Practical Law Commercial: Review of 2011 and what to expect in 2012

The Bribery Act 2010 is one of the most high-profile legislative measures of recent years. It came into force on 1 July 2011, introducing a new strict liability corporate offence which is committed when a commercial organisation fails to prevent bribery by a person acting on its behalf. The only defence open to commercial organisations is if they can show that they have "adequate procedures" in place to prevent bribery and corruption.

The Consumer Rights Directive (2011/83/EU) came into force on 13 December 2011. Member states must adopt and publish measures necessary to implement this Directive by 13 December 2013, and must apply those measures from 13 June 2014. The Directive will apply to contracts concluded after 13 June 2014. The adoption of the Directive marks the end of three years of political wrangling. Originally, and controversially, the Directive was proposed as a full harmonisation measure which would create a uniform set of consumer rights across the EU. The final Directive is a much watered-down version of the first proposal: it is a minimum harmonisation measure and covers only doorstep and distance-sales contracts consumer contracts. The UK government has announced that it will implement the Directive by way of a proposed Consumer Rights Bill, with which it also intends to modernise and simplify UK consumer law more generally (for more information on the Bill, see below).

The new Late Payments Directive (2011/7/EU) came into force on 16 March 2011. Member states have until 16 March 2013 to implement it in domestic law. The new Directive repeals and replaces the existing Late Payments Directive (2000/35/EC), which is implemented in the UK through the Late Payment of Commercial Debts (Interest) Act 1998. The UK will have to enact new legislation updating this Act.

The new Food Labelling Regulation ((EU) 1169/2011) on provision of food information to consumers came into force on 13 December 2011. Businesses must comply with its general provisions from 13 December 2014, and its nutrition declaration provisions from 13 December 2016. The new Regulation repeals and replaces food and nutrition labelling rules set out in the General Food Labelling Directive (2000/13/EC) and Nutrition Labelling Directive (90/496/EEC), implemented in the UK through the Food Labelling Regulations 1996. The UK will have to enact new legislation updating these regulations. The new Regulation also introduces new labelling requirements. Of its new requirements, it will extend nutrition and country of origin information and introduce new distance selling requirements.

The attempt to create a European contract law, a long held ambition of supporters of a more closely integrated Europe, continued with the publication in November 2011 of a regulation for a Common European Sales Law (CESL). CESL is not the full-blown contract law measure envisaged by the European Commission in its Green Paper of July 2010, but a more limited measure restricted to certain sale of goods contracts. It is believed that the Commission has abandoned the concept of introducing a European contract law for the time being, due to the amount of opposition with which the Green Paper was greeted, the sheer complexity of creating a fully codified European contract law, and the European Commission's extremely ambitious timetable for adopting the measure. CESL will create an optional sales law for use in cross-border contracts for the sale of goods and ancillary services, including digital contracts. Member states will have the option to make the law available for use in domestic business-to-consumer and business-to-business transactions.

The regulation will now pass to the European Parliament and the Council of the European Union under the ordinary legislative procedure. In December 2011, the UK formally challenged CESL on the grounds that it does not comply with the EU principles of subsidiarity and proportionality. It remains to be seen whether or not the UK will be joined by sufficient member states to require a review of CESL. For further information, see Legal update, House of Commons challenges compliance of Common European Sales Law with EU subsidiarity principle.

On 1 January 2011, the new edition of Incoterms, published by the International Chamber of Commerce (ICC), came into force. The new edition includes advice on the use of electronic procedures and cargo security, and two new Incoterms replacing four previous Incoterms.

In January 2011, the Supreme Court upheld the Court of Appeal's decision in Enviroco Ltd v Farstad Supply A/S [2009] EWCA Civ 1399, a case which had implications for contracts which define concepts such as "subsidiary", "affiliate", "group" and "holding company" by reference to section 1159 of the Companies Act 2006 (or section 736 of the Companies Act 1985). The Supreme Court confirmed that as a result of a holding company's pledge (to a bank) of shares in its subsidiary and the registration of the shares in the name of the bank's nominee by way of security, the subsidiary ceased to be a subsidiary of the holding company within the meaning of sections 736(1)(b) and (c) of the 1985 Act (and, by extension, sections 1159(1)(b) and (c) of the 2006 Act). While this decision will not affect the majority of parent-subsidiary relationships, it has potentially significant implications for parent-subsidiary relationships based on membership and control of board appointments or voting shares.

In Axa Sun Life Services plc v Campbell Martin Ltd and others [2011] EWCA Civ 133, the Court of Appeal confirmed that an entire agreement statement by itself is not effective to exclude claims for misrepresentation, or to prevent terms from being implied to reflect trade custom, usage, or the parties' previous course of dealings. This case also raised some uncertainty in that it suggested that an express exclusion of implied terms might be effective to prevent terms being implied to give a contract business efficacy. (It is not altogether clear how a term that is necessary for business efficacy can be excluded without causing the contract to fail.) See further Legal update, Court of Appeal puts entire agreement clauses under the microscope.

The High Court decided in Jet2.com Ltd v Blackpool Airport Ltd [2011] EWHC 1529 (Comm) that an "all reasonable endeavours" obligation could require a party to act against its commercial interests, as to find otherwise would allow parties who enter burdensome contracts to escape performance as soon as the contract became commercially undesirable or unprofitable. The Jet2.com case is significant in that the judge drew a distinction between "all reasonable endeavours" cases in which the obligor had to endeavour to agree matters with the other party or obtain consent of a third party (where courts have mostly suggested that the obligor is not required to act against its commercial interests) and the Jet2.com facts, where the "all reasonable endeavours" obligation related exclusively to the obligor's own actions. See further Legal update, High Court holds that "all reasonable endeavours" obligation was not limited by a party's commercial interests.

A High Court judge has indicated in AstraZeneca UK Limited v Albemarle International Corporation and other [2011] EWHC 1574 (Comm) that, if necessary, he would decline to follow the finding in the controversial NetTV case that a strong presumption exists against construing an exclusion clause so as to exclude liability for deliberate repudiatory breach. Flaux J said that he considered NetTV to be wrong on the modern authorities and that it effectively sought to revive the doctrine of fundamental breach (which the House of Lords conclusively rejected in the 1980s). See further Legal update, High Court considers NetTV decision and whether there is a presumption that a party in deliberate repudiatory breach cannot rely on exclusion clause .

The London 2012 Olympic Games will be held between 27 July and 12 August 2012 and the Paralympic Games between 29 August and 9 September 2012. Businesses may need to consider making preparations in advance of the Olympics if they are involved with the Olympics in a commercial capacity, and if they have any sites that are likely to be affected during the course of the Olympics. In particular, businesses will need to ensure they do not fall foul of the strict rules against bribery and corruption under the Bribery Act 2010 in the context of any corporate hospitality for the London Olympics, as well as ensuring they do not fall foul of the rules against ambush marketing.

On 6 November 2012, the Supreme Court will hear the Prudential's appeal from the Court of Appeal's decision in R (Prudential plc and another) v Special Commissioner of Income Tax and another [2010] EWCA Civ 1094 as to whether legal professional privilege should extend to non-lawyers. This is significant because of the need for clarity on the exact scope of legal professional privilege. See further Legal update, Court of Appeal refuses to extend privilege to non-lawyers: full update.

We expect various consumer law reform initiatives to develop significantly during 2012. First, BIS will consult on the proposed Consumer Rights Bill in early 2012. The Bill is intended to update and clarify the law for goods and services, digital content, unfair contract terms, and provide stronger consumer protection for vulnerable consumers. It will repeal and replace all existing consumer laws, and also implement the Consumer Rights Directive in the UK (see above).

The Bill will complement other consumer law reform initiatives. BIS has announced structural reform to the existing regime of consumer institutions, proposing that consumer advice, representation and enforcement should rest principally with one of three key institutions: Citizens Advice, Trading Standards, and a new Competition and Markets Authority created from the merger of the competition functions of the OFT and Competition Commission. The Public Bodies Act 2011, which received Royal Assent in December 2011, will give ministers the power to merge these functions. In addition to its structural reform plans, BIS has also announced a number of other initiatives intended to give consumers more rights and powers, including giving consumers more power over their personal data held by businesses, requiring that businesses provide consumers with better information about goods and services, and developing a self-regulatory quality mark for comparison sites.

In March 2012, the two Law Commissions' final report on the remedies that a consumer should have if a trader acts in a misleading or aggressive way in breach of the Consumer Protection from Unfair Trading Regulations 2008 is expected to be published. The Law Commissions consulted on this in the first half of 2011, proposing areas of reform, in particular a new scheme of consumer remedies for aggressive or misleading practices which would give consumers a private right of redress for breach of the Regulations. Unfortunately, they did not include specific proposals relating to misrepresentation, which had been the subject of preliminary consultation in 2010.