Legal update

Parliament and Whitehall

Non-party access to court documents: a radical change

The situation concerning non-party access to court documents under rule 5.4 of the Civil Procedure Rules will change from 2 October 2006. At present, a non-party can only obtain from the court file - without permission of the court - the claim form, including the particulars of the claim if written on the claim form (but not otherwise), and judgments or orders made in public.

Under changes to the rules, a non-party will be able to obtain - without the need for permission or disclosure to the parties - any statement of case including particulars of the claim, defence reply and any further information served by a party. Other documents, eg, a copy of a contract or an expert's report, will require the permission of the court.

However, a party to an action or any person identified in a statement of case can apply for an order preventing or restricting disclosure of the statement of case under the new rules, including an order that the statement of case be edited before disclosure. It seems that retrospective disclosure will be allowed, though the Department for Constitutional Affairs is being lobbied about this.

COMMENT. Parties to litigation both past and present may wish to consider an application to the court to prevent or restrict access to their court documents, bearing in mind that court documents are kept for some 10 years after a file has been closed.

Company Law Reform Bill: consolidation clauses and renaming

The government has decided that the Company Law Reform Bill should consolidate companies legislation and should replace, with minor exceptions, the Companies Act 1985. Originally the Bill replaced only certain parts of the 1985 Act. An amendment approved at the committee stage in the Commons accordingly changes the name of the Bill to the Companies Bill 2006, so that on enactment it will be a new Companies Act.

The clauses bringing the remaining provisions of the Companies Act 1985 into the Bill can be accessed on the Department of Trade and Industry website at

When the Bill was in the House of Lords the opposition introduced an amendment which would have enabled members of all listed companies to nominate another person to enjoy member's rights. This would have caused cost and uncertainty problems for such companies and has been replaced by a government amendment which allows shareholders to nominate another person to receive a copy of all communications sent to members.

The government is also proposing a new clause allowing a person who owns more than one share to exercise rights attaching to those shares in different ways. In addition, the rights in the Bill concerning requisitions by shareholders in relation to meetings and reports on polls are to be exercisable by the underlying owners as well as the registered member. These amendments still cause concern in terms of practicality and cost.

Corporate Manslaughter and Corporate Homicide Bill

The Corporate Manslaughter and Corporate Homicide Bill, which makes provision for a new offence of corporate manslaughter (to be called corporate homicide in Scotland), is scheduled for a second reading in the Commons on 10 October 2006.

Under current law a company can only be convicted of corporate manslaughter if there is enough evidence to find a single senior person guilty. This does not reflect the reality of modern corporate life, certainly in larger companies, and to date only small organisations have been convicted, as in R v OLL (Winchester Crown Court) 1994 (unreported). In this case the company and its managing director were found guilty of manslaughter when, while acting as an activity centre, four teenagers died in the Lyme Bay canoe disaster. Significantly, the managing director was also the sole shareholder in a one-man company and it was easy to impute his conduct also to that of the company. He was imprisoned for one year and the company fined.

The new criminal offence addresses this situation by allowing the courts to consider the overall picture of how an organisation's activities were managed by its senior managers, rather than focusing on the actions of one individual. Clause 2 defines a senior manager as an individual who plays a significant role in the making of decisions about how the whole or a substantial part of those activities are managed or organised. Failings at junior management level will not lead to prosecution of the company.

An organisation will be guilty of the new offence where the gross failure of senior management has led to the death of an employee or member of the public. It will include failure to ensure safe working practices for employees and failure to maintain the safety of premises. It will cover the provision of goods and services to members of the public and the construction, use, and maintenance of infrastructure or vehicles when operating commercially.

Crown bodies are included.

Companies found guilty of corporate manslaughter will be subject to an unlimited fine. The court will also be able to impose a remedial order to take specified steps to remedy the breach within a specified period.

The Bill does not include a director's offence carrying with it the possibility of imprisonment, which has been proposed in the past.

Copies of the Bill can be accessed at

More holidays

The Working Time Regulations 1998 give all workers an annual holiday entitlement of four weeks' paid holiday. There are eight annual bank and public holidays in most parts of the UK and currently employers are permitted to include these in the four weeks' annual entitlement. The government is consulting on proposals to increase the statutory paid holiday entitlement from four weeks to 5.6 weeks. This is 28 days' leave for those working the standard five-day week. There would be a cap at 28 days.

The entitlement would first increase to 4.8 weeks (24 days for the standard five-day week) with the remaining entitlement coming into force by October 2009. There would be no right actually to take holiday on a bank or public holiday.

The consultation document, Increasing the Holiday Entitlement - an Initial Consultation, can be accessed at

Responses are required by 22 September 2006.

Consumer credit: unfair relationships

Section 19 of the Consumer Credit Act 2006 (see Accountancy, May 2006, p114) provides that borrowers will be able to challenge credit agreements before a court on the grounds that the relationship between the parties is unfair. This test replaces the present concept of extortionate credit bargains. Enforcement actions will be taken by the Office of Fair Trading.

Other consumer bodies will be able to enforce the provisions under Part 8 of the Enterprise Act 2002 where unfair relationships are harming the collective interests of consumers.

The Office of Fair Trading has issued draft guidance on the new unfair relationship provisions, giving advice to consumer organisations and businesses on how the new powers will be used. The draft guidance, Unfair Relationships, can be accessed through the consultations section of the OFT's website at


Statutory maternity and adoption leave

The government has published the Maternity and Parental Leave etc and the Paternity and Adoption Leave (Amendment) Regulations 2006. These follow on from the changes to statutory maternity leave and statutory adoption leave sanctioned by the Work and Families Act 2006, which received the Royal Assent on 21 June 2006 (see Accountancy, August 2006, p114). The regulations are scheduled to come into force on 1 October 2006.

The amendments to current law have effect in relation to an employee whose expected week of childbirth is on or after 1 April 2007, and an employee whose child is expected to be placed with the employee for adoption by that date, or in cases of overseas adoption, an adopter whose child enters Great Britain on or after the same date. The changes include the following:

•    Regs 5 to 7 remove the additional length of service to qualify for additional maternity (or adoption) leave. An employee who qualifies for ordinary maternity (or adoption) leave (no length of service requirement) will qualify also for additional maternity (or adoption) leave. Currently, the right to AML (or AAL) is available only to an employee who has been employed for at least 26 weeks at the start of the fourteenth week before the expected week of childbirth (or placement).

•    Reg 8 extends the period of notice which an employee is required to give the employer of the intention to return to work earlier than the end of AML from 28 days to eight weeks. If the employee fails to give this notice, the employer can postpone their return for up to eight weeks.

The same extension applies to return from adoption leave (Reg 15). Reg 8 also sets out notice requirements where the employee changes her mind more than once about the intended return date.

•    Reg 9 enables an employee on maternity leave to agree with the employer to work (which includes training) for up to ten days during the maternity leave period without bringing the leave to an end. The regulation also sets out the reasonable contact which employers and employees are entitled to have with each other during the leave period. There are equivalent provisions for adoption leave.

•    Regs 11 and 17 remove the small employers' exemption in order to clarify that the employee has the right to return to the same or similar job, regardless of the size of the organisation. If the employee is prevented from doing so in these circumstances, a dismissal will be automatically unfair. Currently this protection does not apply where the total number of employees employed by the employer (and associated employers) does not exceed five.


Director liable for illegal loan to another director

The court of appeal has considered the interpretation of s341, subsections (2) and (5) of the Companies Act 1985 in regard to liability for loans to a director that contravened s330 of the 1985 Act (general restriction on loans, etc, to directors and connected persons). (See Neville and Another v Krikorian (2006), The Times, July 21.)

The administrator of Unigreg Ltd and the Unigreg Group Ltd asked for a summary judgment against Mr Avo Krikorian and Mr Krikor Krikorian, former directors of the company and group. The claim was in regard to the amounts outstanding to the credit of the company on each director's loan account as contravening s330 of the CA 1985. The judge at first instance gave judgment against both directors for the amounts standing to the credit of the company on their loan accounts. He also held Mr Avo Krikorian jointly and severally liable for the amount standing to the credit of the company on Mr Krikor Krikorian's account. Mr Avo Krikorian contended that the judge should not have made him jointly and severally liable, because he did not have actual knowledge of each individual payment to Krikor at the time it was made.

The court of appeal referred to s341 of the CA 1985. Section 341(2)(b) imposes liability to indemnify the company for any loss or damage resulting from a transaction contravening s330 on any other director who authorised the transaction or arrangement. Section 341(5) states that persons potentially liable under s341(2)(b) shall not be so liable if, at the time of the transaction or when the arrangement was entered into, he or she did not know the relevant circumstances constituting the contravention of s330.

The court of appeal ruled that Mr Avo Krikorian was jointly and severally liable in regard to Mr Krikor Krikorian's account. He had knowingly allowed the loan account practice to continue, under which lending by the company to his co-director was treated as acceptable. He had authorised the individual payments which were made under that practice and was liable, even though he did not have actual knowledge of each payment at the time it was made.


Wrongful dismissal: tribunal cap on damages

Claims for statutory unfair dismissal must be brought before employment tribunals. Contractual claims for wrongful dismissal can also be brought before employment tribunals, but the damages awarded are capped at £25,000, even though the claimant's loss is known to be greater. What is the position where a tribunal hears a case for wrongful dismissal and, while accepting that the claimant's loss is greater, makes an award of £25,000, being governed by its cap? Can the claimant then proceed with a claim in the high court for the balance between the capped award and the actual loss?

The court of appeal dealt with this situation in Roderick Fraser v HLMAD Ltd (2006) 150 Solicitors Journal 809.

F appealed against an order striking out his claim form and dismissing his wrongful dismissal claim in the high court against HLMAD Ltd. F's dismissal was effected by administrative receivers of HLMAD Ltd. F claimed unfair dismissal and wrongful dismissal before a tribunal. In his claim initiating proceedings in the tribunal, he stated that he reserved the right to pursue an action in the high court for damages for wrongful dismissal in excess of £25,000. F later began an action in the high court for wrongful dismissal but did not withdraw the tribunal claim. The tribunal went on to rule in F's favour on the unfair dismissal and the wrongful dismissal claims, capping the damages on the latter claim to £25,000, even though it found that F had suffered a greater loss.

F's claim in the high court was struck out and this was upheld by the court of appeal.

The civil procedure rule of merger applied. The effect of a judgment for the claimant absorbs any claim that was the subject of the action into the judgment, so that the claimant's rights are then confined to enforcing the judgment. The claim for the excess over £25,000 was not a separate cause of action, since this could not be split into two causes of action - one for damage up to £25,000, and another for the balance.

A claimant who expected to recover more than £25,000 for wrongful dismissal should bring that claim in the high court. The merger of the claim into the judgment of the tribunal was not prevented by the express statement made in the tribunal claim form that F reserved his right to bring high court proceedings for the excess of £25,000.

Unfair dismissal: warnings

In a recent case the Scottish court of session has ruled that as a matter of principle, an employer is not entitled to rely on a time-expired warning as a determining factor in reaching a decision to dismiss for misconduct.

See Dionsynth Ltd v Thomson [2006] IRLR 284.

Mr Thomson was employed in a chemical factory. He knew that failure to comply with important health and safety rules could cause serious injury and could potentially, at least, be regarded as gross misconduct. In July 2000 he did not comply with a basic health and safety measure. This resulted in a chemical spillage but no injuries were caused. He received a written warning which stated it would last for 12 months.

In November 2001, and after the warning had expired, there was an explosion which killed a colleague and Mr Thomson was again found to have ignored the same health and safety measure. Seventeen other employees were also found to have ignored it, but they were not dismissed. Mr Thomson was dismissed on the ground that the employer thought he was incapable of following clear safety instructions, even though they had been brought to his attention as part of a previous disciplinary procedure.

The court of session ruled that Mr Thomson had been unfairly dismissed because the employer had acted unreasonably in relying on an expired disciplinary warning. The court rejected the contention that the fact that a warning had expired was only one factor to be taken into account in deciding whether it had been reasonable to dismiss. It ruled that an expired warning cannot be a factor in deciding upon a disciplinary sanction. The case was remitted to the employment tribunal for consideration of remedies.

COMMENT. A solution might be to extend the warning in situations where there is still doubt about the conduct of an employee in relation to the original reason for the warning.

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