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With two judgments recently delivered in the Supreme Court, it is important to consider the consequences for lawyers drafting or negotiating, and advising on commercial contracts.
Drafting
The drafting of commercial contracts – especially in relation to clauses that would previously have been deemed penalties – will now be governed by the judgments in Cavendish and ParkingEye.
The judgments have established that where a deterrent is used, this will no longer equate to a penalty.
In Cavendish, a Share Purchase Agreement (“SPA”) was put in place regarding shares being sold by the defendant to the claimant. Should the defendant breach the non-competition covenant, the SPA provided for two outcomes. The first, is defendant would no longer be entitled to receive outstanding payments of significant sums under the SPA. The second was the claimant could choose to exercise a right in purchasing the defendant’s remaining shares at a reduced figure.
Upon the defendant beginning work for the claimant’s competitor – and as such breaching the non-competition clause – it was up to the court to decide whether the two clauses, and thus two outcomes, were penalties. The court held that the outcomes were primary obligations, as they were conditions of the contract, and, as they did not impose a secondary obligation, they were upheld and enforceable.
ParkingEye used a deterrent. This was an £85.00 fine, which would be imposed on anyone overstaying the 2-hour time limit in the car park. Signs in the car park clearly displayed the 2-hour maximum free stay, and that the fine would be imposed if anyone exceeded this limit. The court found the fine was a deterrent for people overstaying the limit in the car park. The court found however, that it was not a penalty clause.
Previously, it was established a clause may be found to be a penalty where a sum greater than a genuine pre-estimate of loss is demanded by the claimant.
The fine in ParkingEye was not found to be a penalty, as the land-owner of the car park had a legitimate interest in wanting a prompt turnover in their car park. This, on top of ParkingEye’s interest in making a profit, was enough to show it was a deterrent, but did not equate to a penalty.
As such, the previous rule surrounding penalty clauses has been abolished, and the recent judgments have determined a greater allowance for clauses, which intend to deter a party from doing something. A deterrence will not amount to a penalty, unless it requires a secondary obligation arising further to the breach.
The fine imposed in ParkingEye would be the primary obligation. Primary obligations are terms of the contract which are enforceable, even where they are a deterrent. A secondary obligation, which makes a further imposition, may be found to be a penalty. However, the court went on to state that even secondary obligations could be justified on wide grounds.
Express terms
The case between Marks & Spencer and BNP Paribas regarding overpaid rent was concluded in December 2015. The court had to decide whether there was an implied term in the lease between the parties, which would allow M&S to receive back an apportioned sum of rent that had been overpaid. M&S had paid rent in advance for a period that extended after the break date of the lease. Further to the break clause terminating the lease early, M&S looked to claim for the rent which was paid for the period after the break date.
The court unanimously held that no such implied term could be found and, as such, M&S’s appeal was to be dismissed. The judges’ reasoning was that a professionally drafted lease was entered into by the parties, which did not stipulate or imply the inclusion of the implied term. Therefore, to go against the law stipulating landlords retain any rent paid in advance, was not considered to be the appropriate way forward by the court. They found the inclusion of such a term would have required to be expressly included in the lease.
Moving forwards, it is important to consider this ruling and, as such, the implications of break clauses when drafting a lease. It is worth thinking about the payment dates for the rent and whether these coincide with the break clause to avoid such a problem. Similarly, it may be advisable to include a clause that expressly confirms the position of the parties upon the exercising of the break clause and any claim for overpaid rent.
The above cases show how two important areas of commercial law have been clarified. As such, the importance of clear drafting and the inclusion of the relevant express terms are paramount. This highlights the need to receive legal advice when negotiating and entering into commercial contracts. Please feel free to comment below with any questions, or contact me to discuss any contractual term issues you may have.
Australia’s Kylie Minogue has launched a legal battle against America’s Kylie (Jenner) after the latter tried to trademark their shared first name. As they prepare to go head to head, we take a look at the importance of trade marks and how to handle them correctly. As Miss Minogue would say, you’ve ‘Got To Be Certain”
Kylie Minogue rose to fame starring in the Australian soap, Neighbours, back in 1986. Since then, the Pop Princess has had a successful career as a recording artist, not to mention a string of commercial ventures including her perfume line and books, to name a few. She is also a humanitarian and breast cancer advocate.
In light of Minogue’s successes, she has trade marked the names ‘Kylie’, ‘Kylie Minogue’, ‘Lucky ‘ the Kylie Minogue musical’ and ‘Kylie Minogue Darling’, and registered ‘kylie.com’ in 1996.
The other Kylie ‘ Jenner ‘ is an American reality TV personality, socialite and model, who was thrown into the spotlight at a young age on the TV series ‘Keeping up with the Kardashians’ alongside her sister and half-sisters. She and her sister Kendall have recently launched their own clothes line and Kylie has launched her own beauty range. Follow this success, Jenner is looking to protect her name. However, this is not without opposition from Minogue.
A legal battle begins
Recently, Minogue has filed in opposition of Jenner’s trade mark application to protect ‘Kylie’. Minogue, who has owned ‘kylie.com’ since before Jenner was born, and therefore held her trade marks before Jenner’s application, with the exception of ‘Kylie Minogue Darling’.
It has been suggested Minogue has a strong case and her legal team expect to be able to successfully oppose Jenner’s application. Minogue has opposed the application on two fronts. Firstly, that it will lead to confusion between the two names for consumers. Secondly, that it will dilute Minogue’s brand. Minogue is concerned about being associated with Jenner, who has previously been criticised in relation to her controversial behaviour, especially from disability rights groups.
It is likely Minogue could show that processing Jenner’s application would cause confusion for consumers as the two Kylie’s customer base seems to significantly overlap. Minogue would also be more than likely to successfully argue the diluting of her brand if Jenner’s application is allowed, as she does not want to be associated with the criticism Jenner has received.
Minogue has reportedly not opposed Jenner’s application to trademark ‘Kylie Jenner’, so all is not lost for the young American.
Never too late to protect your IP
The importance of trade marks, their applications and correctly handling oppositions is paramount. At Franklins, our Intellectual Property Team can give you advice and support throughout any stage of the process. Whether that is assisting you with an application, advising on a potential breach or giving you guidance when an opposition to an application has been received.
Feel free to get in touch and contact me by email or call our team on 01908 660 966.
Trunkis, children??s ride along and carry on suitcases (pictured right), first became well-known after appearing on BBC2??s programme ??Dragon??s Den??. Despite receiving 
no funding from the Dragons, Trunkis have become highly popular and, in turn, a successful business venture. It is no wonder that protection of the designs was sought after. Trunki??s designs are registered as a Community Design, being an individual design right receiving protection in the European Union.
Magmatic, the manufacturer of Trunki, brought a claim against PMS International, the seller of rival Kiddee Cases, in February 2013. This was with the intention of obtaining damages and an injunction against the infringement of Trunki??s design rights.
At first, Magmatic was successful in its claim as the High Court ruled in its favour. The matter was then heard by the Court of Appeal who disagreed with the ruling of the High Court, and found in favour of PMS International. The appeal was in relation to a design, not an idea or invention.
The Supreme Court ruling
The creator and CEO of Trunki, Rob Law, tweeted that he was ??devastated?? when the Supreme Court upheld the decision of the Court of Appeal. They ruled that there had been no infringement by the respondent of Trunki??s registered design rights.
The written judgment of the case is unique as it is the first one to include illustrations. The illustrations were of the suitcase designs.
It was not denied that there were similar features between the designs, namely the four wheels (one in each bottom corner), the animal and insect themes, the saddle to allow children to ride on them and the clasp at the front. However, PMS International argued that the designs were significantly different because Trunkis are designs of animals or insects with horns, whereas Kiddee Cases are designs of insects with antennae or animals with ears.
The court then looked at the registered designs of Trunki, which were registered in October 2003. As indicated by PMS International, Trunki had registered designs of animals or insects with horns and as such these designs were found by the Supreme Court to be significantly different from the designs of Kiddee Cases.
Rob Law has said how those at Trunki and Magmatic were ??bewildered by this judgment, not just for ourselves but for the huge wave of uncertainty it brings to designers in Britain?. They have made clear their concerns surrounding the decision and the impact that it may have for other designers and their rights.
However, PMS International feels the decision made by the Supreme Court to uphold the ruling of the Court of appeal was the right one. They stated they felt the outcome was a ??victory for fair competition? and will allow consumers to continue purchasing products at competitive prices; with the Trunki costing around ?39.99 and the Kiddee Case costing around ?26.99.
Protecting design rights
The above case has reflected the difficulties which may be faced when attempting to protect design rights. It is always advisable to seek legal advice or support in relation to an application to protect rights, or when looking to argue that your rights have been breached. It is of great importance to understand what you want to protect and whether you have achieved this.
If you would like a conversation about a design that you want to protect, please do contact me, or one of my team on 01908 660 966
Header image courtesy of 123rf.com Trunki image as on Trunki.co.uk
On Thursday 23rd June 2016, there will be a referendum to decide whether Britain should remain in the European Union. If the UK opts out and leaves the EU, we look at the potential implications on new and existing contracts and disputes…
Contracts
The UK government would to have to decide what approach to take in relation to conflict of laws rules. The UK could choose to leave under the current rules, under the Rome I Regulation (593/2008/EC) (“Rome I”) and Rome II Regulation (2007/864/EC) (Rome II) in place currently.
Thiswould allow for the UK Courts, rather than the Court of Justice of the EU, having the ultimate authority over a matter. It may not have immediate effects, but could potentially lead to alternative interpretations between the UK and remaining EU Member States in the future.
Alternatively, if the UK no longer wish to apply Rome I and Rome II, there would be an assumption that UK courts would revert to applying the rules implemented prior to these regulations. In relation to contractual obligations, these rules were identified inthe Rome Convention(80/934/EEC) as in force until 17 December 2009. These rules are very similar to those found in Rome I, and as such, would not create cause for concern, as material changes to contractual obligations would be unlikely.
Non-contractual obligations may differ more, as the previous Private International Law (Miscellaneous Provisions) Act 1995 does not set out similar provisions to Rome II. In particular, the act does not provide the right to decide upon the applicable law to the non-contractual relations between parties.
New
Implications on new contracts will depend on what legislation the UK adopts. If the UK becomes a member of the European Economic Area (“EEA”), then EU legislation would remain incorporated, but only in relation to matters covered by the EEA Agreement.
It would be advisable, when negotiating new contracts, to consider how the UK leaving the EU may affect your contract and ensure sufficient measures and terms are in place such as:
- Providing termination rights to the parties upon the UK leaving the EU
- Ensuring force majeure provisions expressly include or exclude the UK leaving the EU; and/or
- Allowing and providing for alternative legislature which would apply upon the UK leaving the EU
Existing
The UK leaving the EU may lead to conflicts and disputes regarding current contractual agreements. Therefore, it may be wise to review such documents and agreements in light of any confirmed changes, to prevent any potential disputes where possible.
In some cases, it may even be the case that force majeure provisions are triggered, or the contract becomes frustrated where the UK leaves the EU.
A decision for the UK to leave the EU will start a two-year negotiating period before final confirmation. This means, especially for contracts with shorter terms, there is a sufficient time period to discuss any potential effects on your contract and make any necessary amendments or alterations prior to the final confirmation.
Disputes
An important part of commercial documents is their stipulation as to how any dispute between the parties will be resolved. EU legislation allows parties to choose the courts which have jurisdiction if any dispute should arise. If the UK were to leave the EU, it would be likely to agree to contracts containing provisions, confirming English Courts have jurisdiction. If this is not stipulated in the contract (if the contract is with another EU Member State) they may not wish for English Courts to have jurisdiction – even if that is what was agreed.
Furthermore, should one of the parties to the contract be based abroad and English Courts have jurisdiction, it may also be prudent to include a clause stipulating an agent upon whom any documents for service can be served upon.
Potential enforcement issues should be considered, and new contracts should reflect what is intended to be done upon a dispute arising and where the UK leaves the EU.
If you need any contracts advice, our team can advise you on any potential implications the referendum results may have. Please do get in contact my email me on Christopher.buck@franklins-sols.co.uk or calling us on 01908 660966.
Bolton Wanderers have been subject to a winding-up petition made by HM Revenue & Customs (“HMRC”) last December, 2015. The club is said to owe HMRC £2.2m and the club’s inability to repay this debt was the reason for the petition.
The hearings listed in relation to the petition have now been adjourned for a third and final time. The matter is now to be heard on 21 March 2016. The adjournments have been provided so as to allow the progression of a purchase of Bolton Wanderers by Sport’s Shield Group. This purchase is headed by ex-Bolton striker, Dean Holdsworth.
In a bid to raise funds, Bolton have sold their training ground and car park. But it was the development of the club’s sale which has allowed for a further adjournment. This is with the intended purpose of allowing Holdsworth additional time to deal with the unpaid tax and VAT bill further to evidencing that a takeover agreement was being negotiated.
The club are in debt of £172.9m. The hope is that the sale of the controlling interest in the club will prevent the club being wound up. In a recent statement made by the club, “the board would again like to thank all staff at the club for their loyalty and unfaltering commitment to the cause through this incredibly difficult period.”
The club have since confirmed the completion of the sale to Sport’s Shield Group.
Facing a winding-up petition may have spurred on the sale of the club, but it will have certainly added additional pressure. It poses the question, when should the presentation of a winding-up petition be considered?
Winding-up petitions
It is at the start of the winding-up process that the winding-up petition is presented to the Court. Namely, the petitioner is beginning proceedings so as to have the company involved placed into a Compulsory Liquidation. There may be very serious consequences from presenting a winding-up petition; they may be with respect to the following:
- Dispositions of company property are potentially void where they post-date the petition and where the company has been wound up by the Court.
- There may be substantial damage done to the commercial reputation of the company.
- The company may experience difficulty in obtaining credit whilst the petition is in place.
- There will also be costs to consider regarding the legal action of dealing with the winding-up petition; both potentially in terms of legal advice and instructing the attendance of solicitors or counsel for the hearing.
Section 122 of the Insolvency Act 1986 outlines the circumstances in which winding-up petitions should be considered. The statute confirms that a company may be wound-up where:
- It is resolved by special resolution that the Company should be entered into Compulsory Liquidation.
- The company is unable to pay its debts as they fall due.
- The winding-up of the company is found to be just and equitable by the Court.
If you need legal guidance on an insolvency issue, feel free to contact our Corporate Commercial team through myself on 01908 660966 or by email at Christopher.Buck@franklins-sols.co.uk
Commercial contracts and agreements contain a range of clauses designed to govern the relationship and protect the parties’ interests. Whether you are entering into a confidentiality agreement; an agreement to supply services; or an agreement to sell shares in your company, there are a range of clauses which are commonly found in all of them. One such clause is the indemnity clause.
What is an indemnity clause?
An indemnity clause is a statement that one party will ‘indemnify’ the other for all the losses and expenses that arise from a certain event, usually a breach of the agreement. This can include consequential losses and the costs incurred to rectify any harm done, for example legal fees and other professional costs. Whilst this may seem a reasonable request, an indemnity works on a pound for pound basis with no obligation to mitigate these losses. As a result, there is no obligation for the benefiting party to attempt to reduce their losses, for example by engaging another service provider or appointing the solicitor who offers the lowest fees. The party providing the indemnity is placing themselves, and their business, at significant risk if the triggering event occurs. This is particularly concerning if you are not contracting as a limited company or limited liability partnership.
If you contract as a limited company or a limited liability partnership, then your liability is ring-fenced. This means that it is only the company’s or the partnership’s assets that are at risk. If, however, you are contracting in your own name, which could include providing a personal guarantee that your company will perform its obligations, then your personal assets are at risk. Therefore, it is of vital importance to ensure that you understand the risks associated with the indemnity you are providing.
One way to reduce the risk associated with the indemnity is to negotiate the inclusion of a clause to limit your liability and to cap the amount of money that you can be required to pay out. It is usual for such a cap to be the sum payable under a relevant insurance policy or the amount that you are due to receive under the contract. Whatever you agree this limit to be, this can significantly reduce the impact that a claim under an indemnity clause could have on you or your business.
It is most important that you ensure that you understand when the indemnity clause can be triggered and the exposure to both your business and you personally under the indemnity.
Many companies deliberate over whether and/or when to wind up their company when there is a desire to distribute its value. This decision may become a whole lot easier for companies to make further to the Draft Finance Bill 2016 and restrictions proposed as a result.
Changes to be made
The Draft Finance Bill 2016 has suggested the enforcement of tighter restrictions regarding shareholders in Members Voluntary Liquidation (“MVL”). These restrictions will be introduced as a Targeted Anti-Avoidance Rule.
Income Tax Conditions
As a result of these changes, income tax may be imposed on distributions to individuals made out of the liquidation of a company and in respect of share capital. In order for this imposition of income tax, the following conditions must be met:
- The company is a close company;
- Within two years of the individual receiving the distribution they become involved with a similar trade or activity; and
- The purpose of the winding up can reasonably be assumed to be to obtain a tax advantage.
Entrepreneur’s Relief Conditions
At present, shareholders of closed companies do not need to do a great deal in order to qualify for Entrepreneur’s Relief. As such, they enjoy a low rate of tax, 10%, on receipt of distributions.
The restrictions proposed under the Draft Finance Bill 2016 will make it more challenging to qualify for such relief. Relief will only be granted under the same conditions as those for income tax, the imposition conditions again being as follows:
- The company is a close company;
- Within two years of the individual receiving the distribution they become involved with a similar trade or activity; and
- The purpose of the winding up can reasonably be assumed to be to obtain a tax advantage.
These changes will affect all distributions, not just those post 6 April 2016
The changes will affect all distributions made after 6 April 2016. This does not protect companies who are wound up pre 6 April 2016 as if they still make distributions post 6 April 2016 then the conditions may be imposed on any such distribution.
Only distributions that are made prior to 6 April 2016, not winding up proceedings, will not be effected by the proposed restrictions.
As such, a sooner-rather-than-later approach may be necessary when considering winding up a company via an MVL.
Seeking advice
No certainty has yet been provided as to the finalising of the bill, but 6 April 2016 is set to the be date for changes to apply. However, this is certainly a date to take note of if you are considering winding up your company via an MVL and especially making distributions.
At Franklins we have an experienced and reliable Business Services team who can provide advice on the current circumstances and the potential upcoming changes. If you wish to seek advice on the above, we can ensure that a professional and well informed service is provided. Please feel free to contact me by email or on 01908 660966 for a confidential conversation.
The franchise industry is a booming one, worth over £10 billion. It offers a fantastic revenue and business model for franchisors and franchisees alike, with each benefitting from the others’ success. However, in order for the business venture to thrive and prosper it is crucial that the parties to a franchise agreement understand, can fulfil and deliver upon the provisions contained in it. The franchise agreement is pivotal and governs the contractual relationship between the parties.
A franchise agreement is made up of many elements. Three of the fundamental aspects that should be included are:
- rights and obligations of the parties
- marketing and intellectual property rights (IPRs)
- termination provisions.
Rights and Obligations
These clauses lay out the foundation of the relationship between the franchisor and franchisee. They grant the rights needed by the franchisee to develop and operate the business and the support given by the franchisor, essential to the operation of the franchise. It is in the best interests of both parties for the franchise to be a success, and it is these clauses together with the operating manual that make the franchise model function.
Marketing and IPRs
A franchisor will have invested considerable amounts in their brand, reputation and development of their goodwill. The franchisee relies on this and the ability to use the branding to make their franchise fruitful. At the same time, it is important that the franchisor protects their branding and IPRs and it is these clauses that will facilitate this delicate balance and ensure uniformity across the Franchise network.
Termination Provisions
Unfortunately the franchise relationship is not always successful. Whether this is due to poor training, an overestimate of potential income, a weak business model or a lack of performance and breaches on the part of the franchisee. A relationship can also finish on a positive note but, however it happens, it is important that your agreement addresses how and when the relationship formally ends. As equally important, it should address what happens next. Franchisors owe it to their brand and the remaining franchisees to protect the business, usually through what are known as post-termination covenants. It is critical that franchisees understand these so that they can recognise how they can personally move forward at the end of the relationship. If these provisions are drawn up incorrectly, they can be found unenforceable by the courts. Correct drafting and advice is imperative. These are but a few aspects of what should be addressed in franchise agreement. To make it work, every aspect should be drawn up correctly, clearly and concisely.
For more information or advice on franchise agreements please feel free to contact me by email or my colleague Christopher Buck. You can also reach us on 01604 828282.
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After Trade Marking “sick beat” earlier this year, Taylor Swift has now made a bid to Trade Mark “Swiftmas” and the stylised form of “1989” on her album cover in the United States. The singer has previously been successful in protecting her name, signature and initials in the same way. The protection granted by Trade Marks prevents others from using the protected marks otherwise the owner’s rights would be infringed.
Words, letters and numbers are just three of many marks which can be protected by Trade Marks. Other marks include any of the following: slogans; gestures; designs; smells; sounds; and internet domain names.
The Requirements for a Trade Mark
A Trade Mark must be individual and can include any of the suggested marks above. It cannot be offensive, descriptive of the goods or services, misleading, too common or too similar to other symbols, such as Hallmarks and flags.
Registering a Trade Mark in the United Kingdom
To secure Trade Mark protection in the United Kingdom, an application process is required to be undertaken through the United Kingdom Intellectual Property Office.A mark must not have already been registered in respect of the goods or services to which it relates, and it must not be descriptive of the goods or services to which it relates.
The process of protecting a Trade Mark is commenced by filing an application form. The application is then examined and, if it is accepted, it will then be published. Third parties are then afforded an opportunity to oppose the registration. If the registration process is successful a United Kingdom Registered Trade Mark will be obtained; this can be indicated by placing the Trade Mark symbol ® next to a mark. The length of the process is dependent on the nature of the mark, but on average it takes 4 months.
If someone then uses the Registered Trade Mark in relation to identical or similar goods or services, or takes unfair advantage of it, an infringement action can be pursued. Any such infringement is automatically illegal provided the registration is valid, and hence strict liability is imposed upon an infringer. This protection lasts indefinitely for 10 years running from the date of filing the application of registration. The protection can then be renewed for further periods of 10 years, subject to renewal fees being paid.
However, such a registration would only allow acts of infringement undertaken within the United Kingdom to be pursued. Saying this however, a registration in the United Kingdom allows the symbol to be placed next to the mark wherever it is used in the world and, since most laypersons assume this means the same is protected worldwide, a registration in the United Kingdom can prove to be a strong worldwide deterrent to infringers.
United Kingdom Trade Marks are registered against 1 or more of 45 set classes of goods or services.
Our expertise with Trade Marks
Here at Franklins Solicitors, we understand the importance of Trade Marks and their capability in distinguishing the goods or services of one business from those of another. Our experienced Business Solicitors can assist in protecting the Trade Marks for both individuals and businesses. We can also ensure that any client who has had their Trade Mark infringed is fully informed of their position and any options in respect of moving the matter forward; and even considering litigation.
It is not just important to ensure that our clients’ rights are protected, but also to provide advice on how to ensure that the Trade Marks of another are not infringed. Our broad knowledge and expertise allows us to provide well rounded and tailored advice, suitable to each of our clients’ individual needs.
If you would like a conversation about Trade Marking your brand or product or service, then please do get in contact with anyone on my team, or directly with myself on 01908 660966 or by email.
