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AUGUST 2008


Associative’ Discrimination – ECJ Rules

Sharon Coleman’s son was born with serious respiratory problems. She brought a claim of disability discrimination and constructive dismissal against her ex-employer on the grounds that she had been discriminated against because of her son’s disability. Amongst her claims of unfair treatment were that she was not permitted to work from home, even though other employees were allowed to do so to care for non-disabled children, and that she was placed in a pool of staff selected for redundancy after she said that she intended to make a formal request for flexible working in order to care for her son. Ms Coleman claimed that her employer’s actions had created a hostile environment which forced her to resign.

The wording of the Disability Discrimination Act 1995 (DDA) is such that it protects disabled employees but does not afford protection to an employee who is discriminated against because he or she cares for a disabled person. Ms Coleman argued that the Equal Treatment Framework Directive does give protection from unfair treatment which arises out of association with a disabled person. The Employment Tribunal referred the question to the ECJ in order to establish whether the UK law properly implements the Directive.

The ECJ has followed the opinion of the Advocate General and ruled that the purpose of the Directive, as regards employment, is to combat all forms of discrimination on grounds of disability. Limiting its application only to people who are themselves disabled would render the Directive less effective and reduce the protection which it is intended to guarantee. Where an employer treats a non-disabled employee less favourably because of the disability of his or her child, whose care is provided primarily by that employee, such treatment is contrary to the prohibition of direct discrimination laid down in the Directive. Likewise, the Directive also protects an employee from unwanted conduct amounting to harassment that is related to the disability of the employee’s child.

As the Equal Treatment Framework Directive also covers discrimination based on religion or belief, age or sexual orientation, employees should also be protected from associative discrimination on these grounds. Employers are advised to be careful when considering requests for flexible working arrangements from employees who have caring responsibility for disabled or elderly people and to check their recruitment and equal opportunity policies in the light of this decision.



General

Loss May be Based on Potential
Buying a business can be a risky undertaking. Even if the normal due diligence work is done with great care, sometimes there can be skeletons in the cupboard, which can emerge to your detriment. It is a particularly risky business when the vendors are less than totally honest.

In a recent case, the purchaser of a business discovered, some time after having taken it over, that it had at its core corrupt practices which related to its major customer. The vendors of the business had, as one might expect, concealed what was going on. The purchaser claimed against the vendors for deceit, breach of contract and warranties and breaches under the Misrepresentation Act 1967.

The claim’s resolution by the court revolved around two issues. Firstly, to what extent a limitation clause could be relied upon in such circumstances and secondly, whether the buyer could claim for losses on an ‘opportunity cost’ basis.

The defendants sought to strike out the claims for misrepresentation and breach of contract because the sale agreement contained a limitation clause which required the purchaser to provide written particulars of any claim within two years of the sale, which was not done. The court rejected this defence on the basis that such a clause did not apply where the warranties were fraudulently given and the truth deliberately concealed.

This then brought into point the amount of the claim. This was largely calculated based on the loss to the purchaser, which had resulted from the false representations made by the defendant, of the opportunity of investing in another business. Had these representations not been made, the purchaser would have invested in a different business. The claim was therefore calculated with reference to the profits the purchaser would have earned had it bought the other business and the value of the other business that it would have acquired.

Interestingly, the Court approved of this reasoning and awarded damages of £8 million.

Such reasoning, if it becomes commonplace and can be backed up by sufficient evidence of the ‘opportunity cost’ loss suffered, could lead to claims being made which appear to have little relationship to the measured loss.

Compulsory Liability Insurance
Employers are required by law to have a minimum level of Employers’ Liability Insurance (ELI) to insure against liability for injury or disease to their employees that occurs in the course of their employment in Great Britain. Only very small companies – which employ only their majority shareholder – and sole traders who do not employ anyone else are exempt from the requirement.

The law is enforced by the Health and Safety Executive and employers can be fined up to £2,500 per day for failing to have the necessary insurance cover in place.

There is currently a requirement for employers to display one or more copies of their ELI certificate at each place of business where relevant employees work. However, from 1 October 2008 the requirement to display the certificate will be satisfied if it is made available in electronic form and each relevant employee to whom it relates has reasonable access to it in that form.



Property

Disabled Tenant Not Discriminated Against
The House of Lords has ruled that a disabled council tenant who was evicted from his flat for breach of the terms of his tenancy agreement had not suffered disability discrimination. The judgment overturns a previous decision by the Court of Appeal in favour of the tenant and has far reaching implications.

The case concerned Courtney Malcolm, a tenant of Lewisham London Borough Council, who suffered from schizophrenia. He sublet his flat, in breach of the tenancy agreement, and so was served notice to quit. Mr Malcolm contended that he was disabled under the Disability Discrimination Act 1995 and that the Council had discriminated against him.

In considering whether or not Mr Malcolm had been treated less favourably on account of his disability, Lord Bingham asked to what treatment had he been subjected? The Landlord had sought to repossess the flat and it was agreed that the reason for this decision was the tenant’s having sublet the property.

Lord Bingham pointed out that Lewisham Council, as a social landlord with a long waiting list, could not allow a tenancy to continue when the tenant was absent. He concluded that the Council’s decision was based purely on housing management criteria and had nothing to do with Mr Malcolm’s mental disability. Indeed, at the time of the decision, the Council was not aware that he was disabled.

In deciding whether Mr Malcolm had been treated unfairly, Lord Bingham stated that the correct comparison to be made was with a tenant who did not have a mental disability but who had breached the terms of their tenancy by subletting. In such circumstances, a non-disabled tenant would have been equally in breach of their tenancy agreement and would have been treated in the same way.

For these reasons, the Law Lords held that Mr Malcolm had not been treated less favourably and had not suffered disability discrimination.

Landlords should not be afraid to stick to the principles of the tenancy agreement, providing it has been properly worded. A landlord will only fall foul of the Disability Discrimination Act if they know that a tenant is disabled and treat that person less favourably than they would a tenant without a disability in the same circumstances.

Deed Does Not Protect Assignor
The Court of Appeal has overturned a 2007 decision and its judgment may make tenants who are considering assigning their leases pause for thought.

The circumstances were that tenants assigned their lease, with the permission of the landlord, to new tenants. Under the terms of the assignment, the outgoing tenants had to guarantee performance of the lease by the new tenants. The landlord and the new tenants, a professional partnership, subsequently entered into a separate deed which provided that the new tenants’ liability under the assigned lease would not exceed the assets of the partnership and that the personal assets of the partners would not be subject to a claim under the guarantee.

When the partnership became insolvent and failed to meet its obligations to the landlord, the landlord claimed against the original tenants under the guarantee. The original tenants claimed they were protected by the deed between the partnership and the landlord. The landlord claimed that since the original tenants were not a party to the deed, they could not rely on it.

The High Court accepted the original tenants’ argument, but the Court of Appeal has overturned the decision, ruling that the purpose of the deed between the landlord and the partnership was to limit the liabilities of the partners by preventing the landlord from claiming against their personal assets. The purpose of the deed was not to confer a benefit on the original tenant.

If you are considering assigning your lease, we can assist you to make sure that your interests are protected to the fullest extent possible in the circumstances.



Tax

Foreign VAT – Get it Right
It is commonly thought that within the EU recovering VAT on expenditure made whilst abroad is merely a matter of calculating the VAT at the applicable rate and putting it on your VAT return.

However, the right to recover VAT on a VAT return is limited to VAT incurred in the country of registration. Overseas VAT is reclaimed by submitting a claim directly to the country concerned (this is called an ‘8th Directive claim’). Typically it can take months (sometimes years) for these claims to be processed and the VAT repaid.

For more details on recovery of overseas VAT, see
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=
true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000860&propertyType=document.

A number of firms offer a VAT reclaim service in exchange for a fee, which is normally based on a percentage of the VAT repayments received.

Overseas VAT which is incorrectly claimed as input tax on a VAT return can lead to an assessment for VAT over-claimed and possibly trigger a penalty.

HM Revenue and Customs have recently issued a leaflet explaining the new penalty regime that applies in relation to claims by overseas businesses for VAT incurred in the UK. This can be found at http://www.hmrc.gov.uk/vat/new-pens-refunds.pdf.



Company Law

Limitation of Auditors’ Liability – Take Care What You Sign
It is when times get tough that problems which might have been easy to gloss over in better times start to make themselves visible. When serious problems that have remained undiscovered for a substantial period come to light, a company’s auditors may well find themselves facing a writ.

The sections of the Companies Act 2006 which allow auditors to limit their liability in relation to audit work, with the agreement of their audit client, are now in force and the Financial Reporting Council (FRC) has issued guidance on the use of such agreements.

Any agreement setting a limit on the liability of a company’s auditors must be approved by the company’s shareholders. An agreement cannot cover more than one financial period and will only be effective insofar as it is ‘fair and reasonable’. In practice, whether or not the limit on liability is fair and reasonable will be determined by the courts, depending on the particular circumstances of each case.

The FRC guidance:

• explains what is and what is not allowed under the 2006 Act;
• sets out some of the factors that will be relevant when assessing the case for an agreement;
• explains what matters should be covered in an agreement and provides specimen clauses for inclusion in agreements; and
• explains the process to be followed for obtaining shareholder approval and provides specimen wording for inclusion in resolutions and the notice of the general meeting.
  

Many company directors can expect to receive a letter from their auditors, enclosing a liability limitation agreement, before their next financial year end.

This seemingly small change could have a dramatic impact and directors should give thorough consideration to the ramifications of signing any agreement limiting the liability of their auditors. Directors have the same responsibilities to a company’s shareholders in this situation as they would when entering into any other agreement on the company’s behalf.

If your auditors propose a liability limitation agreement of any kind, we can advise you on your individual circumstances.

Companies Act 2006 – The Next Round
The next round of changes resulting from the Companies Act 2006 will come into effect on 1 October 2008. The most important of these are as follows:

• Every company must have at least one director who is a ‘natural person’. This means that companies where the directors are exclusively other companies (as is not uncommon for subsidiaries) will have to appoint at least one individual as a director. There is, however, a concession which allows companies that did not have a natural person as a director at the date of Royal Assent (8 November 2006) to delay compliance until 1 October 2010;
  
  
• The restrictions on providing financial assistance for the acquisition of a company’s own shares is repealed (Part 18). This will make it easier for smaller companies to widen the base of their shareholdings. There are other changes in the rules governing reductions in share capital (Part 17);
  
  
• Substantial changes are made relating to a director’s duties with regard to avoidance of conflicts of interests. These are contained in Chapter 2 of Part 10 of the Act and are sufficiently important to be recommended reading for all company directors.
  See http://www.opsi.gov.uk/acts/acts2006/ukpga_20060046_en_13 (and scroll down);
  
  
• An objection to a company name may be made if it is sufficiently similar to another name which is owned by the objector and compromises their goodwill (Part 5). This may mean, for example, the end of more ‘Easy…’ companies; and
  
  
• The Secretary of State may create regulations (and therefore presumably will do so) requiring companies to display specified information at their trading premises and on documents or communications. Companies can therefore expect to see new regulations regarding disclosure of information in the not too distant future.

Failure to comply with any of the new requirements may leave the company and/or its directors liable to a fine. The final round of changes is due to come into effect in October 2009.

Intellectual Property

Lonsdale Sports European Licence Rights
A recent decision by the Court of Appeal has shown that disputes over intellectual property rights can become exceptionally complicated. The multi-million pound claim concerned the use of the world-famous Lonsdale sports goods brand.

The Lonsdale trade mark was created in 1960 when the Earl of Lonsdale gave permission for the name to be used as a trade mark for sports clothing and equipment. Two forms of the trade mark emerged, but in 2002 both came under the ownership of Lonsdale Sports Ltd., which granted a worldwide licence in June 2002 to The Trade Mark Licensing Company Ltd. (TMLC) so that TMLC could manage the exploitation of the marks.

In November 2002, TMLC granted Leofelis SA a licence covering the whole European Economic Area, excluding the UK and Ireland, for a fixed term of six years. On the same date, Leofelis granted a sub-licence to Leeside SRL, which was limited to Italy. In December that year, the range of the sub-licence was extended to include all countries then in the European Union other than the UK and Ireland.

Following what it considered to be infringements of its licence rights by various third parties, Leofelis alleged that misrepresentation had taken place during the negotiations for its licence. It contended that false statements were made about existing licences being due to expire.

In October 2005, proceedings were commenced on this basis by Leofelis and Leeside. In December 2005, Lonsdale Sports and TMLC gave notice of termination of the licence agreement and made counterclaims for breach of the agreement, but suspended further action pending the outcome of the court hearing.

The earlier trial judge held in favour of Leofelis and Leeside on most of the issues in dispute. This resulted in Lonsdale Sports and TMLC mounting an appeal.

At the Court of Appeal hearing, the judges entered into lengthy and complicated argument about the various rights involved and how these rights should be construed in the context of intellectual property and contract law.

On the question of whether information about existing licences was misrepresented at the time of negotiation of the main agreement, the Court of Appeal came down on the side of Lonsdale Sports and TMLC. The Court also allowed the appeal regarding the sub-licence, ruling that consent to the sub-licence had not been sought from, nor given by, Lonsdale Sports.

A further decision was made in favour of Leofelis, however, as the Court ruled that the licence agreement had not been effectively terminated by TMLC.

Appeal costs and damages were allotted according to each element of the decision and it is by no means clear which of the parties, if any, have come out on top financially.

This case highlights, yet again, the importance of entering into licensing negotiations with the best expert support. When it comes to drafting a licensing agreement, this should only be done with specialist legal advice.

Beware IP Scams!
If you seek to protect your intellectual property by the use of a trade mark or other means, you may well find that there are a number of organisations which will (ostensibly) seek to help you achieve greater levels of protection. Aided by grand-sounding names, they offer – for a fee – to place your trade mark(s) in a register.

It may sound terribly official, but be careful before you part with your cash. Organisations that have official status do not operate by sending invoices for registration as soon as your trade mark is granted.

An example is the ‘European Institute for Economy and Commerce (EIEC)’, which currently sends a demand for £479.75 (including VAT) for each UK trade mark for registration in the ‘EIEC Register of Protected Trademarks’. It appears the invoices are sent on the day the opposition period for a trademark ends. The register has no official status.
There are a number of organisations seeking to make money in a similar way. If you receive an invoice, especially one from abroad, offering entry into a register or directory of any kind, take care.

Contract

No Cover if Notification to Insurer Not Valid
Insurance cover is provided for claims made within the currency of the policy. Accordingly, policies contain clauses which stipulate that the claim must be notified to the insurer within a certain period of time. Typically, the insurer must be notified ‘as soon as practicable’ that circumstances have arisen which might give rise to a claim. Insurers are often a great deal less enthusiastic about accepting liability for claims than their policy holders may think reasonable and a challenge to a claim often involves the details of the policy. In particular, the validity of the notification given by the insured is often contested.

There have been two recent cases in which issues surrounding the validity of the notifications given by the insured were in point. In both cases the insurance cover sought was not available to the insured. In one case this was because the notifications were insufficiently clear and comprehensive (as well as in one instance, not prompt enough) and in the second case because the notices given did not relate to the defects in a construction project which were later discovered.

For a notification to be valid, the following requirements must be met:

• The notice must be given in writing and sent to each underwriter or authorised agent for the insurer;
  
  
• The notice must be given as soon as is practicable after the insured has become aware that a claim might be made;
  
  
• The claim must be clear and unambiguous, so that there is no reasonable room for doubt by the insurer that the purpose of the communication is to make it aware of the possibility of a claim; and
  
  
• The notice must include any circumstance of which the insured is aware that may give rise to a loss.

One of the key points is that the link between the notified circumstances must be ‘causal, not coincidental’. This means that a notice which covers a claim but is not sufficiently explicit or comprehensive to identify the actual source of the claim, may well not be valid. For cover to be available, the claim must have arisen from the event which has been notified to the insurer.

Great care should be taken when preparing a notice to send to your insurers that a claim may be forthcoming. Failure to give a valid notice normally means that the costs of a successful claim against you will be met by you, not your insurer.

Agency a Matter of Fact
Under EU law, agents have a degree of protection which mere resellers do not. For example, when an agency is lost, the agent is normally entitled to compensation from the principal. This does not apply where the relationship is one of a supplier and reseller. It is therefore important in such cases to know whether the relationship is one of agency or supplier and reseller.

In a recent case, a man who sold jewellery in the UK on behalf of a German firm claimed that he was a commercial agent as defined by the Commercial Agents (Council Directive) Regulations 1993. When the business relationship ceased, he sought compensation for the loss of his agency. His argument was based on the fact that he was the only UK supplier of the jewellery and ordered from the manufacturer only when he had received an order from a jewellery shop.

However, the arguments against a commercial agency being in effect were strong. The man bought and sold through his own accounts, invoicing his customers in his own name and accounting to the supplier as a principal. His accounting records reflected that position. In addition, he had no authority to negotiate on behalf of the supplier.

The court could find no reason to impute into the business relationship something that was not there. As a matter of fact, there was no agency and no compensation was therefore due.

When making reseller arrangements, it is important to make sure the nature of the business relationship is clearly understood.

Insolvency

Shareholders Rue Loan Agreement Terms
With banks seeking ever tougher terms from borrowers and beginning to act more quickly to protect their position when lending terms are breached, a recent decision shows the wisdom of making sure that the lending terms are well understood.

The case involved a lender who advanced to the shareholders of a company money which they then put into the business. When the loan was not repaid, the question arose as to whether they had borrowed the money as principals (in which case the bank had immediate right of recourse to them) or as ‘secondary obligors’ (in which case the bank could pursue them only after it had taken action against the company).

Regrettably for the shareholders, the loan contained a clause which allowed the bank to make a demand for repayment directly to them as signatories to the loan agreement. They were due to repay the loan ‘unconditionally’ and ‘on demand’.

If you are seeking funds for your business, it is crucial to understand the documentation you are asked to sign and its potential effects.

Competition

SFO Proposes Leniency for Firms Which Come Clean Over Commercial Crime
The Serious Fraud Office (SFO) intends to emulate American practice by allowing companies that admit their transgressions to plea-bargain with prosecutors for more lenient sentences.

The decision follows a report which compared the SFO’s results with those of the US Department of Justice and concluded that the SFO ‘uses significantly more resources per case … and achieves significantly less for its efforts’.



Employment Law

Time Off for Dependants – How Long is Reasonable?
Under Section 57A of the Employment Rights Act 1996, all employees are entitled to take a reasonable amount of unpaid time off work to deal with emergencies involving a dependant and not to be dismissed or victimised for doing so. The emergency must involve a dependant who is a child, parent, husband, wife, civil partner or other household member or somebody for whom the employee has primary caring responsibility.

Unless the particular circumstances make it impossible, the right to time off in such cases is subject to the employee telling the employer the reason for the absence, as soon as is reasonably practicable, and for how long he or she expects to be absent. The law makes no provision as to how much time is ‘reasonable’ although guidance on the website of the Department for Business, Enterprise and Regulatory Reform (see http://www.berr.gov.uk/employment/workandfamilies/time-off/faq-tofd/page26053.html) notes that this will vary according to the circumstances of the emergency but ‘for most cases, one or two days should be sufficient to deal with the problem’.

In an unfair dismissal case (Cortest Ltd. v O’Toole) the Employment Appeal Tribunal (EAT) gave guidance on this issue. Mr O’Toole worked for Cortest Ltd. as a street lighting engineer. His partner was struggling to cope with their domestic situation and when things reached crisis point, he requested a month or so off work to look after the couple’s three children in order to give his partner the rest she needed. Her mother worked full-time and so was unable to step in to help.

The Employment Tribunal (ET) found that the amount of time off work requested was reasonable under Section 57A, albeit at the top end of what might be permitted. On appeal, the EAT ruled that the ET was in error. The purpose of the legislation is to cover emergencies and to enable alternative care arrangements to be put in place. In this case, there was no evidence that alternative child care arrangements were sought – for example enlisting the help of a friend or relative. Section 57A does not permit a parent to take time off to become a child minder for a period of time but was created for emergency situations and to provide a ‘short breathing space’.

Health and Safety

Health and Safety – Definition of ‘Work Equipment’
In Spencer-Franks v Kellogg Brown & Root Ltd. & Others, the House of Lords considered whether a door closer was ‘work equipment’ for the purposes of the Provision and Use of Work Equipment Regulations 1998 (PUWER).

Work equipment is defined by PUWER as ‘any machinery, appliance, apparatus, tool or installation for use at work (whether exclusively or not)’. The Regulations impose a strict duty to ensure that the equipment is fit for purpose when it is ‘provided for use or used by’ an employee by an employer or a person who has control over work equipment, to the extent of their control.

Mr Spencer-Franks suffered an injury to his mouth when asked to inspect and repair the closer on the door of the central control room of the Tartan Alpha offshore oil platform operated by Talisman Energy (UK) Ltd. (Talisman). He was employed as a mechanical technician by Kellogg Brown and Root Ltd. (KBR), which contracted to supply workers to the platform. He claimed that the linkage arm of the door closer struck him in the face because the tension screw had not been put in properly and brought an action against KBR and Talisman for breach of their obligation under PUWER.

The Court of Session had found that although the screwdriver Mr Spencer-Franks was using to carry out the repair was work equipment, the door closer was not and even if it had been judged as such, he was not using it within the meaning of PUWER. In reaching its decision the Court followed the approach in Hammond v Commissioner of Police of the Metropolis in which the Court of Appeal found that a police van might be the work equipment of a policeman driving it but not of a police mechanic repairing it.

The House of Lords has reversed this decision, holding that the door closer was work equipment. The purpose of the Work Equipment Directive, which PUWER implement, is to provide comprehensive protection for workers and it covers a wide range of objects used in the course of work. The door was used all the time by workers going in and out of the control room and the closer was fitted so that it was kept closed. It was, therefore, apparatus for use by employees at work and the word ‘use’ should be defined broadly and should include repair work. The door closer did not cease to be work equipment because it had broken down or was being repaired.

With regard to the example of someone injured whilst mending a van, the Law Lords were of the view that it could not make any difference to whether or not the van should be deemed to be work equipment if the repair was carried out by the driver of the van or by a different worker in the same undertaking.

The Lords considered the possibility that PUWER impliedly exclude apparatus which forms part of the premises in which the work takes place. In the case of work premises on land, this argument might apply, but in the Lords’ view the intention of the Regulations, when read with other relevant legislation, was that they should apply to all equipment on an offshore installation.

Employers and those in control of work equipment are advised to carry out regular spot checks and maintenance to ensure that anything that could be classified as work equipment is fit for purpose and not to wait until it could be dangerous before carrying out a repair.



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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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