STAY INFORMED BY READING OUR LEGAL e-NEWSLETTER FOR THE LATEST LEGAL UPDATES

AUGUST 2009

The 2007 case involving Persimmon Homes and landowner Chartbrook Ltd. has now been decided in the House of Lords. The case turned on the meaning of an agreement which contained a ‘grammatical ambiguity’, which applied to a formula used to calculate the sum due under a property contract. This led Chartbrook to claim more than £4 million from Persimmon. Persimmon calculated its liability at under £900,000, basing its argument on pre-contract negotiations.

The Court of Appeal had rejected Persimmon’s claim, ruling that relying on definitions of terms agreed in pre-contract negotiations was only appropriate when a claim for rectification was made. Rectification is the phrase used for a contract being altered to mean what both parties to it thought it meant originally. No claim for rectification of the contract had been made in the initial case, so the Court could not entertain one. In any event, the meaning of the contract was clear.

Persimmon appealed to the House of Lords, which overturned the decision of the Court of Appeal. It ruled that interpreting the contract under the ordinary rules of syntax made it commercially nonsensical. The contract had to have the meaning that a reasonable person would have understood to be the intention of the parties to it when it was made.


General
Be Careful What Claims You Make
One of the principal tenets of law in the UK is that a successful action in damages will restore the claimant to the position they would have been in had the ‘tort’ not taken place: there is no concept of punishment for the person causing the damage.

However, where losses are suffered as a result of fraudulent misrepresentation, a recent case has seen the court award damages to the claimant beyond what one might consider to be mere restitution for the loss suffered.

The case involved an investment in financial futures by a trader who relied on statements made by a broker about the level of profits that would be made. Those statements were false and the funds collapsed, becoming almost valueless in the space of two years.

The trader claimed restitution for the loss of capital and the loss of profit he would have made had he made alternative trades. The court agreed that he could recover these sums and also the ‘profit on profit’ he would have made had he made other trades. What was most significant was that the court did not consider it necessary for the claimant to identify specific transactions he would have undertaken had he not been duped. The court considered his prior and subsequent track record as sufficiently impressive to conclude that profits would have been made.

When a person is induced to invest on the basis of knowingly false statements, it is likely to end in litigation.


Property
Court Takes Commonsense View of Delivery of Notice Clause
When a dispute arises under a contract and notices or other documents have to be delivered to the other side in the dispute, it is essential that these are delivered in accordance with the contract terms. This may seem obvious, but proceedings are quite frequently challenged on the basis that notices are incorrectly delivered and therefore invalid.

In a recent case involving a construction dispute, a claimant issued a notice referring the dispute to adjudication as provided by the contract. This was sent by post and, although incorrectly addressed, was received the next day. The defendant passed it on to its solicitor. The adjudicator found in the claimant’s favour and ordered the defendant to pay.

The defendant refused. The contract had specified that the notice of adjudication was to be delivered personally or by fax. The defendant argued that the adjudicator therefore had no jurisdiction over the dispute. The clause covering delivery also stated that it would be sufficient ‘to prove that personal delivery was made…’.

The matter then went to court, where the claimant argued that as a matter of fact the defendant had received the notice, so the requirements of the delivery clause were satisfied. The court considered that the term ‘delivered personally’ meant that the notice was delivered by an appropriate individual representing the claimant to an appropriate individual representing the defendant. In the view of the court, the method of delivery did not matter. On the facts of the case, actual delivery to an appropriate person (the defendant’s solicitor) had occurred, so the delivery clause was satisfied.

In this case, the claim to resist the notice was unsuccessful because the court took a commonsense approach to the clause. This need not necessarily have been the case. The matter would never have gone to court had the notice also been delivered by fax.

Electric Shock for Developer
When a developer bought a piece of land, intending to build an office block, it was in for a shock. The land benefited from an easement granting access over adjacent land (the garden of a house). This allowed the right of passage of utility companies over and through the adjacent land.

The developer applied to electricity company EDF to put in an electricity supply to its land, which required EDF to lay cables through the adjacent land. EDF refused to do so unless the owners of that land signed a deed granting it the right to lay the cables. The landowners refused.

The developer went to court, claiming that the landowners were obliged to give the grant to EDF. The claim failed. An easement has a negative character – it prevents something. The landowners could not stop EDF. However, an easement cannot compel the person(s) granting it to do something – in this case, it could not compel the landowners to give EDF the deed it demanded.

Interestingly, what appears to have started this off was the failure of anyone to discuss the proposed digging of cable trenches with the owners of the garden prior to their receipt of a notice that work was intended. One cannot help but wonder if the issue could have been avoided altogether had a more considerate approach been taken.


Tax
Interest on VAT Refunds Simple or Compound?
In a claim from a motor dealer who had overpaid VAT for several years and reclaimed the VAT overpaid with interest, the High Court has recently ruled that a trader who is due a tax refund for overpaid VAT can, in principle, claim compound interest. This is because European Community law allows it, although UK tax law only provides for simple interest in such cases. The judge ruled that ‘Community law does override the otherwise exhaustive and exclusive statutory scheme for the payment of interest on overpaid VAT, where the overpayment arose from breach of directly effective provisions of Community law’.

That is the good news. The bad news is that the judge also concluded that ‘as a matter of English domestic law, the statutory scheme in VATA 1994 for the repayment of wrongly levied VAT and the payment of simple interest thereon is exhaustive and excludes any other remedy’.

If a repayment arises due to the ‘directly effective provisions of Community law’, then compound interest will apply. If this is not the case, simple interest will apply. However, the question as to how compound interest would be calculated is moot and it may well be that the applicable rate might be a lower one which would equate to the calculation of simple interest at a higher rate.

In the case in point, the claim for a refund was thrown out anyway!

New Car Fuel Rates
HM Revenue and Customs have announced that the rates per mile payable for car fuel (where a mileage rate is paid to company car users for business travel) are as follows from 1 July 2009:

The mileage rates are payable when an employee uses a company car for business purposes and is reimbursed only for fuel used for business purposes. Using this system provides reimbursement for the employee for business mileage and prevents an assessable benefit in kind arising for fuel benefit, which is chargeable if fuel is provided by the employer for private motoring.

NICs on Dividends
It is often assumed that the mere payment of a sum by way of a dividend, rather than as salary or bonus, will avoid PAYE and National Insurance Contributions (NICs). In the case of PAYE, the tax treatment as payment of a dividend will override that applicable to payment as remuneration, so PAYE will not apply. This does not, however, mean that NICs are not payable.

In a recent case, a company which arranged for its employees to receive a bonus by way of a payment of £24.6 million into an offshore trust, which then paid them dividends, sought to persuade HM Revenue and Customs that neither PAYE nor NICs were payable as a result.

The case reached the Special Commissioners, who decide tax cases based on points of law. They concluded that the legislation which excludes dividends from being treated as remuneration for income tax purposes does not apply for the purposes of NICs. The Commissioners concluded that since the dividends derived from employment they were therefore subject to NICs.

The facts of this case were based on the law as it applied in 2003. Subsequent to that, anti-avoidance legislation has been enacted with the result that it is now more difficult to make such schemes work. Indeed, in certain circumstances, an ill-thought out scheme could lead to a double charge to tax.


Company Law
Appeal Court Spells Out Sentencing Policy for Insider Dealing
Insider dealers can expect substantial jail terms following guidance issued by the Court of Appeal. The advice was given during the summing up in the unsuccessful appeal of solicitor Christopher McQuoid against an eight-month prison sentence for his part in a deal resulting in an illegal profit of nearly £50,000.

Insider dealing is an offence under the Criminal Justice Act 1993 and carries a maximum jail term of seven years. The offence is committed when a person trades in or assists another person to trade in shares or other securities, with the benefit of access to information not at the time in the public domain.

The Appeal Court judges stated that the following factors should be taken into account when deciding the appropriate sentence:

1. The nature of the defendant’s employment or other involvement that put him in a position to take illegal advantage of inside information;
2. The circumstances in which the inside information came into the possession of the defendant and the use made of the information;
3. Whether the defendant behaved recklessly or acted deliberately and dishonestly;
4. The degree of planning and sophistication involved in this activity, as well as the period of unlawful trading and the number of individual trades;
5. Whether the defendant acted alone or with accomplices and, if so, the relative culpability of each party;
6. The amount of anticipated or intended financial benefit (or loss avoided) as well as the actual benefit (or loss avoided);
7. Although the absence of any identified victim should not normally be taken in mitigation, the impact, if any, where proved, on any individual victim should be taken into account; and
8. The impact of the offence on public confidence in the integrity of the market, taking into account the impact on public confidence of an offence committed jointly by more than one person trusted with confidential information.

Age and a guilty plea should also be taken into account, as should good character, although it should also be borne in mind that the individual of good character, by misusing the information, has breached the trust vested in him as a result of his good character.

In assessing sentence, full weight must be given, said the judges, to the impact on the appellant and his family, as well as the destruction of his professional reputation.

This guidance shows how seriously the courts now take insider dealing. Substantial custodial sentences are likely to result from any such activity.

Insider Dealing – New Regime
The Financial Services Authority (FSA) has announced that it is cracking down on insider dealing. The FSA, which levied fines of more than £28 million in the year to 31 March 2009, is appointing 30 new inspectors and tripling the level of fines it can levy.

Individuals can face fines of up to £100,000 for insider dealing and companies fines of up to £50 million.

Insider dealing is also a criminal offence, which means that the Proceeds of Crime Act 2002 (POCA) applies. Under POCA, assets which are derived from criminal activity can be confiscated.

Insider dealing is often considered to be a victimless crime, but the FSA takes a very serious view of transgressions.

New Small Business Accounting Standards
One of the big problems with understanding the accounts of small businesses in different countries has been that the applicable accounting standards have varied greatly from country to country. Large business entities are covered by standards issued by the International Accounting Standards Board (IASB), which are intended to ensure comparability between accounts of companies across the world. However, large entities constitute only five per cent of companies. The IASB has now released new accounting standards for small- and medium-sized businesses.

The 230-page document dictates accounting treatments that largely mirror those used by large companies, so should make comparing the accounts of large and small companies simpler. Adoption of the new standards will be a matter of choice for each country. However, EU Commissioner Charlie McCreevy has pointedly not signed the charter and the memorandum of understanding which set out the principles of international standard-setting. This would seem to indicate the EU’s lack of enthusiasm for the proposals.

In the UK, small companies do not require an audit and in any event the responsibility of auditors to third parties is severely limited. A reader of accounts who relies on them without doing the necessary due diligence work takes a big risk and this will continue to be the case.

What Makes a Director?
A tax case involving a husband and wife who paid themselves millions of pounds in dividends from 42 insolvent companies without making the necessary provisions for corporation tax has recently been heard by the Court of Appeal.

The companies are all in liquidation and one of the prime issues to be decided was whether the couple were or were not directors of the insolvent companies. Under UK law, the definition of a director of a company includes those whose decisions are acted upon as well as those who carry the formal title of director. It is therefore not necessary to be called a director to be a director in law. To answer that question, the Court asked whether the couple had ‘assumed the status and function’ of directors to an extent which would make them responsible under the Company Director Disqualification Act 1986.

The structure adopted was that the husband was a director of a company which was the sole director of the other companies. In these circumstances, ruled the court, the directors of a corporate director ‘cannot by virtue of that fact alone be constituted de facto directors of the company’.


Contract
Possession is 9/10ths of the Responsibility
When someone holds goods belonging to someone else, (a ‘bailee’ in legal terminology), that person owes the other person a duty of care. A recent case shows that such responsibilities should not be taken lightly.

The circumstances were that a company named Matrix had sent 5,000 Bluetooth adaptors worth £375,000 by airfreight to Hong Kong. It used a company called Birkart to ship them. Birkart’s subcontractor mistakenly delivered them to a warehouse belonging to Uniserve. They were stolen from the warehouse. Matrix sued Uniserve and Uniserve sued Birkart, Uniserve alleging that there was an implied contract between it and Birkart which was governed by the standard British International Freight Association terms.

Uniserve was not involved in the transaction but became a ‘bailee’. It therefore had a responsibility to the owner of the goods (Matrix) to exercise reasonable diligence and skill to prevent the theft.

The legal arguments were many and varied, but the court ruled that as Uniserve was a bailee, it therefore bore the burden of proof to show that it had taken all reasonable steps to take care of the goods or, if it had not done so, that the failure was not what caused their loss. The judge enumerated a list of failures by Uniserve which persuaded him that had the company acted correctly, the goods would not have been stolen but would have been collected by Birkart and delivered to the airport the same day. Accordingly, Uniserve’s procedural failures caused the loss and it was therefore liable to Matrix.

Uniserve’s claim against the carrier failed. There was, as a matter of fact, no contract between it and Birkart.

The importance of this case is that it emphasises that responsibilities can arise unintentionally. In similar circumstances, you should make sure that action is taken promptly to advise those involved of the error and ensure that the goods are protected. If such circumstances are a possibility, it is also worth reading your commercial all-risks policy carefully to check that you do have cover in such circumstances.

Who is Responsible? Look at the Contract
In a contract, who is responsible for what is determined by the wording – which is why it is crucial to get the wording right from the outset. In a recent case, a company bought oil on a standard FOB (free on board) contract.

The oil was of satisfactory quality when it was put on the ship, but not when it arrived in port after an uneventful passage at sea. The buyer held the seller responsible, implying a condition into the contract that the oil would be fit for purpose on delivery. The seller denied responsibility, pointing to a clause which excluded ‘all guarantees, warranties or representations, express or implied, of merchantability, fitness or suitability of the oil…’.

The case turned on the wording of the contract. The court ruled that there was an implied term (a ‘condition’) in the contract that the oil would be of satisfactory quality on delivery to the port after a normal passage at sea. The exclusion clause did not, as stated, exclude a change in quality of the oil. The effect of the condition was that the vendor was responsible for the oil failing to be of merchantable quality at the port of discharge.


Intellectual Property
File-Sharing – ISPs to Shoulder the Burden
The recent Government consultation paper ‘Digital Britain’ has set out a new regime for tackling illegal file-sharing over the Internet.

The Government will empower Ofcom to make sure that Internet Service Providers (ISPs) take steps to prevent unlawful file-sharing. ISPs will be required to send notices to suspected file-sharers and to store information concerning them. One method by which file-sharing will be discouraged – as it is informally by many ISPs – is by reducing the bandwidth available to the subscriber, which limits the amount of data that can be transferred, thus apparently slowing down their Internet connection. File-sharing sites may also be subjected to blocking by ISPs.

The proposals will be welcomed by owners of intellectual property rights in electronic form. The British Phonographic Industry claims that peer-to-peer file-sharing costs the UK music industry £180 million per annum (2008) while market research company IPSOS reported a loss of £152 million to the UK TV and film industry (2007). This is dwarfed by the cost of illegally transferred software, which is estimated at nearly $50 billion annually.


Insolvency
Discovering a Cover-Up – Tips for Directors
Dubious business practice will always be with us, but it is more likely to be uncovered when business is tough. Directors who discover such practices within their companies can find themselves in a difficult situation. This is especially common when a director finds that the true financial position of a company has been disguised.

What should you do if you find yourself in such a position?

Firstly, try to establish the facts of the situation and its impact and severity. Once that is known, consider the ethical principles which apply to company directors under the Companies Act 2006 and other legislation, and your responsibilities as a director as well as under your contract of employment. Consider also your company’s corporate policies and procedures.

If necessary, clarify your obligations by speaking with colleagues and/or your company’s HR department. It is important when consulting with others not to breach confidentiality.

When deciding what to do next, taking legal advice is sensible. Taking the wrong action may have unpleasant consequences – however, doing nothing might be even worse. Remember that it is against the law (under the Public Interest Disclosure Act 1998) for an employer to discriminate against an employee who makes a ‘protected disclosure’.


Data Protection
Builders’ Blacklist Owner Fined
The much-reported case involving the database of ‘blacklisted’ construction workers has now led to its operator being fined £5,000 for operating a database which processed personal information without registering with the Information Commissioner’s Office (ICO).

The database held the names of more than 3,000 construction workers and was allegedly used by building firms which refused employment to those whose names were listed on it. Under existing law, the only sanction available against the database owner was under the Data Protection Act 1998. However, a change in the law is being considered which will ban the use of similar lists and the Government has issued a consultation paper proposing a ban on the blacklisting of Trade Union members.

It has recently been announced that from April 2010, the ICO will have the power to levy directly fines for breaches of the eight ‘data protection principles’.

If your organisation processes personal data of any kind (data which may be used to identify an individual), then you almost certainly need to be registered with the ICO.

Data Protection – New Two-Tier Notification Fee
Every organisation that processes personal information has a statutory duty under the Data Protection Act 1998 to notify the Information Commissioner’s Office (ICO), unless it is exempt. The current annual notification fee is £35 and failure to notify is a criminal offence.

Notification involves the data controller informing the ICO of certain details about their processing of personal information. These details are used to make an entry describing the processing in the register of data controllers held by the ICO. The register is available to members of the public for inspection so that they can find out how personal information is being processed by data controllers.

From 1 October 2009 a new fee structure will apply to notifications and renewals. Organisations with 250 or more members of staff and a turnover of £25.9 million or more will be required to pay a fee of £500, as will public authorities with 250 or more staff members. The higher rate will not apply to charities or small occupational pension schemes, however.

For organisations with fewer than 250 staff members or a turnover below £25.9 million, the fee will remain at £35.

It is anticipated that the two-tier fee structure will augment the ICO’s resources by approximately £4.7 million per year.

Guidance for data controllers on the notification process can be found at
http://www.ico.gov.uk/upload/documents/notifications_handbook_html/introduction.html.


Employment
Disability Discrimination – ‘Likely’ Means ‘Could Well Happen’
Employment disputes often arise because an employer does not consider that an employee’s condition is such as to qualify them for protection under the Disability Discrimination Act 1995 (DDA). It is therefore important that the definition of disability contained in the DDA is understood and interpreted in a consistent way.

For the purposes of the DDA, someone has a disability if they have a physical or mental impairment which has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities. If an impairment ceases to have such an effect, it is to be treated as having that effect if it is likely to recur.

Furthermore, an impairment which would be likely to have a substantial adverse effect, but for the fact that measures are being taken to treat or correct it, is to be treated as having that effect.

In SCA Packaging Ltd. v Boyle, the House of Lords has ruled that the word ‘likely’ should be taken to mean ‘could well happen’.

Mrs Boyle suffered from nodules on her vocal chords. She had undergone surgery to remove them and several months of speech therapy, after which she continued with a strict regime that involved voice exercises, resting her voice, sipping water and trying not to raise her voice. She attributed the non-recurrence of the nodules to her adherence to this regime of preventative measures.

In 2000, an office re-organisation was planned. Managers intended to remove a partition, which would expose Mrs Boyle to more noise and thus require her to speak more loudly. She argued that this was a failure to make reasonable adjustments for her disability. SCA Packaging Ltd. denied that she was disabled for the purposes of the DDA.

The House of Lords upheld the decision of the Court of Appeal that in determining whether an impairment would be ‘likely’ to have a substantial effect without the measures taken to treat or correct it, ‘likely’ means only ‘could well happen’. The more exacting test, whereby ‘likely’ was held to mean ‘more probable than not’, should no longer be used. It is sufficient to establish that the condition ‘could well recur’.

This decision is an important one where an employee suffers from a disability but can carry on normal day-to-day activities because the condition is kept under control by medication or a prescribed course of treatment.


Health and Safety
The Duty to Manage Asbestos – HSE Guidance
Asbestos is the single greatest cause of work-related deaths in the UK. According to statistics provided by the Health and Safety Executive (HSE), every year 1,000 people who have been involved in carrying out building maintenance and repair work die as a result of past exposure to asbestos fibres and it is estimated that half a million commercial buildings still contain asbestos.

Buildings all need repair and maintenance work from time to time and it is when asbestos fibres are disturbed, e.g. by drilling or cutting, that they are most likely to be inhaled as a deadly dust. The Control of Asbestos Regulations 2006 introduced a new legal duty to manage asbestos. The duty applies to all non-domestic buildings and the common areas of residential rented buildings.

If you are responsible for maintenance and repairs of premises covered by the Regulations, you have a duty to manage asbestos if:

• you own the building;
• you are responsible through a contract or tenancy agreement;
• there is no formal contract or agreement but you have control of the building; or
• in a multi-occupied building, you are the owner and have taken responsibility for maintenance and repairs for the whole building.

Whilst a building erected in or after 2000 is unlikely to contain asbestos, if it was built on a brownfield site or contains old equipment (for example ovens, soundproofing, insulating mats, fire blankets, oven gloves or ironing surfaces), it is important to follow the correct steps in order to comply with the law.

The ‘duty holder’ must take reasonable steps to find out if the premises contain asbestos and, if they do, its amount, where it is and what condition it is in. Unless
there is strong evidence that the building does not contain any asbestos material, it must be assumed that it does.

The HSE has published a step by step guide, which takes duty holders through the process of understanding their obligations with regard to the management of asbestos. This includes a useful checklist of each step that must be taken and an example of an asbestos management plan. In addition, it can also help you decide whether or not you need to use an HSE licensed contractor to carry out planned maintenance work.

The guidance can be found at http://www.hse.gov.uk/asbestos/managing/index.htm.


PREVIOUS NEWSLETTERS

JULY 2009 JUNE 2009 MAY 2009 APRIL 2009 MARCH 2009 FEBRUARY 2009 DECEMBER 2008 NOVEMBER 2008 OCTOBER 2008 AUGUST 2008 JULY 2008 JUNE 2008 MAY 2008 APRIL 2008 MARCH 2008 FEBRUARY 2008 DECEMBER 2007 NOVEMBER 2007 OCTOBER 2007 AUGUST 2007 JULY 2007 JUNE 2007 MAY 2007 APRIL 2007 MARCH 2007 NOVEMBER 2006