I want to break free

I want to break free
Posted on April 24, 2015

There are times when you might not want to stay in a relationship with one of your suppliers or customers, or you might want to change the terms of it.

For example, the other party may not be performing properly or at all. You may want to pull out because the contract is no longer economically viable or the customer no longer wants what you are providing and you do not want to be bound by it.

Termination may not be your end game if you want to stay in the relationship. In those cases, you might want to try to use dispute resolution clauses in the contract (which we have covered in our previous Blog ‘Let’s stay together‘) or try to vary the contract through negotiation. These approaches may be particularly useful where you want to try to increase the price you are selling your goods and services at (as it costs you more to make or provide them) or to increase or decrease the volume of supply, for example.

If none of these approaches work, and you want to up the ante, then you could consider threatening to bring the contract to an end to get your own way. The problem with this, though, is that there may be no going back if it blows up in your face. The other party may say that you are in breach in threatening to end the contract, and can take further action.

If you do want to bring an end to the contract, rather than to renegotiate its terms, you must make sure you get it ‘right’ to avoid any arguments later. You should read the contract and follow exactly what it says. Usually, you must make your notice of termination clear so there is no doubt what it is and serve it in the way set out in the contract. You must also make sure that you comply with any time periods in the contract. If the contract is important to the other party you can be sure they will argue about whether you can end the contract, and you need to ensure that you have followed what the contract says to minimise the chances of them being right.

For more information, email blogs@gateleyuk.com.

Cranes and confessions: the ‘reasonable investigation’ revisited

Cranes and confessions: the ‘reasonable investigation’ revisited
Posted on 24/04/2015

Where an employee admits misconduct, what subsequent standard of investigation is required by the employer? This issue was recently revisited by the Employment Appeals Tribunal in a claim for unfair dismissal [1].

The details

Mr Wiltshire was employed by Cro Ports as a supervisor. He had 22 years unblemished service when he was dismissed for gross misconduct. The incident he was dismissed for concerned a shipping container, which fell 20 feet from the crane that he was supervising. The accident was a serious breach of health and safety procedures. The container was badly damaged, and the fall could clearly have killed anyone standing below.

It became clear that Mr Wiltshire had sanctioned a practice known as ‘packing’ on the damaged container. Sometimes, where locking pins didn’t engage perfectly with containers, those locking pins would be ‘packed’ with a piece of wood or rubber. This work-around fooled the safety mechanism, allowing the load to be lifted.

Mr Wiltshire quickly made a number of additional admissions. As supervisor, he accepted full responsibility for what had happened. He also confessed that he had overseen similar measures in the past, knowing that they were in breach of health and safety procedures. In his defence, however, Mr Wiltshire said that ‘packing’ was a well-known practice on site and that it reflected the pressure he and his colleagues were under. Despite this, he was dismissed.

An Employment Tribunal initially found that Mr Wiltshire had been unfairly dismissed. It referred to the requirement, in unfair dismissal cases, to conduct a ‘reasonable investigation’ in all the circumstances. It was troubled by various aspects of the background which should (it said) have been looked into: the work pressures at the time, predictable silence from other employees (when asked about ‘packing’) and a lack of established procedures.

On appeal, the Employment Appeals Tribunal overturned this finding. It found that the employer had been held to too high a standard of investigation by the initial Tribunal. The situation had to be judged by what the employer knew at the time that it carried out its investigation, and not by evidence produced later before the Tribunal. In particular, where the misconduct in question was already admitted, the question was what other conflicts of evidence really needed to be resolved by the employer?

The case is a helpful reminder for employers that early admissions of guilt can significantly curtail the scope of a disciplinary investigation.

The case follows another recent case from the Court of Appeal [2] which emphasised the need to look at such investigations as a whole, when deciding if they had been fairly handled.

This post was edited by Clive Day. For more information, email blogs@gateleyuk.com.

[1] Wiltshire -v- Cro Ports London Ltd

[2] Shrestha -v-Genesis Housing

Breaking News – the Supreme Court shuts off the escape route for delinquent directors and their accomplices

Breaking News – the Supreme Court shuts off the escape route for delinquent directors and their accomplices

Posted on 22/04/2015

In a landmark judgment handed down this morning, the Supreme Court unanimously refused to accept that defendants to fraud-type claims by a company can rely on their own wrongdoing to escape liability for the fraud. The same rule extends to claims against third parties the wrongdoing of the complicit company directors.

In the first reported case on a second issue, they ruled a liquidator can bring a claim for fraudulent trading against any defendants wherever in the world they are. The Court’s reach on fraudulent trading claims is not limited to defendants in the UK.

This case arose out of alleged MTIC fraud on carbon credit sales – which the liquidators said caused approximately £38m of losses to the company and its main creditor HMRC.

On the first issue, the third party defendants tried to argue the claimant company should be fixed with the acts or knowledge of the fraudulent directors. This meant that to bring the claim against the complicit third parties for the fraudulent scheme, the company would have to rely on ‘its own’ wrongdoing. It’s been a public policy rule for some centuries that the courts won’t allow a company to benefit from its own wrong (in Latin – ex turpi causa non oritur actio.). Six of the seven top judges on the panel held that where a company suffers loss because of a fraudulent scheme by its directors and their accomplices, the acts or knowledge of the directors would not be attributed to the company victim. No question of illegality or wrong by the claimant company would arise and the Court did not need to consider the illegality rule any further. Conversely – if the company was on the receiving end of a claim by an innocent third party for the same fraudulent scheme – it would be fixed with the knowledge or acts of the directors – and would be liable to compensate losses caused by the illegal scheme. Whether a director’s acts or knowledge is attributed to a company is therefore fact sensitive and depends on the circumstances of the case.

The final judge thought that a company would always be fixed with the knowledge and acts of its directors – but the court should then review whether the case came within an exception so a director could not avoid liability. In this case, the exception would be where the director’s acts or knowledge were a breach of his duty to the company.

The Court stressed the much-criticised decision in Stone & Rolls Limited v. Moore Stephens “should be put on one side and marked ‘not to be looked at again’”. In that case, the liquidator of a company with only one director/shareholder tried to sue the company’s auditors for negligently failing to uncover the director/shareholder’s fraudulent scheme. The claim failed – the court holding the company in this case was fixed with the director/shareholder’s fraudulent acts and knowledge and could not rely on its own wrong to found the claim against the third party auditors. The Supreme Court has made it clear the relevance of this decision is confined to the highly fact sensitive issues in that case. Clarity is always welcome – this aspect of today’s decision may cause ripples as defendants to these types of claims have long relied on the decision to avoid liability.

This post was edited by Hannah Drozdz. For more information, email blogs@gateleyuk.com.

https://www.supremecourt.uk/decided-cases/docs/UKSC_2013_0206_Judgment.pdf

Gateley lawyer set to represent GB at European championships

Gateley lawyer set to represent GB at European championships
22nd April 2015

Pauline Munro, legal director at national law firm Gateley’s Leeds office, will represent Great Britain at the European Duathlon Championships in Alcobendas, Spain, on Sunday, 26 April 2015.

Situated just 15 km outside Madrid, Alcobendas will play host to Europe’s top triathletes. In what is being deemed a challenging course, Pauline will compete in the Olympic distance event for her age group, where competitors will take on a 10km run, followed by a 40km bike, before finishing with a 5km run.

She qualified for the European Championships after finishing third overall and first in her age group at the Althorp Duathlon in October 2014. The Wetherby Athletic Club member made the switch to triathlon having had previous success in racing on the road, fells and cross country, representing Yorkshire and England at both county and national level.

Pauline commented: “Competing in the Championships will be very exciting. To be representing Great Britain is a privilege, and one that I’ve worked hard to achieve. Making the switch from pure running to triathlon has been quite a challenge, but competing in Duathlon and triathlon has given me the opportunity to represent Great Britain. To be competing against Europe’s best triathletes is a test that I’m looking forward to.”

William Ballmann, partner and head of Gateley’s Leeds office, commented: “It’s exciting to have one of our lawyers compete in an elite event for Team GB. Pauline has successfully demonstrated it’s possible to juggle work, family and sporting pastimes successfully. She is thoroughly dedicated to her work both in and out of the office, and we wish her the very best of luck.”

Pauline will also be competing in Geneva at the European Sprint Triathlon Championships in July, where she will take on a 750m swim, a 20km bike ride and a 5km run.

Pauline recently joined Gateley to head the office’s new Regulatory team. Specialising in a range of areas including health and safety, trading law and standards, food and product safety, product recall and contentious environmental matters, Pauline has a proven track record having advised clients such as Leeds Bradford International Airport, Dunelm, Certas Energy UK, WM Morrison and William Hill.

Further HMRC guidance: VAT deduction on investment management costs

22nd April 2015

Further HMRC guidance: VAT deduction on investment management costs

In a previous post we looked at two Revenue & Customs Briefs that set out HMRC’s approach in respect of employer input tax deductions on pension fund management costs, following the decisions of the European Court in two significant cases[1]. HMRC has now published further guidance on which types of contract will qualify for employer input tax deductions.

Defined benefit schemes: the previous position

Until the PPG case, a distinction was made between administration costs (for which an employer could obtain an input tax deduction) and investment management costs (where no such deduction was available). In cases where a service provider supplied both administration and investment management services, reflected in a single VAT invoice, HMRC allowed the employer to recover 30% VAT.

In PPG the European Court held that employers could potentially obtain input tax deductions on the costs of pension fund management services (i.e. administration and investment management services) provided to occupational pension schemes, provided that there was a direct and immediate link between the services and the employer’s economic activities as a whole.

The PPG decision was welcome news to many employers, albeit that the circumstances affected by the decision were limited. However, further guidance was clearly needed on the type of arrangements that would meet HMRC’s requirements for the employer to be deemed a recipient to the supply.

HMRC guidance

The latest Brief[2] provides guidance on the extent to which tripartite contracts between service providers, employers and scheme trustees for pension fund management services relating to defined benefit schemes will be accepted by HMRC as evidence that supplies are made to the employer, making them VAT deductible.

The guidance provides that the tripartite contract must as a minimum provide that:

the service provider makes its supplies to the employer (the contract may, nevertheless, recognise that the service provider may be appointed by, or on behalf of, the scheme trustees because of regulatory requirements);
the employer is obliged to directly pay the service provider and the service provider will only pursue the trustees for payment if the employer is unlikely to pay (for example, if the employer is in administration);
the employer and trustees are entitled to sue the service provider for breach of contract;
fund performance reports are provided to the employer (by the service provider) on request. However, the contract may provide for the scheme trustees to stipulate that reports are withheld (for example, if there might be a conflict of interest); and
the employer is entitled to terminate the contract. However, this could be made subject to the scheme trustees’ prior written consent. The trustees may also have the right to terminate the contract.
The way forward

Schemes will have a nine month window (ending on 31 December 2015) to put the new contracts in place. It is the employer who will benefit, so it is likely to be the employer who is driving entry into the tripartite contracts. However all three parties should exercise caution in what is likely to be new territory for each of them.

Whilst on the face of it the opportunity for employers to deduct VAT through the use of tripartite contracts is a positive development, employers, trustees and service providers alike will need to carefully consider the impact which tripartite contracts may have on potential conflicts of interest and the parties’ regulatory obligations.

The subject of the guidance is narrow. However the Brief notes that guidance on the following issues will be issued in the summer:

other types of service (eg legal, actuarial and accounting);
other types of pension scheme (eg defined contribution and hybrid);
VAT groups that include a corporate trustee and the scheme’s sponsoring employer; and
trustees who charge employers to run their pension scheme.
The Brief demonstrates a relaxation of approach, albeit in limited circumstances. We would be surprised if this summer’s guidance provides significant further concessions.

This post was contributed by Becky Ryding. For more information, email blogs@gateleyuk.com.

[1] Fiscale Eenheid PPG Holdings BV cs te Hoogezand (C-26/12) and ATP Pension Services (C-464/12)

[2] ‘Revenue & Customs Brief 8(2015): deduction of VAT on pension fund management costs’

Harry Potter party!

Harry Potter party!
Posted on 22/04/2015

This year saw the return of the traditional and highly anticipated firm wide party. For many this is the crown of the Gateley social calendar and all involved were concerned to ensure it was bigger and better than the last, which was held in Manchester a few years ago. The party is a way for the partners to show their appreciation for the hard work of staff across all of the offices, and a chance for everyone to get together for some much-needed revelry.

A strong Harry Potter theme prevailed throughout the evening, the venue was decorated with flags, floating candles and great hall-style benches. The entertainment included lookalike actors from Harry Potter and an owl handler, not forgetting the smaller details such as test tube shots of ‘Polyjuice’ (amongst others) and house scarves which were given to each guest. Everyone was also treated to a champagne reception, three course meal and a live band.

As trainees (or house elves, as we were otherwise known), we were involved in collating responses, organising coach travel, decorating the hall and meeting and greeting the staff arriving at the hotels and the venue on the night. This meant that we were party to all of the insider information about the event (which was kept as a surprise for most staff) and had to exercise discretion when frequently asked by our colleagues for the details in the run up to the party.

The excitement amongst the offices was palpable as the party approached. As well as being a morale booster, it was great for those new (and old) to the firm to get the opportunity to meet and get to know staff from other offices and departments. Being able to put a name to a face makes conversations much easier when you need advice from a different specialism or are spending the day in another office.

This post was edited by Alison O’Kelly. For more information, email blogs@gateleyuk.com.

Reputation Management Policy

21st April 2014

Reputation Management Policy

An interesting clip in “The Lawyer” this morning ( http://www.thelawyer.com/analysis/the-lawyer-business-leadership/business-leadership-news/new-research-companies-with-no-reputation-management-policy-risk-devaluation/3034225.article ) is a timely reminder of the importance of being ready with a response when a reputational crisis threatens to engulf your business.

It would be easy, even convenient, to think that this only happens to Lufthansa and German Wings ( http://www.bbc.co.uk/news/world-europe-32156736 – How do you think their CEO did?) or the like.

It isn’t of course, limited to International Corporations and tragic mass murder.

An example just this week is where a client in the Food Industry is supplied with minutely contaminated product the client incorporates into it’s product in turn. The product is recalled and the client takes up the question of its loss with the supplier and its product liability insurers.

It is doubtless a condition of the suppliers product liability insurance that there is a Reputation Management Plan in place with which risk managers are familar and which when it all goes wrong, is implemented.

This is not least because a field of unaddressed regulatory ( possibly criminal ) failings are likely to give those with whom you are in dispute considerable bargaining power and because insurers looking to minimise their outlay will insist on damage limitation. This is to the extent that failure to do so may lose (in this case) the supplier his cover.

In fact in our case the supplier with whom clients remain on good terms, appears to have made a textbook response to its crisis. Acknowledging the need for recall, making a carefully prepared public announcement , objectively describing the modest extent of public health risk and adopting a practical approach to compensating our client for loss should make for practical resolution.

The trick of course is thinking it through in advance and getting your policy in place. If this is something which isn’t yet in your armoury of risk management , I’d be pleased to assist in getting it there.

My contact details; Chris Greenwell. 07778049691, cgreenwell@gateleyuk.com