Guide to Doing Business in the UK - Commercial Contracts

The legislation which governs trading in the UK has developed considerably in recent years, keeping pace with progress in technology and placing greater emphasis on the protection of consumers.

Commercial contracts in the UK are governed by both legislation and common law. Generally, there is no specific requirement for commercial contracts to be in writing but inevitably it is advisable for them to be, so that it avoids ambiguity.

Sale of Goods Act 1979 (“SGA”) and the Supply of Goods and Services Act 1982 (“SGSA”)

The SGA implies certain terms into any contract for the sale of goods. In summary, the goods must conform to the contract, which means that they must match the description given to them and be of satisfactory quality. When assessing “quality”, this includes fitness for purpose, freedom from minor defects, appearance and finish, durability and safety.

Sellers cannot exclude the implied terms when contracting with consumers, although it is common to see the terms excluded in business-to-business contracts. If goods do not conform to contract at the time of sale purchasers can request their money back “within a reasonable time”. For up to six years after purchase, purchasers can demand damages.

Contracts for the supply of services are governed separately by the SGSA.

The SGSA implies into contracts for the supply of services terms that the supply must be carried out with reasonable skill and care, be made within a reasonable time and cost no more than a reasonable charge if no price is agreed. It should be noted that the provisions of the SGSA do not apply to contracts for the supply of services in certain sectors (e.g. the carriage of passengers) that are governed by specific legislation.

Unfair Contract Terms Act 1977 (“UCTA”)

UCTA introduced a test of “reasonableness” for contractual terms that seek to restrict or exclude liability. In order to pass the reasonableness test, a contract term must have been “... a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”.

UCTA impacts directly on provisions of the SGA. In all contracts for the sale of goods:

• A term excluding or restricting liability for death or personal injury caused by negligence is automatically ineffective;
• A term excluding or restricting liability for negligence is enforceable only to the extent that it satisfied the reasonableness test;
• Any attempt to exclude the implied terms of the SGA in consumer contracts is wholly ineffective;
• In business-to-business contracts, the operation of certain implied terms can be limited / excluded but must satisfy the reasonableness test; and
• A term excluding or restricting liability for breach of contract, claiming to render a contractual performance substantially different from that which was reasonably expected or claiming to be entitled to render no performance at all, is again enforceable only if it satisfies the reasonableness test.

The Consumer Protection (Distance Selling) Regulations 2000 (“DSR”)

The DSR provide consumers with a right to cancel a contract that they enter into by distance means; for example, by telephone, mail order, SMS or online. Generally, the cancellation period is seven working days, but it may vary for contracts for services. This is commonly referred to as a “cooling-off period”.

Under the DSR, certain items of information must also be provided to consumers: for example, a description of the main characteristics of the goods or services offered on the website, the price of the goods or services, delivery costs and delivery arrangements. Consumers must be explicitly informed of their right to cancel during the “cooling-off period”. The DSR provides detailed provisions in respect of when this information must be provided and the format for such information.

Where a website is used to conclude online contracts by electronic means, the E-commerce Regulations require that the following information be provided to a potential customer:

• A description of the different technical steps the customer must follow to conclude the contract;
• Confirmation of whether or not any contract concluded with the customer will be filed by the service provider and, if so, whether it will be accessible by the customer;
• A description of the technical means by which the customer can correct input errors before placing an order;
• The language(s) offered for the conclusion of the online contract; and
• Details of any code of conduct to which the service provider subscribes, together with information on how the customer can consult the relevant code for guidance.

Other considerations ...

Advertising
The UK has very strict rules relating to advertising. Essentially, advertising needs to comply with certain criteria, including a general rule that it cannot be misleading or libellous.
There are also a number of voluntary codes of conduct including the British Code of Advertising, Sales Promotion and Direct Marketing.

Premium Rate Call Services
Like advertising, the provision of premium rate number services (for example, competition provisions by SMS) are heavily regulated. Premium rate services are regulated by Payphoneplus (previously called ICSTIS).

The Commercial Agents (Council Directive) Regulations 1993 (“Agents Regs”)

The Agents Regs implement an EC Directive and apply where a commercial agent is appointed for a territory which is within the EU. The Agents Regs will not apply where the agency is for the supply of services only. However, where the supply is partly of goods and partly of services the Agents Regs will apply, except where the agent’s activities in relation to services render his activities as an agent in respect of the goods secondary.

The Agents Regs apply whether the arrangement is verbal or set out in writing and it is not possible to contract out of the mandatory provisions of the Agents Regs.

The Agents Regs provide agents with the following rights:

1. A right to a written statement of the terms of the contract;
2. A right to an indemnity or compensation payment on termination. In the event that the agreement is silent, the agent will be paid a compensation payment (calculated by way of a business valuation of the agency as opposed to the indemnity payment, which must be equitable given all the circumstances and which is capped at one year’s commission based on the agent’s average remuneration over the preceding five years). Compensation will be payable even where a fixed term agreement simply expires and is not renewed. It will not apply where it can be established that the agent is in breach of its agreement with the principal;
3. Rights to be paid commission on sales made before termination and, in some cases, to claim commission on transactions concluded after the agency agreement has come to an end; and
4. Rights to minimum notice periods. The Agents Regs provide for the following minimum periods: one month for the first year of the contract, two months for the second year of the contract, and three months for the third year commenced and for subsequent years. It is of course possible to agree longer notice periods with the agent in the contract.