Commercial disputes

Beware of gentleman’s agreements in family companies
22 December, 2017

Just because an agreement is not legally binding does not mean that a court cannot give it effect.  This principle was forcibly re-stated in Man in top hata November 2017 judgment in a case brought against the Oyston family, owners of Blackpool FC.

The Collins Dictionary definition of a gentleman’s agreement is an informal agreement in which people trust one another to do what they have promised.  The agreement is not written and does not have any legal force.

In the Blackpool case it was held that a gentleman’s agreement existed between the Oyston family and the minority shareholder, Mr Belokon, that notwithstanding his minority shareholding Mr Belokon would be treated as an equal partner.  Despite the fact that the agreement did not give rise to specific legal rights it amounted to a legitimate expectation on the part of Mr Belokon.

On the facts of the case, Mr Belokon was not treated as an equal partner, was excluded from management of the company and from participation in profits.  The Judge additionally found that the Oyston family had sought to avoid paying out profits via dividends but as a matter of fact payments totalling millions of pounds were disguised dividends to the family.

The actions of the Oyston family were therefore in breach of the legitimate expectations of Mr Belokon and consequently unfairly prejudicial to him pursuant to s.994 of the Companies Act 2006.

As a result of the Judge’s findings the Oyston family were required to buy out Mr Belokon for the sum of £31m, which far exceeded the value of the shares on a normal valuation basis, but reflected the disguised dividends.

The lesson to be drawn from this is that shareholders should not assume that informal agreements or arrangements between them cannot give rise to significant legal rights and responsibilities.

As an aside, many lawyers recognise the alternative definition of gentleman’s agreement that was put forward by Sir Harry Vaisey who was a High Court Judge from 1944 to 1960.  His definition is as follows:

A gentleman’s agreement is an agreement which is not an agreement, made between two people neither of whom are gentlemen, whereby each expects the other to be strictly bound without himself being bound at all.

 


Company strike off and dissolution: beware the pitfalls
19 December, 2017

Companies are regularly struck off the Register at Companies Companies House purple bookHouse with the effect that they are dissolved. But the consequences of dissolution can be very costly if proper thought is not given to the consequences– especially when the company owns valuable assets that should be sold or transferred to somebody else.

Never assume that it will be straightforward to retrieve forgotten assets from a dissolved company.

Routes to strike off

Strike off can occur in one of two ways: either the directors of the company file an application with the Registrar (voluntary strike off), or the Registrar takes action to strike off a company that it believes is either not carrying on business or in operation (involuntary or administrative strike off).

The process for administrative strike off begins automatically when a company fails to file its accounts or annual return.

Dealing with assets held by a dissolved company

When an asset, such as a property, is registered in the name of a dissolved company it cannot be sold, transferred, or otherwise dealt with. This is because the legal owner with the right to deal with the asset no longer exists. The only way to get around this is to make an application to the Registrar of Companies to have the company restored to the Register.

In most cases this is a relatively straightforward, administrative process which can take at least three months to complete.  But getting it right is likely to involve legal fees which might otherwise have been avoided. Furthermore, if the time required to restore the company delays a transaction, there may be other consequences (including financial penalties or the collapse of the deal altogether) – not to mention the added stress.

A company will only be restored to the Register for a period long enough to complete the purposes for restoration. It will be permanently struck off once that purpose is completed.

Circumstances in which a company cannot be restored

A dissolved company can only be restored to the Register within six years of being struck off. After that time it simply cannot be restored. Getting assets out of a company after this time can be extremely difficult, and there is a chance that it may not be possible at all.

Beware

If you have a defunct company, consider very carefully whether it still holds any assets before having it struck off (or letting it be struck off). If the company owns important or valuable assets, it will always be less costly and risky to deal with these before the company is dissolved.

If you require advice on or assistance with company restoration, contact George Fahey at george.fahey@cripps.co.uk or on 01732 224 059.


Avoiding a Counterfeit Christmas
11 December, 2017

Christmas, a perfect time for counterfeiters! Consumers are in a Christmas decorationsbuying mood and everyone wants a brand at a bargain price.

For consumers however, it can be difficult or impossible to know if they’re buying a counterfeit or a genuine product, and it’s not just luxury brands like Rolex that are copied.

Everyday products such as food (olive oil, for example), medication, clothes and cosmetics are now widely counterfeited and sold through seemingly authentic branded websites or by third parties on marketplaces such as Amazon or eBay. These products are attractive as they appear ‘real’ and are offered at a fraction of the genuine product’s RRP under the pretence of a ‘sale’ or ‘end of line/bankrupt stock’.

Counterfeit products present a potentially serious problem for brand owners, as they are often of inferior quality and potentially unsafe.  If the public cannot tell the difference between the two, it can cause serious damage to a brand’s reputation.

It’s therefore in brand owners’ interests to take pro-active steps to curb counterfeit sales.

What can brand owners do?

Various IP rights can be enforced to curb counterfeiting, including:

Practical steps can include analysing product listings to create a more accurate risk profile of the potential for counterfeiting. Based on this research resource can then be allocated to protecting more attractive/vulnerable products.

Identifying and Combatting Counterfeits

To assist brand owners, sophisticated software can be deployed to trawl the web and identify counterfeit products. Reporting tools such as eBay’s ‘Vero’ for example, allow brand owners to facilitate what is hopefully a swift takedown of infringing products from online marketplaces.

It is also common for criminals to create an identical looking website to that of the brand and ‘cybersquat’ (use a domain name which is identical or similar to that of a genuine brand). Consumers can then mistakenly believe they’re buying genuine goods direct from the brand’s website. To combat this, brand owners can apply to the domain name registry to seize control of the infringing domain name and have the website shut down.

It is also possible in some cases to apply to the Court for a Website Blocking Order against the Internet Service Provider (ISP), hosting the website, preventing public access to the website in question.

If you have information about the import of counterfeit goods, HM Customs and Excise can assist in intercepting and seizing counterfeit products at ports; having a relationship and dialogue with local law enforcement is important.

Whilst the battle against counterfeiters is a year-round battle, it inevitably intensifies over the festive season. Savvy brand owners can ensure that with smart and pro-active IP enforcement strategies, for the criminals it’s a Ho-Ho-Horrible Christmas!


Rise of the Machines: Robot Copyright
15 November, 2017

 

Rise of the Machines: Robot Artificial brainCopyright

The reality of Artificial Intelligence (AI) raises some interesting questions: Who owns copyright in AI (robot) generated content? Could that be the robot? If so, how would they hold it? How would they enforce it?

At its heart, copyright is a monopoly right granted to the author as a ‘reward’ for their creative work. However, where that work is created by an AI robot, does the robot need a reward such that its work is protected by copyright?

AI generated content is increasingly found in social media, advertising and even mainstream news and is attractive as a concept, introducing greater efficiencies to content production. In a creative context, AI has produced artistic works which can be indistinguishable from human generated content. In a commercial context, AI is set to challenge existing business, models as discussed in our recent post Artificial Intelligence and Lawyers.

The type of AI-generated content we’re talking about here is work that is normally protected by copyright, which has traditionally been for a human (or corporate entity), as owner, to commercialise and enforce. Enforcement against infringers, who copy and duplicate work without permission, can be through civil and criminal law remedies.

What’s the current position?

The first owner of copyright in a work (an article, photograph etc.) will be the author: the person who created it (normally a human).

Where the work in question is computer-generated, existing copyright law has provided that the person/company owning or directing the use of the IT systems concerned could be taken to be the owner of the work.

However, this may not provide for, or cover, how content could be created by AI in the future. AI is likely to become more prevalent and for a party relying on AI to generate content, it’s important to have the certainty of ownership so that copyright can be enforced with confidence.

The waters can be muddied by competing claims to ownership from various parties, including developers, designers, engineers and others involved in creating the AI systems. Also, as AI becomes more complex, trying to establish the owner of content is could be increasingly difficult. Could it therefore be easier in the future to simply name the AI robot as copyright owner? Could we abandon the concept of a human, or a human directed company, as owner behind it all?

The Future

As it could become more difficult to trace the genesis of content, more sophisticated systems may have to be devised to protect AI generated content. For now however, agreeing clear contract terms defining ownership with AI system owners may be our best option. Until the machines takeover of course….

Ownership of copyright is discussed in more detail in our guidance note.

 


Six years is no limitation for directors in breach of fiduciary duty
1 November, 2017

Limitation datesDirectors may not be able to rely on the standard six year limitation period if they are in breach of their duties to their company.

Under the Limitation Act 1980 (‘the Act’) most legal claims become “statute barred” after 6 years.  This means that they can no longer be pursued by court proceedings.  However, there are certain exceptions within the Act.

One of these is contained in s.21 of the Act and applies to claims relating to fraudulent breach of trust by a trustee.  It has been long established that directors of a company can be trustees for these purposes but there has been some doubt as to how far this extends.

The February 2017 Court of Appeal case of First Subsea Ltd v Balltec Ltd & others has now clarified that it essentially applies to any fraudulent breaches of fiduciary duty by a director.  What this means is that if a breach can be categorised as fraudulent then companies can potentially bring claims against directors long after the event.

In this respect, fraudulent does not have the same meaning as in the criminal context.  It means a deliberate act where there was an absence of honesty or good faith, and that can include where the director was reckless as to the consequences of his actions.

To summarise, companies and directors should not assume that potential claims for breach of fiduciary duty are statute barred after six years.  If the breach was dishonest, in bad faith or reckless then a longer period may well apply.


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