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Arbitration is the Preferred Option The Law Lords have handed down a significant judgment for people who have disputes over contracts which contain an arbitration clause. The case arose because of a dispute between businesses engaged in the chartering of ships. The ship owners brought an action for damages for conspiracy, bribery and breach of fiduciary duty relating to a charter contract that contained a clause which provided that disputes under the contract would be settled by referral to arbitration. The ship owners argued that the arbitration clause did not apply for two reasons. Firstly, the question of whether the charters obtained by the defendants were procured by bribery was not a dispute arising under the charter contract and, accordingly, the dispute was ‘outside the agreement’. Secondly, the ship owners argued that the arbitration clause was liable to be rescinded and therefore not binding on them, because they had the right to rescind the entire contract if their allegations of bribery could be sustained. The House of Lords could not accept these arguments. In its view, a contract was agreed by rational businesspeople who could have placed certain types of dispute outside the arbitration clause had they chosen to do so. In the words of Lord Hoffmann, “The language of the relevant clause of each charter contained nothing to exclude disputes about the validity of a contract on the ground that it was procured by fraud.” The Lords also considered that the owners’ claim, that if they were right about the bribery they were entitled to rescind the whole contract including the arbitration clause, was flawed. An arbitration agreement can only be rendered void or voidable on grounds relating directly to that agreement. There were no grounds of challenge specific to the arbitration agreement so as to invalidate it. The claim that the main contract had been induced by bribery thus fell to be determined under the arbitration agreement. If you are offered a contract which contains an arbitration clause, you might care to consider whether you wish to limit the application of the arbitration clause so that certain types of dispute are not covered by it. We can advise you on all contractual matters. Partner Note For further information please contact Kate Barnes Directors’ Duties Under the 2006 Companies Act The Companies Act 2006 was designed to modernise British company law, making it ‘fit for purpose’ for the 21st Century. In particular, there are several changes which affect directors. As of 1 October 2007, the duties of directors are, for the first time, specifically defined. They are:
Directors of companies should ensure that they and their fellow directors are fully aware of the provisions of the Act relating to their duties and comply with them. Contact us for individual advice. The provisions of the Companies Act are being introduced in stages. For a full implementation timetable, see http://www.dti.gov.uk/bbf/co-act-2006/index.html. Partner Note For further information please contact David Holt Dividend Waivers – Making Them Work When a company is set up, it is common to divide the shares in it in approximately equal proportions amongst the subscribers. Whether or not this proves to be the most effective way to split them in the long run depends on a variety of factors, of which the effect on the governance of the company is normally the most significant. However, one problem which sometimes results is that where dividends are paid in proportion to the shareholdings, this can lead to dividends being payable to a shareholder who does not need them or who would have to pay higher-rate tax on them. When a shareholder does not wish to receive a dividend, this can be effected by the execution of a dividend waiver. The use of such waivers can be an effective tool in tax planning, so it is unsurprising that HM Revenue and Customs (HMRC) are generally not keen on them. Unless a dividend waiver is executed in the right way, HMRC are likely to use anti-avoidance legislation to attack the scheme. The essential steps are:
It is unwise to use dividend waivers too frequently. HMRC will look more closely at arrangements which are repeated and the practical effect of which reduces the overall tax payable – for example, where the shareholder executing the waiver is a higher-rate taxpayer and the shareholder who receives the dividend is not. Partner Note For further information please contact David Holt Business owners are reminded that the new Money Laundering Regulations 2007 came into effect on 15 December 2007. These replaced the existing money laundering legislation. The aim of the new regime is to further restrict criminal access to the financial system, thereby deterring crime and terrorism. The Regulations apply (with certain exceptions) to the following types of business:
It is the ‘high value dealer’ who is probably least likely to be aware of the impact of the new law. The legislation defines a high value dealer as ‘a firm or sole trader who by way of business trades in goods (including an auctioneer dealing in goods), when he receives, in respect of any transaction, a payment or payments in cash of at least 15,000 Euros in total, whether the transaction is executed in a single operation or in several operations which appear to be linked’. Clearly, this definition will cover many businesses supplying high value goods where the customer wishes to pay in cash. At the time of writing 15,000 Euros is approximately £11,000. A simple summary of the new rules can be found at If you would like advice on how the new Money Laundering Regulations affect your business, please contact David Holt. Partner Note The Money Laundering Regulations 2007 can be found at No Agreement Means Software Writer Owns Copyright A recent case has illustrated the common legal difference between intellectual property (IP) produced by a freelancer and that produced by an employee. In the case of IP produced by an employee, the rights to the IP almost invariably rest with the employer. If the IP is supplied by a contractor, in the absence of a specific contractual arrangement to the contrary the courts will normally conclude that the IP belongs to the person who created it. In these circumstances, the law of copyright states that copyright rests with the author, although the person commissioning the work gains an implied licence to use it. In some instances, however, an implied transfer of copyright to the person commissioning the creation of the IP is considered to arise. In the case in point, a programmer was commissioned to produce software for a company. Later on, a dispute arose as to who owned the copyright. At issue was whether the IP supplied led to an assignment of copyright or the creation of an exclusive licence to use the IP. Over £40,000 of royalties were at stake, claimed by the writer of the software, based on sales of the product incorporating the software. The court ruled that the copyright rested with the writer of the software, but the person commissioning it had an exclusive licence to its use. Accordingly the royalties were payable. “When commissioning any work which creates IP, it is important to think through the issues that arise and ensure that the agreement under which the work is done covers the IP issues to your satisfaction,” says David Holt. “In principle, it is almost always better to try to obtain the ownership of IP where this is possible and makes economic sense.” Partner Note Patent Protection Depends on Proof of Invention A recent ruling by the House of Lords, in a case involving a patent, marks a significant change to UK patent law. Prior to the decision, under UK law an action brought to prove entitlement to a patent could only be commenced against someone if it could be demonstrated that they had breached the law in some way. The House of Lords ruled that this approach was incorrect and that in a claim to assert entitlement to a patent, all that is necessary is that the claimant is able to prove that he or she was the inventor of the subject of the patent. The Lords also ruled that an amendment of a claim from one of joint entitlement to a patent to one of sole entitlement did not amount to a new claim. Accordingly, the two-year limitation period on such claims did not apply. In the words of Lord Hoffman, “The first step in any dispute over entitlement must be to decide who the inventor or inventors of the claimed invention were. Only when that question had been decided could one consider whether someone else might be entitled.” This ruling is important as it enables those who can prove that they invented a patentable invention to claim the right to the patent or prevent someone else patenting it. This significantly advances the rights of inventors. Contact David Holt for advice on protecting your intellectual property rights. Partner Note Overturning Markem Corp v Zipher Ltd. [2005] RPC 31. Retention of Title Can Include Commingled Goods Retention of Title (ROT) clauses are often used in contracts for the supply of goods. The effect of the ROT clause is that the goods which have been supplied remain the property of the supplier until paid for in full by the purchaser. If the buyer goes broke or fails to pay for the items, the vendor has the right to recover its property. For discrete items such clauses are relatively straightforward, as the items which are the subject of the ROT clause are easily identifiable. Problems arise, however, when the goods subject to the ROT clause are incorporated into something else. Clearly the vendor does not own the other goods, so is the ROT clause valid? Normally, in such cases, if the goods subject to ROT have been converted into a new product or products, the ROT clause fails. However, a recent case showed an exception to the rule. It involved a company that supplied 217 tonnes of zinc in the form of ingots to another company. Zinc is normally supplied in ingot form. The company which purchased the zinc ingots melted them and mixed them in a tank with zinc from another supplier. There was a total of 265 tonnes of zinc in the tank. The supplier claimed that 217 tonnes of the molten zinc in the tank belonged to it under the ROT clause. Despite the fact that the actual zinc it had supplied could not be distinguished from that supplied by others, the judge agreed. Crucially, the zinc in the tank was essentially the same material (though slightly less pure) than the material originally supplied. The zinc was still identifiable and thus the ROT clause held good. Says David Holt, “When selling goods, retention of title clauses are almost always worth including if there is a risk of non-payment and the goods themselves will be identifiable enough for the clause to be enforceable. If you supply goods, it might be worth checking that your current terms of trade incorporate best legal practice. We will be pleased to advise you.” Partner Note The definition of personal data for the purposes of the Data Protection Act 1998 is contained in Section 1 of the Act. Personal data is that which relates to a living individual who can be identified from the data, or from the data and other information which is in the possession of, or likely to come into the possession of, the data controller. Personal data includes opinions expressed about the person and also any indication of intention, expressed by the data controller or any other person, towards the individual concerned. Whether data is covered by the Data Protection Act as personal data depends therefore on both the nature of the data and the use to which it is, or could be, put. Clearly, the definition is capable of including a wide variety of data about a person. The leading British case on what is and what is not personal data implies a rather narrow interpretation, but a recent EU opinion implies that the definition should be interpreted quite widely. The office of the Information Commissioner has issued a guidance note on what constitutes personal data. This includes a helpful flowchart and can be found here. If you require guidance on whether information is personal data or on the management of personal data which you hold, we can advise you. Partner Note Durrant v Financial Services Authority [2003] EWCA Civ 1746. For further information please contact David Holt **** The information contained in this newsletter is intended for general guidance only. It provides useful information in a concise form and is not a substitute for obtaining professional advice. We respect your time online and your privacy. If you would not like to receive any further newsletters then please send an email to opt-out.newsletter@bwblegal.com with 'unsubscribe |
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