The Full English is back with its bulletin on key corporate and commercial themes from the UK Courts in the first half of 2020 which should be considered when drafting and negotiating corporate agreements.
Whilst the COVID 19 pandemic has affected many UK and international businesses, the UK Courts have continued to hear cases and whilst we do not intend to provide you with an exhaustive list of all UK Court decisions in this period, we have selected five key cases heard so far this year. Please click on the heading links below for more detail.
1. Beware of dual condition precedents in your notice provisions – they could invalidate your claim! – One of the first “remote” cases heard by the UK High Court during the COVID pandemic, but it did not bring good news to buyers. The High Court held that in respect of warranty and indemnity claims, typical wording included in a share purchase agreement such as “as soon as possible and in any event prior to… the seventh anniversary of the date of… [the] Agreement” created a dual condition precedent, giving sellers two layers of protection against warranty and/or indemnity claims. A buyer’s failure to adhere to both aspects of the condition, may very well invalidate its claim.
2. Interpreting Indemnity Clauses can be In-Tense – The Commercial Court also considered an indemnity clause in a share purchase agreement in April of this year whereby, upon consideration of the placement of the indemnity clause within the agreement, the general commercial agreement between the parties and the tense of the verb used in the indemnity, it held that the indemnity clause could not be relied upon by the buyer - reinforcing the message that the language used in the operative agreements, it’s placement within the agreement together with the intention of the parties and the wider context of the commercial agreement are paramount considerations when interpreting the validity of a claim.
3. Watch Out: Longer restrictive covenant periods could be valid if negotiating parties are experienced business people and the restrictions are found to be “reasonable” – Whilst restrictive covenant disputes appear in front of the UK Courts frequently year on year, H1 2020 showed the UK Courts willingness to uphold the validity of the restrictions on employee shareholders and under services agreements on the basis that the negotiating parties were competent and experienced business people and no imbalance of negotiating power was present (unlike in an employee and employer arrangement). Additionally, to successfully strike out a restrictive covenant, the Court held that a party must prove that the restriction is “unreasonable”. Consequently, if parties can prove “reasonableness” and that the restrictions are necessary to protect a legitimate business interest, restrictions could apply to employee shareholders for many years after departing as an employee but remaining a shareholder.
4. If there is a proper purpose, companies should be prepared to provide their registers on request – Section 116 of the Companies Act 2006 (“Act”) allows shareholders of a UK company to request to inspect, or receive a copy of, the register of members of that company. The board of directors must, under s.177 of the Act then either comply with such request within 5 working days or apply to the court to dismiss this request. The UK Courts in this recent case held that unless UK companies can provide evidence to demonstrate that such request had not been made for a proper purpose, a s.116 request should be adhered to.
5. Can individuals claim damages for loss of control over their personal data? Whilst a break from interpreting corporate agreements, Lloyd v Google has taught UK businesses to tread very carefully when handling personal data because the Supreme Court has left the door open for a breach of data protection laws (accidental or otherwise) to not only result in large fines by regulators but also “annihilatory” class actions. This could have a profound impact on how UK businesses handle personal data in the future, so we recommend thorough audits of data law compliance are undertaken by those handling personal data.
If you would like to discuss any aspect of the above please contact the authors or your usual KWM contacts. These summaries have been written by Barri Mendelsohn (Partner), Jenny Willcock (Senior Associate), Cassandra Ditzel (Associate), Jonathan Forrest (Associate), Patrick Yu (Trainee) and Daniel Jones (Paralegal) in the KWM London office.