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Last Sunday Harry Potter author JK Rowling was revealed by the Sunday Times to have been the writer of a novel written by ‘previously unknown’ author Robert Galbraith.

In the course of this week it has been disclosed that the information came from a surprising source, JK Rowling’s solicitors, a well-known London firm specialising in representing clients in the world of entertainment.  It turns out that one of the partners in this law firm had told the secret to his wife, who in turn had told her best friend. The best friend was the source of the Sunday Times story.

You can read more on the BBC News website.

I am sure that the partner concerned is mortified. One can imagine the potential damage to his firm’s reputation: high profile clients will surely want to be certain that their affairs are being handled in a discreet and confidential manner.

Client confidentiality is one of a number of principles that are drummed into solicitors. Indeed, one of the outcomes which the Solicitors Regulation Authority requires solicitors to achieve is that

you keep the affairs of clients confidential unless disclosure is required or permitted by law or the client consents

We were talking about this in the office.  I am trying very hard not to take a “holier than thou” attitude, but I am very sure that we would have been able to keep Ms Rowling’s secret to ourselves.  This is not a case of thinking “there but for the grace of God …”  We are all used to acting for clients who quite properly require their matters to be kept confidential. So as a solicitor, I am very surprised by the news that the source of the information that ‘Robert Galbraith’ is in fact JK Rowling is Ms Rowling’s solicitor.

 

UPDATE 31 July 2013

Today the BBC reports that Ms Rowling’s lawyers have made a “substantial” donation to a charity of JK Rowling’s choice in settlement of Ms Rowling’s claim against them.

 

photo by Gabor Kovacs

We were talking in our weekly team meeting about the fact that our corporation tax payment will be due in January and that, like so many other businesses, we pay corporation tax. “Unlike Starbucks”, someone said.

Graeme then said that at the weekend he had bought a coffee in a Starbucks outlet in a motorway service station. He had been talking to the person behind the counter, who turned out to be the owner of the franchise. This franchisee complained to Graeme that his franchise is a separate business which pays corporation tax like the rest of us. However, he is experiencing a significant downturn in business as consumers boycott Starbucks.

The reasons for consumers avoiding Starbucks are nothing to do with the owners of the individual businesses that make up the chain of Starbucks franchises.  The reasons are everything to do with the main Starbucks business itself, the company that owns the brand and controls the franchise network, receiving substantial franchise payments from the many small businesses that make up the network.  It is well-known that Starbucks has been in the news for paying minimal corporation tax on profits earned in the UK, through arrangements under which it pays licence fees to a non-UK company for the right to use the Starbucks name.  It is fair to note that Starbucks has recently announced that it will voluntarily pay “a significant amount of tax during 2013 and 2014, regardless of whether the company is profitable”.

Although the consumer rebellion may be affecting the main Starbucks company, it seems clear from Graeme’s conversation that the franchisees are sharing the pain, through no fault of their own. Responsibility appears to lie with the franchisor.

This has led us to consider the imbalance to be found in many franchise agreements, which are heavily loaded in favour of the franchisor.  These contain lists of franchisee’s obligations which are invariably much longer than the rather brief lists of  franchisor’s obligations.  I have just looked at a number of franchise agreements, which typically contain an obligation on the franchisee in terms such as:

“not do anything that could or might in the sole opinion of the Franchisor bring the Business into disrepute or damage the reputation of the Business.”

None of the franchise agreements that I have just reviewed contain an obligation on the franchisor “not to bring the Business into disrepute or damage the reputation of the Business.”

Surely it is the strength of the brand that underpins the success of individual franchise businesses, whether these be selling coffee or burgers or high-end Scandinavian hi-fi.  If the brand is tarnished, then the sales performance of the individual franchises will suffer. It is not just the owner of the brand that is affected, but also the numerous franchisees who have invested a great deal of money in the strong performance of the brand.

So why does the owner of the brand not make a promise to its franchisees not to bring the brand into disrepute or do anything to damage its reputation?  Why does it not even promise that in the event of damage to the reputation of the brand it will immediately use best endeavours to minimise the damage?

We have been discussing amongst ourselves whether an obligation on the franchisor not to bring the brand into disrepute can be implied into franchise agreements (and here starts some legal discussion).  The circumstances in which a Court will imply a term into a commercial contract have been developed in a number of cases over very many years.  The most recent major decision was in 2009, in a Privy Council case Attorney General of Belize and others v Belize Telecom Ltd [2009] UKPC 10.

In that case, Lord Hoffmann said that the question of implication arises when a contract does not expressly provide for what is to happen when some event occurs. The usual inference is that nothing is to happen: if the parties had intended something to happen, the contract would have said so. Accordingly, the express provisions of the contract should continue to operate undisturbed. If the event has caused loss to one or other of the parties, the loss lies where it falls.

In some cases, however, Lord Hoffmann continued, a reasonable person would understand the contract to mean something else. He would consider that the only meaning consistent with the other provisions of the instrument, read against the relevant background, is that something is to happen. The event in question is to affect the rights of the parties. The contract may not have expressly said so, but this is what it must mean. In such a case, the court will imply a term as to what will happen if the event in question occurs.

Lord Hoffmann concluded that It followed that in every case in which it is said that some provision ought to be implied in a contract, the question for the court is whether such a provision would spell out in express words what the contract, read against the relevant background, would reasonably be understood to mean. The courts have formulated this question in various ways (for example that the implied term must “go without saying”, or that it must be “necessary to give business efficacy to the contract”), but these formulations should not be treated as different or additional tests.

So the main principles are that a court may imply a term into a specific contract to fill a gap in the contract’s drafting. The purpose would be to reflect the parties’ intentions when the contract was entered into.   Applying an objective test, the court will consider what a reasonable person would have understood the parties’ intentions to be, given the background knowledge reasonably available to the parties at the time they entered the contract. The courts will not imply a term into a contract simply because they think it would have been reasonable for the parties to have included such a term in the contract.

You and I may think it necessary, indeed essential, that a franchise agreement should include an obligation on the part of the franchisor not to bring the brand into distribute or do anything to damage the reputation of the brand.   We may think that this goes without saying, and that such an obligation should be implied into franchise agreements.  However, any franchisee or group of franchisees that tries to claim damages in court proceedings will be embarking on major and strongly contested litigation as it tries to persuade a Court of the need to imply such a term into their franchise agreement.  And, who has the bigger financial muscle for such a fight, the owners of the small businesses or the multi-national brand owner?

And with those thoughts, it’s time for a Fair Trade flat white …

The Late Payment of Commercial Debts (Interest) Act 1998 was brought in to provide a means of combating the problem of late payment between businesses. Under this legislation a late payment charge can be levied on overdue debts,  between £40 and £100. Late payment interest can be added at 8% above Bank of England base rate.

Our experience has been that courts will add late payment charges and a late payment interest to the amounts that they will order recalcitrant debtors to pay. However, debtor companies do not generally voluntarily make these payments: faced with a letter demanding payment including these items, they will generally do no more than simply settle the long-outstanding invoice.

In bringing in this legislation, the UK has been ahead of the EU.  There is an EU Directive on Combating Late Payment in Commercial Transactions, which member states are required to implement by 16 March 2013.

The Department of Business Innovation and Skills has announced a consultation on measures which are proposed with regard to the implementation in UK law of this EU Directive.

The BIS proposals include a new statutory maximum payment period of 60 days in B2B contracts, although the proposals on which BI S is consulting allow for that 60 day period to be extended, provided that the extended period is not “grossly unfair”. There are other exceptions where one of the parties to the contract is a public authority, and particularly a public authority providing healthcare.

BIS also asks whether the late payment charge (set by UK legislation at between £40 and £100) should be reduced to €40, being the minimum amount specified in the EU directive. It seems to me, however, that this would be a backward step, reducing what deterrent effect the existing legislation has.

The BIS consultation is open until 19 October 2012. Details are on the BIS website: http://www.bis.gov.uk/Consultations/combating-late-payment-in-commercial-transactions?cat=open

I dare say that a long and worthy legal textbook could be written with this title!  Graeme and I both post regularly on Twitter – @GraemeQuar and @HampshireLawyer – and so the interaction between social media and the law is of interest to us both.  Recently there have been three interesting cases in the news. Read the rest of this entry »

After a long period of consultation and delays in the legislative process the offence of corporate manslaughter was brought into law by the Corporate Manslaughter and Corporate Homicide Act 2007. This week has seen the first conviction for this offence, Cotswold Geotechnical (Holdings) Ltd being fined £385,000 in Winchester Crown Court. Read the rest of this entry »

Getting in first?

January 31st, 2011

In this first blog post, I am going to look at a situation that I have already seen twice since joining Graeme Quar & Co on 4 January. I have had to advise from both sides. Read the rest of this entry »