LEGAL AND COMMERCIAL UPDATE 2012

Thursday 5 July 2012

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Best Practice Contracting Toolkit

Legal and Commercial Update

Dr Sam De Silva FCIPSPartner - Head of IT & Outsourcing

CIPS Global Board of Trustees

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Agenda

• Limitations and Exclusions of Liability• IPR Indemnity• Step-In Rights• Audit Rights• Due Diligence• Benchmarking• Change Control Process• Technical and Operational Schedules

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Limitations and Exclusions of Liability (1)

• Framework for a "best practice" liability clause– Losses which can't be excluded by law– General financial cap– Different financial caps for different categories of

loss e.g. damage to property– Categories of loss where no limit applies e.g.

breaches of confidentiality, data protection breaches, IPR indemnity, PCI DSS compliance

– Customer's liability to service provider• Liability cap• Indirect / consequential losses – GB Gas Holdings

(Centrica) v Accenture [2010]• Deeming certain categories of loss as direct losses

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• Exclusion of liability for data loss• Ensuring exclusion for consequential / indirect losses

is appropriate – devil is in the detail

Example 1

"The Supplier excludes indirect losses, consequential losses, loss of profit, loss of revenue, loss of business …"

Example 2

"The Supplier excludes indirect losses, consequential losses including loss of profit, loss of revenue, loss of business …"

Limitations and Exclusions of Liability (2)

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IPR Indemnity

• Purpose• Issue with “proviso” wording• Scope of indemnity• Exclusions to indemnity

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Step-In Rights

• Originally seen in public sector contracts• Principle = avoid the “nuclear option” of contract

termination• Key issues

– What is the “trigger”?– How long does step-in last for?– Charges during the step-in period?– What if something goes wrong during the step-in

period?– Third party support for step-in?

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How can the effect of step-in rights be minimised for Service Provider

• Services affected by trigger event• Not managing service provider’s personnel• Competitor of service provider• Service levels of affected services• Step-out triggers• Customer acting reasonably / mitigating losses• Customer indemnifying service provider for losses

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Balanced Audit Rights

• Compliance with supplier’s security, H&S policies• Minimise disruption• Frequency• Scope of audit• Notice of audit (NB. regulated industries)• Competitors of supplier

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Due Diligence

• Not only relevant for corporate transactions• Supplier given opportunity to carry out due diligence• No warranties• Objectives

– transfer of risk of operating service to supplier– give supplier access to information required to

tender• Approach if not practicable

– Clearly defined pricing assumptions– Process to vary pricing if assumptions are incorrect

and have material impact on original pricing

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Benchmarking

• Principle = compare “like with like” to ensure deal continues to match what the market can offer

• Key issues– How often?– By whom?– What is being compared?– Normalisation– What happens if there is an adverse result?– Degrees of permitted variance?– Cost?

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Change Control Process

• Change impact reports– feasibility– cost implications– consequential changes to agreement

• Pricing principles• Supplier’s obligation to undertake change• Unreasonable grounds for refusing change

– demanding unreasonable changes– imposing unreasonable conditions– refusing to accept change although within scope of

contract

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Technical and Operational Schedules

• Just as important as "front-end" legal provisions• Precedence / priority clause• To serve purpose

– sufficiently wide in scope but avoid uncertainty– enforceable obligations

• What makes enforcement difficult?– ambiguous– agreements to agree

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How to Avoid: Ambiguous Drafting with Technical and Operational Schedules

• Use active language

"The System will be tested before it is used in the production environment to ensure that it is working in accordance with the Specifications."

"The Service Provider must test the System before it is used in the production environment to ensure that it is working in accordance with the Specifications."

• Only use capitalised terms for proper nouns or defined terms

"[Party X] must ensure that all Software supplied by it is free of any viruses."

• Review by asking questions– Who performs obligation?– When must they perform?– How often must they perform?– To what standard?– And so on …

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How to Avoid:Problems caused by Agreements to Agree

• 2 stage process– identify– remedial drafting

• Steps for identification– look for the use of the word "agree"– look for any reference to obligation in a document which

is not yet agreed– look for an obligation for the parties to engage in "good

faith negotiations" (or similar wording)

• Remedial drafting: agreements to agree usually a problem unless– some objective way of resolving failure to agree– both parties have sufficient incentive to agree– obligation which requires agreement to agree is of

relatively low importance

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Any questions?

Dr Sam De SilvaEmail: sam.desilva@manches.com

DDI: +44 (0) 1865 813 735

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2010

The Bribery Act 2010 and the Procurement Environment

Chris Shelley

Partner

Head of IP, IT & Commercial Practice

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• The new bribery offences

• Procurement of services: preventing bribery by service providers

• Corporate hospitality

• Penalties: debarment from public contracts

• The compliance challenge – are you doing enough?

Agenda

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Section 1 – offering, promising or giving a bribe

Section 2 – requesting, agreeing to receive or accepting a bribe

Section 6 – bribing a foreign public official

Section 7 – failing to prevent bribery by an associated person

The Four New Bribery Offences

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The key elements of a bribe for the purpose of Sections 1 and 2 are:

• a “financial or other advantage”...

• in relation to a “relevant function or activity”...

• which is “performed improperly”

Functions and activities span the public and private sectors and include:

• any function of a public nature

• any activity connected with a business

Sections 1 and 2 set out 6 different ‘cases’ each of which has a subtly different requirement of intention or knowledge

Note that the Section 6 offence does not require “improper performance” - merely an intention to influence a foreign public official plus an intention to gain business or a business advantage

The Key Elements of a Bribe

P offers, promises or gives

R requests, agrees to receive or accepts

In anticipation or in consequence of R requesting, agreeing to receive or accepting

6

a financial or other advantage

to another person

1, 2

and intends the advantage

and knows or believes the acceptance of the advantage

1

2

intending that3

which itself constitutes

4

as a reward for

5

in consequence3

to induce a person in

to reward a person for

1

1

would constitute

2

the improper performance of

1

1

2

3a relevant function or activity

1, 2

the improper performance by R (of)

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5

4

or another of5

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will be performed by R or another person

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6

at R’s request or with R’s assent or acquies-cence

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Section 1 (active bribery)

Case 1.

Case 2.

Case 3.

Case 4.

Case 5.

Section 2 (passive bribery)

Case 6.

The Section 1 and 2 offences: the 6 cases

In cases 1 and 2 P is guilty of an offence. In cases 3 to 6 R is guilty of an offence.

In cases 4, 5 and 6 it does not matter whether R knows or believes that the performance of the function or activity is improper.

In case 6 where a person other than R is performing the function or activity it does not matter whether that person knows or believes that the performance of the function or activity is improper.

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• An individual or company can be liable under sections 1, 2 or 6 if the act or omission:

– takes place in the UK; or

– takes place outside the UK if the individual or company concerned has a “close connection” to the UK (as defined in section 12(4))

• A company will only be liable under sections 1, 2 or 6 if the offence is committed by a person who is the “directing mind and will” of the company

• If the offence is committed by a company with the “consent or connivance” of a senior officer, he/she can also be personally liable for the offence (section 14)

Sections 1, 2 and 6: Jurisdictional Reach

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Offence:

A relevant commercial organisation (C) is guilty of an offence if a person associated with C bribes (within the meaning of Sections 1 and 6) another person, intending to obtain or retain business or a business advantage for C

Defence:

C has a defence if it can show that it had in place adequate procedures designed to prevent bribery

The Section 7 Offence

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• A body or partnership incorporated or formed in the UK irrespective of where it carries on a business;

• An incorporated body or partnership which carries on a business or part of a business in the UK irrespective of the place of incorporation

The key concept is one of “carrying on a business”

Relevant Commercial Organisations

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• A person (A) is “associated” with C if A is a person who performs services for or on behalf of C

• The capacity in which A performs services for or on behalf of C does not matter – so it could be:

• an employee;

• a contractor or supplier;

• an agent or distributor; or

• a subsidiary

• If A is an employee, it will be presumed (unless the contrary is shown) that A is a person who performs services for or on behalf of C

• Whether someone is an associated person will be determined by reference to “all the relevant circumstances”, not simply the nature of the relationship

Associated Persons

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• MoJ has provided statutory guidance on ‘adequate procedures’

• The Guidance advises that the adequate procedures put in place by commercial organisations should be informed by six principles

• Case studies are provided to illustrate the application of the principles for small, medium and large organisations

The Ministry of Justice Guidance

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Proportionate procedures – but it is not all about size of the organisation

Top level commitment – this might be the Board or owner-managers

Risk assessment – general or stand alone?

Due diligence – in respect of associated persons

Communication (including training)

Monitoring and review – involvement of top-level management

These principles should be applied to scenarios where there is a risk of bribery

The Six Principles

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A supplier of services to a company is a person associated with that company for the purposes of Section 7.

Key tools for preventing bribery:– risk-based due diligence– anti-bribery contractual terms and conditions –

contractual control– asking (or requiring) counterparties to adopt similar

terms and conditions

Can you draw the line at direct contractors?

Procurement of services: preventing bribery by service providers

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Corporate hospitality and promotional gifts can constitute bribes, but:

“The Government does not intend that genuine hospitality or similar business expenditure that is reasonable and proportionate be caught by the Act, so you can continue to provide bona fide hospitality, promotional or other business expenditure…

“You can continue to provide tickets to sporting events, take clients to dinner, offer gifts to clients as a reflection of your good relations, or pay for reasonable travel expenses in order to demonstrate your goods or services to clients if that is reasonable and proportionate for your business.”

- Ministry of Justice “Quick Start Guide”, March 2011

Corporate Hospitality

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• “Transparency International’s view is that good practice permits such expenditures where they are transparent, proportionate, reasonable and bona fide.”

• Crucial are the key provisions of the Act’s offences – particularly the intention to bring about “improper performance” (section 1) or to “influence” (section 6)

• “It is for individual organisations… to establish and disseminate appropriate standards for hospitality and promotional or other similar expenditure.” (Ministry of Justice guidance, March 2011)

• Prosecution guidance says that the more lavish the hospitality, the greater the inference of intention to bring about improper performance or influence

• What is “lavish”?

Corporate Hospitality

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SFO Guidance

Key factors are whether:• the company has issued a clear policy on gifts and hospitality;• the scale of the expenditure in question is within the limits set out

in the policy and, if not, whether the person making it asked a senior colleague for special permission to make it;

• the expenditure was proportionate (based on who received it);• there is evidence that that company recorded the expenditure;• the recipient was entitled to receive the hospitality under the law of

the recipient’s country.

Any inference that gift or hospitality expenditure was intended as a bribe would be strengthened if:• there was any unjustifiable ‘add-ons’, for example to travel or

accommodation;• the expenditure is related in time to some actual or anticipated

business with the recipient, particularly where some form of competitive process is involved.

Corporate Hospitality

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• Sections 1 and 6 offences: mandatory exclusion under Reg. 23 of Public Contracts Regulations

• Applies to company and its directors “and any other person who has powers of representation, decision or control”

• Applies where contracting authority has actual knowledge of conviction

• Very limited discretion to disregard: “overriding requirements in the general interest”

• Can lead to permanent exclusion

Penalties: Debarment from public contracts

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• Sections 2 and 7 offences: exclusion is discretionary under Regulation 23(4) (Ministerial Statement, 30 March 2011)

• Applies only to conviction of the bidding company

Penalties: Debarment from public contracts

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• Mixed response reflects risk-based approach

• Awareness of new laws still patchy

• Inconsistent approaches to corporate hospitality

• Are compliance programmes effectively embedded?

The compliance challenge– are you doing enough?

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10Thank you

TUPE: recent cases

Daff RichardsonPartner

Employment Law Team

TU

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Overview

• Service Provision Changes• Change of location• Changing terms and conditions of

employment• Companies in administration

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Service Provision Change

• Activities cease to be carried out by a person (a client) on his own behalf and are carried out instead by another person on the client’s behalf (a contractor)

• Activities cease to be carried out by a contractor on a client’s behalf … and are carried out instead by another person (a subsequent contractor”)

• Activities cease to be carried out by a contractor or a subsequent contractor on a client’s behalf… and are carried out instead by the client on his own behalf

TU

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Service Provision Change

• “Contractor” includes sub-contractors

• There must be an organised grouping of employees situated in Great Britain before the change that has as its principal purpose the carrying out of the relevant activities on behalf of the client

• A single employee can be an organised grouping

TU

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Service Provision Change

• Does not apply where the contract is for the supply of goods for the client’s use

• Does not apply where the activities are in connection with a single specific event or task of short-term duration

TU

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Recent Cases

Organised grouping of employees needs more than “happenstance”:

• Eddie Stobart Ltd -v- Moreman & Others

• Seawell Ltd -v- Ceva Freight (UK) Ltd and another

TU

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Recent Cases

Factors to consider in determining when there is a service provision change:

• Argyll Coastal Services Ltd -v- Stirling and Others

TU

PE

: rece

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Recent Cases

Define the “activity” – does it transfer?

• Johnson -v- Campbell and another

TU

PE

: rece

nt ca

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Change of Location and ETO Reasons

Change of location does not entail a change in the workforce and may give rise to automatic unfair dismissal claims:

• Abellio London Limited -v- Musse and Others

• Tapere -v- South London and Maudsley NHS Trust

TU

PE

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Changing Terms and Conditions of Employment

Are the changes related to the transfer?

• Enterprise Managed Services -v- Dance and Others

• Smith and Others -v- Trustees of Brooklands College

TU

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: rece

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Changing Terms and Conditions of Employment

Practical issues:• Reason for change: is it “connected with

the transfer” (sole or principal reason)• Ring fencing• Promotion/restructure = new jobs?• Dismiss and re-engage?• Public sector: no two-tier workforce

TU

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TUPE and Insolvency

• Regulation 8(6) “non-terminal proceedings”: TUPE applies (apart from certain debts)

• Regulation 8(7) “terminal proceedings”: TUPE does not apply

TU

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TUPE and Insolvency

A “pre-pack” administration will always be a relevant insolvency procedure: TUPE applies

• Key2Law (Surrey) LLP -v- De’Antiquis

TU

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TUPE and Insolvency

Pre-transfer dismissals can be automatically unfair even if transferee not identified:

• Spaceright Europe Ltd -v- Baillavoine and another

TU

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Managing Procurement Litigation –

Strategies for Winners

David Pritchard Head of Litigation

PRE-LITIGATION MANOEUVRES

Procurement Process going Wrong

• Everybody concerned covers their backs

• Signs of real aggression in correspondence

• “Clam shuts tight”

• Open communication stops completely

Pre

-Litigatio

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Man

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What should you do in those circumstances?

• Find Contractual Documents

• Check Dispute Resolution Procedure

• Escalation Process applies? Pre

-Litigatio

n

Man

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s

Pre

-Litigatio

n

Man

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s

First Inkling of a Dispute

• Avoid the impulse to clam up

Pre

-Litigatio

n

Man

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Without Prejudice Privilege

• Heading only an indication of contents

• Do not undermine your credibility by using the heading in the wrong place… P

re-Litig

atio

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Man

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Attempt to Resolve a Dispute

• Two correspondence tracks

• The Operational Track – Purely Administrative

• Without Prejudice Track – Be as frank as need be

Pre

-Litigatio

n

Man

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vre

s

How does this work?

• Make concessions if necessary

• Suggest a Solution

• If not accepted by your contracting counterpart, then ‘bank’ the offer

Pre

-Litigatio

n

Man

oeu

vre

s

Without Prejudice save as to Costs

• “Double whammy” impact on costs

Pre

-Litigatio

n

Man

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FORUM SHOPPING

When do you have the choice?

• Bring action in the jurisdiction that offers the best outcome:

•Law

•Process

•Convenience

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How do you choose the right forum?

• Contract may prescribe

• Different remedies available (triple damages)

• Costs sometimes not recoverable (US)

Foru

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pin

g

What is the role of an Expert?

• Gives expert advice to the Court on non-legal matters relevant to the case

• Their personal opinion counts – it should be tested in advance

• Advice is privileged, but beware the joint expert

Ch

oice

of E

xp

ert

How are Experts selected?

• Case Management Conference determines need

• Consider retaining a number of key Experts to block out opponents

• Ask for recommendations – ‘case hardening’

Ch

oice

of E

xp

ert

SECURING THE EVIDENCE

What is disclosure?

• Obligation placed on parties

• Standard disclosure, but may be more onerous

Secu

ring

the E

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ce

What is e-disclosure?

• Extension of the disclosure obligation

• Includes electronic documents

• Documents stored on servers, back-up systems or metadata

Secu

ring

the E

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en

ce

The CPR – e-disclosure principles

• Specific Directions

• Efficient document management

• Use of technology

• Proportionality

Secu

ring

the E

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en

ce

Points worth mentioning

• Must preserve all disclosable documents

• Discuss the use of technology

• Conduct a reasonable search

Secu

ring

the E

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ce

What if you get it wrong?

• 2009 case (Earles v Barclays Bank PLC [2009] EWHC 1 (Mercantile))

• Be prepared!

Secu

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the E

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SETTLEMENT – AT WHAT PRICE?

Number of different settlement processes

• May be contractually stipulated

• Can also be reached by agreement between the parties

Settle

men

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hat P

rice ?

Statistics on Court S

ettle

men

t at w

hat P

rice?

Technology and Construction Court1

Summary caseload statistics, 2006-2010

Number of actions

  2006 2007 2008 2009 2010

Received

Claims and originating summonses issued in Registry 337 376 341 495 465

By transfer 53 33 25 33 28

Total 390 409 366 528 493

Disposed of

Tried 32 33 39 49 51

Struck out, settled or discontinued 153 160 140 173 192

Transferred 2 7 6 5 8

Default judgments entered 5 16 13 17 19

Total 192 216 198 244 270

Number of Interlocutory Applications heard2 454 397 374 483 566

           

Who won?

Burchell v. Bullard

Settle

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t at w

hat P

rice?

MEDIATION

Why is this better?

• Order for damages or specific performance only remedies available from Court

• Procurement disputes often require something more innovative

• However… the aggregating process means that very strong cases may be unsuitable

Med

iatio

n

ADJUDICATION

Controlling Costs

estimates

• Solicitors fees

budgets

• Disbursements

• Settlement offers

• Risk sharing

• Insurance

• But REMEMBER Proportionality

Con

trollin

g C

osts

Recovery Risks

• Credit Risk

• Loser normally pays most of winner’s legal costs

• Winner rarely “takes all”

Con

trollin

g C

osts

Finally….

• Attempt early ADR/Settlement but at all times present yourself as being eager to get to trial!

• Winners are those who lose least…

Con

trollin

g C

osts