Commercial Law Office

Company law, Commercial law, Employment law, Maritime law & Litigation London [ Company Law ]  [ Commercial Law ]  [ Employment Law ]  [ Commercial Litigation ]  [ Maritime Law ]  [ Media Flash ]   [ Website Terms ]  [ Contact Us ]  Company Law Company Law for Commercial Business The Companies Act 2006 became law on 8 November 2006 and was fully implemented on 1 October 2009. It has 1,300 sections and 16 rather extensive Schedules. It provisions cover from formation to dissolution and will affect commercial companies, their directors, shareholders, corporate structure or constitution, share capital, directors' responsibilities, shareholders rights, conduct of meetings, company communications, corporate governance and legal compliance. The provisions of the Companies Act 2006 are organised into 47 Parts. Members of a company (shareholders) can refer to Parts 8 and 9 and directors can refer to Part 10 which produces a statutory code of directors' duties. Should shareholders wish to bring derivative claims and proceedings against company directors and/or third parties who have benefited from the directors default, negligence or breach of trust, reference can be made to Part 11. These provide a degree of flexibility to shareholders in cases involving shareholders disputes, shareholders rights and directors' corporate mismanagement. There are changes to the way a company communicates with its shareholders (including electronic communications), notices, meetings, voting, passing of resolutions and record keeping, in Part 13. Directors on Company Boards From 1 October 2008, every commercial company must have at least one director on the Board of Directors in the company who is an individual person for the purpose of being held responsible and accountable for the company's actions or omissions. Section 155 of the Companies Act 2006 will abolish Boards which are comprised solely of corporate directors or one corporate director Board companies, common in Group company structures. There is a short concession available until 1 October 2010 to companies if on 8 November 2006, none of the directors were individuals and the company had the correct number of directors on its Board, that is one for a private company and two for a public company. A breach of Section 155 results in a fine on the company and any officer in default. Companies will need to review their Board constitution and if necessary appoint an individual person as director onto their Board before 1 October 2008 and alterations to the articles of association of the company may be necessary. No person under 16 years of age may be appointed a director of a company. [back to top] New Directors Duties under Companies Act 2006 Following implementation of sections 171 to 174 of the Companies Act 2006 in October 2007, the general duties owed by a director of a company to the company to act within powers, promote the success of the company, exercise independent judgment and exercise reasonable care, skill and diligence have been codified by statute and apply regardless of the terms in the director's service agreement. On 1 October 2008, sections 175 to 177 will be implemented and directors will be subject to the further duties of avoiding conflict of interests, of not accepting benefits from third parties and they have to declare direct or indirect interests in a proposed transactions or arrangements with the company. Individuals who are offered the position of a company director need to consider not only the commercial benefits and attendant responsibilities but also the legal liabilities and risks under company law. A director is defined as including any person occupying the position of a director, by whatever name called, including a shadow director. We will be delighted to advise individuals who have been offered directorship of their legal duties and company directors in relation to claims by shareholders of the company. Directors to act within company constitution This is currently interpreted to mean directors must act within the powers given to them in their company's constitution or articles of association and only exercise the powers for the purposes for which these were conferred. It therefore follows that directors who are not familiar with the provisions of their company constitution will run the risks of acting outside their powers and therefore their statutory duty. It would be a good time for directors to review and, if necessary, amend their articles of association to ensure they are able to comply with their statutory duties in accordance with company law. We offer an audit, review and advice service to clients and would welcome you contacting us with your requirements. Directors to promote the success of the company An individual director must act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders. In exercising this statutory duty, the director must have regard, in addition to other considerations, to the likely consequences of any decision in the long term, in the interests of the company's employees, the need to foster company relationships with suppliers, customers and others, the impact of the company's operations on the community and the environment, the desirability of the company maintaining a reputation for high standards of business conduct, and the need to act fairly as between shareholders of the company. This statutory duty under company law is likely to increase litigation involving liability for directors. We can advise how such risks can be minimised and managed. Directors to exercise independent judgment In addition to acting within the authority of the company's constitution, directors must exercise independent judgment or freedom of thought. A director should not therefore be influenced by the will of others such shareholders or other directors. However, if a director were to act in accordance with an agreement duly entered into by the company which restricts the future exercise of discretion by its directors. Directors to exercise reasonable care, skill and diligence The provision of this statutory duty appears to have been extracted from section 214 of the Insolvency Act 1986 which relates to wrongful trading and liability of directors and other persons to contribute to a company's assets. An objective test and then a subjective test is used and applied in the determination of liability of directors under company law. A director is required to exercise the care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and the general knowledge, skill and experience that the director has. Directors to avoid conflicts of interests Directors are required by law under Section 175 to avoid situations in which he has or can have or possibly may have a direct or indirect conflict of interests with his company. This includes but is not limited to exploitation of any property (arguably including intellectual property), information or opportunity. This statutory duty is extended to cover the interests of connected persons including spouse, civil partner, children and parents. This duty could cause problems for a majority shareholder appointing a director to the board of a joint venture. There are exceptions to this duty and private companies incorporated on or after 1 October 2008 may have a conflict of interest authorised by the board of directors following disclosure of the conflict. This raises potential legal problems which could open the director concerned or the other directors on the board to claims from shareholders. Directors not to accept benefits from third parties This duty applies to all manner of benefits which may be reasonably regarded as giving rise to a conflict of interest. The use of companies for provision of services to directors of a company which one or more of the directors have interests will be deemed not only a conflict of interest situation but also a benefit conferred on the director or directors involved in breach of Section 176. Directors to declare interest in transactions or arrangements within the company Whilst a director's duty under Section 175 is to avoid a conflict of interests, Section 177 requires a director to actively declare an interest in a proposed transaction or arrangement with the company to the Board. This duty is extended under Section 182 to declare an interest in an existing transaction or arrangement with the company. As with the duty to avoid conflicts of interests, a director must consider the interests of connected persons. There is a declaration regime to be followed. We will be pleased to advise you of the procedure, particularly in the case of commercial transactions. Directors can take a proactive approach to management of their commercial business and protection of investors. If you are a director or a shareholder and require legal advice on company commercial law and your business contact us on how the Companies Act 2006 affects your rights, powers, duties and liabilities as an individual director or Board member or as a shareholder. [back to top] Company Directors Disqualification Act 1986 On the 1 October 2009, the remaining provisions in the Companies Act 2006 will come into force. The Company Directors Disqualification Act 1986 will be amended to take into account any breach by a director of his statutory duties under the Companies Act 2006 when determining disqualification of a director on the grounds that he or she is unfit to be a director. Under Section 6 of the Company Directors Disqualification Act 1986, the Court will consider admissible evidence of persistent breach of the Companies Act 2006, breach of a director's statutory duties and conduct of a director which makes him or her unfit to be concerned with the management of a company. In litigation, the Court is required to consider any misfeasance or breach of any fiduciary or other duty by a director in relation to the company. Consideration is given to evidence of a director acting within his or her authority and exercising care, skill and diligence in performing his or her duties and functions. It is not a defence in disqualification proceedings in court for an appointed director to plead that such duties were delegated to another person. Such a person assuming the director's duties could be made the subject of disqualification proceedings if he or she is considered to be a shadow director of the company with whose directions and instructions the directors of the company are accustomed to act. Directors' Disclosure of Interests in Shares With effect from 6 April 2007, Directors are no longer required to disclose their interests in the shares in or debentures of their companies and associated companies, and the related obligation to keep a register of the interests disclosed by directors has been repealed. Directors' reports which are approved on or after 6 April 2007 therefore do not have to disclose the directors' interests in shares or debentures of the company and its group companies. Company Secretaries should keep the existing statutory register as a record of directors' compliance with their obligations to 6 April but there is no legal requirement for a company to update thereafter. Shareholder Derivative Claims and Directors' Liability Under English law, the general rule is that only the company (itself a separate legal person recognised in law), and not the shareholders, can bring legal action against the parties responsible for wrongs done to the company, e.g. unauthorised withdrawal of capital from the company by a director. In practice, if the directors acted in breach of duty or in breach of trust, the majority of shareholders may vote to take legal action against the directors concerned. In the absence of a majority vote being passed, no action can be commenced against the directors. There are exceptions to the general rule and these relate to fraudulent or illegal acts by directors. For example, in cases where directors secure for themselves, benefits from a profitable contract which should have gone to the company. Other exceptions relate to the denial of an individual's shareholder's rights, the implementation of corporate decisions without the required majority votes and where the majority of shareholders commit a fraud on the minority shareholders. The rule and exceptions severely restricts the shareholders' access to remedies via the court. This has however been redressed to some degree in the Companies Act 2006 which provides procedures for a shareholder to pursue legal action in the form of a derivative action. Subject to the provisions in the Companies Act 2006, for a shareholder to bring a legal claim in the name of the company against the parties responsible for wrongs done to the company. Section 260(3) which came into force on 1 October 2007 provides a derivative claim may be brought in respect of a cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company and that such legal action may be brought against the director or another person (or both). Any provision in the company's constitution or in a contract with the company which seeks to exempt the directors or auditors from such liability is generally void except where permitted in law. [back to top] Reduction of Share Capital From 1 October 2008, if the directors can confirm the company will remain solvent after the reduction in capital in a solvency statement and the shareholders consent to the reduction by special resolution, a private company may reduce its share capital without the need for court approval unless the articles of association provide otherwise. Subject to the company's articles of association, a company may wish to return excess capital or to create a distributable reserve for the purpose of payment of dividends to its members or possibly to eliminate a deficit in its accounts. If a solvency statement is given recklessly without due consideration of the company assets and liabilities, the directors will be commiting a criminal offence which could lead to imprisonment and/or a fine. The date when the reduction takes effect is governed by the date of registration of the special resolution, solvency statement confirmed by the board of directors that it was properly made and circulated to the company members and memorandum with amended reduction in share capital. [back to top] Commercial Transparency Companies must have in all company e-communications the full name of the company, company registration number, place of registration and the company registered address. If the company is authorised by the Financial Services Authority, the authorisation number should also be displayed. This assists with transparency in commercial business but also increases risks from legal liability in commercial transactions. Non-compliance could result in fines. Section 349 Companies Act 1985 as amended by Schedule 1 to the Companies (Registrar, Languages and Trading Disclosures) Regulations 2006 which came into force on 1 January 2007; passed pursuant to section 2(2) of the European Communities Act 1972 and sections 1091(4), 1105(2)(d), 1106(2) of the Companies Act 2006. Company Dividends from Shares and Profit Extraction Her Majesty's Revenue & Customs has provided guidance on the application of Part 7 (Employment Income: Share Related Income and Exemptions), Chapter 4 (Post-Acquisition Benefits from Shares) of the Income Tax (Earnings and Pensions) Act 2003 - see Section 447 ITEPA 2003. This provision creates a tax charge on post-acquisition benefits derived from employment related securities including shares. For small owner managed companies which pay dividends out of company distributable profits to its director shareholders by way of profit extraction, HMRC will not apparently apply section 447 if there is no attempt at avoiding income tax or national insurance contributions on remuneration (or any attempt at avoiding IR35 rules). Dividends paid on shares of special purpose vehicles set up to pay employee bonuses, and contractors in place of income subject to PAYE and NIC to avoid the IR35 rules, may be subject to the tax charge under section 447. [back to top] Company Automatic Late Filing Penalties 2009 For company financial accounting years beginning on or after 6 April 2008, company accounts must be prepared and filed in accordance with the Companies Act 2006. The time for filing accounts for private companies has been reduced to 9 months after the company Accounting Reference Date and 6 months for public companies. With effect from 1 February 2009, accounts for financial years beginning on or after 6 April 2008, the following new penalties will apply: Length of delay (from the date accounts are due) Private company Public company Not more than 1 month £150 £750 More than 1 month but not more than 3 months £375 £1,500 More than 3 months but not more than 6 months £750 £3,000 More than 6 months £1500 £7,500 These amounts are automatically doubled where: (1) The company accounts are filed late under the Companies Act 2006; and (2) The previous year's accounts under the Companies Act 2006 (for the financial year beginning on or after 6 April 2008) were also late. Company directors are encouraged to file their accounts and reports on time because they must provide this information for public record. It is in the interest of the company that its accountants and auditors are provided the necessary information for early preparation and filing of company accounts to meet deadlines imposed under the Companies Act 2006 to avoid the automatic late filing penalties which apply to all private companies whether trading or non-trading. Directors and shareholders can contact us for advice on company law, directors' rights, shareholders rights and all aspects relating to management of their commercial businesses, corporate governance and compliance. If there have been changes in your corporate commercial business or you are about to seek corporate finance or introduce investors, we can help you review and consider the adequacy and suitability of your company articles of association, shareholders agreement and directors' service agreements. [back to top] Commercial Law China - 'Template' Terms Commercial Contracts For commercial agreements with Chinese companies in China for the manufacture, supply and sale of goods, agency agreement, consultancy, distribution and licensing, it is advisable for businesses to avoid the use of standard contract form of wording from similar but unrelated commercial transactions or templates. Although some of these agreements have "standard" templated terms and conditions, there may be provisions that may not be relevant to your commercial business transactions. The agreement should be written in Mandarin and English text and care taken to ensure it is amended to accurately reflect the terms agreed between the parties. One main provision which must be present is the Jurisdiction and Governing Law Clause. For certainty, it is desirable to agree that the contract is to be interpreted in accordance with and governed by a particular country's law (e.g. English Law or Chinese Law) and disputes are heard in a court within a particular jurisdiction exclusively or perhaps non-exclusively depending on the nature of the commercial agreement or transaction and enforcement of judgments or awards considerations. Care should be taken before submitting to a particular court of law and jurisdiction. Legal advice should be taken beforehand. Another useful provision would be the Language clause which sets out the version of the commercial agreement which is to prevail for interpretation or dispute purposes. There are however local laws, civil court and litigation procedures which must be considered. The People's Court of China requires cases to be presented in Mandarin and if a document is in a language other than Mandarin, a Chinese translation must be appended before it is submitted as evidence in litigation. There are several choices for resolving disputes between contracting parties in a commercial agreement. Generally, disputes with Chinese businesses are resolved and settled amicably through meetings and by discussions to preserve commercial relations. Alternative forms of resolution include mediation, arbitration and civil court litigation. We will be delighted to discuss with clients the different conditions which apply. If the commercial agreement provides for disputes between contracting parties to be referred to CIETAC (China International and Trade Arbitration Commission) arbitration, the place of arbitration in China (e.g. Beijing; Shanghai) and the applicable governing law should be clearly stated to avoid ambiguity. The agreement could, for example, provide for referral of disputes to CIETAC arbitration with English law or Chinese law to apply. Attention before conclusion of a binding contract could save a lot of time and costs later in the event a dispute arises and enforcement of an arbitration award becomes necessary. If you wish to have advice on the CIETAC arbitration rules, please contact us. Commercial business opportunities could present unexpected legal and commercial challenges. When in doubt, contact us to discuss your commercial requirements, whether to produce standard terms of trade, sale and purchase contracts, review tender documents, preferred supplier agreements, commercial trade letters of credit or for legal advice on the terms in commercial contracts for goods and services, before making an informed decision or signing on the dotted line. See Exporting to China for insight into commercial trading with the People's Republic of China - extract of an article published in the UK Trade & Investment Guide 2006. We can assist you with the preparation and/or review of commercial contracts, terms of business or trade, non-disclosure agreements, preferred supplier's agreement, long term supply agreements, licensing, agency and distribution of products and services agreements. Contact us for legal advice and representation of your interests in related disputes in London arbitrations and court proceedings. [back to top] MiFID - Financial Advisers and Cross Border Services Financial advisers in the UK are not automatically subject to the Markets in Financial Instruments Directive (MiFID). This EC Directive provides that investment advice must be regulated in all EEA Member States and it applies to financial advisers who are not exempted. If a UK financial adviser were to give personal investment advice to a customer who lives in or subsequently moves to another EEA Member State, it must ensure it complies with the legal requirements of that EEA State. There is, however, an alternative to setting up a branch office in other Member States. The financial adviser can obtain a "passport" for services it wishes to render in the other EEA Member State. By doing so, the financial adviser opts in to MiFID. EEA States with passporting rights (May 2008) include Austria, Belgium, Bulgaria, Republic of Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden. There are the Insurance Mediation Directive (IMD) passport for insurance products and/or the MiFID passport for investment based products. Different passports are required for advice on different products. We suggest careful consideration be first given to compliance issues and a cost benefit analysis carried out before decision. Generally, the financial adviser opting in to MiFID is expected to meet the current financial resources requirement, provide detailed systems of controls, comply with FSA Conduct of Business requirements, not hold client monies or assets and in addition meet the minimum initial capital of Euro 50,000 or Professional Indemnity Insurance (PII) of Euro 1 million for any one claim aggregated at Euro 1.5 million. There are options that involve lower initial capital levels of Euro 10,000 or Euro 25,000 and lower PII claim and aggregate limits. These figures and requirements are subject to change. FSA - New Duties for Insurance Intermediaries The new conduct of business requirements applying to firms with general insurance business commercial customers came into force on 6 January 2008. There is a six month transitional period which expires on 6 July 2008. Firms which carry on insurance mediation activity other than an insurer have an obligation to disclose commission to clients when asked. The purpose is to promote transparency for clients and the financial services market. The disclosure should be made in a manner which is clear, fair and not misleading. These principles are derived from the EC Council Directive on Insurance Mediation 2002/92/EC. The Financial Services Authority (FSA) expects intermediaries to disclose to its commercial customers all commission paid to affiliated companies and Appointed Representatives including any profit share arrangements. This is in line with the FSA's new initiative on Treating Customers Fairly. Procedures should be put in place by company Board of Directors and owners of authorised firms to respond to requests for information from commercial clients and for the maintenance of proper records evidencing compliance. Insurance intermediaries and their appointed representatives (AR) involved in insurance mediation activities in non-investment insurance contracts should be aware of the new requirements under the new FSA Insurance Conduct of Business sourcebook FSA ICOBS Insurance. In particular they must comply with Code of Conduct FSA ICOBS 4 in relation to information about the authorised firm, its services and remuneration (applies whether or not the insurance intermediary is an agent of the commercial client), ICOBS 5 in identifying their clients' needs and advising and ICOBS 6 on product information: Broker's Status Disclosure In line with the transparency requirements, compliance with status disclosure is required for commercial customers. ICOBS 4.1.2 "Status Disclosure"- Before the conclusion of a non-investment insurance contract, on amendment or at renewal, an authorised firm must provide to its customers its name and address, its authorised firm FSA registration number, state whether it is a direct of indirect holding representing more than 10% of the voting rights or capital in a given insurance undertaking (whether or not an insurer which carries on insurance business), whether a given insurance undertaking or its parent has a direct or indirect holding representing more than 10% of the voting rights or capital in the authorised firm and finally a complaints procedure allowing customers and other interested parties to register complaints or a service for settlement of disputes and redress between the authorised firm and its customers. General exemptions from the status disclosure are available to strict Introducers. Under ICOBS 4.1.4, introducers whose contact with a customer is limited to effecting introductions are exempted from the full requirements of Status Disclosure. However, if they go further by advising the customer on a particular policy or become involved in entering into commercial arrangements with a view to policy transactions or contracts of insurance in expectation of a commission or percentage of a commission, the introducers may find themselves bound by the full requirements in ICOBS 4.1.4. Broker's Fair Analysis of the Market ICOBS 4.1.6 - This requirement provides that an authorised firm must inform its customers, prior to the conclusion of a commercial contract, whether it gives advice on the basis of fair analysis of the market or it is tied exclusively to one or more insurance undertakings or that the authorised firm neither gives fair analysis or is so tied. The use of regularly reviewed information on products, premium and services offered to customers by several insurance undertakings or a panel of them may satisfy the requirement on provision of a fair analysis of the market. Duty to Disclose Fees As regards fee disclosure by a broker to its customer or policyholder, the general requirements are found in ICOBS 4.3.in addition to the separate price disclosure of the premium. [back to top] Duty to Disclose Commissions and Arrangements In addition to the law on fiduciary obligations, a broker that conducts insurance mediation activities for a commercial customer must, if that commercial customer asks, promptly disclose the commission that he and any associate of his receives in connection with the non-investment insurance contract in question, in cash terms or, to the extent it cannot be indicated in cash terms, the basis for the calculation of the commission in a durable medium. All forms of remuneration from any arrangements including arrangements for sharing profits, for payments relating to the volume of sales, and for payments from premium finance companies in connection with arranging finance, are to be included. This should allow commercial customers to make informed decisions about competing prices. See ICOBS 4.4. Where intermediaries such as marine insurance brokers who are remunerated by way of a commission paid by the insurer, FSA ICOBS 4.4.3 applies:- 'ICOBS 4.4.3 does not replace the general law on fiduciary obligations of an agent and disputes will be subject to commercial law and litigation. In relation to commercial contracts of insurance the root of these obligations is generally a duty on the agent to account to his principal. However, in certain circumstances, the duty is one only of disclosure. Where a commercial customer employs an insurance intermediary by way of business and does not remunerate him, and where it is usual for the insurance intermediary to be remunerated by way of commission paid by the insurer out of premium payable by the commercial customer, then if the customer asks what the insurance intermediary's remuneration is, the insurance intermediary must tell him.' Compliance with FSA ICOBS Directors of authorised firms and those conducting regulated activities as appointed representatives should seek guidance from the FSA and assistance with putting in place the necessary procedures to comply with ICOBS New Conduct of Business. For the relevant text on guidance, you can go to FSA Full Handbook. Directors of general insurance intermediaries or brokers who have thus far avoided the need to apply for full FSA authorisation and regulation by acting as Introducer Appointed Representatives (IAR) for a regulated firm or FSA authorised person, should note the scope of their IAR's is strictly limited to effecting introductions (passing on details of prospective clients without engaging themselves in arrangements) and the distribution of non-real time financial promotions. The use of the term Introducing Broker has an entire separate meaning attributed to it by the FSA and refers to an authorised firm introducing transactions relating to designated investments arranged for its customers to a clearing firm which assumes the primary responsibility and legal liability for the execution and transactions for its customers or a potential customer. An IAR is an agent of the principal authorised firm and the relationship should be governed and evidenced in the form of a written contract or agreement for practical commercial reasons (e.g. commission payments) and for management of liability risks (e.g. restricting activities outside scope of authorisation, avoiding inadvertent holding out and misrepresentation).Such a written agreement provides protection for both parties in a dispute or in a claim originating from a third party customer. Advice on Commercial Contracts We advise on, review and prepare contracts for commercial businesses and commercial transactions such as acquisition agreements. We can assist with advice on the terms of agency agreements to suit the commercial aims and risk management of legal liabilities of principal firms. You can contact us to discuss your specific requirements. [back to top] Employment Law Managing Risks from Valuable Assets There have been many employment law changes recently and prudent employers should review and audit their employment contracts and service agreements of the most valuable asset of a commercial business at least once a year. The legal fees are minimal compared to the potential liability from claims. The general rule is that the terms of an employment contract cannot be unilaterally varied in the absence of agreement between employer and employee. In certain circumstances, this could lead to claims for wrongful dismissal, unfair dismissal or redundancy. Compensation for Unfair Dismissal 2010 The Employment Rights (Revision of Limits) Order 2009 will come into effect on 1 February 2010. Employers should review their contracts of employment to manage their risks. For each unfairly dismissed employee, the maximum compensatory award for unfair dismissal will decreased from £66,200 to £65,300. A week's pay for basic award and statutory redundancy payment remains at £380. There is no statutory limit on compensation claims for unfair dismissal based on sex, race, disability discrimination or whistle blowing under the Public Interest Disclosure Act 1998. Variation of Employment Contracts In the recent appeal case R. Robinson v Tescom Corporation before the London Employment Appeal Tribunal on 3 March 2008, a manager's terms of employment were varied to the extent that it involved more travelling on business in the course of his employment. The manager believed this was a unilateral variation which was a breach of his contract and he had been dismissed from his original contract of employment. He however continued to work in accordance with his original terms and under protest. A grievance was raised. He was called to a disciplinary hearing and subsequently dismissed for gross misconduct in failing to comply with the employer's legitimate and reasonable instructions. The dismissal was held to be fair by the Employment Tribunal and his appeal to the Employment Appeals Tribunal was dismissed by the Honourable Mr. Justice Elias. The fact the manager had agreed to continue working after the unilateral variation, prejudiced his case. He could not continue to work under the new terms, even under protest, and yet insists on working in accordance with the original terms of employment. By doing so, he opened himself to dismissal for gross misconduct. This case must be considered on its facts and should not be taken as authority for an employer's unilateral variation of terms of an employment contract. Contact us for the benefits from a fixed fee audit and review of your employment contracts and directors' service agreements. [back to top] Managing Company Directors and Senior Employees As for directors' service agreements and senior bank employees' contracts with contractual bonus provisions, the employer's exposure on risk of liability for breach of implied and express terms and wrongful dismissal claims remains as wide as the terms in the employment contracts will permit under employment law in the absence of negotiated settlement by way of a compromise agreement. Employees are valuable assets but are also part of your business risks and liabilities. Shadow Directors Service Agreements Under section 230 of the Companies Act 2006, a shadow director (a person in accordance with whose directions or instructions the directors of the company are accustomed to act excluding professional advisors) will be subject to the same provisions governing directors' service contracts which means a company must keep available for inspection a copy of a shadow director's service contract or written memorandum of the terms of the service contract. The same provision also provides for notification by the company to the Registrar of the place where the memorandum is kept if it is other than at the company registered office. Non-compliance is an offence and every officer of the company in default is liable on conviction to a fine. Can a Controlling Shareholder be an Employee? The view of the Court is it considers the controlling shareholding in a company to be relevant and possibly decisive in determining whether a contract of employment exists. An individual who holds controlling shares in a company may raise doubts as to whether he can be considered to be an employee of the company he controls. On 29 February 2008, the Employment Appeal Tribunal decided in the case of J E Clark v Clark Construction Initiatives Ltd Utility Consultancy Services Ltd that the mere fact an individual has a controlling shareholding in a company or that he is an entrepreneur or has built the company up or will profit from its success does not prevent a contract of employment from arising. On 11 April 2008, in the case of R Neufeld v A& N Communications in Print Ltd (in liquidation) and Secretary of State for Trade & Industry, the Employment Appeals Tribunal decided that a shareholder holding 90% of the shares in a company was also its employee. The fact the individual concerned offered a bank guarantee for the company's debts was not in itself inconsistent with there being in existence an employer employee relationship or an employment contract. Is a Director and Majority Shareholder an Employee? The President of the Employment Tribunals has issued a Practice Direction on 8 September 2008 that stays all claims concerning the employment status of the Claimants and the circumstances in which a director and majority shareholder of a company may be regarded as an employee as defined in Section 230 of the Employment Rights Act 1996. All claims involving these issues will be put on hold or stayed until the Court of Appeal decides on the case of Secretary of State for Business, Enterprise and Regulatory Reform vs Richard Neufeld [2008]. This case concerns the circumstances in which a director and majority shareholder of a company may be regarded as an employee for the purpose of a claim against the Secretary of State pursuant to Section 182 of the Employment Rights Act 1996 as statutory guarantor for certain categories of unsatisfied debts owed to employees on an employer's insolvency. The hearing is expected during December 2008. Contact us for the preparation and/or review of directors' service agreements, employee employment contracts and your staff handbook. If there is already a potential claim, we can assist clients with settlement negotiations and advice on compromise agreements with a view to avoiding the stress, costs and publicity from a reference of a claim to the employment tribunal. If you require advice on employment law, statutory and contractual rights or if you need to consider employment law in relation to the terms of compromise agreements between employer and employee, we can assist. [back to top] Bonuses, Unfair Dismissal and Unfair Contract Terms On 17 November 2006, the Court of Appeal in London held in the case of Commerzbank AG v James Keen that Section 3 of the Unfair Contract Terms Act 1977 (liability arising under contract) does not apply to employment contracts as employees do not "deal as a consumer" with their employer. In this case, an ex-employee with a basic annual salary of £120,000 was eligible to participate in a discretionary bonus scheme. The terms stated that no bonus will be paid if on the date of payment of the bonus the employee was not employed by the Bank or if he was under notice to leave the Bank's employment. Mr. Keen was made redundant on 10 June 2005 before the Bank's bonus payment date in March 2006. Mr. Keen claimed breach of contract, under-payment and non-payment of annual discretionary bonuses under the term providing for entitlement to a discretionary bonus. It was claimed the Bank could not rely on the term (under UCTA 1977) which provided that no bonus would be paid if an employee was no longer employed by the Bank. Hence, the employer was in breach of contract and not entitled to exclude or restrict any liability in respect of the breach or to claim to be entitled to render a contractual performance substantially different from that which was reasonably expected of the employer, or in respect of the whole or any part of the employer's contractual obligation, to render no performance at all by non-payment of the bonus. If you have been unfairly dismissed and deprived of your bonus entitlement just before the date your employer was due to declare and distribute the company bonus or if you believe you were discriminated against in the distribution of bonuses, you may have a claim. To extinguish your right to bring employment related claims, a compromise agreement with terms favourable to the employer, some of which could be penalty clauses and thus unenforceable, may be offered for your acceptance. Contact us for advice on your rights and independent legal advice on the terms of your compromise agreement. Who is the Employer? On 18 May 2007, the Employment Appeal Tribunal held in the case of Consistent Group Ltd -v- Kalwak and Others and Welsh Country Foods Ltd that agency workers were employed by the employment agency regardless of the fact that it was the company where they were sent to work which exercised control over their day to day work. This case was decided on the facts surrounding the dispute and may not apply to other relationships between an employment agency and their temporary workers. Employment Rights - Agency Worker to Employee Section 108 of the Employment Rights Act 1996 as amended by the Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 1999 provides an employee will not be entitled to the statutory right not to be unfairly dismissed by his employer unless he or she has been continuously employed for a period of not less than one year ending with the effective date of termination of employment. Generally, employment law requires an employee to have at least one year of continuous employment before entitlement to statutory protection from unfair dismissal. There are however several exceptions on which we will be pleased to advise. If an agency worker were to work for an end-user employer (agency's client) over several periods and then taken on as an employee, would the periods worked as an agency worker count towards the one year qualifying period so as to entitle him or her to statutory protection from unfair dismissal? In the case of Wood Group Engineering (North Sea) Ltd -v- Karen A Robertson, the Employment Appeal Tribunal considered whether there was an implied contract of employment between an agency worker and the end-user employer, when the agency worker was dismissed less than one year after she was taken on as an employee by the end-user. The main legal issue was whether the periods of employment as an agency worker should count towards her one year continuous employment. In this case, there were contractual arrangements and obligations between the agency and the end-user employer and between the agency and the agency worker which governed the relationship between the parties regarding control over the agency worker and mutuality of obligations. The Employment Tribunal at first instance decided there was an implied contract of employment during the period when Ms. Robertson worked as an agency worker because the end-user employer exercised control over her work and there had been mutuality of obligation between the parties. The end-user employer appealed against the decision. On 6 July 2007, the Employment Appeal Tribunal rejected the decision of the Tribunal. It disagreed there was an implied contract of employment given the tripartite contractual agreements and held the period of continuous employment commenced only when the agency worker was taken on as a full time employee and not before. Consequently, Ms. Robertson was not entitled to statutory protection from unfair dismissal, given the facts of her case. [back to top] Time Limits for Claims The subject of time limits within which claims arising from employment can be confusing and legal advice should always be sought. One result of an out of time claim can be found below. Claims for wrongful dismissal or wrongful constructive dismissal in breach of contract under common law are treated differently from statutory claims for unfair dismissal. Different time limits for claims against an employer apply. Before 12 July 1994, wrongful dismissal claims could only be brought in Court. As a general rule, Employment Tribunals now have concurrent jurisdiction to hear wrongful dismissal claims subject to the amount of compensation they can award. There are however certain claims which must be brought in court, even if the sums claimed are within the power of the employment tribunal to award, e.g. issues relating to restrictive covenants, personal injury and intellectual property rights claims. If the amount of compensation exceeds the maximum amount the Employment Tribunal has power in law to award, the wrongful dismissal claim may be brought in court and a six year time limit for bringing claims would normally apply. If the wrongful dismissal claim is brought in the Employment Tribunal, an employee has three months from the effective date of termination of employment to bring a contractual claim and the employer will have six weeks from the date the employer received a copy of the employee's claim to counterclaim against an employee for breach of contract. The normal time limit for bringing a statutory claim for unfair dismissal is three months from the effective date of termination unless the statutory dispute resolution procedures under the Employment Act 2002 (Dispute Resolution) Regulations 2004 apply, in which case there will be an automatic three month time extension. There are exceptions and circumstances which allow an employment tribunal to extend time and these may apply to your claim. The time limits are strictly enforced by the employment tribunals and this was recently demonstrated. On 6 August 2007, the Employment Appeals Tribunal in London held in the case of Beasley -v- National Grid Electricity Transmissions that a claim for unfair dismissal presented by email just 1 minute 28 seconds outside the three month time limit and the complaint was precluded from being considered by an Employment Tribunal under Section 111(2) Employment Rights Act 1996. Paid Annual Leave Entitlement Increase There have been more changes to the Working Time Regulations 1998. Minimum annual paid leave entitlement for full time and part time employees will be increased from 20 to 24 days (pro rated for part timer workers who are entitled not to be treated unfavourably) on 1st October 2007 and is expected to be further increased from 24 to 28 days on 1st April 2009. Paid leave entitlement starts to accrue on the date of commencement of the employee's employment. The law provides for minimum annual paid leave but an employer may increase leave entitlement in its employment contracts. The annual leave entitlement includes public holidays. Businesses will need to review their employment contracts. These changes will affect calculations of payment in lieu of annual leave entitlement that has accrued but untaken on termination of an employee's employment. Employment Claims and Advice on Compromise Agreements Contact us if you require advice on the validity of contractual or statutory claims under employment law or the enforceability of terms in a compromise agreement. [back to top] Commercial Litigation Civil Procedure Rules Civil Procedure Rules (CPR) are the rules and procedures which govern the conduct of commercial litigation in England. The rules are divided into Parts and each Part is supplemented and modified by Practice Directions from the courts to assist with clarification of the rules and procedures. Claimants, Defendants, Solicitors, Barristers and the Court are bound to follow the CPR in the conduct of commercial court cases. Email Evidence Civil Procedure Rules & Practice Directions on Disclosure & Inspection of Documents - In litigation, a party is obliged to disclose relevant documents to the opposition. Disclosure may be standard or otherwise as order by the Court. CPR Part 31.4 defines a document as anything in which information of any description is recorded. Civil Procedure Rules Part 31 Practice Direction 2A.1 extends disclosure to electronic documents, including e-mail and other electronic communications, word processed documents and databases. In addition to documents that are readily accessible from computer systems and other electronic devices and media, the definition covers those documents that are stored on servers and back-up systems and electronic documents that have been ‘deleted’. It also extends to additional information stored and associated with electronic documents known as email and file metadata (information on document creation date, edit date, view dates, distribution list, amended text etc. automatically added to electronic documents but normally not displayed on paper copies or screen). Clients and in-house legal counsel are reminded they are required in litigation to make a reasonable search of electronic storage systems for active, archived and deleted data, and that deleted documents can be retrieved, reconstituted and adduced as evidence in commercial court litigation. We provide guidance and representation on behalf of Claimant or Defendant clients before and after commencement of legal proceedings and can assist with the forensic IT aspect of commercial litigation. [back to top] Forcing Settlement of Commercial Claims It is always time and costs effective to avoid litigation by settling a claim for which you are liable. If the claim is excessive, you make an offer to settle an amount for which you believe you are liable. What do you do if court proceedings are issued for a claim you know to be excessive or if the claimant attempts intimidation by retaining a large firm of solicitors to act on their behalf or you find the conduct of the case is deliberately dragged out to wear you down and/or exhaust your resources? Will you be able to force settlement and bring the case to an end to minimise legal costs on both sides? Prior to 6 April 2007, Defendants wishing to make an offer to settle a claim under Civil Procedure Rules Part 36 at any time before or after court proceedings are commenced. The offer must be in writing; state it includes interest and is intended to have the costs sanction consequences of a Part 36 offer to settle; specify a period of not less than 21 days within which the Defendant will be liable for the Claimant's costs (to be assessed by the Costs Judge if not agreed) if the offer is accepted; state whether the offer refers to the whole of the claim in the statement of claim or to a part of it; whether it takes into account any counterclaim by the Defendant and funds to back the offer (a form of security for the Claimant) made must be lodged in court. If the Claimant accepts the offer, the claim is brought to an end. If the Claimant refuses to accept the offer and proceeds with litigation and is awarded an amount of the claim which is less than the sum offered by the Defendant, the Claimant will be subject to the costs consequences and must pay the Defendant's legal costs with interest from the date the offer expired. However, some Defendants encountered difficulties in complying with the requirement to make actual payment of funds into court to support their offer to settle, in circumstances where such payment may not necessarily bring an end to litigation. They were therefore deprived of a useful tool that could force early settlement. From 6 April 2007, following changes to Part 36 of the Civil Procedure Rules, the Defendant is no longer required to lodge funds into court to back the offer. This brought some balance back into commercial litigation. If the Part 36 offer is accepted by the Claimant, the Defendant has 14 days to make payment to avoid a judgement from being entered. By making a Part 36 offer of settlement, a Defendant would have gained leverage and transferred part of the risks from commercial litigation back to a Claimant, particularly one with deep financial pockets. Other changes allow Claimants to accept Part 36 offers to settle out of time without consent of the court subject to the costs consequences but there may be exceptions to this general rule as costs is always at the discretion of the court in commercial litigation. Legal Advice and Representation in Court Required? If you have a claim or have been served with legal proceedings, you can contact us for legal advice on your claim, defence or counterclaim and for assistance with legal representation in the commercial courts. [back to top] Maritime Law Security for Cargo Claim The letter of undertaking is a form of security for the claims of the cargo owners and interests given by a P&I Club (shipowners mutual protection and indemnity insurers) in return for cargo owners and interests agreeing to refrain from taking action that would prejudice the shipowners’ legal and commercial interests such as the arrest of the owners’ ships for security for the claims pending settlement or in other cases, the release from arrest of owner's ship and/or refraining from re-arresting owner's ships. Its wording is subject to contention and should be reviewed with developments in case law. Letters of undertaking can be made subject to English law and worded to accept the exclusive jurisdiction of the English High Court. In Owners of the Cargo lately laden onboard the vessel “Jutha Rajprueck” –v- Steamship Mutual Underwriting Association (Bermuda) (2003), the Admiralty Court and the Court of Appeal considered the meaning of a “competent court” in the context of an undertaking given by the P&I Club in the absence of an expressed agreement to English law and jurisdiction of the English High Court. The “Jutha Rajprueck” carried a mixed cargo of steel coils, light and heavy machinery from Japan/Korea bound for Vietnam, Thailand and Malaysia. On the way to Thailand, she suffered an engine breakdown in bad weather, could not be restarted and was abandoned but later salvaged to a Chinese port. Part of the cargo sustained damage caused by shifting and water ingress. There were 28 'bills of lading' which were governed by different jurisdictions and provided for various laws to apply including English law, Thai law and exclusive Thai jurisdiction and exclusive Hong Kong jurisdiction. Cargo interests obtained security from shipowners’ P&I Club which included in its letter of undertaking: “We further undertake that we will within 14 days of receipt of a written request from you to do so, instruct solicitors to accept on behalf of the above-named ship service of in rem proceedings brought by you in a competent court and/or tribunal as mentioned above and file an acknowledgement of service thereof, albeit wholly without prejudice to the Owner’s rights to contest jurisdiction and/or apply to stay such proceedings.” The undertaking was to be governed by and construed in accordance with English law and the Club agreed to submit to the exclusive jurisdiction of the English High Court for the purpose of any process for the enforcement of the letter of undertaking. Cargo interests subsequently issued an English court Admiralty claim in rem against the shipowner and/or demised charterers and sister ships. The Club was called upon to appoint UK solicitors to accept service of proceedings in accordance with the letter of undertaking but declined. It argued it was only obliged to instruct solicitors to accept service of proceedings brought in a competent court where such proceedings could be both commenced and pursued to a conclusion and contended the English Admiralty Court was not a competent court since it was not in a position to exercise its jurisdiction in rem because neither the Jutha Rajprueck or her sister ships had ever come into English territorial waters. Further, the bills of lading were subject to exclusive jurisdiction elsewhere. The Admiralty Judge ordered the Club to appoint solicitors to accept service of proceedings in rem and to file an acknowledgement of service. The Club appealed against the decision. The Court of Appeal rejected the Club’s contention as it made no commercial sense. It held that one of the purpose of a letter of undertaking is to give an undertaking to accept service of in rem proceedings in a competent court and this would be largely defeated if the Club was only obliged to accept service in a jurisdiction in which the vessel or a sister ship was actually present. The express reservation of the shipowner’s rights to contest jurisdiction and to apply to stay proceedings indicated that the “competent court” was not necessarily one in which the proceedings would be pursued to a conclusion. A “competent court” meant a court that has jurisdiction to entertain claims in rem proceedings and the Admiralty Court had such jurisdiction under sections 20 and 21 of the Supreme Court Act 1981. In the Court’s view, the decision by the Judge accorded well with the requirements of business efficacy and dismissed the appeal. London Arbitration or Admiralty and Commercial Court Litigation James Chan & Co has acted for shipowners, P&I Clubs, charterers and cargo interests in arbitrations and commercial and admiralty court cases and the firm's work in the maritime and shipping fields date back to 1989. We undertake maritime and shipping law cases on behalf of UK and international clients in jurisdiction disputes, arrests of vessels, obtaining security for claims and costs, charterparty disputes, bill of lading and cargo claims and insurance claims. Contact us for advice and representation in arbitrations, admiralty and commercial court work. [back to top] Media Flash For the Media Community & Investigative Journalists EU Financial Regulation A video broadcast of this enquiry with witnesses Lord Turner of Ecchinswell, Chairman of the Financial Services Authority can be viewed at the House of Lords EU Sub-Committee Inquiry dated 25 November 2008. Inquiry into EU Proposals to deal with the Financial Crisis The House of Lords European Union Committee launched a new enquiry on 15 December 2008 into the European Commission's proposals for dealing with the current financial crisis. Following the evidence session on this issue with the Chairman of the FSA and the Financial Service Secretary to the Treasury (see above video), the Committee is inviting written evidence on the EU proposals. It will focus on 4 issues in the EU proposals. Baroness Cohen, Chairperson of the House of Lords EU Sub-Committee on Economic and Financial Affairs said "The current financial crisis has been a major test of the EU's ability to react to worldwide economic events. Now, as the effects of the banking crisis and credit crunch begin to be felt in the wider economy, is the right time to assess what progress the EU is making....We would welcome written evidence from any interested parties and will begin to take oral evidence in January [2009] on what is a vital issue for the future of Europe and the UK". Money Laundering Inquiry into EU and International Co-operation The House of Lords EU Home Affairs Sub-Committee has launched an inquiry on 5 January 2009 into EU and international cooperation to prevent money laundering and the financing of terrorism. It will look at the role of the EU and it member states in global efforts to prevent money laundering and terrorist financing and consider the level of international cooperation in detecting and preventing money laundering operations. Apart from consideration of the European Court of Justice decision in the Yassin Abdullah Kadi case, the questions the Committee will explore include: (1) How effectively have EU Member States and others cooperated in seeking to reduce international money laundering? Is there an effective formal legal framework for criminal justice cooperation in this area? (2) How effectively have the EU and UN cooperated in this area? (3) What are the respective future roles of Europol and Eurojust in countering money laundering and terrorist financing? (4) How effective is the cooperation among and between Financial Intelligence Units? Lord Jopling, Chairman of the House of Lords EU Sub-Committee on Home Affairs, said: "In the modern world of lightening fast money transfers and terrorists using sophisticated financial vehicles to both generate and distribute funds it is vital that nations and international bodies such as the EU take steps to co-ordinate their efforts on preventing money laundering." You can read the House of Lords EU Committee Report with Evidence on EUROPOL : Co-ordinating the fight against serious and organised crime published on 12 November 2008. [back to top]