Corporate Services Blog
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Corporate Services Blog

Information for Companies



Commercial Contracts – Try to Keep It Simple


In many legal jurisdictions there is an overriding duty of good faith between contracting parties. However, the English Courts have consistently refused to adopt such a vague and subjective concept: there is no implied duty of good faith between contracting parties. The starting point is that each is free to take advantage of the other unless, for instance, there is a fiduciary duty.

Rupert Wright

Rupert Wright

The general rule when drafting contracts is to keep it simple if possible and conventional. Over- elaborate deal structures are fraught with difficulty. It is important to agree the main elements of the contract before drafting a written contract and to involve lawyers at an early stage.

Lawyers should also be managed and should be discouraged from agreeing the points in too fine a detail since commercial decisions are best left to the client not the lawyer. It is also important to plan ahead and allow time and space to negotiate the final contract.

As regards fiduciary duty in commercial contracts, an exception seems to exist for ‘relational contracts’ which can exist where the parties have a long term relationship and in such a situation, good faith, co-operation and loyalty are more likely to be implied.

This is probably easiest to prove in an employment context where the Supreme Court has recently confirmed that employers should be subject to a more objective stand of reasonableness when making decisions that affect their workers. In essence, employers must avoid capriciousness, perversity or irrationality. As was stated recently in the Supreme Court, the existence of an employment relationship may justify a more intense scrutiny of the employer’s decision-making process than would be appropriate in some commercial contracts.

This approach can be implied into more straightforward commercial contracts. A recent High Court decision has caused some comment by deciding that a commercial contract involved a ‘relational contract’ and that there was therefore an implied term to act with integrity and honesty although that seems to be a narrower concept than good faith.

The case involved a contract between a Police Authority and a vehicle recovery company and the important factor was the number of transactions between the parties and the length of their contractual relationship which led the Judge to describe it as a relational contract par excellence.   This High Court decision has raised concerns in the legal community because it does potentially open up a wider duty of care where there is a long established relationship between the contracting parties even if integrity and honesty is not as wide as good faith. This could well lead to judgements by the English Courts towards a more generalised duty of good faith between contracting parties.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

 

IR35 CONSULTATION


HMRC are looking at new ways to improve the efficiency of the IR35 legislation and to reduce the tax advantage for individuals hired through a personal service company (PSC) rather than as hired directly as employees. Current suggestions are for administrative changes and increasing the involvement of engagers to ensuring the correct amount of tax is paid. 

For further information please visit:

http://www.gov.uk/government/consultations/intermediaries-legislation-ir35-discussion-document

COMPANY PENSIONS REMINDER

Auto-enrolment. From the 1st June 2015 we have now reached the staging dates for automatic pension enrolment for employers with fewer than 50 employees. The overall staging period for this group runs until the 1st April 2017. If you have not already checked the staging date for your business and have a staff pension plan in place for implementation, you need to do so now.

You can check your date on the on the Pensions Regulator’s website:

http://www.thepensionsregulator.gov.uk/employers/staging-date.aspx

TAX TREATMENT OF TERMINATION PAYMENTS

The government has announced a consultation to review the income tax and National Insurance contributions on Termination Payments with the intention of making this easier and fairer. The consultation is seeking views on such matters as whether to remove the different treatment for contractual and non-contractual payments, which exemptions should remain, and whether any new exemptions should be introduced.

You can find out more here:

https://www.gov.uk/government/consultations/simplification-of-the-tax-and-national-insurance-treatment-of-termination-payments

GUIDANCE: ACAS has issued a new guide for small employers covering the basics of employment law regarding pay and wages. It includes summaries of different types of pay systems, wage slips, dealing with absences, overpayments and managing deductions.

You can see the guidance here:

http://www.acas.org.uk/index.aspx?articleid=1366

For further information please contact Andrew Egan on 01635 521212 or andrew.egan@clmlaw.co.uk

Written by Andrew Egan

August 11th, 2015 at 9:06 pm

Charles Lucas & Marshall – Business Team Newsletter – Summer 2015


Business Team - Summer Newsletter

Business Team – Summer Newsletter

 

 

 

 

 

 

 

 

 

 

 

 

Written by Rupert Wright

July 10th, 2015 at 10:55 am

Tips for Small Businesses Sales


 

 

Rupert Wright

Rupert Wright

Small businesses are generally defined as family businesses or businesses which are owned and managed by a single individual or by a small group of people. Rupert Wright, corporate services lawyer with Charles Lucas & Marshall, provides some pointers for buyers and sellers.

Due Diligence.  The small business may not have the time or resources to do a detailed due diligence exercise into the business it is buying.  In practice, an accountant often needs to be involved to check accounting issues.  However, the due diligence process includes checking supply contracts, the existence of litigation or disputes and employee issues.

Tax issues.  Stamp Duty and VAT will need to be checked.  In particular, VAT is not charged on assets sold as part of the transfer of a going concern.  However, both the seller and the buyer must be registered for VAT purposes.

Stock and work-in-progress.  Both parties must agree the value of the stock.  The simplest course of action is for the parties to agree on an expert valuer to carry out the stock valuation.  The most usual formula is for the valuation to be at the lower of cost and net realisable value.

Business Contracts.  The parties need to consider what action needs to be taken to transfer business contracts to the buyer.  To the extent that the buyer wants to have the benefit of a contract, this can be assigned to him by the seller.  The ideal solution for the seller is to seek to have contracts novated.

Computer Contracts.  Most small businesses are dependent on computers for their day to day operation.  Computer hardware is frequently leased rather than acquired outright.  Software can also pose contractual issues which need to be dealt with.  Also, the transfer of the rights in a website to the buyer need to be considered.

Restrictive covenants.  The buyer normally needs to have a restrictive covenant to prevent the seller opening a competing business or poaching valuable customers or staff.  The timescales for such restrictive covenants would need to be considered and generally two years is a sensible time period.

Employee rights.  The rights of employees are governed by the TUPE rules which provide that Contracts of Employment of employees are automatically transferred to the buyer.

Warranties and Vendor protection.  The buyer should seek reasonable warranties from the seller.  Sellers should ensure that they have protection from potential claims, particularly as to the amount that can be claimed.  Also, buyers should seek specific indemnities on key matters.

In summary, it is essential for both sellers and buyers of small businesses to involve a specialist business lawyer to assist with the asset purchase agreement required.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

Can Tenants Withhold Rent?


Paul Trincas, litigation specialist with law firm, Charles Lucas & Marshall, asks if tenants in residential property can withhold rent if their landlord is in breach of repair obligations? 

Paul Trincas

Paul Trincas

This is an area of some complexity and both tenants and landlords should take advice as to firstly, whether the landlord is in breach of its repair obligations and secondly, remedies which might available to the tenant.

Much will depend on the facts of each case, including the terms of the tenancy agreement and the nature of disrepair.

If the landlord is in breach of its repair obligation (which in itself might be in dispute) the tenant will have an action in breach of covenant. As in any claim for damages, thought will need to be given to the proper value of the tenant’s claim. In the first instance, the tenant should expect re-dress for the fact that – whilst the property is in disrepair – he is not getting proper value for the rent he is paying.

The tenant has two options: to continue to pay rent in full and pursue the landlord separately for damages or exercise a right of set-off, by withholding rent against the tenant’s disrepair claim.

The second option might appear the more attractive, as it puts the landlord under pressure to complete the repairs sooner rather than later.

Scenario One: Landlord agrees to accept reduced amount of rent whilst repairs remain outstanding – this is the ideal outcom, but the agreement should be properly recorded.

Scenario Two: Landlord insists, that despite the disrepair, rent still be paid in full – the tenant’s only option here is to withhold rent regardless and rely upon a right of set-off when responding to the landlord’s claim for rent arrears / possession.

Many tenancy agreements will attempt to exclude the tenant’s right of set-off, by requiring the tenant to pay rent ‘without deductions’. That form of wording in itself might be too imprecise to prevent the tenant exercising a right of set-off.

Further, a provision which requires the tenant to pay rent free of deductions might fall foul of consumer protection laws.

The tenant will of course need to decide how much rent it should withhold. This involves the tenant effectively attempting a valuation exercise. There is no guarantee that the Court will agree with the tenant’s assessment.

The first option suggested above (continuing to pay rent in full and pursuing a damages claim separately) involves the tenant bringing the action, rather than wilfully defaulting on rent and then responding to the landlord’s claim. The tenant avoids the two issues identified above: establishing a right of set-off and calculating how much rent to withhold.

For further information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk.

Written by Paul Trincas

December 3rd, 2014 at 1:49 pm

BOUNDARY DISPUTES


Boundary disputes can prove emotive and difficult to resolve where both parties are entrenched in their views as to where the boundary should be.

Paul Trincas

Paul Trincas

A recent Court case (Acco Properties Limited -v- Mr and Mrs Severn) has provided a useful reminder as to the principles which apply to disputes of this nature.   The judge in this case provided the following guidance:

In cases of registered land, filed plans show the general position only and are not determinative as to the exact boundary line.

The starting point in determining the matter is the original Conveyance (or equivalent document) and any plans which might be attached.

Topographical features which existed when the boundary was first established may be of relevance (in this case, regard was had to a raised bank).

The conduct of the ‘original’ landowners may be of probative value in establishing their intentions as to where the boundary fell.  Likewise, the conduct of later proprietors of the land might have resulted in a binding boundary agreement (whether express or implied).

Where there is evidence of the boundary features having moved over time, title to the land appropriated may now vest in the neighbouring owner by virtue of the doctrine of adverse possession.

The Court should consider what a ‘reasonable layman’ would have thought he was buying when purchasing one or the other of the properties involved.

In this particular case, the Court found that the boundary line fell midway between where the Claimant and Defendant said the boundary should be.  The judge based this decision on the existence of an informal boundary agreement, which arose out of the Defendants having felled two trees on their side of the boundary.  The Court held that in discussions which took place between the Defendants and the Claimant’s predecessors-in-title at the time, both parties acknowledged that the trees were on the Defendant’s land.

For further information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk.

Written by Paul Trincas

December 3rd, 2014 at 12:40 pm

DIY Commercial Litigation – A False Economy?


Paul Trincas, litigation specialist with law firm, Charles Lucas & Marshall, explains why it pays to use a lawyer in commercial disputes.

Paul Trincas

Paul Trincas

Many businesses are reluctant to instruct solicitors in commercial disputes because they are concerned about the financial implications. Increasingly businesses are resorting to DIY litigation which often costs them more in the long run. This is because people underestimate just how much work is involved running a civil action and how complicated matters can become.

Here are a few examples of the advantages of using a lawyer to represent you in disputes of a certain size:

Stating your Case: At the outset of any commercial litigation, each party will be required to state their case in pleadings. Quite often litigants in person struggle to set out their position clearly. This results from ignorance of the law and / or lack of expertise and experience in legal drafting. In many cases the judge will have already formed a view based on the paperwork alone before the trial has even begun. A defendant may have the best defence in the world, but if his statement of case goes on for pages, is poorly structured and fails to adequately explain why the claimant is wrong, he has already shot himself in the foot.

Procedural Matters: The rules that govern how the civil court system operates are set out in the Civil Procedures Rules. It follows that if a litigant in person is up against an opponent solicitor or barrister well versed in procedural matters he can easily become unstuck and feel intimidated. Cost penalties might result from failure to comply properly with court directions.

Objectivity: It is all too easy to become emotionally embroiled in a commercial dispute. Whether the dispute in question involves a debt, or a claim for damages, businesses of all sizes resent having to chase payment. Hard feelings can result from the breakdown of any business relationship, which can cloud judgement. A competent lawyer should be able to take an impartial view of prospects, determine the commercial reality of the situation and advise his client accordingly.

Technical Expertise: Whilst the Internet contains a wealth of information about the law, there is no substitute for a proper training and experience. Commercial litigation can and often does result from the most basic of disputes. However, the potential for complicated legal issues to arise out of what appear to be the simplest of circumstances should not be underestimated.

Getting the Best Result: One of the most challenging aspects of litigation is addressing the issue of remedy. The legal principles in a claim for damages (as opposed to a simple debt claim) need to be fully considered before calculating the likely value of any claim. Although the tendency for the uninitiated is to over-value claims (which will not impress the court), in some circumstances litigants will find themselves claiming a sum of money less than their proper entitlement.

Generally, solicitors are keen to promote to their clients the benefits of trying to settle. Doing so is preferable to bearing the litigation risks and expense of trial. If by seeking legal representation a dispute settles in the early stages of litigation costs might be kept to a manageable level.

For further information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk

 

Written by Paul Trincas

December 3rd, 2014 at 11:53 am

New ‘Pre-Action Protocol for Debt Claims’


For a number of years now, parties have been expected to comply with Pre-Action Protocols before they resort to litigation. There are different Pre-Action Protocols for a range of disputes, and then finally the Practice Direction – Pre-Action Conduct for those not subject to a specific Pre-Action Protocol.

Paul Trincas

Paul Trincas

The Protocols explain how the court expects the parties to behave at the pre-action stage and encourage them to consider other methods by which they might resolve their disputes. Failure to comply might result in the court imposing cost sanctions on the offending party. In practice the court is unlikely to do so unless one party makes an issue of the other’s non-observance.

The Civil Procedure Rule Committee is now consulting a new Pre-Action Protocol for Debt Claims. It will apply in circumstances where a business (including sole trader) is claiming payment of a debt from an individual, or where both parties are sole traders. The draft Protocol requires the Claimant to include certain ‘initial information’ within its letter of claim whilst enclosing copies of specified documents (including a copy of the Protocol itself). The Claimant’s letter of claim ‘must’ contain a prescribed statement, essentially outlining the requirements of the Protocol and encouraging the debtor to take independent advice.

As the draft currently reads, the defendant will then have at least 28 days to obtain advice. The Protocol encourages the defendant to respond using a form attached to the Protocol at Annex 1. This will explain whether or not the debt is admitted or disputed.

The Committee has received objections to certain parts of the draft Protocol. It is hoped that everything will be finalised and the new Pre-Action Protocol for Debt Claims implemented by April 2015.

Businesses will be used to issuing proceedings themselves, or instructing their solicitors to do so, in order to pursue debts. Currently, it is necessary to comply with the Practice Directions – Pre-Action Conduct before issuing, but once a specific Pre-Action Protocol for Debt Claims has been adopted clearly a new set of requirements will need to be adhered to. If businesses are uncertain as to what sort of steps they should take in the run-up to issuing proceedings for a debt claim they should take advice from their legal advisor.

For further information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk

Written by Paul Trincas

December 3rd, 2014 at 10:55 am

New Consumer Contract Regulations – Do Your Business Practices Comply?


Paul Trincas

Paul Trincas

The Consumer Contract Regulations came into force on 13 June 2014 and contain a number of pitfalls for unwary traders. Paul Trincas, a litigation specialist with Charles Lucas & Marshall, covers the headline points.

The Consumer Contract Regulations apply to all qualifying contracts made after the 13 June.
They supersede the Distance Selling Regulations and Doorstep Selling Regulations. They regulate ‘on-premises’, ‘off-premises’ contracts and distance selling. Distance selling includes online sales, telesales or sales via a catalogue but is outside the scope of this article.

Q – Will the Regulations apply to my business’ activities?

The Regulations cover contracts for the sale of goods, digital content and / or supply of services where the seller is a trader and the buyer a consumer. Most tradesmen and professional services providers will be caught. Exceptions do apply and these are worth checking.

Q – Why is it important to identify where the contract was made?

The Regulations distinguish between contracts made ‘on’ the trader’s business premises and contracts made elsewhere (e.g. a consumer’s home). Different rules apply to each type of contract. In practice, identifying whether a contract is on- or off-premises can prove difficult: for example, a contract concluded on the business premises of the trader after the consumer has been ‘personally and individually addressed’ by the trader elsewhere might be treated as an off-premises contract.

Q – What is the significance of the contract being ‘on-premises’?

The Regulations require the trader to (1) provide to the consumer certain pre-contract information; (2) seek express prior consent for additional payments; (3) deliver goods within 30 days unless otherwise agreed; and (4) charge the consumer no more than the basic rate for any telephone calls about the contract.

Q – What is the significance of the contract being ‘off-premises’?

The requirements detailed above still apply and in addition (1) the trader must provide the consumer with a copy of the contract; (2) in some cases, the consumer will have a right to cancel and must be told as much; (3) if applicable, the trader must not begin the service before the end of the cancellation period unless requested to do so.

Q – How does the right to cancel work?

The cancellation period begins either the day after the consumer has received the goods or (if a services contract), from the date on which the contract is entered into. The cancellation period ends after a period of 14 days from the date on which the consumer is given the pre-contract information (up to a period of 12 months from the last day of the ‘normal cancellation period’). A consumer can cancel by making an unequivocal statement to the trader to that effect. If the consumer cancels, no contract is formed and the consumer will be entitled to reimbursement of monies paid.

Q – Is there any way of overcoming the cancellation period?

In relation to services contracts, the consumer can make a written request that the services begin during the cancellation period. If the consumer has done so, he must pay for so much of the services as have been performed up to cancellation provided certain conditions are met. In practice, the trader is advised to provide the consumer with a carefully drafted ‘instructions to proceed’ form for completion.

Q – There appears to be a number of traps for the unwary trader!

Indeed there are! Failure to provide the consumer with the pre-contract information will mean that the trader is in breach of an implied term of the contract. In relation to off-premises service contracts, the consumer might escape payment altogether by exercising cancellation rights within 12 months of the normal cancellation period, despite the services having been provided. Failure to provide the pre-contract information in relation to off-premises contract is also a criminal offence.

For further information contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk

Written by Paul Trincas

October 21st, 2014 at 10:00 am

Misleading Statements From Directors – Actions Available to Shareholders


When directors have made misleading statements there are a number of potential penalties and remedies available to minority shareholders. Rupert Wright, a corporate lawyer with Charles Lucas & Marshall explains.

Rupert Wright

Rupert Wright

Misleading statements by directors mainly relate to information and projections which are presented to investors which are false or misleading and which never had any hope of ever being fulfilled.

There are a number of options for redress by shareholders – whether under criminal law, common law or under the Companies Act 2006.

The first consideration in any potential criminal prosecution is the Code for Crown Prosecutors.  Any prosecution must comply with the evidential stage and the public interest stage.  A person is only charged with allegations of crime where both tests are met.  Potential criminal offences might include misleading statements in relation to investments, fraud by false representation, fraud by abuse of position and conspiracy to defraud.

Under Section 397 of the Financial Services and Markets Act 2000, there are three elements which the prosecution must prove to make out an offence: namely that a misleading statement was made, that there was a requisite state of mind and also that the defendant must have acted with the purpose of inducing any person to act or refrain from acting in a way specified or was reckless.  The maximum sentence for an offence contrary to Section 397 is seven years in prison although this would be reserved for the worst cases of its kind.

As well as a criminal claim, there are potential civil remedies for making a misleading statement.  In the case of a civil claim, the following matters need consideration: deceit, conspiracy, dishonest assistance, breach of fiduciary duties, unjust enrichment and knowing receipt.

The Companies Act lays down the various fiduciary duties for directors.  In particular, a director must act within its powers, promote the success of the company, exercise reasonable skill, care and diligence and avoid conflicts of interest.

It is also open to minority shareholders to make a derivative claim which applies where shareholders have suffered or may suffer damage to their shareholding as a result of the conduct of a director.  A derivative claim is an action commenced by a shareholder seeking relief on behalf of the company in respect of wrong done to the company.  It is also open to members to make an unfair prejudice claim under Sections 994 to 999 of the Companies Act 2006.  A claim under this section can be made where the company’s affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members.

In summary, there are a number of avenues open to shareholders to make a claim where misleading statements have been made by directors.  Directors can potentially face a wide ambit of potential criminal and civil claims and should consult their lawyers on a regular basis before making statements which could be potentially misleading.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

Written by Rupert Wright

August 25th, 2014 at 3:31 pm