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The Employment Tribunal process is governed by the Employment Tribunals Rules of Procedure 2013 (amended up to October 6, 2021). For many claimants, navigating this process without legal representation can be challenging, and seeking professional guidance is often recommended.

Initial Steps: Notifying ACAS and Early Conciliation

  1. Notifying ACAS: Before submitting a claim, you must notify the Advisory, Conciliation and Arbitration Service (ACAS), though you are not obligated to settle at this stage.
  2. Early Conciliation Certificate: ACAS will issue an early conciliation certificate with a reference number, a requirement before proceeding with a tribunal claim.

Filing a Claim with the Employment Tribunal

Completing the ET1 Claim Form

  • ET1 Submission: The ET1 form outlines the basis of your claim. It must be completed within strict time limits—usually within three months minus one day, considering the early conciliation process.
  • Importance of Accuracy: Properly completing the ET1 is crucial for moving forward with the case.

Responding to the Claim: ET3 Defence

  • ET3 Filing Deadline: The respondent (the person or company against whom the case is filed) must submit their ET3 defence within 28 days of receiving the claim.
  • Failure to File: If the respondent fails to submit the ET3 on time, they may be excluded from the hearing unless they successfully request an extension, which is rarely granted.

Preliminary Hearing (PH) and Case Management

Purpose of the Preliminary Hearing

The Preliminary Hearing (PH) serves several key functions:

  1. Assessing Success Prospects: The Employment Judge (EJ) will evaluate the potential success of the claim or defence.
  2. Deposit Order: If a claim or defence has limited prospects, the EJ may order a deposit of up to £1,000 for the party to continue.
  3. Case Management Orders (CMOs): Known as ‘Directions,’ CMOs guide the progression of the case. In straightforward cases, standard CMOs may be issued without a hearing.

Building Your Case: Preparation and Evidence Gathering

Reviewing the ET3 and Respondent’s Defence

Once the ET3 defence is filed, the claimant can analyze the respondent’s arguments. Consider the following:

  • Identify Supporting Documentation: Gather documents and other items to support your position and counter the respondent’s defence.
  • Thorough Preparation: A strong grasp of your case’s issues and facts is essential to clearly present your argument to the tribunal.

Objectivity and Legal Understanding

  • Assessing Your Case’s Merits: Objectively evaluate your claim as the tribunal would, focusing on factual evidence rather than personal views.
  • Understanding Relevant Laws: Identify and understand the specific statutes and case laws that pertain to your claim to ensure thorough legal grounding.

Evidence Review and Witness Preparation

  • Examine All Evidence: Review all documents and evidence exchanged between parties to prevent surprises.
  • Witness Statements: Ensure that both the claimant and witnesses fully agree with the contents of their statements.

Final Hearing and Decision

Structure of the Final Hearing

  1. Introductions and Confirmation of Claims: The tribunal will introduce participants, confirm the claims to be heard, and resolve outstanding case management issues.
  2. Evidence Presentation: Typically, the claimant and their witnesses testify first. Testimony includes:
    • Evidence in Chief: The witness confirms the truth of their statement.
    • Supplementary Questions: The party may address points raised by the other side.
    • Cross-Examination: Opposing parties question witnesses.
    • Re-Examination: Opportunity to clarify points after cross-examination.
  3. Closing Submissions: Prepare a skeleton draft of closing submissions that can be adapted as the hearing progresses.

Judgment and Costs

  • Judgment Delivery: The judgment may be given immediately or reserved for later, accompanied by written reasons.
  • Costs: Unlike other courts, Employment Tribunals typically do not award costs unless one party’s conduct is unreasonable or the claim is misconceived or vexatious.

Benefits of Legal Representation

Advantages of Professional Representation

  1. Expertise in Employment Law: A representative brings specialized knowledge and experience.
  2. Case Assessment: Legal professionals can assess the strength of your case and advise on the best approach.
  3. Evidence Gathering and Presentation: Skilled representatives know how to compile and present evidence effectively.
  4. Procedural Guidance: Legal representatives can guide you through each procedural step, enhancing your case’s efficiency and clarity.

Financial Considerations for Representation

  • Conditional Fee Agreement (CFA): Often, representation operates under a CFA, where the representative receives 35% of any settlement or judgment.
  • Additional Fees: Representation fees for hearings can range from £500 to £2,000 per day, plus VAT.
  • Monies on Account: Some representatives charge an account fee (e.g., £500–£1,000) that is deducted from the CFA payment but is non-refundable if no CFA payment is obtained.

Why Consider Legal Representation?

Instructing a legal representative can significantly improve your chances of success, offering expertise in evidence gathering, negotiation, and navigating complex procedural requirements.

An individual exercises his hand under the scales of justice.

Adjudication is a mandatory dispute resolution process specifically designed for the construction industry, introduced under the Housing Grants Construction and Regeneration Act 1996 (Construction Act 1996). It provides a fast, 28-day mechanism (extendable by agreement) to address and resolve disputes, ensuring continued cash flow during a project. This approach is often referred to as “pay first, argue later.”

Key Features of Adjudication

  • Applicable to Construction Contracts: Parties in a “construction contract” cannot opt out of adjudication.
  • Interim Binding Decisions: The adjudicator’s decisions are binding until the dispute is ultimately resolved through legal proceedings, arbitration, or mutual agreement.
  • Focus on Cash Flow: Adjudication helps maintain cash flow, critical in construction projects, by resolving financial disputes quickly.

Types of Disputes Resolved by Adjudication

Adjudication can address a wide variety of claims within construction, including but not limited to:

Common Financial and Project-Based Claims

  • Interim Payments: Payments made to subcontractors throughout the project to ensure financial flow.
  • Delay and Disruption: Compensation claims due to delays or disruptions affecting project productivity.
  • Extensions of Time: Requests to extend the project timeline due to unforeseen delays.
  • Defects in Works: Issues relating to construction defects, such as water intrusion or structural flaws.
  • Final Account: The final settlement detailing the total amount due to the contractor.

Complex Claims

  • Breach of Contract: Claims for failure to meet contractual obligations, such as completing work on time or according to standards.
  • Termination of Contract: Cases where contract termination becomes necessary due to significant non-performance.
  • Professional Negligence: Claims against construction professionals, such as architects or engineers, who fail to meet professional standards.

Legal Framework for Adjudication

Rights Under the Construction Act 1996

The Construction Act grants parties the right to refer a dispute to adjudication at any time during a project. Part 1 of the Scheme for Construction Contracts 1998 provides additional terms where a contract does not contain all adjudication provisions.

Interim Binding Nature of Decisions

Adjudicator decisions are binding on an interim basis, usually enforced by the Technology and Construction Court (TCC). Challenges to these decisions by the losing party are rare and typically unsuccessful.

Preparing for Adjudication

Steps Before Starting Adjudication

To initiate adjudication, it’s essential to ensure the dispute is clear and specific. Key preparatory steps include:

  1. Defining the Dispute: The dispute must be well-defined in the notice of adjudication.
  2. Including a Single Dispute: Adjudication generally covers one dispute per notice unless the contract allows otherwise.
  3. Meeting Time Limits: Adhere to any time restrictions outlined in the contract.

Receiving a Notice of Adjudication

Upon receiving a notice, parties should verify:

  • Existence of a Construction Contract: Confirm if a valid construction contract applies.
  • Crystallization of Dispute: Ensure the dispute has fully developed.
  • Consistency of Referred Dispute: Verify that the dispute in the notice aligns with the actual issue.
  • Adjudicator’s Appointment and Jurisdiction: Confirm the validity of the adjudicator’s appointment and assess any potential grounds to challenge jurisdiction.

Reviewing the Adjudicator’s Decision

Once the adjudicator’s decision is issued, both parties should evaluate:

  • Timeliness and Accuracy: Check if the decision was issued on time and if there are clerical errors.
  • Adherence to Natural Justice: Ensure the adjudicator acted fairly and without bias, avoiding conflicts of interest.
  • Jurisdictional Compliance: Confirm that the adjudicator addressed the correct question, even if the outcome was unfavorable.

Benefits of Adjudication for Subcontractors

Strategic Tool for Subcontractors

For subcontractors, adjudication is a powerful tool when negotiating with employers. However, effective use requires:

  • Process Knowledge: A thorough understanding of adjudication steps and requirements.
  • Advocacy Skills: The ability to present a clear, persuasive argument that effectively conveys their position.

Defining a Construction Contract Under the Act

Under the Construction Act (Section 104), a construction contract involves agreements related to construction operations, including:

  1. Construction, Alteration, and Repair: Broadly defined to cover structures, industrial facilities, and infrastructure such as roads, power lines, and harbors.
  2. Internal Works: Includes installations like heating, electrical systems, fire protection, and communications.
  3. Excluded Contracts: Some contracts are excluded, such as those involving oil extraction, nuclear processes, or residential projects lasting under 45 days.

Key Elements in Common Claims

  • Interim Payments: Scheduled payments throughout a project, ensuring subcontractors don’t wait until completion for compensation.
  • Delay vs. Disruption Claims: Delay claims extend the timeline; disruption claims seek compensation for productivity losses.
  • Extension of Time: Allows contractors to avoid penalties if delays are justifiable.
  • Defects: Defect claims address structural or functional issues, allowing recovery for damages or cost of repairs.
  • Final Account: Final settlement on agreed project costs.

By understanding adjudication’s mechanisms, rights, and limitations, parties in the construction industry can effectively navigate disputes, ensuring swift resolutions and project continuity.

Early Legal Advice

Commercial disputes are an inevitable part of business for many owners. These conflicts—whether breaches of contract, non-payment issues, or internal disputes—can disrupt operations, harm relationships, and damage reputations. While not all disputes lead to litigation, managing them effectively from the start is essential to avoid serious repercussions.

Types of Commercial Disputes

Contract Breaches and Non-Payment Issues

One-off issues, like a late invoice payment, can sometimes be resolved with a simple reminder. However, persistent issues may require a more structured approach. For instance, a client consistently paying late might tempt you to terminate the contract. Yet, terminating without proper understanding of contractual obligations could lead to a breach of contract claim against you.

Shareholder and Employment Disputes

Conflicts involving shareholders, directors, and employees can escalate quickly if not handled properly. Such disputes not only strain internal relationships but can also harm the public image of the business.

Seeking Legal Advice Early

When to Consult Legal Professionals

Legal advice should ideally be sought as soon as a potential issue arises. While minor matters, like an overdue invoice, may be handled independently, more complex disputes—especially those involving contractual interpretations—demand professional guidance. Engaging legal help early minimizes risks and often proves less costly than attempting to resolve disputes alone.

Risks of Resolving Disputes Without Legal Guidance

Attempting to navigate disputes independently can backfire, especially if you lack expertise in procedural rules or relevant areas of law, such as contract, employment, or intellectual property. Misunderstanding the legal process or making unintentional admissions could lead to unfavorable outcomes and even increase costs in the long run.

Importance of “Without Prejudice” Communication

Understanding Without Prejudice Rules

In dispute resolution, “without prejudice” communication allows businesses to negotiate openly without fear of their statements being used against them. However, using these rules improperly can lead to additional legal challenges. Legal advice can ensure you stay protected, avoid costly mistakes, and prevent satellite litigation over the misuse of “without prejudice” communication.

Alternative Dispute Resolution Methods (ADR)

Court’s Expectation of ADR

The court expects parties to explore alternative dispute resolution methods, such as mediation, arbitration, or adjudication, before pursuing litigation. Failing to attempt ADR without good reason may lead to cost penalties, even if the case is ultimately successful.

Benefits of Mediation and Other ADR Options

Mediation and other ADR options often yield quicker and less expensive outcomes compared to litigation. These methods not only save time and resources but also help preserve business relationships by avoiding the adversarial nature of court proceedings.

Pre-Action Protocols and Compliance

Understanding Pre-Action Protocols

Prior to initiating court proceedings, parties are generally expected to follow specific pre-action protocols, including attempts to settle the dispute independently. Legal guidance on complying with these protocols can protect you from increased costs and ensure adherence to procedural expectations.

Legal Support in ADR Processes

Dispute resolution lawyers can provide invaluable assistance in navigating ADR processes, including drafting relevant documentation, advising on appropriate dispute resolution methods, and maximizing cost protection through compliance.

Evidence Gathering for Disputes

Types of Evidence Required

Success in any dispute hinges on the evidence presented. For commercial disputes, key evidence might include:

  • Contractual agreements
  • Correspondence related to the business relationship
  • Purchase orders, invoices, and delivery notes
  • Photographs (e.g., evidence of defective goods)

Importance of Timely Evidence Collection

The sooner evidence is gathered, the more accurate the legal advice and assessment of the case can be. Relying solely on memory can be unreliable, whereas documented evidence provides a stronger basis for evaluating the merits of a position.

Understanding Limitation Periods in Disputes

Limitation Periods for Different Types of Claims

Each type of claim has a specific limitation period. For instance, breach of contract claims generally have a six-year limitation from the breach date. Missing these deadlines bars the right to pursue claims, underscoring the need to act swiftly and understand any contractual time limits.

The Value of Early Legal Advice and ADR

Advantages of Early Mediation and ADR

Engaging in mediation or other forms of ADR at an early stage often leads to faster, more amicable resolutions. Addressing issues before positions harden can facilitate settlement, preserve business relationships, and save on legal expenses.

How Legal Advice Preserves Business Resources

Taking proactive legal advice minimizes the time and resources spent on prolonged disputes, allowing business leaders to focus on growth rather than litigation. Early intervention can also prevent escalation, protecting both financial and reputational interests.

By understanding the landscape of commercial disputes and seeking timely legal support, businesses can safeguard their interests, minimize disruptions, and foster a foundation for continued success.

Settling Dispute

Navigating the role of a director can be complex, especially under the regulations outlined in the Companies Act 2006. For both new and seasoned directors, understanding these legal duties is crucial to ensure the successful governance of a company. The Act introduces a framework that outlines the specific responsibilities and expectations placed on directors, making compliance not just a best practice but a legal requirement. At the heart of this, a director’s duties include promoting the success of the company for the benefit of its members as a whole.

Directors have a variety of responsibilities that go beyond mere decision-making. They must follow a code of conduct that prioritises transparency and accountability, requiring declarations of interest in proposed transactions. This means that directors must always act honestly and with a commitment to being trustworthy stewards of their companies. These duties also extend to maintaining high standards when dealing with conflicts or potential liabilities faced by the company.

The Companies Act 2006 is a significant piece of legislation that holds directors accountable through a structured set of duties and principles. Directors who breach these legal duties may face serious consequences, which highlights the importance of understanding these guidelines thoroughly. Whether it’s making strategic decisions or complying with statutory requirements, the role is multifaceted and demands a keen awareness of the legal landscape.

Key Takeaways

  • Directors must promote company success for the members’ benefit.
  • Compliance with legal duties is essential to avoid serious consequences.
  • Transparency and accountability are core elements of directors’ responsibilities.

The Legal Framework of Director Duties

Directors play a critical role under the governance of company law, especially in England and Wales. Their responsibilities are shaped by both the statutory requirements set out in the Companies Act 2006 and influences from common law principles.

Key Provisions Under the Companies Act 2006

The Companies Act 2006 outlines several statutory duties that directors must follow. These include acting within the powers given by the company, promoting the success of the company, and exercising independent judgment. Directors are also required to exercise reasonable care, skill, and diligence.

A significant aspect of this Act is the duty to avoid conflicts of interest. Directors must not accept benefits from third parties, which could risk their loyalty to the company. Moreover, they must declare any direct or indirect interests in proposed transactions with the company. These legal duties ensure that directors manage the company responsibly and ethically.

Common Law Influence and Statutory Duties

Common law has historically played a role in shaping director responsibilities. Before the Companies Act 2006, many duties were not codified in legislation but rather developed through judicial decisions, forming the basis of fiduciary duties. These duties include acting in good faith and prioritising the company’s best interests.

While the Companies Act 2006 has formalised these duties, common law principles continue to support and interpret statutory duties. They help in understanding concepts like loyalty and care, which remain relevant in modern business operations. Directors must integrate both statutory requirements and common law principles to fulfil their roles effectively.

Core Responsibilities of Directors

Directors of UK companies have several important responsibilities outlined in the Companies Act 2006. They are bound by specific duties, such as acting within their powers, promoting company success, and exercising independent judgment. Each responsibility plays a crucial role in the ethical and effective governance of a company.

Duty to Act Within Powers

Directors must act according to the powers defined in the company’s Articles of Association. These articles form the company’s constitution and must guide directors in their decisions. Misusing these powers can lead to serious legal consequences and affect the company negatively.

The board of directors should understand the rules set forth in these documents. This includes not only legal limits but also the purpose for which the powers are granted. Acting outside these powers could risk directors’ liability and undermine the company’s stability.

Directors should regularly review and familiarise themselves with the Articles of Association. It ensures their actions are aligned with the company’s objectives and maintain the trust of stakeholders.

Duty to Promote the Success of the Company

Section 172 of the Companies Act 2006 outlines the duty to promote the success of the company. Directors must consider the long-term effects of their decisions.

Key factors to consider include the interests of employees, relationships with suppliers and customers, and the impact on the environment. Balancing these elements can increase the company’s value for shareholders.

In fulfilling this duty, directors should document their decision-making processes. This documentation can serve as evidence of their considerations and ensure transparency and accountability.

Duty to Exercise Independent Judgment

Directors must make decisions independently without undue influence from others. This duty ensures that personal interests or external factors do not interfere with what’s best for the company.

While advice from experts or fellow directors is helpful, the final decisions should rest with the individual director. They should not relinquish their decision-making responsibilities.

Maintaining independence requires directors to critically evaluate all available information. They should assess each situation fairly and make decisions based on sound reasoning and the company’s best interests. This independent thinking supports effective governance and robust company leadership.

Standards of Conduct and Performance

Company directors must adhere to specific standards of conduct and performance set out in the Companies Act 2006. These standards ensure that directors are fulfilling their fiduciary duties to act with integrity and protect the interests of the company and its stakeholders.

Exercise of Reasonable Care, Skill and Diligence

Directors must demonstrate reasonable care, skill, and diligence in their roles. They are expected to perform to the standard of a reasonably diligent person with the general knowledge, skill, and experience one might expect from someone in a similar position.

Directors must also consider their personal knowledge and skills. If a director has expertise in a particular area, the law requires him or her to apply this knowledge when making decisions. This expectation ensures that directors are consistently making informed and well-considered decisions.

Failure to meet these standards can lead to legal action or removal from their position. Directors should stay updated with relevant information pertinent to their roles and continuously refine their skills to uphold these standards.

Avoiding Conflicts of Interest

The duty to avoid conflicts of interest is fundamental in maintaining trust and transparency. Directors must put the company’s interests above their own and declare any conflicts before participating in decision-making processes.

Conflicts can arise from personal, financial, or other relationships that might compromise objectivity. By recognising these situations early, directors can take steps to mitigate any potential impact on their responsibilities.

When conflicts cannot be avoided, directors must disclose them to the board. Being proactive about identifying conflicts helps safeguard the company’s reputation for high standards of business conduct and ensures decisions are made in the company’s best interest.

Declarations, Disclosures, and Compliance

Directors must adhere to specific rules to maintain transparency and integrity within their companies. These rules are critical to managing potential conflicts and ensuring proper company conduct.

Declaration of Interest in Existing Transactions

Directors need to declare any personal interests in transactions that the company is undertaking. Declare Interests means they must disclose this to the other directors in writing or at a board meeting. This helps prevent conflicts and ensures that decisions are made in the company’s best interest. If directors fail to declare these interests, they could face legal consequences or penalties.

Connected Persons, such as family members or business partners, must also be considered when disclosing interests. Directors should be transparent about any potential indirect interests to avoid conflicts aligning with the Interest of Creditors and the Interest of the Company’s Employees. This practice of openness supports the ethical management of the company’s affairs.

Maintaining Accurate Company Records

Keeping accurate records is a fundamental duty for directors. This includes maintaining a comprehensive Director Information Hub that logs important details like financial statements, minutes of meetings, and any declared interests. Records must be updated regularly to reflect any changes in the company’s structure or transactions.

A Confirmation Statement must be filed annually to ensure the information held is up to date. This helps in tracking the company’s compliance with statutory requirements. Proper record-keeping also ensures that everything is transparent if the company faces scrutiny or audits. Directors should ensure all data is safeguarded against loss or unauthorised access, which is crucial for legal and operational integrity.

Consequences of Breaching Director Duties

Breaching director duties in the UK can lead to significant legal and financial penalties. Directors may face personal liability and other serious consequences, highlighting the need to adhere to statutory requirements.

Remedies and Sanctions for Breach of Duty

When a director breaches their duty, several remedies and sanctions may apply. Disqualification is one of the most serious outcomes. Under the Company Directors Disqualification Act 1986, directors can be disqualified from serving on a board for a set period. Fines and compensation payments might also be imposed, impacting the director financially. Criminal charges could also be pursued, resulting in a criminal record. Moreover, directors might be required to pay for any financial losses suffered by the company, ensuring accountability and discouragement of future breaches.

Derivative Actions and Personal Liability

Derivative actions offer a way for shareholders to bring a lawsuit on behalf of the company. If the directors breach their fiduciary duty, shareholders can pursue these legal actions. This course of action holds directors accountable for misconduct or negligence. If successful, directors who have breached their duties may become personally liable for losses incurred. This liability ensures directors act in the best interests of the company. Equitable principles, including fairness and justice, are used by courts in evaluating cases, ensuring directors are responsible for upholding their duties.

Frequently Asked Questions

Directors have several important duties under the Companies Act 2006. These duties ensure that they govern responsibly and make decisions for the benefit of the company and its members. Breaching these duties can lead to personal liability and other serious consequences.

What are the statutory duties of a director as per the Companies Act 2006?

Directors must adhere to statutory duties like promoting the success of the company, exercising independent judgment, and avoiding conflicts of interest. These duties are codified in the Companies Act 2006 to provide clear guidelines.

How do the general duties of directors ensure responsible governance of a company?

The general duties include acting within powers and exercising care, skill, and diligence. These ensure directors act with responsibility and integrity, which helps maintain trust and stability within the company.

What are the consequences of failing to comply with directors’ duties outlined in the Companies Act 2006?

Failing to comply with these duties can lead to serious consequences, including legal action and being disqualified from serving as a director. Breaches can harm the company and its stakeholders.

Can a director be held personally liable for breaches of their statutory duties?

Yes, directors can be held personally liable if they fail to fulfil their statutory duties. This liability means they may have to compensate the company or third parties if their breach causes loss.

How does the Companies Act 2006 define the scope of a director’s role in corporate decision-making?

The Act defines that directors should consider various factors, such as long-term consequences and employee interests, in their decision-making. This ensures decisions benefit the company and its members.

What are the fiduciary duties imposed on directors under the Companies Act 2006?

Fiduciary duties require directors to act in good faith, prioritising the company’s interests above personal gains. These duties are essential for maintaining the integrity and ethical standards of company governance.

Business

There is a famous quote, “A Verbal Contract isn’t worth the paper it’s written on” this is attributed to Samuel Goldwyn, although the quote is a misreporting of an actual quote, which was praising the trustworthiness of a colleague: “His verbal contract is worth more than the paper it’s written on” and sometimes it may just be beneficial for a company to not have a signed contract.
The general view held by many lawyers is that a business should always enter into a written contract when undertaking a major project or purchase, however, often the business is potentially better off signing no contract at all, and here’s why.

In English law, a contract does not have to be a formal written contract; it does not even have to be in writing. Most contracts that SMEs enter into are based on meetings, telephone calls and email exchanges. Sometimes, these are accompanied by written purchase orders or even a company’s standard terms and conditions.

If anything goes wrong with the performance of a contract, the first thing a lawyer or a court will do is to look at what the contract says. They will examine the written evidence (contracts, orders, terms and conditions, emails, letters, and notes of meetings and telephone calls) and what anyone has to say about the communications. They will then try to piece together exactly what was agreed, where was there a meeting of the minds, between the parties.

If there is a signed contract, the court will often just look at what that says and ignore all the promises made before the contract was signed. If the contract does not in fact say what was agreed, then the parties are likely to be bound by what is in writing rather than what was actually agreed beforehand.

Take the following scenario: a purchase manager has had extensive contact with a salesman, who made an initial presentation and after that, the manager had raised various questions. The salesman answered all the questions positively and promised the world.

The contract has been sent over to sign. Everyone was busy so the contract wasn’t read carefully if at all, perhaps it was a misunderstand of the legal language and no one at the business quite understands it all. The other party has put the Company under time pressures, and the Business just signed the contract.

Later something goes wrong and the Company has its lawyer look at the contract only to discover that what the business had thought had been signed wasn’t actually what the contract says.

Usually, contracts contain clauses (normally towards the end) saying that the contract is an “entire agreement” and that no party can rely on representations made prior to signing it. What this means is that, usually, an
aggrieved party, will not be able to say that the contract was different from what was actually agreed with the salesman. The Company is bound by what the written contract says. Sometimes, it is done deliberately to trick the unwary, but, usually, the other party is just trying it on by adding clauses to the contract that are very much in their favour. They anticipate that this act will lead to negotiations on the terms and expect the other party to get back to them suggesting changes to the contract before actually signing it.

A lot of the time, clauses are added covering events that where not even discussed with the salesman. Maybe these are things that the non-breaching party simply didn’t consider crucial immediately and thought that they could come back to these issues later, they did not expect the problems to come back and bite them.

It can often be that the negotiations that led up to the signing of the written contract set out better what was actually agreed than the contract itself. If this is the case, you might be better off signing no written contract at all.

If a business is going to sign a contract, and often it is best to do so as it avoids arguments later, make sure it says what was agreed to. It should be gone through carefully, clause by clause and the signing party should consider what each clause means. If the reader is not sure, then the party should get legal advice on just what the contract says and be prepared to negotiate. If the other party is keen to get the business, they’ll usually be prepared to go to some lengths to accommodate the party.

Acknowledgement: Gary Cousins – Cousins Business Law

NOT LEGAL ADVICE: Information provided in this Blog, is for information purposes only. It is not and should not be taken as legal advice. You should not relay on or take or fail to take any action based upon this information. Never disregard taking legal advice or delay in seeking legal advice because of something you have read in this blog, or on this website. Ian Randall is an Attorney & Counsellor at Law (NY), with 25 years of Corporate and Commercial experience in several jurisdictions. To see how Owllegal could help you, please visit; www.owllegal.org or email Ian Directly, his email address is ian@owllegal.org.

Legal Advice

The simple answer to this question is a ‘Lawyer’ a person who practices law, whether as a Barrister, Solicitor, or Chartered Legal Executive, Attorney & Counsellor at law, Foreign Qualified Lawyer and Paralegals. Lawyer in the context I refer to it is much wider than would be expected and reflects changes introduced by the Legal Services Act 2007.

The Legal Services Act 2007, which came into force on the 6th October 2011, was hailed as a landmark day for the legal industry, and in another breath it was termed “Tesco Law” as it was anticipated that law ‘shops’ would open in Tesco stores; and whilst this reality has not come to pass, a new paradigm in legal services provision has.

Under the Legal Services Act 2007, Section 12 and schedule 2 defined six reserved activities, (1) Exercise of rights of audience; (2) Conduct of Litigation (3) reserved instrument activities (concerning land registration and real property) (4) Probate
activities (5) Notarial activities (6) Administration of Oaths. Section 12 further defined a legal activity as either a reserved legal activity or as the provision of legal advice, assistance or representation in connection with the application of the law or with any form of resolution of legal disputes.

The effect of the Legal Services Act and the definition under Section 12 was that it deregulated the provision of legal work, so that companies that did not offer legal services as their primary business can now undertake legal practice. Essentially it was this point that spawned the ‘Tesco Law’ because technically supermarkets would now be able to offer legal services.

This deregulation simply gave credence to what was already happening, which was the provision of expert legal advice to businesses by non-solicitor lawyers. Expert advisors had been providing advice and preparing documents and contracts, giving expert advice on commercial and business law, construction law, representing clients in adjudications, arbitrations, providing representation at Employment tribunals and other tribunals, relating to matter like, boundary disputes, registration required under the law, (In the Care Industry, In the Security Industry for example), giving advice on consumer protection law, corporate law, acting as company secretaries, giving advice on compliance issues, consumer protection law and a whole raft of Alternative Dispute Resolution problems.

The benefits of early legal advice and why pro-activity is better than reactivity.

The reality is that Law is the lifeblood of the business world, and therefore Lawyers must spend time with clients or potential clients and do more than just listen to their clients concerns and desires. Lawyers must ask questions that help identify the legal issues at stake and use the answers to identify the legal point at issue. Once the issue has been identified the lawyer must act on the client’s behalf, research the law of the jurisdiction, then provide advice, guidance and where appropriate suggest solutions.

One question many people ask is whether or not it is worthwhile engaging a lawyer and will the costs
in time and money outweigh the benefits the advice provided. Traditionally, clients come to their lawyers once they the prospective client, has realised that they have a problem, it is only then that a legal opinion is sought, effectively trying to close the door after the horse has bolted, what is known as a reactive approach. Many practitioners of Non-Reserved activities are progressive and react pro-actively, seeking to avoid problems before they arise. The question of reactive and proactive legal services is well illustrated in the context of the management of projects. Many project managers are suspicious of lawyers and regard the law as cumbersome, full of jargon and divorced from the realities of the day-to-day business community. In the past this has led to work being undertaken in isolation from the intricacies of the legal system, leaving the law to lawyers without attempting to
integrate good legal practice with sound project management discipline, and sensible business management. The law then tends to rear its head most noticeably for many projects at the cradle (contract negotiations) and then at the grave (in the resolution of disputes) but often the intervening period, at times when those crucial preventative measures can be taken are regarded as the esoteric province of lawyers.

The law is mysterious, even to the most sophisticated business owner. It is sometimes illogical. It is often frustrating. The reasons for seeking legal advice can be triggered by frustration at artificial limitations imposed by law, the inflexibility of Local or International Regulations and the unpredictability of the legal system. Companies sometimes fall victim to frivolous lawsuits, suffering the apprehension of the threat they represent. This is compounded by the expense of having to defend when they should not have to.

At some point, frustration at the law intersects with frustration at the traditional cost of legal advice.
That is when companies begin to wonder if they can get more personalized, cost effective legal services at a market rate that makes business sense. Corporate clients are recognising that the expensive hourly rates charged by solicitors, which are then transferred into high fixed fees, are unsustainable within the marketplace when other providers can provide equal or superior services, in many cases, for fixed prices which are dramatically cheaper than traditional providers.

Obtaining early legal advice from the outset is extremely important for several reasons. Parties are usually more willing to negotiate essential terms of agreements at the bringing of their relationship, it allows parties to ascertain their legal position at an early stage ensuring that they can minimise their exposure to potential legal risks and possible litigation. Early legal advice can reduce the risks of litigation in the future or end a dispute before too much cost is incurred, these cost to reduce the existence of these risks can and must be considered an investment in the future of the business.

NOT LEGAL ADVICE: Information provided in this Blog, is for information purposes only. It is not and should not be taken as legal advice. You should not relay on or take or fail to take any action based upon this information. Never disregard taking legal advice or delay in seeking legal advice because of something you have read in this blog, or on this website. Ian Randall is an Attorney & Counsellor at Law (NY), with 25 years of Corporate and Commercial experience in several jurisdictions. To see how Owllegal could help you, please visit; www.owllegal.org or email Ian Directly, his email address is ian@owllegal.org.

ADR

In the resolution of a civil dispute anyone is entitled to a fair hearing within a reasonable time, at a reasonable cost, and with appropriate independent input to ensure fairness. There are, however, circumstances in which options other than litigation may be more cost effective, quicker, or flexible, while still resulting in a fair outcome. All those involved in the litigation process need to have a proper understanding of the ADR methods available.

The term ‘alternative dispute resolution’ has no agreed definition, but clearly the phrase is used to cover the full range of alternatives to litigation potentially available to resolve a civil dispute. Whilst there have always been alternative ways of resolving disputes, the importance of ADR in the context of Litigation is a relatively recent development. ADR is now seen as an essential part of the process by which parties seek to resolve their
disputes by way of litigation, as much as an alternative process in itself.

The planning of ADR is as important as the planning of the other parts of the litigation process and requires knowledge both of the detail of ADR methods and of factors affecting tactical decisions in ADR.

There are a number of alternative dispute resolution mechanisms available to parties involved in a dispute. There are a number of ADR options available (a) negotiation which is a non-binding ADR process without third party intervention (b) mediation; executive tribunal; conciliation; stakeholder dialogue; early neutral evaluation is non-binding ADR processes with third party intervention and (c) expert determination; adjudication; Dispute Review Board; arbitration and Med-Arb these are binding ADR processes.
Negotiation is the most flexible and informal of the dispute resolution methods. Parties attempt to reach agreement on matters in dispute without the assistance of a third party. Discussions usually proceed on a without prejudice basis. If the negotiations do not succeed to settle the matter, the parties’ rights are not prejudiced.

Mediation is the process whereby parties, with the assistance of neutral third party (the mediator), identify the issues in dispute, explore the options for resolution and attempt to reach agreement. It is a voluntary, non-binding and private form of dispute resolution. The parties retain control of the decision on whether or not to settle and on what terms.

There are different styles of mediation, but the most common in the UK is facilitative mediation, in which, unlike a judge or arbitrator, the mediator will not decide the case on its merits but will work to facilitate agreement between the parties.

A representative of each party makes a formal presentation of his best case to a panel comprised of senior executives for the disputing parties and an independent chairperson. The panel then retires to discuss the dispute and the chairperson normally acts as a mediator between the senior executives. The entire process is private, confidential and without prejudice.

Conciliation is similar to mediation except that, usually, the third party will actively assist the parties to settle the dispute. The term is widely used to describe the facilitated settlement discussions that occur in the employment arena. It is also the term used in Europe to describe the function performed by judges when they hold
settlement conferences with the parties in an attempt to assist them to reach a settlement of their dispute.

This process is primarily encountered in environmental disputes. A series of meetings takes place with stakeholders/interest groups to facilitate decision-making, with the hope of avoiding future disputes.

The parties appoint an independent person to provide a non-binding opinion on the merits which evaluates the facts, evidence and law relating to a particular issue, or the whole case. The rationale is that, once armed with the opinion, the parties will be able to negotiate an outcome, with or without the assistance of a third party.

Expert determination is an informal process that produces a binding decision. An expert is appointed by the parties to determine an issue, usually of a technical nature. As an expert’s decision is an evaluation, this approach is treated as having different legal characteristics to an arbitration award.

Adjudication has been used as a method for dispute resolution in the construction industry for decades, and since the introduction of the Housing Grants, Construction and Regeneration Act 1996, parties to certain construction contracts have had a statutory right to refer disputes to adjudication.

An adjudicator usually provides a decision on disputes as they arise during the course of a contract. Typically, the decision of an adjudicator
has interim binding effect; that is, the decision is binding pending agreement of the parties altering its effect or a reference of a dispute to arbitration or litigation for final determination.

A dispute review board is a project specific adjudication process. A panel (usually of three neutrals) is appointed at the start of a project. The panel visits the site of the project, usually three or four times a year, and deals with disputes by providing an interim binding decision (like adjudication). The parties can challenge board decisions via arbitration or litigation. The board can have a preventative effect on disputes.

Arbitration is an alternative to litigation as a means of resolving disputes. It is based on the parties’ agreement: all parties must agree to submit the dispute in question to arbitration. Arbitration is a private forum in which an independent arbitrator makes an award, acting in a judicial fashion, to finalise the dispute. The
outcome (the award) is final and binding on the parties. The arbitrator focuses on the issues (fact or law) presented by the parties. The matter is referred to arbitration for determination where it is satisfied that the dispute arises under a contractual arbitration agreement (section 9, Arbitration Act 1996). The arbitrator cannot meet with each party in private.

Med-arb (or arb-med) is when mediation is combined with arbitration to resolve a dispute. In med-arb, if mediation fails in whole or on any issue, the parties may agree that the mediator becomes an arbitrator and issues a final and binding award on the outstanding matters.

Owllegal are well versed in all areas of ADR, and can assist clients in both creating the right to utilise ADR, and then using the ADR process to reduce, the time in both money and man hours to reach conclusions to business disputes.

Acknowledgement: Thomson Reuters online resource Practical Law

NOT LEGAL ADVICE: Information provided in this Blog, is for information purposes only. It is not and should not be taken as legal advice. You should not relay on or take or fail to take any action based upon this information. Never disregard taking legal advice or delay in seeking legal advice because of something you have read in this blog, or on this website. Ian Randall is an Attorney & Counsellor at Law (NY), with 25 years of Corporate and Commercial experience in several jurisdictions. To see how Owllegal could help you, please visit; www.owllegal.org or email Ian Directly, his email address is ian@owllegal.org.

Oral Contracts

A contract is a promise or set of promises, the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a parties’ obligation. It is an agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law.

In this fast paced world of doing business, parties sometimes disregard the formalities of a written contract, and conduct business with a handshake, or oral contract. Generally, these oral contracts are enforceable! Obviously not every statement made between parties can be considered as a promise, agreement or contract, however, it is important to identify when a valid contract can be said to have been formed.

For a contract to exist the following must be present; offer, acceptance, consideration, intention to create legal relations and capacity to contract. It is also a fundamental principle of contact that there must be a meeting of minds, the parties must agree on certain terms before there can be a valid, legal and enforceable contract. Where the parties say different things at different times, there is no meeting of minds, they are not in agreement on specific terms and so cannot be said to have a created a contract between them.

An offer is an unequivocal expression of readiness to contract on terms specified by the offeror (person making the offering) which if accepted by the offeree (person to whom the offer is made) will give rise to a binding contract. Thus, it is by acceptance that an offer becomes converted to a contract.

Acceptance is an unconditional (without conditions or limitations) approval communicated by the offeree to the offeror. It must be unqualified and on the terms of the offer before acceptance can create a binding contract. When acceptance is qualified or varies from the terms of the offer, it becomes a counter-offer and no longer an acceptance that can lead to a valid contract.

Another essential element of a valid contract is consideration, (except where the agreement is under seal). Consideration has been defined as the inducement to contract; the cause, motive, price or impelling influence which induces a contracting party to enter into a contract; the reason or material cause for a contract; some right, interest or profit or benefit accruing to one party or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other.

In order for consideration to qualify as an ingredient of a valid contract, it must be valuable in the eyes of the law and must flow from the offeree to the offeror. However, consideration need not be adequate so long as parties have agreed that it constitutes sufficient price or motive for the formation of a contract.

Parties to a contract cannot be said to have a legally binding agreement between them where either or both parties lack the capacity to contract. Capacity in this regard refers to the competence of a party in the eye of the law to be able to enter into a contract. In this regard, some classes of persons are incompetent in law or have a limited capacity to enter into contractual relations. They include minors, lunatics, illiterates or intoxicated persons.

Before a valid contract can be said to have been created, there must be an intention by the parties to the contract to create legal relations. This means that even where other ingredients are present, parties may not have intended to create a legally enforceable agreement and this can be inferred from the nature of the contract.

Generally, a contract could be oral or written. It could also be express – clearly stated or implied – deduced from conduct of the parties. Oral contracts are very common in everyday activities. Indeed, it would be almost impossible to require that all contracts, no matter their level of significance should be written.

It is a fundamental principle of the law of evidence that he who asserts must prove. Therefore, the person who alleges that there was a contract has the burden of proving the
assertion to the satisfaction of the determining body.

How do you do this? First you need to give oral evidence of what transpired and what the understanding between the parties to the agreement was. In doing this, there will be need to state the terms and conditions that formed the contract and also highlight the understanding between the parties.

A party who seeks to prove the existence of an oral contract should go a step further and call a witness or witnesses to buttress his claim. In addition, where there are supporting documents such as emails, memos, receipts, faxes, photographs, recordings etc; Cheques or payment vouchers and bank statements could also be used as evidence of the existence of a contract. Documentary evidence generally is more reliable and
usually serves as an aid in assessing the veracity of oral testimony or evidence.

Whilst for many years the misreported quote of Samuel Goldwyn or Metro, Goldwyn, Meyer fame, of “an oral contract is not worth the paper it’s written on” has formed the basis of the view that oral contracts are unenforceable, this myth is dangerous.

Goldwyn’s actual quote, was praising a colleague and was in fact “His verbal contract is worth more than the paper it’s written on” it was meant to praise the honour and integrity of his colleague. In modern business where emails, telephone calls and conversation rule, and time is often of the essence both to secure the work and confirm the contract great care should be taken that an enforceable contract is not created by accident.

Acknowledgements: Teingo Inko-Tariah / Thomson reuters online legal resource Practical Law Company / Olender Feldman LLP

NOT LEGAL ADVICE: Information provided in this Blog, is for information purposes only. It is not and should not be taken as legal advice. You should not relay on or take or fail to take any action based upon this information. Never disregard taking legal advice or delay in seeking legal advice because of something you have read in this blog, or on this website. Ian Randall is an Attorney & Counsellor at Law (NY), with 25 years of Corporate and Commercial experience in several jurisdictions. To see how Owllegal could help you, please visit; www.owllegal.org or email Ian Directly, his email address is ian@owllegal.org

Director Duties

While a company is trading solvently, the duties of the directors are owed to the company for the benefit of present and future shareholders. However, once the company becomes insolvent, or there is doubt as to its solvency, the directors must also consider or act in the interests of the company’s creditors in order to minimise the potential loss to them.

A breach of these duties can lead to personal liability and possible disqualification from acting as a director or being involved in the promotion, formation or management of the company for a specified period. The directors must also consider whether the company’s liabilities, including contingent and prospective liabilities, exceed its assets.

A company’s statutory balance sheet should not be used alone to determine whether a company is “balance sheet insolvent” as it may omit some information, such as the company’s contingent liabilities. It is generally accepted that, for the purpose of this test, accounts should be prepared on a going concern basis, as it is likely that many companies would be balance sheet insolvent if the accounts were prepared on a break-up basis.

In order to assess the extent of the problem, the directors will, at the very least, need an up-to-date cash flow statement, whatever recent monthly or other management accounts are available and appropriate projections, such as of trading prospects, cash flow and financial covenant compliance. Any actual or potential breaches of covenant or events of default in relevant loan agreements should be brought to the immediate attention of the directors.

The full board of directors should meet as soon as possible after the preliminary assessment of the position. If any of the directors cannot attend in person, they should participate by telephone. The company’s lawyers should advise the board of the statutory and other duties of the directors in this situation, both in general terms and by application to the facts.

Directors are subject to a number of duties, many of which have been codified under the Companies Act 2006 (“CA 2006”). CA 2006 also preserves the common law duty to consider or act in the interests of the company’s creditors when a company is insolvent or of doubtful solvency, with a view to minimising losses.

Under section 212 of the Insolvency Act 1986 (“IA 1986”) if, in the course of a winding up, anyone who has been involved with the promotion, formation or management of the company is found to have misapplied, retained or become accountable for any money or other property of the company, or been guilty of misfeasance or breach of a fiduciary or other duty in relation to the company, a court may on an application by the official receiver, liquidator or a creditor compel him to:

(a) repay, restore or account for the money or property of the company with interest; or (b) contribute such sum to the company’s assets by way of compensation in respect of the
misfeasance or breach of fiduciary duty or other duty as the court thinks just.

A director can also incur personal liability following an application to the court by a liquidator for fraudulent trading (section 213 of the IA1986). The court can order that any person who was knowingly a party to carrying on the business of the company with intent to defraud creditors of the company or creditors of any other person, or for any fraudulent purpose, is liable to make such contributions to the company’s assets as the court thinks proper.

Fraudulent trading is also a criminal offence which carries the risk of imprisonment, a fine or both. Fraudulent trading can arise when directors of a company allow it to incur debt when they know there is no good reason for thinking that funds will be available to repay the amount owed when it becomes due or shortly thereafter. Thus, directors have to be satisfied that services or goods supplied to the company can be paid for on the relevant due date.

Wrongful trading (section 214 of the IA1986) can lead to personal liability, although there have been few reported cases. The provision applies where a company has gone into insolvent liquidation and: (i) before the commencement of the winding up, the director knew or ought to have concluded that there was no reasonable prospect that the company would avoid going into insolvent liquidation; and (ii) thereafter the director failed to take every step with a view to minimising the potential loss to the company’s creditors.

The standard required as to what a director ought to know, the conclusions he ought to reach and steps he ought to take is that which would be known, reached or taken by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as those of the director in relation to the company and with the general knowledge, skill and experience that the particular director has.

Apart from the risk of incurring personal liability, where a director or former director of an insolvent company is found to have engaged in conduct which makes him unfit to be concerned in the management of a company, he must be disqualified by court order or have a disqualification undertaking accepted by the Secretary of State under the Company Directors Disqualification Act 1986.

Where a Director is disqualified or provides an undertaking the Insolvency Service can apply to the court for a compensation order on behalf of the Secretary of State for Business, Energy & Industrial Strategy. The court can make a compensation order if the director is subject to a disqualification order or undertaking and their conduct has caused a quantifiable loss to one or more creditors of an insolvent company.

Directors are advised to take early legal advice as soon as they consider the company to be under pressure, where a dispute arises affecting income, or clients extend payments past agreed payment terms, or costs of projects start to outweigh incoming.

Meeting

The management of a company is invariably delegated, under the company’s articles, to the board. Articles will typically provide that the business of the company is to be managed by the directors, who are empowered to exercise all the powers of the company, the powers must usually be exercised by the board collectively at a properly convened board meeting.

There is no specific minimum number of board meetings prescribed by law: directors must meet sufficiently often to ensure that they are discharging their duties as directors. The articles usually provide that any director may, and the secretary at the request of a director shall, call a meeting of the directors. Unless the company’s constitution prescribes a period of notice, the period must be fair and reasonable. As a matter of good practice, the notice should be written, although verbal notice may technically suffice.

The notice must set out where and when the meeting is to be held. There is no general law requirement that a notice convening a board meeting must state the business proposed to be transacted. Business that is done at a meeting of which some directors have no or insufficient notice has been held to be invalid.

The quorum for a meeting of directors will usually be determined by the articles. The articles may provide that the quorum is one. Where the articles do not prescribe a quorum, or a quorum has not been fixed in accordance with the articles, the quorum will be a majority of the board, although in some circumstances the quorum may be determined by the usual practice of the board. A director may not be counted in the quorum if they are disqualified from voting on the resolution.

A quorum must be present at the start of, and throughout, the meeting. In the absence of a quorum no business should be transacted and any resolutions purporting to be passed will be invalid subject to the provisions in the articles, the board meeting should be adjourned until a quorum can be formed. The chairperson is responsible for determining whether there is a quorum.

The articles will often set out what will happen if the number of directors has fallen below that required for a quorum. A decision made at an inquorate board meeting may be ratified by a resolution duly passed at a quorate board meeting: at common law, unless a company’s constitution otherwise provides, a board of directors can, within a reasonable time, ratify the acts of a director or directors who, when they acted, had no authority to bind the company, but which acts were within the power of the board.

Articles will usually provide that resolutions will be passed by a majority of those present and voting. Boards do not necessarily need to pass formal resolutions for their decisions to be binding, but it is conventional for them to do so. Once a proper resolution of the board has been passed, it is the duty of all the directors, including those who took no part in the deliberations of the board and those who voted against the resolution, to implement it.

Articles will often provide that a director cannot vote at a board meeting on a matter in which he has a material interest (direct or indirect) that may conflict with the interests of the company.

Every company is required to take minutes of all proceedings at meetings of its directors, if the company fails to comply with section 248, an offence is committed by every officer of the company who is in default (section 248(3), CA 2006). It is good practice to ensure that, at the very least, the minutes:

  • Record accurately all resolutions and decisions
  • Contain enough information for the reader to have an understanding of the background to the various decisions
  • Depending on the importance of the resolution, contain the thought process that led to them being made

The company must retain minutes of meetings of directors held on or after 1 October 2007 for at least ten years from the date of the meeting (section 248(2), CA 2006).

If the company fails to comply with section 248, an offence is committed by every officer of the company who is in default (section 248(3), CA 2006).

A director, while in office, has the right to be informed about the company’s affairs and to inspect all the company’s books and records. The right must be exercised for a proper purpose, to enable the director to discharge his personal obligations to the company and his statutory obligations. Shareholders have no general right to inspect board minutes in the absence of an express provision in the articles (or another agreement to which the company is a party, such as a shareholders’ agreement).

Acknowledgement: Thomson Reuters online resource Practical Law

NOT LEGAL ADVICE: Information provided in this Blog, is for information purposes only. It is not and should not be taken as legal advice. You should not relay on or take or fail to take any action based upon this information. Never disregard taking legal advice or delay in seeking legal advice because of something you have read in this blog, or on this website. Ian Randall is an Attorney & Counsellor at Law (NY), with 25 years of Corporate and Commercial experience in several jurisdictions. To see how Owllegal could help you, please visit; www.owllegal.org or email Ian Directly, his email address is ian@owllegal.org.