Issues for consideration on a joint venture

When considering a joint venture there are various issues that the parties should iron out at the outset to avoid running into difficulties. We have listed a few of the points that we would expect parties to discuss before entering into a joint venture.

Preliminary points

The parties should consider whether there are any applicable competition rules, regulatory matters, licences and consents that they would need for the proposed transaction.

It follows that the parties should consider whether their objectives are consistent or complementary.

Identifying the structure

The structure of the joint venture should be considered. For example, is the joint venture to be carried out through a separate ‘organisation’ (eg joint venture company) or will it merely be a contractual arrangement between the parties (eg some form of collaboration, joint research and development (‘R&D’), supply, distribution agreement)?

In addition, the parties may wish to consider the form of the venture, such as a company limited by shares, a partnership, a limited liability partnership, to name just a few.

Financing of the joint venture

At the earliest opportunity, parties should consider the proportions and how, if at all, the parties will provide initial finance to the joint venture. How much will be provided from third party sources should also be considered.

We wold expect the parties to have further discussions about financing such as whether they will be requires to provide further finance later. If so, who will decide when and how it is to be put in. The parties should also discuss whether decisions on this can be blocked in the future by any party unwilling to finance its share as well as what will happen if one of the parties defaults.

Tax considerations

The structure and form of the joint venture is likely to affect how the joint venture will be taxed. Some of the points that the parties may wish to consider include:

(1) How the contributions to the joint venture from the parties will be taxed and whether any reliefs are available.

(2) Whether there are restrictions on the capital structure of the structure of the joint venture (eg thin capitalisation rules restricting the amount of debt finance)?

(3) How will payments from the joint venture to the parties be taxed? Can a structure e used to enable profits to be distributed more efficiently? are there withholding taxes etc?

(4) Whether there will be any ongoing supplies between the parties and the joint venture, such that VAT issues may arise. Is it possible or desirable to VAT group the joint venture with one of the other parties?

(5) What will be the tax impact if the joint venture succeeds? Will the parties be able to structure an exit which will avoid or reduce any capital gains tax charge?

(6) What is the tax impact if the joint venture fails? Will the parties obtain a tax deduction or loss if their investment diminishes in value in whole or in part?

Decision making and control

The control structure will impact on the status of the joint venture under a number of merger control regimes, including EU and UK merger controls.

Parties should consider how ownership interests in the joint venture will be held. Precisely what rights (and obligations) do such interest confer?

Contributions by the parties to the joint venture

Parties should consider whether any party will contribute any specific tangible or intangible property to the joint venture.

If there are contributions to the joint venture then how will contributed assets be valued. How will adjustments be made for any shortfall or excess in relation to any contributor’s proportionate funding obligations?

Consideration should be given to whether assets need to be valued under local law (eg if shares are issued in a joint venture company in consideration for the transfer of assets).

Parties should ask whether it is possible for all contributions of assets to be made contemporaneously if regulatory approvals or consents from third parties (including lessors, licensors and lenders) are required for any transfer. If not, should the availability of all or any particular assets be a condition to the establishment of the joint venture?

The parties should consider the effect to the assets or other rights leased by the joint venture if one party subsequently leaves the joint venture.

Intellectual property

The parties should consider who will own any new intellectual property rights developed by the joint venture and to what extent will the parties have access to, or rights over, confidential information, know-how and other intellectual property rights concerning or accruing or belonging to the joint venture itself.

Employment matters

We would expect the parties to consider whether there will be a TUPE transfer either at the outset or on the termination of the joint venture. If so, the employees who work in the undertaking that is the subject of the transfer may have additional legal rights (eg they will have rights in respect of consultation and to have access to certain information). A dismissal for a reason connected to the transfer may lead to an automatic liability for unfair dismissal.

Termination

Consideration should be given as to the duration of the joint venture. Is the joint venture for a fixed term or complete of a specific project, or is it indefinite in duration?

The parties could also agree that the joint venture will automatically terminate in certain circumstances. For example, the loss of any regulatory approval; the loss of destruction of a particular asset; the insolvency of any party or the transfer of any party’s interest.

The information above should not be taken as legal or professional advice. Please contact a member of our team for advice that is tailored to your circumstances.

Small businesses to receive £2.2bn in funding amid coronavirus.

The government has announced that small businesses across England will receive £2.2bn funding  to see them through national restrictions imposed by the lockdown due to the coronavirus pandemic. 

The funding will be made  through two grant schemes, one for businesses that have had to close, and another scheme for further business support as a result of the coronavirus pandemic.

Coronavirus (COVID-19) — support for businesses

In light of the uncertainty now caused by coronavirus (COVID-19) our lawyers are available to assist and provide the necessary support that your business needs in areas such as: 

Managing the relationship with your employees

Advice for businesses with cash flow problem

Redundancies and recruitment

Tax liability 

Business rate

Statutory sick pay 

New Engineering Contract (NEC) Platform Announced

The New Engineering Contract (NEC) announced that it will launch a new online platform to enable users edit New Engineering Contract (NEC) contracts. Users will be able to access, compile and edit its standard form construction contracts on the online platform. 

The new platform will be called ‘Contract Horizon’, and will be launched on 31 March 2020.

Contract Horizon will offer a similar service to the existing JCT Contracts Digital Service that deals with JCT standard form construction contracts. 

Right to Privacy — Case Summary

Fearn & Kraftman & McFadyen & Urquhart -v- The Board of Trustees of The Tate Gallery 

 

The claimants are the owners of flats in a building adjacent to the Tate Modern museum. They brought a claim in nuisance under the Human Rights Act 1998 to protect their rights of privacy. 

The claim stems from the viewing gallery within the Tate Modern that allows visitors to experience a 360 panoramic view of London. Controversially, the panoramic view includes the block of flats occupied by the claimants. The block of flats is extensively glassed to the extent that visitors of the viewing gallery are able to see the inside of the claimants’ flats. The court heard evidence that some visitors have taken photographs and filmed the occupiers inside the flats. The court also heard evidence that some visitors used binoculars to look look inside the flats. 

The claimants sought injunctive relief, inviting the court to order the Tate Modern to prevent visitors of the gallery from “observing” the claimants’ flat from a specified area within the gallery. The court heard that 5.5m people visit the Tate each year and approximately 500,000 visit the viewing gallery annually.  

The claimants argued that their claim arises under the law of nuisance which is further protected by s.6 of the Human Rights Act 1998 and Article 8 of the European Convention on Human Rights. The claimants pursued the argument that Tate Modern is a public authority for the purpose of the Human Rights Act and therefore the Human Rights Act can be directly enforced against Tate Modern. 

The presiding Judge accepted evidence that visitors to the gallery were looking inside the flats of the claimants and “displayed an interest in the interiors of the flats which is more than a fleeting or passing interest”. The Judge held that the steps taken by Tate Modern to prevent visitors from taking photographs or filming were inadequate to address the concerns of the claimants. 

The claimants accepted that the Tate Modern cannot be considered a “core” public authority, but maintained that the Tate performs functions of a public authority pursuant to s.6(3)(b) of the Human Rights Act 1998. The Tate Modern was established by the Museums and Galleries Act 1992. Indeed, the Tate argued that is it not a “core” public authority.   

The Judge noted that there is no single test in determining if a body can be described as a “public authority”. Rather there are series of factors that should be present for a body to be considered a “public authority”. In his judgment, Mr Justice Mann held that the fact that an organisation offers services for the public benefit does not make it a public authority. It was acknowledged that the Tate provides a public service to the nation, but the Judge stressed that this is not determinative in and of itself. 

In his judgment, Mr Justice Mann stated that although the Tate was founded by an Act of Parliament in 1992, prior to the Act the functions of the Tate were being carried out by other groups and organisations. Those organisations were not considered pubic authorities. Thus, it is unlikely that the 1992 Act intended to transform Tate into a public authority. 

It was noted that the Tate is only partly funded by the public — in fact the majority of its funding does not come from the State and there is no statute requiring the State to provide funding, only that the Secretary of State “may” provide funding. Mr Justice Mann said “the more a body is publicly funded, the greater the fore which can be given to this element, and the converse is true.” The Judge noted that public authorities are required to act only in the public interest and statutory constitution. This cannot be said of the Tate Modern.

The degree of control by the State was also considered by the court — Mr Justice Mann noted that although there is a degree of State control, that control is mostly restrictive rather than a positive control. The State control is to a greater extent concerned with the public funding. The supervisory control is less significant.      

Mr Justice Mann concluded that the Tate was not exercising functions of a public nature. Thus the claim of privacy under the Human Rights Act fails. Such privacy claims under the Human Rights Act can only be brought against “public bodies”.   

The Judge noted that it is possible for a person to act in contravention of Article 8 by prying into the home of another, whether or not the prying is done by equipments of photography. However, as noted above, the prying must be done by a public authority for it to give rise to action under the Article 8.

In addition to relying on the Human Rights Act, the claimants also relied on the law as it relates to nuisance. The claimants sought to pursue a claim in nuisance by arguing that the act of looking into their homes was an actionable nuisance claim. Although a claim in nuisance is a tort claim and generally considered to be a cause of action that protects land, it is was accepted by Mr Justice Mann that a claim in nuisance could potentially be used to protect privacy as in this particular case. The Judge however acknowledged that not all overlooking or prying becomes a nuisance. Whether or not it is an actionable claim in nuisance will depend on the facts of the case, including the locality, nature of the act complained about, recurrence and whether the offending party is using his land unreasonably.

In deciding the claim in nuisance, Mr Justice Mann stated that given the urban locality of the buildings the claimants can reasonably expect less privacy. The Judge gave an example of what could be considered a nuisance in a non-industrial area — the establishment of a “noisy, smoke-emitting foundry”. Further, Mr Justice Mann held that despite the installation of a viewing gallery the Tate were not using their land unreasonably.

There were questions raised about whether the developer’s decision to build the structure with more windows and less walls in that locality created the occupiers’ own sensitivity which they will have to tolerate. The Judge noted a number of remedial steps which the owners could employ to protect their privacy, including, using curtains, blinds and privacy film. However, in conclusion, the Judge held that there is no actionable nuisance and thus the claimants’ case fails. 

Remedies for unfair dismissal

The Employment Rights Act 1996 (ERA 1996) sets out the remedies available to claimants in cases of unfair dismissal. Where a tribunal finds that an employee has been unfairly dismissed, the tribunal may apply the following remedies in favour of the employee:

Order the employer to reinstate or re-engage the claimant 

Although orders for reinstatement or re-engagement are quite rare in practice, a tribunal has the power to order an employer to reinstate or re-engage the services of the claimant. If the employer fails to comply with the tribunal’s order then the tribunal can make an additional award in favour of the claimant.

The tribunal is required to explain to the claimant the circumstances in which it may order the reinstatement or re-engagement of the claimant. The claimant will also be required to confirm if they wish such an order to be made. The tribunal can only order the reinstatement or re-engagement of a claimant if the claimant expresses a wish for such an order to be made.

Reinstatement 

Under ERA 1996 an order for reinstatement requires the employer to treat the claimant as if they had never been dismissed. This means that the claimant suffers no loss of pay, pension or other benefits. The claimant also returns to work on the same terms of employment as they had prior to the dismissal.

The tribunal must first consider whether it is appropriate to order the reinstatement of the claimant before it considers making an order for re-engagement. If the tribunal decides that it is not appropriate to make an order for reinstatement then it may consider whether it is appropriate to make an order for the re-engagement of the claimant.

Re-engagement

An order for re-engagement requires the employer, its successor or subsidiary to engage the claimant in employment that is comparable to the job they had before the dismissal or in any other suitable employment.

Note that where a tribunal orders reinstatement or re-engagement it cannot also make a basic or compensatory award.   

Basic award 

The basic award is a statutory award which can be calculated by multiplying the length of continuous service, age, and a week’s pay (as it was at the date of termination). The formula for calculation is as follows:

  • One and a half weeks’ pay for each year of employment in which the employee was aged 41 or over at the beginning of the year.
  • One week’s pay for each year of employment in which the employee was aged 22-40 at the beginning of the year.
  • Half a week’s pay for each year of employment in which the employee was under the age of 22 for any part of the year.

There is a statutory cap of a week’s pay for the purposes of calculating basic award. The calculation for employees who earn less than the statutory cap on a week’s pay will be based on their actual gross weekly pay week’s pay.

If the employee’s gross weekly pay is less than the national minimum wage in force at the time then the tribunal will apply the minimum wage in calculating the basic award.

Note that a week’s pay only includes the basic pay, but does not include bonuses and overtime.

Compensatory award 

After considering basic award, the tribunal must then consider the appropriateness of making compensatory award. Unlike basic award, there is no set formula for calculating compensatory award. 

Section 123 of the ERA 1996 states that compensatory award shall be “such amount as the Tribunal considers just and equitable in all the circumstances having regard to the loss sustained by the complainant in consequence of the dismissal insofar as that loss is attributable to action taken by the employer“. 

In determining the level of compensatory award, the tribunal will consider the loss suffered by the claimant and whether the loss is (i) a consequence of the unfair dismissal (ii) attributable to the employer (iii) just and equitable. The tribunal will look at both the past (from the date of termination to the date of the hearing) and future (from the date of the hearing to an appropriate future date) losses. 

In calculating the compensatory award, the tribunal will consider losses such as:

  • Loss of earnings
  • Loss of bonus or commission 
  • Loss of benefits 
  • Insurance cover 
  • Loss of company car
  • Loss of pension 

Additional award for non-compliance 

Pursuant to section 117(3)(b) ERA 1996, the tribunal may make an award of between 26 and 52 weeks’ pay if an employer fails to comply with an order for reinstatement or re-engagement. The additional award is not intended to serve as a compensatory award for the claimant, rather it is meant to punish the employer for failing to comply with the tribunal’s order.

However, the tribunal will not make an additional award against the employer where it was not practical for the employer to comply with the order.

 

Contact us at ask@penerley.com for further advice on employment law.

Enforcing money judgment 

Obtaining a money judgment does not automatically bring the matter to a close. In many cases the judgment creditor would have to take enforcement steps against the debtor in order to realise funds to satisfy the money judgment. To enforce a money judgment, the debtor must have failed to pay the judgment when it fell due or failed to pay an instalment due under the terms of the judgment.  

There is no strict time limit for a creditor to enforce a judgment entered by English courts. However, the courts will not look kindly on a judgment creditor that delays enforcing the judgment. The creditor may also lose interests that accrued during those periods.

A judgment creditor must obtain permission from the courts to issue a writ of execution on any judgment that is more than six years old.

There are various methods of enforcement open to a judgment creditor. The method of choice will depend on such facts as the amount of monies owed and the assets owned by the judgment debtor. 

Although most judgment creditors use one enforcement method at a time, it is in fact possible for a creditor to use more than one method of enforcement simultaneously. However, a judgment creditor must avoid recovering twice for the same judgment debt.

We now look briefly at six enforcement methods.

 

Writ and warrant of control 

A writ or warrant of control instructs a High Court enforcement officer or a County Court bailiff to seize and sell at auction goods belonging to the debtor. The purpose of this enforcement method is to raise enough funds from the sale of the debtor’s goods in order to satisfy the money judgment.

The maximum amount that the judgment creditor can ask a County Court bailiff to try to get back is £5,000. If you want the enforcement officer to try to get back more than £5,000 then you may transfer your judgment to the High Court and ask the High Court enforcement officer to enforce the judgment. The £5,000 limit in the County Court does not apply to judgment obtained under an agreement regulated by the Consumer Credit Act 1974. 

 

Insolvency proceedings 

This is the procedure by which the assets of a company or individual come under the control of a trustee in bankruptcy or a liquidator. A judgment creditor can apply to liquidate a company (compulsory liquidation) if the judgment debt is more than £750 and the creditor can prove that the company cannot pay the debt. 

The threshold for bankruptcy is much higher. A creditor can only apply to make a debtor bankrupt if the debtor owes at least £5,000.

After an individual has been made bankrupt or a company has been liquidated, a trustee or liquidator will be appointed to realise the assets of the individual or company and to distribute money to creditors by order of priority. The trustee or liquidator has a duty to sell assets at the highest price possible in order to obtain enough money to satisfy the creditors.

After the trustee or liquidator has paid the expenses of the insolvency procedure the secured creditors will then be paid first before unsecured creditors are paid. 

Although insolvency proceedings are fairly common methods of enforcement, please note that an unsecured creditor is unlikely to recover the full amount of the judgment debt, if anything at all.

 

Attachment of earnings

This method of enforcement gives the court the power to order a judgment debtor’s employer to deduct a proportion of the debtor’s earnings and pay to the judgment creditor until the judgment debt is fully paid. Attachment of earnings is only available in the County Court, but judgments obtained in the High Court can be transferred to the County Court for the purpose of obtaining an attachment of earnings order.

 

Charging order

A charging order secures a judgment debt by imposing a charge over the debtor’s beneficial interest in land, securities or other types of assets. The charge can be recorded and prevents the judgment debtor from selling or disposing of the land without paying the judgment creditor. 

This method of enforcement does not realise funds for the creditor at the outset. However, the judgment creditor may later apply for an order of sale, compelling the debtor to sell the property. Alternatively, the creditor may wait until the debtor sells the property or other creditors obtain possession of the property.

Once the land or asset is sold, the judgment creditor is paid provided there is enough equity remaining after the prior creditors have been paid.

 

Third-party debt order 

The effect of a third party debt order is that monies owed to the judgment debtor by a third party is frozen, seized and paid to the judgment creditor. This method of enforcement is most effective where the debtor has a bank account with funds. 

 

Writ of sequestration 

When a person disobeys a court order and acts in contempt of court, the court may order the sequestrator to take control of the person’s property until he has complied with the court order. Although control of the property moves to the sequestrator, title to the property remains with the person in contempt. A writ of sequestration is a draconian step and is rarely used to enforce money judgment. 

 

A step by step guide to bankruptcy proceedings

Legal threshold  

You may apply to make someone bankrupt if you are owed at least £5,000. Although you can commence bankruptcy proceedings without engaging the services of lawyers, it is strongly advised that you seek prior legal advice as bankruptcy proceedings can be complicated. There are serious implications in making someone bankrupt and you want to be sure that you are following the correct procedure and requirements.

Statutory demand 

Once you have decided to make someone bankrupt, you should serve the person with a statutory demand. The statutory demand should be served by a process server who will then provide a statement as evidence to confirm service of the statutory demand. A statutory demand is a formal request for the debtor to pay the sums owed to the creditor. In response to the statutory demand, the debtor may either apply to the court to set aside the demand or pay the sums demanded. 

Check for other bankruptcy petitions 

Following the service of the statutory demand, you must carry out checks to find out if the debtor has had any bankruptcy petitions against them within the last 18 months. If you find an existing petition then you may support that petition rather than file a new petition. You may proceed with your petition if there are no existing petitions against the debtor.

Presenting the bankruptcy petition 

If the debtor does not pay the sums demanded or does not apply to set aside the statutory demand, you should proceed to the next step by presenting a bankruptcy petition in court. To present a bankruptcy petition you must file the petition with the relevant court. The relevant court will depend on the debtor’s address and whether you are submitting the petition online or in person.  

Serving the petition on the debtor 

After presenting your bankruptcy petition, you must then serve a copy of the same petition on the debtor. The petition must be personally given to the debtor. A process server should be hired to give the bankruptcy petition to the debtor. If the debtor evades service despite several attempts to give them the petition, then you must apply to the court where you presented the petition for permission to serve the debtor by alternative means. For example, you may seek permission from the court to post the petition to the debtor. The process server should then provide a statement as evidence to confirm when and how the petition was served on the debtor.

Court hearing 

After the petition has been presented the court will set a court date to hear the bankruptcy petition — both parties are expected to attend the hearing. At the hearing, the petitioner will be required to provide a statement confirming how much of the debt remains outstanding. The petitioner must also provide the judge with a list of creditors who intend to attend the bankruptcy hearing. 

At the bankruptcy hearing, the judge will hear evidence from the parties involved. Depending on the evidence before the judge, the judge could declare the debtor bankrupt at that same hearing or adjourn the matter to a later date. The judge may also dismiss the bankruptcy petition if the petitioner does not successfully prove their entitlement to make the debtor bankrupt.

 

 

This is an overview of the bankruptcy process — please contact us for specific advice. 

Forfeiture of Commercial Lease

A lease for commercial premises is a contractual agreement between the lessor and lessee and is governed by Common Law. This is different to tenancy agreements for residential premises which are governed by the Housing Act 1988. A commercial lease will commonly have a start and an end date — the end date being the date when the lessee will be entitled to vacate the premises and the lessor entitled to take possession of a vacant property.

Break Clause 

It is indeed possible to end a lease before the actual end-date stated on the lease agreement, provided the parties inserted a break clause into the lease agreement. A break clause in the context of a lease is a stated date or period prior to the actual end-date when the lease may be terminated by either the lessee or the lessor without fear of a penalty. Where there is a break clause in the lease there will often be an agreed notice period where the party intending to break the lease will give notice to the other party of their intention. The length of the notice period required will be stated in the lease and will often range from two to six months’ notice.

Other grounds for terminating a lease

Not all lease agreements have a break clause. The lack of a break clause in a lease does not prevent a party from breaking the lease before the stated end date. A party may break the lease if the other party agrees to the termination of the lease. Subject to the terms of the lease, a tenant may assign the lease to a third party or sub-let parts or all of the property. Assignments and subletting often require the express consent of the landlord.

Although the right of a landlord to forfeit a lease is not automatic, most lease agreements contain the right to forfeit. The right to forfeit is usually dependent on the tenant breaching a fundamental term of the lease, such as failure to pay rent. Upon forfeiture, the lease ends on the date the forfeiture takes effect. The effect of forfeiture is that the lease is terminated and the parties’ rights and responsibilities under the lease cease. 

Procedure for forfeiting a lease

In order to forfeit a lease, the landlord is required to first give the tenant notice pursuant to section 146 of the Law of Property Act 1925. The notice must specify the nature of the breach complained of, whether the breach can be rectified, give the lessee a reasonable time to remedy the breach, and require the lessee to compensate the lessor for the breach. Although “reasonable time” is not defined under the Law of Property Act 1925, the length of time given to the lessee to remedy the breach will often depend on the nature of the breach. 

Where the breach is not remedied within a reasonable time, the lessor may forfeit the lease. The lessor may then exercise the right to peaceable re-entry or issue court proceedings to obtain a possession order against the lessee. The right to peaceable re-entry means that the lessor or an appointed agent re-enters the property when there is no one inside and change the locks to prevent the lessee from entering the premises. 

Securing possession of premises

To ensure peaceable re-entry, it is common practice to re-enter the property and change the locks outside business hours when no one is on the premises. Nonetheless, peaceable re-entry can be a complicated matter, especially if the lessee later applies to a court for relief. If the court grants that relief and permits the lessee to return to the premises, then the lessor will be in a very difficult position if the property has been re-let to a third-party. Further, there is no right to peaceable re-entry if the property is let as a dwelling.  Therefore, it is best practice to obtain a possession order from a court after serving a notice under section 146 and allowing reasonable time to elapse.

 

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For advice on commercial leases, please call us on 0203 488 3078 or email at ask@penerley.com 

Royal Mail fined for breaking competition law

The Royal Mail was recently fined a record £50m for breaking competition law. The fine was levied by OFCOM after the communications regulator concluded that Royal Mail stifled competition by increasing the price of its wholesale service for competitors who used their own workers for delivery in certain areas and only used the Royal Mail for delivering letters in some areas. OFCOM concluded that by increasing the wholesale prices, Royal Mail was in effect compelling its competitors to use the Royal Mail in delivering letters in all the areas the competitors covered and not just in parts. Read more

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