Dispute update - April 2011

Boardroom Briefing
Bribery Act

After months of uncertainty, the government has finally published guidance on the procedures commercial organisations should adopt in order to protect themselves from prosecution under the Bribery Act 2010.

The Bribery Act 2010 was due to come into force this month.  A change of government and pressure from industry forced a rethink, not least because the Act appears to make corporate hospitality a criminal offence.  The Act will now come into force on 1 July 2011. 

Under section 7, a business commits a criminal offence if a person connected with it (eg. an employee) bribes another person intending to obtain or retain that person’s business or some other advantage.  It is a complete defence, however, to show that the business has in place adequate procedures to prevent that conduct. 

The Act requires the government to publish guidance as to what such adequate procedures might involve.  That guidance has now been published and can be viewed here: Bribery Act Guidance 2010 brochure

The guidance is just that.  It is not prescriptive but is designed around six principles.  The Ministry of Justice has made it clear that a business will not be presumed to have committed an offence simply because it has not followed the published guidelines, but it is an unwary business that does not take steps to accommodate the guiding principles in its organisation.

The six principles are as follows:

1. Proportionality
   The procedures a business is required to put in place should be proportionate to the bribery risks it faces and to the nature, scale and complexity of its activities.  Procedures should be clear, practical, accessible, effectively implemented and enforced. They need not be stand-alone procedures and may, for example, consist of procedures engaged in the recruitment or tender processes.
2. Top level commitment
   The senior managers of a business, in most cases its board of directors, must be committed to preventing bribery and should foster a culture in which bribery is never acceptable. This means senior managers have to communicate and apply standards throughout their business which ensure that employees and those who deal with the business know that bribery will not be tolerated. 
3. Risk assessment
   Every business must undertake risk assessments periodically to understand the nature and extent of its exposure.  That assessment should be informed and documented.  Top level management should oversee the risk assessment, but the guidelines recognise that the assessment process should be resourced in a manner appropriate to the risks and the nature of the business.
4. Due diligence
   Businesses should apply due diligence procedures in respect of those who represent it, taking a proportionate and risk-based approach.  The extent of the business’s obligation will vary according to the individual.  For example, a secretary is less likely to have opportunities to commit bribery, whereas a higher degree of due diligence is required when engaging or monitoring a commercial agent selling arms in sub-Saharan Africa. 
5. Communication
   Businesses must take steps to ensure that its bribery prevention procedures are understood throughout its organisation.  This is likely to involve training.  The level of communication and training depends upon the nature and extent of the bribery risk each business faces. 
6. Monitoring and review
   All businesses must keep their anti-bribery procedures up to date.  This involves regular monitoring and periodic reviews.  The nature and extent of the risk a business faces is likely to change, depending on growth, international expansion or sales and so on.  If a business has overseas offices, it may consider reviewing its policies upon a change of government in its various jurisdictions.

Although the Act isn’t yet in force, businesses should ensure that steps are taken to align their operations with the published guidance.  The risks facing those businesses that don’t adapt are potentially huge. 

Legal Update

In this edition of Dispute Update, we look at some of the most important cases and other developments reported over the last month.

• Funding Civil Litigation
  We know that many of you are knotted up with excitement at the thought of spending two long bank holiday weekends with the government’s response to the consultation on reform of the civil costs regime.  We are fortunate indeed to have a ready supply of bunting at the moment.

In brief, the government has decided to implement Lord Justice Jackson’s key proposals.  Perhaps the most discussed of these proposals is the proposed restriction on recoverability of success fees under conditional fee agreements and after-the-event insurance premiums.  Other key reforms will include the introduction of contingency fees and changes to the rules on Part 36 offers.

Conditional fee agreements (CFAs) have been controversial ever since they were introduced under the Woolf reforms of 1999.  Originally intended as a method of increasing access to justice (whilst at the same time reducing the legal aid budget), they have succeeded in giving personal injury lawyers a fees bonanza and insurers a headache.

The basis of a CFA is that the litigant agrees with his lawyer that unless a certain outcome is achieved, the lawyer the lawyer is not entitled to any fee (or only a discounted fee).  If, however, that outcome is achieved, the lawyer is entitled to a success fee of up to 100% of his basic charges.  The key point is that the unsuccessful party is usually liable to pay both the basic charges and the success fee, so the process is free to the successful litigant.

Matters can be made worse for the unsuccessful party because after-the-event insurance premiums are also recoverable as part of the costs of the case.  This insurance protects the insured party against the risk of an adverse costs order if the case is lost.  Premiums can be hundreds of thousands of pounds.

The government is going to replace this system.  Litigants will still be able to enter into a CFA and take out after-the-event insurance, but success fees and premiums will not be recoverable from the unsuccessful party.  In personal injury cases, the success fee must be no more than 25% of the lawyer’s basic charges.

Instead, successful claimants will get a 10% increase in general damages awarded to them (eg. loss of amenity, pain and suffering etc).  In personal injury cases, a successful claimant will be able to recover costs from the defendant; an unsuccessful claimant will not be liable for the defendant’s costs.  This is known as qualified one way costs shifting.

The new regime will allow for contingency fees, currently outlawed.  The lawyer’s fee depends on the amount of damages awarded (eg. the lawyer charges 50% of the amount awarded by way of damages).  There will be a cap of 25% in personal injury cases.  The contingency fee will not be recoverable from the unsuccessful party.  Any recovery will be assessed on the usual basis. 

This is intended as an overview of the proposed changes.  There is much greater detail in the government’s response. As ever with costs, we know your concentration can only last so long.

• London Borough of Southwark –v- IBM UK Limited [2011] EWHC 549

Southwark Council approached IBM to provide software to harmonise and improve data it held about individuals and property.  IBM suggested that the Council should use Arcindex software provided by a third party, Orchard, although it did not advise in relation to that aspect.  IBM recommended that its own software should run alongside Arcindex.

The Council placed an order with IBM for its software and Arcindex.  The contract provided that the Arcindex software would be of satisfactory quality and in conformance with the contract specifications.  Crucially, the contract also said that the licence to use Arcindex was between the Council and Orchard and any warranty was to be given by Orchard.  IBM excluded implied conditions and did not give any warranty in relation to Arcindex.

The project was not a success and was eventually abandoned.  The Council sued IBM, alleging that the Arcindex software was of unsatisfactory quality and unfit for purpose.  The court held that the question of whether the quality was satisfactory would depend on whether the software met the contractual specifications. 

The Sale of Goods Act 1979 was not relevant because the software was licensed so there was no sale.  The judge also queried whether software could be classed as “goods”.

The court held that the exclusion clause inserted into the contract by IBM was reasonable within the meaning of the Unfair Contracts Terms Act 1977.  The parties were of broadly equal bargaining power, each negotiated through lawyers and the Council had decided to contract with IBM even though it knew Orchard was supplying Arcindex.

The court dismissed the Council’s claim. 

• Tim Russ & Co –v- Robertson, Unreported

Cases about estate agents fighting among themselves rarely generate huge amounts of sympathy for the protagonists.  So it is with this case.

Tim Russ & Co is an estate agency based in Buckinghamshire.  It employed an estate agent named Robertson in 2006.  In early 2007, Tim Russ gave its employees an updated employee handbook and asked them to sign new terms incorporating a 12 month non-compete covenant.  Robertson was not included, although he was given a copy of the terms (which he did not sign) when he completed his probationary period shortly afterwards.

In early 2011 he left Tim Russ and set up an estate agency within the 5 mile radius of the non-compete restriction.  Tim Russ claimed that he had taken confidential information about customers and had solicited another employee to leave as well.

The court held that the new terms were part of the handbook which Robertson received when he completed his probationary period, so they were binding on him. The court was satisfied that Robertson had approached Tim Russ’s clients and that he was therefore in breach of the non-compete clause.

The court stressed that a claimant alleging breach of confidence had to meet a high standard of proof.  In this case, there was plenty of evidence that Robertson had the motive and the opportunity to take Tim Russ’s confidential information but there was no evidence that he had taken anything other than his own Outlook contacts list.  That, however, was enough to breach the non-compete clause.

The court considered the reasonableness of the restrictive covenant.  Whilst it held that 5 miles was reasonable in these circumstances, most of Robertson’s work for Tim Russ did not involve recurring work for existing customers, so on that basis the covenant was too wide in its scope.  It was therefore an excessive restraint of trade an unenforceable.