Read March’s key insights from our business law experts

Insights - 17/03/2017

Heads of terms – no rush of blood

by Louise Fegan

If you’re entering into negotiations for a new corporate transaction, it is often advisable to formalise your discussions with Heads of Terms (“HoTs”).  HoTs are also commonly known as letters of intent, memoranda of understanding or heads of agreement.  Before rushing to document your agreement you should consider instructing solicitors to assist you.

What are Heads of Terms?

HoTs comprise a document that outlines the main commercial terms agreed between the parties relating to the transaction.  Except where specifically provided, HoTs are not legally binding. They are, nevertheless, seen to have ‘moral force’ and can, therefore, be commercially binding on the parties.

Commercial terms agreed in HoTs typically include what is being bought, price and payment terms, agreed timetable, responsibilities of the parties and details of any conditions.

Benefits of Heads of Terms

Entering into HoTs evidences serious mutual intent by the parties and can help focus the negotiations, bring out any misunderstandings and highlight initial issues. If prepared, Heads of Terms can provide certainty on the key terms of the transaction and will be the basis of your negotiations moving forward.

Dangers of using Heads of Terms

Due to the non-legally binding nature of HoTs, there is a risk that, without proper advice, they can be created overzealously and become unhelpful (as the moral force can limit room for manoeuvre).

If not carefully drafted, issues can also arise from a lack of certainty.  For example:

“A second payment of £50,000 will be payable by the Buyer to the Seller if the Company achieves £250,000 in year 1.”

This example term appears straight forward, but what exactly does it mean?

1. Does “achievement” mean turnover or profits?
2. If £250,000 isn’t “achieved”, will there be a proportionate reduction or will the Seller lose the whole £50,000?

Failure to take legal or accounting advice on HoTs could also mean that the structure of the transaction is non-compliant with legislation or is tax inefficient.  Taking advice early can be critical in ensuring that the interplay between all drivers (commercial, legal and tax) are dealt with early on and underpin the structure going forward.

Heads of Terms may not be suitable for every transaction, but if you do wish to formalise your negotiations, then we recommend a carefully thought-through and well-drafted document is produced by solicitors to avoid uncertainty and regulatory issues later down the line.

Should you have any questions or require help or assistance in relation to these issues please feel free to contact your usual advisor or Louise Fegan by phone 01737 854504 or by email [email protected]

 

Employment update: Increases to statutory pay caps & employment tribunal decisions now online

by Emma McLoughlin

This year’s increases to statutory pay caps are expected in April

Businesses contemplating a restructure of its personnel should note the annual increase to statutory redundancy pay which will take effect from 6 April 2017.  Therefore, if you are budgeting for the costs of a restructure taking place after this date, you may need to add up to a little over 2% to those costs for employees with two or more years service and so entitled to statutory redundancy pay.

The headline rate increases are as follows:

1. From 1 April 2017, the National Living Wage will rise by 30p to £7.50;
2. From 2 April 2017, the Statutory Maternity Pay ‘prescribed-rate’ (which applies after the ‘earnings-related rate’ of 90% of employee’s weekly earnings has been exhausted after 6 weeks) will increase by £1.40 per week to £140.98;
3. From 6 April 2017, the (ordinary) unfair dismissal compensation cap will increase by £1,579 to £80,541 (or 52 weeks’ actual gross pay, whichever is lower); and
4. From 6 April 2017, the maximum weekly redundancy pay will increase by £10 to £489.

If you would like further information on all the increases to rates and limits, including those relating to pensions, please email [email protected] requesting a copy of our ever popular Key Facts Leaflet 2017/2018 which contains all the details as well as a redundancy pay calculator.

Employment Tribunal decisions now available to read online

The GOV.uk website will now host all the written Judgments of the Employment Tribunal.  Previously they were only available in person at offices in Bury St Edmunds where the decisions are centrally stored.  A filter feature on the site will make it easier to narrow down your search.  Judgments prior to 2015 are not yet on the site but will be over time.

While some might argue that this is a leap forward in terms of transparency, there are concerns that unfair reputational damage could be done to a party on the wrong end of a widely publicised Employment Tribunal decision which is then overturned on appeal.  The parties may even be tempted to sensationalise the facts in support of their case in order to leverage a deal.

Parties will also need to assess the risk that a tribunal may deal insensitively with sensitive facts and if the risk is high, it could force a party to settle rather be exposed in that way by going to trial.

In any event, we expect a cottage industry to develop in trawling through Judgments to mine and sell a statistical analysis of the data. For example, how often a particular employer has been a defendant and lost; or whether a job applicant has made a tribunal claim against a previous employer.  If an employer knows that its stats are prejudicial, it may fear an employment judge aware of such stats will be less likely to find in its favour. Again in these circumstances the party may try to settle rather than defend a claim.

Should you have any questions or require help or assistance in relation to these issues please feel free to contact your usual advisor or Emma McLoughlin by phone 0208 9711070 or by email [email protected]

 

Money, money, money…not at all funny in litigation

by Catherine Fisher

If you have instructed lawyers in the past to handle a dispute you will know that a key issue at the outset of anticipated litigation is not whether the law is on your side or if you can prove your claim, but whether you can afford to bring the claim.  Every business owner knows that there are plenty of ways to fund a claim, but none of them is a free lunch, and how much you spend litigating – and how much of that you’re likely to get back – is a key factor in deciding whether to issue a claim or not.

The uncertainty over the recoverability of legal costs (not to mention the size of your lawyer’s bill itself) has been at the heart of recent reforms including the introduction of the requirement for lawyers to produce costs budgets.  The current plans also include the introduction of fixed recoverable costs at some point in the next 18 months.

Costs budgets are marmite to lawyers.  Most of us love them, because it gives us the chance to plan, strategize and allocate resource properly; but some hate them, because the historic inconsistency by judges in approving, reducing or amending costs budgets has been profoundly unhelpful.  At the end of case, it is the job of a costs judge to go over the costs with a fine-tooth comb in a process known as Detailed Assessment.  For a while now, a row has been brewing between judges over the extent to which the costs budget binds the costs judge.

Some clarity on this issue has been provided in the recent High Court decision in Merrix v Heart of England NHS Foundation Trust [2017] EWHC 346 (QB).  The court held that the costs judge should not depart from the last approved budget unless satisfied that there is good reason to do so.  This applies even if the winner claims a sum equal to or less than the budgeted figures.  Unfortunately, we still don’t have guidance on what a “good reason” looks like, and the judge (Mrs Justice Carr) explicitly said that the Court of Appeal needs to look at this issue and in fact, it is due to do so in May.

What does all this mean?

Litigants must be prepared to spend considerable time and effort on getting their costs budget right at the case management stage.  The skills of your lawyer in preparing the budget and arguing in its support will be vital to getting it agreed.  In my view, there will be considerable pressure to settle after the costs case management hearing if a party’s budget is significantly reduced by the court.

Should you have any questions or require help or assistance in relation to these issues please feel free to contact Catherine Fisher, Partner & Head of Dispute Resolution, by email [email protected] or telephone 01483 215357.

 

 

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.