In a last minute dash, the Money Laundering and Terrorist Financing (Amendment) Regulations 2019 were made on 19 December 2019 and came before Parliament the following day. The new Regulations apply from 10 January 2020 in line with the implementation of the Fifth Money Laundering Directive.

What are the changes?

The following are some of the highlights from the amended Regulations.

• Customer Due Diligence (CDD)
  • There is a new obligation requiring regulated businesses to secure proof of registration or similar where the entity is subject to UK company or partnership registration requirements and to report to the relevant Registrar any discrepancies between information on beneficial ownership that the regulated business collects or otherwise becomes aware of and what is stated in the Register. Additional training is therefore required for individuals cross-referencing the information to ensure that internal processes are in place to identify the discrepancies and also to know to whom they should report those discrepancies for onward referral to the Registrar. Generally this would of course be the Money Laundering Reporting Officer’s task.

• • Letting Agents are to apply CDD to any transaction for a term of less than a month and where the rent is at least 10,000 Euros per month for at least part of the term. This criteria applies both to the Landlord and Tenant.

• • For the first time, art market participants are described in the legislation as “people who by way of business trades in, or acts as an intermediary in the sale and purchase of works of art and the value of the transaction, or linked transactions is at least 10,000 Euros.” CDD applies to this category where the transaction or linked transactions are of a value of 10,000 Euros or more in relation to storage of such works.

• • Crypto-asset exchange providers operating machines to exchange crypto-assets for money or vice versa, in relation to any transaction carried out using the machine are now required to take CDD. For reference, the definition of a crypto-asset has also been defined in the new Legislation as “cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically”.

• • The new Legislation also stresses the importance of understanding ownership and control structures of any non-individual customer as well as confirming the requirements to keep written records of relevant transactions taken to identify beneficial owners and to verify the identity of the senior manager managing an entity where the firm has failed to identify the beneficial owner.

• Electronic Verification
  • It is now also expressly stated that information may be regarded as obtained from a reliable source where obtained via appropriate electronic services secure from fraud or misuse and capable to provide an appropriate level of assurance that the person claiming a particular identity is that person. This will be a huge relief for many regulated business relying upon electronic services and for those individuals who do not wish to part with their original passports and driving licence etc.

• Enhanced Due Diligence (EDD)
  • This has been updated slightly to clarify that it applies to any relevant transaction where a party is established in a high risk third country. This is likely to hit most regulated businesses risk assessment in any event and requires more careful analysis that is now formally incorporated in that category. The meaning “established” is to be interpreted as incorporated or having a principal place of business or principal regulator in that jurisdiction, or be resident in that jurisdiction if an individual. It is expected that EDD in these circumstances would include obtaining additional information on the customer, its beneficial owner and intended nature of the business relationship, information on source of wealth and funds of the customer and its beneficial owner, understanding the reasons for the transaction, securing senior management approval and conducting enhanced monitoring all fit this bill too.

• New Product or Business practice launch
  • If a regulated business launches a new product or business practice, appropriate risk assessments must also be undertaken. This historically applied only to new technologies.

• Training Requirements
  • There is also an extension to the training requirements to include agents that are used by the business whose work is relevant to money laundering prevention or compliance.

The dates when the current legislation will fall into place should be considered as effective from 10 January 2020. There are some exceptions to this that will apply to certain categories of regulated business in limited circumstances.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

The days of hearing “I want my day in Court” have reduced with the reality of no guaranteed success and the fact that even a court room victory does not secure full recovery of the legal costs.

It is rare for a successful claimant to be reimbursed all of their legal fees. If the defendant opts to go into administration to avoid paying a judgment debt, then the likelihood is that the neither the judgment nor the costs will be paid and the proceedings would have been an expensive option. The successful claimant could also face costs assessed by the Court and find those costs reduced to a recovery rate, potentially ranging between 60-85% of the fees incurred and paid. All of a sudden, the decision to place the issues before a Judge becomes costly not only in terms of time and energy, but financially too.

Sometimes it can be the only option available when a party to a dispute will not engage in any form of negotiation. When this happens, it is important to keep considering the proportionality of proceeding to Court and not get carried away with what may be the moral high ground. Reputation can lead some companies to push ahead regardless so their suppliers and customers are aware that they are a force to be reckoned with, yet most businesses and individuals have to take a commercial view even when it’s hard to do so.

So, if there is a litigation risk and that risk relates to the claim itself as well as the recovery of costs, what can reduce that risk?

Mediation is an option.

There is no third party Judge to make the decision for the parties and instead the parties can use the facilitation skills of the mediator to find their best alternative to court proceedings. The creativity of parties, not the rigidity of the law, dictates the settlement. A mediation meeting can be organised quickly without waiting for a Court timetable and the costs can be much less than those incurred in taking a case to court. It is flexible and the parties can decide the issues that are relevant to them as part of their decision making process. Few like to be told what to do and mediation enables the parties to decide their own course with factors that are relevant to them.

If faced with the decision to litigate or mediate, it is worthwhile considering what you want to achieve and your negotiation strategy, as well as your future plans. Having to hand the answers to the following questions will also assist:-

• How much will it cost to a) take the case to Court b) mediate?
• How long will it take to a) get a court hearing or trial b) a date for mediation?
• Is your opponent likely to agree to mediate before you issue court proceedings?
• What plans do you have over the next few month/years and how could these be impacted by a) a court case b) mediation?
• How will you fund a) a court case b) mediation?
• If you are a company, who else within the business may need to be involved in the case and to what extent will this distract them from their current job? Will this be cost to your business?
• Are there solutions available to settle the dispute, that a court could not award, that may be acceptable to both parties?

The court process is not a flexible one and follows a strict set of rules. Mediation is flexible and can work around the parties’ needs and interests. There is a place for both when seeking dispute resolution, although it is always important to consider the implications of your choice.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

The National Crime Agency (NCA) has issued details of the Suspicious Activity Reports (SARs) submitted over the course of the last year.

After heavy criticism of the regulated sector for failing to identify and report their suspicions, the result has been an increase in requests from organisations seeking consent to continue to act in circumstances that they consider to be suspicious. There has been a record number of reports with SRAs last year totalling 478,437; over a 50% increase.

In past years only £52 million was restrained or frozen as a result of these specific consents requests.  The process emphasis was changed to one in which applicants sought a defence as opposed to gaining consent but the former language of consent remains in more regular use.

The increase in SARs has led to over £130 million of potential criminal property being frozen. The report also indicated that less than 5% of the requests were actually refused making it perhaps easier for regulated bodies to submit their requests notifying the appropriate agencies of activity which they find suspicious.

The most significant reporting increase has come from banks and the fintech sectors with changes in the way suspicious activities are being identified being held responsible for the increase.  The number of reports from lawyers and accountants remains generally low.

If you are in the regulated sector, it is vital that you keep on top of your compliance.

The 5th Money Laundering Directive is on the horizon coming into force on the 10^th January 2020. The government has always indicated that it is keen to ensure that the UK’s anti-money laundering and counter terrorist financing regime deters money  laundering and terrorist financing activity whilst being proportionate and managing the burdens on businesses. With this in mind, if you are in the regulated sector, all policies and procedures should be reviewed in readiness and keep an eye out for the government’s advice upon implementation.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

A default county court judgment is ordered when a defendant has failed to either pay a money debt or file an admission or defence within prescribed court deadlines (usually within 14 days, or 28 days if an acknowledgment of service has been filed).

This type of judgment does not require a court hearing and is obtained by the claimant completing a form confirming the defendant has not responded. Once the order is made and Judgment obtained, payment of the sum claimed, interest and costs are immediately payable and can be enforced against the defendant.

If there is however a defence to the claim, it may be possible for the debtor to set aside the judgment. The court rules enable a debtor to make an application to the Court to set aside a default judgment.

If the defendant did respond within the given time frames, then the Court will set the Judgment aside on the basis of an administrative error. It will be necessary to prove that the defendant did reply to the claim in time.

Alternatively, if the debtor did not respond and default judgment was therefore entered, the court has a discretion to set aside or vary a default judgment only if:

• the defendant has a real prospect of successfully defending the claim; or
• the court finds that there is some other good reason why the judgment should be set aside or varied, or the defendant should be allowed to defend the claim. This will depend upon the specific facts of each case.

When an application to set aside a default judgment, the court also considers whether the defendants took prompt action in making its application. If the application was not made diligently and at the earliest opportunity, the court may not set aside a default judgment even if there is a real prospect of the defendant successfully defending the claim.

In summary, there must be a defence to the action, good prospects of success and the application to set aside must be made expeditiously.

When making the application, the defendant can ask the claimant to consent to the application to set aside judgment rather than proceed to a full hearing. If agreed, this becomes a paper exercise without the parties attending Court. If the application is made promptly and the defendant has grounds to defend the action, a claimant may be advised to agree to the application and it can be advantageous to do so. As the Court’s discretion is wide, the Court could order costs against a claimant who unreasonably refuses to consent to a defendant’s application. Such a refusal could therefore be a costly decision on behalf of a claimant. Instead, the claimant could seek to recover all or part of its own costs from the defendant for steps taken that were incidental to the defendant’s application whilst still agreeing to the consent order. Such costs could be payable within a short period of time and before the matter proceeds further.

Once set aside, the judgment cannot be enforced. The claim continues through the court process with a Judge ordering directions as the next step so a timetable is set as to how the claim will be handled in the approach to a trial.

If you seek to set aside a default judgment or have been approached to agree to an application, secure advice quickly. This is a process in which your conduct and the time taken will be considered by the Court and your chance of success will be determined by your actions.  For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Taking on the role of a company director brings with it a number of duties under the Companies Act 2006.

They can be summarised as:-

• Duty to act within powers of the company’s constitution i.e. Articles of Association
• Duty to promote the success of the company
• Duty to exercise independent judgement
• Duty to exercise reasonable care, skill and diligence
• Duty to avoid conflicts of interest
• Duty to accept benefits from third parties
• Duty to declare an interest in proposed transactions and arrangements

Owing a duty to shareholders as the owners of the company has perhaps surprisingly for some never been part of the above Code.

In the case of Vald. Nielsen Holdings A/D v Baldorino [2019] EWHC 1926 (Comm) the High Court considered the situations in which the above duties would extend to shareholders as a result of a fiduciary relationship; in other words when the director acts on behalf of a shareholder in managing and overseeing the shareholder’s assets.

The case related to a Management Buy-Out scenario in which it was claimed by the shareholders that they were misled by the false representations of the directors, who were the buyers, and as a result the shareholders parted with their shares for much less than they were worth. It was argued that the directors had breached their fiduciary duty and as a result the shareholders sought to recover an account of profits by way of compensation.

The High Court held that unless there were special circumstances in respect of the relationship between the director and shareholders, then no fiduciary duty arose. However, it was necessary to carefully consider the nature of the relationship in the wider context.

It is therefore possible that if a director is in breach of the above duties and a loss is suffered by a shareholder, creditor or the company then a claim could be made against the director personally.

Find out more about Dispute Resolution here.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

The High Court in Ohpen Operations UK Ltd v Invesco Fund Managers Ltd [2019] EWHC 2246 (TCC) (16 August 2019) determined that the parties were contractually bound to mediate their dispute before turning to court proceedings. Proceedings had already been issued and were put on hold, or stayed, by the Court to allow mediation to take place.

The key principles established through case law help explain how to put yourself in the best possible position of avoiding court proceedings.

• There must be an enforceable obligation that makes it mandatory for the parties to use mediation. An example would be to state that any dispute “shall be referred to mediation”.
• Further, the obligation must state that it is a requirement before court proceedings are issued. This is referred to as a “condition precedent”. It must be clear that the parties are to attempt mediation before resorting to the court.
• The process itself has to be clear. This includes how the mediator is to be selected and how mediation is to be conducted. In the above case, the relevant clause referred to the Model Mediation Procedure of the Centre for Effective Dispute Resolution.

The court has a discretion to stay the proceedings. With an emphasis now upon Alternative Dispute Resolution (ADR) and the parties being encouraged to settle their differences away from the courtroom, it would be unusual for the Court not to uphold a contractual agreement to mediate when set out in the above terms.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

You find yourself in a breach of contract situation and now seek help and guidance. Are you entitled to damages to compensate you and if so, how they will be assessed?

When preparing to discuss this with your Solicitor, it is helpful to have the following information available. 

Damages are usually awarded to compensate for any loss suffered as a result of the defaulting party’s conduct. The purpose is to put the party suffering from the breach in the position that it would have been in had the contract been performed.

The following information is therefore helpful when you first meet your Solicitor:-

1. A copy of the contract or agreement – if you have one!

In order to provide specific advice, it is important to have access to the contract and any variations (which could include emails) that have been agreed since the contract was signed.

2. What financial loss has arisen as a result of the breach?

Details about the expenses, costs, liabilities and/or loss of profits that have arisen as a result of the breach of contract will all be needed. At this stage, is helpful to make a note of as many as possible that come to mind as a consequence of the breach and further jot down how such losses and claims could be proved with supporting documents and evidence. In doing so, it is vital that steps are taken to preserve all evidence.

3. Can you do anything to mitigate the losses?

There is a duty on the party suffering a loss to take all steps to mitigate its position and to minimise the losses arising. Keeping a record of any steps taken to reduce the possible losses being incurred alongside details of any supporting evidence that could be relied upon to show that the mitigation had taken place will support your position.

4. Are any of your losses or damages remote?

The position in pursuing a claim that is too remote arises from the principle that the loss must be in the reasonable contemplation of the parties at the time the contract was made. It must therefore “flow” directly from the breach and be reasonably foreseeable.

5. Has the contract been breached due to the non-acceptance of goods or for non-delivery of goods?

If so, do you know the market value of the goods? Have this information to hand as in some circumstances where a buyer of goods refuses to accept delivered goods, refuses to pay for them or indeed where goods have not been delivered, then the damages are presumed to be the difference between the market value of the goods and the contract price.

6. Does the breach arise due to defective goods?

If yes, provide all the reasons as to why the goods are defective and any supporting evidence. Damages in this type of case generally arise to be calculated based upon the difference between the value of the goods at the time of delivery and the value of the goods had they not been defective.

7. Have you lost any management time dealing with this matter?

If it has been necessary for staff to investigate the breach and its consequences, it may be possible to recover that particular staff member’s wages. This can be difficult to prove and will only arise in exceptional circumstances.  It is however worthwhile keeping a note of the loss of management time in any event as it can also help focus your mind and also provide information as to the actual cost of the dispute as the case proceeds. This may be a relevant factor when considering the best alternative to Court Proceedings and during the course of negotiations.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

We regularly advise clients on contract disputes. The following are some of the key questions we are asked-

1. Do I have a contract?

There are a number of elements to a contract; namely:-

• An Offer
• An Acceptance
• Consideration – best described as one thing exchanged for another e.g. a sum of money in exchange for a service or goods
• An intention between the parties to create a legally binding relationship
• Certainty in the contract terms

2. Does a contract have to be in writing?

No, it can be in writing, agreed verbally or partly in writing and partly agreed verbally. It can even arise by implication from the conduct of both parties.

3. We are in negotiations, when is a contract formed and what constitutes an offer and an acceptance?

You will reach a contract stage when one party communicates an offer to another party, who then confirms that they accept the offer without any other condition.

Occasionally though a Court will consider the intention of the parties in their dealings in order to imply a contractual relationship.

4. I have a written contract but didn’t sign it – is it valid?

It depends.

Each matter will be different and be decided upon its own facts. Generally, when a contract has been written down and there is evidence to show that the parties intended to sign/execute a formal documented agreement, the courts will usually decide that the parties are not bound by the document unless signed by both parties. This will however depend upon circumstantial evidence surrounding the parties’ actions and their intent.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk

Back-to-back contracts are common in the construction industry and can be the source of tension on site and as a project progresses. A dispute between the main contractor and the employer will have a knock on impact on the relationship between the main contractor and the subcontractor.

Claims often relate to defects, performance failures and delays, as well as variations in scope, specification and value. The subcontract itself is important when reviewing these issues. The main contractor will (or should!) have sought to pass on liability in respect of matters it cannot control. Often the biggest concern for the main contractor is avoiding discrepancies between the main contract and the subcontract which exposes the main contractor to a different level of risk.

The following areas should be considered at the outset of any dispute to gauge the level of risk. Ideally this should be done prior to the subcontract being signed and care taken to manage the project variations so it doesn’t change the contract terms:

• If a dispute arose in the main contract and was determined either at adjudication or arbitration, would the findings be binding between the main contractor and the subcontractor? This often involves a careful analysis of the scope as well as liability clauses.
• In court proceedings, a subcontractor is brought into the action as a Part 20 Defendant. What about adjudication or arbitration? Has the contract included a clause that provides a contractual right for a party to be part of those main proceedings?
• Is the main contractor placed in the position of having to pursue the subcontractor’s claim against the employer and, if it doesn’t, are there any sanctions for failing to pursue such a claim? Realistically, no-one wants to pursue a claim unless they are forced to. A subcontractor could be faced with a position in which the main contractor is not willing to pursue a claim which has little benefit to it.

Keeping focused upon the risk as well as the opportunity is important when entering into any commercial arrangement – particularly when in construction those liabilities could be passed on.

For assistance on disputes regarding back-to-back contracts in the construction industry please contact our Dispute Resolution Team.

Despite the awaited exit from the EU, the likelihood is that the EU’s Fifth Anti-Money Laundering (AML) Directive will also be implemented in the UK.

The changes are due by 10 January 2020 and for the first time will bring Art Dealers and Auction Houses into the regulated sector for anti-money laundering purposes.

As law enforcement departments gain further insight into the movement of laundered funds, the legislation seeks to crackdown upon key areas which have remained vulnerable.

Some of the key changes will include the following:-

• Definition of Politically Exposed Person clarified – Each member state must issue a list setting out which functions qualify under this category as prominent public functions.

• Improved transparency of Beneficial Ownership of Corporate Entities – Wider access to each Member States Central Register of Beneficial Ownership of Companies and Entities comes into force to provide increased transparency. The objective is to ensure that any member of the public can access minimum information without needing to demonstrate a legitimate interest.  Companies House has already provided this basic level of access for some time. There is also a new requirement for what is termed “Obliged Entities” to report any discrepancies found between information held and the information on the Register.

• More information on the Beneficial Ownership of Trusts – The next Directive will extend the reporting requirements for the Beneficial Ownership of Trusts which would also result in a Central Register of Beneficial Ownership being available to those showing a legitimate interest in the Register. The Member States have been left to define what a legitimate interest may be with the key focus upon ensuring that preventative work in undertaking Due Diligence can be assured.

• Ownership Details for Safe-Deposit Boxes – No longer will it be possible to have an anonymous safe-deposit box with there being a legal requirement now for identity papers to be taken.

• The Prepaid Cards to have Increased Due Diligence – There was previously a threshold of €250 for gift cards and prepaid cards of this type. This limit has now been reduced to €150.

• New Technologies – Virtual currency exchange platforms will now be subject to AML laws as they too are included as Obliged Entities.

• Use of Electronic Identification – Contrary to previous legislation, under the Fifth Money Laundering Directive the use of Electronic Identification for customer Due Diligence will be permitted.

Whilst at time of posting this it is unclear as to how the UK will implement the Directive post Brexit, the desire to remain a leading financial centre is unlikely to see the UK fall behind other countries in their compliance with legislation targeting Money Laundering and Terrorist Financing.

Make sure you are compliant!

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk