Newsletter Archive
FEBRUARY 2011
IT Law
Failure to Disclose Information Prevents Database Company from Obtaining Summary Judgment
A recent case concerning the misuse of database information illustrates the wisdom of preparing comprehensive evidence in support of one’s arguments.
Databases can be valuable assets and are often assembled and maintained at great cost.
A firm which holds a database of more than 150,000 healthcare professionals, and spends more than £100,000 annually keeping the records up to date, took action against another company which it claimed had used information from the database without authority.
The owner of the database had sought to protect the information it contained from subsequent transfer by putting ‘seed’ entries into it. These are entries which are not real data but which are returned indirectly to the database owner, who is then able to discover if there has been unauthorised use of its database.
In the case in point, a company which was unauthorised to do so sent marketing communications to ‘seeds’. The database owner sought compensation.
The problem with the case as brought was that the owner of the database refused to reveal how many ‘seeds’ it contained and it was therefore not possible for the court to come to a firm conclusion as to the extent of the misuse of the database.
The failure to provide this information resulted in the judge being unwilling to give summary judgment on the issue of infringement of copyright.
Where is a Website?
When considering legal action regarding material which is on the Internet, often one of the most difficult questions one has to face is that of where the material is ‘made available’. Since a website can be physically situated anywhere, where ‘is’ the website?
In a recent case, the court made a preliminary ruling that the place a website ‘makes available’ its content is the place where the website’s server is located.
The ruling has implications for anyone wishing to take action against a website owner. It also begs the question as to where the appropriate ‘place’ would be were the website hosted ‘on the cloud’ – would it be any of the various servers that hold the site or none of them?
Contact us for advice on all aspects of IT law. dw@mitchellwilde.com
Litigation
Loss Must be Proven to be Actionable
Losing a professional or sales team can be a severe blow to a business and it is not uncommon for firms to ‘poach’ such teams.
To minimise the risk of such a loss, there are steps that a firm can take, although the extent to which protection is available is limited. This is because the law, in general, wishes to promote the free movement of labour and to prevent unnecessary restrictions on a person’s ability to earn a living. Accordingly, ‘non-competition’ clauses are notoriously hard to enforce.
A recent case illustrates the difficulties firms may face. It involved an insurance broker, one of whose teams left to work for a competitor. The three employees involved were summarily dismissed on the grounds that they had breached their contracts of employment by attempting to induce clients to leave their employer and also by attempting to entice other employees away.
Their former employer sued them for damages, alleging breach of their fiduciary duty and breach of contract.
When the matter came to court, however, the former employer was unable to demonstrate that it had suffered a loss. The breach of contract claims against two of the employees were upheld, which made their dismissals justifiable. However, an entitlement to compensation for damages had not been proven.
A claim against the firm which hired the three was also dismissed: again, no damage to the business of the former employer had been demonstrated.
Costs were awarded against the former employer.
Says Paul Mitchell, “It is crucial that a claim for damages is made on the basis of proven loss. No matter how reprehensible the conduct of the employees might have been, the inability of their former employer to show that their actions had actually caused a loss meant that the claim was doomed to failure.”
Property
Landlords Win Deposit Case
Provisions introduced on 6 April 2007 under the Housing Act 2004 made it a requirement that landlords protect their tenants’ deposits using an authorised Tenancy Deposit Scheme, if they have let the property on an assured shorthold tenancy. The rules require the landlord to notify the tenant within 14 days that this has been done. The Act set up a system of penalties for landlords that fail to meet this obligation.
Recently, however, the Court of Appeal has issued a ruling which will please landlords and dismay tenants. It involved a tenant who took legal action against his landlord because the landlord failed to lodge the tenant’s deposit with one of the authorised schemes.
By the time the action had been brought, the landlord had put the position right. The question before the court, therefore, was whether the tenant could bring an action given that the failure which led to the action had been rectified.
The court concluded, by a two to one majority, that the tenant could not. Where a landlord is late in taking steps to protect the deposit and in notifying the tenant within the 14-day time limit that this has been done, but does so before proceedings are brought by the tenant, the tenant has no cause of action against the landlord.
In practice, this means that a landlord who fails to comply with the law in this respect can do so with impunity up until the point at which proceedings are brought by the tenant. However, landlords tempted to use this ruling to avoid compliance should remember that they cannot obtain possession of the premises unless they have complied with their obligations under the Act.
For advice on all aspects of landlord and tenant law, contact Louise Madeley lm@mitchellwilde.com
Each Planning Authority Can Make its Own Decisions
Just because one planning authority behaves in a particular way, that does not mean another has to behave in the same way. That simple point scuppered a claim by objectors to a property development who contended that on the same facts a different decision would normally have been reached.
Given that there was no procedural error in the way the decision had been reached by the planning officer and the full facts were considered, the planning authority’s reasons for the grant of permission were adequate.
The moral of the story is that if a planning application is to be successfully opposed, the sooner the opposition is organised the better.
Contact Louise Madeley for advice on all property law matters. lm@mitchellwilde.com
Value Added Tax
Bentley VAT Claim Fails
Input VAT is normally only available for deduction with respect to motor cars in very limited circumstances and subject to extremely tight criteria. One of the exceptions is where a car is used wholly for private hire (e.g. a taxi or a self-drive hire car).
Where a car is provided for self-drive hire, not only must any vehicle on which the input tax deduction is claimed be used solely for that purpose, it must also be demonstrated to have been so used.
In a recent case involving a claim for input tax deduction in respect of a Bentley, HM Revenue and Customs demanded to see evidence of the relevant hire contracts, the identification checks provided by customers, the mileage records relating to the individual hires of the vehicle and proof of insurance cover.
In the absence of sufficient supporting information, the claim was rejected.
It is essential to retain sufficient information to substantiate VAT claims. In particular, claims such as this are routinely subject to detailed scrutiny and failing to retain appropriate records is asking for trouble.
Trade Samples – VAT Treatment Change
If your business has followed the common practice of giving trade samples, your VAT returns will have been prepared on the basis that a single sample could be supplied to a person as a VAT-free supply but where a larger number of samples was given, output tax was payable.
Recently, HM Revenue and Customs have accepted that a decision of the European Court of Justice means that all trade samples supplied are VAT-free. Accordingly, where output tax has been paid on samples supplied, the VAT is recoverable subject to the usual time restrictions.
Full details are contained in HMRC Brief 51/10.
It should be noted that the treatment applies only to trade samples, not to trade gifts, which continue to be taxable.
Contact David Wilde for advice on any Value Added Tax law matter. dw@mitchellwilde.com
Company
Director Not Liable for Corporation Tax Bills
The Supreme Court has ruled that a director of a company that was itself the corporate director of a second company was not a de facto director of the second company. He was not therefore liable for the misuse of the second company’s assets, if his acts were done entirely within the ambit of the discharge of his duties and responsibilities as a director of the first company.
The Court made its ruling in a case concerning a complex structure of 42 companies that became insolvent with unpaid Corporation Tax (CT) liabilities.
The companies were set up by Mr Michael Holland and his wife as a tax and business administration service to contractors operating in information technology and other markets. Each contractor was taken on as an employee of one of the companies and was allotted a single non-voting share in their respective company. In this way each contractor could be paid salary and dividends from fees they had generated by their contract work. The intention was that each of the companies would pay CT at the small companies rate as long as the profits of the relevant company remained below the maximum threshold at which this rate applies.
Unfortunately for Mr Holland, he was deemed to be in control of the companies by virtue of being the holder of the one voting share in each company, making the companies ‘associated companies’ for CT purposes. Thus, when the collective profits of the companies exceeded £300,000, the companies were required to pay higher rate corporation tax (HRCT) on all profits above this amount.
The risk that this might happen was identified in January 1999 and throughout 2002 and 2003 there was what was described as ‘sporadic and inconclusive’ correspondence between tax advisers for the companies and HM Revenue and Customs (HMRC), leaving the position regarding the liability for HRCT far from clear. In February 2004, professional advisers estimated the potential tax deficit at £2 million, but trading continued. In October 2004, after further correspondence and advice, HMRC sent a letter to make it clear that HRCT would be sought from 2002. At this point, all further dividends ceased, administrators were appointed to all the relevant companies, and the contractors’ service contracts were transferred to new companies. The companies were left with a total CT deficiency of around £3.5 million.
At the original trial, Mr Holland was held liable for the deficit as a de-facto director of the various companies and found guilty of a breach of duty in allowing the companies’ assets to be distributed when they had insufficient reserves to pay creditors. He successfully appealed the decision, resulting in an appeal to the Supreme Court.
At the Supreme Court hearing, it was held that the mere fact that a person was the director of a company that was itself a director of another company did not automatically make that person a director of the second company. On this basis, and in this case, it was therefore necessary to prove that Mr Holland was operating as a director of the companies and, on the evidence presented at the original trial, this had not been done. The appeal was therefore dismissed and Mr Holland was not required to pay the CT deficit.
“In cases such as this, circumstances vary widely,” says David Wilde. “In this case, there was insufficient evidence for Mr Holland to be deemed to be a de-facto director. It could easily have been otherwise, however. The taxation of groups of companies and companies with a common element of ownership or control contains many pitfalls and the setting up of multiple companies or a group of companies should be undertaken only with expert legal advice.”
Contact dw@mitchellwilde.com
Contract
Court Implies Only ‘Reasonable Skill’
A developer who relied on the advice of a firm of quantity surveyors (QS) without fully formalising their terms of engagement in the form of a contract found recently that the court was unwilling to imply into the terms of engagement a duty by the QS to value only work which had been properly executed by the contractor.
The developer retained the QS to value work done by a building contractor and reported by the architect. The architect was instructed to inform the QS of any defects in the work done which would affect the valuation. The defects which formed the basis of the dispute were not reported. Despite this, the developer sued the QS as well as the contractor and the architect.
The court found that the responsibilities of the QS could not be regarded as so stringent as to imply that they were responsible for a valuation taking account of all defects, not just those reported to them, in the absence of a specific legal agreement to that effect. The firm was required to act with reasonable skill and care as would any QS of ordinary competence and experience when preparing the valuations of work done based on the works properly executed. In this, their reliance on the architect to inform them of work which affected the valuation was appropriate. They had no positive obligation to inspect the works which they were valuing.
We can help you to ensure that any contractual agreements you make reduce your legal risk as far as possible.
Intellectual Property
Copyright Clarifications
When copyright is licensed, use of the copyright material is limited to that contemplated by the parties at the time the licence is created.
This decision of the Court of Appeal has implications for many users of licensed material. The case arose when a freelance photographer took exception to photographs he had taken being held in a national newspaper’s photo archive. He had supplied the photographs when he carried out an assignment for the newspaper group, but claimed that use of the pictures should be limited even though the newspaper owned copyright of the original compilation of material which included the photographs.
“The ruling may have implications where material is acquired and then used in circumstances not originally contemplated at the time the licence was granted,” says David Wilde.
Contact dw@mitchellwilde.com
In another case, users of media monitoring services were ruled to have infringed the copyright of publishers when they received material from the services but did not have an end-user licence. The monitoring services themselves had the relevant licences, but their customers did not.
The case also clarified the point that both headlines and short text extracts were also copyright.
If you make use of such a service, it is worth making sure that all appropriate licences and permissions are held.
Removal Firms Pay for Misuse of Trade Association Marks
In a recent case, firms which used trade marks to which they were not entitled felt the wrath of the court. The case concerned the National Guild of Removers & Storers (NGRS), a trade association for businesses in the removal and storage industry. NGRS owns various trade marks, which members may print on their stationery and include in their advertisements. Members pay an annual subscription and are required to follow a code of practice and to participate in the association’s ombudsman scheme. Any members that leave the association are obliged to remove the trade marks from their advertisements and stationery. In cases where an advertisement including any of the trademarks is in circulation in a trade directory, such as Yellow Pages, the departing member is required to pay a licence fee of £100 per week for as long as the advertisement remains in use. Any former member using the trade marks after the expiry of advertisements appearing in public directories must pay NGRS £200 per week.
The four defendants in the case had used trade marks owned by NGRS when they were not entitled to do so. One had never been a member of the association. The other defendants were former members who continued to use the marks after they had ceased to belong to the association. Each of these four businesses was ruled to have infringed the association’s trade marks and passed itself off as a member of NGRS. An inquiry was ordered against each of the defendants with directions for disclosure and service of evidence. None of the defendants complied with the orders and none was present or represented at the hearings.
The judgment of the court was that in any case of trade mark infringement or passing off, damages should be paid regardless of whether or not there was a ‘lost sale’. In the cases of the three former members of the association, damages were assessed on the basis of the departing member fees. In the case of the non-member, damages were assessed as if they had belonged and had then ceased to be a member. In each of the cases, costs were assessed and awarded against the defendants.
“Trade marks, whether belonging to a trade association or any other organisation, are valuable intellectual property and should only be used with permission and within the terms set out in an appropriate agreement,” says David Wilde. If you are concerned about misuse of your data or intellectual property assets, contact us for advice.
Contact dw@mitchellwilde.com
Insolvency
Settling Tax by Credit Card – A Good Idea or Not?
The recession has brought many changes to the way HM Revenue and Customs (HMRC) deal with taxpayers. A generally more aggressive approach on the part of HMRC has coincided with the much-touted ‘time to pay’ agreements for businesses experiencing cash-flow problems. However, as has been recently reported, HMRC are taking a tougher line on such agreements and these are becoming more difficult to negotiate.
The problem for many people arises when HMRC demand that a credit card is used to settle the tax bill. Not only are HMRC entitled to interest (and, in appropriate circumstances, penalties) for late payment, but they also levy a further 1.25 per cent charge for credit card payments.
When you add to this the fact that credit card interest runs at rates typically between 15 per cent and nearly double that, it has to be said that use of a credit card to settle a tax bill can be an expensive solution to your cash-flow problem.
If you are experiencing difficulty in settling your tax liabilities on time, you need to weigh up carefully the pros and cons of how and when to pay.
If you require advice on legal issues surrounding financial problems, contact Paul Mitchell.
Contact pm@mitchellwilde.com
Competition
Price Comparisons Must Not Mislead Consumers
European Directives on comparative advertising based on price differences have been clarified, following preliminary rulings from the European Court of Justice (ECJ) in a case referred by the French commercial courts.
The case was brought before the French courts by supermarket chain Lidl when, in September 2006, Vierzon (trading under its ‘Leclerc’ brand) placed an advertisement in a local newspaper, which showed till receipts comparing a basket of 34 mainly food products bought from a Leclerc store with the same products bought from a neighbouring store operated by Lidl.
The advertisement showed a total cost of €46.30 for the products from Leclerc and €51.40 for the basket of products from Lidl. Lidl complained that the advertisement was unfair and misleading because the products selected by Leclerc were not comparable and were selected specifically to place Leclerc in an advantageous position.
Lidl told the court that the reproduction of till receipts alone in the advertisement showing the list of the products compared did not enable consumers to perceive the specific characteristics of those products or to understand the reasons for the differences in prices claimed in the advertisement.
Vierzon disputed these claims, submitting that two products that are not the same may be compared as long as they meet the same needs or are intended for the same purpose and are sufficiently interchangeable. Vierzon also submitted that the differences between the products at issue were sufficiently clear from the till receipts to prevent consumers from being deceived.
The ECJ’s ruling is divisible into three parts:
Firstly, the ECJ ruled that price comparison in advertisements where the products being compared differ is permissible under the relevant Council Directives, where the products display ‘a sufficient degree of interchangeability’.
Secondly, such an advertisement would be misleading if a significant proportion of consumers could be mistaken into believing that the prices of the products compared is representative of the general price difference between the competitors.
Thirdly, it must be possible to identify the goods in question on the basis of information contained in the advertisement.
The ECJ held that it is up to the national courts to determine each case on its merits but objective price comparisons should be received favourably.
“Although product and price comparisons are permissible, great care must be taken when formulating advertisements to ensure that consumers are not misled and that UK and EC rules are not infringed,” says David Wilde.
Contact dw@mitchellwilde.com
Employment
Enforced Retirement at Age 65 to End
The Government has confirmed that the ‘Default Retirement Age’ (DRA) will be abolished in order to give people more choice as to when they stop working.
Currently, the DRA enables employers to make staff retire at 65, regardless of their circumstances, without the employee having the right to bring a claim for unfair dismissal. It will be phased out between 6 April and 1 October 2011. From 6 April, employers will not be able to issue any notifications for compulsory retirement using the DRA procedure. Between 6 April and 1 October 2011, only people who were notified before 6 April and whose retirement date is before 1 October can be compulsorily retired using the DRA. After 1 October 2011, employers will not be able to use the DRA to compulsorily retire employees.
The DRA requires employers to give an employee six months’ notice of retirement. As 30 March 2011 is the last date an employer can give an employee six months’ notice of retirement before the DRA is abolished, any valid notifications after that date and before 6 April 2011 will be on a ‘short notice’ basis (i.e. less than six months). The short notice provisions will be abolished on 6 April.
Abolishing the DRA will remove the administrative burden imposed by the existing statutory retirement procedures.
The Government is introducing an exception to the principle of equal treatment on the grounds of age so that there are no unintended consequences for employers that currently voluntarily offer group risk insured benefits (income protection, life assurance, sickness and accident insurance, including private medical cover). There had been concern that removal of the DRA could lead to increased costs and uncertainty for businesses by in effect removing the cut-off point beyond which such benefits are currently no longer offered.
Although it will no longer be possible to compulsorily retire an employee simply because they have reached the age of 65, it will still be possible to have in place a compulsory retirement age where this can be objectively justified. Examples of jobs where individual employers may wish to maintain a compulsory retirement age could include pilots, air traffic controllers and police officers.
The changes will have far-reaching implications for the way many businesses operate and employers who fail to take appropriate action are at risk of claims of age discrimination and unfair dismissal. We can advise you on the practical issues involved as well as on succession and workforce planning, performance management and ensuring that your policies and practices comply with the law.
The Advisory, Conciliation and Arbitration Service has published useful guidance on the removal of the DRA at http://www.acas.org.uk/index.aspx?articleid=3203.
Contact Paul Mitchell for advice on any employment law matter. pm@mitchellwilde.com
Health and Safety
A manufacturing company based in Wigan has been fined £12,500 and ordered to pay costs of £1,703 after a worker lost part of his index finger whilst operating a drilling machine.
Manufacturing Company Fined After Drilling Machine Accident
The 46-year-old employee was drilling holes through an iron bar when his right hand became caught in the drill. His index finger was severed below the first joint, his middle finger was badly cut, and his ring finger was dislocated.
His employer, B&B Group Ltd., was prosecuted by the Health and Safety Executive (HSE) after an investigation found that the company had failed to make sure basic health and safety measures were in place at the factory. The company should have installed a guard around the drill bit to protect employees working on the equipment.
The court heard that the drill took 30 seconds to stop after it had been switched off. It was still rotating as the worker reached to turn it on again after moving the iron bar to drill another hole. The glove on his right hand caught in the rotating mechanism and pulled his hand into the machine.
B&B Group Ltd. pleaded guilty to breaching Regulation 11(1) of the Provision and Use of Work Equipment Regulations 1998. This states that ‘Every employer shall ensure that measures are taken…which are effective to prevent access to any dangerous part of machinery or to any rotating stock-bar, or to stop the movement of any dangerous part of machinery or rotating stock-bar before any part of a person enters a danger zone.’
Adam McMahon, the investigating inspector at the HSE, said, “Manufacturers who fail to prevent access to dangerous parts of machinery are breaking the law and we will continue to take enforcement action against them.
“If there had been a guard around the rotating drill at the factory then the worker’s injuries would almost certainly have been avoided. This case highlights how important it is for manufacturers to make sure the health and safety of staff is their top priority.”
25 workers were killed and more than 19,000 were seriously injured in the manufacturing sector in Great Britain last year. Information on preventing injuries in different industries can be found at http://www.hse.gov.uk/manufacturing/index.htm.
HSE Consults on Risk Assessment Tool for Shops
The Government’s review of the operation of health and safety legislation in the UK, Common Sense – Common Safety, recommended that the risk assessment procedures for low hazard workplaces, such as many offices and shops, should be simplified to free such businesses from unnecessary bureaucratic burdens.
To this end, the Health and Safety Executive (HSE) has developed a demonstration online risk assessment tool for small shops, designed to enable those with responsibility for health and safety in this type of workplace to produce a tailored risk assessment by selecting relevant hazards and thinking about how they are controlled.
At this stage, the tool is intended for demonstration purposes only. The HSE is seeking views on the usability of the tool and how it compares with its other risk assessment guidance. The consultation ends on 8 March 2011.
For further information, see
http://www.hse.gov.uk/consult/condocs/risk-assessment/shop.htm.
For advice on any health and safety matter, please contact Paul Mitchell. pm@mitchellwilde.com
This newsletter is intended to keep our clients and other subscribers aware of recent changes in the law. Please remember that the outcome of any court case may depend on its particular facts, and this newsletter is not a substitute for legal advice. We do not accept any liability for any action that you may take in reliance on the contents of this newsletter.
MITCHELL WILDE NEWSLETTER
DECEMBER 2010
Litigation
Communications Needed to Understand the ‘Factual Matrix’ Are Admissible
‘Without prejudice’ communications, made when negotiating legal disputes in order to aid agreement, are not normally admissible in court. The idea behind them is to allow the parties to explore possible areas of agreement and make suggestions and admissions which they would not be willing to admit to in court.
A recent case shows, however, that just heading a communication ‘without prejudice’ does not offer blanket protection from disclosure.
The Supreme Court ruled that facts communicated in without prejudice correspondence, which would be admissible but for the without prejudice rule, could be admitted in evidence in a subsequent dispute to which they were relevant, provided that their disclosure was appropriate in order to understand the circumstances surrounding the matter and served as an aid to the construction of the agreement reached.
Although it may seem that this makes it risky to rely on the precept that disclosures made without prejudice will remain undisclosed, the ruling made it quite clear that the disapplication of the rule would not be extended beyond evidence necessary to explain the ‘factual matrix’.
For advice on all legal aspects of business disputes contact Paul Mitchell pm@mitchellwilde.com
Property
First Service Ruled In
Taking care over the service of documents is important, if only to prevent an unnecessary appearance in court to determine whether or not a document was properly served.
Recently, a construction dispute was dealt with by an arbitrator. In order to express dissatisfaction with the arbitrator’s decision, the dissatisfied party had to serve a notice to this effect within four weeks of the arbitrator’s decision. Failure to do so would mean the arbitrator’s decision would be binding on both parties.
One party was dissatisfied and sent a notice on the 28th day to the other party’s solicitors, who forwarded it on to their client. The question arose as to whether the service was valid, as the contract contained a provision that a notice had to be served ‘at the last address notified by the recipient for receiving communications’. In view of the doubt this created, the notice was also served (after the four-week deadline) directly on the other party to the dispute.
It took a court appearance to determine if the solicitors’ office was ‘the last address notified by the recipient for receiving communications’. Fortunately, the court decided that the service to the solicitors was ‘good service’, so the issue of whether the subsequent (late) notice should be accepted did not have to be argued.
The moral of the story is to take care when serving notices – and not to leave everything until the last minute.
For advice on all aspects of commercial property law, contact Louise Madeley lm@mitchellwilde.com
Tax
HMRC Toughen Stance on Companies in Difficulty
All the positive publicity created about ‘time to pay’ agreements has increasingly been shown to be misplaced as new research shows that HM Revenue and Customs (HMRC) are now leading the way in bringing insolvency proceedings.
Recent research shows that in 2009/2010 more than 58 per cent of winding-up proceedings against companies were started by HMRC. Furthermore, HMRC’s rate of rejection for time to pay agreement applications has doubled in the last year.
Contact David Wilde dw@mitchellwilde.com for advice on any tax law matter.
Company
Income Splitting – Another HMRC Attack
A case involving a ‘multiple shares’ company, in which different classes of shares were created, with different rights and varying dividends paid to the shareholders over time, illustrates the baleful look that HM Revenue and Customs (HMRC) give to such schemes.
A husband and wife had set up the share structure when they bought a business, each of them investing half the money required. The agreement was that in return for her investment the wife would receive far fewer ‘A’ shares than her husband (who had day-to-day control over the business) and not be in a position of responsibility in the company. However, she stood to receive far larger dividends than he did, because she was also issued with ‘B’ shares which could (and in the event did) receive dividends in their own right. The position was complicated by the fact that the dividends were paid to her on the understanding that she would pay them across to her husband. The dividends she passed across were used to repay loans (for which they were both jointly liable) taken out to purchase the business.
HMRC argued that the arrangement was ‘income splitting’ and the effect was to set up a ‘settlement’ for the wife. Accordingly, various Income Tax assessments were raised to assess the wife’s income as if it were her husband’s.
The court’s decision upheld HMRC’s argument, but only in part, the judge ruling that there was nothing gratuitous in the issue of the ‘B’ shares on the basis that the wife’s investment warranted more than they were worth in return.
As a result, the net gain to HMRC is about £6,000 in extra tax – considerably less than originally sought.
The case does show, however, that HMRC will seek to apply legislation relating to settlements if it suspects income splitting and illustrates the wisdom of making sure that where various classes of shares are created, this is done with the benefit of expert advice.
HMRC have recently announced their intention to appeal against the court’s decision.
We can advise on all aspects of corporate share structure and shareholders’ agreements. Contact David Wilde dw@mitchellwilde.com
Contract
Court Upholds Genuine Pre-estimate of Loss
When a contract contains a ‘penalty clause’ for breach of the contract, the clause will not be enforceable if it is punitive, rather than a genuine attempt to compensate the other party based on a estimate of the loss they would incur as a result of the breach of the contract.
Accordingly, where such a clause is invoked, the party in breach of the contract often attempts to avoid liability by claiming that the clause is a penalty, rather then a pre-estimate of loss.
A penalty clause is not unenforceable, however, just because the actual loss suffered may be less than the damages payable under the clause, provided that at the time the contract was entered into the damages for breach of contract specified in the contract sought to be a fair compensation for the loss suffered.
In a recent case involving a breach of contract connected with the building of a super yacht, the court heard a claim that a clause which required forfeiture of 20 per cent of the contract price, if the buyer breached the contract, should be enforced.
The buyer argued that it was a penalty clause because a similar contract had been undertaken by the same shipyard with a ten per cent forfeiture clause.
The shipyard argued successfully that the figure of 20 per cent was a genuine pre-estimate of loss. It pointed out that any sum it received in excess of that sum would be refunded immediately under the contract and that it would take a long time – years, possibly – to quantify the losses precisely.
The court agreed that the clause struck a fair balance between the two parties, both of which had enjoyed the benefit of expert representation when negotiating the contract and had entered into it freely.
Exclusion Clauses Fail to Protect IT Consultants
Clauses limiting liability under contracts have always been contentious, so a recent decision is to be welcomed because it sets out clearly the limitations which apply to exclusion clauses.
The case involved GB Gas Holdings (Centrica) and Accenture, which had a contract to implement an IT-based billing system for the gas supplier.
In the event, there were many problems with the system and GB sought restitution for its consequential losses. Accenture resisted paying compensation, on the basis of a limitations clause in the contract.
This sought to exclude:
- loss of profits or of contracts arising directly or indirectly;
- loss of business or of revenues arising directly or indirectly; and
- any losses, damages, costs or expenses whatsoever to the extent that these are indirect or consequential or punitive.
Losses for which restitution was sought (amounts claimed in brackets) included:
- loss of gas distribution charges resulting from the unreliable transmission of usage data (more than £18 million);
- compensation paid to customers, which included ex-gratia payments to preserve goodwill (£8 million);
- additional borrowing charges (£2 million);
- costs of chasing debts not correctly due (just under £400,000); and
- other costs (more than £100,000).
The court ruled that none of the above losses (including the ex-gratia payments) were excluded by the limitation clause.
If you are entering into any substantial contract, we can advise you on how best to minimise your commercial risk. Contact David Wilde dw@mitchellwilde.com
Intellectual Property
First Impressions Matter
A recent trade mark case confirms that first impressions matter. It dealt with a dispute over a trade mark application made by a firm which had a similar name to another and which was in a similar line of business. The application was opposed by the other firm, which was the proprietor of existing trade marks.
According to the High Court, the risk of ‘initial interest confusion’ would lead to infringement of the trade mark, despite the fact that a more studied review would enable a person to discriminate between the two firms and their products so that, by the time any purchase was made, there would no longer be confusion in the mind of the purchaser.
The Court refused to accept the application by the firm seeking to register similar trade marks, in spite of the argument that the trade marks were based on the nickname of the firm’s proprietor.
Says David Wilde “The ‘it’s my name’ defence is a surprisingly weak one and this case reinforces the point that before setting up a business under a specific name, it is sensible to check out, at an early stage, the position regarding trade marks you may want to register.”
Insolvency
New Lease Starts When Old Lease Ends
You cannot create a new lease until the old lease has terminated. That was the straightforward message of the Court of Appeal in a case in which a company asserted it had a valid lease over a builder’s yard when the old lease had terminated ‘by operation of law’, allowing the lease to be assigned to it.
The landlord gave a lease over a builder’s yard to a company which operated two businesses from the premises. The company had financial problems, which led to the appointment of an administrative receiver. A new company, called QFS Scaffolding Ltd., was formed to take over one of the businesses and it occupied the builder’s yard. QFS commenced negotiations with the landlord, but no new lease was agreed. The administrative receivers then ‘assigned’ the existing lease to QFS.
The landlord considered the lease to have been surrendered. For this to be the case, there had to have been conduct by the landlord or tenant which was an unequivocal indication that the lease had been terminated and would not continue. In this case, the insolvent company had vacated the premises, had turned over occupation of the premises to QFS and had not paid or acknowledged the need to pay rent.
The landlord had continued to negotiate over the lease and had drawn on the rent deposit when the rent due was not paid. However, the landlord had not acted in any way that was inconsistent with the continuation of the lease.
In the view of the Court, the occupation of the premises by a third party was not inconsistent with the continuation of the lease. The landlord’s actions were also not inconsistent with the continuation of the lease.
Accordingly, the previous tenancy had not terminated by operation of law: it would not do so until steps were taken which demonstrated that it was terminated.
For advice on any insolvency issue, please contact Paul Mitchell pm@mitchellwilde.com
Data Protection
First Monetary Penalties for Serious Data Protection Breaches
The Information Commissioner has served the first monetary penalties for serious breaches of the Data Protection Act 1998 (DPA).
In the first case, Hertfordshire County Council was issued with a penalty of £100,000 for two serious incidents where Council employees faxed highly sensitive personal information to the wrong recipients. The first concerned information meant for a barrister, regarding a case of child sexual abuse that was before the courts. The fax was sent in error to a member of the public. The Council subsequently obtained a court injunction prohibiting disclosure of the facts of the court case or the circumstances of the data breach. The second breach occurred a few days later when another member of the Council’s childcare litigation unit sent sensitive information that was intended for Watford County Court to a set of barristers’ chambers unconnected with the proceedings to which the information related.
The Council reported both breaches to the Information Commissioner’s Office (ICO). The Commissioner ruled that a penalty of £100,000 was appropriate as the data breach could have caused substantial damage and distress and the Council had failed to take steps to prevent a recurrence of the mistake.
In the second case, a monetary penalty of £60,000 was issued to an employment services company, A4e, after the loss of an unencrypted laptop containing personal information regarding 24,000 people who had used community legal advice centres in Hull and Leicester. The laptop was stolen from the home of one the company’s employees. A4e reported the loss of data to the ICO and subsequently notified those whose data could have been accessed. The ICO found that it had failed to take reasonable steps to prevent the loss of the data.
The Information Commissioner, Christopher Graham, said, “These first monetary penalties send a strong message to all organisations handling personal information. Get it wrong and you do substantial harm to individuals and the reputation of your business.”
The power to levy penalties for serious breaches of one or more of the eight principles in the DPA came into force on 6 April 2010. The maximum an organisation can be fined is £500,000.
Contact David Wilde dw@mitchellwilde.com for advice on any data protection issue.
Competition
OFT Cold-Calling Crackdown
The Office of Fair Trading (OFT) recently warned the debt management industry to cease from using unsolicited and misleading cold-calling practices to generate client leads.
As part of its crackdown on illegal cold-calling in the sector, the OFT has recently revoked the consumer credit licence of a company which used various improper practices, including e-mail ‘spamming’, misrepresenting itself as making calls on behalf of the Government and claiming to be able to obtain the writing-off of consumer debt for free.
The OFT is working with the debt management industry trade associations to warn members that they should only use licensed lead generation firms and that failure to do so could lead to licensing action. This will be reflected in revised guidance for companies working in the industry, which is due to be published for consultation next year.
If you are concerned about the lawfulness of your business practices, contact David Wilde dw@mitchellwilde.com
Employment
Collective Redundancy Consultation – Court of Appeal Seeks Clarification
The Court of Appeal (in United States of America v Nolan) has sought guidance from the European Court of Justice (ECJ) as to the point at which the obligation to consult arises under Directive 98/59/EC, the Collective Redundancies Directive.
This issue has caused problems in the past and clarification will be welcome. Whilst the Directive provides that an employer should begin consultations when ‘contemplating’ making collective redundancies, this duty is given effect in domestic law – under Section 188 of the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA) – as being a duty to consult when an employer ‘proposes to dismiss’ employees as redundant.
The question arose in this case following a decision by the Secretary of the US Army to close a US Army base in Hampshire, which resulted in the redundancy of some 200 civilian employees. One of the employees, Christine Nolan, brought a claim on behalf of the redundant employees for compensation by way of a ‘protective award’ under TULRCA on the ground that the USA had failed to consult with representatives of the civilian workforce in accordance with its obligations under section 188. She argued that the consultation period was far less than the 90-day period required and, in particular, that there had been a failure to consult before, and about, taking the operational decision to close the base.
The USA appealed to the Court of Appeal on the ground that the more recent judgment of the ECJ in a Swedish case (Akavan Erityisalojen Keskusliitto Alek RY and others v Fujitsu Siemens Computers) is authority for the proposition that, upon the true interpretation of the Directive, the consultation obligation is not triggered by a proposed business decision to close down a workplace but only arises at the later stage when the decision has been made and the intention to make the employees redundant has been formed.
The Court of Appeal chose not to venture further views on the correct interpretation of the Directive, concluding that it could only decide the appeal with the benefit of further guidance from the ECJ. Furthermore, this is an important issue as employers need to understand the exact nature of their consultation obligations in such circumstances.
Gross Misconduct and Breach of Contract
When an employee is sacked for gross misconduct, has the employer breached his contract of employment?
This rather remarkable proposition was put forward by Stephen Dunn, the Managing Director of AAH Ltd., one of a group of companies of which the head company, Celesio AG, was based in Germany. Mr Dunn had failed to inform AAH of a fraud of which he had been aware for five months.
When his employer discovered this, Mr Dunn was sacked for gross misconduct. He then sought compensation.
Celesio had in place a set of mandatory Risk Management Guidelines for the directors of its subsidiary companies to follow. These obliged subsidiary directors to report immediately any potential risks to Celesio. In addition, Mr Dunn’s contract of employment obliged him to ‘perform all the duties and exercise all the powers of his office to the best of his ability and …comply with all lawful directions and instructions given’.
The argument went all the way to the Court of Appeal, which ruled that Mr Dunn had repudiated his contract because his behaviour was such that it undermined the employer’s trust and confidence in him to such an extent that it was no longer reasonable for AAH to continue to employ him.
Contact Paul Mitchell pm@mitchellwilde.com for advice on any employment law matter.
Health and Safety
Mesothelioma – Who is to Blame?
The Court of Appeal has handed down its judgment in an important test case concerning compensation for people who develop mesothelioma as a result of exposure to asbestos in the workplace. The decision will not only have serious implications for victims of the disease but will also create uncertainty for everyone involved in such cases.
When bringing any action for damages, the first step is to demonstrate who is liable for the injury suffered. This has always been a problem in mesothelioma cases, as the manifestation of the disease normally occurs many years after the exposure to asbestos and sufferers may have worked for several employers in the intervening years. The situation is further complicated by the fact that some of the employers (or their insurers) may no longer exist.
Unfortunately, even after the question over the causation of the disease has been resolved, the decision as to which insurers are responsible has now been obscured by the judgment, which runs to more than 160 pages.
By a majority, albeit for different reasons, the Court held that the wording of the insured defendant’s insurance policy will be critical in determining whether or not an insurer is liable for the claim by the mesothelioma victim.
The nub of the Court of Appeal’s decision is that where the insurance policy states that the liability is insured when the injury is ‘sustained’, the policy under which compensation may be claimed is the one in force when the disease starts to develop. However, where the policy insures the policy holder at the time the disease is ‘contracted’, the policy will cover the insured when exposure to the carcinogenic agent occurs.
This ruling raises a raft of issues. For example, it is likely to lead to protracted arguments over the precise date of injury. Further complications will arise when the employer involved has changed its insurer and the wording of the successive policies is at variance.
An appeal is likely and it is to be hoped that this will bring greater clarity to this already complex area of litigation.
For advice on any health and safety matter, please contact Paul Mitchell pm@mitchellwilde.com
Mitchell Wilde Newsletter July 2010
It’s Good to Talk
Litigation can be expensive and there are good reasons in many cases for achieving a resolution by mediation when possible.
Recently, a court case was settled after a prolonged dispute between a landlord and a tenant over liability for the sharing of the cost of works to a building.
The tenant claimed nearly £6 million from the landlord. The landlord offered £400,000. The dispute was eventually settled, after more than a year of legal dispute, by the landlord paying the tenant £750,000.
When the question of which side would carry the legal costs was then considered, both sides claimed the other should pay: the landlord because the settlement was much lower than the sum claimed and the tenant because the settlement was more than the landlord’s original offer.
Although the court effectively ruled that the tenant was the ‘winner’, it only awarded the tenant 50 per cent of the costs it incurred commencing 21 days after the landlord’s offer was received. The judge considered that the original claim was ‘exaggerated’ and said that the tenant’s conduct in failing to respond effectively had driven up the costs unnecessarily. The practical effect of the decision was that the tenant’s irrecoverable legal costs exceeded the settlement awarded.
Says Paul Mitchell, “Insisting on settling disputes by litigating, rather than negotiating the outcome, can be expensive. We can advise you on how to pursue a legal dispute to minimise risk of loss and time spent.”
Speak Now or Forever Hold Your Peace
People often think of time limits for bringing claims as something imposed by law, as indeed they are. However, there can be other time limits which apply, including those imposed by contract.
Insurance contracts normally include time limits for making claims and these are often expressed in less than precise wording.
In a recent case, a claim for subsidence was made relating to a retail shop. The policy required the insured to advise its insurers immediately if damage was noticed that might give rise to a claim. The retailer had noticed cracks in the walls in August 2003, but failed to advise its insurers until a year later, by which time the cracking had caused damage to the insured’s fixtures and stock. In the interim period, the retailer had obtained an engineer’s report, documented the damage and informed its landlord’s insurers.
The retailer’s insurers rejected the claim on the basis that they were not notified immediately. The insured argued that it only knew that the damage was caused by subsidence shortly before it made its claim, but the court rejected its argument. It should have notified the insurers as soon as it was aware that a claim might result.
The moral of the story is that if you have reason to think you might have to claim on your insurance policy, make sure you are aware of any applicable time limit on making a claim and adhere to it, or you may find the insurer can reject it.
Without Prejudice Challenge Fails
A company that sought to give as evidence in court ‘without prejudice’ comments made by the company with which it was in dispute met with a firm rebuff from the Court of Appeal recently.
Without prejudice material is material which is used in negotiation on the understanding that it will not be referred to in court. The principle allows parties to a dispute to negotiate without having their hands tied by the consideration that everything that passes between them may be given in evidence. Only in rare circumstances is the principle breached.
In this instance, one of the parties to the dispute wanted to disclose the content of discussions ‘as an aid to the proper legal construction of a contract’. However, Longmore LJ considered that it was more important to uphold the principle of without prejudice than to allow its breach so that ‘arguably relevant’ background material was admitted by the court, adding that ‘Very few disputes about interpretation are truly informed by evidence about preceding without prejudice oral discussions’.
For advice on all commercial disputes, contact Paul Mitchell, (pm@mitchellwilde.com)
Property
Negotiation Proves Expensive for Landlord
Landlords who want to take the ‘easy route’ of negotiation, rather than litigation, when a tenant’s lease comes up for renewal should take advice to ensure that this is the best course of action, as a recent case proves.
The circumstances were that the tenant had breached its obligations to repair the property, so the landlord served a legal notice on the tenant to which the tenant replied. This procedure had the effect that the lease could not then be forfeit and the landlord could only recover damages by obtaining the leave of the court.
All went to plan, however, and the tenant eventually carried out the necessary repairs after lengthy negotiations. The landlord then sought to recover its costs incurred in the negotiations.
The court refused the landlord’s claim, because while the lease stated that the landlord could recover its costs when these were incurred in ‘contemplation of or in relation to …proceedings…’, there were no proceedings contemplated, because the landlord had not served the tenant with a notice that it intended to make a claim.
Trying to negotiate, rather than taking legal action, has proved to be expensive for the landlord in this instance.
Landlords who find themselves in a similar position, or who want to have their leases vetted to ensure they do not end up in a similar position, should contact David Wilde, (dw@mitchellwilde.com).
Contract Re-Think Required?
It has been commonly accepted that where a construction contract gives rise to ‘liquidated and ascertained damages’ (LADs) for breach of the contract terms, the liability for the LADs ends when the contract is terminated. It now appears that that assumption is wrong.
In a recent case, the Technology and Construction Court ruled that LADs could continue to accrue after a contractor’s contract had been terminated and it was replaced by a new contractor – LADs were ruled to accrue up to the end of the completion of the contract by the new contractor.
Whether this will apply or not will depend on the exact wording of the contract.
We will be pleased to advise you on the implications of this decision for your business. Contact Paul Mitchell, (pm@mitchellwilde.com).
Right to Connect Cannot Be Denied by Water Authority
The Water Industry Act 1991 gives a property developer an absolute right to connect the property to the public sewerage network, unless the sewer constructed does not meet the reasonable standards of the statutory sewerage provider.
That may seem straightforward, but it took the Supreme Court to decide a dispute on this point between home builder Barratt and the Welsh Water Authority.
Welsh Water refused Barratt permission to connect to its sewerage network at the point at which Barratt wished, on the basis that the network lacked sufficient capacity. It suggested connecting at a different point, which would have required Barratt to obtain the consent of another party.
Barratt took the dispute all the way to the Supreme Court, which rejected Welsh Water’s argument. The Act confers no express right on the sewerage undertaker to select the point of connection or to refuse permission to make the connection on the ground that the point proposed by the developer is open to objection.
The implication of this case is that, in effect, the decision on the location of the connection to the sewerage network becomes a matter for the planning authorities, not the statutory sewerage undertakers, to decide.
Says David Wilde, “Although this case has limited application, it does illustrate the importance of making sure that planning issues are considered fully and negotiations concluded at an early stage in any development.”
Tax and Foreign Travel
This month, two issues relating to foreign travel have arisen which are relevant for taxpayers.
Firstly, HM Revenue and Customs (HMRC) have advised that taxpayers who expect to have problems paying tax on time as a result of the volcanic ash cloud should contact them as soon as possible, rather than wait until the payment is overdue.
Secondly, now that the Foreign and Commonwealth Office has stopped publishing guideline expenses rates for accommodation and subsistence in various foreign countries, HMRC have launched a review of the area with a view to publishing new guidance.
The most recent guideline rates, which can be used for expense claims in the absence of receipts, can continue to be used until the end of the current tax year.
Voucher Warning for Firms
Firms that offer vouchers to employees in exchange for salary sacrifices may face a VAT charge, following a recent opinion of the Advocate General of the European Court of Justice.
It involved AstraZeneca, which had given employees vouchers in exchange for salary sacrifices. The VAT element of the vouchers had been recovered as input VAT, but no payment of output VAT was made when the vouchers were supplied to staff.
The Advocate General decided that the vouchers represented a taxable supply (i.e. the payment for them was the sacrificed salary). This meant that AstraZeneca was liable to pay output VAT on the value of the salary foregone.
If the European Court of Justice follows this opinion, the ruling may well be used by VAT inspectors to make claims going back several years.
Firms using vouchers (or other salary-sacrifice arrangements that involve a potentially taxable supply) to reward staff should consider their options.
Ash Cloud Relief for Non-Residents
HM Revenue and Customs have announced that non-UK resident persons who remain in the UK due to disruption of their travel plans (e.g. by the recurring volcanic ash cloud) and who, as a result, spend more than 90 days in the UK at a time, will not be treated as becoming UK resident for income tax purposes as a result.
However, if the effect is to make the person exceed the annual limit of 183 days, UK residence will be established.
Contact David Wilde, (dw@mitchellwilde.com) for advice on any tax matter.
Company
Bribery Act Becomes Law
Bribery and corruption are rife in many countries. For example, IKEA recently ceased its expansion in Russia because of difficulties in obtaining permissions to build stores without being willing to engage in corrupt practices. In some countries, ‘sweeteners’ for deals are a necessity or near-necessity.
However, UK businesses that engage in bribery to obtain business now face stiff penalties if they are caught. The Bribery Act 2010 received Royal Assent on 8 April 2010. It is an offence under the Act to bribe another person or to allow oneself to be bribed, and specifically it is an offence to bribe foreign public officials. These offences are punishable by an unlimited fine and/or a prison sentence of up to 10 years. The Act also makes failing to prevent bribery an offence punishable by an unlimited fine.
The Act is being introduced in stages during the year and represents a serious risk to business people who use corrupt practices.
If you are concerned by the issues raised by the Bribery Act, contact Paul Mitchell for advice.
Contract Clinches Fee for Ex-Advisers
It is not uncommon for a company to switch financial advisers when it is seeking to do a deal, but doing so without a full appreciation of the implications of the contract with the financial advisers who have been show
October 2011
Director Pays Price for Private Arrangement with Customer
The law relating to the fiduciary duties of directors is stricter than many company directors might think, as a recent case illustrates.
The director of a company was given the loan of a second-hand excavator and dumper for his personal use, by a customer of the company, from 2003 until 2008. The equipment was used by him in renovating a house he owned. The director considered it to be a private arrangement of negligible value to him, but the company took the view that he had received the loan as a result of his being a director of the company and that he should therefore account to it for the value received. He left the company’s employment before the case came to court.
The court ordered him to pay the sum of £5,200 plus interest to his former company. He appealed.
The Court of Appeal ruled that, on the facts of the case, the director’s duties of strict loyalty to the company and avoidance of potential conflicts of interest were breached. The fact that the company had neither availed itself of the opportunity nor suffered any loss as a result of the arrangement was not relevant.
The duties of directors are set out in detail in the Companies Act 2006. Directors would be well advised to ensure that they are aware of the rights and responsibilities attached to the rôle. Directors are legally bound not to accept benefits from third parties that arise from their position as a director.
It is also worth pointing out that a person who receives a benefit from a third party by virtue of their employment normally receives a taxable benefit in kind, which must be declared to HM Revenue and Customs on form P11 or P11D so that any tax due can be assessed. A penalty of up to £3,000 may be levied for an incorrectly submitted declaration.
We can advise directors and companies on the applicable law if there are any circumstances in which a breach of a director’s duty has happened or could happen.
General
Late Legal Representation Proves Expensive
The director of a company who decided to defend his company himself against a copyright infringement claim has found that failing to take legal advice early on in the proceedings has cost the company dear.
The company had reproduced more than 100 articles from a commercial vendor of such material on its own website, representing the content as having been written by people connected with the company.
When the material was spotted by the company that owns the copyright, the director claimed that his company had no liability to it because he had permission from others (not the copyright owner) to republish the material. However, the businesses named had no legal right to permit republication.
Under copyright law, if permission had been given incorrectly, the position would be that the other businesses could be ‘joined in the action’ for facilitating the breach of copyright or the infringing company could have the right to reclaim its damages payable from them. That would enable the infringing company not to lose out from an honest mistake. The argument advanced is not a defence, however: no one can assign a right they do not have.
The director of the company continued to deny liability and offered £500 in settlement of the claim. After he declined the claimant’s request for mediation, the dispute dragged on for nearly a year and he only obtained professional legal advice after the case was about to be listed for a court hearing. Once solicitors had been engaged, it was only a matter of weeks before an offer was made to settle the dispute out of court by payment of damages of £5,000.
However, when it came to the assessment of legal costs, it was a different matter altogether. Because of the protracted nature of the proceedings, the claimant’s legal costs, which it had been agreed would be paid by the infringing company, were more than double the amount of the damages. In addition, the man’s company had to pay its own legal costs.
This case shows how important it is to obtain legal representation early when a dispute arises. Failing to understand the applicable law can mean the wrong principles are applied and attempts to resolve the dispute will founder. In this case, the total payable by the company was approximately three times the sum that it would have cost to settle the matter out of court at an early stage.
Pensions Auto-Enrolment Clock Ticking, but Businesses Unprepared
The introduction of legislation requiring all employers, regardless of size, to enrol most of their workforce into a pension scheme is little more than a year away but, according to accountants RSM Tenon, many businesses in the UK have not yet begun to plan for the changes.
Auto-enrolment is being phased in between October 2012 and October 2016, depending on the size of the company. Employers will be required to pay into a pension scheme at least 3 per cent of the qualifying earnings for each eligible worker aged between 22 and the state retirement pension age who is earning more than about £100 per week and who ordinarily works in the UK, unless the worker has chosen to opt out of the scheme.
In addition, workers who are not eligible for auto-enrolment, because their earnings are below the threshold or because they are aged between 16 and 22, will have the right to opt in to the chosen scheme. The scheme will either be an existing company pension, or a centrally administered National Employment Savings Trust (NEST).
Further guidance can be found on the Pensions Regulator website at http://www.thepensionsregulator.gov.uk
Property
OFT Guidance on Consumer Law Compliance for Estate Agents and Developers
The Office of Fair Trading has published for consultation draft guidance for estate agents which is aimed at helping them comply with consumer protection law. The guidance, which will also affect those developers who market their own residential developments, provides a number of examples of potential mis-descriptions that could lead to breaches of the law.
These are more subtle than just obvious issues, such as the non-disclosure of known defects, and include such activities as misusing the phrase ‘new instructions’ or offering misleading market price recommendations based on market conditions.
There are a series of practical steps outlined that can be taken to ensure compliance with the legislation.
The draft guidelines can be downloaded at www.oft.gov.uk/OFTwork/consultations/current/estate-agents/. The consultation closes on 9 December 2011.
Service Charge Accounts – What Can You Do?
It is common for service charges to be paid ‘on account’ of the annual cost, based on estimates, and a final account to be made up some time after the year end, based on the actual costs incurred. However, not all landlords are diligent about preparing the final service charge accounts.
In a recent case, a tenant became frustrated with the landlord’s delay after the 2007 and 2008 service charge accounts had not been prepared as of June 2009. The tenant went to the Upper Tribunal to ascertain what action it could take to rectify the position. The Tribunal ruled that the landlord did have an implied obligation to calculate the service charges within a reasonable period. However, the rights of the tenant were limited to either obtaining an order for the accounts to be prepared or applying to the Leasehold Valuation Tribunal to set a service charge if the service charge accounts were unreasonably delayed.
It can be concerning and frustrating if a landlord fails in its obligation to produce service charge accounts. Applying to the Tribunal to set them may be a good strategy, although normally just the threat of doing so will prod the landlord into action.
Contact Louise Madeley at lm@mitchellwilde.com for advice on any landlord or tenant matter.
Temporary Nuisance Defeats Application to Vary ‘No Build’ Covenant
When a developer carries out a development under a building scheme, it is normal for restrictive covenants to be created which affect the properties in the scheme. Under a building scheme, each property derives its title from a single vendor. The vendor’s intention must be that any restrictive covenants are imposed for the benefit of all the properties in the scheme of development and, where appropriate, any individual property owner will have the right to enforce such a covenant. Where there is no building scheme, the rights and obligations attaching to each property are individually determined.
In a recent case, these points were important when deciding which of a group of objectors could seek to enforce a covenant restricting development of a plot of land.
The developer that owned the plot wanted to build a second property on it. However, the plot was burdened by a restrictive covenant that it should not have more than one dwelling built on it, so the developer sought an order to vary the covenant. The plot concerned was unusually large and could accommodate a second property. 47 neighbours objected, however. The developer argued that the covenant impeded the ‘reasonable use’ of the property and that modifying it would not cause a detriment to the people who benefited from the covenant.
The objectors argued that there was a building scheme in place and thus the restrictive covenant on the plot was capable of being enforced by any of them. However, the Tribunal concluded that 19 of the objectors were not part of the building scheme and thus could not seek to enforce the covenant. The 28 remaining objectors pressed on.
The Tribunal considered that the construction of a second dwelling on the plot would not damage the amenity of the area or its aesthetic value. However, the construction of the second property would cause some loss of visual amenity for some other property owners and they therefore would secure a practical benefit by enforcing the restrictive covenant.
However, the telling ruling was made with regard to the objectors’ claim that disruption and nuisance would be caused by the building work because of access issues and the geography of the connecting roads. The developer argued that any disruption would be temporary and not significant. The Tribunal disagreed, concluding that the disturbance to the neighbours would be exceptional and significant. The application to vary the covenant was therefore refused.
Although an appeal against this decision is likely, this case illustrates that an application to vary a covenant can face significant challenges. In many cases, objections may be able to be dealt with by the payment of compensation or other means.
We can advise you on all aspects of planning law.
Tax
Salary Sacrifice – VAT Changes
HM Revenue and Customs (HMRC) have announced that, from 1 January 2012, supplies made by employers under salary sacrifice schemes (schemes whereby an employee accepts a lower salary in return for receiving certain benefits) will be treated as taxable supplies made by the employer and that output VAT will have to be accounted for as appropriate.
The revision follows a recent decision of the European Court of Justice that retail vouchers supplied to employees under a salary sacrifice scheme were taxable supplies. HMRC have indicated that they will regard all such supplies (not just retail vouchers) as taxable at the appropriate rate of VAT.
Businesses using such schemes are advised to consider the impact that the change in practice will have on them.
Capital Allowances Reminder
31 December is a common year-end for many companies and, with that in mind, companies are reminded that to qualify for Annual Investment Allowance (AIA) relief, expenditure on qualifying assets should be made in the financial year ending in the 2011/2012 fiscal year (i.e. in the financial year that ends during the period 1 April 2011 to 31 March 2012). AIA relief is normally available at 100 per cent of the appropriate expenditure.
This will be important if the investment in qualifying assets will exceed £25,000 as the limit for AIA relief is being reduced from £100,000 to £25,000 from 1 April 2012 (6 April 2012 for unincorporated businesses).
AIA relief is available on:
• tools and equipment;
• computers and computerised equipment and software;
• office equipment and furniture;
• vans for business purposes; and
• certain expenditure on buildings.
Company
Investment Partners Entitled to View Documents
Is an investor in a co-investment venture that is owned and managed by connected companies entitled to find out what has happened to its money beyond what is reported to it? This question was raised in a recent case in the High Court.
The case concerned an investment partnership, Colyzeo Investors II LP, a limited partnership in English law which was set up to co-invest with Colony Capital LLC and its affiliates. A complicated arrangement of partnerships and companies was established in order to manage the investments – real estate and related assets, and ventures in Europe.
Such a structure is not unusual for this type of investment and the status of the individual investors was that of limited partner, with the overall management being assumed by a general partner, whose liabilities were unlimited. In this case, the general partner was Colyzeo Capital II LLP, a limited liability partnership in English law.
Spanish company Inversiones Frieira SL was the largest investor in the partnership and, with its smaller sister company, handed over some €100 million out of a total of €854 million committed by investors. Unfortunately, as a consequence of major investments in two projects proving unsuccessful, including one involving French supermarket giant Carrefour, the venture lost about half of its investment funds.
Following these losses, in July 2009 Inversiones requested access to documents relating to the failed investments. This request was granted over the following months, with more and more detailed information being sought until, in March 2010, the company was told that it only had access rights to the financial records and books of the partnership.
The High Court held that this view was wrong. The investors were legal partners in the venture who had put capital at risk in the business. As such, any partners, limited or not, had a right to disclosure by the co-partner of all matters relating to the partnership dealings and transactions.
It was also argued that Inversiones only wanted access to detailed investment documents in order to mount litigation against Colyzeo Investors. The judge held, however, that because Inversiones had a statutory right to inspect the documents, its motive for so doing was irrelevant.
“A limited partner in an investment partnership or any other partnership venture is entitled to full access to information regarding the partnership’s investments,” says David Wilde. “Anyone who is unsure about such rights should seek professional advice.”
Open Dealing Means No Breach of Duty
Following the case referred to above, in which a director was found to be in breach of his obligations to his company for accepting the loan of a digger, comes another in which the actions of a director have been challenged – but with a different result.
The case involved popular Dragon’s Den judge Theo Paphitis, who was a director of the Ryman Group when it was offered another business that was in the same line of business as one of the Ryman Group companies. The board of Ryman declined to buy the business, and Mr Paphitis went ahead and acquired it using a company set up for the purpose. Ryman provided much of the funding and other assistance – on an arm’s-length basis – for the new company.
The company was later sold for a massive profit. The issue brought before the court was that the original board meeting at which Ryman declined to purchase the business was invalid because the appropriate notices had not been given. A later, validly called, board meeting approved the arrangement regarding Mr Paphitis’s acquisition of the company.
One of the shareholders considered that Mr Paphitis had diverted a valuable acquisition away from Ryman and sought the leave of the court to sue on behalf of the shareholders.
The court refused. Mr Justice Newey said, “In the present case, there is a strong case for saying that the ‘no conflict’ and ‘no profit’ rules were both potentially engaged.” However, “the chances of the claims succeeding are significantly less than evens.”
There was nothing to suggest that the decision of the board had been anything other than entirely open and Ryman’s decision not to acquire the other company itself was properly made. In particular, advice was taken by Ryman concerning the potential acquisition and the company’s independent review procedures had been engaged, leading to the conclusion that the acquisition was not one the company should make.
Where directors get involved in ‘outside’ business deals, it is important to ensure that a breach of fiduciary duty does not occur. It is essential to be open in one’s disclosures to the board and to retain evidence that such actions are known about and approved.
For advice on your duties as a director, contact David Wilde at dw@mitchellwilde.com
Contract
The Truth, The Whole Truth
The importance of making full disclosure of relevant facts when negotiating is hard to over-emphasise, as a recent case shows.
The case arose when a company made an agreement to sell a subsidiary to another company. As is normally the case when a business is offered for sale, a pre-sale memorandum was prepared, outlining key information about the company being sold, and this was circulated to potential buyers.
Those companies interested in the preliminary information were shown more detailed information, including sales forecasts and the like. As a result of this exercise, a deal was put in place and the company was sold to another firm. The day after the sale was concluded, the company’s second largest customer – which accounted for more than a third of its sales – informed the new owner that they would be terminating their business relationship with the company. They had told the managing director of the company of the decision six weeks before the sale was concluded, but he had not passed the information on to the buyer.
The buyer claimed that it had been persuaded to buy the company on the basis of fraudulent misrepresentation and the contract for the purchase should therefore be rescinded.
To succeed in its claim, the buyer had to show that a misrepresentation (a false statement) was made on which it relied and which induced it to undertake the contract to purchase the company. The High Court was satisfied that the information given, especially the sales projections, was not supplied in good faith when the vendor became aware that the forecasts provided were no longer correct.
It was particularly in point that the vendor had refused the buyer’s request that it be allowed to meet with the company’s major customers and there was evidence that the relationship with the customer that terminated its dealings with the vendor had ‘cooled’ in recent years. The vendor had also not permitted (until the day before the sale) the purchaser to inform customers that it was buying the business.
The Court concluded that the buyer was entitled to rescind the contract and to damages for any consequential loss it had suffered.
Jockey’s Attempt to Breach Covenant Falls at Second Fence
A covenant can either represent a commitment to do something or a commitment not to do something. In either case, the party faced with a breach of the covenant has a range of options available to them for obtaining a legal remedy, one of which is to obtain a court injunction to prevent the breach.
In a recent case, a jockey who had an agreement with a racehorse owner that he would not consent to ride another owner’s horse in a race in which he had already been booked to ride one of the owner’s horses was faced with an injunction to prevent a breach of contract.
The jockey was booked to ride one of the owner’s horses in the Derby. Five days before the race, however, he sent a text message to the owner indicating that he would not after all be riding the horse in that race. He had in fact agreed to ride another horse. The owner sought an injunction to prevent him breaking the restrictive covenant.
The lower court refused to prevent the jockey from riding the horse of his choice, despite the fact that it left the owner seeking a replacement jockey at the last minute. The decision was made largely on public interest grounds, the judge believing that damages would be sufficient compensation for the racehorse owner. The owner appealed and the Court of Appeal overturned the decision and granted the injunction. Because of the clear breach of the covenant, it was necessary in law for the jockey to prove that special circumstances existed to justify not enforcing it. The Court concluded that in this case there were no special circumstances that would justify the withholding of the requested injunction.
The circumstances in this case were clearly unusual. It involved a well-known sportsman and one of the classic Flat races. However, it clearly demonstrates the principle that the use of a well-worded restraint of trade clause and its timely application can be an effective protection.
As it happens, neither horse won!
Your Email May Create a Contract
Emails are often not thought of as having ‘weight’, in the sense of creating contractual relations, but a recent case shows how unwise it is to be less than careful about what you put in your email correspondence.
Two sisters, who were communicating with one another on a ‘first-name only’ basis, were considered by the court to be capable of creating a contract by the exchange of emails. In the case in point, no contract was created because the correspondence was in relation to property and did not refer to all the terms and conditions of the proposed contract and the exchange, which is a specific requirement for contracts over land. Had the correspondence been in relation to a non-property transaction, however, a contract would have been created.
For advice on any contractual matter, contact Paul Mitchell on pm@mitchellwilde.com
Intellectual Property
Clippings Service Breached Copyright, Rules Court of Appeal
Do you use a ‘clippings’ service and then republish the clippings, or make use of material created by others on your website?
If so, make sure you have the appropriate permission to use the material.
A recent case dealt with an appeal against a decision that a business which provided clippings as part of a PR service to other businesses had breached copyright law because those making use of its service did not have permission to use the material. The service operated a ‘spider’, which looked for terms or groups of words specified by its clients. The system then provided the client with a newsletter containing the headline and the opening words of the article with a link to the relevant article. It did not reproduce in full the articles published by the claimants.
The claimants, members of a newspaper group, argued that the service provider was in breach of its ‘web database agreement’ (WDA) because it supplied the information to firms which themselves did not have a WDA or a ‘web end-user licence’.
The Court of Appeal ruled that the company’s activities did infringe the copyright of the claimants and accepted the judge’s initial ruling that a string of as few as 11 words could constitute an infringement of copyright.
This case has implications for any business which makes use of or enables others to make use of material which is the copyright of another.
For advice on your rights and responsibilities under the law of copyright, contact us.
Patent Law Warning For Traders in US Markets
In a bid to do away with patent disputes over who was the first creator of an invention, the US Government has now passed into law a ‘first filing’ rule for granting patent protection.
The rule means that as far as US patent protection goes, it will be the first party to file the patent, rather than the first to invent a process, that will be granted the patent.
The rule could spell trouble for small firms that may lack the resources to patent their inventions in the US, leaving the door open for bigger companies to register the patent in what is still the world’s largest market.
Under the new law, a fast-track patent process has been created, which will allow start-ups to have patents reviewed in 12 months, not the usual three years, and the new system will, it is claimed, help the US Patent Office to deal with a backlog of nearly 750,000 patent applications.
Not New, Not Individual Means Not Protected
Patents and registered designs give their owners protection from infringement of their intellectual property. However, one essential for both is that in order to be registered they must be new, not something which is already public knowledge.
In the case of a design, it must also have ‘individual character’.
In a recent case involving a lanyard watch, a registration application was defeated on both the ground that it lacked individual character and that the design was pre-existing on the basis of evidence presented to the court.
For advice on protecting your intellectual property, contact David Wilde on dw@mitchellwilde.com
Insolvency
Case Shows Difficulty of Removing an Administrator
If a creditor of an insolvent business believes that their position could be improved by the administrator of the business taking legal action, but the administrator refuses to do so, relations between the administrator and the parties affected by the inaction are likely to be strained.
In a recent case, this is exactly what happened and, because the administrator had decided not to take proceedings, creditors sought to have him removed and replaced by another. The Insolvency Act 1986 permits this where there is ‘good or sufficient reason’ for doing so. This does not necessarily mean that the administrator is unfit to act or is guilty of misconduct, but can be because the removal of the administrator is in the interests of the majority of the creditors.
In the case in point, the purpose of the proposed legal action was to reduce the creditors’ liability under personal guarantees.
An initial application to remove the administrator was refused and an appeal was made to the Court of Appeal. The Court ruled that if the administrator was unbiased and had reached a decision based on the material before him, then the fact that a different administrator might reach a different conclusion might be a reason to challenge the decision, but not to remove the administrator altogether.
The courts are reluctant to overturn decisions when a professional person has been shown to act impartially and has taken a decision which is within the range of reasonable decisions open to them based on the information available.
The essential lesson to be learned from this case is that the time to make arguments of this nature is early on in the process. Persuading the administrator to take action is more likely to be successful than a subsequent legal challenge after the administrator has decided not to do so.
If you are faced with your interests being affected by the insolvency of another party, we may be able to assist you in negotiations with the insolvency practitioner responsible. Contact Paul Mitchell at pm@mitchellwilde.com
Data Protection
ICO Issues Warning to Online Retailers
Following a finding that more than 5,000 users of an online retailer’s website have had their credit card details compromised by hackers, the Information Commissioner’s Office (ICO) has issued a warning to e-commerce websites that they risk substantial fines if they fail to follow best practice with regard to data security.
The ICO criticised the company’s data security systems, the adequacy of its procedures for recording suspicious activity and its failure to carry out regular security checks.
The ICO has the power to levy fines of up to £500,000 for breaches of the Data Protection Act 1998 and serious breaches normally result in heavy fines.
We can advise you on your legal obligations with regard to data protection – contact David Wilde at dw@mitchellwilde.com
Licensing
Proposal to Scrap Some Events Licences
The Department for Culture, Media and Sport (DCMS) has issued a consultation seeking views on the removal in some circumstances of the requirement for a licence in England and Wales for events such as the performance of plays, live and recorded music, films, indoor sporting events and dance performances.
The Government is of the view that the current system is too onerous, imposing a licensing requirement for many events where there is little or no risk of trouble – for example school plays, brass bands playing in public parks and even Punch and Judy shows. Under the proposals, there would no longer be a need to obtain a licence for most events with an audience of fewer than 5,000 people.
The consultation looks at all currently licensable activities and asks for views on what would happen if the activity no longer required a licence. Where there is no good reason to continue with the existing regime, the Government will look to abolish it.
The Government is seeking the views of those working in the industry to ensure that any changes do not adversely affect the prevention of public nuisance, the protection of children from harm and the maintenance of public safety. Ministers have confirmed, however, that there will be no relaxation of the rules controlling gatherings of more than 5,000 people, nor do the proposals extend to boxing and wrestling events or those classed as sexual entertainment.
The consultation can be found at www.culture.gov.uk/images/consultations/consultation_deregulation-scheduleone_2011_vs2.pdf. The closing date for responses is 3 December 2011.
Contact Paul Mitchell at pm@mitchellwilde.com for advice on any licensing issue.
Employment
Redundancy – Suitable Alternative Employment
Under the Employment Rights Act 1996, an employee who is dismissed by reason of redundancy will not be entitled to statutory redundancy pay if he or she unreasonably refuses the employer’s offer of suitable alternative employment.
In Bird v Stoke-on-Trent Primary Care Trust, Ms Bird, a physiotherapist by profession, had refused the Trust’s offers of alternative employment after her job disappeared following a restructuring exercise. The Trust declined to pay her any redundancy monies on the ground that she had unreasonably refused offers of suitable alternative posts. Even though her old job was essentially a managerial position whereas the posts being offered were essentially clinical in nature, the Employment Tribunal (ET) decided that one of the jobs was suitable and that Ms Bird had unreasonably refused the offer.
The Employment Appeal Tribunal overturned the ET’s decision and, in so doing, gave useful guidance on the approach the ET should take when determining the issues of suitability and reasonableness in such circumstances.
In deciding whether an offer of a new job is or is not suitable alternative employment, the ET must make an objective assessment of the employment offer. The question is not whether the employment is suitable in relation to that sort of employee, but whether it is suitable in relation to that particular employee. Does the job match the person? Does it suit his or her skills, aptitudes and experience? It is important to consider the job as a whole – not only the tasks to be performed but also the terms of employment, especially remuneration and hours, and the level of responsibility and status involved. Location may also be a factor. The fact that the job being offered is different from the employee’s existing rôle does not necessarily mean that it is unsuitable for that employee, but the more different it is, the more difficult it may be for the employer to show that the job is suitable for the employee.
The test of whether or not an employee’s refusal of suitable alternative employment is reasonable is a subjective test. The question is not whether a reasonable employee would have accepted the employer’s offer, but whether that particular employee, taking into account his or her personal circumstances, was being reasonable in refusing the offer. Whether or not an employee had sound and justifiable reasons for refusing the offer has to be judged from the employee’s point of view, on the basis of the facts as they appeared, or ought to have appeared, to that employee at the time the offer was refused.
In this case, the ET had failed to take into account relevant features of the evidence when determining that Ms Bird had been offered suitable alternative employment and had substituted its own views on the reasonableness of her action instead of considering whether someone in her particular circumstances could reasonably have taken the view of the alternative post that she did.
The case was remitted for rehearing by a fresh ET.
In such circumstances, employers are advised to keep a contemporaneous record of reasons for their decisions as this may prove invaluable in helping to justify them in the event of a later claim.
If you are contemplating making staff redundant, we can advise you to ensure that the appropriate arrangements are put in place.
ACAS Issues Guidance on Social Networking
The Advisory, Conciliation and Arbitration Service has issued several factsheets offering practical tips for employers on how to manage the impact of the use of social networking tools at work. These cover:
• managing performance;
• recruitment;
• discipline and grievances;
• bullying; and
• defamation, data protection and privacy.
There are also useful tips on how to develop a social networking policy.
The guidance can be found at www.acas.org.uk/index.aspx?articleid=3375.
Health and Safety
Storage Company Charged With Corporate Manslaughter
Under the Corporate Manslaughter and Corporate Homicide Act 2007, an organisation is guilty of the offence of corporate manslaughter (corporate culpable homicide in Scotland) if the way in which it manages or organises its activities causes a death and amounts to a gross breach of a relevant duty of care to the deceased. A substantial part of the breach must have been in the way activities were managed by the senior management of the organisation.
To date, there has only been one conviction under the Act and that involved a small company with fewer than five employees.
A second company, Lion Steel Equipment Ltd., which manufactures storage products and has more than 100 employees, has now been charged with corporate manslaughter and health and safety offences following the death, in May 2008, of one of its employees as a result of falling through a plastic roof at an industrial unit in Hyde, Greater Manchester.
In addition, three of the company directors have been charged with gross negligence manslaughter, as well as failing to ensure the safety at work of their employees under Section 37 of the Health and Safety at Work etc. Act 1974.
It is anticipated that this case will provide clarification on the operation of the legislation and, if a conviction occurs, guidance on the likely level of fines in such cases.
Successful defences to charges of corporate manslaughter will inevitably depend on being able to prove that the organisation takes a responsible attitude to health and safety, with appropriate risk management procedures in place that are enforced rigorously.
Contact Paul Mitchell at pm@mitchellwilde.com for advice on any health and safety law matter.
This newsletter is intended to keep our clients and other subscribers aware of recent changes in the law. Please remember that the outcome of any court case may depend on its particular facts, and this newsletter is not a substitute for legal advice. We do not accept any liability for any action that you may take in reliance on the contents of this newsletter.
October 2011
Director Pays Price for Private Arrangement with Customer
The law relating to the fiduciary duties of directors is stricter than many company directors might think, as a recent case illustrates.
The director of a company was given the loan of a second-hand excavator and dumper for his personal use, by a customer of the company, from 2003 until 2008. The equipment was used by him in renovating a house he owned. The director considered it to be a private arrangement of negligible value to him, but the company took the view that he had received the loan as a result of his being a director of the company and that he should therefore account to it for the value received. He left the company’s employment before the case came to court.
The court ordered him to pay the sum of £5,200 plus interest to his former company. He appealed.
The Court of Appeal ruled that, on the facts of the case, the director’s duties of strict loyalty to the company and avoidance of potential conflicts of interest were breached. The fact that the company had neither availed itself of the opportunity nor suffered any loss as a result of the arrangement was not relevant.
The duties of directors are set out in detail in the Companies Act 2006. Directors would be well advised to ensure that they are aware of the rights and responsibilities attached to the rôle. Directors are legally bound not to accept benefits from third parties that arise from their position as a director.
It is also worth pointing out that a person who receives a benefit from a third party by virtue of their employment normally receives a taxable benefit in kind, which must be declared to HM Revenue and Customs on form P11 or P11D so that any tax due can be assessed. A penalty of up to £3,000 may be levied for an incorrectly submitted declaration.
We can advise directors and companies on the applicable law if there are any circumstances in which a breach of a director’s duty has happened or could happen.
General
Late Legal Representation Proves Expensive
The director of a company who decided to defend his company himself against a copyright infringement claim has found that failing to take legal advice early on in the proceedings has cost the company dear.
The company had reproduced more than 100 articles from a commercial vendor of such material on its own website, representing the content as having been written by people connected with the company.
When the material was spotted by the company that owns the copyright, the director claimed that his company had no liability to it because he had permission from others (not the copyright owner) to republish the material. However, the businesses named had no legal right to permit republication.
Under copyright law, if permission had been given incorrectly, the position would be that the other businesses could be ‘joined in the action’ for facilitating the breach of copyright or the infringing company could have the right to reclaim its damages payable from them. That would enable the infringing company not to lose out from an honest mistake. The argument advanced is not a defence, however: no one can assign a right they do not have.
The director of the company continued to deny liability and offered £500 in settlement of the claim. After he declined the claimant’s request for mediation, the dispute dragged on for nearly a year and he only obtained professional legal advice after the case was about to be listed for a court hearing. Once solicitors had been engaged, it was only a matter of weeks before an offer was made to settle the dispute out of court by payment of damages of £5,000.
However, when it came to the assessment of legal costs, it was a different matter altogether. Because of the protracted nature of the proceedings, the claimant’s legal costs, which it had been agreed would be paid by the infringing company, were more than double the amount of the damages. In addition, the man’s company had to pay its own legal costs.
This case shows how important it is to obtain legal representation early when a dispute arises. Failing to understand the applicable law can mean the wrong principles are applied and attempts to resolve the dispute will founder. In this case, the total payable by the company was approximately three times the sum that it would have cost to settle the matter out of court at an early stage.
Pensions Auto-Enrolment Clock Ticking, but Businesses Unprepared
The introduction of legislation requiring all employers, regardless of size, to enrol most of their workforce into a pension scheme is little more than a year away but, according to accountants RSM Tenon, many businesses in the UK have not yet begun to plan for the changes.
Auto-enrolment is being phased in between October 2012 and October 2016, depending on the size of the company. Employers will be required to pay into a pension scheme at least 3 per cent of the qualifying earnings for each eligible worker aged between 22 and the state retirement pension age who is earning more than about £100 per week and who ordinarily works in the UK, unless the worker has chosen to opt out of the scheme.
In addition, workers who are not eligible for auto-enrolment, because their earnings are below the threshold or because they are aged between 16 and 22, will have the right to opt in to the chosen scheme. The scheme will either be an existing company pension, or a centrally administered National Employment Savings Trust (NEST).
Further guidance can be found on the Pensions Regulator website at http://www.thepensionsregulator.gov.uk
Property
OFT Guidance on Consumer Law Compliance for Estate Agents and Developers
The Office of Fair Trading has published for consultation draft guidance for estate agents which is aimed at helping them comply with consumer protection law. The guidance, which will also affect those developers who market their own residential developments, provides a number of examples of potential mis-descriptions that could lead to breaches of the law.
These are more subtle than just obvious issues, such as the non-disclosure of known defects, and include such activities as misusing the phrase ‘new instructions’ or offering misleading market price recommendations based on market conditions.
There are a series of practical steps outlined that can be taken to ensure compliance with the legislation.
The draft guidelines can be downloaded at www.oft.gov.uk/OFTwork/consultations/current/estate-agents/. The consultation closes on 9 December 2011.
Service Charge Accounts – What Can You Do?
It is common for service charges to be paid ‘on account’ of the annual cost, based on estimates, and a final account to be made up some time after the year end, based on the actual costs incurred. However, not all landlords are diligent about preparing the final service charge accounts.
In a recent case, a tenant became frustrated with the landlord’s delay after the 2007 and 2008 service charge accounts had not been prepared as of June 2009. The tenant went to the Upper Tribunal to ascertain what action it could take to rectify the position. The Tribunal ruled that the landlord did have an implied obligation to calculate the service charges within a reasonable period. However, the rights of the tenant were limited to either obtaining an order for the accounts to be prepared or applying to the Leasehold Valuation Tribunal to set a service charge if the service charge accounts were unreasonably delayed.
It can be concerning and frustrating if a landlord fails in its obligation to produce service charge accounts. Applying to the Tribunal to set them may be a good strategy, although normally just the threat of doing so will prod the landlord into action.
Contact Louise Madeley at lm@mitchellwilde.com for advice on any landlord or tenant matter.
Temporary Nuisance Defeats Application to Vary ‘No Build’ Covenant
When a developer carries out a development under a building scheme, it is normal for restrictive covenants to be created which affect the properties in the scheme. Under a building scheme, each property derives its title from a single vendor. The vendor’s intention must be that any restrictive covenants are imposed for the benefit of all the properties in the scheme of development and, where appropriate, any individual property owner will have the right to enforce such a covenant. Where there is no building scheme, the rights and obligations attaching to each property are individually determined.
In a recent case, these points were important when deciding which of a group of objectors could seek to enforce a covenant restricting development of a plot of land.
The developer that owned the plot wanted to build a second property on it. However, the plot was burdened by a restrictive covenant that it should not have more than one dwelling built on it, so the developer sought an order to vary the covenant. The plot concerned was unusually large and could accommodate a second property. 47 neighbours objected, however. The developer argued that the covenant impeded the ‘reasonable use’ of the property and that modifying it would not cause a detriment to the people who benefited from the covenant.
The objectors argued that there was a building scheme in place and thus the restrictive covenant on the plot was capable of being enforced by any of them. However, the Tribunal concluded that 19 of the objectors were not part of the building scheme and thus could not seek to enforce the covenant. The 28 remaining objectors pressed on.
The Tribunal considered that the construction of a second dwelling on the plot would not damage the amenity of the area or its aesthetic value. However, the construction of the second property would cause some loss of visual amenity for some other property owners and they therefore would secure a practical benefit by enforcing the restrictive covenant.
However, the telling ruling was made with regard to the objectors’ claim that disruption and nuisance would be caused by the building work because of access issues and the geography of the connecting roads. The developer argued that any disruption would be temporary and not significant. The Tribunal disagreed, concluding that the disturbance to the neighbours would be exceptional and significant. The application to vary the covenant was therefore refused.
Although an appeal against this decision is likely, this case illustrates that an application to vary a covenant can face significant challenges. In many cases, objections may be able to be dealt with by the payment of compensation or other means.
We can advise you on all aspects of planning law.
Tax
Salary Sacrifice – VAT Changes
HM Revenue and Customs (HMRC) have announced that, from 1 January 2012, supplies made by employers under salary sacrifice schemes (schemes whereby an employee accepts a lower salary in return for receiving certain benefits) will be treated as taxable supplies made by the employer and that output VAT will have to be accounted for as appropriate.
The revision follows a recent decision of the European Court of Justice that retail vouchers supplied to employees under a salary sacrifice scheme were taxable supplies. HMRC have indicated that they will regard all such supplies (not just retail vouchers) as taxable at the appropriate rate of VAT.
Businesses using such schemes are advised to consider the impact that the change in practice will have on them.
Capital Allowances Reminder
31 December is a common year-end for many companies and, with that in mind, companies are reminded that to qualify for Annual Investment Allowance (AIA) relief, expenditure on qualifying assets should be made in the financial year ending in the 2011/2012 fiscal year (i.e. in the financial year that ends during the period 1 April 2011 to 31 March 2012). AIA relief is normally available at 100 per cent of the appropriate expenditure.
This will be important if the investment in qualifying assets will exceed £25,000 as the limit for AIA relief is being reduced from £100,000 to £25,000 from 1 April 2012 (6 April 2012 for unincorporated businesses).
AIA relief is available on:
• tools and equipment;
• computers and computerised equipment and software;
• office equipment and furniture;
• vans for business purposes; and
• certain expenditure on buildings.
Company
Investment Partners Entitled to View Documents
Is an investor in a co-investment venture that is owned and managed by connected companies entitled to find out what has happened to its money beyond what is reported to it? This question was raised in a recent case in the High Court.
The case concerned an investment partnership, Colyzeo Investors II LP, a limited partnership in English law which was set up to co-invest with Colony Capital LLC and its affiliates. A complicated arrangement of partnerships and companies was established in order to manage the investments – real estate and related assets, and ventures in Europe.
Such a structure is not unusual for this type of investment and the status of the individual investors was that of limited partner, with the overall management being assumed by a general partner, whose liabilities were unlimited. In this case, the general partner was Colyzeo Capital II LLP, a limited liability partnership in English law.
Spanish company Inversiones Frieira SL was the largest investor in the partnership and, with its smaller sister company, handed over some €100 million out of a total of €854 million committed by investors. Unfortunately, as a consequence of major investments in two projects proving unsuccessful, including one involving French supermarket giant Carrefour, the venture lost about half of its investment funds.
Following these losses, in July 2009 Inversiones requested access to documents relating to the failed investments. This request was granted over the following months, with more and more detailed information being sought until, in March 2010, the company was told that it only had access rights to the financial records and books of the partnership.
The High Court held that this view was wrong. The investors were legal partners in the venture who had put capital at risk in the business. As such, any partners, limited or not, had a right to disclosure by the co-partner of all matters relating to the partnership dealings and transactions.
It was also argued that Inversiones only wanted access to detailed investment documents in order to mount litigation against Colyzeo Investors. The judge held, however, that because Inversiones had a statutory right to inspect the documents, its motive for so doing was irrelevant.
“A limited partner in an investment partnership or any other partnership venture is entitled to full access to information regarding the partnership’s investments,” says David Wilde. “Anyone who is unsure about such rights should seek professional advice.”
Open Dealing Means No Breach of Duty
Following the case referred to above, in which a director was found to be in breach of his obligations to his company for accepting the loan of a digger, comes another in which the actions of a director have been challenged – but with a different result.
The case involved popular Dragon’s Den judge Theo Paphitis, who was a director of the Ryman Group when it was offered another business that was in the same line of business as one of the Ryman Group companies. The board of Ryman declined to buy the business, and Mr Paphitis went ahead and acquired it using a company set up for the purpose. Ryman provided much of the funding and other assistance – on an arm’s-length basis – for the new company.
The company was later sold for a massive profit. The issue brought before the court was that the original board meeting at which Ryman declined to purchase the business was invalid because the appropriate notices had not been given. A later, validly called, board meeting approved the arrangement regarding Mr Paphitis’s acquisition of the company.
One of the shareholders considered that Mr Paphitis had diverted a valuable acquisition away from Ryman and sought the leave of the court to sue on behalf of the shareholders.
The court refused. Mr Justice Newey said, “In the present case, there is a strong case for saying that the ‘no conflict’ and ‘no profit’ rules were both potentially engaged.” However, “the chances of the claims succeeding are significantly less than evens.”
There was nothing to suggest that the decision of the board had been anything other than entirely open and Ryman’s decision not to acquire the other company itself was properly made. In particular, advice was taken by Ryman concerning the potential acquisition and the company’s independent review procedures had been engaged, leading to the conclusion that the acquisition was not one the company should make.
Where directors get involved in ‘outside’ business deals, it is important to ensure that a breach of fiduciary duty does not occur. It is essential to be open in one’s disclosures to the board and to retain evidence that such actions are known about and approved.
For advice on your duties as a director, contact David Wilde at dw@mitchellwilde.com
Contract
The Truth, The Whole Truth
The importance of making full disclosure of relevant facts when negotiating is hard to over-emphasise, as a recent case shows.
The case arose when a company made an agreement to sell a subsidiary to another company. As is normally the case when a business is offered for sale, a pre-sale memorandum was prepared, outlining key information about the company being sold, and this was circulated to potential buyers.
Those companies interested in the preliminary information were shown more detailed information, including sales forecasts and the like. As a result of this exercise, a deal was put in place and the company was sold to another firm. The day after the sale was concluded, the company’s second largest customer – which accounted for more than a third of its sales – informed the new owner that they would be terminating their business relationship with the company. They had told the managing director of the company of the decision six weeks before the sale was concluded, but he had not passed the information on to the buyer.
The buyer claimed that it had been persuaded to buy the company on the basis of fraudulent misrepresentation and the contract for the purchase should therefore be rescinded.
To succeed in its claim, the buyer had to show that a misrepresentation (a false statement) was made on which it relied and which induced it to undertake the contract to purchase the company. The High Court was satisfied that the information given, especially the sales projections, was not supplied in good faith when the vendor became aware that the forecasts provided were no longer correct.
It was particularly in point that the vendor had refused the buyer’s request that it be allowed to meet with the company’s major customers and there was evidence that the relationship with the customer that terminated its dealings with the vendor had ‘cooled’ in recent years. The vendor had also not permitted (until the day before the sale) the purchaser to inform customers that it was buying the business.
The Court concluded that the buyer was entitled to rescind the contract and to damages for any consequential loss it had suffered.
Jockey’s Attempt to Breach Covenant Falls at Second Fence
A covenant can either represent a commitment to do something or a commitment not to do something. In either case, the party faced with a breach of the covenant has a range of options available to them for obtaining a legal remedy, one of which is to obtain a court injunction to prevent the breach.
In a recent case, a jockey who had an agreement with a racehorse owner that he would not consent to ride another owner’s horse in a race in which he had already been booked to ride one of the owner’s horses was faced with an injunction to prevent a breach of contract.
The jockey was booked to ride one of the owner’s horses in the Derby. Five days before the race, however, he sent a text message to the owner indicating that he would not after all be riding the horse in that race. He had in fact agreed to ride another horse. The owner sought an injunction to prevent him breaking the restrictive covenant.
The lower court refused to prevent the jockey from riding the horse of his choice, despite the fact that it left the owner seeking a replacement jockey at the last minute. The decision was made largely on public interest grounds, the judge believing that damages would be sufficient compensation for the racehorse owner. The owner appealed and the Court of Appeal overturned the decision and granted the injunction. Because of the clear breach of the covenant, it was necessary in law for the jockey to prove that special circumstances existed to justify not enforcing it. The Court concluded that in this case there were no special circumstances that would justify the withholding of the requested injunction.
The circumstances in this case were clearly unusual. It involved a well-known sportsman and one of the classic Flat races. However, it clearly demonstrates the principle that the use of a well-worded restraint of trade clause and its timely application can be an effective protection.
As it happens, neither horse won!
Your Email May Create a Contract
Emails are often not thought of as having ‘weight’, in the sense of creating contractual relations, but a recent case shows how unwise it is to be less than careful about what you put in your email correspondence.
Two sisters, who were communicating with one another on a ‘first-name only’ basis, were considered by the court to be capable of creating a contract by the exchange of emails. In the case in point, no contract was created because the correspondence was in relation to property and did not refer to all the terms and conditions of the proposed contract and the exchange, which is a specific requirement for contracts over land. Had the correspondence been in relation to a non-property transaction, however, a contract would have been created.
For advice on any contractual matter, contact Paul Mitchell on pm@mitchellwilde.com
Intellectual Property
Clippings Service Breached Copyright, Rules Court of Appeal
Do you use a ‘clippings’ service and then republish the clippings, or make use of material created by others on your website?
If so, make sure you have the appropriate permission to use the material.
A recent case dealt with an appeal against a decision that a business which provided clippings as part of a PR service to other businesses had breached copyright law because those making use of its service did not have permission to use the material. The service operated a ‘spider’, which looked for terms or groups of words specified by its clients. The system then provided the client with a newsletter containing the headline and the opening words of the article with a link to the relevant article. It did not reproduce in full the articles published by the claimants.
The claimants, members of a newspaper group, argued that the service provider was in breach of its ‘web database agreement’ (WDA) because it supplied the information to firms which themselves did not have a WDA or a ‘web end-user licence’.
The Court of Appeal ruled that the company’s activities did infringe the copyright of the claimants and accepted the judge’s initial ruling that a string of as few as 11 words could constitute an infringement of copyright.
This case has implications for any business which makes use of or enables others to make use of material which is the copyright of another.
For advice on your rights and responsibilities under the law of copyright, contact us.
Patent Law Warning For Traders in US Markets
In a bid to do away with patent disputes over who was the first creator of an invention, the US Government has now passed into law a ‘first filing’ rule for granting patent protection.
The rule means that as far as US patent protection goes, it will be the first party to file the patent, rather than the first to invent a process, that will be granted the patent.
The rule could spell trouble for small firms that may lack the resources to patent their inventions in the US, leaving the door open for bigger companies to register the patent in what is still the world’s largest market.
Under the new law, a fast-track patent process has been created, which will allow start-ups to have patents reviewed in 12 months, not the usual three years, and the new system will, it is claimed, help the US Patent Office to deal with a backlog of nearly 750,000 patent applications.
Not New, Not Individual Means Not Protected
Patents and registered designs give their owners protection from infringement of their intellectual property. However, one essential for both is that in order to be registered they must be new, not something which is already public knowledge.
In the case of a design, it must also have ‘individual character’.
In a recent case involving a lanyard watch, a registration application was defeated on both the ground that it lacked individual character and that the design was pre-existing on the basis of evidence presented to the court.
For advice on protecting your intellectual property, contact David Wilde on dw@mitchellwilde.com
Insolvency
Case Shows Difficulty of Removing an Administrator
If a creditor of an insolvent business believes that their position could be improved by the administrator of the business taking legal action, but the administrator refuses to do so, relations between the administrator and the parties affected by the inaction are likely to be strained.
In a recent case, this is exactly what happened and, because the administrator had decided not to take proceedings, creditors sought to have him removed and replaced by another. The Insolvency Act 1986 permits this where there is ‘good or sufficient reason’ for doing so. This does not necessarily mean that the administrator is unfit to act or is guilty of misconduct, but can be because the removal of the administrator is in the interests of the majority of the creditors.
In the case in point, the purpose of the proposed legal action was to reduce the creditors’ liability under personal guarantees.
An initial application to remove the administrator was refused and an appeal was made to the Court of Appeal. The Court ruled that if the administrator was unbiased and had reached a decision based on the material before him, then the fact that a different administrator might reach a different conclusion might be a reason to challenge the decision, but not to remove the administrator altogether.
The courts are reluctant to overturn decisions when a professional person has been shown to act impartially and has taken a decision which is within the range of reasonable decisions open to them based on the information available.
The essential lesson to be learned from this case is that the time to make arguments of this nature is early on in the process. Persuading the administrator to take action is more likely to be successful than a subsequent legal challenge after the administrator has decided not to do so.
If you are faced with your interests being affected by the insolvency of another party, we may be able to assist you in negotiations with the insolvency practitioner responsible. Contact Paul Mitchell at pm@mitchellwilde.com
Data Protection
ICO Issues Warning to Online Retailers
Following a finding that more than 5,000 users of an online retailer’s website have had their credit card details compromised by hackers, the Information Commissioner’s Office (ICO) has issued a warning to e-commerce websites that they risk substantial fines if they fail to follow best practice with regard to data security.
The ICO criticised the company’s data security systems, the adequacy of its procedures for recording suspicious activity and its failure to carry out regular security checks.
The ICO has the power to levy fines of up to £500,000 for breaches of the Data Protection Act 1998 and serious breaches normally result in heavy fines.
We can advise you on your legal obligations with regard to data protection – contact David Wilde at dw@mitchellwilde.com
Licensing
Proposal to Scrap Some Events Licences
The Department for Culture, Media and Sport (DCMS) has issued a consultation seeking views on the removal in some circumstances of the requirement for a licence in England and Wales for events such as the performance of plays, live and recorded music, films, indoor sporting events and dance performances.
The Government is of the view that the current system is too onerous, imposing a licensing requirement for many events where there is little or no risk of trouble – for example school plays, brass bands playing in public parks and even Punch and Judy shows. Under the proposals, there would no longer be a need to obtain a licence for most events with an audience of fewer than 5,000 people.
The consultation looks at all currently licensable activities and asks for views on what would happen if the activity no longer required a licence. Where there is no good reason to continue with the existing regime, the Government will look to abolish it.
The Government is seeking the views of those working in the industry to ensure that any changes do not adversely affect the prevention of public nuisance, the protection of children from harm and the maintenance of public safety. Ministers have confirmed, however, that there will be no relaxation of the rules controlling gatherings of more than 5,000 people, nor do the proposals extend to boxing and wrestling events or those classed as sexual entertainment.
The consultation can be found at www.culture.gov.uk/images/consultations/consultation_deregulation-scheduleone_2011_vs2.pdf. The closing date for responses is 3 December 2011.
Contact Paul Mitchell at pm@mitchellwilde.com for advice on any licensing issue.
Employment
Redundancy – Suitable Alternative Employment
Under the Employment Rights Act 1996, an employee who is dismissed by reason of redundancy will not be entitled to statutory redundancy pay if he or she unreasonably refuses the employer’s offer of suitable alternative employment.
In Bird v Stoke-on-Trent Primary Care Trust, Ms Bird, a physiotherapist by profession, had refused the Trust’s offers of alternative employment after her job disappeared following a restructuring exercise. The Trust declined to pay her any redundancy monies on the ground that she had unreasonably refused offers of suitable alternative posts. Even though her old job was essentially a managerial position whereas the posts being offered were essentially clinical in nature, the Employment Tribunal (ET) decided that one of the jobs was suitable and that Ms Bird had unreasonably refused the offer.
The Employment Appeal Tribunal overturned the ET’s decision and, in so doing, gave useful guidance on the approach the ET should take when determining the issues of suitability and reasonableness in such circumstances.
In deciding whether an offer of a new job is or is not suitable alternative employment, the ET must make an objective assessment of the employment offer. The question is not whether the employment is suitable in relation to that sort of employee, but whether it is suitable in relation to that particular employee. Does the job match the person? Does it suit his or her skills, aptitudes and experience? It is important to consider the job as a whole – not only the tasks to be performed but also the terms of employment, especially remuneration and hours, and the level of responsibility and status involved. Location may also be a factor. The fact that the job being offered is different from the employee’s existing rôle does not necessarily mean that it is unsuitable for that employee, but the more different it is, the more difficult it may be for the employer to show that the job is suitable for the employee.
The test of whether or not an employee’s refusal of suitable alternative employment is reasonable is a subjective test. The question is not whether a reasonable employee would have accepted the employer’s offer, but whether that particular employee, taking into account his or her personal circumstances, was being reasonable in refusing the offer. Whether or not an employee had sound and justifiable reasons for refusing the offer has to be judged from the employee’s point of view, on the basis of the facts as they appeared, or ought to have appeared, to that employee at the time the offer was refused.
In this case, the ET had failed to take into account relevant features of the evidence when determining that Ms Bird had been offered suitable alternative employment and had substituted its own views on the reasonableness of her action instead of considering whether someone in her particular circumstances could reasonably have taken the view of the alternative post that she did.
The case was remitted for rehearing by a fresh ET.
In such circumstances, employers are advised to keep a contemporaneous record of reasons for their decisions as this may prove invaluable in helping to justify them in the event of a later claim.
If you are contemplating making staff redundant, we can advise you to ensure that the appropriate arrangements are put in place.
ACAS Issues Guidance on Social Networking
The Advisory, Conciliation and Arbitration Service has issued several factsheets offering practical tips for employers on how to manage the impact of the use of social networking tools at work. These cover:
• managing performance;
• recruitment;
• discipline and grievances;
• bullying; and
• defamation, data protection and privacy.
There are also useful tips on how to develop a social networking policy.
The guidance can be found at www.acas.org.uk/index.aspx?articleid=3375.
Health and Safety
Storage Company Charged With Corporate Manslaughter
Under the Corporate Manslaughter and Corporate Homicide Act 2007, an organisation is guilty of the offence of corporate manslaughter (corporate culpable homicide in Scotland) if the way in which it manages or organises its activities causes a death and amounts to a gross breach of a relevant duty of care to the deceased. A substantial part of the breach must have been in the way activities were managed by the senior management of the organisation.
To date, there has only been one conviction under the Act and that involved a small company with fewer than five employees.
A second company, Lion Steel Equipment Ltd., which manufactures storage products and has more than 100 employees, has now been charged with corporate manslaughter and health and safety offences following the death, in May 2008, of one of its employees as a result of falling through a plastic roof at an industrial unit in Hyde, Greater Manchester.
In addition, three of the company directors have been charged with gross negligence manslaughter, as well as failing to ensure the safety at work of their employees under Section 37 of the Health and Safety at Work etc. Act 1974.
It is anticipated that this case will provide clarification on the operation of the legislation and, if a conviction occurs, guidance on the likely level of fines in such cases.
Successful defences to charges of corporate manslaughter will inevitably depend on being able to prove that the organisation takes a responsible attitude to health and safety, with appropriate risk management procedures in place that are enforced rigorously.
Contact Paul Mitchell at pm@mitchellwilde.com for advice on any health and safety law matter.
Mitchell Wilde LLP Newsletter
November 2011
Equal Treatment for Agency Workers
Employers are reminded that the Agency Workers Regulations 2010 (AWR) came into effect on 1 October 2011. Employers who use agency temporary staff should therefore have procedures in place to comply with the changes.
All agency workers are entitled, from the first day of their assignment, to information on any job vacancies and to make use of collective facilities and amenities available to comparable workers and employees. These may include staff canteens, childcare facilities, transport services (such as local pick-ups and drop-offs and transport between sites – but not company car allowances or season ticket loans), staff common rooms, prayer rooms and car parking.
Employers should ensure that agency workers know how to access information relating to job vacancies and are aware of all relevant facilities. This can be done either by providing details directly to the worker, as part of an induction pack, or by providing them to the employment agency to pass on to the agency worker as part of the information on the assignment.
Once an agency worker has worked in the same job for the same hirer for a period of 12 calendar weeks, they will be entitled to the same basic employment and working conditions as if they had been recruited directly by the employer. Basic employment and working conditions include:
• basic pay;
• duration of working time;
• annual leave;
• night work; and
• rest breaks and rest periods.
The qualifying period is not retrospective: an agency worker only starts to accrue the 12-week qualifying period from 1 October onwards, even if the assignment commenced before the AWR came into force. The first date on which an agency worker can complete the qualifying period is therefore 24 December 2011.
Because the working patterns of agency workers can be irregular, the AWR provide for a number of circumstances in which breaks do not prevent them from completing the 12-week qualifying period. Employers are therefore advised to study the rules for calculating this period in order to avoid errors.
The Department for Business, Innovation & Skills has published detailed guidance on the AWR, which can be found at http://www.bis.gov.uk/assets/biscore/employment-matters/docs/a/11-949-agency-workers-regulations-guidance
For advice on implementing the AWR, please contact Paul Mitchell (pm@mitchellwilde.com).
General
Expertise Critical to Avoid Negligence
A recent case shows the lack of wisdom of undertaking expert work unless you have the necessary expertise.
It is generally accepted that property valuation is an imprecise science. Accordingly, when the accuracy of a valuation is in dispute, the courts have adopted the idea of a ‘bracket’ or range of valuations that are reasonable. Only if the valuation is outside the range of reasonable valuations will the court consider that it is potentially negligent.
In a recent case, a property developer who had made a ‘disastrous’ property investment sought damages from the valuers. The claim exceeded the cost of the property, which was nearly £63 million.
The property was purchased for use as a factory outlet centre. The development was not successful because the rental income was insufficient. The valuation was based on a number of factors, which included the potential rental income. This turned out to be an overestimate. The rents charged contained ‘turnover rents’, as is common in such developments, and the turnovers of the businesses fell well short of the predictions of the valuers.
The question arose as to what was the appropriate bracket of valuations and the court ruled that this could be ascertained only by arriving at a bracket for each of the variables that were alleged to have been negligently valued.
Following this approach, the court held that the valuers were negligent to the extent that their valuation exceeded the bracket of reasonable valuations. They were found liable in the sum of £18.5 million. Key to the decision was the court’s finding that the valuers who had done the work did not have the necessary experience to value the type of development.
Partnership Challenge Fails When Evidence Insufficient
It may seem self-evident that the partners in a partnership own all the assets and thus own the goodwill. However, problems can arise when there are partners of different types and a dispute arises, as happened in a recent case.
Mr Castledine joined an accountancy partnership as an equity partner in 1995 and was made party to the partnership agreement on his joining the firm. There also existed a second agreement, which dealt with the ownership of the goodwill of the practice, but he did not receive this. He retired in 2003.
The second agreement required incoming partners to purchase goodwill and provided that goodwill payments would be made to retiring partners. The practice of purchasing goodwill used to be widespread, but over recent years it has become less and less common. In 1999, the firm put into effect a new arrangement whereby incoming partners no longer had to ‘buy in’ to the goodwill and outgoing partners would no longer receive goodwill payments. The decision was also taken to pay the value of goodwill standing in the accounts at 31 December 1997 to those partners entitled to receive it.
Mr Castledine did not receive a payment in respect of the goodwill of the partnership. He went to court, claiming that he was entitled to a share on the grounds that:
• he was specifically told that he would acquire a proportionate share in the goodwill of the practice; and
• he had acquired a share in the practice goodwill under the partnership agreement.
His claim was unsuccessful. Firstly, there was no written evidence that an undertaking was given that he would acquire a share in the practice goodwill. Secondly, it was clear from the partnership agreement that a second agreement existed which dealt with the ownership of the practice goodwill. Since he had not asked to see that document nor conducted any negotiations with regard to it, Mr Castledine could not reasonably seek to have the partnership agreement construed in his favour.
The moral of the story is to get your agreements in writing and deal with any issues at the initial stage of negotiations, not to leave them to resurface later on.
We can advise you on all aspects of partnership law.
Property
HMRC and ICAEW Announcements – Landlords Take Note
HM Revenue and Customs (HMRC) have announced that the Mortgage Verification Scheme (MVS), which has been developed in co-operation with the Council of Mortgage Lenders and the Building Societies Association, is now operational.
The MVS started as a pilot scheme in March 2010 and has been fully operational since September 2011. Under it, mortgage lenders send details of borrowers to HMRC, who cross-check the information against income disclosed on tax returns.
HMRC also supply information to the lenders as a result of this process. It is considered that the MVS will act to curb mortgage fraud and may lead to £1 billion of extra tax being recovered on undeclared income.
As far as obtaining an accountant’s reference regarding income goes, the Institute of Chartered Accountants in England and Wales has recently advised its members that where a lender is asking for an accountant’s opinion or report, on pre-printed forms, on whether the client will have sufficient income to service a proposed loan, firms should explain to the lender that they are unable to provide such an opinion and are ‘unable to report in positive terms on future income or future solvency’ and also that ‘no amount of enquiry can provide accountants with the assurance needed to enable them to confirm that a client will have sufficient income to service a loan or other obligation’.
Contact Louise Madeley lm@mitchellwilde.comfor advice on any property matter.,
Tax
New Business Tax Breaks
People starting new businesses are reminded that the Regional Employer National Insurance Holiday Scheme provides a 12-month National Insurance holiday for each of the first ten employees taken on in the first year of trading. So far, take-up of the scheme has been disappointing, with fewer than 20 per cent of the original target of 40,000 firms having taken advantage of it.
For more information, see http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1085763708&type=ONEOFFPAGE.
Swiss Bank Accounts – 6,000 Letters on the Way
HM Revenue and Customs (HMRC) will be targeting 6,000 Swiss bank accounts for further enquiry following the completion of the preliminary review resulting from the co-operation agreement in the area of taxation between Switzerland and the UK, which was signed on 6 October 2011.
Although the agreement has yet to be scrutinised by Parliament and will not be fully ratified until 2013, HMRC have lost no time in following up the accord.
Taxpayers with anonymous accounts in Switzerland will see a ‘one-off’ deduction from their account made in 2013 and an amount will be deducted annually regarding interest and other income (at 48 per cent), dividends (at 40 per cent) and capital gains (at 27 per cent). These sums will be remitted to the UK and the anonymity of the taxpayers preserved.
However, where the existence of the account is disclosed voluntarily to HMRC, tax on the income will be dealt with in the usual way and unpaid taxes plus interest and penalties will be payable. In this case, the one-off and annual charges will not apply.
Company
Court Protects Wind Farmer When Board Freezes Him Out
When the co-founder of two companies in the wind farm business was effectively ‘frozen out’ of them by his fellow shareholders and excluded from participating in their management, he went to court asserting that ‘unfair prejudice’ had been exercised by the other shareholders.
After a three-year legal battle, the High Court ruled that his rights as a minority shareholder had been unfairly prejudiced. The settlement he will receive is yet to be decided, but will be substantial: the two companies have a combined market value of between £10 million and £15 million. It is likely that (as is usual in such cases) the Court will order the majority shareholders to buy out his shares in the companies at a fair price.
Whilst minority shareholders may have little statutory right of redress, it is the responsibility of the board of directors to govern the company in the interests of the shareholders as a whole, not just the majority shareholders. When they fail in this duty and prejudice the position of the minority shareholders as a result, redress through the courts may be the best solution.
If you are in dispute with your fellow shareholders or directors, contact Paul Mitchell at pm@mitchellwilde.com for advice.,
Intellectual Property
Patents Made Simple
In response to representations regarding the cost of obtaining intellectual property protection in the UK, the Intellectual Property Office has introduced a new online patent system called Ipsum.
Ipsum will allow businesses to:
• view patent status;
• view up-to-date information on patents;
• access some documents from published patent applications; and
• see which classifications and fields of search have been used.
It will enable patent searches to be carried out more easily and will allow information to be gathered about why patents have or have not been granted. It is free of charge. Previously, each document request cost £5.
In addition, the system is updated in real time, so reliance on out-of-date information will no longer be an issue.
Ipsum can be found at http://www.ipo.gov.uk/p-ipsum.
For advice on protecting your intellectual property, contact David Wilde dw@mitchellwilde.com.
Insolvency
Who Gives You Advice is Important
When a financial services company went into administration and came under investigation by the Financial Services Authority (FSA), the emails of one of its directors were copied by the FSA, which wished to use them in evidence.
The FSA sought to use eight emails, two of which contained advice from the director’s solicitors and six of which contained advice from a leading firm of accountants sent to his solicitors and forwarded on to him by them.
The copying of his email account was undertaken without the director being informed.
The director argued that all eight emails were ‘privileged’ and could not therefore be used in evidence unless he voluntarily disclosed them. A legally privileged communication is one containing legal advice. Solicitors’ communications with their clients that contain advice are normally privileged.
The court agreed that the two emails from the director’s solicitors were privileged. However, the six that simply forwarded on advice given by the accountants were not necessarily subject to privilege.
Whether the six emails are considered to be protected by legal professional privilege will depend on a ruling of the Supreme Court. The decision, which is expected shortly, deals with whether or not professional advice on tax law matters given by a firm of Chartered Accountants qualifies as privileged information.
It is commonplace for a company that becomes insolvent to be investigated and the conduct of the directors considered. In this case, the investigation was by the FSA, but the Insolvency Service also instigates investigations.
If you are taking advice from a solicitor, you have a good chance of being able to claim that communications received from your solicitors are privileged and thus cannot be used in evidence against you. Advice from other professionals is not normally legally privileged.
If you are concerned about the ability of your business to avoid insolvency, we may be able to help protect your position: contact Paul Mitchell (pm@mitchellwilde.com) for advice.
Competition
Internet Sales Ban Breaches Competition Law
A French firm that manufactures cosmetics and requires them to be sold only in a physical space and when a qualified pharmacist is present has found that its de facto ban on sales of its products over the Internet is a breach of EU competition law, a decision which may have serious implications for a number of businesses.
The company argued that the requirement was necessary because of possible dermatological reactions to its products and the need to protect a ‘quality’ brand image. The French national court disagreed and referred the matter to the European Court of Justice (ECJ) for a ruling.
The ECJ concluded that the imposition of criteria on resale had to represent a proportionate way of pursuing a legitimate aim. The maintenance of a superior brand value was not such an aim. Nor could the refusal to authorise a ‘place of establishment’ for the sale of the goods constitute a reason to exempt the products from the usual competition rules.
The European Commission’s guidance on Internet sales says that any criteria for authorising sales must operate in a broadly equivalent way for ‘bricks and mortar’ sales outlets and Internet sales, and must give a retailer the ability (in principle) to be free to conduct online sales.
If you are concerned about protecting your brand image through restriction of the methods of sale of your products, this ruling could have significant implications for you.
Contact us for advice on any competition law matter.
Data Protection
Unauthorised Database Use to Cost Companies
Creating a commercial database and keeping it up to date is an expensive business and owners of such databases quite sensibly take precautions to make sure they are not used without permission. One method owners of databases often use is to plant ‘seeds’ in them to protect them from unauthorised use.
A seed is a false contact, which, when used, is sent to the database owner, enabling them to identify that the database has been used for a mailing or email campaign.
In a recent case, the owner of a database of doctors and nurses received a mail shot from a company that had sent material to two of its seeds. It transpired that the mail shot had come from a company that had obtained the data from another company that had obtained the database legitimately from the owner, but which did not have permission to pass on its contents.
In October 2010, a claim for summary judgment (judgment on the basis that the evidence is overwhelming) was rejected as at that time the court was not satisfied that the evidence was sufficient to show that the company that sent the mail shot had used ‘substantial extraction’ of the database. When the original application was made, only one seed was known about and used in evidence.
At trial, evidence of the contact with the second seed was produced and the company that owns the database was successful in showing that the defendants had used its contents without having the right to do so.
We can advise you on your legal obligations with regard to data protection or what to do if you discover unauthorised use of data you own. Contact Paul Mitchell at pm@mitchellwilde.com.
Cookie Consent Not Optional, Warns ICO
The Privacy and Electronic Communications (EC Directive) (Amendment) Regulations 2011, which came into force on 26 May 2011, made changes to the rules that apply to websites using cookies and similar technologies to remember a user’s preferences. Whereas previously websites were required to provide information about cookies they used and tell visitors to the site how they could ‘opt out’, the new rules require that websites wanting to use cookies gain the visitor’s consent in most cases.
Guidance published by the Information Commissioner’s Office (ICO) at that time stated that organisations would be allowed 12 months to make sure they complied with the new rules regarding cookies.
Speaking at a recent Westminster eForum event on digital marketing, Christopher Graham, the Information Commissioner, warned that almost half of this grace period has now elapsed, and not enough is being done by website owners and advertisers to prepare for the changes.
The Government has held talks with browser makers to establish whether privacy options could be built in to browsers to aid compliance with the new rules, thus allowing most websites to infer reasonable consent. However, Mr Graham is of the opinion that a browser-based solution will be no ‘silver bullet’ and added that ‘the devil will be in the detail’.
The original guidance on the changes can be found at http://www.ico.gov.uk/news/current_topics/new_pecr_rules.aspx. This will shortly be updated to include examples of good practice and details of where the ICO expects the regulatory focus to be when the grace period expires at the end of May 2012.
Says David Wilde (dw@mitchellwilde.com), “We can help you make sure your marketing policies comply with all the applicable law.”
Employment
Employee References – What is Fair?
When providing an employee reference, an employer has a duty of care to ensure that the information given is true, accurate and fair.
In Jackson v Liverpool City Council, the Court of Appeal has given useful guidance on how to deal with the situation when concerns regarding an employee’s work only came to light after he or she left your employment.
Mark Jackson had worked as a social worker for Liverpool City Council (Liverpool) for 12 years before leaving to take up employment with Sefton Borough Council (Sefton). At that time, he received a favourable reference from his team manager at Liverpool. A year later, he applied for and was offered another post at Sefton, subject to satisfactory references. Although two such references were provided from previous employers, a reference provided by Liverpool contained some positive statements but also left two questions – whether or not Liverpool would re-employ Mr Jackson or if it knew of any reasons why Sefton should not employ him – unanswered and mentioned concerns about his record keeping. The referee stated that she could not elaborate as the concerns had arisen after Mr Jackson left Liverpool’s employment and had not been investigated. She did say, however, that they would have warranted a formal improvement plan rather than more serious disciplinary action had he remained with the Council. When she later received a phone call from Sefton seeking clarification, she made it clear that she was not in a position to answer the questions in ‘either a positive or negative manner’.
The offer of employment was withdrawn in light of the reference and Mr Jackson remained unemployed for a year. He brought a claim for damages in relation to the reference provided by Liverpool.
The County Court found that the reference provided by Liverpool was true and accurate but held it to be unfair because it carried with it an ‘unanswered, uninvestigated, unparticularised, unspecific allegation [...] which the ex-employee had no opportunity to refute or answer’. Liverpool could have investigated the matter or refused to provide a reference at all. Liverpool appealed against this decision.
The Court of Appeal had some sympathy for Mr Jackson but took the view that the reference could not be said to be unfair. In the Court’s view, Liverpool could not be criticised for providing a reference and, in the circumstances, could not reasonably be criticised for including within it a cautionary remark. Sefton’s conversation with the referee was highly relevant as it formed an integral part of the overall reference provided by Liverpool. The referee had made it clear that she could not answer the questions in either a positive or negative manner. It was then a matter for Sefton to raise the issues with Mr Jackson himself. Had Liverpool failed to provide a reference, it was likely that more serious adverse inferences would have been drawn as a consequence.
The Court held that accuracy and truth go to the facts which form the basis of the reference and fairness goes to the overall balance of the reference and any opinion contained within it. This does not mean that there has to be some sort of fair procedure for the ex-employee to challenge an adverse opinion but is related to the ‘nuances or innuendo’ that might be drawn from the assertion.
Employers should exercise caution when providing references. We can advise you if you are asked to do so and are in any doubt as to how to proceed.
Contact Paul Mitchell at pm@mitchellwilde.com for advice on any employment law matter.
Health and Safety
Employer Health and Safety Obligations Clarified by Court of Appeal
When an accident at work leads to a court case, the burden of proof that it is not responsible (on the balance of probabilities) for the injury lies with the employer, but only after the claimant has shown that the employer exposed them to the risk which led to the injury.
Once this is established, the employer must show that it was not reasonably practicable to do more than was done to reduce the risk or that there were no other practicable means of so doing.
Recently, the Court of Appeal heard two cases involving workplace deaths that addressed the issue of how the burden of proof is satisfied. In one case a worker was killed when attempting to unblock a machine and in the other a worker was killed when working at the side of a road.
The issue as regards the burden of proof turned on the question of whether it was necessary for the employer to be able to foresee the risk of accident. The Court decided that the duty of the employer is to enquire into the possibility of injury and this is not limited to obvious risks. The Court was adamant that the employer’s obligations extend to thinking deliberately about things that are not obvious.
Causation is not the core of the issue: that is a matter of fact to be determined by the judge. Instead, the employer’s failure to take all reasonably practicable steps to ensure the safety of employees with regard to the risk will be the main factor to consider.
“The decisions somewhat weaken the ability of defendant employers to make a successful defence against claims,” says Paul Mitchell (pm@mitchellwilde.com). “A robust health and safety policy is a must and should be backed up with appropriate training and terms in employee contracts. We can advise you on your legal obligations.”
Employer Not Employee Must Assess Risk
It is easy for employers to fall into the trap of believing that because training has been given they have fulfilled their health and safety obligations.
A recent case concerned a delivery driver who was reversing a mobile elevating work platform when he struck an overhead pipe and was killed. The pipe had not been identified as a specific hazard, but the site entrance had a danger sign indicating that headroom was limited.
Although the driver had been given training on the use of equipment similar to that which he was operating, he had not had any refresher courses for several years, nor had he been trained to drive a machine as big as the one he was using.
The court criticised the dead man’s employer for not providing up-to-date training and for not putting into effect procedures to ensure he was aware of his surroundings. In particular, when the site had been visited by the company’s sales manager, no note had been made of the limited headroom.
The site operators came under fire for failing to mark clearly the dangerous pipe and for not erecting a warning sign bringing it to the attention of those approaching it.
Both parties were found to have contributed to the accident. The defence that it was the driver’s responsibility to carry out his own risk assessment was not accepted and he was not found to bear any responsibility for the accident.
This case illustrates the high standards expected of the owners of workplace premises with regard to the safety of visitors to the site and of employers in order to ensure the safety of their employees. It is all too easy to let appropriate standards slip.
Health and safety policy should be kept under regular review, with risk assessments and appropriate training kept up to date.
The Health and Safety Executive has useful guidance on the use of mobile elevating work platforms, including identifying and managing the risks involved. This can be found at http://www.hse.gov.uk/falls/mewps.htm.
Contact Paul Mitchell on pm@mitchellwilde.com for advice on any health and safety law matter.
This newsletter is intended to keep our clients and other subscribers aware of recent changes in the law. Please remember that the outcome of any court case may depend on its particular facts, and this newsletter is not a substitute for legal advice. We do not accept any liability for any action that you may take in reliance on the contents of this newsletter.