Brexit for Business – How to Adjust Your Commercial Contracts and Agreements

Solicitor and ContractStore founder Giles Dixon has some useful pointers for updating your commercial contracts in the light of the UK Brexit vote.

brexit photoOn the Monday after the Referendum vote, I was asked to draft my first Brexit clause for a substantial long term services contract between a European and UK company that was being negotiated. So, although we have not yet left the EU, the potential legal implications of our likely withdrawal are already being felt.

As we do not know what agreement might be reached with the EU it is difficult to be too specific on how business and society will be affected.

But for starters, here are some possible issues that clients may want to consider when reviewing or negotiating their contracts:

  • Customs duties and tariffs: If these are introduced on trade between the UK and other EU countries, be sure to have some wording that says how they will affect the payment terms under the contract.
  • Personnel: If your contract involves sending a team of engineers to the UK from Europe (or vice versa), what happens if new visa requirements are introduced that make this difficult to achieve? And if you already employ citizens from other EU states, how might their status be affected if there is a change in immigration law?
  • Currency: Any contract involving pricing that has a currency risk should consider wording to deal with that risk. But if the impact of Brexit sees a continuing fall in the value of sterling (already down by around 10% against the USD), an escape clause or renegotiation provision could be essential.
  • Standards: If EU quality standards diverge from those in the UK, how might this affect manufactured products or the supply of services and whose standards will apply under your contract?
  • Trade Marks: Anyone who has registered an EU trade mark has protection throughout the 28 member states. If we leave, will that EU mark still give protection in the UK?

A material adverse circumstances clause can be a helpful device to deal with issues that might arise in future but are not identified when the contract is signed. But the difficulty with such a clause is in specifying what happens if a particular event occurs. An obligation to discuss and try to resolve the problem by good faith negotiation is the type of wording sometimes used, but it does not remove the uncertainty. So, where you can, you need to have wording that says what will happen if a situation arises – e.g. if new taxes are introduced on the supply of goods to Europe, these will be added to the price and payable by the customer.

Think Twice Before You Copy From Another Website (it could prove to be expensive!)

In a recent case, a home improvement company in Bradford lifted 21 images from the website of a loft conversion company in the London area when it decided to move into loft conversion work and wanted some illustrations.

Absolute Lofts South West London Ltd. sued the Bradford company, Artisan, and its owner, Mr Lubbock, and won substantial damages. Artisan admitted liability and the judge awarded a total of £6300 in damages – £300 for ‘compensatory damages’ and a further £6000 – 20 times the basic compensation– because of the flagrant nature of the breach.

imitate photo

Making duplicates of other people’s images could leave you exposed
Photo by iloveart106 Creative Commons

In a case like this, compensatory damages are calculated on a theoretical basis of what might have been agreed for the use of the images between two willing parties. Experts instructed by each of the parties came up with different figures – the expert for Absolute Lofts argued that Artisan would have paid £9000 for a professional photographer to take those pictures. Artisan reckoned the figure was less than £1000. The judge did not think much of either expert opinion and decided £300 was the right amount as this was what it would have cost to source similar images from a photographic library.

However, the judge then decided that additional damages were due. Section 97 (2) of the Copyright Designs & Patent Act 1988 allows additional damages when there is a flagrant infringement of copyright.  And Article 13(2) of the EU Directive on The Enforcement of Intellectual Property Rights allows for damages appropriate to the prejudice suffered by the injured party.

Artisan’s owner knew that the images were being used without consent. But the judge also found that Artisan had directly profited from the photographs on their website – it seems that they not only implied the company had expertise in loft conversions, but its profits increased as a result.   Even though the distance between the two companies did not mean that Absolute Lofts suffered from direct loss of business as a result of Artisan’s action, the judge nonetheless thought there was prejudice and so awarded the £6000 additional damages.

The internet is often seen as a free resource where you can pick up and copy other people’s pictures or text and use them on another website. This case underlines the fact that you do so at your peril, and do remember that it is relatively easy for a copyright owner to search for and find duplication on the web.

There are plenty of free images available online, and Google search now allows you to search by license. There is a system of Creative Commons licensing that allows image publishers to declare the details of how they want their images shared.  Because of this, the courts are likely to get increasingly firm on blatant infringements.

So, if you are engaging a designer, be sure to check that their contract makes it clear that nothing they supply will infringe any third party’s copyright. Our designers’ contract template covers this along with all the other things you need to consider when working with designers.

For the full case report see: http://www.bailii.org/ew/cases/EWHC/IPEC/2015/2608.html

 

A Guide to the Modern Slavery Act for Your Business

Modern Slavery Act 2015

The question that many supporters of anti-trafficking movements may be asking – Does the new Modern Slavery Act (2015) go far enough to ensure that corporates maintain a transparent supply chain?

The new Modern Slavery Act (2015) will apply to all commercial organisations who carry on business or part of a business in the UK.

Author: Sharon Benning-Prince

Regulations under the Act – expected to be implemented in October 2015 – will require those with turnover above a yet-to-be-determined threshold to produce an annual statement for each financial year, under the so-called ‘Transparency in supply chain provisions‘.

Current reports suggest that a turnover threshold of around £36-40 million is likely.

It looks likely that organisations with turnover over this threshold will have to produce their first statement by the end of the current financial year. The Government has indicated it will publish compliance guidance in the next few months.

The Act introduces two main offences:

  • servitude or forced labour
  • arranging or facilitating the travel of another person with a view that a person is being exploited

Section 54: Companies Must Publish a A Statement

  • Section 54 of the Act will require every large business to publish an annual statement setting out the steps the business has taken during the year to ensure that slavery and human trafficking are not taking place in the business itself, or in its supply chain.
  • The statement must be published on the business’s website.
  • The obligation to publish a statement applies to businesses which carry on any part of their business in the UK and which “supply goods or services” (essentially, all trading companies and partnerships).
  • The statement must be approved by the board of directors and signed by a director (in the case of companies), approved by the LLP members and signed by a designated member (in the case of LLPs), and signed by a general partner (in the case of limited partnerships).
  • Overseas conduct will be included, and will be deemed as if the offence had taken place in the UK.

Preparing the Statement
If a company is caught within threshold, the basic requirement is to produce a statement confirming:

  • the steps taken to ensure that slavery and human trafficking are not taking place in your business, or in any supply chain

or

  • declare that you have taken no steps to confirm the existence of slavery or trafficking. This approach may place a company’s ethical position into question and affect its reputation, so it is expected many companies would prefer not to take this option.

The Act does not specify the exact steps that a business must take in relation to supply chain transparency, and there is no prescribed form of transparency statement. However, the Act suggests that the statement “may” include the following:

  • brief description of your organisation’s business model and supply chain relationships
  • your organisation’s policies relating to modern slavery including due diligence processes and the training available/provided for those in supply change management and the rest of the organisation
  • the parts of the business and supply chain most at risk in the organisation and how the organisation evaluates and manages those risks
  • relevant key performance indicators which would allow a reader to assess the effectiveness of the activity described in the statement.

Publication
The homepage of your website must contain:

  1. a prominent link to the statement, which must be approved by the board and signed by a director
  2. homepages of both the parent company and any subsidiary websites
  3. if the company does not have a website it must provide a copy of the statement within 30 days to anyone who requests it

Application / Jurisdiction

  • a company/partnership over a certain size
  • that supplies goods or services
  • and carries on a business or part of a business in the UK

Implications
The Act itself imposes no legally binding requirements to conduct due diligence on supply chains. And there is some flexibility regarding the content of the statement, as companies may find it difficult to compile all the relevant information. The Government has framed Section 54 in such a way as to leave it open to businesses themselves to determine how best to comply with its requirements, and how far they should go in identifying where any risks may lie – and how to tackle them.

The Government has also made it clear that it expects each business to take an appropriate and proportionate approach, based on the nature of its business and the industry sector.

What should you be doing now?
Companies should assess whether they are caught by these requirements. For some this will be straightforward, while others will need to decide on an entity-by-entity basis once the turnover threshold is published. Even if your turnover is lower than the threshold, it may be good for a company reputation to follow some of the guidance and recommended procedures to build customer confidence.

If your company is likely to be affected then you could:

  • start assessing current levels of information on your supply chains. The company will need to start engaging with its direct and indirect suppliers, and set up due diligence systems to obtain reliable information
  • draft and implement a policy on slavery and trafficking
  • assess the need for training within your organisation, and your supply chains, on human rights compliance
  • incorporate anti-slavery and trafficking obligations (and related policies) into procurement agreements, and require similar obligations to be incorporated into any sub-contracting arrangements
  • review your supplier due diligence processes to incorporate procedures that identify modern slavery and trafficking risks.

Will it work?
At this time, it seems that any process that seeks to address trafficking and forced labour issues are to be welcomed. However there are no criminal or financial penalties for non-compliance, and that is an area that could be reconsidered. In order to ensure that companies comply with the Act and comply properly and ethically, there should be some element of financial penalty.

Notwithstanding the lack of penalty, any company that is deemed not to be adhering to the Act may suffer detriment from a reputation perspective, and this in itself may be enough of an incentive for both companies that fall within the threshold, and those that don’t, to comply with Section 54 properly.

Further Reading

Online Legal Services are “less intimidating, cheaper, quicker and more convenient”

It is good to see a positive report on the benefits of online services such as those offered by ContractStore.  The report entitled “2020 Legal Services – How Regulators Should Prepare for the Future” has reviewed the various offerings online that enable consumers (and businesses) to benefit from the new technology and to obtain a cost-effective solution to some of their problems.  The Legal Services Consumer Panel that issued the report advises the Legal Services Board, the ‘super-regulator’ of legal services in England.

According to the report, their survey data shows strong consumer demand for online services: 47% of consumers polled said online delivery is important to them.

As technology makes legal services simpler to use, involve less effort and cheaper to buy, more people are likely to carry out the sorts of tasks – like writing a will or arranging a power of attorney – which currently they either prefer to put off or cannot afford to do.  The various online services offer many benefits. Among other things, “they may be less intimidating, cheaper, quicker and more convenient.’”

“Self-Lawyering”

‘Self-lawyering’ (sic) is expected to increase as consumers seek alternatives to lawyers through technology enabled DIY solutions. This will enable some consumers to complete common legal tasks without the need to engage a lawyer, or with minimal supervision by a lawyer.

As the report says, historically, lawyers have been a conservative profession which has successfully resisted change.  It is therefore encouraging to see the Legal Services panel acknowledging the beneficial impact for users of the new marketplace when the report says that  “in overall terms, there would seem good grounds for being optimistic about the future. Market liberalisation, technology and other forces should produce innovative and cheaper services that can benefit all consumers and widen access to groups currently excluded from the market.”

Concerns About Regulation

However they do have concerns at the unregulated nature of the online legal market. So they want to encourage and facilitate initiatives to raise standards and extend access to redress in unregulated markets while “continuing to press for modernisation of the wider regulatory framework in the longer term.”

There is something of anomaly in the regulatory framework at present: on the one hand, to practise as a solicitor you first have to train, qualify, be registered with the Solicitors Regulatory Authority and comply with the SRA Code of Conduct and Accounts rules.  But the ‘regulated activities’ which only solicitors can perform are very few – essentially court litigation, handling probate and some property transactions.  As a result, the internet has enabled the proliferation of a wide range of legal or quasi-legal services which are not subject to any professional control and can be provided by people without any training in the law.

Quality Legal Documents

At ContractStore, we have taken steps to ensure that our services meet high professional standards.  All our documents are prepared by qualified, experienced lawyers and we are a founder member of APOD, the Association of Publishers of Online Legal Documents which itself has a Code of Practice that members have to sign up to.

The full report can be found here –  http://www.legalservicesconsumerpanel.org.uk/publications/research_and_reports/documents/2020consumerchallenge.pdf

 

Libel on Facebook: ‘Public Interest’ Not the Same As ‘Interesting to the Public’

Be careful what you say about your friends on Facebook – even if it is true it could be libellous!

Social media postings are increasingly coming under the spotlight of the law. In the UK hate mail has led to criminal investigations and there have also been libel actions – not least against Sally Bercow who posted defamatory information on Twitter about Lord McAlpine and had to pay damages and substantial costs.

In South Africa, the case of H v. W involving defamation on Facebook is worth noting, not least because the judge said that even if a statement is true, that is not a good defence to a claim of defamation: it must also be in the public interest for the statement to be published.

In this case a woman posted the following on her Facebook wall:

I wonder too what happened to the person who I counted as a best friend for 15 years, and how this behaviour is justified. Remember I see the broken hearted faces of your girls every day. Should we blame the alcohol, the drugs, the church, or are they more reasons to not have to take responsibility for the consequences of your own behaviour? But mostly I wonder whether, when you look in the mirror in your drunken testosterone haze, do you still see a man?

When he became aware of the posting, the man in question asked her to remove it, and when she refused, he applied to the court in Johannesburg for an order that any statements about him should be prohibited.

The court didn’t go that far but they did order the offending statement to be removed. In his decision the judge said:

“In our law, it is not good enough, as a defence to or a ground of justification for a defamation, that the published words may be true: it must also be to the public benefit or in the public interest that they be published. A distinction must always be kept between what ‘is interesting to the public’ as opposed to ‘what it is in the public interest to make known’.

“The courts do not pander to prurience. I am satisfied that it is neither to the public benefit or in the public interest that the words in respect of which the applicant complains be published, even if it is accepted that they are true”

With thanks to Walkers, Attorneys of Cape Town, for this: http://www.walkers.co.za/

If your business has employees using social media, this contract may be useful – it is designed to minimise legal risks:

 

Are Your Gym Membership Terms Illegal?

In a High Court case earlier this year, a sports club was taken to court by the OFT (Office of Fair Trading) and the judge held that certain terms were unfair. These included:
• Terms restricting the right of a member to terminate a 12 month or longer period even if there are good reasons for wanting to terminate – e.g. ill health
• Requiring full payment of fees for the minimum membership period if the contract is ended early
• Requiring payment even where the member had a genuine dispute about the quality of the gym.
• Threatening to report a non-paying member to the credit reference agencies in certain circumstances

The OFT has been keeping a close eye on sports clubs over the years and they have even issued a long report entitled ‘Guidance on unfair terms in health and fitness club agreements’, with warnings against using various clauses including those that try to exclude any liability of the club for death or personal injury.

This case is a recent example of the OFT flexing their muscles with a sports organisation that they felt had overstepped the mark. For the full judgment click here.

ContractStore now offers a Sports Club Membership Agreement and, as always, we have been careful to ensure our terms are both user-friendly and fair to both parties.