Christmas 2006

In this issueShareholding made easy?Dreaming of a REIT Christmas... or a Christmas NightmareBecoming age awareI didn't mean it…Enduring Powers of Attorney - why you should act now!E-mail

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Shareholding made easy?

The Companies Act 2006 received royal assent on 8 November 2006. However, this long awaited legislation is still not due for implementation until a further round of consultation during the early part of 2007. It is quite likely that full implementation will be left until 2008. The old rules will still apply until then. The only change likely to take effect in January 2007 concerns shareholder resolutions.

While written resolutions are currently permitted, they are only valid if passed unanimously. Majority decisions can only be passed at meetings.

Under the new Act private companies will be able to pass written resolutions by a majority decision (a simply majority for ordinary resolutions and 75% for special resolutions). This relaxation does not apply to plc's.

Although still referred to as written resolutions, the resolution will no longer need to be printed out in hard copy, as it will be possible to circulate resolutions by email or by posting them to a website. The resolution will be passed when a sufficient number of shareholders have responded. It will not be necessary to wait until all the responses have been received.

There will be an automatic 28 day limit for signifying consent which can be extended (or shortened) at the time notice is given but if the relevant consent is not received before that deadline the resolution would have to be proposed again by a fresh notice if the directors still wish to proceed on that basis.

There are always difficulties with proving receipt of electronic notifications and it is significant that the Act will allow a resolution to be passed if a sufficient majority of the shareholders have voted in favour or signified their consent even though other shareholders who might have dissented did not receive notice. It will therefore become far more difficult to challenge resolutions because of procedural irregularities. This will no doubt be welcomed by the controllers of private companies.

Under the new Act it will be possible for shareholders with as few as 5% of the shares in a company to propose a written resolution to the members using this mechanism.

Most private companies will welcome these reforms which will mean that they will in future rarely, if ever, have to hold shareholder meetings.

For further information on this article contact James Hawkins on or (0117) 926 4121.

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Dreaming of a REIT Christmas

As we move into the New Year, the UK property market continues to thrive, with a wealth of investment opportunities ranging from small buy-to-let ventures to larger commercial property acquisitions.

In recognition of this trend the government will introduce Real Estate Investment Trusts (REITs) in January 2007. The objective is to enable people with more modest investment capital access to the commercial property market.

REITs will benefit from tax exemptions on profits from property letting and will also be exempt from charges to CGT. However, only companies that are listed on the UK stock exchange can convert to REITs. Small to medium sized businesses with large property portfolios hoping to benefit from these tax exemptions will be disappointed.

However, for the small investor the REIT will offer a flexible and tax efficient alternative. Individuals will be able to invest in managed portfolios rather than buying property direct, thereby avoiding tying up large sums in property that may prove difficult and expensive to offload. Distributions paid out to investors will be taxed as though they were rental income with 22% being deducted at source. Those holding REIT shares in ISAs will still enjoy the usual income tax exemption.

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... or a Christmas Nightmare

The recent case of Northstar Land Limited v (1) Maitland Books (2) Jacqueline Brooks [2006] EWCA Civ 756 raises some interesting points on failure to complete a property transaction.

In 1985 the Brooks purchased a bungalow from a trustee company. The property was sold subject to an option to repurchase should there be a possibility of developing the adjoining playing fields.

In 1997 Northstar bought the playing fields and took an assignment of the option to repurchase. In 2000 it became likely that planning permission would be granted to build residential property on the playing fields, so Northstar decided to exercise the option.

The option provided for the price to be set by an independent valuer, but the Brooks were dismayed by the figure provided. Northstar decided to make a higher offer, which was accepted. However, the parties could not agree on the precise terms of the contract. As a result, in 2003 Northstar enforced the terms of the option and gave sixty days for completion.

Sixty days later, nothing had happened. On 16 December 2003 Northstar served Notice to Complete within 10 working days. The Brooks mistakenly understood this to mean that they would have to leave the house on Boxing Day. In fact, the date for completion was 2 January 2004.

The Brooks decided to go to the local papers with their Christmas eviction shocker. Strangely enough, Northstar decided to offer to extend the completion date to 9 January. Their solicitors therefore sent a fax to the solicitors for the Brooks but, it being Christmas, they had already left the building.

On 2 January the Brooks' solicitor Mr Drew, expecting to have to complete, emailed Northstar's solicitors from home and then went into work, whereupon he telephoned them but was told that neither person dealing with the matter was in the office.

When his call was returned he was told about the fax sent before Christmas and was asked to agree to the extended completion. At this point Mr Drew began to suspect that Northstar were in no position to complete and, as his clients did not want to sell in the first place, he said he would have to take his client's instructions and would get back to them. In fact he never intended to call back and was under no obligation to do so.

Mr Drew did not call back. Northstar's solicitors did not chase him. Instead, they mistakenly took this to mean the extension was agreed. On 8 January Mr Drew wrote to Northstar's solicitors rescinding the contract for their failure to complete on 2 January.

Northstar issued proceedings to try to force the Brooks to complete the sale. They said the Brooks were estopped from backing out of the contract because Mr Drew had not indicated that his clients did not agree to the extension. The trial judge disagreed. The Brooks were entitled to rescind.

Northstar appealed the decision but failed. Mr Drew had not said or done anything to indicate agreement. Northstar's solicitors had already convinced themselves that the extension was agreed and that is why they did nothing to prepare for completion.

In his original judgment, His Honour Judge Toulmin stated

"If [Northstar's solicitors] had been prudent, their client account would have been put in funds before 22 December 2003 in order that they would have been in a position to complete very quickly had this been required.

The fact that the requisition [on title] and completion forms had not been sent and the money for the purchase had not been put in their clients' account is indicative of [Northstar's solicitors] and their client's lack of forward planning..."

The lesson is clear. If you are going to serve Notice to Complete be sure that you will be ready to complete yourself.

Please contact Edward Langford on or (0117) 926 4121 if you wish to discuss this article.

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Becoming age aware

The well publicised Employment Equality (Age) Regulations 2006 that came into force this year have attracted much controversy. Employers certainly need to be age aware.

The Regulations apply to the decisions affecting

• all employees
• applicant employees
• contract workers
• the self-employed; and
• most company office holders in connection with recruitment, training, promotion, pay and benefits, redundancy, dismissal and retirement. Any unjustified decision in the context of employment and vocational training based on age is unlawful. The law applies to those aged 16 or over. There is no upper age limit

Frequently employers have offered different packages to old and younger workers. This is no longer permitted. Particularly tricky areas and not just because of the financial implications include:

• Benefits based on length of service e.g. pay schemes, holiday entitlements, share options, health insurance schemes
• Rewarding experience as this coincides with length of service
• Redundancy procedures and selection, particularly 'first in last out'
• Vocational training

The general exemptions under the Regulations are:

• statutory authority
• national security
• positive action
• retirement
• the national minimum wage
• the provision of certain benefits based on length of service
• provision of enhanced redundancy payments to employees
• provision of life assurance cover to retired workers

These mainly assist the government and the exceptions available to the employer are limited.

'Objective justification' is the key for employers. To show 'objective justification' the employer must be pursuing a 'legitimate aim'. The means of pursuing this aim should be proportionate and the business benefit must be sufficient to outweigh the discriminatory affect. Always the least discriminatory way must be chosen. Financial considerations alone will never be sufficient justification for an exemption.

Employer groups have criticised the Regulations as confusing and unnecessarily restrictive. Research suggests that businesses are not prepared for the changes that have come about.

Businesses will need to review their policies and practices to ensure that they comply with the principles of the Age Regulations. Here are some tips to employers to conduct an age aware health check on the business practices:

• Analyse the business' age profile and diversity data.
• Review recruitment procedures, checking both the language used and location of job advertisements, for example, advertising only in trade articles associated with young readers and using language such as "young and dynamic".
• Remove the request for D.O.B from application forms, this information can be recorded on the diversity questionnaire instead.
• Consider instead the nature of the role, particular duties, the context in which it is carried out and the actual skills and experience required, this should form the basis of justification and if there are any 'genuine occupational requirements'.
• Check the language and images used in business' adverts, promotional materials and brochures.
• Review contracts, handbooks, policies and procedure for potential complaints of discrimination.
• Investigate whether your managers and workers are aware of what behaviour could be perceived as discriminatory.
• Provide training where necessary to implement the plan and anti age discrimination policy.

And always remember: the burden of proof in age discrimination cases is on the employer.

For further information on this article, please contact Nicola Hughes at or on (0117) 926 4121

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I didn't mean it…

Many contractual disputes arise because the parties have differing interpretations of what is (and what is not) included in the contract. Much of the case law involves the construction industry but the principles involved have wider application.

The general rule Where there is a written contract setting out all the material terms agreed between the parties, that document constitutes the contract. Neither party can subsequently argue that the parties actually agreed something completely different¹. For example, say Builder A agrees to build a house for Customer B. During pre-contract negotiations, Customer B says that he wants to pay the contract price only once the house is built. Builder A sends him a standard form written contract for signature which contains all the material terms. The written contract provides for stage payments. Customer B refuses to pay until the house is complete. Builder A sues. Who wins? Builder A. Customer B is contractually bound to make stage payments.

What if the contract is silent on an important issue? A few months later and full of the spirit of Christmas, Builder A and Customer B amicably resolve their earlier dispute and Customer B decides to engage Builder A again to build a holiday home in Scotland. This time Builder A uses a RIBA standard form contract. The contract is silent on whether English law or Scottish law will govern the contract. Customer B is not happy with the work and refers the matter to a Scottish arbitrator. Builder A disputes the referral arguing that the contract is governed by English law. What happened next?²

This situation is similar to the facts of Miller, a landmark case decided in the House of Lords³. Customer B argued that, as the build took place in Scotland and the workers were Scottish, the contract must be governed by Scottish law. The court disagreed. What occurred after the contract was signed was irrelevant. Only the surrounding circumstances at the time the contract was entered into were to be taken into account. As an English standard form of contract was used, the court decided it must have been the parties' intention that English law would govern the contract. So Customer B was wrong to refer the matter to a Scottish arbitrator.

What if the contract is partly in writing and partly oral? After making a New Year's resolution not to jump the gun without first taking advice from his solicitors, Customer B sees the error of his ways and decides to engage Builder A to refurbish his townhouse⁴. Builder A submits a written estimate to Customer B. After some negotiation Builder A submits a revised estimate which refers to omissions 'as discussed' but does not include a definitive list of works included in the contract price. The estimate is orally accepted by Customer B.

During the course of the works, Customer B instructs Builder A to carry out some additional work. No estimates are provided for the extras. Builder A submits three interim accounts during the job and these are paid. Builder A also supplies a priced list of extras to Customer B. At completion Builder A submits a final invoice and attaches a list of extras and omissions. Customer B disputes the bill on the basis that it was agreed that the extras were already included in the original contract price. Builder A sues for payment.

These were substantially the facts that the Court of Appeal has recently had to consider⁵.

The trial Judge had to decide whether the contract price included those extras or not. In doing so, he decided to ignore the lists of extras attached to the invoices. His reasoning was that as the lists were produced after the contract was entered into, they could not aid interpretation of the contract - i.e. he followed the general rule that anything subsequent to the date of the contract cannot vary its terms.

The Judge's decision was overturned. The Court of Appeal decided that although the case of Miller was correct in that subsequent conduct cannot be used to interpret a written contract, where a contract is partly oral and partly written, subsequent conduct can be considered to help decide what the parties' intentions were at the time of entering into the oral part of the contract.

Determining the terms of an oral contract is a question of fact. Establishing fact depends on the recollections of witnesses. The accuracy of those recollections can be tested by things said and done by the parties after the contract has been concluded. In this case the parties' recollections of what was included in the contract were very different. By excluding the lists of extras the trial Judge had ignored a good guide to what the builder considered at the material time were the terms agreed between the parties.

This case shows that if you enter into a contract on an oral or partly oral basis, your subsequent conduct could well come under scrutiny at a later date if the court has to interpret the terms of the contract. As always, a properly drafted contract which includes all the agreed terms provides certainty for both parties and can save a lot of time later on should a dispute arise.

For more information please contact Adam Chivers (commercial contracts) or Phil Burbidge (construction law) or on (0117) 926 4121

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(1) Unless one party is able to prove that the written contract is clearly wrong. However, rectifi cation is diffi cult and will generally require a claimant to show mutual mistake
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(2) As they say in a well known television quiz
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(3) James Miller and Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] All ER 796
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(4) A triumph of hope over experience
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(5) In Brian Royle Maggs (t/a BM Builders) v (1) Guy Anthony Stayner Marsh (2) Marsh Jewellery Co Ltd [2006] EWCA Civ 1058
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Enduring Powers of Attorney - why you should act now!

Have you or your family made an Enduring Power of Attorney (EPA) to safeguard the dealings of your financial property and affairs in the case of mental incapacity? No. Well, the law is set to change from 2 April 2007 with the introduction of Lasting Powers of Attorney following the enactment of the Mental Capacity Act 2005.

The existing EPA has been widely used since 1986. It allows a donor to appoint an attorney to act on his/her behalf in respect of his¹ financial property and affairs. The attorney can be a family member, a friend or a professional.

The EPA can be made without restrictions so that the donor can agree to the attorney acting upon his behalf whilst he still has mental capacity e.g. if the donor has to be in hospital. The document can also be restricted so that e.g. it

• only takes effect on the onset of mental incapacity and/or
• authorises the attorney to act in respect of specified investments/transactions but not all financial property

If the donor began to lose or has lost mental capacity then the attorney has to formally register the document with the Court of Protection on a prescribed form (with a fee of £120), before he can commence or continue acting.

When registering an EPA, the attorney has to serve a notice of intention to register the EPA on close members of the donor's family. The attorney cannot select the relatives to be notified. There is a prescribed list of persons to be served. Persons served can object to the registration of the document e.g. because of fraud or undue pressure or because the donor has not lost mental capacity. The donor also has to be personally served with the same form of notice.

So what is going to change?

The EPA is to be replaced by a new Lasting Power of Attorney (LPA), which will come in two forms:

One deals with the personal health and welfare of a donor. This LPA can only be used when a donor has lost mental capacity. The attorney can make decisions about where the donor should live, day-to-day care provisions, refusing consent to medical examination or treatment and requesting assessment for community care services

The second deals with the financial property and affairs of the donor. This LPA is similar to the current EPA. It can be used to deal with the property and affairs of the donor even if he still has the mental capacity to make decisions personally and will continue to have effect when the donor no longer has mental capacity. Alternatively the donor can specify that the LPA can only be used after he lacks capacity

The LPA must include a certificate by an independent third party to confirm that, in his opinion, the donor understands the purpose and effect of the LPA and that neither fraud nor undue pressure has been used to persuade the donor to make the LPA.

Both forms of LPA will only be valid once the power has been registered with the new Office of the Public Guardian. The procedures for the new LPA are likely to be more onerous, complicated and expensive to set up. Specifically

1. There is currently no legislative provision to allow the attorney to act pending registrations, unlike the current EPA system
2. There will probably be a single fee for handling and registering each LPA - likely to exceed the current EPA registration fee
3. As the new LPA will need to be registered before it can be used (whether or not the donor lacks mental capacity) it is a concern that institutions will be in the dark as to whether the LPA is being used by an attorney for a mentally incapacitated customer or not. This may make life difficult for banks² which may seek an indemnity from attorney (i.e. a declaration signed by the attorney when an account is opened that indemnifies the bank against his misuse of the account)

As part of the consultation process the Department of Constitutional Affairs produced draft Codes of Practice containing guidance and information for those working with or caring for those who cannot make decisions for themselves, or who have a limited capacity to do so without assistance. It sets out good practice in caring for those in need and covers an extensive range of different roles, circumstances and decisions that might need to be taken. The Codes of Practice are not yet agreed.

We would encourage clients to make EPA's before the April 2007 deadline in order to avoid the more complex/costly procedures. An EPA, which is set up before April 2007, will remain valid after that date.

For further information on this article, please contact Anna Molter at or on (0117) 926 4121

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(1) For convenience/shorthand the masculine pronoun is used throughout
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(2) By way of illustration: Miss P has appointed her sister as fi nancial attorney under an LPA to act when she lacks capacity, but continues to act for herself when she has capacity to do so. She fi nds it diffi cult to deal with more complex fi nancial decisions such as investments but still wishes to retain control over day-to-day fi nance matters. Staff at Miss P’s bank can and should therefore deal with both Miss P and her sister in relation to Miss P’s finances. Instructions may conflict
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E-mail

Future editions of The Orchard may be published electronically. If you would prefer to receive your copy by e-mail rather than by post, please e-mail your request to

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Whilst every effort has been made to ensure accuracy, information contained in the Orchard may not be comprehensive and should not be acted upon without professional advice.