Summer 2004

In this issue

Meade King News

Hefty fines for waste offences

Debt recovery services

Family businesses – whose income is it?

Regulatory round-up

Caveat emptor

Mediation: the latest

Taxing time for trusts – the modern approach

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Meade King News

May 1st saw the appointment of Philip Burbidge to partner within the practice.

Phil is responsible for the construction department within Meade King.

Phil's traditional client base has been the main and subcontractor company. However over the last 2 years that base has expanded to take in developers, employers and the professional practices associated with the building industry.

Phil predominantly deals with dispute resolution through litigation, adjudication, arbitration and mitigation. Notwithstanding this he is regularly involved in professional appointments, warranties and the negotiation of contracts of varying sizes.

If you wish to contact Phil, please do so on 0117 926 4121 or e-mail him on

Charity Ball

Meade King held a charity ball on 4 June to raise funds for the children's charity CLIC and which was a resounding success. The evening was supported by many of the firm's clients, professional contacts and other notable members of the local community.

CLIC's Chairman, Brigadier Hugh Pye spoke about the work CLIC does in the community. In particular CLIC offers practical help to children suffering from cancer and leukaemia and to their families. As the charity receives no government funding, every service it provides is paid for by public donations.

Brigadier Pye's speech encouraged many to bid generously at the charity auction that followed. Meade King would like to take this opportunity to thank the clients, local businesses and clubs who donated a wonderful range of prizes both for the auction and for the tombola, which ran all evening.

Whilst donations are still being collected, the event has so far raised over £3,000. Meade King would like to thank all of those who attended and contributed to the event.

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Hefty fines for waste offences

A joint Environment Agency and Health & Safety Executive prosecution has resulted in record fines for waste firm Cleansing Service Group (CSG) which pleaded guilty to an assortment of health and safety and waste management offences at Gloucester Crown Court. The company was fined a total of £250,000, and ordered to pay costs of £400,000.

The level of costs reflects the scale of the Environment Agency's land investigation, which reportedly discovered caches of paints, resins, pharmaceutical waste, asbestos and BSE contaminated solvent dumped at a treatment plant in Gloucestershire.

The penalties are confirmation that environmental offences are now treated very seriously by the Courts.

The financial penalties do not end there. In accordance with a legal agreement reached with the Environment Agency CSG will now be paying for an independent consultant to undertake an environmental risk assessment which will identify the remedial action which needs to be taken to dispose safely of the total mass of hazardous waste found on the site.

For information or advice on any environmental or health and safety issues, please contact Judith Kelly on 0117 926 4121 or e-mail her on

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Debt recovery services

At Meade King we offer an efficient and cost effective debt recovery and credit management service tailored to suit your requirements. We have a highly effective experienced team and we attach great priority to understanding your business. Our fee-structure is straight forward, simple yet flexible enough to reflect the economics in each case.

Once instructed you can leave the debt recovery process to us - confident in the knowledge that all work will be carried out without undue delay and monies recovered will be passed on to you as soon as possible. Services range from straightforward debts to the careful handling of contested and often highly complex claims.

Our reputation is reflected in the recommendations we receive from satisfied clients - both substantial businesses requiring a volume collection service and small firms with a one-off problem.

We have a proven track record of success and welcome the opportunity to be judged by our performance.

For further information please contact Valerie Chapman on 0117 926 4121 or e-mail her on

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Family businesses - whose income is it?

The Inland Revenue has for some time been asserting its right to reallocate income which a non-earning spouse (or other person) has received from a company or partnership, using what is known as the 'settlements legislation' in s.660 Income and Corporation Tax Act (ICTA) 1988.

The legislation is designed to prevent a tax advantage being gained by means of diverting income from one individual (usually a higher rate tax payer) to someone who is liable to income tax at a lower rate or not at all. The issue is controversial as the Revenue's interpretation of the provisions of ICTA is very wide. It claims they apply to non-trust situations such as:

• shares subscribed at par or given away which have restricted rights (such as no voting rights or restricted rights to capital in the event of a winding-up). The Inland Revenue argue that such arrangements are wholly or substantially a right to income or are 'bounteous'
• shares in a partnership gifted or transferred below value
• shares subscribed in a company or a partnership where the business' income derives mainly from the work of one employee: this encompasses a common arrangement in family owned businesses where both spouses are entitled to income from the business, but where one spouse plays a much less active role in or does no work for the business. The Revenue argues that any dividend or partnership profit is a bounteous or non-commercial arrangement.

However in such situations where there is no 'bounty' or if the gift to a spouse is an outright gift which is not wholly or substantially a right to income the legislation will not apply. Whether or not other tax implications would then arise from the gift will depend upon the spouse's own personal circumstances.

If the Inland Revenue believes the legislation does apply it will seek to reallocate the income back to the person who earns most or who has effective control of the business. That person may have income taxable at 40%.

A test case on this issue involving a husband and wife team who own a small IT consulting business has recently been heard by the Special Commissioners and judgment is awaited. The ruling will have far-reaching consequences for many small businesses, particularly family companies. On the first day of the hearing the Inland Revenue agreed that in this instance it would not pursue the claim going back 5 years, but left it unclear whether this concession would apply in all cases.

Watch this space!

For further information please contact James Hawkins or Vanessa Eyre on 0117 926 4121 or e-mail them on or

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Regulatory round-up

Duty to Manage Asbestos

All those responsible for the maintenance and/or repair of non-domestic premises should by now be aware of their legal duty to take positive action to identify and manage asbestos materials. The duty became effective from 21 May 2004.

Noise at Work

The Health & Safety Commission is consulting upon the proposed regulations which will implement the European Physical Agents (Noise) Directive. The main effect will be to reduce by 5dB (decibels) the exposure levels at which action is required. The reduced exposure levels will be 80dB and 85dB. It is expected that the new regulations will come into force in February 2006.

Licensing - employers not liable

Haringey London Borough Council v Marks & Spencer plc (2004); Liverpool City Council Trading Standards Office v Somerfield Stores Ltd. (2004)

In a decision which will be of wide interest in the licensed drinks trade the High Court has decided that employers, whether individuals or companies, who do not themselves hold a licence, cannot be prosecuted in respect of under age sales from the on or off licence premises which they own. The Court accepted the representations on behalf of Marks & Spencer and Somerfield that Parliament had clearly intended liability under the relevant legislation to be limited to the licensee and to the sales assistants actually involved in the offence.

Corporate Crime - parent companies are liable

Greene King plc v Harlow District Council (2003)

This significant case has established that a group holding company can be prosecuted as "proprietor" of a food business in respect of a public house run by a wholly owned subsidiary company, even where the subsidiary is also prosecuted. This prosecution relates to food law but the judgment has far wider implications.

For further information on these cases or for advice on any environmental or regulatory law issues, please contact Judith Kelly on 0117 926 4121 or e-mail her on

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Caveat emptor

In the current climate which seeks to impose greater responsibility on sellers of property it is perhaps surprising to be reminded that caveat emptor still operates. Sellers of property are under a general duty to disclose latent defects of title, but not other problems. If they are asked a direct question and answer it untruthfully, they may be liable for misrepresentation. But, if they are not asked the question or give an honest answer on a matter of opinion they have no liability to a buyer who may later discover something which adversely affects the property.

That is what happened in the recent case of Sykes v Taylor-Rose. Mr and Mrs Sykes bought a house from Mr and Mrs Taylor-Rose unaware that a gruesome murder had taken place in it some years earlier. Subsequently they learned about the murder and, when they came to sell, they disclosed that fact. As a result the property was worth £25,000 less than it would have been without that history. Mr and Mrs Sykes then tried to recover their loss from the Taylor-Roses who had known about the murder before they sold the house.

The Court of Appeal confirmed there is no duty on the seller to disclose such information voluntarily. The Seller's Property Information Form contained a question 'Is there any other information which you think the buyer might have the right to know?' The answer was 'No'. That was not a misrepresentation because the question required a personal judgment from the seller and the answer was an honest one. The question did not require the answer to be based on reasonable grounds, but asked for a subjective opinion.

It would have been different if the question related to matters of fact, rather than opinion. In a case in 2003 (McKeekin v Long) a seller had to pay £67,500 in damages for stating, in reply to a standard enquiry, that they were unaware of any disputes and had not received any complaints. In fact there had been disputes about access and complaints about the dumping of rubbish, but the sellers did not mention them because they thought they had been resolved.

These cases are reminders to buyers that they should not accept everything at face value, but should make their own enquiries in the neighbourhood. Reminders to sellers too that they must take great care when replying to questions of fact.

For further information please contact Peter Watkin on 0117 926 4121 or e-mail him on

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Mediation: the latest

Even before the Civil Procedural Rules came into force 5 years ago mediation was encouraged by the court. Since then the process has gathered pace

• In March 2001 the Lord Chancellor announced an ADR Pledge by which all government departments committed themselves to the principle that
  
  "alternative dispute resolution was considered and used in all suitable cases where the other party accepts it"
• In giving judgment in Frank Cowl & Others v Plymouth City Council Lord Woolf said
  
  "Today sufficient should be known about alternative dispute resolution to make the failure to adopt it, in particular where public money is involved, indefensible"
• In Dunnett v Rail Track Plc the Court of Appeal held that if parties and their lawyers
  
  "turned down out of hand the chance of ADR... they may have to face uncomfortable costs consequences"

Mediation has become so much in vogue that courts have even had to consider whether they have power to order parties to submit their disputes to mediation against their will.

More importantly parties have felt obliged to mediate their disputes for fear that even if they are successful in litigating their case they would be deprived of some or all of their costs on the grounds that they refused to agree to mediation.

Welcome guidance has now been given in Halsey v Milton Keynes General NHS Trust. The Court of Appeal made it clear that compulsory mediation was wrong.

"It is one thing to encourage the parties to agree to mediation even to encourage them in the strongest terms. It is another to order them to do so. It seems to us that to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction for their right of access to the court"

Nevertheless the Court of Appeal indicated clearly that mediation

"has a number of advantages over the court process. It is usually less expensive than litigation... [It] provides litigants with a wider range of solutions than those available in litigation; for example an apology; an explanation; the continuation of an existing professional or business relationship perhaps on new terms; and an agreement by one party to do something without any existing legal obligation to do so"

The Court of Appeal laid down factors to be taken into account in deciding whether a party has unreasonably refused mediation. These include

• The nature of the dispute
• The merits of the case
• The extent to which other settlement methods have been attempted
• Whether the costs of the ADR would be disproportionately high
• Whether any delay in setting up or attending mediation would be prejudicial; and
• Whether mediation has a reasonable prospect of success

The moral of the story remains clear however

• Consider mediation at the outset. It is dangerous to ignore an offer to mediate - whatever the stage at which it is proposed
• Make sure that your correspondence is seen to be constructive. The court may scrutinise it for its reasonableness and its willingness to enter into settlement negotiations
• Combine mediation with an offer to settle. If the dispute ever goes to trial and your opponent is awarded less than the amount of the settlement offer you may be penalised in costs

For further information please contact Adam Chivers on 0117 926 4121 or e-mail him on

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Taxing time for trusts - the modern approach

The announcement in the budget of changes to the tax system under the banner of modernisation has removed the potential tax advantages formerly gained from the lower tax rates applicable to trusts.

The Finance Bill introduced in the budget provides that with effect from 6 April 2004:

• the rate applicable to trusts (ie income tax rate on discretionary and accumulation and maintenance trusts) increased from 34% to 40% in line with the higher rate of income tax; and
• the dividend tax rate increased from 25% to 32.5%; and
• the capital gains tax in respect of trusts and for personal representatives rose to 40%.

However, the news is not all bad.

• A new basic rate band for all discretionary and accumulation and maintenance trusts has been introduced. The first £500 of trust income is taxed at the lower or basic rate. This measure removes 30,000 of the smallest trusts from taxation altogether.
• New measures will apply to trusts set up for vulnerable people including the disabled and orphaned minor children. They are to be taxed on the basis of the beneficiary's tax position. Trustees will be able to use the beneficiary's personal allowances and starting and basic rates rather than the rates applicable to trusts.
• Even if a trust has more than £500 income each year and does not qualify as a disabled trust or a trust for orphaned minors, the previous rules relating to income distributed from a trust still apply. Where income is distributed from a trust to a beneficiary, income tax will have been paid on this income at the new trust rate of 40%. However, if the beneficiary receiving the income is a lower rate tax payer, he or she can claim a tax rebate on the extra tax which has been paid. This was the case when the income tax rate for trusts was 34%. It was not changed in the budget.
• Trusts are also still an extremely effective inheritance tax planning measure. Many people put assets into trust to remove those assets from their estates and thereby reduce the inheritance tax payable on death. They are an effective means of passing wealth down the generations in an inheritance tax efficient manner, even if the income tax and capital gains tax treatment is no longer so favourable.

For further information on these issues or any other personal taxation matters, please contact Richard Boulding or Vanessa Eyre on 0117 926 4121 or e-mail them on or

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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.