In-house Insights: Contract Update

Judith Hopper, Sophie Mallon, Adrian Webb and Alexandra Phillips hosted the second of Bevan Brittan’s series of 'In-house Insights' webinars, providing an update on contract law and key developments in case law in 2023.

Watch the recording here.

Key Takeaways

Implied Terms

·       The Court is likely (but not certain) to adopt a ‘non-interventionist’ approach and will not imply terms to ‘save’ a party from a bad bargain, ‘improve’ a contract or make it more ‘fair’ – the Court will not want to interfere with express terms.

·       The Court is likely to prefer the literal meaning of words so drafting should always be clear and unambiguous.

·       In order to capture the parties’ intentions, contract drafters should make sure that clauses are sufficiently detailed and do not leave gaps that a court may be unlikely to fill.

·       Parties should consider different outcomes and what they want the practical reality to look like in response to these outcomes.

Good Faith

Read our article on Good Faith here.

·       The obligation to act in ‘good faith’ may be implied into ‘relational’ contracts, for example PFI Project Agreements, joint venture agreements and long term distributorship agreements. Long-term investment agreements, conditional funding agreements between a solicitor and their client, and shareholders’ agreements are not likely to be relational.

·       There appears to be a trend that the Courts are becoming less likely to find that the duty of good faith should be implied into contracts. The Court will only imply good faith obligations in limited circumstances and is unlikely to extend any express obligations in relation to a specific element of the contract.

·       When considering whether an obligation of good faith may be implied, the Court will focus on the practical reality between the parties, particularly if contracts have been professionally negotiated between sophisticated parties.  

·       Drafting is key – it needs to be clear, unambiguous and detailed. Parties should consider including examples of good faith in the contract, specifically around reporting obligations and KPIs.

UCTA and Reasonableness

·       There has been a recent increase in challenges to exclusion and limitation clauses.

·       There is no bar on these applying to non-performance or repudiatory breaches of contract.

·       When considering reasonableness, the Court takes a wide view on bargaining power.  Points for parties to consider include whether they had a chance to negotiate the terms, including whether there were alternative terms available in the market. Also, if the exclusion/limitation leaves a party without any remedy available to them then it is likely to be unreasonable.

·       Parties should seek to apply the reasonableness principles (in UCTA 10997 Sch. 2) when drafting contracts, to prevent challenges to these clauses, e.g. if excluding liability, include a financial cap to this.

Mandatory Mediation

·       The Court may encourage a stay in proceedings to provide for the parties to engage with ADR, but has been reluctant to set this as a principle.  

·       The government has responded to a consultation stating integrated mediation will apply to all small claims issued under standard procedures in the County Court.

·       Parties should consider their commercial aims when drafting DRP provisions, e.g. do they want technical input? A binding decision? Rights of appeal? And what type of remedy?

·       Mediation should likely remain optional, as if one party comes to it reluctantly it is less likely to be successful.

·       As always, the drafting needs to be clear and unambiguous. DRP clauses need to cover both law and jurisdiction in separate clauses to avoid the risk that the entire clause is struck out. They should carve out injunctive relieve and specific performance in case damages are not an adequate remedy. 

• Despite the legal uncertainty surrounding contract construction, contract drafters may mitigate the risk of disputes arising by ensuring contractual provisions are clear and unambiguous, and sufficiently detailed to reflect the parties’ intentions.

If you would like to discuss any of the topics covered in this webinar or have any questions, please contact Judith, Adrian, Sophie or Alex.

Watch the recording here.