Corporate Law Update: 3 - 9 February 2024

09 February 2024

This week:

Chartered Governance Institute publishes guidance and terms of reference for ESG committees

Chartered Governance Institute UK & Ireland (CGI) (formerly ICSA) has published new guidance, including model terms of reference, for company boards looking to establish an environmental, social and governance (ESG) committee.

There is no requirement in UK law or corporate governance codes for boards to establish an ESG committee, but many (especially those of larger organisations) choose to do so.

In addition, the new UK Corporate Governance Code guidance published by the Financial Reporting Council recommends that, if a company has designed a non-executive director with responsibility for the workforce, they should also be a member of any ESG committee.

The new CGI guidance aims to assist committees with adopting good practice in accordance with other committee recommendations under the UK Corporate Governance Code.

The model terms of reference are intended as a good practice guide for companies to adapt to their own needs. In particular, the model terms allow boards to tailor their ESG committee’s role to their company’s business context, recognising changing regulatory, investor and stakeholder demands.

The guidance is available to anyone registered with the CGI, which is free through the CGI’s website.

Access the new CGI guidance and model terms of reference for ESG committees

FRC publishes thematic review of large private company reporting

The Financial Reporting Council (FRC) has published a thematic review of reporting by the UK’s largest private companies.

The report analyses 20 private UK companies with revenues ranging from £1.5bn up to £24bn, employing between 1,000 and 145,000 people, with year ends between September 2022 and December 2022.

The sample set comprised a mixture of parent companies of privately owned groups, subsidiary companies of overseas entities, and subsidiaries of UK-listed companies.

The review contains observations by the FRC on where corporate reporting was of good quality or could benefit from work, and provides recommendations on how to improve reporting.

Read the FRC’s thematic review of reporting by the UK’s largest private companies (opens PDF)

ISS publishes 2024 proxy voting guidelines

Institutional Shareholder Services (ISS) has updated its proxy voting guidelines for the UK and Ireland for the 2024 AGM season.

The guidelines set out how the proxy advisor will recommend that institutional shareholders vote on various matters at company meetings.

The guidelines now state that ISS will recommend voting against the chair of the nomination committee if the company has not complied with the Listing Rules requirements for gender and ethnicity diversity, removing the previous specific guidance inherited from the Walker Guidelines and Parker Review.

Other than this, there have been no changes of substance to the guidelines since the 2023 version.

The 2024 guidelines apply to meetings held on or after 1 February 2024.

Read Institutional Shareholder Services' 2024 proxy voting guidelines

Limitation clause did not extend to obligation to pay for goods

The High Court has held that a contract clause limiting liability for “breach of contract … or otherwise” did not affect a party’s obligation to pay for goods they had purchased.

What happened?

Costcutter Supermarkets Group Ltd v Vaish and Vaish [2024] EWHC 152 (KB) concerned two contracts (which, for these purposes, were on the same terms) for the sale of goods by Costcutter, a national supermarket brand, to two individuals who each operated a store under the Costcutter brand.

Under the original arrangements, the individuals would order stock from Costcutter, which would in turn source that stock from a supplier. Costcutter would then sell the stock to the individuals and deduct a 1% service charge under the contract.

In due course, Costcutter switched to a new supplier for stock. Under the new arrangements, Costcutter no longer levied a service charge on the individuals. However, the supply contracts remained largely unamended and still referred to the service charge.

The new supplier did not provide a consistently reliable service. This led to complaints from the two individuals, who eventually moved from the Costcutter brand to another nationally recognised brand and ceased payments for goods supplied.

Costcutter sued for payment for the goods. The two individuals pointed towards a limitation clause in their contracts, which read as follows:

“… the total liability of either party shall in respect of all acts, omissions, events and occurrences whether arising out of any tortious act, breach of contract or statutory duty or otherwise arising in any particular Contract Year in no circumstances exceed a sum equal to five (5) times the Service Charge paid by the Retailer to the Consultant in respect of the Contract Year immediately prior to the Contract Year in which such claim was made.”

They claimed that this clause – and, in particular, the words “breach of contract … or otherwise” – limited their obligation to pay for any goods supplied to them. In fact, given that the service charge had not been levied in years (and so was zero), they argued that the clause excluded their liability entirely.

What did the court say?

The High Court disagreed.

The judge said that the clause above only limited liability for breach of contract (as well as statutory duty and tortious acts), but that the sum owed by the individuals for the supplied goods was a debt.

Failure to pay for the goods may also have been a breach of contract, and the limitation clause may have been effective to limit any contractual damages arising from that breach (such as any indirect or pure economic loss).

However, it could not limit a claim in debt for the actual purchase price. To do this would have required particularly clear wording. The words “or otherwise” were not clear enough to exclude a debt claim.

Indeed, the judge doubted whether it could ever be effective to exclude liability for a primary contractual obligation, such as to pay a purchase price.

Finally, he noted that, even if the clause had been unclear, it would have been an extreme outcome to conclude that the individuals could order goods from Costcutter then simply refuse to pay for them on the basis that their liability was capped at zero (because no service charge had been levied). It would have required “the clearest of wording” to achieve this outcome.

What does this mean for me?

The judgment shows that the courts will take a sensible approach when construing exclusion clauses.

As case law has shown, the court will assume that the parties do not intend to cut down their legal rights unless they agree to do so using clear wording. In this case, applying the limitation clause to the primary obligation to pay for goods would have led to an arguably absurd result.

But it is important to remember that the courts are still bound by the wording of a contract. Judges will strive to reach a sensible and equitable conclusion. But, if contract words are clear, a court will apply them literally, even if the outcome is commercially peculiar, onerous or unexpected.

For this reason, it is always essential, when drafting any kind of limitation or exclusion clause, to specify in detail what kinds of liability are being restricted and in what circumstances.

Access the court’s decision on limiting liability for payment obligations in Costcutter Supermarkets Group Ltd v Vaish and Vaish [2024] EWHC 152 (KB)