Legal experts from Gateley cover various topical issues relating to international trade and finance

A range of experts from Gateley consider the process of choosing a legal expenses advisor and terminating the best procedure forsupply contracts

Legal expenses cover – can you choose your advisor?

Businesses facing a regulatory investigation need access to specialist lawyers at once. In a crisis the regulators will begin investigating right away so immediate legal assistance is vital to protect the interests of a business and its senior management team.

Most businesses have employers’ liability (EL) and public liability (PL) insurance and many nowadays also have directors and officers insurance (D&O) to provide cover when there is a problem.

Historically, insurers have often insisted on using a predetermined panel of lawyers to deal with any claims. Panel lawyers usually have an agreement with the insurance company to provide legal representation for insured businesses at an agreed and often reduced fee in return for the volume of work they can expect to receive as a result. This can cause an obvious conflict when the insured business wishes to use its own lawyers and the insurer insists that they use one from the ‘panel’.

The fundamental question is whether insurers can insist on a panel lawyer? Recent case law would suggest that the answer is no.

Regulation 6 of the Insurance Companies (Legal Expenses Insurance) Regulations 1990 states: “Where under a legal expenses insurance contract recourse is had to a lawyer…to defend, represent or serve the interests of the insured in any enquiry or proceedings, the insured shall be free to choose that lawyer … the above right shall be expressly recognised in that policy”.

These Regulations implemented the European Legal Expenses Insurance Directive 87/344/EEC. Article 4 of the Directive relates to an insured’s freedom to choose its own lawyer which was addressed by the European Courts of Justice in the recent case of Sneller v DAS C-442/12B in November 2013. The case concerns an unfair dismissal claim brought by Mr Sneller where a policy of insurance was in place to cover his legal expenses. DAS argued that, in the circumstances of his case, a lawyer was not needed to pursue his claim.

The Court disagreed with DAS and found in favour of Mr Sneller. The judgment was significant in the context of an insured’s right to choose its lawyer. The Court said, “it follows from a reading of Article 4 … that the insured persons right to choose his lawyer cannot be restricted to situations in which the insurer decides that recourse should be had to an external lawyer … in that regard it must be borne in mind that Article 4 … which concerns the rights freely to choose a representative, is a general application and is obligatory in nature.”

Although the facts of this case deal with the right to have a lawyer in the first place, the principles applied in the judgment of the Court have real meaning in the field of EL, PL and D&O insurance and freedom of choice. The judgment is also consistent with the approach taken by the UK Court of Appeal in the case of Brown – Quinn v Equity Syndicate Management Limited [2012] EWCA Civ 1633. In this case the Court stated that a refusal by the insurer to accept a non-panel lawyer because its rates exceeded those of panel lawyers breached the 1990 Regulations. The Court did state that the insurance company was only required to reimburse the insured at panel rates, but, this should not be a barrier to freedom of choice over the lawyer. It would be open to the chosen lawyers to negotiate rates in line with those of panel firms or for the insured to simply pick up the shortfall. Either way, it is a small price to pay compared with the benefit of having specialising trusted lawyers fighting your corner.

At Gateley we have successful argue the point for our clients in the face of hostile insurers. The sooner we are involved the sooner we can support our clients and start fighting their corner with the regulators…funded by insurers! We have a strong record when negotiating with insurers to secure our non-panel instruction with full reimbursement of our fees.

Termination of supply contracts

It is best practice for supply contracts to expressly provide for a specified period of notice which the parties are required to give to each other before they terminate the contract. Such provisions may well also detail the implications arising from such termination. This promotes stability and certainty for the immediate contracting parties and in the wider supply chain. This is invariably, but not always, the case. What happens, however, when there is no such provision? In such circumstances, what is the period of notice which needs to be provided to the other party before the contract can be brought to an end?

Assuming that neither party is in breach of contract, and unless the contract provides otherwise, the basic position under English law is that a contract can be terminated by one party providing ‘reasonable’ notice of termination to the other. What is a ‘reasonable’ notice period in these circumstances?

This question was given judicial attention in a recent English High Court case, Hamsard 3147 Ltd (T/a Mini Mode Childrenswear) -v- Boots UK Ltd [2013] EWHC 3251 (CH).

The background to the dispute will particularly resonate with those readers whose supply chains may have come under pressure or been disrupted as a result of the difficult prevailing economic conditions of the past few years.

The case concerned the supply of children’s clothes to the high street chain Boots. A long term joint venture agreement was entered into in 2007. The supplier that agreed those terms ran into financial difficulties and, in February 2009, Hamsard took over the relationship. This was on a transitional, temporary basis with the potential for a new joint venture agreement to be negotiated in due course. However, by November Hamsard was itself in significant financial difficulties and entered administration.

Boots decided to end the relationship and provided nine months’ notice of its intention to terminate which it considered reasonable in the circumstances. Hamsard argued that this was unreasonable, notably, by reference to the 2007 agreement which provided for an 18 month notice period.

The Judge held that nine months’ notice of termination was reasonable. In coming to this conclusion the Judge identified a number of factors of universal application against which the Court will assess what is reasonable notice of termination where the contract is silent.

Firstly, each case will turn on its facts and there is limited value in seeking to draw comparisons from other cases. Important in this respect is assessing the context, including the practice of the particular trade in question. A key factor, and one which appears to have been of importance in the Boots case, is the degree of formality of the relationship. A relaxed informal relationship is unlikely to lead a Court to decide that a lengthy formal notice period for termination should be implied. The arrangement in the Boots case was held to be one of necessity which was “informal, short-term and subject to constant adjustment”.

Whether the notice is reasonable or not is to be judged at the time notice is given and not at the time the parties entered into their original contract. The Judge held on the facts that an objective observer in these circumstances would expect the notice period to be related to the parties immediate needs. In the present case the nine month notice period was sufficient to cover the prevailing supply and that relating to the next season’s clothing range but not beyond. The 18 month notice period in the 2007 agreement was irrelevant to what was in November 2009 a reasonable period of notice.

The Judge further held that at the time when notice was given Hamsard had no money, effective communication between Hamsard and Boots such as had existed in February 2009 was by November 2009 no longer there, and there was “deep unrest” down the supply chain.

The Judge made clear that the notice period cannot be divorced from the realities of the contract. The manner in which the contract was being performed at the time notice was given and foreseeably would be performed during the notice period itself are legitimate factors to take into account in assessing what is ‘reasonable’ in all the circumstances.

The Judge applied sound commercial common sense in reaching his decision in this case. The key, as ever, is to ensure wherever possible that the parties’ intentions are expressly and clearly stipulated in advance in the contract.

James Cradick is an associate in Gateley’s Shipping & Transport team. Contact JCradick@gateleyuk.com