December Legal Alert

legal alert

This month: 

 

Case law: Employers may have to include voluntary overtime when calculating holiday pay

Employers may have to take payments for workers’ regular, voluntary overtime into account when calculating their holiday pay, following a landmark decision. 

Employers must, by law, pay workers holiday pay at the same rate as their ‘normal pay’. The underlying principle is that workers should not be paid less than normal just because they are on holiday. 

The European Court of Justice has previously said ‘normal pay’ includes all elements of pay that are ‘linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment’. The Employment Appeal Tribunal (EAT) has now considered whether ‘normal pay’ includes payments for regular, settled, but non-guaranteed overtime, and should be taken into account when calculating holiday pay. 

In this case, several employers were involved in similar disputes over whether such payments to their workers should be taken into account when calculating holiday pay. Previously, employers have ignored voluntary overtime payments, even if they were regular. However, the EAT has now ruled: 

  • When calculating holiday pay, employers should take into account overtime that is part of the worker’s ‘normal’ pay, whether or not the overtime is voluntary or compulsory.
  • This only applies to the four weeks of the worker’s annual leave required under the EU Working Time Directive (20 days for a full-time worker). There is an assumption that this part of the worker’s annual leave is taken first. It does not apply to holiday pay for the additional 1.6 weeks (eight days for a full-time worker) of annual leave also required under the UK Working Time Regulations (or to any additional contractual annual leave), which continues to be calculated by reference to basic pay.
  • Workers claiming to have been underpaid holiday pay must have been underpaid within the three months before they lodge an Employment Tribunal claim. Any claim will probably be for unlawful deduction from wages.
  • If they are claiming a series of underpayments, claims for previous underpayments will not succeed if there is a break of more than three months between underpayments. This will mean most workers can only claim underpayments for their most recent holiday.

The EAT has given leave to appeal the fourth point to the Court of Appeal. An appeal is likely, but employers are advised to review their existing policies on holiday pay and wait to see the outcome of any appeal.

Employers are also waiting to find out how to implement another UK decision earlier in 2014 which said normal commission payments should also be included when calculating holiday pay. This issue was referred back to the Employment Tribunal to decide how employers should make this calculation. 

Calculating such payments can be complex. Where a worker’s pay varies (because of variable overtime, commission, etc.), a week’s pay, including for holiday pay purposes, is taken as the average amount he or she earned in the 12 weeks immediately before the holiday. However, this can be problematic where work is seasonal - workers taking holiday immediately after the busy season, during which they have worked a lot of overtime, may end up with much higher holiday pay than workers who take their holiday at another time. 

Other payments may also need to be included as part of a worker’s ‘normal pay’ – for example, payments normally made for travelling time (over and above travel expenses incurred) and shift allowances, and taken into account when calculating holiday pay. 

The Government has set up a task force of representatives from government and business to discuss how to limit the impact of this ruling on business. 

Operative date

  • Now

Recommendations

  • Employers should:
    • Identify workers who regularly work overtime, or receive commission or other job-related allowances; ensure workers’ holiday dates are accurately recorded; work out how far back each worker may be able to claim underpaid holiday pay (in both instances where the Court of Appeal overrules or upholds the EAT decision that claims are blocked if there has been a three-month break between holidays) - and budget accordingly.
    • Consider reducing overtime to minimise future holiday pay.
    • Consider whether to continue to pay lower holiday pay in relation to the eight days’ annual holiday under the Working Time Regulations compared to the 20 days’ holiday under the Working Time Directive – effectively introducing ‘two-tiers’ of holiday pay.
    • Consider whether their systems (including payroll software) can cope with this.
    • Consider stopping extra holiday payments until any appeal is heard and/or the conclusions of the Government task force are known.
    • Take specialist legal advice if in doubt.

Case refs: Bear Scotland Ltd & Others v Fulton & Others UKEATS/0047/13/BI

Hertel (UK) LTD v Woods & Others UKEAT/0160/14/SM

Amec Group LTD v Law & Others UKEAT/0161/14/SM

 

Case law: Court of Appeal confirms tests to determine whether staff operating through personal service companies are employees

Businesses will welcome a ruling confirming the test they should apply when staff taken on through, for example, personal service companies, claim they are employees and protected by discrimination and other employment laws. 

A cosmetic salesperson worked at Heathrow Airport selling a cosmetic company’s products from its retail space there which was managed by a company called WDF. Staff were provided by an agency called CSA. The salesperson operated through a personal service company, and CSA had contracted for her services with her personal service company. 

Problems arose and the salesperson claimed discrimination. She claimed she was ‘in employment’ with WDF under a ‘contract personally to do work’. 

The Court of Appeal has upheld an Employment Appeal Tribunal (EAT) ruling that she was not employed, and her claim failed. The Court said she did not personally have a contract with either WDF or CSA. It also rejected her claim that she was in an employment relationship because she was in a ‘subordinate’ position to WDF – that is, she was bound to act on any instructions they gave her. The Court found she had not been in a subordinate position. In addition, under the contract with her personal service company she had the right to substitute another person to do the work rather than do it personally (which she had done in the past). 

This decision confirms that the test of whether a person is to be treated as an employee is: 

  • Whether there is a contract between the ‘employer’ and the individual.
  • If there is, whether it requires them to do the relevant work personally, so they cannot substitute someone else, or sub-contract the work.

The Court rejected her argument that, provided she could show she was ‘in employment’ with WDF, there was no need to consider whether she had a ‘contract personally to do work’.

Operative date

  • Now

Recommendation

  • Businesses taking on staff via arrangements involving, for example, agencies and personal service companies, should ensure they are clear whether or not a staff member is an employee entitled to employment law rights such as the right to bring discrimination claims.

Case ref: Halawi v WDFG UK Ltd T/A World Duty Free [2014] EWCA Civ 1387

 

Case law: Court of Appeal narrows scope of residential landlords’ and agents’ obligation to consult before works

Residential landlords and managing agents need only consult with leaseholders in advance in certain circumstances, the Court of Appeal has ruled.   They are required to do so only where total service charges per leaseholder arising from a discrete set of ‘qualifying works’ could be more than £250 (not if the aggregate charges of other qualifying works over a year exceed £250). 

Owners of a holiday camp made significant improvements to the site, spread across several projects, which benefited leaseholders of chalets on the site. Each project resulted in a service charge for leaseholders of less than £250 each, but the total service charges across all the projects for the year was more than £250 each. 

Residential landlords (or their managing agents) are required by law to consult with leaseholders before carrying out ‘qualifying works’ that would result in a service charge of more than £250 per leaseholder. If they do not, the landlord cannot recover more than £250 per leaseholder, no matter how much the qualifying works actually cost. 

The improvements in this case were qualifying works, but the leaseholders were not consulted first.  The owner argued that he was not obliged to consult because each project resulted in a service charge of less than £250. He relied on previous rulings that the obligation only applied if the service charge from ‘one set’ of works would exceed £250 per leaseholder. 

The High Court disagreed and said the obligation to consult was triggered if the cumulative, overall spend on qualifying works in a year by a landlord could result in a service charge of more than £250 per leaseholder. It did not matter if the charges arose from several different sets of qualifying works, rather than just one. 

However, this ruling created practical problems for landlords and managing agents who carried out one set of qualifying works without being required to consult with leaseholders, but then had to carry out further, unforeseen qualifying works during the year which pushed each leaseholder’s service charges over the £250 threshold. 

The Court of Appeal has now overruled the High Court decision. The obligation to consult only arises if a particular, discrete set of qualifying works could result in service charges of more than £250 per leaseholder. The fact there might be other sets of qualifying work in the same year, and the total aggregate service charges from all of them could exceed £250, is irrelevant. 

The Court gave useful guidance on when qualifying works amount to a discrete set of works for this purpose. It said that this will be a question of fact and degree in each case, but should be decided in a common sense way, given factors such as: 

  • Where within a site the work is to be done.
  • Whether all the works are contracted for in the same contract.
  • Whether different parts of the work are to be done at (or roughly at) the same time.
  • Whether different parts of the work are similar or different in character from each other.
  • Whether different parts of the work have a connection with each other or not.

Operative date

  • Now

Recommendations

  • Landlords must ensure they know whether proposed qualifying works amount to one ‘set’ of works, or more than one.
  • They must then work out the total likely service charge per tenant of each set of qualifying works.
  • If any set of works may result in a service charge of more than £250 per leaseholder they must consult with leaseholders first.
  • However, they no longer need to consult on the basis that the total aggregate service charges from different sets of qualifying works carried out in the same year, whether foreseen or not, might exceed £250.

Case ref: Philips and Others v Francis [2014] EWCA Civ 1395

 

Case law: Letter to employees about pay from unauthorised outsider could bind employer

Employers should ensure all communications to employees about pay or benefits, even if written by an outsider who is not authorised to make decisions about such pay or benefits, are accurate, or risk the company being legally bound by them. 

An employer convened an appeal panel to consider a variation in the pay of particular employees, previously on pay grade 3. The employees were not told the outcome so they lodged a grievance. An external HR consultant was brought in to investigate the grievance. The consultant was authorised to tell the employees the outcome of their grievance but not to make any decision about their pay. 

The consultant wrote a grievance outcome letter to the employees. This included an incorrect statement that the appeal panel had put them on a (higher) pay grade 5. The employer realised the error and reconvened the appeal panel to review what it had actually decided. The panel confirmed it had actually decided they should be on grade 4. 

The employees argued that the letter from the consultant was contractually binding and claimed unlawful deduction of wages when the employer failed to pay them at grade 5. The employer argued it was not bound as the consultant did not have actual authority to make decisions about pay. 

The Employment Appeal Tribunal agreed with the employees and ruled that the letter was capable of having a contractual effect (unless vitiated by obvious mistake), thus binding the employer to pay the employees at the higher grade 5. Although the consultant did not have actual authority to make decisions about pay she had been ‘held out’ by the employer as someone who could provide an authoritative decision on their grievance. In that capacity the employees were entitled to assume she had authority to tell them what had been decided, even if she was not authorised to decide questions of pay herself. 

The issue as to whether mistake vitiated the contractual effect of the document has been sent back to a fresh tribunal to consider. 

Operative date

  • Now

Recommendations

  • Employers should have procedures and training in place to ensure all communications with employees concerning pay and any other benefits are accurate. These should apply not only to HR personnel, managers or other relevant employee, but also third parties such as consultants. Any conditions or other limitations should be expressly and clearly stated in those communications.
  • Particularly, the systems should take account of the fact that statements in communications to employees from outsiders about pay and benefits may be binding on the company, even if the outsider has no actual authority to make them, if the employer has held them out as having authority to make decisions on pay or benefits, or to communicate them to employees.

Case ref: Hershaw and others v Sheffield City Council [2014] UKEAT 0033_14_1607

 

Case law: Employers need to clarify which of an employee’s impairments amount to a disability

Employers may need to press employees with multiple physical conditions to clarify which they allege are disabilities requiring them to consider ‘reasonable adjustments’, or risk having insufficient information to know whether employees are disabled or which adjustments it is reasonable to make. 

An employee claimed that her employer had not made reasonable adjustments for her disability. The employer claimed that the employee was not disabled or, if she was, it had not known about it.  Someone is disabled if they have a physical or mental impairment which has a substantial and long-term adverse effect on their ability to carry out normal day-to-day activities. 

At a preliminary hearing, the employee gave oral evidence that she suffered from several different conditions. As a result, the Employment Tribunal (ET) ruled that she was disabled – although this evidence was different from statements in her claim form and from the answers she gave when her employer asked for more information. 

The employer appealed on the basis that the ET had not identified the precise physical impairment(s) amounting to a disability. Without that information it was not possible to assess whether it knew or ought to have known the employee was disabled and, if it did, what reasonable adjustments it should have made. 

The Employment Appeal Tribunal agreed that the ET needed to identify the impairment(s) amounting to a disability and remitted the issue back to the ET to do so. 

Operative date

  • Now

Recommendations

  • Employers should ensure they identify all alleged impairments claimed by an employee, and investigate which amount to a disability (ie have a substantial and adverse long-term effect on their day-to-day activities).  Otherwise they risk having insufficient information to investigate whether there is a disability and to decide which, if any, adjustments are reasonable to make.

Case ref: Morgan Stanley International v Posavec UKEAT/0209/13/BA

 

Case law: Negotiating parties must be clear which agreed terms are intended to be legally binding, and when

Parties to commercial contracts must make it clear which terms agreed during negotiation are intended to be legally binding (whether immediately or in future), and should record them expressly and properly in any final agreement, a High Court ruling has confirmed. 

A company carried out a demerger, with its property and trading businesses each going to a new, different owner. The parties suspected significant VAT repayments might be due in relation to the trading business. 

During negotiations they agreed the new owner of the trading business should pay 25 per cent of any VAT repayments to the new owner of the property business. It was agreed that when the demerger took place this split would be made legally binding. The 75:25 split was referred to in an unsigned document described as a ‘final agreement’. However, no such provision was included in the eventual demerger agreement signed by the parties. 

The company and the new owner of the property businesses argued that there was a binding contractual agreement that the owner of the trading business would pay them 25 per cent of any VAT repayment. 

The High Court disagreed. It drew a distinction between parties agreeing a matter for the time being, and parties agreeing a matter with the intention that it should have the status of a legally binding and enforceable contract. It said that none of the parties intended or believed that what they discussed about VAT during the demerger negotiations was legally binding at that time. It also said that the ‘final agreement’ was not legally binding – it was merely an outline of what the parties had agreed to date. All parties expected it to be the subject of further negotiation and considered themselves free to withdraw from it at any time. In addition, the terms had not been included in the eventual demerger agreement. There was, therefore no express, legally binding agreement on this point, and none could be implied. 

It also found that had there been a legally binding agreement, it would have been too uncertain to enforce, as there was no provision for the way any repayments would be split. 

Operative date

  • Now

Recommendations

  • Negotiating parties should ensure it is clear which terms agreed during their negotiations are intended to have contractual force, and whether they are to take effect immediately, or at some specified future point such as upon execution of a final agreement.
  • If terms are intended to form part of the final agreement between the parties, they must ensure they are included in the final agreement, and that all legal formalities (such as execution of a written agreement) are observed.

Case ref: Barnsley v Noble [2014] EWHC 2657

 

Case law: Wording of agreement allowed complex legal issue to be referred to surveyor for determination

Parties negotiating agreements allowing disputes to be referred to experts for determination should consider providing for referral of different types of dispute to different types of expert, following a ruling in which a complex legal issue had to be referred to a surveyor. 

An agreement gave a developer an option to buy development land in tranches. Under the agreement, the purchase price for each tranche could be reduced by an amount representing the fair, proper and reasonable costs of providing the purchased land with services and infrastructure. Any dispute arising out of the agreement on any matter could be referred by either party to an independent chartered surveyor. 

When the developer bought the first tranche it told the landowner it would deduct the entire service and infrastructure costs of £14m from its payment for that tranche. It would only deduct any costs exceeding £14m from any subsequent payments. However, this was not provided for in the option agreement. 

The landowner wanted a formal variation of the agreement to cover this new arrangement, and argued that the developer was ‘estopped’ from preventing the variation. Estoppel prevents someone from arguing that X doesn’t apply if they have behaved as if it did apply, and someone else has relied on that behaviour to their detriment. The landowner therefore applied to the courts to resolve the issue. 

The developer said it wanted the matter referred to an independent chartered surveyor, as allowed by the agreement. The landowner argued that the surveyor had no expertise in disputes involving complex legal issues so the matter should be dealt with in court. 

The court found that, although the clause allowing referrals to a surveyor was clearly intended to cover pricing disputes (which a surveyor would be expert in), its wording was wide enough to cover any other type of dispute, including the current dispute. The court was only able to look behind the wording of the clause at the parties’ intentions if it was ambiguous or made no commercial sense. In this case the wording of the agreement was clear and unambiguous. The matter therefore had to be referred to a surveyor. 

Operative date

  • Now

Recommendation

  • Parties to an agreement should consider whether it should provide for different types of dispute to be referred to different types of expert. As this can be a complex exercise where, for example, a single dispute has both property and legal aspects, parties should consider taking specialist legal advice on how to draft the relevant clause.

Case ref: MP Kemp Limited v Bullen Developments Limited [2014] EWHC 2009

 

Case law: Ruling clarifies when in-house legal costs can be recovered in Employment Tribunal cases

Businesses with in-house legal staff can claim costs from the other side in Employment Tribunal disputes, usually as if they were independent solicitors, a recent ruling has confirmed. 

Qualified in-house legal staff representing their employer in legal proceedings in the Employment Tribunal (ET) applied to recover their costs from the other side. The Employment Appeal Tribunal ruled that this was permissible. 

In-house time spent, and calculation of hourly rates, will usually be assessed as if the in-house staff were independent solicitors, but this depends on the circumstances.  The same rule generally applies in the courts. In addition, businesses may be able to claim compensation (rather than legal costs) for management time spent on legal disputes, provided it has diverted managers away from their usual commercial activities. 

It is usually necessary to produce a record of managers’ time spent, otherwise the court may decide to reduce the compensation to reflect that fact. 

In a recent case there were no such records, and the business claiming for lost management time had to retrospectively reconstruct from memory the time its managers had spent on the case. The court allowed the claim, finding that a reconstruction from memory could be acceptable evidence.  

Operative date

  • Now

Recommendation

  • Employers should ensure they claim some of their qualified in-house staff’s legal costs from the other side in ET disputes.  They may also be able to recover compensation for diverted management time provided they have good records of time spent.

Case ref: Ladak v DRC Locums Limited [2014] UKEAT 0488_13_1606

 

Case law: Joint business partner not allowed to renew partnership business lease on his own

Business partners taking on a joint tenancy of business premises should check possible legal barriers to applying for an eventual new business tenancy of their premises, including in the event of a dispute, a case has made clear. 

Two business partners were joint business tenants of premises where they practised as doctors. One was also the landlord. When they fell out the landlord tried unsuccessfully to end the partnership, and then served notice to terminate the tenancy on himself and his business partner. His partner therefore applied, on his own, to renew the tenancy under landlord and tenant law. The landlord argued the application should have been made by all the tenants, including himself and the application was therefore invalid. 

Joint tenants must, in law, usually make such applications together, but there is an exception for partners in partnership if not all of the tenants are using the premises for the purpose of their business. The exception is aimed at professional partnerships where one partner has retired.

In this case, the Court of Appeal ruled that as neither partner had retired, and as part of the property was still being occupied by both the landlord and the other partner for the purposes of the business, the application for a new business tenancy by only one of them was not valid. 

Operative date

  • Now

Recommendation

  • Partners taking on business premises jointly should ensure they understand the circumstances in which they can, and cannot, apply for a new business tenancy of their premises, including in the event of a dispute.

Case ref: Lie v Mohile [2014] EWCA Civ 728

 

Case law: LLP not required to provide due diligence information to potential buyer of member’s interest

Members of a Limited Liability Partnership (LLP) may find it harder to sell their interest in the LLP after a court decided an LLP is under no implied obligation to provide due diligence information to a potential buyer, nor does failure to do so breach express obligations in the partnership agreement to act in good faith.

A member of an LLP was expelled by the other members. Under the partnership agreement, he had to transfer his interest in the LLP at either: 

  • a sum matching a bona fide offer for the interest by an unconnected third party, or
  • an amount determined by the auditors.

As the LLP was making losses the auditors valued his interest at zero. It was transferred to another member for £1. 

The expelled member had tried hard to find a buyer for his interest and had received an offer from an unconnected third party which was higher than the auditor’s valuation. However, this was subject to satisfactory ‘due diligence’ - the process whereby a potential buyer investigates financial and commercial aspects of the business they are buying into. When the LLP was asked to provide this information it did not immediately provide it, but asked for: 

  • A copy of the letter of offer.
  • Details of the potential buyer.
  • Evidence the buyer had the means to make the purchase.

As these were not forthcoming the LLP refused to provide the due diligence information and the sale did not proceed. 

The expelled member argued that terms should be implied into the LLP agreement that the LLP would give the potential buyer such information as was reasonably necessary to carry out due diligence and not obstruct or prevent access to it. It said these were necessary to give the agreement business efficacy. 

The Court said the test was what the agreement (read as a whole and given the relevant background), would be reasonably understood to mean and ruled: 

  • Due diligence in circumstances like this was different from due diligence in a sale or acquisition of a whole business because the LLP was not the seller, and had no financial interest in the sale, of the expelled member’s interest.
  • To imply the term asked for would mean the LLP had an open-ended obligation to provide information about its affairs – some of which might be confidential - to any third party claiming to want to buy an interest in the LLP.
  • It was not appropriate to imply additional terms to make this implied obligation workable – for example, that the third party should sign a confidentiality agreement, or the LLP could refuse requests that were unreasonable.

The Court therefore refused to imply the terms into the agreement requested by the expelled member. 

The LLP agreement also expressly said the members had to show the utmost good faith, both to the LLP and to each other “in all transactions relating to the business and affairs of the LLP”. The expelled member argued that failure to provide the due diligence information breached this duty. 

The court disagreed and found the duty to show good faith related to the fiduciary obligations the members owed each other and their LLP. Sale of his interest by one of the members was not related to these fiduciary obligations. 

Operative date

  • Now

Recommendation

  • Members of LLPs should ensure it is expressly set out, or otherwise made clear, what information (if any) the LLP has to provide by way of due diligence if a member wants to sell his interest in the LLP.

Case ref: Archer v Nubuke Investments LLP & Ors [2014] EWHC 3425

 

Case law: Daughter who disowned mother could not later claim ‘reasonable financial provision’ from her estate

A family member who disowns another family member risks not being entitled to ‘reasonable financial provision’ from the latter’s estate, if he or she dies without leaving them anything in their will, following a recent High Court decision. 

Following a dispute about money and several serious rows about personal matters the testator’s daughter wrote to her mother some nine years before her death, disowning her, wishing she was dead and saying she never wanted to speak to her again. There was no further contact between them before the mother died save for a brief telephone conversation.  

The mother’s will left virtually everything to her son, and nothing to her daughter, or her daughter’s children and grandchildren. The mother also left a letter explaining why she had not left anything to her daughter. 

Family members and dependents of a deceased person can, in certain circumstances, contest the deceased’s will on the basis that it does not make ‘reasonable financial provision’ for them. The daughter claimed reasonable financial provision on grounds she was the deceased’s daughter, had helped her parents in their retail business, was in poor health and needed money. 

The Court noted that the daughter’s letter to her mother marked the beginning of a nine-year period when neither spoke to the other – it was not a single, intemperate outburst. It also found that the dispute about money was the daughter’s fault. Overall, it said that the daughter’s conduct outweighed the factors in her claim that were in her favour and her claim was rejected. 

Operative date

  • Now

Recommendation

  • Family members should beware disowning another family member, wishing them dead or breaking off contact with them or risk not being entitled to reasonable financial provision from the other’s estate in the event he or she dies without leaving them anything in their will.

Case ref: Wright v Waters [2014] EWHC 3614

 

Case law: Using eBay scheme to complain of intellectual property infringement may be ‘groundless’ threat, creating liability to pay compensation

Owners of intellectual property (IP) rights using eBay’s VeRO scheme to complain of infringement of those rights by an eBay trader should first consider whether this amounts to a groundless threat under IP law, or risk having to compensate the trader. 

If you threaten anyone in the UK with court action for breach of your registered design (or your registered trade mark, patent or unregistered design) they may be able to claim damages from you if they suffer loss because of your threat, and an injunction to prevent you taking action against them if your threats are found to be ‘groundless’. Threats are ‘groundless’ if: 

  • Your rights turn out to be invalid;
  • There hasn’t actually been any infringement; or
  • You have no real intention of enforcing your rights in court.

There are defences available, for instance, you did not suspect your rights were invalid at the time you made the threat.  Anyone threatened by your letter or communication can apply to court for compensation, even if it is not addressed to them – for example, distributors, agents or customers. 

The test of whether a threat has been made is objective: would the letter or communication lead a reasonable person with knowledge of all the relevant circumstances at the date of the letter or communication understand that the writer intends to convey an intention to enforce their rights by bringing legal proceedings in relation to one of the relevant rights? 

Owners of IP rights can complain about products being sold on eBay that infringe their rights, using eBay’s Verified Rights Owner (VeRO) scheme. The High Court recently considered whether to allow a claim to proceed to a full trial or strike it out as having no merit. The claim was that a Notice of Claimed Infringement of a registered design, sent under the VeRO scheme, amounted to a ‘groundless’ threat. 

The Court decided there was an arguable legal issue and allowed the claim to proceed, and there is a possibility that a full trial will decide there has been a groundless threat, and award compensation. 

Operative date

  • Now

Recommendation

  • Owners of IP rights considering making a complaint under eBay’s VeRO scheme should first consider whether this may amount to a groundless threat, or risk being liable to pay damages to the eBay trader complained about.

Case ref: Cassie Creations Ltd v Blackmore and another [2014] EWHC 2941

 

Case law: Landlords can carry out works that damage tenant’s businesses, provided they act reasonably

Landlords considering carrying out works in a way that may seriously disrupt a tenant’s business may be able to do so if they have acted reasonably, given the tenant’s concerns, the High Court has indicated. 

A tenant operated a bar and restaurant from the top floors and viewing platform at Centre Point in London. A key feature of the business was the wonderful view.  

The landlord carried out a survey of the entire building and commissioned a contractor to advise how to clean and repair the building. The contractor offered six alternatives, recommending scaffolding covered by plastic sheeting as the best option. The work would take between four and six months. 

As this would obstruct the view from the tenant’s restaurant it commissioned its own contractor who said the work could be carried out just as well using cradles, which would not block the view. The tenant therefore argued it would be unreasonable for the landlord to use scaffolding and sheeting. The landlord commissioned a second expert to reconsider the matter, who also recommended scaffolding and plastic sheeting. 

The tenant claimed that using scaffolding and plastic sheeting would breach the landlord’s covenants to give the tenant quiet enjoyment of the property and not to derogate from the grant of the lease, because it failed to minimise the potential damage to the tenant’s business. It applied for an interim injunction to stop the landlord using scaffolding pending a full trial of its claim. 

The court had to consider whether financial damages would adequately compensate the tenant if an interim injunction was not granted, but the Court at the full trial later decided the landlord was in breach of its covenants. It ruled that, for the most part, financial damages would be adequate compensation, though there was a risk of some uncompensatable disadvantage to in “the possible destruction of what is currently a flourishing enterprise”. 

On the other hand, it found that if the landlord was forced to delay the works pending a full trial, this would incur losses of some £3.75m, which the tenant would be unable to compensate the landlord for if the landlord won at the full trial. There was therefore a significant risk of damage to the landlords that the tenant would be unable to compensate it for, whereas the tenant’s risk of damage was far less. For these reasons it refused the injunction. 

However, the Court also considered whether there was a reasonable prospect the tenant would succeed in its argument that using scaffolding would breach the landlord’s covenants. It decided: 

  • Both parties agreed cleaning and repairs were required, and the landlord had both a duty and a right to do them
  • It would not be normal for the tenant to tell a landlord how to carry out repairs – it was up to the landlord.
  • However, landlords had to act reasonably in the options it chose, to avoid any serious impact on their tenants.
  • The tenant’s and landlord's rights must be made to fit together – neither trumped the other.

This meant the landlord could carry out works provided it acted reasonably. The court took the view that, in the circumstances, the tenant would face an ‘uphill task’ persuading the court at the full trial that a landlord following consistent advice from different experts was acting unreasonably.

Operative date

  • Now

Recommendations

  • Landlords contemplating carrying out works in a way that may seriously disrupt a tenant’s business must be able to show they have acted reasonably, given the tenant’s concerns. This may include considering multiple options, taking expert advice on the pros and cons of each and, if the circumstances warrant it, getting a second opinion. If possible, consult with the tenant, and keep comprehensive records. However, landlords can take comfort from the fact that they may still have acted reasonably - even if the tenant’s business is damaged as a result.

Case ref: Century Projects Ltd v Almacantar (Centre Point) Ltd [2014] EWHC 394

 

New guidance: New Code on data protection law for organisations using surveillance systems and devices published

Businesses will welcome a new code of practice on data protection law and CCTV, automatic number recognition systems, drone cameras and the like, issued by the Information Commissioner's Office (ICO). 

The new Code, In the picture: A data protection code of practice for surveillance cameras and personal information, helps organisations comply with data protection law when using modern technological systems and devices. 

It replaces the 2008 Code on CCTV, and is updated to cover technological and practical developments such as use of digital recording devices, automatic number plate recognition systems, drone cameras and body cameras. 

The code also refers to other relevant laws such as the Freedom of Information, Protection of Freedoms and Human Rights Acts.

Operative date

  • Now

Recommendation

 

Case law: Trade mark owners can apply for order requiring ISPs to block access to websites that infringe their rights

Trade mark owners will welcome new powers to obtain court orders requiring Internet Service Providers (ISPs) to block access to websites infringing their trade marks by selling fake goods, following a landmark High Court ruling. 

Owners of a number of UK registered trade marks for luxury goods applied to the High Court for an order that six of the main ISPs block access to a number of websites that were infringing their rights by selling fake goods. 

The Court granted the orders, but subject to the following safeguards: 

  • ISP subscribers affected could apply to the Court to discharge or vary the orders.
  • Anyone who tried to access a blocked website should see a message stating who had obtained the order, informing them they had a right to apply to discharge or vary the order.
  • The order should be time-limited (a two-year period was suggested).

However, the Court ordered that the trade mark owners bear the costs of the application. Since such applications are likely to be expensive, trade mark owners will need to judge whether the damage to their business from particular websites warrants an application. 

While such orders are often made where there has been copyright infringement, this is a new remedy for trade mark infringement. 

Operative date

  • Now

Recommendation

  • Trade mark owners should consider whether they can obtain court orders requiring ISPs to block access to websites which are infringing their trade mark rights, and whether the potential costs are warranted by the damage the infringement is causing the business.

Case ref: Cartier International AG & Ors v British Sky Broadcasting Ltd & Ors [2014] EWHC 3354

 

Case law: Court gives guidance on when ‘without prejudice’ in negotiations is ineffective

Parties negotiating how to satisfy an acknowledged liability, where those negotiations do not amount to a dispute or potential dispute, cannot claim statements made are ‘without prejudice’ - even if an experienced litigator in the negotiations has marked correspondence ‘without prejudice’. 

In a recent case, the parties were negotiating how and when an acknowledged liability of one of them should be discharged. One of the negotiators, an experienced litigator, marked his correspondence ‘without prejudice’. 

In a dispute or potential dispute, statements made orally or in a document with a genuine view to settlement are ‘without prejudice’ which means they cannot later be used in court, for example, as an admission of liability. Without this rule, parties would be hesitant about making admissions and/or reasonable offers to settle in case it prejudiced them later.  However, if there is no dispute (or potential dispute) the rule does not apply.

 The court ruled there had been no genuine dispute at the time of the negotiations so statements made at that time could not have been made ‘without prejudice’.  The fact that an experienced litigator had written ‘without prejudice’ on documents made no difference. 

Operative date

  • Now

Recommendation

  • Parties negotiating how to satisfy an acknowledged liability where the negotiations do not amount to a dispute, should note that marking correspondence ‘without prejudice’ will not mean they are protected under the ‘without prejudice’ rule. The rule will only apply where there is a dispute.

Case ref: Avonwick Holdings Ltd v Webinvest Ltd & Anor [2014] EWHC 3322

 

Case law: Divorcing spouse’s new relationship reduced amount awarded to her from ‘nuptial settlement’

Divorcing spouses should be made aware that new, ‘strong’ relationships, which can include relationships where they do not intend to co-habit, can reduce their entitlement if there is a nuptial settlement which is varied by the courts. 

The spouses lived in a farmhouse owned by the husband’s mother and father. The parents created a trust over the farmhouse and the husband was the main beneficiary. Both spouses contributed financially to the property. The trust gave the trustees specific powers to advance all of the property to the husband during his lifetime. 

The High Court decided the trust amounted to a ‘nuptial settlement’ – an ‘arrangement which makes some form of continuing provision for both or either of the parties to a marriage’ – and the court had power to vary any aspect of it in the divorce proceedings. 

It ordered that the trust be varied so that the wife would receive £23,000 from it outright (representing a repayment of part of her contribution to the property), but only a reduced sum of £134,000 in relation to a life tenancy in respect of the farmhouse. 

One factor the court took into account when making the order for the reduced sum (one which has not been taken into account before in such cases) was that the wife had formed a ‘strong’ relationship with a new partner, even though they were not planning to live together. This justified a lesser award – even if that meant she could end up with insufficient to meet her needs if the new relationship ended. 

Operative date

  • Now

Recommendation

  • Divorcing spouses should be made aware that new, ‘strong’ relationships, which can include relationships where they do not intend to co-habit, can affect their entitlement if a nuptial settlement is varied by the courts. They may therefore have to disclose the existence of any new relationship.

Case law: AB v CB [2014] EWHC 2998

 

Case law: Employer not liable for oppressive, unacceptable but one-off harassment of one employee by another

Employers facing claims for bullying or harassment by other employees will not be liable for the conduct of one employee towards another, even if it is ‘oppressive and unacceptable’, unless there have been at least two such incidents, the High Court has confirmed. 

An employee working in HR alleged she had been bullied and harassed by her line manager for several weeks, resulting in such stress that it caused severe, lasting psychiatric injury. She brought a harassment claim against her employer on grounds it was liable for the line manager’s actions. In such claims, the employee must show there has been a ‘course of conduct’ involving ‘oppressive and unacceptable’ conduct on at least two occasions. 

In this case, an external consultant had been brought in to review the HR function. She was subsequently appointed as interim HR manager, which made her the employee’s line manager. On one occasion she seriously lost her temper with the employee. The employee went on immediate sick leave, and her employment was later terminated after disciplinary proceedings had been brought against her. 

The line manager was carrying out a review during the relevant period, in which she had recommended changes that could result in the employee losing her job. The two had had a number of difficult meetings and the line manager also seemed to have found the employee irritating at times, and spoken to her harshly. 

The Court agreed that the manager’s behaviour on the day she had lost her temper had been oppressive and unacceptable. However, it decided the necessary course of conduct had not been shown, as nothing else in the line manager’s behaviour amounted to bullying or harassment. 

It also found that the line manager’s loss of temper, although serious, was a momentary, isolated lapse which could not reasonably be expected to have caused or contributed to a major psychiatric illness. The real cause of the employee’s stress was her continued resentment and sense of grievance and injustice. 

Operative date

  • Now

Recommendation

  • Employers facing claims under laws protecting employees from bullying or harassment by another employee should consider whether there has been a course of conduct involving at least two ‘oppressive and unacceptable’ incidents of bullying or harassment by the other employee. If not, they will not be vicariously liable for the other employee’s conduct.

Case ref: Boylin v The Christie NHS Foundation [2014] EWHC 3363

 

Case law: Decision makes patents more liable to challenge, and inventions harder to register

Patent owners and inventors are now more vulnerable if their patents are challenged, or they apply for patents for their inventions, following a new test of whether or not an invention involves an inventive step, following a High Court decision. 

A UK or European patent will not be awarded in respect of an invention unless, among other criteria, it involves an ‘inventive’ step. A step is inventive if it would not be obvious to someone with the common general knowledge of a reasonably skilled person in the relevant field. 

Similarly, anyone accused of infringing a patent may counterclaim that it is invalid or should be revoked on grounds the invention would be obvious to someone with the common general knowledge of a reasonably skilled person in the relevant field. 

In a recent case, the High Court set out three classes of knowledge that are to be treated as common general knowledge in a particular field: 

  • Knowledge available in standard reference works and a few leading journal articles.
  • Articles which are "sufficiently prominent in the main academic journals in the field".
  • Other journal articles, outside the leading journals and "not have been likely to have been read by the notional skilled person in the ordinary course of keeping himself up to date" but which could easily be found by anyone making a “literature search and review".

The third class means that knowledge which is readily accessible via, for example, the internet or a database of articles, is now likely to be treated as within the common general knowledge of the notional skilled person for the purposes of deciding whether an invention involves an inventive step. This means the ruling has made it harder for an inventor to argue that a step is inventive.

Operative date

  • Now

Recommendations

  • Patent owners should review whether their inventions are, as a result of including readily-accessible articles in the definition of ‘common general knowledge’, now vulnerable to invalidity or revocation counterclaims if the owner tries to enforce their patent against infringers.
  • Inventors considering applying for a patent should ensure they research whether there are easily accessible articles on the internet or a database before applying, as information available from such sources will now be treated as part of the common general knowledge of a notional skilled person when deciding whether the invention involves an inventive step, and can therefore be registered.

Case ref: AB Teva UK Ltd & Anor v Astrazeneca AB (Rev 1) [2014] EWHC 2873

 

© Atom Content Marketing Ltd: 2014 

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