Out of sight, out of mind

Out of sight, out of mind

Posted on 26/03/2015

In a recent TCC case*, the Court enforced an adjudicator’s decision even though the adjudicator had clearly overlooked a document which would have reversed his decision.

In short, the adjudicator decided that a pay less notice was served out of time, even though there was a document showing that it had in fact been served by email as well as post (thereby being served in time). He found in favour of Broughton Brickwork and ordered payment of a substantial sum. Although the document was amongst the responding party’s submissions, it was not expressly referred to and was incorrectly cross-referenced. Later, the adjudicator said that he assumed that the notices had only been served by post and were served late. He admitted in correspondence that, had he seen and considered the email notice, he would not have found in favour of Broughton Brickwork.

Although, this is an unusual situation, the judgment reinforces the Court’s reluctance to interfere with an adjudicator’s decision.

The Court pointed out that the immediate result might seem unfair to the contractor, however, it could be corrected in later proceedings. Whist that might well be the case, it seems unfair that the parties should be put to the expense of having to litigate simply because of the adjudicator’s oversight.

The practical effect of the decision is that an adjudicator should be guided through the submissions on behalf of parties to an adjudication and properly directed to all supporting documents to be relied upon. Leaving the adjudicator to trawl through documents on his own in the hope that he will discover and understand the significance of the supporting evidence is a risky strategy.

In reaching his conclusion, the judge restated the Court’s preference for enforcing adjudication decisions, even those which contain errors, noting that:
■“an adjudicator is entitled to make mistakes, whether in fact or law, even ones which are obvious and fundamental, without thereby rendering his decision unenforceable, so long as he acted within his jurisdiction”
■The Court will not enforce a decision if it has been reached in “serious and material breach of natural justice” but adjudication is a “rough and ready” process. Although the process is fallible, that in itself is insufficient to render the decision unenforceable.

The Court did not consider that the adjudicator had a duty or responsibility to look at and consider every piece of information presented to him. Rather, it is the duty of the parties to set out their case clearly through the written submissions and at any oral hearings.

Unfortunately, the submission documents did not clearly make the point that the crucial pay less notice had been validly served. Further, they did not specifically draw attention to, or make reference to, the email which evidenced a valid service.

Ultimately, the Court found that the cause of the adjudicator overlooking a crucial point and the associated evidence was due to the errors and weak presentation by the responding party. With that in mind, the Court did not even consider this to be an adjudicator’s mistake; rather it was an error caused entirely by the responding party’s poor submission.

In light of this recent decision, it is important to ensure that clear submissions are made setting out arguments in a way which is easily understood and easy to navigate. Presentation is also important, including accurate and easy indexing of the submissions and associated documents. Whilst these suggestions might seem obvious, given the tight timeframes to which the parties are working in the context of adjudication, even the basics can sometimes be overlooked.

The focus for both parties to an adjudication and their legal representatives should be on producing and presenting a considered case which is easy to understand.

For more information, email blogs@gateleyuk.com.

*Broughton Brickwork Ltd v F Parkinson Ltd [2014] EWHC 4525 (QB)

Breaking news: holiday pay must include commission

Breaking news: holiday pay must include commission
Posted on 25/03/2015

The decision in Lock v British Gas Trading Ltd has been handed down today confirming that holiday pay must be calculated to include commission payments too.

This represents the latest development in the long running holiday pay litigation. It was last May when the European Court of Justice (ECJ) held that holiday pay should include an amount to reflect commission that would otherwise have been accumulated.

The case returned to the Leicester Tribunal on 4 and 5 February 2015. During the two day hearing submissions focussed only on the issue of whether the relevant legislation i.e. the Working Time Regulations 1998 and the Employment Rights Act 1996 could be interpreted so as to comply with what the ECJ had decided the EU Working Time Directive required of employers. The union on behalf of Mr Lock and the Government argued that the existing laws could be applied so as to reflect what was regarded now as ‘normal’ pay so as to include the ‘outcome’ of work done. The employer disputed this interpretation was possible as it would mean distorting the meaning of the law.

The Employment Tribunal found that holiday pay must be calculated to include commission and that a new paragraph would be added to the Regulations to reflect this.

However any claim will still be subject to the same principles as apply in relation to overtime and holidays so the enhanced sum will only apply to the first 4 weeks of paid leave as required by the EU Working Time Directive and any claim has to be brought within 3 months of the last ‘deduction’ i.e. holiday payment.

It should also be remembered that the Deduction from Wages (Limitation) Regulations 2014 come into effect on 1 July 2015. These Regulations will limit all unlawful deductions claims to 2 years before the date the claim is lodged (with the exception of certain categories of unlawful deductions claims such as claims for SMP, SSP and guarantee payments); and they explicitly provide that the right to paid holiday is not incorporated as a term in employment contracts so as to prevent any breach of contract claims going back up to 6 years.

How this will work in practice is sure be an issue that many employers will struggle to deal with in the coming months.

This post was edited by Chris Davies. For more information, email blogs@gateleyuk.com.

Offering to settle

Offering to settle
Posted on March 25, 2015

When there is a falling out, it is always worth trying to work it out.

But what if the other party doesn’t want to?

Court proceedings may be the next option. But even then, there are steps you can take to make the other party reconsider their position.

One useful device is an ‘Offer to Settle’. If the offer is structured properly and complies with the court rules, it can provide some costs protection if you have to start proceedings.

Take this example.

You have a business dispute and are claiming a sum of money. In the spirit of compromise you are prepared to accept a lesser amount. The other party is not prepared to enter into any settlement discussions. Before starting proceedings, you make a written offer to settle for the reduced amount which complies with Part 36 of the Civil Procedure Rules. If the other party accepts your offer within 21 days, it will have to pay your costs up to the date of acceptance.

But the other party does nothing. Provided you do not withdraw your offer, it can give you some cost protection if the case goes to trial. The judge is only informed of the offer once judgment has been given. If you win and are awarded a sum which is the same as or more than your offer, the court will take the offer into account when deciding costs. You can usually expect to be awarded:

interest at up to 10% above base rate;
a higher costs recovery;
interest on those costs, again at up to 10% above base rate; and
an additional amount. For claims up to £500,000, this amount is 10% of the sum claimed.
Both the higher interest rate and costs recovery will apply to some or all of the period after your offer could have been accepted (usually 21 days). A defendant should think carefully before ignoring a Part 36 offer. Defendants too can make use of these offers, but with slightly different consequences.

The other party may not want to settle, but with careful planning you can strengthen your position if you have to issue proceedings. Offering to settle has clear advantages.

For more information, email blogs@gateleyuk.com.

Record-keeping requirements simplified

Record-keeping requirements simplified
Posted on 25/03/2015

Firstly a reminder.

An Insolvency Practitioner’s (IP) record keeping obligations[1] requires them [2] to maintain:

“In respect of each case in which he acts… records containing at least the information specified in Schedule 3 to these Regulations as is applicable to the case”

Regulation 13 (2) goes on to state that:

“where at any time the records referred to in paragraph (1) do not contain all the information referred to in Schedule 3 as is applicable to the case, the (IP) shall forthwith make such changes to the records as are necessary to ensure that the records contains all such information”

Schedule 3 sets out 15 sub headings (which each in themselves contain specified elements) of required information, governing; Details of the IP, details of the insolvent, progress of administration, bonding arrangements, matters relating to remuneration, meetings (other than the final meeting of creditors), disqualification of directors, vacation of office, distribution to creditors, statutory returns and time recording.

On 27 February 2015, the Government passed new laws which will come into force on 1 October 2015 [3], which are intended to simplify an IP’s record-keeping requirements. The current regulations mean in practice, IPs sometimes have to maintain duplicate records. From October 2015, the requirements will be replaced with a more general requirement [4] to maintain records sufficient to show and explain:

The work they and their staff undertake in the course of the ‘administration’ of an insolvency appointment.
The decisions that ‘materially affect’ the appointment.
IPs will also no longer be required to tell their recognised professional body where there records are for each case. It is anticipated that in due course the RPBs will create their own rules on where all records relating to appointments should be located, as part of their general membership rules. IPs should be aware that although the RPB notification requirements are relaxed the obligation to notify a competent authority of where the records are (as set out by section 392 Insolvency Act 1986) remains.

This post was edited by Julian Hayes. For more information, email blogs@gateleyuk.com.

Source: Insolvency Practitioners (Amendment) Regulations 2015

[1] As governed by The Insolvency Practitioners Regulations 2005 (SI 2005/524)

[2] At regulation 13 (1))

[3] Paragraph 3, Regulations, amending regulation 13(1) of The Insolvency Practitioners Regulations 2005 (SI 2005/524)

[4] Insolvency Practitioners (Amendment) Regulations 2015 (SI 2015/391) (Regulations)

Approaching an appraisal

Approaching an appraisal

Posted on 24/03/2015

The lead up to an appraisal can be rather daunting as a trainee, especially in your first seat when you have not been through the process before. However, once you have been through your first appraisal you realise that it is a great opportunity to formalise a feedback dialogue that has been taking place throughout your seat. Whilst an appraisal is very much a personal experience, below are some thoughts to consider when preparing for and undertaking your appraisal:
■Don’t be afraid to emphasise your strengths. Often trainees are hesitant to admit “I am good at this” in respect of certain areas of their performance. Admitting your strengths doesn’t demonstrate a lack of modestly, but awareness that you have given serious thought to your performance as a whole
■Feedback is two-way. Whilst it is important to take on board all of the feedback provided by your supervisor, they will also want to know your thoughts on, for example, areas of the law which you feel that you are lacking exposure to. As you may be receiving work from a variety of team members, it is useful for your supervisor to know that you are being given the breadth of work which they would like you to be exposed to
■Consider the goals that were set in your last appraisal. These can often be forgotten when dealing with the daily realities of your workload. Casting your eye over these goals once a month or so gives you an early opportunity to request work which will allow you to achieve these goals
■Your appraisal shouldn’t surprise you. Often trainees are apprehensive before their appraisal because they are unsure of what their feedback may be. However, most trainees I have spoken to have found that their appraisal highlights areas of strength and weakness that have already been discussed.

Remember, an appraisal should be a positive process with the aim of helping you to develop.

This post was edited by Emma Clarke. For more information, email blogs@gateleyuk.com.

Buyers beware post-completion changes

Buyers beware post-completion changes
Posted on 24/03/2015

As they bask in the warm after-glow of a successfully completed acquisition, buyers often turn their thoughts to making changes to the acquired business, particularly where they want to integrate the newly acquired business into an existing organisation or structure. But if this is done without taking into account the terms of the acquisition it could have unintended consequences as a string of cases demonstrate.

Loss of restrictive covenant protection

In one case[1], post-completion changes meant a buyer was unable to prevent a seller from being involved in a rival business. The buyer had bought a dental practice and the seller had agreed not to compete with the ‘Practice’ for a period of two years after completion. The ‘Practice’ was defined in the agreement as ‘the dental practice known as ‘The Surgery’ and carried on at [No 2 Prince Street]’.

The buyer subsequently bought another practice based next door at No 1 Prince Street, merged the two businesses – closing the surgery at No 2 Prince Street and treating all patients at No 1 Prince Street – and stopped using the name ‘The Surgery’.

When the original seller began working at a rival practice two miles away the buyer claimed breach of the restrictive covenant. However the court said that as a result of the buyer’s post-completion actions the ‘Practice’ as defined in the restrictive covenant had ceased to exist. So it was not possible for the seller to be in competition with that practice and the restrictive covenant had become ineffective.

Unintended transfer of employees

In a previous post we reported on another case where, following a share purchase, the target’s directors were all replaced by nominees of the buyer’s parent and that parent implemented a programme of integration to align the target’s operating methods with those of the parent.

As a result of the parent’s actions, the court held that the target’s employees had actually transferred to the buyer’s parent due to the effect of the Transfer of Undertakings (Protection of Employment Regulations) 2006. The parent therefore become the employer of the target’s employees and had to assume responsibility for all obligations and liabilities towards those employees.

Invalid earn out notice

In the most recent case a buyer’s calculation of an earn-out payment was held to be invalid as it failed to comply with the provisions set out in the agreement. Those provisions required the earn-out payment to be calculated by reference to the pre-tax profits of the target as shown in audited accounts for the two years ending 31 December 2010 and 31 December 2011. However, after completion the buyer had changed the target’s accounting reference date to 30 September to bring it into line with the rest of its group. So in fact there were no audited accounts available for the particular periods specified in the agreement.

The buyer based its earn-out calculations on the group’s audited consolidated accounts ending on 30 September in each year and the target’s unaudited management accounts prepared to 30 December in each year, extrapolating from those figures what the target’s profit would have been for the relevant earn-out periods.

But the court held that the buyer’s calculations did not comply with the requirements in the agreement. The stipulation that audited accounts should be used to calculate the earn-out payment was a form of contractual protection for the seller and failing to comply with that requirement invalidated the buyer’s calculations.

The moral of the story

So the moral of these cases is ‘think before you act’ and consider all the potential consequences of any post-completion changes to an acquired business.

This post was edited by Sophie Brookes. For more information, email blogs@gateleyuk.com.

[1] Moughadam v Bugg [2013] EWHC 461 (Ch)

The DC charge cap – are you compliant?

The DC charge cap – are you compliant?
Posted on March 23, 2015

The DWP has recently issued guidance to help trustees of occupational pension schemes and their advisers comply with the implementation of the Occupational Pension Schemes (Charges and Governance) Regulations 2015 (the ‘Regulations’) set to take effect on 6 April 2015. Below is a summary setting out the main points for consideration.

From 6 April 2015, the charges that scheme members can be required to bear for the default arrangement within affected schemes used by employers to meet their auto-enrolment obligations will be capped at 0.75% of the value of the funds under management. Other charging practices, including active member discounts for those still paying into their pension pot, will be banned.

The charge cap will apply to all costs and charges associated with scheme and investment administration. Some examples of charges that fall outside the cap are: winding up costs, costs associated with pension sharing on divorce and costs which are solely associated with providing death benefits.

What schemes are affected?

Occupational pension schemes used by employers as qualifying schemes for automatic enrolment and which provide money purchase benefits, subject to certain exclusions.

Which scheme members are covered by the cap?

Members who contribute to a ‘default arrangement’ (explained below) of an affected scheme, on or after 6 April 2015, will be covered by the cap. Trustees, therefore, need to ensure that the default arrangement is compliant with the Regulations from the time that they receive the member’s first contribution from this date onwards. The charge cap will remain for as long as the member is invested in the default arrangement.

What is a ‘default arrangement’?

For an arrangement to be a ‘default arrangement’, the Regulations state that it must provide money purchase benefits which are used to meet auto enrolment duties in relation to at least one jobholder; and meet one or more of the following tests:

An arrangement under which the contributions of one or more workers are allocated to a fund or funds where those workers have not expressed a choice as to where those contributions are allocated (Reg 3(2)(a))
Subject to paragraph (3), an arrangement which, on the relevant date, was an arrangement under which the contributions of 80% or more of the workers who were contributing members of the scheme on that date were allocated where those workers were required to make a choice as to where their contributions were allocated (Reg 3(2)(b))
An arrangement which first received contributions from workers after the relevant date, and under which, at any point after the relevant date, the contributions of 80% or more of workers who are contributing members of the scheme are allocated where those workers were required to make a choice as to where their contributions are allocated. (Reg 3(2)(c)).
Paragraph (3) states that Reg 3(2)(b) should only apply to members who were required to make an active choice as to where their funds were directed, and who are accruing some money purchase benefits which are not through AVCs.

The DWP’s guidance contains practical examples and a useful flowchart to help guide trustees on the overall default designation process.

Being compliant with a charge cap

There are two methods which can be used to confirm whether a trustee is being compliant with a charge cap: the prospective method of assessment and the retrospective method of assessment.

The prospective method is less onerous and therefore preferred by most trustees. With this method the trustees effectively certify at the beginning of the charges year that the scheme’s charges regime complies with the charge cap. However this can only be used if the scheme has a predictable charges regime.

With the retrospective method, the trustees must calculate the value of the member’s rights under the default arrangement at reference points set at equal intervals during the charges year of no more than 3 months.

Trustees and advisers of DC schemes should now be taking any necessary steps to ensure their schemes will comply with the changes on and from 6 April 2015.

Click here for the full DWP guidance.

This post was contributed by Hannah Algrafi. For more information, email blogs@gateleyuk.com.