Contract Law Update - ThinkHouse Foundations

• Published date: 29 June 2021
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Coronavirus (COVID-19), Contracts and Commercial Law, Landlord & Tenant - Leases, Litigation, Contracts and Force Majeure
• Law Firm: Gowling WLG
• Author: Joanna Rhodes

On-demand webinar

Sarah Townsend and Joanna Rhodes provide a roundup of commercial contract law, reviewing the developments of the last 12 months and highlighting cases that should be at the top of your reference list.

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Transcript

Joanna Rhodes (Jo): Well, a very good morning everyone and thank you for attending our Webinar this morning, which is a Contract Law update. We give these sorts of updates fairly regularly as we think it is always helpful to know what are the new and interesting cases that have been coming through.

Just to introduce myself, my name is Jo Rhodes, I am a Senior Associate in our Commercial Litigation team and I am also one of the Co-Chairs of ThinkHouse Foundations. Just to say a little bit about that, the ThinkHouse Foundations is the partner programme of our main ThinkHouse programme. While the main ThinkHouse programme is aimed at senior In-House Lawyers all the way up GC level really, ThinkHouse Foundations is aimed at the more junior end from Trainee Solicitors, all the way up five or six PQE.

And what we do in Foundations is we try to focus on giving practical assistance with the things that we think might be coming across your desk from day-to-day. I am informed that we started ThinkHouse Foundations with one talk and about ten people in attendance so, looking at our participants for today, I think we have come a little way since then. I have the pleasure of chairing this webinar today which is the third and final in a series of three ThinkHouse Foundations webinars for the spring/summer season.

On 11 May Sam Cooper from our Planning and Environment Team kicked off the spring/summer programme on the topic of "A New Era For Environmental Law", that was swiftly followed by a panel discussion with the slightly thorny title of "Brexit - What You Need To Know" in which I was joined by several lawyers from across some of the firm's key specialities and talking about what they had been seeing most of in their practice areas since Brexit, as well as things to look out for and what they think might be coming down the track to the extent that anyone is able to predict that.

If you were not able to make either of those, I do highly recommend them. We record all of these sessions and the links to all three for this season will be circulated to you all at the end of the talk, so please do not worry if you could not make either of them.

So, moving on to today's talk then, I am very pleased to be joined today by Sarah Townsend, who is a fellow Senior Associate in our Commercial Litigation team and who joined the firm last year. In the spirit of what we try to do with ThinkHouse Foundations, Sarah is going to give a practical overview of some of the cases which have been coming up over the last few months or so and which we think relate to things that are likely to be appearing on your desk from day-to-day.

We have just the last bit of housekeeping, we have activated the Q&A function on Zoom, so please feel free to ask your questions there and just to say that only we will be able to see them and they are not visible to your fellow attendees. We will try to answer as many as we can in the time allowed but if we do not get to everyone's, we will follow up after the session. And equally, if there are any specific queries you would like advice on, we will be very happy to follow up afterwards. I think that is enough out of me. So without further ado, I will hand over to Sarah.

Sarah Townsend: Thanks very much Jo. As Jo said, I am a Senior Associate in the Commercial Litigation team. I work with Jo, handling all manner of disputes, recently from VAT fraud claims to breach of contract claims particularly arising out of COVID-19, which is something that we are going to look at later this morning. I should also mention to you that I worked in-house as an NQ Litigation Lawyer at a finance company, so I very much appreciate the demands placed on in-house counsel and especially the sometimes impossible requirement to be an expert on all matters, providing advice, often at very short notice and also across a very broad range of subjects.

So, as Jo said the aim today is not a law lecture or to dig out your potentially dusty books, it is looking at some practical cases which have come through in the last year/year and a half, which we think may have some interest and hopefully some practical application on your day-to-day jobs.

So I hope you all have your morning coffees on this beautiful morning. a perfect morning for a contract law update. So just to highlight to you our agenda today, we are going to start by looking at everyone's favourite law school topic, "frustration" and, in particular, recent decisions of the Court considering both COVID and non-COVID cases, which we hope might be of some relevance and some interest.

We are going to then move on to look at whether COVID-19 could be used as a defence to money claims particularly which, again, we hope is a fairly topical session. There is not a theme for the rest of the topics that we are going to look at. It is really looking at some common phrases which you no doubt have all come across in your day-to-day jobs and that you have also read in, probably numerous, contracts but do we actually know what they mean?

The first one is, what does "subject to contract" mean? And in particular there has been an interesting court of law decision which discusses and examines exactly that. What does "subject to contract" mean in discussions? And what is the consequences of it? We are then going to move on to, again, another quite well recognised phrase, which I am sure you have all come across and is "giving consent under contract". And this is particularly whether a party can impose conditions upon giving consent under the contract.

And then we are going to end today's session by looking at another really well known phrase the duty of "good faith" and the extent to which a party has to act in good faith under a commercial contract. And so again we are going to consider briefly what the courts have said and the background to the cases, but again just kind of looking at the practical implications of that and if you come across it in your day-to-day jobs, hopefully it would have some practical application for you.

Right, so, time for our first topic of the morning which is "frustration" and this is hopefully an interesting case that is Dyer and Fashlays Street Surgery. And to start off with the very basics, frustration, and it is something that you all remember learning about at law school, probably has relatively limited application, maybe in your day-to-day jobs but something that always pops up now and again.

Well then not to drag you to your law books or to give you a law lecture but what are the essential elements of frustration? Here it really goes to the impossibility of performing a contract, as it is something which makes a contract physically or commercially impossible to fulfil. And another key phrase, which keeps popping up in a lot of judgments is this fundamental, or radically different obligation, and so it is looking at events which basically really render the performance of a contract very different from what the parties first intended.

So looking at this recent case of Dyer, just to give you a bit of brief background as to what the case is about. Mr Dyer and his partner ran a medical practice, along with two other chief partnerships. The parties all entered into a number of contracts for a lease of the premises and also facilities management agreements. Unfortunately in 2015 the Care Quality Commission tried to cancel Mr Dyer's registration as a Doctor and his patients were transferred to the other partnerships in the building.

Now, luckily for Mr Dyer, he appealed and his registration was reinstated a year later. However, during this time MrDyer and his partner did not meet any of the obligations under the contract, including the lease and, to make matters worse, the other partnerships sued for breach of contract and were awarded £27,000. Now during the course of these disputes, Mr Dyer had relied on frustration arguments and he argued that during the period he was not practising, he was still obligated to pay the running costs of the GP premises and that this had turned into an obligation to make payments for nothing in return, and that was radically and fundamentally a different obligation than that agreed at the outset.

And going back to our definition of what frustration is. now the Court unfortunately for Mr Dyer disagreed with his frustration arguments but it noted that the lease had opposed an undertaking on the tenants, to their best endeavours, to remain a GP and the other documents in contract required the parties to covenant with one another to all reasonable endeavours to remain a qualifying practice. So when considered in the round, the contracts made sufficient provision that possible cancellation of a party's GP registration and therefore frustration of the contracts had not occurred.

Now it is also relevant here, and one of the kind of interesting points is that upon the cancellation of their registration Mr Dyer, by his actions, showed that he did not consider the contracts to be frustrated. His decision to appeal the cancellation of his licence, which was ultimately successful, showed that he wanted to continue with the contracts rather than treat them as frustrated and simply walk away and the court placed weight on that.

So the practical points to take home if you ever come across this type of scenario or frustration argument in your practice or in your work is that this judgment shows that, just because a situation advises. which is outside the party's control and has very harsh consequences, discharge of the contract by frustration will not always be available and is quite a difficult argument to run. You have to consider all of the circumstances and contracts together.

So here, particularly, the contracts did not refer...