Commercial Client ~ Winter 2006/2007

Property

 

Acceptance of Payment Causes Loss of Rights

 

A recent case involving a tenant that became insolvent should sound a warning bell for landlords. In this instance the tenant, which was a company, entered into a company voluntary arrangement (CVA) and the landlord accepted payments of rent after the due dates.

 

The relevant lease contained a clause which allowed the landlord to repossess the property if the tenant became insolvent or fell into arrears of rent. The landlord, therefore, applied for forfeiture of the lease. He failed in the Court of Appeal, which ruled that because the landlord had accepted the late payments of rent, he had waived his right to forfeiture of the lease and that the tenant’s debts for arrears of rent were compromised under the CVA.

 

“If your tenant falls into arrears of rent and/or service charges, take advice before you take action or even accept a late payment from the tenant,” says <<CONTACT DETAILS>>. “Hasty actions can have expensive unforeseen consequences.”

 

Assessment of Damages Based on Rental Value

 

The Court of Appeal recently heard a case in which the question at issue was the correct basis for calculating the damages payable by a landlord to the tenant of a flat for the landlord’s breach of the repairing covenant under the lease. The tenant occupied the flat as his home under a 99-year lease, paying only ground rent.

 

In this instance, the landlord had failed to keep the roof of the property in good repair, which resulted in water coming into the flat in substantial quantities. The tenant put up with this for nearly three years but was eventually compelled to vacate the flat for a period of 21 months.

 

The tenant sued the landlord. The judge awarded the tenant £20,000 by way of damages for his period of occupation and £10,000 for the period when he was forced to move out. The landlord appealed, arguing that the damages suffered were only in the region of £3,300 and that it was unfair for damages to be on a ‘loss of rental value’ basis, assessed on the deemed market rent, when the tenant was paying only a ground rent.

 

The Court of Appeal concluded that whilst there was no general ‘tariff’ which applied in such cases, the resulting assessment of damages payable to the tenant by the landlord should be made with reference to the reduction in the open-market rental value of the flat and the impact on that of the unrectified roof problem. The fact that the tenant was paying only ground rent was not in point.

 

The message for landlords is that failing to comply with repairing covenants in leases with tenants can cost more than just the cost of repair, even where the tenant is on a long-term lease paying only a ground rent.

 

Careful Drafting Pays Dividends

 

A landlord who failed to include an appropriate clause for subletting to a social tenant in his lease with a local authority recently had cause to regret the way in which the lease had been drafted. The case involved a flat which was intended to be let for temporary housing and which was eventually let to a sub-tenant of the local authority for several years. The lease, given to Haringey District Council, omitted a clause which prevented the tenant from acquiring full security of tenure. In order to prevent a tenant acquiring security of tenure, the head lease must contain a provision entitling the lessor to take possession of the premises on the expiry of a stated period or when required by the lessor, so as to comply with the Housing Act 1985.

 

When the sub-tenant fell into arrears, the Council sought repossession of the property. During the course of those proceedings, it was decided that she had acquired a secure tenancy because the clause in the Housing Act dealing with such leases specifies that a lease does not create a secure tenancy when the terms on which the property has been leased ‘include provision for the lessor to obtain vacant possession … on the expiry of a specified period or when required by the lessor’. The Court of Appeal decided this had to be construed strictly, meaning that the head lease must contain a break clause worded loosely enough to allow the landlord to obtain vacant possession either on the expiry of the lease or when required by him. In this case, the lessor could only require that the property was vacated at the end of the lease and the tenancy therefore qualified as a secure tenancy.

 

The landlord was therefore left with a sitting tenant – a most unfortunate result given that the property was only intended to be used for temporary housing.

 

Says <<CONTACT DETAILS>>, “This case raises serious issues for landlords wishing to let properties to social housing providers. Contact us for advice.”

 

Get Ready for New Construction Industry Scheme

 

The new Construction Industry Scheme (CIS) for contractors employing subcontractors in the construction industry is due to come into effect on 6 April 2007. Under the new scheme, it will be necessary for contractors to obtain confirmation from HM Revenue and Customs as to whether a subcontractor is to be paid gross or after deduction of basic-rate tax. This will need to be done before the first payment is made. Subcontractors who are paid after deduction of tax will have to be given a statement showing the tax deducted and the net amount paid. The new scheme will require the submission of a declaration by the contractor, which will accompany the monthly return, that none of the subcontractors has been employed under a contract of employment.

 

Whether a relationship is ‘employer/employee’ or ‘contractor/subcontractor’ can often be difficult to ascertain and <<CONTACT DETAILS>> can advise you if you are in any doubt. HM Revenue and Customs also have a tool which may assist in deciding the correct employment status – see http://www.hmrc.gov.uk/calcs/esi.htm.

 

For further information on the operation of the new CIS, see http://www.hmrc.gov.uk/new-cis/.

 

Landlords Must Act Fairly and in Reasonable Time

 

A recent case involving the recovery of service charges has seen the court criticise the way that landlords and their agents often deal with service charges.

 

The case involved a property in Piccadilly, London, which is tenanted. The basement-level tenant is a casino (Distinctive Clubs Ltd.) and it entered into its lease in 1998. The building was known to have structural problems with its roof, which needed substantial repair, and the lease signed by Distinctive Clubs contained a clause which limited its liability for repair works during the first five years of its lease. The estimated cost of repair in 2002 was £200,000.

 

In 2004 (after the limitation clause had expired), the landlord carried out roof repairs, which included building a new structure which benefited only the tenant occupying the top floor. The total bill amounted to over £2m and Distinctive Clubs’ contribution to the repairs was assessed at £700,000. In court there were two main questions to address.

 

Firstly, was the basement tenant liable to pay for the works that benefited only the top floor tenant and which, in any event, were improvements to the property, rather than repairs?

 

Secondly, was the delay in carrying out the repairs reasonable?

 

In the view of the court, the repairs to the roof were justifiable repairs under the lease. However, the improvements which benefited only the rooftop tenant were not, so Distinctive Clubs would not be liable to contribute to those. However, in the view of the court, the landlord could, had it shown reasonable alacrity, have completed the repairs by 2003. Accordingly, Distinctive Clubs was not liable to contribute to any of the cost of the repairs.

 

The judge criticised the landlord and its agents for including in the landlord’s claim sums which were not properly due and for not informing the tenants of the spiralling cost of the roof repairs. He also criticised the agents for their lack of independence, characterising their approach as seemingly being intent only on recovering as much as possible of the cost from the tenants.

 

The lesson for landlords and their agents is that attempts to collect ‘full recovery service charges’ in a way which does not properly balance the interests of tenants and landlords is likely to get short shrift in the courts.

 

If you have problems with any aspect of a lease, contact <<CONTACT DETAILS>> for advice.

 

Lands Tribunal – New Deferment Rate

 

The Leasehold Reform Act gives residential tenants who hold long leases the right to purchase an extension to their lease or to purchase the freehold reversion over the property they occupy. In order to set the price for the purchase, it is necessary to value the property based on what the owner of the freehold could expect to obtain for it should it be sold to a willing buyer.

 

This, in turn, requires a valuation to be made of the right to vacant possession of the property at the end of the tenant's lease. This is done by comparing the value of the property with vacant possession at the valuation date and discounting that valuation to take account of the period of time which will pass until vacant possession is available. This discount rate is known as the ‘deferment rate’.

 

The normal deferment rate was, until recently, set at 4.75 per cent for flats and 4.5 per cent for houses. The Lands Tribunal has decided that the deferment rates should henceforth be set at 5 per cent for flats and 4.75 per cent for houses. This small change will increase the values of the vacant possession of such properties.

 

The Tribunal also considers that before a different deferment rate is considered as appropriate, the valuer needs to be satisfied that there are special circumstances that make a departure from the normal rate appropriate.

 

Planning Consent Time Bar Strictly Enforced

 

The Court of Appeal has confirmed that where there is a breach of planning consent through failure to comply with the use specified in the consent, where this relates to use as a single dwelling, the right to enforce the terms of the consent must be exercised within four years of the breach.

 

The case concerned Arun District Council, which had granted permission for an extension to a property on the condition that it was occupied by the dependent relative of the occupier. The extension was later let to students, in breach of the planning consent, and the property was effectively occupied as two dwellings. Eight years later, the Council sought an enforcement order against the homeowner. The Council argued that it could bring the action because there is a statutory ten-year period for the bringing of such actions where there is ‘any other breach of planning control’. However, the section of the Town and Country Planning Act which deals specifically with breaches relating to buildings to be used as a single dwelling specifies a four-year period, from completion of the works, during which any enforcement action must be brought.

 

The case turned on the fact that there is a specific section in the Act which relates to such breaches, so it was clear that the intention of Parliament was to apply one time limit in such cases and another time limit for other breaches.

 

Contact <<CONTACT DETAILS>> for advice on any commercial property or planning matter.

 

Tax

 

Allowable Expenses and Employees

 

It is well known that the rules regarding expenses that are allowed as deductions from income for tax purposes are far stricter for employees than they are for the self-employed. The relevant legislation gives a self-employed person the right to make a tax deduction when the expenditure is ‘wholly and exclusively’ for the purposes of the trade. For employees, the expenditure must also be incurred ‘necessarily’, meaning that it is something which must be spent to enable them to do the job. This one word stops much expenditure being deductible for employees.

 

A recent case reaffirms the point. It involved a psychiatrist, who undertook a training course and claimed the cost on his tax return. Despite the desirability of the training and the fact that it was clearly undertaken to make him better at his job and for purely job-related purposes, the Commissioners had no hesitation in disallowing the expenditure.

 

In general, it will be sensible for employees to arrange with their employers that any job-related training is paid for by the employer, who will normally get the cost of the training allowed as a deduction from profits for tax purposes. If the employee pays and the cost is (as is normally the case) not allowed for tax purposes, they are effectively paying for the training out of income after tax and National Insurance Contributions.

 

Reasonable Excuse

 

An unexpected business setback which led to an insufficiency of funds has recently been accepted as being a reasonable excuse for a company being unable to pay its VAT liability on time.

 

Insufficiency of funds is specifically mentioned in the VAT guide as not being a reasonable excuse. Even so, the company claimed that it had insufficient funds to pay the liability, due to the setback.

 

The VAT Tribunal accepted that the underlying cause for the late payment constituted a reasonable excuse and cancelled the 2 per cent default surcharge notice.

 

Please contact <<CONTACT DETAILS>> for advice on any tax matter.

 

New Fuel Advisory Rates

 

Although fuel prices seem to be falling back down after a sustained period of increases, HM Revenue and Customs have approved new rates for reimbursement of fuel costs where company cars are provided and only the cost of fuel used for business purposes is reimbursed.

 

The new rates are (pence per business mile):

 

 

 

 

Business owners are reminded that in order to recover the VAT element of the fuel payment, VAT receipts must be retained for the purchased fuel.

 

For further information and details of the new percentages applicable to the value of some benefits in kind for cars which will apply from April 2008, see

http://www.hmrc.gov.uk/cars/advisory_fuel_current.htm.

 

Please contact <<CONTACT DETAILS>> for advice on any tax matter.

 

New Guidance on Troncs

 

The long-running series of disputes between employers in the hospitality industry and HM Revenue and Customs (HMRC) concerning the taxation of employees’ tips and their National Insurance (NI) status seems to have been concluded by the issue of new guidance on the operation of ‘troncs’.

 

HMRC have, in effect, accepted the industry’s contentions regarding these. The following points have been clarified:

 

 

HMRC do not accept that tronc money paid independently of the payroll can be counted towards the NMW.

 

Employers now, it appears, have little incentive to operate their troncs outside the payroll system.

 

VAT – Mixed Supplies

 

There is no doubt that the area of mixed supplies is one which creates a great deal of discord between traders and HM Revenue and Customs (HMRC). A mixed supply arises when a supply is made up of components which have different VAT rates – normally zero rated and standard rated. The question then arises as to which rate is appropriate to charge on the sale.

 

This point was again at issue in a recent case before the Court of Appeal. It involved the sale of CDs of classical music which were accompanied by a short book (12 pages) containing background information and details about the composer.

 

At the VAT Tribunal, the publisher initially held that the supply was a single supply, with the book the principal element, and was therefore zero rated (as are books). Alternatively, argued the publisher, it was a mixed supply, in which case the book was the principal element. The CD was an ancillary part of the package and therefore the VAT treatment should again be to zero rate the sale, following the established principle that supplies should not be artificially split into separate elements. 

 

On appeal, the taxpayer modified its argument to the effect that there were two supplies, one of a zero rated book and one of a standard rated CD. However, the Court of Appeal judged that the Tribunal was the place to make a ruling regarding the nature of the supply. The Tribunal had decided that although there were two supplies, they should be treated as a single supply and the question then was which was the principal supply and which the subsidiary. The Court of Appeal therefore upheld the ruling of the VAT tribunal that the principal supply was the CD, not the book.

 

“This case illustrates the point that when combining products for sale which, if sold independently, would attract different VAT rates, it is essential to bear in mind the principles that apply when making mixed supplies,” says <<CONTACT DETAILS>>. “These can affect product design and pricing.”

 

 

 

 

 

Employment

 

The Age Discrimination Pensions Regulations

 

The Employment Equality (Age) (Amendment No. 2) Regulations 2006 were laid before Parliament on 10 November 2006. It was hoped that the Department for Work and Pensions would allow a ‘compliance window’, to give those responsible for company pension schemes time to comply with the requirements, but it did not have the power to do so as the EU Employment Directive, which the Regulations implement, required all EU countries to have the laws in place by 2 December 2006.

 

The Regulations therefore came into force on 1 December 2006. They make substantial amendments to Schedule 2 of the Employment Equality (Age) Regulations, which sets out the age-related aspects of the operation of occupational pension schemes that will continue to be allowable without having to be objectively justified, extending and clarifying the range of exemptions.

 

To ensure that pension schemes meet the new requirements, employers and trustees who have not already done so should take immediate action to remove any potentially discriminatory practices. Failing to do so could result in a ‘levelling up’ of benefits, where there is unlawful discrimination on age grounds, for the period from 1 December 2006 until such time as the individual scheme rules are amended.

 

<<CONTACT DETAILS>> can advise you on any adjustments necessary to your pension scheme.

 

Controlled Access to UK Labour Market for New Accession Countries

 

Bulgaria and Romania joined the European Union (EU) on 1 January 2007. From that date Romanians and Bulgarians have the right to travel throughout the EU. However, employers should note that the Government has decided to limit access to the UK’s labour market for citizens of both countries.

 

Low-skilled workers from Romania and Bulgaria are restricted to existing quota schemes to fill vacancies in the agricultural and food processing sectors. There is to be no net increase in these existing schemes and workers are required to have an authorisation document.

 

Skilled workers will continue to be allowed to work in the UK, along with their dependants, if they obtain a work permit or qualify under the Highly Skilled Migrant Programme.

 

Bulgarian and Romanian students will continue to be allowed to study in the UK and to seek part-time employment during their stay but will need a work authorisation document to do so. Self-employed workers will continue to be able to work here, but must be able to prove that they are genuinely self-employed.

 

These new arrangements will be reviewed within 12 months.

 

Employers and employees have a duty to abide by the new rules and it is an offence, punishable by an on the spot fine of £1,000, for a Bulgarian or Romanian national to work in the UK illegally. Employers who do not comply with the rules can be subject to a fine of up to £5,000.

 

The Worker Registration Scheme (WRS) will continue to apply to nationals of the eight central European countries which joined the EU in 2004. The WRS will not apply to Bulgarian and Romanian nationals.

 

Immigration – New Regime for Highly Skilled Workers

 

The Government is introducing a new, points-based immigration scheme consisting of five different tiers of workers. For each tier, applicants will need sufficient points to obtain entry or leave to remain in the UK.

 

The new system is being phased in tier by tier, with a revised Highly Skilled Migrant Programme (HSMP) commencing on 5 December 2006. Under the new rules, applicants now require a minimum of 75 points to qualify for the HSMP.

 

For further information on the new rules, see the Home Office website at http://www.homeoffice.gov.uk/passports-and-immigration/.

 

Pension Scheme Deficits – What Should an Employer Do?

 

In accordance with the Pensions Act 2004 all defined benefit schemes must have regular actuarial valuations to ensure that the scheme meets the ‘Statutory Funding Objective’ (SFO).

 

To ensure SFO compliance, the scheme trustees and managers must prepare a statement of funding principles having obtained actuarial advice.

 

The statement should outline how SFO compliance is to be achieved and the steps to be taken should a shortfall occur and it must comply with the Act and also the Occupational Pensions (Scheme Funding) Regulations 2005 (the Regulations).

 

My scheme fails the SFO, now what?

 

In this situation, having obtained actuarial advice, the trustees and managers should draft a recovery plan for the scheme, a copy of which must be sent to the Pensions Regulator.

 

The trustees and managers should aim to eliminate the shortfall as soon as the employer can reasonably afford to do so, taking into account the employer’s financial position and prospects as well as his willingness to pay the scheme benefits.

 

When drafting the plan, the trustees should consider the factors outlined in the Regulations and the code applicable to occupational pensions. This will include considering the employer’s business plans and the effect the recovery plan will have on the solvency of the employer and also looking at the contingent security provided by the employer (such as the payment of funds into an escrow account which can be paid into the scheme in the event of employer insolvency).

 

The plan should outline how the shortfall is to be eliminated and when this is to be achieved, and should be appropriate for the scheme.

 

What about the employer?

 

The employer must agree to the statement of funding principles and the recovery plan. If agreement cannot be reached, the trustees must inform the Pensions Regulator.

 

The employer should obtain legal advice at each stage of the process, especially with regard to factors which can lengthen the recovery time allowed to the scheme, such as contingent security.

 

The employer should consider its statutory obligation to provide the trustees with the information needed to perform their duties. Legal advice can assist in ensuring statutory compliance whilst protecting the employer’s interests.

 

Contact us for advice regarding your legal obligations as an employer with a company pension scheme or as a scheme trustee.

 

Health and Safety

 

The Control of Asbestos Regulations 2006

 

Owners and managers of commercial premises, employers whose workers use,
install, remove, maintain or demolish premises that may contain asbestos and businesses providing construction or building services are all affected
by the Control of Asbestos Regulations 2006, which came into force on 13 November 2006. They consolidate three previous sets of regulations covering the prohibition of asbestos, the control of asbestos at work and asbestos licensing and strengthen the requirement to protect workers by minimising exposure to asbestos.

 

Employers using their own workers on their own premises are no longer exempt from the licensing requirements.

 

The Regulations require mandatory training for anyone liable to be exposed to asbestos fibres at work. This includes maintenance workers and others who may come into contact with or who may disturb asbestos, as well as those involved in asbestos removal work.

 

The Regulations introduce a single Control Limit for all types of asbestos of 0.1 fibres per cm³. A Control Limit is a maximum concentration of asbestos fibres in the air (measured over any continuous 4 hour period) that must not be exceeded.

In addition, short term exposures must be strictly controlled and worker exposure should not exceed 0.6 fibres per cm³ of air, averaged over any continuous 10 minute period. The employer must provide respiratory protective equipment if exposure cannot be reduced sufficiently using other means.

 

Most asbestos removal work must be undertaken by a licensed contractor but any decision on whether particular work is licensable is based on the risk involved. Work is only exempt from licensing if:

 

 

The Regulations also introduce less stringent controls on working with textured decorative coatings which contain asbestos as the risks these pose are considered to be much lower than previously thought.

 

Anyone carrying out work on asbestos insulation, asbestos coating or asbestos insulating board needs a licence issued by the Health and Safety Executive (HSE) unless one of the exemptions is met.

 

Further information can be found on the website of the Health and Safety Executive at http://www.hse.gov.uk/asbestos/index.htm.

 

Too Lenient Sentence for Director Successfully Appealed

 

A recent case illustrates the dangers for directors who adopt a cavalier attitude to the safety of their employees.

 

Michael Shaw was a director of a company which made kitchen work surfaces and bathroom fittings. A stone-cutting machine used by the company had been examined by an inspector from the Health and Safety Executive and was found to have three safety devices disabled. They had, apparently, been disabled when the machine was installed. Mr Shaw was informed of this and was ordered to have the devices reinstated immediately. This he failed to do. It was later argued in Mr Shaw’s defence that leaving the devices disabled was commonplace as it allowed much more economical use of the machine because they regularly caused interruptions to production.

 

The company of which Mr Shaw was a director also provided minimal safety training for its employees.

 

Tragically, an employee was killed whilst using the stone-cutting machine. Mr Shaw pleaded guilty to manslaughter on the basis of gross negligence. The judge, mindful of his guilty plea and the effect on the business of imposing a custodial sentence on him, gave Mr Shaw a suspended sentence of two years’ imprisonment.

 

The Attorney General appealed against the sentence, arguing that it failed to provide a sufficient deterrent or properly to reflect the severity of the offence.

 

The Criminal Division of the Court of Appeal accepted the Attorney General’s argument. The fact that the safety devices were commonly disabled was no defence and the sentence was too lenient. Mr Shaw was given a custodial sentence of fifteen months.

 

Ignoring health and safety responsibilities is likely to lead to a heavy penalty in cases such as this. If your health and safety procedures are lax, we advise that you review them immediately and introduce measures to train and protect your workers. 

 

HSE Warning – Check Gas Appliances

 

The dangers of carbon monoxide poisoning were in the news recently following the tragic deaths of two children while on holiday at a beach resort in Corfu.

 

The Health and Safety Executive (HSE) has issued a warning to all those with responsibility for gas appliances to make sure that they are safe to use.

 

Around 30 people die each year in the UK as a result of carbon monoxide poisoning caused by badly fitted appliances or flues, whilst many others become ill as a result of exposure to the gas.

 

Carbon monoxide is invisible and has neither smell nor taste. It is produced when there is insufficient air for complete burning of the fuel.

 

Further information on gas health and safety can be found at http://www.hse.gov.uk/gas/.

 

Competition

 

ECJ Blows Chill for Ice Cream Maker

 

The European Court of Justice (ECJ) has confirmed that in some circumstances the provision of display cabinets and freezers to retailers and others for the exclusive sale of the supplier’s products can be an unlawful restraint of competition.

 

The case concerned an ice cream supplier which is a subsidiary of Unilever. The supplier provided retailers in Ireland with freezer cabinets, from which to sell its products, under an agreement which banned their use for the products of any competitor. The ECJ did not take issue with the exclusivity clause as such but, because the company was a dominant supplier in the Irish market, it considered the arrangement to be operating in restraint of trade. The arrangement prevented other suppliers from getting a foothold in the market and prevented the retailers from selling other brands.

 

Such arrangements are common in a number of markets, such as the supply of groceries, cold drinks, snack foods and warm foods. The test will therefore be whether the supplier has a dominant position in the market and, if so, whether the arrangement constitutes an abuse of that position.

 

Restraint of Trade Clauses – Care Needed

 

In a society that promotes freedom of trade, it is no wonder that the law as regards restraint of trade agreements provides only limited protection. Such agreements are relatively common within agency agreements. Coming into effect when the agency ends, they are normally used to prevent the agent from soliciting former customers for a period of time.

 

The courts will only enforce such an agreement to the extent that it is reasonably necessary to do so to protect a legitimate business interest. To be enforceable, the agreement must be reasonable both in terms of time and geographic coverage.

 

In a recent case the agency agreement specified that after its termination the agent was not allowed, for a period of two years, to solicit ‘any person, firm or company’ who had been a customer of the principal within the year prior to termination of the agency agreement. This group included customers who had had no dealings with the agent.

 

Although the two-year restriction was not thought to be objectionable by the court, it found the clause to be too broad to be enforceable, especially as there would be customers who had dealt directly with the principal who the agent would not know were customers.

 

“The message for businesses seeking to rely on such clauses is to take care that the wording is not too broad, or the court will render the agreement unenforceable,” says <<CONTACT DETAILS>>. “We can assist in the negotiation and implementation of all types of commercial agreement.”

 

Retailer Price-Fixing Rulings Upheld

 

The Court of Appeal has recently rejected appeals by three of the UK’s biggest retailers against fines for ‘price-fixing’.

 

Argos, Littlewoods and JJB Sports received fines totalling more than £26m. Argos and Littlewoods were fined £15m and £4.5m respectively, for exchanging information regarding the prices they were intending to charge for toys, and JJB was fined £6.7m for providing information on its pricing policy relating to replica football kit. Littlewoods has indicated that it might appeal the Court of Appeal’s ruling.

 

In JJB’s case, the fine came as a result of it having told its supplier of its pricing policy in the knowledge that this information might be passed on to its competitor, Sports Soccer.

 

“The Office of Fair Trading is taking a very hard line with regard to breaches of competition law and has brought a string of less well-publicised prosecutions in recent years,” says <CONTACT DETAILS>>. “Businesses need to be very careful indeed about releasing price-sensitive information which may get back to competitors. This is especially so when they are engaged in an industry in which work is won by tender.”

 

IP

 

Failure to Act Costs Tesco

 

Supermarket giant Tesco’s city centre ‘Metro’ shops are well known throughout the UK and the company had registered the trade mark some years ago. However, in January 2000 a German retailer applied to register ‘Metro’ as a Community trade mark, for use for its own outlets in the EU. Tesco opposed the registration on the basis of its earlier UK trade mark registration, which was set to expire in March 2000.

 

In June 2000, the Office for Harmonisation in the Internal Market, which controls Community trade marks, requested Tesco to provide proof that it had renewed its trade mark. It subsequently extended the time period allowed to March 2003. Tesco failed to provide proof of renewal, so the trade mark ‘Metro’ has now been given to the German retailer. This will allow it the right of exclusive use of the trade mark in the EU excluding the UK.

 

It has yet to be seen whether Tesco will appeal the decision. However, it does make the point that where compliance matters are concerned, failure to meet deadlines can have serious consequences.

 

Businesses relying on trade marks, domain names and the like that are subject to periodic renewal should ensure they have a system in place to make sure that deadlines are not missed. It is simpler and less expensive to get it right first time than to try to correct the situation later.

 

Is My Invention Patentable?

 

The Court of Appeal has recently handed down a ruling which will change the way patent examiners assess whether an invention is patentable. The judgment, which unexpectedly did not reflect current European patent practice, is of great importance to inventors.

 

The Court proposed a four-stage test to determine if something is patentable or not.

 

The first stage is to ensure the claim is properly construed. This involves working out the extent of the ‘monopoly’ – i.e. the exclusivity granted by a patent.

 

The second stage is to identify the actual contribution – in other words to assess what the inventor has added in terms of knowledge.

 

The third stage involves making sure that the subject of the patent is not ‘excluded matter’ – i.e. matter which cannot be patented.

 

Lastly, it must be considered whether the contribution is technical in nature.

 

Applications that pass all four tests will be patentable.

 

One interesting point is that the Court has confirmed that the existence of patentable matter in an invention is a matter of law, so there is no question that a prospective patentee would be entitled to the benefit of the doubt with regard to an application.

 

Company

 

Shareholder Dispute Costs Minority Shareholder

 

A recent case before the High Court illustrates the wisdom of having a shareholders’ agreement in place in small companies. In the case in question, the majority shareholder had paid himself levels of remuneration which meant that the dividends paid to the minority shareholder were less than she felt she should have received. This resulted in a breakdown of trust and confidence between the shareholders such that the only appropriate resolution of the situation was for the majority shareholder to purchase the shareholding of the minority shareholder.

 

The minority shareholder applied to the Court for a ruling that her shareholding should be valued pro-rata to the value of the company as a whole, contending that there was a quasi-partnership. Normally, valuations of minority shareholdings are discounted because the rights of minority shareholders are restricted. So, for example, a 49 per cent shareholding might be valued at 30 per cent of the total value of the company. However, where a quasi-partnership exists, the minority shareholder would normally receive the undiscounted value of his or her proportionate shareholding in the company.

 

A quasi-partnership exists where the relationship between the shareholders is personal and based on trust, where the shareholders are all involved in the management of the business and where they provide more input to it than merely advancing capital.

 

However, in this case the Court found that the necessary elements for a quasi-partnership did not exist and the minority interest should not be valued pro-rata.

 

One of the key points in this case was that had there been a shareholders’ agreement in force that covered the calculation of the price payable on the disposal of shares by one shareholder to the other, the litigation could have been avoided. If your company does not have a shareholders’ agreement or your partnership does not have a partnership agreement, contact <<CONTACT DETAILS>> for advice.

 

 

Environment

 

WEEE – Are You Ready?

 

Electrical equipment is the fastest growing category of rubbish across the European Union (EU), with around 20kg per person produced every year. The UK alone now generates around 1m tonnes of waste electrical equipment annually. The long-heralded Waste Electrical and Electronic Equipment (WEEE) Regulations come into force on 2 January 2007, implementing the provisions of the EU WEEE Directive in the UK.

 

The Directive introduces producer responsibility for WEEE. It is intended to persuade producers to design more eco-friendly products which can be more effectively re-used and recycled to reduce future levels of waste. Under the proposals, manufacturers and importers will be responsible for ensuring that they plan for both their new and existing products to be recycled rather than dumped. Producers will have to finance treatment and recycling/recovery of separately collected WEEE in the UK to specified treatment standards and recycling/recovery targets. Retailers will have an obligation to offer take-back services to householders.

 

The WEEE Directive covers a huge spectrum of waste products including:

 

 

The key measures being introduced are:

 

 

The key dates for producers are as follows:

 

 

For further information, see http://www.dti.gov.uk/innovation/sustainability/weee/page30269.html.

 

Company Falls Foul of Waste Packaging Laws

 

The Producer Responsibility Obligations (Packaging Waste) Regulations aim to ensure that a significant proportion of packaging is recovered and recycled, by placing responsibilities on the companies that produce and handle it.

 

Mill House Inns (Trading) Ltd. has been fined £15,000 plus costs after pleading guilty, at Cheltenham Magistrates Court, to nine charges under the Regulations of failing to meet its obligations to recover and recycle packaging over a three year period. The charges were brought by the Environment Agency.

 

The Environment Agency tried to contact the company on a number of occasions for information regarding its turnover and the tonnage of the packaging being handled at its sites.

 

The company claimed that it was unaware of the Regulations and admitted that between 2002 and 2004 it had not been registered with the Environment Agency as required. Neither had it taken reasonable steps to recover and recycle packaging nor to submit a certificate of compliance to the Environment Agency.

 

By evading packaging regulations over the three year period it is estimated that the company avoided paying costs of approximately of £8,600.

 

Businesses need to be aware of their legal obligations in respect of environmental issues. For advice, please contact <<CONTACT DETAILS>>.

 

Licensing

 

Licensing Appeals – Who Carries the Cost?

 

The normal rule in English courts is that the loser pays the legal costs of the winner, as well as their own costs. However, this is not always so. One of the circumstances in which this rule may not apply is in a licensing appeal.

 

Recently, two appeals were heard which were brought by local authorities after costs orders had been made against them following their unsuccessful opposition to appeals against licensing decisions.

 

The two cases were decided inconsistently. In one case, the council’s appeal against the costs order was upheld, but in the other it was rejected. On balance, however, it should be assumed that appeals against costs orders in such cases are more likely to fail than succeed.

 

Miscellaneous

 

Understand the Contract Before You Sign!

 

A recent case involving a contractual dispute between a franchisor and franchisee (a fairly common situation) highlights the need both to consider contractual terms carefully and to take advice before acting when a dispute arises.

 

The nub of the issue was that the franchisor was considered by the franchisee to be trying to impose unreasonable terms. The franchisor ran a business (eTyres) which took orders over the Internet for tyre fitting which it then referred to its franchisees, making a deduction from the payments received for so doing. The franchisee was a tyre fitter who had a substantial business outside the eTyres fitting business.

 

The franchisor sought to require the franchisee to change the livery of its vehicles and, in effect, to make eTyres the franchisee’s trading style, which the franchisee felt would have been to the detriment of its business generally.

 

The franchisee alleged that the franchisor had made deductions from the sales receipts which were greater than was allowed under the franchise agreement.

 

Because of these factors, the franchisee determined to set up in competition with eTyres. When the franchisor found out about this, it terminated the franchise agreement and sought an injunction against the franchisee.

 

The questions before the court were whether the franchisor had made excessive deductions (which involved more than one issue) and whether the franchise agreement would allow the franchisor to require the franchisee to change its trading style.

 

The court took the view that the basis of calculation adopted by the franchisor was justifiable, but making deductions in excess of the percentage stated in the franchise agreement was not. The franchisor could not compel the franchisee to change its trading style for its whole business. The actions of the franchisor amounted to a repudiation of the original agreement and the franchisee was therefore entitled to have the injunction discharged and to have its counterclaim allowed.

 

Says <<CONTACT DETAILS>>, “This is a case which clearly arose because each party had different ideas about what the franchise agreement meant and these were not resolved. Franchise agreements are often the cause of difficulty and it makes sense to ensure that legal advice is taken and any areas of possible disagreement are ironed out before you commit yourself.”

Bank’s Responsibility Clarified

 

A recent case has clarified the extent to which a bank can avoid liability for negotiating cheques to which the customer has no legal title.

 

The case involved a businessman who, faced with his company bank accounts being under investigation on suspicion of fraud and being therefore frozen, sought to negotiate cheques payable to that company through his UK company bank account, which was in the name of a different company.

 

The businessman sold forward wine contracts through a Cayman Islands company called AWCI. When it was no longer possible to use that company’s accounts, he paid various cheques into the US Dollar account of his company AWUK Ltd. The bank accepted the cheques despite the fact that they were made payable to AWCI and in some cases identified the recipient as being in the Cayman Islands.

 

The bank sought to avoid liability for its resultant losses, arguing that it had acted in good faith and without negligence. The questions the court faced were:

 

 

In the court’s view, the answer to questions one and two was ‘yes’. As regards the third question, regrettably for the bank, the standards it applied were clearly negligent.

 

The court suggested various means by which banks can ensure their cheque<