

Finally, the case has a useful summary of the modern approach to the interpretation of exclusion clauses (see paragraph 27).

What does this mean for you?

An exclusion of “loss of profits” does not shield a party from all liability. For example, it is unlikely to exclude the costs of cleaning up the mess when things go wrong (Soteria v IBM [2022] EWCA Civ 440). However, it can still significantly affect your ability to recover your losses if things go wrong.

The clause: “Except for any damages claims by [Virgin Media] pursuant to Clause 34.2(c) … and for no other damage claims whatsoever, neither Party shall have liability to the other in respect of: (a) anticipated profits; or (b) anticipated savings.”

Where can you read more?

See EE v Virgin Mobile [2023] EWHC 1989 and Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies Plc [2023] EWHC 2506 which covers similar ground.

UCTA bites on standard terms

This judgment relates to the purchase of 30 large coaches, four of which are said to have caught fire due to a defective cooling system. The purchase agreement was in standard form and excluded the implied term as to satisfactory quality.

The question for the Court of Appeal was whether that exclusion was potentially unreasonable under the Unfair Contract Terms Act 1977 (“UCTA”) and so unenforceable. The Court concluded it was arguably unreasonable. In doing so, it made a number of findings:

  • Even if the parties are of equal bargaining strength in relation to the price, that does not mean they have equal strength in relation to the terms.
  • Indeed, the very fact one party is having to deal on the other’s standard terms suggests the parties are not of equal bargaining power, and hence the exclusion is more likely to be unreasonable.
  • Where an exclusion clause on standard terms deprives a party of any meaningful remedy (and the risk is not insured), the clause is likely to be unreasonable.

The decision is likely to encourage standard terms to be challenged more vigorously in the future. There are, however, a number of important points to note. First, this is an appeal against summary judgment. The Court of Appeal did not definitively conclude the exclusion was unreasonable; that will be a matter for trial albeit with strong pointers as to what the conclusion should be.

Second, where terms have been negotiated between parties of equal bargaining power, the courts are still very unlikely to intervene (Watford v Sanderson [2001] EWCA Civ 317). Only if one party was taken advantage of or the clause was not properly understood is UCTA likely to bite.

What does this mean for you?

This increases the chance of an exclusion clause in standard terms being successfully challenged as unreasonable. Those clauses could be shored up by either enabling a party to insure against the risk or negotiating the clauses individually. However, this may not always be practical.

“clause 5(b), contained in standard terms of business … purported to exclude any and all liability for the quality of the coaches supplied to Last Bus, leaving Last Bus without a remedy even if it received no value at all whilst having to pay for the hire…such clauses are prima facie unreasonable under UCTA” Lord Justice Phillips, paragraph 51

Where can you read more?

See Last Bus Ltd (t/a Dublin Coach) v Dawsongroup Bus and Coach Ltd & Anor [2023] EWCA Civ 1297.

One liability cap, or many?

This judgment arises from a failed IT project between Drax (the customer) and Wipro (the supplier). Drax claimed for four “categories” of loss: (a) misrepresentation (£31.7m); (b) additional expenditure resulting from poor quality work (£9.8m); (c) losses caused by delay to the project (£9.7m); and (d) damages from termination (£12m).

The problem is that the exclusion clause applied a cap based on the charges “in the preceding twelve months from the date the claim first arose”. The question was whether this:

  • Applied one cap for all claims. This would limit Wipro’s liability to £11.5m.
  • Applied a separate cap for each claim. This would limit Wipro’s liability to £23m.

Despite the fact that parties are not lightly to be taken to cut down the remedies available to them (the Gilbert-Ash principle) the High Court found in favour of Wipro and decided the clause applied one cap for all claims.

The Court based its decision on the wording of the clause, which referred to “total liability” and did not contain any wording suggesting a per event cap – and a large dose of commercial common sense. In particular, defining what a “claim” consists of is difficult. While Drax had grouped its claim under the four “categories” above, they could just as easily be broken down into 12 separate claims giving a total liability of £132m.

What does this mean for you?

Per event caps are notoriously problematic. They are difficult to draft and often lead to the courts having to adopt the interpretation of the clause with the “least bizarre consequences” (Royal Devon v ATOS [2017] EWCA Civ 2196). Annual caps are generally easier to work with.

The clause: “the Supplier’s total liability to the Customer, whether in contract, tort (including negligence), for breach of statutory duty or otherwise, arising out of or in connection with this Agreement (including all Statements of Work) shall be limited to an amount equivalent to 150% of the Charges paid or payable in the preceding twelve months from the date the claim first arose”

Where can you read more?

See Drax Energy Solutions Ltd v Wipro Ltd [2023] EWHC 1342.

“Time of the essence” are toxic magic words

The judgment in Topalsson v Rolls-Royce is a long and unrewarding read. The majority of it reflects 18 days in court picking over the bones of an agreement for the development and supply of software for a new car configurator.

The outcome turned on Clause 5.8 of the development agreement: “Time shall be of the essence regarding any date for delivery by the Supplier of any good or service specified in this agreement and the Completion Date” (our emphasis). The effect of this clause* is that any failure by the supplier to deliver the services in accordance with the agreed delivery date allows the customer to terminate. Therefore, all the customer had to do was to:

  • Identify the various agreed delivery dates for the software. Here, the High Court concluded that the detailed implementation plans (particularly the “March plan”) imposed contractually binding delivery dates.
  • Show the supplier had missed just one of them. Given the variety of delivery milestones in the March plan and the wider problems with the project, it was unsurprising the supplier missed some of them.

(* For completeness, the Clause has two potential meanings. Time could be of the essence in relation to either: (a) the delivery dates specified in the agreement; or (b) the delivery dates of goods or services specified in the agreement. The Court adopted the latter interpretation on the basis it was always clear the delivery dates would be fixed after the development agreement was signed.)

What does this mean for you?

This is an incantation of tremendous power. Be wary of the uncompromising effect of making time of the essence.

“where a promisor fails to give timely performance of an obligation in respect of which time is expressly stated to be of the essence, the injured party may elect to terminate and recover damages in respect of the promisor’s outstanding obligations, without regard to the magnitude of the breach” Lombard North Central Plc v Butterworth [1987] QB 527

Where can you read more?

See Topalsson v Rolls-Royce [2023] EWHC 1765.

When actions speak louder than words

At the heart of this dispute was the question whether an introduction agreement had been novated to the appellants, Astra, by conduct. If it had been, Astra was liable to pay the commission due to the other party to the agreement, the “introducer”.

Astra argued that there had not been a novation as that was contrary to two clauses in the contract, namely:

  • a “no oral variations” clause; and
  • a “no dealings” clause (that is, a clause prohibiting assignments, transfers or any other dealings with the rights and obligations under the contract without the prior written consent of the other party). The prior consent of the introducer had not been obtained.

The Court of Appeal held that neither clause prevented novation since:

  • a novation is not a variation but the replacement of a contract by a new contract between different parties (so the “no oral variations” clause did not apply on the facts); and
  • while the novation was arguably some form of dealing, the requirement for prior consent under the “no dealings” clause was capable of waiver, even in the form of retrospective consent, and had been waived.

The Court of Appeal dismissed an appeal from the High Court, finding that the introduction agreement had been novated to Astra on the facts.

The Court also found that the judge at first instance had been entitled to conclude that there was an estoppel by convention as an alternative to novation (applying the test in Tinkler v Revenue and Customs [2021] UKSC 39).

What does this mean for you?

This case highlights that a “no dealings” clause may be relevant to a novation and should be considered before seeking to novate. It also confirms that novation is distinct from variation of a contract.

“The question whether a novation can be inferred from the parties’ conduct is a question of fact, with which this court will not lightly interfere.” Lady Justice Falk, paragraph 69

Where can you read more?

See Musst Holdings Ltd v Astra Asset Management UK Ltd & Anor [2023] EWCA Civ 128.

Related content


See summaries below.

Explanatory note Explanatory note Investor and other guidance Investor and other guidance Pay design Pay design Market practice Market practice

See Wood v Capita Insurance Services Limited [2017] UKSC 24; Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72; Cavendish Square Holding BV v Talal El Makdessi [2015] UKSC 67; and Patel v Mirza [2016] UKSC 42 (respectively).

Explanatory note Explanatory note Investor and other guidance Investor and other guidance Pay design Pay design Market practice Market practice

See particularly the discussions in the Breathing Space Concept notes from the British Institute of International and Comparative Law:

Explanatory note Explanatory note Investor and other guidance Investor and other guidance Pay design Pay design Market practice Market practice

Herculito Maritime Ltd v Gunvor International BV which relates to the proper interpretation of a charter agreement and bills of lading for a vessel in respect of losses arising out of the seizure of the vessel by pirates.

Explanatory note Explanatory note Investor and other guidance Investor and other guidance Pay design Pay design Market practice Market practice

For example, see Digital assets: Final report, Law Com No 412 and Smart legal contracts: Advice to Government, Law Com No 401.

Explanatory note Explanatory note Investor and other guidance Investor and other guidance Pay design Pay design Market practice Market practice
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