Commercial Client – Spring 2007

Competition Authorities – More Massive Fines

 

The European Commission is adept at handing out massive fines for serious breaches of competition law and the recent €750m fine, levied on a cartel that included electronics giant Siemens, is no exception. Siemens received the largest fine of €423m.

 

The Commission concluded that for 16 years Siemens and ten other companies were engaging in price-fixing with regard to tenders for electrical switchgear. The arrangements were such that they had agreed informal ‘market shares’ and non-competition agreements and had improperly shared commercial information.

 

The arrangement came to light when ABB, one of the cartel members, ‘blew the whistle’. ABB received no fine for its participation. Siemens and Toshiba, which was fined €86m, are said to be considering an appeal.

 

Partner Note

Reported in the Times, 24 January 2007. See

http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/article1296039.ece.

 

Construction Industry Scheme Start Confirmed

 

Contractors in the building industry are reminded that the new Construction Industry Scheme (CIS) is scheduled to start on 6 April 2007 and that the tax deduction rate for subcontractors registered for net payment is 20 per cent (not 18 per cent as previously proposed). Subcontractors who are not registered under the CIS will have tax deducted at 30 per cent.

 

The new scheme depends on contractors making the correct evaluation of the status of those working for them and care must be taken over this. HM Revenue and Customs’ online employment status tool should be of assistance and it is a comfort to know that PAYE inspectors have been told not to ‘second guess’ decisions made by using it. The online tool allows you to print a copy of the questions and answers used, so that the justification for any particular decision made by using it can be retained.

 

For information on assessing employment status (this page has a link to the employment status tool), see http://www.hmrc.gov.uk/employment-status/index.htm. Guidance on the CIS can be found at http://www.hmrc.gov.uk/cis/section3b.htm.

 

Partner Note

HMRC’s ‘Detailed Guidance for the Construction Industry’ can be found at http://www.hmrc.gov.uk/cis/section3b.htm.

 

 

Copyright and Email

 

Copyright is a right which exists without any specific steps having to be taken. It applies whenever there is a work created which contains original skill or labour. It applies to written material and that includes email, as a recent High Court ruling has confirmed.

 

The case involved a roofing slate company, which sent an email to another company during the course of a dispute about the quality of roofing slates. When the second company forwarded the email on to the roofing contractor who was the defendant in the action, the slate company alleged that the letter involved a substantial degree of independent skill and labour on the part of its author and was therefore entitled to copyright protection. The Court agreed.

 

The moral of the story is to think before forwarding something by email – you might just be breaching the author’s copyright if you do.

 

For advice on electronic communications policies and related issues, contact <<CONTACT DETAILS>>.

 

Partner Note

Cembrit Blunn Ltd. Dansk Eternit Holdings A/S v Apex Roofing Services LLP,

[2007] EWHC 111 (Ch). See

http://www.bailii.org/ew/cases/EWHC/Ch/2007/111.html.

 

Court Will Not Act to Give a More Commonsense Result

 

Although the current thinking of the courts is to consider contractual disputes from a practical commercial angle, they will not normally ‘re-write the contract’ just because the meaning of the provisions of the contract in dispute might conflict with commercial common sense or if this would result in them being more in accord with normal business practice.

 

In a recent case involving Somerfield, the supermarket chain wished to retain a facilities management service provided by a company called Skanska, before the contractual details could be agreed. Somerfield suggested to Skanska that pending agreement of the details, the services should be provided in accordance with the draft facilities management contract which Somerfield had prepared. It sent a letter of intent to Skanska to that effect.

 

As the contract specified over 300 services to be provided, the negotiation of the detailed contract was always likely to take a considerable period of time. In the event, the final contract was never agreed, although the temporary agreement (such as it was), established by the letter of intent, was extended twice. Predictably, a dispute arose.

 

Somerfield argued that the draft facilities management contract applied in full. Skanska argued that none of the terms applied as the letter of intent contained the common phrase ‘subject to contract’. It was accepted by both parties that the letter of intent did create at least a limited form of contract. In the Technology and Construction Court (TCC), the judge had ruled that contractual relations were created only to the extent necessary to define the services Skanska was to provide.

 

The Court of Appeal held that the letter of intent went further than this and that the ordinary meaning of the words ‘under the terms of the contract’ clearly intended that the facilities management agreement should operate as laid out in the draft contract until it was finalised. To rule otherwise would be to construe the contract in a way which did not reflect the agreement into which the parties had entered. However, because of the complexity of the agreement, the contract could not be regarded as being binding with regard to each particular. The agreement was therefore remitted back to the judge in the TCC to determine which of the clauses were applicable.

 

Says <<CONTACT DETAILS>>, “Making an agreement in writing means that the court will start by considering the wording of the agreement based on the premise that it conveys the meaning to which the parties of the contract were agreeing. Even ‘holding’ agreements should not be made without taking care and obtaining appropriate professional advice. In this case, the judge in the lower court clearly thought that it had not been sensible to enter into the contract on the terms contained in it. However, wise or not, the words in the contract, not their commercial wisdom, had to determine the outcome.”

 

Partner Note

Somerfield Stores Ltd. v Skanska Rashleigh Weatherfoil Ltd. [2006] EWCA Civ 1732.

 

Defective Compromise Agreements

 

There are specific rules that normally apply when an employer enters into a compromise agreement in order to prevent an employee from taking action on a particular matter at the Employment Tribunal at a future date. A recent case has further illustrated the need for careful drafting of such agreements if they are to achieve their intended purpose.

 

One such rule is that the agreement itself must fulfil conditions set out in the Employment Rights Act 1996 and, if the agreement is intended to apply to discrimination claims, the conditions set out in the relevant discrimination legislation. Another is that the agreement must relate to particular proceedings and cannot be a generalised, ‘cover all’ agreement.

 

The Employment Appeal Tribunal (EAT) recently ruled (Palihakkara v British Telecommunications plc) that a compromise agreement did not cover claims of sex and race discrimination because it did not specifically include a clause confirming that the conditions in the relevant legislation had been satisfied, even though the agreement did confirm that the conditions of the Employment Rights Act regulating such agreements were satisfied.

 

In addition, the compromise agreement in this case stated that the payment to the employee was made and accepted ‘in full and final settlement of all claims past or future arising out of the termination of her employment’. The EAT judged that the meaning of these words was that the agreement did not compromise claims other than those which arose out of the termination of the employment, in spite of the use of the words ‘past or future’.

 

Says <<CONTACT DETAILS>>, “In this case, the compromise agreement clearly failed to protect the employer as intended because care was not taken to abide by the rules relating to such agreements. If you are contemplating entering into a compromise agreement, we can advise you to ensure that all relevant claims are compromised.”

 

Delay Not Fatal in Pale Case

 

The result of the well-publicised ‘Whiter Shade of Pale’ case was not one which will make either side ‘turn cartwheels across the floor’. In essence, the claim was that Matthew Fisher, a former organist with Procol Harum, should be treated as a co-writer of the 1967 million-selling smash hit featuring his distinctive organ work.

 

The legal arguments were lengthy and the defence rested chiefly on two points. The first was that Mr Fisher’s contribution was not such that warranted him being given co-writer status. The second rested on the fact that Mr Fisher had failed to assert his claim for nearly 40 years and that it would be unjust for rights which had been left unclaimed for such a long period to be asserted after such a long delay. Interestingly, Mr Fisher left the band (which he subsequently rejoined and left again) in 1969 in exchange for being released from his share of the band’s tour debts.

 

In the view of the judge, Mr Justice Blackburne, Mr Fisher’s contribution to the recording was sufficient to warrant his being credited as one of the composers of the music. This, ruled the judge, entitled him to a 40 per cent share in the musical copyright. However, the judge ruled that there was ‘no injustice to Mr Fisher in the fact that the defendants have received all of the royalties prior to receiving the letters before action’. Since his claim was issued on 31 May 2005, Mr Fisher is entitled to a share in the royalties from ‘Whiter Shade of Pale’ only from that date.

 

In many ways, this case has raised more interesting points than it has settled. Firstly, to allow a claim brought so long after the event is in itself somewhat surprising. However, the recording still generates substantial royalties, so Mr Fisher should receive a reasonable sum until the copyright expires in 2017 or thereabouts. It was stated in evidence that an offer was made to Mr Fisher to settle his claim without going to court. If the offer made by the defendants to settle Mr Fisher’s claim was more than the value of the royalties he will receive, he could yet find that his victory has little value.

 

It is also not clear how the legal costs are to be met. As the trial lasted more than five days, these will be very substantial indeed. Lastly, it seems unlikely that either side will appeal against the judgment as the risk of incurring additional costs is likely to outweigh the extra benefit that may be gained.

 

What is most obvious, however, is that Mr Fisher would have been in a better position had he made his claim earlier. In similar circumstances, always take advice as soon as possible and commence action sooner rather than later.

 

Partner Note

Fisher v Brooker & anor [2006] EWHC 3239 (Ch)

http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/Ch/2006/3239.html.

 

Fraud Act 2006 – New Weapon Against Rising Fraud

 

Recent reported increases in fraud (reports by accountants BDO Stoy Hayward and KPMG both indicate a rapidly increasing problem) will focus the minds of business managers on this issue. Fortunately, there is a new weapon against fraudsters – at least those whose frauds are detected – in the form of the Fraud Act 2006.

 

Under the old legislation, obtaining a conviction for fraud was difficult and depended on the actions or beliefs of the person who suffered the fraud. The new Act replaces the previous deception offences with three new offences. The key difference is that the new offences depend on the actions and representations of the perpetrator of the offence.

 

The Act also makes unlawful the manufacture, supply, adaptation or possession of equipment for the commission of fraud – this will make the possession of credit-card cloning equipment unlawful, for example. It also creates a new offence of fraudulent trading by a sole trader.

 

The new fraud offences are:

 

 

 

 

Lastly, there is a new offence of obtaining services dishonestly. This involves obtaining services for which payment is due and failing to pay, in whole or in part, where this is done with the intent that payment will be avoided.

 

Says <<CONTACT DETAILS>>, “The Fraud Act 2006 makes the intention of the perpetrator, rather than the effect on the victim, central to obtaining a conviction. Whether the new Act will make it easier to obtain convictions for fraud, only time will tell.”

 

Partner Note

The Fraud Act 2006 can be found at http://www.opsi.gov.uk/acts/acts2006/20060035.htm.

 

Fraud on the Increase

 

A rise in reported business fraud of 40 per cent in 2006 means that fraud has reached new record levels and is estimated to be costing UK businesses £1.37bn annually. Most fraud is employee fraud.

 

The number of reported frauds which cost the individual firms involved more than £50,000 was up by a third, to 295 cases.

 

However, even these figures are likely to be a considerable underestimate, as it is estimated that 85 per cent of frauds are unreported. Men are reported to be far more likely to commit fraud than women (men commit over 80 per cent of reported frauds) and the most common motivation is a desire to live a lavish lifestyle.

 

If you do suspect employee fraud, we recommend that you take legal advice immediately. Whilst your main aim will be to obtain evidence that will stand up in court, you should proceed with caution. There is a risk of action being taken against you should your suspicions prove incorrect or you act in a way that breaches an employee’s employment law rights. In addition, the way you gather evidence or record personal employee data must comply with the Data Protection Act.

 

Says <<CONTACT DETAILS>>, “We can advise you on how to obtain the evidence you require without yourself committing breaches of the law.”

 

Partner Note

Report by BDO Stoy Hayward, Chartered Accountants, and reported in Accountancy, February 2007. KPMG have also reported similar findings.

 

Fuel Rates Down

 

HM Revenue and Customs announced on 29 January that the rates payable for car fuel (where a mileage rate is paid to company car users for business travel) were to be reduced from 1 February 2007. Recognising that this didn’t allow sufficient time for businesses to adapt to the change, they agreed that the reductions could apply from 1 March 2007.

 

The mileage rates are payable when an employee uses a company car for business purposes and is reimbursed only for the amount of fuel used. Using this system provides reimbursement for the employee for business mileage and prevents an assessable benefit in kind arising for fuel benefit, which is chargeable if fuel is provided by the employer for private motoring.

 

The new rates (with the old rates in brackets) are:

 

 

The changes are meant to take account of the recent falls in fuel prices.

 

Contact <<CONTACT DETAILS>> for advice on any tax matter.

 

Partner Note

ICAEW Taxline Email Bulletin, 6 February 2007.

 

Get it Right First Time

 

Two recent cases illustrate the wisdom of taking advice to make sure that before you sign an agreement, its terms have been reviewed and its meaning is clear.

 

In the first case, a company which produced three different quotations for the supply of bespoke furniture was pleased to find that it was successful in securing the contract. However, the ‘accepted’ quotation included an erroneous clause allowing payment to be made after the customer had ‘signed off’ the delivered furniture. The prior quotations had included standard terms and conditions which provided for payment at the end of the month following the month of invoice.

 

The case was argued all the way to the Court of Appeal, which judged that the third quotation was an invitation to contract, not a contractual offer as such, so the standard terms and conditions did apply.

 

The second was a Canadian case in which a million dollars rested on the meaning implied by the placement of a single comma in a contract. The contract concerned included a clause saying that it would ‘…continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party’.

 

The question that arose was whether or not the second comma meant (as is usual) that the beginning and end of the sentence should be read together – in which case notice could be given at any time – or not. In the latter case, notice could only be given to end the contract at the end of a five-year term. The adjudicator ruled that the meaning was that notice could be given at any time. An appeal on that judgment is being launched.

 

Both of these cases could have been avoided had the contractual terms been considered carefully and amendments been made to remove the areas of potential doubt in the contracts.

 

Contact <<CONTACT DETAILS>> for advice on any aspect of contract law.

 

Partner Note

The cases referred to are:

 

1. Gordon Russell (UK) Ltd. v Warwick, Court of Appeal. [2006] EWCA Civ 1851.

 

2. Aliant Telecom v Rogers CRTC 2006-45. See

http://www.crtc.gc.ca/archive/ENG/Decisions/2006/dt2006-45.htm.

 

Guidance on REITs

 

HM Revenue and Customs (HMRC) have now published guidance on Real Estate Investment Trusts (REITs), which became available on 1 January 2007.

 

Among the main issues clarified are the following:

 

·        the prohibition on distributions to 10 per cent shareholders will apply only where the shareholder in question is a company. However, the prohibition on distributions where the REIT is a ‘close’ company, owned by a small number of non-corporate shareholders, remains; and

 

·        groups of companies can opt to be treated as a group REIT or the principal company of a group can opt for single-company REIT status.

 

Most importantly, however, HMRC have indicated that they are willing to enter into discussions in cases in which the classification of rental income to be received (schedule D or schedule A) is a grey area. This will be crucial in a REIT.

 

HMRC’s guidance manual on the tax treatment of REITs can be found at http://www.hmrc.gov.uk/manuals/greitmanual/index.htm.

 

Partner Note

HMRC’s guidance on the tax treatment of REITs can be found at http://www.hmrc.gov.uk/manuals/greitmanual/index.htm.

 

 

 

 

 

Handling Subject Access Requests

 

The Data Protection Act 1998 gives individuals the right to access information held about them by organisations. The Act governs how organisations can use the personal information they hold – including how they acquire, store, share or dispose of it.

 

The Information Commissioner’s Office has published guidance for small- and medium-sized firms on how to deal with requests (called ‘subject access requests’) from individuals for information held about them.

 

The advice distinguishes between requests that can be treated as part of normal business practice and those that should be dealt with formally under the Act.

If the request can be treated as a routine enquiry, rather than a formal subject access request, it often makes sense to do so. The guidance includes examples of the sort of requests for information that should be handled in this way.

 

This, and other good practice guidance on data protection issues, can be found at http://www.ico.gov.uk/what_we_cover/data_protection/your_legal_obligations/good_practice_notes.aspx.

 

Informing and Consulting Employees – A Reminder

 

Since April 2005, those who work for employers with 150 or more employees have had the right, under the Information and Consultation of Employees Regulations 2004, to be provided with information and to be consulted on major business decisions which affect them at work, with a view to reaching agreement on decisions likely to lead to substantial changes in work organisation or employers’ contractual relations with their employees.

 

Employers are reminded that the Regulations are extended to cover undertakings with 100 or more employees as of 6 April 2007. The legislation applies to anyone carrying out an economic activity, whether it is a business, a school, a public sector body or a charity. The rules will apply to employers with 50 or more employees from April 2008.

 

The legislation does allow employers the flexibility to agree consultation arrangements with their employees which suit the individual circumstances of the business. Pre-existing arrangements that are supported by both employees and the employer will be allowed to continue.

 

Where there are no existing arrangements for informing and consulting employees, the onus is on employees to ask for them to be put in place. Employers will be obliged to comply with the request if it is supported by at least 10 per cent of the workforce.

 

Recently, the Central Arbitration Committee (CAC) found that Macmillan Publishers Ltd. was wrong to ignore a request from employees for information and consultation arrangements. The company argued that it already had adequate arrangements in place but the CAC disagreed and ordered it to arrange for the holding of a ballot of its employees to elect information and consultation representatives.

 

If you wish to initiate proceedings to negotiate an agreement to inform and consult your employees or would like further information on how the legislation operates, please contact <<CONTACT DETAILS>>.

 

Insurance Policy Prevents VAT Recovery

 

The issue of VAT input tax recovery on motor vehicles has a long history of producing conflict between VAT-registered traders and HM Revenue and Customs (HMRC).

 

In general, no input VAT is recoverable on cars, although there are exceptions, in particular where the car is leased. One exception is when the car in question has no private use of any kind.

 

Recently, a case came to court following an appeal from a man who runs a farming and contracting business. He had been denied his input VAT recovery claim on a 4×4 vehicle, which he had bought for the purposes of his business. The vehicle and its keys were always kept on the business premises, but it had been insured for social as well as business use. That, in the view of the court, showed that there was the intention for the vehicle to be used for private as well as business purposes. The court accordingly rejected the trader’s appeal, confirming that the input VAT was not recoverable by him.

 

It is well known that HMRC inspectors are very sceptical about input VAT recovery claims relating to cars and will seek evidence that the car is used or likely to be used for private as well as business travel. If an input tax claim is to be made for a car, it is essential that there are no grounds given for the belief that it will be used for private motoring, or the claim is likely to be denied. Putting a prohibition on private use in the employment contracts of employees supplied with cars for business use is likely to aid the claim.

 

Partner Note

HMRC v Shaw ChD, 15 November 2006, reported in Indirect Tax Voice, December 2006.

 

Landlord Need Not Repair Item Not in Disrepair

 

A tenant who sought to claim from her landlord, after she was cut by broken glass, found that the Court of Appeal did not agree that her landlord was liable for her injury.

 

Elaine Alker had been injured when the glass in her front door broke, causing a serious injury to her arm. The glass concerned was ordinary glass, not safety glass. She argued that the glass, which was undamaged up to that time, should have been replaced with safety glass, as the dangers of using un-reinforced glass in doors are well known and have been so for many years. She argued that her landlord’s failure to replace the glass was a breach of his duty under s.4 of the Defective Premises Act 1972.

 

In court, it was ruled that the landlord, Collingwood Housing Association, was in breach of its obligations. The Housing Association appealed.

 

The Court of Appeal did not agree with the finding of the lower court. The door panel itself was not in disrepair and thus needed no maintenance. Although there was a repairing covenant in the tenancy agreement, the landlord’s duty was to maintain or repair the premises, which is not the same as a duty to keep them safe. That would be an unjustified extension of the statutory language.

 

For advice on any commercial property matter, please contact <<CONTACT DETAILS>>.

 

Partner Note

Alker v Collingwood Housing Association [2007] WLR (D) 20. See http://www.lawreports.co.uk/WLRD/2007/CACIV/feb0.4.htm.

 

Negligent Company Directors Banned for 15 Years

 

A recent case shows the seriousness with which the Secretary of State for Trade and Industry regards the conduct of directors when this is seriously negligent. The outcome was that two company directors have been banned from holding office as directors for 15 years.

 

The directors, Richard Gunter and Robin Grove, were considered to be ‘recklessly indifferent and grossly negligent’ in their conduct regarding the purchase of the Hallmark Partnership, by Vintage Hallmark Ltd., for £59m. Hallmark Partnership has been estimated to be worth about £5m. The directors had failed to consider whether the business was solvent and had made no attempt to confirm the value of its assets. Since the business of Hallmark Partnership was to sell wines to American medical professionals, at vastly inflated prices, the directors’ failure to make enquiries regarding the true value of the assets they were acquiring was all the more remarkable. In the court’s view, they were ‘utterly unfit to be concerned in the management of a company’.

 

Company directors who fail to exercise due care and attention when carrying out their roles as directors are receiving little sympathy from the courts.

 

Partner Note

Secretary of State for Trade and Industry v Grove and Gunter [2006] EWHC 2761 (Ch).

 

Parting Not Sweet When Terms Ambiguous

 

They say that partings are seldom sweet. This is especially true where an ambiguous termination clause is concerned.

 

This was the issue in a case that recently came before the Court of Appeal. It involved a firm called Artpower, which contracted to produce and sell clothes from the range of another company, named Bespoke Couture.

 

The relevant contract contained a term which allowed its termination if the other side committed a material breach which was not rectified within 30 days. A later clause in the contract also provided that it could be terminated immediately ‘on notice’ in certain circumstances. The clause relating to material breaches did not include the ‘on notice’ wording.

 

Bespoke Couture claimed that Artpower had been in material breach of the contract and gave 30 days notice requiring rectification of the breach. At the end of 30 days, the breach having not been rectified, Bespoke Couture regarded the contract as terminated. They claimed that the termination was, in effect, automatic, since the relevant clause did not specify that it would be ‘on notice’.

 

The key point at issue was the wording of the relevant clause, which said that the contract ‘may’ be terminated in the event of a breach, not that it ‘would’ be terminated. In the view of the Court of Appeal, this meant that the contract could be terminated, but not that it would be terminated automatically. Bespoke Couture would have to take a further step to terminate the contract.

 

“The problem here was the ambiguous wording of the termination clause,” says <<CONTACT DETAILS>>. “In practice, when such clauses are invoked, relations between the companies involved are seldom at their best and the possibility of dispute is high. It is essential that such clauses are drafted in a clear and unequivocal manner.”

 

Partner Note

Artpower Ltd. v Bespoke Couture CA (Civ), 11 November 2006.

 

‘Phoenix Companies’

 

Insolvency law is littered with cases involving so-called ‘Phoenix companies’ – ones which fail and then seemingly reappear overnight in substantially the same form and with substantially the same management. Typically, a Phoenix company will use some or all of the assets of the insolvent company (such as stock, premises, equipment and so on) and will trade in the same industry as, and in a similar way to, its failed predecessor. Also, the name of the Phoenix company is frequently similar to that of the failed company.

 

The track records of Phoenix companies tend to be very poor – which is no real surprise since most are simply replicating a business model which has already failed. Accordingly, insolvency law attempts to safeguard the creditors of the new company, many of whom are likely to have suffered losses as a result of the insolvency of the predecessor company.

 

This protection can include, in appropriate circumstances, making the directors of the new company responsible for its debts. One such circumstance is where the new company effectively takes over the business of the old one without giving the creditors of the old company appropriate notice.

 

The Court of Appeal recently issued a judgment that such a notice had to be given to the creditors of the new company before the directors started to manage it: giving notice after the company was up and running, under the same management as the insolvent company, was not good enough.

 

Partner Note

Churchill & Churchill v First Independent Factors & Finance Ltd. [2006] EWCA Civ 1623.

 

Protecting Your Designs

 

One of the less well-understood areas of intellectual property protection is that relating to the protection of designs. In part, this is because the protection of designs exists in two forms.

 

Design right, like copyright, is automatic and no formal application process is necessary. Design registration, on the other hand, needs to be applied for. In that regard, a design registration is similar to a patent.

 

Design right applies to three-dimensional objects only and lasts until either ten years after the object is first marketed or fifteen years after the creation of the design, whichever is earlier.

 

Design registration offers a greater degree of protection than does design right and the registration costs are quite modest. Design registration is obtained by application to the Patent Office, which is renamed the UK Intellectual Property Office from April 2007. A registration will only be granted if the design is novel and sufficiently unique. It lasts for five years, but is renewable for up to 25 years.

 

However, not all designs can be registered. In particular, a design which must be a particular shape because of its function (e.g. a replacement part) cannot be registered.

 

In general, when creating designs, you should make sure that proof of the date of creation of the design and its origin are retained.

 

For advice on the best way of safeguarding your intellectual property, contact <<CONTACT DETAILS>>.

 

 

 

 

Registry Decisions Do Not Bind the Court

 

The decision in the 2006 case involving L’Oréal, in which the cosmetics giant was rebuffed in its attempt to prevent a smaller producer, called Special Effects, bringing to the market products which could be confused with its own ‘Special FX’ range, has been reversed.

 

Special Effects had been granted a trade mark, despite the opposition of L’Oréal, over the name ‘Special Effects’. This occurred very shortly before L’Oréal launched its Special FX beauty products range. Special Effects went to court alleging trade mark infringement. When L’Oréal attempted to defend the claim, disputing the validity of the trade mark, the High Court ruled that the matter had been heard by the Trade Mark Registry and therefore the arguments could not be reheard by the Court. L’Oréal appealed.

 

The Court of Appeal judged that arguments already heard by the Trade Mark Registry can, in certain circumstances, be re-argued in court. The opposition proceedings offered by the Trade Mark Registry do not have the finality of a decision of the court.

 

Says <<CONTACT DETAILS>>, “This decision restores the position to what it was prior to the High Court decision and will come as a relief to businesses reliant on trade marks.”

 

Partner Note

Special Effects Limited v (1) L’Oréal SA (2) L’Oréal (UK) Limited. Court of Appeal, 12 January 2007.

 

Revised Local Authority Licensing Law Guidance

 

The Licensing Act 2003 requires the Secretary of State to issue guidance to licensing authorities on the discharge of their functions under the Act. Revised draft guidance to assist local authorities in delivering the measures contained in the Act has been issued for consultation. Changes to the existing guidance include:

 

 

 

 

 

The four statutory objectives of the Act are:

 

 

 

 

 

The revised draft guidance is available on the website of the Department for Culture, Media and Sport at

http://www.culture.gov.uk/NR/rdonlyres/B63BEF81-2AA1-433A-84CB-237F257008A3/0/DraftrevisedGuidancetobeissuedundersection182oftheLicensingAct2003.pdf.

 

Site Waste Management Plans

 

The UK produces around 400 million tonnes of waste annually, of which approximately 72 million tonnes comes from construction sites. In an attempt to reduce this, the Government is introducing Site Waste Management Plans (SWMPs), which are due to become a legal requirement for the construction industry in England and Wales by spring 2008. The aim is to provide a structure for dealing with waste delivery and disposal at all stages during the construction process.

 

SWMPs are likely to affect anyone planning a construction project costing more than £250,000 and suppliers to the construction industry.

 

In order to help those affected prepare for the new requirement, the Government has launched an awareness-raising campaign, commencing with the publication of guidance entitled ‘Site Waste – It’s Criminal – A Simple Guide to Site Waste Management Plans’. This includes information on how to create a SWMP.

 

The guidance can be downloaded at http://www.netregs-swmp.co.uk/simple-guide.pdf.

 

Small Firms to Get IP Audits

 

Intellectual Property (IP) audits are to be offered to small businesses in the UK.

Up to 40 small firms, many of which have never before sought to protect their IP, will benefit from a 3-day ‘IP audit', being piloted by the Patent Office in collaboration with four Regional Development Agencies. Two groups will be targeted – companies that have filed only one or two IP applications and those that have never filed.

 

The pilots form part of a new Innovation Support Strategy, designed by the Patent Office to help UK businesses recognise, protect and maximise the value of their IP assets in order to compete in the global economy. The Strategy implements the first of the recommendations of the recent Gowers Review of IP, published in December 2006.

 

The pilot scheme will assist up to 40 small firms in the manufacturing, service, high-tech, creative and other sectors to identify what IP exists and offer advice to protect, use and maximise its value. Other initiatives, outlined in the Innovation Support Strategy, will include web-based guidance to help UK firms operating in foreign markets and trials of ‘patent mapping’, whereby the Patent Office will analyse patent information in order to identify trends in the market for particular products, services or research and development strategies. The aim is that businesses using this service will be able to use the information to plan company investment and to highlight areas of potential collaboration.

 

The Innovation Support Strategy can be found at http://www.patent.gov.uk/innovationstrategy.pdf.

 

The Patent Office is renamed the UK Intellectual Property Office from April 2007.

 

Contact <<CONTACT DETAILS>> for advice on any aspect of IP law.

 

Partner Note

See the Patent Office’s press release at http://www.patent.gov.uk/press/press-release/press-release-2007/press-release-20070201.htm.

 

Stress – An Employer’s Duties

 

Dealing with stress in the workplace is a difficult issue for employers and certainly one that cannot be ignored.

 

As well as specific duties under health and safety legislation, employers owe their employees a common law duty to take reasonable care to safeguard their health and safety and this includes a duty to control stress levels in the workplace. Employers are only in breach of their duty if they have failed to take reasonable steps in the circumstances to prevent the stress. It is foreseeable injury arising from an employer’s breach of duty that gives rise to a liability and foreseeability depends on what the employer knows (or ought reasonably to know) about an individual employee.

 

In 2002, the Court of Appeal (in Sutherland v Hatton) provided 16 points as guidance on the legal position as regards stress claims in negligence. In 2004, the House of Lords approved this general statement of the law (in Barber v Somerset County Council) with the important exception that it emphasised that an employer must be proactive in dealing with stress.

 

Point 2 of the guidance stated that the threshold question is whether this kind of harm to this particular employee was reasonably foreseeable.

 

A recent case (Hiles v South Gloucestershire NHS Primary Care Trust) has given guidance as to when it may be reasonably foreseeable that an employee is at risk of injury from workplace stress so as to warrant action on the part of the employer. The Court found that it was not normal behaviour for an employee to burst into tears at a meeting to discuss workload. This was judged to be a sign that the claimant was under stress and that if it continued to affect her she could become ill. Her employer failed to investigate properly or to keep the situation under review and so no action was taken to protect her or to prevent the situation worsening. As a result, the claimant suffered a psychiatric breakdown and damages were awarded against the employer.

 

Point 11 of the Court of Appeal’s guidance stated that an employer who offers a confidential advice service, with referral to appropriate counselling or treatment services, is unlikely to be found in breach of duty.

 

However, no two cases are the same and each will be decided on the particular facts under consideration. The recent case of Intel Incorporation (UK) Ltd. v Daw emphasises that the 16 points are intended as guidance only. The Court of Appeal judged that Tracy Daw, a HR professional who became ill through stress at work, was entitled to damages, even though her employer did provide a counselling service. The Court was of the view that the service was insufficient to discharge the employer's duty of care towards its employee in this case as it could do little more than advise Ms Daw to see her doctor. The service could not do anything to reduce her workload. That was the responsibility of her employer. Ms Daw was able to show that her many requests for help on account of her excessive workload had failed to bring about any action on the part of Intel and the company was judged to have been negligent as her injuries were foreseeable in the circumstances.

 

The message to employers is clear: stress cannot be ignored and it is important to have a formal stress policy in place. Once you are aware that a problem exists, investigate and take appropriate action at once. Monitor the situation to see if remedial action is working and continue to do so until the situation is resolved.

 

For individual advice on stress in the workplace, please contact <<CONTACT DETAILS>>.

 

Tighten Your Credit Control

 

Although 2006 saw few large corporate failures, the statistics for smaller insolvencies were up again, with over 100,000 in 2006. Also, it has been reported that there was a ‘sharp rise’ in winding-up petitions during the last quarter of 2006, compared with the previous quarter.

 

With financial conditions tightening, clients are reminded of the wisdom of making sure that credit control procedures are not allowed to become lax and that new customers are subject to appropriate credit vetting.

 

It might also be a good time to check that your standard terms of trade offer sufficient protection. For assistance in managing credit risk and in collecting overdue debts, contact <<CONTACT DETAILS>>.

 

Partner Note

Accountancy Age, 29 January 2006. Reported by Begbies Traynor.

 

Till Trouble Ahead on HMRC Visits?

 

“If you have a cash-based business, be careful if HM Revenue and Customs (HMRC) decide to pay a visit,” says <<CONTACT DETAILS>>.

 

Recent reports indicate that HMRC staff are causing problems in some cases where they inspect records from computerised tills.

 

Some computerised tills can be adjusted to show incorrect readings of cash takings or VAT. HMRC inspectors are therefore interested in making sure that tills have not been set up to suppress takings or output VAT. To this end, they have trained some of their inspectors in how to extract information from computerised tills. Normally this takes the form of a request for a ‘full audit trail’ from the till (which is then compared with the disclosed takings and VAT). If the staff member does not know how to produce this, the HMRC officer may offer to do it for them. If the staff member agrees, they have in effect invited the HMRC officer to use the till.

 

Whilst a taxpayer is obliged under the law to assist HMRC officers to obtain reasonable information necessary for their enquiries, it is arguable that HMRC officers do not have the right to operate the till unless invited to do so by the trader or a member of their staff. If invited to do so, they cannot be accused of exceeding their rights.

 

Unfortunately, the inspectors do not always know how to restore the till to its proper function after their inspection, which has reportedly caused problems for some traders.

 

If you have a cash business and an HMRC officer wishes to reprogram your till to obtain information, at the very least you should obtain the officer’s full details and get them to confirm that they will leave the till in full working order and restored to its former method of operation before leaving your premises.

 

If such an assurance is not forthcoming, we suggest you contact us for advice before agreeing to the request. The law requires you to provide any information sought ‘within a reasonable time’ and it is only where there is no reasonable excuse for failing to provide it that you or your staff may be subject to a penalty.

Staff who are assisting during an inspection by HMRC officers should be made aware of this as officers are not normally slow to remind them of the penalties for ‘non-cooperation’.

 

Partner Note

Reported by accountants PKF. See

http://www.pkf.co.uk/web/pkf800.nsf/webPagesPrint/IDF963BF42B4D0008C8025723A003DE53D?opendocument.

 

Unpaid Rent Claim – Landlord Need Not Mitigate Loss

 

A common principle in English law is that of mitigation. This means that in cases involving a claim for damages, the person who has suffered the loss for which compensation is being sought is expected to take reasonable steps to minimise that loss.

 

For example, if a digger driver were to accidentally demolish the wall of a building, the owner of the building would be expected to take reasonable steps to make sure that the open area was covered to prevent rain entering, thereby causing further loss, and to do so within a reasonable period of time. If the owner of the building failed to do so and this led to further damage, this would not be regarded by the court as being primarily the fault of the digger driver.

 

Recently, a case involving landlords and tenants in Hampshire showed that the duty to mitigate one’s loss is not absolute.

 

The tenants were a professional firm which rented offices from the landlords. When they decided to cease practising, the tenants vacated their offices and stopped paying the rent due under the lease. The landlords took no steps to repossess or re-let the property and sued the tenants for the unpaid rent.

 

The tenants argued that by not instructing estate agents to find a new tenant, the landlords had failed to mitigate their loss. However, the Court of Appeal could not accept their argument.

 

The Court considered that had the landlords repossessed the property, their claim would have been (at least in part) a claim for damages. In that case they would have been compelled to mitigate their loss. However, what they did instead was simply to sue the tenants for the unpaid rent, which was not an unreasonable action to take and which (crucially) was not a claim for damages, but for the payment contractually due under the lease. The tenants were therefore liable for the balance of the unpaid rent under their lease.

 

This case has implications for landlords and for tenants. Tenants who wish to vacate premises before the end of their lease would be well advised to negotiate the surrender of the lease with their landlords, or at least agree a strategy for finding a new tenant.

 

Landlords faced with tenants who vacate their premises in similar circumstances should consider carefully whether they should repossess the premises or sue for the unpaid rent. Normally, this will be a practical decision based on the likelihood of being paid even if successful in the claim and the ease of re-letting the premises.

 

For assistance in all lease negotiations contact <<CONTACT DETAILS>>.

 

Partner Note

Reichman and Dunn v Gauntlett and Beveridge, Court of Appeal, 13 December 2006. Reported in the Times, 4 January 2007.

 

Website and Email Regulations Introduced

 

Although it has long been regarded as best practice, new regulations have made it compulsory for certain business information to be present on corporate websites and emails or other electronic communications, including invoices and order forms.

 

The regulations apply to all limited companies and limited liability partnerships (LLPs) and are designed to ensure compliance with EU regulations relating to company law.

 

The information required includes:

 

 

 

 

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