Keep on running: the VW Saga

Photo by Felix on Unsplash

‘Dieselgate

The picture above tells a story: it is a throwback to the glory days of the Volkswagen Corporation. Like my father before me, I’m a big fan of VW cars having been the owner of quite a few of the Corporation’s models. They were all terrifically reliable cars and I have no axe to grind here. What I should say is that none of my cars had a diesel engine.

VW cars with diesel engines are significant here because, in recent times, the manufacturer deliberately marketed them as environmentally friendly. Consumers could, therefore, purchase diesel cars from VW with something amounting to a clear conscience because they were not as bad for the environment as some of the older models.

Several years ago, VW was exposed for deliberately falsifying its data about the impact of environmentally harmful emissions caused by its diesel engines. It was a huge scandal and regulatory authorities in the United States of America imposed huge fines on the Corporation. Consumers in the USA also decided to pursue class legal actions against VW on the grounds of these patently fraudulent misrepresentations.

The scandal somewhat predictably and unimaginatively gained the moniker ‘Dieselgate’ and its ramifications were soon felt in the United Kingdom (of which we shall touch upon shortly in this Blog).

Yes, Dieselgate is back in the news. The scandal of VW deliberately falsifying emissions data in respect of its diesel engine models was a topic of debate at a class action hearing before the English High Court yesterday.

In Anthony Joseph Champion Crossley & Ors v Volkswagen Aktiengesellschaft and Others [2019] EWHC 783(QB), Mr Justice Waksman has determined that VW did insert what has become known as a ‘defeat device’ in its diesel engines. This device was rigged to ensure that when emissions tests were being carried out, a lower reading would be recorded. This would allow VW to claim that such diesel engines were much more environmentally friendly.

This is only a first, but important step, nonetheless, for purchasers and users of VW vehicles. The crux of the matter will be whether the emissions data published by VW was a material factor behind the decision of drivers to choose the manufacturer’s products. Cars are purchased for a multitude of reasons and it will be of critical importance for the consumers in this class action to demonstrate that environmental factors were a major reason for their decision to choose vehicles manufactured by the VW group.

A link to Mr Justice Waksman’s judgement and link to a BBC article about it can be found below:

https://www.judiciary.uk/judgments/anthony-joseph-champion-crossley-ors-v-volkswagen-aktiengesellschaft-and-others/

UK drivers win first round in VW ‘dieselgate’ case

The High Court rules that the German firm installed ‘defeat devices’ in vehicles to cheat emissions tests.

Categories of misrepresentation

Misrepresentation comes in three sizes:

  • Innocent – the false statement is honestly made
  • Negligent – the false statement is carelessly made
  • Fraudulent – there is conscious dishonesty and the false statement is deliberately made.

If you are still in any doubt, VW’s claims about its diesel engines falls very much into the category of fraudulent misrepresentations.

This takes into the area of contract law known as misrepresentation i.e. where one party makes a false statement which induces or encourages the other party to enter a legally binding agreement. The false statement is the clinching factor in that it persuades or influences someone to enter a contract.

We have to be careful, however, because false statements of themselves do not necessarily affect the validity of contracts. A party might say something that is false, but it may have absolutely no bearing on the other person’s reasons for entering the contract.

The legal consequences of misrepresentation

A misrepresentation has the potential effect of making a contract voidable i.e. it may provide grounds for cancelling the agreement.

If an innocent party brings a successful claim for misrepresentation, she has a number of remedies:

  • Restitutio in integrum or rescission – where the parties are returned to their pre-contractual positions – if this is possible; and/or
  • Damages – in Scotland, this is only possible for negligent and fraudulent misrepresentations. Under English law, the Misrepresentation Act 1967 permits an innocent party to sue for damages in respect of an innocent misrepresentation.

There is nothing to prevent an innocent party upholding the flawed agreement and suing for damages (as in the well known Scottish case of Smith v Sim 1954 SC 357 where the new owner of a pub sued the previous owner for falsely inflating the turnover figures for the business, but critically he decided to keep the property).

When discussing the consequences of misrepresentation, I often highlight a number of cases where a false or misleading statement was made but, ultimately, this had little or no bearing on the other person’s decision to enter the contract.

In Attwood v Small (1838) 6 Cl & Fin 232, the owner of a mine made deliberately fraudulent statements about its production capacity. The prospective purchaser of the mine was not in the least bit swayed or influenced by these misrepresentations. Why? He decided to bring in his own surveyor to evaluate the capacity of the mine. The surveyor’s conclusions were broadly in accordance with that of the mine owner. Critically, however, it was the surveyor’s conclusions which persuaded the purchaser to enter the contract – not the original misrepresentation. The contract was not voidable and would stand. The purchaser, of course, would have a potential claim against the surveyor for negligence.

In Smith v Chadwick (1884) 9 App Cas 187, an action was brought by Smith, a steel manufacturer, against Messrs Chadwick, Adamson and Collier, who were accountants and promoters of a company. Smith claimed an amount of money as losses caused as a result of his decision to buy shares in the company, which were worth much less than what he had originally paid. The basis of Smith’s claim was that the company prospectus issued by Messers Chadwick, Adamson and Collier had contained several instances of false information. Among the misrepresentations that Smith identified was the statement that a particular Member of Parliament was a director of the company. In fact, this particular individual had withdrawn from the company the day before the prospectus was issued.

Held: the statement about the Member of Parliament – though clearly false – was not material because Smith had never heard of this individual. His decision to buy shares in the company had not been influenced in any way by this piece of information. Consequently, his action for damages was dismissed by the court.

Conclusion

Yesterday’s decision of the English High Court in Anthony Joseph Champion Crossley & Ors v Volkswagen Aktiengesellschaft and Others [2019] EWHC 783(QB) is only a first, but important step for purchasers and users of VW vehicles in the UK.

The crux of the matter will be whether the emissions data published by VW was a material factor behind the decision of drivers to choose the manufacturer’s products. Cars are purchased for a multitude of reasons and it will be of critical importance for the consumers in this class action to demonstrate that environmental factors were a major reason for their decision to choose vehicles manufactured by the VW group.

Related Blog Articles:

https://seancrossansscotslaw.com/2019/03/16/if-only-everything-in-life-was-as-reliable-as-a-vw/

https://seancrossansscotslaw.com/2019/12/02/dieselgate-or-truth-through-engineering-or-vorsprung-durch-teknik/

Copyright Seán J Crossan, 7 April 2020

Written statements of employment

Screen capture by Seán J Crossan

In the UK, the beginning of April is always an important period for employment lawyers because the British Government and/or the Westminster Parliament typically introduce new laws which directly impact on people’s terms and conditions of employment.

There is no such thing as one document which contains all the terms of an employment contract – something that my students and members of the public have difficulty understanding at first. It is important to grasp from the outset that there are various sources of the employment contract which include, amongst other things:

  • The written statement of the main terms and conditions of the contract (as per Section 1 of the Employment Rights Act 1996)
  • Employee handbooks (e.g. available on employer’s intranet)
  • Employer’s policies and codes of conduct (e.g. disciplinary codes)
  • EU Laws, Acts of Parliament and statutory instruments (e.g. Employment Rights Act 1996, Equality Act 2010, TUPE Regulations 2006, Equal Treatment Directives)
  • Judicial precedent and the common law (e.g. Walker v Northumberland County Council 1 AER 737)

Today new rules come into force about the written statement of the main terms of employment. Previously, only employees were entitled to receive such a document which had to be issued by an employer within 8 weeks of the commencement of employment (as per Section 1 of the Employment Rights Act 1996). Now, an employer must issue a written statement to both employees and workers from or before day 1 of their employment or engagement.

The written statement will contain important information about the contract of employment, such as:

  • The employee’s name
  • The employer’s name
  • Date when employment commenced and period of continuous service
  • The rate of pay and how often the employee is paid
  • Working hours
  • Holiday entitlement
  • Sick pay entitlement
  • Pensionable service and details of employer’s pension scheme
  • Notice requirements
  • Job title or brief JOD description
  • Whether the job is permanent/temporary/fixed term
  • The location of the employee’s place of work
  • The existence of collective agreements and how they affect the contract
  • Arrangements for working outside the UK (if relevant)
  • Details of disciplinary and grievance procedures

Furthermore, as a result of today’s changes to the law, the written statement must also address the following matters:

  • The hours and days of the week that the employee/worker must work for the employer and whether they can be changed and the mechanism for doing so
  • Entitlement to any paid leave
  • Entitlement to contractual benefits which have not already been addressed in the written statement
  • Probationary periods (if relevant)
  • Training opportunities provided by the employer

The legal status of the written agreement

The written statement is not the contract of employment itself because no single document could possibly encompass all the terms of such an agreement. There is nothing to stop the parties adopting the statement as the contract of employment, but it is important to understand that it can be varied or altered as a result of legislative changes, court decisions and collective agreements.

As of today, entitlement to leave for bereaved parents is being introduced; increases to the National Minimum and Living Wages come into force; and increases to a range of statutory payments are also taking place. With all of this going on, it would be very difficult – if not impossible – for any written statement to express the totality of the employment contract in any meaningful sense.

Failure to issue a written statement

Section 38 of the Employment Act 2002 gives employees the right to pursue an Employment Tribunal claim against an employer for failure to issue a written statement. This type of claim would usually be brought by an employee as part of another claim against the employer e.g. dismissal or discrimination claims. In such an instance, the employee would state on the Tribunal application (the ‘ET1’) that the employer had failed to issue written terms. It is always worthwhile submitting this type of claim as part of the bigger picture of the employee’s grievance because an Employment Tribunal could issue an award worth up to 4 weeks’ wages.

Any employee who is dismissed by the employer for requesting their statutory right to receive a written statement will have the right to pursue a claim for unfair dismissal in terms of the Employment Rights Act 1996.

An example of an extract taken from an ET1 form can be seen below:

Fictional example of an Employment Tribunal claim by Seán J Crossan

Employment status

The right to receive a written statement was, previously, a very important indication of a person’s employment status i.e. whether they had a contract of service in terms of Section 230 of the Employment Rights Act 1996 – as opposed to a contract for services.

In the leading House of Lords’ decision – Carmichael v National Power plc [2000] IRLR 43, two women who were engaged on casual as required contracts as tour guides at the (now demolished) Blyth Power Plant in Northumberland were not entitled to receive written statements of employment because they were engaged under a contract for services. There was no mutuality of obligation between the parties in that National Power was not obliged to offer the women work and the two women, if offered work, were not obliged to accept it. With today’s changes to the Employment Rights Act 1996, the two women in Carmichael would now be entitled to receive a written statement.

A link to the UK Government’s website which provides (free) access to a blank template for employers to generate their own written statement can be found below:

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/183185/13-768-written-statement-of-employment-particulars.pdf

Related Blog Article:

https://seancrossansscotslaw.com/2019/02/11/employment-contracts-read-them-or-weep/

Copyright Seán J Crossan, 6 April 2020

Right to refuse?

Thanks to @beamomatic9000 for making this photo available freely on @unsplash 🎁

The COVID-19 crisis continues to throw up some interesting legal questions e.g. employment rights, EU freedom of movement rights, frustration of contract etc.

One area which seems somewhat overlooked is in relation to the actions of many retailers – principally supermarkets and grocery stores – which have been restricting sales of particular items. The items in question include soap, hand gel and sanitiser, bleach, anti-septic wipes, paper towels and even toilet rolls.

The COVID-19 situation has led to panic buying of these essential hygiene items and supermarkets have imposed clear limits on their sale.

Can supermarkets and other retailers impose these sorts of restrictions?

This, of course, takes us back to the basic rules governing the formation of a contract. Retailers are especially guilty when applying the term ‘offer’ to the goods which they stock. It is no such thing: goods on the shelves; on display; or in shop windows are invitations to treat. It is the the customer who is being invited to make the offer (see Fisher v Bell [1961] 3 ALL ER 731 where the English Court of Appeal ruled that a knife displayed in a shop window was not being offered for sale, it was merely an invitation to treat. Lord Parker, the Chief Justice being particularly emphatic on this point).

In the seminal case of Pharmaceutical Society of Great Britain v Boots Cash Chemists [1953] 1 QB 401, the judges of the English Court of Appeal helpfully distinguished between an offer and an invitation to treat. The case arose as a result of a provision in the Pharmacy and Poisons Act 1933 which stipulated that the sale of certain medicines must take place in the presence of a registered pharmacist.

Boots Chemists operated a self service system whereby it’s customers were able to place the medicines which they wished to purchase in their shopping baskets. The key question was whether Boots was breaking the law by allowing customers to do this. In other words, was the sale completed when the customer placed the medicines in their baskets? Now, if goods on shelves were to be regarded as ‘offers’, Boots would indeed be breaking the law because customers would be deemed to be ‘accepting’ these ‘offers’ by placing the goods in question in their baskets.

If, on the other hand, the sale was concluded elsewhere i.e. at the cash register where there was always a registered pharmacist on duty, Boots would be fully complying with the Act.

The Court of Appeal concluded that it was the customer who made the offer by presenting the goods at the cash register. The sales assistant (properly supervised by the pharmacist) could conclude matters i.e. accept the offer by ringing the sale up on the cash register. Furthermore, it was always open to the assistant to refuse the customer’s offer. Goods on shelves were, therefore, merely an invitation to treat.

In more normal times, a customer’s offer would and should be refused by retailers because they are an underage person who is attempting to purchase e.g. alcohol, cigarettes or video games or DVDs which are age specific.

So, in this way, retailers are generally within their rights to impose strict limits on the numbers of certain items that customers wish to purchase. The customer can offer to buy 20 bottles of hand gel or sanitiser, but the store will have the right to refuse.

Presently, retailers are putting these sorts of restrictions into place in order to protect and promote public health by giving as many customers, as possible, reasonable access to basic hygiene products. If we co-opt the language of the Equality Act 2010, retailers are putting restrictions in place because these are a proportionate means of achieving a legitimate aim. So, hopefully, such restrictions – if fairly implemented and monitored – will not be subject to a legal challenge on grounds of discrimination.

Related Blog Articles:

https://seancrossansscotslaw.com/2019/12/06/tis-the-season-of-special-offers/

https://seancrossansscotslaw.com/2019/03/27/special-offers/

https://seancrossansscotslaw.com/2019/03/14/too-good-to-be-true/

Copyright Seán J Crossan, 26 March 2020

Crazy days! Force majeure & frustration!

Photo by Adam Azim on Unsplash

I never thought that the subject of impossibility and frustration in relation to contract would become such a popular topic of everyday conversation; but it has.

The phrase “force majeure” has also been making more of an appearance than is commonly the case.

Why?

The continuing fallout from Coronavirus or COVID-19 has led to all sorts of sporting and cultural events being cancelled or postponed. We are also about to enter the holiday season with the Spring Break and Easter Weekend just over the horizon. Many people will have booked getaways to foreign climes and events have now completely overtaken such plans.

Critically, thousands of people will have paid something up front for football season tickets and holidays and they will be anxious to know where they stand legally.

Hearts owner Ann Budge says she would consider legal action should her club be relegated from the Scottish Premiership with eight games left:

Coronavirus: Hearts would seek legal advice if relegated

So where do they stand legally?

There are two ways of dealing with an unexpected situation which affects contractual performance: being reactive or being farsighted.

At the moment, the scale of COVID-19 has completely taken Governments, societies, business, cultural, sporting organisations and individuals completely by surprise. So, in a sense, we are being forced to react to changing circumstances and rely upon established legal contractual principles which govern the termination of agreements i.e. frustration, impossibility and illegality. More about these matters shortly.

As lawyers, could we have pre-empted or foreseen that events (I’m speaking in the general sense here) might render contractual performance highly unlikely or well nigh impossible? Well, yes the concept of Force Majeure clauses is recognised in contract law – although the linguists amongst us may recognise that it’s not a native species of English or Scots law.

words ‘force majeure’ are not words which we generally find in an English contract. They are taken from the Code Napoleon and they were inserted by this Romanian gentleman or by his advisers, who were no doubt familiar with their use on the Continent.”

In the English case of Matsoukis v Priestman [1915] 1 KB 681 Bailhace J in English High Court noted that the:

Bailhace J was of the view that force majeure clauses could cover events such as industrial action, but certainly not bad weather or football or funerals.

Yet in the later English High Court decision Lebeaupin v Richard Crispin [1920] 2 KB 714, force majeure was given a much broader meaning to include events such as war, bad weather, industrial action and, interestingly, epidemics. That said McCardie J was at pains to point out:

A force majeure clause should be construed in each case with a close attention to the words which precede or follow it, and with a due regard to the nature and general terms of the contract. The eect of the clause may vary with each instrument.

Essentially, such clauses are inserted into contracts to deal with the consequences of events outwith the control of the parties which may render performance of the contract impossible.

Ross Campbell of Brodies Solicitors who has pointed out that the rules of last year’s Rugby World Cup tournament in Japan contained a force majeure clause addressing the cancellation of matches due to extreme weather. The clause was not utilised and, therefore, not challenged, but it’s an interesting example of how parties to an agreement might attempt to address situations which can have serious consequences for contractual performance.

A link to Ross Campbell’s article can be found below:

https://brodies.com/blog/dispute-resolution/the-power-of-force-majeure-clauses/

The very phrase force majeure conjures up images of an unstoppable force that sweeps away the accepted rules or conventions – almost akin to the idea of damnum fatale or an act of God.

So whether, will the courts permit the application of a force majeure clause will turn on the wording of the clause.

Could anyone have predicted the situation that we are now in with COVID-19 and drafted an appropriate clause to address these unprecedented times? It’s extremely doubtful. I’m not pretending to be Nostradamus (or for our Scottish readers, the Brahan Seer or Thomas the Rhymer) when I predict that many lawyers and their clients will actively be looking at the usefulness of force majeure clauses.

Triggering a force majeure clause

For those parties wishing to rely upon force majeure clauses, drafting the term may be crucially important. It might be highly advisable to have a list of events or circumstances which trigger operation of the clause; and then have a catch-all provision or belt and braces term to cover things you might not have explicitly specified (as per McCardie J’s remarks in Lebeaupin v Richard Crispin [1920]. Be aware, however, that extremely wide catch-all provisions may be disallowed because they are not within the normal meaning of the term (see Tandrin Aviation Holdings Ltd v Aero Toy Store LLC [2010] EWHC 40 (Comm)).

Frustration, impossibility and illegality

Let’s now turn to situations where individuals have to react to unexpected events without having the benefit of a force majeure clause in the agreement.

Since the formation of a contract, circumstances affecting the agreement may have changed dramatically (i.e. the pandemic). The contract may now be impossible to perform or the contract may have been rendered illegal by changes in the law.

Physical destruction of the subject-matter of the contract can also frustrate contracts.

Perhaps one of the best known examples of frustration can be seen in the case below:

Taylor v Caldwell (1863) the Surrey Gardens and Music Hall was hired by the pursuers from the defenders for the purpose of holding four grand concerts and fêtes. Before the first concert on 17 June 1862 could took place, the hall was completely destroyed by fire. Neither party was responsible for this incident. The pursuers, however, brought an action for damages against the defenders for wasted advertising costs.

Held: By the English High Court that it was clearly impossible for the contract to be performed because it relied on the continuing existence of the venue. The pursuers claim for damages was dismissed on the grounds that the purpose of the contract had been frustrated.

In another case, Vitol SA v Esso Australia 1988 The Times 1 February 1988, a contract for the sale of petroleum was discharged on the grounds of frustration when both the ship and its cargo of petroleum were completely destroyed in a missile attack in the Persian Gulf during the Iran-Iraq War (1980-1988). The sellers had attempted to sue the buyers for the price of the goods, but this claim was dismissed.

The ‘coronationcases

Two famous cases which are particularly instructive are the ‘Coronation Cases’ because they concern the consequences of changing circumstances. Both cases arose due to the illness of King Edward VII. The new King was unable to participate or attend a variety of events to celebrate his accession to the British throne following the death of his mother, Queen Victoria.

The English Court of Appeal took different approaches in each of the cases:

Krell v Henry [1903] 2 KB 740 the pursuer was the owner of a flat in the central London district of Pall Mall. The pursuer’s flat was on the route of the proposed coronation procession of the new King, Edward VII, which was scheduled to take place on 26 and 27 June 1902. The pursuer had advertised his flat for rent during the daytime on 26 and 27 June for the purpose of viewing the procession. The defender, who was anxious to view the procession, responded to the advertisement and entered into an agreement to hire the flat on the days specified. An announcement was made on 24 June stating that the procession was to be cancelled owing to the King’s illness. The defender refused to pay the balance of the rent for the flat by reason that events had frustrated performance of the contract. The pursuer brought an action against the defender for payment of the balance of the rent.

Held: by the English Court of Appeal that the cancellation of the event frustrated the contract and discharged the parties from their obligations under it. The clinching argument in the defender’s favour was that both parties clearly entered into the contract with the same intention.

The reason behind the hire of the flat was, therefore, a material term of the contract. Had the defender failed to communicate his motivation for hiring the flat, then the contract would have remained capable of enforcement by the pursuer.

Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract. It was also important to identify the substance or the purpose of the agreement. In other words, did the parties share the same intentions?

The illness of King Edward resulted in a second legal action. This time, however, the English Court of Appeal took a completely different approach to the issue of frustration of contract.

Herne Bay Steamboat Co v Hutton [1903] 2 KB 683 the pursuers had entered into a contract to hire a steamship to the defender for two days. The Royal Navy was assembling at Spithead to take part in a naval review to celebrate King Edward’s coronation.

The King was to review the fleet personally. The defender wished to transport paying guests from Herne Bay to Spithead to see the naval review. Due to the King’s illness, an official announcement was made cancelling the review. It would still have been perfectly possible for the defender to take his passengers on a cruise to see the assembled fleet. The defender, however, refused to use the vessel claiming that the contract had been frustrated. The pursuers brought an action against the defender for the balance of the fee of £250 (a considerable sum in those times) owed by the defender who was refusing to pay for the hire of the boat.

Held: the contract was not discharged by reason of frustration. The main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet.

Why the difference in approach?

In Krell v Henry [1903], Lord Justice Vaughn-Williams was of the opinion that frustration of contract was not limited to either the destruction or non-existence of the subject matter of the contract.

The difference in Herne Bay Steamboat Co v Hutton [1903] was that the contract was the main purpose of the contract could still be achieved i.e. to take paying guests for a cruise around the fleet – despite the fact that King Edward VII would not be personally reviewing the fleet due to his unexpected illness.

This difference in approach taken by the Court of Appeal in both cases is sometimes difficult to understand. In Krell v Henry, both parties had clearly intended that the purpose of the contract was to view the coronation procession (which was postponed). Reinforcing this fact, was the fact that the defender was only entitled to use the flat during the daytime.

In Herne Bay Steamboat Co v Hutton, the purpose of the defender in hiring the steamship was to see the naval review, but this was not the purpose of the owners who were not the slightest bit interested why the vessel had been hired.

Lord Justice Vaughn-Williams compared the situation in Herne Bay Steamboat Co to someone who hires a carriage to go and see the Epsom Derby, but the outbreak of some unforeseen epidemic means that the races are cancelled. This makes no difference to the owner of the carriage who will still expect to be paid for the hire of his vehicle.

It will, however, be important to identify the substance or the purpose of the agreement. The cancellation of an event can frustrate the performance of a contract where that event is an absolutely material term of the agreement.

The limits of frustration …

Frustration can only be used to have the contract discharged in situations where neither party is to blame. When one party is to blame for the failure to perform his obligations under the agreement, this represents a breach of contract and the innocent party can raise the appropriate action.

Tsakiroglou v Noblee Thorl GmbH [1961] 2 ALL ER 179 the sellers had agreed to transport Sudanese ground nuts from Port Sudan in the Red Sea to Hamburg in Germany. The ship was to take the fastest route to Europe through the Suez Canal. This proved to be impossible because the Canal was closed as a result of military hostilities following the Anglo-French-Israeli invasion of Egypt causing the Suez Crisis in late 1956. The sellers would have to ship the goods around the alternative route of the Cape of Good Hope in South Africa. This meant that the distance the ship had to travel from Port Sudan to Hamburg was greatly increased and this would also mean a dramatic increase in the costs of carriage in respect of the goods.

Held: by the House of Lords that a party will still have a duty to perform a contract even if this means that performance is more difficult or expensive than was originally intended by the parties. The closure of the Suez Canal did not mean that the sellers’ duties were discharged by reason of frustration of contract.

Contracts for personal services

Such a contract is discharged by the death of the person who was to perform it. The incapacity of a person who is to perform a contract may discharge it. However, temporary incapacity is not enough unless it affects the performance of the contract in a really serious way. If an employee is killed or permanently incapacitated, it will be very difficult to argue that the employment contract should be allowed to continue. Employees who have had a lengthy prison sentence imposed on them by a criminal court may find it very difficult to argue against the employer’s proposition that the contract of employment has been terminated by reason of frustration.

Some words of warning: the courts may be unwilling to use frustration as a means of terminating an employment contract if other ways of achieving this result are available. This could occur in situations where it is possible for the employer to dismiss the employee entirely fairly by reason of a lack of capability (e.g. on grounds of ill health) as per the Employment Relations Act 1996.

Notable cases on frustration in connection with employment contracts include the following:

  • Davis Contractors Ltd v Fareham UDC [1956] AC 696
  • Marshall v Harland & Wolff [1972] IRLR90
  • G F Sharp & Co Ltd v McMillan [1998] IRLR 632

The purpose of the contract becomes impossible to perform

As we have seen, a situation involving the physical destruction of the subject-matter of the contract will discharge the parties from performance of their duties by reason of frustration. However, frustration can also occur in situations where physical destruction of the subject-matter of the contract may not be the issue.

Jackson v Union Marine Insurance Co (1874) LR 10 CP 125 the pursuer owned a ship which had been chartered to go with all possible speed from Liverpool to Newport for the purpose of loading a cargo bound for San Francisco. The pursuer had insurance with the defenders to protect himself in the event that the charter might be prevented from being carried out. The vessel was stranded whilst on its way to Newport. It was not refloated for over a month and could not be properly repaired for some time. The charterers hired another ship and the pursuer turned to the insurers. They suggested that the pursuer should sue the charterer for breach.

Held: the fact that the ship was stranded effectively frustrated the agreement’s commercial purpose and, therefore, the charterers were free to go elsewhere. The pursuer had no remedy against the charterers and was in turn entitled to seek compensation under the insurance policy.

Illegality

We are seeing the introduction of emergency powers legislation across the World in response to COVID-19 and this will undoubtedly have a huge impact on a range of contractual obligations. Many European Union countries have reintroduced border controls and curbs on free movement of persons which would normally be a clear breach of European Treaties (e.g. the Treaty on the Functioning of the European Union; the Treaty on European Union; and the Schengen Agreement), but these are not normal times. These drastic measures can all be justified on grounds of public security and public health – legitimate derogations or grounds for withdrawal from key EU legal principles. Travel and tourism will obviously be disproportionately affected by these restrictions.

Contracts can become illegal because Parliament introduces legislation to this effect. After the murder of schoolchildren and a teacher at Dunblane Primary School in 1996 by Thomas Hamilton, the British government made it illegal to own particular models of firearms. Therefore, anyone who entered a contract to purchase firearms shortly before the legislation was introduced could not force the supplier to perform the contract. If the buyer insisted on performance of the contract by the seller, the seller would be complying with his contractual duty, but he would also be breaking the law as the contract would be illegal.

Events can also make further or future performance of contracts illegal e.g. the outbreak of war. Two House of Lords’ decisions are excellent authority for this proposition –

Stevenson & Sons Ltd v AG für Cartonnagen Industrie (1918) AC 239 an English company, Stevenson, was in partnership with a German company acting as a sole agent to sell the German company’s goods. By continuing to carry on business with an enemy during wartime (the First World War had broken out), Stevenson would be committing a criminal act and there was no alternative but to have the partnership dissolved (see also Cantiere San Rocco SA v Clyde Shipbuilding & Engineering Co Ltd (1923) SC (HL) 105 where, again, the First World War had a similar effect on a contract between a Scottish company and an Austrian buyer of a ship).

Conclusion

The Coronavirus or COVID-19 is not merely a health issue – it has also become something of a legal minefield for society. This is where knowledge of the circumstances of termination of contractual obligations and performance is vital. The doctrine of frustration, impossibility and supervening illegality are highly relevant to this debate.

Doubtless, the use of force majeure clauses will become more common – especially, if as predicted, we are going to be experiencing further waves of disruption due to this pandemic.

Related Blog Articles:

https://seancrossansscotslaw.com/2019/02/10/frustration-of-contract/

https://seancrossansscotslaw.com/2019/03/25/locking-horns-frustration-of-contract-part-2/

https://seancrossansscotslaw.com/2019/11/23/pay-up-or-frustration-of-contract-part-3/

https://seancrossansscotslaw.com/2019/08/28/stormy-weather-im-at-the-end-of-my-tether/

https://seancrossansscotslaw.com/2020/02/25/welcome-to-austria/

Copyright Seán J Crossan, 18 March 2020

The sands of time (or prescription)

Photo by Immo Wegmann on Unsplash

Prescription: terror of the legal profession

When I discuss prescription with students for the first time, I usually can’t resist making the (admittedly) lame observation that it has nothing to do with going to see your General Practitioner for a medical appointment. Though, these last few days, I have been talking a lot about the Coronavirus or COVID-19 and the legal implications of this outbreak for sickness absence from work and eligibility for sick pay.

No, prescription has nothing to do with medicine and is a concept that all lawyers should be familiar with – indeed live in terror of perhaps?

I well remember one developer of legal software informing me that his case management system for personal injury claims had a feature which regularly provided a countdown towards the last possible date when a prospective claim must be submitted to the appropriate court with jurisdiction to hear the matter (so no excuses then?).

Lawyers who fall foul of prescription may well be opening a can of worms for themselves because the clients will almost certainly attempt to sue them for professional negligence.

If the principle of prescription is being deployed by the opposing side in a legal action, you (and your client’s case) may be in serious trouble.

In what way?

Essentially, you have not submitted the claim or complied with court procedures (e.g. deadlines for submission of documents/evidence) within the required time allowance.

In terms of the Prescription and Limitation (Scotland) Act 1973, most delictual (tort) claims must be brought within five years of damage to property. In terms of contractual actions, a pursuer or a claimant who is contemplating legal proceedings in Scotland will usually have 5 years from the effective date of the breach to submit a claim (the quinquennium).

On the other hand, personal injury claims must usually be lodged within three years of the date of the incident which caused injury (the triennium).

In England, the prescription period for contractual claims is 6 years and for most other claims the period is 3 years.

Time limits for submission of claims will be strictly adhered to – unless the Scottish courts deem it just and equitable to extend them.

Sometimes, certain claims – principally Employment Tribunal claims – must be submitted by the claimant in a very short space of time. Normally, for most employment claims (including discrimination claims), the claimant must submit an ET1 application to the Employment Tribunal within 3 months minus 1 day of the act that she is complaining about. If the dismissal from employment took place on 5 March, a claim for unfair dismissal must be submitted by 4 June – at the very latest – otherwise it will be time barred. Admittedly, for equal pay claims, longer time limits apply i.e. 6 months minus 1 day from the discriminatory act complained about.

Prescription is an extremely powerful weapon that can be used by an opposing lawyer to knock out another person’s claim. If prescription is relevant, then the merits of the case will simply not be discussed. The claim is time-barred and that is usually that (see the UK Supreme Court’s decisions in David T Morrison & Co Limited v ICL Plastics [2014] UKSC 48 and Gordon v Campbell Riddell Breeze Paterson LLP (Scotland) [2017] UKSC 75).

Out of time!

In two fairly recent cases before the Outer House of the Court of Session, the issue of prescription was successfully argued by the defenders’ legal teams.

In the first case – Brian Alexander Gracie v Edinburgh City Council [2019] CSOH 6 – an incident which had allegedly taken place in 1965 was time barred (unsurprisingly) on the grounds of prescription. More bizarrely, Mr Gracie, the pursuer himself admitted that he had little recollection of the incident and there was scant evidence to support his assertions in any event. Gracie was alleging that, while at school in the 1960s, the teaching staff had failed in their duty of care to him by permitting him to run out from the playground on to the road where he was hit by a car. Needless to say, his claim for a staggering £650,000 in damages was swiftly dispatched by the council’s lawyers.

A link to the decision of the Outer House in the above case can be found below:

https://www.scotcourts.gov.uk/docs/default-source/cos-general-docs/pdf-docs-for-opinions/2019csoh29.pdf?sfvrsn=0

In the second case – Midlothian Council v David Anderson Keith and others [2019] CSOH 29 – the council had built a housing development on land at Gorebridge which later turned out to be be dangerous because of gas leaks seeping from old coal mines at the site. The site was later demolished and rebuilt because of the risk to human health.

It had instructed a survey prior to the build and the engineering firm which carried this out had assessed the risk from gas to be very low. Due to this assessment, gas defences (e.g. a gas membrane) were not included in the build. In 2013, levels of gas harmful to humans were detected at a site property.

The council wished to sue the firm for allegedly providing negligent advice under their contract. The claim was dismissed by reason of prescription i.e. the contractual obligations between the two parties had become extinct. It’s worth noting that the engineers never accepted liability – the clinching argument of prescription made debate about liability completely irrelevant.

The disagreement between the two sides centred around the point at which the five year prescription period began. The engineering firm argued that it began when the development was completed (June 2009); the council responded by arguing that the critical date was when the high levels of gas were detected at the site (7 September 2013).

Lord Doherty clearly relied upon the UK Supreme Court decision in Gordon v Campbell Riddell Breeze Paterson LLP (Scotland) [2017] UKSC 75. The key date from which the 5 year prescription period should run was the date of completion of the housing development. His Lordship was firmly of the view that the key event was the date when the council placed reliance on the engineering firm’s assessment that it was safe to build on the site. This reliance could be pinpointed to a period between December 2007 and June 2009 i.e. when the development was commenced and completed. The action against the engineers (who never admitted liability) was commenced on 4 September 2018 – nearly 9 years after the development had been completed. The council’s claim was, therefore, dismissed.

A link to the decision of the Outer House in the above case can be found below:

https://www.scotcourts.gov.uk/docs/default-source/cos-general-docs/pdf-docs-for-opinions/2019csoh6.pdf?sfvrsn=0

Overriding prescription?

There is, however, a provision in Section 19A of the Prescription and Limitation (Scotland) Act 1973 which does permit a judge to override the normal rules about prescription. Claims which would normally be time barred may be permitted to proceed to a hearing under Section 19A if the judge believes that it is equitable to do so.

Such an approach was taken in the case of A v Glasgow City Council [2018] CSOH 116 which arose out of the events of the Glasgow Lorry Incident in December 2014. Relatives of the victims of this tragedy were permitted to proceed with their legal actions despite the relevant time limits having passed because it would not have been in the interests of justice to time bar the claims on a technicality.

A link to Lord Doherty’s Opinion in A v Glasgow City Council [2018] CSOH 116 can be found below:

https://www.scotcourts.gov.uk/docs/default-source/cos-general-docs/pdf-docs-for-opinions/2018csoh116.pdf?sfvrsn=0

Removal of the 3 year limitation period – historical child abuse claims

Sometimes Parliament will permit claims to proceed to court – even if they would normally be time barred or fall foul of prescription. This will be achieved by passing legislation and one recent example is the Limitation (Childhood Abuse)(Scotland) Bill.

Clearly, Parliament’s purpose in waiving the normal rules of prescription which are normally strictly adhered to by the Scottish courts is that it is just and equitable to do so. Put simply, the legislation is about righting an historic injustice.

On 14 March 2016, the Scottish Government published a draft Limitation (Childhood Abuse)(Scotland) Bill which was in response to the Consultation on the Removal of the 3 Year Limitation Period from Civil Actions for Damages for Personal Injury for In Care Survivors of Historical Child Abuse.

The draft Bill proposed to remove the triennium or 3 year time limit for cases of historical child abuse that allegedly took place after 26 September 1964.

This Bill was eventually passed by the Scottish Parliament becoming the Limitation (Childhood Abuse)(Scotland) Act 2017. It represents an exception to the normal rules regulating the limitation period for the submission to Scottish civil courts in relation to personal injury claims of this nature.

Conclusion

Time and tide wait for no one; delay is fatal; or tempus fugit (i.e.time flies) can all be applied to legal actions. If you don’t use it (i.e. your right to take court action), you lose it. This is quite sensible: it means that there is a natural cut off for legal actions and, consequently, the courts will not be swamped (well any more than they already are).

Another sensible viewpoint is that litigation should take place fairly quickly so that the evidence of litigants is fresh in the memory (the case of Brian Alexander Gracie v Edinburgh City Council [2019] CSOH 6 is an excellent illustration of this (see above).

Parties bringing claims to Scottish civil courts must be aware of the following:

  • The Triennium or 3 year period in which a claim for personal injury must be submitted; and/or
  • The Quinquennium or 5 year period in which contractual claims or delictual claims for property damage must be submitted.

Admittedly, Section 19A of the Prescription and the Limitation (Scotland) Act 1973 does allow Scottish judges to override the principle of prescription if it is just and equitable to do so.

Speaking of just and equitable grounds, the Scottish Parliament passed the Limitation (Childhood Abuse)(Scotland) Act 2017. This legislation represents an exception to the normal rules regulating the limitation period for the submission to Scottish civil courts of personal injury claims which involve historic child sex abuse allegations.

As a general rule of thumb, however, prescription remains the terror of the legal profession: get the client’s claim submitted on time or face a professional negligence claim.

Copyright Seán J Crossan, 6 March 2020

State of emergency

Photo by Markus Spiske on Unsplash

In a Blog published yesterday, I discussed the issue of entitlement to sick pay as a result of the Coronavirus or COVID-19 outbreak.

Related Blog article:

https://seancrossansscotslaw.com/2020/03/04/sick-pay-or-the-coronavirus-conundrum/

State of emergency

Governor Gavin Newsom of the US State of California declared a state wide emergency on Wednesday 4 March 2020 in order to counter the spread of the virus.

Please see a link below to an article in the Los Angeles’ Times concerning Governor Newsom’s announcement:

https://www.latimes.com/california/newsletter/2020-03-05/coronavirus-cruise-emergency-newsletter

How are the recent developments in California linked to events in the UK?

It should be recalled that Governor Newsom signed into law Assembly Bill 5 of 2019 in January of this year. You don’t remember this? Well, Assembly Bill 5 is better known as the Californian Gig Economy law which, in effect, gives thousands of workers employment status. Significantly, this means that many of these affected individuals will now benefit from greater levels of employment protection – including entitlement to sick pay.

Now, think about this: had the COVID-19 outbreak occurred last year, many Californian workers would have had absolutely no entitlement to receive sick pay if such individuals were forced to self-isolate or take time off because they had been infected. No doubt many of these workers turned employees will be breathing a huge sigh of relief that they are now covered by Assembly Bill 5.

Related Blog article:

https://seancrossansscotslaw.com/2020/02/13/california-dreamin/

The UK approach

Turning our attention to the UK, the British Government has taken a less generous approach to the issue of entitlement to sick pay. True, employees and other workers who already benefit from entitlement to statutory sick pay (SSP) should now be able to claim this from day 1 of sickness absence. It should be emphasised that this is a temporary measure justified on emergency grounds.

Previously, statutory sick pay was payable only from day 4 of the employee’s absence until Prime Minister Johnson’s announcement in the House of Commons on Tuesday 3 March 2020.

Jeremy Corbyn, Leader of the opposition Labour Party, immediately asked the PM if zero hours workers and self-employed individuals would have this benefit extended to them. The PM’s response to Mr Corbyn’s question will have disappointed many of these individuals. No entitlement to statutory sick pay for them. The problem for these individuals is that they do not meet the eligibility threshold where they earn £118 per week (the Lower Earnings Limit).

There is also the small fact that employment status (which is linked to entitlement to sick pay) is defined by the Employment Rights Act 1996. Section 230 of the Act defines an employee as an individual who has a contract of service. Many employment rights flow from this status and this means that many individuals who are engaged on a contract for services will simply not be eligible to claim statutory sick pay.

A link to an article in The Mirror newspaper about the exchanges in the House of Commons between PM Johnson and Mr Corbyn about SSP entitlement can be found below:

https://www.mirror.co.uk/news/politics/breaking-new-coronavirus-sick-pay-21629942

An evolving position?

… and yet, the UK Government’s thinking on this issue may be quickly evolving. On the BBC’s Question Time television programme broadcast on Thursday 5 March 2020, Matt Hancock MP, the UK Health Secretary said that people on zero hours contracts and self-employed persons should not be financially penalised for doing the right thing i.e. self-isolating themselves or being honest about having the virus.

It will be interesting to see how the story develops and what changes to UK employment law may follow as a result.

Copyright Seán J Crossan, 5 March 2020

Sick Pay? (or the Coronavirus Conundrum)

Photo by Macau Photo Agency on Unsplash

Coronavirus (COVID-19) isn’t just a potential threat to your health; it could also mean that your earnings take a hit.

How so?

If you have to take time off from work (i.e. self-isolate yourself) because you have (or might have) been infected by the virus, will you be entitled to receive sick pay from the organisation that you are working for?

It depends very much on your employment status …

… if you are a zero hours worker or genuinely a self-employed person, the answer is an emphatic no.

If you are deemed to be an employee (an individual who works under a contract of service) within the meaning of Section 230 of the Employment Rights Act 1996, you may be fortunate in that you have an entitlement to receive either contractual sick pay or statutory sick pay.

Contractual sick pay

If a contractual sick pay scheme applies to your employment, you might receive, at its fullest extent, 6 months full pay and then 6 months at half pay. This generous arrangement, of course, will not apply from day 1 of the employment and employees will have to build up their continuous service in order to be eligible for the maximum level of contractual sick pay. It is probably the case that an employee with just over a year’s service would receive 1 month at full pay for sickness absence and then 1 month at half pay.

An example of entitlement to contractual sick pay arrangements taken from the Collective Agreement (the National Working Practices Agreement) between Scottish Further Education lecturers and their employers can be seen below:

Statutory sick pay

What about statutory sick pay or SSP? This is relevant in situations where employees are not entitled to receive contractual sick pay.

It’s also worth pointing out that contractual sick pay is often much more generous than SSP and, even then, not all employees will be entitled to receive this benefit because they fall outside the eligibility criteria. The current weekly rate of sickness pay (in March 2020) is £98.25 and could be paid by employers for a maximum of 28 weeks.

Ordinarily, it becomes payable only from 4th day of sickness absence, but as of Wednesday 4th March 2020, the UK Government has announced that employees who self-isolate themselves because of suspected Coronavirus infection, will be paid SSP from day 1 of their sickness absence.

This is a temporary measure which will apply only for the duration of the current COVID-19 emergency, but people who are off sick with a medical condition other than the virus will also be entitled to benefit from these changes.

See links below to articles on the BBC website about sickness pay entitlement and COVID-19:

https://www.bbc.co.uk/news/business-51628524

https://www.bbc.co.uk/news/uk-51738837

The change in Government policy will not be extended to the self-employed; and to zero hours workers (who will not be able to meet the threshold conditions for eligibility). Frances O’Grady, the General Secretary of the UK’s Trades Union Congress (TUC) has stated that as many as 2 million workers may not be eligible for SSP under the current system.

There has been some concern expressed that individuals in these categories may continue to go to work – if they have the virus or suspect as much – because they will not receive SSP during their absence.

Eligibility criteria for SSP

In 2019-20, in order to qualify for SSP you must be an employee earning at least £118 per week or £512 per month (before tax). This is known as the Lower Earnings Limit.

In April 2020, SSP will rise to £95.85 per week, but individuals’ earnings must fall within any of the following bands in order to qualify:

  • £120 per week
  • £520 per month
  • £6,240 per year

Again, this will mean that many zero hours contract workers will simply fail to qualify for SSP payments.

More problems …

There is also another complication concerning eligibility for sickness pay which the COVID-19 outbreak has raised:

Let’s assume that you do qualify for either contractual sick pay or SSP, but you have decided to take the precautionary measure of self-isolation so as not to expose your colleagues to potential risk.

It may be that you have recently returned from a destination such as China or Italy where the virus has been particularly prevalent and you decide to play it safe by not going into work. You contact your HR Department or employer to inform them of your decision; you are thanked for being extremely considerate and responsible; and then you are told that you are not entitled to receive sick pay because you haven’t actually been diagnosed with the virus.

Matt Hancock MP, UK Government Minister for Health, thinks that current legislation does cover such situations and individuals who take precautionary measures, as outlined above, should benefit from sick pay provisions.

With all due respect to Mr Hancock, what he thinks and what current legislation or a contract of employment states might be entirely different realities. That said, Mr Hancock does have the support of the highly regarded Advisory Conciliation and Arbitration Service (ACAS) which is recommending that employers pay self-isolating employees who have taken such a precautionary measure (see link below).

https://www.acas.org.uk/acas-publishes-new-advice-on-handling-coronavirus-at-work

Conclusion

Clearly, COVID-19 is presenting a number of challenges to traditional practices or orthodoxies in the field of employment law. This is a serious issue given that recent estimates are predicting that up to 20% of the UK workforce could be in danger of contracting the virus and, consequently, they will be absent from work.

In some respects, the UK Government has been caught napping on the issue of extending employment protection e.g. entitlement to sick pay to people who do not have a contract of service and the COVID-19 outbreak has really exposed this shortcoming.

As Jonathan Rennie of law firm, TLT, had noted (as recently as this week) the UK Government has failed to implement any of the recommendations of the Taylor Review which favoured extended employment protection to workers who did not have a contract of service. It is somewhat ironic that the virus outbreak has forced the Government to break cover and extend some employment protection rights.

A link to an article on the BBC website about the predicted impact of COVID-19 on the UK workforce can be found below:

https://www.bbc.co.uk/news/uk-51718917

Copyright Seán J Crossan, 4 March 2020