In this issue

A nightmare for the Banks
Human Rights 1. Employment
Human Rights 2. Construction
Human Rights 3. Landlords
Family Affairs
Guardianship
Promotions
Milkshake Mishap
New Tribunal Regulations
Rat Run

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A nightmare for the Banks

The decision delivered on 5 June by the Privy Council in Brumark (Privy Council Appeal Number 35 of 2000) will have far-reaching effects on the rights of debenture holders to the proceeds of book debts.

Brumark has effectively overruled the decision of the Court of Appeal in New Bullas Trading Limited [1994] 1 BCLC 449, which held that it was possible to create a fixed charge over book debts if certain requirements as to "control" were satisfied. In Brumark their lordships went so far as to state that New Bullas was wrongly decided.

In the light of Brumark it will be very difficult for a debenture holder to establish that a charge over book debts is a fixed charge. Such a charge will be a floating charge if:

1. The company is free to collect debts and pay them into its own bank account,
   
   
2. The debenture provides only that the proceeds of the book debts be paid into an account with the Bank (unless the account in question is a "blocked" account), or
   
   
3. The debenture merely contains a restriction on charging or assigning assets.

This is because in Brumark it was held that a bank's fixed charge over the company's book debts was not a fixed charge because the proceeds of those book debts were not actually segregated into a "blocked" account, so as to make them unavailable to the company. It was held that to create a fixed charge it would have been necessary for the company to be prevented from dissipating the proceeds of the book debts by way of a blocked account requiring the chargeholders consent.

Following Brumark it would appear that a fixed charge over book debts can only exist if the debenture containing the charge prohibits the company from realising the debts itself, whether by assignment or collection, i.e. it will be necessary for book debts actually to be paid into a "blocked account".

While there are likely to be radical changes in the drafting of debentures following the case of Brumark (it is suggested in the decision of the Privy Council that a chargeholder bank could appoint a company to collect book debts as its agent), it would appear that few existing arrangements with debenture holders involve payment into "blocked accounts". As a result the proceeds of book debts are unlikely to be subject to fixed charges.

The decision in Brumark comes only one month before the publication of a Government White Paper setting out proposals to end the preferential creditors status of crown creditors (Inland Revenue and HM Customs & Excise), and the right of a chargeholder to appoint an administrative receiver.

While legislation is unlikely to be for some time following the decision in Brumark, Insolvency Practitioners, creditors and directors should all be aware of this very important decision and its likely effect.

Clare Harris and Keith Mahoney specialise in insolvency law. They have prepared a briefing note which is available on request - Please telephone 0117 926 4121 or e-mail cxh@meadeking.co.uk or kwm@meadeking.co.uk for a copy

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Human Rights 1. Employment

The Employment Appeal Tribunal has recently considered Dekeyser v Wilson an employee's claim that she was entitled under the Human Rights Act to a right of privacy. She had made a claim based on stress allegedly caused to her in her employment. The employers instructed a medical expert and asked him to pay attention to various factors in her private life which might have led to her illness. The employee objected, saying that these things were none of the employer's business and relying on a right of privacy. The tribunal said that although a right of privacy did exist this had to be balanced by the right of the employers to find out what was really the cause of her illness. She had put forward work related stress as the basis of her claim and this meant that they were entitled to investigate it.

Richard Holmes is an experienced advocate specialising in employment advice

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Human Rights 2. Construction

In the summer 2000 edition of The Orchard we explained the Human Rights Act which came into force on 2 October.

Article 6 of HRA envisaged that:

"Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law".

We raised the question of whether adjudication under the Housing Grants Construction and Regeneration Act 1996 ("HGCRA") would fall foul of Article 6. Adjudication requires a decision within 28 days, without a public hearing. More often than not the decision is based on consideration of documents only without any examination or cross-examination.

So is there a fair and public hearing within a reasonable time?

As we anticipated it has not taken long for the courts to consider the impact of HRA on adjudication decisions.

In one of the first cases, Elanay Contracts Limited v The Vestry, HHJ Havery QC found that an adjudicator's decision was not a final determination of parties civil rights. An adjudicator's decision is final and binding until overturned by subsequent arbitration or litigation. As such it did not offend Article 6. The article simply did not apply.

In the more recent case of Austin Hall Building Limited v Buckland Securities Limited HHJ Bowsher QC considered the matter in greater detail.

Austin and Buckland fell out over Buckland's treatment of Austin's final account. Austin adjudicated and won. Buckland did not pay up so Austin issued proceedings to recover the debt. Buckland defended on the basis that they had been denied a right to a fair trial as guaranteed by Article 6 since they had not had a reasonable time to present their case. They argued that they did not have a public hearing and that Section 108 of the HGCRA and the procedure to be adopted by an adjudicator was unfair and offended Article 6.

HHJ Bowsher found that an adjudicator was not a "public authority" for the purposes of HRA. Further, even if one assumed that he was, then the adjudicator was acting in accordance with primary legislation and could not have acted any differently in dealing with the matter in the short timescale imposed by HGCRA.

As a public authority includes a court or tribunal, this provides an interesting outcome. One would expect that adjudication, being a forum in which proceedings may be brought, would be viewed as similar to a court or tribunal. Further the adjudicator makes a decision which has a legal effect. HHJ Bowsher however thought that as an adjudicator's decision requires an order of a court for its enforcement it did not constitute a tribunal for HRA purposes.

No doubt the courts will delve further into this area. Despite these judgments it is interesting that the courts seem to be more willing to entertain arguments concerning HRA and adjudication than perhaps was expected last October.

Philip Burbidge is a construction lawyer specialising in arbitration litigation, adjudication and alternative methods of dispute resolution

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Human Rights 3. Landlords

Distraint offers one of the quickest, cheapest and effective methods of collecting unpaid rent from commercial tenants. But it is underused. It is a medieval remedy that allows a landlord to enter onto the tenant's premises and seize and sell goods to the value of the unpaid rent. It is quick because it can be effected immediately, inexpensive because there are no court fees to pay and effective because it can cripple a business very quickly and therefore provides the tenant with a real 'encouragement' to settle the debt. The consequences for the landlord of getting it wrong can be serious however. Distress should only be used after advice and through certificated bailiffs.

This ancient remedy may now be under threat from the Human Rights Act 1998. Some legal commentators believe that the remedy is incompatible with Articles 6 and 8 of the Act. Article 6 provides for the right to a fair trial, an integral part of which includes access to the courts. Article 8 provides that everyone has a right to respect for their private family life, home and correspondence. This has been held by the European Court of Human Rights to include office premises when occupied by an individual for business purposes.

Mark Chawner specialises in property litigation.

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Family Affairs

The modern family unit has a very different structure from a generation ago and it continues to change. It is estimated that one in five children are born in the UK out of wedlock. What used to be unusual is now the norm - step-children, half brothers and sisters, unmarried parents living together, separated and divorced parents. With these units come various arrangements for responsibility for and access to children.

People often make incorrect assumptions about relationships. For example, the law does not treat cohabitees in the same way as it treats married couples - there is no such thing as a "common law" spouse. Also, the normal definition of "children" does not include step-children but does include illegitimate and adopted children. Parents often treat step-children the same as natural children and are so used to doing so day to day that they forget that, in law, there are distinctions. As a further example, the father of an illegitimate child has no parental responsibility for that child unless it is agreed with the mother or ordered by a court. This can have important implications as to who would look after the child on the death of the mother.

These considerations should be borne in mind not only by the immediate family but also by the extended family including grandparents. They may wish to include step-children in a will or may have doubts over particular relationships.

It is important for clients to realise how the law treats the various relationships and the use of wills and trusts can alleviate many problems. A carefully drafted Will and/or the use of trusts can put minds at rest and ensure that, in what can be an extremely volatile situation, matters are not made worse on the death of a family member with no will or one which is inadequately drafted.

In addition, all too often, clients cut a family member out of the will with no thought as to the rights that person may have to claim against the estate if he or she has not been adequately provided for.

Richard Boulding and Jackie Martin specialise in wills, the administration of estates, trusts and tax planning

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Guardianship

Private client specialists Richard Boulding and Jackie Martin have been appointed by the receivership panel of the Public Guardianship Office.

The PGO has responsibility for dealing with the affairs of people who have become incapable and have no family who can help them. Previously the work had been undertaken by the office itself but they have now appointed a panel of specialists to undertake this work.

The appointments reflect the reputation enjoyed by the private client team in providing expert advice to the elderly, their families and carers and a wide range of related issues.

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Promotions

Congratulations are due to Keith Mahoney and Jackie Martin who became partners in the firm from 1 June. Also to Mark Chawner who has been appointed an associate.

The promotions reflect the expansion in the firm's activities as we work with our clients to provide them with the best possible framework for the growth and success of their business operations.

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Milkshake Mishap

In a prosecution brought by the food safety team at Tower Hamlets London Borough Council Tesco Stores has been fined £6,500 following a conviction under Section 8(i) Food Safety Act 1990. The offence concerned a 4-pack of fresh strawberry milkshake purchased at a Tesco Metro store which was apparently 10 days out of code. The milkshake was found upon examination to contain mould growth.

The company appealed against the fine to Smethwick Crown Court which dismissed the appeal. The judge commented that the fine was appropriate for a large company which had apparently failed to identify the problem despite the numerous checks which were carried out by staff over the period concerned.

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New Tribunal Regulations

Although the employment tribunal system generally is under review the Government has issued new rules of procedure as an interim measure. The general effect of these is to impose in the employment tribunals the case management systems which have been applied in the ordinary courts. These give tribunal chairmen a greater power to direct and interfere in cases, particularly a new power to strike out cases because they are weak in substance. The existing costs limit of £500 has also been increased to £10,000 although there are still no general provisions for costs to be awarded against the losing party. As employment tribunal litigation can frequently have the same value as county court/high court litigation the rule that each party generally pays their own costs can frequently seem unfair. This is a matter that is particularly under review.

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Rat Run

The owner of two supermarkets in Smethwick has been given a two year prison sentence at Wolverhampton Crown Court after pleading guilty to eight breaches of food hygiene regulations.

Sandwell Metropolitan Borough Council had already closed one of the stores after identifying problems including:

• Rat droppings on fruit and vegetables
  
  
• A bag of flour crawling with beetles
  
  
• Rodent damage to cereal packets

The last straw appears to have been when officers saw a rat running across the supermarket floor back to its nest.

It is unusual, but not impossible, for contraventions of the Food Safety (General Food Hygiene) Regulations 1995 to be followed by imprisonment. The regulations allow for a fine of £5,000 if dealt with in the Magistrates' Court, and an unlimited fine and/or imprisonment for a maximum of 2 years for conviction in the Crown Court. Sandwell MBC Environmental Health Officers confirm that this was a very exceptional case, and in addition to his prison sentence they have also obtained an order banning the Defendant from running a food business for life.

Judith Kelly specialises in food law, health and safety and trading standards

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