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MARCH 2008

In a recent case, a small business had its bank account cleaned out over the Christmas period after falling foul of a ‘key reading’ scam when using a laptop to access the account from an hotel. These scams occur when a public place or hotel room has a ‘key reader’ secreted nearby (or key strokes are read from a laptop situated nearby if a wireless system is used). The key reader records the key strokes and stores them, often yielding credit card numbers as well as the information needed to access online bank accounts.

1. Make sure you use a secure online bank. The quality of security of Internet banking varies widely. Make sure that your bank offers proper security. In general, the more interactive (where you respond to prompts, as opposed to just entering information) the access to your account is, the better. Some new accounts offer a card-reader based access which is thought to be highly secure. The key here is to ask yourself how much information a fraudster would need  to access your account and how much of that you are inputting. It wouldn’t take too much thought to work out that a surname keyed in by you is probably the correct response to the question ‘What is your mother’s maiden name?’
   
2. Make sure anyone with access to your IT or IT security information, or to files where such information is kept, is thoroughly vetted. This might well include cleaners, for example.
   
3. Do not access your account when away if at all possible. If you do need to do so, use a wired, as opposed to a wireless, connection. Never use an Internet café or similar establishment to access your bank account.
   
4. Make sure you have a good firewall as well as anti-spyware and anti-virus software and make sure you update it and run system scans frequently (daily if possible). Run a scan of your computer system immediately before accessing your bank account.
   
5. If you do access your account whilst away, make sure you can prove your whereabouts. That way, if you do suffer a loss, you will be able to prove you could not have made the withdrawals.
   
6. Never use a debit card for an online purchase unless you are 100 per cent sure the site you are visiting is safe.
   
7. Think about risk and assess it. If in doubt, wait until you are sure you can transact your business safely.
   
8. The long stop is your bank’s policy towards such losses. If you are defrauded, the bank must reimburse you. However, banks do differ greatly in their attitude and whilst some reimburse promptly and with minimal fuss, some do make the process difficult and require persuasion that the alleged fraud is genuine. Report any suspicious transaction promptly to your bank.

Right to Buy – Common Sense Prevails in Definition of Premises
The right of a tenant to buy his or her property (under the Leasehold Reform, Housing and Urban Development Act 1993) is now well known. The right, however, does not apply in all cases and one of the exceptions is that a landlord may refuse to sell a property if it is the landlord’s intention to redevelop the premises.

Recently, a tenant’s application to buy his flat, which was one of a block of 50 in a nine-storey building, was refused by the landlord on the grounds that he intended to redevelop the premises, in this case by making the flat into a ‘duplex’ including the flat below.

The relevant section of the Act allows the landlord to resist an application if the landlord intends to ‘redevelop any premises in which the tenant’s flat is contained’, but only in cases in which the construction works are carried out on a ‘substantial part of any premises in which the tenant’s flat is contained’.

At issue was what was actually meant by the phrase ‘any premises in which the flat is contained’. In the view of the landlord, it meant any definable part of the building which could be shown on a plan. The tenant, however, argued that ‘premises’ meant a recognisable part or area which contains the flat in question. In essence, this argument is that if a space is one which a visitor would recognise as constituting premises, then that space or area counts as premises for the purposes of the Act. If, on the other hand, a visitor would not recognise the ‘separateness’ of that space or area, it is not premises. The House of Lords agreed that this must be the test, since it could not have been the intention of Parliament to allow landlords to define what constitutes premises, in such circumstances, according to their own wishes.

In the case in point, the Lords considered that a visitor to the block of flats would consider the block as a whole to be the premises, not the tenant’s flat plus the flat below it. In this case, therefore, the landlord’s claim failed, since the premises as a whole were not subject to redevelopment plans.

E-Conveyancing
Plans to update the conveyancing process in England and Wales have been ongoing since 1998, when preliminary proposals were set out in a report, compiled by the Law Commission and the Land Registry, entitled Land Registration for the Twenty First Century. Consultation on how best to go about re-engineering the system has been extensive. The aim is to develop an electronic system of conveyancing that makes buying and selling easier for all those involved in the process.

The Land Registry’s e-conveyancing project, developed by IBM, is expected to go live some time this summer following the introduction of a public key infrastructure (PKI) system that uses cryptography to guarantee the authenticity of property transaction documents. The system is designed to allow authorised users to exchange information quickly, securely and reliably with each other and with the Land Registry. Documents will be encrypted and signed with a digital certificate. Documents will only be able to be produced or read by those in possession of a cryptographic token, username and password. Once up and running, the system should allow property and mortgage registrations to be completed instantly, funds to be transferred immediately, securely and reliably and it will enable accurate and up-to-date information on the progress of all linked conveyancing transactions to be accessed online.

For further information on the e-conveyancing system, see http://www.landregistry.gov.uk/e-conveyancing/.



Tax

Capital Allowances – Time for Action Running Out
The Treasury has now published a consultation document outlining in more detail how the changes to capital allowances announced in the 2007 budget will apply. These changes come into effect on 1 April 2008 for companies and 6 April 2008 for individuals and partnerships.

Under the new system, a 100 per cent deduction will be claimable for plant and machinery (not cars) for the first £50,000 of expenditure. Expenditure in excess of £50,000 will be dealt with by a claim for writing-down allowances (WDAs), at 20 per cent. However, where a claim relates to items that you would expect to find in a building (such as heating plant), the WDA is limited to 10 per cent.

Two beneficial points are that electrical systems and plumbing fixtures are to be regarded as available for capital allowances and, surprisingly, the Treasury is considering offering a payment of tax credit in cases where capital allowances are claimable but cannot be ‘used’ because of trading losses. This, if enacted, would benefit start-up businesses particularly.

The message for businesses is to consider the implications of the changes and make sure that the pattern of investment is planned in such a way as to minimise the cost, including any tax effects.

New Guidance on Late Night Taxis
Following consultation with the entertainment industry and licensed trades, HM Revenue and Customs (HMRC) have issued revised guidance regarding the tax position on taxi journeys paid for by employers for staff who work late at night.

Taxis are routinely provided for female staff so that they can get home safely, but this has led to issues regarding whether a taxable benefit-in-kind arises as under the normal tax rules, any journey to or from work paid for by the employer is part of the employee’s remuneration, and thus taxable.

A relaxation for night workers was introduced in 2003, which makes the cost of late night taxi rides provided for employees tax-exempt. HMRC’s new guidelines indicate what conditions they will expect to be fulfilled for such payments to continue to be tax free.  

The conditions are that the four ‘late working conditions’ must be satisfied. These are:

• the employee is required to work later than usual and until at least 9pm; and
• this occurs irregularly; and
• by the time the employee ceases work either public transport has ceased or it would not be reasonable to expect the employee to use public transport; and
• the transport is by taxi or similar road transport.

All of these conditions must be satisfied for the exemption to apply.

Additionally, the exemption applies only for the first 60 such journeys made by the employee in any tax year.

For more information, see http://www.hmrc.gov.uk/manuals/eimanual/EIM21831.htm.

Government Ratifies Foreign Tax Charter
On 24 January 2008 the UK Government ratified the Treaty on Mutual Administrative Assistance in Tax Matters. This grandly-titled agreement allows the UK tax authorities to exchange information with foreign tax authorities and allows the tax authorities of the signatories to assist one another in the collection of taxes due in one country which are unpaid by someone resident in another.

The parties to the treaty are Azerbaijan, Belgium, Denmark, Finland, France, Iceland, Italy, the Netherlands, Norway, Poland, Sweden, the United Kingdom and the United States. Canada and the Ukraine are in the process of joining this group.

UK taxpayers are promised safeguards against inappropriate use of the new powers. These are:

• taxpayer information will only be supplied to another state when HM Revenue and Customs (HMRC) are satisfied that it will be kept confidential to the same extent as it would be in the UK;

• taxpayer information will not be provided where doing so would endanger the human rights of an individual;

• the requesting state must have gone through all necessary legal processes to prove that the tax debt exists before the UK will assist in recovery;

• the request for information or assistance must be in relation to a tax that is comparable with a UK tax, otherwise the UK will not comply with it;

• compliance will not be made with requests from other states for information or assistance which is contrary to generally accepted taxation principles; and

• compliance will not be made with requests for information or assistance where HMRC feels that the cost of providing it would be disproportionate.

Company Law

Disqualification Traps for Directors
The Companies Act 2006, most of which is now in force, imposes tough new criteria governing the behaviour of directors. In particular, when making decisions directors must bear in mind the potential effects of those decisions on various ‘stakeholders’ (those with an interest in their outcome, such as employees and shareholders) and the environment.

In several circumstances, miscreant directors can be disqualified by the Secretary of State from acting as directors. These include:

• where the director has been convicted of an offence in connection with a company;
• where the company becomes insolvent and where the conduct of the director is such that it renders them unfit to be a company director;
• where there is fraudulent trading or fraud or breach of duty in relation to which the company is wound up;
• where the company persistently defaults in filing documents with the Registrar of Companies; or
• where in the view of the Secretary of State it is in the public interest for the director to be disqualified.

It is important to note that disqualification may not necessarily be the result of a criminal offence or because the company with which the director was involved has failed.

Just because a person does not carry the title ‘director’ or is a non-executive director does not mean they are not subject to these rules. They apply to anyone who acts in a directorial capacity (whether their title is director or not) or who is on the board of directors of a company.

Disqualification orders can be made for a minimum of two and a maximum of 15 years. Recently, a director was disqualified for refusing to cooperate with an investigation into another company with which he had dealings but of which he was not a director.

Intellectual Property

Patent Office Issues Guidance on Software Patents
Following the recent judgment in the Court of Appeal that the UK Intellectual Property Office (UKIPO) was wrong to reject six patent applications purely on the grounds that they were for software, UKIPO has accepted the ruling and indicated that it will not be appealed. UKIPO has therefore issued a revised guidance note regarding the obtaining of patent protection for software.

It is important to note that UKIPO has clearly stated that the decision ‘does not have the effect of making computer programs generally patentable in the UK but it does allow innovators to enforce all aspects of their patentable inventions directly’.

The guidance can be found at

http://www.ipo.gov.uk/patent/p-decisionmaking/p-law/p-law-notice/p-law-
notice-subjectmatter.htm.

Director Who Sanctions, Suffers
A director who was the sole director and shareholder of a company and who failed to stop the employees of the company from breaching the design right of another company was recently held to be personally liable for the losses suffered by the other company. It is worth noting that, in this instance, the director actively facilitated the breach rather than merely failed to prevent it from happening.

How Registered Community Designs Work
European law is having an ever-increasing influence on UK law and one example is the creation of the Registered Community Design (RCD). This allows an inventor of a design to have exclusive right to it for 25 years from the date of registration. One advantage of having an RCD is that the registration process is inexpensive.

To obtain RCD status for a design, the design must be new and of ‘individual character’ compared with designs previously offered to the public. An RCD is infringed by a design which would not produce a ‘different overall impression’ on an ‘informed user’.

In a recent Court of Appeal case, consumer goods giant Procter and Gamble claimed that the RCD of its ‘Febreze’ air freshener was infringed by the ‘Air Wick’, marketed by Reckitt Benckiser.

The Court ruled that for an RCD application to be valid, the new design had to ‘clearly differ’ from the ‘prior art’. However, under the Directive creating RCDs, an item will not infringe upon a registered design if it creates a different overall impression.

The other question that needed to be decided was what is meant by an ‘informed user’. The Court dealt with this at length, but concluded that an informed user would have a quite high level of knowledge about the applicable design issues and would consider them carefully. In particular, the Court considered that an informed user would be aware of the prior art applicable in the sector concerned.

Applying these criteria, the Court declined to accept that the Air Wick was an infringement of the Febreze RCD. Most of the common design features were functional in nature and the overall impression of the two products was different. Interestingly, in most European courts the judges have reached the opposite conclusion.

Contract

Who Decides? Big Decision
Many forms of commercial contract these days contain clauses which seek to bring about a resolution of disputes by referral to an independent expert who ‘determines’ the outcome. Sometimes these work well, offering a flexible and straightforward way to settle the dispute. Sometimes, however, having an expert’s determination might not be at all satisfactory – at least from the standpoint of one of the parties to the dispute.

The main advantages to using an expert determination clause are:

• it can be an inexpensive and quick method of resolving a dispute;
• there is no need to go to court; and
• it is normally a mediated form of settlement, in the sense that the expert hears the points of view of both sides and makes a decision – the level of confrontation which can occur in litigation is therefore less likely.

The main disadvantages are:

• there is virtually no right of appeal against a decision by the expert;
• the expert may not have the breadth of knowledge which might be necessary to understand fully the issues and thus achieve a fair result;
• the expert cannot compel (as can the court) the parties to the dispute to cooperate; and
• the decision of an expert can only be enforced by the court.

There will be some sorts of dispute, therefore, which are best dealt with through legal process rather than expert determination. The problem which can arise, however, is that when the contract provides that a dispute will be settled by expert determination, the courts are reluctant to intervene, so in the event of a ‘bad’ decision by the expert, unless the aggrieved party can persuade the expert to issue a revised decision, they may well be stuck with it.

Clearly, the overriding argument for the use of such a clause will be where commercial expediency dictates that the speed and informality of the approach has advantages which outweigh the benefits of using the courts. If such a clause is used, it is essential to make sure that the expert has appropriate qualifications and experience, and that the terms of reference of the decision are very carefully drawn up.

Insolvency

Insolvencies Set to Soar
The number of individual voluntary arrangements (IVAs) is set to soar to over 50,000 this year, according to industry sources. This follows two years in which the number of IVAs has been slightly more than 40,000 per year.

One of the main reasons for the increase is procedural, rather than it being due to the current economic uncertainties. The British Bankers Association, the Insolvency Service and the IVA Forum have recently agreed a new protocol for the conduct of IVAs. Previously, many IVAs were opposed by the banks, which felt that they were being discriminated against in a lot of cases. This led to a backlog of cases building up but this should be cleared this year.

Data Protection

Data Protection – New CCTV Guidelines
Many people are not aware that the use of closed circuit television (CCTV) cameras is covered by the Data Protection Act (DPA).

The Information Commissioner’s Office has published an updated version of the code of practice giving guidance and advice for CCTV users on how to comply with the DPA. This addresses the issue of sound recording, which the guidance describes as ‘highly intrusive’ and it warns organisations that its use would only ever be justified in highly exceptional circumstances.

The guidance also includes a simple checklist on compliance for users of very limited CCTV systems where the full provisions of the code would be too detailed.

The updated code of practice can be found at http://www.ico.gov.uk/Home/for_organisations/topic_specific_guides/cctv.aspx.

Environment

Courts to Consider Commercial Benefit when Setting Fines?
A recent case, in which a company was convicted of tipping waste illegally, prompted a comment from Lord Justice Keene which should set alarm bells ringing for organisations which fail to comply with the laws on waste disposal.

The company involved had been successfully prosecuted for depositing waste unlawfully and was served with a notice to remove the waste from the land where it had been left. Eventually, the company successfully applied to the Divisional Court to overturn a decision of the Crown Court that the waste could not be treated where it was because the company had no authorisation to do so under a waste management licence.

However, in remitting the matter back to the Crown Court for reconsideration, LJ Keene commented that he would encourage the courts dealing with such prosecutions to ‘reflect in any financial penalty imposed the amount of commercial advantage which has been obtained by a person through the unlawful deposit of controlled waste’. He clearly is encouraging the courts to make sure crime doesn’t pay.

Employment Law

Employing Illegal Migrant Workers
New measures designed to tackle illegal migrant working came into force on 29 February 2008. These measures, contained in the Immigration, Asylum and Nationality Act 2006, include:

• a system of civil penalties for employers who employ illegal migrant workers – the maximum civil penalty per illegal worker is £10,000;
• a new criminal offence for employers who knowingly employ illegal migrant workers – this offence now carries a maximum two year prison sentence and/or an unlimited fine; and
• a continuing responsibility for employers of migrant workers with a time-limited immigration status to check their ongoing entitlement to work in the UK.

The new measures do not significantly alter employers' responsibilities. Employers were already required to check a prospective employee’s right to work in the UK in order to establish a defence against conviction for employing an illegal migrant worker. Under the new measures, employers can obtain a statutory excuse from payment of a civil penalty if they have carried out the required checks on a prospective employee’s documents. In addition, employers are required to undertake repeat document checks, at least once a year, for those employees who have limited leave to enter or remain in the UK, if they are to retain the statutory excuse. However, the excuse will not apply where an employer knowingly employs an illegal migrant worker.

A code of practice is now available containing guidance on the civil penalties for employers. This contains information on how the level of penalty may be determined and on the documents required for the purpose of establishing the statutory excuse. It can be found on the website of the Border and Immigration Agency at http://www.bia.homeoffice.gov.uk/.

New Immigration System – Rules for Highly Skilled Workers
The Government has announced the rules that will apply to highly skilled foreign workers applying to come to the UK under the new Australian-style points based immigration system (PBS). Underpinning the new system will be a five-tier framework – see http://www.bia.homeoffice.gov.uk/managingborders/managingmigration/
apointsbasedsystem/howitworks.

The system is being introduced gradually with the new rules that apply to those in tier 1 – highly skilled workers – commencing on 29 February 2008.

Any highly skilled foreign nationals currently working here who want to extend their stay will need to apply under the new system. In April, the new system will begin to be rolled out overseas when anyone from India who wants to work in the UK as a highly skilled migrant will need to apply under the PBS. By the summer, the new highly skilled system will operate worldwide.

The aim of the PBS is to see that only those migrants whose skills are needed can come to the UK. For further information on the highly skilled migrant programme, see http://www.bia.homeoffice.gov.uk/workingintheuk/hsmp/.

Health and Safety

Noise at Work in the Music and Entertainment Sectors – A Reminder
As of 6 April 2008 the Control of Noise at Work Regulations 2005 will be extended to the music and entertainment sectors. For other industry sectors these Regulations have been in force since April 2006, but the music and entertainment industry was given a two-year transitional period before implementation of the Regulations. Although there is ample evidence that exposure to live music can cause hearing damage, it was recognised that music is different from other noise as it is created deliberately for entertainment purposes and therefore guidance was necessary to help employers, workers and freelancers in the industry to protect their hearing.

The music and entertainment sectors are defined in the Control of Noise at Work Regulations as all workplaces where:

• live music is played; or
• recorded music is played in a restaurant, bar, public house, discotheque or nightclub, or alongside live music or a live dramatic or dance performance.

Employers will be required to manage the risks associated with exposure to noise and put effective controls and protective measures in place in order to protect employees and freelancers. For more information, see http://www.hse.gov.uk/noise/musicsound.htm.

Manual Handling
The Health and Safety Executive (HSE) has reminded employers of their legal duties with regard to manual handling, after an employee was injured when a 50kg sack of basmati rice fell onto the back of his neck.

The man’s employer, East End Foods plc, pleaded guilty to failing to take reasonable care of the health and safety of its employees under Section 2(1) of the Health and Safety at Work etc. Act 1974. The company was fined £25,000 with £28,000 costs.

The court heard that during the course of an investigation into the incident, it transpired that large consignments of sacks of rice were routinely manually offloaded from containers without the use of any mechanical aids. The company had not carried out a suitable and sufficient risk assessment for the unloading process, nor had it taken appropriate steps to reduce the risk of injury to the lowest level that is reasonably practicable.

According to HSE statistics, 30 per cent of all acute injuries in the food and drink industry result from bad practice in manual handling, which is defined in the Manual Handling Operations Regulations 1992 as ‘...any transporting or supporting of a load (including the lifting, putting down, pushing, pulling, carrying or moving thereof) by hand or bodily force’.

The HSE has useful guidance on this topic, ‘Getting to grips with manual handling – A short guide’. This outlines problems associated with manual handling and sets out best practice in dealing with them. The publication is available at http://www.hse.gov.uk/pubns/indg143.pdf. In addition, there is a Manual Handling Assessment Chart Tool, which has been developed to help the user identify the level of risk involved in workplace manual handling activities. This is available at http://www.hse.gov.uk/msd/mac/.

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PRESTON-ROUSE COMPANY
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email judith@preston-rouse.com & michael@preston-rouse.com

For more information please contact:
Judith Preston-Rouse or Nicola Manning or Michael Vann
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