Commercial Disputes

What’s in a partnership?
13 April, 2017

The answer, quite often, is a lot. Long established business partnerships can build up large portfolios of assets over the years.  In most cases it is easy to tell whether they are partnership assets or not but what if it is not clear?

One of the great things about partnerships is their potential simplicity. You don’t need a document to form a partnership, you just need to have two or more people working together with shared risks and profits.  In these circumstances the venerable Partnership Act 1890 will step in and provide a framework under which the arrangement can be governed or analysed if there is any dispute between the partners.

Because of this many partnerships never get round to properly documenting the agreement between the partners. When all is going well this is not a problem but can make for expensive litigation if a dispute arises about whether or not something is a partnership asset.

In the absence of an express agreement that an asset is or is not a partnership asset then the court will look at all of the facts of the case in order to determine the true position. This can involve a detailed analysis stretching back over a number of years and require extensive witness evidence.  Such an exercise is expensive and inevitably introduces uncertainty into the outcome.

So, if your partnership does hold any valuable assets, it is always best to clearly record what their status is and how they are shared between the partners. Ideally this should be in a partnership deed or written agreement.  Otherwise, any written document setting out the position that is approved, or at least not disputed, by all the partners, will reduce the chances of a dispute happening and, if it does, significantly reduce the costs of fighting it.


Is your personal data being used to influence your vote?
30 March, 2017

Those of you that are up-to-date with U.S. spy-drama “Homeland” will appreciate that the manipulation of democratic processes by means of hi-jacking personal data is topical enough to warrant inclusion in the show. When ex-CIA agent Carrie Mathison and co uncover these abuses, they will probably be very concerned.

Those of you that are up-to-date with real life may have read reports that a data analytics company (owned by a billionaire friend of President Trump) is thought to have played a major role in securing victories for the Trump and Leave campaigns in the U.S. and Britain respectively. That company has developed technology which creates intimate psychometric profiles from our Facebook and other social media profiles.  This allows our emotional triggers to be exploited through targeted and individualised advertisements.

When the Information Commissioner’s Office heard of these potential abuses, it became very concerned. We should be concerned too – whichever side of history our vote fell on. An ICO spokeswoman has recently announced  “a wide assessment of the data-protection risks arising from the use of data-analytics, including for political purposes… We intend to publicise our findings later this year”.

Although Article 50 has now officially been invoked, the EU’s new General Data Protection Regulation (GDPR) is still going to affect Britain in a significant way. It strengthens the principles that data must be processed with informed consent, and in a transparent and fair way. For a company, the maximum sanction for non-compliance is the greater of 4% of annual worldwide turnover or €20 million.  In light of the revelation that, through the processing of our data, it is possible to affect the course of history itself, the strengthened provisions of the GDPR can only be a good thing.

If you are a company that controls or processes data, you ignore data protection law at your peril. Ask yourselves: is the data for which you are responsible obtained, used, stored, secured, and then deleted appropriately?

For the rest of us, we might more frequently ask ourselves: Who has access to and is using my data, and what are they doing with it?


Charities in the dog house
28 February, 2017

In December 2016 the RSPCA and British Heart Foundation were fined by the Information Commissioner’s Office (ICO) for breaching the Data Protection Act 1998. Millions of donors’ personal data was misused in three ways:

 

1. Wealth screening: both charities employed wealth management companies to gather information from their donors’ publicly available information to assess their income, property ownership, lifestyles, and friendship circles. These companies advised on how much donors might be persuaded to give in the future, and who might be most likely to leave money in their will. 

 

2. Obtaining information: When donors opted-out of providing certain information, the charities hired companies to collect this information anyway, through processes of data and tele-matching (for example, by tracing a current phone number from an old one, or using an email address to obtain a postal address). The data was then used to contact people for further donations.

 

3. Data sharing: The charities were part of a data sharing scheme with other charities, through which personal data was swapped in order to target individuals who had donated to other causes. The ICO found that the charities’ opt out provisions were not clear enough to cover these practices.

 

The Information Commissioner, Elizabeth Denham, said: “The millions of people who give their time and money to benefit good causes will be saddened to learn that their generosity wasn’t enough. And they will be upset to discover that charities abused their trust to target them for even more money… Our investigations suggest that the activities… are also being carried out by some other charities.”

 

The RSPCA and the British Heart Foundation were fined £25,000 and £18,000 respectively, though these fines could have been up to ten times higher. The Information Commissioner exercised her discretion in significantly reducing the fines because, amongst other things:  (i) there was a risk of causing further distress to donors (whose monies would inevitably be used to pay the fines), (ii) ongoing investigations in the charity sector may lead to further fines, and (iii) the charities are likely to be ‘punished’ through the likely reputational damage.

 

The two cases serve as an example of how data protection laws seek to protect the public, as well as the real (and potentially much more costly) consequences for data controllers who break those laws.


Partnerships – Unwanted Risks
16 February, 2017

A partnership can be a very efficient and flexible business structure, but it can have unwanted consequences for the partners. Some of the key issues to consider are outlined below.

What is a partnership?

A partnership is a collection of individuals, who trade together with a view to making a profit. The ‘partnership’ is not a separate legal entity, although it is often given a trading name for ease of reference.  A partner cannot also be employed by the business (you cannot employ yourself), so it is important to carefully consider and document the status of any ‘salaried partners’ or senior ‘employees’. 

Is there a partnership agreement?

If you are in a partnership it is important that you have an up to date partnership agreement to document how the business should be run. In the absence of any agreement (which may be an oral agreement or implied by conduct) the terms set out in the Partnership Act 1890 will apply.

Liability of the partners

Unless the partners agree otherwise they all (individually) have the power to enter into a contract on behalf of the partnership. The partners are jointly liable for the debts of the business and there is no limitation on the extent of this liability.  If you wish to limit the liability of the partnership then you should insist on a carefully worded limitation clause in your business contracts.

Duties owed to the other partners

Each partner owes the other partners a duty to act honestly and in the best interests of the partnership. A partner should not benefit themselves at the expense of their co-partners and has a duty to account to them for any profits they receive out of the business.

Dissolution

Unless the other partners agree (e.g. in a partnership agreement) a partner cannot resign from the partnership. If one of the partners wishes to leave or dies then the partnership would need to be dissolved and the proceeds divided between the partners (or their estate).

Summary

A partnership can be an efficient way of running a business, but it is important to have a clear understanding of partnership law, so you can avoid any unwanted disputes.


Is ‘time is of the essence’ and what does it mean?
10 February, 2017

Has your firm placed an order for goods but they haven’t been delivered by the agreed date?  Or has a deadline for making a payment to your company under an on-going contract been missed?  These are common scenarios but before deciding whether to wait a bit longer or to try and cancel the contract on the basis of delay, one important matter to consider is whether time is ‘of the essence’ (‘OTE’) for that obligation.

 

What ‘time of the essence’ means

If time is OTE for a contractual obligation in a commercial contract this means the deadline is a condition of the contract, rather than merely a term, entitling you to terminate the contract (but not obliging you to) even if the deadline is missed by the other party by only a narrow margin.  In one reported case a delay of just ten minutes in a buyer transferring completion monies in respect of a property, entitled the seller to terminate the contract and keep the deposit. 

Beware however that when time is OTE, you can’t terminate a contract on the grounds of delay if your own conduct, even if perfectly legitimate, made it impossible or impractical for the other party to meet the deadline.  Unless the contract provides otherwise, in these circumstances the specified deadline would be replaced with a duty to perform within a reasonable time.

 

When is time OTE?

Express term

Time is OTE where the contract expressly says it is.  It’s often used where it’s important to secure performance by the agreed date such as delivery of goods, completion of a sale or some types of payments. 

 

Implied term

If you haven’t expressly agreed that time is OTE, then the deadline is probably not a condition of the contract. However, an intention to make time OTE may sometimes be implied into commercial contracts, depending on the circumstances and the contract wording.  The question is “must the parties have intended even a slight default to lead to a right to terminate the contract?”

 

It will usually be implied that time is OTE in the sale of perishable goods because late delivery may be useless to the buyer.  Similarly, for completion of the sale of a business as a going concern, it’s important that the buyer can take control of the business before there’s too much change to its business, employees or assets.

 

Time is unlikely to be considered OTE if:

  • The contract has no fixed or ascertainable date for performance. Phrases like ‘as soon as possible’ and ‘within a reasonable time’ are not sufficiently clear. 
  • The contract contains another inconsistent consequence of delay.
  • The contract provides a procedure for extending a time limit, with liquidated damages.
  • There is a clause giving interest on late payments which could indicate that time was not of the essence for payment.

 

What if time is not OTE?

In my next blog I’ll look at how notices ‘making time of the essence’ can be a helpful procedure for terminating a contract on the grounds of delay in performance where time was not expressly stated to be OTE.

 

Even if time is not OTE, a delay might still justify termination under an express contractual right, or at common law depending on the facts and contract terms. If you’re in any doubt about the legal implications of a contractual deadline being missed by either party, it’s best to seek legal advice before taking any steps which might prejudice your position.


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