Legal update

Parliament and Whitehall

Royal Assent received

The Mental Capacity Act 2005 (see Accountancy, March 2005, p120) has received Royal Assent. Of particular interest are provisions for:

•    lasting powers of attorney for persons to appoint an attorney of their choosing to act on their behalf if they lose capacity in the future. The new powers include welfare, healthcare, and financial matters;

•    a person who has capacity to make an advance decision to refuse treatment - known as a living will.

Royal Assent has also been given to the Disability Discrimination Act 2005 (See Accountancy, February 2005, p112). People suffering from HIV infection, multiple sclerosis and cancer are now covered by the Act's definition of disability from the point of diagnosis and not, as before, only when the relevant condition had resulted in physical or mental impairment.

In addition, those who publish discriminatory advertisements, such as newspapers, will suffer sanction unless the person placing the advertisement gave assurances that it was not discriminatory and it was reasonable for the publisher to rely on the assurances.

Neither the Consumer Credit Bill (see Accountancy, February 2005, p112) nor the Equality Bill (see Accountancy, April 2005, p120) were enacted before the dissolution of Parliament prior to the general election.

National minimum wage increased

Rises in the national minimum wage have been announced:

•    The adult minimum wage will rise from £4.85 per hour to £5.05 per hour in October 2005 and to £5.35 per hour in 2006. The latter rise will be reviewed against prevailing economic conditions before implementation.

•    The rate for 18 to 21-year-olds increases from £4.10 to £4.25 in October 2005 and to £4.45 in 2006.

•    The rate for 16 to 17-year-olds is held at £3.00 per hour in 2005 and will be reviewed in 2006.

Sexual orientation regulations: amendment

For many years it has been unlawful for a current or prospective employer to discriminate against persons on the grounds of their marital status.

Now the Department of Trade and Industry has consulted on a proposed amendment to the Employment Equality (Sexual Orientation) Regulations 2003 as a result of the enactment of the Civil Partnership Act 2004. The amendment makes it clear that the status of a civil partner is comparable to that of a spouse. A person who is in a civil partnership and who is treated less well than a married person would be eligible to bring a claim for sexual orientation discrimination under the 2003 regulations.

The revisions to the regulations are expected to take effect on 5 December 2005, the date when the Civil Partnership Act 2004 comes into force.

Statutory Instruments

Insolvency regulations amended

The Insolvency (Amendment) Regulations 2005 (SI 2005/512), now in force, insert new regulations into the Insolvency Regulations 1994 (SI 1994/2507). They establish when the Secretary of State can require information from an administrator and the circumstances in which an administrator can dispose of company records.

Charities: accounts and reports

The Charities (Accounts and Reports) Regulations 2005 (SI 2005/572) concern charities in England and Wales and address their accounts, financial years, requirements relating to audit or examination of charity accounts, and the annual reports of charity trustees. They do not apply to exempt charities and only the provisions relating to annual reports apply to charitable companies. They replace previous relevant regulations, ie, SI 1995/2724 and SI 2000/2868.

The new 2005 regulations apply in the case of financial years which begin on or after 1 April 2005, although trustees can apply them earlier.

Social security rates rise

The Social Security Benefits Up-rating Order 2005 (SI 2005/522) increases the statutory sick pay standard rate from £66.15 to £68.20 from 1 April 2005. It also increases the following maternity benefits to £106.00 (from £102.80): standard rate maternity allowance, standard rate statutory maternity pay, standard rate statutory adoption pay and standard rate statutory paternity pay.

Statutory maternity pay: increases in pay included

The Statutory Maternity Pay (General) (Amendment) Regulations 2005 (SI 2005/729) came into force on 6 April 2005. They amend the Statutory Maternity Pay (General) Regulations 1986 (SI 1986/1960).

A woman's pay for the first six weeks of maternity leave is 90% of her full pay. The calculation period is an eight-week time span up to and including the 15th week before the expected date of childbirth (the relevant period). Pay rises after that date have been ignored. However, the European Court of Justice in Alabaster v Woolwich plc (C-147/02) ruled on 30 March 2004 that to ignore such pay rises was a breach of the claimant's right to equal pay and discriminatory. (See Accountancy, June 2004, p112.)

The 2005 regulations now provide that where a woman is awarded a pay increase (or would have been had she not been absent on statutory maternity leave) and that pay increase applies to the whole or any part of the period between the beginning of the relevant period and the end of her period of statutory maternity leave, then her normal weekly earnings for the purposes of statutory maternity pay should be calculated as if such an increase had applied in each week of the relevant period. Both ordinary and additional maternity leave are included. The Department of Work and Pensions has provided guidance for employers, for whom the new rules will increase costs.

Comment. The 2005 regulations are not retrospective. Although in a judgment on 3 May 2005 the Court of Appeal applied the ECJ's ruling in English law as well as European law, the matter of backdating claims is still not clear as regards case law. A further test case may have to be brought.

Case Notes

Directors' personal liability on cheques

Section 349 of the Companies Act 1985 provides that a director or other officer of a company who signs a cheque on which the company's name is not properly stated is liable personally to pay the amount of the cheque to the holder of the cheque, unless 'it is duly paid by the company'.

Does this mean that, before personal liability can arise, a cheque which infringes the provisions of s349 must be presented to a bank for payment (which is then refused)? The matter came before the High Court in Fiorentino Comm Guiseppe Srl v Farnesi and Another [2005] All ER (D) 176.

The claim was made against two former directors of Portofino Collections (London) Limited (PFC) in relation to three cheques drawn on PFC. The directors had signed the cheques but the word 'Limited' or the permitted abbreviation 'Ltd' did not appear. The first cheque was presented for payment but payment was refused. Therefore, it had not been 'duly paid' by PFC. However, the other two cheques were not presented for payment.

The Bills of Exchange Act 1882 in s45 states, in effect, that a cheque must be presented for payment; if it is not presented, the person drawing the cheque is discharged. However, under s46 of the 1882 Act, presentation for payment is excused in a situation where the person who drew the cheque had no reason to believe it would be paid when presented. Evidence showed that PFC had no reason to suppose the cheques would be met. Consequently, presentment by Fiorentino was excused and the right of recourse against the PFC directors was upheld.

Confidentiality and dog chews

The House of Lords has ruled on the consequences to a bank of a breach of its duty of confidentiality. Although the argument concerned dog chews, the legal issues were important and costly to the bank. (See Jackson v Royal Bank of Scotland [2005] All ER (D) 280.)

The claimant was a business partnership (Samson) which imported dog chews from Thailand and sold them to UK customers. The main UK customer was Economy Bag, which sold the chews on to wholesale and retail customers.

The defendant was co-incidentally banker to both Samson and Economy Bag.

Business between the two companies was done by the issue of transferable letters of credit to Economy Bag by the bank. Samson charged a variable mark-up, which was not disclosed to Economy Bag. However, Economy Bag knew the identity of the Thai supplier and its contact details; it could have ascertained the mark-up, but did not. The bank made a mistake, sending a supplier's invoice to Economy Bag instead of to Samson, so revealing the amount of the mark-up. Economy Bag ended its relationship with Samson and sourced the product from Thailand. Samson was thus deprived of its main source of income and had to cease trading.

Samson claimed against the bank for damages for loss of opportunity to earn future profits. This involved an interpretation of the ruling in Hadley v Baxendale (1845) 9 Exch 341, a vintage but leading case on remoteness of damage in a breach of contract situation. (Breach of confidentiality by a bank is such a breach.) After a difference of opinion between the High Court and the Court of Appeal, the House of Lords ruled in support of the High Court judge's estimate of the loss that could be regarded as within the reasonable contemplation of the bank, ie, damages for a loss of repeat business calculated on a reducing basis for a four-year period after the contract was terminated.

Comment. Although Economy Bag could have found out what the mark-up was, Lord Hope said this was 'beside the point'. However, the House of Lords suggested the bank could have tried to limit its liability for damages caused by a breach of contract by a clause in the contract itself. There is clearly merit in considering such a clause in transactions of this kind. Failure to limit liability in contract cases may expose a party to open-ended liability.

Employment Law

Stress claims take a new turn

Claims by employees for damages for injury caused by stress at work have traditionally been framed in negligence. This involves, among other things, the establishment of foresight in the employer and requires claims for personal injury to be brought within three years. The Court of Appeal has, however, ruled that claims for damages for bullying, intimidation, and harassment can be brought against an employer under the Protection from Harassment Act 1997. Claims under this legislation can be brought for up to six years and there is no requirement of foreseeability by the employer of the damage suffered by the employee. (See Majrowski v Guy's and St Thomas's NHS Trust [2005] EWCA Civ 251.)

The claimant alleged that while at work he was bullied, intimidated and harassed by his departmental manager over a period of time. This consisted of excessive criticism, ostracism, abusive conduct and the setting of unreasonable work targets. The claimant's lawyers were concerned about the problem of employer foreseeability and to some extent the three-year limitation period in the circumstances of the case. They turned, therefore, to the Protection from Harassment Act 1997, bringing a claim against the employer as vicariously liable for the manager's breach of that Act. There were no proceedings against the manager. The Court of Appeal ruled that the 1997 Act could apply in employment law and that an employer can be vicariously liable for the acts of employees, provided they have a work connection, which they clearly had here, and that it was just and reasonable to impose liability on the employer. This will be a matter for the court in the circumstances of the case. Therefore, it will be difficult to give legal advice as to potential liability.

Comment. It would also seem that, in these 1997 Act cases, the employee will not need to show that he or she has followed the employer's grievance procedures; this seems to give the employer less chance of dealing with the problem. Claims under the 1997 Act, which was originally brought in to deal with 'stalking', require a course of conduct. They cannot be brought, for example, in relation to harassment that occurs on essentially one occasion.

Religious discrimination against Christian

An employment tribunal has ruled that where an employer changed a Christian employee's hours of work so that she had to work on Sundays, there was indirect religious discrimination under the Equality (Religion or Belief) Regulations 2003. The employer was on notice that the employee could not work on Sunday as she was a practising Christian. (See Williams-Drabble v Pathway Care Solutions Ltd [2005] IDA Brief 776.)

Ms Williams-Drabble (WD) was employed at a residential care home run by Pathway. WD informed Pathway that she could not work on Sundays for religious reasons. At first she worked a rota that allowed her to attend Sunday service. Later, her rota was altered so that she could not. She was told that if she did not want to work on Sundays she would have to try to swap shifts with another employee; if that failed, she would have to do Sunday work or resign. She did resign and brought a claim for direct and indirect discrimination under the 2003 Regulations. The company did not respond by entering a Notice of Appearance and did not attend the tribunal hearing.

The tribunal found indirect discrimination against WD. Although the rota practice of the employer applied equally to all staff, practicing Christians were at a particular disadvantage. Further, the employer was not able to justify the rota change as being a proportionate means of achieving a legitimate aim, as the regulations require for a defence. The tribunal ruled also that the regulations extended to constructive dismissal in a case such as this where the employer's conduct had entitled the employee to terminate the contract by resignation. The regulations also provide that compensation cannot in general be awarded if the discriminatory practice was applied by the employer without an intention to treat the claimant unfavourably.

The hearing was adjourned on the issue of remedies and an order made to require a director of Pathway to attend as a witness so that the matter of intention and compensation could be considered.

Compensatory awards and mitigation: a conflict

The Employment Appeal Tribunal has made a ruling concerning mitigation of loss in compensatory awards that leaves the correct approach in some doubt. (See Morgans v Alpha Plus Security Ltd (2005) 757 IRLB 9.)

Mr Morgans was employed by Alpha Plus, but was dismissed in February 2003. A tribunal later found the dismissal to be unfair. Between February 2003 and September 2003 Mr Morgans received incapacity benefit, being certified by his GP as unfit for work and suffering psychological difficulties due to his loss of employment. Mr Morgans began looking for work in September 2003 and had received a job offer by January 2004.

The tribunal awarded Mr Morgans £14,000 in compensation. It ruled that he was entitled to compensation for loss of earnings from February 2003 to January 2004, but reduced the award by the total amount of incapacity benefit he had received. Although this benefit does not come within the provisions of the Employment Protection (Recoupment of Jobseekers' Allowance and Income Support) Regulations 1996, the tribunal took the view that it was just and equitable to make the deduction - otherwise Mr Morgans would be better off than if he had remained at work. Mr Morgans appealed to the Employment Appeals Tribunal, which agreed with the tribunal and dismissed his appeal.

Comment. In the past, tribunals have tended to deduct only half of the amount of non-recoupable incapacity benefit. However, the matter of mitigation is confused. In Hardy v Polk (Leeds) Ltd [2004] ICR 420 the EAT (under Mr Justice Burton as President) ruled that deduction should be made under the normal principles of mitigation. This went against established practice that, in making an award for unfair dismissal, a tribunal should not deduct any earnings received by the dismissed employee during the notice period. Later, a different EAT under Judge McMullen (see Voith Turbo Ltd v Stowe (2005) 757 IRLB 7) decided not to follow Hardy in a case where the claimant had actually received three months' pay in lieu of notice. Now, as the Morgans case shows, the EAT (incidentally under Mr Justice Burton) has refuted the criticisms of Hardy and reaffirmed it. There is a need for the Court of Appeal to resolve the issue. It is not a trite point since notice periods these days can be quite long.

Edited by Denis Keenan FCIS barrister.

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