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In our office, it has been marked by various members of the tax team (okay, just me) wandering around with a puzzled expression repeatedly exclaiming either “7%” or “15%”.

So it’s good news for those with £150,000 incomes and companies.  But it’s bad news for the property purchasers, developers and estate agents with an interest in the top end of the property market.

HMRC think that only 3,000 £2m plus homes are sold every year and so they would argue that the changes only affect the very elite.  Who can, of course, afford the extra 2%…at least that’s what HMRC would say.

In truth these changes are a mansion tax in disguise.  On that note, mansion tax has not been ruled out and is being considered for the future. 

Come in and chat….

If these changes will affect you, we’d be happy to discuss whether there are any opportunities for planning to reduce the impact.

Stamp Duty Land Tax – Rate in Respect of Residential Property where Consideration over £2m

This is an increase in the rate of tax for residential property over £2m from 5% to 7% from 22 March 2012.  This will impact on freehold purchases and the grants or assignments of leases, where the consideration (or premium for the grant of a lease) is over £2m..  It may also impact on exchanges of land, transfers to connected companies and partnerships where the property value is in excess of £2m.

The legislation will include transitional provisions which mean that if exchange took place before 22 March 2012, the old rates will continue to apply.

Stamp Duty Land Tax Rate: Enveloping of High Value Residential Properties

This is a measure to combat the perceived large scale avoidance of stamp duty through owning property though companies (typically offshore companies).  When the measure applies stamp duty land tax will be charged on the acquisition at 15%.

The charge will take effect when the purchaser is a “non-natural” person, which would include a company, a collective investment scheme and a partnership in which a non-natural person is a partner.

Of particular note is that there will be exclusions from charge for property developers and corporate trustees – in certain circumstances.  The problem here is that a new developer will not benefit from this exception, since you’ll have had to have been in business for 2 years before the purchase.  Perhaps it is time to consider alternative ownership vehicles such as limited liability partnerships.

This measure will apply from 21 March 2012, although there are transitional provisions for purchases where exchange occurred before that date.

Stamp Duty Land Tax Avoidance

This is a very targeted anti-avoidance measure designed to prevent the stamp duty land tax sub-sale rules from applying where the second step of the sub-sale is the grant or assignment of an option.

The provision took effect from 21 March 2012.

Other measures

There were some other measures announced in December to stamp duty land tax (SDLT) relief for acquisitions by NHS bodies to take into account changes under the Health and Social Care Bill and to extend the rules on disclosure of tax avoidance schemes.

However, in a last minute amendment tabled last week to the Bill, the government is now proposing to apply this change to all cases preceding April 2013.  This would mean that where a costs order is made after the reforms “go live”, any success fee will not be recoverable, even where the CFA was signed before the provisions of the Bill came into force.

This has led to a number of concerns. For example, practitioners acting on behalf of claimants fear that defendants will simply refuse to settle ongoing cases until after the commencement dated in April 2013 on the basis that their costs will then be much lower.  Questions are also being raised about what advice law firms can give to claimants or prospective claimants about the potential levels of their compensation when there is such ambiguity and uncertainty about exactly what fees they will be expected to recover.

Until now, it has always been the case that the proposed amendments to the Legal Aid, Sentencing and Punishment of Offenders Bill would not apply retrospectively to CFAs entered into prior to April 2013. Under this new last minute proposal, both solicitors and barristers may be unable to claim their budgeted success fee from the other side or their own client. 

There has been no explanation from the Government so far, for this dramatic change, which will be debated on Wednesday this week in the House of Lords.

Expect a further update then…

The changes state that once claims have been issued, they will be managed in the CCMCC up to the filing of the parties’ completed allocation questionnaires and will be issued in the name of the Northampton County Court. After the filing of allocation questionnaires, the proceedings will be transferred out to an appropriate county court. 

From 19 March 2012, a new form N1: Claim form Part 7 should be used by Claimants who at the time of filing their claim, must also indicate which county court they would prefer the case to be transferred to (their “preferred court”). The new form is now available on the Justice website:

http://hmctscourtfinder.justice.gov.uk/courtfinder/forms/n1cpc_webonly_0406.pdf

 For more information, visit the following link on the law society website

http://www.lawsociety.org.uk/newsandevents/news/view=newsarticle.law?NEWSID=445622

Correct. It was HMRC’s Chris Martin (who was propelled into the spotlight when Harry Redknapp and Milan Mandaric were found not guilty of tax evasion) putting a good spin on a rather embarrasing defeat.

It would be rather pointless to recap the events of this rather well publicised trial.  But what might be more interesting is to think about what this means to other tax payers.

First if you are a sportsperson then it’s probably good news.  My understanding of the oft mentioned £8m campaign was that it related to the whole operating to look into fraud in sport (not just Redknapp’s trial).  I also understand that it has led precisely nowhere.  If anyone from the Met is reading this, feel free to set me straight.  So politically, and economically, it seems that this campaign might be over faster than you can say “transfer fee”.

If you are a tax evader, it probably makes no difference.  I’ve not yet read the full case report but if HMRC can’t prove tax evasion then they won’t get very far.  I don’t want to do their work for them, but HMRC’s powers to get information from offshore tax havens is always increasing and the UK has entered into a number of Tax Information Exchange agreements that greatly assist in tracking down fraudsters.  If you are one of those, then Chris Martin (not that Chris Martin – the one at the start of the blog), is probably right.  There are a number of disclosure facilities which may result in a reduction in any penalties and it is worth speaking to an expert before turning yourself in!

There is nothing wrong per se in having bank accounts in tax havens, provided that you make sure that any tax planning is done properly.

If you are expecting a bonus, I also wouldn’t take this as carte blanche to become friends with your boss and ask for some seed money for your investments.  The law hasn’t been changed by this judgement – a bonus is still taxable, and it will be a question of fact as to whether or not a payment is a bonus.  The assumption should generally be that it is taxable, and any derogation from this would require professional advice.

There are also a lot of rather more “vanilla” and rather more tax efficient ways of motivating employees such as share options, which should be considered before paying sums into bank accounts in Monaco in the name of your dog!

If you would like to discuss any of these points, please contact our wealth management or employment teams.

The Stamp Taxes Practitioners Group (of which I am a member) has received confirmation from HMRC that this is not on the agenda at the moment.  This is undoubtedly good news, since that change would change the landscape for property ownership very, very drastically.

Before you all go out and start buying your homes in companies – that is generally NOT a good idea unless you meet very specific criteria (generally to do with residence and domicile).  Whilst you may want to consider this for commercial property or buy to lets, the loss of capital gains tax relief on the disposal of your main residence is almost always going to make it not worthwhile.  And don’t get me started on the income tax problems…

Although precise details are yet to be announced, on the face of it this seems like an excellent way of encouraging cash rich individuals who are perhaps shying away from the stock and property markets, but who are less than impressed with the returns available placing cash on deposit, to invest in riskier businesses and potentially generate a far greater return than might otherwise be available.

The ICO highlights that it believes the new framework must:

-          be clear and easy to understand and provide a cost-effective means of individuals exercising their rights;

-          set out a clear structure with overarching high-level principles based on risk, context and purpose with flexibility for enforcement bodies, rather than a prescriptive approach based on lists;

-          involve an obligation on organisations to carry out a private impact assessment where processing could have a significant or adverse effect on an individual, uses intrusive technology or creates a particular risk.

-          ensure that data processors are responsible and accountable, with the emphasis on the maintenance of standards rather than simply having a ‘process’ that complies with the law; and

-          allow the ICO more inspection and enforcement powers in both the private and public sectors with less emphasis on prior approval and authorisation of a data processor’s activities.

The ICO was critical of recent statements suggesting that consumers should have a “right to be forgotten” as it could mislead and create false expectations and be impossible to implement in practice.

The full text of the briefing can be found here.

The Compulsory Purchase Association (CPA) has been lobbying the government to change the rules since 2008. The CPA’s proposals have now been adopted in an amendment to the Localism Bill which is due to become law later this year.

The main aims of the proposals are to close a loophole that allows owners to claim large amounts of money in “hope value” and to simplify the way compensation is calculated.

At present councils have to work out the value of the site being compulsorily purchased by working out how much it would have been worth when the CPO was first proposed. In some situations this could have been more than five years ago.  Under the proposed changes the valuation dates will not be linked to the when the CPO was first proposed.

The changes will also close the loophole which has seen councils paying excessive prices for sites following long legal battles.

The CPA argue that the changes will save councils time, money and possible legal claims.

Parties to litigation are very often required to sign a statement of truth, whether the statement is contained in the particulars of claim or a witness statements.

The recent decision in Nield v Loveday [2011] EWHC 2324 (Admin) highlights the importance of a party telling the truth when verifying court documents and the serious consequences that can ensue if a party falsely signs a statement of truth and is found to be lying and therefore in contempt of court.

In Nield v Loveday,a personal injury matter, Mr Loveday was driving a Land Rover when he was in a collision with a car driven by Mr Nield.  Mr Loveday claimed for damages in excess of £50,000 which included injuries in relation to mobility and a fear of travelling anywhere by car, as well as being made heavily reliant on a wheelchair for travel outside the home. Mr Loveday’s statement was supported by that of his wife’s, who also produced a statement, verified with a statement of truth, supporting the claims of her husband.

The insurance company was disbelieving as to the extent of Mr Loveday’s injuries; pictures from a social networking sight, posted during the proceedings (again be warned as to how you use them!) appeared to show Mr Loveday and his wife enjoying a holiday with mobility as well as motorbility.  Added to this, were the results of a private investigator, who found that Mr Loveday’s injuries had been grossly exaggerated… to the extent that Mr Loveday, when presented with the findings of the investigator, accepted just £1,850 in full and final settlement of his claim for damages.

Contempt of court

A party can be found to be in contempt of court not only for knowing that what they say is false but also because in doing so, they are likely to be interfering with the course of justice.

In Nield v Loveday, the court examined whether Mr Loveday had known that the statement he was giving to the court was false.  The court said that while it may be that some claimants do not read their statement before signing it, in this case, Mr Loveday had annotated his statement with amendments clearly showing that he had given some thought to it. The court therefore believed that Mr Loveday had indeed carefully considered his statement before signing it and had been fully aware that he was misleading the court.  Mr Loveday had told deliberate lies in court proceedings.

The court is directed to find that those who make false claims, if caught, should expect to go to prison.  Mr Loveday was imprisoned for a period of nine months and his wife, who had admitted contempt of court for signing a statement of truth, verifying contents which she knew to be untrue, was given a suspended sentence.

China is an important growth market for the UK, with its worldwide food and drink imports having continued in a positive trend in July to just under £5bn, up from £4.4bn in June. With 2010 figures for UK food and drink exports to China up 28.5% on 2009 figures, manufacturers are increasingly looking at opportunities in this market.

In a joint initiative with the Food & Drink Exporters Association (FDEA) and UK Trade & Investment (UKTI), FDF’s support will ensure companies benefit from an enhanced and strongly branded UK presence at the show; a specially organised trade development visit for non-exhibiting companies to give them a taste of the market; and a meet the buyer initiative enabling companies to meet key customers from the retail and food service sectors.

Charlotte Lawson, Director of Member Services at FDF, said, “The UK manufactures many of the world’s best loved food and drink brands, and demand for our products abroad continues to grow. China, with its growing middle class, has turned from an export country to an import destination. As a growth market for the UK, China cannot be ignored.

“Working with FDEA and UKTI, FDF wants to help UK food and drink manufacturers take the Chinese market by storm by significantly enhancing the UK presence at the FHC exhibition in Shanghai. We aim to support Britain in her endeavour to double trade with China by 2015 to some 62 billion pounds, by supporting business building initiatives which enable UK food and drink manufacturers to gain access to this market.”

So, the message from the FDF seems clear – the Eastern markets are full of promise – maybe we have heard that said somewhere before? Let’s hope UK businesses can achieve something great in these troubled times.

With effect from 1st August 2011, companies will be able to raise up to 5 million euros (up from 2,500,000 euros) before the requirement to produce a Prospectus is triggered.

In addition, they will be able to raise finance from 150 person, not including certain qualified investors (up from 100 persons), before the requirement to produce a Prospectus is triggered – regardless of the amount of money being raised.

Preparing a Prospectus is a time-consuming and costly process and these measures have been brought in to provide a much needed fillip to SMEs looking to raise finance. Many of those small companies see credit as the primary source of finance but equity finance can be attractive too.

Time will tell whether these measures actually have any effect. They will make it easier for the SME to seek to raise finance but will not necessarily make an investment opportunity any more attractive to the investor community.

Lord Davies’ report was published on 24th February this year and as well as recommending that listed companies  establish a policy on boardroom diversity, which includes  measurable objectives for implementing the policy and which should be disclosed annually together with a progress report, other recommendations include:-

- that certain listed companies should disclose the proportion of women they have on their board, the number of women in senior executive positions in the company and the number of women employees in the organisation as a whole;

- that FTSE 100 companies  aim for a minimum of 25% of female board representation by 2015;

- that FTSE 350 companies should set their own targets for female board representation by 2013 and 2015, and these targets should be announced within the next six months (by September 2011).

The consultation document can be found here:-

http://www.frc.org.uk/publications/pub2575

A raft of recent developments to the UK civil justice system are paving the way to bring mediation to the masses and Mediation is now becoming a more important tool in the settling of disputes. 

Recent changes include:-

• The Ministry of Justice’s current consultation “Solving Disputes in the County Courts” provides an opportunity to promote mediation in the fast lane. Proposals put forward include compulsory mediation for all claims under £100,000 and automatic referral to mediation for claims under £15,000 (see http://www.justice.gov.uk/downloads/consultations/ia-alternative-dispute-resolution.pdf) and  http://www.justice.gov.uk/consultations/consultation-cp6-2011.htm.  The consultation period closed on 30 June 2011 so watch this space for an update.

•  Conflict in the workplace is a common occurrence, and in the current economic climate, it is important that HR professionals achieve the best results from their staff, including retention.  By encouraging workplace dispute resolution, it is hoped that workplace disputes will be better managed and resolved more easily through ADR.

The Department for Business, Innovation and Skills is consulting about an even greater use of mediation in employment disputes as an alternative to the tribunal process, put into practice by developing a registration scheme for workplace mediators.

•  21 May 2011 saw the deadline for implementation of the principal requirements of the EU Mediation Directive 2008/52/EC. The Directive cannot be under - estimated.  In countries such as eg. Italy, mediation is now mandatory, whilst in Germany, mediation is strongly encouraged. 

The Directive is aimed specifically at cross-border mediations and includes measures that go some way towards promoting consumer-awareness of and access to ADR and seeks to encourage the use of ADR as a cost-effective and quicker alternative to civil litigation in EU cross-border commercial disputes.   It is thought that as parties become more familiar with the Directive and in turn realise the potential benefits that mediation offers, there will be a considerable rise in the number of international mediations taking place.

 (please refer to my blogs:  http://www.mablaw.com/2010/08/european-mediation-update/ and dated 26 August 2010 entitled European Mediation Update; and also http://www.mablaw.com/2011/02/eu-consults-on-the-use-of-alternative-dispute-resolution-adr-for-resolving-commercial-disputes/ dated 3 February 2011 entitled “EU consults on the use of ADR”.  )  

•  The Ministry of Justice together with UK Trade and Industry announced in May 2011 their plans to strengthen the UK’s reputation as a global leader in legal services, encouraging overseas businesses to make use of the UK’s excellence in commercial arbitration, mediation and court services.

 The above changes illustrated above, to the use of mediation in this country and Europe, show that mediation is here to stay! A successful mediation of a dispute can result in a settlement amenable to all parties and can often result in the continuation of a commercial working relationship.  An effective mediator can facilitate a successful outcome to the satisfaction of all willing parties and save time and costs.  Of course, mediation will only be successful where all parties are willing to engage in the process.  Mediation is here to stay and those involved in disputes at all levels should give serious thought to getting involved in the mediation process.  MAB’s Tim Constable is a CEDR accredited mediator and so is worth bearing in mind if you feel he can assist you in settling your dispute.

(i) Conditional Fee Agreement (CFA/”no win, no fee”) where the “success fee” is   potentially recoverable from the losing opponent; and

(ii) After the Event Insurance (ATE) where against the costs of losing the case, the premium is  potentially recoverable against the losing opponent.

Under Part 2 of the Government’s proposed Legal Aid Sentencing and Punishment of Offender’s Bill, recovery of the success fee and ATE premiums will be abolished.  Unless the Bill is overturned in the House of Lords in the autumn, it is predicted that the Bill could be in force as early as April 2012.

The Lord Chancellor and Secretary of State for Justice, Kenneth Clarke, introduced the second reading of the Bill in the House of Commons on Wednesday 29 June 2011 and the Bill was passed with a vote meaning it will now be considered for scrutiny by a Public Bill Committee.  Those who are interested and who want to have their say on the proposed Bill, can submit their views in writing to the House of Commons Public Bill Committee.  The deadline for written submissions is at the end of the Committee stage on Thursday 13 October 2011.

The Government does not propose that the Bill be retrospective and so any prospective Claimant reading this article who thinks they may have an eligible civil litigation case (whereby their case is assessed by their lawyer to have at least a 60% chance of success) should seek appropriate advice from their solicitor now because a CFA/ATE must be taken out before the abolition takes effect.

Once the law is changed, many claimants will lose the ability to fund their case because they will need to pay their own success fees and ATE premiums.  These fees and premiums could add up to more than the damages recovered, even if their case were to succeed.

The proposed amendments have been subject to widespread criticism on the grounds that the proposed  legislation will remove access to justice to a large proportion of the population and countless small and medium size businesses who rely on “no win no fee” .  Watch this space for developments and updates.

See also:http://services.parliament.uk/bills/2010-11/legalaidsentencingandpunishmentofoffenders.html

A second company has been charged with Corporate Manslaughter under the Corporate Manslaughter and Homicide Act 2007.  This follows the successful prosecution of Cotswold Geotechnical Holdings Ltd in February of this year, when it was found guilty of corporate manslaughter at Bristol Crown Court.

Following the death of Steven Barry, an employee, in May 2008, Lion Steel Ltd has been charged with corporate manslaughter under the Corporate Manslaughter and Homicide Act 2007. Lion Steel Ltd produces storage products including cupboards and lockers. Mr Barry fell through a fragile roof panel on an industrial estate and died as a result of injuries sustained in his fall. In addition to the company being charged, three of Lion Steel’s company directors have been charged with gross negligence manslaughter and charged under section 37 of the Health and Safety at Work Act 1974 (HSWA 1974) for failing to ensure the safety at work of their employees.

Lion Steel is also charged under section 2 and 33 of the HSWA 1974 for failing to ensure the safety at work of its employees.

The first hearing in relation to this prosecution will take place at Tameside Magistrates’ Court on 2 August 2011.

Although many people feel that the Corporate Manslaughter and Homicide Act 2007 was not designed to prosecute small business like Cotswolds or indeed Lion Steel Ltd, what this case does demonstrate to businesses is that whatever the size of their organisation, employers must ensure that they comply with their legal responsibilities and keep abreast of the latest Health and Safety legislation. Failure to comply with the legislation can result in serious consequences for both organisations and individuals alike.  For further information please visit:   

 http://www.hse.gov.uk/leadership/legislation.htm

Matthew Arnold and Baldwin has been acting for the Bank for 22 years. 

Head of the Banking & Finance Group, Steven Mills, comments, “we are delighted to have secured this position once again, especially as this review involved an intensive three month selection period that resulted in the number of firms on those panels being reduced”.

Matthew Arnold & Baldwin’s 80 strong Banking & Finance Group has grown year on year and has one of the largest Banking & Finance practices outside of London. The Banking & Finance Group amounts to over 40% of the firm’s turnover and are recognised by Chambers and Legal 500 as experts in their field.  The Group are on the panel of a number of financial institutions including RBS, UBS, Santander and Allied Irish Bank. 

To read The Lawyer’s coverage on this, click here.

Click here to view the article in full. Click here to read about Privacy & Data Protection journal.

This pseudo-tax known as the, Art Resale Levy, (or droit de suite in French) means that sellers will have to pay royalties on works by European artists who have died in the past 70 years, including Pablo Picasso, Henri Matisse and Francis Bacon. Cash is payable to the artist’s heirs each time a work is resold.

The tax already exists in mainland Europe and is due in Britain from January, applying to all works priced above (EURO)1,000 (£900) and on a sliding scale of 0.25 per cent to 4 per cent. 

There will be intellectual property implications of this, if the directive is brought into force in UK.

On the other hand, so the argument goes, why shouldn’t the family reap some of the benefits (in particular when success is mostly posthumous)?

For a more detailed review of the tax’s history and the UK’s derogation until 2012, I suggest an article in the FT, which can be found here (although please note that the FT is subscription only), and for the view of the art lobbyists (LAPADA), click here: LAPADA, and follow the links at the bottom of the page.

There will be scope for planning to avoid this levy if the UK is not be able to extend the derogation beyond 2012, and if you are interested in discussing this with a solicitor, please call 01923 20 20 20 and ask for the Wealth Management Department.

For advice on directors’ duties please contact Emma Cameron or any other member of our Corporate Team.

Recent press reports have highlighted a growing number of EU Nationals moving to the UK to utilise the relatively benevolent bankruptcy laws.

Under UK bankruptcy legislation, an individual is usually discharged from bankruptcy within a period of no more than 12 months. This contrasts with Germany and Ireland where the bankruptcy period can be up to 9 or 12 years respectively.

In terms of jurisdiction the debtor must show that his Centre Of Main Interest (COMI) is in the UK. A debtor is at liberty to change his COMI and the country in which the debtors debts were incurred is not a relevant consideration in establishing COMI. The true enquiry is to the debtor’s habitual residence.

The majority of challenges to date being pursued by the Official Receiver or creditors are applications to annul the bankruptcy on the grounds that the order should never have been made for want of jurisdiction. The view has been that the only relevant question is whether the debtor has made a genuine COMI switch.

The current practice in the High Court in London, and one which is spreading to the regions, is that whilst debtors may chose to move COMI, if there are grounds for suspecting that they have done so deliberately when already insolvent or threatened with insolvency, the Court will need to scrutinise the facts said to give rise to the change and satisfy itself that the change is not illusory and has the necessary element of permanence.

The practice is for the petition to be adjourned pending production by the debtor of further evidence on such matters as accommodation, employment and transactions on bank accounts with a view to establishing at the outset the genuineness of the COMI switch. It is not uncommon for the Registrar to question debtors about their circumstances having considered the paperwork and additional evidence furnished in support of the claim to a UK COMI.

It is likely that the laws will develop in this area so as to clarify the criteria to establish genuineness on the part of the petitioning debtor. We are therefore advising our clients to adopt a thorough approach in order to establish a genuine COMI switch.

Based on recent experience, it is clear that whilst the ultimate goal for most solicitors is partnership status, it is often taken without due regard to the financial implications in the event of insolvency.

We have seen many examples of EPs raising finance to cover PII premiums, personal tax payments and the implementation of new practice management systems. In these situations, the lender does not always take a debenture over the LLP’s assets or personal guarantees from the EPs. In the event of insolvency, there are real concerns about whether the EPs rank as unsecured creditors or should be treated, by analogy, as shareholders. Is there an ability to set-off the capital accounts and the overdrawn current accounts?

If you are an FSP, did you test the strength of the indemnity offered by the EPs when taking partnership? Have you ever re-considered the position? Have deals been done with landlords that may benefit the EPs now, but leave the FSPs financially exposed in years to come? Did the EPs retain the right to use tax reserves as working capital? What control do the FSPs have over the EPs decisions to raise further funding without giving personal guarantees? What is the position of FSPs who have left the firm?

As a member of the LLP, do you really understand the financial performance of the LLP or do you leave it to the inner circle? Do you see regular management accounts? Do you understand what personal contribution you may have to make in the event of insolvency? If the LLP is facing financial difficulties, who has the authority to take independent advice from third party advisors? Its often not what you know, but what you don’t know. What do you not understand and what questions should you be asking?

So my message is, revisit your Members’ Agreement to ensure that you really understand your personal exposure in the event of insolvency.

Both the existing statutory process for an employee to request a flexible working pattern and the now defunct statutory right to request working beyond a default retirement age involve a highly prescriptive procedure that the employee must follow in order to trigger their statutory rights. Although the default retirement age is to be abolished from 1 October 2011, tribunals are still dealing with claims arising from notices of intended retirement issued by employers before 5 April 2011. In one such case, Bailey v R&R Plant, The Employment Appeal Tribunal recently said that it was not enough for an employer to merely tell an employee that they were entitled to make a request to continue working beyond the employer’s proposed retirement date. In order to comply with its statutory obligations, the business had to notify the employee of the “essential conditions” that the employee had to comply with during the statutory process, ie the business had to tell the employee that in order to trigger the business’ obligation to consider his request to work beyond retirement age, the request had to be in writing and state that it was being made under paragraph 5 of Schedule 6 to the Employment Equality Age Regulations 2006 (now repealed).

The statutory flexible working request procedure is, if anything, more onerous on the employee than the statutory right to request working beyond normal retirement age was. In order to trigger a business’ obligation to conisder a flexible working request, the employee’s application must: 

• set out the work pattern the employee is requesting;
• specify their entitlement to make the application in accordance with the Employment Act 2002;
• specify any effect that they anticipate the proposed work pattern would have on the employer’s business; and
• specify how such effects might be accommodated or addressed in practice.

In the past, tribunals have held that they have no jurisdiction to hear a claim for breach of the flexible working procedure because the employee’s flexible working request did not meet these requirements. Given that background, I would be interested to see whether a tribunal would now take the view that a business is obliged to notify its employee of these requirements. The difference, of course, is that the retirement process is triggered by an employer’s notice to the employee of an intended date of requirement, whereas in the flexible working process, the first step is the employee’s application. I think it is more of a stretch to imply an obligation for an employer to notify employees of deficiencies in their flexible working application than to tell them what they have to do if they want to request working beyond a default retirement age but there are some parallels.

Even if a tribunal would not be willing to imply an obligation that a business must effectively guide its employees through a proper flexible working application, there may be good reasons for businesses to do so anyway. Irrespective of any rights arising out of the flexible working procedure, in some circumstances employees who are refused the right to work flexibly may be able to pursue claims for sex discrimination, or resign and claim constructive dismissal. The more thoroughly such requests are dealt with, the better a position the employer will be in to defend themselves against such claims.

There is the thorny issue of facilitation payments – payments made to officials to speed up processes, for example to get an export licence through quicker.  Lots of business are asked to pay these, but what should you do, as the Bribery Act makes it clear that you should not pay them?

Corporate hopitality – can you take clients to Lords or out to lunch?  Can you send them a client to say “thank you”?  One interesting question that came up yesterday was whether you can take away the personal partners or families of the people you want to impress?

But a big thank you must go to Lord Triesman and the Sunday Times.  Thank you for providing a very live case study about alleged corruption by certain members of football’s international governing body, FIFA.   Can the Bribery Act catch them if they have done anything wrong?  Would accepting a gift that is for a charity or a “good local cause that helps the community” rather than the member of the committee’s back pocket amount to a bribe?  And what is the story with Qatar’s bid, because according to Transparency International Qatar is deemed to be a less corrupt place than the UK, as can be seen here: http://www.transparency.org/policy_research/surveys_indices/cpi/2010/results?  Should England have played ball to have won the right to host the 2018 World Cup?  Or should England be keen to be the winner of the more humble fair play award?

In your own business, can you afford not to play keepy uppy with what your competitors are doing?  Or can you afford not to play ball with the requirements of the new Bribery Act?  Do you play a gung ho formation and just go for it, or play it with a solid defence?

These are the dilemmas facing businesses.  But there are very serious issues at stake and businesses can’t afford to bury their heads in the sand.  To continue the sporting analogy, you might want to make your own luck, and speak to us to find out more what tactics to pursue.

As part of the reforms, the ICO will also be given greater investigatory powers, under which the ICO will be able to demand information from Internet service provides (ISPs) and telecommunications companies to assist with investigations into possible breaches of the Regulations. The ICO will also be able to audit ISPs and telecommunications companies to ensure that they assist the ICO in these investigations.

Docketing – an overview

Many large commercial cases, particularly the international ones, are heard by the Commercial Court, a division of the High Court.  The Commercial Court is governed by CPR 58.  The Commercial Court has developed special procedures for resolving cases in what is considered to be a cost and time efficient manner and is an effective court where generally costs are not found to be out of proportion to the amounts in dispute and the complexity of the issues involved.   In his final report, Lord Justice Jackson recommended that there be developed a greater use of “docketing” in the Commercial Court. 

Advantages to Docketing

The advantages of docketing are that it enables a judge to become familiar with a case – both with the parties and the documents involved.  In this way, the judge can make what should be appropriate directions for the efficient case management and conduct of the case.    Whereas, a judge who comes to a case “cold” may not be as readily able to familiarise  himself with the parties or the documents involved.  This is especially important where there is a plethora of documents involved.

The Recommendations

Section D4 of the Guide entitled “Case Management in the Commercial Court – Designated Judges” (pages 25-26 of the Guide) has been changed to incorporate Lord Justice Jackson’s recommendations on docketing.  That is, the Guide has been amended to permit more frequent allocation of appropriate cases to designated judges.  The Guide is not just restricted to exceptionally large or complex cases but now allows for a broader category of cases which can be assigned to a designated judge.  The assignment of a designated judge to a case in the Commercial Court may now be made in circumstances where it is appropriate to do so and where any or all of the following factors apply:- 

• The size or complexity of the case;
• The fact that the case has the potential to give rise to numerous pre-trial applications’
• There  is a likelihood that assignment of a specific judge will lead to a substantial saving in costs;
• The same or similar issues arise in other cases;
• Other case management considerations.

Paragraph D4.2 of the Guide has also been expanded. Although an application for the appointment of a designated judge should be made in writing at the time of fixing the Case Management Conference, now, in appropriate cases, the court has a discretion to assign a designated judge to a case without the need for the making of such an application.

A new paragraph D4.4 has also been added to the Guide.  Where a previous application in a case has been determined at a hearing or on paper by a particular judge, the parties to the dispute should state the identity of that judge when lodging papers so that those papers can be placed in front of that judge again, if reasonably practicable, thus ensuring case continuity.

Docketing, then known by another name, was one of the major proposals of the Woolf reforms back in 1998. However, lack of judicial resource meant that the idea, however well intentioned, never took off. Docketing may well be put in place for the very highest value claims but, since the allocation of those cases is carefully allocated anyway, this proposal is unlikely to be of any real effect. Time will tell.

According to that Opinion, rules ordering an ISP to install a system to filter and block electronic communications so as to protect intellectual property rights, in principle infringes fundamental rights.

To be permissible, the rules must comply with the conditions laid down in the Charter of Fundamental Rights and so must be adopted on a legal basis that meets the requirements concerning ‘the quality of the law’ at issue. In other words, the law in question must be accessible, clear and predictable. Permitting a court to order such measures would in effect create a new obligation on ISPs to monitor all content and to block pre-emptively content likely to infringe copyright. This could infringe the fundamental rights of consumers who may not be in a contractual relationship with the ISP or even citizens of the relevant country.

Ed Davey said, “ Our objective is to introduce a final Bill in the Second Session, although we will look at the opportunity for introducing the Bill earlier if parliamentary time allows. One reason for publishing the draft Bill as soon as possible is that if parliamentary time allows, we may be able to make it a first Session Bill, but that is not within my control.”

The background to the draft Bill which will set up a “supermarket ombudsman” is that the Groceries Supply Code of Practice was recommended by the Competition Commission following its market inquiry into the supply of groceries and report in April 2008. The Commission concluded that, although the exercise of buying power by grocery retailers was in general a good thing for consumers, it could raise concerns in certain circumstances. For instance, if retailers transfer excessive risks or unexpected costs to their suppliers in the hope of gaining a competitive advantage, it is likely to blunt suppliers’ incentives to invest in new capacity, products and production processes. Which in turn could be bad for consumers, and the Code of Practice is intended to remedy the problem.

The groceries supply code will apply to all companies active in the sector with an annual retail groceries turnover of £1 billion or more. Its provisions are now included in all retailers’ contracts with their grocery suppliers. It gives suppliers greater security, which should encourage them to invest in their operations. In essence, the code is about introducing clear standards and greater certainty.

The Competition Commission concluded that the code would be far more effective if it was enforced by an adjudicator. The idea is to dispel the climate of fear among suppliers, who felt they risked being black listed by the big supermarkets if they invoked the previous Code of Practice. The Commission does not have the power to establish an ombudsman. After failing to win agreement amongst the retailers to establish such a body on a voluntary basis, it asked the previous Government to act. The Coalition Government agrees that the Code of Practice needs to be independently monitored and enforced if it is to succeed.

The “supermarket ombudsman” will act as arbitrator in disputes arising under the code, and will have investigatory powers and, one assumes, powers to fine and censure retailers in the more serious cases of code abuse. We will know more when the draft Bill is published.

But who will ultimately benefit from the new Code and the appointment of an ombudsman? The consumer, the food supplier or both? Only time will tell. But one thing is for sure, the large grocery retailers in the UK will not be hiding under their duvets in fear of the new Bill. The Government will not want to risk being too onerous on them. After all, with a weak UK economy forecast for the foreseeable future, the last thing any Government will want to do is to alienate a sector which continues to increase trade and revenue even in these times of austerity. The big supermarkets provide UK plc with a lot of tax revenue, which is much needed in the Treasury coffers in the current climate. The ombudsman may be on his way, but he is unlikely to be changing too much any time soon.

This environmental assessment will be “voluntary”, but the Government intends to produce one environmental report per region. It will then be consulted on, in line with the process laid down in the Environmental Assessment of Plans and Programmes Regulations 2004, in order to help local authorities identify issues relevant to their areas and policies or initiatives in the regional strategies which are no longer in effect.

The Government intends to abolish the regional strategies through the Localism Bill, and the environmental assessment process will be carried out during the Bill’s parliamentary progress.

The amendments include:

- no longer having to state whether the company was a traded company at any time during the return period;

- when describing a company’s principal business activity, the classification scheme that companies may use is the 2007 edition of the UK Standard Industrial Classification of Economic Activities (rather than the 2003 edition); and

- requiring the annual return to state whether any of the company’s shares were, at any time during the return period, admitted to trading on a “relevant market” which, for example, would include the London Stock Exchange’s main market, AIM and regulated markets outside the UK.

The regulations setting out these amendments are currently in draft form but it is intended that they will come into force on 1 October 2011 and apply to returns made up to that date or a later date.

Most people leave thinking about their tax returns until some time on the 29th of January.  In fact, that’s almost the busiest day of the year for me.

On 30 March 2011, HM Revenue & Customs (HMRC) released a warning that the next lot of tax returns (2010/11) are going to be subject to a new penalty regime starting tomorrow (from April 2011).

If you fill in a tax return you will shortly receive your 2010/11 notice and paper return. There will also be information about the changes to the penalty regime:

Penalties for filing a tax return late

• Day one: an initial penalty of £100, even if you have no tax to pay or you have already paid all the tax you owe
• Three months late: an automatic daily penalty of £10 per day, up to a maximum of £900
• Six months late: further penalties, which are the greater of five per cent of tax due or £300

That is a total of £1,300 for filing a return 6 months late.

If the return is 12 months late there will be a tax based penalty up to 100% of the tax due.

Penalties for paying your tax late

• 30 days late: you will be charged an initial penalty of 5% of the tax unpaid at that date;
• 6 months late: you will be charged a further penalty of 5% of the tax that is still unpaid; and
• 12 months late: you will be charged a further penalty of 5% of the tax that is still unpaid.

These penalties are on top of the interest that HMRC will charge on all outstanding amounts, including unpaid penalties, until your payment is received.  In most cases penalties are added automatically, although there might be grounds for appeal.

What should you do?

If you have a very straightforward tax return then you may be able to prepare this yourself.  If so, don’t leave it to the last minute! 

If you have a more complicated situation then you should consider taking advice.  This might include for example, if you are self employed, a partner in a partnership, a director of a company, have capital gains, overseas issues or if you may be able to claim tax relief, etc.

If you would like assistance in calculating your tax or preparing your tax return, please contact me on james.odds@mablaw.com or 01923 20 20 20.

So to add to your misery, here are some initial thoughts from me on the Fresh Business Thinking website.

The Court of Appeal has considered the case of Rajval Construction Ltd v Bestville Properties Ltd [2010] EWCA Civ 1624 and whether a default judgment should have been set aside without conditions, where the Claimant failed to serve a Response Park with the Particulars of Claim and in breach of the requirements as set out in CPR 7.8.

Although the Judgment is dated December 2010 it was only recently made available to the public.

Pursuant to CPR 7.8 when a Claimant serves the Particulars of Claim on a Defendant, whether they are contained in the claim form, served with it or served subsequently, they must be accompanied by a form for defending the claim; a form for admitting the claim and a form for acknowledging service of the claim.

This decision again highlights the importance for a Claimant or their legal advisor in serving a response pack on the Defendant with the Particulars of Claim.  A breach of this requirement will be to a Claimant’s disadvantage, especially when the Court is asked to exercise its discretion pursuant to CPR 13.3 when asked to consider setting aside a default judgment.  It is particularly important where the Defendant is a litigant in person or foreign.

Shared ownership leases should contain a Mortgagee Protection Clause (MPC) to protect the mortgage lender from suffering an excessive shortfall.  Without this clause, lenders should and usually would refuse to lend.

This clause has become extremely important with the economic downturn as properties are sold for much less than 2-3 years ago.  Lenders are therefore suffering shortfalls and relying on the MPC more regularly than say, 2 years ago.

The MPC allows the mortgage lender to reduce the amount payable to the Housing Association (HA) for its share in the property, i.e. the amount to staircase the lease to 100% which the lender will usually complete simultaneously with the sale of the property.

The main part of the claw back provisions is the Principal Mortgage Debt (PMD).  Some solicitors (and I must admit, myself included when I first read such a lease) presumed that this meant the original mortgage advance.  However, read it again and you will understand that it means the amount of the original advance that remains outstanding.

If the mortgage was an Interest Only mortgage, the full amount will remain outstanding in most circumstances.  If it was a Repayment mortgage, then the capital balance should have been reduced as long as some payments were made.

The bank is also allowed to reclaim up to 12 months’ unpaid interest and should normally use the first 12 months (not the 12 month period which add up to the most unpaid interest).

Finally, certain costs and expenses can be reclaimed such as rent/service charges paid on behalf of the borrower, legal costs, estate agent’s costs etc.

There have been some cases where, due to the decrease in property values, the mortgagee pays exactly zero for the HA’s share in the property.

This is just a brief overview rather than a comprehensive guide to shared ownership leases and relates to shared ownership leases pre April 2010 as followng that date, changes were made which saw the MPC widened.

The result is that fewer empty non domestic properties will be able to claim property relief from business rates. With the current economic climate in mind many were hoping that the threshold would not be reduced. Unfortunately this is not the case.

Some lenders often ignore these letters which is a mistake. The relevant companies only write to the mortgage lenders when arrears reach a certain level. The lender should therefore be prepared to pay the arrears in order to protect its security. The last thing that any lender will want is to ignore these letters and then find that the lease has been forfeited by the landlord. This will of course leave the lender without any security and will require an application to the court for relief against forfeiture. This will also lead to the lender paying legal costs which could have been avoided. In addition, ignoring the demands received will mean that the landlord just adds interest and/or costs on to the account which goes against the spirit of TCF (Treat Customers Fairly) which most lenders should be following.

The mortgage conditions will, unless poorly drafted, invariably allow the lender to pay any sums due to protect its security and then add those sums to the mortgage account. For some reason, many lenders wait until the property is in their possession before paying the arrears but this is a dangerous practice. I suspect that until it is in their possession, the feeling may be that it is not, strictly speaking, their problem. I do not take the same view.

I would recommend in the first instance, that the lender contacts the borrower to start a dialogue. If they discover that the borrower has recently paid the arrears or will be doing so soon, then they can rest easy (subject to confirmation from the landlord of course). If they discover that the borrower will not be paying, then they can pay the arrears to avoid further costs, interest and ultimately, forfeiture.

 In this case, the court held that a default judgment can and will be set aside where it is found that the claimant has not complied with CPR 6.17(2): notice and certificate of service relating to the claim form and CPR 7.8(1) form for defence which must be served with the particulars of claim “the response pack”

 CPR6.17 states that where a claimant serves the claim form, he must within 21 days of service of the particulars of claim, file a certificate of service.  Ina addition, Judgment in default under CPR 12 may not be obtained unless a certificate of service has been filed.

 CPR 7.8 sates that in addition to the particulars of claim, a claimant must also serve on the Defendant the Response Pack ie. a form for defending the claim; a form for admitting the claim; a form for acknowledging service.

In Gulf International Bank BSC Mr Justice Simon held that the words used in CPR 7.8 were clear and mandatory.  The  Claimant must file a certificate of service within 21 days and may not obtain judgment in default if he has failed to do so.  Although he did say that at the court’s discretion and under the court’s powers in CPR 3.10 where there has been an error of procedure such as failure to comply with a rule or practice direction and where there is no prejudice to the other side, the court may make an order to remedy the error.

 However, in Gulf International Bank BSC, the Claimant also failed to provide the Defendant with a Response Pack in accordance with CPR 7.8(1) which is again mandatory.  This was a more serious breach of court procedure. It is the Response pack which “highlights the procedural steps which must be taken to prevent judgment being obtained in default.”  If a Defendant is not provided with the very form which tells them how to avoid a default judgment being entered against them, then the Claimant is clearly in breach of his duty.

 Mr Justice Simon highlighted the importance of a Defendant being provided with a Response Pack, not least because in this particular case, the Defendants were not represented by English Solicitors and thus who may not have had as thorough an understanding of English procedural law compared to  those who practice in the English courts.

 Although the court has a discretionary power to set aside default judgment under CPR13.3 in this case, there was a good reason why the default judgment should be set aside so that injustice could be avoided.

 Mr Justice Simon also found that the Claimant had not complied with the applicable pre-action protocol and had not sent a letter before action setting out the nature of the case before proceedings were begun.

 Accordingly, the Claimant was ordered to pay the defendant’s costs of the application.

 Potential claimants – be warned! It is imperative that claimants and their legal advisor follow the requirements of the CPR in relation to filing certificates of service with the Court and issuing the Defendant with the Response Pack; this is especially important when dealing with a foreign defendant although should as a matter of practice be followed when dealing with any defendant.

The charitable sector is anyway facing cuts and pressures due to the economic situation, and frauds committed against charities and donors only serve to make matters worse.

Skilled workers from overseas who do not take home big salaries will have to satisfy strict criteria.  Fewer than 21,000 a year will be let in because of a new cap on the number of people coming to the UK for employment.

Applicants will need a “certificate of sponsorship” from a UK employer and they will be given points according to the rarity of their skills, for example scientists will be ranked highly. Employers filling a vacancy that attracts a salary of £150,000 or more will not be subject to the limit on the number of certificates that may be allocated.

For more information on this change, the press release can be seen here.

Looking at the bigger picture, the Government is sending out mixed messages.  On one hand, this will be welcomed by business leaders who are concerned about a brain drain from the UK.  This is clearly intended to encourage skilled immigration and to support both the knowledge based economy as well as the City.  On the other hand, HM Treasury have raised tax to 50% on the highest earners with hints from the Chancellor that the beneficial tax regime in the UK for resident non-domiciliaries (who will be the ones most interested in the above announcement) may be restricted. In an increasingly mobile global society, there are simply too many other choices and, put simply, tax is a large part of the equation when choosing where to live.

The Government needs to have a clear policy to increase the skill set (and therefore the wealth) of the UK through targeted and consistent measures.  It is not enough to simply fiddle with immigration quotas.

Where, as in this case, the fundamental motivation for the transfer was a fear on the part of the director that he was going to be subject to a major claim against him arising out of his misappropriation of funds in a bank account in respect of which he had fiduciary obligations, the director could not of his own volition tranfer some of his shares in the company by way of a gift to his daughter and wife.  The company had not authorised the director to issue share certificates to his wife or daughter or to record them as shareholders in the company’s register of members. Accordingly, legal title had not been effectively transferred.  In effecting the gifts, the director had tried, without success, to realise an immediate and outright transfer of his beneficial interest. However, no amount of benevolent construction of those transactions could lead to a conclusion that the director was intending to declare himself a trustee in respect of  his shareholding. Moreover, the director had failed to take the necessary steps sufficient to enable his wife and daughter to obtain a transfer of the shareholding without further recourse to assistance from him. All they received were documents purporting to be new share certificates in their names which the director had created without the company’s authority. The result was that, without the director’s assistance in making available the duly completed stock transfer forms, neither his wife nor his daughter could perfect the intended gifts. Accordingly, no beneficial interest had been transferred.

This case highlights once again that people trying to put their personal assets (in this case shares) beyond the reach of creditors will come unstuck if their motivation is to defeat the interests of those creditors. Furthermore, the case also highlights the importance of company board meetings approving share transfers. A proper transfer of shares requires: (i) the transfer to be approved by the directors passing the requisite resolution (usually at a duly convened board meeting, but as an alternative, the resolution could be passed by directors’ unanimous written resolution); and (2) the directors also resolving to approve a person (normally another director or the company secretary) to deal with the mechanics of recording the transfer in the company’s statutory records, and to issue new share certificates. Furthermore, if a transferee only wishes to transfer the beneficial and not the legal title, then he or she should enter into an appropriate trust instrument, for example, a Declaration of Trust over the shares, clearly setting out who the beneficiaries are and the exact details of the shares which are the subject the trust. Otherwise, as this case highlights, going forward there could be be serious question marks over the validity of the share transfer as well as the the validity of any purported transfer of the legal and/or beneficial title to the shares.

Corporate insolvencies across the board were down on the same period last year: compulsory liquidations and creditors’ voluntary liquidations decreased by 11.3% (seasonally adjusted), corporate receiverships by 23.9%, administrations by 24.4% and company voluntary arrangements by 22.4%.

Personal insolvencies followed the same trend, save for debt relief orders. Bankruptcies decreased by 29.2% and individual voluntary arrangements by 5.4%. Debt relief orders increased by 15.4%.

Further analysis of these statistics by the Corporate Recovery and Insolvency Team follows shortly.

Every year some clever bods in a think tank work out when Tax Freedom Day is.  This is the day after which you are working for yourself.  Until then, the wages earned all belong to the taxman.  So Tax Freedom Day is generally a cause for celebration.

Not this year though.  Due to changes in the tax system and, especially, the rise in VAT, tax freedom day has moved back by 3 whole days. 

So we’re all slaves to the state until 30 May this year.

If you are looking for true tax freedom, consider moving to Monaco.  Or if you are looking for something less radical why not call our Wealth Management Team.

The PD is a substantial piece of legislation which governs how companies sell and list securities within EU markets.
On that day, the EC published a proposed Directive amending the PD. The draft provides that EU member states should adopt implementing measures for this amendment by 31 December 2012 and that those provisions shall be applied from 1 January 2013.
The proposed amendments are limited but nevertheless important and concern:-
 the information that may be incorporated by reference in a Prospectus;

 the procedures for the approval of a Prospectus and the conditions in accordance with which time limits may be adjusted;

 certain provisions relating to the publication of a Prospectus; and

 the provisions concerning the dissemination of advertisements announcing the intention to offer securities to the public or admission to trading on a regulated market, in particular before a Prospectus has been made available to the public or before the opening of the subscription.

The proposed directive will now be sent to the Council and the European Parliament for consideration.

About the Author: Joss Alcraft is a partner in the corporate team at Matthew Arnold & Baldwin LLP, specialising in private and public comany mergers and acquisitions, private and public company rights issues and other fundraisings, advising issuers on joining the PLUS and AIM markets, advising corporate advisors and nominated advisors to those issuers, joint ventures and business restructuring

This was my third interview on Morning:MK, having previously spoken to them about absenteeism during the last Football World Cup and the fact that there is no statutory right to paid time off during next year’s Royal Wedding. This week they let me pick the next song to be played in their daily “guilty pleasures” slot. I had to pick my guilty pleasure from the 1993 chart and went for “Two Princes” by The Spin Doctors.

The case in question concerned a guarantee that was so fundamentally flawed and unsuitable for the relevant transaction, that the Court did not have the power to step in and rectify the drafting mistakes. A Court only has the  remedial tools of construing a contract and rectifying obvious errors, in order to give the contract business purpose. However, where there is a genuine dispute over the existence of a guarantee or as to the terms of the guarantee itself, a Court cannot piece together the intention of the parties and create a document for them. That is simply beyond the powers available to the Court.

So, what can we learn from this latest decision? Well, in simple terms, that a party seeking to rely upon a guarantee must ensure it is accurately drafted and contains all the required terms.  Do not leave anything to chance, otherwise there is no guarantee of your guarantee standing up to scrutiny before a Court.

The articles of association of a company (articles) govern its constitution and often contain provisions relating to the transfer of shares. If a company has directors or employees who own shares, the share transfer provisions may contain “good leaver” and “bad leaver” provisions. Such provisions have the effect that, if a director or employee ceases to work for the company, his shares are automatically offered for sale to the other shareholders. If the director or employee leaves for a “good reason”, he receives “fair value” for his shares and if he leaves for a “bad reason”, he receives nominal value for his shares.

The case

A company removed a director (D) and invoked the automatic “good leaver” share transfer provisions in its articles. These provisions stated that D was entitled to the “fair value” of his shares, to be determined by a third party accountant. D nominated three potential accountancy firms and the company selected one of those firms. D then refused to sign the accountancy firm’s letter of engagement, demanding that the company first disclose various documents and taking issue with certain parts of the accountancy firm’s letter of engagement.

The Court of Appeal decided in D’s favour, stating that the agreement to appoint an accountancy firm under the articles had to be a tri-partite agreement between the company, D and the accountancy firm.

The company then brought further proceedings on various grounds, including that:

(a) it was necessary to imply a term into the articles that the accountancy firm’s terms of engagement would be binding on the parties unless otherwise unreasonable;

(b) it was necessary to imply a term into the articles that D was obliged to co-operate with the engagement of an accountancy firm by not unreasonably withholding his consent to an appointment; and

(c) the wording in the articles relating to the appointment of the accountancy firm had broken down and the court should substitute its own wording in order to determine the fair value of D’s shareholding.

Decision

It was decided that:

(1) generally, articles are to be construed in the context of their commercial purpose and in the light of their full text;

(2) the articles in question did not state that the accountancy firm could be appointed on the basis of a unilateral agreement with the company;

(3) having regard to the legal principle that “a contract should better function than perish”, it had to be implied into the articles that D could not unreasonably withhold his consent to the appointment of the accountancy firm. Consequently, D’s actions in withholding consent were unreasonable; and

(4) despite the wording in the articles relating to the appointment of an accountancy firm having broken down, it was not a case that would require the court to step in and take control of the valuation process.

Comment

This case highlights the importance for companies to put in place articles which contain carefully worded share transfer provisions.

Cream Holdings Ltd v Davenport [2010] EWHC 3096 (Ch)