Law and Regulation Legal update

Parliament and Whitehall

OFT plans consumer credit reform

The Office of Fair Trading is planning a reform of the consumer credit licensing regime. At present, the OFT issues two types of licences for consumer credit and consumer hire businesses under provisions in the Consumer Credit Act 1974:

•   a standard licence for an individual trader; and

•   a group licence for a group of traders.

Following a recent review, the OFT has stated there is a need to strengthen some aspects of the current regime if consumers are to be properly protected.

The OFT has issued a consultation document entitled Consumer Credit Act 1974: Review of the Group Licensing Regime. The OFT's proposals are:

•   measures to ensure that group licence holders take prime responsibility for taking action on the fitness of those within the group;

•   revised annual reporting arrangements to the OFT on the regulatory activity of the group licence holder;

•   a tighter policy on the circumstances in which a group licence will be issued; and

•   widening the exemption from fees to make sure the OFT maintains its policy of not charging an organisation that provides services free of any charge, fee or commission.

Comments are required by 26 November 2004.

Commitment to corporate manslaughter law

The government has stated it is committed to legislation introducing new laws to make it easier to prosecute companies as criminally liable for deaths caused by errors or oversights in the operation of corporate business. It appears that if a relevant Bill does not find a place in the 2004 Queen's Speech, it will be introduced immediately after the next general election, expected in 2005.

Pensions: litigation against government

Community, a trade union representing a majority of the ex-employees of the former ASW steel company, is to go ahead with litigation in a pension case that could set a wide-ranging precedent. The case will come before the High Court in November 2004 and the union will ask the judge to refer the case straightaway to the European Court of Justice in Luxembourg.

The claim is that the government has failed to implement European pensions law that protects employees' pensions when their employers, as in this case, have been declared insolvent. If the case succeeds it could result in pension claims by some 65,000 other UK employees who have lost pension rights when their insolvent employers went out of business.

Statutory Instruments

European Company Statute implemented

The European Public Limited Company Regulations 2004, which came into force on 8 October 2004, implement the European Company Statute to create a framework for a new form of company - the European Company or Societas Europaea. These companies will:

•   be registered in one of the member states of the EU;

•   have a minimum share capital of EUR120,000;

•   have a separate legal personality; and

•   be available to commercial organisations that operate in more than one member state.

The regulations include the forms to be filed with Companies House to register a European Company. The company's name will be preceded or followed by the letters 'SE'.

Case Notes

Sale of assets by administrators

The Enterprise Act 2002 substituted Schedule B1 into the Insolvency Act 1986. This new schedule came before the High Court for interpretation in Re Transbus International Ltd [2004] 2 All ER 919. The administrators of Transbus asked the court for directions as to whether under Sch B1 they had power to sell the assets of the company prior to the approval by the creditors of the administrators' proposals or whether, if there was no such approval, they could do so only under the direction of the court.

The relevant statutory materials before the court were:

•   para 59(1) of Sch B1, which provides that an administrator of a company may do anything necessary or expedient for the management of the affairs, business and property of the company;

•   para 60, which gives an administrator the powers specified in Sch 1 to the Insolvency Act 1986, including a power to sell or otherwise dispose of the property of the company by public auction or private contract; and

•   para 68 of Sch B1, which is different in structure and wording to the previous law.

Para 68(1) provides in essence that an administrator shall, subject to para 68(2), manage the company's affairs and property, subject to any proposals approved by the creditors. Para 68(2) states that if the court gives directions as to the management of the company's affairs, business or property, the administrator shall comply with the directions.

Did this mean that if the administrators wished to sell assets of the company they could only do so (if the creditors had not, as yet, approved their proposals) by asking the court for directions?

The judge ruled that, looking across the relevant powers given to administrators, they were permitted to sell the assets of the company in advance of their proposals being approved by the creditors and without the direction of the court. In his judgment he said: 'There will be many cases where the administrators are justified in not laying any proposals before a meeting of creditors. This is so where they conclude that the unsecured creditors are likely to be paid in full or to receive no payment or where neither of the first two objectives for the administration (company rescue and better result for creditors than liquidation) can be achieved. If in such administrations administrators were prevented from acting without the direction of the court, it would mean that they would have to seek the directions of the court before carrying out any function throughout the whole of the administration.' In the judge's view, the Enterprise Act 2002 reflected a conscious policy to reduce the involvement of the court in administration where possible. Accordingly, the interpretation in terms of the directions of the court applied only if the court had given any, which in this case it had not.

Comment. This ruling means that the previous position is preserved.

Bankruptcy in court

Meaning of cross-demand

Under s267 of the Insolvency Act, a creditor can present a petition to the court seeking a bankruptcy order against a debtor where the debt is equal to or exceeds £750 on the basis of a statutory demand for the debt which is not met after three weeks from service. The court may, under rule 6.5 of the Insolvency Rules 1986, grant an application by the debtor to set aside the statutory demand, so that bankruptcy proceedings on it cannot continue, where the debt is disputed on substantial grounds and where the debtor appears to have a counterclaim set-off or cross-demand which equals or exceeds the amount of the debt specified in the statutory demand. The Court of Appeal has ruled on the meaning of 'cross-demand' in such a way as to allow the setting aside of a statutory demand. (See Popeley v Popeley [2004] EWCA Civ 463.)

The appellant had served a statutory demand on the respondent as part of the procedure leading to a bankruptcy order. The debt was based upon an order for the respondent/debtor to pay the costs of a successful legal action brought against him by the appellant/creditor. The debtor subsequently brought proceedings against the creditor (who had now presented a bankruptcy petition) on another matter and applied to the court to have the statutory demand on which it was based set aside under rule 6.5. The debtor's claim was found to be genuine and if successful would exceed the sums owed by the debtor under the costs order. The Court of Appeal affirmed the setting aside of the statutory demand by the judge in the lower court and ruled in addition that the words 'cross-demand' did not imply a relationship between that demand and the debt which was the subject of the demand.

All it meant was that the demand was a demand by the debtor on the creditor.

The debtor's property and legal claims

One of the effects of the making of a bankruptcy order is the transfer in law of the debtor's property to the trustee in bankruptcy. There are well-known exceptions, such as items of equipment which the debtor required for his work. However, an area of some difficulty relates to legal claims that the debtor may have but which the trustee decides not to pursue and which the debtor may wish to bring personally.

There is sometimes a clear division, as where a claim is for loss of earnings, and in such a case the claim vests in the trustee. A claim may also be personal, as in the case of a claim for injured feelings resulting from discrimination against the debtor. There are also hybrid claims which contain elements of both. Such a situation arose in a case before the Court of Appeal, ie, Khan v Trident Safeguards Ltd [2004] EWCA Civ 624.

K's claim was based upon dismissal on grounds of racial discrimination.

Such a claim could consist of damages for loss of earnings but any damages awarded could include an element for injury to feelings. It was thus a hybrid claim. The Court of Appeal ruled in Ord v Upton [2000] 1 All ER 193 that hybrid claims vested in the trustee in bankruptcy.

However, K asked the court whether he could tailor his claim and restrict it to a declaration by the court that the defendants were liable for race discrimination plus a claim for injured feelings only. If the claim could be confined to those heads it would be a personal and not a hybrid claim and would not vest in the trustee. The Court of Appeal ruled that K's claim could be limited in this way and that he could pursue it.

Comment. The trustee (the Official Receiver) was not prejudiced because he had decided not to pursue the claim and any future costs orders made in respect of the tailored personal claim would not be provable in the bankruptcy.

Employment Law

Working Time Regulations: contract workers

It appears from the ruling of the Court of Appeal in Wright v Redrow Homes (Yorkshire) Ltd [2004] 3 All ER 98 that businesses that take on self-employed workers on lengthy contracts could be obliged to offer them holiday pay under the Working Time Regulations 1998.

The claimants were bricklayers working for the defendant and others in the Redrow organisation. They were engaged for lengthy periods, in one case from October 2000 to April 2001. Their written contracts provided significantly that each worker was 'at all times to provide sufficient labour to maintain the rate of progress laid down from time to time by the company'. The claimants worked in gangs and each of them was paid individually.

They claimed a right to holiday pay as 'workers' under WTR 1998. The defendants contended that they were not so entitled because under reg 2 of WTR 1998 a 'worker' is an individual who works under a contract whereby he or she 'undertakes to do or perform personally any work or services for another party to the contract'. The contract, said the defendants, did not require the claimants to do the work personally and clearly contemplated that the specified work might be done by other men.

The Court of Appeal ruled that it had been the intention of the parties from the circumstances that the claimants would do the work personally and the method of individual payment was a strong indicator of this. If the intention had been otherwise the company would have been likely to make arrangements with one member of each gang and make arrangements with him to receive payments for distribution within the gang.

The employer's appeal was dismissed. The claimants were entitled to holiday pay.

Human rights in the private sector

Because private litigants cannot enforce convention rights directly against each other but only against an emanation of the state, ie, the public sector, there is a view that there is no obligation to construe legislation in accordance with convention rights in claims between them. The Court of Appeal rejected that view in a recent case (see X v Y (2004) 741 IRLB 3).

The facts of the case were that X, an employee of Y, brought a claim against Y for unfair dismissal. Y is a charity and not a public authority or emanation of the state. The dismissal was for gross misconduct in that X committed a significant criminal offence, for which he was arrested and cautioned, but had deliberately not informed Y of the offence.

The central issue was whether article 8 of the convention should be brought into consideration by the court in deciding the issue of the fairness of the dismissal. Article 8 gives a right to respect for private and family life. X contended that the dismissal was unfair because it related to matters in his private life. Was it necessary, therefore, for a tribunal to interpret the Employment Rights Act 1996 in a manner consistent with rights under article 8?

The Court of Appeal decided that it was, but in order to do this the tribunal must consider whether the article was engaged or not. In this case it was not engaged because the employee's conduct did not take place in private life. It had occurred in a place to which the public had access and was a criminal offence which was a matter of legitimate concern to the public. Further, it had led to a caution, which was relevant to the employment and should have been disclosed to the employer as a matter of legitimate concern to it.

The fact that X wanted to keep the matter private did not make it a part of his private life or deprive it of its public connotation. However, if article 8 had been engaged and in the absence of a permissible reason under ERA 1996 that did not unjustifiably interfere with the article, a tribunal would have been bound to find that the dismissal was unfair.

The Court of Appeal stated that in most circumstances a finding that a dismissal is fair will not involve a violation of article 8 because the statutory tests necessarily involve considerations of unfairness, equity, and the substantial merits of the case. X was fairly dismissed.

Comment. The Court of Appeal could hardly have reached a different conclusion in the application of the convention in the private sector, since otherwise there would have been different standards in dismissal by public authorities and private organisations. As the Court of Appeal stated, it is extremely unlikely that parliament intended this to be the case and there is no suggestion that it should be in the relevant legislation. The ruling is not binding, but is persuasive.

Discrimination limits

Those seeking to enforce rights under employment legislation, eg, unfair dismissal, have to take into account the fact that these rights are aimed at those with a contract of service (or employees). However, the reach of discrimination legislation in its various aspects is wider and includes not only employees but also employment under a contract personally to execute any work or labour. However, a recent decision of the Court of Appeal shows that discrimination legislation is by no means all-embracing.

(See Mingeley v Pennock and Ivory t/a Amber Cars [2004] IRLR 373.)

Mr Mingeley, a taxi-driver, was obliged to make a weekly payment to Amber Cars for access to its radio and computer system. The firm allocated calls for taxis to drivers but the days and hours Mr Mingeley worked (if he decided to work at all) were entirely up to him. Amber Cars terminated his contract and he claimed racial discrimination. Amber Cars contended that an employment tribunal had no jurisdiction to hear the complaint because Mr Mingeley's contract was not within the provisions of the Race Relations Act 1976. The case reached the Court of Appeal where it was ruled that there was no jurisdiction. Mr Mingeley had no contract of service nor did he have a contractual obligation 'personally to execute any work or labour'.

Comment. Both in the tribunal and in the Court of Appeal it was doubted whether parliament had intended to exclude arrangements such as those in issue in this case, but it was commented that only new legislation could achieve inclusion.

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