Age Discrimination Check List
The Employment Equality (Age) Regulations 2006, which came into force on 1 October 2006, aim to achieve equal treatment in employment and vocational training to eradicate discrimination on the grounds of age.
Under the Regulations it is unlawful to make employment decisions based on a person’s age. Retirement ages below 65 are unlawful unless they can be objectively justified. The legislation also removes the upper age limits for unfair dismissal rights and statutory redundancy payments.
Employers who have not already done so should examine all current policies and practices where age is a factor. Here is a check list to help you ensure your business complies with the new law.
Retirement Age
It is not age discrimination to have in place a compulsory retirement age of 65 or older but, if you do, the new statutory procedures must be followed. These include giving employees at least six months’ notice of their intended date of retirement and notifying them that they have the right to request to continue working beyond either the default retirement age or the normal retirement age set by the employer. Employers have a duty to consider such a request. It is therefore important to be aware of forthcoming retirements and to have the necessary systems in place for notifying employees and dealing with requests to continue working. You may decide not to have a set retirement age and to offer flexible working arrangements.
There are special rules that apply to employees due to retire between 1 October 2006 and 31 March 2007. If you have not yet taken action to comply with these transitional arrangements, contact <<CONTACT DETAILS>> for advice.
We recommend that you have an age profile of existing staff so that you can plan for retirements. This can also be used to inform your recruitment policy, rectifying any obvious age imbalance in the workforce, and to ensure that equal access is given to training and other opportunities.
Recruitment
When advertising for new staff, take care to avoid requirements which disadvantage a particular age group. Avoid insisting on a certain number of years’ experience where this cannot be justified, as this could discriminate against a young person, and do not use language that is age-related, such as the words ‘young’ or ‘mature’. Specifying knowledge and skills which are not a genuine requirement of the job could also constitute unlawful discrimination on the grounds of age. Target your advertising so that it reaches a variety of age groups.
Whilst it is not unlawful to request a person’s date of birth on a job application form, this should only be used for monitoring/statistical purposes and to inform your equal opportunities policy. It should not be a consideration during the selection process.
Training
All employees must be given the same opportunities to develop their skills and maximise their employment potential. Employers and other training providers cannot legally set age limits for access to training unless they can show that there is a real need to apply such limits. Be careful not to assume that older members of the workforce are not interested in advancing their careers.
Performance Targets and Appraisals
Targets and performance standards for the same job should be the same, irrespective of the age of the employee. Appraisals must be handled with care. Reports should avoid ageist language such as ‘shows maturity for their age’.
Redundancy
The lower and upper age limit for statutory redundancy rights is removed. Once an employee has completed the employer’s minimum qualifying period, a worker under 18 or over 65 has the same rights to redundancy payments as other employees. If an employer’s redundancy benefits scheme is significantly different from the statutory scheme, it may be challenged so it is important to amend it unless the differences can be objectively justified. In a redundancy situation, selection for redundancy should not be based on age.
Pay and Benefits
A thorough review of promotion procedures and all employee benefits should be carried out to identify practices and policies where age is a factor and changes made where necessary.
As regards length of service-based pay increases, any benefit based on five years’ service or less is exempt. However, if for example a worker who has six years’ service claims that they are being discriminated against because they are being paid less than someone with more service, the employer must show that the difference in pay fulfils a genuine business need. If an employee considers that their employer’s benefits structure discriminates on grounds of age, he or she can make a complaint to an employment tribunal.
Pensions
The pension provisions of the Regulations have been deferred until 1 December 2006 in order to determine if amendments are needed and to allow more time for compliance.
The Regulations will apply to occupational pensions and employer contributions to personal pensions. They will not apply to state pensions. Pension rights accrued prior to the introduction of the legislation will not be affected.
Workplace Policies and Culture
Make sure your equality, bullying and harassment policies clearly state that discrimination on grounds of age will not be tolerated. Make sure all staff are aware of the policy and provide any training necessary for its implementation. In addition, your IT policy should make it clear that email communications should not contain anything discriminatory. Incidents involving age discrimination, harassment or victimisation on age grounds must be dealt with promptly and any complaints dealt with appropriately. Failure to do so could result in you being held responsible. The penalties for age discrimination can be severe, with no upper limit to the compensation that an employment tribunal can award.
<<CONTACT DETAILS>> will be pleased to advise you on any aspect of the new legislation, how it affects your business and how to ensure that your employment practices, policies and procedures are fully compliant, so that all employees have equal access to help, guidance, development opportunities, promotion, remuneration and benefits, irrespective of their age.
Useful Guidance
ACAS guidance: ‘Age and the Workplace’ can be found at http://www.acas.org.uk/media/pdf/s/3/Age_and_the_Workplace.pdf.
The DTI’s age discrimination web pages, including guidance entitled ‘The impact of Age Regulations on pension schemes’ can be found at http://www.dti.gov.uk/employment/discrimination/age-discrimination/index.html.
Asleep But ‘On Call’
A hotel worker has won his appeal that he was entitled to be paid for the hours he spent asleep at work.
William Anderson worked as a general assistant with Guest Care Manager responsibilities at the Learmonth Hotel in Edinburgh. He was required to sleep at the hotel several nights each week in case of an emergency, such as a fire or flood, even though he lived nearby. There was a night porter on duty and two employees were required to be present in the hotel at night for health and safety and fire safety reasons.
During the nine months he was required to sleep at the hotel, Mr Anderson was once called out by the night porter to deal with some rowdy guests, but he was not paid for any of the time he spent asleep. On one occasion, however, he was given a verbal warning for leaving the hotel for half an hour during his shift and was warned that any absence during a sleep-over period would be regarded as a disciplinary matter.
Mr Anderson brought a claim before the Employment Tribunal (ET) in Edinburgh that he was contractually entitled to be paid for all the time he spent at the hotel during sleep-overs. The hotel argued that where the chance of being asked to work was insignificant, ‘on call’ time should not be regarded as working time for the purpose of being paid under the contract of employment.
The ET judged that the time Mr Anderson spent asleep was not working time as he was only there to cover emergencies, which were infrequent, and he was not at his employer’s disposal when sleeping and so was only entitled to be paid for the work he had actually carried out.
The Employment Appeal Tribunal (EAT) disagreed. Although the claim was for unpaid contractual wages and was not made under the Working Time Regulations, the EAT took account of case law under the Regulations as to what counts as working time when an employee is required to be ‘on call’ at the employer’s premises but is not actually working. Having reviewed the authorities, the EAT judged that employees will be regarded as working even though they are asleep if the place where they are sleeping is their employer’s premises and the reason they are sleeping there is because their employer requires them to be present.
In this case, Mr Anderson’s presence was required for health and safety reasons and the requirement was significant enough for him to have been disciplined for leaving the hotel during his shift period. The EAT held that the time he was contractually obliged to be at the hotel was clearly working time and he was entitled to be paid for it.
Revised proposals to resolve issues relating to on call time formed part of a proposed review of the EC Working Time Directive which also sought to scrap the UK’s opt-out from the 48-hour weekly working limit, whereby an individual employee can give his or her prior agreement to waive this right. So far, agreement on the proposals has not been forthcoming and it remains to be seen whether the matter will be revisited during the term of the Finnish presidency.
For advice on your contracts of employment, contact <<CONTACT DETAILS>>.
Businesses Risk Prosecution for Rubbish Compliance Failures
Businesses that fail to make sure their rubbish is only left on the street for collection between the times allowed face a bigger risk of prosecution following a recent case. It involved a company which was prosecuted by Camden Borough Council for leaving office waste on the street for collection outside the specified times. The company was charged under the Environmental Protection Act for failing to take all such measures as were reasonable to prevent the escape of waste from its control.
All the office waste was in plastic bags and the argument put forward by the company was that there had been no resulting escape of waste into the environment. However, the High Court upheld the conviction on the basis that an escape of waste was not necessary for the offence to occur. All that was necessary to demonstrate that an offence had been committed was to prove that there had been a failure by the company to exercise its statutory duty.
This decision has particular implications for High Street businesses which are used to putting their bagged waste out into the street some time prior to collection. Those that put their waste out early, e.g. the evening before the day of collection, are an easy target.
Case Shows Value of Making Arguments Early
A recent case involving a landlord and a tenant highlights the importance of making sure that possibly contentious points are not agreed by default in negotiations concerning other matters.
The landlord had sought possession of the property occupied by the tenant because of arrears of rent. That action was settled on the basis of a compromise agreement in which an order was made that the tenant was a statutory tenant and would resume its tenancy when the landlord had made certain repairs to the property. The issue of the nature of the tenancy (statutory or non-statutory) was not raised in the original proceedings. However, in the wording of the compromise agreement it was stated that the tenancy was a statutory tenancy and this was not disputed at that time.
A year later, the landlord again sought a possession order on the basis of rent arrears. The judge in the second possession proceedings agreed that had the issue of the nature of the tenancy been raised at the original hearing, he would have denied the tenant the protection that a statutory tenancy gives. However, the issue was not raised then and it would be an abuse of process for it to be raised in subsequent proceedings. The Court of Appeal agreed.
The key issue here is that the point about the nature of the tenancy should have been dealt with at the first hearing. Since it was accepted by the landlord at that time that the tenancy was a statutory tenancy, that point could not be reopened. This case makes it clear that it is important to make one's arguments early in proceedings, or the right to make them later may be lost.
Contractual Redundancy Terms Create Unexpected Liability
A company which negotiated redundancy payments with its staff had a nasty shock recently at the hands of the Special Commissioner of Taxes.
The scenario was one which is quite common. The company wished to make employees redundant and negotiated severance terms with their union representatives. In this case, they used 'memoranda of agreement'. It is commonly considered that the relevant tax law (now contained in s401 ITEPA 2003) exempts the first £30,000 of a redundancy payment from liability to income tax and that was what was intended on both sides in this case. However, this is not always the case. The exemption applies only where the payment does not arise 'from the employment', being granted only when the payment arises from the termination of the employment, which is a different matter.
In this case, each memorandum operated technically as an amendment to the contract of employment of the employee being made redundant. The amendment gave the employee the right to accept short notice of redundancy on terms which gave them the right to receive a sum incorporating the redundancy payment and payment in lieu of notice. This change made the payment part of their contract of employment and therefore made it taxable.
It is not known what the effect of this decision on the employer was, but presumably it now has to pay the PAYE not paid on the taxable payments and to request its ex-employees to refund the overpayments – an unpleasant outcome for all concerned.
When negotiating redundancy packages, it is critical to get the terms right as failure to do so can have serious adverse consequences. Contact us for advice on all matters relating to dismissal or redundancy.
Court Backs Good Faith
A common principle in English law is that of good faith, by which a duty of complete openness and fair-dealing is assumed to be owed by one person to another and which is considered should apply in a variety of situations. Recently, the court was asked to consider whether the duty of good faith, which is assumed to exist among partners in a partnership, would also apply to an incoming partner who was not yet in partnership.
The situation was that a solicitors’ firm was negotiating with a solicitor who was intending to join the partnership. The senior partner of the firm was under investigation for dishonesty, but assured the prospective partner that he was innocent and would be found to be so. The prospective partner accepted his assurances and joined the partnership. In the event, the senior partner was found guilty and was struck off the Solicitors’ Roll.
The new partner sued the erstwhile senior partner, arguing that he had been induced to join the partnership on false pretences and that had he known about the dishonesty he would not have joined. He argued that the senior partner owed him a duty of good faith which he had breached by misrepresenting the position. The counter-argument was that the existence of the investigation had been revealed and this was sufficient, there being neither a duty of good faith in these circumstances nor any further duty of disclosure prior to his joining the partnership.
The High Court considered that the prospective partner was owed a duty of utmost good faith. Whilst in the normal law of contract the ‘buyer beware’ (caveat emptor) principle applies, in contracts involving a special fiduciary relationship (such as insurance contracts and partnerships), the duty is one of utmost good faith and all material facts must be disclosed.
Where material facts are not disclosed, the contract may be void. Where the failure to disclose is deliberate and dishonest, damages may be sought.
This ruling has important implications for any person contemplating forming or joining a partnership, or anyone offering a partnership to another. Before you join a partnership or offer a partnership to someone else, make sure you take professional advice.
Director Who Ignores, Approves
A recent case has made the important point that a director can be held responsible for the effect of transactions of which he is not fully aware, if he is aware that such transactions occur and takes no action to prevent them.
The Court of Appeal so judged in a case involving the ex-directors of a pharmaceutical company. At all relevant times until 18 July 2001, 68 per cent of the company’s issued shares were held by Mr Avo Krikor Krikorian (‘Avo Krikorian’) and 30 per cent were held by his son, Mr Krikor Avo Krikorian (‘Krikor Krikorian’). Both were directors of the company.
From 1997 to 2000, loans to directors totalling over £2m (in contravention of Section 330 of the Companies Act 1985) built up in the company’s balance sheet. The majority of the money had been lent to Krikor Krikorian. Administrators were appointed to the company in 2002 and they sought repayment of the loans made to the directors. Avo Krikorian appealed against a decision which made him jointly and severally liable for Krikor Krikorian’s indebtedness. Avo Krikorian argued that he had been unaware of any of the transactions since 1996, the last year for which he signed the annual accounts. In evidence he claimed that he first became aware of his son’s outstanding loan account in February 2001 and was ‘so shocked to hear of it and angry’ that he immediately asked the board to sell the company as quickly as possible to pay the debts owed to creditors. He also claimed that he did not sign any cheques or otherwise make or authorise any payments which formed part of the loan accounts to his son.
Although evidence was given of Avo Krikorian’s correspondence with the bank over the company’s indebtedness, the Court of Appeal was satisfied that he had no actual knowledge of the individual payments made to his son at the time each was made. However, the judge ruled that since he took no steps to bring the practice of making loans to directors to an end and, in particular, took no steps to cause the company to call in the outstanding loans, he had in effect authorised the lending by the company to Krikor Krikorian which took place after 27 July 1999, the date on which Avo Krikorian was regarded as first becoming aware of the loans to Krikor Krikorian. The judge concluded that Avo Krikorian was therefore in breach of his duty as a director by failing to take the steps which (plainly) were open to him to cause the company to call in the indebtedness outstanding. His duty as a director required not only that he put a stop to that practice but also that he take steps to recover the indebtedness. In consequence of this, Avo Krikorian was found to be liable to indemnify the company for loss resulting from the lending.
Says <<CONTACT DETAILS>>, “The importance of this case is that it emphasises that directors who become aware of improper practice and who do not take action to investigate and correct it and to prevent such activity from happening again may be judged by the court to have tacitly agreed with the practice and thus found liable as appropriate. Directors who do not pursue their duties with diligence are at risk.”
Directors’ Duties Irrelevant to NI Liability
As most company directors will know (and all should know), there are provisions in the Social Security Administration Act 1992 which can make directors personally liable, in certain circumstances, if their company fails to pay its National Insurance Contributions (NICs).
The legislation bites when the company’s failure to pay the NICs is due to fraud or neglect on the part of the director concerned. In a recent case a director who was held liable under those provisions appealed to the Special Commissioner that he should not have to pay the NICs due. His arguments were that in order to be held personally liable the director should have had a duty of care which he had breached and that as a director he owed no direct duty to the creditors of the company. It was the company’s responsibility to pay the NICs.
This approach did not cut any ice with the Special Commissioner who found the director personally liable. Company directors who fail to pay sufficient attention to the affairs of the company should treat this case and others like it as a warning call.
Says <<CONTACT DETAILS>>, “Cases involving fraud are thankfully few and the burden of proof in such cases makes it difficult to secure convictions. However, cases involving negligence are much more common and it is the danger of being found negligent that is the greater risk for most directors – particularly non-executive directors. For advice on your duties and responsibilities as a company director, contact us.”
Employment Status Tax Trap
An interesting case illustrates the dangers of getting wrong the employment status of people working for you.
It involved a man who worked for an hotel and retired on his 65th birthday. He was then retained on a ‘self-employed’ basis by the hotel. This arrangement continued for six years. The conditions of employment after his ‘retirement’ were arguably those of self-employment, but since they were essentially the same as those which existed beforehand, HM Revenue and Customs (HMRC) determined that he was still an employee.
In such cases, the payments made to the employee by the employer are treated as being net of deductions for income tax and employees’ National Insurance Contributions (NICs) and these are ‘grossed up’ for the deductions which would apply. Employers’ NICs are then due to be paid on the new gross amount. The employer is responsible for payment of the tax and NICs plus any penalties etc. which apply. In this case, an assessment was duly made, which totalled in excess of £15,000, based on an estimated gross salary averaging around £13,000 for each year.
The employee had, during the post-retirement period, prepared accounts as a self-employed person. His tax returns included the income from the hotel. He had filed these with HMRC, paying the tax etc. assessed.
You might assume that in such circumstances the employer would be given credit for the ‘self-employed’ income tax and NICs paid by the employee, but this is not the case. In practical terms, what happens is that the employee is allowed to make an ‘error or mistake’ claim and to submit an amended tax return. Despite the fact that the deductions from taxable income for self-employed people are much more generous than those for employees, a refund of income tax overpaid normally results for the employee. However, HMRC are under no obligation to take any account of the income tax and NICs paid by the employee in their dealings with the employer.
In this case, the situation had persisted for several years and the earlier years were ‘out of time’ for the submission of amended tax returns. As a result, the effect was that for those years the employee’s income tax was not recoverable and the employer had to pay the appropriate income tax under PAYE. Therefore, the same income was taxed twice.
This illustrates how important it is to make sure that the employment status of anyone working for you is unequivocal and especially that the employment status of anyone working on a ‘self-employed’ basis can be justified.
Contact <<CONTACT DETAILS>> if you require advice on the employment status of anyone working for you.
Football League Can’t Make Monkey Out of Advisers
OnDigital (which later became ITV Digital), the satellite TV provider which crashed in 2002, was more popular for the cuddly monkey which appeared alongside comedian Johnny Vegas in advertisements for the service than for its subscriber TV service.
One of the outcomes of the commercial failure of ITV Digital was that the Football League (FL), which had signed a three-year contract with the company in 2000, was left with no TV contract and a revenue shortfall of £140m compared with its budget. The FL is the umbrella organisation for clubs in the Championship, and those in leagues 1 and 2. The financial effect on these clubs was particularly significant.
The FL sued for negligence the firm of solicitors which advised them on the contractual negotiations, arguing that its loss was in part due to the advisers’ failure to point out the commercial risks attaching to the contract with OnDigital, which was a relatively new and financially weak company. In the view of the FL, the advisers should have recommended that it obtain guarantees from OnDigital’s owners, TV companies Carlton and Granada.
The question at issue was to what extent the advisers were responsible for bringing the risks involved to the attention of the FL.
In the view of the court, the firm was not liable. The case illustrates the point that businesses must in effect carry the can for their own commercial decisions – it is up to the management of the acquiring business to evaluate the commercial risk of their investment decisions.
Says <<CONTACT DETAILS>>, “Although professional advisers can do much to help control the risks inherent in business acquisitions, the management of the client company must ultimately bear responsibility for assessing the risks involved in the deal.”
Gambling Act – Where We Are Now
The Gambling Act 2005 is slowly taking shape but delays have been announced by the Department for Culture, Media and Sport which make it seem less likely that the new system will be introduced on schedule, although the implementation date is still reported as being set for 1 September 2007.
The changes to the earlier proposals are:
· the commencement date for advance applications to local authorities for premises licences has been delayed for three months until 30 April 2007; and
· the closing date for advance applications from existing operators has also been delayed by three months – from 27 April 2007 to 31 July 2007. Existing operators who apply by 31 July 2007 will have the right to continue operating until such time as their application has been determined.
Of particular interest are the likely changes to the law relating to gaming machines. At the time of writing these are uncertain, but it is likely that under the new regime so-called regional casinos will be permitted to have ‘Category A’ machines, which have no upper limit on the stake wagered or prize offered.
Bingo halls and the like will be able to have up to four ‘Category B’ machines. Depending on sub-category, these offer a range of maximum stakes between £1 and £100 and a range of maximum prizes between £250 and £4,000. Premises with alcohol licences will only be permitted to have ‘Category C and D’ machines, which have a maximum stake of 50p and 10p respectively and a maximum prize of £25 and £5 respectively.
However, there is still time for further changes to be made before the new law is in place.
Gambling Establishments – Fee Proposals
The proposed fee levels for operating licences under the Gambling Act 2005 have recently been published.
The proposals are complex, giving in excess of 150 different levels of fee depending on the size and type of the gambling establishment, the size of the operating company and whether the gambling is remote or non-remote.
Personal licences are more straightforward and will cost £165 or £330 for a management licence.
To see the proposed fee level for your premises, go to http://www.culture.gov.uk/NR/rdonlyres/FBD4642D-E93B-486C-A3C1-4C2342F0C2A4/0/cons_gamblingcommssionfees.pdf.
For advice on all licensing matters, contact <<CONTACT DETAILS>>.
HMRC Compromise on Tax Filing Dates
HM Revenue and Customs have announced that they will accept the compromise suggested by Lord Carter that the self-assessment filing deadlines should be brought forward to 31 October for paper tax returns and 31 January for online returns. Lord Carter had originally proposed that the new deadlines (currently both 31 January) should be 30 November for online returns and 30 September for paper returns, prompting a howl of protest from tax advisers who anticipated major problems with meeting the deadlines.
The practical effect, however, is that the filing date for paper self-assessment returns is being brought forward by three months, which will place an additional premium on the careful retention and storage of all tax-relevant material during the year.
"If you have struggled to submit your tax return by the current (31 January) deadline, it is time to think about making changes," says <<CONTACTDETAILS>>. Contact us for advice.
House of Lords Backs Tied Houses
The long-running Crehan v Inntrepreneur case has been decided in the House of Lords in favour of Inntrepreneur. The case involved a claim by ex-publican Mr Crehan against Inntrepreneur, claiming that the 'tie' agreement, which obliged him to buy most of his beer from Courage, was contrary to European competition law. As he lost, Mr Crehan is not entitled to the damages he sought, although the costs of the appeal to the House of Lords will be met by the Legal Services Commission.
The Court of Appeal had applied European case law and ruled that the tie agreement breached the law. The basis of the decision of the House of Lords was that each case must be decided on its own facts and a failure to do so in this case had denied Inntrepreneur a fair hearing.
One implication of this decision is that it may well be harder than was previously thought to rely on European case law in the UK courts.
Inaccessible Files Not ‘In Possession’
The judgment in a recent case dealing with the crime of possession of indecent photographs of children could have a wider application.
In the case in point, a man was convicted on a number of counts of making and of possessing indecent pictures of children on his computer. He was IT literate, being able to build computers from component parts.
The man appealed against some of his convictions on the grounds that some of the pictures had been deleted. Using Microsoft Windows, he had put them in his computer’s ‘recycle bin’, which he had subsequently emptied. This appears to remove the files from the computer. In reality, however, it merely makes them inaccessible, unless they are subsequently overwritten, without specialist file recovery software. The man did not therefore have access to those files, although he could possibly have obtained the software that would have enabled him to recover them. Such software is not straightforward to obtain and is not normally available to the public.
In the Crown Court, the judge ruled that the images in the recycle bin were in the man’s possession if they were present on the hard drive of his computer. The man appealed to the Court of Appeal, which held that images which he could no longer access could not be said to be in his possession as he did not have the capability of recovering them.
This decision could potentially have implications for cases which involve the theft of data and it will be interesting to see if it is referred to in future defences in such cases. The Court of Appeal also made the point that whether or not a person could be said to have possession in similar circumstances would depend on the degree of their IT knowledge.
Says <<CONTACT DETAILS>>, “The case also highlights the risk of disposing of old computers and other electronic storage media containing personal or confidential information without a thorough destruction (either physical destruction or degaussing of the medium) of the data. Mere deletion of files, even to the point of reformatting hard drives, is not enough to make the data totally irrecoverable.”
Information Withheld From Insurers Breaches Contract
Most insurance policies contain clauses which require the policy holder to supply the insurer with relevant information in the event of a claim. Such clauses normally contain words such as 'within a reasonable period of time'. The question of what is a reasonable period of time arose recently in a case in which an insurer sought to avoid liability under a claim on the basis that the policy holder had not supplied the requested information within a reasonable time. In this case there was a delay of two and a half years.
What was somewhat unusual in this instance was that the failure to provide the information did not prejudice the insurer's position and, at the first hearing, the court found that since the insurer's position was not prejudiced by the failure, the delay could not be deemed to be unreasonable. The insurer appealed.
The Court of Appeal took a different stance, concluding that the insurer had a right to cooperation from the insured and the fact that failure to disclose the information might not prejudice its position was not in point. An insurance contract is one of ‘utmost good faith’ and so the insurer is within its rights to ask for any reasonable information. Furthermore, a material misrepresentation to an insurer may invalidate the policy, even if it is not directly relevant to a claim under the policy.
Says <<CONTACT DETAILS>>, "This case has implications for the management of any insurance claim. Information reasonably sought by the insurer should be provided within a reasonable time, or there is the possibility that a claim may be denied on the basis of the breach."
Is My Farmhouse a Farmhouse?
Inheritance Tax (IHT) has many reliefs and, for their owners, the availability of IHT ‘Agricultural Property Relief’ (APR) for farmhouses is quite a bonus.
It is commonly assumed that this relief (which is given at 100 per cent or 50 per cent of the agricultural value, depending on circumstances) exempts a farmhouse completely, but this may not be the case. APR is restricted to the value the property would have were it to have an ‘agricultural tie’, whereby the property must be occupied by a person connected with an agricultural enterprise. Where no such tie exists, the market value of the farmhouse will almost certainly be much higher than the agricultural value. Traditionally, the agricultural value has been taken to be 2/3rds of the open market value, but HM Revenue and Customs (HMRC) are now taking a harder line in some cases.
There are other problems with farmhouses and APR. A farmhouse will only qualify for APR if it is ‘of a character appropriate’ to the farmland with which it is associated. In the words of the court, it must be ‘proportionate in size and nature to the requirements of the farming activities conducted on the agricultural land…in question’. This could mean a large farmhouse with a small landholding would be regarded as inappropriate and thus not qualifying for APR. HMRC have brought a number of cases over the years challenging claims for APR where the property was either valuable or large (or both) in relation to the farming enterprise.
In one case, a farmhouse was caught because the elderly parents who owned it gave most of their landholding to their daughter and remained in the house. The Special Commissioner held that APR no longer applied as the house was no longer a farmhouse but a ‘retirement home’, even though it was still used for various agricultural activities.
“One of the main elements in IHT planning where there are business assets is to make sure that the various traps in the legislation are avoided,” says <<CONTACT DETAILS>> “and the best way to ensure this is done is to plan ahead.”
Mixed Dwelling Restricts Repossession Terms
Landlords who let out properties to tenants for mixed use (commercial and residential) have been dealt a blow by the Court of Appeal. One of the remedies which landlords have in cases in which a commercial tenant does not pay the rent due is to enforce forfeiture of the lease and to take possession of the premises by peaceable re-entry. This method is not available to residential landlords, who must obtain a court order due to the provisions of the Protection from Eviction Act 1977 which apply to property ‘let as a dwelling’.
Recently, a landlord sought to take possession of a shop and flat which were occupied by a tenant who was in arrears with his rent. The tenant lived in the flat above the shop. The landlord argued that he could enforce forfeiture because the premises were not let as a dwelling because of the mixed use.
The tenant claimed that Article 8 of the European Convention on Human Rights, which guarantees respect for the home, required that the interpretation of the relevant law should mean that the definition of ‘let as a dwelling’ should include a mixed use property in order to be compatible with rights guaranteed under the Convention.
The Court of Appeal agreed with the tenant. Landlords with mixed use properties might consider splitting the leases so that in the event of non-payment of rent, the commercial premises can be recovered by forfeiture by peaceable re-entry.
Original to Werther, But Not to the ECJ
No doubt as part of their quest to ensure that every day Storck employees all around the world ‘make people’s lives a little bit sweeter and happier’ (a quote from the company’s website), Storck, the owners of the Werther’s Original sweet brand, have been in court recently to attempt to have the shape of the Werther’s original toffee registered as a trade mark.
Shapes of things can be registered as a trade mark if they are distinctive. However, the European Court was unconvinced that the lozenge-shaped toffees are sufficiently distinctive to warrant being protected as a ‘shape mark’, reversing the decision of the Office of Harmonisation in the Internal Market, which is the authority for the registration of European trade marks.
Storck’s argument for registration was based on its advertising, which, it claimed, had created an association in the minds of Europeans between the shape of the toffees and the Werther’s brand, making it distinct. A similar argument based on the Werther’s packaging was also rejected.
Says <<CONTACT DETAILS>>, “Registration of trade marks can have commercial advantages, but each application needs to be thoroughly researched and considered with care. In this case, it is difficult to see how Storck considered they had good grounds for success.”
Paying Court Costs (When You Aren’t Involved)
Recently, the High Court broke new ground when it ordered that the legal costs of a case should be paid by a third party who was not involved in it.
The case involved an Italian plumbing parts manufacturer, which was in dispute with its UK distributor as a result of terminating its distribution agreement. The distributor sued for compensation, not knowing that prior to the trial most of the assets of the business of the manufacturer had been transferred to another Italian company. The second company also had directors in common with the previous company.
The distributor won its case and was entitled to the payment of compensation and its legal costs. A little while later, the defendant Italian company was struck off, leaving no assets from which to make the payments ordered by the Court.
The distributor went back to the Court to have a costs order made against the company to which the assets had been transferred. In the view of the judge, the transfer (which was not mentioned at the original hearing by any of the witnesses from the Italian company) was deliberate and the circumstances justified making the order.
Although the circumstances in this case were clear-cut, the door is open for the making of costs orders when assets are transferred in anticipation of an unfavourable judgment.
Contact us if you are having difficulties with commercial contracts or the collection of debts.
Planning Gain Supplement – Possible Pitfalls
Although considerable changes are expected between now and them becoming law, the Government’s Planning Gain Supplement (PGS) proposals are already creating a need to think ahead.
For example, it is proposed that PGS will be payable when a development commences. The charge will be triggered by the service of a ‘Development Start Notice’ on the local planning authority or HM Revenue and Customs. Payment will then have to be made by the now usual means of a self-assessment return.
PGS is intended to be based on the difference in value of the land with and without planning permission. Clearly, the differences in these values could be substantial.
This raises two points. The tax on the gain may be considerable (currently it seems likely that the tax will at the rate of 20 per cent of the increase in value) and this will have to be financed near the beginning of the project of development. Secondly, the gain is self-assessed and backed by the usual penalties and interest charges if the tax paid is insufficient. The ‘with’ and ‘without’ planning permission values are likely to be the matter of some dispute. Is the developer to ‘play it safe’ by paying more tax than may ultimately be due, or will a payment on account prejudice his negotiating position over valuations? On the other hand, if the developer pays PGS based on the anticipated valuations, is there a risk of penalties and interest being charged if the ultimate valuations are different?
The whole position is further complicated where planning permissions and developments are staged. So far, this looks to be a very complicated area and one which has received scant thought.
Watch this space!
Salaried Partners Beware?
It is by no means uncommon for partnerships to be composed of two sorts of partners – the ‘equity partners’, who share the profits after all expenses are met, and the ‘salaried partners’, who normally receive a fixed share of profits (sometimes with performance bonuses) by way of salary. A salaried partner’s status is therefore somewhat more akin to that of an employee than an equity partner.
Since the Partnership Act 1890 stresses that a partnership is an undertaking carried on with a view to profit, salaried partners are not normally regarded as ‘true’ partners for some purposes.
A recent case involved a solicitor, who took on a retired solicitor as a salaried partner. As a condition of joining the firm on a salaried partner basis, the salaried partner required the firm to obtain a letter from its bank stating that he was not liable for the firm’s debts to the bank. He also obtained a verbal assurance from the owner of the firm that he would have no liability for any debts of the firm which arose prior to or after he became a partner. He worked only part-time for the firm, although his name appeared on the letterhead. He left the firm after a relatively short period. However, for the nine months prior to his second retirement, the firm had contracted to another firm for the provision of services. That firm sued for payment of outstanding invoices and included the salaried partner in the claim.
The salaried partner contested the claim on the basis that he was not a partner because he did not share in the profits of the business. The Court, and subsequently the Court of Appeal, rejected this argument. In the view of the judges, the fact that there was a business and that it was carried on with a view to making a profit was enough to make him a partner.
Says <<CONTACT DETAILS>>, “Salaried partners may think that they are excluded from liability if things go wrong, but this is not normally the case. Seeking guarantees from the equity partners is a possible safeguard, but these are only as good as the financial standing of the equity partners who give them. If you are offered a partnership in any business, we can help you reduce your risks.”
Sales Area Reduction Not Breach of Contract
An argument between a sales agent and his principal reached court over the issue of whether the principal’s action to reduce the sales agent’s territory was a breach of their agreement or not.
Tony Vick operated as the sales agent for Vogle-Gapes Ltd., but was considered by the company to be operating to an unsatisfactory standard in that he did not take steps to maximise sales opportunities and failed to attend meetings to discuss the alleged failures. Mr Vick claimed that the company withheld some of the commission he was due and paid other commissions late.
The company considered that it had no choice but to reduce the size of Mr Vick’s territory. He responded that by taking this action, the company had made his agency unworkable, which it took to mean he was terminating the agency. He claimed that the company’s action in reducing the territory was a repudiatory breach of their agreement and that he was entitled to be compensated for the loss thus caused.
In the view of the court, the agency agreement had to be read on the basis of good faith and the company had not made any unjustified use of its powers by reducing the size of Mr Vick’s territory. The company had good reason to believe that he had not acted to maximise his sales opportunities so the variation (which was permitted in the agreement in such cases) had been made reasonably and with good cause.
The failures to pay commission and of paying commission late could not be considered to indicate that the company had intended to abandon the agency and the view of the court was that these were unintentional. The response of the salesman to the company indicated that he would refuse to operate under the amended agency terms, so he was entitled to neither compensation nor damages.
“The outcome of this case for Mr Vick might well have been better had he taken advice before entering into the agency contract and, particularly, before sending his response to the company’s decision to reduce his territory,” says <<CONTACT DETAILS>>. “Care should always be taken when entering into or varying a contract and professional advice obtained.”
Think Before You Build
A builder who slavishly follows an architect’s plan without thinking through the consequences cannot ‘pass the buck’ for problems arising if the drawings are defective, according to a decision of the Court of Appeal.
The case involved problems following the construction of an extension to the flat roof of a residential home. The difficulties arose because the builder retained for the building project failed to spot that the architect’s drawings supplied to him, which were used for the construction, were defective.
The home’s owners sued the builder regarding the defective roof. In the opinion of the Court of Appeal, the understanding of plans provided by the architect was in effect a part of the work of construction. Failure to appreciate the consequences of building to the plan, and to warn the home’s owners, was a breach of the builder’s duty to the owners of the home to exercise reasonable skill and care.
This decision has implications for anyone engaged in the building trade who thinks that blame for defective construction cannot fall on them if what they have built follows the architect’s plan.
Contact us for advice on all contractual matters.
VAT Case Reinforces Need to Take Care