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After Cavendish Square/ParkingEye, is it more or less likely to be a penalty?

November 23rd, 2015 by Julian Wilson

Reports of the decision of the Supreme Court in the joined appeals in Cavendish Square and ParkingEye left me confused because some reckoned the decision represented a narrowing of the application of the penalty doctrine whilst others considered it had expanded the doctrine’s scope. So on a wet weekend afternoon I took hold of a copy of the Judgment – [2015] UKSC 67- and tasked myself to find out. Here is what I found.

First, the Supreme Court tells us that it declined invitations by Counsel either to abolish the penalty doctrine or to extend it.

Second, Lords Neuberger and Sumption (in the leading judgment with which Lord Carnwath agreed) suggest that they have given the doctrine a reappraisal.

I hope they will forgive me if I say that it seems to me to be more of a facelift than a remodelling.

They tell us now that:

“[32] The true test is whether the impugned provision is [1] a secondary obligation which [2] imposes a detriment on the contract-breaker [3] out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation” (my enumeration, added for convenience)

As to [1] – the identifier that the provision must be a secondary obligation – this might appear to be restrictive but traditionally, a penalty has always been identified as a disadvantage triggered upon breach and yet there have been cases dealing with “disguised penalties” where the court has looked beyond the draftsman’s ability to circumvent the need for the trigger of a breach. Those cases treated the doctrine as one of substance not form. From what I can see, the Supreme Court neither elevated nor diminished those cases. Lords N and S (at [14] to [15]) recognised that the secondary obligation requirement meant that in some cases the application of the penalty rule may depend on how the relevant obligation is framed in the contract. If the draftsman had framed a conditional primary obligation rather than a secondary obligation providing a contractual alternative to damages, that would usually avoid the application of the doctrine. However, Lords N and S said, the capricious consequences of this state of affairs were mitigated by the fact that the classification of terms for the purpose of the penalty rule depends on the substance of the term and not on its form or on the label which the parties have chosen to attach to it. They nevertheless declined to expand the doctrine to ensure its application did not turn on mere questions of drafting even where a realistic approach was taken to the substance of the transaction and not just its form. They felt that the fact that the application of the doctrine could turn upon questions of drafting was justified by the fact that the rule “being an inroad upon freedom of contract which is inflexible … ought not to be extended” at least by judicial, as opposed to legislative, decision-making.

Essentially, therefore, the Supreme Court does not seem to have taken the whole of the rug away from under the feet of those arguing in future of the doctrine’s application to disguised clauses.  What is not clarified is whether and when a clause dressed as a conditional primary obligation will be treated as a disguised penalty. Let us take, for example, the clause in the famous Interfoto Library case beloved of all students of contract law:

“All transparencies must be returned to us within 14 days from the date of posting/delivery/collection. A holding fee of £5 plus VAT per day will be charged for each transparency which is retained by you longer than the said period of 14 days…”

which the then Lord Justice Bingham, no less, felt challengeable as a disguised penalty clause. That clause imposed a primary obligation on the hirer of the transparencies to perform an act, namely their return within 14 days but it did not purport to impose a secondary obligation providing for payment on breach of a specified sum of money in lieu of damages. Instead, it provided that, if the hirer did not perform the 14 day obligation, a holding fee would be payable.

Assuming the Supreme Court would defer to Bingham L.J.’s analysis, what factor makes that clause a disguised penalty? Presumably, it is the fact that the contract imposed the obligation to perform within 14 days. If the contract had merely stated:

“A holding fee of £5 plus VAT per day will be paid for each transparency which is retained by you longer than …14 days…”

the obligation to pay the specified sum would have amounted to a conditional primary obligation and ought not, on the reappraised test, have fallen within the doctrine. Seems a tad artificial doesn’t it?

As to [2] the Supreme Court did not restrict the nature of the detriment imposed to payments of money. It was more expansive in its view. Lords N and S saw no reason why an obligation to transfer assets (either for nothing or at an undervalue) should not be capable of constituting a penalty. Similarly, the fact that a sum is paid over by one party to the other party as a deposit, in the sense of some sort of surety for the first party’s contractual performance, would not prevent the sum being a penalty, if the second party in due course forfeited the deposit in accordance with the contractual terms, following the first party’s breach of contract. Lord Mance accepted that the doctrine extended to where the detriment imposed was a transfer of money’s worth rather than just of money.

What of [3] the new test of the measure of the detriment?

The clause must impose a disproportionate disadvantage on the party in breach if it is to be classified as penal. That is nothing new. That there is an element of deterrence in the detriment imposed is no longer enough. Moreover, the measure of the detriment will no longer always be tied to a pure damages comparison. The judgments recognise that the party imposing the disadvantage may have a legitimate commercial interest in the performance of the primary obligation extending beyond a financial substitute for performance. Lord Mance put it this way:

“What is necessary in each case is to consider, first, whether any (and if so what) legitimate business interest is served and protected by the clause, and, second, whether, assuming such an interest to exist, the provision made for the interest is nevertheless in the circumstances extravagant, exorbitant or unconscionable.”

So, in Cavendish Square, the court could look beyond the particular loss arising from the breach of the restrictive covenant to the innocent party’s legitimate commercial interest in the protection of it goodwill. In ParkingEye, the court could look at the overall cost of providing and maintaining a car parking enforcement scheme rather than the particular loss caused by the individual parker’s extended stay.

This approach undoubtedly provides a greater ambit of justification to the innocent party and restricts the circumstances in which a clause is determined to be penal in its effects.

Julian Wilson

11KBW’s Richard Leiper appeared for Cavendish Square

When is travelling time working time? And when does working time not earn the minimum wage?

September 14th, 2015 by Harini Iyengar

The European Court of Justice (“the ECJ”) has now given judgment in Federacion de Servicios Privados del sindicato Comisiones obreras v Tyco Integrated Security Case C-266/14 consistent with the Advocate General’s opinion, on which James Goudie QC blogged recently. For peripatetic or mobile workers (who do not have a fixed or habitual workplace) time spent travelling from home to the first appointment and from the last appointment back home counts as working time under EU law. The judgment has very significant implications for employers whose workforce includes, for example, home care staff, gas fitters, and sales teams.

“The improvement of workers’ safety, hygiene and health at work is an objective which should not be subordinated to purely economic considerations,” says the preamble to the Working Time Directive, as the ECJ pointed out. The judgment describes how Tyco formerly ran a network of regional offices, to which its security system technicians used to report each day to collect their vehicles and work schedules. Time travelling from home to the regional office was not treated as working time, but time travelling from the regional office to the first appointment, and back again from the last appointment to drop off their vehicles, was counted as working time. As a cost-saving measure, made possible by new technology, Tyco then abolished the regional offices, so that its workers now park their company vehicles at home, collect equipment, parts and materials just once a week, and receive their daily schedules and record their appointments through a mobile phone application. The court considered that the nature of the journeys to the first appointment and from the last appointment had not changed with the abolition of the regional offices, and so it was still working time. Clearly sympathetic to the workers, whose commutes were up to three hours long since closure of the regional offices, the Court held, “Having lost the ability freely to determine the distance between their homes and the usual place of the start and finish of their working day, they cannot be required to bear the burden of their employer’s choice to close those offices.” The Court readily accepted, however, that Tyco remained free to determine the rate of pay for the time spent travelling between home and customers, because – save for holiday pay issues – the Working Time Directive does not apply to the remuneration of workers.

Is it safe for employers to assume that the ECJ’s ruling affects only rest breaks and leave entitlements, and will create no new entitlements to pay? UK workers’ entitlements to rest breaks, overnight rest and holidays are derived from European law. In contrast, the right to receive a minimum wage is based in domestic law, and regulations 27, 34 and 39 of the National Minimum Wage Regulations 2015 expressly exclude time spent travelling between the home and the workplace from the time which is eligible for the minimum wage. Thus, there is a superficial disjunct between the EU working time rights including the ECJ’s judgment that travel to work counts as working time, and the domestic regime under the minimum wage rules in which travel between home and work does not generally count.

Will peripatetic workers now come under pressure from employers to opt out of the 48-hour week, so that they can, for example, be instructed to take compulsory rest breaks when they arrive at work and just before they set off for home? Whilst the UK’s long-standing opt-out of the 48-hour maximum week prescribed by the Working Time Directive is officially continually under review at Brussels, the Government stated only this month that retention of the opt-out is a top priority – click here.

A more realistic view is that, depending on the particular contracts of employment, any collective agreements, and whether the employer negotiates with a recognised trade union, the ECJ’s judgment that peripatetic workers’ commuting time is “working time” will in practice entitle many UK employees to claim significant sums of additional pay, and, in some cases, those pay claims will be based on the minimum wage rules, or on higher rates of pay derived from collective agreements. Many employers will also have to reconsider route-planning between clients and to revise daily schedules to incorporate additional rest periods. Some employers may even find that, in order to maintain a profitable business, living close to the client area will have to become a job requirement for peripatetic workers. In a further complication, we are currently waiting to see the proposals for the new national living wage for workers aged over 25. These working time, national minimum wage and living wage riddles are only just beginning.

Harini Iyengar

Petter v EMC: Employment Share Schemes, Choice of Forum and Anti –Suit Injunctions – did the CA take a step too far?

August 13th, 2015 by Julian Wilson

In granting the anti-suit injunction against EMC Corporation in Petter v (1) EMC Europe Limited (2) EMC Corporation [2015] EWCA Civ 828, the CA considered that it was upholding the policy in section 5 of Regulation (EU) 1215/2012 for the protection of employees from being sued other than in the courts of their domicile. But was it exceeding the limits of its jurisdiction to regulate the lawful conduct of foreigners, and interfering in the process of justice in the court of a friendly foreign state?

The Facts

EMC Corporation (“EMC Corp”) is based in Massachusetts. Mr. Petter was employed by its English subsidiary, EMC Europe, in a senior role. In that role, he was party to a share distribution scheme known as a “Stock Plan”, under which awards of common stock of EMC Corp were made available by EMC Corp as part of his total remuneration on a deferred basis.

The Stock Plan contained an express choice of Massachusetts law and an exclusive submission to the jurisdiction of the Massachusetts courts.

Mr. Petter left EMC Europe and took up employment with a local subsidiary of a competitor American company.

EMC Corp started proceedings against Mr. Petter in Massachusetts seeking declarations that it was entitled under the terms of the Stock Plan and related agreements to rescind the most recent awards of stock to him.

Mr. Petter responded by starting proceedings against EMC Europe and EMC Corp in the English High Court seeking declarations that the restrictive covenants in his contract of employment were unenforceable as being an unreasonable restraint of trade, that the provisions of the Stock Plan under which EMC Corp purported to rescind awards of stock were unenforceable and that he had not acted in breach of his contract of employment. He also sought an interim injunction prohibiting EMC Corp from pursuing the proceedings against him in Massachusetts.

Mr. Petter served EMC Corp out of the jurisdiction, in Massachusetts, on the basis that it was his employer and party to a contract of employment within Article 20 of the Recast Brussels Regulation 1215/2012.

EMC Corp challenged the jurisdiction of the English court on the grounds that the Stock Plan contained a contractual choice of the Massachusetts forum.

The Massachusetts court dismissed Mr. Petter’s challenge to its jurisdiction, declaring that it had jurisdiction to determine EMC Corp’s claims based on the contractual choice of forum in the Stock Plan.

The case bore close similarities to Samengo-Turner v J&H Marsh & McLennan (Services) Ltd [2007] EWCA Civ 723.

At first instance- [2015] EWHC 1498 (QB)- Cooke J. upheld the English court’s jurisdiction against EMC Corp on the basis, following Samengo-Turner and Duarte v Black & Decker [2007] EWHC 2720 (QB) that the Stock Plan with EMC was part of the contract of employment and the provisions of s.5 of the Recast Brussels Regulation in matters relating to individual contracts of employment applied to the dispute and overrode the jurisdiction agreement in the Stock Plan.

Cooke J. nevertheless declined to grant an anti-suit injunction to restrain EMC Corp from pursuing its proceedings in Massachusetts, as a matter of discretion, for reasons of comity and because the Massachusetts proceedings were not vexatious or oppressive by reason of them being in the forum of contractual choice. Despite a natural aversion to parallel proceedings, he regarded it to be unlikely that EMC Corp would submit to the English jurisdiction and that parallel proceedings in both courts were therefore inevitable with the losing party in each jurisdiction likely to resist enforcement in the other jurisdiction and to succeed in doing so because of the perceived lack of jurisdiction of the other court.

The CA allowed Mr. Petter’s appeal against the refusal of the anti-suit inunction and dismissed EMC Corp’s appeal on jurisdiction, holding that the case was indistinguishable from Samengo-Turner and the result ought to be the same.

The CA held that the effect of the Regulation was that the English court was bound to disregard the Massachusetts exclusive jurisdiction clause and to assume jurisdiction. The Judge had been in error in making an assumption that EMC Corp would not submit to the English jurisdiction and would continue the Massachusetts proceedings. The principle emerging from Samengo-Turner was that, in such a case, where there were parallel proceedings in a foreign forum outside the Member States, the English court could not do nothing and an anti-suit injunction should ordinarily be granted to restrain proceedings in order to protect the employee’s rights. The public policy of the English forum to be found in the provisions of the Regulation overrode party autonomy and the principle that agreements must be kept.

Comment

The CA’s approach was to exercise a jurisdiction beyond the limits of its territoriality, which was always likely to encourage rather than quell disorder, as Cooke J. below had rightly foreseen.

Even before the CA’s Order had been perfected, EMC had moved the Massachusetts court to grant an injunction restraining Mr. Petter from taking any further steps in the proceedings in this country and had applied for summary judgment on its claim there. This flurry of activity naturally led to a further judgment of the CA – [2015] EWCA Civ 828 – in which it deprecated EMC Corp’s conduct and granted, in addition to the anti-suit injunction, mandatory injunctive relief requiring EMC Corp to withdraw its motion for summary judgment in Massachusetts.

The CA’s grant of the ASI against EMC Corp cannot be reconciled with proper adherence to the doctrine of international jurisdiction, the doctrine which fetters the exercise of a national court’s jurisdiction beyond the limits of its territoriality.

EMC Corp is not resident within the English jurisdiction. It was served with English process outside the jurisdiction as permitted by the Regulation. This was a use of the English court’s extended long-arm jurisdiction pursuant to the Regulation. EMC Corp did not submit to the jurisdiction. EMC did not contract in to the jurisdiction.

The CA appears to have assumed that just because EMC Corp could be served with the English court’s process outside the jurisdiction pursuant to the Regulation, there was no territorial limit on the things which it could order EMC Corp to do. So, it felt able to order EMC Corp to refrain from doing things abroad and to positively do things abroad even when the conduct it was seeking to regulate was lawful in the country where it was being performed.

This was a flawed approach. As the late Dr. Francis Mann observed in a leading article, “The Doctrine of Jurisdiction in International Law,” (1964) 111 Recueil des cours 146:

“The mere fact that a state’s judicial or administrative agencies are internationally entitled to subject a person to their personal or ‘curial’ jurisdiction does not by any means permit them to regulate by their orders such person’s conduct abroad. This they may do only if the state of the forum also has substantive jurisdiction to regulate conduct in the manner defined in the order. In other words, for the purpose of justifying, even in the territory of the forum, the international validity of an order, not only its making, but also its content must be authorised by substantive rules of legislative jurisdiction.”*

Although the English Court here was entitled by the Regulation to subject EMC Corp to its curial jurisdiction, that Regulation did not provide it with the substantive jurisdiction to require EMC Corp to desist from asserting its legal rights in Massachusetts.

Indeed, so far as the Regulation is concerned, the power of the English court to order an ASI is inconsistent with the Regulation, see the decision of the European Court in Turner v Grovit.  It does not matter for these purposes that Turner‘s ratio only applies where the proceedings to be restrained are proceedings in another Member State rather than in the US. The point is that the Regulation cannot be relied on as the basis of any substantive rule of English legislative jurisdiction to grant an ASI regulating the conduct of a non-submitting foreigner abroad.

The substantive jurisdiction to grant ASIs is contained in s. 37 SCA 1981 which, of course, gives the court the discretion to order any form of injunction when it appears to the court to be just to do so.  But whether it is just or not to do so in any particular case includes a consideration of territoriality under the doctrine of international jurisdiction. The CA did not undertake that consideration.

The case law shows that the power to grant the particular form of injunction called an ASI is also confined to where it is appropriate to avoid injustice because pursuit of the foreign action would be oppressive or vexatious: Aerospatiale.  The court must consider both the injustice to the claimant in England if he is subjected to suit abroad and injustice to the defendant in restraining his foreign suit.

Little consideration appears to have been given in the CA to whether or not the proceedings pending in Massachusetts, which it was being asked to interfere in and restrain, were in any way vexatious or oppressive in nature. This was perhaps because the CA regarded itself bound by Samengo-Turner. If the CA had considered that question, the answer must surely have been “no” because the assumption of jurisdiction by the Massachusetts court was plainly not manifestly exorbitant on English or international law principles. Mr. Petter had made a contractual choice of that forum, in relation to disputes under the Stock Plan, exclusive to any other. As the CA acknowledged, English law has always attached considerable importance to upholding and giving effect to exclusive jurisdiction clauses. The English court could hardly therefore criticise the basis of jurisdiction on which the Massachusetts court was acting. Also, the claim in Massachusetts appears to have been plainly arguable and not made in bad faith or doomed to failure. What then could justify interference by the English court with the process of justice in the court of a friendly foreign state? As we have seen, it was certainly not the Regulation.

The CA would have been wise to take into consideration that restraining a person from pursuing a remedy in a foreign court where-if he proves the necessary facts-he has a cause of action is (however it is disguised as being directed at the litigant personally) an interference with the process of justice in that foreign court, see British Airways v Laker. For this reason, the grant of the ASI remedy always requires caution. There must be demonstrated a good reason why the decision to stop the foreign proceedings should be made in England rather than in the foreign court, see Re Maxwell Communications (No.2). The normal situation facing the English court being asked to grant the injunction is that it is being asked to pre-empt or override the foreign court’s decision whether or not to allow the proceedings before it to continue. It has been said that the English court should normally assume that the foreign judge is the best person to decide whether an action in his own court should proceed: Barclays Bank v Homan and that the English court should respect his competence to do so and his decision: Aerospatiale; Airbus. The CA undertook no such consideration in Petter.

Julian Wilson

*See also by Dr. Mann, “The Doctrine of International Jurisdiction Revisited after Twenty Years,” (1984) 196 Recueil des cours 9, 19. Dr. Mann’s influential articles were referred to by Hoffman J. in Mackinnon v Donaldson, Lufkin and Jenrette Securities Corporation and Others [1986] Ch. 482 and by Mance L.J.  in Societe Eram Shipping Company Ltd v Compagnie Internationale De Navigation [2001] CP 112 who explained that the theme of the passage from Dr Mann’s article which Hoffmann J. had cited, was that a state’s exercise of its power to regulate the conduct of persons abroad required the state to have not merely personal jurisdiction over that person, but also substantive jurisdiction to regulate conduct in the manner undertaken.

Peripatetic workers

June 15th, 2015 by James Goudie QC

Spanish employers refused to count as “working time” within the meaning of the Working Time Directive the time that their employees spend each day travelling from home to their first customer and from their last customer to their home. In an Opinion delivered on 11 June 2015, in Case C-266/14, Advocate General Bot has advised that the Directive should be interpreted as meaning that the time that peripatetic workers, that is to say workers who are not assigned to a fixed or habitual place of work, spend travelling from home to the first customer designated by their employer and from the last customer designated by their employer to their homes constitutes “working time”.

Advocate General Bot observed that the Directive does not provide for any intermediate category between “working time” and “rest periods”; that it does not provide for “grey periods” interposed between working time and rest periods; and that the CJEU has adopted a two-pillar approach, whereby anything not covered by the concept of “working time” is covered by the concept of “rest period”, and vice versa.

The definition of “working time” is based on three criteria, which, in the light of the case-law of the Court, it appears necessary to regard as cumulative: (i) a spatial criterion (to be at the workplace); (ii) an authority criterion (to be at the disposal of the employer); and (iii) a professional criterion (to be carrying out his activity or duties).  The failure to take into account as “working time” the time which peripatetic workers spend travelling from home to the first customer designated by their employer and from the last customer designated by their employer to their homes is contrary to the Directive in so far as, in the case of that category of worker, the three criteria are met.

Peripatetic workers may be defined as being workers who are not assigned a fixed or habitual place of work. Such workers are therefore required to work at different premises every day. It follows from that definition that travelling for those workers is an integral part of being a peripatetic worker and therefore inherent in the performance of their activity. Travelling by those workers is a necessary means of providing their services to the customers designated by their employer. Such travelling must therefore be regarded as forming part of the activity of those workers.

When peripatetic workers travel from home to their first customer and from the last customer to their homes they are not outside the scope of their employer’s management power. The travelling is done in the context of the hierarchical relationship which links them to their employer. The workers are in fact travelling to customers that have been determined by their employer and in order to provide services for the benefit of their employer.  It is not therefore only when peripatetic workers are at the job site that they are subject to the instructions of their employer.

Therefore, in Advocate General Bot’s opinion, the third and second criteria were met. He also regarded the first, spatial, criterion as being met.

Travelling is an integral part of being a peripatetic worker, a place of work cannot be reduced to the physical presence of the employees on customers’ premises. It follows that when they use a means of transport to go to a customer designated by their employer, at whatever time during their working day, peripatetic workers must be considered to be “at work”.  When examining whether in the specific context of peripatetic workers the criteria in the definition of “working time” are met or not, there is no need to differentiate between, on the one hand, journeys from those workers’ homes to a customer, and, on the other hand, journeys the workers make between customers. It is not disputed that travelling by the workers between customers is considered to form part of the workers’ working time. Moreover, in the absence of a fixed or habitual place of work the departure and arrival points of the daily journeys are those workers’ homes.

James Goudie QC

Some other substantial reason

April 16th, 2015 by James Goudie QC

In Anderson v Chesterfield High School UKEAT/0206/14/MC, Mr Anderson is currently the elected Mayor of Liverpool.  This is an executive post and regarded as full-time.  The position carries with it an annual allowance of almost £80,000.  He had previously held positions as Councillor of Liverpool City Council, the Leader of the opposition on the Council and ultimately at the time of his election as Mayor, Leader of the Council, which was in effect a full-time post with an annual allowance of approximately £50,000.

Prior to his election as Mayor, he was employed by a neighbouring Local Authority, Sefton Metropolitan Borough Council (“Sefton”) at Chesterfield High School. Once elected Leader of Liverpool City Council he had ceased to work at the School.

Sefton agreed that he should continue as an employee. This was on the basis that he would be paid the maximum allowed as paid leave to enable employees to hold public office by Section 10 of the Local Government and Housing Act 1989 (208 hours per annum).  His post was held open.   Sefton also continued to pay pension contributions.

This arrangement continued until the School became an Academy.  His employment then transferred by a TUPE transfer to the Respondent, now independent of Sefton.

The Respondent was concerned that the arrangement was “inequitable”,  principally because the Respondent was paying some £4,500 per annum to the Claimant but the pupils at the school received no benefit.  The Respondent accordingly terminated the agreement.  The Claimant claimed, inter alia that he had been dismissed unfairly.

The ET found that he had remained an employee and had been dismissed for “some other substantial reason”, a potentially fair reason.  However, the dismissal procedure was unfair, and his claim for unfair dismissal was upheld.  He was entitled only to a basic award subject to a Polkey deduction and contributory fault.

Mr Anderson appealed.  The EAT on 14 April 2015 upheld the decision of the ET on the basis that the deductions were justified on the facts found by the ET and that the Respondent had acted reasonably in taking the view that a continuation of an arrangement whereby Mr Anderson was paid (albeit a modest amount) by a publicly funded school, without having to provide any services, for an indefinite period was of no value to the Respondent and might lead to significant criticism.  It was entitled reasonably to regard the arrangement as inequitable and unsustainable and to terminate Mr Anderson’s  employment.

His Honour Judge Serota QC said:-

“13.      No concern appears to have been given as to what the public perception might be of the expenditure of public money to a full-time politician who was not expected or required to provide any services in return.”

“57.      In my opinion the principal reason for the “dismissal” was obvious. The realisation that a continuation of an arrangement whereby the Claimant, an elected official of a neighbouring Local Authority, was paid (albeit a modest amount) by a publicly funded school without having to provide any services for an indefinite period was considered to be of no value to the Respondent and might lead to significant criticism if the arrangement became public.  The Respondent was reasonably entitled to regard the arrangement as inequitable and unsustainable.  It was also the case that the Respondent considered that the arrangement (including the indefinite holding open of the Claimant’s post) led to some instability within the school.

58.       The Employment Tribunal’s conclusions on the Polkey deduction and deduction for contribution were conclusions to which it was entitled to come.  Its conclusion that the Claimant was party to a misuse of public funds was certainly within the range of reasonable responses of a reasonable employer.  Further, the Claimant’s conduct can reasonably be regarded as culpable or blameworthy.  The finding that the Claimant would have been dismissed in any event had a “fair” dismissal procedure been followed is unassailable as a finding of fact that the Employment Tribunal was entitled to make.  I am unable to see how consultation would have made any difference.  …

59.      It seems to me as though the Claimant has simply not given sufficient attention as to how the arrangement he made with Sefton and so continued with the Respondent might look to outsiders.  The Claimant was entitled to receive almost £80,000 per annum from Liverpool for his role as elected Mayor, yet also procured a payment (albeit modest) from public funds for which he provided, and was not expected to provide, any service.  It was, more likely, considered to be a reverse form for a zero hours contract, whereby the Respondent was bound to make payment of salary but the Claimant was not bound to provide any services.  It is certainly fairly arguable that this arrangement may strike members of the public as constituting a misapplication of public monies. …

60.      What most people would consider the Respondent’s desire to extricate itself from this arrangement, which could have been a public relations disaster for the school, would seem to me to be a clear example of SOSR for ending the employment relationship with the Claimant.  I am satisfied that this is the conclusion to which the Employment Tribunal came and to which it was clearly entitled to come.  In the circumstances, the appeal is dismissed.”

Access to Employment

February 5th, 2015 by James Goudie QC

What proof of linguistic knowledge should be required in order to be able to access employment in the public service?  That was the issue before the CJEU in Case C-317/14, European Commission v Kingdom of Belgium, in which Judgment was given on 5 February 2015.

All the provisions of the TFEU relating to freedom of movement for persons are intended to facilitate the pursuit by nationals of the Member States of occupational activities of all kinds throughout the European Union, and preclude measures which might place nationals of Member States at a disadvantage if they wish to pursue an economic activity in another Member State.  Those provisions thus preclude any measure which, albeit applicable without discrimination on grounds of nationality, is liable to hinder or render less attractive the exercise by EU nationals of the fundamental freedoms guaranteed by the Treaty. However, Member States are entitled to lay down the conditions relating to the linguistic knowledge required by reason of the nature of the post to be filled.  Nonetheless, the right to require a certain level of knowledge of a language in view of the nature of the post must not encroach upon the free movement of workers. The requirements under measures intended to implement that right must not in any circumstances be disproportionate to the aim pursued and the manner in which they are applied must not bring about discrimination against nationals of other Member States.

In the present case, the CJEU acknowledged that it may be legitimate to require a person applying to take part in a competition held in order to fill a post in a local service to have knowledge of the language of the region in which the municipality is located of a standard commensurate with the nature of the post in question. It may be considered that a post in such a service requires an ability to communicate with the local administrative authorities and, as the case may be, with the public.

In such a case, the possession of a diploma certifying that the candidate has passed a language examination may constitute a criterion for assessing the required linguistic knowledge.  However, said the CJEU, to require that a person applying to take part in a recruitment competition provide evidence of his linguistic knowledge exclusively by means of one particular type of certificate, issued only by one particular Belgian body tasked with conducting language examinations in Belgium for that purpose, appears, in view of the requirements of the freedom of movement for workers, disproportionate to the aim pursued. That requirement effectively forces interested persons residing in other Member States, for the most part nationals of those Member States, to travel to Belgium for the sole purpose of having their knowledge tested in an examination which is mandatory for the issuance of the certificate required for their application. The additional expenses which that requirement entails are liable to make it more difficult to gain access to the posts in question. The Kingdom of Belgium had not invoked any objective which might be capable of justifying those effects.

Bankers’ remuneration: is fixed pay now to be regulated too?

November 21st, 2014 by Tom Ogg

Yesterday the ECJ released Advocate General Jääskinen’s opinion on the UK government’s challenge to the Bonus Cap.  The Bonus Cap provides by Articles 92 to 94 of the CRD IV Directive, and implemented by the UK regulators within SYSC 19A, that certain bankers’ bonuses may not be more half their total pay, or two-thirds with shareholder approval.

AG Jääskinen, as widely expected, found the Bonus Cap to be lawful.  It was, however, a closer-run thing than the press release suggested (which for most of yesterday was the only document available; the actual opinion not having been released).   The AG noted that the UK government’s arguments had “varying degrees of merit“, with one point in particular “providing the most cogent reasons for questioning the validity of the measures impugned” (para 118).  That argument is that Article 153(5) TFEU, as interpreted by the ECJ, precludes the EU adopting measures that regulate the level of pay that workers receive.

However, the AG’s view is that “the rules set up through Articles 92 to 94 of the CRD IV Directive can, at most, be viewed as having a link with pay, while the Council adds that the amount of the fixed component is left to the remuneration negotiation between the staff and the financial institution“.  Consequently, there is no limit on the total pay that may be awarded, and so the AG took the view that the Bonus Cap is lawful.  There is, however, scope for argument about that.  If the Bonus Cap were properly adhered to, some argue, the Bonus Cap would tend to limit overall pay because historically a very large proportion of bankers’ pay has been by way of bonus.

The legal niceties were, however, overtaken by events.  Dramatically, upon receiving the AG’s opinion, George Osborne (UK Chancellor of the Exchequer) decided to abandon the challenge to the Bonus Cap.  See here.  Notably, Mr Osborne then wrote to the Governor of the Bank of England, Mark Carney.  In that letter, Mr Osborne notes that the response to the Bonus Cap has been to push up fixed remuneration, which is not subject to the malus and clawback rules that apply to variable remuneration.   Consequently, Mr Osborne states that “I believe there is a need for careful consideration of how, in jurisdictions such as the EU where the balance of banking remuneration has shifted towards fixed remuneration, compensation schemes can still achieve the objective of supporting sound risk taking“.  In other words, the regulators need to consider how fixed pay can be controlled, which was exactly the issue that Mark Carney discussed earlier this week in his speech to the Monetary Authority of Singapore.

What would control of fixed remuneration look like?  Mr Osborne’s letter states that he was ‘interested’ in the ideas floated by President William Dudley of the New York Federal Reserve regarding ‘performance bonds’.  Those ‘bonds’ would be forfeited were fines to be imposed on a bank by a regulator, so that senior bankers bear the brunt of those fines rather than shareholders.  The proposal would be to treat such bonds as part of the fixed pay of senior bankers.  Mr Osborne, I note, was very keen for such proposals to be developed through the Financial Stability Board, of which Mr Carney is chair, so as to ensure that there is coordinated international action, rather than the UK acting alone.  We await the proposals with interest.

Tom Ogg

Conduct and disability

November 20th, 2014 by James Goudie QC

Was there gross misconduct?  If there was, did it justify dismissal?  Those were issues before Judge Eady QC in Burdett v Aviva Employment Services Ltd, UKEAT/0439/13/JOJ, a case concerned with both unfair dismissal and discrimination arising from disability.  The employee had committed assaults in the workplace.  However, this was because of his disability.  He suffered from a paranoid schizophrenic illness.  The ET was judged to have been in error in finding gross misconduct.  They had failed to engage with the question of blameworthiness.  The ET was also found to have been in error in assuming that dismissal will necessarily fall within the range of reasonable responses in a gross misconduct case.

In addition, the ET had failed to demonstrate that it had properly scrutinised the proportionality of the means chosen by the employer to achieve the legitimate aim of adherence to appropriate standards of conduct in the workplace, namely dismissal.  There had been no critical evaluation of possible alternative means, in particular home-working, and whether dismissal was no more than was necessary.  The ET’s conclusion on the discrimination arising from disability claim under Section 15 of the Equality Act 2010 could not be upheld as safe.

The case does not break new ground in terms of legal principles.  However, there are some useful restatements:-

“31.  … if an employer dismisses for a reason characterised as gross misconduct, the Employment Tribunal will need to determine whether there were reasonable grounds for the belief that the employee was indeed guilty of the conduct in question and that such conduct was capable of amounting to gross misconduct (implying an element of culpability on the part of the employee). Assuming reasonable grounds for the belief that the employee committed the act in issue, the Tribunal will thus still need to consider whether there were reasonable grounds for concluding that she had done so wilfully or in a grossly negligent way.”

“32.   Even if the Employment Tribunal has concluded that the employer was entitled to regard an employee as having committed an act of gross misconduct … that will not be determinative of the question of fairness.  The Tribunal will still need to consider whether it was within the range of reasonable responses to dismiss that employee for that conduct.  The answer in most cases might be that it was, but that cannot simply be assumed. …”

“78.       The task of the ET was to scrutinise the means chosen by the Respondent as against such other alternatives that (on the evidence) might have been available to achieve the aim in question.  In so doing, it was required to weigh in the balance the discriminatory impact of the measure chosen against such other alternatives open to the employer.”

Judge Eady QC’s concluding remarks were as follows:-

 “85.       This was a difficult case for all involved. The Claimant has plainly suffered a series of life events and a serious illness that have been catastrophic for him. For its part, the Respondent was faced with an unusual set of circumstances which required a sensitive balancing exercise between its obligations of fairness to the Claimant and its duty of care to its employees more generally. In such cases, it can be all the more important that Tribunals take care to fully set out the reasons that have led to their conclusions. It is trite law that parties are entitled to understand how a Tribunal has reached its Judgment (why they have won or lost). Where the balancing exercise raises issues of particular complexity and sensitivity, it is especially important that the reasons provided are clear, so that parties are not left trying to piece together an explanation for the Judgment or second guess whether the Tribunal has had regard to a particular point. In this case, I am not satisfied that this has been done, both as regards the unfair dismissal or the discrimination arising from disability claims.”

James Goudie QC

Local authority powers to suspend and dismiss teachers

October 17th, 2014 by Tom Ogg

[This post originally appeared on 11KBW’s Education Blog].

In Davies v LB Haringey, a decision of Mr. Justice Supperstone handed down on today (17 October 2014), the claimant was a teacher who had been on full time release for trade union duties for 14 years.  At the time she went on release, she was working at a community school, so by section 35 of the Education Act 2002 her employer was the local authority rather than the governing body.

In 2014, the council wished to investigate disciplinary allegations against her and suspended her in relation to breaches of the council’s Code of Conduct and Social Media Policy.  She claimed that this was a breach of her employment contract, asserting that, by reason of regulation 19 the School Staffing (England) Regulations 2009, only the governing body had the power to suspend her.

The Council, represented by Peter Oldham QC of 11KBW, argued that the Regulations applied only to those worked in schools, and the reality of the situation was that the claimant had not done so for a long time. Further the Council argued that regulation 19 of Regulations gave a power to the governing body to suspend but did not take away the Council’s power to suspend under the contract of employment.

The judge agreed with both of the Council’s contentions.   Whilst the facts were very unusual (on account of the teacher’s absence from the school on trade union duties), nevertheless, the determination that the local authority retains statutory powers of suspension and discipline, at least in exceptional cases, is significant.

Tom Ogg

‘Wrotham Park’ on the march; Court awards 10 Million Euros in negotiating damages for breach of an equitable obligation of confidence

October 3rd, 2014 by Simon Devonshire QC

In CF Partners (UK) LLP –v- Barclays & Ors [2014] EWHC 3049 (Ch), the High Court (Hildyard J) awarded the Claimant 10 million Euros as ‘Wrotham Park’ damages for breach of an equitable obligation of confidence.   So far as the writer is aware, this is the largest award of its kind to date, and is indicative of the increasing judicial willingness to assess damages by reference to the release or licence fee that would have been agreed in a hypothetical negotiation; see my earlier post on the One Step case.    The CF Partners case gives some interesting guidance on the nature and basis of assessment, as well as on breach of confidence as a cause of action more generally.

The Facts

The facts are complicated (and addressed in the judgement in some 200 pages).   In the summary that follows, the facts are simplified for the purposes of analysing the Judge’s most interesting legal conclusions.

In 2008, the Claimant (“CFP”) approached Barclays (“the Bank”) for a loan to finance its bid to acquire a target company with a large portfolio of carbon credits in a various hydro power projects (“T”). CFP had identified T as being undervalued in the stock market.   In support of its loan application, CFP provided the Bank with a spreadsheet containing technical information about T and proposed routes to realising its intrinsic value (“the Spreadsheet”).

CFP’s negotiations with T fell through, and in 2010 the Bank acquired T, selling it on for a substantial profit in 2012.   Amongst other things, CFP alleged that the Bank had used the Spreadsheet in deciding to target and/or in its acquisition of T, in breach of an equitable obligation of confidence.   It was common ground that there was no fiduciary relationship between CFP and the Bank, but CFP claimed an account of profits, alternatively damages assessed on the ‘Wrotham Park’ basis.

Liability

The Court found that the Bank had acted in breach of its equitable obligations of confidence to CFP.

First, did the Spreadsheet contain confidential information at all?   Whilst the Spreadsheet was compiled from information that was publically available, “the production of the final spreadsheet involved skill in the assessment of variables in respect of a difficult asset class in a new and developing market.   It was time consuming and laborious, and was needed in order to present the relevant information (whatever its derivation) in technically robust and reliable, digestible and logical form for the purposes of assessment by financial institutions and potential purchasers” (para 936).   The Judge thought that a useful litmus test of the confidentiality of the material in question was that it had caused the Bank to change its mind, suggesting that there was something of special insight and value provided to it (para 960).   This reasoning will be familiar to commercial employment lawyers; employee competition cases have frequently acknowledged the confidentiality of key client listings and databases, the individual components of which may be available from public sources but where the confidence lies in the compilation and codification of the data and its utility in identifying market opportunities.

Secondly, had CFP proved that the Bank had misused the Spreadsheet?   The Judge said that misuse had to be demonstrated and it was not enough to show that the recipient was influenced by the information; equally, a change of outlook was not sufficient; acting upon it had to be shown (para 982).   However, “subconscious use may constitute misuse … misuse may be inferred from the fact that a defendant, having obtained the confidential information, is influenced by it (whilst it retains the quality of confidentiality) in determining and then embarking on a course of conduct otherwise than for the purpose for which it was provided”  (paras 983 & 984).   Confidential information may so saturate a person’s mind that it becomes virtually impossible to say of any given action that he was or was not influence by it (para 993).   CFP’s presentation to the Bank had opened its eyes to T’s materially greater potential than the Bank had previously appreciated (para 1011), and was ultimately still causative when the Bank came to acquire T.

Thirdly, was CFP to be denied any relief on the basis of the Bank’s ‘unclean hands’ defence?   It was common ground that this defence couldn’t apply to a common law cause of action, but could the fact that the spreadsheet itself included material that CFP had used/deployed in breach of an obligation to confidence to T provide a complete answer to the claim based on breach of the equitable obligation of confidence?    The Judge said no.   On the facts, the information the confidentiality of which CFP sought to vindicate was of very considerably greater scope and quality than the information it misused.   The clean hands doctrine “is reserved for those exceptional cases where those seeking to invoke it have put themselves beyond the pale by reason of serious immoral and deliberate misconduct such that the overall result of equitable intervention would not be an exercise but a denial of equity” (para 1133).

An account?

The Judge rejected CFP’s claim form an account.   In the absence of a fiduciary relationship, the usual remedy for a breach of an obligation of confidence (even one arising in equity) was damages, and an account would only be ordered in exceptional circumstances of the type identified by the House of Lords in AG –v- Blake.    The “usual or default approach where there is no fiduciary relationship … is to restrict the claimant to a claim in damages” (para 1180).    This is a statement of the orthodoxy.   However, the Judge did observe that this did not “preclude an assessment of damages which is juridically similar to a gain based remedy, as is in part at least the Wrotham Park ‘negotiating damages’ approach” (para 1181).   It is here where the judgement is at its most interesting.

Negotiating Damages

Basing himself on Seager –v- Copydex (No. 2) [1969] 1 WLR 809, the Judge started from the premise that the basic approach to any assessment of damages for breach of confidence (whether the obligation was contractual or equitable) was to assess the value the information that the defendant took (para 1182).   If the information was trivial and readily available elsewhere, its value might be charged at the price a consultant would have charged to obtain it.    If it was very special indeed, it might be valued on the basis of a capitalised royalty.   If it fell somewhere in the middle (“involving something unusual such as could not be obtained by just going to a consultant”) a Wrotham Park approach would be justified (valuing the information “at the price a willing buyer would pay a willing seller”) (para 1184).  The Judge thought that this was just such a case (paras 1194-1195).

Thus the Court had to ask – what consideration could CFP reasonably have demanded from the Bank as the quid pro quo for permitting the use of its confidential information (para 1198).    This was a very artificial exercise, especially given the huge differences between the parties as to what would have been their negotiating position, which made it hard to envision any reasonable discussion between them (paras 1199-1200).   In carrying out the exercise: the fact that the parties would not in practice have agreed a deal is irrelevant; the notional negotiation is deemed to have taken place in the commercial context as it existed at the date of breach; but if there had been nothing like an actual negotiation between the parties, the court could look at the eventual outcome and consider whether that provides a useful guide as to what the parties might have thought at the time of their negotiation (para 1204).    Whilst the assessment is an objective one “the hypothetical negotiation may be informed by evidence as to what factors and negotiating arguments the parties say (subjectively) they would have advanced” (para 1205).   But “it is for the court to decide what the shape and result of the hypothetical negotiation …. would have been” (para 1209).    Whilst expert evidence may assists in identifying metrics for measuring the risks and potentialities idenitified during the hypothetical negotiation “the resolution is not for expert opinion but overall judicial assessment” (para 1210).

The assessment is not conducted solely by reference to the information actually found to have been misused, especially where the information concerned is a composite idea or (say) a dictionary – if you misappropriate a dictionary, you pay for the whole dictionary, not just for the few words you have looked up in it (paras 1212-1214).   Moreover, it is not only past misuse which has to be franked, but (once misuse is established) the price payable for the release of the other party’s rights (para 1215).    The assessment may be informed by the type of compensation that would have been sought and agreed by the (hypothetical) seller and purchaser – e.g cash, equity stake, brokerage payment or some blend thereof (para 1216).   The Court inevitably has to paint with a broad brush; para 1295.  In fixing on a figure of 10 million Euros, the Court took account of the fees that the Bank had proposed to charge CFP had it participated in its acquisition of T as a debt provider and M&A adviser.   This was a contemporaneous indication that the transaction had a value that could withstand such a cost and still make the prize attractive; para 1299.

Conclusion

The assessment in any given case is likely to be highly fact sensitive.   CFP had argued that the Wrotham Park assessment should yield no less than 45 million Euros.    In one sense, therefore, the award fell below CFP’s expectations.   But by the same token, it had not lost anything by the Bank’s actions.   It did not claim it could have purchased T or sold the Spreadsheet information elsewhere but for the Bank’s actions.   In reality, the Bank was forced to disgorge part of its gain.    For its part, the Bank said that (at tops) any reasonable negotiation would have yielded less than a million.   It seems likely that the case will be appealed, so watch this space.   In the meantime, the case is further evidence that judges are becoming increasingly sympathetic to the use of negotiating damages to assess loss in commercial disputes.    ‘Wrotham Park’ is on the march.

Simon Devonshire QC