In-House Lawyers Update - September 2011

Employment

Summary dismissal outweighs dismissal with notice
The Employment Appeals Tribunal ("EAT") has held that the effective date of termination ("EDT") for an employee who was summarily dismissed whilst working her notice period was the date of the summary dismissal.

The employee was dismissed with notice, which was due to expire on 1 February 2011, and subsequently brought a claim for unfair dismissal. She was then summarily dismissed on 21 January 2011. The employment tribunal held that the EDT was not brought forward by the summary dismissal, meaning that the employees' EDT was 1st February 2011 and she therefore had the required one year's continuous employment to bring a claim of unfair dismissal.

The EAT overruled the tribunal and held that the employees' EDT was in fact the date of the summary dismissal: 21 January 2011. The EAT held that there was no basis for freezing the EDT at the point in time that the employee issued her claim. The EAT's findings meant that the employee did not have the necessary one year's service to bring a claim of ordinary unfair dismissal at the time of her EDT. The EAT has remitted the case to the tribunal to decide whether she has a claim for automatic unfair dismissal for asserting a statutory right, for which no period of continuous employment is needed.

This case shows that an employer does not deprive itself of the right to summarily dismiss an employee when it gives notice to an employee. However, an employer does risk a claim for automatic unfair dismissal if it dismisses an employee for making a claim to the tribunal.


Commercial

Directors: fiduciary duties (Court of Appeal)
In Towers v Premier Waste Management Ltd [2011] EWCA Civ 923 directors are reminded to avoid situations which may give rise to a conflict between personal duties and duties to the company. In addition this case serves as a useful reminder that the Companies Act 2006 will be considered in pre-2006 cases.

Mr Towers, a former director of a waste disposal and treatment company, accepted a free, undisclosed and unapproved loan of equipment from a customer of the company. The company claimed that he was liable to account to it for the profit received by him. Despite the submission from the Defendant that the loan was a private arrangement between friends, was insignificant and commonplace, the court held that the strict loyalty and no conflict duties were breached. 

The Court of Appeal's decision is a reminder to company directors of how seriously courts view a breach of fiduciary duties, even where the amounts involved are relatively small and where the company has suffered no loss.

Litigation

Costs - who is the "winning" party?
In Medway Primary Care Trust and another v Marcus  [2011] EWCA Civ 750 the Court of Appeal was given the opportunity to consider which party should be viewed as the winning party for the purpose of determining costs. 

Quantum for the medical negligence claim was agreed at £525,000, but the issue of causation was disputed.  Neither party had made any offer of settlement. The trial judge preferred the Defendants' expert evidence and the Claimant's case therefore failed on the issue of causation. The Claimant was, however, awarded damages of £2,000 in relation to pain, suffering and loss of amenity. At trial, the Defendants were ordered to pay 50% of the Claimant's costs, which totalled £236,000. The Defendants appealed the cost order.

On appeal, the Court held that the issue of causation, which had been the crucial element of the action, had been decided in the Defendant's favour. The majority (Jackson LJ dissenting) did not accept that the Defendants should have protected their costs position by making a Part 36 offer, as they would have incurred disproportionate costs. They could, however, have made a Calderbank offer and this was taken into account when the decision was made to award the Defendants 75% of their costs.  

Property

Failure of seller to update replies to enquiries allowed buyer to rescind contract
In Cleaver and another v Schyde Investments Ltd [2011] EWCA Civ 929 the Court of Appeal upheld a decision that an innocent misrepresentation by the seller of development land entitled the buyer to rescind the contract.

The seller had already submitted replies to enquiries from the buyer when a third party put in a planning application that was material to the buyer's development plans. Following the seller's failure to update its replies, the buyer only became aware of the planning application after exchange of contracts, and successfully applied to the County Court for the contract to be rescinded.

The Court of Appeal was sympathetic to the seller's argument that Condition 7.1.3 of the Standard Conditions of Sale (Fourth Edition) did not allow rescission of the contract in the case of such an innocent misrepresentation. However, in the absence of an obvious mistake, it declined to interfere in the County Court's view that Condition 7.1.3 did not satisfy the legal test of being fair and reasonable in all the circumstances.

Focus On… Insolvency

Clarification on de facto directors
In the event a company becomes insolvent, the directors of that company can be held personally liable for claims such as wrongful trading, misfeasance or breach of fiduciary duties. However, it is not only a properly appointed director whose appointment is recorded at Companies House (known as a de jure director) who may be held liable. A director in fact (known as a de facto director), whether or not properly appointed and recorded at Companies House, may also be held liable. If an individual undertakes similar tasks and responsibilities as the appointed directors, participates in company decision making and, for all intents and purposes, acts as a director of the company then they are likely to be held a de facto director.

The potential liability of a de facto director falls wider than the claims brought by a liquidator, official receiver or creditor. De facto directors have the same fiduciary obligations towards the company. This includes the duty to avoid conflicts of interest, declare an interest in the company business and to use reasonable skill and care. More recently, the Court of Appeal has also held that a de facto director can be held jointly and severally liable to repay director loans.

In cases such as Holland v Revenue & Customs [2010] UKSC 51 the Supreme Court has deliberated the factors to be considered when evaluating when someone is considered to be a de facto director. Where it is unclear whether the acts are referable to an assumed directorship or some other capacity, then the director is entitled to the benefit of the doubt. However, where the evidence as a whole indicates that an individual assumed the powers and responsibilities of a director, even if he does not hold himself out to be a director, that person is likely to be held to be a de facto director.

The recent increase in challenges made against both de jure and de facto directors means that it has never been more important for an individual to consider their position within and potential liabilities towards the company. 

Ashfords LLP is regulated by the Solicitors Regulation Authority. The information in this note is intended to be general information about English law only and not comprehensive. It is not to be relied on as legal advice nor as an alternative to taking professional advice relating to specific circumstances.