Latest Blog posts from BusinessLawfirm.co.uk

When a customer cancels the contract can your business keep the deposit paid?

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If your business takes a deposit when a customer enters into a business contract for goods or services, but the customer later cancels the contract, can the deposit be kept? Regular readers of my blog will know that the answer to a legal question is often not clear-cut, so won’t be surprised if I say that the answer is ‘yes’, your business can keep a deposit, but don’t stop reading just yet.

There are a number of reasons why your business might take a deposit from its customers before the goods are delivered or the service is performed – perhaps there is some doubt about the customer’s creditworthiness or the customer’s intention to perform its part of the contract, or your business will have to modify its standard products to the customer’s specification or incur some specific expense in relation to the customer’s order. Where a deposit is taken to secure or guarantee the customer’s performance of the business contract it can usually be kept. (Please note that this blog deals with business contracts; in B2C transactions different considerations may apply.)

When is a payment returnable if the customer cancels the contract?

A deposit must be distinguished from a pure part-payment of the contract price. A deposit is paid to guarantee the customer’s performance; it will also be treated as a part-payment assuming the contract proceeds as planned. If that key characteristic of securing the buyer’s performance is not present, the payment will be a part-payment which will be returnable even if the customer cancels the contract. The cancellation might well give rise to a right for your business to claim damages for breach of the contract, but that is a separate issue.

So how do you know if the payment is a deposit?

If there is a dispute as to whether a deposit is returnable the court will look at what was intended – either expressly or by implication. It will consider whether the parties intended the sum paid by the buyer to be kept by your business (and not be recoverable by the buyer) if the buyer cancelled the contract.

Why might there be any question as to whether my business can keep a deposit?

A true deposit should be retainable, but a number of cases have put the matter in some doubt. This is because there has been some suggestion that a buyer could challenge what is known as the forfeiture of its deposit on the basis that it is a penalty and therefore void. That risk seems to have receded at the moment, but that doesn’t mean that it won’t arise again. (For more on penalties, see my previous blog When is a penalty an own goal?)

What can I do to help my business to retain a deposit if the customer cancels the contract?

The main advice I would give is to make sure that your business contract makes it clear that the deposit is acknowledged by the customer as not being returnable if the customer terminates the contract in breach of its terms. I would suggest that you do not require a deposit of an amount which is unreasonable in the circumstances. That is more for commercial and tactical reasons than a legal one in that an unreasonable amount is more likely to provoke a claim by the buyer than if it is reasonable. In any event, make sure that all the relevant terms are clearly documented in your business contact.

If you would like any help with your business contracts, please contact me, Sue Mann.

Sue Mann

Business Contracts Solicitor, Birmingham

Family-owned businesses – an asset or a liability?

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An interesting recent study from by Imperial College Business School, Leeds University Business School and Durham University Business School has revealed that family businesses are better at avoiding bankruptcy and insolvency than non-family-owned businesses.

The study looked at what were the particular characteristics of family businesses that led to a better chance of survival. They found they were a larger board size, older and more experienced directors, greater gender diversity, directors who were located close to the business, and directors who had stronger networks of contacts through holding multiple directorships.

Family businesses tend to be owned and controlled by a board of directors that often consists of parents and (adult) children and their spouses. This certainly leads to a larger board than would be usual in a similarly sized company and contains more diversity when it comes to age, experience, gender and outlook.

I agree with the study that this diversity in itself often leads to more stability. The board has a greater knowledge pool and experience that can be drawn upon. Also, family boards tend to take a longer-term view when it comes to decision-making and tend to be more risk averse. This can mean that a company grows slower than would otherwise be the case but less risk-taking does help with avoiding insolvency.

Although the factors mentioned in the study certainly assist family businesses to survive in difficult times, there are also downsides when it comes to the long term. Many family-owned businesses fail to survive as family firms for more than one or two generations. The strengths highlighted in this research can also become weaknesses in the longer term.

One common problem I see when advising family businesses is how they manage the transition of control from one generation to the next. Although family boards do tend to be relatively large, in many family companies, most decisions are made by one or two key directors, usually the founders, and they can often be slow to relinquish control to the next generation. If this is not managed well, then bitter disputes can flourish and, whilst an independent director can always be removed, you can’t dismiss someone from your own family!

Having said this, many families do develop good strategies for resolving internal conflict and, if so, then the family structure can be a great source of strength and resilience.

One finding of the study I found particularly interesting was that, if outsiders join the board, the risk of insolvency tends to rise. These outsiders tend to take more risks but, in my view perhaps more importantly, also lack the experience of the particular family dynamic and how they resolve conflicts. Conflicts are more likely to become acrimonious when an outsider starts ‘taking sides’ and then they become much more difficult to sort out.

Family firms depend on a small gene pool of talent and, as a company grows, new skills are needed that the family directors might not possess. Often, an outsider can bring new insights that the family failed to spot.

There are also times in any firm when more risk needs to be taken and the family long-termism may actually hold things back.

Family businesses have their own particular dynamics and the key is often about how decisions are made and conflicts resolved. If done well, the family structure can be a key asset but, if not managed well, can lead to very bitter disputes.

Gary Cousins
Business Dispute Solicitor

Photographs and Copyright Infringement

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Back in June 2011 I posted a blog on copyright infringement by unauthorised use of photographs.

The explosion in social media and prolific posting of photographs has made it incredibly easy for photos to be downloaded and used by others without consent of the photographer holding the copyright.

A recent case has highlighted the issue, and indicated the sort of compensation which can be ordered.

In Sheldon v Daybrook House Promotions Limited, Sheldon had exclusive backstage rights to a gig to take photos of the US popstar Ke%ha. Daybrook used one of his photos without consent. The judge in the Patents County Court ruled that the compensation should be based on a reasonable royalty, the fee which would have been agreed between a willing licensor and a willing licensee.

The judge said that the reasonable royalty should be based on the particular photo in question. How much would Mr Sheldon have received from a publisher for using the photo? Other important factors in deciding the compensation were the importance and popularity of the subject, here Ke$ha, and any exclusitivity of access to that subject.

Daybrook siggested it should only be a few hundred pounds. The judge rejected that out of hand and awarded Mr Sheldon £5682.37 exclusive of VAT and interest.

Nigel Musgrove
Business and Litigation Solicitor
Tel: 0845 003 5639

Cutting of Red Tape on Regulated Entertainment

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The Live Music Act came into force on 1 October last year, and this was the first phase of the government's drive to cut red tape on entertainment. See my blog for details.

New regulations are now before Parliament which will relax further the need to have a Premises Licence or Temporary Event Notice if the proposed entertainment is an indoor sporting event or a performance of a play or dance which does not exceed a specified number, or if it does, it takes place between 8 am and 11 pm.

The maximum numbers are 500 for a play, 1000 for an indoor sporting event, and 500 for a perormance of dance. As have mentioned there is no maximum if the event takes palce between 8 am and 11 pm.

Note that boxing and wrestling will still require a Premises Licence.

Nigel Musgrove
Licensing Law Specialist
Tel: 0845 003 5639

When is a penalty an own goal?

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When is a penalty an own goal? The short answer is - if the clause you included in your business contract intended to provide compensation for your business if the other party fails to perform as agreed turns out not to be enforceable. Parties to a business contract often refer to such clauses as penalties, but that is the last thing you would really want it to be if your business is the one wanting to rely on it.

The reason is that, as with so many legal issues, ‘penalty’ has a distinct meaning in law and if the clause in your business contract amounts to what the law views as a penalty then it will be void and not enforceable.

So when is a term in a business contract a ‘penalty’?

If the sanction you include in your business contract goes beyond what is reasonable to compensate your business for the loss to which it applies, and is intended as a deterrent to the other party from breaching the contract, it is likely to be a penalty, so unenforceable.

How do you prevent a compensation clause from being a penalty?

For the provision in your business contract to be valid, what you need to do is:

• look at the situation you want to cover

• estimate the likely loss to your business if the other party fails to perform as required by the contract in that situation

• make sure your estimate is a reasonable one judged as at the time the contract is entered into

Provided your clause is justifiable in this way then you should be able to rely on it. It will then be what the law refers to as ‘liquidated damages’ rather than a penalty. What a court would be likely to object to is a compensation provision in a business contract which bears little or no relationship to the loss suffered by your business in the situation to which it applies and is excessive for that situation.

So how can football managers get such large payments when their contracts are terminated?

You might wonder why a football manager who has perhaps only been with a team for a relatively short period of time often walks away with a huge sum – Mancini recently left Manchester City with a figure reputedly around £20 million. Why does this not amount to a penalty and not be enforceable? The answer is in carefully drafted contracts. In fact, drafted well, the provisions are neither liquidated damages nor penalties, but agreed rights for the club to terminate a fixed term contract early in return for an agreed payment – often based on the amount the manager would have earned had he been allowed to work for the full term. In fact when Blackburn Rovers decided they no longer required the services of Henning Berg, the club tried to argue that the clause was a penalty so unenforceable – they failed and had to pay up.

So if you want to cover your business if the other party to your business contract fails to perform, make sure you give proper consideration to the situation and the drafting of any compensation clauses if you are to be able to benefit from them if the need arises. Don’t score an own goal! Contact me, Sue Mann, if you would like any help.

Sue Mann

Business Contracts Solicitor, Birmingham

Changes to Permitted Development Rules

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The changes to the General Permitted Development Order (GPDO) come into effect tomorrow.

For owners of commercial premises the following is a summary of the most important changes which will be classified as permitted development:

Change of use from offices within class B1(a) to residential dwellings (Class C3)

To qualify, the building must have been used as an office within class B1(a) immediately before the 30th April or, if it is not currently in use, was last used for that use.

Listed buildings are also excluded as are buildings within the boundaries of 17 areas (mostly London Boroughs - there's a full list in the statutory instrument here

Change of use from B1, C1, C2, C2A or D2 to use as a state funded school

This change is presumably intended to support the Government's flagship 'Free Schools' policy

Change of use of agricultural buildings to any use within A1 (shops), A2 (financial and professional services), A3(restaurants and cafes), B1(business), B8(storage and distribution), C1(Hotels) or D2(assembly and leisure)

To qualify the building must have been in solely agricultural use since 3rd July 2012 or have been solely used for agricultural use for 10 years. This prevents farmers from throwing up new agricultural buildings as a back door route to a permitted change for another use.

For a temporary period of 2 years from the date the use is changed, change of use from A1, A2, A3, A4(drinking establishments), A5(hot food takeaways), B1, D1(non-residential institutions) and D2 is permitted to a 'flexible' use within A1, A2, A3 or B1

This change will allow temporary lettings of premises where a user for the currently permitted use cannot be found and reduces cost and delay in getting such tenants into occupation of the premises

The limit on the size of building which can change from B1 or B2(general industry) to B8 or from B2/B8 to B1 is increased to 500sq m

As ever, please contact me on 01926 629005 for further information/advice.

Steven Petty, Commercial Property Solicitor

Payment surcharges regulations – guidance published

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Earlier this year I told you about the new regulations on payment surcharges which came into force on 6th April 2013. At the time we were waiting for guidance to be issued by BIS (the Department for Business Innovation and Skills). That guidance has now been published and is available from BIS.

To summarise, the regulations prevent businesses from charging excessive surcharges for processing payments from consumer. A business must not charge consumers a fee (or surcharge) that exceeds the cost to the business for processing the means of payment.

The guidance explains the background and scope of the regulations, the limited types of contracts which are excluded, what constitutes a means of payment, and which fees are caught by the regulations. The guidance also sets out how a consumer can enforce the regulations and includes some FAQs.

For further information on the regulations see: Are you aware of the new rules on payment surcharges?

For a copy of the guidance see: BIS Guidance on: The Consumer Protection (Payment Surcharges) Regulations 2012

Sue Mann

Business Contracts Solicitor, Birmingham

Government launches ‘Good Law’ initiative

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I was intrigued when I saw a recent headline announcing that the government was launching a ‘Good Law’ initiative. The cynic in me wondered why we don’t always have good law (as opposed to bad law!), but hopeful of some positive news to counter the overwhelming pessimism we encounter in many quarters these days, I read on.

The initiative is from the Cabinet Office and the Office of the Parliamentary Counsel (OPC) – the people who actually write the laws for the government. They recognise that people find legislation difficult for a number of reasons – the sheer volume of laws and regulations, the amount of detail and complexity, frequent amendments which often change parts of existing laws so many documents may need to be consulted to establish the law on a particular point. All these can make it difficult for people and businesses to understand and to comply with the law and this can hinder economic activity.

The OPC conducted a review into the causes of complexity in the law which was published recently. I confess I skimmed rather than studied in full its 37 pages, but one quotation caught my eye: “I wish that the superfluous and tedious statutes were brought into one sum together, and made more plain and short.” That was by King Edward VI back in the 16th century! Monarchs had somewhat more power in those days and yet we are still grappling with the issue today, but it seems there is now a willingness and a plan to tackle it.

The OPC’s stated aim for good law is law that is necessary, clear, coherent, effective and accessible with a view to creating confidence. It accepts, as a result of its study into the reasons for complexity, that in a complicated world with the need to balance many competing interests good law does not mean unachievable simplicity.

Various means are being used to tackle these issues. These include considering the content of laws - - whether the law is necessary, whether it duplicates, or conflicts with, another law and how much detail it should contain. So far as the language and style is concerned, more effort is being made to use plain English and a simpler structure with explanatory notes. The OPC’s initiative also sits alongside others such as the attempts to reduce red tape by getting rid of unnecessary regulations (see my blog Will red tape really be cut?)

Apart from its own activities, the OPC says it wants to encourage a wider debate and participation in what constitutes ‘Good Law’ and how to achieve it. This will by its very nature have to be an ongoing initiative. I, for one, hope that it won’t be one that falls by the wayside.

Sue Mann

Business Contracts Solicitor, Birmingham

Late Night Levy Update

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From October 2012 every Licensing Authority has been able to decide whether to introduce a Late Night Levy in its area. In making the decision they must consider the costs of policing and other arrangements for the reduction of crime and disorder relating to the supply of alcohol between midnight and 6am.

Current soundings suggest that very few licensing authorities are currently considering introducing the levy, but the majority may be holding fire until they see how the levy works in practice. There is a fear that it will serioulsy damage the late night economy.

When introducing the Late Night Levy the LIcensing Authorities have a discretion on the hours to apply, but the levy period must begin no earlier than midninght and end no later than 6am.

Unfortunately there is a one size fits all proviso, that it is all or nothing. If a Late Night Levy is introduced it will apply to all premises in the area of the Licensing Authority who are permitted to supply alcohol by their Premises Licence of Club Premises Certificate during any part of the late night levy hours. It does not apply to Temporary Event Notices.

So even the village pub will be caught if it falls within the criteria, unless it also satisfies a specific exemption which the Licensing Authoruty can include for a single pub village in rural communities.

The levy only aplies to premises which supply alcohol, whether for consumption on or off the premises. So it includes members clubs as well as hotels theatres and other premises. Licensing Authorities are allowed some discretion to exclude certain types of premises from thre levy, but they do not have to. They can exclude:

Premises with overnight accommodation
Theatres and Cinemas
Community Amateur Sports Clubs
Community Premises
The single village pub
Bingo Halls
Business Improvement Districts

The deciding factor is what is permitted by the Premises Licence or Club Premises Certificate. So it will not be possible to avoid the levy by closing before the levy hour strikes. However, a free application for a minor variation can be made before the levy comes into force, reducing the hours of supply to avoid the levy.

So what will the levy be? This has been prescribed by legislation, and as with many licensing fees is calculated by reference to the non domestic rateable value.

Band A (NDRV 0 to £4300)-levy £229
Band B (NDRV £4301 to £33000)-levy £768
Band C (NDRV £33001 to £87000)-levy £1259
Band D (NDRV £87001 to £125000 ) levy £1365
Band E (NDRV £125000 and above) levy £1493

If a premises is in Band D and primarily or exclusively supplies alcohol the levy will be £2730. Similary a premises in Band E primalrily or exlusively supplying alcohol will pay a levy of £4440.

Because of the consultation requirments it is unlikely that any levy will be in force until June 2013 at the earliest.. A number of authorities are in the midst of their consultation process.

A specified proportion of the late night levy will have to be made to the local policing body, so it is to be expected that they will put maximum pressure on the authority to introduce the levy! .

Nigel Musgrove
Licensing Law Specialist
Tel: 0845 003 5639

City of London introduce Code of Good Practice

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It is good to see a Licensing Authority setting out what it expects of licensed premises in its area. The recent Code of Good Practice and accompanying Traffic Light System introduced by the City of London do make it clear to licensees what, in the opinion of the City of London, they need to do to operate a successful business which does not undermine the licensing objectives and jeopardise the Premises Licence.

But, I give a word of warning. The Code does not have any legal effect. The City of London acknowledge this when saying that it is not a statutory document. But they go on to say that it will be taken into consideration in certain situations such as when they respond to a licence application and when there is a formal review of the premises licence.

The problem here is that the Licensing Act 2003 makes it clear that in carrying out their duty to promote the 4 licensing objectives, a licensing authority must have regard to its licensing statement and to the statutory guidance. Whilst the act does not exclude reference to a Code of Good Practice, or indeed anything else, it would be dangerous to base any decision on such a code alone..

A licensing authority should not lose sight of its primary duty to act in accordance with the Licensing Act 2003. If the licensing authority’s own Code has not been followed it does not necessarily mean that one or more of the licensing objectives have been undermined.

I have no problem with the Code of Good Practice and its accompanying Traffic Light System. It should be clear to operators when a review is imminent and what can be done to minimise the risk of a review application, but when it comes to a hearing such as on a contested application for a new premises Licence, or a review of a premises licence, the licensing authority must concentrate on the evidence before it, and not whether or not their own Code of Good Practice has been complied with.

For example, their traffic light system introduces a points system for licensed premises.
Over a rolling 12 month period accumulate up to 10 points and you are probably safe in green. 6-9 points for any one licensing objective and 11-19 points across all 4 licensing objectives and you are in amber. 10 or more for any one licensing objective and 20 plus for all 4 and you are in red and at serious risk of a review. But it is important that this is used as a guide only and is not seen on its own as evidence that a premises is undermining one or more of the licensing objectives.

It is necessary that evidence directly relates to the premises and to the carrying on of business there in a way which impacts one or more of the 4 licensing objectives.

Nigel Musgrove
Licensing Law Specialist
Tel: 0845 003 5639