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Can you risk relying on your Solicitor to look out for you?

February 1st, 2012 by David Eminton

Pinsent Masons LLP,  a leading firm of solicitors in the construction industry, has successfully defended a negligence claim brought by their clients Shepherd Construction Limited.

The claim, on which judgment was given in the Technology and Construction Court on 19 January 2012, arose as a result of an error in a construction sub-contract that resulted in Shepherd Construction not being able to rely on a pay-when-paid clause after its employer became insolvent (it went into an out of court administration procedure).

The clause was effective at the time that it was drafted but subsequent legislation made it ineffective in certain circumstances.

Shepherd Construction argued that as it had retained Pinsent Masons LLP over many years to give construction law advice and to review a number of different construction contracts there was an implied overarching retainer, which imposed a duty on Pinsent Masons LLP to review advice previously given in the light of changes to legislation.

The Technology and Construction Court struck out the claim. The Judge said ” There is something commercially and professionally worrying if professional people are to be held responsible for reviewing all previous advice or indeed services provided. There is a difference to be drawn between a specific retainer or commission which imposes a continuing duty on a professional to keep earlier advice or services under review and some sort of obligation which requires the professional to review and revise previous advice given.”

For lawyers this decision will be received with a sense of relief confirming, as it does, that the mere acceptance of repeat instructions does not create a contract to keep past advice under review. For clients the case is a wake up call to make sure that even where they regularly instruct solicitors to give specific advice they must ensure that if they want past advice and drafting reviewed that this is specifically agreed as part of their retainer for legal services. No doubt clients can expect helpful recommendations and suggestions to be given by more pro-active lawyers but the client risks being caught out, as Shepherd Construction were, if they fail to ensure by way of an appropriate contract with their lawyers that their legal documentation is kept under constant review. The full judgment in this case is available at  http://www.bailii.org/ew/cases/EWHC/TCC/2012/43.html .

For further information on this case, please contact David Eminton .For further information on insolvency event clauses in commercial contracts please contact Mike Pavitt  or Richard Atcherley.

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Health & Safety : You think you are ok?

January 17th, 2012 by Cliff Morris

Recently we were approached by a company that has seen rapid expansion over the last 10-15 years in the manufacturing sector.  The expansion has been good for business and for the employees, in that the company has been able to develop its range and expand it’s workforce. 

As the business has grown, the product lines have developed, as have the number of machines utilised to manufacture those products.  In accordance with good business practice, the company always buys state of the art machinery, whilst continuing to use and repair the machines that have manufactured their core products.

Following a visit from the HSE and the expansion to various locations there was a need for a new Health and Safety strategy and a review of the existing policies,. This review highlighted that a machine which was state of the art in the late 80’s or early 90’s was no longer state of the art now.  Whilst the manufacturing process may not have changed, the Health & Safety requirements for that manufacturing process had changed and advanced considerably.

Machines that were once sold with foot pedal operation, no guards, or no cut out in the event that guards were lifted, are no longer state of the art; to operate them in their original state could amount to a breach under section 2 of the Health & Safety at Work Act.  It is therefore vital that Health & Safety risk assessments are undertaken by a competent professional on an annual basis and policies procedures and practices are regularly reviewed. 

We at Paris Smith LLP can look at and review your Health & Safety policy, to ensure that it is up to date and compliant with the current legislation.

Just because the machinery and the associated policies have been working for years without any problems, does not mean there aren’t any.

For further information contact Cliff Morris or Sarah Wheadon.

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Fancy some points on your Driving Licence? – Become a Company Secretary

January 17th, 2012 by Cliff Morris

It is perfectly possible as a Company Secretary of a company that uses fleet vehicles to receive 6 points on your driving licence for an offence that you may not even be aware of, or know has occurred.

The question is how is this so?  The answer is fairly simple. If you operate a fleet of vehicles, and the driver of one of those vehicles commits an offence, where the driver has not stopped (for instance after speeding or going through a red light caught on camera), then a Section 172 Notice is sent directly to the Company asking for details of the driver of the vehicle.  If this document is not filed and answered, then the police can issue a prosecution notice against the person who is deemed to have received the notice. In the cases of fleet vehicles, that is often the Company Secretary.

The defences to this charge are either showing you have taken all reasonable steps to identify the driver and been unable to do so, or showing that the Section 172 form has not been received by the company. In order to prove the defences, evidence will have to be given at court, by the company secretary, the driver(s) of the vehicles(s) (if necessary) and the people involved in the post opening system, taking a great deal of time and incurring considerable expense.

The simple answer is to make sure all incoming post which amounts to official documents are logged, and also retain a log of who is driving which vehicle at all times.

We at Paris Smith LLP can help if such a situation arises, providing practical advice and assistance where required, and if necessary, representation in any court proceedings.

For further information contact  Cliff Morris or Sarah Wheadon

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Warren J stirs the Witches’ brew of notices of intention and the validity of administration appointments (case of Msaada Group)

January 10th, 2012 by Mike Pavitt

On 29 December we reported that Norris J appeared to be starting the process of laying to rest the various legal issues to do with the validity of out of court administration appointments, which had so energised the profession in 2011. The case was Virtualpurple Professional Services, decided on 21 December (click here for our previous blogpost and details of the pivotal Minmar decision which created all this interest).

Little did we know at the time of writing that blog that we would subsequently receive a report of another judgment being handed down by another Judge in the very same Court on the very same day. We think it would be fair to say that the two Judges in question do not see entirely eye to eye on what for convenient shorthand we will call ‘the Minmar issue’ of what notices are required as a precondition for a valid appointment where there is no qualifying floating chargeholder, although on one view they could both be said to be pursuing the same aim of restoring certainty to this difficult area.

The second case was that of National Westminster Bank Plc v Msaada Group [2011] EWHC 3423 (Ch), involving a purported partnership administration appointment in the care homes industry being challenged by the bank inter alia because no prior notice was given to the supervisor of the pre-existing partnership voluntary arrangement. We had to review the judgment on a Sunday afternoon with a wet towel around our heads so we would certainly not recommend it for those seeking a clear exposition of the proper interpretation of paragraphs 26 and 28 Schedule B1 Insolvency Act 1986 or IR 2.20 but we will say this for Warren J’s examination; it is certainly thorough. Whereas some aspects of the Chancellor’s analysis in Minmar could perhaps fairly be criticised for lacking reference to prior authority and/or clarity as to whether issues discussed were obiter or part of the decision, no such criticism could apply to Warren J, who was clearly seeking to set out a very firmly founded proposition, including precisely why he was departing from the reasoning of HH Judge McCahill QC in the pre-Minmar decision of Hill v Stokes [2010] EWHC 3726 (Ch).

At the conclusion of a 100 paragraph judgment, Warren J ordered that the partnership’s purported out of court administration appointment was invalid for want of notice, rejected (on the facts) an Adjei v Law for All style application for a retrospective administration order for the partnership’s purported appointee and granted the bank’s application for the appointment of its own nominee.

What can most readily be taken from the judgment is the conclusion that the requirements of paragraph 26(2) and IR 2.20(1) are prescriptive and accordingly that a relevant enforcement officer, person distraining, any  Supervisor and the company itself must be given reasonable notice of intention to appoint. The form and content of that notice is to be regarded as the same as for a qualifying floating chargeholder (had there been one), and reasonable notice would be constituted by giving notice in like manner (i.e. at least 5 days although the relevant parties may validly consent to short notice). When challenged by Counsel for the partners, the Judge said that in cases of absolute urgency, the appointors could make an application to Court for an administration order rather than relying on the out of court route.

For more information on this topic, please contact Mike Pavitt.

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Posted in Civil Litigation, Commercial Law, Insolvency | No Comments »

Invalidity of Administrators’ appointments – administrators win latest round before the courts

December 29th, 2011 by Mike Pavitt

Office holders and others with an interest in the seemingly endless run of cases about the invalidity of office holders’ appointments may wish to review the decision of Norris J, handed down on 21 December 2011 in the case of Virtualpurple Professional Services ltd [2011] EWHC 3487 (Ch)

The most important aspect of this judgment would appear to be the finding that, at least where directors are otherwise in a position to effect an immediate administration appointment (there being no qualifying floating charge holder to give notice to), it is NOT in fact necessary to give notice of the appointment to the company itself.  In order to apply this authority more generally it is necessary to look at the facts carefully, but at first blush this conclusion does appear to reach the opposite conclusion to that drawn (albeit on an obiter and therefore non-binding footing) by the Chancellor in his controversial judgment (from para 53) in the case of Minmar (929) Ltd handed down in April 2011.

As we head into the New Year, the debates about the validity of administration appointments and the extent to which they may be retrospectively validated will doubtless continue to rage but this decision hopefully marks the beginning of some of the Minmar questions being laid to rest by the courts.  It is likely that 2012 will see a good many administration appointments and for the insolvency profession to perform its task to the best of its ability for the benefit of the creditors, certainly is required.  For now, though, caution remains the order of the day whilst office holders’ attention perhaps begins to shift towards the debate over whether the government will get its own way in rationalising the list of accredited regulators for insolvency practitioners.

For more information on administration appointments please contact our lead insolvency partner Mike Pavitt at mike.pavitt@parissmith.co.uk

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First Sentence under Bribery Act – follow up to blog dated 6 September 2011

December 14th, 2011 by Sarah Wheadon

Mr Patel, the former Magistrates’ Court clerk convicted of bribery in October has been given a three year prison sentence for the bribery offence. He had also pleaded guilty to misconduct in public office for which he received a six year sentence to run at the same time.

The sentencing judge told Mr Patel that his offences involved a “very substantial breach of trust”. Patel was involved in at least 53 cases where he approached and then assisted offenders to evade fines, penalty points and disqualification in return for payment. Also, between February 2009 and August 2011, he gave people advice about how to avoid being summonsed to court for road traffic offences.

Now is the time for review…

This case shows that the courts will hand out significant sentences for bribery offences; with the six month anniversary of the implementation of the Bribery Act approaching on 1 January 2012, now is the time (if not already done) for businesses to review how their policies and procedures are working.

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Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and another (Revenue and Customs Comrs and other intervening) [2011] UK SC 38

November 23rd, 2011 by James McNeil

The Supreme Court has given a further indication that the courts really do not want to intervene in cases involving complex financial instruments and are now seeking to emphasize party autonomy.

This case involved a complex credit swap transaction.  Investors’ money was used to acquire assets which were then charged in favour of a security trustee.  The “waterfall” provisions of the charge (which set out the priority of payment of enforcement proceeds) stated that the counterparty to the swap (a Lehman Brothers spv); was to be paid in priority to the noteholders, unless an event of default occurred.  If an event of default did occur the priority was to be “flipped”, so that the noteholders were to be paid in priority to the counterparty.  An event of default included the insolvency of the counterparty to the swap.  Unfortunately, this then occurred due to Lehman Brothers entering into Chapter 11 Bankruptcy in September 2008.  The counterparty argued before the Court that the “flip” clause infringed the anti-deprivation rule.  This is a common law rule which states that parties cannot contract out of insolvency legislation by attempting to withdraw an asset from an insolvent estate which would otherwise be available for distribution to the creditors of that estate.

However, the Supreme Court has ruled that the anti-deprivation principle should not be extended to strike down complex commercial transactions entered into in good faith where there is no intention to evade insolvency law.  The judgment has also clarified the operation of the anti-deprivation principle in commercial transactions following the decision of the House of Lords in British Eagle International Airlines Ltd v CIE Nationale Air France [1075] 1 WLR 758 which had caused confusion between the anti-deprivation principle and the pari passu principle (which prevents parties contracting to give a creditor more than a pro-rata distribution on insolvency).

Comment

The courts do seem to be stepping back from previous interventionist stances and are now leaving it up to well advised commercial parties to negotiate and agree their own positions.  If an insolvent company loses an asset as a result of documentation drafted in good faith and for commercial reasons, the Supreme Court does not believe the courts should intervene to alter an agreed position provided that there is no intention to evade insolvency law.

In theory the decision could have wide ranging consequences, certainly not confined to financial instruments, as the anti-deprivation principle applies to all forms of assets from claims to real property.  The UK Supreme Court has been sitting only since October 2009, but it is already making its weight felt in the commercial arena, and read alongside other recent Supreme Court decisions such as Rainy Sky SA (see our blog of 21 November 2011),  Belmont Park certainly helps to strike a blow for business common sense.

Whether this decision leads to renewed attempts by parties to push the boundaries of contracting out of the consequences of insolvency is less certain.  It is worth noting that the judgment in this case does not state that good faith and commercial justification will be good defences on all occasions, nor does it set out clear principles of law which can be applied definitively in all circumstances.

In short, watch this space for further developments!

For more information on this topic please contact James McNeil or Mike Pavitt

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Posted in Commercial Law, Insolvency, Investments, Litigation, Property | No Comments »

A question of Interpretation

November 21st, 2011 by Diane Pearce

The recent case of Rainy Sky SA and others v Kookmin Bank (2011) UKSC 50 has once again highlighted the need to ensure that the wording of a Contract clearly sets out the parties’ intentions to avoid any ambiguity and misinterpretation.

Ordinarily where clauses within contracts are unambiguous, the Courts will have no choice but to apply the strict meaning. However, this case illustrates what can happen when contracts can be open to interpretation.

The Supreme Court overturned a Court of Appeal decision and determined that it was possible to interpret the wording in the Contract by both the buyer and the bank. The issue was the extent to which commerciality could be brought in to play.

The Supreme Court decided that where a term of a contract is open to more than one interpretation between the parties, it is appropriate to adopt the interpretation consistent with the most business common sense.

This decision shows the Court’s willingness to exercise its discretion on the question of interpretation when the use of words are unclear, but it is still important to seek legal advice before entering in to any form of Contract.

If you require any further information on the points raised in this blog or wish to discuss any of the issues please contact diane.pearce@parissmith.co.uk

 

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What’s in a name?

November 10th, 2011 by Emily Sadler

Today Newcastle football club announced it was re-branding St James’ Park as The Sports Direct Arena, after owner Mike Ashley’s company. This is only a temporary measure designed to “showcase” the sponsorship opportunity re-naming the famous stadium could represent to a large corporate sponsor. It is reported that such a deal could be worth up to £10m a season – enough to sign a new player, yet it is extremely difficult to determine what value should be attached to such rights, especially longer term naming agreements. 

The attraction of ground naming rights to a sponsor is the opportunity to be associated with all the positive aspects of a sporting organisation in a very high profile way. Of course, the long term poor performance or indeed poor reputation of a sports club can likewise have a negative impact on a sponsor. Such potential pitfalls can be dealt with to an extent, by linking the sponsorship fee to performance on the pitch and including a break clause in the form of a so-called “morality clause” within the Naming Rights Agreement.

From the ground’s perspective, the grant of naming rights makes it difficult to deliver a “clean venue” to any staging partner. This potentially may have an impact on the choice of any governing body wishing to use that ground for a particular event such as an international game or cup final to be played at a neutral venue. This may need to be dealt with in the Naming Rights Agreement, so that the ground has the right to revert the name of the stadium to a non-brand related version for an event hosted by a sports governing body.

Such deals often work best with newly built venues which avoids the problem of changing a ground’s traditional name. However some sponsored names have caught on with the public and media alike – such as The Reebok Stadium (Bolton Wanderers), the Emirates Stadium (Arsenal) and unrelated to football, the O2 Arena (formerly the Millennium Dome).

Perhaps unsurprisingly the announcement today has caused outcry amongst loyal Newcastle fans who feel a great deal of affinity for the ground’s historical name. It is also questionable as to whether a future sponsor is likely to be interested in re-naming Newcastle’s ground a further time, now it is to be named The Sports Direct Arena. Arguably the commercial value has diminished as any sponsor would now be the third name the ground has had in a short space of time.

Chelsea football club hope to announce a new ground naming sponsor before next season. They may well face the same opposition re-naming Stamford Bridge.

If you wish to discuss any issues raised in this blog please contact emily.sadler@parissmith.co.uk

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I Dreamed a Dream I was a Liquidator… And Went to Court to Find I Wasn’t

November 4th, 2011 by Mike Pavitt

This is the curious case of Christopher Brooksbank, who applied for sanction to sell various assets of Business Dream Ltd in his capacity as liquidator prior to a creditors’ meeting, only to find he was no such thing ([2011] EWHC 2860 (Ch)). Judgment was given on 2 November. The full (but succinct) case report is here:

http://www.bailii.org/ew/cases/EWHC/Ch/2011/2860.html.

In brief, Mr Brooksbank was purportedly appointed CVL liquidator at a creditors meeting called following a members meeting which took place at a time when not only was there an outstanding winding up petition against the company (of which everyone was unaware) but also there was a 2-day old Notice of Intention to appoint him as administrator. Sitting in the High Court in Leeds, His Honour Judge Behrens held, inter alia, that:

  1.  The convening of the members’ meeting and its resolution was void because of the moratorium created by the Notice of Intention;
  2.  The existence of the winding up petition did not save the meetings by retrospectively invalidating the Notice of Intention;
  3.  Notices of Intention alone in the face of a winding up petition were not necessarily an abuse of process.

It followed that the Judge concluded Mr Brookshank was not validly appointed by the members of the company. He did not need to consider the application for sanction to sell, although he did so obiter suggesting that evidence of consent to sale by the largest unconnected creditor might well have persuaded him to sanction it (although that evidence was not immediately available). He did not seemingly have the benefit of detailed argument and authority. The Judge gave permission for the application before him to be amended to join the directors of the company so they could apply to withdraw the Notice of Intention, thus to clear the way for a valid members meeting to take place before the scheduled creditors meeting. An assumption seems to have been made that the pre-existing notice to creditors could stand as valid, probably assuming the Notice of Intention would by then have been withdrawn.

This is just the latest in a string of cases which should remind insolvency practitioners and those appointing them of the importance of getting the correct ducks in the correct rows before an appointment is made. Acts and applications done or made by IPs in the absence of a valid appointment are normally undertaken at their own risk (subject of course to any indemnities they may have from the directors), but acts may also be invalidated and/or sales lost if one does not proceed with caution as well as speed. If not, we risk turning our Business Dream into a Business Nightmare!

For more information on this topic please contact our specialist insolvency partner Mike Pavitt.

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