April 2009 News Articles
Two directors must pay £75m for their brother’s dishonesty
Two sisters who were directors at the same company must pay more than £75m in compensation because they failed to take action to stop their brother’s dishonest behaviour.
The brother and two sisters were directors at a large finance company. He was responsible for the dishonest misappropriation of nearly £60m over a four-year period using a fictitious directors’ loan account, false facility letters and other methods. He had forwarded some of the misappropriated funds to the sisters.
The company, which is now in administration, sought orders that the two sisters should pay equitable compensation for the losses because they knew that their brother had been convicted of dishonesty offences in the past and should have known that some of his business dealings needed to be explained in a convincing manner.
The company submitted that as the brother had not provided such an explanation, the sisters should have notified other directors and the company auditors so the dishonesty could have been identified and prevented.
There were other directors who were not part of the family and who knew nothing about the previous dishonesty offences.
The company was successful in obtaining judgment establishing the sisters’ accessory liability. It believed that one sister was liable to pay almost £34m and the other was liable for £41.5m.
The court found that the sisters had breached their fiduciary and common law duties of care to the company through their failure to take action against their brother while they were directors. However, the judge also held that they were only liable for the sums the brother had paid to them and that their inactivity as directors was not responsible for the company’s losses.
His reasoning for this was based on the fact that the brother was a "persuasive, sophisticated, charming and highly intelligent bully" and so even if the sisters had asked more questions they would have been “fobbed off” by his lies.
However, that ruling has now been overturned by the Court of Appeal which held that absolving the sisters of responsibility for the misappropriation of funds could not be justified. They knew of their brother’s previous offences and should have known that some of his dealings required explanation. It was part of their duty as directors to be on guard and to ask “searching questions”.
The sisters should have asked those questions and then informed other directors and the auditors of their concerns. Their failure to do so meant they were liable to pay the sums claimed, nearly £34m for one sister and £41.5m for the other.
The sums involved in this case may be enormous but the legal principles involved apply across all companies of all sizes. Directors must take action if they suspect other directors of dishonest or irregular behaviour. Failure to do so can render them liable for subsequent losses.
Please contact us if you would like more information.
Landlord wins appeal over validity of notice to end lease
A landlord has won its appeal in a case which centred on whether or not a tenant’s notice to end a lease under a break clause was valid, even though it wasn’t acknowledged until ten months after the break date was reached.
The case involved a company which rented some commercial premises on a 15-year lease. The lease contained a break clause that allowed the tenant to terminate after five or ten years by giving six months’ notice.
The lease required that notices had to be in writing and unless they were acknowledged by the landlord, they had to be sent by registered post or recorded delivery.
The tenant decided to take advantage of the break clause in July 2005 and sent notices by both letter and fax. The letters were posted by a process server and placed in the wrong box and so were ineffective. The faxes were sent and received by the landlord but at a time when its offices were closed.
The landlord did not acknowledge receipt of these faxes until December 2006 – more than 16 months after the last possible day for serving a six months notice period and more than ten months after the fifth anniversary of the break date itself.
By this time, the tenant had vacated the premises despite protests from the landlord who said the notice was ineffective and began proceedings to recover rent.
The judge ruled in favour of the tenant saying that the acknowledgement of the faxes by the landlord, albeit several months after the event, had retrospectively validated the tenant’s notice. However, that ruling has now been overturned by the Court of Appeal.
It held that the informal notice sent by fax could only become valid once it was acknowledged, but that acknowledgment would have to be before the five-year break point had been reached. The notice could not be retrospectively validated by a later acknowledgment.
Lord Justice Rix said: “…it was too late for an acknowledgment once the break point had passed. However, I also think, but it is unnecessary to decide, that the requirement of a six months' notice means that certainty must be achieved before the six months deadline and that a notice which is invalid or not yet valid at that time cannot become effective merely because its receipt is acknowledged thereafter.”
It followed, therefore, that the lease had not come to an end and could not do so under the break clause for another five years. In the meantime, the landlord retained the right to charge rent.
Much criticised dispute resolution procedures are repealed
The statutory dismissal and disciplinary procedures, which have been heavily criticised by employers since they were introduced five years ago, have now been repealed.
They have been replaced by a new framework based on the provisions of the Employment Act 2008. Employers should now follow the guidelines in the new ACAS Code of Practice on discipline and grievance, effective from 6th April.
One of the main aims of the changes is to provide both employers and employees with greater flexibility. The mandatory three step process of letter, meeting and then right of appeal no longer applies. Instead, the ACAS code sets out the principles that employers and employees should apply to achieve a reasonable standard of behaviour.
Many employers will be relieved to hear that the dismissal of an employee will no longer be considered automatically unfair if there is a breach of procedure.
Instead, a tribunal will consider whether a failure to follow the code was unreasonable taking all the circumstances into account, such as the size of the business. A tribunal will still be able to rule that a dismissal was unfair for procedural reasons but it will also be able to adjust the level of compensation if it considers that the procedural failings had no material impact on the outcome.
Tribunals will also have the power to adjust awards by 25% if either side has failed to act reasonably or failed to comply with the code of practice.
Tribunals will also be able to award compensation for financial loss in certain cases, for example, where an employee is making a claim in relation to deductions from wages or redundancy payments.
Whether the changes bring the expected benefits remains to be seen but in the short term there is a danger that they may cause some confusion. Employers may wish to revise their codes of practice and they should certainly seek legal advice before taking any action in relation to their employees.
IPO may reduce registration fees for patents and trademarks
The Intellectual Property Office (IPO) has begun a public consultation on proposals to improve its trademark services.
The options include reducing fees and introducing new support services to make it easier for businesses to register their marks. It’s hoped the changes could save companies in the UK more than £700,000 a year.
There are also proposals to provide a discount for applications which are filed electronically and to reduce the fee businesses have to pay to oppose the registration of a mark by another firm.
The review follows a 12% reduction in patent and trademark applications in the UK in 2008. There were also falls in demand at other trade mark offices, including the European trade mark office, which is responding by reducing its fees.
The IPO hopes that the proposals in its consultation document will encourage businesses to protect their interests.
David Lammy, Minister of State for Intellectual Property said: "In the current economic climate, there is a risk that businesses will not protect their Intellectual Property, which will harm both those businesses and UK competitiveness in the longer term.
"We welcome the fee reduction announced by the European trade mark office. However we also recognise the need for the Intellectual Property Office to keep improving its services, ensuring national registration remains an attractive choice for UK businesses, where such registration is appropriate.”
Now it’s cheaper and easier to register Lasting Powers of Attorney
The process of registering Lasting Powers of Attorney (LPA) is being made cheaper and simpler.
The announcement by the Office of the Public Guardian, which administers the registration process, follows a public consultation on the implementation of the Mental Capacity Act 2005.
LPAs were one of the main provisions introduced by the Act in 2007.
The changes, which came into effect on 1st April, mean that the cost of registration is reduced from £150 to £120 and the forms and accompanying documentation will use plainer language.
LPAs have proved very popular since they replaced the old Enduring Powers of Attorney (EPA) because they offer more choice to people who want to prepare for a time when they may lose some of their mental capacity.
The property and finance LPA allows you to appoint someone to look after your financial affairs if you become incapable of doing so yourself. The personal welfare LPA lets you grant an attorney authority over such matters as health care and the kind of treatment you receive.
In the first 12 months after being introduced, the number of people registering LPAs was three times higher than the figure for EPAs in previous years.
The Public Guardian, Martin John, said: “We have listened to people's concerns about the length and complexity of the forms and we have responded. For example, we have reduced the risk of errors through improved design and have included guidance to make completion simpler.
“Reducing the LPA registration fee demonstrates our commitment to provide a cost-effective service and to encourage take up of such an important safeguard. We aim to deliver a service that is easy to understand and use, and improving the forms is a key step in that direction.”
The Office of the Public Guardian needs to register LPAs before they can be used. Registration is followed by a 42-day statutory waiting period to allow people to raise objections to the registration. This waiting period is one of the safeguards built into the process to ensure that the LPA has been drawn up properly and is not fraudulent.
People who have registered LPAs say it provides peace of mind to know that arrangements are in place to protect their interests should they lose the capacity to do so themselves as they get older.
Please contact us if you would like more information about Lasting Powers of Attorney.
House owner ‘not entitled’ to tear down fence that encroached on her land
The danger of taking the law into your own hands without getting legal advice was highlighted in a recent case involving a dispute between two neighbours.
There had been a longstanding boundary dispute between them which was eventually settled by a court order.
One of the homeowners then laid a concrete foundation to build a fence along the boundary. Unfortunately, it encroached a few inches into the neighbour’s property although the fence itself lay exactly on the border.
Later, the fence moved slightly so that it too encroached a few inches into the neighbour’s property. The neighbour declined to take any further legal steps but simply removed the fence posts and wire meshing.
The fence owners then began legal proceedings for damages. The judge ruled that the slight encroachment was not sufficient justification for the neighbour to take down the fence and so she should have to pay damages.
That ruling has now been upheld by the Court of Appeal which held that there was no emergency or urgent need that would justify the removal of the fence.
It is not uncommon for neighbour disputes to get a little out of hand so that the costs and energy expended in fighting the case are out of all proportion to the seriousness of the offence.
It is usually better for disputes to be resolved amicably but if this is not possible then both sides should seek legal advice before attitudes begin to harden.
Clarification of the legal position may help resolve the problem right at the outset. It there is still a disagreement then a solicitor may be able to help arrange mediation so that a settlement can be reached that is fair to both sides. This approach is usually far less stressful than going to court and it may help you to maintain a good working relationship with your neighbour. This is very important as you may have to live alongside each other for many years to come.
If agreement still can’t be reached then litigation may become necessary. It is then even more important to get sound legal advice so that the dispute doesn’t escalate to a point where the costs involved are out of proportion to the value of the claim.
Please contact us if you would like more information.
European court says compulsory retirement age must be justified
The European Court of Justice (ECJ) has ruled that obliging UK workers to retire when they reach 65 is not unlawful as long as it can be “justified by legitimate aims”.
Those aims would have to be part of legitimate social and employment policies rather than just the convenience of employers.
The ECJ ruling is the latest stage in the case brought by Age Concern challenging the UK’s default retirement age of 65.
The European Directive on Equal Treatment bans discrimination on the grounds of age. Age Concern believes the Employment Equality (Age) Regulations 2006 fail to fully implement the Directive because they allow a default retirement age of 65.
The ECJ was only asked to rule on whether the default retirement age was permissible under the directive. It was not asked to go further and rule on whether or not it was justifiable. The case will be referred back to the High Court in England to decide whether or not the default retirement age can be justified.
However, the ECJ said the UK government would have to “overcome a high hurdle” if it wished to show that forced retirement could be "objectively and reasonably justified by legitimate aims, such as those related to employment policy, the labour market or vocational training".
The statement continued: "By their public interest nature, those legitimate aims are distinguishable from purely individual reasons particular to the employer’s situation, such as cost reduction or improving competitiveness.
"It is for the national court to ascertain, first, whether the United Kingdom legislation reflects such a legitimate aim and, second, whether the means chosen were appropriate and necessary to achieve it."
There are currently about 260 related cases on hold pending the outcome of the case which now reverts to the High Court in London.
We shall keep clients informed of developments.
Charity reveals anguish of children as parents divorce
The charity Childline has urged divorcing parents to put the needs of their children first however difficult the situation may become as the marriage comes to an end.
The first few months of the year invariably see an increase in divorce inquiries from couples who have reached breaking point over the Christmas and New Year holiday period. It’s feared that pressures brought on by the recession could put more relationships under strain.
Childline says it has had numerous calls from children whose families are in turmoil. They tell counsellors that they are frightened by arguments between their parents and feel as though they are being made to choose between mum and dad. Some even feel the marriage break-up is their fault.
Divorce lawyers often come across these situations and will always try to advise parents against actions that may put extra pressure on their children. The first thing parents must do is put their emotions aside and be prepared to compromise to find a fair and workable solution.
Be prepared to negotiate over matters like where the children should live and the amount of contact they should have with each of you. Make sure you get good legal advice. This will help you reach a settlement which is good for your children and fair to both of you.
If negotiations become difficult then mediation may help. This is where a trained mediator like a solicitor acts as a kind of broker and helps smooth the way to an amicable agreement. Arrangements made in this way are less stressful and more likely to stick because they are voluntary.
If a negotiated settlement proves impossible then it may be necessary to go to court. It’s important to realise, however, that the courts place the needs of the children ahead of what parents may consider to be their rights. In fact, the law thinks primarily in terms of parental responsibility rather than parental rights.
Before making any decision, the court will work through a welfare checklist to determine what is best for the child. It will look at age and background, emotional needs, educational requirements and any other matters it considers relevant. These factors are likely to weigh more heavily than any personal preferences put forward by mum or dad as to where the child should live or how much time they should spend with each parent.
Once a court makes a decision then both parents must abide by it. Parents who try to thwart a court order can find that they have their contact rights reduced.
Thankfully, it should never come to that if both parents behave reasonably and follow the correct legal procedures.
Oral agreement over pension rights fails to stand up in court
The need to ensure you have written evidence of important agreements was illustrated in a recent case involving a man who said his employers had given him verbal assurances that he would be entitled to enhanced pension rights.
The man had been the managing director of a firm which was then taken over by a larger company. His pension was absorbed into the scheme operated by the new company. It was a final salary scheme based on an accrual rate of 1/50th per annum.
However, he said he had attended a meeting with his new employers in 1991 when he was told that his pension would be improved to an accrual rate of 1/30th per annum.
There were witnesses to the agreement but nothing was put in writing so there was no documentary evidence. Subsequent statements about the man’s pension entitlement continued to quote the old rate of 1/50th. He did not challenge these statements.
As he approached retirement the man then tried to confirm his right to the enhanced pension but was told the original lower rate would apply. He took legal action to enforce the alleged oral agreement but the court ruled against him.
The judge accepted that the witnesses to the agreement were honest but felt that after a gap of more than 14 years their memories may not be completely reliable. The lack of documentary evidence and the fact that the man had not challenged the statements quoting the lower rate meant the agreement could not be enforced.
That ruling has now been upheld by the Court of Appeal.
Oral agreements are legally valid as long as you can prove they took place. This can be difficult, even if you have witnesses as in this case. It is better to get legal advice and obtain written evidence, especially when dealing with something as important as pension entitlement.
Please contact us if you would like more information.
HIPs now needed as soon as a property is put on the market
Stricter regulations mean that Home Information Packs (HIPs) now have to be available as soon as a property is put on the market.
Sellers must also include a Property Information Questionnaire (PIQ) covering areas such as the property’s service charges, flood risk information, structural damage, gas and electricity safety and parking arrangements.
The PIQ is in addition to the other required documents such as the Energy Performance Certificate rating the property’s energy efficiency, evidence of title, the results of standard searches and the terms of sale.
Until now, sellers were allowed to request and pay for a HIP and then start marketing their property for up to 28 days before the HIP became available. The new regulations, effective from 6th April, mean that HIPs now have to be available from the outset and they must contain a PIQ.
The PIQ is also required for leasehold properties.
Please contact us if you would like more information about HIPs or any aspect of buying and selling property.
Accident victims sometimes ‘pressurised into settling’ by insurers
Victims of road accidents are sometimes subjected to high pressure tactics by insurance companies to make them settle for reduced levels of compensation, according to the Association of Personal Injury Lawyers (APIL).
APIL president Amanda Stevens highlighted one case where a woman was offered £1,000 immediately after being injured in an accident if she would settle there and then without consulting a lawyer.
When she declined, the offer was increased to £1,700 but she still refused. She then consulted a solicitor who made a proper assessment of her case. As a result, the woman later received ten times the amount she was first offered by the insurance company.
As Ms Stevens points out, these are not isolated incidents but everyday occurrences throughout the country. She said accident victims are being let down by “weak financial regulation of certain insurance activities” and accused the Financial Services Authority of turning a blind eye to their plight.
Anyone who has been injured as a result of someone else’s negligence is entitled to claim compensation. Insurers rarely offer the full value of the claim at the outset so if you are injured, it is vital to consult a solicitor to ensure your claim is handled correctly and you get the full level of compensation to which you are entitled.
Please contact us if you would like more information.