CorporateFILE March 2009

In-House News: Brethertons Appear on the BBC Politics Show

Natalie Roach, partner and head of employment at Brethertons recently appeared on the BBC Politics Show along with Local MP Tony Baldry.

The show was looking at how retail is faring in the current economic climate and with redundancy being a hot topic, Natalie discussed live on air employment issues that are effecting local people as a result.

Bank Can’t Change its Mind

Although it involved an individual borrower, the outcome of a recent case will be regarded with relief by anyone who is having trouble with their bank – an increasing problem as the credit crunch continues.

The case involved a man who had negotiated with his bank to have a secured overdraft, which was repayable over 20 years. The overdraft agreement provided that should the agreed borrowing limit be exceeded, the bank had the right to demand repayment of the whole of the overdraft. Failure to meet the demand would trigger the bank’s right to take possession of the property against which the advance was secured. The man failed to keep within the agreed overdraft limit and was contacted by the bank. His bank manager held discussions with him and the man claimed he obtained the bank’s agreement to a three-month moratorium, during which it would not seek a possession order if he brought the account back within the overdraft limit. There was to be a further review at the end of the period. The bank denied that this had been agreed.

The bank sought a possession order, which was granted. The man appealed. The Court of Appeal found that the bank had given an undertaking to the man not to issue proceedings for possession for three months if the terms agreed were adhered to. It had not agreed that it would never apply for a possession order, just to postpone the application. The bank could not change its mind. Accordingly, the original possession order was set aside.

This case illustrates that a bank cannot agree to take one course of action and then take another. If you find yourself in a similar position, it is very important to obtain the strongest evidence you can of what has been agreed by the bank. Taking professional advice so that variations to agreements are properly recorded is a good safeguard. We can advise you if you are having difficulty with your bank or with collecting your debts.

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 that 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 Ceases When Small Breaches Repeated

Customers who don’t pay their bills are bad enough, but customers who don’t pay their bills and then attempt to sue when the supplier stops work could be considered to be very bad news indeed.

This situation can occur if a customer suffers a loss because their supplier has not done the work contracted and the contract is still ‘live’.

In a recent case, a consultant engineer was retained to advise another consulting firm which had successfully tendered to manage a project to remove radioactive waste. The payment for his work was based on an agreed hourly rate with monthly billing. For more than 18 months the consulting firm failed to pay his invoices when they fell due and the delays were substantial. After making repeated complaints, the engineer refused to continue to work for the firm, which then instructed another firm. The consulting firm brought a claim against the engineer for the losses his cessation of work caused them and, not unexpectedly, he counterclaimed for the amount of his outstanding bills.

The engineer argued that the consulting firm’s repeated failure to pay him with reasonable promptness meant that it had repudiated its contract with him. The consulting firm argued that it had not breached the contract, because the payments were made eventually and the breaches of the agreed terms were not sufficient to justify bringing the contract to an end.

The case reached the Court of Appeal, which upheld the engineer’s argument. It was of particular importance to the decision that the consulting firm had repeatedly and cynically breached the agreement regarding payment terms despite numerous complaints. He was therefore entitled to consider that there was every likelihood this would continue to be the case.

Brethertons’ view:

“One of the reasons why this affair resulted in a prolonged court battle was that the contract terms were agreed verbally, without the benefit of a proper contract being put in place. A written contract in the right form would have allowed each side to understand where they stood and would have provided a mechanism for the termination of the contract which was unequivocal. If you are entering into contractual negotiations, we can advise you.”

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 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.

Employed or Self-Employed? New Guidance

Whether you are employed or self-employed makes a substantial difference to how you are taxed and the income tax liabilities of an employed person can be very different from those of a self-employed person with similar levels of gross income. The National Insurance liabilities of the employed and self-employed are also calculated differently and entitlement to benefits, such as Jobseeker’s Allowance, also varies depending on one’s employment status.

It is therefore important for any working person to know their exact employment status. Sometimes, however, deciding whether someone is genuinely self-employed or an employee can be difficult and HM Revenue and Customs are unforgiving of those who ‘get it wrong’. However, they do produce fact sheets to help people make the correct decision and have recently updated part of the IR56 booklet (‘Employed or Self-Employed’). This can be viewed in its entirety at http://www.hmrc.gov.uk/pdfs/ir56.pdf.

The new guidance, in the form of leaflet ES/FS1, is a short guide to the question and is helpful in that it deals with specific types of occupation (e.g. entertainers) where the normal income tax law may not apply. It can be downloaded from
http://www.hmrc.gov.uk/leaflets/es-fs1.pdf. It also provides links to advice on special circumstances (e.g. the working rights of non-residents and what to do if you have more than one job).

New Road Safety Laws Come into Force

Motorists who kill while avoidably distracted at the wheel will face prison under new road safety laws which came into force on 18 August 2008.
 
Section 20 of the Road Safety Act 2006 (RSA) creates a new offence of causing death by careless or inconsiderate driving, which covers distractions that can lead to accidents and carries a maximum penalty of five years’ imprisonment. A distraction can be anything which takes a driver’s attention away from the road and which a court rules to have been an avoidable distraction. The definition includes smoking whilst driving, using a mobile phone (whether hands-free or not), listening to music, talking to fellow passengers, drinking, eating, using technological aids and personal grooming.

Section 21 of the RSA creates a new offence of causing death by driving whilst unlicensed, disqualified or uninsured and this carries a maximum penalty of two years’ imprisonment.

Prior to the changes in the law, the maximum sentence for those convicted of causing death by careless, uninsured or unlicensed driving was a maximum £5,000 fine and penalty points on the driver’s licence.

Employers with employees who drive on company business are strongly advised to make employees aware of the changes in the law and to update their road safety policies to include a warning not to contravene the latest Highway Code.

Shareholders Rue Loan Agreement Terms

With banks seeking ever tougher terms from borrowers and acting 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 implications. We can assist you in negotiations for finance.

When a Promise is Not a Promise

Nowadays, it is becoming less and less common for business to be transacted ‘on a handshake’ and a recent case highlights the dangers of failing to get formal documentation in place to confirm the terms of an agreement.

The case involved a property developer, who made an oral agreement with the management of a company that owned a block of flats to the effect that he would buy the block once he had obtained planning permission on the property. The details of the agreement were that if planning permission were achieved, the company would sell the property to the developer (or a company nominated by him) for £12 million and then the developer would develop and sell the property. The owner was also to be entitled to 50 per cent of the sale proceeds exceeding £24 million.

The developer spent a considerable amount of time and money on obtaining the requisite planning permission only to find that the owner of the flats then refused to enter into a contract for sale on the agreed terms.

The developer sought a lien (a charge) over the property to secure his interest, basing his case on the argument that the agreement had created proprietary estoppel against the property owner.

The doctrine of proprietary estoppel is that it is inequitable for the legal title holder of a property to deny a right to anyone who has acted to his or her detriment, having relied on an assurance from the owner of the legal title that he or she will acquire rights in or over the property.

The developer therefore argued that estoppel applied because he had acted to his detriment by spending the time and money necessary to obtain the planning permission and had done so on the basis of the assurance from the owner that the property would be sold to him on the terms agreed.

The case was appealed to the House of Lords. The Law Lords concluded that where the agreement was ‘subject to contract’, estoppel could not ordinarily arise because the prospective purchaser’s expectation of acquiring an interest in the property was subject to a contingency that was under the control of the other party and was therefore speculative. The other salient point is that oral agreements over land are not binding and the developer was aware of that.

In spite of the fact that the property owner’s behaviour was unconscionable, the case could not be made out. The question arose, therefore, of what compensation was appropriate for the developer.

The Lords considered the fair recompense for the developer would be the extent of unjust enrichment received by the property company, which was the value of the services it had received from the developer without having to pay for them.

The developer therefore stands to receive only a fair value for his efforts in obtaining the planning permission for the owner. Failing to put the appropriate documentation in place means that the developer will miss out on the considerable profit he was expecting. This case is yet another demonstration of the importance of putting binding contracts in place when arrangements such as this are made.