Earlier this year Skansen Interior Limited (Skansen), a small interior design company, was found guilty under section 7 of the Bribery Act 2010 for failing to prevent bribery. This is the first UK contested case where the defendant had tried to rely on the “adequate procedures” defence against the charge of failing to prevent bribery. Until now, there has been limited guidance available to businesses as to what constitutes “adequate procedures”.
The background to the case is that during a tender process for refurbishment contracts worth in total £6 million, Skansen made two payments to a senior employee within the customer’s tender team. In exchange, Skansen received an advantage and won the tender. A third payment was discovered and stopped by Skansen’s management who reported the matter for investigation. Despite Skansen’s co-operation, it was prosecuted for failing to prevent bribery.
One of the arguments Skansen’s lawyers put forward in defence was that the size of Skansen’s business (being less than 30 employees) meant that sophisticated anti-bribery controls were not necessary. The jury disagreed and Skansen was convicted. The only penalty available in this case was an absolute discharge due to the fact that Skansen was a dormant company with no assets at the time of trial. Many will interpret the decision to prosecute Skansen on this basis as a clear message that even small businesses must still comply with the Bribery Act.
During due diligence and warranty negotiations in merger and acquisition deals, we often hear that the target company couldn’t possibly be involved in bribery and that bribery considerations are irrelevant. This case illustrates that bribery can occur in all sorts of companies, including SMEs and owner-managed businesses and must be considered seriously.
Buyers (and their lenders) are likely to be more cautious to this risk now and accordingly will carry out enhanced due diligence and demand stronger contractual protections. On the other hand, sellers should consider these issues carefully and review their anti-bribery procedures and documents.
Talk to Tollers!
Tollers are able to advise you on the risks associated with the Act and how best to tackle these risks in the context of an M&A deal.
Please contact either Craig Harrison on 01908 306937 and email@example.com or Ryan Chia on 01908 306948 and firstname.lastname@example.org.
The Consumer Rights Act 2015 (“the Act”) came into force on 1 October 2015 and applies to contracts between “Traders” and “Consumers”.
Section 2 of the Act defines a Trader as “a person acting for purposes relating to that person’s trade, business, craft or profession, whether acting personally or through another person acting in the trader’s name or on the trader’s behalf”.
Consumer is defined as “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession”.
This article focuses on the key points traders need to be aware of when contracting with consumers for the sale of goods after 1 October 2015 and where the goods are not of satisfactory quality or fit for purpose.
Right to reject faulty goods
Prior to the Act coming into force, there was a great deal of debate as to what was a reasonable time for the purposes of establishing whether a consumer still had the right to reject faulty goods and in particular whether that right had been lost due to the consumer having been deemed to have accepted the goods.
The Act seeks to clarify this issue by creating a new short term right to reject within 30 days (“the 30 Day Period”). Assuming that the consumer can prove that the goods are faulty, they can reject the goods and claim a full refund within the 30 Day Period. The 30 Day Period runs from when ownership of the goods passed or in the case of goods on hire purchase, when possession of the goods is transferred to the consumer.
The 30 Day Period is clearly not likely to be appropriate for purchases of goods which have a life expectancy of less than 30 days. In such circumstances the short term right to reject will be determined by when the goods in question would reasonably be expected to perish.
Consumers can elect or allow the trader to carry out repairs or replace faulty goods within the 30 Day Period. In such circumstances, the clock, for the purposes of calculating the 30 Day Period stops until the goods have been replaced or returned.
There is however no requirement for the consumer to allow the trader an opportunity to carry out a replacement or repair to faulty goods within the 30 Day Period before exercising the right to reject.
Traders cannot exclude the 30 Day Period and the period only lapses due to the expiration of time.
Repair/replacement of faulty goods and final right to reject or secure a reduction in price
If a fault is identified within 6 months of delivery, it is assumed that the fault existed at the time of delivery. It is for the trader to rebut this assumption.
Within 6 months of delivery a consumer can, if it is possible, choose to have the faulty goods repaired or replaced. If the fault is not resolved the consumer can claim final rejection or a reduction to the purchase price. Save for sales of motor vehicles, traders will now be unable to make a deduction for the use of the goods that the consumer has had within the first 6 months following delivery.
Traders will now only have one opportunity under the Act to replace or repair faulty goods. A consumer, can still if he wishes allow the trader further opportunities to replace or rectify defective goods but is not required to do so. Further opportunities do not prevent the consumer from exercising their right should it become necessary to reject the goods or require a price reduction.
Tollers Dispute Resolution team have handled numerous consumer disputes. If you require any assistance in this area please do not hesitate to contact Tristan Benson on 01536 276498
Litigation is an inherently uncertain and risky process. It is easy to start but more difficult to bring to an end without going to trial. By following the steps set out below, disputes should be easier to avoid and to manage.
1. Read and understand your commercial contracts before signing
Parties tend to focus on the commercial terms such as price, quantity and delivery dates. However, careful note should be taken of the termination provisions, whether there is a process for resolving disputes and (if contracting with an overseas party), the governing law of the contract and which courts will have jurisdiction. In my experience, these provisions only come to light after a dispute has arisen, by which time the parties are bound by whatever is written in the contract.
2. Have a full set of Terms and Conditions and do all you can to ensure that they apply to your contracts
There is no point having a comprehensive set of Terms and Conditions if they do not form part of the contract. Take care to understand how the “Battle of Forms” works so that you can organise your paperwork to ensure that, as far as possible, your Terms and Conditions apply.
3. Understand the legal status of the other party
Your customers and suppliers may be private individuals working as sole traders, limited companies, limited liability partnerships or traditional partnerships. The options for pursuing a claim will, to some extent, be dependent on the legal status of your opponent and its asset position.
4. Take personal guarantees if possible
It can often come as an unpleasant shock when dealing with a limited company to find that the company is a shell with no material assets. Whilst commercial realities obviously apply, if you are concerned that the other party may not be able to meet its liabilities, you should at least consider asking for personal guarantees from the company’s directors or another third party. If the directors have a personal interest in the transaction, they are less likely simply to put the company into liquidation and walk away.
5. Manage communications with the other party
Once a dispute arises, it is sensible to challenge communications through a nominated individual within your organisation. This avoids the risk of adverse disclosure to the other side from, say another employee who does not have the full picture. It also ensures that you approach the dispute in a consistent and coherent manner.
6. Preserve all types of evidence
The facts and matters to which the dispute relates may have arisen many years before the claim is pursued. The longer the time period, the greater the risk that evidence will be lost. This can easily occur by the accidental deletion of backup data and the disposal of obsolete equipment such as laptops and servers. Employees may also leave the organisation and take with them electronic equipment containing evidence such as text and emails.
7. Check insurance and funding
Long running litigation is inevitably expensive. Your costs may however be covered by insurance policies which you hold either of a household or commercial nature. If so, it is important to make a claim on the policy as soon as possible after the dispute has arisen. Where funds are not available to finance a claim, funding from a third party may be an option, albeit the funder will take a share of the damages in return for their financial contribution. The risk of having to pay the other side’s legal costs can also be dealt with via what is known as After The Event (ATE) insurance.
8. Be clear as to your commercial objective
Pursuing a claim as a matter of principle is an expensive luxury. Before embarking on litigation, you should be clear not only as to the overall cost and risk involved but what you are aiming to achieve in terms of an acceptable financial settlement or other remedy. With the assistance of your legal team, you should cost out the worst and best case scenarios and always be as objective and realistic as possible.
9. Always keep in mind a commercial settlement
Claims settle at various stages. Efforts should always be made to settle a claim before legal proceedings are even issued. However, sometimes it is necessary to serve a Claim Form to demonstrate that you are serious about the claim. Courts now routinely stay legal proceedings at an early stage to give the parties an opportunity to negotiate. A review of the position should also be taken after disclosure of documents and exchange of witness statements to ascertain whether a window of opportunity for settlement is available. In considering what is an acceptable settlement, you should factor in not only the merits and value of the claim but also the fact that you will only recover about 70% of your legal costs even if you win and you will not recover the value of the management time which will need to be devoted to dealing with the case.
10. Understand and embrace the benefits of mediation
Mediation is an entirely without prejudice process where the parties share the cost of a meeting with a neutral mediator. This is now a widely accepted dispute resolution method and actively encouraged by the Courts. There is a significant benefit to having a neutral mediator present who can say things to each party which do not sit well when coming directly from the other side. The process also allows for a more flexible settlements as opposed to the all or nothing outcome of a trial. Around 75% of mediations result in a settlement on the day of mediation or shortly thereafter.
Many of the above points are simple common sense but it is surprising how often they can be overlooked in the heat of a dispute. If you would like any further information on our approach to dispute resolution please contact Tristan Benson.
In practice, many people are not aware of the key differences between these three forms of resolving disputes, even though they may have contractually agreed to follow a specified method in the event of a dispute arising.
Mediation is becoming the most common method of alternative dispute resolution. This involves appointing a neutral, independent trained mediator.
Mediation is entirely voluntary and conducted on a “without prejudice” basis. This simply means that the parties cannot refer to matters discussed during the mediation in any future Court litigation.
Often the mediator will gather the parties together at the start of the day so as to allow each party to set out its position. The parties then split into separate rooms with the mediator going between the rooms to try and narrow the issues in dispute with the ultimate view of achieving a settlement. The intervention of an independent mediator can sometimes help the parties to take a step back from the litigation and consider matters from a more objective prospective. This can help in facilitating a settlement of even the most contested disputes.
Parties tend to engage in mediation after the formal Statements of Case in Court proceedings have been served. This means that the expense of preparing a case for trial such as dealing with disclosure, witness evidence and the trial itself can be avoided if the case settles at mediation.
The Court encourages parties to engage in mediation and a failure to engage in settlement discussions without a justifiable reason can lead to costs consequences even if the offending party is ultimately successful at trial
Arbitration is in private as opposed to being in public. An impartial professional is instructed to make a decision on the dispute. This in turn means that it can be quicker for cases to be resolved. However the arbitrator’s time is paid for by the parties unlike a Judge.
There are also limited grounds to appeal the arbitrator’s decision and the arbitrator has the power to order costs.
The parties have to agree to arbitration. It is therefore often found in international overseas contracts as it allows the parties to agree a neutral venue and mechanism for dispute resolution at the outset.
Adjudication is widely recognised as being a “pay now argue later” mechanism for resolving disputes. Adjudication is most often used for resolving construction disputes as the parties to a construction contract cannot contract out of it.
Whilst it can be extended, the adjudication is generally a 28 day procedure which is started by a party serving a Notice. There are strict limits to comply with when dealing with an adjudication.
Generally an adjudicator has no power to award costs unless the parties have otherwise agreed.
Adjudication awards are enforced by the Courts. The idea behind adjudication proceedings is that it is designed to protect cash flow for businesses by preventing one party from withholding payments for significant periods of time. Adjudication however, does not finally dispose of the matter.
The adjudicator’s decision often last until practical completion, at which point it can be arbitrated or litigated if not accepted. Generally, adjudication is appropriate for dealing with claims relating to:-
- Interim payments
- Extensions of time for completion of works
- Delay and destruction of works
- The final account sum.
The above is merely a brief summary of the main differences between adjudication, arbitration and mediation. Should you require further advice on choosing which of the above methods is most appropriate to your dispute then please do not hesitate to get in contact with the Tollers Team and in particular Tristan Benson on 01536 278498.
Mediation is the most common. This involves employing a professionally trained neutral mediator. The parties meet on a without prejudice basis and the mediator explores whether a consensus can be found.
The Courts promote mediation. Proceedings are commonly stayed for the opportunity to mediate. This tends to make parties more amenable to mediation as they can agree to it without looking weak. Mediation is a flexible process with early settlement bringing considerable time and costs savings.
Another process is submission to a private tribunal, consisting of representatives from each party with an independent chairman hearing submission. The Chairman then makes a ruling which can be binding or non-binding. Alternatively, an independent expert may provide a neutral evaluation – often used in technical disputes.
Many industry sectors have an Ombudsman to hear complaints and order compensation. This offers a low cost, less formal and speedier resolution than litigation.
For example the Financial Ombudsman handles complaints by consumers and businesses with turnovers of less than €2million and 10 employees relating to financial services disputes. It is designed for use without assistance from lawyers. However, in our experience, clients still benefit from legal assistance. The maximum compensation is £150,000.
Many industries, such as the energy sector, have dedicated dispute resolution services. The Energy Ombudsman hears complaints from domestic customers and small businesses in relation to disputes over energy usage. However, the maximum compensation is only £10,000.
Professionals, such as lawyers, have professional bodies where complaints can be heard. Other industries may offer informal dispute resolution services through their trade bodies.
In summary, there are many ways to pursue a claim without going to Court. However claimants need to understand the limits of each body’s jurisdiction, particularly the amount of compensation which can be awarded. For more information, please contact Tristan Benson on 01908 306934.
Looking back over the course of the last few years, I am struck by how few times I have actually been to Court. Whilst we have had a full case load, very few of these have ended in front of a Judge. This shows how other dispute resolution processes are becoming increasingly accepted and commonplace.
Perhaps the most common ADR process is mediation. This involves employing a professionally trained and neutral mediator. The parties meet on a without prejudice basis and the mediator shuttles back and forth to explore whether a consensus can be found. We have participated in more mediations year on year and have achieved many positive settlements for our clients.
The Courts are actively promoting mediation. It is now common for legal proceedings to be stayed after the exchange of formal Court pleadings for at least one month to give the parties an opportunity to mediate. The fact that a stay is initiated by the Court tends to make parties more amenable to mediation as they can agree to mediation without looking weak.
Mediation is a far more flexible process than litigation. It allows the parties to reach a mutually acceptable compromise as opposed to the ‘winner takes all’ result of a trial. An early settlement brings an obvious saving in time and costs. Overall, we are seeing an increasing number of cases being resolved through mediation rather than at Court.
In summary, mediation is a viable and now commonplace alternative to pursuing a claim without going to trial. For more information, please contact Tollers 01908 306934.
In my busy commercial disputes practice, I find that nearly as many disputes involve internal issues between shareholders and directors as between external parties. The cause of strife can be numerous, but there are several common themes;
- Diversion of sales to a shareholder’s other business.
- Disagreement over future strategy and direction.
- A feeling that one party is not pulling their weight.
- Differences over remuneration.
- Personality clashes.
If a shareholder has to resort to legal proceedings it is often the case that relationships have broken down and there is a pressing need to find a fair solution by which the aggrieved shareholder can exit the business. An exit generally involves the sale of the departing shareholder’s shares to either a third party or, more commonly, the remaining shareholders.
Whilst appearing straightforward on paper, determining the price for the departing shareholder’s shares can be a difficult and contentious issue. If a valuation cannot be agreed, an independent valuer will have to be appointed. The level of specialist expertise will depend on the nature of the company’s business and its market place.
Finding a pragmatic solution to shareholder disputes
In my experience, a contentious issue can be the level of disclosure of financial information which should be made available to the parties and the valuer. Where all shareholders are still involved in the business, the departing shareholder will tend to have a good idea of the state of the business. However, where a minority shareholder has been excluded from the management of the company for some time, the extent of disclosure of financial information to the excluded shareholder needs to be agreed or subject to a Court application before the valuation exercise can be undertaken.
Another difficult issue is the extent to which the market value of the departing shareholder’s shares should be adjusted to compensate for alleged wrongdoing by any shareholder. Where allegations of wrongdoing are contested, both sides will need to take a view if a buy out is to be negotiated without Court action.
It is not always the case that the remaining shareholders will have the means to purchase the departing shareholder’s shares at the price determined by the valuer or by agreement. Prior to any buy out negotiation, thought will need to be given as to whether and how sufficient funding will be raised. It may be that payment has to be made over a period of time. This raises issues such as when the share transfer should take place and whether any security should be required in the meantime.
The tax implications of a buy out should not be overlooked, notably the impact of Entrepreneur’s Tax Relief. Where the departing shareholder has already ceased to be a director either through resignation or by having been voted off the Board, the departing shareholder may be deprived of certain relief and suffer an increased tax burden. Tax advice needs to be taken sufficiently in advance of any settlement discussion.
Many of the above issues can be avoided or mitigated if the shareholders enter into a well-drafted and comprehensive Shareholder Agreement at the outset. There can be a reluctance to invest in the cost of preparing a Shareholder Agreement. However, in my experience, the cost of dealing with disputes further down the line far outweighs the initial cost of a Shareholder Agreement.
To resolve a shareholder dispute out of Court involves compromise on both sides. A realistic view needs to be taken as to the value of the shares in question and the resources of the remaining shareholders to acquire them. Shareholder disputes are an unwelcome distraction from the management of the business itself. If they are allowed to continue without a concerted attempt at early settlement, the value of the business itself can quickly be eroded.
There is invariably a personal element to these kinds of disputes given that the parties are likely to have been involved in the management of the business and feel that they have a personal stake in it. If a settlement is to be achieved, all parties need to strive for objectivity. In my experience, a pragmatic commercial approach pays dividends in the long run by allowing the parties to move on and focus on new challenges and opportunities.
The Commercial Dispute Resolution team at Tollers can be contacted on 01908 306934
Tenants trying to exercise a break clause in their leases before the end of a quarterly rent period should beware trying to pay only a pro rata part of that rent when it is demanded, or risk the break being ruled ineffective by the court.
A tenant’s lease required rent to be paid “yearly and proportionately for any part of a year” in equal quarterly payments. The tenant served notice to end the tenancy under a break clause in the lease – a clause allowing it to get out of the lease at certain points specified in the lease, provided it met certain conditions. As drafted, the break clause was only effective if the tenant had paid:
- rents under the lease up to and including the break date; and
- a sum equivalent to one month’s rent.
The effect of a valid break would be that the lease would end on 22 August, before the next full quarter had finished.
The landlord issued an invoice for a full quarter’s rent for the period from 24 June. The tenant paid the sum in the invoice in full, and referenced the invoice number. On the face of it, it seemed the tenant had not paid the sum equivalent to the additional one month’s rent, and the landlord argued the break had not been validly exercised.
The tenant claimed that according to the wording in the break clause it only had to pay rent up to 22 August. It therefore argued it had complied with the break conditions, because the payment it had made was for both rent up to 22 August, and also the extra sum it had to pay (equivalent to one month’s rent).
The High Court disagreed, ruling that the tenant was contractually obliged to pay the full quarter’s rent in advance on the quarterly rent day despite the break notice, as there was no certainty at that point that the break would be successfully exercised. There was an exception if a lease specifically allowed a tenant to apportion rent in anticipation of the successful exercise of a break. But in this case, the words “proportionately for any part of a year”, even read in conjunction with the break clause, did not specifically allow such an apportionment. The tenant had not paid the extra sum equivalent to one month’s rent.
The court went on to say that, even if the tenant had only been liable to pay an apportioned rent it would still have decided the break had not been validly exercised. This was because, by referencing the invoice number when making its payment, it had led the landlord to believe it was only paying the full quarterly rent demanded, but not the extra sum.
Tenants should ensure:
- they know whether they are obliged to pay the full quarterly (or other periodic) rent for a period during which they anticipate successfully exercising a break clause, or are entitled to pay an apportioned rent only;
- if they must pay the whole rent, that they know whether they are entitled to claim repayment of an apportioned part of it once they have successfully exercised the break clause (and should expressly reserve the right to do so when making the payment);
- if they are liable to pay any other sums, that they make it clear which parts of their payment should be allocated to each liability.
Case ref: Canonical UK Ltd v TST Millbank LLC EWHC 3710
A deposit paid by a tenant to a landlord under an assured shorthold tenancy agreement must be protected under one of three official deposit protection schemes. The schemes are designed to stop landlords from unfairly keeping deposits at the end of a tenancy.
The landlord must also give a notice to the tenant setting out certain information, including the tenant’s rights under the relevant scheme. There are substantial penalties for failing to protect a deposit or give the notice, including restrictions on the landlord’s power to recover possession of the property, and penalty payments.
If a shorthold tenancy ends and the tenant remains in occupation, it automatically converts into a ‘periodic’ tenancy on substantially the same terms as the previous shorthold tenancy. The rules protecting deposits also apply to such tenancies.
A tenant entered into a six-month assured shorthold tenancy agreement and paid a deposit. The landlord protected the deposit under an approved scheme and tried to comply with the notice requirements several times.
The shorthold tenancy ended and the tenant remained in occupation, therefore the tenancy automatically converted to a periodic tenancy. The landlord tried to recover possession of the premises by giving notice under the relevant housing law. However, the tenant argued that the notice was invalid because the landlord had not complied with the deposit rules on creation of the new, periodic tenancy. She said that the deposit already paid to the landlord under the old tenancy should, on conversion of the tenancy into a periodic tenancy, have been treated as a new deposit and the landlord should have complied with the notice requirements all over again.
The landlord argued that as the deposit was deemed to ‘roll over’ into the new tenancy, its compliance with the notice requirements at the beginning of the shorthold tenancy should also be treated as having ‘rolled over’ into the new tenancy.
The County Court found in the tenant’s favour, ruling that when a new periodic tenancy was created at the end of an assured shorthold tenancy, the landlord should re-serve the relevant notice on the tenant at that point – or risk penalties. As the landlord had not done so it could not recover possession of the property. It also had to pay a penalty of twice the amount of the deposit.
Proposed changes to the law would remove the requirement to comply with the deposit rules again when a shorthold tenancy converts in this way, but there is no timeframe for new legislation or, indeed, any certainty the proposals will become law. Landlords must therefore comply with this ruling for the foreseeable future.
Landlords should ensure they pay or protect deposits under one of the three deposit protection schemes where the deposit was paid to them under an assured shorthold tenancy, but where the tenancy has expired and has converted to a periodic tenancy. It should therefore serve the appropriate notice, or risk having to pay the penalties.
Case ref: Gardner v McCusker 3BM70525, Birmingham County Court
The Court has discretion when considering any application for an Order for Sale of property belonging to a Judgment Creditor. The Court will have regard among other matters to the following:-
a) Details of other creditors with a prior charge over the property.
b) The value of the property.
c) Details of individuals, who are residing in the property and have an interest in it.
d) The interests of any other creditors.
In more recent cases regard is also being had to Article 8 of the Human Rights Act which provides a right to respectful private and family life.
We were instructed on a matter to seek an Order for Sale in respect of a residential property following the granting of a Final Charging Order. The Charging Order was based on a Judgment enforcing an adjudication award. The adjudication award stemmed from non payment for building works.
The application for the Order for Sale was opposed mainly on two grounds; firstly that there was a genuine defects claim which extinguished the sums secured by the charge and secondly that there was insufficient equity in the property as a result of the sums secured to creditors with prior charges over the property.
There is clear authority since 2006 that where a Judgment is based on an adjudicator’s award and an application has been made then the Order for Sale should be granted.
In this case the opposing party had failed to bring any separate proceedings in respect of the defects claim. Even if proceedings had been brought they would not have prevented the Order for Sale being granted. The outcome of the case affirms the established principle that adjudication awards are binding and designed to ensure prompt payment of sums owed.
The adjudication process has effectively resulted in the creation of a “pay now argue later” system. To allow alleged defect claims to prevent an Order for Sale would undermine the whole adjudication process. Defect claims will not in themselves prevent an Order for Sale being made.
Should you require any assistance with regards to applications for an Order for Sale pursuant to a Final Charging Order please contact Tristan Benson – email@example.com