Lawsuit! - July 2010
Welcome to Lawsuit!: Dispute resolution news updates from WJM.
We would welcome feedback on LawSuit! and, in particular, any suggestions for improvement. Email us through .(JavaScript must be enabled to view this email address)
My thanks once again to Steven Docherty, Neil Morrison and Iain Crosbie for preparing this month’s newsletter.
We hope you’ll enjoy this issue. We’ll be back in August with more news and opinion on dispute resolution topics.
Liam Entwistle
Head of Commercial Dispute Resolution
- Do employees have any rights when an expected discretionary bonus scheme fails to materialise?
- Beware! Jurisdiction clause ahead – proceed with caution...
- I think you'll find that's legal tender!
- Without prejudice: Wide-ranging but not a “carte blanche”
- Ask WJM!
- Cancelling a contract early may be costlier than you anticipate....
- You couldn't make it up....
Do employees have any rights when an expected discretionary bonus scheme fails to materialise?
Recently the English High Court had to determine whether employees could bring claims for breach of contract on the basis that their expected discretionary bonus had failed to materialise. In the recent case of Anar & Others v Dresdner Kleinwort Benson & Another, the employer had reduced the annual discretionary bonuses by 90%. The employer had originally made an announcement that there would be a guaranteed pool of money for staff bonuses, which amounted to a significant sum.
The employer issued provisional award letters to staff stating their discretionary bonus figures subject to review of revenue and earnings in the recent months. Ultimately the employees were only awarded a sum that amounted to 10% of the sum stated in their provisional award letters.
The employer attacked the employees’ claims on the basis that there had been no breach of contract. However the Court took a different view and allowed the claims to proceed. The Court found support for their position by referring to the individual letters sent to employees clearly stated their bonus entitlement although the exact conditions attached to the award were vague and it was difficult to ascertain if the conditions had been fulfilled. The Court acknowledged that employers’ contract terms relating to discretionary bonuses should be interpreted in a way that prevents employers exercising their discretion in a perverse or irrational manner.
WJM have experienced and astute lawyers who can provide you with prompt and reliable advice on contractual matters.
For more information, contact: Neil Morrison, .(JavaScript must be enabled to view this email address)
Beware! Jurisdiction clause ahead – proceed with caution...
When disputes arise deciding which court has jurisdiction to hear the case can sometimes be complex. Commercial contracts often try to clarify matters by providing for particular courts to have jurisdiction in the event of disputes arising under the contract.
However, contracting parties should take care with such clauses. In particular they may not limit jurisdiction to the specified court, especially when contained in a standard form contract or standard terms of business.
In the 2002 case of McGowan v Summit at Lloyds, a bus operator sought indemnification under an insurance policy for the destruction of buses by fire. The action was brought at Paisley Sheriff Court. The insurance policy was in a printed standard form. It contained a clause that the policy was to be governed by the law of England and that the courts of England were to have jurisdiction over any disputes arising under it. The insurers sought to rely on this clause, and argued that the Paisley court had no jurisdiction. The Sheriff rejected the insurers’ argument and they appealed to the Court of Session.
The Court of Session agreed with the Sheriff, and ruled that the Paisley court did indeed have jurisdiction.
The Court decided that there are no special rules of interpretation regarding clauses giving jurisdiction to a particular court. Such a clause will be interpreted like any other ordinary contractual term.
This means the courts will give the words used in the clause their natural meaning in light of the surrounding circumstances in which the contract was made.
In the McGowan case this meant that the clause giving jurisdiction to the English courts did not exclude the jurisdiction of the Paisley court, which would ordinarily have had jurisdiction to hear the case.
The Court also commented on standard form contracts in the decision.
Where the clause on jurisdiction is on a printed form sent by one party to the other, and the clause imposes an obligation on the receiving party that will have commercial or legal significance, the clause is unlikely to be effective in limiting jurisdiction to a particular court.
Care should be taken when including a clause on jurisdiction that both parties agree on its content and that the wording is clear. WJM can help ensure that jurisdiction clauses and other aspects of commercial contracts are well drafted and effective.
If you have entered a contract on another’s standard terms of business, then WJM can help advise you on your legal position and ensure you are best placed in the event of a dispute.
For more information: contact Iain Crosbie, .(JavaScript must be enabled to view this email address) or Neil Morrison, .(JavaScript must be enabled to view this email address)
I think you'll find that's legal tender!
Scotland has a long and proud tradition of issuing its own bank notes since the Bank of Scotland was established in 1695. Today, three Scottish banks, the Clydesdale, RBS and the Bank of Scotland continue to print their own bank notes.
However as many people have no doubt discovered, while the £3.5 billion worth of bank notes in circulation are happily accepted in Scotland, they are not always quite so readily accepted in England. English traders commonly refuse the notes on the basis the law does not back them in England (or they are easily forged!) but equally Scottish traders could adopt a similar stance with English notes on the basis they are currently not legal tender in Scotland.
The legislation governing the issuance of Scottish bank notes is set out in the Banking Act 2009 and establishes that Scottish banks may issue promissory notes, which circulate as money. The rules contained with the Act require Scottish banks to hold sufficient funds to meet their liabilities under the notes, which now means that the argument that Scottish notes are not issued with legal authority carries no weight whatsoever.
However this information has not filtered down to all traders in England who continue to reject Scottish bank notes. They can do so because the law of contract entitles traders to refuse to engage in a transaction at the point of payment if they do not want to. A trader’s refusal to accept the notes can cause irritation and inconvenience to persons wishing to pay with Scottish bank notes.
The UK Government has proposed a solution to the problem by introducing legislation to ensure that Scottish bank notes are accepted south of the border. It has been mooted that the rules would contain a defence that a business may reject notes they believe could be forged. However such a defence would arguably undermine the purpose of the legislation as many smaller businesses not familiar with Scottish bank notes may reject them because they cannot be sure they are not forged.
We shall wait and see whether the Coalition Government brings forward robust legislation to clarify this grey area of the law and make the phrase “I think you’ll find that’s legal tender” redundant.
For more information: contact Neil Morrison, .(JavaScript must be enabled to view this email address) or Iain Crosbie, .(JavaScript must be enabled to view this email address)
Without prejudice: Wide-ranging but not a “carte blanche”
Parties often seek to resolve commercial disputes in a friendly manner, often successfully. However, sometimes court action is required.
It is common for parties to use the phrase “without prejudice” in correspondence aimed at resolving a dispute to protect their position in the possible event of court action. Ordinarily this phrase means that the communications made where it is used are not admissible in evidence.
This is known as the “without prejudice” rule and it is aimed at encouraging parties to settle their differences amicably. The rule is a generous and wide-ranging one that exists to allow parties to speak freely and to make admissions about all the issues, both factual and legal, when seeking a compromise.
The “without prejudice” rule is not without limits, however. It should be remembered that it is not a “catch-all” that will always cover statements made during negotiations, as the recent UK Supreme Court case of Oceanbulk Shipping and Trading SA v TMT Asia Ltd and Others shows.
In this case a dispute involving sums due under shipping contracts led to a settlement agreement being reached between the parties. They subsequently disagreed on the meaning of one of the terms of that settlement. Crucial to determining its meaning was a particular fact and whether it had been mutually understood by the parties when they entered into the agreement. Certain “without prejudice” communications were important evidence of the existence of that mutual understanding.
It is a well-established rule in contract law that in determining the meaning of a contract the courts will look at the surrounding circumstances in which the contract was made. In this case this meant that, but for the fact that they had been made on a “without prejudice” basis, the communications would have been admissible as evidence. The court therefore had to decide if these communications were admissible, regardless of being made “without prejudice”.
The court decided that the communications relating to the crucial fact were admissible, and in doing so it defined an exception to the “without prejudice” rule.
Where the surrounding circumstances that are relevant for determining the meaning of a contract include evidence of matters communicated in “without prejudice” discussions, evidence of what is said or written in the course of those discussions can be admissible.
Care should be taken when using the phrase “without prejudice” in communications aimed at resolving a dispute, especially when the potential dispute relates to a contract. WJM lawyers can help at all stages of dispute resolution to help ensure your position in secure. In particular, we can provide advice on alternative methods of dispute resolution, and help avoid court action.
For more information, contact Iain Crosbie: .(JavaScript must be enabled to view this email address).
Ask WJM!
WJM QUESTION
Dear Sirs,
I bought a car from a garage almost a year ago via a finance company. A few days after purchasing it, I experienced engine problems and problems with the windscreen wipers. A week later, the vehicle broke down. I returned the vehicle to the garage to have it repaired. The garage couldn’t locate the fault and returned the car to me. I continued to complain to the garage that there was a problem, each time they attempted a repair but were unable to repair it.
I could drive the car but it still suffered from loss of power on occasions. Recently, I was still experiencing problems and decided to reject the vehicle as an engineer told me the vehicle was not fit for purpose or of satisfactory quality. I felt like the garage was stringing me along and finally had enough. I sent them written notice of rejection, cancelled my direct debit finance repayments and handed back the car keys.
The garage has consistently refused to accept my rejection or offer me any compensation. The finance company are now demanding repayment of the balance outstanding on my credit agreement.
Where do I stand?
WJM ANSWER
The Sale of Goods Act 1979 implies terms into your contract with the garage that the vehicle will be of satisfactory quality and fit for the purpose you bought it for. If you have an engineer report stating that the vehicle is neither of satisfactory quality nor fit for purpose then the Sheriff may likely find that to be the case.
If so, then the garage is in breach of the implied terms, which entitles you to reject the vehicle. The garage may argue that under s.35 you cannot reject because you knew of the fault at the outset, used the car for almost a year but did not formally intimate rejection until very recently; essentially either by your own inconsistent actions or lapse of reasonable time you lost your right to reject.
However there is authority that where the purchaser is in constant engagement with the garage in order to make an informed judgement as to whether to accept/reject/seek repair then the right to reject is not lost (see Clegg v Andersson t/a Nordic Marine [2003] EWCA Civ 320). It would seem that the car was never satisfactorily repaired when it was first put into the garage and both you and the garage continued to engage with one another to locate the fault so the clock stopped running against rejection and wasn’t re-started due to continually requesting a repair and the garage attempting further repairs at your request.
Your credit agreement will likely fall within s.75 of the Consumer Credit Act 1974 as it is a debtor-creditor-supplier transaction which entitles you to claim against the creditor rather than the retailer for the breach of contract. It was commonly thought that the right to terminate your sale contract meant you were entitled to terminate your credit agreement. There was authority that a breach of contract claim against a garage could act as a shield against a finance company’s claim (see United Dominions Trust Ltd v Taylor, 1980 S.L.T. (Sh. Ct.) 28). In addition, there was a relatively recent case with strikingly similar facts which was decided in favour of the consumer (see Fiat Auto Financial Services v Connelly, 2007 SLT (Sh Ct) 111).
However the Inner House judges in the recent Court of Session case of Durkin v DSG Retail Ltd (2010 CSIH 49) held that the previous authorities on the issue had been wrongly decided. Termination of the sale contract does not entitle the consumer to terminate the credit agreement. However the consumer may continue to make payments under the credit agreement and sue the retailer, finance company or both for damages to compensate him for his losses which would cover future payments to the finance company.
You should make payment of the balance to the finance company and then seek to recover your loss by suing the retailer, finance company or both for breach of contract.
If you have a question for WJM, we may publish the answer to your question in our “Ask WJM” section of our Lawsuit! E-zine; you can email your questions to .(JavaScript must be enabled to view this email address)
Cancelling a contract early may be costlier than you anticipate....
Sometimes companies or individuals decide they no longer want to continue to be “trapped” in a contract and seek to end future performance of the contract by giving notice of termination to the other party which is known as “repudiation”.
The innocent party on receipt of such notice is left with two options; either accept the repudiation and claim damages for breach of contract at once or reject the repudiation and insist on performance of the contract by seeking payment of the contract price.
In White & Carter (Councils) Ltd v McGregor 1962 S.C. (H.L.) 1., a garage proprietor agreed with an advertising company for the display of advertisements in Scotland for his garage for three years. The contract provided that if any payment was four weeks in arrears then the whole three years’ payments should immediately become payable. On the same day the garage proprietor wrote to the advertising company to cancel the contract.
However the advertising company refused to do so and displayed the adverts in accordance with the contract and after one month of arrears, sued for the whole three years’ payments.
The House of Lords decided that if one party cancels a contract, the other party is free to perform it, if they can do so without the co-operation of the other party (this case was unusual as most contracts could not be performed without the participation of the repudiating party).
If the other party performs the contract, then the repudiating party has to pay the contract price which is a great deal more than paying damages for breach of the contract (where the rules of mitigation of loss apply).
The decision has been heavily criticised as it means that there is the possibility that there will be unwanted performance and a waste of valuable resources. Lord Reid attempted to allay fears of unwanted performance by commenting that the decision might have been different if it could be proved that the advertising company had no legitimate interest at all in enforcing the contract.
It is unclear whether the advertising company had a legitimate interest but nevertheless despite judicial criticism of the decision and calls for reform by the Scottish Law Commission, the decision remains the leading Scottish authority on anticipatory breach.
Due to the recession, some commentators have noted there may be further examples where this issue may arise to some extent, namely the house buyer who is unable to get the money to buy a house he had contracted to buy. The question the Court must answer is what rights the seller has; accept the repudiation and seek damages or insist on the sale price (see AMA (New Town) Ltd v Finlay - Sheriff Holligan, Edinburgh Sheriff Court,19th August 2010).
If you have a similar situation where you wish to end a contract or the other party is insisting on performance of a repudiated contract then WJM have experienced litigation lawyers who can assist you.
For more information: please contact Neil Morrison .(JavaScript must be enabled to view this email address)
You couldn't make it up....
Starbucks successfully defends tea burn lawsuit!
The 2nd U.S. Circuit Court of Appeals has decided that Starbucks should not be held liable for severe burns suffered by a New York customer after she spilled a cup of tea.
Rachel Moltner was seeking $3 million in damages from the world’s largest coffee chain for a burn suffered in February 2008 when she was in a Starbucks coffee shop in Manhattan.
Ms Moltner spilt tea onto her left leg and foot when she tried to remove the lid from a ‘venti’ sized cup of tea, the burns were so severe that she required a skin graft.
The legal basis for Moltner’s case was that “double-cupping” tea that was too hot, that is placing one cup placed inside another, was defectively designed.
She also argued that Starbucks were under a duty to warn her the tea could spill.
The Court dismissed the action and ruled that: “Double-cupping is a method well known in the industry as a way of preventing a cup of hot tea from burning one’s hand.”
The information contained in this news brief is for general guidance only and represents our understanding of relevant law and practice as at July 2010. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken, or failure to act, in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Services Authority. Registered office: 302 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.
