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Commercial

Must I accept an order? The importance of terms and conditions
Tuesday 23rd February 2016

The well known retailer Mothercare has found itself to be the subject of some negative feedback following its response to an error on its website store that caused a car seat which normally retailed at £135 to be inadvertently listed for just 49p. News of the ‘amazing deal’ had quickly spread across social media with consumers snapping up what they thought was a real bargain. Once Mothercare became aware of the error, however, they cancelled and refunded all online orders placed to buy the car seat on the basis that the reduction was a ‘genuine mistake’.   

Many customers were upset and angry about the way in which Mothercare had dealt with the problem, believing that as the error was Mothercare’s, Mothercare should have honoured the reduced purchase price as a gesture of goodwill.  A sizeable number were surprised Mothercare could legally cancel their orders on this basis.  Their frustration was evident on social media and was also picked up on by the traditional media.

Whilst Mothercare accepted that the car seat had been incorrectly listed by them, they stated that they were entitled under their website terms and conditions of sale to cancel the incorrectly priced orders.

The issue highlights the difference between consumers’ understanding of contract law in England and the use and application of contract law by companies such as Mothercare in respect of website sales. 

Under contract law, in order for contract to exist, it must consist of a number of key elements, three of which are:

  1. Offer of a contract;
  2. Acceptance of a contract; and
  3. Consideration (i.e money or money’s worth must change hands).

It is easy at first sight, to see how the car seat set out on the website shop at a price of 49p could be viewed by a consumer as an offer to sell the car seat at this low price.  To many customers, the website has ‘offered’ to sell goods at a price, the customer has ‘accepted’ the offer and also paid their ‘consideration’ of 49p.  Therefore there must be a contract, and Mothercare should be bound to honour it.  This is however incorrect.  Just as in other sectors, timing of the acceptance of a contract during e-commerce is key for understanding and setting out the rights of each party.

The reality is that for most online retailers, the advertising of a product on a website is not an offer by them to sell merely an invitation to the customer to treat themselves.  It is the consumer’s response to the product advertisement, i.e submitting an online order, which is the offer of a contract.  The online retailer is then in a position to decide whether or not to accept such offer.  There is therefore no obligation on an online retailer to accept an offer to purchase a product, or accept an offer to purchase a product at a particular price.  In Mothercare’s case, this is stated in its terms and conditions:  “We are under no obligation to accept your order but would normally do so where the product is available”

In addition Mothercare also has the ability under its terms and conditions to refuse any offer to purchase a product, particularly at an incorrect price.  “The display of any product on our website is in no way an offer by us to sell to you.  It is your response that is the offer.  Accordingly, we are not liable to sell you any product that might be quoted at a price lower than that meant by us.”

Like many online retailers Mothercare’s terms and conditions then state that if the customer’s offer to purchase was accepted by Mothercare, they would notify them of this by email; and as the consumer would have authorised a card payment for the product (consideration), only at that point would a binding contract be in place between the parties for the sale of the relevant goods.  This is the model used by many online retailers, such as Amazon or Tesco, in order to control the process of forming a contract and to ensure that the retailer is not bound to accept unsuitable orders, such as products advertised at a much reduced price due to a website pricing glitch.  The alternative, e.g being bound to accept an order on the basis that a valid contract is in place, could be very costly for the retailer (both Tesco and Amazon having had similar issues to Mothercare in the past).

Indeed, in the case of the car seats, Mothercare has been careful to add in a caveat in its terms limiting its acceptance of any order by stating that any agreement made with a customer is subject to their right to withdraw acceptance, where “your offer relates to goods that have been priced below that which we intended and/or where discounts have been applied or used in error.”; in which case they would email the customer to notify them of the change and ask them to resubmit their order.

Accordingly, and unfortunately for many unhappy customers, Mothercare is within its rights to not agree to be bound by the sale of the car seats for the lower price and can therefore cancel those particular orders in accordance with its terms and conditions, even though the pricing error was its mistake. 

This demonstrates the importance to businesses, including online retailers, of having a robust set of appropriate and up to date terms and conditions to rely upon when issues do arise.  In particular, it is key for online retailers to ensure it is clear when a contract will be made, and that orders placed by a customer can be refused by the seller.  The issue of whether to honour the orders as a matter of goodwill in this era of social media pressure is, however, one for Mothercare’s marketing department.


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Investigatory Powers Bill: The Committees Report
Monday 22nd February 2016

The Draft Investigatory Powers Bill (the Bill), published on 4 November last year, aims to overhaul the current legal framework which governs how investigatory bodies such as the police and security services gather, store and review private communications.

Consultation and pre-legislative scrutiny of the Bill has been carried out by the Science and Technology Committee (STC), the Intelligence and Security Committee (ISC), and the Joint Committee on the Draft Investigatory Powers Bill (JC). All have reached a broadly similar conclusion: the current draft will not do.

Last week, the draft of the Bill took its latest blow when the JC concluded that parts of the Bill were “vague” and required “clarification”. Earlier in the week the ISC also published its report, described by some critics as “scathing”. Broadly, the ISC concluded that “taken as a whole, the draft Bill fails to deliver the clarity that is so badly needed in this area”. The ISC particularly noted that the content of the Bill is “inconsistent” and “lacks clarity” in relation to privacy protection, and that several areas require “specific amendments”. The first committee to report, the STC, also raised numerous concerns earlier in the month when its report concluded that the Bill would need much revision and that it may be too complex, time consuming and costly to properly implement. 

But what are the most controversial parts of the Bill?

The current draft Bill seeks to ensure that individuals’ internet browsing history will be stored by internet service providers for at least 12 months in order to “fight crime and terror”. This storage will allow police and security services without a warrant to see which webpages have been visited by specific individuals. However, security chiefs within the UK have told the ISC that this part of the Bill will have little effect, particularly given that they already have the capability to obtain data of this kind within the UK.

As drafted, the Bill will also allow security services to legally undertake “equipment interference”, whereby data from individual’s smartphones, tablets and computers may be obtained by law enforcement agencies without an individual’s knowledge. The rationale behind the drafting is to make it easier for enforcement agencies to obtain incriminating evidence against specific individuals, resulting in a higher likelihood of prosecution. However, the Science and Technology Committee’s recent report highlighted that numerous tech businesses have raised concerns that their business models could be affected by equipment interference, as their customers may have concerns about their equipment being hacked but this not being disclosed to them.

The subjects of such interference must be targeted but the ISC has pointed out that targeting may be extremely broad, such as to cover a whole class of foreign intelligence services. The ISC has therefore stated that the inclusion of “bulk warrants” in the Bill, which also allow the police and security services to obtain a warrant authorising equipment interference of a large number of individuals, serves little purpose and is potentially highly intrusive. As a result, the ISC has therefore given its opinion that bulk warrants should be removed from the Bill.

The JC also stated that it was satisfied that the proposed maintenance and accessibility of personal internet records would “outweigh the intrusiveness” of collecting and using them, but that a balance needed to be struck with individual users’ privacy. It suggested that one way of doing this may be that only the names of websites visited are held, as opposed to the specific individual web pages. Some tech firms have questioned whether this would be feasible in reality. 

In ISC’s report, it also expressed its surprise at the Bill’s lack of overarching privacy protection principles and suggested that individuals would need to “search and analyse” each investigatory power before clearly understanding the applicable privacy protections. As such, the ISC has recommended that the amended Bill should include an entire part dedicated to overarching privacy protections to ensure that individual privacy protection is an integral part of the bill rather than “an add-on”. The ISC also stressed the importance of taking sufficient time and preparation in drafting the contents of the Bill, and that this should be borne in mind moving forward.

Civil liberties campaigners have also had their say on the Bill, criticising it for a lack of clarity and balance.

The Home Secretary, Theresa May, has stated that, following the conclusions of the committees, the government must now “carefully consider” the recommendations it has received before presenting a final draft of the Bill. The government is certain that the new legislation is necessary however, particularly given that the committees did unanimously recommend that the new law is needed. Therefore, it is clear that new legislation will be adopted in this area and it will probably come in the form of the Investigatory Powers Bill. Whether that Bill will be recognisable to the current draft though, and whether the key issues can be improved, is unclear.


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Procurement law: Government backs down on two-tier legal aid contracts
Thursday 18th February 2016

The Lord Chancellor has confirmed that the two-tier legal aid contract scheme has been scrapped following an overwhelming negative reaction to the scheme and what can only be described as a shambolic procurement process.

Two years ago, the government first announced that it would be cutting legal aid contracts. As part of these cuts, the government proposed to introduce the “dual contracting” system, also known as the “two-tier” system, which controlled how criminal legal aid contracts would be awarded to solicitors and barristers. However, the two-tier system was not met with the approval that the government initially anticipated and has resulted in the largest ever UK procurement litigation, with numerous civil claims being issued by private individuals and judicial review proceedings being brought against the government.

The two-tier system proposed to award two different types of contracts to criminal legal aid firms. The first tier was the award of an unlimited number of contracts to firms representing existing clients (effectively a continued payment arrangement).

The second tier was to award 527 duty provider contracts to firms following a nationwide competitive tender exercise. In each geographically defined area, a limited number of firms who successfully tendered for a duty provider contract would be able to represent individuals who were not existing clients.

The procurement exercise for the second tier was criticised as being severely flawed. Whistle-blowers publicly stated that agency staff had been drafted in to hit target dates with little or no understanding of the need for objective marking or the subject matter of the tender submissions. In addition, there was a complete lack of consistency across geographical areas, with identical submissions by law firms being awarded drastically different scores. This led to one of the largest challenges under public procurement law the UK has ever seen.

In response to a number of judicial review claims and 99 individual procurement law claims, the government backed down and has announced its intention to discard the proposed two-tier system and has suspended a second legal-aid fee cut until 2017.

Lord Chancellor, Michael Gove, released a statement at the end of January explaining the reasons for not proceeding with the two-tier system. He stated that the litigation relating to the system’s introduction “will be time consuming and costly” and will result in “months if not years of continuing uncertainty” to the legal aid market and the Ministry of Justice.

He also stated that the Legal Aid Agency will now extend existing contracts, that he will work with legal-aid firms to “improve efficiency and quality” and that any decision to impose a second legal-aid fee cut will be suspended until April 2017.

The government’s decision to back down in the face of considerable pressure highlights that procurement law and procurement safeguards have a potentially far reaching effect, capable of challenging not just the competitive and procedural aspect of a procurement in order to safeguard the rights of businesses, but in also shaping government policy.

The procurement team at Brabners was involved in the litigation and acted on behalf of one of the claimant law firms in the proceedings.


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First UK Declaration of Ineffectiveness; Scottish Courts provide a timely reminder for UK contracting authorities
Wednesday 13th January 2016

Although declarations of ineffectiveness have been available as a remedy to breaches of public procurement law for over five years, courts in England, Wales and Scotland have shied away from using their statutory powers to declare a public contract ineffective. Until now.

A range of remedies may be sought by an aggrieved party in the event of a breach by a contracting authority of public procurement law. One statutory remedy, available since 2009, has been the court’s power to declare a procurement contract “ineffective” on certain grounds, including where a contract has not been advertised prior to the award. A declaration of ineffectiveness is a particularly strong remedy as it deems a contract to be at an end from the date of the declaration. This means that a new contract must be procured (incurring cost and inconvenience to the contracting authority). The courts will also order the contracting authority to pay a mandatory civil financial penalty (i.e. a fine), which must be large enough to be “effective, proportionate and dissuasive”.  

The decision in the recent Lightway (Contractors) Limited v Inverclyde Council case was made under the Public Contracts (Scotland) Regulations 2012, (the “PC(S)R”), which is the Scottish equivalent to the old Public Contracts Regulations 2006, which applied to the rest of the UK until early last year.

In September 2015, the Council awarded a framework call-off contract to Amey Public Services LLP (“Amey LLP”) for the provision of street lighting services. However, it transpired that the framework agreement was actually entered into by Amey OW Ltd (“OW”), a wholly-owned subsidiary of the Amey Group, and not Amey LLP.

The court pointed out that the PC(S)R provides that contracting authorities must only apply the contractual procedures based on a framework agreement to those economic operators who are actually a party to that framework agreement. As such, the Council had created a new public contract when awarding the call-off contract to Amey LLP. This meant that under public procurement law, the Council had illegally directly awarded a contract to Amey LLP without advertisement or undertaking a competitive tender process.

The court therefore concluded that the appropriate remedy was to declare the contract ineffective, due to the fact that it was awarded illegally without advertisement.

The Council now intends to appeal this decision. The ineffectiveness order will be suspended until the decision of the appeal is reached, allowing the call-off contract to remain in force for the time being.

This decision clearly demonstrates that contracting authorities must strictly comply with public procurement law if they are to avoid challenges to their contract awards. If contracting authorities are in doubt as to their obligations during a procurement procedure, we recommend that specialist legal advice is sought as soon as possible. 


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EU Trade Mark Reform: What does it mean for your business in 2016?
Thursday 7th January 2016

The EU has agreed to implement a new trade mark regulation and directive in 2016 which will reform both the Trade Marks Directive and the Community Trade Mark Regulation. The stated rationale behind the reforms is to improve the efficiency of current trade mark procedures and policy, as well as to optimise the functioning of a single European market and to facilitate competitiveness of European businesses. The majority of the changes simply reflects and codifies the existing case law position. The new trade mark regulation was published on 24 December 2015 and will come into force on 23 March 2016.

Some of the most important changes likely to take place are as follows:

Say goodbye to the Community Trade Mark (CTM) and the Office for Harmonization in the Internal Market (OHIM)…

…say hello to the ‘European Union Trade Mark’ (EUTM) and the ‘European Union Intellectual Property Office’ (EUIPO), which does little more than modernise existing terminology as the European Community was absorbed into the European Union’s wider framework and the community ceased to exist.

Despite being a clearer name than OHIM, the European Union Intellectual Property Office (EUIPO) is not to be confused with the European Patent Office (EPO). The EPO deals with patents and the EUIPO will deal with trademarks and designs.

Remember to review whether your marks are only registered under class headings

Historically, trade marks registered under “class headings” only were considered to be registered for not just the goods and services within that heading, but also for all possible goods and services within that class. Following a number of case law decisions, this is no longer the case and the new regulations will reflect this, meaning that trade marks registered in “class headings” will only be registered in relation to the exact goods and services covered by those class headings.

Therefore, businesses should consider conducting a review of any CTM they currently own. This will enable them to understand whether any such trade marks are registered under class headings only and therefore whether all current and future use of that trade mark falls within those class headings. If it doesn’t, it may be advisable to amend the relevant trade mark specification or file new applications if necessary.

Owners of CTMs filed under class headings, which predate 20 June 2012, should be aware that they are likely to be given a six month grace period in which they can amend their class specifications for no cost.  

Multiple class applications will be more expensive

Currently, an application to file a CTM in up to three classes of goods and services costs €900, with a further fee of €150 per additional class.

The new legislation proposes that a separate fee will be payable for each class that the mark is filed under. A fee of €850 will be payable to file a trade mark in a single class, with an additional fee of €50 if filing in a second class and another additional fee of €150 if filing in a third class. Whilst single class applications will be cheaper, multiple class applications for more than two classes will be more expensive than the current OHIM fees once the legislation comes into force. As such, businesses should consider filing their trade mark applications sooner rather than later if such trade marks are to be registered in more than two classes.

Trade marks no longer need to be capable of graphic representation

Under existing legislation, a trade mark application must be “capable of being represented graphically” and will be refused if it cannot. Traditionally therefore, registration of smells, sounds, moving images, and colours can be challenging.

The new legislative proposals delete the wording “capable of being represented graphically”. Provided that the mark’s ambit is “clear, precise, self-contained, easily accessible, intelligible, durable and objective”, it will be registrable. The rationale behind this is likely to be the promotion of competitiveness within the European market by allowing marks, which consumers recognise as belonging to a particular business, to be registered which otherwise could not be.  It may also pave the way for mp3/mp4 files used for sound and video marks but no practice update has been made in relation to this.

However, in many cases it will still be necessary to provide a verbal description to define the mark, which effectively amounts to graphic representation.

Intervening rights defence

A defence which allows proprietors to continue to use a potentially infringing trade mark will be introduced. In brief, a registered trade mark will not be infringed by a later registered mark if that later mark cannot be declared “invalid” under European trade mark law. This defence may be used where the later mark cannot be invalidated because:

  1. The proprietor of the earlier mark has not objected to use of the later mark for a period of at least 5 years or has not used his own mark for a period of at least 5 years;
  2. The proprietor of the earlier mark expressly consented to registration;
  3. The proprietor has already attempted to invalidate the mark by relying on another of its registered marks and not the mark he now wishes to rely on when he could have done so;
  4. The earlier mark lacked distinctive character at the time of filing of the later mark.

This again promotes competition within the European Union and provides applicants of new marks with a potentially greater level of protection against infringement actions.

Corporate own name defence will no longer apply

Businesses have been able to potentially defend trade mark infringement claims on the ground that their use of another’s trade mark is due to that mark being their company name, providing use is consistent with honest commercial practice. Under the new legislation this defence will no longer exist which reflects the most recent case law.

The defence remains in relation to individual names.

Rules on counterfeiting will be even tighter

Businesses will be able to prevent third parties from bringing counterfeit goods, which bear an “essentially identical” trade mark to theirs, into the Member State where the trade mark is registered. This will be the case even if the goods are not circulated or sold in that member state, essentially meaning that businesses will be able to block supply routes if part of that route includes the country where the trade mark is registered.

This will allow businesses to take action in relation to potential infringement and counterfeiting even if this infringement takes place outside of the European Union or the country where the trade mark is registered. This, again, more or less reflects and codifies recent settled case law. 


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12 Days of Procurement
Thursday 17th December 2015

With Christmas rapidly approaching, the procurement team here at Brabners is getting in the festive spirit. In homage to The Twelve Days of Christmas, we give you our top twelve tips to help you navigate public procurement law, which we hope will not just make your Christmas a merry one but will benefit you all year round.

12. Even if your contract value is below the OJEU threshold, Part 4 might apply

Remember to check the relevant thresholds, which will be revised in January 2016. Even if the value of your contract does not meet the relevant OJEU threshold, you may still have to abide by the requirements of Part 4 of the Public Contracts Regulations 2015 (PCR 2015). Read more here:http://www.brabners.com/articles/eu-public-procurement/public-procurement-regulations-2015-consequences-breach-part-4

11. Remember the possible exemptions

Some exemptions to public procurement law exist, most notably the Teckal (in-house) exemption, the Hamburg Waste exemption, and reserved contracts get favourable treatment. However, remember that all exemptions have minimum requirements, so use with care! Read more here: http://www.brabners.com/blogs/commercial/can-contracting-authority-use-teckal-company-trade-third-parties

10. The Light Touch Regime is available for social services

The regime applies to services listed in Schedule 3 of the PCR 2015. Contracting authorities must follow limited requirements, but otherwise are free to determine the procurement procedure used. Read more here: http://www.brabners.com/blogs/commercial/what-light-touch-regime

9. Draft OJEU notices and Invitations to Tender (ITT) with care

The PCR 2015 requires various information to be included within OJEU notices and ITTs. The       European Commission has now published standard OJEU and ITT forms to assist contracting         authorities. Be careful with award criteria but don’t overly specify specifications so that you can ensure that future developments are catered for. Read more here: http://www.brabners.com/blogs/commercial/european-commission-publishes-new-standard-forms-ojeu-notices

8. Consider the most appropriate procurement procedure for you

Various procurement procedures are available to contracting authorities, each offering a varying degree of control and complexity. As such, the most appropriate procedure will differ for each contract. For example, consider whether the procurement is complex enough to require competitive dialogue or whether a restricted procedure procurement is more suitable

7. Observe the TFEU principles

Remember that if there is likely to be a cross-border interest in the procurement, contracting authorities must act in a transparent and proportionate manner, and must also treat economic operators equally (TFEU principles).

6. Document every step

It is not only good practice for contracting authorities to document each step of the procurement process but it is now a mandatory requirement. This provides more transparency and will help ensure that each element of the procurement procedure has been complied with.

5. Standstill letters are important!

Contracting authorities should be sure to inform all bidders, by letter, of their decision to award   a contract and the reasons as to why the award has been made. These letters must contain certain information relating to the procurement, as set out in PCR 2015. The standstill letter provides unsuccessful bidders with key information relating to the procurement and gives unsuccessful bidders the information required to challenge the procurement procedure, should they wish. Get them right to avoid problems.

4. Observe the standstill period

Remember to observe the relevant standstill period (10 or 15 days, dependant on the method by which standstill letters were sent). If a contracting authority fails to observe the standstill period, it may be open to an “ineffectiveness” claim which, if substantiated, can lead to serious consequences for that authority.       

3. Don’t panic if there is a legal challenge

Contracting authorities should ensure that they are able to effectively identify potential challenges and should seek legal advice quickly in the event that a challenge arises. The more quickly a contracting authority is able to respond to a challenge, the more likely it is to be resolved at lower cost.

2. The procurement rules are for the life of the contract…not just for Christmas

The PCR 2015 rules governs the operation of a contract through its entire term. Contracting authorities, therefore, should keep up to date on development in procurement regulation and make changes to the contract carefully and within the rules of PCR 2015.

1. If in doubt, seek legal advice

Seeking legal advice at the earliest opportunity will give contracting authorities the best chance of being adequately prepared to deal with the procurement process, and potential legal challenges, effectively.

The Brabners procurement team wish you all a very Merry Christmas and best wishes for 2016. And don’t forget… the OJEU thresholds decrease on 1 January.

If you have any queries in relation to your procurement, please feel free to contact us.  


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Australian court finds Nurofen branding a pain for consumers
Thursday 17th December 2015

An Australian court has ruled that the packaging for “specific pain” products which contain identical active ingredients are misleading to consumers.

Nurofen is produced by Reckitt Benckiser, a UK based company. It offers several different “specific pain” products including Tension Headache, Nurofen Period Pain, Nurofen Back Pain and Nurofen Migraine Pain, each designed to treat specific symptoms.

The Australian Competition and Consumer Commission (ACCC) investigated the products. It found that each product contained the same amount of active ingredient, and in reality were the same product, despite being sold in separate packaging. The ACCC also found that the products were advertised online as being products that were formulated to treat a specific type of pain and were sold solely to treat that specific type of pain despite no more effective than the standard Nurofen product at treating a specific type of pain.

The ACCC brought the action earlier in the year, stating that consumers were being misled to believe that each product was distinct, particularly given that each product had different packaging. The products were also sold for almost double the price of the Nurofen standard product.

The court agreed with the ACCC and has ordered that products must be removed from Australian shelves within the next three months. Reckitt Benckiser has also been ordered to pay the ACCC’s court fees.

But what does this mean for UK consumers?

As many consumers will know, numerous specific pain products are sold in the UK under the Nurofen brand and it seems that, despite the distinct packaging, the contents of some of these products are identical. However, some UK Nurofen specific pain products do contain different active ingredients and formulas to other UK Nurofen products and also have different formulations and delivery methods, so it seems that the issue may not be as clear-cut as in Australia.

Reckitt Benckiser has defended its UK position by stating that there will be no changes to its UK products or its product packaging and that the Australian case relates only to its activities in the Australian market. The company has said that “informative names” are permitted by the Medicines and Healthcare Products Regulatory Agency (MHRA) and such names help individuals select the appropriate “over the counter” medication without needing to consult medical professionals.

Which? has confirmed that it not launched any investigation into specific pain products within the UK as yet. Theoretically a complaint could be made by anyone to Trading Standards or the Advertising Standards Agency who would also then investigate. Until then Reckitt Benckiser have no requirement to change the packaging in the UK and consumers may want to review products more carefully rather than solely base purchase decisions on product packaging.


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Commercial Contracts: Supreme Court rules on Penalty Clauses
Tuesday 1st December 2015

The Supreme Court recently considered the combined appeal of Cavendish Holding BV v. Talal El Makdessi and ParkingEye Ltd v. Beavis [2015] UKSC 67. The combined appeal examined whether specific contractual clauses were “penalties” and therefore unenforceable.

Traditionally, contracting parties have been free to agree that a specific sum of money will be paid by one party to the other in the event of a breach of contract. Generally, the courts held that if the amount payable under such a clause was a genuine “pre-estimate” of the damage suffered as a result of the breach, the clause would be valid and enforceable. However, if the amount payable was considered to be punitive in nature then the clause would be unenforceable, for example, if the amount to be paid was excessive.

In simplistic terms, the enforceability of a clause was decided by assessing whether the amount payable under the clause exceeded the loss resulting from the breach. If it did, the clause would more than likely be considered to be “punitive” and therefore unenforceable.

The Supreme Court has now rejected this traditional approach, describing it as “ancient” and “haphazard” in the recent combined appeal. The traditional approach has not been abolished however; it has simply been reconstructed and clarified.

Now, the key consideration is whether the clause relating to payment following a breach imposes “a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party”. The rationale for this is that the innocent party can have “no proper interest in simply punishing the defaulter”. Therefore, it is likely that the amount payable under a clause taking effect on breach can exceed the amount lost if the innocent party has a legitimate interest in charging that amount and such a figure is proportionate to that interest.

The facts of ParkingEye Ltd v. Beavis (one of the two cases forming the combined appeal) perhaps demonstrate the new approach most clearly. In that case, fining an individual £85 for overstaying a free 2 hour car parking limit was enforceable and was not considered to be a penalty clause.

The decision in ParkingEye was arrived at even though ParkingEye (the manager of the car park) suffered no direct loss as a result of any motorist who overstayed the 2 hour car parking limit. This was because the court considered that ParkingEye had a legitimate interest in ensuring that it managed the car park in the interests of the local retail outlets and the public, and did so by preventing motorists from occupying parking spaces for prolonged periods. The court also recognised that ParkingEye could not meet the costs of operating the car park in the manner it did without receiving income from parking fines. As such, imposing a fine of £85 to those individuals who overstayed the 2 hour free parking period was reasonable in the context of its legitimate aims of managing the car park effectively and covering its costs.

The decision of the combined appeals is likely to be well-received. It provides a clearer and more modern approach in considering the enforceability of clauses operating on breach and potentially caters for an element of deterrence beyond mere compensation. However, as there is no exact definition of what is a “legitimate interest” and whether such an interest will be considered as “proportionate”, there is arguably more scope for contracting parties to challenge the enforceability of such clauses. 


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European Commission publishes new standard forms of OJEU notices
Wednesday 25th November 2015

The Official Journal of the European Union (OJEU), is the official daily gazette of the EU which contains, amongst other things, various official notices and advertisements. Under the Public Contracts Regulations 2015 (PCR 2015) contracting authorities are required to publish various forms (including but not limited to the Contract Notice (aka ‘OJEU notice’), Prior Information Notice (PIN) and the contract award notice, hereafter referred to as “Forms”). These Forms contain specified information, most commonly relating to when the contracting authority advertises and intends to award a contract subject to public procurement law.  

The format of the various Forms are standardised and reflect the information required under the PCR 2015. The current Forms are still mostly based on the old Public Contracts Regulations 2006. However, the European Commission has now published the new standard Forms which take account of the requirements and procedures of the PCR 2015. The new Forms also take account of the ‘light touch regime’ introduced in the PCR 2015 and include a notice for certain contract modifications.

Contracting authorities subject to the PCR 2015 should now use the new standard Forms which will be available once the relevant Commission Implementation Regulation comes into force, most likely from 3rd December 2015.

Contracting authorities can still choose between the old and new standard forms depending on which version is most appropriate, as some procurements may still be running under the 2006 regulations. This is a welcome development as contracting authorities will no longer be required to edit the old standard form notices in order to comply with the requirements of the PCR 2015, improving the efficiency of publication process.

The European Commission has also produced standard forms relating to the 2014 Utilities and Concession Directives which are expected to be implemented into domestic law by April 2016.  


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Can a Contracting Authority use a Teckal company to trade with third parties?
Wednesday 11th November 2015

The Public Contracts Regulations 2015 (the ‘Regulations’) govern the award by a “contracting authority” of a “public contract” for goods, works or services over a particular value. There are, however, certain types of contracts which are excluded from the scope of the Regulations.

Regulation 12 codifies the exemption which arose out of the Teckal case (the ‘in-house exemption’). In this article we will consider whether the in-house exemption, which exempts contracts between a contracting authority and a wholly (or partly) owned subsidiary (“Teckal company”) from the application of the Regulations, could be used by the contracting authority to trade for the purposes of third party revenue generation.

Under Regulation 12, a contract will be considered to be exempt from the application of public procurement law where the following conditions are met:

  1. the contracting authority exercises control over the Teckal company “which is similar to that which it exercises over its own departments”;
  2. more than 80% of the activities carried out by the Teckal company are carried out in the performance of tasks entrusted to it by the contracting authority or other bodies which the contracting authority controls; and
  3. the Teckal company is not directly privately owned.

If the above conditions are fulfilled, a contracting authority may directly award a public contract to the Teckal company without needing to put it out to tender. However, the conditions are cumulative and as such, all of them must be fulfilled before the in-house exemption can apply.

Recital 31 of the Public Contracts Directive (Directive 2014/24/EU), from which the Regulations are derived, states that Regulation 12 must be interpreted in accordance with existing case law. This means that the motive of the contracting authority in setting up a purported Teckal company must be examined to determine whether it is “commercial in nature” and/or “market orientated”. The more commercial it is, the less likely the in-house exemption will apply.

Arguably, the requirement which is most limiting and difficult to ensure under Regulation 12 is that more than 80% of the Teckal company’s activities must relate to the performance of tasks entrusted to it by the contracting authority. This means that only up to 19% of the Teckal company’s activities (calculated by taking into account the previous 3 years’ total turnover or activity) may take place on the open market. The rationale behind this threshold is that if the Teckal company’s open market activities are higher than 19%, it would be competing with other companies which are not exempt from the Regulations and, as such, would gain an unfair commercial advantage over them.

Although the 80% threshold is lower than that generally assumed prior to the Regulations coming into force, it continues to prevent a Teckal company from carrying out “commercial activities” which are not public sector focussed. As such, a contracting authority must be clear as to the role of any company it sets up and whether its activities could potentially be considered “commercial in nature”.

A contracting authority would need to exercise continued control and supervision over the activities of the Teckal company in order to ensure that such activities do not exceed the 19% threshold and could not be considered as “commercial in nature”. This is because if the threshold is exceeded or the activities of the Teckal company are considered to be commercial, the company will no longer comply with Regulation 12 and any contract awarded to it by the contracting authority would be considered an illegal direct award and a breach of the Regulations.

Therefore, it seems that if a contracting authority wishes to use a subsidiary company to trade commercially, it would need to set up a subsidiary which is not intended to be used for the contracting authority’s own activities, at least not without going through an OJEU-compliant tender. As the subsidiary would be commercial in nature, it could generate income but it would not be able to assist with tasks or services for the contracting authority itself.

Therefore, it appears a subsidiary company of a contracting authority can only be either a Teckal company or trade commercially, but not both. So what is the solution?

One possibility is for a contracting authority to set up two companies: i) a commercial entity for revenue generation and ii) a Teckal company which fulfils the in-house exemption requirements.

This type of arrangement would allow the commercial entity to be commercially focussed and market orientated, allowing it to contract with third parties and have profit making as its main focus for the benefit of the contracting authority. The Teckal company’s role would have a public sector focus and be able to deliver the contracting authority’s services, and such an arrangement would benefit from the in-house exemption.

As both companies would be within a group structure, the arrangement could allow the contracting authority to reduce its costs by effectively operating two subsidiaries each with a different focus but with one set of overheads as resources and costs could be shared between both companies by agreement, effectively increasing profit and efficiency.

Contracting authorities should, however, be aware that numerous different considerations and legal advice should be sought before adopting and maintaining such a corporate structure.


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