Legal updates

Employment: Conduct dismissals – the need for employers to consider the consequence to their employee of dismissal

A recent Employment Appeal Tribunal (EAT) decision in Salford NHS Trust v Roldan [2010] EWCA Civ 522 has established that the more critical the consequence of dismissal to an employee, the more thorough the investigation into the employee’s conduct required by the employer.

The appeal was brought by a nurse of foreign nationality who had been employed by Salford NHS Trust.  The Trust had dismissed her following a claim made by one of her colleagues that she had mistreated a patient.  As a result of the Trust’s investigation into the nurse’s conduct, she was dismissed and reported by the Trust to the police (as per its standard procedure).  Although she was subsequently acquitted, as a consequence of her charge she lost her work permit and thus permission to stay in the UK. 

The EAT upheld the Employment Tribunal’s initial finding that the dismissal of the nurse had been unfair.  It held that because of the seriousness of the consequence of the employee’s dismissal (the loss of her work permit and deportation from the UK), the more onerous was the obligation on the employer to conduct a rigorous investigation into the employee’s conduct.  On the facts of the case, the mistreatment allegation made against the nurse, and the evidence in support of it, should have been fully investigated by the Trust, whereas it was not, which was a failure of its pre-dismissal procedure.

Furthermore, the EAT’s judgment recapitulated that an employer, when confronted with a conflict between the evidence of two witnesses, is not required to believe one over the other, but can legitimately give the benefit of the doubt to the alleged perpetrator.

The case provides a stark reminder for all employers of the necessity of carrying out a careful and through investigation of all claims that prompt a pre-dismissal investigation, and of the need before conducting a dismissal to consider the full consequence to that employee of dismissal and to ensure the investigation it carries out into the employee’s conduct reflects the significance of the consequence of dismissal to the employee. 

Contact James Simpson, employment team, for employment advice on 01865 781193.

Commercial Property: Can a former tenant exercise a personal break clause?

Summary: The recent Court of Appeal decision in Linpac Mouldings Limited and others v Aviva Life and Pensions UK Limited [2010] EWCA Civ 395 held that a personal right to break a lease was not exercisable when the beneficiary of that personal right to break was no longer the original tenant.

Facts: The lease contained a personal right for Linpac to break the lease.  Linpac assigned the lease to an associated company.  The associated company then went into administration and Linpac tried to take a reassignment of the lease so that it could exercise the personal break.  The Court of Appeal decided that Linpac could not exercise the personal break clause after the lease had been reassigned to it.  The wording of the clause giving the right to break made it quite clear that Linpac could only exercise the right to break “as original tenant” which means that having assigned the lease it could not again become the “original tenant”.

There have been several high profile cases over the years relating to personal break rights but the courts have so far declined to allow anyone not being a current tenant to exercise such a break, and even using reassignment to the original tenant as a device will not work to circumvent this.

Conclusion:  the wording of the break clause is crucial for a former tenant seeking to exercise it.  The drafting will have to be “unambiguously clear”.

For general advice on property matters contact Lesley Pollock in the commercial property team 01865 781159.

Dispute Resolution/IP: Liability for the defamatory statements of others on the web

Part I  The statements of employees: defamation - is only a click a way

The protection of a company’s reputation has changed beyond recognition with the growth of social media. Previously there were few opportunities for former staff or disgruntled customers to publish defamatory statements.  However the rise of Facebook, blogging and Twitter means that publication is now only a click away. For businesses this may mean that a disgruntled customer or unhappy current or former employees can quickly, and with little effort or cost, start a potentially damaging campaign against a company, its brand or directors. 

Statements posted online or e-mails (even if only forwarded) that go beyond genuine and factual criticism, are open to a claim of defamation, whether posted in open forums or in “private” groups such as those hosted on Facebook. Defamatory statements are generally false statements made about an individual or company that attempt to discredit that person's or company’s character, reputation or credit worthiness. Damages for this type of defamation can vary. For instance damages of £17,000 were awarded where a false and defamatory Facebook profile had been published online for 17 days.

Employers can in certain circumstances be liable for the defamatory remarks of their staff. Companies may wish to consider blocking staff access to social networking sites from work computers and should clearly set out, in a staff handbook or IT policy document, what is considered an acceptable use of the internet and work e-mail system. If a company wishes to monitor staff e-mails or internet blogs then legal advice should always be sought in drafting an IT policy. If you become aware that defamatory material has been posted then legal advice should be sought immediately, as it is often possible to obtain the removal of the information from the web, and to consider damages (if applicable).

Part II   Website operators at risk from defamatory bloggers

Those of you who operate websites, or feature bloggers on your websites, should be aware that if you exercise any editorial control over it, you could be found liable for any libellous comment within it including the content of someone else’s blog.

A recent case Kascheke v Gray and Hilton [2010] EWHC 690 (QB) has established that a website operator whose responsibility for the site was more than that of merely storing content on it could not employ the impunity from liability for defamation that is available under regulation 19 of the Electronic Commerce Directive.  This regulation exempts information providers from libel actions where they have not been involved in creating or editing the material, but have merely stored information on a website. 

In delivering his judgment, Mr Justice Stadlen gave a narrow interpretation to the act of storing content.  The website operator’s performance of the following activities prevented him from utilising the defence successfully:

• attempts to secure high-profile authors;
• writing articles that were published on the website; and
• carrying out interviews and polls for publication on the website. 

It is clear from the judgment that this list of activities is not intended to be exhaustive and “editorial control” as set out in the Directive will be interpreted widely by the courts.

The website operator has not been found liable for the libellous content on the blog as it was not a full trial on the issue but merely an application by the applicant website operator to have the defamation case against him dismissed using regulation 19 as the grounds for a summary judgment.  A summary judgment is the process by which a party can apply for a case to be terminated when the court is satisfied that the defendant has no real chance of successfully defending himself against the claim. J Stadlen in rejecting the website operator’s application for summary judgment, gave useful clarification for the interpretation of regulation 19.

Until the court rules otherwise (and we will alert you in future BSG Bulletins should the matter proceed to court and a judgment be set down) you should be alert to the fact that if you exert any editorial control, defined in the broadest terms, on any part of a website particularly its home page, you may be liable for any defamatory comments made by others within blogs, as well of course as your own published comments.  To safeguard yourself from this risk, we suggest you introduce or strengthen the pre-publication checks of your website content, and ensure the content of all blogs is checked, to remove potentially libellous statements thereby ensuring that you do not publish any defamatory statements inadvertently.

For advice on commercial disputes, contact Andrew Crocombe in the dispute resolution team 01865 7811059.   For IP-related matters, contact Stephen Brett, corporate/IP team on 01865 781208.

Commercial: The meaning of perpetual: a “never ending” contract or one subject to contractual provisions governing its termination?

A recent High Court ruling provides useful clarification of the meaning of “perpetual”, a term well used in commercial contracts. It has identified the potential ambiguity of the term and the possibility for uncertainty in interpreting its intended meaning in commercial contracts.

The case concerned a software licence agreement that BMS Computer Solutions Ltd, a computer software business, had licensed to an agri business for use in its feed mills.  On the same day that the software licence (Licence) was signed, those same parties also executed a technical support agreement (Support Agreement) containing provisions for the termination of the Licence.  An express provision of the Licence required the Support Agreement to be maintained or the Licence would be terminated.  Subsequently, both the Licence and the Support Agreement were novated by way of a variation agreement (Variation Agreement) that allowed AB Agri Ltd. (Agri) to benefit from both agreements.  A provision in the Variation Agreement stated that the Licence was extended to be a “perpetual” licence.

Agri, having developed its own software package, terminated the Support Agreement.  It considered that the Licence should continue, however, because the grant of a “perpetual” licence in the Variation Agreement caused the termination clauses in the Licence to have fallen away.

The Court rejected Agri’s submission and found for BMS ruling that the Support Agreement should continue.  Mr Justice Sales acknowledged in his judgment that the term “perpetual” could carry different shades of meaning: it could imply “never ending”, in the sense of incapable of being brought to an end, or, alternatively, “operating without limit of time” as he ruled that the Variation Agreement had intended, meaning that a licence of indefinite duration had been created which remained subject to any contractual provisions providing for its termination.  The Variation Agreement’s modification of the Licence to a “perpetual” licence did not override the Licence’s termination provisions but meant it operated subject to them.

The case illustrates the contrasting meanings of the term “perpetual” in commercial contracts.  It highlights the potential for confusion in its meaning and the capacity for this to significantly affect the interpretation of a contract.  In doing so, the ruling underlines the necessity for clarity and the use of precise drafting in all contracts.  Following the ruling, it may be good practice to:

1. review your contracts to verify that where “perpetual” has been used, the meaning is transparent objectively; and
2. where the meaning of “perpetual” is ambiguous, add extra wording to the contract to make clear the intended meaning of the term.

For commercial queries, contact Rachel McCullough, corporate team – 01865 781202.  

Corporate:  The meaning of “subsidiary”

A recent ruling of the Court of Appeal has identified a problem with defining “subsidiary” by reference to its definition in the Companies Act.  It is worth considering the implication of the Enviroco Ltd v Farstad Supply A/S 2009 ruling in the corporate and commercial arenas.

The case emanated from a dispute over an indemnity that referred to a definition of “affiliate” within a charter agreement for the hire of an oil-rig supply vessel.  The charter agreement established that Farstad (the company supplying the vessel), would indemnify Asco UK Ltd and its affiliates against various liabilities.  Enviroco wanted to rely on having been an affiliate of Asco UK to benefit from the indemnity.  The definition of affiliate relied upon the definition of subsidiary as set out by the Companies Act 1985 (CA 1985), now replaced by the Companies Act 2006 (CA 2006).  The Court of Appeal was asked to decide whether Enviroco had been an affiliate of Asco and therefore whether or not Enviroco could rely on the indemnity. 

The issue of whether Enviroco was an affiliate of Asco UK was complicated by the fact that Asco plc (the company that held the shares in Enviroco) had entered into a Deed of Pledge under Scottish Law to the Bank of Scotland for its Enviroco shares, with the effect that the Bank became the registered holder of those shares.  A deed of pledge is broadly similar to taking a charge or mortgage of shares – although it is less usual for the shares to be registered in the name of a mortgagee. Under the Companies Acts, a company is a subsidiary of a holding company if the holding company:

• holds a majority of the voting rights in the subsidiary company;
• is a shareholder in the subsidiary company and has the right to appoint or remove a majority of its board of directors; or
• is a shareholder in the subsidiary company and controls alone, pursuant to an agreement with other shareholders or members, a majority of the voting rights in the subsidiary company.

It was Farstad’s case that because the Bank had registered Asco plc’s Enviroco shares under the Deed of Pledge, Asco plc was no longer the registered holder of those shares and therefore was no longer a member of Enviroco.  Consequently Enviroco was no longer a subsidiary of Asco plc.  As Enviroco was no longer a subsidiary of Asco UK, it was not an affiliate and could not rely upon the benefit of the indemnity.  

The Court of Appeal agreed and ruled against Enviroco.  Enviroco was not an affiliate of Asco UK and this denied it the opportunity of benefitting from Farstad’s indemnity.  The Court held that when Asco plc’s shares in Enviroco had been registered in the name of the Bank under the pledge, it had terminated its membership of Enviroco preventing it from being a subsidiary of Asco plc.  The Court of Appeal said that membership was not a right attaching to shares: it was instead a status that was acquired when the name of a shareholder was entered into a company’s register of members.

The ruling is significant because many contractual provisions rely on the Companies Act definitions of “subsidiary”, “affiliate” and “group”.  If a company ceases to be a subsidiary this could have the effect of triggering a change-of-control provision, restrict the ability to assign the benefit of a contract intra group and/or lead to a breach of a financial covenant.

Enviroco has been granted leave to appeal to the Supreme Court and we will update you in a future bulletin if the Court of Appeal’s ruling is overturned. 

In the interim, bearing in mind the law of unintended consequences, it is advisable to review any of your contracts that may rely on the statutory definition of “subsidiary” and “holding company” to make sure that the provisions work as you intended. 

Contact Malcolm Sadler, corporate team, for further information on 01865 781201.

Forthcoming Henmans events

• Wednesday 16 June: Women in Property will be holding a site visit at the Ashmolean Museum at 4.30pm. For more information on this event or about Women in Property, please contact Lesley Pollock at Lesley.pollock@henmansllp.co.uk.
• Thursday 17 June: We are holding a property seminar at our offices on ‘Problems with contaminated land: dirty sites and what to do’. This will be held at 1pm with a light lunch beforehand at 12.30pm. To register your attendance, please contact seminars@henmansllp.co.uk.

The past month at Henmans

• On 6 May we held an employment seminar at our offices on ‘A Review and Update of Family Friendly Provisions’
• On 12 May another employment seminar was held on ‘Agency Workers Regulations’.
• The Managing Director of John Lewis in High Wycombe gave a talk to Women in Property on 13 May.
• On 20 May a property seminar was held at our offices on recent case law that was of particular interest to landlords and tenants.