Tag Archive: Black Solicitor

BLACKS SOLICITORS: The difference between direct and indirect loss

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The words “indirect loss” or “consequential loss” often appear in contracts.  But what do they actually mean and what is the difference between these types of losses and “direct loss”?

Under English law the distinction between “direct” and “indirect” or “consequential” loss is based on what was foreseeable i.e. what was in the contemplation of the parties at the time the contract was entered into and not the actual type of loss itself.  

Where there has been a breach of contact the innocent party can recover from the defaulting party:

(i) Losses which flow naturally, according to the normal course of things from the breach of contract itself i.e. the losses that the reasonable person might expect the relevant breach to produce.  These are known as “direct” losses and they are what a reasonable person would consider to be the “usual course” or in the “ordinary circumstances”.  

(ii) Losses which do not arise naturally but which may reasonably have been in the contemplation of the parties at the time they made the contract are commonly referred to as “indirect” or “consequential” losses.  This type of loss is concerned with knowledge of special circumstances outside the usual course of things and that loss would have reasonably been contemplated by the party in breach with knowledge of the special circumstances.     

Any loss which does not fall into either of the above two categories would be considered as being too “remote” by the courts to be recoverable.

The type of loss does not itself determine whether it should be considered a “direct” or “indirect” loss.  It is a common misconception that loss of profit is an indirect or consequential loss.  However, that is not the case.  Loss of profit could be a “direct” loss if, for example, that loss arises from the loss of use of hired equipment.  It all depends upon the circumstances of the case.  

Contracting parties will usually try to limit the amount of damages recoverable by the other party in the event of a breach of contract.  From a litigation lawyers’ perspective it is worth the parties spending some time and effort to identify the type of losses that may arise if the contract is breached and to specifically set out in the contract which type of losses are to be included or excluded.  The parties should not assume that all their losses will be covered by simply referring to “indirect” or “consequential losses” in the contract given that these terms may have different meanings in different contracts.

Blacks Solicitors can assist with all aspects of contractual matters from the preparation of the contract to dealing with any disputes arising from the contract.  Please contact Luke Patel on 0113 227 9316 or at “LPatel@LawBlacks.com”.

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Blacks Solicitors: No trimming of restrictive covenants for hairdresser

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Restrictive Covenants are typically found in employment contracts where they are used to regulate the activities of employees during their employment and to enforce restrictions post-employment.  However, restrictive covenants can also be found in other areas, for example in agreements in relation to the sale of businesses.  This was the situation in Rush Hair Limited v Hayley Gibson-Forbes and S.J. Forbes Limited, a case which was recently heard by the High Court.  

In that case Rush sought to enforce two restrictive covenants contained in a share purchase agreement relating to the sale of a business to them by Ms Gibson.  The covenants in question stipulated that Ms Gibson would not at any time during the period of two years from completion of the sale of the company:

  • Seek to canvas, solicit, entice or employ key employees from the company.  
  • Be directly or indirectly engaged, concerned, employed or interested in any competing business within a defined geographical area.

Ms Gibson did not directly breach any covenants herself but a company, S.J. Forbes Limited, of which Ms Gibson was a director and shareholder, did.  Accordingly, Ms Gibson argued that as the covenants did not expressly prohibit the conduct of S.J. Forbes, she had therefore not acted in breach of the restrictive covenants.  

However the Court disagreed and upheld both covenants.  

In considering the restrictions contained in the first covenant, the Court found that it prohibited not only activities carried out by Ms Gibson on her own behalf but also activities done by her as an agent for S.J. Forbes.  Ms Gibson had historically operated her business from a limited company of which she was a director and shareholder and it was the limited company that employed the staff.  

The Court was of the view that both Rush and Ms Gibson would have understood that a covenant binding on Ms Gibson only in respect of acts done on her own behalf (rather than as agent for another) would have been ineffective.  The Judge considered that the wording contained in the restrictive covenant did not compel such an interpretation and that the covenant should be construed in the only way that was commercially sensible, namely prohibiting Ms Gibson from canvassing, soliciting, enticing or employing any of the named individuals whether on her own behalf or as an agent for another.

This case illustrates how the courts are prepared to pierce the corporate veil where the alleged breaches are carried out by a company controlled by the breaching party so as to prevent that party from circumventing restrictions to which it had agreed to in the first instance.

If you acquire advice and assistance regarding the drafting of share purchase agreements or employment contracts or with the enforcement of any of the terms of those agreements then please contact Luke Patel on 0113 227 9316 or by email at “LPatel@LawBlacks.com”.

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What Constitutes Deliberate Non-Disclosure?

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Anybody buying an insurance policy owes a duty of the utmost good faith to the insurer both to disclose material facts and to avoid making any misrepresentations.  Breach of that duty can result in the insurer avoiding the policy even if the non-disclosure was not deliberate.  However, some policies limit the right of the insurer to avoid the policy to when the non-disclosure has been deliberate or fraudulent.  This was the situation in the case of Mutual Energy Ltd v Starr Underwriting Agents Ltd & Another, a case which was decided by the High Court last month.

In that case the insured, MEL, operated an undersea cable link between the electricity system of Scotland and Northern Ireland.  Five insurers (including the two defendants in the case) provided insurance cover against the risk of the connection failing.  Subsequently there were two separate cable failures resulting in a claim of over £41m by MEL.  Three of the insurers agreed to pay out on the claim but the other two refused on the grounds that there had been deliberate non-disclosure on the part of MEL, namely the failure to disclose previous cable failures.

The relevant clause within the insurance policy stated: “the Insurers agree not to ... avoid this insurance as against any ... claim ... unless deliberate or fraudulent non-disclosure or misrepresentation ... by that Insured is established”.  

The issue which the court had to decide was whether the reference in the insurance policy to “deliberate ... non-disclosure” meant that the contract could be avoided in circumstances where the insured had honestly but mistakenly decided not to disclose a particular document or fact; or whether, as MEL contended, the words meant that avoidance was only available if there had been a deliberate decision not to disclose a particular document or fact which MEL knew was material such that non-disclosure would involve an element of dishonesty.

The court took the view that commercial business sense dictated that the insured should be punished if it had behaved dishonestly but not if it had made an honest but deliberate mistake.  There had been an honest but mistaken decision by MEL not to disclose that there had been historic problems with the cables but that did not amount to it being deliberate or fraudulent.  “Deliberate” non-disclosure meant that MEL must have known what it was doing and therefore an element of dishonesty was required.  On the facts of the case, the judge decided that MEL had not behaved dishonestly and that there had been no deliberate non-disclosure.

This decision will be of comfort for insured parties but less so for insurers.  The insurers in this case were asking the court to interpret a wide meaning of the word “deliberate”.  Had the court had accepted their arguments so that “deliberate” included honest mistakes then it would have allowed insurers to avoid insurance policies for negligent non-disclosure.

If you are involved in any dispute with an insurer and require assistance then please contact Luke Patel at Blacks Solicitors on 0113 227 9316 or email him at “LPatel@LawBlacks.com”.

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Paying the penalty

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English law is traditionally very clear on penalty clauses – where a Claimant is seeking a financial payment from the Defendant that is over and above the actual loss the Claimant has suffered the law will not allow recovery of the penalty charge.  However, a recent judgment in what seemed a trivial matter of a parking charge has potentially overturned this conventional view.

In the case of Beavis v ParkingEye, a motorist overstayed at a car park by more than an hour on a two-hour limit.  The firm administering the site charged him £85 for the privilege and Mr Beavis challenged the charge on the basis that this did not represent the actual loss suffered by ParkingEye.  Indeed, it is far from clear whether Mr Beavis’ overstay caused any direct financial loss to ParkingEye at all.

The initial decision went in the motorist’s favour but was then appealed all the way to the Supreme Court, resulting in the decision that the fine should not be thrown out as a penalty charge but instead upheld as a reasonable charge levied by the parking firm.  The Court’s reasoning for its decision was that the parking firm had a need and a responsibility to control parking at the site in the interest of the site owner and other users.  The fine acted as a deterrent rather than being compensation for any loss suffered and was therefore reasonable in the circumstances.  Motorists should expect such fines if they fail to follow the rules set out for parking.

Whether this case will create wider waves in the law is not clear.  Certainly the circumstances that Mr Beavis found himself in are not uncommon and many firms like ParkingEye may have held back from chasing fines in the past because of the threat of a Penalty Clause Defence.  Now such firms can be relatively confident of success so long as the facts do not deviate markedly from this case.

There is also the question of whether other industries may attempt to make use of this precedent.  Many companies have contracts where a default – such as payment of invoices outside a set period - triggers a penalty payment that exceeds the actual loss such a late payment might cause to the creditor.  Now the Supreme Court has confirmed the position in Beavis, it may be open for firms to argue that such clauses are necessary for responsible credit control and represent a reasonable deterrent to contractual default.  Defendants in such cases may be in for a rocky ride.

If you are involved in any dispute, contractual or otherwise, then please contact Luke Patel on 0113 227 9316 or by email at “LPatel@LawBlacks.com”.

 

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Costs can be recovered in the small claims court

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Where a claim is for a value of £10,000 or less it is typically allocated by the Court to what is known as the ‘small claims track’.  Within that track the ability of the successful party to recover its costs from the unsuccessful party is limited to court fees and witness expenses unless there has been a finding of unreasonable behaviour by the other party.  This means it is usually uneconomical for parties to obtain legal representation in such cases.   

However, the recent case of Chaplair Limited v Kumari highlights a way of recovering legal costs in circumstances where that is expressly provided for in a contract between the parties.  Chaplair, the Claimant landlord, brought court proceedings against its tenant, Mrs Kumari, in order to recover unpaid rent and service charges.   Although the proceedings were allocated to the small claims track, the Claimant argued that it was entitled to contractual costs under the lease pursuant to a provision that the tenant was to pay the landlord’s costs of various incurred expenses including legal fees.   

At the first instance, the District Judge held that the small claims costs rules applied and he limited the amount of the Claimant’s recoverable costs to £250.  On appeal to the County Court, the decision was reversed and the Circuit Judge allowed the Claimant to recover its costs on the basis that the costs rules did not apply because the costs were not payable under the Civil Procedure Rules but instead under the terms of the lease.  Mrs Kumari appealed to the Court of Appeal.

The Court of Appeal upheld the Circuit Judge’s decision and dismissed the appeal.  It found that the Court retains discretion as to whether to award contractual costs and that such costs were recoverable subject to the Court’s equitable power to disallow unreasonable expenses.

This case demonstrates that if contracts are properly drafted and claims are properly pleaded then there is a reasonable chance that costs may be recoverable even if the claim is a “small” claim.  A landlord with an appropriately worded lease now stands a much better chance of recovering contractual costs in the small claims track.  

This case will provide welcome assistance to parties who have so far been limited in recovering contractual costs in the small claims track, particularly since the limit on that track has been increased to £10,000.  

If you are involved in any dispute, contractual or otherwise, or if you require assistance with the drafting of a lease or any contractual documentation then please contact Luke Patel on 0113 227 9316 or by email at “LPatel@LawBlacks.com”.

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Raising Awareness: Gale bowls over crowd at Marie Curie

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GUEST: Andrew Gale was the guest of honour for the Marie Curie event earlier this week, organised by Blacks Solicitors

GUEST: Andrew Gale was the guest of honour for the Marie Curie event earlier this week, organised by Blacks Solicitors

Yorkshire County Cricket Club captain, Andrew Gale, was joined by businessmen from across Bradford for a special networking event earlier this week, looking to raise awareness for the local Marie Curie Hospice.

Organised by Blacks Solicitors, the event brought cricket enthusiasts together to discuss all things Yorkshire and pick the mind of one of the county’s most consistent performers.

Luke Patel, Solicitors Partner at Black Solicitor, said the event was a great opportunity to learn more about the hospice and enjoy listening to their ‘fantastic’ sports ambassador.

“This is a local hospice for the needs of local people and we must raise awareness and provide support in whatever way we can,” he said.

“Our event achieved that and we hope the business owners round the table will give consideration to choosing this charity as their nominated charity in their Corporate Social Responsibility policies.”

Gale spoke with delegates about his experience as captain of Yorkshire, seeing the county promoted from Division Two and retaining the Division One title, and told stories from Sir Geoffrey Boycott to Jason Gillespie’s unbeaten 201.

The county skipper also shed light on his optimism for the future of Yorkshire CCC, adding that younger players could break into the team in coming seasons, with a host of exciting British Asians in the academy.

AWARE: Dozens of businesses were represented on the day as awareness was raised about the work Marie Curie Hospice carries out

AWARE: Dozens of businesses were represented on the day as awareness was raised about the work Marie Curie Hospice carries out

Following a question and answer session, Elaine Hill, Hospice Manager at the Bradford site, spoke with those in attendance.

She added: “People think of a hospice as a sad place but we are not. We are a place which may handle sad times in peoples’ lives but we give patients and their families the best standard of life possible before and after a family member’s death.

“It costs £3million a year to maintain the hospice and we need to raise more than half of that through donations every year.

“Whether it is from a sponsored event or a business pledging to pay for a nurse for the day, it all helps and is massively appreciated.”

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