Archive for December, 2016
In many contracts, one or other party may rely on the benefits of membership of the European Union (EU) in order to make the contract profitable or even viable. For instance a contract may oblige parties to comply with EU Laws, or have a territorial aspect which refers to “the EU”, or it may benefit from EU subsidies or tariffs.
Brexit, when it happens, may therefore make such contracts more onerous, less profitable and in some cases, impossible to perform. Although the Courts will not find that a contract has been frustrated simply because it has become uneconomical, those contracting parties that might be adversely affected by the Brexit decision are likely to be asking their lawyers whether Brexit or associated events could amount to a “frustrating event” that could bring the contract to an end absolutely under the doctrine of frustration.
A frustrating event is a supervening outside event which is not due to the fault of either party and is so fundamental that it renders the contract impossible to perform, or makes performance so different from that which was originally contemplated that it would be unjust to hold the parties to their contractual liabilities.
The recent Court of Appeal decision in Armchair Answercall Limited v People in Mind Limited  EWCA Civ 1039 also considered the issue of foreseeability, and found that a frustrating event could not be one that the contracting parties could “reasonably be thought to have foreseen as a real possibility”. In this case, it was argued that the rejection by franchisees of a new method of business (where the franshisees then went on to set up their own rival company) was a “frustrating event” unforeseen by the contracting parties at the time the contract was entered into. The Court of Appeal disagreed. They found that the very fact the contracting parties had been negotiating with the franchisees to adopt the new model meant that it was always a possibility they might reject it. Accordingly, the rejection could not be considered a frustrating event and the parties were held to their contractual obligations.
Applying this issue of foreseeability to the Brexit scenario, whilst each case will depend on the facts and circumstances particular to it, it might be argued that the very existence of Article 50 could mean that the UK leaving the EU has always been technically foreseeable, but it might not have been actually foreseen or was not reasonably foreseeable by the parties. One can certainly anticipate arguments that the political movement to leave the EU was a marginal one until recent times and indeed the result of the 23 June 2016 referendum was unexpected in many quarters, even those supporting the movement to leave. Therefore, parties entering into contracts in previous years might not have been expected, on any reasonable basis, to foresee the result of the referendum. Therefore, assuming all other conditions for frustration are met, we expect to see such arguments coming into play once Brexit comes into effect.
The recent Court of Appeal decision has, however, come as a timely reminder that the doctrine of frustration will be applied strictly. If arguments of frustration do not work, there may be other options. For example, many contracts include force majeure clauses that are drafted sufficiently widely that a “Brexit” scenario may arguably entitle relief.
There has been a lot of attention in the media recently about the so-called gig economy, that is, the method of working in which temporary positions are common and organisations contract with independent workers for short-term engagements, as opposed to the traditional employment model. Two recent news items have highlighted the considerable unrest and legal uncertainty in this sector.
App-based taxi provider Uber hit the headlines at the end of October when an employment tribunal held that two of its drivers were not self-employed contractors as Uber claimed, but were ‘workers’. This meant they are entitled to the national minimum wage, paid annual leave and whistleblower protection. Uber’s arguments that it is merely a technology platform as opposed to a transport provider and that its drivers are self-employed contractors offering their services to passengers via the Uber app were rejected comprehensively.
The tribunal was clearly unimpressed with Uber, saying that it resorts in its documentation to ‘fictions’, such as fake invoices that it generates on behalf of its drivers but that are never sent to passengers, and ‘twisted language’ in its contracts with drivers. The tribunal considered that Uber’s case – that the driver enters into a contract with each passenger directly to provide the transportation service – did not accord with reality. Uber exerts a great deal of control over its drivers, which helped tip the balance towards worker status. Uber is appealing, and strictly the judgment applies only to the two Claimants, although it may encourage some of its 40,000 other drivers to make similar claims, with inevitable cost to Uber.
More recently, it was also announced that the Independent Workers Union of Great Britain has written to Deliveroo, the app-based takeaway delivery service with over 3,000 people working for it, asking for recognition in respect of a number of its riders working in a section of London. Whilst there is no suggestion that Deliveroo’s arrangements are anything like as enigmatic as Uber’s, they do treat individual delivery riders as independent contractors, rather than workers.
The novel aspect here is that a union can only be recognised in relation to a group of people if they are workers or employees. If Deliveroo declines to recognise the union, the application will (the union says) be taken to the Central Arbitration Committee (CAC), the body which is empowered to decide these matters. Since the union could not be recognised if the riders are independent contractors (and not workers or employees) the CAC would have to decide what category the riders fall into – potentially bringing a large number of Deliveroo riders into the protection of worker status in one fell swoop – arguably a more far-reaching tactic than in the Uber case, where the judgment strictly applied only to the two drivers who brought the claims.
Since workers are entitled to the minimum wage and holiday pay, this could have a significant impact on Deliveroo’s business model, and other companies who utilise this labour model will be very concerned to see how things progress.
The services offered by the likes of Uber and Deliveroo are very popular, in part because of their convenience – which comes from technological innovation – and also because they are inexpensive, which is in part because of the costs-savings involved in utilising the gig economy model, which is now under threat. Whether customers would pay the extra in order to pay for the employment rights of the ‘workers’ is yet to be seen. It is unlikely that we have seen the end of such activism in this sector.
MH Contact Bob Cordran
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The days when parties to a transaction would have to be physically at the same meeting to sign transaction documents are diminishing. It is now common practice for the lawyers involved to arrange a signing via email. Transactions typically see signatories signing a hard copy document in wet ink, and they then scan and send the document by email. However, as technology evolves, the use of e-signatures has become increasingly common. This article sets out the present position on the scope for use and acceptance of electronic signatures in commercial transactions in the UK.
EU and E-Signatures
In spite of the UK’s decision to bid farewell to the EU, just one week after the referendum, on 1 July 2016, EU Regulation No 910/2014 (eIDAS Regulation) came into force. The eIDAS Regulation has direct effect in the UK and it establishes an EU-wide legal framework for the acceptance of electronic signatures.
Electronic signatures can take a number of different forms, including:
(a) a person typing their name into a contract or into an email containing the terms of a contract;
(b) a person electronically pasting their signature (such as in the form of an image) into an electronic version of the contract next to the relevant party’s signature block;
(c) a person accessing a contract through a web-based e-signature platform and clicking to have his or her name in a typed or handwriting font automatically inserted into the contract next to the relevant party’s signature block; and
(d) a person using a touchscreen to write his or her name electronically with a finger, light pen or stylus, next to the relevant party’s signature block in the contract.
Law Society Guidance
To further affirm this position, we now also have formal guidance on e-signatures from The Law Society Company Law Committee and The City of London Law Society Company Law and Financial Law Committees, as joint working parties (the JWP). This guidance was developed to give assurances to parties and legal advisers who wish to execute commercial contracts using an electronic signature. In their opinion, a contract executed using an e-signature satisfies any statutory requirement that a document should be in writing. This written requirement extends to situations such as: providing a guarantee; contracts for the sale of land; disposition of an equitable interest; or an assignment of copyright.
Deeds and Company Documents Given the inclination of the courts to interpret various statutory requirements for writing to include documents represented on a screen and executed with an electronic signature, this approach would apply in respect of deeds. Section 46 of the Companies Act 2006 (“CA 2006”) provides that a document is validly executed as a deed by a company incorporated under the CA 2006 if it is duly executed and is delivered as a deed. The JWP believe this can be achieved by the authorised signatories signing the deed using an e-signature. The practical means of witnessing different forms of electronic signature will need to be settled on a case-by-case basis, however, in the opinion of Leading Counsel, it is best practice for the witness to be physically present when the signatory signs and if that witness subsequently signs the attestation clause (using an electronic signature or otherwise), that deed will have been validly executed.
It is further accepted that digital signatures will be accepted in minutes of company general meetings and written resolutions, provided the identity of the sender is confirmed by the company.
It remains to be seen what the effect of Brexit will have on EU Regulation but it appears that the acceptance of e-signatures is a feature that is set to remain. Though caution must be applied in witnessing, the digital age is signed sealed and delivered.
In the recent case of Rush Hair Ltd v Gibson-Forbes & Anor  EWHC 2589 (QB), the High Court considered the enforceability of two restrictive covenants contained within a share purchase agreement (SPA).
In March 2015, the claimant, a hairdressing company called Rush Hair Limited (Rush), entered into a share purchase agreement (SPA) with the first defendant Hayley Gibson-Forbes (H), to purchase the share capital of two companies owned by H: Hair (Windsor) Limited and Hair (Maidenhead) Limited (Companies). Rush agreed to pay £25,000 on completion of the SPA, and a further £15,000 (Deferred Consideration) six months after completion provided that H did not breach any of the provisions of the agreement.
The SPA included two restrictions (Restrictive Covenants). The first restrictive covenant prevented her from soliciting or employing three named individuals (LH, CH, and JT) for two years after completion. The second restrictive covenant prohibited H from being directly or indirectly involved in a competing business during that time within two miles of Windsor and Maidenhead. H also entered into a settlement agreement following the termination of her employment with Hair (Windsor) Limited, in which she agreed to be bound by the restrictive covenants contained within the SPA.
H however did set up a competing business and moreover she employed both LH and CH. Consequently Rush did not pay the Deferred Consideration to H on the basis that H had breached the Restrictive Covenants. In July 2016 (after the Deferred Consideration was due but within the two-year non compete period) H set up a new company, opening a salon in Windsor and engaging JT as a consultant. In August 2016, the claimant issued proceedings against H, alleging that she had breached the Restrictive Covenants by setting up a competing business, and employing JT, LH, and CH at various points within the timeframe of the Restrictive Covenants.
It was held that H had breached both restrictions. Although JT was technically engaged as a consultant, the court held that JT had in fact been employed by H, due to the nature of the contractual relationship which existed between them. It was further held that H had breached the non-compete restriction, as the clause was held to be reasonable in scope, duration and geographical extent, and served to protect the legitimate business interests of Rush. However, the court did not accept Rush’s claim that H had deliberately operated through an incorporated company to avoid being caught by the restrictive covenants. Instead, she was deemed to be acting as an agent for the company.
Due to the breach of the first restrictive covenant, Rush was allowed to forgo paying H the Deferred Consideration. Furthermore, H was ordered to cease trading until March 2017 at which point the restrictive covenants would expire.
It is interesting that a two-year restrictive covenant was held to be enforceable in this case and on the basis of comparatively low consideration. It is also interesting that the fixed damages (non payment of the £15,000 deferred consideration) was upheld. Withholding the deferred consideration was not considered unenforceable as a penalty, as Rush had legitimate business interests to protect, namely ensuring it retained its staff and client base both of which added great value to its business. If this is a model for other deals then it would need to be treated with caution if the sums are much larger and if there is a tight geographic limitation as in this case. The test for whether a restrictive covenant in an SPA is enforceable is whether the clause serves to protect a legitimate business interest and whether it is reasonable in geographical scope and duration of time. When dealing with commercial as opposed to employment contracts, the courts tend to allow more widely drafted restrictive covenants, and will also have regard to the commercial context of the agreement. It is notable that the court did not find that H had used her newly created company as a vehicle for deception. The courts will only be willing to look behind a corporate structure (i.e. pierce the corporate veil) in cases where there has been a deliberate and calculated attempt to evade scrutiny.
As with most other industries, the potential impact of Brexit on the UK film industry is still very uncertain, with much depending on the type of Brexit which the UK government decides to implement. We set out below some of the key threats and opportunities that Brexit may present for the UK film industry.
Loss of EU funding
Perhaps the biggest threat facing the UK film industry is the potential loss of EU film funding. The UK film industry benefits from a wide range of EU funding programmes, including the Creative Europe Programme and Media Programme. Any loss of EU funding could be very damaging to the UK film industry and the UK government is likely to face enormous pressure to replace it.
British content less attractive to European broadcasters
Some EU countries impose quotas on the amount of European content their TV broadcasters must show. In the past, such quotas have led to an increased demand for UK films and television shows. If the UK leaves the EU and therefore UK programming no longer counts towards these quotas then UK content may become less attractive to broadcasters in the future.
Restrictions on non-UK talent
The effect of Brexit on free movement of people will depend on the manner in which Britain exits the EU. If free movement of people is restricted after Brexit, then the imposition of additional visa requirements or work permits may deter producers from filming in the UK, because of the administrative headaches of having to apply for multiple visas for non-UK talent. Furthermore, non-UK talent such as actors, technicians and writers could be prevented from contributing to UK film productions.
Co Production Treaties
Co-productions between UK and EU countries are governed by the European Convention on Cinematographic Co-Production (ECCC). There is a question whether, post-Brexit, UK productions will continue to be classified as European productions, thereby enabling UK co-productions to be classified as a “European work”. It is generally expected that Brexit will not have an effect on the ECCC, which involves the Council of Europe, as opposed to the EU. Conversely, the UK’s current treaty with France may require to be renegotiated, as it is currently underpinned by EU legislation.
Rise in homegrown talent
The addition of visa requirements or work permits for non UK talent could lead to an increase in producers engaging UK talent, rather than bringing over whole teams of talent from overseas.
UK more cost effective
Films are primarily financed in dollars so if the Pound continues to lose its value, then films will become cheaper to shoot in the UK. As a result, the UK may become more attractive as a film location, due to the corresponding reduction in costs such as wages, equipment and location hire, accommodation etc.
UK Film Tax Relief
EU rules on state aid and distortion of competition currently prevent the UK from favouring British productions through UK film tax relief. Leaving the EU would allow the UK government to promote/encourage British productions by introducing more favourable tax credits. This could result in increased output from home grown filmmakers.
Brexit poses a whole host of uncertainties for the UK film industry. Whilst there may well be some immediate benefits to the industry, particularly as a result of the recent fall in the Pound’s value, the corresponding threats faced by the industry in the future have the potential to reverse its recent growth.
A mural attributed to the elusive street artist Banksy has raised some interesting points about who owns what when a tenant leases a property from a landlord.
In the case of Creative Foundation v Dreamland Leisure Ltd and others, the tenant held a 20 year lease of a building which it used as an amusement arcade. The leased area included the structure and the exterior.
The lease included a standard form of repairing obligation requiring the tenant to keep the property in good and substantial repair, a decoration obligation requiring the painting of the outside of the property every 4 years and a prohibition on making alterations without the landlord’s consent – including an express provision against “maiming or injuring” the walls.
In September 2014, a mural was spray painted onto the flank wall of the building (Artwork), purportedly by Banksy.
The following month, the tenant removed the Artwork, re-placed the wall and shipped the Artwork to New York where it had been advised it could expect to sell the Artwork for up to £500,000.
The tenant argued that by removing the Artwork it was acting within its obligations in the lease and that once removed, the Artwork became the property of the tenant by virtue of an implied term of the lease.
The landlord objected and assigned its claim to Creative Foundation (Foundation) to seek the Artwork’s return for the benefit of the local Folkestone community.
Foundation argued that, in accordance with an established principle, the building was attached to and formed part of the land that belonged to the landlord and that once sprayed onto the wall the Artwork became part of the land. The tenant had no right to remove the Artwork by virtue of its repairing and decorating obligations and that by doing so without the landlord’s consent it had breached its alterations obligations.
On giving its verdict, the court firstly held that whilst the Artwork constituted disrepair, the tenant was only required to use prudent remedial methods to discharge its repairing obligations; there was no reason the Artwork could have not have been removed by a less intrusive method such as painting over or chemicalisation and the removal of an entire section of wall constituted interference with the fabric of the building.
Secondly, the court held that once the Artwork had been removed from the property it took on the status of a chattel, the ownership of which belonged to the landlord. Whilst the tenant might have a right to dispose of chattels removed whilst carrying out repairs, that was not the same as an implied term that ownership in such items transferred to the tenant. In any case, even if it could be established that chattels of no significant value belonged to the tenant, this did not necessarily extend to a term being implied for valuable items.
The court dismissed the tenant’s arguments and ordered the Artwork to be returned the Foundation.
Given the well established principle that a building is attached to, and forms part of the land, and the absence of any agreement between the parties to the contrary, the decision is unsurprising although no doubt there would also be public policy reasons against a finding in favour of the tenant. Practically, the immediate effect of the decision will no doubt be a strong deterrent to other tenants who might seek to cash in on street art appearing on their buildings.