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Dispute Resolution

Debt claims are changing – for better or for worse?
Monday 18th September 2017

Back in May, we wrote about the new Pre-Action Protocol for Debt Claims (“the Protocol”) and considered the impact that it will have on both business creditors and consumer debtors. As the Protocol comes into force on 1 October 2017, there are now less than 2 weeks remaining to prepare for the changes afoot.

Protection for consumers

It is clear that the protection of consumers was a major consideration in the drafting of the Protocol. The new rules provide for individual debtors to be given, at the outset of the dispute, all of the information that they would need to fully understand and respond to the claim being brought against them. Creditors will also have to provide debtors with various standard form documents to assist the debtor in responding to the claim, and debtors will have ample time (without having to worry about proceedings being issued against them) to consider those documents and information before having to take any action to respond to the creditor.

Problems for businesses

The biggest issue for businesses is likely to be the length of time that must pass before proceedings can be issued. After the requisite initial ‘Letter of Claim’ has been sent to a debtor, a creditor will have to wait 30 days before issuing proceedings. Given that many businesses will offer a standard 30-day credit period before invoices must be paid, this potentially doubles the length of time that must pass before the creditor can take action to recover the debt.

If a debtor responds to a Letter of Claim within 30 days (and savvy debtors will quickly learn to do so at the end of that period) the creditor must wait a further 30 days from the date of the response before issuing proceedings. In terms of cash flow, particularly for small businesses, the additional 2 months that may be required before debt recovery action can be taken could be fatal.

What do I need to do to prepare?

This, of course, depends upon which side of the fence you are sat on.

Creditors that deal with their own debt recovery against individuals will need to familiarise themselves with the Protocol in order to avoid being penalised by the Courts for failure to comply with the new rules. Similarly, lawyers will need to understand the new rules and ensure that they are followed in cases where they will apply (for example, take note that the Protocol will not apply to business-to-business debts, unless the debtor is a sole trader).

Individuals who anticipate a debt claim being brought against them should also understand their rights, and the obligations upon the creditor, under the Protocol.

If you have any concerns about the Protocol or what impact it may have upon you or your business, our commercial litigation team can provide you with expert advice and guide you through the process.


Get a round in, but be careful what you agree to
Monday 18th September 2017

A recent High Court Judgment is of interest to parties to contractual disputes, and in particular to those engaging in contractual negotiations at their local.

The Judge himself said that the case of Jeff Blue v Mike Ashley was “a lot more interesting than some other cases”, and it involved lengthy evidence of the business practices of the Defendant Mr. Ashley, the owner of Newcastle United and founder of Sports Direct.

The case centred on discussions in the Horse and Groom pub in central London in January 2013.  Mr. Blue, a former investment banker, alleged that during what was described as a “big night out with the lads”, Mr. Ashley said that he would pay him a £15 million bonus if he could help increase Sports Direct’s share price from £4 to £8.  Mr. Blue said that he agreed, and the share price reached that figure in February 2014.  A £1 million bonus was paid to Mr. Blue but Mr. Ashley said that this was unrelated to the alleged deal in the pub.  Mr. Blue commenced Court proceedings seeking the balance of £14 million.

One of the requirements of a contract in English law is that the parties intend to create legal relations.  In determining this issue the Court considers the objective conduct of the parties as a whole, and not their subjective states of mind, and in commercial situations there is a rebuttable presumption that the parties intended their agreement to be legally binding.

Mr. Ashley defended the claim on the basis that he did not recall the conversation but if it took place it would have been simply “drunk banter”.

Mr. Justice Leggatt held that a legally enforceable contract could form during a conversation in a pub, but that on the facts of this case there was no such intention.  The Judge’s reasoning included the purpose of the meeting, the vagueness of the offer, the lack of commercial sense, and the evidence of the three investment bankers present who did not think that Mr. Ashley was being serious.


Landlord’s rights over tenant’s belongings
Monday 11th September 2017

The relationship between landlord and tenant can sometimes be a fickle one and, even in the most amicable of landlord-tenant relationships, it is not unusual for disputes to arise.

One frequent cause of disagreement is the question of how to deal with a former tenant’s belongings which remain on the property after a lease has ended; whether it’s a landlord who is unsure what to do with belongings left by a former tenant, or a former tenant whose items are being held to ransom by a landlord seeking payment of rent arrears.

First, it is necessary to distinguish between chattels and fixtures. Items that are ‘annexed’ (fixed) to the property are likely to be considered to be fixtures (particularly if their removal would cause any damage to the property). In most circumstances, these constitute part of the property and belong to the landlord.

Chattels are moveable items, such as personal belongings. Once a lease has come to an end (whether by expiry, forfeiture or otherwise), the law is clear regarding chattels belonging to the former tenant – the landlord has no rights over them.

Where a tenant has vacated a property leaving behind personal belongings and owing the landlord money in respect of rent, many people believe that the landlord is entitled to sell those belongings to recover the unpaid rent. The true position is quite different; the landlord becomes an ‘involuntary bailee’ of the items and owes a duty to the former tenant. The landlord must not deliberately or recklessly damage or destroy the items and, if attempting to return the items to the former tenant through a third party, must ensure that the third party has the owner’s authority to receive them.

There is an exception to this rule: if the former tenant has abandoned the items at the property, then the landlord can claim ownership of them and dispose of them as he pleases. However, it can be difficult to prove that the items have been abandoned.

Treating the items as abandoned is therefore not a step that should be taken without caution. The landlord should serve statutory notices (under the Torts (Interference with Goods) Act 1977) on the former tenant requiring the tenant to collect the items and stating that the landlord intends to sell the items after a certain date (specified in the notice) if they have not been collected by that date. The notices must give the former tenant a reasonable amount of time to arrange to collect the items before they are sold and, if the landlord is claiming any money from the former tenant in respect of e.g. storage or delivery costs, that period must be one of at least 3 months.

If the landlord receives no response from the tenant to the notices and proceeds to sell the items, it is important to remember that the items still belong to the tenant (and, as such, that the landlord will be liable to account to the former tenant for the proceeds of sale). The landlord should therefore ensure that he obtains a proper price when selling the items, and he should hold onto the proceeds of sale until such time as it can be reasonably assumed that the items have been abandoned.

There is a degree of uncertainty as to how long a landlord must wait before assuming abandonment and claiming possession of the items (or proceeds of sale), and this will depend on the circumstances of the case. For high value or unique items, or those with obvious sentimental value to the tenant (such as photo albums), it would be more difficult to prove abandonment (and the landlord would have to wait for a longer period) than for low value items. The landlord should document all action taken in case evidence is required to defend a claim for damages by the tenant (for conversion) and/or to establish a defence of abandonment.

Our dispute resolution team has a great deal of experience in landlord and tenant disputes (as well as all other areas of dispute resolution and litigation). For further information or advice regarding anything in this article, please contact us on 0161 836 8800.


Making a Claim when a Company goes into Administration
Monday 4th September 2017

Recently, the fashion label Rare London announced its administration on Facebook on 31st July stating that the administrators from Duff & Phelps Ltd ‘had to take the unfortunate decision to cease to trade the Company with immediate effect making all staff redundant’.

Following the announcement, many customers took to social media to complain that they had not received ordered items or refunds for returned goods. So what can you do if find yourself in this position?

As a customer, you will be what is known as an unsecured creditor as you do not have any security over the Company’s assets and your claim against the Company will rank relatively low as can be seen from the order of priority below.

1. Debts secured over the company’s assets by fixed charges;
2. Fees and expenses of the administrator
3. Preferential debts;
4. Floating charges;
5. Unsecured creditors; and
6. Shareholders

Therefore as an unsecured creditor the best option is to contact your bank/credit card holder or PayPal to ascertain whether they are willing to provide a refund. Unfortunately, if you paid on a debit card or a refund is unavailable then you will need to make a claim against the insolvent estate.

In order to make a claim against the insolvent estate, you must have a provable debt as defined within the Insolvency Rules 2016. In this scenario the most likely ground is that the Company must have been subject to the debt or liability when it entered the relevant insolvency process (rule 14.1(3)(b) IR 2016).

Once this is established you will need to complete a proof of debt form which can be obtained from the administrator and returned upon its completion. Insolvency proceedings can be a lengthy process and it may be some time before your claim is dealt with by the administrator.

Once all the claims have been considered by the administrator they will consider what assets are available (if any) to the unsecured creditors of the company. As stated above, unsecured creditors are low in priority in the order of distribution. It is therefore not unusual for unsecured creditors to be paid on a pro-rata basis and if there are very few assets, unsecured creditors may not be paid at all.

If you are a creditor concerned about the financial situation of a debtor company, you should first check Companies House to ascertain whether any insolvency proceedings have been commenced and if so the details of the administrator or liquidator appointed. Should you require assistance with pursuing a debt please do not hesitate to contact a member of our litigation team.


Are non-compete restrictive covenants valid where employees cannot have any interest in competitors?
Wednesday 30th August 2017

It is established law that restrictive covenants in contracts of employment that try to prevent an outgoing employee from competing can be void if they are too broad.  The majority of the cases concerning these clauses concern the duration of the non-compete period, the geographical area where competition is restricted or the type of business that is considered to be competition.

In Tillman v Egon Zehnder Ltd [2017] EWCA Civ 1054, 21 July 2017 the Court considered a more unusual argument.

Ms Tillman was employed as a consultant with Egon Zehnder Ltd.  The employer trades in several jurisdictions primarily locating senior executives for recruitment by their customers.  Ms Tillman rose to become co-Global Head of the Financial Services Practice Group but did not sign new contracts of employment with each promotion.  Her contract of employment contained restrictions on competition with her employer for a period after termination of her employment. 

In particular, Ms Tilman’s contract provided that she could not hold or have any interest in any shares in any company which competes with her employer or any group company.  The only exception to this was for shareholdings of up to 5% of the issued shares in publicly quoted companies and for investment purposes only.  

When Ms Tillman resigned her employment she was not required to work her notice and she informed her former employer that she intended to work for a competitor.  Her former employer sought an injunction from the Court on the grounds that the employment contract restricted competition.

In addition to arguing that the geographical area of restriction was too broad Ms Tillman also raised an interesting argument in defence of the injunctive application that not being permitted to be "interested" in any competing business was too wide a restriction and the competition restriction should not be enforceable. 

The general rule is that restrictive covenants must protect a legitimate interest and they must be no more than is reasonable.  If a less onerous obligation can give the same level of protection to the employer then that should be adopted.

The High Court upheld the contract of employment but Ms Tillman appealed.  The Court of Appeal disagreed with the High Court and found that the restrictive covenant was not enforceable.  The argument centred on whether a shareholder is ‘interested in’ the company in which they hold shares.  The Court of Appeal concluded that the drafting of the contract meant that Ms Tillman could not have held any shares in competitors without breaching her contract.  Therefore, the restriction on competition was too broad to be enforceable. 

Due to the way the contract had been drafted the offending wording could not be severed from the clause leaving the remaining part enforceable against Ms Tillman.  The Courts are generally reluctant to delete parts of the wording of restrictive covenants to create a restriction that had not been intended by the parties.

This decision is a harsh decision for the employer.  It was never suggested that Ms Tillman had ever wanted to acquire a small interest in one of her employer’s competitors.  The fact that she could not do this meant that that the restrictions that her employer had tried to impose on her were too onerous for the Court to allow them to have effect.

The lesson to be learned from this is that careful consideration of the minimum required restrictions on employees to protect an employer’s business interests is essential.


Disclosure of litigation funding when subject to a Freezing Order
Monday 21st August 2017

In the recent case of Mezhdunarodniy Promyshlenniy Bank and another v Pugachev and others [2017] EWHC 1847 (Ch) (13 July 2017) the Court has clarified where a party can be compelled to disclose the source of litigation funding in the context of a freezing injunction.

Usually, freezing orders are sought to prevent a defendant from dissipating their assets until a judgment can be obtained and enforced.

In this case the claimants has obtained a judgment against the defendants, including Pugachev, in Russia which they were trying to enforce in England.  The claimants had obtained a worldwide freezing order in England against Pugachev. 

Default judgment was obtained in England against Pugachev and an application to set this judgment aside was made on the grounds the English Courts did not have jurisdiction and that the Claimants had failed to get Court permission to serve proceedings outside the jurisdiction.

In response to the application to set aside their judgment the Claimants argued that Pugachev should have to disclose who was funding his application and where their money had come from before his application could be allowed to proceed. This was an unusual position for the Claimants to adopt as a standard form freezing orders make allowances for affected parties to spend set amounts on legal advice and representation. Pugachev had sought to use that allowance previously but was not doing so for his application, instead the proposal was to use funds held by French lawyers of unknown origin.

The real issue was whether the funds to be used on the application should be frozen under the existing worldwide freezing order or from some other source.  If they were frozen funds why had there not been disclosure of those funds by Pugachev as required shortly after the worldwide freezing order had been made?

The context of this case is important. Pugachev had not paid existing costs awards, failed to comply with earlier orders and was in contempt of the Court’s orders.  There had been failure to serve a 2 year prison sentence imposed for contempt of Court.  Given these unusual circumstances the Court exercised its general discretion to make an unusual order.  The Court imposed conditions that the application to challenge the jurisdiction of the Court be conditional on disclosure of the source of funding of legal costs and also a payment into Court.

In making the Order for payment into Court the Court considered whether there was a risk that doing so would prevent Pugachev from pursuing the challenge to the Court’s jurisdiction and considered that it would not.

It should be stressed that his is an exceptional case.  Nevertheless, there is now authority that a defendant who is subject to a worldwide freezing order may be required to reveal the source of his funding before continuing with litigation if the source of the funding is not a disclosed and frozen asset.

To find out more on freezing injunctions, please click here or alternatelively contact Simon Morris


Newspaper Articles and Harassment
Tuesday 15th August 2017

A recent High Court judgment has left open the possibility of Claimants bringing a successful harassment claim against newspaper publishers even where the Claimant has already recovered damages in libel.

Claims for harassment have regularly been brought by celebrities against the media, and the Courts have granted injunctions to prevent intrusive coverage.

In this case the Claimant, Zipporah Lisle-Mainwaring, was the subject of press coverage after her local Council refused her application for planning permission after she had painted her multi-million pound luxury Kensington house in red and white candy stripes.  The Claimant alleges that the Mail made contact with her ten times, and published nine stories about her and her planning dispute (planning permission was later granted after judicial review proceedings).

Two of those articles were the subject of a successful defamation claim.  The Claimant was awarded damages of £54,000, reduced by 40% from £90,000 because of an offer of amends.

After the defamation claim had concluded Ms. Lisle-Mainwaring brought a claim for harassment.The publisher Associated Newspapers applied to Court to strike out the harassment claim.  The Judge confirmed that the correct approach is to consider whether “the conduct complained of is so oppressive as to pass the threshold of criminality”. The Judge struck out the harassment claim in respect of the contact from journalists, but not in respect of the newspaper articles.

It has been reported that Associated Newspapers is seeking permission to appeal, and the outcome of the proceedings is awaited with interest by media lawyers, Claimants and newspaper Defendants.

For more information on the topic, please contact Glyn Lancefield or a member of our Dispute Resolution team


Cyber attacks and Civil Litigation
Monday 24th July 2017

Over recent years, there has been an increase in the number of cyber-attacks with an aim of obtaining sensitive data. Previously this data was obtained through hacking, as in the 2015 attacks on the website Ashley Madison and network provider Talk Talk. However in 2017, the preferred method appears to be through the use of ransomware with the purpose of causing significant disruption and eliciting funds.

In May, a ransomware attack on the NHS demanded payment of $300, in cryptocurrency Bitcoin, in order to receive a decryption code and regain access to their own encrypted files. This attack was part of a global ransomware attack using malware called “WannaCry”, which infected systems by utilising phishing techniques to trick recipients into opening email attachments and exploiting a flaw in Windows software. This vulnerability in certain versions of the software had been identified by the National Security Agency (NSA) and was exposed to distributors of the ransomware through stolen resources. One month later, there was another ransomware attack on some of the largest companies in the world, this time the malware used was similar to “Petya”. In many cases, the ransom amount increased every hour if a user refused to pay. However, cyber security firms advise victims not to pay the ransom due to fears it could encourage further attacks and that there is no guarantee that all files will be returned intact.

As a result of the attacks, several members of the American House and Senate introduced a bipartisan Bill titled “the Protecting Our Ability to Counter Hacking (PATCH) Act” in America. The PATCH Act would create an interagency review board that will assess the vulnerabilities discovered by government agencies to determine when the government will retain the information and when warnings should be provided about the potential vulnerability of the system. In an increasingly-connected world, the passing of the Bill would require the government to at least consider the exposing of flaws. This reporting of vulnerabilities may reduce opportunities for cyber-attacks in the future by reducing the weaknesses in the software.

There is the potential for victims of cyber-attacks to become exposed to litigation following an attack, especially with the EU’s General Data Protection Regulation (GDPR) introducing tougher penalties for businesses where there has been a breach of data privacy. The significant disruption caused by these global attacks serve as a reminder of the requirement to take appropriate measures to protect their systems and ensure continuity of business. Businesses should also ensure that they have adequate insurance cover to protect them in the event of a cyber-attack. 


Defamation - The Importance of a Swift Apology
Tuesday 18th July 2017

Palin - v - The New York Times

Various news agencies have recently reported that the former republican vice-presidential candidate Sarah Palin has commenced legal proceedings in the United States of America against the New York Times for defamation, seeking in excess of $75,000.00 USD.

It is alleged by Ms Palin that the New York Times published a statement which appeared to connect Ms Palin to a 2011 shooting spree which resulted in the deaths of 6 individuals. Ms Palin asserts that the New York Times knew, or ought to have known, the statement to be false. The statement in question was headlined “America’s Lethal Politics” and was published earlier this year on the same day a gunman fired at a group of Republican Congresspersons who were playing baseball in Virginia.

The New York Times issued a correction a day later which stated that there was no connection between Ms Palin and the 2011 incident; however, the newspaper also asserted that the their article was not undercut or undermined by the lack of such a connection. Those acting for Ms Palin allege that the correction “…did not approach the degree of the retraction and apology necessary and warranted by the New York Times’ false assertion that Ms Palin incited murder…”.

In England and Wales, the term "defamation" covers libel and slander. Both concern the publication of defamatory material, that is, something that adversely affects a person's reputation. The distinction between the two is that libel concerns "lasting" forms of publication such as print, online or broadcasting. Slander concerns more transient forms such as spoken words or gestures.  Pursuant to Section 1 of the Defamation Act 2013 a statement is not defamatory unless its publication has caused or is likely to cause serious harm to the reputation of the defamed.  This means serious financial harm where the claimant is a body trading for profit.

Depending on the facts of the case, statements which might otherwise have been defamatory and likely to cause serious harm may effectively be neutralised by a swift apology.  In Cooke v MGN the Court considered that an apology published by the newspaper shortly after a complaint was received was relevant to the consideration of whether serious harm had arisen or was likely to arise in the future. In Cooke, the Court ruled that the apology was “…significant in eradicating or minimising the unfavourable impression a reader might have gained…”.

It remains to be seen whether the New York Times correction will go far enough to significantly eradicate or minimise the impression given of Ms Palin; however, this case serves as a reminder of the potential benefit of a swift apology.


UK Supreme Court Revisits Contractual Interpretation Principles
Friday 14th July 2017

Back in February 2016, we wrote about the implications of Arnold v Britton [2015] UKSC 36 on contractual interpretation, after the UK Supreme Court (UKSC) heard three important cases relating to contract law in 2015.

The UKSC has now had further opportunity to clarify the law regarding the interpretation of contracts with the recent case of Wood v Capita Insurance Services Limited [2017] UKSC 24, in a decision which seeks to tie together the various principles of interpretation.

When interpreting the meaning of a clause within a contract, one must consider a number of factors including the natural meaning of the words used; the meaning of the clause (as a reasonable person would understand it) in light of the overall document; the purpose of the document (from a commercial point of view); and the relevant background facts or knowledge reasonably available to the parties at the time the contract was made.

The difficulty lies in knowing which of these factors should take priority in the event that consideration of each produces a different outcome and, over the years, the Courts have shifted back and forth between placing greater reliance on textualism (looking at the plain text and the natural meaning of the words themselves) and contextualism (looking at the purpose of the document as a whole, the background circumstances and factors such as commercial common sense).

Lord Hodge stated in Wood v Capita that “textualism and contextualism are not conflicting paradigms”. The correct, objective interpretation of a clause or contract must be achieved having regard to both principles; the question of which deserves priority over the other will depend on the circumstances of the case, and the nature of the document.

For example, the Court may consider that the “textualism” approach should be the primary consideration in the case of a sophisticated document, negotiated and drafted by skilled professionals; if any provisions in the document create an unfair outcome for one party, it is likely that this was intended as a result of negotiations. However, if such a document is ambiguous in its meaning, the Court will then look to the overall context in an attempt to ascertain the true intention of the parties at the time the contract was made.

Conversely, if a document is informal, or clearly drafted without professional assistance, the Court may be more likely to depart from the most plausible linguistic meaning of the words used and favour a construction that better fits the commercial purpose of the contract, taking into account the document as a whole and the relevant circumstances. Nevertheless, the Court will not re-draft a contract to save a party from a “bad deal” where the original words used are clear and unambiguous.