Protecting Your Trade Secrets – What We Suggest: A Perception of Celgard LLC v Shenzhen Senior Technology Material

Written by Rosa Huang.

Recently an interim relief is granted by High Court of Justice of UK in a case enforcing the Trade Secrets (Enforcement, etc) Regulations 2018 (“the Trade Secrets Regulations”), Celgard LLC v Shenzhen Senior Technology Material.

What we know about the case

The dispute is between Celgard LLC (“Celgard”), a US company, and Shenzhen Senior Technology Material Co Ltd (“Shenzhen Senior”), a Chinese company, over lithium-ion battery components.

Dr Zhang is a former employee of Celgard. As alleged by Celgard, during Dr Zhang’s employment at Celgard, Dr Zhang had access to valuable trade secrets in regards to the design and manufacture of Celgard’s dry battery separator material, which he disclosed to Shenzhen Senior during his employment thereby enabling production of an infringing competing product by Shenzhen Senior.

Celgard had been in the process of winning a contract with a UK customer, but this contract was won by Shenzhen Senior by undercutting Celgard on price; Shenzhen Senior subsequently delivered the allegedly infringing products to the UK customer after the initial hearing (though before the order of interim relief was made).

The court was convinced that there was a good arguable case under the Trade Secrets Regulations for upholding the interim injunction and therefore granted the injunction against Shenzhen Senior.

What is “Trade Secrets” and how it is protected in the UK

Historically, trade secrets may be protected either through a breach of contract action (breach of obligation of confidentiality), where a non-disclosure agreement exists or can be implied, or a common law action for breach of confidence. The latter is based on the common law principle that, for information received in confidence, a person cannot take unfair advantage of that information or prejudice the person giving the information.

In 2016, the EU adopted Directive (EU) 2016/943 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure, which was implemented in the UK via the Trade Secrets Regulations, bringing the protection of trade secrets onto the UK statute book for the first time.

It has been widely believed that the Trade Secrets Regulations is unlikely to have a significant impact in the UK due to the existing UK common law on confidentiality and it is just a codification of English law principles, however, the case of Celgard v Shenzhen Senior Technology Material is changing such position.

This is because in the Celgard LLC v Shenzhen Senior Technology Material, there was not a clear claim under law of confidence (the non-disclosure agreement to which the former employee was subject was governed by US law and the acts complained of appeared to all have taken place outside the UK), but the Trade Secrets Regulations’ recitals provide clear direction in such cases. By seeking interim relief as provided by the Trade Secrets Regulations, trade secrets were effectively protected. The Trade Secrets Regulations therefore seems to provide a potentially easier and more effective route of relief compared to an English claim of breach of confidence.

Let’s see what is “trade secrets” as defined by the Trade Secrets Regulations:

“trade secret” means information which:

(a) is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known among or readily accessible to persons within the circles that normally deal with the kind of information in question,

(b) has commercial value because it is secret; and

(c) has been subject to reasonable steps under the circumstances, by the person lawfully in control of the information, to keep it secret.’

Briefly, in order for information to be protected by the Trade Secrets Regulations, three requirements shall all be fulfilled:

the information is secret, that is, the information should remain hidden from others especially persons within the circles that normally deal with this kind of information;

the information has commercial value because it is secret; and

the information has been subject to “reasonable steps” to keep it secret by the person lawfully in control of the information.

The first two requirements are self- explanatory; as to the third one, however, it suggests that if businesses wish to benefit from the available rights and remedies to protect their trade secrets, they must show that they have already taken reasonable steps to protect the secret. A simple labelling of information a trade secret is unlikely to be enough of itself.

What we suggest

Whilst the meaning of “reasonable steps” will be developed as the courts apply the Trade Secrets Regulations and some uncertainty exists as to how it will be interpreted, it is still clear that there are actions that businesses can take to protect their valuable trade secrets.

Here are some of our suggestions:

Ensure that confidentiality provisions are included in your contracts, such as employment contract, contract with supplier or with client; when collaborating with third parties, enter into Non-Disclosure Agreement (“NDA”) instead and ensure that their terms are suitable for scope of the collaboration;

Develop and implement procedures for the protection and this could include:

mark trade secrets as “confidential”;

Store trade secrets (including electronic information) safely, securely and ensure that access to it is restricted appropriately;

Keep written records of all individuals such as employees and third parties who had access to the information;

Ensure that the relevant policies are in place and available to all employees and that your employees are trained in that respect, and so on.

However, businesses shall also be aware that trade secrets protection is far from straightforward.

Have questions? Get in touch today!

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Sole Responsibility – How To Prove It?

The issue of sole responsibility frequently arises in visa applications where one parent is settled in the UK while the other one is living outside the UK and has no intention to come to the UK. Or, they may be currently living in the UK, but have no lawful status.

In the above circumstances, if the parent settled in the UK wants to have his/her child/children to migrate to the UK as well, the law requires that he/she should normally have the sole responsibility of the child/children’s upbringing.

Common misconceptions

In our practice, we frequently encounter the following misconceptions:

Some parents take it for granted that since they are settled in the UK, their children should be allowed to settle with them here as well.

This is wrong. In the scenarios listed above, the settled parents will only be able to bring their child/children into the UK if they can prove with evidence that they are looking after the child/children solely, while the other parent does not play any role in the child/children’s life.

Other parents will think that they can prove sole responsibility easily if they have been granted sole custody of the child/children by the Court or in a divorce agreement or consent from the other parent.

This is wrong as well. Unlike family law where birth certificate, marriage certificate or divorce certificate are conclusive evidence to prove the parties’ relationship, in the immigration laws, sole responsibility is an issue of fact. It means that the parents concerned will need to produce evidence to prove that as a matter of facts, they are taking the sole responsibilities of their child/children’s upbringings.

Birth certificates, divorce certificates and child arrangement orders are good evidence, but they are not conclusive evidence, which means that the parents concerned should provide more evidence to prove that they are taking the sole responsibilities on daily basis.

What the Home Office look for…

It should not come as a massive surprise to hear that what the Home Office look for in sole representative cases is simply traits in-line with that of a good parent.

Financial support will be one aspect they focus on, the ability to support the child in a monetary way. However, this is still only one piece of the puzzle.

It will be things that occur during the daily life of being a parent, things that should come naturally and not be difficult to conjure evidence for. Such things as looking out for your child’s best interests, like helping them get their homework done on time and taking a keen interest in any extracurricular activities they may take part in. Similarly, being in contact with teachers and attending parent’s evenings is also important.

As well as this, being in contact with any doctors that your child has seen, and taking them to appointments when they need them is also something the Home Office would be interested in. Not only this, but taking an active role in their health by preparing good quality meals for them, not letting them spend hours on their phones or playing video games, but encourage them to also read and study.

Showing concerns for the relationships that you child builds is also important, such as dissuading them from becoming close to dangerous or criminal types of people, which can become an issue in the teenage years.

Also, if the parent concerned is unable to do this, he/she should ask the grandparents or other family member to carry out such duties on his/her behalf and makes proper arrangements.

How can all this be shown in evidence?

You might be saying to yourself, “this is all well and good, but how can I prove all of this?” It is a reasonable question, as if you want to prove your case, tangible evidence always proves to be much easier. The Home Office is unlikely to accept the applicants’ word unsupported with proof.

Things such as messages via Whatsapp, WeChat, text messages and emails are a good start. These can be between the applicant and the child, or between the applicant and people associated with the child such as teachers and doctors.

As well as this, videos and pictures taken at events involving the child will stand the applicant in good stead. For example, showing them opening presents on their birthday, playing in a school football match, or acting in a school play. It is these types of things that the Home Office will be after.

If you think about it, this kind of evidence should accumulate naturally over time if you want your child/children’s application to have more chance of success.

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The Law of the Land: Use Classes See Significant Changes!

Planning use classes are the legal framework which determines what a particular property may be used for by its occupants. In England, these are contained within the provision of Town and Country Planning (Use Classes) Order 1987.

On the 21st July 2020, the government published The Town and Country Planning Regulations 2020 which will come into force on the 1st September 2020. Some important changes have been made and new classes introduced, meaning that certain categories now allow different uses of the land, but there will be a transitional period until 31st July 2021 where the former use classes will still apply to land and buildings for the purposes of the GPDO. Until then, people are able to use the land in-line with the old use category or the updated one.

Why the need for the update?

The government considers a complete overhaul necessary to better reflect the diversity of uses found on high streets and in town centres and to provide the flexibility for businesses to adapt and diversify to meet changing demands. This is particularly important at the present time as town centres seek to recover from the economic impact of Coronavirus.

Essentially, as time goes on, new needs and demands arise, and rules on what can happen in certain locations must adapt and change to cater to these needs.

What are the new Use Classes?

Use Class E – Commercial, Business and Service

This use class brings together existing classes A1(shops), A2 (financial and professional services), A3 (restaurants and cafes) and B1 (business) as well as parts of classes D1 (non-residential institutions) and D2 (assembly and leisure) into one single use class to allow for changes of use without the need of planning permission, making things a lot easier. However shops and facilities which are deemed as being important to the local community have been placed into Use Class F2 (Local Community), which we will talk about later.

Use Class F1 – Learning and non-residential institutions

This use class brings together some elements of the educational, non-residential Use Class D1 namely, schools, colleges etc., galleries, museum, public libraries, public hall or exhibition hall and churches etc. It makes sense to have these types of buildings under the same roof, so to speak, as they have many similarities in terms of how people use them and understand them.

Use Class F2 – Local community uses

This one can be thought of as the ‘community conscious’ category. This use class is designed to protect local community assets and include shops smaller than 280 m² and without another shop within 1,000 m², a hall or meeting place for the primary use of the local community (was use class D1), outdoor sport or recreation locations (was D2(e) use class) and swimming pools or skating rinks (was D2(e) use class).

Cinemas, concert halls, pubs, wine bars and takeaways will become a sui generis use (meaning ‘of its own kind’) with no permitted changes.

Benefits and issues

On the whole, these changes are quite positive for most people. Buildings will be able to go from being used as shops, restaurants, cafés, clinics, crèches, banks, offices, light industrial, indoor sports to another use all within the new Use Class E. It is a lot simpler. It will, for example, allow Starbucks to open new branches where previously they needed permission to convert a shop. It will remove the ‘middle man’ from the equation.

On the other hand, some items have been moved to sui generis, that were in one use class. The means that under the new use classes it will no longer be possible to move from a cinema to bingo hall or dance hall.

What do we think?

These changes seem to go further to recognise that a building may be in a number of uses simultaneously or that a building may be used for different things at different times of the day. Changes to another use, or mix of uses, within these classes do not require planning permission, which is a good thing for a lot of people who want to alter or add to the use of a building. Also, bringing certain uses together and allowing movement between them will give businesses enhanced freedom to adapt to changing circumstances and to respond more effectively to the diverse needs of their communities.

For the government legislation on this topic, follow this link.

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When Is Consent Unreasonably Withheld?

Written by Evveline Loh.

In many contracts, in particular, those dealing with landlord and tenant relationship, if some sort of consent is required from one party to enable the other party to do (or not to do) something, there is normally provision that such consent should not be unreasonably withheld. However, the issue whether consent has been unreasonably withheld or not is usually not easy to determine.

In the very recent case Apache North Sea Ltd v INEOS FPS Ltd, the Commercial Court decided that it was illegitimate and unreasonable to set onerous conditions prior to giving consent upon renegotiation of commercial terms where such terms would provide the consenting party a more enhanced financial advantage or rights which otherwise will not have been entitled under the original terms of the contract.

Background

Apache and INEOS FPS Ltd entered into contract for transportations of hydrocarbons produced by Apache though INEOS pipelines. Within the agreement, there were many attachments. Apache wished to revise attachment F which sets out its estimated production profile for the period January 2021 – December 2040. The clause was tied to a ‘consent provision’. The Commercial Court was invited to interpret the ‘consent provision’ because INEOS purported to impose a pre-condition on such consent by requesting Apache to pay more for their service to ship increased quantities of products.

Judgment

The Commercial Court revisited some of the basic principles of construction of contract in general and then went on to refer to well established landlord and tenant’s disputes case law in relation to the consent provision.

As Lord Briggs JSC’s judgment in the case Sequent Nominees Ltd v Hautford Ltd [2019] UKSC 47, [2020] 1 All ER 1003 states “the correct approach is to construe [the consent provision] so as to discover what, upon its express terms, it permits the landlord to do”, an exercise to not view consent provision terms in isolation.

The Judge further confirmed that even where a contractual provision is subject to the standard of reasonableness, the court must still construe the contract as a whole in order to establish what the consenting party is entitled to do under the relevant clause. Such clause should not re-construct the initial terms negotiated and results in placing one party at a more advantageous position whilst the other party is deprived.

More importantly, the Commercial Court judgment made a re-statement of the general principle when it comes to consent provision. The fact that by imposing such a condition, the consenting party may gain financial advantage which it is previously not entitled to renders the condition illegitimate and unreasonable. A condition may be legitimate to the consenting party if it addresses a legitimate concern whereby the result is compensatory or mitigatory in nature.

Comments

Although many may view that this is related to oil and gas transportation and processing agreement, such issue is widely seen in many commercial contracts and landlord and tenant’s contract. This case serves as an important reminder that:

The refusal to consent is likely to be illegitimate and unreasonable if a condition tied to the consent places one party at a financial advantage or enhance that party’s right when the original terms does not provide for such rights.

On the other hand, a refusal to consent may be legitimate when the condition imposed addresses a legitimate concern and the result arises from such consent is compensatory or mitigatory in nature.

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Moving further into the modern age? Probate applications to go online!

In a world that revolves so much around technology, it is only right that the legal sector keeps up. This is why all probate applications made by solicitors would have to be conducted online under recent proposals from the Ministry of Justice, encouraging practitioners to go step forward into digitisation.

What exactly is probate?

Probate is the process of dealing with the estate of someone who has died, which generally means clearing their debts and distributing their assets in accordance with their will (or the rules of intestacy in a case where a person dies without a will).

People are able to do this themselves, but it can be fairly complicated as there are lots of forms to fill out and gathering of assets to be done. Where the case is more complicated, it is recommended that professionals, such as ourselves, are brought in to help.

Moving forwards

Probate involves a series of steps and in the past it has mostly been a paper based process, and was solely paper based until 2017. However, the government proposes changing non-contentious probate rules to make it mandatory for solicitors and other probate practitioners to move towards online completions.

So far, it has worked…

Online systems have been trialled and tested when it comes to probate applications. Beta versions of the digital systems were met with positive acceptance. The online service for legal professionals was rolled out to be available to all practitioners in October 2019, following the Beta phase’s successful pilot. User feedback shows the majority of users are satisfied with the online service.

User experience, ease of access and faster response times are all part of the government’s plan to make digital applications the norm, relying on technology to create a more effective system for court users and generate efficiencies for the taxpayer.

The hope is that by making these digital systems mandatory, people will adapt to them quicker. A spokesperson from the Ministry of Justice said:

‘Mandating the process will accelerate it and encourage users to adapt and take the necessary steps for the transition while helping to achieve the savings which HM Courts & Tribunals Service needs to deliver in fulfilling the requirements of the investment in the HMCTS reform programme.’

Not too popular yet…

While the trials have been met positively and those using the online system seem to like it, it is not yet the norm. In June this year – despite lockdown – just a fifth of probate applications from solicitors were made online.

However, due to COVID-19 and the desire for a more online focussed legal world, it is expected that this number will soon rise.

What do we think?

Here at Lisa’s Law, we are not afraid of technology, in fact we welcome it. If the system is faster, easier to use, and more eco-friendly than using paper, then we are all for it. Our team of legal professionals already work with an ethos that places sustainability as a high priority. Anything that can be done online with the same ease, and in many cases greater ease and efficiency than on paper, should be considered a positive.

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In the meantime, we are operating as usual, and you can reach us on 020 7928 0276 or email in to info@lisaslaw.co.uk for any questions you may have on this topic.

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Non-molestation orders – A way to free yourself from abuse

People spending a lot of time indoors due to lockdown naturally meant that couples who were having issues previously experienced an amplification of the problems in their relationship. This led to a spike in separations and divorce, which is usually a tough time for the individuals involved and their family members.

What makes this situation even harder is where one of the ex-partners starts to act in hostile or disturbing ways. This type of behaviour is never justified and there are procedures in place to help stop it abruptly. It is vital that nobody feels they must suffer in silence, as these procedures are in place for a reason, and they should be used where appropriate.

What is a non-molestation order?

A non-molestation order is a specific injunction that aims to prevent a partner or former partner from harming you or your children. This means acts of physical violence or the threat of physical violence, any form of harassment or intimidation, as well as psychological abuse. It can also be stalking, or abusive messaging on platforms like Facebook and Instagram.

Who can it be applied to?

It is not something that is limited only to the two people who were previously a couple, in fact, it can apply to the following:

A spouse or ex-spouse

A civil partner or previous civil partner

A fiancé(e) or ex-fiancé(e)

Someone with whom you are living or used to live with

The father or mother of your child, also people who have parental responsibility for your child or grandchild

Someone with whom you have had an intimate personal relationship

A family member

Applying for a non-molestation order

When making an application for a non-molestation order, the applicant can do so without giving any advance notice to the other party. This is to avoid any negative scenarios, including where a person would seek to prevent another from being able to make the application at all.

It is vital to remember that, should the court grant the order, it only becomes effective once the person whom it is made against is made aware of it (typically by personal service, but this is not always the case.)

A copy of the order should be given to local police as well, to make them aware of the problem.

To apply for a Non Molestation Order, the applicant must be able to show that they are ‘associated with the respondent’. This means that the applicant and the respondent must be or have been in a relationship, live together or have lived together or be related to one another.

The applicant will have to demonstrate to the Court that they require protection from the respondent. It is very important that when the issues begin occurring, the applicant calls the police initially. Firstly, this is for the safety of the victim, but it also means the respondent can be prosecuted under criminal law and the behaviour is recorded, which can make things go a lot smoother when applying for the non-molestation order.

How does a non-molestation order protect the applicant?

It is a criminal offence to ignore or break a non-molestation order, which gives it a lot more gravitas as serious sentences can be issued. However applicants have a choice whether the incident is brought back to the family court, or whether they would rather go through the criminal courts. Family court does have power to impose short custodial sentences, and has the added benefit of being a closed court.

Once an order is in place they can ring the police if there is any breach and the perpetrator will be arrested for breaking their order. This should be enough for most people to cease behaving in a threatening way.

Non-molestation orders also forbid abusers from instructing anyone else to harass or intimidate or use violence against the applicant. The order is broken if the abuser damages any of the applicant’s possessions as well. This makes it worth getting an order even if the respondent does not know exactly where the applicant is, as they may damage their things or property.

How long does it last?

It can run for a fixed period or it can last indefinitely; most of the time it is continues to run until it is cancelled by another court order.

What do we think about it?

We believe that when non-molestation orders are used effectively and for the right reasons, they are very important and necessary. It should not take days, weeks or months for people to go for molestation orders, but rather right when the problematic behaviour begins. Your safety is a top priority!

Not sure if you have a strong enough case? We can help you!

We understand that applying for such an order can be very stressful and unpleasant, especially when you feel you are in danger. Our experienced, friendly solicitors can help guide you through it and can tell you how strong your case is, and offer some tips on how it can be made stronger.

Have questions? We are here to help!

In the meantime, we are operating as usual, and you can reach us on 020 7928 0276 or email in to info@lisaslaw.co.uk for any questions you may have on this topic.

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Possessions Proceedings, Evictions and More – Landlords vs Tenants in the Coronavirus Pandemic

The coronavirus pandemic has had a massive effect on the livelihoods of most of the world’s population. One of the most important things in life is the place you choose to live, and what to do with property that you own. It must be appreciated that renting property during this strange year can bring new and worrying pressures, but this goes both ways. Landlords rely on people paying their rent to make money; those renting will sometimes need a helping hand from their landlords in order to keep a roof over their heads.

For the past few months the UK government have given renters new protections to stop them being evicted, but what options to landlords have and how can they plan for the future?

Residential Tenancies

A landlord must give tenants three months’ notice for all notices served between 26 March 2020 and 30 September 2020 before they can reclaim vacant possession of a property by court proceedings. These dates are subject to review, however, and may be extended. These three months are there to allow the tenant adequate time to find a new living arrangement.

Also, there is a general suspension of enforcement of all possession orders from 27 March 2020 to (currently) 23 August 2020, meaning that landlords are unable to for their tenants to leave via this order for now.

However, this does not mean a landlord is completely forbidden from issuing a possession claim, it can still be done, there is just likely to be a wait before it can be acted on by the Court.

It is also important to remember, from a landlord’s point of view especially, that the changes to residential tenancies implemented by the Coronavirus Act do not invalidate any existing notices of possession served before 25 March 2020. They would, however, need to act before it expires which means it would be best to issue the claim without delay.

What is more, these provisions do not apply to contractual tenancies, licences or tenancies granted in the course of employment. There is also no restrictions in relation to claims against squatters or trespassers.

What about Commercial Tenancies?

Again, landlords will be unable to forfeit a lease and commence possession proceedings for failure to pay rent or other sums, including service charges and insurance rent between 26 March 2020 and (currently) 30 September 2020.

The act applies to tenancies protected by the Landlord and Tenant Act 1954 and to leases which have been ”contracted out” of the protection of the 1954 act. The legislation does not apply to short leases – i.e., leases for less than six months.

The act defines rent as ”any sums a tenant is liable to pay under a relevant business tenancy”. This includes all basic rent and other payments payable in accordance with the terms of the lease such as service charge, insurance and administration charges.

In yet more support for renters, there has also been a conditional ban on using insolvency procedures against companies unable to pay debts due to Covid-19. This includes a temporary ban on presenting winding-up petitions from 27 April through to 30 September 2020, where a company cannot pay rent due to impact of the pandemic and associated infection control measures.

The provisions are not ‘all powerful’

However, the Coronavirus Act does not waive or even suspend the tenant’s liability to pay rent under a lease. Tenants should continue to make payment (if possible) – the act simply prohibits forfeiture for the given period of time.

Landlords will be able to forfeit leases for both unpaid sums during the moratorium period and for any unpaid sums that become due after it is lifted (this includes any accrued interest).

The act only prevents landlords from forfeiting leases for rent arrears; leases can still be forfeited where a tenant breaches other covenants contained in the lease, such as tenants’ duties to maintain fixtures, repairs and fittings etc.

Unlike the rules for residential tenancies, commercial lease provisions will apply to existing proceedings that have commenced before the moratorium period in relation to rent arrears. No orders for possession will be granted by the court before the end of the period.

Other solutions for the recovery of rent such as pursuing guarantors (including any liable under Authorised Guarantee Agreements) and withdrawing from a rent deposit are still available to landlords.

Service Charges?

One additional point to note is that landlords may be incurring service charge outlays during the moratorium period. In these circumstances, claims to recover service charges can still be issued and judgements obtained.

What are the courts doing?

The courts remain open and claims are being processed in the normal fashion. Courts are now adjusting and utilising technology to ensure hearings continue to take place.

What can landlords do in the meantime?

Act now! Serve the notice if you have to, issue the claim if you have to, now! Bear in mind the suspension is not a ban, it is a stay, so when it is over, you will be in a queue. So you need to get in there quick!

While it is judicious to remain mindful of the challenges many tenants will be facing due to the Covid-19 lockdown, landlords should not be discouraged from continuing to exercise pre-action obligations they would usually carry out.

Doing this puts a landlord one step ahead and at the front of a potentially long list of creditors once debts can be pursued. A landlord can still issue an appropriate notice for possession and start the process of eviction, once the moratorium has expired.

Seek legal advice

Obtaining legal advice and taking a proactive approach now could prevent expensive, time-consuming litigation in the future. We are open and ready to take on your case today!

Have questions? We are here to help!

In the meantime, we are operating as usual, and you can reach us on 020 7928 0276 or email in to info@lisaslaw.co.uk for any questions you may have on this topic.

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The Principle of Reflective Loss Does Not Apply To Creditors

Written by Lavinder Kaur, solicitor at Lisa’s Law.

What is reflective loss?

Firstly, the rule of reflective loss is derived from the principle of Foss v Harbottle, the company, being a separate legal entity, is the proper claimant to recover any loss resulting from an actionable wrong.

A shareholder’s loss in respect of a diminution in the value of his shareholding or a reductions in the distributions of dividend resulted from a loss suffered by the company in consequence of a wrong done to it by the defendant. In this circumstance, the shareholder’s loss is said to be merely a “reflection” of the loss suffered by the company, and the company or its liquidator is the proper claimant. The purpose to award a damages to the company is to restore its position it would have been if the wrongdoing had not occurred. For the shareholders to have a right of action would exceed what was necessary and would give rise to a problem of double recovery.

Sevilleja v Marex Financial Ltd [2020] UKSC 31

In 2013, Marex Financial Ltd (Marex) brought claims against two British Virgin Islands (“the BVI”) companies, Creative Finance Limited and Cosmorex Limited, both of which were controlled by Mr Sevillja. Those claims were tried before Field J in the Commercial Court who released a draft judgement on 19 July 2013 showing that Marex had succeeded and consequently the BVI companies would be required to pay in excess of US$5m. At that stage, approximately US$9.5m was held by the BVI companies in England.

The more relevant proceedings, in terms of the rule against reflective loss, concerned the allegation that Mr Sevilleja then took the opportunity to dishonestly asset-strip the BVI companies such that they would be unable to pay the judgement debt to Marex. The judgement of Field J was handed down on 26 July 2013. Marex did not put in place a freezing injunction until 14 August 2013, by which point the disclosure showed the companies to have assets amounting to approximately US$4,000 and the BVI companies eventually went into liquidation in December 2013.

On 11 August 2016, Marex obtained permission to serve English proceedings on Mr Sevilleja out of the jurisdiction under the tort gateway. On 5 October 2016, Mr Sevilleja issued an application challenging the jurisdiction of the English courts.

At first instance, Knowles J dismissed Mr Sevilleja’s jurisdiction challenge. In particular, he rejected the submission on behalf of Mr Sevilleja that, even if Marex otherwise had a cause of action in tort, the reflective loss rule barred its ability to recover compensation.

The principle is set out in Prudential Assurance Co Ltd v Newman Industries (No 2) [1982] 1 All ER 354, and has been developed in cases including Johnson v Gore Wood [2001] 1 All ER 481, Giles v Rhind [2002] EWCA Civ 1428, Perry v Day [2004] EWHC 3372 (Ch), and Gardner v Parker.

The principle is that a diminution in the valuation of a shareholding or in distributions to shareholders which is the result of loss caused to the company by a wrong done to it by a third party is not damage which is separate and distinct from damage suffered by the company, and is therefore not recoverable by the shareholder. There was a suggestion in later cases, including Johnson v Gore Wood, that the principle also covered claims by creditors of a company against a wrongdoer (usually a director of the company) whose wrongs prevented the company from being able to pay the debt.

The case went to the Court of Appeal which allowed Mr Sevilleja’s appeal against the lower court’s findings. As such, Marex’s claim to recover the judgement debt, together with interest and costs, was found to be barred by the reflective loss rule which the court determined would apply to non-shareholder creditors in the same way as it had been applied to shareholder creditors.

Marex’s appeal of such finding was heard by a seven panel in the Supreme Court in May 2019 and a judgment was handed down on 15 July 2020.

The decision of the Supreme Court

Lord Reed delivered the lead judgement allowing Marex’s appeal and therefore held that its claims were not barred by the rule against reflective loss made clear that the principle applied only ‘… where claims are brought by a shareholder in respect of loss which he has suffered in that capacity, in the form of a diminution in share value or in distributions, which is the consequence of loss sustained by the company, in respect of which the company has a cause of action against the same wrongdoer’ (at para [79]). In such circumstances, the rule against reflective loss was held to apply regardless of whether the company in fact recovers its loss in full.

In respect of any other claims (whether by a shareholder or by anyone else), for loss that do not fall within that description but for which the company has a right of action in respect of substantially the same loss, the rule against reflective loss does not apply, although it may be necessary to avoid double recovery.

Lord Reid has succinctly made the distinction clear in paragraph 84 of the judgement: “… there is no analogous relationship between a creditor and the company. There is no correlation between the value of the company’s assets or profits and the “value” of the creditor’s debt, analogous to the relationship on which a shareholder bases his claim for a fall in share value…” In other words, the amount for which the company is indebted to a creditor is not dependent upon the value of the company.

Conclusion:

In short, the rule against reflective loss does not apply to creditors of a company. The Supreme Court has now significantly curtailed the principle of reflective loss. If a principle of reflective loss does exist, it is narrowly confined to shareholder claim.

Practical considerations:

Before becoming a shareholder, you may want to make sure a bespoke articles of association is adequately drafted (or the model articles of association is modified) to set out the business operation. In a small private limited company where directors are also often the shareholders, ensure that your shareholders agreement is well drafted to cover all foreseeable eventuality to protect your interests.

Always consider and evaluate the risk of immediate risk of asset dissipation and keep it at the forefront of your mind as the case progresses. You should discuss the merits of freezing or notification injunctions with your legal representatives.

If a claim is unavoidable, it is best to always consider if this could be a case where there is a separate legal duty owed / legitimate cause of action for the loss to be classified as a non-reflective loss. It is important to categorise this as a ‘separate and distinct’ loss than those suffered by the company.

In some circumstances, a shareholder may be permitted to bring or continue a claim on behalf of a company (“a derivative claim”). In such circumstances, the individual is given permission to pursue the company’s claim and therefore the rule against reflective loss is not relevant.

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Eat Out to Help Out – Get your business found!

The Eat Out to Help Out scheme means diners are able to get discounts of up to 50% on food and drinks between Monday and Wednesday between the 3rd and 31st of August, with the government reimbursing the businesses for these discounts, in a bid to get the hospitality industry back on track.

People do not need a voucher to use this scheme and can use it at the same time as other offers and discounts. There is no minimum spend. However, you cannot claim discount on alcoholic drinks or service charges.

If you want to register your establishment, you can do so here.

Look for the Logo!

People wanting to take advantage of this scheme as customers should look for the logo, which is likely to be displayed outside participating establishments. Likewise, establishment owners should make sure they have the logo clearly displayed.

The logo looks like this:

Businesses can find promotional materials here, including signs and posters.

Restaurant finder

There is also a new restaurant finder tool online, which will give users a list of all the participating restaurants within a 5 mile radius of the postcode they type into the restaurant locator tool.

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Establishments who register for the scheme will be automatically added to this restaurant finder, so as long as the details they provide are correct, it should be easy for people to locate them.

Other help available to businesses

guidance on how to register and make a claim is on GOV.UK

free live webinars which will explain how the scheme works, provides examples and allows you to ask questions

a video that explains how the scheme works: YouTube video

webchat service

dedicated helpline for restaurants 0300 322 9429 available 8am until 4pm Monday to Friday

Have questions? We are here to help!

In the meantime, we are operating as usual, and you can reach us on 020 7928 0276 or email in to info@lisaslaw.co.uk for any questions you may have on this topic.

Or, why not download our free app today? You can launch a new enquiry, scan over documents and much more.

If you have an iPhone, follow this link to download.

If you use an Android phone, follow this link to download.

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Stepping into the future? Will witnessing over video to be legalised in the wake of COVID-19

Wills witnessed using video technology such as Zoom and Skype are to be legalised, as the government aims to make it easier for people to have their final wishes met during the pandemic, and start to look ahead to a post-Coronavirus United Kingdom.

The basics of this new policy is as followed:

Government plans law change to allow wills to be witnessed virtually in England and Wales.

Reforms will be backdated to 31 January 2020 and will remain in place as long as necessary (meaning any will witnessed by video technology from that date onward will be legally accepted.)

New laws to reassure public that wills witnessed via video link are legally recognised.

In UK law, before COVID-19 hit, it has been that a will must be made ‘in the presence of’ at least two witnesses. However, while people have been self-isolating and shielding for their own safety, video services such as Zoom have been used. Ministers have now confirmed that wills witnessed in such a way will be deemed legal, as long as the quality of the sound and video is sufficient to see and hear what is happening at the time.

The use of video technology, according to the guidance, should be a last resort. People should continue to arrange physical witnessing of wills where it is safe to do so. Wills witnessed through windows are already considered legitimate in case law as long as they have clear sight of the person signing it.

Any concerns?

With all changes to the law, the change will have its supporters and its critics. For example, there will likely be some concern that using video will lead to a surge in familial disputes, accusations of the video being unclear or people being unable to hear the video properly. There may also be the worry that a person off-camera may be having an influence on proceedings. Generally, this system is more open to abuse than a face-to-face meeting.

What do we think?

While we understand the above concerns, our opinion is that witnessing wills over video is largely a good thing. It is far more convenient, and in the world we are currently living in, far safer than travelling to meet face to face. We believe that if there is an easier way to get something done, and that everyone is happy to proceed in such a way, then why not go for it? Of course, it must be made clear that all parties are able to hear and see what it going on in the video, and if they cannot, then they should simply try again using a different laptop, or phone etc. to conduct the meeting.

*If you are unsure how to do this correctly, you should seek legal advice or simply consult us for more details.

We welcome technology – we have our own app!

As a modern, forward thinking law firm we welcome new technology as long as it makes things simpler and easier for our clients. We want to relieve some of the stress and give people back some of the time it would usually take to travel in to see us, when they could simply get the same service while sitting on their couch!

This is why we have our brand new mobile app. You can launch a new enquiry, scan over documents, follow the progress of your case and much more! We are here for you anytime, anywhere!

If you have an iPhone, follow this link to download our app.

Or, if you use an Android phone, follow this link to download it.

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