Commercial news update May 2019: Agency worker rights, restricting cross border sales in the EEA and third-party rights

13 May 2019 | 9 min read

We bring you updates across Brexit, Corporate & Commercial, Data Security, Advertising & Marketing, Employment, Consumer law - in association with Iain Larkins from Radius Law.

We focus on the commercial aspects and look at the practical steps for you to consider.

This month we cover parent company liability over polluted waterways, relational contracts, Third-party rights, £400k data breech fine for parenting club, BMW trade mark ruling, Agency worker rights, Restricting cross-boarder sales in the EEA and much more. Watch below or read, with link to further guidance on each story.

 

Corporate and Commercial

Parent company liability

The Supreme Court1 has reiterated that where a parent company exercises (or purports to exercise) some control over the operations of a subsidiary it may be liable for that subsidiary.  This case concerns Vedanta Resources PLC, the UK parent of a Zambian mining subsidiary that has been accused of polluting the local waterways. 

For further guidance see:

Corporate liability for environmental offences—parent company liability for subsidiary actions

Liquidated damages

Often when a contractor is late delivering goods or services, the customer will terminate that contractor and seek a replacement contractor to ‘finish the job’. To protect the customer, contracts sometimes include obligations for the contractor to pay a certain sum for the delay (often calculated on a daily basis) and referred to as liquidated damages. It has generally been considered that liquidated damages are only effective until the termination of the contract, but a recent Court of Appeal2 decision has blurred this general rule and suggested it will turn on what’s stated in the contract. 

For further guidance see: Liquidated damages after termination (Triple Point Technology v PTT)

Good Faith

With very limited exceptions, the English Courts have been reluctant to imply a duty of good faith into contracts but following a recent High Court decision3 it seems likely that good faith will be implied into ‘relational contracts’.

The judge in this case set out 9 non-exhaustive characteristics to help determine whether something is a relational contract or not. The intention of this list seems to be to capture agreements that necessitate the parties to have an on-going and long-term collaboration – such as joint venture or franchise agreements, but they could be interpreted to catch almost all contracts.

In this case the Court said that Good Faith is an obligation to ‘refrain from conduct which in the relevant context, would be regarded as commercially unacceptable by reasonable and honest people’ .

For further guidance see: Good faith in commercial agreements

Third party rights

The Contracts (Rights of Third Parties) Act 1999 created a right for a person, who is not party to a contract, to enforce a term if it confers a benefit on that person.

The law has had little impact as most commercial contracts simply exclude the right. A recent case4 has highlighted the perils of not excluding it.

Yorkshire Bank agreed terms with a property developer whereby money from investors would be paid into an account and only released subject to certain conditions. The investors’ money was fraudulently withdrawn and sometime later the investors learned about the terms that had been agreed between the property developer and the bank.

The investors successfully enforced their rights under this law against the bank.  The bank’s arguments that the references to ‘client’ in ‘Client Account’ was insufficient to amount to identification of a ‘class’ required for the purposes of the law failed.

For further guidance see:  Formation of contracts, third parties rights and causation of loss (Chudley v Clydesdale Bank plc)

Carbon Emissions – new regime

The new Streamlined Energy and Carbon Reporting (SECR) regime will apply to financial years starting on or after 1 April 2019 and run alongside the existing CRC Energy Efficiency Scheme (CRC) during a transition period.  SECR regime apply to these organisations:

  • UK incorporated quoted companies;
  • UK incorporated "large" private companies;
  • UK incorporated "large" LLPs; and
  • Certain UK unregistered companies

A "large" company or LLP is one which meets two or more of the following criteria within a financial year:

  • Annual turnover exceeding £36 million; and/or
  • Annual balance total exceeding £18 million; and/or
  • More than 250 employees.

Where a company or LLP moves across these thresholds in a financial year, smoothing provisions will apply.

The Environmental Reporting Guidelines available on the Government’s website sets out the detail of the reporting requirements. Failure to disclose the necessary SECR report will constitute a criminal offence punishable by a fine.

For further guidance see: Streamlined Energy and Carbon Reporting (SECR)—quoted companies, large unquoted companies and large limited liability partnerships

Data Security

£400,000 data breach fine against UK pregnancy and parenting club.

The Information Commissioner’s Office (ICO) has fined Bounty (UK), the pregnancy and parenting support club, £400,000 for data protection breaches. The ICO stated that Bounty’s privacy policy was insufficient and did not provide enough information to allow people to make an informed choice on whether to provide their data or consent to marketing – in particular it did not specifically identify third parties or the types of third parties that personal data would be shared with. 

Data Controllers and Data Processors – how to spot the differences.

Data Protection law refers to Data Controllers, Joint Data Controllers and Data Processors and imposes different obligations each.  Data Controllers, as the name suggests, control what happens to personal data and will be responsible for their Data Processors – who process personal data for Data Controllers. Determining which label applies to your business is important but can be tricky.  New guidance is now available on the ICO website.  

For further guidance see: Determining roles under the GDPR in commercial transactions between businesses (processor, independent controller or joint controller)

Advertising and Marketing

BMW wins trade mark & passing off action

BMW has successfully5 used the precedent set in the 1999 British Telecommunications Plc v One in a Million (OIM) case. In that case the Court ruled that OIM’s action was an ‘instrument of fraud’ when it registered domain names of famous brands that it had no connection with.  In the recent BMW case, Mr Whitehouse had registered companies that included the word BMW. Despite Mr Whitehouse’s claim that he would only use the companies for his telecoms business and that the letters BMW were his initials, the Court sided with BMW. It was analogous to the One in a Million case and was therefore both trade mark infringement and passing off. 

For further guidance see: Summary judgment granted in trade mark and passing off dispute (BMW v BMW Telecommunications)

Employment

Agency worker rights

Agency Worker Regulations 2010 state that after 12 continuous weeks in the same role, an agency worker is entitled to the same basic conditions as equivalent directly hired workers. London Underground (LU) hired agency workers through an agency, Trainpeople.co.uk Limited (TPL) who wrongly advised TPL that an exception to equal pay requirements applied. When LU became aware of the incorrect information it paid the additional sum to cover the underpayment, but TPL did not pass this onto the workers and subsequently became insolvent.  The matter worked its way through to the Court of Appeal6 – which held that although LU had tried to do the right thing by paying the funds to TPL, it must now be directly responsible to the employees.

For further guidance see: Hirer ordered to compensate workers where agency failed to pass on arrears of pay difference (London Underground v Amissah)

Payment to employees for doing a bit extra

Mr Fitz was a supervisor of a retail store and was expected to provide cover when the store manager was absent but was not paid for this additional time which fell outside of his contractual hours. His contract did not refer to this work. A dispute and a tribunal claim7 followed where Mr Fitz claimed he had suffered unlawful deductions from his wages because he had not been paid for the additional hours. The tribunal agreed making it clear that if staff are expected to do extra, this should be stated and whether the additional time will be paid. It’s especially important for lower paid workers as pay rates must exceed national minimum wage or the fines can be £20,000 per worker.

For further guidance see: Pay

Reasonable and proper cause for suspensions

The Court of Appeal has ruled8 that an employer must not suspend an employee without first satisfying itself that it has a 'reasonable and proper cause'.  Whether there is reasonable and proper cause will, of course, be specific and factors such as the seriousness of allegations and whether the individual is working with vulnerable individuals will be relevant. 

For further guidance see: Suspension does not breach the implied term of trust and confidence provided employer has reasonable and proper cause (LB of Lambeth v Agoreyo)

Competition

Restricting cross border sales in the EEA

Nike has been fined €12.5 million for restricting cross-border sales in the EEA.  Nike admitted it had implemented unlawful practices restricting its licensees from making out-of-territory sales. Its ultimate fine was reduced by 40% because of its co-operation in the investigation. 

This decision arrives as another similar investigation has started in the video games sector.

These actions show the Commission will not tolerate agreements which jeopardise the rights of consumers to purchase anywhere in the Single Market. 

For further guidance see: EU investigation: Nike fined €12.5m for restricting cross-border sales of licensed merchandise

When is a free hand-out, not a free hand-out?

On advice from the Estonian Government Enterprise Agency, an Estonian Bakery applied for and was awarded public funding of €526,300 to help fund new production facilities.  It was later found that the funding breached state aid rules.  The Government Agency asked for the money to be returned and, unsurprisingly, the bakery refused. The European Court9 determined that the responsibility of ensuring the aid was being granted lawfully, and the risk of it being subsequently recovered, lay with the bakery as the beneficiary.

For further guidance see: State aid (Court of Justice): Member State authorities cannot confer legitimate expectation of legality of aid granted and are under an obligation to recover illegal aid

CMA Orders parties to unwind integration.

For the first time, the UK Competition and Markets Authority (CMA) has flexed its regulatory muscles by ordering the unwinding of a completed acquisition.  The acquisition by Tobii AB of a competitor in a niche technology market for speech assistance was relatively small at just £11m, but the CMA was concerned that the acquisition would be detrimental to competition. 

For further guidance see: Tobii AB/Smartbox Assistive Technology Limited and Sensory Software International Limited and The UK merger investigation process

Cases, laws, decisions referred to in this update

1Vedanta Resources PLC and another v Lungowe [2019] UKSC 20 
2Triple Point Technology Inc -v- PTT Public Co Ltd [2019] EWCA Civ 230
3Bates v Post Office Ltd (No. 3) [2019] EWHC 606 (QB).
4Chudley and others v Clydesdale Bank plc (trading as Yorkshire Bank) [2019] EWCA Civ 344
5Bayerische Motoren Werke AG v BMW Telecommunications Limited and another [2019] EWHC 411 (Ch) (12 February 2019)
6London Underground Ltd v Amissah [2019] EWCA Civ 125
7Mr J Fitz v Holland and Barrett Retail Ltd: 1401671/2017 
8London Borough of Lambeth v. Agoreyo [2019] EWCA Civ 322
9Case C-349/17, Eesti Pagar AS v Ettevõtluse Arendamise Sihtasutus (judgment dated 5 March 2019)

 

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