Commercial Client ~ Autumn 2007


Checking Office Electrical Equipment
The Health and Safety Executive has published useful guidance on preventing danger from portable electrical equipment in premises where risks are generally low, such as offices or libraries. This is intended to debunk the myth that all office equipment must be tested annually by a qualified electrician.
For most office electrical equipment, visual checks for obvious signs of damage and perhaps simple tests by a competent member of staff are sufficient to comply with the law. Furthermore, the law does not require you to keep a record of these checks, although doing so can provide useful information regarding faults discovered which can be used to determine the appropriate inspection intervals.
The guidance can be found at
Companies Act 2006 – Changes Affecting Directors
Company directors are reminded that new provisions under the Companies Act 2006, relating to transactions between companies and their directors, came into force on 1 October 2007. These relate to transactions involving directors and their associates (the definition of which has been expanded) in the areas of:
  • contracts of service;
  • loans, ‘quasi-loans’ and credit agreements;
  • payments for loss of office; and
  • transactions involving assets of substantial value.
In general, these will need to be approved by the shareholders.
There are several exceptions. For example, a director’s contractual entitlement to compensation under his or her contract of service need not be approved by shareholders. Most transactions involving a director and a non-UK subsidiary also do not require shareholder approval. Shareholders do have the right to request a copy of a director’s service contract on payment of an appropriate fee.
There are also changes to the rules governing proxy rights (the rights of proxies are increased substantially) and amendments to the rules dealing with the calling of general meetings, which have been relaxed.
We can advise you to help you ensure your company procedures comply with the provisions of the Companies Act.
Partner Note
See for information on the Act.
Company Bonus Rules – Directors Take Note
A little-reported change in accounting rules has altered the way HM Revenue and Customs look at bonuses given to company directors and will affect many smaller companies.
Traditionally, it was normal to decide on the bonus level to accrue in the company’s accounts based on the draft year end accounts. These are normally only available some weeks after the end of the financial year. Once the level of profit was known, the bonus would be decided and the appropriate accrual put in the accounts, allowing corporation tax relief to be obtained on the bonus payment in that tax year, provided the bonus was paid within nine months of the year end.
Under current accounting rules, a bonus can only now be accrued if the company has the legal obligation to pay it at the year end. The precise sum need not be known, but the bonus must be declared prior to the year end to be claimable against that year’s profits.
The PAYE on a bonus to a director is payable on the earliest of the following:
·         the payment of the bonus;
·         the director becoming legally entitled to the receipt of the sum;
·         when the payment is credited to the director in the company’s books of account; or
·         when the amount of the bonus is fixed.
This means that the voting of a bonus of (say) ten per cent of the profit before tax would not result in a PAYE liability until that figure were known. The rule requiring the payment to be made within nine months of the year end in order to be deductible for corporation tax purposes in that year still applies.
Partner Note
Source – Financial Notes, Summer 2007.
Corporate Manslaughter and Corporate Homicide Bill Gains Royal Assent
The Corporate Manslaughter and Corporate Homicide Bill received Royal Assent on 26 July 2007 and is expected to come into force on 6 April 2008. 
Under the present legislation, to obtain a conviction for corporate manslaughter it is necessary to identify a ‘controlling mind’, who must be in a senior managerial position with appropriate responsibility and authority. This is in practice very difficult to do, especially in larger organisations, with the result that the few successful cases brought have mainly involved small businesses.
Under the new legislation, instead of prison sentences for managers found to be guilty, the businesses themselves would face a potentially unlimited fine if their senior managers permitted a ‘gross breach of any duty of care’ which led to a death.
The Act creates a new statutory offence of corporate manslaughter (corporate homicide in Scotland), which will occur if a death results from a gross breach of a relevant duty of care which is owed to the deceased by the organisation concerned. The Act defines a breach of a duty of care by an organisation as a ‘gross’ breach if the alleged conduct amounts to a breach of that duty and falls far below the standard that can reasonably be expected of the organisation in the circumstances.
Section 8 of the Act specifically requires the jury sitting in these cases to consider whether the evidence shows that the organisation failed to comply with any health and safety legislation that relates to the alleged breach and, if so, how serious that failure was and how much of a risk of death it posed. The jury may also consider the extent to which the evidence shows that there were attitudes, policies, systems or accepted practices within the organisation that were likely to have encouraged any such failure.
There are also provisions which permit convictions to be publicised. The Act can be found at
It is wise for organisations to keep their procedures under review, especially those with direct health and safety implications. Successful defences to charges of corporate manslaughter will inevitably depend on being able to demonstrate that the organisation takes a responsible attitude to health and safety, with appropriate risk management procedures in place that are enforced rigorously.
For advice on the implications of the Act for your business, contact <<CONTACT DETAILS>>.
Danger of Confusion Blocks Trade Mark Application
Direct Line Insurance, owner of the well-known ‘telephone on wheels’ image used in its advertising, has blocked an application by online insurance rival to register as a trade mark a computer mouse on wheels. The mark was a different colour from Direct Line’s red telephone, esure’s ‘house colours’ being blue and orange.
Whilst the court held that there was ‘no proven likelihood’ of people confusing the two trade marks, the threshold for such confusion is a low one and, accordingly, agreeing to register esure’s mark could damage Direct Line.
Interestingly, Direct Line also shows a computer mouse on wheels on the front cover of its policy documents.
When considering new trade marks, it is important to do one’s research carefully to ensure that the creative budget is not spent on something which cannot be registered.
Contact <<CONTACT DETAILS>> for advice on any aspect of intellectual property law.
Partner Note
Esure Insurance Ltd. v Direct Line Insurance plc [2007] EWHC 1557(Ch).
Debt Collection – A Basic Guide
If a business cannot recover a debt from a customer after the normal credit control procedures are exhausted then it will need to consider taking further action to recover the sum due. Mediation with the debtor, involving negotiation through a third party, can be used to resolve the position but, if this fails, other measures are available. These may involve using debt collectors or starting court or insolvency proceedings.
Debt collection agencies generally have the time, expertise and resources to chase up the outstanding payment due and can act quickly. However, an agency’s commission will typically be 8-10 per cent of the debt, perhaps more if it is an old debt. If you use a debt collection agency, it is worth checking that it is registered with the Creditor Services Association to ensure its methods and practices are reputable.
Taking formal legal action is generally more cost-effective for larger debts. The ‘small claims track’ can be used for debts under £5,000. This is a relatively simple process and does not normally require legal representation, although professional advice is useful regarding the preparation of evidence in a suitable form. Debts exceeding £5,000 are pursued in court with the procedure used depending on the size of the claim. The court issues a summons to the debtor. If the debtor does not respond, judgment in default can be obtained, which requires the debtor to make payment without the merits of the case being considered. If the debtor contests the claim, a request for summary judgment can be made so the court can decide if the debtor has any legal basis for refusing payment. If the debtor admits the debt, no court hearing is necessary and enforcement action can be taken.
It is also possible to start insolvency proceedings by issuing a statutory demand or, if the debtor is a company and the debt due exceeds £750, a winding-up petition. A winding-up petition is more commonly used where there are several creditors. This is generally more expensive, but faster, than court proceedings. Failure to pay a statutory demand within 21 days is sufficient basis for a petition for the bankruptcy of the debtor to be presented, but statutory demands are normally used to apply pressure on the debtor to pay the debt.
Choosing how to proceed with collecting a debt will depend on factors such as the size of the debt and the cost (financial and time) involved. If you are having difficulty in obtaining payment from a customer, it is best to seek professional advice on how to proceed with your claim, especially if it is contested.
If you are having problems collecting money owed to you, contact us for advice.
Employee Loses Out in Patent Claim
It is established law that when employees create intellectual property (IP) in the course of their employment, the IP thus created belongs to their employer, not to them. In such cases, the rights of an employee are limited to making a claim under Section 40 of the Patents Act, which allows them to claim a share of the value created by the exploitation of the IP if it is of ‘outstanding benefit’ to the employer and it would be just to award compensation to the employee. No successful case for compensation under S40 of the Act has thus far been brought.
A recent case tested the breadth of the application of the law. It concerned a Dr Pinkava, who was employed as the general manager of the London International Financial Futures and Options Exchange (LIFFE). Dr Pinkava’s role was a general one and he was requested by LIFFE to create a particular type of futures contract which could then be traded on the exchange.
Instead of producing the requested contract, he devised a system which allowed a completely different type of contract to be traded – a system which had been thought to be impossible. He then left LIFFE and went to the USA, where he applied to patent his invention.
LIFFE claimed the IP rights to the invention, arguing that it was made as a part of, or as a result of, his duties when working as its employee and that his job gave him the responsibility to further LIFFE’s interests. Dr Pinkava argued that his invention fell outside of his duties and that the IP therefore belonged to him.
The Court of Appeal concluded that the invention was one that could reasonably have been expected to result from his duties. The IP therefore belonged to LIFFE.
This case adds weight to the employer’s rights in such cases. IP created by employees will generally belong to their employers unless it was not created in the course of their employment. There is no need for a specific clause in the contract of employment for this to be so, although the presence of such a clause is normally preferable. IP created outside work, which does not relate to the employer’s business, will normally belong to the employee and attempts by employers to create ownership by a ‘catch-all’ IP clause in the contract of employment are unlikely to be effective.
Partner Note
LIFFE Administration and Management v Pinkava and others [2007] EWCA Civ 217.
Reported in the Gazette, 14 June 2007 Pg 26.
Financial Fraud – What Not to Do!
With recent surveys showing that instances of employee fraud are still on the increase, eliminating poor security practices which make fraud easier is becoming even more important. It is also worth mentioning that some insurance policies do not cover employee fraud, or offer minimal cover.
The following practices are not uncommon and create a significant risk of fraud:
·         Leaving signed blank cheques for use when the signatory is away. The risks inherent in this practice are clear. It is preferable to have a second signatory who is required to sign checks when another signatory is absent.
·         Rotating signatures. If a number of people can sign cheques, a fraudster can ‘rotate’ the signing of cheques, which makes the exercise of effective supervision very difficult. This is particularly common in frauds involving withdrawals of cash.
·         Electronic transfers. The absence of checks at the bank’s end makes the need to have very tight security procedures over electronic transfers all the more important.
·         Delegated authority without control. It is essential to have controls in place where certain areas of the business are under the sole control of one person. Check that all payments for services or goods received are correctly made and constitute proper value for money. One of the easiest employee frauds to get away with for year after year is the ‘kickback’ from a complicit supplier. Make sure that purchasing decisions are subject to periodic value for money testing and if the payments made are more than the market rate, find out why.
·         Employees who insist that all ‘their’ paperwork is left untouched until their return from holiday. This is a clear warning sign that they do not wish to have their work scrutinised by other people. Find out why.
·         Not counting noses. With the large number of people gaining employment temporarily in the UK, it may be a simple matter to continue to pay an employee who has left, who then shares the income with the employee facilitating the fraud. The number of names on the payroll should be the same as the number of people employed. Make sure it is.
·         Buying from and selling to the same firm. It may sound like good sense to deal with a customer that is also a supplier on a single account. It normally is – but one danger is the possibility of a fraud where purchases are either fictional or delivered elsewhere. Because there are entries on both sides of the account, they may go unchecked. The cheque written agrees with the total on the ledger account, but is that verified?
·         Concentrating on big items only. The essence of the most successful long-term fraud is that it does not attract attention. It is the smallness and regularity of the transaction which establishes it as ‘part of the furniture’ and makes detection less likely. Make sure that ‘small’ accounts are reviewed, at least on a test basis.
If any of the above practices go on in your organisation, it is time to take action to rectify them. Remember, most internal frauds are carried out by highly trusted employees.
The enterprising and corrupt employee has a great advantage over most criminals – a detailed knowledge of the control systems of the organisation which is being defrauded. Make sure you act to protect your business.
A word of warning though: if you think you may have a problem with employee fraud, take care not to rush into action. Making accusations or the improper collection of evidence can have adverse consequences. Take professional advice from the outset.
Partner Note
Accountants BDO have reported that fraud involving businesses hit £538m in the first half of 2007, up 42 per cent from 2006. See
Group Structure Does Not Compromise Protection
Corporate structures involving groups of companies are very common, with some holding companies having dozens of subsidiaries within their group. Virtually all of the best-known names in the UK High Street are trading subsidiaries of groups.
Employees of a company which is a member of a group are normally contracted only to the company which employs them directly. A recent breach of contract case looked at the question of whether the holding company of a group could make a claim against ex-employees who had a ‘non-competition’ clause in their contracts of employment. The employees in this case worked for the holding company of a financial services group. Their contracts prohibited them from supplying financial services advice to any clients of their employer (the holding company) for a year after they left its employment. They left the company’s employment and solicited business from and supplied financial services advice to clients of the group.
Their former employer sued. The reasonableness of the non-competition clause was not contested. What was contested was whether it was applicable, since the holding company by which they had been employed did not itself supply financial services advice. The holding company merely managed the affairs of the other group companies. The business of the group – the supply of financial services advice – was carried out by subsidiary companies. The argument of the employees was that they had not breached their agreements since the holding company did not supply clients with financial services advice.
The Court of Appeal did not agree with the employees. In the view of the Court, the reality of modern business is that group structures are common. The non-competition clause existed to protect the legitimate business interests of the group and was enforceable. It would be senseless to create such clauses in contracts if there was nothing which could be protected by them.
It is worth noting that the employees were familiar with the group structure and the roles of the companies within the group, having been employed by the holding company for several years. However, it is likely that the employer would have been successful even if this had not been the case.
Says <<CONTACT DETAILS>>, “An appropriately worded non-competition clause can be an effective safeguard. The main danger is that of creating a clause which is too onerous to be enforced by the courts. We can advise on these and related matters.”
Partner Note
Beckett Investment Management Group Ltd. and others v Hall and others, Court of Appeal. Reported in the Times, 11 July 2007.
HMRC Increase Travel Tax – With No Change in Law
HM Revenue and Customs (HMRC) have acted to increase the tax take from business travel in two areas, simply by changing their interpretation of the law.
The first change is one which will affect businesses which use ‘double cab’ pick-up trucks, which is fairly common in the construction industry. HMRC have traditionally regarded these as vans, which carry a much lower rate of benefit in kind than cars. It is reported that they are now regarding these vehicles as cars, the benefit in kind on which can be six times that payable on vans. For owners of such vehicles, tax increases of over £1,000 could be the result.
Another change is the way HMRC now regard taxi fares paid by employers for their employees. Where the fare is from a permanent workplace to someone’s home, HMRC will regard the journey in all cases as a private journey giving rise to an assessable benefit in kind. Accordingly, income tax and national insurance contributions will be due on the value of the benefit.
“HMRC are increasingly seeking to maximise their tax take and businesses seem to be bearing the brunt of the process,” says <<CONTACT DETAILS>>. If you need advice on tax compliance or planning, contact us.
Partner Note
Reported in Accountancy Age, 15 August 2007.
Home Use of Computers – All Change
Following the abolition recently of the ‘tax-free perk’ for income tax purposes for computers made available for staff to use at home, the VAT arm of HM Revenue and Customs (HMRC) has decided to increase its tax take also.
Previously, HMRC accepted that the input VAT on computers supplied by employers to their employees was wholly deductible, accepting that any private use of computers supplied was incidental to the business purpose. This concession was withdrawn on 13 August 2007, according to HMRC’s Customs Brief 55/07. The new treatment mirrors that taken for direct taxes and requires an apportionment of the VAT to be made which reflects the appropriate amount of private as opposed to business use. Full VAT recovery will only be available where the provision of a computer is necessary for the employee to carry out the duties of his or her employment.
To see the revised guidance, see .
Infrastructure Project Delays – Government Takes Action
The high-speed rail link between Paris and London was completed on the French side several years ago, but the line in England is still not high-speed throughout its route. This and similar delays in major infrastructure projects (such as those which have dogged Heathrow’s Terminal 5), which are due to the lengthy periods of review and consultation which characterise the planning system here, have led the Government to propose a new planning system designed to speed up the planning process relating to major projects.
It is proposed that responsibility for infrastructure development decisions should be devolved to an ‘Infrastructure Planning Commission’, which will assume many of the powers relating to planning decisions which are currently the responsibility of the local council and Secretary of State. Ominously for some, this proposal comes shortly after the Government indicated that it was once again considering the expansion of the civilian nuclear energy programme.
If the White Paper becomes a Bill, it will constitute what many perceive as a significant attack on local decision-making, making a stormy passage through Parliament inevitable.
For advice on any planning matter, please contact <<CONTACT DETAILS>>.
Partner Note
The White Paper, Planning for a Sustainable Future, can be found at
Inheritance Tax and the Small Business
Inheritance Tax (IHT) is payable on a deceased person’s estate at 40 per cent above £300,000 – the current nil rate band. However, business property is treated differently from personal property and may qualify for Business Property Relief (BPR). Businesses benefit from a more generous taxation system because of their role in providing economic growth.
BPR can provide 100 per cent relief from IHT on a sole trader’s business or partnership interests and can apply to shares in trading companies that are not quoted on a recognised stock exchange. Shares quoted on the Alternative Investment Market can also be eligible for 100 per cent BPR. There is no limit to the value of BPR which can be claimed. Business assets must have been owned by the donor for two years to qualify for BPR and the business in respect of which a claim is made must also be wholly or mainly a trading company. Investment companies and businesses dealing in shares, stocks, securities, lands or buildings do not qualify for BPR.
BPR at 50 per cent is available on land, machinery, plant and buildings used for business purposes, although they will need to have been owned and used mainly for business purposes within the past two years. It is also available for shares in quoted companies where the shareholder has a controlling interest of more than 50 per cent, although this is rare.
In the context of a family business, it may be preferable for a donor to leave IHT-exempt assets to a beneficiary other than their spouse or civil partner. There is no saving if business assets are passed to a beneficiary who would not be liable for IHT anyway. For example, a transfer of business assets qualifying for BPR to a spouse would achieve no IHT saving on that transfer, because transfers between spouses are normally exempt from IHT in any event. There are several issues to consider and expert advice is essential when undertaking IHT planning with regard to business assets.
No BPR is available where there is a binding contract for the sale of a business. This might occur where there are a small number of shareholders who have a shareholders’ agreement which requires that should one of them die, their executors will sell his or her holding to the remaining shareholders, who are required to buy it.
Even where shares would not qualify for BPR, the £3,000 annual tax-free allowance for IHT is available. A shareholder can use this to pass shares to anyone of their choosing. This can be used to give the beneficiary a gradually increasing interest in the company, reducing the IHT payable on the donor’s death. However, care should be taken because the values of ‘slices’ of the shareholdings can vary massively depending on what the voting rights involved are: never transfer shares without taking professional advice on the likely tax implications.
As an alternative approach, a person may choose to sell or wind up their business rather than leave it to beneficiaries in their will. They would then be able to leave liquid capital to their beneficiaries instead. This has the advantage that the value of the business would be precisely fixed and available in cash. However, cash does not qualify for BPR, so this approach has significant drawbacks.
The current law particularly benefits small businesses that are family owned trading companies. They will be likely to qualify for BPR and make the most of the possible IHT saving.
We can help you take tax-efficient and practical steps to ensure your family business is protected from the ravages of avoidable IHT and other taxes. Contact <<CONTACT DETAILS>> for advice.
Massive Claim Leads to Insurance Disclosure Ruling
The High Court recently ruled that a claimant was entitled to know the extent of the insurance carried by the defendant in order to be satisfied that the defendant would be able to settle the claim should the award be substantial. The request to know was related to a claim for damages running into seven figures brought by a gymnast who had suffered severe spinal injuries. The claim was expected to be in the region of £8-10m and it was agreed that the defendant would be 75 per cent liable. All that remained to be negotiated was the value of the claim, but the costs of doing so were likely to be high.
The ruling was sought because the claimant had genuine concern that he might not recover the whole of the award after costs if the defendant’s insurance cover was inadequate. The costs incurred were already very substantial, as is common in cases involving claims of this size.
The defendant’s insurers argued against divulging the information on various grounds, including that it would place them at a disadvantage as regards their negotiating position and that the claimant was not a party to their contract of insurance with the defendant and thus was not entitled to know the terms of the policy.
The Court considered that the claimant’s concerns were genuine and, given that the further costs were likely to be significant, the defendant could not withhold the information sought.
“Although knowing what insurance cover a defendant carries would definitely be useful for claimants in such cases, this decision is unlikely to open a Pandora’s Box of similar claims,” says <<CONTACT DETAILS>>. “The damages claimed in this instance were unusually large and those with smaller claims, within more normal limits of the expected level of public liability insurance, are unlikely to get a similar result.”
Partner Note
Harcourt v FEF Griffin [2007] EWHC 1500 (QB).
New Capital Allowances Regime – Time for Planning
The new regime for capital allowances announced in the last Budget has now been passed into law and has created a planning window for businesses. Most of the changes do not commence until April 2008, but the time for considering their effects and acting accordingly is now.
The main issues are as follows:
1. Investment Timing
The ‘first year allowance’ for items qualifying for capital allowances will be 100 per cent on the first £50,000 of qualifying expenditure from April 2008. If you are considering a capital investment of more than £50,000, it may be worth considering incurring part of the expenditure in the present tax year and deferring a balance of £50,000 until the tax year beginning in April 2008 (1 April 2008 for companies, 6 April 2008 for individuals).
2. Industrial Buildings
The 2008/9 capital allowances regime is in general less ‘friendly’ than the current regime, and this is especially true for items of plant in buildings. Currently, ‘full’ capital allowances are available for these. From 2008, ‘background plant’ (as opposed to ‘trading plant’) will qualify for a much lower (10 per cent) rate of allowance. If you are considering property refurbishments, 2007/8 looks a good year in which to carry them out!
3. Cars
The new scheme for capital allowances on cars and changes to the taxation on benefits in kind will further erode the tax-efficiency of the company car.
The 2007 Finance Act will have a significant impact on businesses of all sizes. Think through the implications now.
Contact <<CONTACT DETAILS>> for advice on any tax matter.
Partner Note
Newsagent Fined for Breach of the Working Time Regulations
An employer who fails to abide by certain requirements of the Working Time Regulations 1998 can face sanctions under criminal law.
Employers must take all reasonable steps to ensure that workers are not required to work more than an average of 48 hours a week, unless they have signed an opt-out agreement. The average weekly working time is normally calculated over 17 weeks. Local authorities are responsible for enforcing these requirements with regard to shops, restaurants and food outlets.
In only the second prosecution of its kind in the UK, newsagent Martin McColl Limited admitted breaching the requirements of the Working Time Regulations concerning maximum working hours. Council officers discovered that an employee at the newsagent, in West Edinburgh, was working on average 51.5 hours a week, on one occasion working a 68-hour week, without receiving payment for the extra hours. The company was fined £600.
The shop workers’ union USDAW has welcomed the prosecution as a reminder to employers that if they ask their staff to work illegal hours they will be penalised.
The Opt-Out
In the UK, individual workers can opt out of the requirement under the Working Time Regulations that the average working week should not exceed 48 hours. This has been the subject of much debate in the past, with the European Commission repeatedly expressing concern over the way the opt-out was being used in the UK. To date, however, proposals to restrict its use have come to nothing. The Minister for Europe has said that the new EU Treaty under negotiation will not affect the UK’s opt-out.
If any of your employees work more than an average of 48 hours a week, you must have a valid opt-out agreement in place. Contact <<CONTACT DETAILS>> for advice.
Remedies in Contract Law – A Basic Guide
If the terms of a contract are breached by one party, the other may suffer a loss. Where this occurs, there are various remedies which the party suffering from the other’s breach can use.
A breach of contract is caused by a failure to perform a duty specified by the contract. The contract’s terms can be divided into conditions and warranties. These can be expressly stated or implied within the contract. A condition is something fundamental to the contract. Breaching a condition will allow the other party to the contract to terminate it by ‘repudiating’ it and to claim damages. Breaching a warranty will only allow a damages claim and does not bring the contract to an end.
Monetary damages for breach of contract are intended to be compensatory –
i.e. to put the injured party in the position he reasonably expected to be in when the contract was created. Sometimes, the sum of damages will be written into the contract by the parties to it. This is termed liquidated damages. However, where the sum specified as liquidated damages is excessive, so that it is a deterrent rather than a genuine pre-estimate of loss, the courts may not uphold such a clause. Unliquidated damages are those damages decided after the breach occurs, either by the parties themselves or by the courts.
To determine the level of damages payable, consideration is given to how damages might arise both out of the contract itself and from the parties’ contemplation when they entered into the contract. Compensation can only be made for losses which are foreseeable at the time the contract was created.
The other remedy used in contract law is for the courts to order ‘specific performance’, which requires the party committing the breach to fulfil its part of the contract. This may involve an injunction to stop a breach of contract. It is not used where it is judged that damages would be an adequate remedy.
If you have suffered a loss because of a breach of contract by another party, you may be able to obtain redress. We can advise you on your available remedies.
Return to Work After Maternity Leave – What is the Same Job?
Under the Maternity and Parental Leave (etc.) Regulations 1999 an employee who takes additional maternity leave is entitled to return to the ‘job in which she was employed before her absence or, if it is not reasonably practicable for the employer to permit her to return to that job, to another job which is both suitable for her and appropriate for her to do in the circumstances’.
In a claim of sex (pregnancy) discrimination (Blundell v St Andrew’s Catholic Primary School), the Employment Appeal Tribunal (EAT) considered for the first time the criteria to be used when determining what counts as the same job under the Regulations.
Mrs Blundell had worked at St Andrew’s since 1992 as one of 18 teachers. The head teacher, Mrs Assid, customarily allocated teachers to a particular responsibility for a period of two years and then changed their roles in order to give them a breadth of experience. During the school year 2002 to 2003, Mrs Blundell taught a reception class. In June 2003, she told Mrs Assid that she was pregnant and subsequently took maternity leave. On her return, Mrs Blundell was offered either the position of year 2 class teacher or she could undertake ‘floating duties’. She claimed that this was a breach of the Regulations, which gave her the right to return to the same job she was doing before her maternity leave.
The Employment Tribunal (ET) found that in Mrs Blundell’s situation ‘the job in which she was employed before her absence’ meant the job of teacher, not the temporary position she had held as a reception class teacher.
Mrs Blundell appealed to the EAT, which examined the definition of ‘job’ as provided for by the Regulations, which is ‘the nature of the work she is employed to do in accordance with the contract and the capacity and place in which she is so employed’. In its view, the level of specificity with which the terms ‘nature’, ‘capacity’ and ‘place’ are to be addressed is likely to be critical and should be determined as a question of fact by the ET, taking into account the purposes of the legislation and the fact that the Regulations themselves provide for exceptional cases where it is not reasonably practicable for an employer to allow a return to the exact same position. The EAT held that the position Mrs Blundell occupied as reception teacher was temporary and ‘it seems plain to us that, where a precise position is variable, a Tribunal is not obliged to freeze time at the precise moment its occupant takes maternity leave, but may have regard to the normal range within which variation has previously occurred’.
In Mrs Blundell’s case, it was clear that the job she was given on her return to work was within the range of variability which she could reasonably have expected.
Says <<CONTACT DETAILS>> “To avoid problems of this nature, it makes sense to keep the job descriptions in employment contracts flexible whenever possible.”
Revenue and Customs Reveal Get Tough Policy
HM Revenue and Customs (HMRC) have recently published a new ‘Litigation and Settlements Strategy’ (LSS), setting out plans for dealing with tax disputes in the future.
The core principles of the LSS are that HMRC will:
·         seek, whenever possible, a non-confrontational solution to the dispute;
·         focus on the issues that best serve their policy of ‘tax gap reduction’ (the difference between the tax due and tax paid);
·         choose cases for their wider impact as well as for their own value (i.e. will seek to find, and presumably publicise, ‘example’ cases);
·         seek the maximum sum where their case is strong and will litigate where appropriate; and
·         not pursue weak arguments.
In addition, it is stressed that the different branches of HMRC will work as teams, meaning VAT and tax officers will look at the same cases.
In practice this means that whilst there may be less time wasted dealing with trivial points, where HMRC think they have a good case, taxpayers can expect them to take a hard stance on disputed points.
The best way to make sure you avoid the stress and considerable loss of valuable time that an HMRC enquiry inevitably involves is to make sure your tax affairs are in good order. If you are advised that you are subject to an HMRC enquiry, take professional advice straight away.
Partner Note
Reported in ‘Accountancy’, July 2007.
Trade Mark Registration Procedures Change
1 October sees changes to the way the UK Intellectual Property Office (UKIPO – formerly the Patent Office) deals with the registration of trade marks.
The most important aspect of the change is that UKIPO will no longer prevent the registration of a trade mark which is similar to an earlier conflicting trade mark unless the owner of the existing trade mark opposes the application.
On making an application, if the examiner finds a pre-existing trade mark which appears to conflict with that being applied for, he will give the applicant the choice of continuing the application or withdrawing it. If the applicant continues, UKIPO will write to the registered owner of the existing trade mark to see if they wish to oppose the application. UKIPO will not write to owners of Community Trade Marks (CTMs), so if you have copyrights protected by CTMs, you will need to ‘opt in’ to be informed, otherwise the risk is that a UK trade mark might be registered which conflicts with your CTM.
Once a trade mark application has been published in the Trade Marks Journal, you have three months in which to raise your objection.
For further information on monitoring a trade mark application or registration, see
Unfair Exclusion Clause Struck Out
The use of exclusion clauses to limit liability in case a contract goes wrong is common in many kinds of contract – especially where the ‘downstream’ effects may be large relative to the value of the contract. Typically, such a clause will limit the damages payable to a particular sum or will exclude certain types of consequential loss. If such a clause is reasonable and lawful, the court will normally uphold it. However, if the clause is not reasonable, it is unenforceable and may be attacked using the Unfair Contract Terms Act 1977 (UCTA).
Recently, the UCTA was used with success by an IT company that wished to claim damages for loss of profits from the provider of serviced offices from which it rented its premises. The offices had defective air-conditioning and became stiflingly hot. This prevented the IT company from holding training courses, which in turn caused it to suffer financial loss. It sued.
The serviced office provider had a ‘catch-all’ term in its contract which attempted to exclude any liability whatsoever for losses suffered by its tenants – even those which amounted, in essence, to a failure to provide habitable offices.
The court considered the exclusion clause to be unreasonable under the UCTA and allowed the tenant’s claim.
“The law is constantly changing,” says <<CONTACT DETAILS>>, “and it is worth undertaking periodic reviews of any standard legal documents you use, to ensure that they still comply.”
Partner Note
Regus (UK) Ltd. v Epcot Solutions [2007] EWHC 938.
VAT Fraud Measures Create Hidden Traps
In order to combat ‘missing trader’ fraud, which is estimated to have cost the Exchequer hundreds of millions of pounds, HM Revenue and Customs (HMRC) have introduced measures which can, in some circumstances, make a supplier (or customer) responsible for its customer’s (or supplier’s) VAT.
The measures will apply when the goods dealt in are any of a number of electronic goods and where reasonable grounds exist to suspect that VAT will go unpaid. It is thought that this could lead to businesses being caught out as a result of taking insufficient care, rather than being complicit in VAT fraud.
In order to minimise risk to your business, if you deal in such items you need to take ‘reasonable steps’ to establish the integrity of those with whom you have dealings. To do so, you should consider the following:
·         obtaining and checking their VAT registered number and, for a company, verifying its registration with Companies House;
·         carrying out credit checks and obtaining third-party references; and
·         checking that the business’s trading address exists and is a business premises, not a serviced office or PO Box location.
HMRC recommend that extra care is taken when a deal is offered to you which seems to be particularly advantageous.
Wine and Glass Not Source of Confusion
A recent case involving the well-known crystal manufacturer, Waterford, showed that trade mark rights rest fairly firmly in their appropriate domains and will not be enforced when there is little likelihood of confusion between the goods in question.
Waterford had opposed the use of the name ‘Waterford’ by South African wine maker, Stellenbosch, on a label for its wines. The opposition was on the basis that the similarity of the names might lead to confusion between the products in the minds of consumers. The Court of First Instance rejected Waterford’s opposition. In the Court’s ruling, it concluded that the question of similarity of the goods had to consider:

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