In Brief – Walker Morris legal update – May 2016
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Gender Pay Reporting – What employers need to[...]
Under draft Regulations due to come into force on 1 October 2016, employers with at […]
Under draft Regulations due to come into force on 1 October 2016, employers with at least 250 employees in the UK will be required publish an annual gender pay report. Employers must take a ‘snapshot’ of gender pay data within their organisation for 30 April 2017 and must publish their first gender pay report on their website by 30 April 2018.
What information must be calculated and published?
- Gender pay gap information showing the overall mean (i.e. the average) and median (i.e. the wage of the ‘middle earner’ – e.g. the amount of the 50th pay package if 100 employees’ pay packages within an organisation are listed in increasing size). ‘Pay’ includes basic pay, paid leave, maternity pay, sick pay, area allowances, shift premium pay, on-call and stand-by allowances, bonus pay, car allowances paid through payroll, clothing, first aider or fire warden allowances. It does not include overtime pay, expenses, the value of salary sacrifice schemes, benefits in kind, redundancy pay or tax credits.
- The difference between mean bonus payments paid to men and women.
- The proportion of male and female employees that received a bonus.
- The number of men and women in each salary quartile (based on the overall pay range).
The draft Regulations focus on the number of employees for a single employer – for example, if there is more than one employing company in a group, that group only has to report on any individual companies which have more than 250 employees.
Where must the information be published?
- On the employer’s public website where it must be maintained for 3 years.
- Employers must also upload the information to a Government-sponsored website.
The information must be accompanied by a written statement signed by a director (or equivalent) confirming the information is accurate.
What are the key dates?
- The Regulations are due to come into force on 1 October 2016.
- The first annual ‘snapshot’ of April pay data required for the report must be taken by 30 April 2017.
- The first gender pay report must be published online by 30 April 2018.
- Gender pay reports must be published annually thereafter using pay data from the previous April.
How will it be enforced?
- Whilst there will be no civil penalties for non-compliance, the Government will create a database of complying employers and has stated that it intends to closely monitor levels of compliance over the next few years. It has indicated that it will consider:
- Producing tables by sector showing employers’ reported pay gaps.
- Highlighting employers who publish helpful explanatory information with their pay report.
- Naming and shaming non-compliant employers.
What do employers need to do next?
Employers will need to put in place an action plan to prepare for the Regulations coming into force in October. This might include:
- Carrying out a voluntary pay and bonus audit and pay quartile analysis to identify any potential pay gaps.
- Considering the reasons behind any pay gaps (e.g. staff transferring into the company on protected terms) and taking advice on whether these reasons might provide a defence to any future equal pay.
- Considering the extent to which the organisation will provide further information to explain its pay gap. Employers can provide as much additional information as they wish to explain any apparent pay gaps. However, they will need to be careful because any explanation could be subject to scrutiny if the employer does not also state what measures they are taking to address any gap in pay.
- Ensuring that the organisation has a clear strategy and buy-in from the board and senior managers in relation to achieving gender pay equality. This should include working towards gender balance at board level in line with the recommendations of the recent Davies Report.
Don’t score an own goal
It is essential that any auditing or pay analysis is conducted via your legal advisers so that it benefits from legal professional privilege where possible. Without this protection, the audit itself and all associated internal documents and analysis would potentially be disclosable in any legal proceedings such as an equal pay or discrimination claim and could be used against employers.
Undertake an equality and diversity ‘healthcheck’
Our employment team are able to assist on all of these points. If you have any questions or would like to discuss these points in more detail please contact David Smedley or Andrew Rayment.

Partner promotions for Gawain Moore and Karl Anders
Investing in talent with eight senior promotions Walker Morris has announced eight senior promotions across the […]
Investing in talent with eight senior promotions
Walker Morris has announced eight senior promotions across the Firm as part of its investment in its talent engagement strategy. The promotions comprise the appointment of two partners and six directors. Gawain Moore and Karl Anders have been appointed as partners in the Restructuring and Insolvency Group and Real Estate and Banking Litigation Group respectively.
Gawain’s promotion reinforces the Firm’s Restructuring and Insolvency Group’s position as a nationally recognised, leading restructuring practice. He joined the Firm three years ago from a leading International law firm and advises on all aspects of insolvency and restructuring. He has particular expertise in complex cross-border insolvencies and the use of voluntary arrangements.
Gawain has been involved in some of the most significant recent restructuring transactions, including advising Endless on the acquisition of engineering and technical services provider, Imtech UK and Imtech Suir, from their Dutch parent.
Karl Anders becomes a partner in the Real Estate and Banking Litigation Group where he heads the firm’s Housing Litigation and Management practice. His team advises lending institutions, registered providers of social housing, private sector corporate landlords and nationally recognised letting agencies.
Karl was instrumental in developing Freehome™, the Firm’s repossession service for residential landlords. Freehome’s bespoke case management system interfaces with the Court’s software and also provides clients with secure online access to up-to-date information and reports regarding their cases.
The continued development of the Firm is illustrated by the appointment of the following Directors from a range of departments:
- Claire Askew – Finance
- Paul Hargreaves – Construction & Engineering
- Daniel Lyon – Construction & Engineering
- Jo Stephenson – Corporate
Ian Gilbert, Managing Partner at Walker Morris, said:
“As one of the largest legal employers in the region we recognise the importance of investing in our talent. Our success depends on recruiting and retaining the best individuals who can develop long lasting relationships with our clients. I would like to congratulate Gawain, Karl and all the new Directors on their well deserved promotions. Their promotions reflect the very positive contribution they have made not only to Walker Morris but also to our clients.”
Walker Morris is ranked 4th in the UK in terms of the percentage of its partners ranked as leaders in their field by Chambers & Partners.

EAT’s decision in British Gas v Lock –[...]
Commission payments must be included in holiday pay calculations according to a decision of the […]
Commission payments must be included in holiday pay calculations according to a decision of the Employment Appeal Tribunal (EAT) handed down on 22 February. The EAT followed the decision in Bear Scotland v Fulton (another EAT decision confirming that overtime must be included in holiday pay). Employers who operate commission schemes should review their potential exposure to claims if they do not include commission in the calculation of holiday pay. However, British Gas may appeal against this decision, so watch this space!
Reminder of the facts
Mr Lock was employed by British Gas as a salesman. He received a salary, but the bulk of his pay came from his commission on customer sales. When he took periods of annual leave he would received his salary only. British Gas did not include Mr Lock’s commission payments when calculating his holiday pay. He challenged this in the Employment Tribunal arguing that British Gas were in breach of the Working Time Regulations 1998 (WTR) and European law. For more detail please see our business insight ‘Commission and holiday pay update: Lock v British Gas decision is to be appealed’.
The Employment Appeal Tribunal (EAT) decision
The EAT held that Mr Lock should receive his ‘normal pay’ during holiday periods and that this included his commission. The EAT reached this decision by holding that the wording of the UK legislation could be read in such a way as to comply with European law.
Practical points for employers
- The decision in Lock does not come as a surprise. Since the EAT’s decision in Bear Scotland v Fulton, employers have been required to include overtime payments in holiday pay calculations. The EAT’s decision in Lock confirms that commission payments should also be included. This is because the European courts have held that employees should receive their ‘normal pay’ during periods of holiday so as not to be deterred from taking their entitlement to paid leave.
- Because the EAT’s decision is based on interpretation of European law, the requirement to include commission (and overtime) pay in holiday pay only applies to the 4 weeks’ statutory ‘Euro-leave’ (i.e. 20 days’ holiday for an employee working 5 days per week) and not to the full 5.6 weeks holiday granted by the Working Time Regulations 1998 (i.e. 28 days’ holiday for an employee working 5 days per week) or any additional holiday entitlement. That said, some employers may find it overly burdensome to run two different holiday pay calculations for different periods and will therefore adopt a pragmatic approach of using the same calculation for all holiday.
- It is still unclear what the ‘reference period’ for calculating holiday pay should be for those employees without normal working hours. The Advocate General and the European Court of Justice had, at one stage, indicated that a 12 month reference period may be appropriate but, in the absence of a finding on this point, UK employers may continue to use the existing 12 week reference period set down by domestic legislation.
- Employers who operate commission based pay structures will need to take stock and assess their position. There may be significant potential exposure to claims that will need to be accounted for. A strategy for calculating holiday pay going forward will also need to be determined.
- At the appeal, British Gas had argued that the EAT’s decision in Bear Scotland was wrongly decided. The EAT indicated that it is for the Court of Appeal to determine this point. As British Gas have applied for permission to appeal to the Court of Appeal there remains the possibility that the Bear Scotland decision may yet be overturned. For this reason, employers should take advice on whether to make changes now or adopt a ‘wait and see’ approach. A risk/benefit analysis on each option is essential.
- Thousands of employment tribunal claims for underpaid holiday (based on unpaid commission) had been stayed pending the outcome of the EAT’s decision in British Gas v Lock. Given the prospect of an appeal by British Gas, it seems likely that those proceedings will remain stayed pending the outcome.
If you have any queries about the decision or would like to discuss your holiday pay arrangements please contact David Smedley or Andrew Rayment.

First ever corporate conviction under the UK Bribery Act
The Serious Fraud Office (SFO) has successfully secured its first conviction under section 7 of […]
The Serious Fraud Office (SFO) has successfully secured its first conviction under section 7 of the UK Bribery Act 2010 (the Act). On 19 February 2016, Sweett Group PLC (Sweett), a UK-based construction and professional services company, was convicted for the offence of failing to prevent its subsidiary Cyril Sweet International (CSI) from paying bribes on its behalf. The unlawful conduct took place over a three-year period from 2012 to 2015 in the United Arab Emirates. The SFO press release is available here.
Section 7 of the Act is widely known as the “corporate offence”. A relevant commercial organisation commits the offence where an “associated person” performing services on its behalf bribes another in order to obtain or retain business or a business advantage for the company.
The Sweett conviction comes hot on the heels of the first Deferred Prosecution Agreement (DPA), agreed between the SFO and ICBC Standard Bank Plc (the Bank) on 30 November 2015. We wrote in December that by entering into a DPA, no prosecution would be instigated against the Bank in that case. Since the Act came into force in 2011, the SFO has faced repeated criticism because of the lack of prosecution activity under the Act. However, and as we have been saying for some time, the lack of prosecution activity to date has more to do with the fact that the Act cannot be applied retrospectively to conduct prior to July 2011 rather than a lack of appetite of the SFO to enforce it. The Sweett conviction helps to demonstrate that the SFO is serious about enforcing the Act and pursuing unlawful acts of bribery wherever they may occur.
The conviction serves as an urgent reminder to UK organisations with subsidiaries or operations overseas that they can be liable for the acts of those performing services on their behalf. The conviction also illustrates the global reach that the Act has in relation to businesses that are incorporated in the UK or which carry on business in the UK.
Background to the conviction
The SFO commenced a formal investigation into Sweett on 14 July 2014. It found that Sweett’s Middle Eastern subsidiary, CSI, made corrupt payments to Khaled Al Badie, a senior board member of Al Ain Ahlia Insurance (AAAI), in order to secure a contract relating to the building of a £63 million hotel in Dubai. In establishing guilt against Sweett it was determined on the facts that CSI was an “associated person” under the Act and as such, the bribes to Khaled Al Badie were made with the intention of obtaining an advantage in the conduct of business for Sweett.
Having pleaded guilty to the charges, Sweett was convicted and sentenced in Southwark Crown Court to a financial penalty totalling £2.25 million. This figure comprised a £1.4 million fine, a confiscation order of £850,000 and an order for costs to the SFO of £95,000. Immediately following the conviction, Sweett’s share price value fell by 23 per cent. Sweett has since announced its decision to close its entire Middle Eastern operations.
The significance of section 7 and associated persons
Sweett’s case provides helpful guidance as to the courts’ approach in determining whether a subsidiary will be an “associated person” of its parent. An “associated person” is defined in section 8(1) of the Act as a person who performs services for or on behalf of the relevant commercial organisation. This inevitably includes an employee, an agent or, as here, a subsidiary company. However, the mere fact of a parent and subsidiary relationship is not sufficient to automatically conclude that the subsidiary is performing services for and on behalf of the parent. It requires analysis of all relevant features of the relationship. The subsidiary can be a distinct entity of itself undertaking wholly different operations from the parent company.
However, in the Sweett case, although CSI was a separate and distinct legal entity, it was operated by Sweett as a department forming part of Sweett’s Middle Eastern operation. Therefore it was not possible for Sweett to distance itself from CSI’s bribery which was established, and by virtue of the guilty plea accepted, as being for the benefit of Sweett. However, there was no indication that the CSI bribery took place with the knowledge or agreement of Sweett.
Did Sweett have adequate procedures?
The only defence available to an organisation facing a section 7 prosecution is to establish, on the balance of probabilities, that they had in place at the relevant time “adequate procedures” to prevent bribery.
Sweett was unable to rely on this defence owing to the inadequacy of the control framework over CSI’s activities. Accounting firm KPMG produced two reports in 2011 and 2014 both of which identified numerous weaknesses and failings in CSI’s anti-bribery systems and financial controls. These findings were not acted upon by either Sweett or CSI. CSI lacked policies or processes relating to the engagement of third parties and had done little to improve its internal governance since the Act came into force in 2011. However, the issue of adequacy was never tested by the court owing to Sweett’s admission that their procedures were inadequate.
No DPA
As we have previously highlighted, where an organisation is facing a bribery investigation under the Act, it may be possible to avoid prosecution under a DPA. A DPA will generally only be entered into by the SFO and a prospective defendant where the organisation commits to full co-operation and transparency in its dealings with the SFO. A key element in the decision-making process for the SFO as to whether a DPA is appropriate is whether the organisation has self-reported the unlawful behaviour. The self-reporting does not guarantee protection from prosecution, but that, allied with full co-operation, means that it is much more likely that a DPA will be considered.
In Sweett’s case, no DPA was offered owing (in the SFO’s view) to a lack of full co-operation with their investigation. Rather than an open and frank discussion about the extent of their wrongdoing, during the investigation Sweett attempted to mislead the SFO by contacting AAAI and asking for a letter to substantiate that the bribes paid for the contract were in fact legitimate. This conduct was no doubt a significant influence in the SFO’s decision not to offer Sweett a DPA. This demonstrates that self-reporting alone will not be enough to secure a DPA and any organisation under investigation will need to be aware that their conduct, not only prior to the investigation, but also during it will remain under close scrutiny by the SFO.
What does this mean for businesses?
The Sweett case helps to highlight the importance of exercising oversight on all third parties (whether through a subsidiary, contractual or informal relationship) who are performing services for or on an organisation’s behalf. There is no room for complacency as the SFO, in addition to demonstrating its willingness to clamp down on bribery overseas, it has publicly stated that it has the financial resources available to take aggressive action under the Act.
It is imperative for all businesses to ensure they review their dealings with third parties and implement proactive measures to prevent bribery being committed on their behalf. They need to review how they engage with suppliers, promote sales to customers and appoint agents and distributers in order to minimise the potential risks of being engaged directly or indirectly in acts of bribery and corruption.
As we indicated in our previous article, robust anti-bribery policies and training practices should be in place for employees. Failure to implement effective policies and procedures exposes businesses to the risk of unlimited fines, up to 10 years’ imprisonment for individuals involved in acts of bribery together with associated reputational and commercial damage.
How we can help
At Walker Morris we have a specialist and dedicated Anti-Bribery and Corruption Team (which includes former regulators from the SFO and Financial Conduct Authority) with experience in advising both UK-based and overseas organisations on all aspects anti-bribery & corruption and the increasing challenges faced by businesses to ensure they are fully compliant with the Act. We can provide support advising on effective risk assessment, policy drafting, compliance, day-to-day operational support, audits, strategic transactional support, crisis management, investigations, prosecutions, compensation claims and training.

Vicarious liability for employee actions: a warning for retailers
Supreme Court decisions are not generally reported in the national news but there was an […]
Supreme Court decisions are not generally reported in the national news but there was an exception a couple of weeks ago for the case of Mohamud v WM Morrison Supermarkets Plc [1]. In this case, a Morrisons customer, who was assaulted by a Morrisons employee, successfully brought a claim against the supermarket retailer on vicarious liability grounds.
Employers can be “vicariously liable” for the tortious acts of their employees but only where there is a sufficiently close connection between the wrongful act (or omission) of the employee and his or her employment. Much recent case law has focused on the existence or otherwise of such sufficiently close connection. In the Morrisons case, the Supreme Court defined this more broadly than employers would have perhaps have wished and indeed more broadly than the Court of Appeal, whose decision they overturned.
The facts of the case are that the customer, Mr Mohamud, visited a Morrisons supermarket and petrol station premises. He approached the kiosk, manned by Mr Khan, a Morrisons employee, and asked if it would be possible to print some documents from his USB stick. Mr Khan replied that it would not, using racist and abusive language, and then followed Mr Mohamud outside where he violently assaulted him, punching him in the head and kicking him to the ground, ignoring the protestations of his supervisor as he did so.
Mr Mohamud’s personal injury claim against Morrisons was rejected at first instance and by the Court of Appeal. This was on the basis that there was an insufficiently close connection between Mr Khan’s wrongful act and his employment with Morrisons. The Supreme Court disagreed.
The Court rejected the suggestion that it was time to formulate a new test – the “sufficient connection” test was not perfect, the Court admitted, as it lacked precision but that lack of precision was also a benefit as it enabled each case to be determined according to its own unique circumstances. This involved a consideration of the following two questions:
- What was the nature of the job or field of activities involved, taking a broad approach to this question?
- Was there sufficient connection between the position and the wrongful conduct to make it right for the employer to be liable?
Mr Khan’s duties as an employee were to attend to customers and respond to their queries. When the violent conduct took place, Mr Khan was responding to a query from Mr Mohamud. He had also told him never to return to Morrisons’ premises. In issuing this order, he was purporting to be acting on behalf of his employer rather than on his own account. Nor did the fact that he had left the kiosk and pursued Mr Mohamud onto the forecourt break the close connection with his duties.
In summary, while the assault was clearly a gross breach of his duties it was nonetheless carried out in connection with the business of serving customers, which is what Morrisons paid Mr Khan to do.
The decision will disappoint retailers. The Supreme Court applied a broad approach to its assessment of the job and activities undertaken by Mr Khan and the decision arguably reduces the scope for individual “frolics of their own” by employees to fall outside the scope of their employment.
However, the fundamental position has not really changed which is that the question of whether there is a sufficiently close connection between the act (or omission) complained of and the nature of the perpetrator’s employment will be examined on a case-by-case basis. Employers of customer-facing staff can issue policies and reminders to staff about how to behave (although they may not spell out that staff must not punch customers, this being a statement of the obvious) but there is no cast-iron guarantee that some employee somewhere will not one day behave in a way which risks the employer incurring vicarious liability – this need not be through something as stark as a physical assault; it is more likely to be through a negligent act or omission. In such cases, the employer will have to hope that there is sufficient detachment between the employee’s act and the nature of their employment to mean that the sufficiently close connection is not established.
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[1] [2016] UKSC 11

The dangers of an unlawful dividend
There have been a number of recent instances, including this year, of quoted companies calling […]
There have been a number of recent instances, including this year, of quoted companies calling general meetings to seek shareholder approval to remedy dividends that were paid unlawfully. Invariably these have been for non-compliance with a statutory formality rather than because the company did not have sufficient distributable profits to make the dividend.
Why are companies prepared to suffer the embarrassment and expense of going to their shareholders to fix the breach rather than simply doing nothing?
A shareholder who has reasonable grounds to believe that a dividend is unlawful is liable to repay it (with interest). There is no requirement that the company be insolvent for this to apply. In the case of quoted companies, where there may be many shareholders who may have little knowledge of the company’s financial position, securing repayment of the unlawful dividend will often be impractical. However, for companies with a small shareholder base, it is more reasonable to assume that the shareholders will know whether group companies have sufficient distributable profits to declare/pay a dividend and, in practical terms, it is likely to be easier to effect a repayment by the relevant shareholders.
The likelihood of shareholders being required to repay dividends is greatest in the insolvency context where liquidators and administrators may challenge the dividend as a transaction at an undervalue or as a preference.
Case law has established that the directors involved may be personally liable for the amount of the unlawful distribution. Further, the courts have shown a marked reluctance to relieve directors who have authorised payment of an unlawful dividend from personal liability under the Companies Act 2006 (the Act), however honestly they may have acted.
The consequences for shareholders and directors of receiving or authorising an unlawful dividend are therefore potentially draconian.
This would matter less if it were not so easy to make an unlawful dividend. Unfortunately, the law in this area is beset with pitfalls for the unwary.
The starting point, set out in statute, is that distributions may only be made out of distributable profits, being, broadly speaking, accumulated realised profits less accumulated realised losses. (Public companies have some further requirements in order to ensure that their net assets do not fall below the aggregate of their called up share capital and undistributable reserves, e.g. share premium account).
The formalities are strictly enforced by the courts (and scrutinised by liquidators and administrators). The courts have found directors liable for declaring a dividend despite the existence of profits elsewhere in the corporate group and it is also settled law that a dividend may be unlawful in circumstances where the directors have acted with the best of intentions and the error is only a “technical” one.
The most commonly encountered form of distribution is the cash dividend but dividends may take the form, for example, of a transfer of an asset or the writing off of a book debt. “Disguised” dividends are particularly dangerous as company directors may not even recognise that the Act’s requirements regarding distributions (dividends) apply at all.
Under the statutory regime relating to distributions, the directors must refer to the “relevant accounts” to determine the existence of distributable profits, which will be the last statutory accounts for the financial period immediately preceding that in which the distribution is to be made, unless these cannot justify the distribution (or there are no previous statutory accounts) in which case more up to date “interim accounts” will be used. For private companies, interim accounts must enable a reasonable judgement to be made be made as to the company’s profits and losses, assets and liabilities, provisions, share capital and reserves. The accounts do not need to be filed. For public companies, interim accounts must be properly prepared under the Act and filed with Companies House prior to the distribution. It is this latter (filing) requirement which apparently keeps tripping up quoted (and therefore public) companies.
The directors also need to be alive to their statutory duties set out in the Act, including the duty to act in a way that is considered by them to be most likely to promote the success of the company for the benefit of the members as a whole. A dividend may comply with the statutory formalities noted above regarding distributions (and there is more detail on top of this not discussed in this article) but nonetheless the directors may be acting in breach of their statutory duty by paying/declaring a dividend. A breach of statutory duty may be ratified by the shareholders. However, this will not be possible where the company is insolvent or facing the threat of insolvency: in this situation, the duty owed by the directors to consider the interests of creditors becomes paramount.
It is not strictly correct to talk of “ratification” of a technical breach as it is not possible to ratify an unlawful action. In fact, the remedial action will generally involve:
- the entry by the company into deeds of release under which it releases those shareholders who received the dividend from any liability to repay any amounts received
- the entry by the company into further deeds of release releasing those company directors who approved the dividend from any right the company may have to pursue those directors in respect of that decision. In the case of quoted companies, this release will constitute a related party transaction under the Listing Rules and the AIM Rules and, as such, will require approval of the company’s shareholders (who are not themselves interested related parties) and/or an opinion from the sponsor/nomad.
Remedying an unlawful dividend can be costly and time-consuming. Any distribution of assets by a company needs to be approached with caution to ensure that it is done correctly.

Office to residential permitted development rights made permanent – May 2016
In a statement issued during October 2015, the Government announced it would extend the temporary […]
In a statement issued during October 2015, the Government announced it would extend the temporary permitted development (PD) rights beyond their expiry date of 30 May 2016. New regulations have now been issued enabling this to take effect. They will be in force from 6 April 2016. Rather than needing a more ‘traditional’ planning application, this means it is possible to convert office premises to residential use subject only to local authority prior approval of a limited range of matters.
Background
During summer 2014, as part of its ‘Technical Consultation on Planning’, the coalition government considered various measures designed to streamline and simplify the planning process. It was proposed to:
- extend existing PD rights allowing offices (Use Class B1(a)) to be converted into new homes / residential (C3);
- remove exemptions preventing ‘office-to-resi’ conversions in areas considered by the government as “strategically important”; and
- establish new PD rights to allow the creation of homes in buildings used for light industry B1(c) and warehousing (B8), subject to prior approval of certain matters – such as with B1(a) to C3 conversions.
- In mid-October 2015, it was then indicated that the existing PD rights for office-to-resi conversions would be made permanent – extending beyond their previous temporary operation. This had limited the operation of the B1(a) to C3 change to a 30 May 2016 expiry date, with developers completing conversions by May 2019.
The Permitted Development Right & New Regulations
The Town and Country Planning (General Permitted Development) (England) (Amendment) Order 2016 (the 2016 Order) has now been revealed, coming into force on Wednesday 6 April 2016. This will have the effect of amending the Town and Country Planning (General Permitted Development) (England) Order 2015. Alongside the amendment covering change of use, the 2016 Order also provides for amendments in relation to minerals permitted developments. Most importantly however, it means office-to-resi conversions can proceed under PD rights indefinitely, rather than developers being restricted to complete conversions within a specific time-frame or a more detailed planning application having to be submitted. Exercise of the PD rights will, though, still be subject to prior approval being received from the relevant local planning authority in relation to flooding, highways, transport and contamination impacts.
It is understood that the existing exemptions from the PD rights for areas the government consider to be ‘strategically important’ will remain. Ministers previously exempted 33 areas across 17 local authorities, following concerns regarding the adverse impact on employment. It seems protection for such areas is to continue, potentially limiting opportunities for conversions to ‘exclusive’ residential use-areas in the City, Westminster and surrounding boroughs.
WM Comment
Since their introduction in May 2013, there has been considerable use of the ‘office-to-resi’ PD rights. An Estates Gazette report in late summer 2014 highlighted that the combined number of applications (including conversions involving both demolition and refurbishment of offices) in the capital had approximately doubled since the new rights were introduced. In a statement released during October 2015, the government noted that almost 4,000 conversions had been given the go-ahead between April 2014 and June 2015 alone.
However, the PD rights have not been without controversy. Some commentators argue there is simply insufficient infrastructure (such as shops and local healthcare facilities) to cater for the resultant influx in residential accommodation. The inability to sustain any sense of ‘community’ in areas where conversions take place has also been emphasised. That small, sub-standard housing units may result is a concern. The planning spokesperson for the Labour London Assembly – Nicky Gavron – commented that 1,094,550 square metres of floorspace would be lost in the capital if existing prior approval applications went ahead. This would in turn “result in tiny sub-standard housing which fails to serve the needs of Londoners”. Whether a greater number of office-to-resi conversions will help or hinder economic growth remains to be seen. While certainly leading to loss of scarce employment space, conversions can rejuvenate underused commercial space. Nonetheless, stringent assessment of physical feasibility and financial viability is needed to ensure development projects are realistic.
One important point to note, is that the 2016 Order makes no mention of a previous proposal to extend the PD right to allow applicants to demolish offices and rebuild so as to provide the space for housing. This is despite this being a key element of the reform as confirmed by planning minister, Brandon Lewis, following the 2014 consultation. More substantive external alterations needed to facilitate the change of use are therefore likely to still require formal planning permission, at least until the Housing & Planning Act is passed. For more advice, contact the Planning & Environment Team at Walker Morris.

Yet more changes to terms and conditions?
The Consumer Rights Act 2015 came into force on 1 October last year. Consumer-facing businesses […]
The Consumer Rights Act 2015 came into force on 1 October last year. Consumer-facing businesses that reviewed and updated their terms of business in readiness for the Act might be forgiven for thinking that they would have some respite before needing to revisit their small print again. However, a consultation launched by the Department for Business, Innovation & Skills in March suggests that this might be wishful thinking.
The purpose of the consultation is to consider how terms and conditions can be made more-user friendly and whether to introduce fines for unfair terms. Launching the consultation, the Government noted that a Which? survey from September last year, found that some of the terms and conditions for car and travel insurance were over 38,000 words – “longer than Shakespeare’s ‘Hamlet’ and ‘Romeo and Juliet'”. The Government has particularly said it wants to address the possibility of consumers being caught by “nasty surprises” lurking within lengthy or opaque terms and conditions.
The consultation is seeking responses on the following issues:
- the requirement for key terms to be presented “bold and upfront”. In shops this might be on leaflets that could also be taken away or on prominently placed signage. In the online environment, this might mean having key terms pop up on screen before confirmation of a purchase
- the use of tick boxes. The consultation document says that tick boxes can be confusing – sometimes a tick denotes agreement, sometimes it denotes a lack of agreement and sometimes there is even a mixture within the same set of questions. The Government is considering a standardised format for tick boxes which would see a tick always meaning that a consumer agrees to whatever is being asked
- restrictions on hardware or restrictions caused by linked services. The Government considers that a lack of transparency means consumers may make a purchase (e.g. technology hardware) and not appreciate that the manufacturer will be placing constraints on the software or media that the consumer can use with it
- competing through terms and conditions. The Government believes that terms and conditions could be used as a means of facilitating competition by encouraging businesses to compete to offer more consumer-friendly terms than their competitors and, in this way, to engage consumers and encourage them to read the small print for the best deals
- tracking changes in terms and conditions. The Government is asking whether long-term contracts, for example, savings or energy accounts, should be required to provide a clear track of changes in terms and conditions in the account history with the impact illustrated
- clarity on use of personal data. The Government wants clarity around where consent for the use of personal data should be covered and also that consumers are clear about who their personal data is being shared with
- true monthly contract costs. The Government is consulting on the use of “teaser rates” and the need for greater transparency in pricing for contracts with varying monthly rates.
On the question of enforcement action, the consultation document recognises that current civil enforcement action is limited in scope with businesses only facing prosecution in cases of serious or deceptive aggressive commercial practices. This, the Government believes, means there is a lack of incentive for businesses to use fair terms and conditions and that this could be addressed by conferring on consumer protection authorities the power to impose fines. The Government is consulting on the pros and cons of doing this and how this would work in practice.
The consultation remains open to responses until 25 April. If the Government acts on its proposals, then consumer-facing businesses will be faced with the need to review their terms and conditions, with the possibility of facing fines if they fail to ensure that they are fair.

Claims in deceit – some points to note
Following our earlier article, Pleading fraud – some reminders from the courts, the High Court […]
Following our earlier article, Pleading fraud – some reminders from the courts, the High Court has recently considered claims in deceit for fraudulent misrepresentation and provided some useful guidance to parties attempting to plead and prove such a claim.
Nature of claim
There are three types of misrepresentation: fraudulent, negligent and innocent. Fraudulent misrepresentation is the most serious and requires the false representation to have been made knowingly, or without belief in its truth, or recklessly as to its truth [1].
A claim for fraudulent misrepresentation is founded in the tort of deceit. The four elements are:
- the defendant makes a false representation to the claimant
- the defendant knows that the representation is false, alternatively is reckless as to whether it is true or false
- the defendant intends that the claimant should act in reliance on it
- the claimant does act in reliance on the representation and, in consequence, suffers loss [2].
Recent case law
In Rizwan Hussain v Saleem Mukhtar [3], the claimant claimed damages for losses after investing in a company established by the defendant. He claimed that he was induced to invest as a result of fraudulent misrepresentations, made by the defendant, as to the financial position of the company. The Deputy Judge made various observations regarding the claimant’s pleaded cause of action:
Firstly, the claimant pleaded that the representations “were false and were made by the Defendant fraudulently or recklessly, the Defendant not caring whether they were true or false…” The Deputy Judge remarked that misrepresentations made recklessly, “not caring whether they were true or false”, are fraudulent, so that the claimant’s pleading identified one cause of action only – fraudulent misrepresentation (i.e. deceit) [4].
Secondly, the claimant’s counsel suggested that, although the claim was primarily one of fraudulent misrepresentation, it would be sufficient for the claimant to show that the representations had been made “negligently”, relying on section 2(1) of the Misrepresentation Act 1967 (the 1967 Act). Where parties have entered into a contract, a claim for negligent misrepresentation under section 2(1) of the 1967 Act is available (in addition to any possible breach of contract claim) where the misrepresentation was made carelessly or without having reasonable grounds for believing its truth.
The 1967 Act provides that the same remedies (having the contract set aside and seeking unlimited damages) are available where the misrepresentation was made negligently as if it were made fraudulently, unless the person making the misrepresentation proves that they had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.
There was nothing in the pleading pointing to any claims based on the 1967 Act. The Deputy Judge indicated that the claimant’s counsel would need to consider whether to put forward an alternative case, then either apply to the court to plead it, or explain why no such application was necessary. The claimant’s counsel submitted that (1) the section 2(1) alternative case was open to him without amending the pleading, (2) if the representations were found to be false, that alternative case would succeed unless the defendant could prove that he had reasonable grounds to believe, and did believe, that the representations were true, and (3) there was no need expressly to plead a claim under section 2(1) if the facts pleaded could support such a claim.
The Deputy Judge disagreed and made the following points:
- a claim in the tort of deceit is very different from a claim under section 2(1) of the 1967 Act: In a deceit claim, the claimant bears the burden of proving the defendant’s mental state (knowledge of or recklessness as to falsity); in a claim under section 2(1) it is for the defendant to prove that he had reasonable grounds for believing, and did believe, that the representation was true
- the ingredients of the two “species” of misrepresentation are not identical: Claims under section 2(1) can only be brought where the claimant has entered into a contract after the misrepresentation and only against a party to the contract; claims in deceit are not subject to either of those restrictions
- the limitation defences available may differ: A claim under section 2(1) is not “an action based upon the fraud of the defendant” so section 32 of the Limitation Act 1980 would not apply (under this provision the usual limitation period for bringing a claim may be postponed, with time starting to run instead from the date of discovery of the fraud or from when the claimant could, with reasonable diligence, have discovered it)
- a defendant is entitled to understand whether a claim under section 2(1) is being advanced or not – a claimant wishing to advance such a claim as an alternative to a claim in deceit should plead it.
In Sears and another v Minco plc and others [5], the claimant claimed that he was induced to purchase and/or retain shares in Minco plc (Minco) by fraudulent misrepresentations made on the part of Minco itself and two individuals, the CEO and CFO of Minco.
Minco had a joint venture (JV) interest in a mining exploration project. The claimant submitted that the nature of Minco’s interest had been materially misrepresented to him, i.e. that the terms of the JV agreement (JVA) provided that the interest could not be diluted below 10 per cent. In fact, the CEO’s recollection of the JVA terms turned out to be wrong – the level below which Minco’s interest in the JV could not be diluted was misstated and the JVA actually provided that if the interest was diluted to less than 5 per cent then Minco would be deemed to have withdrawn from the JV. The claimant claimed to have suffered significant loss and damage as a result (in particular, by way of loss of profits on alternative investments that would otherwise have been made).
The claimant’s case rested on certain words which were said to have been spoken in two informal lunch meetings with the CEO and CFO five to six years earlier. The claimant argued that the defendants (1) had actual knowledge of the relevant JVA terms, and had wilfully misstated them, alternatively (2) had made the representation either without any honest belief in its truth or recklessly, without caring whether it was true or false. The defendants asserted that any misrepresentation was simply an honest error made by the CEO, which matched his understanding of what the JVA terms provided (the CEO did not appreciate that the claimant might not have shared his understanding of the terms).
The claim failed and was dismissed by the Judge, who made a number of notable findings, including the following:
- neither of the two individual defendants knew that they did not have a perfect recall of the JVA terms relating to Minco’s interest and would have needed to see the JVA to refresh their memory of the precise terms. Both of them genuinely believed that the CEO sufficiently knew the relevant terms. He was genuinely mistaken as to what those terms were. That was not sufficient to justify a finding of fraud or deceit
- while the representation was false, misleading and ambiguous, and the claimant understood it in the sense which was false (i.e. that the JVA gave Minco a safe 10 per cent interest), the CEO intended the representation to be understood in the alternative sense (i.e. based on his own understanding of the JVA), not in the sense which was false. This was a further obstacle to the claimant’s case, because a person who makes a statement honestly believing it to be true in the sense which he understands it to bear is not guilty of fraud merely because the other person understands it in a different sense which is false
- it was both foreseeable and reasonable for the claimant to rely on what the CEO said about the terms at the two lunch meetings. He was Minco’s CEO and a professionally qualified, and practically experienced, geologist who had been involved in the project from the outset. He could be expected to be familiar with the JVA. It was not a publicly available or accessible document and so actual or potential investors in Minco would inevitably have to look to Minco’s management for information as to its terms. Investors could be expected to rely on anything that was said to them about the JVA by the executive members of Minco’s board. The CEO had previously (and exceptionally) arranged for the claimant to visit the project site in his capacity as an investor in Minco, and the purpose of the two lunch meetings was to enable the claimant (again exceptionally) to receive further information from, and to pose questions to, two of Minco’s executive directors. The representation was “material” – it was capable of influencing a reasonable person in deciding whether to purchase/retain shares in Minco
- neither individual consciously intended the claimant to rely on anything that was said in order to induce him to purchase/retain shares in Minco. However, the requirement that a representation must be made with the intention that the claimant should act on it is satisfied not only where the person making the representation actually desires the claimant to rely on what he says, but also where he appreciates that he will actually do so. Here, it must have been readily appreciated that the claimant was likely to purchase shares in Minco as a result of anything that was said to him; and it was a natural consequence of what was said that he would want to continue to hold his shares in Minco for the time being
- as to what amounts to reliance, the test is whether the person on the receiving end of the representation would have entered into the contract had the representation not been made, rather than what he would have done had he known the truth. The “presumption of inducement” is challenged by the person who made the representation showing that it did not play a real and substantial part in the other party’s decision to enter into the transaction; he does not have to go so far as to show that the representation played no part at all in that decision.
As an aside, it is worth noting that the CEO’s representation was made in his capacity as Minco’s CEO and on Minco’s behalf. The Judge found that, when the representation was made, Minco assumed a duty to the claimant to take reasonable care to ensure that the information conveyed to him was correct. There was a sufficient relationship of proximity between Minco and the claimant. This was a face-to-face meeting with identified investors who were clearly seeking information relevant to the company’s business and position which was not freely available publicly. Although the CFO considered them to be “off-the-record”, the Judge could not regard the two lunch meetings as purely informal, social occasions. The CEO accepted that the meetings were the only times he could recall ever having had a private lunch with investors in Minco; he appreciated that they would be interested to hear what he had to say about the company, and that in all likelihood they would rely on what he had to say about it. He accepted that it was always possible that if he, as CEO, had any discussion with shareholders, they might well rely on what he was saying, particularly if they were unable to verify what he was saying from other sources themselves. Since the CEO had not consulted the precise terms of the JVA, and was relying entirely upon his recollection of those terms dating back to 2002 (when the JVA was signed), Minco (through its CEO) was in breach of its duty of care to the claimant (this was relevant to the claimant’s claim against Minco for damages for negligent misstatement, separate to the claim in deceit).
Practical tips
The first case emphasises the importance for a claimant of pleading all causes of action they are seeking to rely on and the second provides guidance on the approach that a court will take in relation to the different elements to be proved in a claim in deceit.
Extra care should be taken to ensure that company representatives are alive to the dangers of misrepresenting facts, particularly in less formal meeting environments. In the context of contractual negotiations, parties should ensure that marketing material and all forms of pre-contract communications are accurate, and that they are kept accurate and up-to-date on an ongoing basis. Prior to conclusion of any contract, parties should check whether any circumstances or key terms have changed since communications and negotiations began and, if they have, ensure that all involved are aware and remain happy to proceed.
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[1] Derry v Peek [1889] UKHL 1
[2] Eco 3 Capital Ltd and others v Ludsin Overseas Ltd [2013] EWCA Civ 413
[3] [2016] EWHC 424 QB
[4] Derry v Peek and AIC Ltd v ITS Testing Services (UK) Ltd (The Kriti Palm) [2006] EWCA Civ 1601
[5] [2016] EWHC 433 (Ch)