Spring 2022 Consumer Finance Update

Eddie Flanagan discusses the latest updates from the consumer finance world

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Now is a key time for both consumer protection and the effective use of regulatory bodies to protect everyday consumers

Key factors affecting consumers

  • Amid the cost of living crisis, and the surges in energy bills, what do we know about the impact on consumer financial behaviour?

  • What can consumers expect in the upcoming months?

  • How can consumers prepare for further forced tightening of their own and lenders purse strings?

Klarna is Reporting Consumer Activity to Credit Bureaus

What seemed to be a light touch and easily accessible form of finance could prove to have more negative long term effects on perceived credit worthiness. From 1st June 2022, FinTech organisation Klarna started reporting customer data to credit bureaus in the United Kingdom. This move was in preparation for BNPL sector regulations that will come into force shortly to try and quell the amount of debt owned by younger consumers. With 16 million people using Klarna within the UK, with options to pay in 30 days or split the payments into three, there is a perception that this is fuelling unaffordable spending and that regulatory intervention is now due.

TransUnion and Experian are two of the bureaus that are receiving Klarna’s data. This then influences individuals’ credit reports, and could have unforeseen consequences on the likes of mortgage applications.
Ryan Browne, writer for CNBC, says: “BNPL companies face a reckoning in the U.K. and other countries, as regulators look to crack down on such services amid worries they are encouraging consumers — Gen Z and millennials, in particular — to spend more than they can afford” (CNBC).

However, these regulatory interventions may leave unexpected adverse credit foot prints. This raises the question that the lead time for same should have been extended.

Credit Card Debt on the Rise amid Cost of Living Crisis

According to a report by Creditspring, the UK is forecasted to borrow a further £9bn on credit cards within the next six months, due to the cost of living crisis.

Bank of England figures give a breakdown of how lending currently looks:

  • UK individuals currently borrowing £1.5bn every month on credit cards;

  • This will increase by 18% to £68.9bn;

  • Monthly debt repayments have increased by 9% YoY;

  • Total balance of unsecured loans has increased by 13% YoY.

27% of UK households are feeling “financially unstable” due to rising costs. Only 10% felt this way during the pandemic, which speaks volumes about the worrying state the UK’s economy. Theodora Hadjimichael, the CE of Responsible Finance, says “Any one of the cost of living crisis, recovering from the financial impact of the pandemic, or the explosion of unregulated Buy Now Pay Later products would have sent shockwaves through society. All three together are causing a seismic shift in the consumer credit market” (Credit-Connect).

Cost of Bills to Overtake Wages by 2024

According to Credit Strategy, a new report from Yorkshire Building Society and the Centre for Economics and Business Research has found that monthly outgoings could overtake incomes, by £100 a month in two years.

Younger generations looking to start on the property ladder could face increasing interest rates, and a potential need to dip into savings just to “get by”.

With the adverse effect of Covid, the unprecedented rise in fuel costs, together with inflation at such rates that is unknown to many, consumers we are now facing a perfect storm.

It has been noted that many consumers are now starting to challenge energy companies for hiking up their monthly instalments.

Regulatory measures must be applied effectively to ensure that consumers are protected. Transparency, fairness and the good behaviour of creditors is key to the resolution of financial issues in this time of considerable uncertainty.

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Eddie and his team advise clients on a wide range of issues concerning leasing, hire, consumer credit, the FCA source book and the regulatory landscape affecting the UK finance and leasing sector.

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Arron Banks loses libel claim - It is in the public interest for defamatory statements about him to be published

Litigation | Defamation

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A much anticipated judgment was handed down today (13 June 2022), which saw Arron Banks lose his high profile claim against journalist Carole Cadwalladr.

Arron Banks, who was famously described as one of the “bad boys of Brexit”, has a colourful reputation. However, he successfully persuaded the court that although a tweet by Cadwalladr had not met the threshold for causing serious harm to his reputation, a talk given by Cadwalladr had caused serious harm to his reputation - overcoming one of the key thresholds to bringing a defamation claim.

After a preliminary hearing to determine the meaning of publications (a process commonly seen in libel cases which can often narrow the issues and potentially avoid trial - albeit not in this case), Cadwalladr abandoned a defence of truth. This meant she had to accept the court’s meaning of her publication that “on more than one occasion Mr Banks told untruths about his secret relationship he had with the Russian Government in relation to acceptance of foreign funding of electoral campaigns in breach of the law on such funding” was untrue - she did not intend to mean that this was important.

This meant Cadwalladr had to rely upon a defence of public interest.

What is a public interest defence?

A public interest defence allows a defendant to avoid criminality if they disclose classified information that they believe is in the public’s best interest.

While typically used by journalists, this defence may also be employed more often, as we move forward in its new era of social media where every individual can potentially publish to the world at large.

However, the requirements for a public interest defence are stringent. It requires a defendant to establish that:

  • they believe they were publishing in the public interest;

  • that belief was reasonable, having regard to all of the circumstances; and

  • there had there been a significant change in circumstances since the original publication, such that any defence should cease to apply

The court’s decision

The case was heavily contested and Mr Banks was found to have given evidence which was evasive and lacking in candour, which undoubtedly did not help him. Evasive or potential unreliable evidence given by a claimant can be the death knell for any claim. That is especially because appeals on findings of fact are notoriously almost impossible to bring successfully.

However, fundamentally, the burden to establish a public interest defence is on a defendant and it was accepted that she believed the publication was in the public interest.

Most importantly the court found that she had intended to convey a less serious, albeit still defamatory, meaning and it was not so obvious that the meaning she intended to convey was not the correct one as to bar the defence.  That meant that the public interest defence was considered against her intended meaning, not as found by the court or argued by Banks.

In all the circumstances, and having reasonable grounds to have believed her intended meaning to be true, she succeeded in establishing a public interest defence.

That said, there was a significant change of circumstances when the National Crime Agency and Electoral Commission documents were published that rendered the reasonable belief that Cadwalladr had, no longer reasonable. However, crucially, no serious harm was established as arising from the defendant’s publication after that date.

What can we learn from this case?

The public interest defence, as set out in the Defamation Act 2013, is a new defence and this is an important test of the applicable principles.

It has also been seen by many as being a test of journalistic freedom where reasonable reporting is undertaken based upon the best available information but later turns out to be incorrect.

Some have viewed Bank’s case as a powerful, wealthy individual targeting an individual journalist; while others have taken the view that something was published which was untrue and a journalist should not be allowed to get away with even an innocent mistake of that nature.  Bank’s history with Brexit means this case is fraught with political history and judgments.  This is perhaps one of the best examples of why, unlike the USA, jury trials for defamation are a thing of the past.

Just as Johnny Depp lost in the UK, but won in the US based upon an almost identical alleged libel, Bank’s case may have played out differently before a jury. We will never know.

The key takeaway for journalists, whether they are high-profile professional ones, novices or potentially amateurs, can see the public interest defence as being open to them.

What should you do to if you’re planning to use a public interest defence?

Anyone seeking to publish and rely upon this defence must do their homework.  It’s clear that the scope of research that the defendant had undertaken, as well as the diligent show, were vital in establishing the reasonableness of the belief that she then in turn had.

It may also be that this will also be a positive judgment for the standard of journalistic investigation, and research prior to publication may potentially be able to take the benefit of this defence.

Finally it is important to address some of the other comment about this case and libel law. Although libel cases are often expensive, to think of them as only for the rich is wrong; libel law and the same principles are there to protect anyone. Every business or individual has a reputation that can be seriously harmed by others and therefore protecting those is key.

It is also important not to lose sight of the fact that many people can be, and are, defamed by press, media or members of the public - business can be ruined or reputations smashed. Libel and slander laws must strike a balance; and the legal sector must help shape the law and protect wronged parties.

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Daniel is a highly regarded experienced specialist commercial litigator and defamation expert.

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No Quincecare Duty Owed to a Beneficial Owner of Funds – rules The Privy Council

Case Update

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Royal Bank of Scotland International Ltd (Respondent) v JP SPC 4 and another (Appellants) (Isle of Man) [2022] UKPC 18

Introduction

The term Quincecare duty is certainly on legal and banking minds at the moment, following a raft of recent judgments where claims for breaches of the Quincecare duty have been invoked against banks in a bid to broaden the scope of the duties that a bank owes to its customers and third parties. The Quincecare duty (established in the case of Barclays Bank Plc v Quincecare [1992] 4 All ER 363) prevents a bank from executing a payment instruction where it has reasonable grounds to believe that the instruction is an attempt to misappropriate the account holder's funds. The duty is an aspect of the bank's duty of reasonable care and skill in executing the customer's instructions. It arises by virtue of an implied term of the contract between the bank and the customer or as a co-extensive duty in tort. For further details on the Quincecare Duty see here.

On 12 May 2022, the Privy Council handed down its judgment in the case of Royal Bank of Scotland International v JP SPC4, where it concluded that a bank’s Quincecare duty could not be extended to a duty of care owed in tort to the beneficiary of an account known by the bank to be a trust account. The Privy Council upheld the striking out of the claim in what is a landmark appellate decision under the modern law of negligence to address a bank’s duties in tort in respect of trust accounts holding that:

“on the present state of the authorities, there is nothing in Quincecare itself or in the cases subsequently applying it (including the decision in Philipp v Barclays Bank UK plc [2022] EWCA Civ 318; [2022] Bus LR 353 which was handed down after the hearing in this case) to support the argument that the Quincecare tortious duty of care extends beyond being a duty owed to the bank’s customer which arises as an aspect of the bank’s implied contractual duty of care and co-extensive tortious duty of care.” [44]

What is the background to the case?

JP SPC 4 was a Cayman Island based investment fund (the “Fund”). The fund operated a litigation funding scheme in England and Wales (the “Scheme”). Any loans made under the scheme were to be advanced and repaid through the company, Synergy (Isle of Man) Ltd (“SIOM”) via two separate bank accounts (the “Accounts”) held with Royal Bank of Scotland (the “Bank”). It was alleged that any funds held within the accounts beneficially belonged to the fund and that the bank was aware of this fact.

Between July 2009 and October 2012, the joint directors of SIOM misapplied approximately £77.8 million of the fund's money from the accounts held with the bank (of which at least £60 million was misappropriated following the bank’s classification of the accounts as "high risk"). The fund subsequently commenced proceedings against the bank for breach of an implied duty to take reasonable care to protect the fund from losses caused by the fraudulent misappropriation of funds from the accounts.

The fund alleged that, notwithstanding the fact that the fund was not the bank’s customer, the bank was under a duty to take reasonable care to protect the fund from losses caused by the fraud from the date that the bank knew that the money in the accounts was beneficially owned by the fund. It was also argued that the bank assumed responsibility towards the fund on the assumed facts, by relying on the case of Baden and that there was an incremental development of the law to recognise a duty owed to the fund. The bank applied to strike out the proceedings on the basis that there was no arguable pleaded basis on which the bank could be said to owe a duty of care nor was the assertion of assumption of responsibility made in the pleadings. The bank’s application was dismissed at first instance but allowed on appeal to the Court of Appeal. The fund then appealed to the Privy Council.

The Privy Council’s decision

The Privy Council considered whether in law the bank owed a duty of care to the fund. In reaching its decision, the Privy Council reviewed all recent Quincecare duty authorities and carefully analysed the original judgment of Steyn J in Barclays Bank Plc v Quincecare [1992], which emphasised the limited scope of the Quincecare duty, protecting only a bank’s customer.

The limited scope of the Quincecare duty was further emphasised in the Supreme Court judgment of Singularis Holdings Ltd (In Liquidation) v Daiwa Capital Markets Europe Ltd [2019], which affirmed that a customer’s separate legal identity that relied on its trusted agent was one of the prerequisites for a Quincecare duty to arise.

In line with the preceding case law, the Privy Council could not see any basis for an alleged duty of care to be extended to third parties based on existing authorities or an incremental extension of them.

The implied assumption of responsibility pursuant to Baden v Société Générale pour Favoriser le Développement du Commerce et de l’Industrie en France SA [1993] was firmly rejected by the Privy Council. It stated that former principles of extending the duty of care to third parties if the bank was put on notice that a customer was a fiduciary, and therefore held the money on trust for other beneficiaries, was replaced with a three stage Caparo test for all novel duties of care, and although Baden was not formally overruled, it could no longer stand as good law.

The Privy Council also confirmed that, following Royal Brunei v Tan [1995], it was well-established that banks and other parties who are alleged to be assisting a breach of fiduciary duty are liable only if they are dishonest and not if they are merely negligent. Ultimately, in this case, the Bank did not create the fraud nor were they a party to it. It had no special level of control over the arrangements, it had no contractual relationship or any dealings with the Fund, and thus had not assumed any responsibility to protect the Fund from the fraud.

To conclude

Although the decision is only persuasive in England and Wales, its analysis was solely based on English case law and, therefore, it provides significant clarity and comfort in restating the well-established legal position in relation to banks’ responsibilities to their customers and third parties. This is particularly helpful, after the recent judgment in Phillips involving an authorised push payment fraud perpetrated on the bank’s personal customer, which arguably could be interpreted to have extended the bank’s duties to individuals, albeit this particular issue is yet to be fully decided at trial.

The Privy Council concluded that there was no good reason for incrementally developing the tort of negligence, beyond the well-established Quincecare duty of care.

The legal community waits with baited breath to see what the Supreme Court will decide when it delivers its judgment in Stanford International Bank Ltd (in liquidation) v HSBC Bank PLC, which will be particularly relevant to insolvent companies’ creditors and insolvency practitioners who are pursuing recoveries for insolvent estates.

Our Litigation team are specialists in their field and ranked in the Legal 500 & Chambers, find out more about the work we do in Litigation here.

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Catherine is a highly regarded commercial litigator and brings unique technical and commercial experience to pursuing and resolving complex financial disputes.

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We launch litigation funding with DBA option

Litigation | Product

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Shakespeare Martineau is to offer, for the first time, damages-based agreements (DBAs) as part of its portfolio of litigation funding options called ‘FeeManage’.

DBAs are a fairly new addition to English law and are contingency-based agreements where legal fees are payable as a percentage out of the damages received in the event that the case is successful. Shakespeare Martineau is proud to be in a position to offer DBAs as part of its FeeManage proposition.

If a DBA is entered into, and the predetermined success criteria is achieved, but the recovery from the losing party is relatively low, the DBA percentage fee from recovered monies may be a sum significantly less than that which would have been payable by the client on a normal retainer basis or pursuant to a conditional fee arrangement (CFA) – meaning an increased shared risk between client and legal advisors.

In addition to DBAs, the firm is working with a variety of funders to offer, third party funding (TPF) and after the event (ATE) insurance in combination with CFAs as potential options.

Unlike competitors, Shakespeare Martineau is not tied to a single funding provider, in order to flex requirements and offer full or part funding for litigation claims.

Too often businesses are put off from pursuing debts and assets that are rightfully theirs due to the associated costs, impact on the balance sheet and risk,” explains Barry Jervis, partner and litigation expert at Shakespeare Martineau.

Litigation was buoyant across the country before the pandemic and, as we emerge into a post-pandemic economy, we can expect disputes to increase further. However, the costs of litigation are climbing sharply, alongside increasing numbers of businesses experiencing cash flow issues as a fall out from the pandemic.

Our new ‘FeeManage’ service helps to reduce the financial risk of litigation.”

Every individual and every business is unique and while traditional CFAs might work for one client, third party funding might be more appropriate for another. Whatever the size or complexity of the litigation, we have an option that will suit.

We’re really proud to be taking a different approach to litigation funding. We’re not fixed to a single provider and we’re giving our clients every option available for funding their claim.

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A simple guide to the Quincecare duty in banking claims – What is it and how to bring a claim?

Guide

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The Quincecare duty of care was established in the case of Barclays Bank Plc v Quincecare back in 1992, but the authority has only recently received renewed headline attention following the Supreme Court decision in Singularis v Daiwa Capital in 2019. 

What is the Quincecare duty of care? 

The Quincecare duty of care is an implied negative duty imposed on the bank to refrain from making or executing a customer payment when the bank is “put on inquiry” when there are reasonable grounds to believe that instructions may be an attempt to misappropriate funds. 

When a bank is put on inquiry, it has a positive duty to take action and investigate the instruction and any other suspicious/unusual circumstances surrounding the account. 

If the bank fails to make these inquiries then it will be liable for a breach of the Quincecare duty and, as a consequence, this cause of action gives the customer the right to a claim in negligence against the bank. 

There are certain pre-emptive conditions for the Quincecare duty to exist: 

  • The duty is currently only owed to the bank’s business customers, which have a separate legal entity. Consequently, the duty exists to protect a company from the misappropriation of funds by its trusted agent, such as a company director who is normally authorised to withdraw the company’s money; 
  • The existence of fraud is also a precondition for a Quincecare duty claim, and so it provides a helpful and an alternative remedy to recover the misappropriated funds. 

What sort of activity should put a bank on inquiry? 

The objective test is of a reasonable banker and it is fact dependent. A bank will be expected to have sophisticated systems in place to detect the fraud, which might take many forms and can be disguised by some unusual transaction patterns or simply take an obvious form of some questionable payment details.  

These transactional triggers, as well as other obvious signs, should put the bank on inquiry and drive further internal investigations while delaying the payment or ensuring that a receiving bank withholds the payment pending the outcome of these enquiries. 

What about a sole director/owner who controls the company? 

These types of companies are particularly vulnerable to being defrauded by its directors and therefore, banks must monitor these entities and their transactions much more carefully.  

In the particular case of Singularis Holdings Ltd (In Liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC, the sole shareholder, chairman and president of the company instructed the bank to transfer $200m to unconnected third parties, which turned out to be unauthorised by the company. The fraud perpetrated by the company director stripped the company of its assets and deprived the creditors of a legitimate claim against the company. 

The Supreme Court decided that despite the fact that the perpetrator of the fraud was the beneficial owner of the company, there was no principle of law to prevent the company from suing a third party, such as a bank for breach of a duty owed to the company. Consequently, the liquidators’ claim succeeded and the company was able to claim its misappropriated funds from Daiwa Capital.  

Can the company’s creditors bring a claim against a bank? 

The short answer is – no. However, administrators and liquidators can bring a claim on behalf of the company, which provides an alternative remedy for the company’s creditors. 

Are there any defences to a Quincecare duty claim? 

Yes, although they are limited. The Quincecare duty can be expressly excluded by a contractual agreement, albeit we are not aware of any successful exclusion defences that have succeeded in the courts so far. 

Alternatively, if it was impossible for a bank to detect the fraud, and the operation of the bank account did not raise any suspicions that would require the bank to perform further investigations/enquiries, that is likely to be a sufficient defence for the bank.   

How realistic is it to expect the banks to be liable when there are millions of banking transactions performed every day?   

It is a matter of public policy and banks are expected to play an active role in reducing and uncovering financial crime. They are expected to have sophisticated systems in place to monitor suspicious transactions and to train their staff to challenge their customers when there are reasonable grounds to do so. If banks fail to investigate suspicious activities, which later lead to the financial losses for the companies, then banks will be held liable for their breach of the duty of care that they owe to their customers. 

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Catherine advises on all aspects of commercial litigation and alternative dispute resolution. She acts for a diverse range of clients in high value and complex cases ranging from contractual disputes, fraud and investigations, financial services disputes, negligence claims and insolvency-related litigation.

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The Terminator: Termination guidance for CIGA Moratorium monitors

Case Law Update

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Re Corbin & King Holdings Ltd and other companies; Minor Hotel Group MEA DMCC (a company incorporated under the laws of Dubai) v Dymant and another [2022] EWHC 340 (Ch)

The courts have given their first judgment on moratoriums under the Corporate Governance and Insolvency Act 2020 (CIGA), clarifying when monitors of moratoriums should terminate them because the company is unable to pay pre-moratorium debts.  The case involved the company that operates restaurants including the Wolseley and the Delaunay in London.  It’s a perfect example of a CIGA moratorium being used to constrain secured creditor action.

The key takeaways:

  • the monitor can factor in the possibility of third party funding to discharge critical debts and aid rescue as a going concern;

  • the monitor has a degree of latitude in judging whether to terminate (required if they think that the company is unable to pay debts to which the moratorium does not apply). However, that latitude is not unlimited.  If the company doesn’t have the immediate prospect of receiving third party funds, or doesn’t have assets capable of immediate realisation, to discharge those debts the monitor must terminate, and

  • the court will conduct a ‘balance of harm’ excise when deciding whether to exercise its discretion to terminate a moratorium or not.

In this case Minor Hotel Group (Lender), an associate of the Corbin & King group’s parent company (Parent), had lent Parent a secured loan with secured guarantees granted by the operating companies (OpCos) and:

  • Parent failed to repay the loan when due and Lender served a demand;

  • a credit fund (Bidder) offered to buy Parent and OpCos for an amount equal to the loan.  That offer was rejected and the directors of the OpCos implemented a CIGA moratorium;

  • Lender made demands against each of the OpCos under their guarantees and appointed administrators over Parent;

  • the Bidder made an offer to Parent’s administrators to purchase the OpCos.  Lender put Parent’s administrators on notice that they would challenge any action by the administrators if they accepted the offer.  Lender also applied to the court for orders terminating the moratoria of the OpCos, on the basis that the monitors’ failure to terminate them had unfairly harmed Lender’s interests, and Lender wished to appoint administrators over the OpCos; and

  • the OpCo guarantees were contracts involving financial services and therefore outside the moratorium, and the OpCos remained bound to pay them, which they could not.  However, the monitors did not terminate the moratoria as they considered it likely that the OpCos would be rescued as a going concern and that the loan would be repaid in full in the reasonably near future.

Lender also sought an injunction to restrain repayment of the loan, arguing that accepting the Bidder’s offer would breach a shareholders’ agreement. That application was unsuccessful.

The court clarified the matters a monitor should consider as follows:

  • a monitor’s duty to terminate a moratorium arises once the monitor thinks that a particular state of affairs exists, which allows a degree of latitude. A decision will only be open to challenge if it was made in bad faith or was clearly perverse – if no reasonable monitor would have reached it.

  • the statutory test for monitors considering whether a company is unable to pay relevant debts involves a flexible and commercially realistic approach in the circumstances as a whole.  In this case that included the Bidder’s offers, and TopCo’s subsequent ability to discharge the loan, thereby relieving the OpCos of their guarantee liability; and

  • the question to be addressed is whether the company is unable to pay a presently due pre-moratorium debt in respect of which it does not have a payment holiday.  This is to be distinguished from the question of whether the company is unable to pay its debts as they fall due for the purposes of cash-flow insolvency (which introduces any element of futurity).

The court held that the monitors’ decisions in this case were ones which no reasonable monitor, who applied the correct test, would have reached.  It was obvious that Parent’s administrators could not accept the Bidder’s offer to purchase OpCos without an open market sale process – which made immediate realisation impossible.  In contrast, a later revised offer of interim funding to replace the loan could have properly caused the monitors to think that the loan was able to be repaid.

However, the court still had a discretion to terminate the moratorium, even if it reached the view that the monitors ought to have done so.  Conducting a balancing exercise based on the facts at the hearing, the court assessed the harm suffered by Lender to be less than the harm suffered by the OpCos if Lender was able to commence insolvency proceedings; given that each OpCo was trading successfully and there was an immediate prospect of the loan being repaid and the OpCos’ guarantee liabilities falling away.  Accordingly, the court decided to allow the OpCo moratoria to continue.  In reality the loan was then actually repaid and the OpCos rescued as going concerns.

Following the rationale of this judgment the following guide appears to be a sensible start for a monitor considering whether a company is able to pay pre-moratorium debts that are due and not caught by the payment holiday and whether they should terminate a moratorium:

  1. the company should be considered able to pay debts that are reasonably likely to be paid within five business days;

  2. consider whether the company can pay the debt itself out of cash resources; and

  3. if not, consider whether the company either has the immediate prospect of receiving third party funds or has assets capable of immediate realisation to pay it. Immediate receipt / realisation is a matter of commercial judgment – although anything over five business days will require specific assessment.  Consideration should also be given to whether the debt will be discharged by co-obligors.

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A simple guide to defamation – what is it and how to bring and protect against a claim

Guide

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The law has recognised for well over 100 years that individuals or businesses have a right to have the estimation in which they stand in the opinion of others, unaffected by false statements.  In simple terms, if someone says something untrue or damaging about you then you should have the right to stop them and to undo the damage.

How can a person be defamed? 

There are two ways:

  • Libel which involves words that are printed.  This includes messages written on social media, email,    text messages etc, and
  • Slander where words are spoken about someone.

Although there are some special rules for slander, both are equally serious.

Who can sue for defamation?

Individuals can sue for themselves; or businesses be it companies, partnerships etc subject to certain limitations.

Who cannot sue for defamation? 

Government bodies, political parties or people who have passed away.  The fact that a political party cannot sue does not mean that an individual politician could not bring a claim however, and indeed all too often it is politics that can be the basis of a claim.

What makes someone liable for defamation? 

Anyone who knowingly takes part in the publication of a defamatory statement can be liable for its publication.  Under section 10 of the Defamation Act, that will be the author, the editor of the publisher of the statement – unless that is not reasonably practicable.

There is a particular defence called innocent dissemination.  It protects for example a person working on the printing of a newspaper; or people who might operate an internet page where someone publishes a statement.

What needs to be established to bring a defamation claim? 

There are three key points:

  1. That someone has published a statement to a third party. That means they cannot sue someone who has simply said something only unless there is another party who will have heard or read that statement.
  2. Secondly, it has to be a statement that defames the person wanting to bring the claim.
  3. After the Defamation Act 2013 it now must have caused or be likely to cause serious harm to the reputation of the person wanting to bring the claim. If it a business wanting to bring a claim this last element will require proving some financial loss.

There are special rules that apply to slander.

What does publication mean? 

‘Publication’ has a special meaning and it is not enough that someone simply wrote something or said something; it must be communicated to another person.

Is publication to just one other person enough to lead to a claim? 

Yes it can do, but if it is only one person, proving that enough harm has been done to a reputation becomes more difficult.  Of course the more serious a statement the easier it is to establish that; or the more relevant the individual; but if the scope of publication is very low there is a risk of a claim getting struck out.  It is necessary to understand the scope of publication very carefully.

How is defamation proved if publication does not use a name? 

The test is that a reasonable person who knew the person wanting to bring a claim, would reasonably understand the statement as referring to them.  A claimant need not be referred to by name; or even identifiable by the world in general; that makes sense because if someone does not really know them can a publication really affect their opinion?  Obviously not.  Obviously however the more prominent an individual is, say a celebrity or a politician, the larger the group of people will be able to understand that something refers to them.

Can publication refer to other people as well as the claimant? 

It is still possible bring a claim.  The fact that one person might understand it to refer to someone different does not stop a claim being brought but again be very careful.  In that situation the context of statement can be all the more important.

When is something defamatory or not? 

The answer to this is what do the words used actually mean?  Ultimately the court will determine what words do mean but there are two key things to consider.  What is the natural and ordinary meaning of the words?  If that comes over as something that would make someone think less of the subject then that natural and ordinary meaning could be defamatory.

What if the meaning is not obvious? 

That does not mean that a publication is not going to have a defamatory meaning.  Everyone knows how innuendo or suggestion can be used and if a person would still understand it to be defamatory, then an innuendo meaning can be found.

How can it be established how serious a statement is; or what is possible to publish? 

That will change from case to case but the courts look at how serious a statement is, using three particular levels; the most serious is imputation of guilt or saying someone is guilty of something; the second is that there are reasonable grounds to suspect someone might be guilty; the third and least serious is that there are grounds to investigate someone being guilty.  The more you tend towards the last serious meaning; often the less likely it is that a statement might be defamatory.  Remember though, saying that there are grounds to investigate can still easily be defamatory.

What is a defamatory statement? 

It is a statement which would seriously affect in a negative way the attitude of someone reading or hearing that statement towards the person or business that it is about; or it has a tendency to cause them to do that.  Again that is quite wide and can encompass a huge range of different statements but if it is not sufficiently serious a claim can again be struck out.

What was the defamation law change in 2013?

The changes were significant and section 1 of the Defamation Act requires a claimant to show that a publication of a defamatory statement has caused or is likely to cause serious harm to their reputation. What serious harm means will always potentially vary but assessing harm is now one of the most important things a lawyer must do.

What is different about defamation law affecting companies? 

Where a body ‘trades for profit’ as the Defamation Act defines it the test is whether the publication has caused or is likely to cause the body serious financial loss.  Again what is a serious financial loss will vary from business to business; what is a serious financial loss for an SME would be of little consequence to a large plc potentially.  Again the devil is in the detail and a business needs to consider this very carefully.

Are there any defences to a defamatory claim? 

Yes there are.  Assuming that the statement has been established to have been published; refers to the claimant; had a defamatory meaning and all the other elements are in play, there are still some defences.

The first and most important: truth. If what the statement says is substantially true then that can protect the defamatory publication.  Rarely however is a claim so simple.

There is a defence of honest opinion.  To succeed it must be established that the statement is actually an opinion; why that opinion is formed and crucially it is an opinion that an honest person could have held at the time on the basis of the facts; and where there is not any element of malice in regard to that opinion.

There are some defences even if a statement is defamatory and cannot be protected as either truthful or an honest opinion.  One of those is the public interest defence.  This is where a statement is on a matter genuinely of public interest – not simply something which is interesting to the public which is an important distinction.  Most importantly the defendant must have reasonably believed the publication was in the public interest.  This is a very sensitive and complex defence and it will apply sparingly.

Is there ever a time where someone can say whatever they like and can be protected? 

Occasionally there is something called a privilege defence. Privilege means someone can speak freely without being able to be sued for defamation; these fall into two main categories:

  • Absolute privilege - something enjoyed by someone giving evidence to a judge in a court case; or a member of Parliament speaking in the House of Commons.
  • Qualified privilege – the more commonly used. Importantly however even privilege defences can be defeated by malice.  Qualified privilege effectively means that someone has a social or legal or moral or other duty to make a publication even though it might be defamatory.

How long have you got to bring a claim?

This area of law is very different to others; you only have one year from the date of the first publication by the person you want to sue.

What could be done to put things right if someone has been defamed? 

Here there is a difference between what a court can do and what lawyers can potentially achieve; a court can award damages i.e. a payment of money to the defamed party to compensate for the harm done; and this can include what is called aggregated or special damages in particular circumstances.  A court can require publication of the summary of the judgement to potentially undo some of the damage of the publication; can require publications to be taken down pages for example; and in the most serious cases can grant an injunction stopping further publication where there is a danger of that happening.

Can a court grant an apology? 

This is one thing that the court cannot do albeit there can be what are called offers of amends.  Lawyers acting for you can however potentially secure an apology which often means as much to a claimant as a court judgment.

Is it possible to stop something defamatory being published?

Unfortunately, the answer is usually no.  Ultimately what is called an interim injunction to stop someone publishing will only be awarded in the most exceptional cases.  That does not mean that a potentially claimant should give up and good lawyers can help manage this situation and it may be that someone has that exceptional case.  More often than not injunctions are obtained by the use of other elements of the law such as what is called malicious falsehood; or data processing breaches for example.

Defamation is a very complex area of law.  With the prevalence of social media however and the freedom and impunity with which certain people will feel that they can say what they like about businesses, people and can spread publications far and wide across the globe causing real damage in minutes, action is required.

Of course the best circumstances are for the person publishing to be very careful with what they say; or at the very least take some advice from a lawyer before they publish something that might be controversial or potentially defamatory.

Importantly there are often better and more appropriate options than heading to court, but ultimately however there are times when only court action is the right option.

If thinking of bringing a claim for defamation; or are being threatened with a claim for defamation however it is important to seek specialist advice.  Many solicitors will deal with litigation; few deal regularly with such a specialised area of law where if someone makes a mistake huge costs can be accrued very, very quickly and a reputation actually made worse, not better by litigation.

If you have any concerns about what is being said about you; your business; or what you wish to say, you should take advice as soon as possible.  Our expertise and experience means we can not only advise you as to how to deal with the matter legally but also how to manage a reputation through this and avoid some of the common pitfalls.

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Administrators and redundancy – is it about to get messy?

Blog | Corporate Restructuring & Insolvency

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The long running case of R (on the application of Palmer) v Northern Derbyshire Magistrates’ Court [2021] EWHC 3013 has sent ripples of concern through the insolvency industry, when it confirmed that (in theory at least) administrators can be prosecuted for a failure to follow redundancy procedures prescribed by sec. 194 Trade Union and Labour Relation (Consolidation) Act 199 (TULCRA). Insolvency practitioners across the country are now anxiously awaiting the outcome of the court proceedings which could place them in an insidious conflict between their duty to act in the best interests of creditors and ensuring they do not put themselves at risk of criminal prosecution.

The background to the case

West Coast Capital (USC) Limited (USC) was placed into administration by its director on 13 January 2015, when Mr Palmer was appointed as one of the administrators (two others were also appointed, but the division of responsibilities meant that only Mr Palmer was subject to proceedings).

On the same date, a pre-pack sale of the business occurred, which expressly excluded a warehouse. The following day, the employees of the warehouse (84) were notified by Mr Palmer that they were at risk of redundancy and that a consultation meeting would be held later that day. Around a quarter of an hour later, they were handed a letter advising them that following the consultation USC could not identify any alternative to redundancy and they were dismissed.

On 30 January 2015, the Redundancy Payments Service asked the administrators whether a form HR1 had been lodged. The form HR1 was lodged by the administrators on 4 February 2015, who explained that it was filed late due to an oversight. In July 2015, the Secretary of State (SoS) issued proceedings against Mr Palmer (and the director) for failure to follow redundancy procedures under sec. 194 TULRCA and, specifically failure to lodge form HR1 with the Redundancy Payments Service in the required timeframe.

Under sec. 193(2) of TULRCA an employer proposing to make 20 or more employees at one establishment redundant within a period of 90 days or less must notify the SoS of their proposal before giving notice to terminate a relevant employee’s contract of employment, and do so at least 30 days before the first of those dismissals takes effect.

Sec. 194 of TULRCA states that an employer who fails to do so commits an offence and is liable on summary conviction to a fine. Where such an offence is committed by a corporate body and is proved to have been committed with the consent or connivance of, or to be attributable to neglect on the part of, any director, manager, secretary or another similar officer of the body corporate, or any person purporting to act in any such capacity, they as well as the body corporate is guilty of the offence and liable.

The outcome

The Magistrates’ Court found that Mr Palmer (as administrator) could be prosecuted for offences under sec. 194 TULRCA. Mr Palmer sought a judicial review of that decision to ascertain whether it was in theory possible to prosecute an administrator under sec. 194, and this case is the outcome of that judicial review.

Mr Palmer argued that:

  • He was not a “director, manager, secretary or another similar officer” of the company and therefore fell outside the remit of sec. 194

  • An obligation on an administrator to give 30 days’ notice of the proposed redundancies could have serious ramifications for the administration process and place the administrator in an untenable position of conflict. It would mean they have an obligation to retain employees for a minimum of 30 days to avoid criminal prosecution whilst also being under a duty to act in the best interests of the creditors - which may require the immediate termination of employment.

  • Waiting more than 14 days before terminating the employment contracts would mean that the company adopts the contracts and elevates employee claims to preferential status.

What now for administrators?

The court on judicial review held that administrators are capable of being prosecuted under sec. 194. From the date they are appointed, only they are in a position to notify the Redundancy Payment Service as they are carrying out a managerial function in place of the directors. The issue of whether this makes administrations untenable is a matter for Parliament. The case will now proceed in the Magistrates’ Court to determine whether Mr Palmer committed a criminal offence.

The decision places administrators in an insidious conflict between their duty to act in the best interests of the creditors and ensuring they do not put themselves at risk of criminal prosecution. To date, there have been no successful prosecutions of administrators under sec. 194. The Magistrate decision is now anxiously awaited.

Pending the outcome of the Magistrates case, our advice to administrators where there is even a possibility of more than 20 redundancies taking is to carefully consider (pre-appointment) whether retention of employees is tenable or not and, if it is, determine whether the purpose of the administration can be achieved if employees must be retained for 30 days post-administration, and/or if redundancies are likely, review the steps taken by the directors to ascertain if the correct documents have been lodged within the required timescales. Subsequent to an appointment we’d suggest you assess the employee position and immediately file the relevant form HR1 with the Redundancy Payment Service if 20 or more redundancies are likely.

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A guide to making a privacy claim - what are they and how to succeed

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It is a common misconception that privacy claims are the preserve of the rich and famous and while often of course it is those sorts of claims that receive the press attention; from Prince Harry and Prince William; to Michael Douglas, a wide variety of the rich and famous have brought important privacy claims.

The truth is however, every individual has the right to a private life and every individual’s private information can be misused.  Bringing a privacy claim will centre, more often than not, on a claim for misuse of private information.  Here is our simple guide to the basics of a privacy claim; the essential elements of it and the remedies that can be obtained.

Like many areas, privacy is a narrow specialist area where expert advice and input is critical.

Is there a right to privacy law in the UK? 

Yes there is and it is a relatively new cause of action based around the Human Rights Act. Everyone has a right to respect for private and family life; and Naomi Campbell and Michael Douglas’ claims in the early 2000s have helped build this area of law.  If someone has used your private information or attacked your privacy, you can do something about it.

Can I stop the publication of confidential information?

Yes you can.  Historically an individual could bring a claim for breach of confidence but the law has since been expanded far beyond that to areas which involve a wide range of matters not limited to publishing information.

What does the law now protect as a result?

The misuse of private information protects two key things.  It protects private information and it protects individuals from intrusion into their private life.  The courts even refer to this as invasion of privacy hence the title.

What do I have to prove to bring a privacy claim and succeed?

There are two key stages.

  • First, does the person wanting to bring a privacy claim have a reasonable expectation of privacy in the information complained about; and secondly, if yes,
  • is that expectation of privacy outweighed by any opposing interest (usually the interest of the party wanting to publish private information).

If the answer to the first is yes; and the answer to the second is no, a claimant has a good claim to protect their private information.

What is meant by the ‘publisher’ of the information?

Any individual, as well as any media outlet or other legal entity, is capable of publishing, in a legal sense, private information. Publishing in essence effectively means making that information known to someone who should not know about it.  For example, there have been a wide range of claims brought by ex-husbands and ex-wives concerning private information that has been thought to be misused.

Should everyone have a right to an expectation of privacy? 

The courts have said that this is what is called an objective question.  It is to take account of all circumstances which include the attributes of any claimant; the nature of the activity; the place it was happening in; the nature and purpose of the intrusion; the absence of any consent; and whether it was known or could be inferred; and the effect upon the claimant; and importantly, the circumstances in which and why the information came into the hands of the publisher.  It is a complicated test.

Is there any guidance on the objective question of privacy? 

There are certain general principles that have arisen mainly about particular types of information. For example, there is not any public interest in a legal sense in disclosure or publication of purely private sexual encounters even if they may involve adultery; additional considerations can give children rights to privacy in circumstances where adults would not; information about health will also normally be treated as private; public figures may enjoy less protection than private individuals; information about how people behave in private places such as their home is likely to have a reasonable expectation of privacy whereas, if an activity takes place in public whether it is private or not will depend upon the full circumstances.

How do I protect my reputation during a privacy claim?

This is a developing area but, there have been important cases where the fact that individuals have been suspected of criminal offences for example and therefore could suffer damage to their reputation, has been relevant. Being accused of a crime and any issues arising from that potentially becoming published need very careful scrutiny.

If I have a reasonable expectation of privacy how can that be outweighed? 

This is a balancing test.  Ultimately, no right, be it right of privacy or right of publication, always takes priority. Key considerations are:

- Does the publication contribute to debated general interest?
- How well known is the person who is the subject of the publication?
- The prior conduct of the parties;
- The manner of obtaining information and whether it is true;
- The content and form of the publication;
- The consequence of publication and the severity of any sanction.

There are therefore a wide range of factors that have to be taken into account and again, expert input is critical.

What remedies are available to me if my privacy is breached or my private information is misused?

There are two key elements; damages and an injunction.

Damages are to compensate you for loss or damage.  These will be for damages arising from the wrong itself; and to compensate for distress, hurt feelings or loss of dignity and importantly, can be increased for aggravating behaviour by the publisher.

Stopping publication via an injunction.  This is probably the primary scenario most people are most interested in.  A key principle here is that injunction will only be granted to restrain publication before a final trial determining matters, if the court is satisfied that the party wanting an injunction is likely (which means more likely than not) to establish that the publication should not be allowed.  In short, if the case is good enough and the circumstances are right, you can stop publication.

This is a guide only and as you can see it is a complicated and fluid area of law that requires specialist advice to navigate.

For more information on privacy claims - please contact Daniel Jennings below.

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What is harassment and how to stop it

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In this guide, we take a look at what harassment is and how to stop it

Harassment of any type can be a distressing experience if are a victim of it; or a difficult problem to deal with if a family member or employee has been accused of it.

To be able to deal with harassment it is firstly important to understand it,  Our simple guide looks at the different types of harassment, the burden of proof required to prove it and steps that can be taken to stop it.

Harassment – What is it?

The key definition of harassment is found in the Protection from Harassment Act 1997 which provides that ‘a person may not pursue a course of conduct which amounts to harassment of another and which he knows or ought to know amounts to harassment of the other.

There is plenty of scope for bringing various different types of conduct within this definition.

One of the key issues that needs to be determined is what is a course of conduct. This is set out in statute again and it involves, in relation to the same person, conduct on at least two or more occasions; or in the case of conduct in relation to two or more people, conduct on at least one occasion in regard to each of them.

What conduct can count as harassment?

Actions such as stalking, up-skirting and other conduct that has been in the media, are now reasonably well recognised as potential harassment.  However, one of the most important forms of conduct which is not always considered is speech.  This can include written media and most importantly, in the current climate, can include social media publications.

Not only is there a right to be protected from harassment in a written or verbal form, there is a right to freedom of speech.  A court has to perform a balancing act and conduct has to be sufficiently serious before it can be found to be harassment.  For that reason, while claims can be brought for harassment alone, generally people do not regard something truthful being said about them, which is in the public domain and not private, as being harassing.  And for that reason often claims are brought in conjunction with defamation claims; or misuse of private information claims.

How do I make a claim for harassment?

  1. You must be able to show a course of conduct as above;

  2. You must be able to show if it is targeting an individual;

  3. Importantly it has to be calculated to and does cause alarm, fear or distress; and

  4. There must be conduct that is oppressive and unreasonable as opposed to merely unattractive, unreasonable or regrettable.

As mentioned above only two actions can be enough to bring a claim but the content of the action however is still critical to establish a claim for harassment.  It does not mean that will always be the case however and the fewer the events and the longer the time between them the less likely it is that they will amount to harassment. Recent judicial authority uses the helpful terms ‘persistent and deliberate’ and they are a good guide.

What if someone says they didn't know their actions were harassment?

It is not enough for someone to say they didn’t know. There is an objective test and key is often whether someone ought to have known their conduct was harassing.  It is a test however judged against not that specific individual as few defendants will ever say that they knew that they were causing alarm or distress to a claimant.

If a claim succeeds is someone found ‘guilty’?

No, there are three particular defences to a course of conduct which would otherwise be harassing and those are:

  • it was for the purposes of preventing or detecting crime;
  • it was under some rule of law or to comply with some other requirement imposed upon a person; or
  • that in the particular circumstances pursuing that course of conduct was reasonable.

When it comes to defences, inevitably for the vast majority of defendants, it is the third defence that needs consideration.

What does to pursue a course of conduct being reasonable mean?

Again this is an objective test and it is assessed at the time that the conduct took place and because reasonableness depends upon the circumstances of each individual action and it is therefore very much dependent upon specific facts.  For a start however, a court will always look at the exact type of conduct be it physical, publication of words or otherwise; the timing of it; the frequency of the conduct.

What are the consequences of a claim if it is successful?  Is a harassment claim worth bringing or something to worry about? 

The answer is yes.

In the first place financial damages can be awarded for anxiety caused and any financial loss that might have been suffered; but to be a claimant you do not need to have suffered financial loss.

Most people’s main concern is stopping harassment first and getting some sort of recompense second and an injunction is a legal way of saying someone must not do something and is one of the most common remedies people seek.

How do I get an injunction to stop harassment? 

if you are dealing with something not involving speech then it is the traditional requirements for an injunction that must be met, this is a matter of whether there is a serious question to be considered and where the balance of convenience lies – for more information on this burden you can see our guide to injunctions. If it was involving speech then you also engage the right to freedom of speech of a publisher.

Is it true that you cannot get an injunction for defamation where someone says they have a defence.  What is the difference here?

This is a very complicated issue but the ultimate difference is between the form of what is said and the manner in which it is said; this is one reason why claimants and their lawyers have in recent years sought to use claims for harassment; claims for data protection and other rights to succeed in getting injunctions where otherwise they might have failed.

Courts have suggested that (with the assistance of lawyers) that some degree of self-help is potentially to be expected.  The courts address this as follows; the first step is for example some self-resilience trying to shrug off unpleasant messages or comments which are part of day to day irritations and annoyances; secondly if communication is specifically directed towards someone then take advantage of practical options available to prevent unwanted contact – that can relate to the platform on which communications are made or other various tools for blocking content which might mean it is not necessary for a court to grant an injunction unless these have been explored.

So, can I try to get harassment stopped myself?

The short answer is yes but as explained above, people speaking also have the right to free speech and many platforms such as Twitter, YouTube, Facebook or any other platform have to not only respect that but they also set great store by that freedom of expression and generally involvement of lawyers is necessary to succeed; unless the harassment is so blatant and so serious as to be so obvious that a strong claim lies there.

For more information or to consult us about a harassment claim, please contact Daniel Jennings.

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Here is our guide to the common types of injunction and what they can be used for

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What is an injunction?

An injunction is a court order, which either requires something to be done (a mandatory injunction) or prohibiting someone from doing something (a prohibitory injunction). They are in many ways the strictest court order, because they are usually accompanied by a penal notice. In short that means, if someone breaches the injunction they can be imprisoned.

Injunctions are usually an “interim injunction”. That means they are in effect to maintain the status quo and protect assets, evidence or other materials that are important to the final determination of a claim. This brief basic guide gives some key points about injunctions, such as freezing injunctions or springboard injunctions.

What are the types of injunction?

Common types of injunction include:

  • Freezing orders.
  • Search orders.
  • Springboard Injunctions.

Injunctions are not limited to these however, nor are they to be seen in isolation. Often will something else from the court will be applied for at the same time, for example an order such as a Norwich Pharmacal Order* to disclose certain information.

Freezing orders (freezing injunctions)

A freezing order (sometimes referred to as a freezing injunction) is an interim injunction granted by the court restraining a party (the respondent) from disposing or dealing with assets. It can apply to both individuals and businesses.

A freezing order is discretionary and a court will exercise that discussion if the following tests can be met:

  1. the applicant must have a cause of action, justiciable in England and Wales;
  2. the applicant must have a good arguable case on the merits; and
  3. there must be a real risk of the respondent's assets being dissipated.

What can a freezing order be applied to?

Almost any asset can be frozen subject to meeting the tests. Commonly an order will cover things such as bank accounts, valuable machinery or vehicles or other valuable item. A freezing order is to prevent assets being dissipated; or in simple terms the freezing order is so that, in the event that the defendant needs to satisfy a court order following trial, the defendant has the funds to satisfy that very court order.

Search orders

A search order / injunction requires a defendant to allow the claimant's representatives to enter premises and search for, copy, remove and detain documents, information or material. The key purpose of such an injunction is to preserve documents or materials that will constitute evidence in a claim to be determined later.

Invariably an independent solicitor (not associated with the case) will be appointed by the court to supervise the search and ensure that it is conducted fairly.

Springboard injunctions

This is an injunction to deprive a party of the benefit of an ongoing unfair competitive advantage obtained as a result of earlier unlawful conduct.

Commonly these have been used against former employees / contractors who have unlawfully taken confidential information from a business; however their use has grown in recent years to include breaches of fiduciary duties or breach of duties of fidelity.

Although it may seem to reverse matters in fact this again is to preserve the status quo – how matters would be if confidential information for example had not been taken and used. The test for a springboard injunction are:

  • That there has been unlawful behaviour by the subject of the injunction;
  • That an unfair competitive advantage has been obtained;
  • That the nature and period of the competitive advantage justifies the court intervening;
  • That the advantage still exists at the date when the springboard injunction is sought and will continue unless the relief is granted.

Each specific injunction has a number of special requirements BUT there are some key guiding principles that should be considered:

  • If you are concerned about something and that there might be urgency seek advice immediately. Injunctions are always time critical. If you do not act and seek advice it can either be too late practically, because assets can have been disposed of or destroyed; or it can be too late legally. Act now or you may miss the chance
  • If you are applying for an injunction, in a commercial case, an applicant for an interim injunction must typically undertake to pay the respondent whatever the court may later order by way of compensation, if it is later held that the interim injunction was wrongly granted.
  • Whether to grant an injunction will usually depend upon whether it would be "just and convenient" to do so.
  • The balance of convenience is very often the determining factor and there is a three-part test:
    • Would damages be an adequate remedy were the applicant to succeed at trial?
      • If yes then an interim injunction will not usually be granted.
      • If no, then would the applicant's cross-undertaking in damages provide adequate protection for the respondent if, on final determination, it transpires that the interim injunction should never have been granted?

If no, that suggests interim relief will not be granted.

Injunctions are powerful weapons, and require expert assistance. If you are considering an injunction, or simply think you might have an urgent situation act and enquire immediately.

*  A Norwich Pharmacal Order (NPO) is an order which compels an innocent third party to provide information about another party who may have been mixed up in “wrongdoing

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FCA attempts to scrap “loyalty penalty” for insurance customers

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Since 1st January this year, new rules have come into effect, to provide greater protection for loyal and vulnerable home and motor insurance customers.

The new rules, which have been introduced by the FCA, state that any person who renews an existing policy won’t need to pay any more than a brand new customer would. Essentially, customers who tend to remain with the same insurance companies won’t be affected, but for those who like to switch up their providers, it could mean a price hike.

What does the FCA believe?

In reality, many people believe that their insurer will automatically reward loyalty, but the FCA believe that is not what happens in many cases. Not all, I hasten to add! However, the FCA principles of treating customers fairly adds a powerful narrative around customer engagement, hence the need for change.

It is thought that this change will save customers £4.2 billion over ten years. These rule changes follow pressure from Citizens Advice complaints, and are a bid to avoid the phenomenon known as “price walking”.

Matthew Upton, director of policy at Citizens Advice, said: “Rip-off renewal prices have seen consumers paying over the odds for far too long. No longer can you be exploited just for staying loyal.”

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Eddie works with a highly skilled team to deliver industry specific advice to the asset finance and leasing sector.

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Yorkshire Cricket Club

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A lesson in how small decisions in one area can destroy a business in other areas and leave reputation hanging by a thread

The Yorkshire racism scandal has been well documented and discussed within the media for some weeks.  Matters recently came to a head after a lengthy period of litigation including Employment Tribunal decisions that went against Yorkshire Cricket Club but attracted relatively little attention.

What did attract attention and has brought potential financial ruin upon a business are the decisions that were made after the event and the ramifications on reputation and contracts; with further problems being heaped on top of the County almost daily.

Yorkshire County Cricket Club, which is ultimately a business, has shown others how damaging decisions made in one part of the business, can impact upon that business’ reputation with its partners, key contractor partners; and the wider public and can cause enormous financial damage.

Having decided that a report commissioned into historic events did not justify any action being taken against any individuals, this was widely reported by Yorkshire Cricket Club apparently in the hope that this would draw matters to a head.  Accusations of racism are, of course, extremely serious and extremely sensitive however the principles of dealing with the difficulties that Yorkshire CCC fall foul of apply to any and all businesses.

Would you want a business that you are linked with, be it in their case as a sponsor; but otherwise just as a contractual partner or someone who reflects upon your values to damage your reputation?  The obvious answer is no and the law allows parties to protect themselves from such damage.

Yorkshire’s sponsors, who are ultimately parties to a contract with that business, were able to withdraw from their contracts, apparently without any fine or liability to themselves, bringing potential financial ruin to a business which previously appeared in reasonable health.

This is not the first time that we have seen businesses adversely affected by the loss of contracts due to actions which damaged the reputation of another party they were contracting with.  Earlier this year difficulties were faced by online fashion retailer Boohoo concerning its supply chain and the alleged poor treatment of clothing workers by businesses in that supply chain and brought page headlines for several weeks.  That led to a separate report monitoring efforts to improve conditions in the supply chain being published and a very significant reduction of the number of suppliers that Boohoo would deal with.

Both Yorkshire and Boohoo’s situations saw parties exercising contractual rights which we can assume included so called moral clauses which are becoming more common. Having originated in Hollywood in the 1920s, in order to take the interests of film studios from the private lives of actors, this has since become common place in other areassuch as  sportsman’s sponsorship contracts.

The morals clause is ultimately a contractual provision that gives the party the right to terminate a contract in the event that the co-party engages in conduct that might negatively impact upon the others image, goodwill and reputation.

Such clauses have assumed even more importance in recent years.  The prevalence of social media and the fact that any individual’s conduct can be immediately recorded on a smartphone and then distributed worldwide in seconds means such clauses are relied upon more and more.

The actions of those who were partners with Yorkshire CCC and Boohoo’s actions with its suppliers suggest that increasingly such causes allowing termination due to potential damage to commercial reputations are even more important and significant than they used to be.  And that is quite correct.  Any business that does not consider how it will protect its reputation and how it will show that it and its partners support their values or that there are consequences, are playing a very dangerous game.

In this era of social media publications what once might have been a small issue that was only picked up on the inside pages of one newspaper can now gain an unstoppable momentum and spread across the general public with incredible speed. Now with developing green credentials for example, new areas of reputational damage can be expected to be relevant.

It is also a salutary lesson that a business that does not consider the commercial impact and the reputational impact a decision it makes is not giving proper consideration to its actions.  Indeed one can see a situation where a director making a decision without taking that step could soon be found to have been in breach of their duty as a director to promote the success of a company.

However the damage that a business without proper reputation management guidance can cause itself was seen even more clearly by the actions of Yorkshire CCC’s head of human resources.  A day or two after Lord Patel, the new chairman of Yorkshire CCC had taken some sound steps to try to begin putting right the damage, only placed Yorkshire in the spotlight again for the wrong reason.

While social media can be a source of much criticism; a lot of it ill-judged or ill-informed and which requires dealing with; for a head of human resources to email such an individual calling him a coward is unwise and bad reputation management at the best of times.

That is not to defend the action of the individual who was called a coward whose actions on social media may well have been wrong, but this episode again goes to show active and proper reputation management is a key element to any successful business.

The team at Shakespeare Martineau can help you deal with adverse comments; how you deal with untruthful comments or campaigns against the business; or simply how to best manage your reputation using all the tools at your disposal.

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Reasonable Endeavours – What does it mean and the disputes about it

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With the ongoing issues with supply chains; the pressure upon individual distributors or particular contractors;  the anticipated increase in costs arising from expected interest rate rises and increased energy costs, many businesses are faced with having to review what their contractual position is, what they must do to avoid being sued when facing difficulties; and how if at all they can improve that position. Those steps will inevitably lead to disputes over potentially broken contracts.

We have looked elsewhere at when parties do or do not have binding agreements. However, the other situation many businesses are grappling with at the moment is where there is no dispute that the contract is valid and binding, but there is a question about what a party has to do under the contract and whether it can avoid having to perform a contract if circumstances change.  Where contracts have the extremely demanding “best endeavours” obligation, then getting out of performing such a contract is very difficult.  A middle ground is often ‘all reasonable endeavours’ which can afford some leeway but again is limited.

It is where a contract provides that a party must use its reasonable endeavours, that the other party to a contract should potentially be concerned. The reason for that is simple; whereas best endeavours means a party must do its very best to perform; what is reasonable is much less demanding and when as now circumstances change a party wanting to get out of a contract; or simply struggling to perform it might be able to something.

What does reasonable endeavours mean?

This would change from contract to contract however it might be summed up as “we will try but no promises we will succeed”.  In practical terms it means that you need not sacrifice your own commercial interests to try to comply with the contract where only reasonable endeavours are required; and you may only have to take one reasonable course of action and not explore all possibilities depending upon the circumstances.

In hard times businesses have to try to limit costs and importantly avoid losing money, so the terms of contracts must be carefully scrutinised.  To take an example, does the fact that the cost of performing a contract goes up, so much that a party will suffer a loss by delivering the service or goods mean it can get out of the contract or change it if they only have to do what is reasonable?  The simple answer is no, even though losing money will not seem reasonable to any business, that is not enough of a reason on its own.  It requires doing what is reasonable in the circumstances and what is reasonable can be a commercial burden – there is no guarantee that the deal struck will be a good deal, or will remain a good deal.  Simple changes in price therefore will not always justify not delivering.

To take a different example if a party is obliged to deliver goods to a customer but cannot find any shipping options to deliver it in time, will it be in breach of contract if it does not deliver?  The probable answer here would be no if the party only has to use its reasonable endeavours and has really tried.  More demanding clauses would require it to explore the market more widely however if for example, that party’s goods are stuck in one of the many storage containers stockpiled around the world; or waiting in a container that cannot be made available then that party may well be able to avoid liability under a contract.

That example considers a delay; but what if a party wants to avoid delivering the goods at all – how far must it go to try to find a delivery option before it has done what is reasonably required?  The answer to that situation will vary but price would be relevant.  If a party has to use its reasonable endeavours to comply (not more erroneous all reasonable endeavours or best endeavours),  then the price that may be required to be paid to deliver on time could be too much if it would have a significant enough effect on the business for it to be able to say it has used its reasonable endeavours to comply and cannot deliver.

Ultimately a business wanting to get out of an obligation might be able to do so, but relying upon such an argument will need robust legal advice upon its position and to be very certain of the underlying facts.

However we now see a very current example potential energy price where increases which will mean businesses will not be able to afford to produce in the quantities that they have previously for fear of insolvency, and the scope of endeavours required by a party to comply with a contract are going to be a critical battleground. We are already seeing questions about such issues and the potential disputes brewing and parties that understand their contracts and their obligations as early as possible, and importantly have the advice of litigator about such potential disputes will be in the strongest position.

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Can you afford to make a dividend?

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A reminder of what is and isn’t a lawful dividend

Even though we appear to be returning to ‘normal’ thanks to the global pandemic, we are not out of the woods just yet.

Many businesses are currently trying to pick themselves up from the effects of the last 18 months but the very present risk of corporate and personal insolvency is very much something to be kept at the front of people’s minds.

Therefore, it is worth refreshing your memory as to the position in respect of Company Dividends and when it is appropriate for them to be paid out.

There are obvious tax advantages to dividend as they attract a lower rate of income tax when compared to a usual salary. However, in view of the benefit of receiving a dividend there are serious considerations to be made before these are paid out as it can expose the directors and shareholders of the company personally if it is later found that the dividend was paid unlawfully.

Process for Lawful Dividend

Before paying a dividend there are certain legal requirements that have to be met by the company, in particular the directors must be satisfied that the company has sufficient distributable profits to pay the dividends i.e. the company must have profits available for the purpose of paying out dividends (s.830 Companies Act 2006).

In order to ascertain whether or not the company has sufficient distributable profits the directors need to provide the company’s last annual accounts. However, in addition to the company’s current financial position, the directors must also take into consideration the future position of the company i.e. that it will be able to continue trading and meet its current liabilities/debts, if the dividends are paid.

Provided that the accounts show that the company is able to pay the dividends suggested then a board meeting should be held to discuss the level of dividends to be paid out and once agreed, to formally declare the amount to be paid out. These discussions need to be properly set out in the board minutes so they can be relied upon if necessary should the dividends be challenged.

Provided the above steps are followed, then once a dividend voucher is issued by the company, which is essentially a receipt for the payment (for tax purposes), the dividend will be lawful. However, if the process is not followed correctly, then it may be the case that the dividend was paid out unlawfully.

Unlawful Dividend

As above if you have not followed the correct procedure then you run the risk of the dividend being paid illegally, which can have far reaching ramifications for the persons receiving the dividends, as well as the directors who approved payment of it. Furthermore, action can be taken against the guilty parties personally, rather than the corporate entity.

If this is the case then the individual could face the following consequences: -

A shareholder who received the dividend may be ordered to repay it to the company, if it is found that they knew or had reasonable grounds to believe that the dividend procedure was not properly followed; and

A director who authorised the payment of the dividend may also be in breach of their directors duties and could be liable to personally repay the company the value of the dividend, even if they are not a shareholder.

In addition to the above, even if the company becomes insolvent, this will not offer any protection for the guilty party (even if it is the case that the payment of the dividend did not cause the insolvency), as Insolvency Practitioners have powers under the Insolvency Act 1986 to recover the money paid out for the benefit of the creditors of the company.

In view of the above and the serious ramifications, if you get this wrong, it is essential that the proper procedure is carried out before a dividend is paid.

In short, if the company doesn’t have the sufficient distributable profits to pay a dividend, then don’t pay out a dividend. The reward is certainly not worth the risk!

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Daniel is a highly regarded experienced specialist commercial litigator and defamation expert

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Preventing and dealing with data loss from your business

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Loss of control of data, or the copying of data, belonging to a company is one of the most serious problems we can face today.

The recent example of the US pipeline operator, who was the victim of a data hack and ransom that led to shortages of petrol in the US and people trying to fill plastic bags with fuel, shows that even in an extreme way, the chaos and cost that can be brought to a business by loss of data.

What are the main data risks for businesses?

There are three fundamental data risks that a business can face;

  1. the external attack;
  2. the disgruntled internal attack, or
  3. the enterprising departing employee looking to use data for their own benefit.

Faced with any of these scenarios, a business can panic.  However, every one of these risks can be managed and mitigated by:

  • assessing what data is under attack or has been taken;
  • identifying a possible source;
  • collecting the contract for any individual involved (the contracts under which you hold the data); and
  • identifying any particular cause of urgency such as publicity.

Our team of experts can advise you upon and obtain, if necessary, injunctions to stop the use of data, further distributions and mitigate any liabilities from the loss.

What is an external hack?

External hacks fall into the following categories:

  • The ransom hack involving money or threatening publicity; and
  • The so called ethical hack, to demonstrate there is an issue and there is security to be breached and they are clever enough to exploit it.

Although these are similar, they are importantly very different in how they must be dealt with.

Publicity

An ethical hacker is much more likely to want to publicise what they have been clever enough to do, as opposed to a ransom hacker who is only concerned with money or reward.

An ethical hacker is less likely to imprison data, and therefore less likely to disrupt the business’ ongoing operation.

To deal with this successfully, be open and sincere with whoever you have to be. This includes dealing with the Information Commissioner, but also anyone whose data may have been compromised and whose dealings with you may have been affected.

The probability of no-one finding out is extremely limited but, if properly managed and with proper requests, valuable relationships can be saved. Businesses trust other businesses that are open and honest.

Investigate and provide details

If the issue rests with a piece of software that you bought, a bad design, or some other reason, then you need to know the cause. And, more importantly, you need to share the root of the issue both externally and internally.  This is important because you may be able to pass some of the liability onto a third party supplier if it is genuinely their fault.

Legal advisors can be vital in helping you to mitigate the damage, by dealing with the Information Commissioner and other regulators, handling claims and complaints by those whose data has been affected, pursuing those responsible if this is one of the rare cases where it is possible, and recovering any potential losses.  Money spent in mitigation is money well spent.

What is a disgruntled internal attack?

A disgruntled employee, or another individual with access to sensitive data and an axe to grind, can wreak havoc and cause serious damage, as experienced recently by Morrison’s supermarket.   Such an incident may often be foreshadowed either by expressions of discontent; talking about problems or vulnerabilities, or even a straightforward extortion attempt.

However, this can be handled with the following steps:

  1. Stop any further data being stolen or distributed – ideally, you will have a plan in place already but you need to take action to stop your internal systems from being compromised any further.
  2. Contact solicitors and work alongside them to identify who is responsible. You can then stop the employee from doing anything with the data that they have stolen if it has not already been distributed.
  3. Inform the Information Commissioner, and anyone else you must inform, of what has happened.
  4. Deal with the employee and mitigate the damage with the data owners.

In the Morrison’s claim, the Supreme Court gave guidance as to the exposure a business can face. This gives hope to the companies that are victims of such actions and, if their systems are robust enough and the actions sufficiently unpredictable given the employee’s role, that they can escape liability; however, any such issues require careful expert legal management.

Enterprising departing employee

Perhaps the most common issue or concern for data loss is the employee or contractor who is departing and wishes to take data to help them to set up their own new business or take with them into their new role.  Whether it be data they consider pertains to “their clients”, or general theft of data more widely, this scenario requires quick and instant action.

Recent cases of this type of threat demonstrate the importance of careful consideration of how to deal with such an employee. Often data protection law and general principles of confidentiality can be more important and provide a more effective way of protecting a business, than traditional restrictions in contracts. Ultimately preserving clients and protecting the business is the key in this situation.

In 2020 an adviser, who left the firm Quilter taking a number of clients with her, was subject to a claim by Quilter. The High Court’s decision was that the covenants in her contract were an invalid restraint of trade and unenforceable. Link to piece on employment covernants

The scope of these, at first sight, might have appeared reasonable to many businesses. However, the advisor had begun scanning data onto a personal laptop shortly after making an approach to the new employer, and so the timing was more blatant than most. The contract sought to prevent an individual working for a competitor for nine months and dealing or soliciting with their former clients for 12 months. The court would have found an individual in breach of non-solicitation, had the terms been valid, and may even have wanted to find in favour of the company, given the advisor’s behaviour, but was unable to do so.

We’re here to help

If you’re faced with data loss of data, even if you have a contract in place to protect it, it’s important that you seek professional help to minimise damage and protect your data and your business.

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Rising energy prices force Bulb to enter Special Administration

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Bulb appoints a special administrator

Energy supplier Bulb has announced they are going into special administration, as the energy crisis looks set to continue. For their 1.7 million customers, it comes as unsurprising news as wholesale gas prices continue to rise. 

The appointment of a special administrator will be a first for Ofgem, who have been able to deal with previous insolvent suppliers through the appointment of a Supplier of Last Resort (“SoLR”). Bulb is too large for the SoLR process and so Ofgem have had to resort to the special administration process. 

Our energy specialist Tim Speed said: 

“The appointment of an energy administrator is a drastic step for Ofgem and is another indicator as to the extent that the energy market is struggling.  

What is a Supplier of Last Resort?

“A Supplier of Last Resort (SoLR), which involves another company taking over supply to the failed supplier’s customers, is the default action for the majority of collapsed energy companies. However, the size of Bulb means this isn’t viable. Although the process has existed for some time, an energy supply company administration has never been implemented before, showing how dire the current situation is. The aim is to ensure supplies are continued at the lowest possible cost, with the administrator able to split up the existing business by transferring all or part of it to other companies, when appropriate. 

“Other energy suppliers that are concerned about their future must act quickly. By identifying the problem and seeking professional advice early on, it may be possible to secure an investment or sale that guarantees a future for the business. However, this does take time, so it’s important to address any issues while there is still sufficient cashflow. 

“Ofgem and the Government need to make serious decisions about the future running of the market, because the events of recent months cannot be repeated.” 

Bulb speak out on rising energy costs

From a statement on their official blog, Bulb say “When we founded Bulb in 2015 it was because we thought energy customers deserved a better deal. We believed strongly that we should do things differently, and that by building a talented team and creating our own technology we could make energy simpler, cheaper and greener.”

“Wholesale prices have skyrocketed and continue to be extremely volatile. The gas supply shortage combined with lower exports from Russia and increased demand means they remain high and unpredictable. Prices have hit close to £4.00 per therm recently, compared with 50p per therm a year ago”

Are you a struggling energy supplier?

We have acted for insolvent suppliers who have been able to sell their assets to other suppliers.  We have also acted for suppliers who have entered the SoLR process.  

If you are an energy supplier or are advising an energy supplier we would be more than happy to talk to you in order to discuss available options. 

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Tim is a litigator who adopts a robust and practical approach to claims and is valued as a trusted advisor to his clients.

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Our 50+ energy and water team is made up of lawyers from multiple disciplines across the firm, all of whom act for clients active, or with an interest, in the sectors. These include our specialists in utility regulation and industry codes, as well as experts across real estate, corporate finance, commercial contracts, retail and consumer debt, litigation and, uniquely for a law firm, our in house planning consultants.

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The Truce is Over – Time for businesses to deal with breaches of contract and the like

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According to a recent survey by accountancy firm EY, almost two thirds of businesses reported adopting a conciliatory approach to business disputes since the start of the pandemic in 2020.

By conciliatory that means generally granting or receiving extensions of time for compliance, or unsurprisingly given the exceptional times, 59% reported having to renegotiate contract terms entirely. In almost all cases those changes will have been to the detriment of at least one party.

The fact that special provisions were made, or different approaches were adopted, during a global pandemic is not surprising; however, it is hard to see how businesses can continue to ignore their rights, especially as they are squeezed themselves.

Equally many businesses lacked time or resources to bring potential claims or relied on government support. As government support winds down and comes to an end, and businesses start to return to a ‘new normal’, disputes cannot be avoided.

Do I have to go to court to resolve a business dispute?

Many business owners or company directors face that question regularly; the issue is slightly more complicated than it might seem.

Businesses or individuals don’t have to go down the court route to resolve a dispute. Alternative options such as arbitration, mediation and other dispute resolution techniques, are available and are sometimes more beneficial when combined with the right legal support. Equally, a number of changes in the litigation process make it an even more useful tool in the right hands.

However, while no party has to issue court proceedings, the company director that waives breaches or rights of action can expect to have an unhappy shareholder base to answer to if they decide not to go down this route.

Similarly, while we are all in favour of maintaining good commercial relations, unequal commercial relations, where one party takes advantage of another’s goodwill, will surely become more likely where parties do not enforce their fairly and carefully negotiated rights.

So although you don’t have to go to court and sue, you should at least consider all of your options - an experienced litigator can work alongside you to find a solution that works best for you and your situation, without necessarily going to court.

Is litigation expensive?

Although litigation does carry a cost, the same is true when businesses use the services of any third party. However, litigation expense doesn’t need to be an obstacle. Whether it be the use of funding products, which we are experts in or simply efficient litigation, costs can be managed.

Is litigation time consuming?

Litigation can take time to get to a resolution, but done correctly it is time well spent. The time taken to get a good resolution is time that would be looked upon far more kindly than time spent regretting taking the wrong decision. No lawyer can control delays in the court process but for the right case, such as breach of confidentiality, accelerated court processes are available. In summary, while time must be spent, it can be time very well spent.

Risks to image – will litigation make me or my business look bad?

Gone are the days when a party’s image was solely within its own control. However, carefully managed litigation need not have an influence on image or reputation.

A recent example

A company recently instructed us to issue a claim to remove defamatory publications claiming that their products were hazardous and potentially fatal.  Given that court proceedings will usually become public knowledge, bringing that claim to potentially greater public attention, seemed a risk. However, quickly resolving the dispute successfully turned our client’s reputation around and ensured minimal harm; as opposed to ongoing harm and damage.

Where reputations are damaged it can usually be traced back to how the litigation began and mistakes made by inexperienced practitioners or ill-judged hasty actions. If the process is handled correctly, these issues need not arise.

It is too much of a risk?

Although litigation involves a risk of losing and having to pay costs of the opponent, this is true across arbitration and court processes.  Ultimately, however, an expert litigator can advise you of any risk you may face in advance, and provisions can be put in place to mitigate these risks, such as insurance.

What if my opponent can’t pay what is due?

There is always the risk that a losing party might be unable to meet a judgment debt; however, enquiries can be made in advance as to the financial standing of parties before cases get too far down the line.

It’s worth noting that if your opponent has financial difficulties then they are much more likely to want to resolve matters in a quick, cost efficient manner.

If you decide to do nothing with your dispute, and it is a zombie company on the other side (a company that has a large amount of debt, but are just about able to operate to be able to repay the interest on its debts, but not repay the actual debt in full), then they can continue to do business with you and incur credit with you, but it’s highly likely you will be left as a so-called ‘tail-end Charlie’ with the greatest loss when that business finally goes under.

Cases are often resolved early with the right approach, or at least without court processes being engaged, if the right legal team is there to support you.

Our experienced team will work with you to manage your dispute with sensitivity to your commercial needs and drive it to a resolution using the best and most efficient process that’s right for you. We will cause the smallest distribution to your business and manage your risk.

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Daniel is a highly regarded experienced specialist commercial litigator and defamation expert

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We’ve got a contract, oh no we haven’t, oh yes we have!

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Is a contract binding if not signed by both parties?

The coronavirus pandemic led many businesses to examine and review their supply chains, their contractual arrangements and their ways of doing business on a level of detail that few had ever had to carry out previously.

A recent issues and one which applies not only following the pandemic but generally, is a question of whether a party has a contract when a document has not been signed. Everyone knows that with some limited exceptions, such as sale of land, contracts can be made other than in writing.  Where a document has not been signed, parties are all too ready to abandon claims.

The reality is however even if parties believe they were only involved in negotiations to conclude a contract, a contract might still be in place.

How do I know if my contract is valid?

Even where a party may think no deal has been done, there is still a chance that a deal might have been done, depending upon what the parties said and often, more importantly, what the parties actually did.

No one will dispute that it is much clearer when a document has been signed setting out all of the express terms of the contract. However, across the world, contracts are regularly concluded with written documentation recording those following only some time afterwards, if at all when parties contact their solicitors.

The general principle is simple - whether there is a binding contract between the parties and, if so, the terms are dependent upon what the parties have agreed.

That is not a question of what the parties actually think, it’s more what was actually communicated via words or conduct.  Where that leads to the conclusion that the parties intended to create legal relationships and be bound, a contract will exist.

The basics of a legally binding contract

This can apply even where an agreement is incomplete. Terms that would be described as being ‘essential’ may have not even been considered, but in reality the critical elements have been agreed.

To take one example, the Supreme Court recently allowed an estate agent to recover a commission agreed only orally between parties.  That may not seem surprising.

However, going further, there had not even been an agreement as to what would trigger the payment of the commission.  In this case the court was extremely commercial and simply noted that a commission would of course usually be payable from the proceeds of any sale and proceeded to give effect to the contract.

Of course a court will not force parties to reach an agreement if the parties have not gone far enough to have made a contract. However, where parties proceed on the basis that they have reached a binding agreement, rather than simply agreeing to agree something in future for example, it is right that the law should provide a remedy.

Ultimately however, even if a contract cannot be established, a remedy can.  Where, for example, a party provides its services in anticipation of a contract finally being agreed, and one is not, law of unjust enrichment will provide a protection.  In short, a party cannot be unjustly enriched at another’s expense if the relevant requirements are met.

Review your existing contracts

As parties reconsider the stages that they did, or did not reach, and the expenses they did or did not incur, as well as crucially how they conducted themselves, more and more will realise that they do have a contract in place, even though they do not have a signed piece of paper in their hands.

As the law catches up with business practice it’s likely there will be an increase in claims; with a remedy to be provided.

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Daniel is a highly regarded experienced specialist commercial litigator and defamation expert

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What are the options for the consolidation of special purpose vehicles (SPV’s) for a university?

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Special Purpose Vehicles and consolidation

When it comes to corporate restructuring and insolvency, there are various options for universities wanting to consolidate.

Many universities will have incorporated separate companies to carry out certain operations, such as the provision of catering supplies or nursery services, with many operating profitably and providing a service to students, staff, and the local community.

Similar special purpose vehicles (SPVs) may also have been set up to deal with a particular piece of research work or to work alongside external bodies in a joint venture arrangement.

Some of these SPVs may be lying dormant after a research project or specific initiative has fulfilled its objective or come to a close. Keeping these companies on the books can increase administration costs for accounts and compliance teams unnecessarily, or the SPV could be sitting on valuable cash or assets that could be reinvested into new projects.

Taking the time to tidy up the corporate structure of a university can have many benefits and there are three options;

  • strike the company off from Companies House
  • a members’ voluntary liquidation
  • creditors’ voluntary liquidation.

Strike off

If a company has been inactive for at a period of least three months and satisfies certain other criteria, it can simply be removed from the register of companies and dissolved by a simple application accompanied by a small fee payable directly to Companies House.

This procedure is quick and inexpensive but may not be the right option, particularly if the company in question has outstanding liabilities to third party creditors.

Any application to strike off must be given to all creditors of the company and will also be advertised in the London Gazette. As a result, any creditor could object to the striking off process.

If the company has valuable assets, striking off is not advisable either as any assets will vest in the Crown bona vacantia following the dissolution. Striking off will not, therefore, benefit shareholders where assets remain within the company or creditors if the company has significant liabilities.

If the company has a combination of both assets and liabilities, the more appropriate route is likely to be a formal insolvency process led by an insolvency practitioner as liquidator.

There are two alternative routes for a voluntary liquidation process. Both are initiated by the directors of the company (as opposed to compulsory liquidation, which is commenced with a winding up petition).

Members’ voluntary liquidation (MVL)

A members’ voluntary liquidation (MVL) is a “solvent liquidation”. It can only take place if the directors of the company are able to swear a statutory declaration of solvency whereby they must confirm that all liabilities of the company (including employee claims, debts to suppliers, HMRC, or joint venture partners), together with interest if applicable, will be paid off within 12 months of the declaration of solvency.

An MVL may help simplify corporate structures or have the advantage of allowing a tax efficient distribution of assets as part of a reorganisation process. Once any creditors’ claims have been settled, any surplus in terms of assets can be distributed by the liquidator to the university or individual shareholders and at the end of the liquidation process, the company will be dissolved.

Directors must exercise caution when swearing a declaration of solvency as making a false declaration can lead to criminal proceedings against the director(s).

Creditors’ voluntary liquidation (CVL)

If the directors are aware the company is not able to pay its liabilities from the realisation of its available assets, it is effectively insolvent and the process to place the company into creditors’ voluntary liquidation should be followed.

This is a procedure where the company’s creditors have an active involvement, including the choice of the liquidator and participation in decisions regarding the liquidator’s remuneration and strategy.

How can we help?

We are able to advise you on the most appropriate route in any restructuring exercise and can provide you with the relevant legal advice covering real estate, corporate and taxation issues that frequently arise.

We work regularly with the leading insolvency practitioners with expertise in the sector and can assist you in making the right choice of the most suitable liquidator, dovetailing with them to ensure any corporate reorganisation is ultimately successful.

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Sean’s practice is focused on restructuring and insolvency, covering complex investigatory work as well as transactional and advisory assignments.

Education

Working with higher and further education institutions, independent providers, academies, and schools, our full-service team can advise on any legal issue that an education institution may have. This includes regulatory and policy work, employment issues,  student matters, governance and constitutional questions, partnerships and collaboration, disputes, large-scale capital projects, and estates master planning.

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High Court highlights the risks of drawings in lieu of salary

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The high court has held that companies cannot write off a directors loan arising from drawings in lieu of salary just before liquidation to minimise a director’s liability on insolvency.

The court rejected arguments that the loan was salary paid in advance of future dividends, and upheld the idea that where companies do not have sufficient profits, but in any event choose to pay dividends, owner-directors will be liable to repay them on liquidation.

What was the case about (in headline summary)?

Ms Buchanan was the sole director of Bronia Buchanan Associates Limited (the Company).  She received a minimal PAYE salary, but she received significantly larger payments in the form of drawings in lieu of salary (resulting in a directors loan showing in the company accounts).  The Company ceased trading on 22 September 2014 and entered into insolvent liquidation.  In the lead up to liquidation the Company reclassified the ‘directors loans’ showing in its accounts as drawings

The liquidators called upon Ms Buchanan to repay her directors loan, explaining that the reclassification of the loan to Ms Buchanan as “drawings” in the company’s accounts was ineffective to release her from liability to repay it.  Ms Buchanan argued that the drawings received should have been recorded as salary, and as such she was entitled to the money drawn, and stated that her professional advisers had informed her that ‘financially matters were fine’.  She argued that the loan had been reclassified as drawings the months before liquidation (on the alleged advice of insolvency practitioners) and therefore she was not liable to repay it.

The court rejected Ms Buchanan’s arguments.  It decided that, despite her insistence that the amount owed was always payable to her as “drawings,” the sum remained as a debt owed to the Company by her.  It therefore fell to be repaid upon liquidation.  The attempt of a company, in the final days of its life to write-off a large debt to a connected person was found not to have any effect in law.  Had this had been allowed by the court, every owner-director may attempt it in their companies’ final days.

Practical Takeaways

This decision reinforces the position that once a shareholder director elects to be remunerated via drawings in lieu of salary, the drawings payments made to them cannot later be reclassification as having been salary on a ‘quantum meruit’ if there are in sufficient profits to declare a dividend.  If a company does not have sufficient profits to declare a dividend to offset those drawings the director will be liable to repay the sums on insolvency.

While this is often seen as the most tax preferable way for a shareholder director to remunerate themselves, it comes with risks.  Directors need to balance those risks against the benefits.  This analysis will be brought into sharp focus as we exit the COVID-19 pandemic and the restrictions on the ability of creditors to take action against companies are lifted.

Shareholder directors should always take competent professional advice and consider the full implications before remunerating themselves vis this method.

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Frank is recognised as an expert in restructuring and insolvency law, and one who provides decisive practical solutions.

Frank specialise in providing managed solutions in financially distressed scenarios to assist OMBs, companies, directors, lenders, investors and other stakeholders, as well as insolvency office holders.

Corporate Restructuring & Insolvency

Business survival at the best of times is challenging but how you react to the current crisis, and what actions you take now, can help avoid an insolvency situation. Our experts provide advisory, transactional and litigation services in relation to all restructuring and insolvency matters. We are by side when times are tough

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Airlines’ Potential Consumer Law Breach Speaks to Overall Consumer Finance Issues

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On 19th June this year, the CMA made it known that it was investigating whether airlines British Airways and Ryanair had in fact breached consumer laws, by refusing to offer refunds to passengers who couldn’t travel due to lockdown laws.

Now, the CMA has announced the closure of this investigation.

What were the findings?

The CMA’s findings concluded that the law “does not provide passengers with a sufficiently clear right to a refund in the particular circumstances relating to COVID-19 restrictions.” The legal position appears to be that passengers are entitled to refunds in the event that the airline cannot provide its services as contractually obligated. What is still unclear, is whether passengers deserve refunds if the flight still goes ahead, but temporary legislation (such as the lockdown regulations) prevents passengers from taking the flight altogether.

What did these airlines do?

The findings suggest that British Airways and Ryanair refused to refund passengers who were unable to fly due to lockdown rules.

  • British Airways offered vouchers or rebooking;

  • Ryanair offered rebooking only.

Even though these actions suggest that both airlines may have flouted consumer law to some degree, the CMA’s findings have concluded that they did not, even though some passengers were left out of pocket for a period.

Why did the CMA close the investigation?

The CMA decided that it could not continue the investigation due to timescales and the uncertainty of the legal position. This decision was made after they took expert advice on the matter.

Consumer rights in this case were not as obvious as some commentators thought, so this is an area that the travel industry, its regulators and government may need to look at. That said, COVID-19 was an unprecedented event and forcing all operators to make such refunds may have had a catastrophic effect.

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Eddie works with a highly skilled team to deliver industry specific advice to the asset finance and leasing sector.

What does this mean for the consumer finance sphere?

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Misuse of Low Value Personal Injury Claims Protocol Limits Claimant to Portal Costs

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If a claimant acts unreasonably by not following the EL/PL Protocol for Low Value Personal Injury Claims, especially if a claim is believed to be worth more than the limit required for Portal costs to apply, they could be limited to those fixed Portal costs. The law is, any personal injury claim worth less than £25,000 must be limited to Portal Costs.    

The case of Harford v Music Store Professional UK/DV247 Ltd [2021] and the ‘unreasonable use’ of the EL/PL Protocol resulted in fixed costs applying to this claim will be of interest to the market. 

The situation

The claimant pursued a claim against his employer in April 2015, having had an accident at work whilst lifting heavy items. The claimant’s GP diagnosed a potential inguinal hernia and there was a further diagnoses of two lumber sacral prolapsed discs in his spine. 

A Letter of Claim was sent just over two years after the claimant’s medical diagnoses, which stated that the claim was not suitable for the Portal. Liability was denied. The claimant had investigations and treatments leading to evidence being gathered for general and special damages, with Part 8 proceedings issued stating the claim value was between £10,000 and £50,000.  

The issue for discussion is whether the claimant acted unreasonably in not using the EL/PL Protocol for Low Value Personal Injury Claims, and whether he should be limited to the Portal costs (per CPR 45.24(2)(b)(ii)). 

The initial valuing of the claim

In June 2020, the claimant’s solicitor gave a witness statement explaining how he valued the claim in the first place. He explained his reasoning for it to be valued as a high value claim, and how he came to the conclusion that it was worth more than £25,000. 

Did the evidence back this up?

After all the evidence was gathered and counsel’s advices were given, it was apparent that the claim’s value was no longer higher than the Portal limit. The claimant then accepted a settlement from the defendant, which totalled £11,200. 

The claimant’s submission

  • The decision not to use the Portal was reasonable, due to the fact that the claim was valued as higher than the Portal limit 
  • Valuing a claim is seen as an ‘art’, rather than a science. Usually, the value is no more than an estimation of what a court would likely award.  

The claimant’s solicitors submitted ‘that the defendant must show that the claimant’s assessment of the likely value of the claim was so unreasonable that the court should drastically limit their costs entitlement to Portal costs’ (Bailii.org).  

The defendant’s submission

  • The defendant submitted that fixed costs apply in accordance with CPR 45.24(2)(b)(ii)According to the case reportIn that situation, the court may order that the defendant pay no more than fixed costs in Rule 45.18, together with the disbursements allowed in accordance with Rule 45.19. 

The ruling

On 17th June 2020, Costs Judge Haworth found the claimant to have acted unreasonably in not using the Portal or correct protocol, so determined the issue in favour of the defendant. Judge Haworth said:  

“I am satisfied that on reviewing the facts of this case, bearing in mind an accident in 2015, a letter of claim on 26 May 2017, coupled with the fact that the second medical evidence does not appear to have been obtained until 15 January 2018, less than three months before the expiry of limitation, to proceed with the claim outside the EL/PL Protocol was unreasonable. In my judgment, the reason for the issue of proceedings on 19 March 2018 was conditioned by the expiry of the limitation period without thought to the benefits of the Protocol and its undoubted relevance in these proceedings.” 

The costs in question were limited to the fixed amount of £4,205.00. 

In conclusion

This case shows that whilst the ‘art’ of valuing the claim is not easy, claimants’ solicitors should give proper considerations to it and if there is any doubt as to whether the claim meets the Portal thresholds or not, they should start the claim in the Portal. If the claim subsequently increases in value, for whatever reason, they can always drop it out at a later date. 

If you would like to discuss a costs-related matter concerning a defendant claim, please contact Rav Johal or another member of the team costs team. 

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Ravinder works with both insurers and self-insured companies, defending a range of claims and providing sound legal advice.

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Rising “Buy Now Pay Later” Debts Cause FCA Concern

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For years, the UK’s consumer finance sector has accommodated several “Buy Now Pay Later” (BNPL) schemes, allowing consumers to effectively purchase goods and pay in instalments, or without needing to pay until a later date. But, since the COVID-19 pandemic hit the UK, causing salary sacrifices and surges in unemployment, the level of consumer debt racked up by using BNPL schemes has increased at an alarming rate. It would appear that people with more time on their hands, spent this shopping! Certain consumers have made repeated purchases that have led to debt issues arising. As such the FCA, which is deeply concerned, is looking to regulate this corner of the consumer finance industry.

Examples of BNPL schemes

The problem is, not every consumer pays their BNPL debt on time. Klarna has a “Snooze” functionality, enabling a further 10 days before payment must be made. Even then, a high number of consumers are being chased for late payments. The FCA is concerned that these debts are currently hidden from mainstream credit checkers, and could be creating a real threat to consumers as affordability is not investigated to any great extent.

What does it mean for the finance sector?

To provide credit facilities in the UK by way of business an entity needs to be authorised by the FCA, in line with the provisions of the Financial Services and Markets act 2000 and the Regulated Activities Order 2001 (RAO). Currently, certain agreements are exempt under the RAO, which allow businesses and smaller entities to avoid the huge cost or regulation. Being authorised or permitted is costly both financially and in terms of management time and resource. More alarmingly, it can attract personal liability to the directors and managers under the Senior Managers Regime.

The regulatory landscape

These providers must urgently show the government that they can self-regulate. All that is required is technology to check affordability and credit worthiness. If not and the FCA regulate, this could seriously hamper the ability of responsible consumers to have access to easy funding, and will also create huge hurdles for both business and credit funders.

Plan not ban?

Global high street giant Klarna swept onto the scene in 2015, and with its quirky branding and no-nonsense, easy-to-navigate process, soon caught the attention of consumers. Consumers who purchase from certain retailers can buy and pay in 30 days, or split their payments into three smaller amounts using Klarna. To date, Klarna has over 15 million customers.

Other BNPL schemes such as Clearpay, Openpay and Laybuy offer similar repayment processes, enabling consumers to handle their balance in a different way. But this is clearly a slippery slope, and having an “I’ll pay for it after next payday” mentality seems to be landing many consumers in high amounts of BNPL debt.

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Eddie works with a highly skilled team to deliver industry specific advice to the asset finance and leasing sector.

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On the brink of collapse: insolvencies in the construction industry

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Insolvency in the construction sector

The pandemic has placed the construction industry under considerable pressure, with it accounting for 17% of all UK corporate insolvencies in May 2021. Now that restrictions have lifted, it’s hoped that many companies will be able to survive moving forward. However, sector leaders should ensure they understand the insolvency process – whichever side they’re on.

The challenge ahead

Even before the pandemic, the construction industry was facing a number of challenges, including wafer thin profit margins and materials and labour shortages. This left many businesses in vulnerable positions, particularly in the wake of the May 2020 construction boom.

The complexity of construction supply chains often means that one problem can have widespread repercussions, so it’s important to be aware of warning signs that things may be going wrong

Understanding the signs

There are often distinct warning signs that indicate that a project is headed for trouble, these include:

  • Problems contacting subcontractors, employers or site teams
  • Unexpected changes in management
  • Subcontractors suddenly removing plant and equipment from the site
  • Unexplained reductions in productivity or resources

In the event these tell-tale signs appear, it’s time to take action.

Next steps

The first course of action should be to review your contracts and documentation, which will help you to understand the risk and who carries it. A plan can then be formulated.

If the financial position is worsening, it’s important to maintain lines of communication with key stakeholders, including the team ‘on the ground’. Staying close to site activity will provide a greater insight into any future problems.

If the financial problems evolve into something more serious, there are things that can be done to manage the risk. Communication is vital, so take advice and engage with major stakeholders and funders as soon as possible. Getting key suppliers on board at an early stage may also help in the long run.

Law of Property Act (LPA) receiverships

Administrations and liquidations, where a business is placed under the control of insolvency practitioners, are still common. However, not all insolvency situations are equal and there is a growing number of distressed projects being placed into LPA receiverships. Here, a receiver  is instructed by a lender to take charge of discreet assets (usually a property) and sell them to recover the debt.

This option is particularly beneficial for construction projects as it is quicker, cheaper, and often means the project will be seen through to completion.

The director’s role

Directors and owners must be aware of their responsibilities and personal risk during an insolvency. Although it may be tempting to walk away from a struggling business, assisting administrators or LPA receivers could result in a better outcome.

Legal provisions such as The Corporate Insolvency and Governance Act 2020 are also in place to provide directors with time to consider all of their options.

As the pressure facing the construction industry increases, insolvencies will inevitably happen. Ensuring directors and senior leaders know how to spot the danger signs, could prevent further problems down the line.

Get in touch to find out how our  restructuring and insolvency team can help.

As development sites begin to re-open, significant challenges are rising to the surface causing further disruption to house builders.

In this webinar, we discuss the position with contracts and supply chains, employment contracts and workforces, and a practical look at how you can get your site back up and running with minimum delay.

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Renewal of Telecoms Leases: New Case from the Upper Tribunal

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