ABG Commercial Newsletter – May 2013

Generic top level domain names

The Internet Corporation for Assigned Names and Numbers (ICANN) is the global organisation which administers domain names. In 2011 it announced an expanded Generic Top Level Domain program in order to allow for more innovation and choice in the internet’s address system. The first of the new GTLDs will start being approved in April and over one thousand new GTLDs are expected to launch during 2013 and 2014.

The requirements and procedures for submitting applications for new GTLDs are contained in ICANN’s Applicant Guidebook which also explains the criteria and procedures for evaluating them. In conjunction with this new program ICANN is introducing a new Uniform Rapid Suspension (URS) procedure which will provide a fast track, low cost route to the suspension of domain names whose registration involves a clear-cut case of trademark infringement. Under the URS process the grounds on which a complaint can be based will follow the principles of trademark infringement, with the complainant demonstrating use of its trademark by reference to a declaration and specimen of current commercial use. If the complaint is upheld, the domain name will be suspended so that the registrant cannot use it or transfer, delete or amend it.

ICANN has set up a centralised repository for authenticated trademark data, the Trademark Clearing House.

The new URS procedure will operate alongside ICANN’s existing Uniform Dispute Resolution Policy and Rules (UDRP) which contains a process for resolving disputes over the registration of domain names.

Consumer contracts and unfair and unreasonable terms

Consumers can challenge contract terms under the Unfair Terms in Consumer Contracts Regulations 1999 on the basis that they are unfair. The Regulations apply to terms that are not individually negotiated. They require the seller to ensure the terms are expressed in plain and intelligible language and impose a test of fairness. A term will be regarded as unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations to the detriment of the consumer. The Regulations also include an indicative non-exhaustive list of potentially unfair terms. If a term is unfair, it is not binding on the consumer, although the remainder of the contract will continue in force if it is capable of doing so.

In addition to the 1999 Regulations a consumer can also challenge standard contractual terms which are unreasonable under the Unfair Contract Terms Act 1977 (UCTA). UCTA applies to contract terms which limit or exclude liability. A business cannot exclude or restrict its liability for negligence except insofar as the term satisfies the requirement of reasonableness. Further, where a person contracts on a business’ standard terms or where that person deals with the business as a consumer, the business cannot exclude or restrict its liability for breach of contract, except insofar as the term satisfies the requirement of reasonableness. Nor can the business render a contractual performance substantially different from that which was reasonably expected, except insofar as the term satisfies the requirement of reasonableness. A term is regarded as reasonable if that term should have been a fair and reasonable one to be included having regard to the circumstances which were or ought reasonably to have been known to the parties when the contract was made.

Sometimes the question may arise as to whether an individual dealing with the business was doing so in the capacity of a consumer or whether he was acting for the purposes of his own trade, business or profession. Previous case law has indicated that a consumer need not be acting wholly or exclusively outside his business in order to benefit from protection under the Regulations and UCTA. However, in a recent case brought against PayPal the Court ruled that a person had not been acting as a consumer when he contracted with PayPal to use their electronic payment services in part for the purposes of a private sale but also for the purposes of his photography business. As he was using the services for a business purpose as well as private purposes, this took him outside the definition of a consumer.

Although the Court ruled that the Regulations did not apply in this particular case, it nevertheless gave some guidance on some of the terms which would have been regarded as unfair. These included PayPal’s right to terminate the contract with immediate effect rather than following a period of notice (even if comparatively short) and a clause which excluded liability for indirect or consequential loss.

Contractual rights and the exercise of contractual discretions

The Court of Appeal has ruled that where a contract gives one party an absolute contractual right, in deciding whether or not to exercise that right, the party is not under any implied duty to refrain from exercising its discretion in an arbitrary, capricious or irrational manner. Such an implied term will only arise where a contractual discretion involves an assessment or a choice by a party to the contract as to a range of options in which the interests of both parties are relevant.

In this case an NHS Hospital Trust entered into a catering contract with a well-known catering organisation. Under the terms of the contract the Trust had the power to make payment deductions (in effect service credits) and to award service failure points if the contractor failed to achieve the service levels specified by the contract. When some aspects of the service were not supplied in accordance with the required service levels, the Trust made payment deductions and also awarded itself service failure points.

The contractor considered that the payment deductions and the service failure points were excessive. After the Trust had subsequently terminated the contract based on the service failures, the contractor challenged the Trust’s actions arguing that there was an implied term that the Trust would not exercise its discretion in an arbitrary, capricious or irrational manner.

Although there have been many cases in which the Courts have implied such a term into a contract, the Court of Appeal said that this was only relevant where a contractual discretion involved making an assessment or choosing from a range of options taking into account the interests of both parties. There was no such implied term where a party had to make a simple decision as to whether or not to exercise an absolute contractual right. On that basis the contractor’s challenge failed and the Trust’s decision to make payment deductions and award itself service credits was upheld.

Share purchase agreements and warranties

A warranty which is often included in a share purchase agreement is to the effect that the target company is not a party to any agreement, arrangement or commitment which cannot readily be fulfilled or performed by it or on time.

In a recent case the Court of Appeal held that there was a breach of this warranty where the target company had been offered a framework agreement with the NHS even though that agreement had not been signed at the date that the share purchase agreement was entered into.

The target company supplied software products and submitted a bid to participate in the NHS national IT programme. Its bid was successful and it was selected to enter into a framework agreement with the NHS which would give it the opportunity to pitch for supply contracts with NHS Primary Care Trusts.

The target company was undercapitalised and so, in order to secure an injection of capital, its parent entered into a share purchase agreement under which it sold 60% of the issued share capital.

The target company delayed signing the framework agreement until after the share purchase agreement had been entered into. Following completion the framework agreement was signed and considerable resources were invested towards producing a compliant software system. However, the milestone of producing a compliant system was not met and the target company subsequently went into administration.

The investing company then brought a claim against the parent for breach of the warranty contained in the SPA. The Court of Appeal upheld the claim even though the framework agreement had not actually been entered into at the time of the share purchase agreement. The Court pointed out that the signing of the framework agreement was at the very heart of the commercial deal between the parties who had completed the share purchase agreement on the basis that, immediately afterwards, the target company would sign up to the framework agreement.

 

The comments in this note are of a general nature only. Full advice should be sought on any specific problems.

Tim Sisson
tsisson@abg-law.com
+44 (0)115 934 3333

Andrew Sutton
asutton@abg-law.com
+44 (0)115 934 3303