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CASES |
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Employment Tribunal misdirects itself in deciding that a ‘controlling’ shareholder had not been an employee See CLM ¶2020, ¶2627 Ashby v Monterry Designs Ltd [2010] EAT case 0226/08 The Employment Appeal Tribunal (EAT) applied the guidance given by the Court of Appeal in Secretary of State for BERR v Neufeld (see CLM 2009 Newsletter Issue 3) in allowing an appeal against a decision of the Employment Tribunal (ET). The ET had decided that it had no jurisdiction to hear a claim for unfair dismissal because the claimant had not been an employee of the company for the requisite 12-month qualifying period. Mrs A, Mr K and Mrs W were all equal shareholders and directors of MD Ltd, a company set up by them in 1985. Mrs W left the company in 1992 when it fell into financial difficulties. Her shareholding was split equally between Mrs A and Mr K, resulting in them both becoming 50% shareholders. They both also remained the only directors. Mrs A took on the day to day management duties of the company. MD Ltd was sold by way of a share sale in April 2007 and immediately afterwards Mrs A continued working as an embroidery machinist, as she had done since the company was formed. This came to an end in August 2007 when Mrs A resigned and brought a claim for constructive unfair dismissal. No written contract of employment was produced at the hearing. The EAT found that the ET had misdirected itself in regarding Mrs A’s shareholding of fundamental importance in determining whether or not there was a contract of employment prior to April 2007. The Court of Appeal had made it clear that the fact that a claimant’s shareholding gave them control of the company is not of special relevance in determining whether there was a valid contract of employment. In addition, the EAT highlighted that if the conduct of the parties is evidence of the existence of a true contract of employment, tribunals should not reject a claim simply because there is no written agreement. Company allowed to proceed with claim for damages against directors whose actions caused breach of competition law See CLM ¶2434+ Safeway Stores Ltd and others v Twigger and others [2010] EWHC 11 (Comm) SS Ltd and two other companies brought a claim against their former directors and employees for breach of contract, breach of their fiduciary duties and/or negligence in taking part in price-fixing initiatives with various other supermarkets in relation to dairy products. The initiatives resulted in the increase of the price of milk and other dairy products for consumers. Following an investigation by the OFT, the claimant companies were found to have infringed UK competition law and were exposed to a significant penalty. They sought damages and/or equitable compensation from their former directors and employees in respect of the loss and damage suffered as a result of the penalty. The directors applied for the claim to be struck out on the basis that it was barred as a matter of public policy because: » the companies should not be able to recover a benefit from their own illegal or unlawful acts (known as the defence of ex turpi causa non oritur actio); and » it was fundamentally inconsistent with the UK competition law regime. The High Court dismissed the application to strike out the claim. It found that the claimant companies had a real prospect of defeating any defence of ex turpi causa as that would only apply where the unlawful acts are those of the company “personally”, for example if the acts were committed by the sole directing mind and will of the company. That was not the case here. The claimant companies were vicariously liable for the unlawful acts of their employees and for the unlawful acts of their directors under the general principles of the law of agency. Therefore the defence of ex turpi causa did not apply. In addition, the High Court found that passing on a penalty to the very people who caused the unlawful acts was not inconsistent with the Competition Act 1998. Consideration of relevant factors when determining the length of a director’s period of disqualification See CLM ¶3013 Kotonou v Secretary of State for BERR [2010] EWHC 19 (Ch) Mr K was a director of OCS Ltd, a company which entered into CVL with a deficiency of over £1.7 million. The nature of OCS Ltd’s business was the provision of management services to associated companies within a group. As a result of proceedings commenced by the Secretary of State, Mr K was found to be unfit to be a director on a number of charges and was disqualified for a period of 8 years. The charges against Mr K included: » breaches of his fiduciary duties to OCS Ltd in causing it to fund another group company (even though it was failing to pay its own debts when due and the other company itself was insolvent) and causing it to incur the costs of significant improvements to a property that belonged to yet another group company; » causing OCS Ltd to pay him remuneration that it could not reasonably afford; and » various failures to file accounts and returns. Mr K appealed against the disqualification on a number of grounds, but largely on the basis that the judge failed to give sufficient regard to the context of the group’s situation. The High Court was unable to find any merit in any of the arguments put forward on Mr K’s behalf and dismissed his appeal against the disqualification. Mr K also appealed against the length of the period of disqualification on the basis that, amongst other things, there was a failure to give sufficient weight to particular factors which were taken into account. The High Court also dismissed this appeal and upheld the 8-year period of disqualification. Questions of the weight to be attached to particular relevant factors are matters for the trial judge. An appellate court should only interfere if the resulting period of disqualification is manifestly wrong. However, in this case the High Court had no doubt that the trial judge had not erred in fixing the period of disqualification and that the period was not manifestly wrong. It commented that the period of disqualification fixed for the protection of the public was well understood, given that Mr K did not understand that he had fallen below the normal standards of commercial probity or that he had done anything which would warrant the description of serious misconduct. Directors disqualified for breach of regulatory rules See CLM ¶3023+ Secretary of State for BIS v Aaron and others [2009] EWHC 3263 (Ch) DMA(PFP) Ltd provided investment services and was regulated by the FSA. As part of an industry-wide review of the sale of Structured Capital at Risk Products (known as SCARPS) the financial ombudsman upheld complaints against DMA(PFP) Ltd relating to the mis-selling of SCARPS in contravention of FSA rules and awarded compensation. Shortly afterwards DMA(PFP) Ltd was placed into administration owing over £17m. Disqualification proceedings were subsequently brought by the Secretary of State against two of DMA(PFP) Ltd’s directors, who were also regulated by the FSA as independent financial advisers. The allegations of unfitness against them included: » failing to adequately understand or take account of the risks associated with SCARPS; » failing to ensure compliance with FSA rules relating to how the risks associated with SCARPS should have been presented in advertising and other marketing materials; and » failing to keep adequate records. There was no allegation of dishonesty, but the High Court found that the directors’ failure to ensure that DMA(PFP) Ltd complied with regulatory requirements provided the context in which the mis-selling and consequent insolvency of the company took place. There was a lack of commercial probity from which the public needed to be protected. The directors were disqualified for a minimum of 2 years. |
