In this issue

Bankruptcy - The Double Whammy
The Housing Grants Construction and
Regeneration Act 1996
Third Party Rights
The Employment Relations Act 1999
Health and Safety

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Editorial

Welcome to the first new style issue of The Orchard.

It is intended to provide all our clients and friends with a flavour of new and pending changes in the law. In their different ways these changes will affect us all.

Your comments on issues raised and on any future topics that might be covered are always welcome.

The next few days will also see the distribution of our new brochure designed to provide the fullest explanation of the services which we provide and of our commitment to provide our clients with the quality service which they are entitled to expect.

We hope you enjoy it.

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BANKRUPTCY

The Double Whammy

Two recent developments in bankruptcy law have affected the rights of bankrupts to retain certain assets. The cases involve pension rights and damages for loss of earnings.

The (by now infamous) 1997 case of Re Landau reversed earlier authorities and held that pension and lump sum benefits under retirement annuity contracts vest in the trustee in bankruptcy. The principle applies also to personal pension schemes. Later cases have extended the Landau principle and cast doubt on pension scheme clauses intended to keep assets from a trustee. In particular the 1999 case of Jones -v- Patel held effectively that Landau could apply equally to occupational pension schemes.

Since Landau there has been a proliferation of imaginative provisions in pension schemes designed to keep assets from a trustee. Uncertainty however has prevailed. The Welfare Reform and Pensions Act 1999 contains provisions excluding approved pension arrangements from a bankrupt's estate but they are unlikely to come into force before April 2001.

In the meantime the Court of Appeal has heard the case of Lesser -v- Lawrence in which the Landau principle has been challenged. Pensions and insolvency lawyers are currently awaiting the judgment in that case which may have a significant effect on the treatment of pensions rights in bankruptcy. For the moment the only advice that can be given to trustees, bankrupts and potential bankrupts alike is to watch this space.

The Court of Appeal's decision earlier this year in the case of Ord -v- Upton came as a surprise to many. It had previously been assumed that where a bankrupt received damages in a personal injury case the trustee would be entitled only to the damages awarded for loss of earnings during the currency of the bankruptcy. Damages attributable to pain and suffering or loss of earnings following discharge were assumed to remain the property of the bankrupt.

The court held that the distinction cannot be made. The trustee is entitled to retain all damages for loss of earnings but holds damages for pain and suffering on trust for the bankrupt.

The decision could cause severe hardship where, in cases of severe injury:

1 the bankrupt is young and the damages are intended to compensate him for a lifetime's inability to work; and/or

2 additional damages are awarded intended to cover expenditure for long term care and medical treatment. Such damages are intended to pay for future treatment enabling the victim to cope better with the effects of the injury.

If the right to receive these damages is lost to a trustee where does this leave the injured bankrupt? In difficulty.

Keith Mahoney

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Housing Grants Construction and Regeneration Act 1996

May Day

May Day is not just a Bank Holiday nor even just a sign of distress. This year sees the second anniversary of the introduction of the Housing Grants Construction and Regeneration Act 1996 which affects construction contracts entered into after 1st May 1998.

Designed to provide a fast method of dispute resolution allowing projects to continue and cash flow to be released it has spawned a number of decisions from the courts designed to give teeth to the new process.

One of the most recent of these deals with the important area of costs. Following a decision in July of last year an adjudicator was empowered through a term implied into the contract to decide that one party pay the other party's costs .

However, in January of this year the position radically changed with a statement in Northern Developments (Cumbria) Limited -v- J&J Nichol that neither the Act nor its Scheme provided an express power to make such a costs order. The judgment made clear also that there was no implied statutory power.

This leaves contracting parties who wish to use adjudication and obviously want to be awarded their costs being unable to rely on an adjudicator having power through an implied term in the contract. They will now have to seek redress by either express or implied agreement between themselves.

For a copy of Meade-King's briefing note on adjudication cases and this latest costs decision please send an e-mail to Philip Burbidge.

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Third party rights

The New Law

Time for another date for your diaries. This May sees the full implementation of the Contracts (Rights of Third Parties) Act 1999.

Given royal assent in November 1999 it has only applied to contracts from that date which have expressly provided for it. However from 11 May this year it applies to all contracts except those specifically excluded.

The Act reforms the age old doctrine of privity of contract which laid down that a contract cannot confer rights on any person except the parties to it.

Amongst other things, under this Act a person who is not a party to the contract may in his own right be able to enforce a term of that contract. Also, he must give consent before that term can be changed or removed.

This right arises if the contract expressly provides that a party can enforce a term or the term purports to confer a benefit on that party. The second limb is subject to the caveat that it will not apply if on a proper construction of the contract the parties to it did not intend the term to be enforced by the third party. That may be difficult to ascertain, especially in long term contracts such as leases where the identity of the parties may have changed.

This spells a considerable change to the fabric of contract law. Will it see the end to such things as collateral warranties?

How far will the Act extend? As the third party must either be expressly identified in the contract by name or as a member of a class or answering a particular description it could cover a number of potential claimants. There is scope for different interpretations, but clearly there is a danger that rights might be acquired by more people than those whom the original contracting parties had in mind. It could be for example that the subdivision of a building for which rights are reserved in the lease of adjoining property might give rights to all the occupiers of that building to be consulted before the lease can be changed or forfeited.

Will parties to a contract want the Act to take effect or will they wish to agree otherwise? Most landlords and other parties who enter into long term contracts will generally seek to exclude the provisions of the Act. As in all such cases, careful drafting is essential.

Whatever the parties' decisions may be this Act looks certain to add a lively new dimension to the world of contract. We will keep you advised!

Peter Watkin

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New Life for an
Old Monster?

The Employment Relations Act 1999 introduces a statutory right for an independent trade union to be recognised as entitled to negotiate with the employer over pay, hours and holidays. The right is subject to detailed regulations which are still in draft form but are intended to be completed by Easter.

The right applies only where the employer has more than 21 workers working in Great Britain (employees working in an associated company count for this purpose).

The intention is that a trade union should only be able to seek recognition if it can show that at least 10% of the workers in the relevant "bargaining unit" are members and that a majority of the workers in that unit are likely to want the union to negotiate for them. If the union can establish this threshold right, it will be entitled to argue its case to the workforce for recognition prior to a ballot.

The idea is that if the majority of workers in a particular bargaining unit want an independent trade union to negotiate for them they are going to be able to insist on it.

The right is only a right to negotiate. The process of negotiation is likely however to have a considerable impact on the way employment relationships are conducted. The draft regulations give guidance about the negotiation process.

The employer who does not treat the negotiating process seriously may find that the workers can lawfully be called out on strike. New rules extending unfair dismissal protection to striking workers could introduce the threat of lawful strikes as a weapon in the industrial bargaining process.

The Act gives protection to workers who are dismissed for union-related activities. It would be unwise for an employer to try to weed out likely union members or employees campaigning for a union.

What should an employer be doing at this stage before the law changes? The regulations are intended as a cultural change i.e. to involve trade unions more in negotiations but an employer need do nothing unless a sufficient number of employees actually joins the trade union and wants it to become involved.

Employees who have not been used to thinking of themselves as trade union members may take some time to do that if they ever do it at all but there are signs already of unions stepping up campaigning activities in particular industries. The best course for employers is probably to be aware of the changes when they become effective (not until Easter at the earliest) and to act with caution.

The political message is that a balance should be struck between Old Labour union power and the Thatcherite union exclusion: but will Thatcher's children want it?

Richard Holmes

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HEALTH AND SAFETY

The Need for Care

The supermarket company Asda has been fined £30,000 and ordered to pay £6,000 costs after being found guilty of Health and Safety contraventions at their Swindon store.

In one of two incidents reported by the prosecuting authority Swindon Council, a nine month old baby suffered head injuries when the harness on his supermarket trolley child seat collapsed. Swindon alleged that the company had failed to ensure that trolley harnesses were inspected properly.

In Health and Safety law, the onus is always on the defendant to satisfy the court that it has done everything reasonably practicable to ensure that there is no risk to customers and others using the store. A failure by management, even at store level, to implement company approved procedures are regarded as a failure by the company.

This was the second problem at the store. In an earlier incident two children had received head injuries when a clothing display stand, apparently repaired for Asda by a third party contractor collapsed on top of them. Asda was criticised by Swindon for failing to check the work of the contractor.

This case underlines yet again the importance for businesses of maintaining an extremely proactive and attentive health and safety policy.

In a separate development, there is to be a judicial review into the decision by the Crown Prosecution Service not to prosecute the employers of Simon Jones, who was killed at work at Shoreham Docks in 1998. The judgment in this case may well indicate new guidelines for prosecution of businesses and their directors where employees suffer serious harm or fatal accidents.

Judith Kelly

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