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Legally Speaking
Summer
2013
- Judge & Priestley’s Quarterly Legal Update for Commercial Clients
Law amended to boost employee ownership
The Government has amended
company law in an attempt to increase
the number of firms offering direct
employee ownership
schemes.
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Justin House
6 West Street
Bromley
Kent BR1 1JN
UK employee owned
companies have a
turnover of £30bn a year
and employ more than
130,000 people. Ministers
say these firms are more productive,
profitable and more resilient to economic
shocks than other businesses.
The new rules mean that a company
with employee ownership that issues
shares directly to its employees will find
it easier to buy back those shares when
an employee leaves. It will then be able
to re-issue those shares when new
employees join. The changes will reduce
Letting agents face new regulation
Letting agents are to be regulated to
protect both tenants and landlords
against unfair practices.
Housing Minister Mark Prisk has
promised legislation that will raise
standards across the industry. His
proposal will oblige letting and managing
agents, and agents involved in leasehold
management, to offer tenants and
landlords access to an approved redress
scheme.
It’s expected that the new regulations
will bring letting agents within the scope
of the Consumers, Estate Agents and
Redress Act.
the administrative
burden of share
buybacks and enable
companies to avoid
situations where
they become owned
predominantly by
former employees
and others outside the company.
Employment Relations Minister Jo
Swinson (pictured above) said: “We are
committed to making direct employee
ownership more attractive, cutting red
tape for companies, and promoting new
and more responsible ways of running a
business.”
It’s hoped the changes will bring
employee ownership to the attention of
a wider audience.
of compulsory redress brings about a
level playing field for the industry and it
will mean that a consumer has access
to independent dispute resolution
regardless of which agent they use.”
Ministers say employee ownership in
this context involves the employees
of a company having a significant and
meaningful stake in that company. To be
meaningful, the employees’ stake should
go beyond mere financial participation
and underpin organisational structures
that ensure employee engagement.
We shall keep clients informed of
developments.
The move has been welcomed by the
Property Ombudsman Christopher
Hamer as a positive measure to raise
consumer protection by giving access
to an independent disputes resolution
mechanism.
Mr Hamer said: “Whilst full regulation is
not yet on the agenda, the introduction
The measures to improve the system
have been introduced through
changes to the Companies Act 2006.
They impose no additional costs on
businesses, but should offer more
flexibility and choice.
For more details contact
Paul Stevens - 020 8290 7422
pstevens@judge-priestley.co.uk
For more details contact
Mark Oakley - 020 8290 7337
moakley@judge-priestley.co.uk
The proposal was welcomed as a step
forward by the Association of Residential
Letting Agents.
Company’s confusion over IT contract renewal proves costly
When drawing up contracts with
automatic renewal clauses it is
important to ensure that you fully
understand what is being agreed.
for a period of three years on each
anniversary of the renewal date unless
either party gave 90 day's notice of its
intention to terminate.
Failure to do so can prove costly,
as demonstrated in a recent case
before the High Court. It involved
an IT company and a bank that
had entered into an agreement.
There was a clause stating that the
agreement would renew automatically
The renewal date was 30 July, 2009.
The bank gave 90 day's notice to
terminate the agreement on 30 July
2010. The IT company said that once
the renewed contract had begun in
2009, it could not be terminated until
the end of the three-year period, which
info@judge-priestley.co.uk
T. 020 8290 0333
would be 30 July 2012. The court
found in favour of the IT company.
It held that the relevant clause in the
agreement clearly referred to the
subsequent renewal period as being
three years. ‘Anniversary’ in this
context meant three-year anniversary.
For more details contact
Neil Cuffe - 020 8290 7405
ncuffe@judge-priestley.co.uk
www.judge-priestley.co.uk

2. Preservationists fail in bid to stop development
A company set up to preserve parkland has
failed to stop planning permission being
granted for a housing development.
The issue arose when East Devon
District Council granted outline
planning permission for a 400-home
estate in a countryside location. A
total of 40% of the homes would be in the affordable housing
category.
The council granted permission knowing that it was breaching
its own local development plan, but justified the decision
by saying there was a strong need to secure new housing,
especially affordable housing.
The preservation company, Save Our Parkland Appeal Ltd,
applied for a judicial review of the decision claiming that
the council had failed to explain why it had departed from
its development plan. The court stated that the Town and
Country Planning Act 1990 required local authorities to act
in accordance with their development plans unless material
considerations indicated otherwise.
The planning officer’s report to the council made it clear that
there were policies and factors weighing both against and in
favour of granting planning permission. It was clear that the
local authority had to undertake a balancing exercise.
It therefore granted permission because it felt the benefits
of the new homes, which were badly needed in the area,
outweighed the fact that it was breaching its development plan
on this occasion.
The application for judicial review was therefore refused.
For more details contact
Steven Taylor - 020 8290 7304 staylor@judge-priestley.co.uk
New Code designed to get a fairer deal for pub tenants
The Government is introducing a new Code of Practice to
ensure that pub tenants are treated fairly and are allowed to
run their businesses as they wish.
The Code will be enforced by an adjudicator with powers to
fine large pub companies who abuse their powerful position.
Ministers say the measures will save tenants £100m a year.
Under the proposals the Code will make sure that:
• pubs are treated fairly and lawfully by pub companies
• tied pubs are no worse off than free-of-tie pubs
• pub companies charge fair rents and beer prices, with the
possibility of open market rent reviews
• tied pubs could have the option of a guest beer, picked
independently
Tenants who feel that they are being treated unfairly or that
there has been a breach of the Code will be able to complain
to the adjudicator who can investigate and arbitrate the
dispute for them.
The adjudicator will have the power to enforce the Code and
impose fines on pub companies if the breach is serious.
The Code will apply to pub companies that own more than 500
premises. These companies account for
nearly 90% of complaints received.
Business Secretary Vince Cable, pictured
right, said: “Pubs are small businesses
under a great deal of pressure. Much of that
pressure has come from the powerful pub
companies and our plans are designed to
rebalance this relationship.”
The proposals have been put to public consultation. We shall
keep clients informed of developments.
For more details contact
Mark Oakley - 020 8290 7337 moakley@judge-priestley.co.uk
Company stops former employee soliciting its clients
had been a client of the company in the
preceding 12 months.
the company had breached his terms of
employment when it demoted him.
The case involved an employee who
had been a senior manager and
associate director of the company. In
October 2012, he was told that he was
no longer a senior manager but could
continue as an associate director.
The company alleged that shortly
after starting a new job, he started to
solicit some of its clients, in breach
of the covenant. When he refused to
give undertakings that he would stop
doing so, the company began legal
proceedings.
He found this unacceptable and handed
in his notice in January 2013. His
contract contained a restrictive covenant
that prevented him, for six months after
termination, from soliciting anyone who
The court held that the covenant did
appear to be enforceable as there was
no suggestion from the former employee
that he had not solicited clients. His
defence was based on his belief that
The judge felt this defence was unlikely
to succeed at trial. Furthermore, a trial
was unlikely to take place until after
the period covered in the covenant had
ended. It was therefore appropriate to
grant an interim injunction preventing the
employee from soliciting the company’s
clients in breach of the restrictive
covenant.
A company has been granted an interim
injunction to prevent a former employee
from soliciting its clients.
For more details contact
Paul Stevens - 020 8290 7422
pstevens@judge-priestley.co.uk

3. Directors disqualified for overlooking creditors
Two directors have been disqualified for
five years for taking a total of £59,000
from company funds instead of paying
creditors after their business got into
financial difficulties.
Neither director disputed that they
took the money at a time when the
company’s tax liabilities had risen to
more than £109,000 and when a trade
creditor had obtained a court judgment
against them for over £16,000.
They have both given undertakings
not to act as company directors for five
years.
Vicky Bagnall, Director of Investigation
and Enforcement Services at The
Insolvency Service, said: “The
Insolvency Service will rigorously pursue
company directors who seek to benefit
themselves ahead of their creditors by
extracting company funds when others
are not being paid.
"Fair treatment of creditors is essential
for business confidence, which is, in
turn, essential for economic growth. The
protection of limited liability should only
be available to those who comply with
their obligations as company directors.
If those obligations are ignored, that
protection will be withdrawn.”
For more details contact
Rachel Addai - 020 8290 7356
raddai@judge-priestley.co.uk
Changes affecting tribunals and ‘shares for rights’
The Government has announced
new measures designed to simplify
and improve the employment tribunal
system.
Meanwhile, the Government has made
significant concessions on its ‘shares for
employment rights’ scheme in order to
get it through the House of Lords.
The move follows concerns from
employers that tribunal cases are both
expensive and time-consuming for them.
Employees will have to be given free
legal advice before they can sign away
their employment rights. This advice
cannot come from a lawyer connected
with the company introducing the
scheme.
The proposals include new strike out
powers to ensure that weak cases that
should not proceed to a full hearing
are halted at the earliest possible
opportunity.
There will also be a new procedure
for preliminary hearings that combines
separate pre-hearing reviews and
case management discussions. This
will reduce the overall number of
hearings and lead to a quicker disposal
of cases saving time and costs for all
parties.
Employment Minister Jo Swinson said:
“Employment Tribunals are costly in
terms of time, money and stress for
everyone and they should always be the
last resort, not the first port of call. We
are committed to finding ways to resolve
workplace disputes so they don’t end up
with two sides in front of a tribunal. The
The advice must cover the terms of
the new employment status and a full
explanation of what rights will be lost.
Workplace Law
proposals will help all parties understand
what the process involves and what to
expect.”
The new rules are expected to come into
effect later in the year.
Official figures show that there were
186,300 Employment Tribunals cases
between April 2011 and March 2012. It is
estimated that employers face average
costs of £3,900.
The independent legal advice must
also cover issues relating to the nature
of the shareholding such as whether
they cover voting rights, include
dividends and whether the shares can
be sold. The employee will be given
seven days to make a decision.
The vote by the Lords to accept the
scheme means it will now become law
and is likely to be implemented by the
end of this year.
For more details contact
Paul Stevens - 020 8290 7422
pstevens@judge-priestley.co.uk
Contractors liable for damages despite client’s failings
A contractor has been found liable
for the damage caused by a factory
fire even though the client was partly
responsible for what happened.
The contractor had been hired to
refurbish a factory roof. This required
providing a suspended scaffold cage
which contained gas-powered heaters.
Part way through the contract a fire
broke out causing extensive damage
to the factory. The evidence indicated
that the fire had been started when one
of the factory’s employees activated
the gas heaters while carrying out
maintenance work.
This led to a dispute over who was
responsible for the damage: the
contractor who supplied the heaters or
the factory whose employee flicked the
switch?
The court heard evidence that the
heaters had not been routinely isolated
during the course of the works. This
was because of confusion between
the two parties. The contractor’s site
manager assumed that factory staff
would isolate them.
However, the factory’s engineering
manager had not read the contractor’s
method statement and assumed he
would be informed if anything needed
to be done. The court held that both
parties were in breach of contract.
However, the major failure was that of
the contractor because it had failed to
take all precautions within its power
and failed to fulfil its obligation to
continuously inspect the work.
These failings were so serious that
they would over-ride any defence of
contributory negligence on behalf of the
factory owners.
For more details contact
Mark Oakley - 020 8290 7337
moakley@judge-priestley.co.uk

4. SMEs at risk as they struggle with cash flow
Many UK small and medium-sized
enterprises (SME) are struggling with
cash flow and are relying on their
reserves to finance growth, according to
new research.
The British challenger bank, Aldermore,
surveyed 300 SMEs and found that 38%
are depending on cash reserves to fund
future development. A further 12% said
they will turn to a bank loan, and 9% to
an overdraft.
The remainder planned to use other
forms of finance or were not planning to
fund any future growth at this time.
Meanwhile, research by Baker Tilly
shows that SMEs continue to struggle
with cash flow problems. The Baker Tilly
SME Distress Monitor, which covers
25,000 businesses, found that 24% of
Bruce Mackay, Restructuring and
Recovery Partner for Baker Tilly, said:
“What concerns me is the large number
of SMEs that are struggling to pay their
short-term debts. Previous recessions
have shown that businesses risk failing
due to cash flow constraints as the
economy starts to recover.”
SMEs had insufficient funds to pay their
short-term debts. It means they may not
be able to fund any future recovery.
The research also indicated that sales
were holding up better than profitability,
which could indicate that businesses
are discounting prices, which is leading
to an increase in pressure on their
margins.
The perilous state of some SMEs
highlights the need for firms to keep a
tight rein on their credit control.
Failure to enforce prompt payment
can lead to cash flow problems and
may even result in the debt having to
be written off if a debtor goes out of
business a few months later.
For more details contact
Mark Oakley - 020 8290 7337
moakley@judge-priestley.co.uk
Company wins compensation for loss of business
A council has been ordered to pay
compensation to the owners of
an amusement arcade which lost
business when a seaside pier was
closed for safety reasons.
The case arose after the arcade owner
became concerned about the structural
integrity of the pier and commissioned
a survey. It then provided a copy of
the survey to the local authority in the
hope that it would tell the owner of the
pier to carry out repairs.
The council responded by giving
notice that it was exercising its power
under the Building Act 1984 to close
the pier as it was unsafe to allow
large numbers of people to use it. The
arcade sought compensation for loss
of profit and diminution in the value of
its business over a three-month period.
The council responded by saying
the arcade had forfeited any right to
compensation by breaching its legal
obligations to ensure that visitors and
staff were safe on its premises.
The court found in favour of the arcade
owners. It held that the fact that the
council may have acted reasonably
in closing the pier could not defend it
against a claim for compensation.
Otherwise, the fact that a local
authority was properly exercising its
powers would always be a defence to
any claim, which could not be what the
law intended.
Neither could the council claim
the arcade had forfeited its right to
damages by failing to ensure the
safety of staff and customers.
Those obligations related to
occupiers’ liability, and health and
safety legislation. They were not a
requirement of the Building Act 1984,
which was the legislation that obliged
the council to pay compensation.
The arcade had not done anything to
contravene the Building Act and it was
therefore entitled to damages after the
pier was closed.
For more details contact
Mark Oakley - 020 8290 7337
moakley@judge-priestley.co.uk
Meet the team
Services
• Buying and Selling Businesses
• Contracts
• Debt Recovery
Mark
Oakley
Pam
Bachu
Rachel
Addai
Neil
Cuffe
• Developments
Steve
Taylor
Paul
Stevens
• Dispute Resolution
• Employment
• Property
For further information
T. 020 8290 0333
F. 020 8464 3332
Justin House, 6 West Street, Bromley, Kent BR1 1JN
E. info@judge-priestley.co.uk
www.judge-priestley.co.uk
This newsletter is intended merely to alert readers to legal developments as they arise. The articles are not intended to be a definitive analysis
of current law and professional legal advice should always be taken before pursuing any course of action.
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