Update: commercial

Following a reassessment of the enforcement provisions in the Tribunals, Courts and Enforcement Act 2007 to consider whether they remained appropriate, the Ministry of Justice has announced that it will not implement Pt.4 of the Act which would have made changes in a number of areas, notably:

• varying the basis for making periodical deductions under an attachment of earnings order by introducing a fixed deductions scheme;
• procedures for tracing the current employer of a debtor subject to an attachment of earnings order; and
• revised provisions about charging orders and applications for information about action to recover a judgment debt.

The MoJ also confirmed that it will not extend bailiffs' powers of entry and the use of force by enforcement agents.

When Pt.3 of the Act comes into force, it will clarify the existing law and introduce a comprehensive code on matters including when and how a bailiff can enter premises, what goods he may seize and sell, and what fees may be charged.

The MoJ plans to publish a consultation paper setting out measures (for implementation by 4/12) to meet concerns about some bailiffs' conduct and fees, and its proposals for regulation of the industry. Meanwhile, various measures will be implemented later in 2009, including:

• introduction of an online register of certificated bailiffs;
• extension of the bailiff certification process to require bailiffs to include a Criminal Records Bureau check with their application; and
• minimum training requirements and competencies as part of the certification process.

The announcement is almost certainly a reflection of the current economic environment. It will be interesting to see how far the proposals in the consultation paper go, and whether there is any change of government policy in the future.

OFT assessment of bank charges

The Court of Appeal has upheld the High Court's judgment in the OFT's test case concerning the fairness of bank charges.

Finding that the fairness rules of the Unfair Terms in Consumer Contract Regulations 1999 could be applied to assess unarranged overdraft charges applied to personal current accounts, the court concluded that, because these terms and charges were not part of the core or essential bargain between consumer and bank, they were susceptible for assessment as to their fairness.

The Court of Appeal has refused the bank's application for permission to appeal to the House of Lords but the banks have applied directly to the lords for permission, and so the saga continues and is scheduled to be heard on 23 June 2009; customers' claims meanwhile remain frozen but the OFT has said that it will now continue to assess the fairness of the banks' charges and will announce its decision by the end of 2009.

Directors: duty of care and causation

The Court of Appeal has allowed an appeal in Lexi Holdings Plc v Luqman & Ors [2009] EWCA Civ 117, and held that two non-executive directors were liable for the dishonest misapplication of company funds by an executive director, because their inactivity while they were directors had caused the resulting loss to the company.

The directors had known that the executive director had previous criminal convictions for dishonesty. They ought to have known that certain transactions shown in the accounts required convincing explanation, and should have been on their guard in relation to any attempt to explain. Had they done their duty, the executive director would not have been able to satisfy them that the transactions were genuine. They should have then sought advice and informed the auditors and any other directors; which would have meant that the subsequent misapplications could not have been perpetrated.

Notice periods for distribution agreement

The recent case of Jackson Distribution Ltd v Tum Yeto Inc [2009] EWHC 982 has considered the factors relevant to deciding what is reasonable notice of termination in the context of a distribution agreement between parties where one had agreed that the other should be the sole distributor of certain products, and whether either party was entitled to terminate the agreement on reasonable notice.

Jackson Distribution claimed damages against Tum Yeto for alleged breach of contract in terminating a distribution agreement under which it acted as Tum Yeto's distributor of a certain range of products in the UK and the Republic of Ireland.

The court considered various correspondence regarding their contractual relationship dating from March 2005, which evidenced a verbal confirmation by Tum Yeto that Jackson would be sole distributor, and the payment terms. Thereafter, Jackson had forwarded a draft distribution agreement to Tum Yeto, containing various terms dealing with the parties' obligations, prices and payment and providing in particular that the agreement would come into effect on the date of signing.

Although Tum Yeto's CEO acknowledged receipt by email of the draft, it was never signed. Consequently, the issues before the court were to decide (i) the agreed terms; (ii) whether the company was entitled to terminate; and (iii) the loss which J had as a result of termination, i.e. any appropriate notice period.

The court found for Jackson that it was for the party contending that a written agreement was binding to show that the parties had acted on its terms notwithstanding that it had not been executed. In this case, it was held that this burden had not been discharged because the evidence did not show that the stage was ever reached where the two companies had agreed that the draft agreement should govern their contractual relationship.

It found, however, that there was an agreement in March 2005 whereby Tum Yeto agreed that Jackson should be its sole distributor and that it was an implied term of that agreement that either party was entitled to terminate on reasonable notice to the other party.

On that basis and on the evidence, the court found no repudiatory breaches of contract by Jackson so as to entitle Tum Yeto to terminate the agreement; it considered that a period of nine months would have been reasonable notice of termination and took into account:

• the lack of formal arrangement between the parties;
• the length of relationship between the parties and the extent of an early investment;
• the percentage of turnover; and
• the absence of any clause preventing Jackson from selling products in competition with Tum Yeto's products.

Alternative service via Facebook

Those who noted the report in the last commercial update (see Solicitors Journal, 153/11, 24 March 2009) on an Australian court's permission for the social networking site Facebook to be used to effect service may be interested to see that it is catching on. On 16 March 2009, Justice David Gendall sitting in the Wellington High Court followed the trend by permitting alternative service via Facebook in Axe Market Gardens v Craig Axe, claim number CIV: 2008-485-2676.

No written reasons appear to have been provided for the judge's permission to effect alternative service via Facebook but the claimant's submissions in support of the application are worthy of note as it seems inevitable that such an application will be made in this country in the near future, whether by lawyers or a litigant in person.

In this case:

• the claimant had encountered difficulties serving proceedings on the defendant;
• the defendant, the son of the owner of the claimant company, was alleged to have taken the sum of NZ$241,000 from the claimant's bank accounts;
• the defendant was known to be living in England although his exact whereabouts were uncertain;
• the defendant had accessed the stolen funds via the internet while in England; and
• the defendant had corresponded by email and had a Facebook site.

Money due under agreement

A strong Court of Appeal panel has recently given an interesting judgment in Taiwan Scot Co Ltd v The Masters Golf Company Ltd (judgment of 21 May 2009, unreported). The appellant defendant sought to say that the trial judge had erred in awarding a sum of money due under an agreement to the respondent claimant. Taiwan Scot itself cross-appealed against the judge's refusal to award interest at the contractual rate of 15 per cent on the sum due which he had found was exorbitant. It is this latter regard particularly that the judgment is noteworthy.

Under a contract entered into in 2001, Master of Golf purchased golf clubs made in China through Taiwan Scot for resale in the UK. It informed Taiwan Scot that customers were complaining that the clubs were of poor quality and the parties met to resolve how they could work together. Master of Golf made a first payment on outstanding invoices, and agreed to make another, subject to various conditions which had to be complied with by certain dates, but when Master of Golf in fact made a smaller payment than had been agreed, Taiwan Scot issued proceedings.

The first instance judge ordered that Master of Golf pay the balance due under the agreement but declined to order the company to pay 15 per cent interest on the award because he found that it was an unreasonably high rate.

Appealing, Master of Golf contended that the agreement had been varied by Taiwan Scot's conduct; having considered the evidence, however, the Court of Appeal panel disagreed and dismissed the appeal. It found that nothing which Taiwan Scot had done could be said to amount to a variation of the agreement and so the judge had been right to hold that Taiwan Scot was entitled to the balance due under the agreement.

On the more interesting cross-appeal, Taiwan Scot argued that the rate contained in the contract had been commercially negotiated and should stand '“ such an argument will find favour with parties who now find themselves dealing with contractual interest rates which were chosen at a time when rates were considerably higher than the current climate permits.

The Court of Appeal allowed the cross-appeal, finding that interest rates in 2001 (which was when the contract had been entered into) had been considerably higher than they currently are, but that this was within the parameters thought reasonable at the time '“ the contractual rate of 15 per cent had not been exorbitant in 2001 and the judge had been wrong to deny Taiwan Scot the contractual rate of interest which had been agreed between two commercial parties of equal bargaining position and Master of Golf could not resile from it now when it suited it.