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Spring 2013

C o m m e r c i a l News from St Philips Commercial

Website Launch St Philips Commercial website now live.

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Also inside... Articles from the groups Details of upcoming seminars


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CONTENTS |

Welcome from the editor Emma Kelly Editor, Inside Commercial

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elcome to our first edition of Inside Commercial showcasing the eleven specialist teams that form St Philips Commercial. I hope you enjoy the diverse selection of articles provided by each of the teams. 2013 has already proved to be a success for St Philips. Ed Pepperall has well deservedly been appointed as Queen’s Counsel to add yet further strength to the impressive array of Silks St Philips Commercial has to offer. Both Ed and Tariq Sadiq were nominated for the final of the prestigious “Barrister of the Year 2013” award by Birmingham Law Society. Tariq won the award, making it the second year running that a St Philips’ barrister took the title after John Randall QC was successful in 2012. St Philips Commercial has run immensely successful seminars on the Jackson Reforms. Such was the demand that the seminar was repeated to accommodate approximately 150 commercial solicitors. The remainder of 2013 looks equally positive. St Philips is expanding and opening chambers in both London and Leeds. The standard of excellence will continue to prevail in the new locations, making it even easier for clients to access a first class legal service. The popular seminar programme will continue with each of the teams hosting specialist events throughout the year. Details of the seminars can be found on page 12. Please book early to avoid disappointment. If you have any comments on Inside Commercial or as to particular subject matters you would like to see covered by future seminars or newsletters, please feel free to contact me at ekelly@st-philips.com.

Contents White v Jones – Slow Train Coming

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Personal Representatives: When Is It Time To Go?

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Accounts and inquiries – how to achieve an equal footing

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Big Changes in Property Litigation?

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Leasehold Enfranchisement News

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Feature New Website Launches

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St Philips Commercial Seminar Programme 12 Get it in Writing!

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Causation in Financial Mis-selling claims

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“Bribes, Fiduciaries and Constructive Trusts” 15 Football Dataco & Others v Stan James Plc & Others and Sportradar Gmbh & Others [2013] Ewca Civ 27.

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Historic Misappropriations

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Getting away from it all? Bankruptcy Tourism

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Misfeasance Claims: Documents and Burdens

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| NEWS

Spring 2013

News in brief This is St Philips Commercial’s first newsletter of 2013, and we have plenty of ‘news’ to send!

New is our St Philips Commercial website. It is the product of listening to what you, our clients, would find helpful – and then putting in the time and resource to produce it. We hope you like it, and particularly hope that, whatever your views, you will give us plenty of feedback to enable us to refine it further in due course. Our senior clerk, Justin Luckman, gives a more detailed introduction to our new website, and some of the ways in which you can use it, on page 10.

New

New are our 11 specialist teams. Many of our clients already know which of our barristers they would like to instruct for their case, whilst others welcome either guidance or reassurance as to which barristers of the appropriate seniority have demonstrable specialist experience in the relevant field. Entry to our specialist teams is subject to a strict internal admission policy, and the members’ specialist CVs available on each team’s area of the website afford you and your clients ‘chapter and verse’ as to their experience, reported cases, and directory listings, together with other relevant information demonstrating their specialist credentials. And, of course, there

New

by John Randall QC Head of St Philips Commercial

remains the tried and trusted way of taking guidance and advice from our highly experienced clerking team, led by Justin and his deputy Stuart Smith. Within this newsletter there are articles provided by members of each of our 11 specialist teams. New in 2013 will be our chambers in Leeds and in London. St Philips has had an alliance with a niche Chancery and Commercial set in Leeds, Chancery House Chambers, for a year now, and it has been very well received by clients in the North East and beyond. We very much look forward to St Philips opening in new premises in both Leeds and London later this year, and offering clients across the country local access to the same wide range of specialist expertise with which our Midlands based clients are already familiar.

New

And we have a new Silk this Easter in Edward Pepperall QC. Many of you will know Ed already, as he has been in practice at St Philips, and before its formation in 1998 one of its predecessor sets, Priory Chambers, for over 22 years. He is Vice-Chairman and Secretary of St Philips Commercial, and is a member of the Civil Procedure

New

Rule Committee (the only barrister member based outside London). We are delighted to be able to offer our clients a choice of 4 silks in Avtar Khangure QC, Mohammed Zaman QC, Ed Pepperall QC and myself, offering a range of areas of particular expertise as well as of personal styles. Watch out for our 2013 Silks Week this autumn.

Ed Pepperall QC with Senior Clerk Justin Luckman at the Silk Ceremony.

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White v Jones – Slow Train Coming


| PROFESSIONAL LIABILITY

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Spring 2013

hite v Jones [1995] 2 AC 217 is 18 years in the past. On February 16, 1995, I took judgment and argued costs in the case at a hatch looking into the

Chamber of the House of Lords. I returned from London Euston on the 20:55. The train stopped between Milton Keynes and Coventry and remained unheated on the tracks until I was taken off on a stepladder at 5am next morning - bathos1 personified.

OED Bathos: A ludicrous descent from the elevated to the commonplace.

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By 3:2, the appeal of the Solicitor’s Indemnity Fund had been rejected. Two middleaged sisters from Sheldon had recovered £9000 each because the solicitor’s firm concerned had failed promptly (or at all) to draft the Will of their father in their favour. I summarise inadequately the effect of the majority opinions: Lord Goff found that there was no principled remedy available, but that a new remedy in tort should be fashioned to fill the lacuna. Lord BrowneWilkinson found that there was a remedy available based on Nocton v Lord Ashburton [1914] A C 932. Lord Nolan agreed with both and with the Court of Appeal – which had approved Ross v Caunters [1980] Chancery 297. The reasoning of Lord Goff, in particular, imposed two restraints: (1) Any tortious duty to the disappointed beneficiary was congruent with the contractual duty to the Testator (i.e. conflict between their interests voided duty) and (2) no cause of

action arose in favour of the disappointed legatee where the estate itself had suffered damage. Since he was the only one of the five law lords with whom any two others agreed at critical points, it was his analysis that was subsequently taken as the ratio of the case (see Chadwick LJ Carr-Glynn v Frearsons [1999] Ch 326 at 354B). Revolving around the refinement or release of these restraints, then and still “ .. The implications of White v Jones are being explored case by case” (Peter Gibson LJ in Richards v Hughes [2004] PNLR 35). In that case, the Court of Appeal refused to strike out a claim brought in tort under White v Jones in respect of an inter vivos gift where the Lords in 1995 had suggested such a claim might not lie. In Carr – Glynn v Frearsons the remedy was extended to allow recovery where the estate did have a claim against the solicitor concerned, although the damages recovered would be

complementary to rather than duplicatory of those awarded to the disappointed beneficiary. In Gorham v British Telecommunications [2000] 1 WLR 2129 the family of a customer given negligent advice by an insurance company succeeded in establishing a White v Jones duty, although, on the facts, they failed on causation. In Rind v Theodore Goddard [2008] EWHC 459, Morgan J. refused to strike out a claim for damages in respect of inheritance tax payable as the result of a deceased’s negligently constructed avoidance trust. Yet, as late as April 2010, Counsel felt able to argue in Vinton v Fladgate Fielder [2010] PNLR 26; [2010] EWHC 904 (Ch) that White v Jones applied only in cases involving the making of Wills. In declining to strike out a claim in respect of another unsuccessful IHT scheme, Norris J reviewed the development of the remedy and ruled decisively against that submission. It’s a slow train, but it’s coming.

by James Quirke

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WILLS, TRUSTS & PROBATE |

Personal Representatives: When Is It Time To Go?

“I could screw his neck round but he is still my son.”

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hen is someone enough of a pain in the neck to warrant a Judge exercising their discretion under s50 Administration of Justice Act 1985 to remove or substitute them as personal representative? The exercise of the discretion was set out in Letterstedt v Broers (1884) 9 App Cas 371. The overriding consideration is the welfare of the beneficiaries. Not every “mistake or neglect of duty, or inaccuracy of conduct of trustees” [Letterstedt at page 386] will warrant their removal.

In Kershaw v Micklethwaite [2010] EWHC 506 (Ch), the fact that the executors, Mr Kershaw’s siblings, had overlooked to pass information onto him was not sufficient to undermine their role as executors. It was significant that their mother had expressly excluded her son Mr Kershaw from the executorship (but not her will, hence the opening quote) because he would “rule the roost”. By contrast, in Thomas & Agnes Carvel Foundation [2007] EWHC 1314 (Ch), Lewison J found that the executor of Agnes Carvel’s will, her niece Pamela Carvel, at best “does not understand her responsibilities, and is not willing to learn them”, and at worst had “acted dishonestly or with deliberate disregard of her duties” [para 51]. Agnes had made a mutual, mirror-image will with her husband Thomas by which they each left their residuary estate on trust for the Foundation. Thomas died first. Agnes revoked her earlier will and left her estate to an alternative foundation of which Pamela was Director. Upon Agnes’s death, Pamela obtained judgment in the High Court in her personal capacity against herself as executor of Agnes’s estate for £8m expenses. When the Foundation found out about this, they

applied for Pamela to be removed as executor. Lewison J found that the Foundation did not have standing to bring a claim under s50 AJA 1985 because it was not a beneficiary of Agnes’s last will. The Foundation did however have standing to bring a claim under s1 Judicial Trustees Act 1896, being the beneficiary of the trust - of which Pamela was a trustee which arose upon the death of Thomas without his having revoked the mutual will. The Judge had no difficulty in finding that Pamela had failed in the guiding principle to act in the welfare of the beneficiaries of the trust. Amongst other things, she had engaged in the “procedural nonsense” [para 49] of bringing proceedings in which she was both Claimant and Defendant. She was removed as executor and the Judgment she had obtained was set aside. In the very recent case of Goodman v Goodman [2013] EWMC 758 (Ch), it was upheld that a personal representative could be removed under s50 AJA 1985 even before probate had been obtained. A single sentence to the contrary that had appeared in Perotti v Watson [2001] EWCA Civ 116 was merely obiter and did not therefore bind the Court.


| PARTNERSHIP

Spring 2013

Accounts and inquiries – how to achieve an equal footing

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ccounts and inquiries often arouse the same human behaviour found with

ancillary relief proceedings. One party sits in jealous guard of the financial records and impedes any progress.

Frequently the record holder tries to hide behind CPR 31.6 (disclosure). Money is wasted with correspondence debating whether classes of documents are “relevant” or not. This is a red herring and should be avoided. A partner has an absolute right to access/inspect the partnership’s books and accounts: s.24(9) Partnership Act 1890. It is not a right for the record holder to police or curtail. In the absence of access, jurisdiction for injunctive relief does exist:

Greatrex v Greatrex (1847) 1 DeG. & Sm. 692. Another tactical step for the “accounting party” is to dispute what is or is not a partnership book and record. The Partnership Act 1890 does not provide a definition. There is also limited judicial authority. In the case of Till v Morris CLMD [2012] C.L. 219 (WL 6943227) HHJ David Cooke dealt with an application by Mr Till for access to and inspection of partnership books and records of an insolvency practice. Mr Till’s status as a partner was not in issue. However, Mr Morris resisted the application on the basis that the partnership books and records did not include the files created by him as an office holder (“Office Holder Files”). Mr Morris relied upon the Court of Appeal’s decision in the case of Casson Beckman v Papi [1991] BCC 68, per Sir Denys Buckley (p.80F-H):“... documents brought into existence [by the office holder]... cannot, in my judgment, be accurately classified as assets of the firm notwithstanding that Mr Papi may be under the fiduciary obligation ... to account to the firm for any financial benefits which have accrued or may accrue to him from any office of his as liquidator or receiver.” HHJ Cooke granted the orders sought by Mr Till without needing to adjudicate upon the

Casson Beckman case on the basis that:1. the absolute right to access of partnership books and records was conceded (properly so); 2. the proprietary right to possession of the Office Holder Files was different to the right of access for a partner who wished to ascertain the true position of the partnership; and 3. safeguards were provided regarding the (minimal) risk to third party confidentiality and the cost of retrieving records. Depending on the circumstances of a case, it may well be expedient to deal with access and inspection before the “accounting party” (the one in jealous guard of the records) puts forward his/her version of the final account: CPR40PDA.2. That way it levels the playing field, reduces cost and brings the Overriding Objective back onto the horizon.

by Paul Dean

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PROPERTY |

Big Changes in Property Litigation? Giving new structures for specialists may be the flavour of the season for St Philips Commercial, but the same applies

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t the time of writing, the launch of the “Property Chamber” of the Tribunal Service has been postponed to 1st July 2013, so as to fit better the parliamentary timetable for the new rules (and, yes, that does mean there are no final rules as yet). Even so, the Chamber under its new president, Siobhan McGrath (formerly president of the Residential Property Tribunal Service or “RPTS”), will soon be a regular feature of all our practices. The Property Chamber will start as an amalgam of the Adjudicator to H.M. Land Registry, the Agricultural Land Tribunal and the RPTS (Rent Assessment Committee, Leasehold Valuation Tribunal and Residential Property Tribunal). It will have a new appeal structure to the Upper Tribunal Land Chamber, which was formerly the Lands Tribunal, but which may be supplemented in some way to take account of the fact that, until now, appeals from the Adjudicator go to the

to some, at least, of the Tribunals in which we appear.

single judge of the High Court, Chancery Division. What difference will this make? Well, until the new rules are finalised, it is a little difficult to say. Since the judicial and administrative personnel of the component Tribunals are being retained, and the type of application dictates the procedures used, the initial changes may not be overly radical. Lawyer Chairs and Deputy Adjudicators will become “Judges” in the latest piece of label inflation, and a careful eye will be required to rules while they bed in, but what then? One area of special interest will be the treatment of appeals. Historically, the RPTS considered itself free to depart from Lands Tribunal decisions

and the Lands Tribunal would accept points not made below, but the former seems unlikely to last (the latter is almost inevitable when represented parties are a rarity at first instance). By contrast, the decisions of the Adjudicator and his deputies have been accorded “weighted deference” in the High Court and the Court of Appeal (Wilkinson v Farmer [2010] EWCA Civ 1148 @ [25]; Orme v Lyons [2012] EWHC 3308 (Ch)). Will this survive a culture change? In the realms of a major reform with details to be worked out, the future is uncertain. If the Property Chamber thrives, then expect its jurisdiction to increase, perhaps with more housing work (disrepair being an obvious candidate) or even

taking some of the first instance work from the Upper Tribunal Land Chamber (for example, the modification of restrictive covenants). Having said that, if the current pace of change continues, then new powers will have a long gestation. Anthony Verduyn is a Deputy Adjudicator to HM Land Registry and a lawyer chair of the Residential Property Tribunal Service, but the views expressed here are entirely his own and not that of the Tribunal service.

by Anthony Verduyn


| LANDLORD & Tenant

Spring 2013

Leasehold Enfranchisement News

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n this niche practice area business is quiet. Because of the mortgage famine, very few people are buying or selling leasehold houses or flats, and there is little need for advice about rights under the Leasehold Reform Act 1967 or the Leasehold Reform, Housing and Urban Development Act 1993. Contested cases under the 1967 Act are now few and far between at the Midlands Leasehold Valuation Tribunal, or, as it will be from May 2013, the Lower Tribunal of the Lands Chamber. The deferment rate argument has settled down now, at least for the West Midlands, since the decision of the Upper Tribunal of the Lands Chamber in Zuckerman v Calthorpe (Re Kelton Court) [2009] UKUT 235 (LC); [2010] 1 E.G.L.R. 187 (Mr Norman Rose FRICS). It is generally accepted that the deferment rate (for calculating the price payable to the landlord for a freehold reversion) should normally be 5½% for houses, and 6% for flats, instead of the rates of 4¾% for houses and 5% for flats

decided upon in Earl Cadogan v Sportelli [2007] 1 E.G.L.R. 153. The main recent development in the law of leasehold enfranchisement is the decision of the Supreme Court in Hosebay Ltd v Day and another, Lexgorge Ltd v Howard de Walden Estates Ltd [2012] UKSC 41; [2012] 1 W.L.R. 2884.

“...The fact that it was designed as a house, and is still described as a house for many purposes, including in architectural histories, is beside the point.”

This turns on the definition of a “house” in section 8 of the Leasehold Reform Act 1967: “‘house’ includes any building designed or adapted for living in and reasonably so called...”.

It appeared to be the law that if a building had ever been a “house” it was always a house, even if it had been turned into offices, a hostel or an antiques showroom. Property advisers were suggesting that the owners of long leasehold offices, shops etc. should look carefully at their buildings to see if they could possibly be described as a “house”. Since the abolition of the residence requirement by the Commonhold and Leasehold Reform Act 2002, it is possible for non-resident lessees, even companies, to exercise the right to acquire the freehold under the 1967 Act. The formula for fixing the price is generally favourable to the tenant. However, their Lordships have put paid to this line of business for surveyors and property lawyers. The seven-man Supreme Court delivered one judgment, that of Lord Carnwath, and he neatly summed up the whole matter in the following words: “A building wholly used for offices, whatever its original design or current appearance, is

not a house reasonably so called. The fact that it was designed as a house, and is still described as a house for many purposes, including in architectural histories, is beside the point.” The consequences of this very sensible decision will include the abandonment of a number of interesting enfranchisement claims throughout Birmingham, especially Edgbaston.

by Douglas Readings

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New Website Launches by Justin Luckman

It has been a while in the making but I’m now delighted to be able to say that the new St Philips Commercial website is live.

“It was therefore important to design our site from the outset to be clear and logical, with information found where you’d expect it to be”

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his isn’t a revamped or a relaunched site, but a completely new and bespoke one designed to enable Commercial, Property and Private Client lawyers to access and explore our services in the most convenient and user-friendly fashion.

1 Homepage Resource Centre 3 Contact Us

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| FEATURE

When we conducted market research last year, many clients said they wanted to see more content that helped them choose barristers with particular skill sets, and included CVs that were easy for their clients to view and that made sense to them. We hope that we’ve succeeded in doing this, and more. We understand that our website is an important tool for you and that quite often you have it open while speaking with us on the telephone. We also know that your clients are likely to view our website to see for themselves the barrister that you are recommending. It was therefore important to design our site from the outset to be clear and logical, with information found where you’d expect it to be. We have reorganised our specialist teams to showcase the tremendous amount of talent we have at St Philips; the individuals in each of these teams have been subject to a strict internal admission policy, designed to provide

Spring 2013

you and your clients with the confidence that each of our specialist teams“ do what it says on the tin”. We also wanted to make our services and people more accessible, so you will find specialist team homepages with CVs filled with information relevant to that area and direct contact details for those barristers. Those pages will also show details of area-specific articles, seminars and news items that are there to keep you informed and provide a useful reference tool. You will now find profiles of the clerks, to give you an insight to the people you regularly speak to and who are a vital part of your relationship with St Philips. We hope that you will also find the Resource Centre section of the site particularly useful. From here you can link directly to the group’s reported cases; see our latest news; book on to our seminars; browse articles written by our members for both our own newsletters and

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external publications; and sign up to receive information from us in the specific areas that are of interest to you, either via email or through the various forms of social media that are available. You will also find our “Brochure Builder” in this section. This enables you to choose specific CVs of the individuals who interest you and create your own custom-made “brochure” of them. When you’ve completed your selections an electronic brochure will be generated, with covers and contact details added to your chosen CVs. You then have the option to print it off or download it to your pc, laptop or tablet. You will also be able to email it directly to someone. Whether compiling a handy list of your personal favourites or to compile a selection of barristers to beauty-parade to a client, we hope you will find this a very useful tool. Now that we’ve done this, we’d love to talk about it. If you have particular likes

or dislikes, if you have any suggestions on how we can improve it and make anything about our site even more usable, please do contact me. We’d also welcome the opportunity to meet and speak in greater detail about the services we can offer and how we may be able to tailor them to meet your requirements. Hopefully this newsletter will give you a taste of what our new teams and website are about but this is, of course, only a part of the changes we are introducing to make using St Philips Commercial an experience that gets better and better. We want to build long term relationships with our clients and will continue to work harder and innovate to bring you closer to us. With 2013 heralding the launch of our two new chambers in London and Leeds, and new services being added to what we already offer, it is an exciting time for us and one which we hope pays dividends for you and your clients.

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SEMINAR PROGRAMME |

St Philips Commercial Seminar Programme Throughout the year St Philips Commercial provide topical and relevant CPD accredited training seminars and events for the benefit of our clients. Our 2013 series of talks has so far proved extremely popular with our talk on the Jackson Reforms having to be run twice on the same day after being over subscribed , along with full delegate lists for our spring programme at our Insolvency, Defamation, Banking & Financial Services and Company Law Seminars. Below you will find details of our summer seminar programme. Full details and a booking facility are available via the Resource Centre on our website.

Date

Seminar Details

Location

4th June 2013

JCT Summer Seminar

Leeds

6th June 2013

Property Law Summer Breakfast Seminar

Birmingham

11th June 2013

Professional Liability Spring Breakfast Seminar

Birmingham

11th June 2013

Property and Landlord & Tenant Summer Breakfast Seminar

Leeds

13th June 2013

Partnership Law Summer Breakfast Seminar

Birmingham

20th June 2013

Landlord & Tenant Summer Breakfast Seminar

Birmingham

25th June 2013

Commercial Litigation Summer Breakfast Seminar

Leeds

27th June 2013

Restraint of Trade & Confidentiality Summer Seminar

Birmingham

4th July 2013

Wills, Trusts & Probate Summer Breakfast Seminar

Birmingham

Autumn 2013

Silks Week

Birmingham

Press release from the Chancellor of the High Court “The Chancellor of the High Court has announced a review of the practice and procedure of the Chancery Division, both in and outside London, with a brief to make recommendations for change. He has asked Mr Justice Briggs to be the judge in charge, assisted by Mr Justice Newey. There is to be an experienced advisory panel, including representation for the Circuits. The review is to be completed within 2013. Many of you will shortly be receiving an invitation to contribute to the review by setting out your thoughts about what needs changing, and what needs preserving, in Chancery Division practice. Mr Justice Briggs asks: Please start thinking now!� The email address for submitting suggestions to Mr Justice Briggs will be chancerymr@judiciary.gsi.gov.uk


| Restraint of Trade & CONFIDENTIALITY

Spring 2013

Get it in Writing! Over the last year, there have been a number of ingenious attempts by employers with no or inadequate written restrictive covenants to seek similar injunctive relief using implied terms. They have tended to fail. The lesson is that there is no substitute for a well-drafted express term.

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n Ranson v Customer Systems [2012] IRLR 769 (CA), the Court held that the ordinary duty of fidelity for employees was simply “an obligation loyally to carry out the job that the employee agreed to do”, and implied terms did not generally oblige an employee to disclose others’ misconduct still less his own misconduct. Therefore, in the absence of an express term, there was no breach in an employee in the final days of his job accepting on behalf of his new employer a business opportunity ‘off his patch’ at the current employer; or just having lunch with another customer of the current employer. Likewise, in Caterpillar v Huesca [2012] IRLR 410, St Philips’ own Ed Pepperall persuaded the Court of Appeal not to develop the equitable jurisdiction of ‘barring-out relief’ to prevent an employee from taking up a position with a competitor where there was a risk (but no direct evidence) of them using confidential information of the old employer. (Moreover, an attempt to claim proprietary rights to information in e-mails

rather than their storage in databases failed recently in Fairstar v Adkins [2012] EWHC 2952 (TCC)). Likewise, in CEF v Mundey [2012] IRLR 912 (HC) (as well as warning against no or short notice injunction applications) Silber J held no implied term survived termination to prevent poaching of former colleagues, and even with breach during employment, there was no basis for a springboard injunction because there was no specific competitive disadvantage (and the express covenants were unenforceable as too wide). Moreover, Cox J in Towry v Bennett [2012] EWHC

224 (QB), held that whilst ‘nonsolicitation’ covenants were enforceable, there was no breach of them because there was no evidence the individuals had actively sought to encourage clients to move. By contrast, in QBD v Dymoke [2012] IRLR 458 (HC), Haddon-Cave J held that there was a breach of the implied term of fidelity and the basis for a springboard injunction when there was an orchestrated covert mass exit of employees to compete with their former employer by stealing clients and staff, even when the express restrictive covenants were unenforceable. Likewise, in Tullett

“St Philips’ own Ed Pepperall persuaded the Court of Appeal not to develop the equitable jurisdiction of ‘barring-out relief’ to prevent an employee from taking up a position with a competitor where there was a risk (but no direct evidence) of them using confidential information of the old employer.”

v BGC [2011] IRLR 420, the Court of Appeal held that an employer did not act in repudiatory breach of contract invalidating covenants by pressurising employees to stay rather than participating in an unlawful team move, despite the fact that the employees had signed ‘forward contracts’ with their potential employer (which were unenforceable because of its conduct). Clearly, courts will fashion employers a remedy based on implied terms in such clear cases. But wise employers will pre-empt such problems with well-drafted and up-to-date express terms – a valuable feeearning opportunity for us.

by Jim Tindal

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BANKING & FINANCIAL SERVICES |

Causation in Financial Mis-selling claims

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he usual causation defence in financial transactions is raised on the basis that although the advice

given was negligent and non-compliant, the loss suffered by the investor was not actually caused by that wrong advice. Two very recent Court of Appeal cases shed some light on this issue.

by Andrew Maguire

In Rubenstein v HSBC [2013] PNLR 9, the Court of Appeal overturned a decision that the bank’s adviser was not liable for losses arising from “advice” relating to the investment of £1.25m into an AIG fund. The trial judge had found that although the adviser had indeed given the claimant negligent advice, the prospect of a run on AIG was so remote that no financial adviser would have been required to point it out as posing a risk to capital. Accordingly, the loss was not caused by the negligence on the part of the IFA in making the recommendation. The loss was not reasonably foreseeable and was too remote to be recoverable as damages for breach of contract or in tort. However, this decision was overturned by the Court of Appeal. In the leading judgment, Lord Justice Rix found that the trial judge confused the risk of default by AIG with the risk arising from general market collapse or illiquidity. He found that it was the bank’s duty to protect Mr Rubenstein from exposure to market forces. It was wrong in such a context to say that when the risk from exposure to market forces arises, the bank is free of responsibility because the incidence of market loss was unexpected. The Court of Appeal held that, where a bank is under a duty not to put a retail customer in an investment exposed to market forces, and where loss occurred due to such forces, the loss is not too remote, however unforeseeable that might have been at the time of the advice.

Case #1

By contrast, In Zaki v Credit Suisse [2013] EWCA Civ 14, the widow and two daughters of a businessman appealed against a finding that the bank was not liable for financial losses suffered as a result of breaches of its statutory duty. The businessman had invested in structured financial products bought from the bank. Following the downturn in the markets in 2008, the bank had issued a margin call which the businessman was unable to meet, which resulted in substantial losses. He was classified under the Conduct of Business Sourcebook Rules as a “private customer”. Under COBS the bank was required to take reasonable steps to ensure that its investment advice was suitable and to assess his financial standing, and to take reasonable care to ensure arrangements for the loan, and its amount, were suitable for the transaction proposed. At first instance, the judge found that there had not been a breach of duty in respect of the notes and the notes were suitable. In the Court of Appeal, Rix LJ held that what ultimately counted had been whether the investments, leveraged as they had been, had been suitable for the businessman, with his knowledge and appreciation of and appetite for risk. Accordingly, the appeal was dismissed. The message from these cases is that bad advice is usually readily identifiable; causation, however, is a more difficult concept that requires to be underpinned by cogent evidence, usually in the form of expert evidence.

Case #2


| COMMERCIAL FRAUD

Spring 2013

“Bribes, Fiduciaries and Constructive Trusts” It has become common place for an equitable remedy to be sought in commercial disputes and for good reason. It is usually done in order to lay claim to a proprietary right that would not otherwise be available or in order to avoid the impact of common law concepts of remoteness and contributory negligence.

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by John Brennan

he deployment of equitable principles in the twentieth century in areas that would have been regarded in the nineteenth century as terra incognita has not infrequently been accompanied by three unfortunate tendencies. The first is the adoption of common law terms of reference. The second is the invocation of ill-defined notions of unconscionability as a catch-all justification for the imposition of an equitable remedy. The third is the reliance on a constructive trust as a panacea whenever the right to an equitable remedy is recognised. The end-result has sometimes been the distortion of the equitable principle in question; a consequence that has done nothing to enhance the coherence or predictability of the law. The use and abuse of equitable principles is neatly

encapsulated by the approach to the bribery of a fiduciary. In Lister & Co v Stubbs (1890) 45 Ch. D. 1, having accepted bribes, a fiduciary applied the same towards the purchase of a house. The Court of Appeal rejected his principal’s attempt to prove that the house was held on constructive trust for its benefit. As Lindley LJ said, the relationship between the corrupt fiduciary and his principal was one of debtor and creditor rather than trustee and beneficiary. Over a hundred years later, in Attorney General of Hong Kong v Reid [1994] 1 A.C. 324, the Privy Council came to the opposite conclusion and thereby stood that analysis on its head. A more rigorous approach is now being taken to such claims. This, too, is illustrated by the approach to the bribery of a fiduciary. In Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (In Administration) [2011] 3

W.L.R. 1153, the Court of Appeal held that when a fiduciary receives a bribe from a third party he does not become a trustee of the bribe but merely assumes a personal liability to pay a sum equivalent to its value to his principal. The difference between Reid and Sinclair is to be found not only in the result. The Court of Appeal analysed whether a principled justification for the imposition of a constructive trust arose; an approach conspicuous by its absence in Reid in which the justification for the imposition of a constructive trust was taken for granted. After Sinclair Investments, it is now clear that a claim for a constructive trust arising from a breach of a fiduciary duty has no prospect of success unless the fiduciary held the asset in question or its substitute on trust (see Cadogan Petroleum Plc v Tolley [2012] 1 P. & C.R. DG5).

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16

Football Dataco & Others v Stan James Plc & Others and Sportradar Gmbh & Others [2013] Ewca Civ 27.

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n a judgment of 6 February 2013, the Court of Appeal confirmed that under English law “the owner of any website anywhere in the world will be a joint tortfeasor with a

UK user of that website if the inevitable consequence of access to that site by the user is infringement by that user.” This will be of concern to sites displaying third party content since the UK has much narrower defences to copyright and database right infringement than the United States and much of Europe.

by Aubrey Craig

FOOTBALL DATACO (“FDC”) maintains a database which includes “live” data about football matches. FDC sends a football analyst to a match with instructions to report by mobile phone information about events on the field including goals, scorers, assists, cards, fouls, saves, corners, substitutions etc. FDC licenses the database to

customers such as the BBC and estimates that the operation costs approximately £600,000 per season. SPORTRADAR is a German company. It has a database called Betradar in which is a section called Live Scores that includes data extracted from FDC’s database without authorisation from FDC.


| INTELLECTUAL PROPERTY

STAN JAMES is a bookmaker conducting business through a website hosted in Gibraltar but aimed at UK users. The website has a button “Live Scores” which communicates with the Live Scores section of Betradar and downloads Live Scores data into the user’s computer. Football Dataco assert that their database is protected by the sui generis database right provided for under the Database Directive and that Sportradar and Stan James were jointly liable with customers of Stan James for acts of database right infringement committed by them in the United Kingdom. There are no “fair use” type defences to infringement of Database Right.

State to assume jurisdiction [2012] EUECJ C-173/1. Sportradar conceded that it had that intention. The CA held that: (a) There is a sui generis database right in FDC’s database (agreeing with Floyd J); (b) Stan James’ UK users extract a substantial part of that database when they use the pop-up facility on the Stan James website; (overturning the judgment of Floyd J) (c) Both Stan James and Sportradar are joint tortfeasors with the UK punters; (disagreeing with Floyd J in part), ……….. The Court’s holding in relation to joint

“The Court’s holding in relation to joint tortfeasorship has obvious ramifications for social media sites and others that host and display third party content.”

By the time the CA heard the appeal from Floyd J, the CJEU – acting on an earlier reference from the CA - had confirmed that the sending of data by Betradar to Stan James’ customers constituted a re-utilisation of the data and that such re-utilisation took place in the Member State where the recipient of the data is located provided the Defendant intended to target members of the public in that State. Mere accessibility of the data within a Member State would be an insufficient basis for the courts of that Member

tortfeasorship has obvious ramifications for social media sites and others that host and display third party content. Such sites will need to consider their potential liability very carefully, in particular, the availability of the hosting exemption safe harbour under the E-Commerce Directive (2000/31/EC). An appeal to the Supreme Court seems likely.

Spring 2013

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18

COMPANY |

Historic Misappropriations – Directors, Private Companies, Spouses and Limitation

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ost substantial cases of breach of fiduciary duty that one sees (£2M plus) occur in family owned and run companies over a long period of time. Family member directors are in post for many years, happily salting away substantial secret benefits in breach of fiduciary duty, and the accretions can become huge. In these circumstances, two common issues arise. How can a full recovery be made if the proceeds are shared with a spouse? How do you deal with limitation? If the errant director is good for the entirety of the benefit received, the problem disappears. It is long established that a director in breach of fiduciary duty who fraudulently depletes a company’s assets is treated as a category 1 trustee for limitation purposes and, thus, no limitation period applies1. If the director’s assets do not match the misappropriated

funds and the compound interest due on them, and he/she is going to end up insolvent with a shortfall, the position is more difficult. If traceable assets have been removed from the company into the hands of a volunteer spouse, there is no particular problem other than the state of his/her knowledge: join in the spouse and pursue a proprietary claim. In most situations, this will not be the case. It follows that you either pursue a personal claim in the proceedings against the spouse or you attempt to set aside any transaction between the director and the spouse in insolvency proceedings against the director. Setting aside a transaction at an undervalue as between insolvent director and spouse is subject to a 5 year limitation period2 unless you can show that the purpose of that transaction was to defeat creditors. In lengthy misappropriation scenarios, the latter is rarely the case. Further, the clock continues to tick as

the primary litigation between company and director grinds its way to a judgment and then presentation of a bankruptcy petition. The probability of getting only two or three years of transactions set aside is hardly likely to satisfy the defrauded shareholders. Commonly, however, in this sort of situation, the spouses work together in the company, with the non-director spouse taking a junior employee, almost PA role, assisting the director. This opens up an argument of conspiracy, breach of the contract of employment, breach of fiduciary duty (A junior employee can be a fiduciary if he/she is in a position of trust and confidence) and or knowing assistance. Breach of contract has a 6 year limitation period, as does conspiracy. This is pretty unhelpful, albeit you can put the start date back on a fraudulent or concealed conspiracy claim if you can prove the company was unaware of the fraud or conspiracy and did not have

Shareholder Actions Everything you need to deal with shareholder actions, in one valuable source

knowledge of facts to put it on notice of the same until such time as it did. If you can establish that the spouse is a fiduciary, he/she will be a category 1 trustee and limitation will not apply. Establishing the duty is, however, problematic. Aid now comes from Court of Appeal which has recently decided that there is no applicable limitation period to dishonest assistance in circumstances where a third part knowingly assists a director to breach his/her fiduciary duty. This is a far more satisfactory approach than attempting to recover in subsequent insolvency proceedings, and, indeed, than having to prove a conspiracy and a delayed start date for limitation purposes.

by Gregory Pipe 1 2

S21(1)(a) Limitation Act 1980 S341 Insolvency Act 1986

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| INSOLVENCY

Spring 2013

Getting away from it all? Bankruptcy Tourism

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trict insolvency regimes in some other European jurisdiction, in comparison to the fairly short period of one year before automatic discharge from bankruptcy in England & Wales, has led to some debtors seeking to move to this jurisdiction for the purposes of bankruptcy. When will this be permissible? The key is the determination of the debtor’s Centre of Main Interests (“COMI”). In Re: Benk [2012] BPIR 1258, the debtor sought to petition for his own bankruptcy in England & Wales. He claimed to have

moved his COMI to England and therefore the court had jurisdiction to open main proceedings. The Applicant, a German bank owed some €3m, successfully annulled the bankruptcy on the grounds that the debtor had not in fact moved his COMI and so the court had lacked jurisdiction to open main proceedings. HHJ Purle QC found that the debtor’s COMI had remained in Germany bearing in mind, among other things, his professional domicile, the temporary nature of his work in England & Wales as a lossmaking self-employed sports

photographer, together with the fact that he was financially supported by his girlfriend, who was habitually resident in Germany. The Judge concluded that the debtor had sought to create an illusion of having a COMI in England and that his activities as a sports photographer were nothing more than window dressing, designed to create that illusion. This case makes clear that the determination of a debtor’s COMI is primarily a question of fact in all the circumstances of any given case.

by Marc Brown

Misfeasance Claims: Documents and Burdens

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n office-holder comes to an administration or liquidation as a relative stranger and tries to piece together what has happened in the period before his appointment. It is often the case that the books and records are incomplete or missing, not infrequently in circumstances where the directors claim they have been lost in fires, thefts or floods. An interesting survey would be the incidence of such events in insolvent companies as compared to their solvent counterparts. This absence of

information presents challenges to the office-holder, particularly where the directors claim that substantial payments made to them by the company were for commercial purposes. However, help is at hand. In GHLM Trading Ltd v Maroo [2012] EWHC 61 (Ch), Newey J. reviewed prior authorities and concluded at [149] that, once it is shown that the directors have received company money, the burden is on them, as fiduciaries, to “show that the payment was proper.” Similarly “it must be incumbent on the director to justify credit entries on [their

loan] account”. This is consistent with directors having been responsible for management and under the CA 2006 for ensuring proper accounting records were kept. If the directors cannot discharge this burden then they will almost certainly be in breach of fiduciary duty, regardless of whether the company was insolvent at the time. It is also likely that the payments will be void, as directors do not have authority to enter into transactions that are not in the best interests of the company (GHLM at [171]).

by James Morgan

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Stuart Smith Deputy Senior Civil Clerk T:Chu+44(0) 121 246 2065 rc h St E: ssmith@st-philips.com

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