Michael Booth QC argues that the present approach to the giving of evidence in civil cases is contrary to the interests of justice and to efficient trial preparation.

Witness to the truth

Anyone with any current experience of civil litigation knows that usually evidence in civil litigation is given by witness statement which stands as evidence in chief. Subject to the court’s discretion, some supplementary questions can be asked, but those are of necessity relatively circumscribed. Generally therefore witnesses give their evidence by confirming a witness statement, and are then immediately cross-examined.

This is a development which stems from the late 90s and has certainly been standard since the introduction of the Civil Procedure Rules and the procedural code under them. The idea is that it reduces trial by ambush in that the other side know what evidence is to be adduced, and it saves court time and costs by shortening proceedings.

Those of us who are old enough to recall the old days will remember trials where the witnesses gave evidence in chief being taken through their evidence in the usual way (i.e. not being led). As a result of the pleadings and what were then called requests for further and better particulars and interrogatories (now all contained within requests for further information) one would have a reasonable idea of what the case for the other side was going to be, but you would not know the precise ins and outs of the evidence. That would come as you listened to the evidence in chief.

There were advantages for both sides from this approach. Witnesses would have a chance to tell their story. They would not just be confirming a written document and then thrown into the maelstrom of cross-examination. You would have a chance to look at them as well as listen to them, to understand the nuances, to hear the precise words they used. These will be their words, not ones buried under their lawyers’ many layers of interpretative gloss.

Is the new system better? Is it cheaper? Is it more conducive to justice? I have serious doubts as to whether it is any of the above.

The court still has the opportunity to permit or order evidence to be given in the old way. A common situation in which this arises is in the context of civil fraud. Since I undertake a considerable amount of civil fraud work, I have therefore have the opportunity to compare the old and new systems and this has very much informed the view which I have taken.

Despite the CPR, legal costs continue to rise. Although the suggestion is that a witness statement should be in the words of the witness not those of the lawyer, in practice given that it is treated as the words of witness this ends up being a principle which is universally flouted. The amount of time spent by lawyers in crafting and polishing such statements to give the precise nuances which are consistent with what witness says that are most favourable to their side’s case, takes up an enormous time and generates huge costs. This is worthwhile for the parties because these will be treated as the words of the witness.

You learn a lot from how a witness speaks. I do not mean his or her accent, but the tone, the precise choice of words, the interplay of the words and the facial expressions. When you hear a witness taken through their evidence it is usually a good barometer of truthfulness and a good indication of those areas where the witness is not really clear. All that is buried under the lawyer-speak of the typical witness statement in the normal civil trial these days. It hinders the truthful and protects the mendacious. It gives a real advantage for those rich enough to be able to have their lawyers spend a great deal of time on the statements.

Imagine if instead witness statements were exchanged, could be read by the judge, but were to be a summary of their evidence in the words of the witness. Parties could be penalised for without notice leading evidence in chief of any substance which was not contained in the statements. Parties could have their costs of preparation of the witness statement disallowed if it was apparent having heard the evidence in chief that the witness statements were not truly reflective of the words of the witness. Witness statements would become much shorter. Costs would be reduced. Although trials might frequently last a little longer, it may be that faced with evidence having to be adduced in this way, more trials would settle.

Ultimately the most important consideration is that this will then be more likely to lead to a just result and be likely to produce greater equality of arms between those with plenty of money and those with not so much. Trials, and evidence, should be about recollection, and veracity, not who can afford the best gloss on it by their lawyers.

Louis Doyle, Barrister, Kings Chambers, Manchester & Leeds

Cross-border insolvency has been very fertile ground in recent times. For example, in Re Oilexco Northsea Ltd, Harms Offshore AHT v Bloom [2009] EWCA Civ 632 the Court of Appeal held that the court has jurisdiction to restrain two German creditors, which had obtained relief from the New York District Court by way of judgment and, on an ex parte basis, attachment against funds in a New York bank account of an English company in administration, from continuing the attachments. In addition, the English court had jurisdiction to require the return of those assets against which the German creditors had attached. The case is rather exceptional because the English court will usually not interfere with the strong presumption that proceedings in a foreign court are not to be interfered with. What is also curious is that, given that an English administration moratorium is ordinarily of no extra-territorial effect, the English administrators did not seek protection of the company’s estate by recognition under US Chapter 15 (although it is understood that that route is now being pursued)

The decision in Syska (Elektrim SA) v Vivendi Universal SA [2009] EWCA Civ 667 is another decision of the Court of Appeal. The decision upheld that at first instance (albeit on slightly different grounds) to the effect that arbitration proceedings fall within the scope of “lawsuit pending” for the purposes of Articles 4.2(f) and 15 of the EC Regulation on Insolvency Proceedings. Where arbitration proceedings are pending at the date of insolvency those provisions are engaged such that the effect of insolvency on the arbitration proceedings is governed by the law of the Member State in which the arbitration is pending. Converseley, where arbitration proceedings have not been commenced the applicable law is that governing the contract to which the debtor is party.

Perhaps most significant recent decision, at least in general terms, is that of Lewison J at first instance in Stanford International Bank Ltd [2009] EWHC 1441 (Ch), the first reported contested case under the Cross-border Insolvency Regulations 2006. The case involved the competing claims of office-holders appointed in the United States and Antigua to entities forming part of Sir Allen Stanford’s collapsed business empire. It is unlikely to be the last word on the issues raised, however, since an appeal has been filed and is expected to be heard later in year.

Pending the appeal the judgment remains of some significance for its analysis, amongst other issues, of what is of necessity the recent case law on the proper determination of a insolvent’s “centre of main interests” (“COMI”) under the EC Regulation (in addition to which the Judge also considered the position under Chapter 15 which incorporates the Model Law on Cross-border Insolvency into US law). Interestingly, this was an analysis Lewison J took on despite the fact that it was common ground between the parties that, in determining COMI, the court should follow the guidance given by the ECJ in Eurofoodcase [2006] ECR 1-701. In effectively adopting the ECJ’s approach, by which COMI is determined by reference to criteria that are both objective and ascertainable by third parties, his Lordship went on to hold that what is ascertainable by a third party depends on what was in the public domain and what a typical third party could ascertain as a result of dealing with the debtor. In so finding, Lewison J overruled the decision of HHJ Langan QC in Re Ci4net.com Inc [2005] BCC 277 (ChD, Leeds District Registry), decided before Eurofood, which had held that the location of a company’s registered office is but a factor in determining COMI. The Ci4net approach is irreconcilable with Eurofood under which the location of a debtor’s registered office raises a presumption of COMI, the burden lying on the party seeking to rebut that presumption. Lewison J also disapproved of the “head office functions” test espoused by Advocate-General Jacobs in Eurofood [2006] ECR 1-03813 (at para 111) – the opinion of the Advocate-General, importantly, not being that of the ECJ itself – a test which had been adopted by the French court in MPOTEC Gmbh [2006] BCC 861, Under that test the court looks at what is carried on at the registered office, rather than merely its location. The difficulty in that test, on Lewison J’s analysis, is that it at odds with the test established by the ECJ itself by reference to criteria objective and ascertainable by third parties.

This author’s view, for what that is worth, is that the Court of Appeal is very unlikely to upset Lewison J’s approach on COMI, though the Court of Appeal’s involvement is timely. The earlier authorities have been considered unsatisfactory in a number of quarters and the area is one so fundamental to cross-border insolvency that it requires clarification at the appeal court level.

Louis Doyle is a barrister at Kings Chambers and the co-author (with Professor Andrew Keay) of Insolvency Legislation: Annotations and Commentary (3rd edn, 2009, Jordans)

by Jonathan D.C. Turner, barrister, 13 Old Square Chambers

Tax is not the only thing set to change on 6 April 2011. Another change of importance to everyone concerned with commercial property will take effect on the same date: the application of Chapter I of the Competition Act 1998 to agreements which create, alter, transfer or terminate interests in land, together with associated restrictive covenants and user obligations (“land agreements”). Furthermore, the Act will apply as from that date not only to new land agreements but also to existing agreements which remain in force.

The prohibition

The Competition Act 1998 contains in its Chapter I a broad, general prohibition of agreements between undertakings which

• have as their object or effect to prevent, restrict or distort competition within the UK or part of it and
• may affect trade within the UK or part of it.

Agreements contravening this prohibition are invalid and the parties to them can be fined heavily if their contravention was intentional or negligent.

However, the impact of this prohibition on land transactions was greatly attenuated by an Order which excluded land agreements from its operation. In theory, the exclusion could be withdrawn in relation to a particular agreement by a direction of the Office of Fair Trading, but in practice that did not happen. This exclusion will now cease altogether with effect from 6 April 2011, whereupon the Chapter I prohibition will apply automatically to such agreements.

The removal of the exclusion is not retrospective in a strict sense, in that the making and operation of agreements down to 5 April 2011 will not be made retrospectively illegal. However, it is clear that as from 6 April 2011 the maintenance in force and operation of agreements which are caught by the prohibition will be illegal, even though the agreements were legal when made – indeed, even if the agreements were made before the Competition Act 1998 was promoted or enacted. This can have a serious impact on the positions of the parties to such agreements or possibly their successors, as discussed below.

The Office of Fair Trading (OFT) is preparing guidance and has issued a draft of this for consultation. The draft points out that most land transactions will not be affected by the Competition Act even after 5 April 2011. However, this is because the Competition Act does not generally affect the sale of residential property. On the other hand, it is also apparent from the draft that the OFT anticipates that many transactions relating to commercial property are liable to be caught by the Act.

In particular, the Chapter I prohibition may apply to

• restrictive covenants which restrict the type of commercial activity which may be conducted on particular premises;
• exclusivity obligations which promise tenants or licensees that no similar business will be permitted to operate in a particular centre or location; and
• transactions by which one company secures control over a substantial proportion of the sites which can be used for a particular type of business in a given catchment area (usually where the availability of suitable sites for that type of business is limited by planning considerations).

Interpreting the Competition Act

The Chapter I prohibition is modelled on what used to be Article 81 of the EC Treaty and is now Article 101 of the Treaty on the Functioning of the European Union (TFEU). The only substantive difference is that Article 101 of the Treaty applies if the agreement “may affect trade between Member States [of the EU]” whereas the Chapter I prohibition applies if the agreement“may affect trade within the United Kingdom [or part of it]”.

Furthermore, section 60 of the Competition Act explicitly provides (in summary) that questions arising under the Chapter I prohibition should be determined consistently with the determination of corresponding questions under (what is now) Article 101 of the TFEU.

It is therefore necessary to base any assessment of a situation under the Chapter I prohibition of the UK Act on the principles established by the extensive case-law under Article 101 of the TFEU. Having said that, there is virtually no EU case-law relating specifically to land transactions, since these do not usually affect trade between EU member states. Thus while many general issues of relevance to land agreements have been addressed under EU competition law, we are to a significant extent in uncharted territory when considering their specific application to land agreements.

Agreement between undertakings

The Chapter I prohibition applies to agreements or concerted practises between “undertakings”. According to the case-law of the Court of Justice of the EU (CJEU), the term “undertaking” covers any entity engaged in an economic activity. It does not cover individuals acquiring property for their own residential use, but it does cover individuals (as well as companies) engaging in land transactions as a commercial activity or for commercial or professional purposes.

Similarly, the term does not cover public authorities when they are carrying out governmental functions, but it does cover them when they are engaged in commercial activities. For example, a public authority taking a lease of property for its own offices would not be an “undertaking” for this purpose, but it would be an “undertaking” within the meaning of the provision if it sublet some of the offices to a business or a professional firm.

The Chapter I prohibition applies if there is an agreement or concerted practice between undertakings. An agreement can be written or oral, formal or informal. According to the case-law, a concerted practice is a form of co-ordination which knowingly substitutes practical co-operation between the parties for the risks of competition.

Application to existing restrictions

Difficult questions may arise as to how the Chapter I prohibition applies to land transactions which were made before 6 April 2011 but which continue to have effects from that date. The prohibition applies automatically from that date to existing land agreements which remain in force, but it does not apply to the unilateral exercise of proprietary rights created or transferred prior to this date.

Where an agreement continues in force, such as an ongoing lease, it seems clear that the Act will apply if terms which restrict competition (for example, restrictions on the type of commercial use of the demised premises) remain in force from 6 April 2011. It appears that this is so even if the interests of the original lessor and/or lessee have been assigned to other parties, since the original agreement constituting the lease effectively remains in force between the current lessor and lessee. It has been accepted that (what is now) Article 101 of the TFEU continues to apply where a commercial agreement is assigned to different parties, and it would be difficult to justify a distinction just because the agreement relates to an interest in land. Where an agreement is assigned to new parties, this may change whether and to what extent it affects competition, but that is a different point, which is discussed below.

The position is less clear where an agreement for the transfer of a freehold interest completed before 6 April 2011 contains a restrictive covenant which continues to apply after that date. The benefit and/or burden of the covenant may pass to third parties who subsequently acquire the dominant or servient tenements. On one view, there is no agreement between these third parties; the restrictive covenant is an incident of the property which they have acquired, not a term of a continuing agreement. However, it is thought that the better view is that the covenant is properly regarded as a term of an agreement which continues in force even if it has been assigned to new parties, and is therefore subject to the prohibition as from 6 April 2011.

The second view is supported by the consideration that the Act should be interpreted consistently with the corresponding provision of EU law which applies throughout the EU, including in member states where the burden as well as the benefit of contracts can be assigned in various ways, including universal succession. Where new undertakings become parties to an existing agreement through universal succession, it seems that Article 101 of the TFEU must continue to apply on the basis that the agreement remains in force between the new parties unless and until it is discharged by agreement or otherwise. Similarly, where new parties become bound by the terms of an agreement through the acquisition of an interest in land, it seems that the agreement must be regarding as continuing as between the new parties unless and until the terms are discharged.

This view is also supported by the Judgment of the CJEU in EMI v CBS, which held that the corresponding prohibition in EU law can apply even where an agreement is no longer in force if it continues to produce its effects after it has formally ceased to be in force; and that an agreement is regarded as continuing to produce its effects if the existence of elements of concerted practice and coordination peculiar to the agreement and producing the same result as that envisaged by the agreement can be inferred from the behaviour of the persons concerned. The continued operation of a restrictive covenant as between new owners of the respective tenements would appear to be, at the very least, an element of coordination producing the same result as that envisaged by the original agreement.

By contrast, where anti-competitive effects result not from a continuing restriction but from a transfer of land completed before 6 April 2011, the Chapter I prohibition would not apply in the absence of an agreement or concerted practice continuing from that date. For example, where a town has two petrol stations, and it is not possible within a short period of time to open a new one (for example, because of lack of suitable sites and/or planning issues) the sale of one of the stations to the owner of the other could restrict competition. Therefore if the sale takes place after 5 April 2011, it could contravene the Chapter I prohibition. But if the sale took place on or before that date, it would not contravene the prohibition and the new owner would remain the owner and entitled to operate both stations after that date. (If the new owner abused a dominant position, whether before or after 6 April 2011, it would contravene the Chapter II prohibition, but that is a different point.)

Prevention, restriction or distortion of competition

If there is an agreement or concerted practice between undertakings which continues after 5 April 2011, it is necessary to consider whether it has as its object or effect to prevent restrict or distort competition. According to the case-law of the CJEU, a restriction is regarded as having as its object to prevent, restrict or distort competition if it does so by its very nature; in other words, it is so likely to do so that it is not necessary to demonstrate the effect. If an agreement does not have as itsobject to prevent restrict or distort competition in this sense, it is necessary to go to consider whether it has this as its effect.

The prevention, restriction or distortion of competition can refer to the competition of one or more of the parties to the agreement (for example, where the commercial conduct of a party to the contract is restricted) or of a third party (for example, where an agreement or series of agreements makes it difficult for a third party to access a market).

In particular, restrictive covenants, controlling the type of business that can be conducted on a particular property, can prevent, restrict or distort competition in some circumstances. For example, if a shopping centre has only one coffee shop, a restrictive covenant which prevents the use of another suitable unit in the centre for a coffee shop may well restrict competition, at any rate if someone wants to open a competing coffee shop in the centre and there is no other unit available for such use.

In some circumstances the transfer of an interest in land may itself prevent, restrict or distort competition, as in the petrol station example mentioned above.

Insignificant effects

However, as the CJEU has held, the prohibition does not apply if the prevention, restriction or distortion of competition is insignificant. Thus if a shopping centre already has several competing coffee shops, a restriction preventing the opening of another coffee shop will not have a significant impact on competition and will therefore escape the prohibition.

The European Commission has issued guidance in its Notice on Agreements of Minor Importance (often called the “De Minimis Notice”), indicating circumstances in which the impact on competition will normally be regarded as insignificant and therefore not caught by Article 101 of the TFEU. The OFT’s draft guidance endorses the application of this Notice in relation to land agreements in the UK and the Chapter I prohibition.

The Notice states that, subject to certain exceptions, an agreement will not be regarded as appreciably affecting competition if

• the parties are actual or potential competitors and their combined share of any relevant market affected by the agreement is less than 10%; or
• the parties are not actual or potential competitors and the market share of each party does not exceed 15% of any relevant market affected by the agreement.

However, as indicated above, this is subject to various exceptions. One exception is where competition on a relevant market is restricted by the existence of parallel networks of agreements covering 30% of the relevant market: in this case an agreement will be regarded as having an insignificant effect on competition under the Notice only if the market shares of the parties do not exceed 5%.

More generally, this “safe harbour” is not available for agreements between competitors which have as their object to fix the prices of products sold to third parties, or to limit output or sales, or to allocate markets or customers. Nor is it available to agreements between non-competitors which have as their object to specify a fixed or minimum resale price or to restrict the territory or customers to whom a buyer may resell the contract goods or services, subject to various provisos where resale restrictions are allowed.

The Notice is only guidance and it is possible for a Court to reject its application on the facts of a particular case. It should also be noted that if an agreement is not in the “safe harbour” specified by the Notice, this does not mean that it does have a significant effect so as to be caught by the prohibition. It is still necessary to consider whether in all the circumstances it is likely to prevent, restrict or distort competition to an appreciable extent.

Market definition

Market shares are very important for the purposes of the Notice and generally when considering whether an agreement significantly prevents, restricts or distorts competition. In order to assess market shares it is necessary to define both the relevant product market (the goods or services which compete effectively with the products in question) and the relevantgeographic market (the area in which a rival must operate to have an effective competitive impact on the undertaking in question).

Goods or services are regarded as competing in the same relevant product market if they are regarded by customers as interchangeable with or substitutable for each other by reason of their characteristics, prices and intended use; or more formally and theoretically, if a small but significant non-transitory increase in price in one would lead to a shift in demand to the other so that it would not be profitable (the “SSNIP test”).

Definition of the geographical market is often particularly important in relation to land transactions. The UK Competition Commission considered this issue extensively in its recent investigation of the groceries market. Following this, the OFT considers that the catchment area of a retail store, being the area from which it draws most of its customers, may constitute a reasonable approximation to the relevant market in many cases. Catchment areas may be drawn by reference to postcodes, local authority licensing areas or “isochrone radii” (i.e. contours representing equal travel time).

It is well established that an agreement which was originally compatible with Article 101 of the TFEU and the Chapter I prohibition can later contravene the prohibition because of a change of circumstances, such as an increase in the market shares of the parties, or the assignment of the agreement by a party which does not compete with the other party to one which does. When this happens, the maintenance in force of provisions of the agreement which prevent restrict or distort competition becomes illegal and the various consequences described below may ensue.

A more controversial question is whether an agreement which contravened the prohibition when made or subsequently can later become valid because of a change of circumstances, without being expressly reaffirmed. Conflicting views have been expressed in the Court of Appeal of England and Wales on this point (Crehan v Inntrepreneur and Passmore v Morland). The better view appears to be that an agreement which was originally caught by the prohibition can indeed become valid on falling out of the prohibition due to a change of circumstances.

Necessary terms of pro-competitive agreements

The CJEU has also held that a term in an agreement which restricts the conduct of a party does not prevent, restrict or distort competition if it is a necessary term of a pro-competitive agreement, so that without the term there would be no agreement and no competing business under it at all. On this basis, where the developer of a new shopping centre offers a major department store exclusivity for a limited period in order to attract an anchor tenant, which will enable the new centre to become a viable and effective competitor to other shopping centres in or around the same town, the agreement may be regarded as not restricting competition, if the department store would not take a lease in the new centre without this protection.

However, this principle must be used with care. It only applies where the restriction is necessary for the pro-competitive agreement to be made at all, and no lesser restriction would be acceptable to reasonable parties in the position of the parties to the agreement. For example, even if a period of exclusivity is necessary to persuade a major department store to become an anchor tenant for a new shopping centre, a period in excess of, say, five years may be regarded as unnecessary and therefore liable to restrict competition. It also appears from the OFT’s draft guidance that it is unenthusiastic about applying this principle to land agreements, preferring to address this kind of issue under the express provision for exemption discussed below.

Exemption

Separately from the “necessary terms” principle just described, agreements are automatically exempted from the Chapter I prohibition if they

• contribute to improving the production or distribution of products or promoting technical or economic progress,
• allow consumers a fair share of the resulting benefit,
• do not impose restrictions which are not indispensable to attaining these objectives, and
• do not enable the parties to eliminate competition in respect of a substantial part of the products in question.

There is clearly some overlap between the exemption and the principle that a necessary term of a pro-competitive agreement does not restrict competition. The exemption can apply where competition is restricted in one respect but promoted in another respect. For example, some restrictions on competition between shops in the same shopping centre may ensure that this shopping centre has a broader range of shops and is a more effective competitor of another shopping centre in or near the same town. Indeed, as mentioned above, the OFT appears to prefer to assess pro-competitive agreements under the heading of exemption rather than the principle that a necessary term of a pro-competitive agreement does not restrict competition, even if this makes little or no difference to the end-result.

However, the exemption can also apply where competition is restricted in one respect, but the restriction is justified not because it promotes competition in a different respect, but for some other reason – for example, because it avoids wasteful duplication of resources, or preserves the character of a neighbourhood, or protects the environment, or promotes energy conservation. Agreements have been exempted under the corresponding provision in the TFEU on the basis of various public benefits which do not readily fit inside a literal interpretation of the phrase “improving the production or distribution of goods or promoting technical or economic progress”. However, there is debate as to whether agreements restricting competition can be exempted on essentially non-economic grounds.

Invalidity of infringing agreements

If an agreement contravenes the Chapter I prohibition – because it has as its object or effect to prevent restrict or distort competition and it is not exempted in accordance with the criteria discussed above – then its restrictive provisions are void. In the case of transactions prior to 6 April 2011, the restrictive provisions become void as from that date. However, the other provisions of the agreement remain valid if the invalidity of the restrictive provisions does not result in a total failure of consideration or change the agreement into one of a completely different character from that which the parties contemplated.

Where covenants restricting the use of land contravene the Chapter I prohibition, other aspects of the transaction would survive in many cases. Even if this results in some unfairness as between the parties, in that (for example) the price or rent might have been different without the restrictive covenant, the agreement as a whole will not be invalid in the absence of a total failure of consideration or a fundamental change in its nature.

Where a market rent has to be set under a rent review clause or under the Landlord and Tenant Act, a restriction on the use of the demised premises would normally be taken into account in the determination. But it can be argued that if the restriction is invalid under the Competition Act, it should be ignored, resulting in a higher rent, at any rate in a review after 5 April 2011.

Where an agreement to transfer land, made after 5 April 2011, itself contravenes the Chapter I prohibition, but is completed, in that the land is transferred and the consideration is paid, difficult questions, of the kind discussed in Tinsley v Milligan, may arise as to whether the transfer is invalid and the title is bad. However, even if the transfer is effective as a matter of property law, a party to the agreement might be able to claim restitution on the ground that it entered into the agreement in the mistaken belief that it was lawful, following the Kleinwort Benson case. Furthermore, the Office of Fair Trading has power to order remedial action, for example requiring the parties to reverse the transaction or requiring the purchaser to sell on the property to a third party competitor.

Object, means or consequence of infringing agreement

The CJEU has held that the exercise of an intellectual property right contravenes the corresponding prohibition in the TFEU whenever it is the object, the means or the consequence of an infringing agreement. It is not clear how far this principle applies to real property. It is difficult to imagine the courts allowing a defence to trespass on this basis if (for example) a trader opens a kiosk on another company’s property and submits that the owner’s acquisition of the property or its acceptance of a restrictive covenant contravened the Chapter I prohibition.

On the other hand, this principle does support the view (expressed above) that the enforcement of a restrictive covenant between successors in title to the original parties who created it does not escape the prohibition on the ground that there is no current agreement between the owners of the respective tenements.

This principle also supports a broad interpretation of the OFT’s power to make orders to bring infringements to an end, for example by reassigning or reselling property acquired under an infringing agreement, since it precludes the argument that the infringement is at an end when the agreement has been executed.

Damages

A person who is damaged by an infringement of the Chapter I prohibition can claim damages in accordance with normal principles of tort law. For example, third party competitors who were kept out of a market can claim for the loss of profits which they would have made, and customers who have been overcharged as a result of an infringement may be able to recover the excessive charges, at any rate if they did not pass on the increased costs to their customers.

A party to a contract who shares equally the blame for the infringement (“in pari delicto”) may be barred from claiming against the other party on the basis that he cannot rely on his own wrong doing (“ex turpi cause non oritur action”). However, a party who was forced to accept the restrictions because he was in a weak negotiating position – such as a tenant of a tied public house vis-à-vis the brewer who owned it – would probably be able to claim, in line with the CJEU’s decision inCourage v Crehan, and longstanding common law principles (e.g Kiri v Dewani).

Fines

Finally, where the infringement of the Chapter I prohibition is intentional or negligent, the OFT can impose fines on the parties of up to 10% of their annual turnover. However, it is thought that substantial fines are unlikely to be imposed in relation to land transactions until a track record of enforcement has established more clearly what type of transaction will be held to infringe the prohibition.

Other competition law provisions

The Chapter I prohibition of the Competition Act is not the only provision of competition law which can apply to arrangements relating to commercial property. Following a general review of the retail grocery sector, the Competition Commission made a detailed Order earlier this year under the Enterprise Act 2002. This Order requires the large grocery retailers to release existing restrictive covenants in their favour which restrict the use of land for grocery retailing by competitors in highly concentrated local markets (as defined), and not to impose any new restrictive covenants which may restrict grocery retailing. It also prohibits the enforcement by large grocery retailers of exclusivity arrangements lasting more than five years in such markets where the protected retailer has a strong local position (as defined).

The prohibition of abuses of dominant position in Chapter II of the Competition Act could also apply to arrangements relating to land in special circumstances. For example, some cases under the corresponding provision in EU law have concerned unfair charges for the use of facilities at airports and seaports.

©Jonathan D.C. Turner 2010

In search of the Gold Standard

“Maison d’Or” was a luxury home being built for a multi-millionaire in Jersey. It was never quite finished, was never occupied, and was eventually demolished, the owner asserting that it was so badly designed and built, that its faults could not be remedied without starting again. He mounted an action against the contractor, architect, engineers (both structural and services), quantity surveyor and project manager in the Technology and Construction Court in London. The mammoth 200 page judgment of His Honour Judge Coulson QC is informative on a number of important issues. Frank Hall discusses the matter of construction quality which was a key ingredient in the case and a lesson for all professional consultants.

The case of McGlinn –v- Waltham Contractors Ltd and Others [2007] EWHC 149 (TCC) is extraordinary in a number of respects. At the very beginning of the judgment, it is recorded that the Claimant, Mr Ian McGlinn, the former co-owner of The Body Shop and therefore a very, very rich man, was able to take legal and financial risks that would never have been contemplated by employers of more modest means. Nevertheless, said the judge, he was “just as entitled as any other employer to a proper and professional service from those that he engaged – at considerable cost- to design and build Maison d’Or”.

By chance, the judgment is particularly relevant for consultants because the contractor, who would otherwise no doubt have been top of the dramatis personae, was in administration and therefore played no part in the proceedings. Accordingly, Mr McGlinn was obliged to turn his guns on the architect, engineer, quantity surveyor and M&E engineer and concentrate on the matters of design, specification, contract management and site inspection for which he had engaged them.

The evidence

One of the major difficulties that the judge said he had experienced in deciding the case was the lack of contemporaneous written evidence from all parties. Mr McGlinn kept no records himself and therefore was obliged to rely upon his (sometimes poor) recollections of important events during the design and construction of the house, including assertions concerning design features and the quality and standards that he required. However, more seriously, there was a complete absence of minutes, notes or notebooks kept by the architect in respect of such matters as the site inspection visits, which not surprisingly, the judge considered to be “of particular concern”.

Another difficulty expressed by the judge was the poor quality of the technical evidence concerning the long list of defects alleged by the Claimant. This was largely the result of the demolition of the house prior to the issue of proceedings. However, the judge rejected the architect’s claim that the demolition had been premature and that there had been insufficient opportunity to inspect. There were in fact an “almost bewildering array” of photographs and a number of video recordings presented to the court. Unfortunately the photographs were largely uncollated and some were of poor quality. The videos were sometimes subject to irreconcilable interpretations by the experts and the judge therefore considered them of less help than ought to have been the case.

The progress of the works

Having been appointed by Mr McGlinn on recommendation, the architect, the Hugh Thomas Partnership, produced initial designs in 1997 and then a planning application for the house in early 1998.

The necessary approvals having been obtained, Waltham were appointed as contractor after a competitive tender exercise. Work on site commenced in February 1999 and continued for 24 months until January 2002, when the contractor left the site, without Practical Completion having been certified. The construction process had been fraught with difficulty and disagreement, not least because of the active involvement of Mr McGlinn. He accepted at trial that if, during his (irregular) visits to the site, he saw some feature that he disliked, he ordered its removal, whether or not it complied with the design information provided. He admitted that his wealth had allowed him to indulge his likes and dislikes. (It was later to be agreed by the experts in the Hearing, that this was a substantial cause of delay and disruption to the works.)

Relationships deteriorated and by the end of 2001, problems with payments to the contractor also occurred and an all too familiar chain of events ensued. An interim certificate was not honoured, a purported default notice was issued, the contractor suspended work, and Mr McGlinn accepted what he considered to be the contractor’s wrongful repudiation of the contract. The contractor then offered to return and complete the outstanding work, which offer was refused. Thereafter, as the judge put it, “the house then stood empty, unheated, unventilated and rather neglected, for the next three years”.

The investigations

However, that period of neglect eventually came to an end, to be replaced by a remarkable phase during which the building was subjected to a most meticulous dissection and forensic examination. In March 2002 Mr McGlinn appointed another firm of architects (who were already engaged on another house for him on the Dorset coast), to record the defects at the Maison d’Or and draw up proposals for their rectification. It would however appear that this task was not left entirely to the new architects, but was “augmented” by Mr McGlinn’s personal assistant and Mr McGlinn himself.

During this process, the records indicate that in addition to the more readily definable building defects, there was an impetus to identify work that was contended to fall below the required high standard or quality of finish to which Mr McGlinn claimed to be entitled. As a result of this process, the new architects produced an extensive defects schedule, which was the basis of the Scott Schedule eventually to be used at trial. Most of the items were identified as matters of bad workmanship on the part of the contractor, and most of those were internal and largely matters of finish.

It was however later noted during the hearing that a number of important items that were eventually included in the Scott Schedule, were not on this original list, despite the fact that most would have required no opening-up, to be identified. There was a suggestion that the bar of acceptability was being raised after the event, for the purposes of the legal action. Further versions of the defects list were produced. However, a final step-change in the investigative process took place in early 2003 when Mr McGlinn and his team, (by now augmented by yet another architect, who was to become an expert witness in the litigation), set about the task of identifying and specifying the remedial works said to be required. It was to be alleged at the hearing that it was at this point that the notion of claiming for demolition and re-building, rather than repair, was first mooted and that subsequent information gathering and report writing was carried out with this objective in mind.

The final phase of the investigative process comprised extensive opening-up, including the stripping of the entire roof, involving the removal of some 10,000 slates on 19 different roof slopes. It was to be alleged at the trial that this extensive and vastly expensive operation was carried out not merely to identify defects of which there were already signs, but also to try to find defects in areas where “there had been no problems and no signs of damage”. It was also alleged that the so-called opening-up had been carried out in such a careless and “vigorous” manner that there could in fact have been no real contemplation that repair rather than demolition could possibly follow.

Finally, in August 2004, the decision was made to demolish the building. In the judgment, it is stated that the precise circumstances in which the decision was taken were “shrouded in mystery”, although there was no doubt that it was made by Mr McGlinn alone. According to the judgment, the building was demolished to ground slab level between February and April 2005 and as yet, there are apparently no formal proposals for its replacement. In fact, it was not completely demolished. Part of the street façade remains, including an impressive garage entrance with a pair of once magnificent doors, as a bleak monument to the fiasco!

The required standards of quality

One of the key allegations running through the Scott Schedule of defects was that the workmanship, particularly of finishes, was not of the required standard. The Court was therefore obliged to ascertain the terms in which the building contract defined the contractor’s obligations in respect of workmanship quality and (because of the contractor’s demise) the consultants’ duty to identify, condemn and withhold payment for work not up to that standard.

One of Mr McGlinn’s first lines of attack was that he had insisted from the outset that he required the highest possible specification and standards of finish. It was however argued by the Defendants that this was irreconcilable with his instructions to the quantity surveyor to make reductions of over £½m to Waltham’s original £2.2m tender. Savings of this magnitude were purportedly made to the scope of the work, at least at the outset!

Another intriguing complication in the story was a line of evidence pursued by Mr McGlinn to demonstrate the quality of work to which he claimed to be entitled. It related to his yacht, the “Tigre d’Or”. In the late summer of 1997 Mr McGlinn had invited the architect Mr Thomas and his wife to the boat, moored at the time in the Mediterranean. Mr McGlinn asserted in the hearing that the main purpose of this invitation was to make it clear to the architect that he required the same standard of finish at the Jersey house as the quality that was to be seen on the yacht. At trial, this definition came to be referred-to as “the boat standard”. This was interpreted by the judge to indicate that Mr McGlinn sought “something like a perfect standard for all the joinery and other interior finishes”. There was some discussion at the hearing as to what might distinguish such a standard from the quality of work to a building. It was suggested that conditions in a boatyard were more conducive to high quality workmanship than those on a building site.

In order to decide upon these matters, the judge quite naturally took as his starting point the relevant express terms of the contract. The building contract was JCT 98 in which unamended clause 2.1 set out the obligations of the contractor. These terms are well known and oblige the contractor to use materials and workmanship of the quality and standards specified in the contract documents or where stated, to the reasonable satisfaction of the architect. There was also a general reference in the Bills to BS 8000 (the “workmanship” series of British Standards) although there were no specific references to the relevant separate parts in which this standard is issued. Finally there was an attempted “back-stop” stipulation where materials, products or workmanship were not fully specified. This required such elements to comply with good building practice and to be “of a standard appropriate to the Works and suitable for the purposes stated in or reasonably to be inferred from the project documents”.

The judge decided that these requirements, (appearing in the preambles of the Bills of Approximate Quantities), were couched in general terms and did not always clearly define the high standards that Mr McGlinn required. It would however normally be the case that as part of an architect’s duties, a much more detailed job-related specification would be produced to accompany the drawings and schedules of the worked-up design. In the present case, no such specification was produced, a shortcoming that the judge described as a major failing on the part of the architect. He concluded that such a situation emphasized even more than usual, the importance of the architect’s periodic inspections. As he put it, “if they had provided such a document, it would have made clear the very high standards of workmanship expected of the contractor in a way that the Approximate Bills do not fully make clear”. The absence of a specification prevented the architect from conveying to the contractor at the outset, the high standard that was required. Thereafter of course the damage had been done, since any further definition by way of instructions on site would have been vulnerable to a claim for a variation to the contract requirements.

It was held that whilst Mr McGlinn may have expected a very high standard – the so-called “boat standard”, he could not expect perfection. Furthermore, the judge was not convinced that, despite the jolly to the Med, Mr McGlinn had communicated those expectations properly to the consultants in the first place. In such circumstances, it was clear that there was a significant mis-match between the standards which Mr McGlinn expected, those which the contract documents encapsulated and those which the consultants’ inspection procedures were able to police.

Conclusions

What seems to be clear from all this is that if the gold standard, (or in this case the boat standard) is what clients require in terms of quality, the first step is to understand absolutely what that term actually means to them, and thereafter to put in place a contractual and procedural framework that is capable of delivering that standard. It was suggested in the hearing that conditions in a boatyard are more favourable for high quality work. This may or may not be quite the point. In fact conditions in a boatyard can be cramped, less well regulated and more uncomfortable environmentally. What you do get with boatbuilding however is a long and honourable tradition, appointment more often than not on the basis of reputation and experience rather than competitive tender, self-assessment motivated by pride in the job and recognition that the highest quality takes time and is likely to come at a premium in terms of cost per square metre, if that’s the way you need to look at it.

That said, there is no intrinsic reason why the machinery of building construction should place a straightjacket on high standards. In many cases it is perfectly possible to specify quality. Numerical performance criteria can be set, provided they can be measured (before and after the event). Reference can be made to standards and codes, provided everyone knows or checks what they actually say. Conformity with samples may also be an appropriate tool, provided the comparison process is defined and agreed. Nevertheless, in circumstances where enhanced norms of quality are likely to be required, consultants would be well advised to look hard and long at all aspects of the procurement process to ensure that it is capable of delivering the goods.

Frank Hall is an architect, expert witness and Regional Director at the Bristol Office of Knowles, a Hill International Company.

frank.hall@jrknowles.com
Tel: 0117 773 8554

Mason Hayes is a niche commercial law firm with offices in Manchester and London. Established in 2002 the reputation of the firm continues to grow as to the quality of the firm’s clients and the matters with which it deals. The firm which embraces an internal culture of enthusiasm, commitment and motivation prides itself on its unique ability to work in partnership with its clients and strives in a solution driven environment to offer value for money. Marcus Hayes discusses why Mason Hayes was established and its key vision in providing legal services in an ever changing future legal market.

The traditional legal business model has proved to be very successful. However, by 2002 it was clear that the legal profession was no longer meeting the needs of its clients or, indeed, its lawyers. Having worked in a number of large national law firms prior to 2002, it had only reaffirmed my thinking about the way the legal market was moving generally. That thinking exposed, amongst other things, two key issues:

• The growing concerns from business with regard to the increasing and unsustainable fees being rendered by law firms and their methods of charging.
• A general deep dissatisfaction amongst lawyers working within traditional law firms.

In attempting to address this situation, I thought that there was an opportunity to build an innovative law firm that would meet the demands of both its clients and lawyers; the result was Mason Hayes Solicitors.

The advent of the internet has certainly seen a lot of legal businesses move from the traditional “bricks and mortar” large office environment to more niche and flexible operations. Using the latest technology to run our own business and communicate with our clients has not only enhanced efficiency within our firm but has also seen as a result, the reduction in the cost of doing business. Indeed we can provide the same quality and level of service as a traditional law firm but at a reduced cost because we do not have the same overheads. As a limited company, we have a fairly flat structure, unlike the pyramid structure associated with a traditional law firm. As a consequence, we continue to be able to adapt very quickly to market conditions whilst our lawyers tend to be entrepreneurial and more business orientated.

In creating a law firm that was fit for the 21st century, central to our business model was the creation of a structure that would give lawyers career satisfaction as well as to take their personal and professional lives into consideration. Most lawyers always strive for a better work life balance and are often tired of office politics. More often than not lawyers are increasing given impossible targets or billable hours to hit and where the failure to hit them each month would often mean that they are overlooked for promotion, this meant that any work/life balance was pretty low down on the agenda for lawyers and many were simply leaving the profession because they could see no way of juggling their lives or interests with a career in the law.

This lack of flexibility that continues to exist in the legal industry today can be particularly hard for women. Evidence suggest that women often find it difficult to return to work having had children, as opportunities to work reduced hours appear limited. Recent research has shown that whilst the number of women qualified as Solicitors has doubled in the past decade to make up 60% of all qualified lawyers currently practising in the market place, a disproportionately low number of women hold senior positions.

Turning this traditional model on its head, we have created an opportunity for lawyers to have more control over their destiny. It provides to them a choice as to whether that means spending more time with their families or pursuing other interests, whilst being rewarded fairly. Whether an individual is an employee, working on a freelance or self-employed basis, lawyers at Mason Hayes generally keep more of the fees they generate which compares favourably to the traditional law firm, which will normally pay a salary of up to 25% of expected fees to be generated.

Subject to client needs, this means that they are able to dictate where and when they work, and we then provide within an office environment or externally away from the office, an appropriate infrastructure which will allow lawyers to spend more time focusing on the important matters of servicing their existing clients and developing new ones. Other lawyers however, are keen to work “a normal day” and are comforted in the knowledge that they are being financially rewarded by ending up with a greater proportion of the proverbial pie. As a result of our structure, we have noticed that our lawyers have been liberated and are happier which I believe reflects in their work and business dealings.

The next 5 years will bring dramatic changes in the profession and only those that are best placed to adapt to that change will survive. Forward thinking firms are already contemplating the impact of what the Legal Services Act will mean for their businesses, and the current state of the economy has also caused many to question their business model and how they can reduce costs.

The consequences have been many. It has ranged from ditching hourly rates; large scale redundancies resulting in some firms scaling back their operations, or mergers and acquisitions. These activities will continue apace as firms continue to seek to compete in the economic downturn and become more client focused and sensitive to client cost prejudice. However by stripping away the overheads and excesses associated with the traditional law firm, we have created a new kind of legal services provider which equates to better value and equality with greater efficiency and service. Undoubtedly the flexible and low cost nature of our model will, if adopted by many firms, be the key to survival in today’s economic market.

Marcus Hayes is a Director of Mason Hayes Solicitors

Businesses have faced difficult trading conditions for at least eighteen months, some may say significantly longer. Whilst there are some small positive trends businesses are still failing with depressing regularity. Recent statistics suggest that companies employing between 26 and 50 people are particularly at risk.

Businesses that have made it this far may think they have nothing more to learn about surviving a recession. However, we are not out of the woods yet and some prompt action now may mean survival in the future.

So what should you look out for to survive?

Diversify

When the recession started many companies found that the one product they supplied, possibly a “luxury item”, was no longer required. In a number of cases, sales dropped dramatically and business failure was inevitable.

A mortgage broker I know found that the mortgage business died. Many lenders would not lend and where they would, clients did not want to borrow. They could have failed, instead they developed a second business as insurance brokers. This has grown significantly over the last two years and now that mortgages are becoming easier again they have a stronger business.

The same applies with customers. Have you a small number of large customers on who you rely? What will happen if one of them stops buying or, worse still, fails? Don’t rely on them all continuing. Spread the risk by sourcing and developing new markets and opportunities.

Cut Costs

You may have done this already to some degree. However, many businesses are understandably reluctant to reduce their largest cost, staff. This will often cost them their business.

Business can be about making tough decisions. If you are employing people who are not fully productive ask yourself if you need them. Can you put them on short time? Is this a cost you can do without? I appreciate that there may be redundancy costs to be faced and with long serving employees these can be significant. However in the long term it can increase profitability and benefit the other stakeholders in the business, creditors, the remaining employees and the owners.

Keep People Informed

On many occasions, following a business failure, I have been told by creditors, customers and employees that if only they had known what was going on they would have been prepared to help to some degree. When companies cease all these parties suffer, employees lose their income, customers lose a trusted supplier and creditors lose money. Of course, you have to be careful as to what you tell them but in my experience if they have an idea of what is going on creditors will accept regular, smaller payments against accounts so long as their exposure is not increasing.

Debtor Collection

It is very easy to work for a customer and not get paid. If you think that your terms are being exceeded then ask for payment. Remember that all I have said so far could apply to your customer. If you make a nuisance of yourself then you can get to the front of the queue. If necessary, accept payments on account but do not then be tempted to advance further credit until the account is back in terms.

If you are not getting anywhere yourself then use a solicitor, Mason Hayes come highly recommended!

Don’t work for nothing!

If you are experiencing problems with your business it is a very stressful time. Many directors decide to waive their salaries to support the company. However, if you do this are you simply postponing the inevitable? Your job has become a very stressful hobby.

If you believe in the business then you may choose to do this as a temporary measure but do not let this impact significantly on your personal debts. Losing the business is one thing, then having to contend with large personal debts is quite another.

What if the business can’t survive?

Despite your best efforts you may find yourself with a business that is insolvent. It is very important that at that point you take advice from a Licensed Insolvency Practitioner. This advice should initially be free and does not automatically mean that the business will be wound up. He or she will be able to provide sound and practical advice as to what options are available and what to do next. If followed, this may lead to your business surviving, albeit possibly having entered a formal insolvency procedure and come out the other side, leaving you with a stronger business and an income stream into the future.

For further advice on this article please contact Ian Williamson, Licensed Insolvency Practitioner, of Campbell Crossley & Davis. Telephone 01253 349331 or e-mail r.ianwilliamson@crossleyd.co.uk.

It has long been established by the principles enunciated within the case of Re Lloyds Bank Ltd v Eastwood that the costs of In House Counsel on an inter partes basis are recoverable, such costs would be allowed in the usual manner and that they would be assessed using the conventional method of assessment in all but special cases where it was reasonably plain that that method would infringe the indemnity principle.

In House Counsel can therefore recover its costs employing an hourly rate commensurate with that of an equivalent solicitor in private practice.

However, what is the position regarding the recovery of costs incurred by In House Counsel where they continue to have an involvement in a case despite having instructed external lawyers? This was answered by Master Campbell of the SCCO in the case of Ultraframe (UK) Limited v Eurocell Building Plastics Limited and (2) Eurocell Profiles Limited in a written judgment 31st July 2006.

The case arose out of a claim for damages relating to Patent Infringement and was exceptionally complex, resulting in the Claimant Company employing its own In House Counsel and of necessity External Lawyers.

The Claimant was ultimately successful and recovered damages with the Defendants being ordered to pay the Claimant’s costs on a Standard Basis.

A bill of costs was duly prepared incorporating both the costs incurred by the In House and External Lawyers, and this was opposed by the Defendant on the bases it amounted to a double recovery, the In House Solicitors were not on record as acting, and they stood in the shoes of the client giving instructions to the External Lawyers.

The issue was dealt with as a preliminary issue which was heard by Master Campbell on 12th June 2006 in which he was asked to answer the following legal issue:-

“Subject to those costs being reasonably incurred and reasonable in amount, are the costs of work done by a Solicitor employed by a Corporate Litigant recoverable on a between-the-parties basis if at the material time that Litigant had their Solicitors on the record ?”

Much argument was put forward by both sides and the writer will not bore you with the technical arguments but eventually Master Campbell answered the question as follows:-

“In my Judgment Part B of the bill (Costs of the Employed Solicitor) is recoverable in principle, where the tasks undertaken by Ultraframe “in-house” can be measured and are distinct from those undertaken by Hammonds (external solicitors). If, and to the extent that there is no distinction and the work is duplicated, this will be irrecoverable, but that is a matter of quantum not principle. It follows that my answer to the question posed by the point of dispute (Defendant’s opposition to the claim), as refined by the Claimant, is in the affirmative.”

It was anticipated that the decision of Master Campbell would be appealed but the Defendant’s did not do so, and consequently the case remains persuasive and is thus far the only case to determine this issue.

Neil Clifford, Costs Lawyer