Corporate and commercial round-up May 2020

Oliver Kelly Partner

Smart contracts – the future is automated

A smart contract is made up of a computer code designed for monitoring, executing and enforcing a legal contract.

They operate by utilising blockchain (which is a public database stored across the participants simultaneously). Blockchain captures the smart contract executions and records this data in a list (a block) which is then linked with other blocks and added to the ‘chain’. Each block contains a cryotographic hash of the previous block, a timestamp and transaction data. As a result, blockchain is resistant to amend the data and the chain is open to being viewed by any of the participants.

One such example is the Ethereum blockchain which currently offers the flexibility of using smart contracts in conjuncture with its own payment medium (Ethereum).

The potential application of smart contracts is tremendous. Contracts could be programmed to self-execute upon the transfer of funds, changes to public registers or even respond to real world events (ie severe weather or a virus outbreak).

As we move closer to the ‘internet of things’ and interconnectivity, smart contracts will be an important development which will increase efficiency and certainty in commercial arrangements.

Contractual interpretation – what does it mean?

Contractual interpretation has been an ever changing landscape and is regularly developed by the Courts. The most recent being the case of Arnold v Britton which has caused a paradigm shift toward ‘literal interpretation’.

The Courts have made it clear that where parties require the Court to interpret contractual drafting, the emphasis will be placed upon the literal meaning of the language adopted within the contract. Furthermore, the subjective intentions of the parties at the formation of the contract will no longer be considered.

Parties should carefully consider the language used in their contractual drafting to ensure that it accurately captures their intentions and commercial arrangements.

CMA’s guidance – to refund or not?

The Competition and Markets Authority (CMA) has recently announced that, as a result of the COVID-19 pandemic their attention has been drawn to numerous companies’ cancellations, refunds and credit policies in their consumer contracts. The number of complaints they have received during this pandemic is in the region of 21,000 and this number is only likely to increase.

Based on these complaints, the CMA has now announced an investigation into the following sectors (however this focus may be expanded further):

weddings and private events;
holiday accommodation;
nurseries; and
childcare providers.

Consumer credits

Businesses can offer consumers alternatives in addition to refunds, such as credits, vouchers and free rebooking at a later date, but the consumer should not be misled, forced or unduly pressured to accept one of these alternatives. Any restrictions imposed by the business (ie redemption dates) should be fair, reasonable and made clear to consumers.

We have set out the CMA’s guidance on refunds in a table below.

Non-refundable payments

The CMA has clearly stated that a consumer’s right to a refund will apply regardless of whether the payment was described to them as a non-refundable deposit or advance payment.

Timeframe for refunds

The CMA has acknowledged that given the current pandemic, refunds will likely take longer to process but this must still be actioned within a reasonable time. Businesses still need to comply with any relevant statutory time frames.

CMA’s guidance on refunds

One-off contracts (where businesses are unable to perform their obligations)	One-off contracts (where businesses are unable to perform their obligations)	Future contracts
Consumers are usually entitled to a refund where the contract has not been performed.	Consumers may:	Businesses should not be requiring its customers to pay for future services which it is unsure as to whether these can be provided.
Full refunds should be offered when:	• request a refund for any services paid for but that are not provided or unable to use (this may be a partial refund);	However, if a business has a reasonable expectation that they will be able to provide the services, they may request their customers make these payments.
• the contract is cancelled without the goods/services being provided to the consumer	• withhold payment for services which have not been provided or allowed to use; and
• no service is provided by the business (due to the Government’s COVID-19 restrictions); and	• pay a contribution to the business’ costs until the service is resumed (only where the contract specifically states this).
• a consumer cancels or is prevented from receiving any services because the Government’s restrictions prevent them from receiving them.
There are however some limited to exceptions to full refunds.