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25 Jun 2018

COT's top four commercial issues - June 2018

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With the World Cup in full swing, this month's edition includes football themed cases, an update on net neutrality and a new law to tighten the use of drones in the UK.

Enjoy.

Sign on the dotted line

As promised, we'll start this month's edition with a recent case involving the Manchester United player Marouane Fellaini and a contract that was never signed (Rosalina Investments Ltd and another v New Balance Athletic Shoes (UK) Ltd [2018] EWHC 1014 (QB)).

This case turned on whether negotiations for a potential extension of an endorsement agreement had resulted in a binding contract. The two claimant companies, Rosalina Investments Limited and Rosalina Investments UK Limited, held the rights to exploit the promotional and commercial activities of Fellaini. The defendant, New Balance Athletic Shoes (UK) Limited, was a group company of Warrior Sports UK Limited (Warrior). Warrior had been granted certain exclusive image rights in relation to Fellaini under an agreement signed in 2013, in return for Fellaini's promotional and commercial services, such as wearing football boots and clothing produced by the defendant. This agreement was novated to the defendant company from February 2015 and it expired on 31 July 2016.

The parties entered into discussions about the possibility of an extension or renewal of the expired agreement, corresponding about this from July 2016 to January 2017. During this period, Fellaini continued to wear and promote boots and clothing provided by the defendant. However, the defendant then wrote to the claimants in January 2017 to confirm that it had decided not to extend the agreement, and proposed to pay an amount to recognise the services provided during the six months for which extension discussions had been ongoing.

The claimants responded to state that a valid agreement had in fact been in place since September 2016, which had been agreed by exchange of emails and was effective from 1 August 2016. They therefore issued proceedings to claim over £2 million in damages. They argued that, in September 2016, when a version of the agreement had been circulated and the parties had discussed arrangements for its execution, the relevant email exchanges showed the parties to be in agreement about the terms, with only the formality of signature remaining. Copies of the agreement signed by the claimants had been distributed and the terms were said to have been agreed, with the parties also conducting themselves as though a contract were in place (Fellaini continued to wear New Balance boots and the defendant prepared a catalogue featuring him).

The claimants argued that New Balance had either breached the renewed contract they said was in place by breaking off negotiations, or alternatively that New Balance breached an obligation that arose from the expired contract to negotiate in good faith. They also submitted that the court should consider communications between the parties only up to 16 September 2016, when they said that the contract was concluded. In response, the defendant said that communications showed that a contract had not been concluded – the draft that was said to have been agreed had later been amended, and discussions had continued, with both parties emphasising the importance of signature.

As the facts were not in dispute, the case was dealt with by way of summary determination. May J held that the parties' intention was that any agreement would be concluded only upon signature by all of them. In particular, the court applied the rule in Global Asset Capital Inc. v Aabar Block SARL [2017] 4 WLR 163 that the court could look at the whole course of negotiations, not just those up to a certain date. It therefore made an objective assessment of the parties' intentions by looking at all correspondence between August 2016 and January 2017, and not just up to 16 September 2016. On this evidence, it was clear that the parties intended to be bound only when all parties had signed. The court also held that there was no obligation on New Balance to negotiate in good faith and that, even if there were such an obligation, New Balance had not breached it. May J therefore concluded that the claimants’ claims were bound to fail, and that as such they should be struck out.

The case is a reminder of the importance of clarity as to whether and how your contract is being concluded. It also illustrates another instance of courts being reluctant to imply a duty to negotiate in good faith.

Misrepresentation excluded by an entire agreement clause

The second football-themed case relates to a share sale where the buyer (NF Football Investments Limited) claimed the seller (NFFC Group Holdings Limited) misrepresented the target company's (Nottingham Forest Football Club Limited) liabilities.

The question before the court was whether the entire agreement clause was intended by the parties to preclude a parallel claim in statutory misrepresentation. The courts have previously held that entire agreement clauses, which seek to exclude claims for misrepresentation, require clear words to exclude or limit such liability. However, in this instance, the High Court found the entire agreement clause (which included language which extinguished all previous representations) excluded liability for statutory misrepresentation. In arriving at this judgment, the court made particular reference to the considerable steps taken by the parties to provide a contractual structure within the share purchase agreement to resolve claims likely to arise under the agreement. This, the court found, showed the parties intended to be precluded from making any claims other than via the contractual structure created in the share purchase agreement.

Despite the finding of the court in this case, suppliers (or sellers) would still be well advised to expressly exclude liability for misrepresentation in the entire agreement clause if and to the extent that it is seeking to do so. This will ensure clarity between the parties by making clear their intentions.

US repeal net neutrality rules

The United States' Federal Communications Commission ("FCC") voted 3-2 in favour of repealing net neutrality regulations in December 2017, and the vote took effect earlier this month. Although the principle of net neutrality remains enshrined in European law, internet users worldwide are likely to be affected by the US decision.

Net neutrality is the concept that all internet traffic should be treated equally; in other words, internet service providers ("ISPs") like BT and Comcast should not have the power to influence what users see or the speed at which users can access content.

The effects of having a "Wild West" without net neutrality were evidenced in 2014, when US users of ISP Comcast complained that Netflix was streaming at VHS quality levels. The issue was resolved when Netflix agreed to pay Comcast an additional access fee to prioritise their traffic.

Net neutrality rules put an end to such fee for favouritism arrangements and also sought to prevent ISPs from blocking internet traffic, censoring online content and throttling services. However, those who voted in favour of the repeal argued that net neutrality was restraining ISPs from investing in new technology.

Despite the public outcry after the vote in December, the FCC reverted to their pre-2015 regulations; "Restoring Internet Freedom Order", with additional safeguards in place requiring ISPs to be more transparent on their policies, in an attempt to help regulators target problematic and anti-competitive conduct. This move has done little to quell suspicions that repealing net neutrality will result in a less competitive marketplace, with the FCC commissioner also voicing her fear that the move hands too much power to ISPs. Arguably, the roll back affects the ability of next-generation digital disruptors (i.e. Netflix or Facebook challengers) to enter into a bidding war against their larger competitors.

New UK drone laws introduce flight restrictions and safety tests

New laws coming into effect on 30 July 2018 will restrict all drones from flying above 400 feet and within 1 kilometre of airport boundaries. It is expected that these measures will reduce the possibility of damage to windows and engines of planes and helicopters following the number drone incidents with aircraft reaching 93 in 2017.

Additionally, from 30 November 2019, the same new laws will also require owners of drones weighing 250 grams or more to register with the Civil Aviation Authority (CAA) and for drone pilots to take an online safety test to ensure the UK’s skies are safe from irresponsible flyers. While there are drones on the lower end of the market which weigh less than 250g, most, including most with built-in cameras - weigh more.

The new laws are being made via an amendment to the Air Navigation Order 2016.

Drone users who flout the new height and airport boundary restrictions could be charged with recklessly or negligently acting in a manner likely to endanger an aircraft or any person in an aircraft. This could result in an unlimited fine, up to five years in prison, or both.

Users who fail to register or sit the competency tests could face fines of up to £1,000.

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