Commercial contracts update

On 13 June, the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) (CCRs) came into force. They are a major change for all businesses dealing with consumers. They replace the Distance Selling Regulations (SI 2000/2334) and the Doorstep Selling Regulations (SI 2008/1816). All lawyers advising in relation to commercial contracts need to be aware of them.

The Distance Selling Regulations and Doorstep Selling Regulations will continue to apply for all contracts made before 13 June 2014, but for all contracts entered into on or after 13 June 2014,
the CCRs will apply.

Standard requirements

The purpose of the CCRs is to standardise consumer law requirements across the EU. The CCRs apply to contracts concluded between a trader (i.e. “a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf”) and a consumer (i.e. “an individual acting for purposes which are wholly or mainly outside that individual’s trade, business, craft
or profession”).

As a consumer must be an ‘individual’ (i.e. a natural person), contracts concluded between a trader and a corporate body or a partnership acting wholly or mainly outside the partner’s business never fall within the CCRs.

The CCRs apply to all contracts irrespective
of whether they are true distance contracts and whether they are made at the trader or the consumer’s premises or not; though different
rules apply depending on where and how they
are formed.

There are a number of excluded contracts and partially exempt contracts under the CCRs, but these exclusions and exemptions need to be carefully considered as a contract may contain elements that bring the contract back within the remit of the CCRs.

The key changes that businesses need to be aware of are:

• The list of pre-contract information that a trader must give to a consumer is extended.
• The statutory cancellation period for distance and off-premises contracts (the ‘cooling-off period’) has been extended from seven days to 14 days. A failure to provide information of this cooling-off period before entering into the contract will extend a consumer’s right to cancel to 12 months.
• Traders must supply a model withdrawal form for the consumer to use to cancel a contract. However, the consumer is not obliged to use the withdrawal form and can cancel the contract by making any other unequivocal statement to the trader confirming cancellation.
• Traders must not make the consumer use a premium rate telephone line to contact the trader about an existing contract.

Meaningful purpose

The dominance of the judgment in Rainy Sky SA v Kookmin Bank [2011] UKSC50 continues to be reflected by the courts. In Starbev GP Ltd v Interbrew Central European Holdings BV [2014] EWHC 1311 (Comm), the High Court looked at the meaning of ‘the purpose’ in a commercial contract and followed Rainy Sky without question, giving pause for thought in doing so for draftsmen generally in the use of the word ‘purpose’.

The issue centred around whether expenses of the buyer in relation to the underlying transaction would or would not affect the calculation of the payment to the seller. Expenses designed to reduce the payment would not affect the calculation – but would all expenses have this effect? What does “[a] transaction … that results in payments … with the purpose of reducing payments to [the seller]” actually mean?

In the contract in question, a transaction in that category would not be taken account of; a transaction without that purpose would.

The court asked whether ‘the purpose’ means ‘the sole purpose’ or ‘the only commercial purpose’ and concluded, citing Lord Sumption in Hayes v Willoughby [2013] UKSC 17, that it could not. Lord Sumption gave such emphasis to this point that it will be very difficult for anyone to run that argument in the future.

Does ‘the purpose’ mean ‘one purpose, even if it is only one of many’. The judge in this instance and on these facts considered this interpretation, perhaps surprisingly, too wide. It could bring, arguably, all transactions into the account so long as there was even the smallest of such an intention.

Lord Sumption had noted that a purpose, when used in reference to a transaction, has two elements: the result that the transaction is capable of producing and the result that the person intends. He concluded that: “A person’s purposes are almost always to some extent mixed, and the ordinary principle is that the relevant purpose is the dominant one.”

The High Court followed this viewpoint, finding that the dominant purpose of the transaction was what needed to be considered. He argued further that that analysis applied whether the contractual test of purpose was subjective or objective. Hence, if the dominant purpose of the cost in question was to reduce the payments due to the seller, the cost was caught by the clause, even if there were other quite different purposes.

While this has further clarified that ‘the purpose’, where used in a contract (or indeed in black letter law) should never mean ‘the sole purpose’ or ‘the only purpose’, there is clearly a risk whenever a contract requires reference to a purpose.

The wise draftsman may avoid requiring a purpose to be determined or questioned at all. If they cannot do that, they should use the most clear and precise phrase: for example, ‘for the sole purpose of’, ’for the dominant or principal purpose of’, ‘for the following specified purposes: [ ]’ or ‘for the purposes of [ ], which would include, without limitation and as examples, [ ] and [ ]’.

In the CCRs, we can see that the definitions of trader and consumer include the phrase “acting for purposes relating to”. That presumably means that the action only qualifies the individual as a trader or as a consumer if there are multiple purposes which, in the case of a trader, relate to their trade
or which, in the case of the consumer, do not.

Government contracts

The Government Legal Service has produced
short forms of terms and conditions for the procurement of goods and services in circumstances where the purchase is below the procurement thresholds found in the Public Contracts Regulations 2006. Those thresholds range from £66,672 for occasional supplies of services to £4.3m for works contracts.

The short form terms are admirably drafted, comprehensive and sensible. They compare favourably from a supplier’s perspective with longer form of government contracts (for
example, the rather onerous terms imposed by
all NHS entities).

The dispute resolution clauses are particularly interesting as an indicator of the reducing level of faith in the courts as the appropriate forum for dispute resolution. The relevant clauses require the parties to ‘attempt in good faith to negotiate a settlement’ and to escalate the dispute ‘to an appropriately senior representative of each party’.

After one month, the parties may agree to refer the matter to a neutral adviser or mediator to negotiate the matter in confidence and without prejudice. Only in the absence of the parties agreeing to appoint such a mediator (or reaching agreement within one month of appointment of a mediator) can the parties go to the courts (or exercise any other remedy).

Of course, the government body will be the debtor in most cases, so it has an interest in extending the negotiation time. But it is significant that the government is prepared to accept the degree of transparency, diligence and fairness in negotiating disputes that ‘good faith’ requires.

It is also a mark of confidence in using good faith obligations in circumstances where many private practice commercial lawyers are far more cautious, preferring, as we do, to grub out good faith obligations as pernicious weeds. SJ

Mark Lucas, pictured, is a partner and Matthew Peto is a trainee at Barlow Robbins