Commercial law

Looking on the horizon

Mary Kelly, Senior Associate 14 September 2012

Topics

• Groceries Code – Adjudicator Bill

• Proposed Common European Sales Law

• Eurozone crisis – potential contract risks

• A year on from the Bribery Act

Groceries Code: an overview

• Grocery Supply Code of Practice (“GSCOP”) effective from 4 February 2010

• Applies to retailers with a turnover of £1billion per annum

• Overarching principle of “fair dealing”

Groceries Code: an overview

• All agreements between grocery suppliers and retailers:– incorporate GSCOP– prohibit retrospective variation– prohibit changes to supply chain procedures (unless

supplier compensated)– specify contributions to promotions (if any)– not require supplier to pay for shrinkage/wastage unless

due to supplier negligence• Sets out dispute resolution procedure• Establishment of a GSCOP ombudsman to

enforce compliance

Groceries Code Adjudicator

• Groceries Code Adjudicator Bill published May 2011 and sets out:

– Statutory basis for Groceries Code Adjudicator (“GCA”)

– Functions and powers of the GCA– Funding the GCA

Groceries Code Adjudicator

• The GCA will be independent and initially appointed for up to 4 years

• Mechanism for dealing with breaches of the GSCOP by retailers

• Provides a remedy for dealing with breaches of GSCOP, other than suing for breach of contract

Functions and powers of the GCA

• Arbitration: referred by the supplier• Investigation: initiated by the GCA where it is

satisfied that there are reasonable grounds that GSCOP has been breached

• Enforcement: the investigation will be published in a report. The retailer may also be required to publish information about its breach and investigation

• Advice and guidance: through publications or directly to either retailer or supplier

Funding the GCA• The GCA will be funded as follows:

– adjudication: apportioned between the parties– investigation: by the retailer if the GCA is

satisfied it has breached GSCOP or from a supplier if a complaint was vexatious or wholly without merit

– other functions: to be divided equally between all retailers though a levy

Practical tips for suppliers

• Train sales and other commercial teams:

– on the scope of GSCOP

– the terms that can and cannot be included in supply agreements

– behaviours or practices of a retailer that would put it in breach of its obligations under GSCOP

Practical tips for suppliers

• Record any instances of non-compliance by a retailer at the time they occur

• Be clear as to whose terms apply and ensure that GSCOP terms are incorporated

• Oral agreement should be confirmed in writing within 3 working days (make notes at the time to ensure accurate record of conversations)

Proposed Common European Sales Law

• October 2011, the European Commission published its proposed Regulation for a Common European Sales Law (“CESL”)

• The CESL is intended to facilitate cross-border transactions by providing certainty and reducing costs

• As a Regulation, if adopted the CESL would have legal effect in every Member State in the same way as national laws with no action needed by a Member State to implement it

Proposed Common European Sales Law: what is it?

• An optional sales law to sit alongside Member States’ existing national regimes

• Can be used for cross-border contracts for the sale of goods or digital content and services directly related to the goods / digital content (eg repair and installation), where at least one party is established in a Member State

Proposed Common European Sales Law: what is it?

• Can be used for B2C or B2B contracts where at least one party is an SME

• Cover the whole life cycle of a contract including provisions on pre-contractual information, contract formation, cancellation rights, deliver and payment obligations and remedies for breach

Proposed Common European Sales Law: key provisions

• Contract formation• Duties of disclosure of pre-contractual

information• The right to cancel and its consequences• Interpretation of a contract - based on “common

intention”. Prior negotiation and subsequent conduct admissible for contractual interpretation

Proposed Common European Sales Law: key provisions

• Principle of good faith and fair dealing basis for implying terms and a duty to act in accordance with good faith

• No conditions and warranties• In B2B contracts can only terminate if other party

in fundamental breach • It does not include provisions re capacity, agency

and illegality which will continue to be governed by national law

Proposed Common European Sales Law: likely impact

• Give rise to two parallel systems in each Member State which could potentially be costly and difficult to manage

• Certain provisions are biased in favour of customers in B2B context e.g. duty on supplier to disclose pre-contractual information

• Limited application to EU cross-border contracts means businesses will potentially need 3 sets of terms:– domestic transaction terms– EU cross-border transaction terms– worldwide transaction terms (although Member States

can choose to extend its application to domestic contracts)

Proposed Common European Sales Law: likely impact

• The CESL is entirely optional in its current form• Member States can choose to apply the law to

B2B transactions generally• There is no suggestion that a supplier is obliged

to offer CESL at the request of a customer if the supplier does not already offer it

• Generally negative reaction in UK to the proposals - there remains a question as to whether there will be much take up of CESL even if adopted

Proposed Common European Sales Law: next steps

• In order to be adopted the CESL will need to be approved by the European Parliament and the Council of Ministers, then published in the OJEU.

• The Commission intends to have the CESL agreed in time for the 20th anniversary of the European Union internal market on 1 January 2013. This is an ambitious timetable. The CESL would come into force 20 days after publication and apply 6 months after that

Eurozone Crisis: what is it?

Sovereign debt grows

Lack of growth in economy

Increasingly difficult to service debt

Lending is higher risk so cost of

borrowing increases

Increasing debt burden and decreasing

Government revenues

Eurozone crisis: leaving the Euro• A Member State could leave the Eurozone

– by agreement (may or may not leave the EU at the same time)

– by unilateral departure (in breach of EU law)

• Introduction of replacement currency

• What will legislation say?

• Quick depreciation of replacement currency

Eurozone crisis: impact on pricing and payment obligations • Lex monetae/money of account

• Definition of “Euro”

• Money of payment

• Governing law

• Jurisdiction

• Financial impact

Eurozone crisis: analysis of contracts

• Does price have to be in Euros?

• Pricing converts to new currency– Trigger event– Exchange rate

• Pricing remains in Euros– Define Euro– Place of payment– Exclusive jurisdiction for English courts– Payment in Euros– “No impact” clause

Eurozone crisis: analysis of contracts

• Consider interaction with other contract clauses– Force majeure– Change in law– Termination

• Risk profile of the deal/walk away?– Right to renegotiate price– Termination right– Material adverse change clause

Eurozone crisis: practical tips

• Identify key/material contracts• Analysis of contracts for terms that relate to the

Eurozone and identify risks associated with these terms

• Consider whether any variations to the contractual relationship would be desirable at this stage

• Drafting future contracts in such a way as to minimise risks associated with a potential Euro crisis becoming reality

Bribery Act: background• UK Bribery Act 2010 came into force 1 July 2011• Worldwide Reach• Active Bribery (giving a bribe)• Passive Bribery (accepting a bribe) New

corporate offence of “failing to prevent bribery” – strict liability

• New corporate offence of “failing to prevent bribery” – strict liability

• Defence for the business if it takes “adequate procedures” – i.e. it takes all possible measures that are proportionate and reasonable to prevent bribery occurring

Bribery Act: background

• Associated persons (AP)• Employees – presumed to be associated (section

8(5))• Agents and subsidiaries – possibly associated

(section 8(3))• Suppliers of goods – depends on the

circumstances• Joint ventures – partners are probably APs and

also joint venture companies

Bribery Act: impact a year on• No high profile corporate prosecution...yet• So far only one prosecution under the Act (a

court official for receiving payments to make traffic offences disappear from a court database)

• Serious Fraud Office (SFO) – Oxford Publications case – no prosecutions because witnesses in overseas jurisdiction/difficulties obtaining evidence

• BUT Oxford Publishing still ordered to pay almost £1.9 million in voluntary settlement plus SFO costs.

Bribery Act: impact a year on

• Despite lack of prosecutions, international businesses have placed emphasis on Bribery Act compliance

• Non UK entities are using UK Ministry of Justice guidance to ensure they have adequate defence in place

• Rising number of organisations and countries are placing importance on anti-bribery/corruption

Bribery Act: considerations

• Risk analysis on contract-by-contract basis• Due-diligence into the anti-bribery procedures of

APs (contracting parties and especially those who using sub-contractors) or requiring parties to enter into anti-bribery undertakings

• Remedies other than termination for breach of anti-bribery clauses e.g. liquidated damages, forced removal of employees / directors who have acted illegally to manage risk without losing benefit of contract

Any Questions?