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Commercial Client Titles ~ August 2021
General
- COVID-19 – Procurement Dispute Focuses on Award of Face Masks Contract
Property
- Break Clauses in Commercial Leases – What Does ‘Vacant Possession’ Mean?
Tax
- Chinese Restaurant Sees Off Tax Authorities in Takings Suppression Dispute
Commercial Litigation
- Maker of Defective Axle Seals Ordered to Pay Over £11 Million in Damages
Company
- Worldwide Freezing Orders and Dissipation of Assets – Guideline Ruling
Contract
- Negotiating is One Thing, But Completing a Binding Contract is Quite Another
Intellectual Property
- Even Modest Sole Traders Can Reap the Benefits of Trade Mark Protection
Professional Negligence
- Innocent Law Firm Partners Not ‘Privy’ to Colleague’s Dishonest Acts
Employment
- Employer Pays High Price for Turning Blind Eye to ‘Toxic’ Office Culture
General
COVID-19 – Procurement Dispute Focuses on Award of Face Masks Contract
The means by which the government procured urgent supplies of personal protective equipment (PPE) in the early days of the COVID-19 pandemic have been the subject of fevered debate. However, as one case underlined, it is a feature of a free society that such contentious issues are ultimately resolved in a public court.
A supplier launched proceedings against the Secretary of State for Health and Social Care after it tendered unsuccessfully to supply face masks used in close clinical settings. The tendering process took place in the early part of 2020 just as the first wave of the pandemic was taking hold.
The supplier alleged that the process adopted involved a number of breaches of the Public Contracts Regulations 2015, including a failure to advertise, a failure to allow competition and the use of a so-called ‘VIP lane’ for preferred suppliers. The Secretary of State denied the allegations, asserting that the procurement method adopted was justified given the unpredictability of the pandemic and the extreme urgency of the situation at the relevant time.
He also contended that the supplier’s tender was in any event defective and invalid in that it failed to include certain information that was required to pass the technical evaluation stage of the process. That was denied by the supplier, who asserted that the Secretary of State had fundamentally misunderstood the basis of the tendering specification and manifestly erred in his assessment of its offer.
Following a pre-trial hearing, the High Court took the highly unusual step of authorising the supplier to call expert evidence in the procurement proceedings. That evidence was limited to technical issues regarding standards and methods of testing PPE. In order to maintain a level playing field, the Secretary of State was also granted permission to rely on expert testimony concerning those issues.
Partner Note
Bop-Me Ltd v The Secretary of State for Health and Social Care [2021] EWHC 1817 (TCC)
Property
Break Clauses in Commercial Leases – What Does ‘Vacant Possession’ Mean?
Commercial leases frequently stipulate that premises are to be handed back to the landlord ‘with vacant possession’ – but what exactly does that mean? The Court of Appeal pondered the issue in a case concerning an office block that was stripped back almost to the walls prior to the tenant’s departure.
Before it purported to exercise a break clause in the block’s 24-year lease, the tenant removed almost all fixtures and fittings, including ceiling tiles, window sills, pipework and floor finishes. Some of the features stripped out formed part of the original base-build of the premises and were either the landlord’s property or elements of the building itself.
After the landlord launched proceedings, a judge found that the break clause had not been validly exercised and that the lease therefore continued in force. The building having been left in a dysfunctional and unlettable state, the premises handed back by the tenant were considerably less than the premises defined in the lease. The stripped-out condition of the building posed a major impediment to the landlord’s use of the premises and the tenant could not, therefore, be said to have given up vacant possession.
In upholding the tenant’s appeal against that outcome, the Court found that the landlord’s interpretation of the break clause had implications that the parties were unlikely to have intended and that ran counter to business common sense. A situation would arise where the tenant would be able to validly terminate the lease if it handed back the premises in a dreadful state of repair, but not if a more than minimal number of ceiling tiles or other original features were missing, regardless of whether the deficiency was the tenant’s fault.
The landlord argued that, if the tenant’s interpretation were correct, it would have been able to exercise the break clause if it had demolished the building altogether, leaving a bare patch of earth. The Court, however, noted the improbability of such a scenario. The tenant had validly exercised the break clause in that it had, in accordance with the lease, handed the premises back to the landlord free of people, chattels and third-party interests.
After ruling that the lease had terminated on service of the break notice, the Court noted that the landlord was not left without a remedy. If it could establish that the tenant had, by stripping out the premises, breached repair or other covenants in the lease, it would be entitled to compensation.
Our specialist lawyers can advise you on matters involving commercial leases. Contact us for guidance.
Partner Note
Capitol Park Leeds Plc and Another v Global Radio Services Ltd [2021] EWCA Civ 995
Tax
Chinese Restaurant Sees Off Tax Authorities in Takings Suppression Dispute
HM Revenue and Customs (HMRC) officers wield great power but are not immune from error and, with the right legal advice, their decisions can sometimes be overturned. In one case, a Chinese restaurant accused of systematically under-declaring its takings was exonerated by the First-tier Tribunal (FTT) – and relieved of bills totalling almost £200,000.
The restaurant was the subject of unannounced visits from HMRC officers on two Friday nights. Following analysis of till records and other material, HMRC concluded that the restaurant’s takings had been under-declared over a period of about three years. Demands for payment of additional VAT and Corporation Tax were raised totalling £105,111. On the basis that the under-declarations were deliberate and concealed, penalties totalling £94,340 were also imposed.
In upholding an appeal brought by the company that ran the restaurant, the FTT noted arguments that the relevant Friday nights, one of which marked Chinese New Year, were unusually busy and were not representative of the restaurant’s typical takings.
The evidence was hardly consistent with an organised attempt to conceal sales and there was no coherent basis for officers’ arbitrary assumption that the restaurant’s turnover had been suppressed. The above-average takings on the Friday nights in question could just as readily be explained by random fluctuations as by systematic suppression.
HMRC had simply assumed the worst and the lack of primary evidence of takings suppression added to a general impression of the slight carelessness with which the whole case had been conducted. The tax demands and penalties were overturned in their entirety.
If you are embroiled in a legal dispute with the tax authorities, our specialist lawyers can advise you.
Partner Note
Kong’s Restaurant Ltd v The Commissioners for Her Majesty’s Revenue and Customs [2021] UKFTT 220 (TC)
Commercial Litigation
Maker of Defective Axle Seals Ordered to Pay Over £11 Million in Damages
Save where agreed otherwise, goods supplied under contract must generally be both fit for purpose and of satisfactory quality. In one case, polymer seals used in the car manufacturing industry failed to match up to that standard and the company that made them was ordered to pay more than £11 million in damages.
The company supplied seals to a client who made and fitted axles for a major vehicle manufacturer. They were designed to prevent oil leaks and to minimise ingress of dirt and other external contaminants. Over a period of about two and a half years, their premature failure rate was many times higher than the industry norm. The client responded by launching proceedings, alleging breach of contract.
In upholding the claim, the High Court found that seals provided over the relevant period were of unsatisfactory quality and not fit for the purpose for which they were commonly used. They also fell short of the durability requirement contained in Section 14(2B)(e) of the Sale of Goods Act 1979.
As a result of the seals’ premature failure, the client was obliged to reimburse the vehicle manufacturer for its repair costs. The company was ordered to pay the client £11,243,026 in damages and to indemnify it against any further losses arising from defective seals manufactured during the relevant period.
Says <<CONTACT DETAILS>>, “Expert legal advice is essential in all litigation. Preparing the best possible evidential support is vital, as is compliance with the rules of litigation practice.”
Partner Note
Dana UK Axle Ltd v Freudenberg FST GmbH [2021] EWHC 1027 (TCC)
Company
Worldwide Freezing Orders and Dissipation of Assets – Guideline Ruling
Worldwide freezing orders (WFOs) are a powerful, some might say draconian, tool and will only be issued if there is a real risk of an alleged wrongdoer dissipating assets. The question of what constitutes such a risk came under analysis in a guideline Court of Appeal decision.
Two companies and their administrators obtained pre-trial WFOs against five people who were alleged to have misappropriated large sums belonging to the companies. Prior to those orders being made, the Serious Fraud Office (SFO) had been granted criminal restraint orders (CROs) in respect of the individuals’ assets.
In challenging the WFOs, two of them argued that, given the prior existence of the CROs, it could not be shown that there was a real risk that they would dissipate their assets. The CROs and the WFOs were said to be identical in effect and the duo argued that the imposition of the WFOs had achieved nothing, save to expose them to a heavier burden of compliance and greater legal costs.
In dismissing the appeals, however, the Court found on the facts of the case that the CROs were not a complete or adequate substitute for WFOs. The CROs were targeted at ensuring the preservation of assets that might be used to satisfy a criminal confiscation order, whereas the WFOs were designed to protect the companies’ private interests.
The SFO was under no obligation to notify the companies in the event that the CROs were lifted and the companies had a more than fanciful concern that the SFO might permit the duo to deal with their assets in such a way as to undermine their position. There was also the possibility that assets to which the companies proved to be entitled might fall outside the ambit of the CROs.
The companies’ administrators might well have information and expert opinion concerning the existence or value of the duo’s assets that was not available to the SFO and had justifiable concerns about the possible shortcomings of the CROs in guarding against the risk of dissipation.
Our lawyers have expertise spanning every area of company law. Contact us for specialist advice.
Partner Note
AA and Others v BB and Another [2021] EWCA Civ 1017
Contract
Negotiating is One Thing, But Completing a Binding Contract is Quite Another
Commercial negotiations may proceed for many months and involve any number of meetings, messages and phone calls. However, as a High Court ruling showed, the question of whether a binding contract has been completed very often hinges on whether a signature appears on a dotted line.
Over an extended period, a pharmaceutical company negotiated with a supplier, with a view to being supplied with a muscle relaxant drug used in the treatment of multiple sclerosis. The company asserted that those negotiations resulted in a legally binding agreement and launched proceedings after the supplier entered into a distribution deal in respect of the drug with one of its competitors.
Dismissing the claim, however, the Court found that the negotiations had proceeded throughout on a ‘subject to contract’ basis. Offers had been made and accepted, but it was understood that no binding contract would come into existence until a formal addendum had been agreed and signed by both parties. Such an addendum had been reduced to writing, but the supplier never signed it.
For advice on any contractual matter, please contact <<CONTACT DETAILS>>.
Partner Note
Jamp Pharma Corporation v Unichem Laboratories Ltd [2021] EWHC 1712 (Comm)
Intellectual Property
Even Modest Sole Traders Can Reap the Benefits of Trade Mark Protection
No matter how small your business may be, it is always worth engaging a solicitor to ensure that you have proper trade mark protection. In a High Court case on point, registration of various trade marks paid dividends to a sole trader who made a modest living from the provision of cleaning services.
Despite generating an average annual income of only about £18,000 from her work, the trader took the trouble to protect the name and get-up of her business, which included the word ‘angel’ accompanied by a golden angel device. Both name and device were registered as trade marks, giving her exclusive rights to use them throughout the UK.
She launched infringement proceedings against a woman who began offering similar services using a trading style which, other than being prefixed by the word ‘the’, was identical to the trade marked name. She also advertised her services using a logo of an angel, which could be described as being golden.
Upholding the trader’s claim, the Court noted that the woman had rightly conceded that her trading style and logo infringed the trade marks. The conceptual, visual and aural similarities between them created a likelihood of customer confusion. Given that the trade marks were enforceable nationwide, it was irrelevant that she and the trader operated in different parts of the country.
When faced with the trader’s complaint, the woman had changed the name of her business so as to replace the word ‘angel’ with ‘archangel’. The Court, however, ruled that that change did not go far enough to dispel the likelihood of customer confusion and the new name also amounted to a trade mark infringement.
Entering summary judgment in the trader’s favour, the Court ruled that the woman had no reasonably arguable defence to the claim. The Court heard further argument as to the terms of its order. Issues concerning the financial or other relief to which the trader was entitled would be considered at another hearing, if not agreed.
For expert advice regarding trade mark infringement or any other matters relating to intellectual property, contact <<CONTACT DETAILS>>.
Partner Note
George v Bond [2020] EWHC 3863 (IPEC)
Professional Negligence
Innocent Law Firm Partners Not ‘Privy’ to Colleague’s Dishonest Acts
If a partner in a professional firm defrauds a client, should his or her fellow partners be treated as privy to the fraud even if they are entirely innocent? In a ruling that broke new legal ground, the Court of Appeal answered that question decisively in the negative.
The case concerned a well-regarded law firm with three partners. Unbeknown to two of them, the other misappropriated millions of pounds from the firm’s client account over a number of years. After being expelled from the partnership, she pleaded guilty to offences of dishonesty and was sentenced to a term of imprisonment. She was also struck off as a solicitor and the firm was subsequently obliged to close.
A Church of England diocese for which the dishonest partner had acted for many years launched proceedings against the firm with a view to recovering its losses. The firm was alleged to be liable for the dishonest partner’s wrongs under the Partnership Act 1890, those wrongs having been committed in the ordinary course of the firm’s business and with the firm’s apparent authority. Although the innocent partners had no inkling of their colleague’s dishonesty, the firm was said to be liable for her fraudulent breaches of trust.
Following a hearing, a judge ordered the firm to give an account of all its dealings with money, investments and assets possessed or received by the firm or the dishonest partner as trustees of the diocese. The order embraced four property transactions that pre-dated the issue of the diocese’s claim form by more than six years.
The judge disapplied the six-year time limit that normally applies to breach of trust claims by virtue of Section 21 of the Limitation Act 1980. He did so on the basis that the Partnership Act not only made the innocent partners liable for the fraudulent partner’s acts but also made them privy to those acts.
Allowing the firm’s appeal against that ruling, the Court noted that the case raised an issue on which there was no apparent previous authority. There was nothing in the wording of the Partnership Act that had the surprising effect of rendering the innocent partners privy to the dishonest partner’s acts merely by reason of the partnership relationship. In respect of the four transactions, the firm was thus entitled to rely on the six-year limitation period as a defence to the diocese’s claim.
For expert legal advice on any matters relating to professional negligence, contact <<CONTACT DETAILS>>.
Employment
Employer Pays High Price for Turning Blind Eye to ‘Toxic’ Office Culture
Banter is one thing, but employers who turn a blind eye to workplaces descending into toxic arenas of discriminatory abuse can expect to reap a bitter harvest. That was certainly so in one case in which an Employment Tribunal (ET) ordered a company to pay substantial compensation to a gay former employee who was on the receiving end of a torrent of homophobic slurs.
The ET found that the culture in the office where the man worked as an energy consultant was accurately described as toxic, involving daily use of homophobic, racist and anti-Semitic language, in which some managers and senior employees actively engaged, treating it as acceptable banter.
No disciplinary action was taken against anyone involved and, although the company had in place what it described as a zero-tolerance equality and diversity policy, no effective measures were taken to achieve that objective. As a result of the foul-mouthed homophobic abuse to which the man was repeatedly subjected, he said that doing his job had become a living nightmare. He eventually resigned.
In upholding his complaints of harassment due to his sexual orientation, constructive dismissal and victimisation, the ET found that he had suffered a very serious course of repeated and frequent homophobic abuse committed by, amongst others, senior employees and managers over a period of six months.
Also upholding his disability discrimination claim, the ET noted that, due to his dyslexia, he visibly struggled to meet the company’s targets. Instead of supporting him and making reasonable adjustments to cater for his disability, he was shouted at and humiliated in front of colleagues to the point where he could no longer cope with the treatment and resigned.
The ET found that the company had conducted the proceedings in an intimidating, oppressive and high-handed manner. In the face of clear evidence, it had steadfastly chosen to stand by the perpetrators as they unfairly sought to portray the man as a liar. The company had subjected the man to post-employment victimisation in an attempt to dissuade him from pursuing his harassment complaints and it was to his credit that he was not deterred from doing so.
The man was awarded £20,000 in compensation for injury to his feelings and a further £10,000 in aggravated damages. Together with interest, his total award came to £36,707. Given the company’s conduct of the proceedings, the ET also took the rare step of ordering it to pay a penalty of £18,353 pursuant to Section 12A of the Employment Tribunals Act 1996.
Zero-tolerance equality and diversity policies in the workplace are meaningless unless they are effectively implemented and monitored. Our expert employment lawyers can advise.
Partner Note
Robson v NGP Utilities Ltd. Case Number: 1805097/2019(V)
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These articles are provided for general interest and information only. They do not constitute legal advice. Whilst every effort is made to ensure that the content accurately reflects the law in England as at the date of its transmission, no liability is accepted for any loss or damage arising from any act or omission resulting from any information contained herein.