Commercial Client ~ June 2023


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Commercial Client Titles ~ June 2023


  • Religious Leader’s Employment Contract Was ‘Illegally Performed’


  • Supplies of Land v Supplies of Services – Tax Tribunal Draws the Distinction


  • Is Posting on Social Media ‘Work’? Guideline Furlough Ruling

Commercial Litigation

  • Commercial Arbitration Panel Chairman Cleared of ‘Apparent Bias’ Claim


  • Directors’ Duties are a Quid Pro Quo for the Privilege of Limited Liability


  • Talk is Often Just Talk – Commercial Contracts Need to Be in Writing

Data Protection

  • Direct Marketing Company Pays Price for Relaxed Approach to Personal Data


  • Making Managerial Changes? Transparency is Always the Best Policy



Religious Leader’s Employment Contract Was ‘Illegally Performed’

Those who seek the protection of the law with metaphorical dirty hands are likely to receive short shrift. An Employment Tribunal (ET) powerfully made that point in the case of a religious leader who had engaged in tax evasion.

The man launched proceedings after his engagement as a temple’s head priest was terminated. Following a hearing, the ET found that he was an employee and that his dismissal was unfair. His complaints that he had not received the National Minimum Wage or holiday pay to which he was entitled were also upheld.

The ET found, however, that he and the employer had agreed at the outset that he would be treated as self-employed. That was a mischaracterisation of their true relationship. He either knew or ought to have known that he was, in truth, an employee.

The ET was satisfied that he knew from the start that the employer would not be deducting Income Tax or National Insurance Contributions (NICs) from his pay via the PAYE system. Over a period of three years, he took no steps himself to declare his income from his work at the temple to HM Revenue and Customs (HMRC). His failure to pay tax and NICs on that income was neither careless nor inadvertent, but deliberate and seriously wrong.

The employer turned a blind eye and its failure to take steps to ensure that he was declaring his income to HMRC, in circumstances where it knew that it was not doing so, was at best reckless and seriously wrong. However, the man was, if anything, more at fault in that he knew for a fact that no tax or NICs were being paid on his income, either by the employer or by him. His conduct was extremely serious and amounted to tax evasion.

Although there was no suggestion that his employment contract was itself illegal, the ET found that it was performed in an illegal manner. On that basis, the entirety of his claim was dismissed. Given that his complaints were otherwise meritorious, the ET recognised that this was a severe sanction.

However, when his receipt of voluntary donations from his congregation was taken into account, the sums in unpaid tax and NICs were very substantial and were likely to far exceed any compensation he might have been awarded. There was thus a real risk of him being unjustly enriched were he to succeed in his claim. Given the central public importance of upholding the integrity of the tax and justice systems, the outcome of the case was, the ET ruled, proportionate.

Partner Note

Singh v Singh Sabha London East [2023] UKET 3206267/2021


Supplies of Land v Supplies of Services – Tax Tribunal Draws the Distinction

The difference between a supply of services and facilities and a supply relating to an interest in land is important because only the latter is exempt from VAT. A tax tribunal ruling, however, showed that distinguishing one from the other is often a highly fact-sensitive exercise and no easy matter.

The case concerned a hair salon which licensed a beautician to occupy a back room in its premises. HM Revenue and Customs raised an £18,649 VAT demand against the salon on the basis that the arrangement amounted to a standard-rated supply of services and facilities.

Ruling on the salon’s challenge to that outcome, the First-tier Tribunal (FTT) noted that the beautician had a right to exclude others from the room, where she carried out such intimate tasks as personal waxing. She occupied a defined area, accessed by a separate staircase, and paid rent on a rolling month-to-month basis. The FTT found that the salon’s arrangement with her was not immediately precluded from being a supply related to an interest in land.

The salon provided the beautician with certain services: amongst other things, they shared a receptionist and use of a toilet and staff room. The salon advertised the beautician’s services on its website and by putting a poster in its window. On the other hand, there was very little crossover between their clients and the beautician provided all her own equipment. She was free to decorate the room, which was provided to her unfurnished, however she wished.

In upholding the salon’s appeal, the FTT found that the services provided by the salon were ancillary to the supply of the room and not a predominant part of the supply. The beautician was not required to use those services and their provision was clearly not essential to her business. The arrangement was properly characterised as a VAT-exempt, relatively passive, supply of land.

We can advise you on any matters relating to commercial property and tax disputes. Contact <<CONTACT DETAILS>> for guidance.

Partner Note

Errol Willy Salons Ltd v The Commissioners for Her Majesty’s Revenue and Customs [2022] UKFTT 17 (TC)


Is Posting on Social Media ‘Work’? Guideline Furlough Ruling

Making posts on social media for marketing purposes may not yield an immediate financial reward, but it is nevertheless ‘work’. A tax tribunal made that point in finding that a company director who made sporadic, work-related Facebook posts during the COVID-19 pandemic was not entitled to benefit from the furlough scheme.

The woman ran a small family company that provided, amongst other things, after-school clubs and parent and baby groups. The company’s revenue collapsed to zero at the outset of the first lockdown. She was purportedly placed on furlough and the company obtained over £9,000 in government support payments under the Coronavirus Job Retention Scheme.

Whilst the company was in full swing, she and her fellow director spent up to 15 hours a week communicating with clients via social media. That activity reduced dramatically post-lockdown, but she continued to make the occasional post on Facebook with a view to getting back to business in due course.

HM Revenue and Customs (HMRC) subsequently demanded repayment of every penny that the company had received under the furlough scheme, plus tax. It took the view that, when she made the posts, the director was working. She had not ceased all work for the company for the required minimum of 21 days and thus did not qualify as a furloughed employee.

Challenging that decision, she argued that ‘work’ entails the provision of a personal service for reward, in the form of money or other benefit. The company received no income during lockdown and neither she nor it garnered any reward from making the posts. The number of posts had declined from a flood to a trickle and she asserted that HMRC’s disproportionate approach would cause both her and the company considerable financial hardship.

Ruling on the matter, the First-tier Tribunal (FTT) noted that her conduct in making the posts was entirely understandable. What business would not have wished to maintain its reputation during lockdown so that, once the situation returned to normal, it could resume generating income? She took the sensible and prudent course of ensuring that the company was fully ready to re-enter the market.

Dismissing her appeal, however, the FTT noted that the sole issue was whether she was working when she made the posts and questions of proportionality did not arise. In the context of the furlough scheme, it ruled that work is comprised in any activity undertaken by an employee with a view to either directly or indirectly generating income for an employer – either immediately or in the future – or to enhancing its goodwill, brand value or reputation. The vast majority of her posts fell into that category and furlough was therefore unavailable.

Our specialist team can advise on all types of business tax issues. Contact <<CONTACT DETAILS>> for advice.

Partner Note

Glo-Ball Group Ltd v The Commissioners for His Majesty’s Revenue and Customs [2023] UKFTT 435 (TC)

Commercial Litigation

Commercial Arbitration Panel Chairman Cleared of ‘Apparent Bias’ Claim

Commercial arbitrators are not Trappist monks and are likely to have extensive personal and trade contacts in their fields of expertise. The High Court made that point in rejecting claims that the highly experienced chairman of an arbitration panel gave an appearance of bias.

The case concerned a dispute between commodity traders that came before an appeal panel established by an international trade association. The panel found that the arbitration had been applied for some two years outside a 56-day time limit which applied to the matter and declined to exercise its discretion to extend time.

In challenging that decision, two trading companies asserted that there were a number of circumstances which gave rise to justifiable doubts as to the panel chairman’s impartiality. On grounds of apparent bias, it sought to remove him from the chair and have the matter reconsidered by a freshly constituted panel.

Ruling on the case, the Court noted that the chairman had over 30 years’ experience as a commodities trader and more than 20 years as an arbitrator. The companies’ opponent in the arbitration was a member of the association, whilst the companies were not. The opponent’s CEO and the chairman both served on the association’s ruling council and they had known each other for around 15 to 20 years.

Although they had never sat on the same committees, they had seen each other at meetings, industry social events, workshops and council meetings. However, the Court found that their acquaintance was a professional one, formed through their work. They were not friends and did not know each other well.

Dismissing the companies’ application, the Court noted that trade associations commonly draw on their members when appointing arbitrators. This has the twin advantage of bringing their members’ particular expertise to the table and greatly reducing the costs of arbitration. It is to be expected that such members are likely to know, or at least know about, others involved in the relevant market.

The Court found that none of the circumstances relied on by the companies would or might reasonably give rise to an appearance of bias on the chairman’s part. There was no serious irregularity in the relevant arbitration process, nor had the companies suffered a substantial injustice. There was, the Court found, no reason to believe that the outcome of the arbitration would have been different had the chairman not participated.

Partner Note

Africa Sourcing Cameroun Ltd and Another v LMBS Societe Par Actions Simplifiee and Another [2023] EWHC 150 (Comm)


Directors’ Duties are a Quid Pro Quo for the Privilege of Limited Liability

In return for the privilege of being able to do business with the immeasurable benefit of limited liability, company directors must observe a range of duties and obligations that are designed to protect the public interest. A High Court ruling provided a stern warning to those who fail to live up to the expectations of that quid pro quo.

The case concerned the sole director of a property management company that was wound up at the behest of one of its clients, who claimed to be owed more than £425,000. Following an investigation of the insolvent company’s affairs, the Secretary of State for Business, Energy and Industrial Strategy launched proceedings against the director under the Company Directors Disqualification Act 1986.

Ruling on the matter, the Court found that the director had exhibited a serious lack of concern for the basic obligations owed by the company under property management agreements. He was fully aware of those obligations and was responsible for placing the company in breach of its duties in a systematic fashion. Of particular concern was the intermingling of funds belonging to different customers.

The Court rejected the director’s argument that this was how many leading property management companies operate. The client’s money was not ring-fenced as it should have been but was mixed in with funds from other sources. Without the client’s authority having been obtained, the money flowed out to a range of beneficiaries, some of whom had no connection to the client.

It was not possible to safely conclude that any specific sum was not paid back to the client when the relevant management agreement was terminated. That difficulty, however, arose precisely because of the practice of intermingling client funds, combined with the absence of satisfactory records. The failure to keep adequate accounting records, or at least to deliver them up to the Official Receiver, was a further ground for concern in that it hindered the investigation.

The Court concluded that the director had failed to appreciate and observe the duties attendant on the privilege of conducting business with limited liability. He had shown a serious lack of commercial probity and a lack of insight as to the unacceptability of his business practices. He was banned for nine years from, amongst other things, being a company director or in any way being concerned in the promotion, formation or management of a company, without judicial permission.

For advice on any aspect of company law, contact us.

Partner Note

Secretary of State for Business, Energy and Industrial Strategy v Joiner [2023] EWHC 1097 (Ch)


Talk is Often Just Talk – Commercial Contracts Need to Be in Writing

Claims that binding contracts have been reached orally or on a shake of hands are commonly made, but are very hard to prove. A Court of Appeal ruling in the context of the drinks industry underlined the critical importance of engaging professionals to submit agreements to writing.

A manufacturer of alcoholic drinks supplied its wares through a wholesaler. A dispute developed after the wholesaler learned that the manufacturer was making direct supplies to one of its major clients. The wholesaler alleged that the commercial relationship was governed by an overarching contract by which the manufacturer agreed only to supply its products through the wholesaler. Although no such contract had been committed to writing, the wholesaler asserted that a binding, oral exclusivity agreement had been reached at a meeting.

Following a hearing, however, a judge ruled that there was no overarching contract. He found instead that there were individual contracts in respect of five customers. By making direct supplies to the client, the manufacturer had acted in repudiatory breach of one of those contracts and renounced the others. On the basis that three months was a reasonable notice period, the manufacturer was ruled liable to pay damages for breach of the five contracts for that period.

In dismissing the wholesaler’s appeal, and the manufacturer’s cross-appeal, against various aspects of the judge’s ruling, the Court detected no error in his approach. In relation to the alleged overarching contract, the absence of a written agreement meant that the judge was inevitably reliant on witness evidence as to what had and had not been orally agreed at the meeting.

The judge was entitled to find that little more had been achieved at the meeting than an agreement to take matters forward. The wholesaler gave no definite commitment to place orders of any particular amount with the manufacturer, nor had the manufacturer committed itself to accept and fulfil any such orders. In those circumstances it was difficult to see that either of them had entered into the kind of legally enforceable obligations needed to form a contract.

Our expert lawyers can advise you on any contractual matter. Please contact <<CONTACT DETAILS>>.

Partner Note

Zymurgorium Ltd v Hammonds of Knutsford PLC [2023] EWCA Civ 52

Data Protection

Direct Marketing Company Pays Price for Relaxed Approach to Personal Data

Direct marketing companies that take a relaxed approach to data handling have only themselves to blame if they fall foul of the law. A home improvements company on the receiving end of numerous nuisance call complaints found that out when it was hit with a £150,000 penalty to reflect its failures in due diligence.

During an intensive, eight-month marketing campaign, more than a million calls were attempted from the company’s call centre, almost 700,000 of which were connected. Of those, more than 370,000 were made to recipients who had registered with the Telephone Preference Service (TPS). Such registration is intended to prevent unsolicited marketing calls being made without consent. The penalty was imposed by the Information Commissioner after 91 complaints were received, all of them from TPS subscribers.

Rejecting the company’s challenge to the penalty, the First-tier Tribunal (FTT) noted that it had bought in data, in the form of telephone numbers, from outside suppliers. Exhibiting a relaxed attitude, the company took no steps to screen those numbers against the TPS register. It relied instead on assurances from data suppliers that the numbers had been pre-screened, or that required consents had been obtained, and that they were ready for marketing use. The only due diligence that the company conducted was to check the numbers against its own call suppression list.

Even after the Information Commissioner notified the company of complaints and warned it that regulatory action was being contemplated, there was no change in its practice nor was there any attempt to better understand or comply with its legal obligations under the Privacy and Electronic Communications (EC Directive) Regulations 2003 (PECR).

Although it was not suggested that the contraventions of the PECR were deliberate, the company’s reliance on its data suppliers’ assurances was not enough. Neither ignorance of the law nor the youth and relative inexperience of its directors provided an excuse. Given the absence of mitigation, the FTT concluded that the penalty was reasonable and proportionate, also serving to dissuade others from similar breaches.

For expert advice on any matters relating to data protection law, contact <<CONTACT DETAILS>>.

Partner Note

Houseguard UK Ltd v The Information Commissioner [2023] UKFTT 436 (GRC)


Making Managerial Changes? Transparency is Always the Best Policy

When changes are being made to a company’s management structure, transparent consultation with those affected is always the best policy. An Employment Tribunal (ET) made that point in the case of a senior executive whose role was steadily reduced to the point where he felt that resignation was his only option.

The man was employed as the operations director of a multinational business’s UK division. He was also one of the company’s statutory directors. The company was undergoing globalisation and responding to the challenge of COVID-19 when it embarked on a restructuring of its managerial positions.

He asserted that his position was thereafter slowly eroded and undermined and that he was, in effect, demoted. His job title was changed from ‘director’ to ‘leader’ and important responsibilities that he had previously fulfilled were removed from his remit. He resigned, citing a complete loss of trust in the company’s senior management team, and subsequently launched ET proceedings.

Defending the claim, the company contended that it had in fact intended to promote him and substantially enhance his salary. Amidst the pandemic and the company’s expansion, structural changes were being made daily, on the hoof. The company asserted that his resignation was prompted by his disappointment at not receiving a bonus and his belief that he had been overlooked for promotion.

In upholding his constructive unfair dismissal complaint, however, the ET noted that the case bore all the hallmarks of a workplace power struggle. The steady diminution of the man’s role and responsibilities was implemented on a drip, drip basis. He could only tolerate so many drips before he had had enough and felt that he had no alternative but to tender his resignation. Shorn of his executive powers, he was effectively rendered a director in name only.

Observing that transparency is preferable to stealth, the ET emphasised that good management demanded that the proposed changes to his role should have been disclosed and discussed with him, rather than being inflicted piecemeal without consultation. In the absence of agreement, the amount of his compensation would be assessed at a further hearing.

Contact <<CONTACT DETAILS>> for advice on any employment law matter.

Partner Note

Bowden v Opsec Security Ltd [2023] UKET 2501044/2021


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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.

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