Archive for October, 2013
It is a basic rule that any contractual or statutory requirement for the service of notices, must be strictly complied with. This is particularly important for a tenant wishing to exercise a break notice. In fact, it has been stated in case law that “if the [notice] clause had said that the notice had to be on blue paper, it would have been no good serving a notice on pink paper, however clear it might have been that the tenant wanted to terminate the lease.” Failure to effectively exercise a break can have a disastrous impact upon a tenant, with continuing liabilities to pay the rent, service charge and other outgoings on a property which the tenant no longer wishes to occupy. The effects are worse still if the tenant has moved into alternative premises.
In a deviation from the basic rule, in the recent case of Siemens Hearing Instruments Ltd v Friends Life Ltd  Ch D (N Strauss QC), the High Court surprisingly found that a notice was effective to trigger a break clause in the lease, despite the fact that it did not include specific wording prescribed in the lease. This decision may be of some assistance to tenants who have served a “defective” notice, where certain requirements have not been met.
However, the judgment in this case made it clear that this precedent will only apply in limited circumstances. For example, if the break clause in the lease explicitly states that a non-compliant notice is ineffective, then it is clear that the requirements must be strictly adhered to. However, words such as “must” and “shall” are not decisive in the interpretation of the clause and it is really the substance of the clause that is important. Where the break clause forms part of a professionally-drafted lease and is silent on the point of non-compliance, the court held that it can be reasonably assumed that this is deliberate, meaning that non-compliance will not automatically invalidate any notice served. The courts will look to objective criteria to determine this, such as the background and purpose of the provision and the effect of non-compliance. If the information omitted from the break notice was not essential to the other party and has not prejudiced them in anyway, it is unlikely to invalidate the notice served.
What does this mean for landlords and tenants? Well, for tenants it is reassuring that the validity of a notice may be upheld despite containing an error or omitting some information, but there is clearly doubt on this point as this case is hard to distinguish from giving notice on pink paper. Given the importance of successfully exercising a break, it is unwise to just rely on this court decision to protect you. As always, it is better to be safe than sorry, so a careful consideration of all the terms of the break clause and notice requirements in the lease is still needed to ensure that any notice served is compliant. Notices, therefore, should be professionally served.
For landlords, the message is to not automatically assume that a notice you receive is valid, but to bear in mind that a minor procedural defect might not invalidate a notice. It is wise to have any break notice received professionally checked, as early confirmation of a valid notice means that the landlord can avoid any delay in marketing the property.
If you would like any further information or advice on this please contact Mark Lavers on 020 7209 2013 or firstname.lastname@example.org
Marriott Harrison LLP continues to grow its international offering across all departments and below are some recent examples of Marriott Harrison LLP’s international work.
The Corporate Department continues to advise on a large number of international transactions. This includes acting for:
- a Brazilian multinational energy corporation on the closure of its ESEP Branch in London;
- the Brazilian Aeronautical Commission in Europe on various cross border purchase contracts for the supply of goods and services to the Brazilian Air Force;
- a global educational provider in connection with the creation of a new Luxemburg based schools fund;
- a Seattle based technology company on further elements of the “Cut the Rope” mobile app game;
- an individual from the Kingdom of Saudi Arabia in respect of the sale of a BVI company which was a special purpose vehicle owning property in London;
- iconic Brazilian Fashion Designer, Daniella Helayel on her departure from Issa London Limited;
- a private equity house on obtaining Sharia compliant acquisition finance from The Bank of London and The Middle East plc in relation to the purchase of a neuro-rehabilitation business;
- a private equity fund in its secured borrowing arrangements with a German investor;
- the sellers of an English company specialising in IT cloud solution Google applications to a venture capital backed purchaser incorporated in Delaware;
- an oil and gas exploration company on its listing on the AIM market. The company has key assets in Oman, Zambia and Namibia and the offer document was made available to investors in the U.A.E.;
- the selling management on the sale of a well known coffee brand company to a major Swedish coffee roaster;
- a long standing venture capital fund client on its sale of the largest owner of digital rights in the U.K. to a Swedish media firm;
- A BVI holding company in its mezzanine fundraising with investors based in Gilbraltar, South Africa and the U.K.
The Commercial and Media Department has advised:
- a British rock band in connection with a breach of contract dispute regarding a performance cancellation in Nepal;
- a long standing, independent film making client on its international distribution of movies;
- an independent book publisher on a copyright infringement matter in Germany;
- an Israeli online technology company on various IP licences with a number of U.K. based archives;
- a New York based nightclub on a passing off and trade mark infringement matter in the U.K.;
- an AIM listed digital content provider in connection with a rights ownership dispute over its global classical music range;
- the Nike Foundation on its ongoing Girl Hub initiative in Ethiopia; and
- a U.K. based recording, repackaging, and rights distributor regarding its overseas licences.
MH Dispute Resolution has been:
- advising a well-known Japanese manufacturing entity on the effect of contractual hardship clauses;
- advising a major Far East commodities trading company in respect of the recovery of a debt under a loan agreement which included an arbitration clause (the judgment in this matter, awaiting approval by the Judge, is expected to have a significant affect on the drafting of loan agreements); and
- advising the French purchaser of a luxury yacht which burst into flames on its first major voyage.
The MH Real Estate Department has acted for:
- a Malaysian Bank based in Kuala Lumpur, on its ongoing secured lending transactions in the U.K.
The MH Employment Department has acted for:
- the Brazilian Embassy on a number of contentious and non-contentious matters.
In October 2013, Duncan Innes, Andrew Wigfall and Peter Curnock will be attending the International Bar Association conference in Boston, the world’s largest meeting of lawyers.
Employment Law Changes
This summer has seen some radical changes in the ever evolving area of employment law.
Employment Tribunal Fees
For the first time claimants will have to pay fees to submit a claim and have a hearing at an Employment Tribunal. From 29 July 2013 claims relating to unpaid wages and redundancy payments require an issue fee of £160 and a hearing fee of £230. Unfair dismissal, discrimination and whistleblowing claims will require an issue fee of £250 and a hearing fee of £950. Claimants on benefits and low incomes can apply to the Government for full or partial remission of fees. The assessment of each claimant’s means is likely to delay significantly the initial processing of claims. It may be many months before an employer knows whether a claim has been brought. The new fee regime has faced considerable public and political backlash and it remains to be seen what impact it will have on tribunal claims.
Unfair Dismissal Compensatory Limit
There has for many years been a statutory cap on the amount of the compensatory award that a tribunal can award to a claimant in a successful unfair dismissal claim. The cap is increased each year in line with inflation and is currently £74,200. The Government has for the first time introduced an additional cap of one year of a claimant’s gross pay. The cap is now the lower of the statutory amount of currently £74,200 or one year’s gross pay.
Compromise Agreements are renamed Settlement Agreements
Statutory compromise agreements have acquired a new name. From 29 July 2013 they became known as settlement agreements.
The Government has also legislated for the without prejudice negotiations that often accompany a potential dismissal. From 29 July 2013 evidence of pre-termination negotiations between an employer and employee is inadmissible before a tribunal in unfair dismissal claims, unless there has been improper behaviour on the part of either party. This essentially extends the old rules on without prejudice communications. Previously, such communications would only be regarded as inadmissible in cases where there was a pre-existing dispute between the employer and employee. The new rules do not apply to automatic unfair dismissal, discrimination, harassment or breach of contract claims. This raises the question of whether the new rules will have any real impact in practice, given that unfair dismissal claims often also involve claims relating to discrimination and/or breach of contract.
The possible perils of making use of photographs found on the internet are ably illustrated by the recent case of Jason Sheldon v Daybrook House Promotions Limited  EWPCC 26 in which the Patents County Court (which has been renamed and reconstituted as the Intellectual Property Enterprise Court from 1 October 2013) gave judgment on a preliminary issue as to the appropriate measure of damages in a case of copyright infringement in a celebrity photograph.
The Claimant, Mr Sheldon, works as a professional photographer. The Defendant, Daybrook House Promotions Limited, runs a nightclub in Nottingham called Rock City. In July 2011 the American pop star Ke$ha was touring the UK with the dance music duo LMFAO as her special guests. When the tour came to Birmingham the Claimant secured exclusive backstage access to Ke$ha’s tour bus and took some photos. One photo depicted Ke$ha and LMFAO lounging on a sofa on the tour bus with Ke$ha holding a bottle of champagne.
In March 2012 the Claimant discovered that the Defendant was using the image in connection with a poster campaign for its ‘Floor Fillers’ events at Rock City. The Claimant asked the Defendant to stop making use of the image and sent an invoice in the sum of £1,351 for its use (based on the Claimant’s understanding on the extent of its use at the time). The sending of an invoice reflected the fact that the Claimant’s business involved the licensing of the use of his photographs.
The Defendant accepted that it had used the photograph but submitted that it did not appreciate that this was an image which it was not entitled to use. The Defendant stated that the photograph was freely available on tumblr. and this had led to a genuinely held mistaken belief that this meant that the photograph had been posted to the site to be freely used. The Defendant took the view that, if in fact a fee was payable, the proper fee to be paid for use of the photograph would be a few hundred pounds and that they would not have paid any more.
The root of the difficulty was the very different view that the parties took as to what would be a reasonable licence fee for use of the image. The Judge said that assuming the use of the image was an infringement of copyright then the correct measure of damages, where the Claimant had a business as a licensor of copyright in such images, was to be a reasonable royalty, i.e. the licence fee which would have been agreed between a willing licensor and a willing licensee having regard to the nature of the right and all the circumstances. It was not what the Defendant would have been prepared to pay for use of a photograph but what the copyright owner would have earned for its reproduction.
It was held that the photograph was of very well known and current acts which would tend to increase the value of the photograph. A more important factor was the exclusivity of the Claimant’s access as it facilitated the back stage party atmosphere in the photograph which also enhanced its value. The Court therefore held that the correct measure of damages was £5,862.37 plus VAT and interest which was based on a revised calculation by the Claimant after the full extent of the photograph’s use became clear.
This champagne fuelled photograph is therefore a sober reminder that images found online should only be used after having obtained the appropriate consent from the rights holder or a party could end up paying far more than they would wish for its usage.
The recent case of Euromark Limited v Smash Enterprises Pty Ltd  EWHC 1627 (QB) once again shows the importance of ensuring that the terms of an agreement accurately reflect the intentions and wishes of the parties as, once the agreement is entered into, the parties will be bound by its terms. This case concerned a clause in an agreement that provided that the agreement would be governed by Australian law and that the parties submitted to the exclusive jurisdiction of the courts of Australia.
In a written agreement, the Defendant engaged the Claimant to distribute the Defendant’s products (children’s lunchboxes and similar items) for a three year term. After around one year the Defendant purported to terminate the agreement on the basis that it was commercially convenient for it to do so. There had not been any alleged default on the part of the Claimant. The Defendant then dealt directly with the Claimant’s customers which included Tesco and Sainsbury’s. The Claimant alleged that the Defendant had wrongly repudiated the contract. The Defendant alleged that the Claimant had affirmed the contract after the Defendant’s purported termination and that it was the Claimant that had subsequently repudiated the contract.
The Claimant brought proceedings in England and obtained permission to serve these proceedings on the Defendant in Australia. The Defendant applied for a declaration under Civil Procedure Rule 11(1) that the Court did not have jurisdiction to hear the Claimant’s claim. The Claimant argued that it should be permitted to continue proceedings in England due to the strength of the merits of its claim.
The Court cited the case of Donohue v Armco Inc  as the correct starting point which provides that where “contracting parties agree to give a particular court exclusive jurisdiction to rule on claims between those parties, and a claim falling within the scope of the Agreement is made in proceedings in a forum other than that which the parties have agreed, the English Court will ordinarily exercise its discretion to secure compliance with the contractual bargain, unless the party suing in the non-contractual forum can show strong reasons for suing in that forum”. The approach therefore is that the Court will endeavour to make contracting parties abide by their contracts.
The Court, citing Antec International Limited v Biosafety USA Inc , stated that ‘strong reasons’ do not include factors of convenience that were foreseeable at the time the contract was entered into. In essence, the party seeking to invoke the jurisdiction of the English Court in the face of an exclusive jurisdiction clause, which provides for disputes to be determined in a foreign court, must point to a factor which could not have been foreseen when the contract was made. This was not such a case.
A further consideration for the Court was whether it would be in the interests of justice to not give effect to an exclusive jurisdiction clause, which was an argument propounded by the Claimant on the basis that the merits of its claim were so strong. The Court did not agree with the Claimant and stated that this was an incorrect reading of the expression. The expression ‘interests of justice’ was instead designed to deal with those rare cases where, although there is an exclusive jurisdiction clause, the courts to which such a jurisdiction has been given may not afford a fair trial, or may, in some other way, be potentially unreliable or unjust.
The Court concluded that even if the Claimant were likely to win on liability at trial, the issue still remained as to where the trial should take place. There was no basis in law for concluding that a strong case should be heard in England, whilst a more arguable case should be heard in Australia. On balance there was no real advantage, either way, in the litigation being heard in London or in Australia. As such the parties had agreed that disputes would be heard in Australia and there were no strong reasons to justify a different conclusion.
It is therefore clear that parties should expect to be bound by agreed contractual terms and that, barring strong reasons to the contrary of the type described above, a forum specified in an exclusive jurisdiction clause will not be upset by English courts. It is of great importance that jurisdiction clauses are properly considered at the outset as pursuing litigation in a foreign jurisdiction may prove a costly and demanding endeavour.
The recent case of Newbury v Sun Microsystems  EWHC 2180 highlights the importance of including the words ‘subject to contract’ if you do not intend proposed terms of a contract to become binding.
Against the background of negotiations to settle a dispute, on 03 June 2013, Sun Microsystems’ solicitors wrote the following to Newbury’s solicitors:
“Our client is willing to settle the entire proceedings by paying the Claimant [Newbury] within 14 days of accepting this offer, the sum of £601,464.98 . . . such settlement to be recorded in a suitably worded agreement. This offer is open for acceptance until 5pm this evening . . .”
The same day, Newbury’s solicitors wrote a letter of acceptance:
“We thank you for your letter dated 03 June 2013. We are instructed that the Claimant [Newbury] accepts the terms of your client’s offer . . .We will forward a draft agreement for your approval on Tuesday 04 June.”
A dispute arose about the form and substance of ‘such settlement to be recorded in a suitably worded agreement’. In particular, Sun Microsystems wanted the ‘suitably worded agreement’ to both modify and supplement the terms set out in their 03 June 2013 letter.
Newbury’s solicitors refused to agree to those modified and supplemental terms, and contended that the correspondence between the parties had given rise to a binding contract.
The court agreed with Newbury and noted the following:
- The language used in Sun Microsystems’ letter of 03 June constituted an offer of settlement, and set out the terms of that offer.
- The terms contained in that letter clearly indicated that it was intended to be capable of acceptance, and it was so accepted.
- “Such settlement to be recorded in a suitably worded agreement” was a reference to the terms set out in Sun Microsystems’ letter of 03 June 2013.
- The words ‘subject to contract’ would have indicated that the terms were not intended to be binding until a formal contract was agreed.
Pitfalls to avoid
- Be wary of negotiating contract terms without informed legal oversight.
- Whilst a failure to append the words ‘subject to contract’ to contractual negotiations will not automatically mean an offer capable of acceptance has been made, if ‘subject to contract’ is appended to such negotiations, it will clearly indicate that the terms being discussed are not yet binding or agreed until the fulfilment of a further condition such as the execution of a formal contract.
The recent case of Yam Seng PTE Ltd (“Yam Seng”) v International Trade Corporation Ltd (“ITC”)  EWHC 111 (QB) provides a little hope for those seeking to rely on an implied duty to act in good faith in a commercial contract.
It is generally accepted that English courts will uphold an express term of a contract which requires the parties to act in good faith towards one another. However, under English law there is no general duty to perform contracts in good faith where such a duty is not written down in the contract.
The Yam Seng case concerned a distribution agreement for fragrances and toiletries bearing the brand name “Manchester United”. ITC granted Yam Seng the exclusive right to distribute the products in Hong Kong, Macau and parts of mainland China. Yam Seng and ITC were two companies each being controlled by one main individual.
The relationship between these individuals broke down and Yam Seng terminated the distribution agreement claiming a number of repudiatory breaches of the agreement on the part of ITC. In particular, Yam Seng claimed that ITC had an implied duty to act in good faith and to not knowingly provide false information to Yam Seng.
The Court agreed that ITC had committed more than one repudiatory breach of the agreement and that ITC had a duty to act in good faith, which it had not. The Court also acknowledged that there was not a general legal principle under English law where contracting parties are under a duty to act in good faith. However, the Court did highlight certain circumstances where such an obligation may be applied based on the facts of the case.
The Court considered the type of contract or relationship where a duty to act in good faith may be implied by law. For instance, where a contract is a long-term contract or where the parties to the contract have made a significant commitment in respect of that contract and there is a expectation the parties will co-operate and share information between one another (a “relational contract”). Typically, such relational contracts may be joint venture agreements, franchise agreements or long-term distributorship agreements.
The Court held that Yam Seng had incurred significant expense in this case and, to its detriment, had heavily relied on the false information it had been given by ITC. The Court took an objective view in determining that, based on Yam Seng and ITC’s intentions and the context in which the contract was formed, good faith was found to be an implied term in the contract.
This case shows that the courts may be willing to imply a duty to act in good faith into a contract depending on the facts on a case by case basis and that the contracting parties should, before entering into a contract, consider whether the duty to act in good faith could be implied. In principle, contracting parties always have the right to expressly exclude the obligation to act in good faith – but then such a stance may raise other obvious questions.
In a little over 13 months, businesses that sell e-services (telecoms, broadcasting and “electronically supplied services”) to non-business consumers within the European Union (B2C) will experience a dramatic change in VAT.
On 1 January 2015, legislation comes into force which will change (i) the place of supply and (ii) the country of taxation of e-services, from the country in which the supplier is established to the country in which the consumer is resident.
As many e-service businesses are based in EU Member States that have favourable VAT rates, (standard VAT rates vary from 15 per cent. in Luxembourg to 27 per cent. in Hungary), the legislation is likely to mean either a sharp increase in the prices charged to consumers or a cut in suppliers’ profit margins.
What services will be affected?
HMRC has provided the following, non-exhaustive guidance that the following services will be effected:
- telecommunications including: fixed and mobile telephone services; videophone services; paging services; facsimile, telegraph and telex services; access to the internet and worldwide web.
- broadcasting services including: radio and television programmes and live broadcasts over the internet.
- e-services including: video on demand, downloaded applications (or “apps”), music downloads, gaming, e-books, anti-virus software and online auctions.
What are the changes?
There are two key changes:
- The VAT place of supply rules will change. An e-service business will now account for VAT in the place where its services are consumed.
- The introduction of the VAT Mini One Stop Shop (“MOSS”). MOSS will be an online service allowing businesses to account for all VAT in the EU through a single registration with HMRC. The total tax payment will be paid over to HMRC who will distribute it to the other EU tax authorities as appropriate. Businesses will be able to register for MOSS from October 2014.
How will this affect your business?
The proposed changes will have an effect on e-service businesses beyond VAT. Additional effects that will need to be carefully considered include:
– will this need to be re-assessed on a State by State basis?
- Customer identification
– how will your business ascertain the location of its customers to establish the appropriate VAT?
- Data protection
– what data protection laws will need to be complied with in order to attain and store this customer information?
What should you do?
To be ready for the changes you should:
- assess which of your services will be caught by the new rules and make sure the relevant departments are aware of the new legislation;
- update your software and accounting systems to be able to identify the location of the customer;
- understand the rates of VAT in every EU Member State, and confirm the rates applicable to your services;
- assess and manage your pricing and billing procedure; and
- be ready to register for MOSS by October 2014.
On 4 April 2013, HMRC announced an adjustment in its view of the status of sleeping partners and inactive limited partners regarding National Insurance Contributions (“NICs”).
Historically, sleeping and inactive limited partners who took no active part in the running of the business, and simply acted as investors who sought to make a return on their investments, were not liable for Class 2 and Class 4 NICs as their income was treated as unearned income. HMRC now considers both sleeping partners and inactive limited partners to be liable (and to have been liable in the past) for:
- Class 2 NICs as ‘gainfully employed’ self-employed earners; and
- Class 4 NICs in respect of their taxable profits.
From 6 April 2013 sleeping and inactive limited partners will be liable to pay (where applicable) both Class 2 and Class 4 NICs. It is now therefore necessary for all sleeping and inactive limited partners to check their NIC status and confirm whether they have already been paying Class 2 and/or Class 4 NICs. Those who have not been paying Class 2 NICs as a result of being self employed are required to inform HMRC of their employment status using Form SA401 and to arrange for payment of Class 2 NICs.
Sleeping and inactive limited partners who find that they have already been paying Class 2 and Class 4 NICs will not be entitled to a refund from HMRC. This is due to HMRC applying the adjusted view retrospectively and considering those past payments legally due and paid.
This may seem somewhat unfair when contrasted with the fact that those partners who have not been paying Class 2 or Class 4 NICs in past years will not be required to account for those ‘missed’ payments. However, should these particular partners wish to qualify for, or improve their entitlement to, contributory benefits such as the basic state pension, then they may volunteer to pay such past payments if they so wish. Because the announcement was made very late in the 2012–13 tax year and Class 4 NICs are assessed annually HMRC has said that those partners liable for Class 4 NICs are liable only for the 2013–14 tax year.
Sleeping and inactive limited partners may qualify for one of the exceptions to paying Class 2 NICs. This will depend on personal circumstances and partners should check with HMRC to see whether they will qualify for an exception. This can be done at the same time as registering or checking their NICs history.
This announcement took many by surprise and it remains unclear why HMRC chose to clarify this particular point when they did. In particular the odd timing of the announcement at the very end of the tax year suggests this may not have been a long considered shift in stance.
The recommendation, therefore, is for practitioners to review the NIC positions of all sleeping or inactive limited partners for whom they act and proceed to register their self-employed status with HMRC and/or consider any necessary claims for exemption or deferment.