Category Archives: Business

Arnold v Britton: Lord Neuberger abolishes common sense

Lord Neuberger, President of the UK Supreme Court, has issued one of his presidential proclamations – which is what he does when he wishes to change the law from his lofty but unaccountable position. Nominally the case he was considering, Arnold v Britton & Others, was a simple enough matter regarding service charges for a set of chalets on the Gower peninsula: clause 3(2) of the lease said the price for work such as mowing grass, maintaining roads through the site and sewers &c was to be £90 in 1974 rising by 10% a year; how should this be interpreted nearly 40 years on when the annual figure was more than £3,000 per chalet and rising? (Inflation would produced a figure of less than £800 by 2012.)

If the charge were truly to rise by 10% a year the lessor would be making a very substantial surplus over the term of the lease thanks to compounding (Year 2: £90 + £9 = £99; year 3: £99 + £9.90 = £108.90 and so on annually.) As Davis LJ in the Court of Appeal noted:

 “The figures before us are illustrative of the consequences. For a lease on a one year compounded uplift, the annual service charge payable was, for the year end 2012, some £3,060. At the same compounded annual rate of increase, the projected annual sum payable for service charges in the last year of the term stands to be some £1,025,004: this for modest holiday chalets, the use of which is restricted to half of each year.”

That’s a million pounds per chalet. There were 25 involved in the litigation but 91 in total, some with a less onerous system of payment for services. The outcomes would vary depending on when the leases were issued. Nevertheless, if the clause in the lease were allowed to stand, the lessors would have pulled in hundreds of millions in pure profit over the 99 years of the lease. This on a term of the lease which, it is axiomatic, should not be profit-making since it is merely for the lessor to recover expenditure on ongoing maintenance of the common facilities (see Lease – though holiday chalet leases aren’t covered by legislation for homes).  Continue reading

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Gifted deposit indemnity insurance: a costly and unnecessary burden on homebuyers

House conveyancers are adding one more bit of indemnity insurance to some house purchasers’ bills  – and it looks as if “gifted deposit indemnity insurance” is of no use except to the insurers who sell it.

Add it to the list of various types of indemnity insurance for chancel repairs; for failure of a previous owner to gain planning permission; for a previous owner breaching restrictive covenants; indemnity for various other legal costs.  Some of these products are of dubious value – but a new study suggests gifted deposit indemnity insurance – used (at the homebuyer’s expense) to protect banks if someone giving a gift towards a home purchase goes bankrupt – has no real function at all.

The issue is increasingly significant as more and more parents are giving financial help for their children’s home purchases.  The insurance is paid for by the home buyer, intended to protect the mortgage provider, but in reality would only kick in if the conveyancers weren’t doing their job properly or the bank itself was acting in bad faith. Arguably that means it actually has no real purpose at all.

The principle behind the insurance is that it protects the mortgagee’s (ie bank lending the money) title in the property if the donor of a gift or informal family loan goes bankrupt and creditors make a claim to the money as part of the donor’s assets. Buyers are said to feel pressured into buying the insurance, costing up to £300, even though they don’t understand it.  

But is it strictly necessary? There is strong evidence that conveyancers are the ones who don’t understand the law and that the insurance is for the most part unnecessary – even when “bank of mum and dad” does go belly-up.

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‘Work for your benefits’ scheme and retrospective legislation

The UK Court of Appeal judges are to consider a claim that legislation passed in 2013 after a legal challenge to unemployment benefit rules is unlawful. Two judges have ruled that the retrospective nature of the legislation regarding the Work Programme’s “Work for your benefits” scheme falls foul of standard judicial interpretation under English law and of the European Convention on Human Rights.

There are thousands of claimants who had challenged the rules before the retrospective change. The judges in the Administrative Appeals Chamber of the Upper Tribunal have allowed the Department of Work and Pensions to appeal against their judgment as a test case.

The Timeline
The litigation arises from the case of Caitlin Reilly and Jamieson Wilson, sanctioned by removal of jobseeker’s allowance for failing to take part in the Work Programme assigned to them. Miss Reilly, a University of Birmingham geology graduate, had argued that making her work unpaid at a Poundland store for two weeks or risk losing her benefits was a breach of human rights. She had to give up arguably more relevant voluntary work at a museum to do the Poundland job. She attended her work programme job but challenged the legality of the requirement on her.

While the Court of Appeal in February 2013 (EWCA 2013 Civ 66) rejected a claim by Ms Reilly that the workfare-style programme was illegal forced labour under Article 4 of the ECHR, it found that the Secretary of State, Iain Duncan Smith, acted beyond his powers by failing to provide important detail about the Back to Work Schemes such as a description of the scheme. The judgment meant those people who had been similarly sanctioned for non-compliance with the scheme could have been entitled to claim back their benefit for those periods. However, legislation was rushed through Parliament to deny them the money.

 

The 2009 changes that brought in the workfare scheme in section 1 of the Welfare Reform Act 2009 (as a new Section 17A of the Jobseeker’s Act 1995) allowed the Secretary of State to make regulations requiring claimants to do work “designed to assist them to obtain employment”. Subsection 2 says: 

“Regulations under this section may, in particular, require participants to undertake work, or work-related activity, during any prescribed period with a view to improving their prospects of obtaining employment.”

Regulations were then passed in a 2011 statutory instrument (2011 No. 917) that could require jobseekers to “to participate in support provided by the Employment, Skills and Enterprise Scheme”. It is these regulations that in February 2013 the Court of Appeal in Reilly quashed, finding them to be ultra vires – beyond the powers of the provision in the parent Act (Section 17A of the amended Jobseeker’s Act). The Court said Ms Reilly and Mr Wilson had not been provided with “adequate, accurate information about the schemes in relation to themselves before they were informed that their participation was required”.

The failings were fixed prospectively by a further statutory instrument on the day the judgment was issued (2013 No. 276 – made at 2.19pm, laid before Parliament at 6.15pm and in force from 6.45pm). The Government then sought to stymie earlier claims by rushing through the retrospective provisions of the March 2013 Jobseekers (Back to Work Schemes) Act. When the Reilly case came to the Supreme Court  in July 2013, Lords Neuberger and Toulson said the 2013 Act was “plainly intended to ‘undo’ the decision of the Court of Appeal, in that … it retrospectively validates (i) the 2011 Regulations, (ii) the programmes listed in regulation 3(2) of the 2013 Regulations, (iii) notices issued under regulation 4 of the 2011 Regulations, and (iv) the benefit sanctions imposed under those Regulations in relation to the schemes”.

Since, by this time, the retrospectivity of the 2013 Act was under challenge in the Administrative Court (a claim was issued in June), the Supreme Court gave its judgment (October 2013 – in part against the Secretary of State including on the ultra vires point: failure to provide a “prescribed description” of any scheme) even though the issue had been “fixed” by the Act.

– but the court nevertheless found against the Secretary of State, leaving open the possibility of many further cases from before the February 2013 amendments.

The Administrative Court hearing
The Upper Tribunal in DB v Secretary of State for Work and Pensions (plus SSWP v TJ and SSWP v TG) in February 2013 heard a different set of cases – appeals from November and December 2012 judgments by the First Tier Tribunal. The judges approach the 2013 Act firstly as a matter of judicial construction ie “the ascertainment of Parliament’s intention in passing the Act, having regard to its language, its context (including the mischief which the Act was seeking to address) and such background materials as are admissible”.

There is already legislation to ensure claimants who have not appealed against a benefits decision do not benefit when the law is interpreted in court in a way that would favour them (S.27 of the Social Security Act 1998). The implication is that those who had appealed before a favourable judgment (in what would amount to a test case) should be able to successfully pursue their action. The Upper Tribunal judges had to decide whether there was anything about the words in the 2013 Act that showed Parliament’s intention was to “affect the rights of those claimants who had already appealed”. Although the words “for all purposes” appear in the 2013 Act, the majority of the judges (2-1) decided this was not enough to show an intention to exclude people who had already challenged their sanctioning before 2013 on the successful grounds in Reilly. The judges cited the explanatory notes to the Act which considered whether it was compliant with Article 6 on non-retrospectivity. They said: 

“45. If no legal claim has been brought on the grounds that the [2011] Regulations are ultra vires and/or that the notice issued under them is non-compliant prior to the enactment of the proposed legislation, the Government considers that Article 6 is not engaged at all since the claim to entitlement to benefit, and any dispute regarding a benefit decision thereon which would require access to the courts, remains hypothetical.” 

This implies that if a legal claim has been instituted before the favourable judgments it should proceed.  The judges said: “We do not see how that section of the Explanatory Notes could properly have been written as it was had the Government intended that those who had already appealed against sanctions should be caught by the Bill.” In other words “we are quite satisfied that there was no positive intention to include them”. The judges conclude: “Given the disposition not to read legislation to be more retrospective than clearly intended, we are satisfied that, notwithstanding the literal meaning of the words “for all purposes” in section 1(1), the 2013 Act should be read so as not to affect those who had already appealed against sanctions.” 

Article 6 of the European Convention on Human Rights
Article 6 requires “a fair and public hearing within a reasonable time by an independent and impartial tribunal”. (The Article 6 “unfairness” complained of may be interpreted as that the Government intervened in a legal process by passing the 2013 legislation – purporting to deny Reilly and others a “win” that the Supreme Court was preparing to give them.)

The Human Rights Act 1998 Section 3 requires judges to interpret legislation in compatibility with the ECHR. This, the judges asserted, means not merely where there is ambiguity but on the basis that the Secretary of State intended compatibility (as he is required to declare). Putative wording may therefore be added by judges to ensure conformity.  

The judges argued: “The effect [compatibility with the ECHR] can be achieved, for example, by reading in the words at the start of section 1(1) of the 2013 Act “Save where an appeal had already been made or had already been decided under section 12 of the Social Security Act 1998 before this Act came into force.” The Government argued this would actually run counter to the purpose of the Act but the judges said: “the mischief to which the Act was addressed was persons who had not already appealed adverse decisions and who would otherwise benefit from Reilly and Wilson because of section 27 of the SSA 1998 having no application’. The Act, on the construction set out above, was not directed against those who had already appealed against sanctions.

Materials

• Supreme Court judgment October 2013 R (Reilly and another) v Secretary of State for Work and Pensions UKSC 2013
• See also Reilly No 2 and Hewstone v Secretary of State for Work and Pensions on the Article 6 point and incompatibility with Article 1 Protocol 1 of the ECHR – right to respect for property. The claimants argued that “it is contrary to the rule of law, protected by Art. 6, for a State to legislate in the course of ongoing legal proceedings to decide the issues before the court, when it does so to its own advantage, as a party to the dispute. Such an interference with Art. 6 rights can only be justified by ‘compelling grounds in the public interest’. They submit that no such compelling grounds exist in this case.”
Zielinski v France ECHR: “The Court reaffirms that while in principle the legislature is not precluded in civil matters from adopting new retrospective provisions to regulate rights arising under existing laws, the principle of the rule of law and the notion of a fair trial contained in Article 6 preclude any interference by the legislature–other than on compelling grounds of the general interest – with the administration of justice designed to influence the judicial determination of a dispute”.
• Government Statement on SI 2011/917)
• There is an interesting piece by Carol Harlow on the UK Constitutional law blog on the 2013 Act retrospectivity issue here.

 

 

The claims and outcome at the Supreme Court in Reilly
They argued that:
(i) the 2011 Regulations are unlawful, since they did not fulfil the requirements of section 17A of the 1995 Act in “prescribing” the programmes, the circumstances by which individuals are selected, or the period of participation (“lawfulness”)
(ii) the Respondents did not receive the information required by Regulation 4 of the 2011 Regulations (“notification”)
(iii) the Government was required to have a published policy setting out the details of the relevant schemes (“publication”)
(iv) that the scheme constituted forced or compulsory labour contrary to Article 4 ECHR (“forced labour”).

Outcomes:
i) That the 2011 Regulations are ultra vires section 17A because they fail to prescribe

i) a description of the SBWA scheme or the PAC [Accepted];
(ii) the circumstances in which a person can be required to participate in those schemes [Rejected: the “prescribed circumstances” were sufficiently set out given the need for some flexibility];
(iii) the period during which participants are required to undertake work on those schemes [Rejected: An open-ended period was legitimate].

ii) That the requirement that Miss Reilly and Mr Wilson participate in a scheme was unlawful, because the notice provisions contained in regulation 4 were not complied with [Accepted re Reilly; rejected re Wilson].

iii) That it is unlawful for the Government to enforce the 2011 Regulations in the absence of a published policy as to the nature of the relevant scheme and the circumstances in which individuals could be required to undertake unpaid work [Accepted but no declaratory relief ordered: “The Secretary of State owed a duty as a matter of fairness to see that Miss Reilly and Mr Wilson were respectively provided with sufficient information about the SBWA [sector-based work academy] scheme and the CAP [Community Action Programme], in order for them to be able to make informed and meaningful representations to the decision-maker before a notice requiring their participation was served on them. However, it would be wrong to be prescriptive as to how that information should be given”].

iv) That Miss Reilly had been subjected to forced or compulsory labour contrary to article 4 of the European Convention on Human Rights (“the Convention”) and/or that the Regulations were contrary to article 4 [Rejected].

 

 

 

 

 

 

 

 

 

 

 

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PLT Anti-Marketing cold-call blocking: not a ‘scam’ after all?

An attempt to close down a company accused by the UK Government of a cold-call blocking “scam” has hit something of a stalemate in the Court of Appeal. PLT Anti-Marketing Ltd charges £40 a year for a cold-calling and junk mail blocking service already available free from official providers. The court has quashed a judge’s finding that PLT breached regulations and Lord Justice Briggs has produced strong arguments in favour of the company despite an attempt by the Department of Business (BIS) to close it down.

Nevertheless PLT remains barred from pursuing its business as it wishes until a full trial – when judgment could turn against it. The litigation has so far been going on for more than a year and a half – during which time PLT has been able to continue charging current customers but not to take on new ones without telling them about the free service. The whole affair raises the issue of whether current legislation is adequate for dealing with alleged consumer scams of this sort.

The free cold-calling and direct mail blocking services are available from Telephone Preference Service (TPS – provided by Ofcom; see: Regulation 26 of the Electronic Communications (EC Directive) Regulations 2003) and the Mail Preference Service (MPS – offered by the Direct Marketing Association in co-operation with the Post Office). PLT takes the names of its paying customers and adds them to the free lists. It maintains a service for its customers to complain about any continued unwanted calls and mail, but that also links into the free official services. Customers continue to pay on a monthly or annual basis. 

The Department of Business (BIS) started investigating PLT in 2012. In April 2013 it issued a “public interest winding up petition” under Companies Act 1985 S.124A – and the matter has been bogged down in court hearings ever since.

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Edmondson et al: News International hacking judgment and GCHQ scandal

Note: Since publication of this post Privacy International has announced a legal challenge against the GCHQ programme based on European Court of Human Rights proportionality principles.

The first legal skirmish in the Rebekah Brooks/Andrew Coulson phone hacking saga has produced a Court of Appeal judgment with wider ramifications – which could spread into the burgeoning bugging scandal surrounding Britain’s “spy-station” GCHQ.

The phone hacking case need not detain us too long. Edmondson et al v Regina was brought by various top former News International personnel facing conspiracy charges regarding alleged phone hacking, among them Brooks and Coulson. Their contention was that the offence they are accused of, conspiring to intercept other people’s mobile phone voicemail messages, should be dismissed because the alleged hacking was not actually unlawful under the Regulation of Investigatory Powers Act 2000.

This is why the case is relevant to GCHQ and the revelations by Edward Snowden of alleged trawling and storing of private communications: Section 1(1) of RIPA says: “It shall be an offence for a person intentionally and without lawful authority to intercept, at any place in the United Kingdom, any communication in the course of its transmission by means of – 
(a) a public postal service; or
 (b) a public telecommunication system.” (Emphasis added.)

The Edmondson defendants claimed no one could be alleged to have “intercepted” messages that had already arrived at the voicemail inbox and been opened for reading by the recipients since they were no longer “in transmission”. They cited S.2(7) of RIPA which says:

For the purposes of this section the times while a communication is being transmitted by means of a telecommunication system shall be taken to include any time when the system by means of which the communication is being, or has been, transmitted is used for storing it in a manner that enables the intended recipient to collect it or otherwise to have access to it.”

The defendants argued that once it had been “accessed” (listened to in the case of a phone message or, presumably, opened if it is a text or email) it is no longer “in the course of its transmission”.

The judges, headed by the Lord Chief Justice Lord Judge, rejected this argument. “Interception” included interception of messages saved on the voicemail facility. The judgment notes:

In this regard it is significant that the intended recipient cannot gain access to the voicemail message without resort to the telecommunication system, but is totally dependent on the system. In these circumstances, there is no good reason why the first receipt of the communication should be considered as bringing the transmission to an end nor is there any support for this within the statutory language. We consider that it is readily apparent from the plain words that it was the intention of Parliament that section 2(7) should extend the course of transmission to include this situation.”

So the appeal was dismissed and the substantive case against the defendants proceeded. Ultimately Coulson was found guilty of conspiring to hack phones while Brooks was acquited (Guardian report).

Issues for GCHQ
The wider implications, however, are that the court has clarified that, no matter where in the process a phone message is captured, it will have been intercepted somewhere in the transmission system and hence potentially unlawfully.

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Daejan Investments v Benson: Supreme Court flies in face of the legislation

The Supreme Court, in the case of Daejan Investments v Benson (PDF) has produced a judgment that undermines protections for leaseholders of blocks of flats when faced with big repairs by their landlords – and on the face of it flies in the face of the will of Parliament in how those protections should work.

Under the Landlord and Tenant Act 1985 Section 20 any lessees in a block of flats have to be consulted regarding works done for the benefit of the whole block, the costs of which would go onto the service charges and cost more than £250 each. The main reason is that such works can be costly and lessees should have some say in the cost, their own “relevant contribution” under the terms of the lease and necessity for the work. Section 20ZA (5) of the Act outlines regulations that include lessees being given details of the works, possibly via a tenants’ association, along with estimates for the work. The lessees might suggest other builders from whom to get estimates and have other observations about how the work should be done.

Failure to consult comes with a big penalty for landlords. They can seek dispensation from a Leashold Valuation Tribunal (LVT), but if they fail they may be limited to recovering a fixed sum of only £250 per lessee for the work, whatever the actual expenditure.

Section 20ZA (1) says: “Where an application is made to a leasehold valuation tribunal for a determination to dispense with all or any of the consultation requirements in relation to any qualifying works or qualifying long term agreement, the tribunal may make the determination if satisfied that it is reasonable to dispense with the requirements.”

This was the situation for Daejan Investments who wanted to recover £280,000 through service charges for major works on Queens Mansion in Muswell Hill, North London. Continue reading

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USA v Nolan: When must redundancy consultation start?

The European Court of Justice has balked at a decision that is urgently needed to clarify the requirements imposed on employers to consult workers’ representatives before making staff redundant.

In the case of United States of America v Nolan (Case C-583/10 ECJ), the court decided it had no jurisdiction to rule on the matter. Christine Nolan worked for the US Army in Britain and the relevant EU Directive “does not apply to workers employed by public administrative bodies or … by equivalent bodies” – including the US Army.

Nevertheless her case (which has returned to the Court of Appeal – see note below) epitomises the issue. Redundancies are governed by the EU Directive 98/59. Article 2 of that directive provides:

1. Where an employer is contemplating collective redundancies, he shall begin consultations with the workers’ representatives in good time with a view to reaching an agreement.

2. These consultations shall, at least, cover ways and means of avoiding collective redundancies or reducing the number of workers affected, and of mitigating the consequences by recourse to accompanying social measures aimed, inter alia, at aid for redeploying or retraining workers made redundant. [Emphasis added]

Furthermore to enable workers’ representatives to make constructive proposals, an employer is bound, in good time during the course of the consultations, to supply them with all relevant information and to notify them in writing of the matters specified in subparagraph 2.

But what does “contemplating” mean and hence what is “in good time”? Section188 of the Trade Union and Labour Relations (Consolidation) Act 1992, which is intended to transpose the Directive into British law, requires consultation when the employer is “proposing” redundancies. What does “proposing” mean? Is it different from “contemplating”?

The Act sets a minimum of 90 days consultation when 100 or more workers are to be made redundant or 30 days for less than 100 – but how far down the line of decision-making can management already be before it activates the statutory consultation period? “Contemplating” seems to be something you would do rather earlier in the process than “proposing”, so unions have argued that consultation must come at that earlier stage.

USA v Nolan

In USA v Nolan Christine Nolan worked at a US army base in Britain with about 200 civilian staff. By March 2006, the US had decided to close the base at the end of September 2006 (six months or so ahead). On 21 April 2006 plans for closure became public and in June staff representatives were told all employees were at risk of redundancy. The US Army considered consultation on the redundancies started on 5 June (more than 90 days before closure was planned).

On 30 June, the Army gave the employees notices of dismissal, to take effect at the end of September. Nolan, a worker representative, brought a claim on behalf of those employees on the basis that the US had failed to comply with its collective consultation obligations by not consulting before 5 June.

The USA argued that: “no employer has an obligation to consult with its employees about a proposed operational decision to close a workplace that will lead to redundancies: it is said that the consultation obligation only arises after the employer has made such decision and is then proposing to dismiss the employees as redundant”.

Nolan, however, succeeded in a claim for a protective award (a penalty paid to each worker affected if there is not proper consultation) at an Employment Tribunal and at the Employment Appeal Tribunal. The Court of Appeal, however, sought guidance from the ECJ on when consultation should start.

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