Morgan Russell Solicitors

Commercial Law News - October 2012

  1. Companies Act fines increase
  2. Providing goods or services?  Age discrimination ban took effect  on 1 October 2020
  3. Limitation of liability cap stuck down
  4. Contract negotiations
  5. Beware: an email chain can create an enforceable guarantee

1.         Companies Act fines increase

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 received Royal Asset in May this year, but will come into force in different stages, with Parts 1 and 2 coming into force in April 2013.  If you are a company director you should be aware that as the Act has removed the caps on fines in the magistrates’ courts, it means that all those offences under the Companies Act 2006 for which the maximum fine was previously £5,000, now carry potentially uncapped liability.

Failed to file that pesky form TM01 on time? Now’s the time to take your filings seriously.  Failure to comply with some sections of the Companies Act could result in criminal sanctions meaning a fine and a criminal record for the every officer in default, as well as, in some cases, the company itself.

See our briefing note “Changes to Fines for Criminal Offences” for detail on the changes to the fines.  We can assist with company filings and advice regarding the keeping of statutory records.

2.         Providing goods or services?  Age discrimination ban took effect  on 1 October 2020

The ban on age discrimination in the provision of goods, services and facilities, introduced by the Equality Act 2010, came into force on 1 October 2012. The ban was originally intended to come into force in April 2012, but was delayed following further consideration of proposed specific exceptions from it.

From the 1 October 2020 it is unlawful to discriminate on the basis of age unless the organisation is covered by an exception from the ban, or good reason can be shown for the differential treatment (“objective justification”). It will apply to any person or organisation that is: 

  • providing (or refusing to provide) goods, facilities or services to another;
  • carrying out (or refusing to carry out) a public function for another;
  • running an “association” like a private members club.

It does not apply in respect of children under 18 years of age.

The aim of the new law is to prohibit harmful treatment that results in genuinely unfair discrimination because of age and should not outlaw the many instances of different treatment due to age that are justifiable or beneficial.

The Government’s Equalities Office has now published some guidance for business on the age discrimination ban which can be found on their website (An overview for service providers and customers; A guide for small businesses; A guide for private clubs and other associations; and A guide for holiday providers, hotels and those letting holiday properties):

http://www.homeoffice.gov.uk/publications/equalities/equality-act-publications/equality-act-guidance/.

3.         Limitation of liability cap stuck down

Careful consideration and discussion of limitation of liability clauses, including consideration of your insurance, is necessary in order to satisfy the “reasonableness” test under UCTA (the Unfair Contract Terms Act 1977) as a recent High Court case demonstrates.

In a recent case a dispute arose over building works which had been completed late where no building contract had been executed, only several letters of intent.  The High Court held that it was unreasonable for a liability to be limited to the contract price (in this case, less than £200,000) when the contract contained specific provisions dealing with insurance and liability, notably an obligation to take out professional indemnity insurance to a level of £10 million. Another key factor in this case was that there was no specific notice of the cap nor discussion between the parties. (Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd [2012] EWHC 2137.)

A reminder of the “reasonableness” test set out in section 11 of UCTA: 

  • the term must be a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made; 
  • where seeking to restrict liability to a specified sum, when considering whether the term will be considered reasonable regard shall be had to:
    • the resources which he could expect to be available to him for the purpose of meeting the liability should it arise; and
    • how far it was open to him to cover himself by insurance.

It is up to the person relying on the term to show that it was reasonable in the circumstances. If it is not reasonable then the clause is likely to be struck out and liability will be uncapped.

There are further "guidelines" set out in Schedule 2 to the Act, in the form of a non-exhaustive list of matters to which the court shall have regard.  Among those matters are: 

  • the strength of the parties' respective bargaining positions; 
  • whether the customer received an inducement to agree to the term; and 
  • whether the customer knew or ought reasonably to have known of the existence and extent of the term, having regard among other things to any previous course of dealing between the parties.

4.         Contract negotiations

A contract can be formed by conduct and by oral agreement because a contract is formed when the four basic elements of offer, acceptance, consideration (i.e. something for value) and an intention to create legal relations are present. It is always best to have a signed written agreement documenting the terms which have been agreed and this should ideally be prepared and agreed before work starts.

If work starts before the contract is signed there will invariably be arguments as to the detail of what was, or was not, agreed. Such arguments are costly not just in pure financial terms but also in wasted management time.

Be careful of unsigned draft agreements though and be sure you know what the fundamental contractual provisions are, such as payments, and how the contract can be terminated. 

Courts have been known to apply the terms of unsigned drafts on the basis that the parties had concluded an oral contract and that certain terms were thereby incorporated into such contract. (BVM Management Ltd v Roger Yeomans t/a The Great Hall at Mains and another [2011] EWCA Civ 1254.)

Whether or not you consider yourself to be a seasoned negotiator, take a look at our briefing notes:

-       “Contract Negotiations - Key Issues”; and

-       “Contract Negotiations - Pitfalls To Avoid

to remind yourself of the factors you need to be aware of. Litigation is always costly and a particularly unfavourable outcome when you have invested time and money negotiating a contract which never got signed.

5.         Beware: an email chain can create an enforceable guarantee

A warning comes from a recent Court of Appeal case that surprisingly informal documentation and signatures can create enforceable guarantees. (Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd and another [2012] EWCA Civ 265 (09 March 2021).)

The basic law is that a guarantee must be in writing and signed by the guarantor or a person lawfully authorised by it.

In this case, the parties were negotiating amendments to a standard form document (“charterparty”) for the chartering of a vessel belonging to Golden Ocean Group Ltd by Trustworth Ptd Ltd on a ten year contract. The basic terms were negotiated mostly by e-mail including a reference to the charterparty being fully guaranteed by another company, Salgaocar Mining Industries PVT Ltd. Various conditions were satisfied or lifted along the way with only a few main items to be negotiated. Through a chain of emails It all seemed to have been concluded in early 2008, well before the ultimate date of delivery of the vessel (in late 2009), when Trustworth and Salgaocar refused to take delivery, denying both the existence of the charterparty and Salgaocar’s guarantee.  No final document setting out the full agreed terms had been produced or signed.

Golden Ocean sought to rely on the guarantee to the tune of around $54 million. Its argument was that the guarantor had failed to honour its obligations to accept delivery of the vessel and that the e-mails and documents that passed between them were sufficient to establish the guarantee.

Trustworth and Salgaocar argued that no such guarantee or charterparty had been created as there was no complete signed document or single e-mail incorporating all the key terms.

Although the court did not actually determine whether there was a guarantee in this case, it did consider that the chain of emails was sufficient for Salgaocar to create binding obligations and that it was not necessary to have all the terms in a single document or e-mail. The court confirmed that an electronic signature of the person with authority to enter the contract would suffice, whether that be a first name, initials, or potentially even a nickname, and therefore e-mails authenticated by an on-line signature were sufficient.

To minimise the risk of unwittingly creating an obligation, you should consider the following:

  • expressly state that your negotiations are subject to contract (although this will not be conclusive if your behaviour indicates otherwise); 
  • always ensure a final 'recap' or agreement is drafted to document both parties' shared intentions where terms are agreed over a series of communications (a limited number of documents are more likely to be considered binding by a court); 
  • where the intention is that terms are to be binding, ensure they are clear both in relation to when the parties will be bound and to what extent, and that the person negotiating them has the authority to bind them; 
  • beware of patterns of behaviour which could imply that informal communications will be binding, and keep a clear audit trail in case issues subsequently arise; and 
  • when in doubt, seek legal advice!

Further Information

If you have any questions regarding the above or require any assistance, please do not hesitate to contact Debbie Turner on +44 (0)1372-461411.

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.
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