Companies House publishes changes to PSC regime

Companies House has published a news story describing upcoming changes to the PSC regime. The Department for Business, Energy and Industrial Strategy ("BEIS") issued a consultation on this in November 2016 but has not yet published a response. If the news story is accurate, we assume that BEIS will confirm these changes in due course.

In summary, the webpage states the following:

  • From 26 June 2017, entities that keep a PSC register will need to register changes to their PSCs within 14 days using Companies House forms PSC01 to PSC09 (rather than annually, as at present). This differs from the period of six months suggested in the consultation.
  • At the moment, companies subject to Rule 5 of the Disclosure Guidance and Transparency Rules (DTR 5) do not have to keep a PSC register. From 26 June 2017, some of these companies will have to start doing so. The webpage states that companies traded on an "EEA or Schedule 1 specified market" will remain exempt, which suggests that BEIS has decided to implement its proposal to remove AIM and NEX Growth Market issuers from the scope of the exemption.
  • From 24 July 2017, "active" Scottish limited partnerships and Scottish general partnerships, where all of the partners are corporate bodies, will need to keep a PSC register.
  • Currently, individuals can apply to stop their personal details being disclosed, other than to certain public authorities and credit reference agencies. This will be extended to allow information to be provided to financial institutions for customer due diligence. No date is given for this change.

The webpage can be found here. The announcement raises certain questions which we hope BEIS will clarify in due course through draft regulations. We will report on this when we know more.

Contractual trigger was not void for uncertainty

In Kitcatt and others v MMS UK Holdings Limited and another, the High Court held that a contractual trigger for payment of part of a purchase price was not too uncertain to be enforceable.

What happened?

In 2011, the Kitcatt Nohr advertising business was sold by several individuals to Publicis Groupe. Publicis intended to merge Kitcatt Nohr with its existing Digitas business. Part of the purchase price was to be paid later and calculated based on the performance of the merged business.

In this regard, Publicis warranted that it was not aware of any circumstances that could reasonably be expected to have a material adverse impact on "the Operating Income and/or Revenue in 2012 or 2013 (being a reduction of at least 20% in the case of Operating Income and 10% in the case of Revenue)".

The individual sellers claimed Publicis had breached this warranty, because it knew Digitas was about to lose a significant amount of work from its main client. Publicis argued the warranty was void for uncertainty, because it provided no "baseline" against which to compare.

The court disagreed and upheld the warranty claim, noting that the background to the warranty was important. Publicis had conducted due diligence on Kitcatt Nohr, but the individual sellers had been given little information on Digitas. The warranty was therefore an important part of the overall deal.

Practical implications

The case shows that a court may be prepared to examine the parties' "reasonable expectations" when interpreting a warranty. Although the judge applied conventional principles of contractual construction, the decision shows that a court will, in the right circumstances, look at the totality of an acquisition or disposal when deciding what the parties have agreed.

On a side note, the judge also suggested that, even if the warranty had not defined material adverse impact by reference to a specific figure, it would have been an "extreme conclusion" to say that it would have been void. This gives comfort that material adverse change (MAC) and material adverse effect (MAE) provisions, which are increasingly found in sale agreements, will be upheld.

Claim against fraudulent director was not time-barred

In First Subsea Ltd v Balltec Ltd and another, the Court of Appeal held that a person who competed against a company of which he was a director could not use the Limitation Act to avoid a claim for breach of fiduciary duty.

What happened?

In this case, a difference of opinion arose between First Subsea's directors over its future direction. One of the directors subsequently formed a rival company to bid against First Subsea in a tender. The director's actions were a clear breach of his fiduciary duties to First Subsea.

However, the director's actions took place in 2004. Therefore, the question was whether First Subsea's claim against the director was now time-barred. Section 21 of the Limitation Act 1980 states that a claim against a trustee for breach of trust must be brought within six years. It gives two exceptions to this, one being where the trustee has acted fraudulently.

The director argued that, as a mere director, he was not a "trustee" for the purpose of section 21. This would mean that the fraud exception to the six-year limit would not apply and the claim would be out of time under different provisions of the Limitation Act.

However, the court disagreed and said that, for the purposes of section 21, the word "trustee" includes a company director. The court was also satisfied that the director knew he was acting contrary to First Subsea's interests and so had committed a fraudulent breach of trust. The claim was allowed.

Practical implications

This decision gives welcome clarity over the nature of a director's relationship with a company. Fraudulent breach of trust can be difficult to prove. In this instance, it was evident the director knew he was acting contrary to the company's interests, but not all cases will be as clear-cut.

However, where there is a clear and knowing breach of duty, companies should examine their potential options closely and not assume that historic breaches can no longer be challenged.

Exclusion clause not void solely because it extended to death or PI

In Goodlife Foods Limited v Hall Fire Protection Limited, the court held that a clause was not void merely because it purported to exclude liability for death or personal injury resulting from negligence.

What happened?

Under the Unfair Contract Terms Act 1977, a term that excludes or limits liability is enforceable only if it is reasonable. In addition, it is not possible to exclude or limit liability for death or personal injury (PI) if it results from negligence. A clause that attempts to do this will be void, unless the court can sever any offending words and leave the rest of the clause intact and reasonable.

In this case, one party tried to exclude its liability using the following wording:

"We exclude all liability, loss, damage or expense consequential or otherwise caused to your property, goods, persons or the like, directly or indirectly resulting from our negligence or delay or failure or malfunction of the systems or components provided [...] for whatever reason."

Strictly read, this clause attempted to exclude liability for PI arising from negligence, because the reference to damage caused to "persons" could only really refer to PI. Furthermore, it did not specifically carve out liability arising out of negligence, and the court could not delete any words to achieve that effect without rendering the clause senseless.

However, the court made two key points. It said it would be odd for parties to purport to limit a liability that, by law, cannot be limited. In this case, had there been no specific reference to "persons", it seems the court would have held that the clause did not restrict liability for death or PI arising from negligence.

Moreover, even if part of a clause does try to exclude liability for death or PI arising from negligence, this alone would not render the clause unreasonable, because that part of the clause would be invalid from the start and so could not be assessed for reasonableness.

Practical implications

The decision is sensible. Since the HIH Casualty case, it has been clear that the courts will assume the parties to a contract do not intend to limit liability for fraud, because this is not possible under English law. This is true even if a clause would, if strictly read, limit a party's liability for fraud.

The decision in Goodlife appears to extend this approach to liability for death and PI arising from negligence and should, in theory, apply to any other type of liability that cannot be excluded.

This does not avoid the need for parties to a contract and their advisers to take great care when drafting liability limitation and exclusion clauses. Courts will still interpret them narrowly, and any limitation or exclusion of liability must be very clear. But it should at least remove the burden of including specific carveouts for a range of types of liability throughout the contract.