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Tag Archives: Contract law

Contractual rights are property rights: Government blunder on feed-in tariffs

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The UK Government faces a bill for up to £200m in compensation to green energy installers that suffered losses as a result of former energy secretary Chris Huhne’s 2011 announcement on proposed cuts in environmental subsidies. The announcement led to many organisations and individuals dropping plans to install solar power with feed-in tariff (FIT) equipment that feeds electricity generated by small-scale solar panel systems into the grid, producing a payment.

A legal ruling in the High Court (Breyer Group plc & Others v DECC issued 9 July 2014 ) is the second time in a week that the government has been show to have fallen foul of the principle that the law should not be retrospectively changed if it damages people’s interests. (See the Poundland case: UK Human Rights Blog)

Are contracts property?
The High Court established in its ruling on preliminary legal issues that pre-existing contracts to supply the solar micro-generation equipment constitute “property” for the purposes of protection of property rights under the European Convention on Human Rights. Furthermore, Huhne’s announcement, which proposed bringing forward a reduction of the subsidised payment, constituted an “interference” with those property rights. This should potentially be compensated, said Mr Justice Coulson.

The 31 October 2011 announcement that cuts in the feed-in payment might be brought forward amounted to a retrospective change in legislation without passing new legislation through Parliament. “The proposal would have taken away existing entitlements without statutory authority.” The announcement damaged businesses and hit consumers who had planned to install the equipment on the basis of the higher payments. As such it breached ECHR Article 1 Protocol 1 (A1P1) on protection of property rights regarding contracts concluded on or before the day of the announcement.

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Can G4S keep its Olympics money?

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So can G4S keep its money despite its London Olympics security debacle? G4S chief executive Nick Buckle, when he appeared before the House of Commons home affairs committee, seemed to know very little about what had brought about the “humiliating shambles” – but he knew this:  Yes, he expected to keep the £57m “management” fee in the contract. “We’ve had management in place to plan the contract and we will have management on venue to help run the venue.”

He underlined the point: “We’ve managed the contract and we’ve had management on the ground for two years … We are still expected to deliver a significant number of staff to the Olympics.”

But what is the legal position? The logic of Buckle’s argument seems to be that the outcome of the “management” – failure to fulfil the terms of the contract – is irrelevant. This was incomprehensible to members of the committee, among them Lorraine Fullbrook, who said: “If you contract to deliver a service and you don’t actually deliver it – first of all I don’t think you should claim a management fee … but you also have to pay for your cockups.”

Mrs Fullbrook is, sadly, labouring under a naïve misapprehension – that we should pay people who do their jobs and not pay people who fail to do so, as one commentator put it.

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Hacking hack sackings: can News of the World journalists sue for reputational damages?

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So, after the News of the World sackings, how are the poor old NoW journalists, who have lost their jobs because of the phone hacking scandal, to scrape a living now?

Offer themselves to other papers? But would you employ a second-hand hack from Britain’s biggest selling toxic brand (apart from Rentokil Mouse Killer perhaps)? Maybe hawk around some of the juicier secret documents snatched from the NoW conflagration? But two wrongs don’t make a right, and the laws on handling stolen goods can be pretty strict.

So why not try suing the company for wrongful dismissal? It’s not easy, but it could be lucrative and legal. The average News of the World journalist is now a pariah – shunned and avoided in the street but more importantly, through no fault of his or her own, likely to face difficulty getting a job on a more reputable organ. So sue the Rupert Murdoch empire!

What you are looking for is “stigma damages” – the trashing of your professional reputation through association with a company that has become notorious for – let’s call it dubious practices.

The precedent is the 1997 House of Lords case Malik v Bank of Credit and Commerce International (coupled with Mahmud v BCCI).

Before we proceed we should note that there is not as yet proof that News International, owners of News of the World, or senior mangers acted illegally or can be blamed for the hacking scandal. We do know, however, that the reputation of the News of the World has collapsed sufficient for it to be closed and extensively fumigated while its employees stumble out into the harsh light of publicity and public disapprobation.

In the case of BCCI, which was closed by regulators in 1991, we know that it “had reached the point where the bank itself could be identified with dishonesty. This was a dishonest business, a corrupt business” – the words of Lord Nicholls, hearing the case.

Malik and Mahmud were senior employees made redundant by the bank’s collapse who found that “their association with BCCI placed them at a serious disadvantage in finding new jobs”, such was the scandal attached to their old employer. In the words of Lord Steyn “they were tarnished and therefore undesirable employees to recruit” despite themselves having no role in the dishonesty and corruption. But does the employer (in this case in liquidation) continue to have a legal responsibility for this loss of reputation after the employees have been dismissed? The answer is yes.

‘In agreeing to work for an employer the employee, whatever his status, cannot be taken to have agreed to work in furtherance of a dishonest business. This is as much true of a doorkeeper or cleaner as a senior executive or branch manager’ – Lord Nicholls

Let us assume there is an implied contractual duty for the employer in any firm to maintain trust and confidence among employees (there is). It follows that there is a duty to each employee that the business will be run along moral and legal lines. It would be difficult, after all, to argue the opposite – that employees should be obliged to carry on working for a company acting immorally or illegally. “In agreeing to work for an employer, the employee, whatever his status, cannot be taken to have agreed to work in furtherance of a dishonest business,” as Nicholls points out.

If the employer’s breach of that duty creates a stigma leading to lower employability for the employees, (a “handicap on the labour market because they were stigmatised by reason of their previous employment” as Nicholls put it) then on the face of it damages are recoverable for the financial loss.

Thus: “If the employer commits a breach of the term [duty to maintain trust and confidence], and in consequence the contract comes to an end prematurely, the employee loses the benefits he should have received had the contract run its course until it expired or was duly terminated.”

So it might well be that if News of the World journalists, hitherto regarded as top grade operatives despite the grubby use to which their excellent skills were put producing the paper, now find themselves shunned by other potential employers as a result of the closure brought about by management failings – kerching! They can claim wrongful dismissal and damages for lost earnings – potentially to the end of their working lives.

So it could be the employer’s conduct “prejudicially affects an employee’s future employment prospects. The conduct may diminish the employee’s attractiveness to future employers.” There are other claims such as lost career opportunities and injured feelings (yes, even News of the World hacks have feelings).

If News International comes out of this smelling of roses on the basis that it knew nothing of what was going on under its collective corporate nose, it could nevertheless be argued that its duty extended to actively creating trust and confidence by ensuring such things were not going on.

The potential flood of BCCI cases was, it must be noted, stymied by Bank of Credit and Commerce International v Munawar Ali in 1999. Here it was deemed necessary for former employees to prove actual loss, in other words show that they really could not get work or had to take lesser jobs because of the reputational damage caused by BCCI.

The reputational issue might only apply to senior staff, wholly innocent people over whom the suspicion of complicity in the hacking might nevertheless lie. But senior staff would, of course, be the ones with the biggest claims.

There is already talk of staff suing for unfair dismissal, a relatively straightforward legal remedy that could cost the company £14m, according to one estimate. In fact the legal ramifications are far from straightforward – and potentially could cost far more.

News extra: Law firm Silverman Sherliker prepares for stigma damages class action against News of the World

Related post: Times’s ethical options after NotW phone hacking scandal

Note: Nothing in Alrich’s Weblog or any posting therein, however well argued, should be taken as professional legal advice or relied on in any way

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