Places of Worship (Enfranchisement) Act 1920
A little visited part of the statute books, the Places of Worship (Enfranchisement) Act 1920 conveys a powerful right available to religious groups utilising a property as a place of worship (‘The 1920 Act’). The 1920 Act represents one of the first forms of freehold enfranchisement, which was brought about following the Select Committee report on Town Holdings from 1989 (‘the Report’).

The Report found that a number of ‘non-conformist’ religious groups suffered from having no long-term security of tenure with regards to the places of worship and schools associated with them. As a result, it was felt important that communities were able to achieve long term security in the form of acquiring the permanent right to buy and use property as a place of worship, rather than being dependent on the grant of a long lease by the landlord.

It was found by the Report that the freeholder should have no objection, provided that the freeholder is adequately compensated for the loss of the property, in this case on the payment of a premium.

Rarely used in practice
The 1920 Act has so far been considered only twice in reported cases, on each occasion by the High Court. The fact that these cases were considered 88 years apart illustrates how scarcely used this piece of legislation is.

This may indicate that most are unlikely to come across this niche area within the already specialised area of enfranchisement law. However, the legislation may be applicable in more ways than many would assume.

Unexpected applications
In a 2015 case, a former supermarket located along a high street in Sheffield was successfully enfranchised by the religious group which held a long lease of the premises.

It could be suggested that 1920 Act was not designed to encapsulate such properties however such arguments are irrelevant; if the building qualifies then it appears that that even a former supermarket is caught by the 1920 Act. The implication is that landlords will need to be aware of this enfranchisement right and the potential loss of the freehold if granting a lease that is caught by the legislation.

Which propertiesplaces of worship qualify for enfranchisement?
Religious groups which could benefit from the liberal application of the 1920 Act should also be aware of this potentially valuable right, even if the building in question is for example a former shop or warehouse is not per se a traditional place of worship.

The 2015 case is a salutary reminder that it is the characteristics of the lease rather than the building, which is important.

Do the physical characteristics of the place of worship matter?
The criteria differ from that found within the Leasehold Reform Act 1967 and Leasehold Reform, Housing and Urban Development Act 1993. Unlike these Acts, the physical characteristics of the building is not the determining factor.

Do you have the right to buy your building?
The property must be held on a lease granted for more than twenty-one years; and
The property must be used for the purposes of a religious place of worship.
There are some exceptions which would need to be examined carefully in each case. Once grounds to bring the claim are established a mechanism akin to compulsory purchase will apply and in the absence of agreement between the parties, the Upper Tribunal (Property Chamber) can determine the sum payable to enlarge the interest to freehold.

It is therefore critical to take advice both prior to the grant of a lease which may be caught by the 1920 Act or if there is any doubt as to whether the legislation may apply.

Ricky Coleman is an Associate Solicitor within the Leasehold Enfranchisement Team at Mayo Wynne Baxter LLP rcoleman@mayowynnebaxter.co.uk

So, you have not performed your contractual obligations, or a customer has not performed theirs: what are your next steps?

The first point to make is that contract law has never been a fan of the Old Testament principle of “an eye for an eye”. If the other side from you on a contract has not met their obligations, that does not allow you to ignore yours. More on this later.

The second point I would like to make is that contract law views each contract between parties as free-standing. You might have 200 contracts outstanding (e.g. if you supply a supermarket chain), but you cannot set-off. Setting off means “I owe you 10 under this contract, but you owe me 5 under that other contract, so I will just pay you 5, and we will call it quits”. Do that and you will be in breach of contract if the other party does not agree to the set-off.

Here are the steps I would take to analyse your situation if you consult me:

What Does Your Contract Consist of?
The first part of your analysis of where you stand in a potential contractual breach situation is to know what your contract actually consists of. Some contracts are self-contained documents drawn up by people like me. But many are messy things comprising an email thread, perhaps some WhatsAppp messages, some standard terms and conditions off your website and what was said during a very strained telephone conversation with the other party. A contract can be formed orally, in writing or through your actions, or a mix of these.

Who Are the Relevant Parties?
A classic contract is between party A and party B. Real life is more messy. Other parties can become involved (family members, group companies, executors administering a Will, etc.). Look to see who did what, who is the person doing the breaching, and who is the ‘victim’ (that is not a term we use in contract law, but it works as shorthand here). If all the parties are throwing around allegations like confetti, then some parties may find themselves both ‘perpetrator’ and ‘victim’ at the same time.

What is the Actual Breach?
People often conflate bad, dishonourable or immoral behaviour with a breach of contract. The two are not usually connected (although the law will not recognise the existence of a contract for an illegal purpose, so you cannot sue somebody for failure to carry out a hit that you paid them to do). On the other side of that same coin, being right is not a bullet-proof vest. You can be totally in the right but legally in the wrong. What contract law does is force you to honour the terms of your agreement, regardless of whether it is stupid, distasteful, economically ruinous for you or just the worst deal ever.

So, identify the actual breach by reading the contract very, very carefully. The precise meaning of every word potentially counts. People who skim read contracts clearly like taking risks.

Is the Breach Major or Minor?
I mentioned earlier that just because the other party has breached their obligations under the contract does not allow you to automatically ignore or breach yours. What you can do depends on how serious the breach is. If it is a major breach (they have not paid) then the default position is that you are entitled to end the contract immediately and claim damages. If it is a minor breach (you promised to deliver 10,000 cups, but actually delivered 9,998 or 10,002 then the law says you must either continue the contract and claim damages if you have suffered any loss from the breach or just carry on and ignore the breach. If it is a major breach and damages would not be a sufficient remedy (e.g. the funeral home will not return mum’s ashes) you can ask the court to force the other party to do what they promised to do – which is called seeking specific performance.

I said “…the default position…” because often contracts will address ahead of time what happens if certain obligations are not met. Depending on how the contract is written, it may not even amount to a breach, it may just take the contract down a different route.

Does Your Contract have a Force Majeure Clause?
An FM clause, if you have one in your contract, usually addresses what happens if something major (like, COVID-19) comes along and stops one or both parties from fulfilling their contractual obligations. What happens depends entirely on what the FM clause says. Some just freeze everything for a few months, others allow termination, others require the parties to find alternative ways to perform the contract. The most effective, but also the most boring to read, will cover all these things. Prior to COVID-19, pandemics were not really on people’s minds, and so many FM clauses do not cover them, rendering the clause irrelevant. FM clauses are not implied (‘implied’ means that the court will assume that the clause is in the contract even if you don’t add it).

Is the Obligation Allegedly Breached Mandatory or Discretionary or Conditional?
Look very closely at the wording used:

– “Party A shall deliver 10,000 cups to Party B within 30 days…” is pretty definite, and so will be hard to wriggle out of.

– “Party A may deliver 10,000 cups to Party B within 30 days…” or “Party A shall use reasonable endeavours to deliver 10,000 cups to Party B within 30 days…” or “Provided Party B has done XYZ, then Party A shall deliver 10,000 cups to Party B within 30 days…” all give a lot more wriggle room!
Does it Look Like the Other Party Will Breach?
Previously I have said that if the other side does a major breach of the contract, then you can either end the contract and sue, or continue to perform the contract and sue (or indeed ignore the breach completely and just carry on).

But what if you know the breach is coming, it just hasn’t happened yet? If you stop performing first, then maybe they can allege you are the one in breach.

Well, the law has a remedy called “anticipatory breach”. Provided you can show that they were going to breach (or at least justify it as a reasonable belief), you can be let off your obligations. So, if your obligation was to deliver 1,000 beef burgers to a fast food restaurant, but you knew the restaurant was closed because of lockdown and there would be no one there to take delivery, then you would not be expected to waste time and money loading and driving a van full of burgers to an empty shop. The moral is don’t focus just on you – what about them?

Next, We Look Outside the Contract
If the wording of the contract itself does not help your position, then next we look at some legal principles that you may be able to rely on. A word of caution though, for the most part, the wording in a contract is sacrosanct. The courts do not try and look at the intention of the parties if the clear and ordinary meaning of the words used (assuming they are not context-specific jargon) is clear.

I need to give a small lawyer’s caveat here. These principles are old. Some are positively ancient. That means they have been poured over by the courts for generations. The law is complicated and subject to numerous exemptions, special circumstances, caveats and conditions. To see whether it will apply in your situation requires an analysis of your situation and its unique facts.

The Principle of Frustration
As a starting point, if performance of a contract becomes more difficult or uneconomic, tough – the party who fails to perform is liable in damages.

Frustration is an exception to this. A contract may be terminated on the basis of frustration when something occurs after the formation of the contract which renders it physically or commercially impossible to fulfil the contract, or transforms the obligation to perform into a radically different obligation.

This is the closest the law gets to implying a force majeure clause, but although apparently similar, they are not the same thing at all.

Generally speaking, a ‘frustrating event’ is an event which:

occurs after the contract has been formed;
Is so fundamental as to be regarded by the law both as striking at the root of the contract and as entirely beyond what was contemplated by the parties when they entered the contract;
Is not due to the fault of any party to the contract;
Renders further performance impossible, illegal or makes it radically different from that contemplated by the parties at the time of the contract.
The doctrine has been around for over 150 years, and as be developed by various court decisions, some of which actually contradict each other (migraine time for lawyers) – so the law is quite complex, but in essence, frustration may apply, if, as a result of COVID-19, performance of the contract has become legally or physically impossible through no fault of the parties.

It will not be frustration:

If the contract deals with the situation (e.g. there is a relevant force majeure clause); or
If the parties to the contract should have foreseen (or did foresee) the frustrating event, when they made the contract.
The exact circumstances of each case will be crucial. By way of example, if a sports clothing company contracted with a TV channel to show adverts during the half times of specific football games which because of COVID-19 were then cancelled, the sports company would have a strong argument to claim frustration.

BUT they would not be able to rely on frustration if their contract with the TV channel simply stipulated the times and dates when their adverts would run (those times and dates having been chosen to coincide with the football matches’ half-times of course).

In the former case the matches no longer existed and therefore the relevant break time did not exist either. In the latter case, The TV channel was still able to run the adverts at the agreed dates and times except they might be sandwiched between old soap repeats instead – but because the contract could be completed there was no frustration (in the legal meaning of the term anyway…).

The consequences of a contract being deemed frustrated by the court after a court case is that the contract ends automatically and immediately, without any action by the parties, who then have only very limited rights of redress from each other (basically the losses fall where they fall).

The Principle of Illegality
A principle of English law is that the court will not enforce a contract which requires something illegal to be done (e.g. a contract to kidnap somebody).

When as part of the COVID-19 lockdown, the government ordered various businesses to cease trading such that they could not continue in business without breaching that order (and thus be acting illegally) then those businesses could potentially seek relief from claims against them under the doctrine of illegality.

The problem is that the doctrine has been established through various court decisions, some of them (yes, you’ve guessed it) contradictory.

Therefore, the starting point is to review the statute or other regulation that makes the act illegal. Then decide whether the statute prohibits performance of the contract or just part of it, and if just part of it, whether that could be worked around in a legal manner. For example, many cafés were able to keep operating by providing a takeaway service, so quite a few of their contracts may not have been illegal to perform, even if in real life actual performance was heroically pointless and economically ruinous. Those things are not illegal. As with force majeure and frustration, illegality cannot be relied upon just because it makes compliance with contractual obligations difficult or uneconomic.

Are There Any Technicalities That Can Help?
For those of my colleagues who spend their time litigating contracts, there appears to be a hierarchy of defences/attacks.

At the top is: contract interpretation – does the actual contract tell you whether you are in breach of not?

Next, you look to see whether there are any legal principles you can rely on.

Failing both of those, the next step down on the ladder is looking to see whether there are any technicalities that can help you even if the actual case is not to your advantage. Some of the things lawyers look at are:

Does the Contract Have Any Trips-ups or Traps?
Previously we looked at analysing the contract to see whether or not there was actually a breach. There is a second level of contract analysis that may be relevant if there is indeed a breach. These are the clauses in the contract that business-people tend to assume are peripheral, almost to the point of irrelevancy. There is even a term for many of these clauses: boiler-plate clauses. They are often given scant regard because the popular conception is that they are unimportant.

It can be a big mistake to rely on popular conceptions when it comes to the law. In contractual terms, the court treats every single clause as being of equal importance.

An example of another popular misconception is the concept of the non-executive director. That is a short-handed business term used to describe directors who are not really involved in the day-to-day running of the business, and so who can (in theory at least) step back and consider the bigger picture.

Except the truth is that in law you are either a director or you are not.

In terms of legal compliance, obligation and legal liability there is no difference between a non-executive director and the managing director – as many NEDs find out when things go wrong, and they find that they are not treated any differently from the ‘executive’ directors who actually caused the problem.

In contract terms, this equality of clauses can catch people out very easily. If buried away in the boiler-plate notice provisions is a sentence or two that says:

“Both parties shall be deemed to have waived their right to take action for any breach unless they serve notice to the breaching party within 28 days of the date on which they became aware (or should have become aware) of the breach.”

Even more insidious, the clause might go on to say that if they do serve notice they have to serve it addressed to the company’s registered office. It is all too easy to overlook such a provision if the company’s main place of business is not its registered office. So, on a minor technicality like that, strong and major claims for breach may fail.

Another common provision which is often overlooked is a dispute resolution clause which requires mediation or arbitration. In my experience, when emotions are running high and one or both parties are demanding the matter go straight to the highest court in the land, such provisions are ignored. But the court will not ignore them and will most likely throw out any claim brought without even giving it proper consideration.

Another technicality that catches people out frequently is something called “deemed waiver”. The law assumes that if there is a contractual dispute then the parties will act rationally and with consideration. In my experience, that is rarer than you might think.

The messy reality of commerce means that things may fester for quite some time before becoming an open conflict. However, the court expects parties to respond immediately and decisively to major breaches of contract. Where they do not (i.e. most businesses) they run the risk of being deemed to have waived their right to complain later. In other words, the court says

“Party A broke the contract in the most serious manner, but for the next three months you carried on with business as usual: you lost your chance to complain, it is too late.YOU did not treat it as serious, so do not ask us to (you hypocrite you…).”

Last Chance Saloon
If none of the above assists, then you may find yourself, as so many do, so often, having to play the ball instead of the man – in other words, your claim or your defence is rubbish, so you are going to have to see if there are any weaknesses in your opponent you can manipulate or smaller ancillary principles you can pull in to your advantage.

The first is a simple one – was the contract on either side properly signed by a sufficiently senior person with the proper authority – it’s surprising how often this is an issue.

Next, look beyond the strength of the claim to see what the consequences of winning/losing are.

The purpose of damages in contract law is to put the wronged party back in the position they would have been in had the breach not taken place. Calculation of damages is an incredibly complex area, but for the purposes of this article you should assume that if you brought a court case for breach you would look to be awarded the profit you would have received had the contract been performed. So, rubbish expected profits = rubbish damages.

The court normally looks to pay out your direct loss, not your indirect or consequential loss. So the fact that you claim that you would have used the profit to invest in Bitcoin just before its latest bubble surge and so your loss is actually a hundred times greater than just the lost profit on the contract is a hard sell to make to a generally sceptical court.

Further, you will need to take into account the legal principle of “mitigation of loss”. If the other party was going to buy your 1000 fresh, organic, beef burgers for (say) a profit of 10, then you cannot sit back and claim 10 if you could have sold those beef burgers, even at a fire sale price of 3 to, say, a hospital canteen. The court will expect you to have done so. It will expect you to have at least tried to lessen (mitigate) your loss. It is likely the court would award you 7 as a result.

Since the court likes to award for actual loss, not paper loss, then it is important to see if the wronged party had insurance. If they had insurance, then they may not have suffered any loss other than the cost of the insurance premium. It is very unlikely that both the court and the insurance company will payout.

Another factor is the nature of the legal wrong. There are three main types of legal wrong that people sue each other about:

Contract claims
Claims in tort (of which negligence is the best known)
Claims in equity
The first two are what are called legal claims – in other words, they are claims asking for money. The third claim is an equitable claim. It is asking the court to use its power to either force somebody to do something (specific performance, mentioned earlier) or to force someone not to do something (an injunction). Equitable claims, by their very nature, tend to be more complicated and nuanced. The court is also generally more reluctant to force somebody to do something or not do something because the sanction for failure to comply is usually gaol (or jail if you are under 50).

I said earlier that in contract law the court does not care about morality unless it is a major issue. That is not true for equitable claims. There is a saying that someone who makes an equable claim must do so with “clean hands”. That doctrine, and a few others like it, basically mean that the court will be reluctant to grant somebody’s equable claim if they themselves have been acting poorly. This comes back to the behaviour of your opponent and may torpedo their claim.

The final major factor to consider is the one which probably determines more potential claims than anything else – the cost of bringing a legal action.

The cost in time, money and emotional stress can be absolutely phenomenal. Only the very smallest tip of the dispute iceberg makes it into court. The majority of claims are never pursued because of the cost.

Even when claims are pursued, the majority of people who win a legal case feel like they have lost. They were owed 10, the court awarded them 8, their legal fees were 4 and the business they lost by litigating instead of doing business was 5. Even though they won, they ended up with -1.

Another popular misconception is that the loser pays the winner’s legal fees. Typically (and for reasons that are outside the scope of this article) losers typically reimburse only around 60% of a winner’s legal fees – that is assuming they pay anything at all, and do not just go into insolvency or ignore the court order.

Conclusion
So, other than the advice to think very carefully before engaging in litigation, what is the main takeaway from this article?

It is that a contractual dispute can be a battle fought across many battlegrounds – some of which you are only dimly aware of, but which may determine the outcome.

That leads me onto a personal opinion formed after many years’ observation: law is just a tool and litigation is just a tool. They are tools used by people. The carpenter decides how the wood is worked, not the chisel. The same in litigation. Many a strong case is either lost (or more likely goes nowhere in the first place) because the client does not like confrontation, does not have the money, does not want the matter to get into the press, does not want to devote the huge amount of time it would take to bring a case. Equally, I have seen people with very poor claims or defences succeed because of their aggression or persistence or willingness to spend the time and money just to grind the other side down.

Without in any way diminishing the often life-changing implications of breach of contract, it really often seems to play out like a poker game. How you present yourself and your attitude can be more important than the quality of your claim or defence (especially if it will take time and money to even work out the strength of your position).

Obviously this is fairly irrelevant if you are serving or going to be sued by the government or Facebook. But for smaller disputes where the deciding persons (often called the “controlling minds”) have personal skin in the game, and it is not just another file on their desk, then working out how they will act/react (if I can) will inevitably be one of my first considerations.

Although this article of necessity strayed into the field of litigation, I am a commercial lawyer and when I am involved in contract disputes it is usually with the hope of avoiding litigation. Those are the cases I like!

Death of a sole shareholder director

Preparation, preparation, preparation is the often-cited mantra of many successful businesses but preparing for the death of a sole shareholder director of a business is often overlooked. This can then lead to difficulties in ensuring the operation of the company as a going concern after the death of the sole shareholder director and can lead to the company being struck off, long-established business relationships being broken, and any assets of the company becoming bona vacantia- in essence ownerless property passing to the crown.

It is not uncommon for small companies to have a sole director shareholder at the helm of the business. Although this can aid in providing the company with pin-point focus and efficiency owing to the fact that the legal authority to make decisions on behalf of the company rests with one individual, it can pose significant problems when that individual passes away.

Given that many business owners envisage the company as being part of their legacy and wish for it to be continued after their passing means that preparation is key to ensuring that this transition happens as seamlessly and smoothly as possible in what is already a time fraught with difficulties.

When a shareholder dies, their shares will generally pass to their personal representatives (PR) who will either need to be entered into the company’s register of members and appoint a new director, or transfer the shares to a beneficiary of the deceased’s estate who can then do the same.

In the case of a sole director shareholder company, this can bring about a chicken-or-egg type dilemma. Company law states that a person is only entitled to be recognised as a shareholder of a company once their details have been entered into the register of members. However, registering a new member requires the approval of the directors. If there are no directors, there is no one who can approve a new member. On the flip-side, if there are no members, there is no one who can appoint directors.

This can have fatal consequences for the running of the company. For example, the sole person with authority to make payments from the company account may be the director which means suppliers and employees may not be able to receive payment. The filings that a company is required to present to Companies House may need signing off by a director, and without this they are unable to be filed leaving the company at risk of being struck off. Also, there is a statutory requirement that there is always at least one director of a company. When the sole director shareholder dies, it can leave the company in breach of its statutory requirement and at risk of being struck off.

This can be seen in the case of Kings Court Trust Limited & Others v Lancashire Cleaning Services Limited. Following the death of the sole director shareholder, as there were no directors, the bank froze the company’s bank accounts which meant wages, invoices and VAT which were due were unable to be paid.

A majority of companies incorporated after October 2009 will have the appropriate mechanism within their Articles of Association which will allow the PRs of the deceased shareholder director to appoint a person to be a director.

However, companies incorporated before this October 2009, as was the company in the above-mentioned case, do not automatically have the mechanism mentioned above that more recently incorporated companies benefit from.

In this instance the PRs would need to make an application to the Court to request rectification of the register of members so that they could be recognised as members of the company. Only then would they be able to pass a resolution to appoint a new director to ensure the ongoing operation of the company as a going concern. This is a time-consuming and costly route which can be avoided with some preparation.

Although preparing for one’s death is not the most thrilling part of running a commercial enterprise, death is an inevitability and should be prepared for accordingly. Company owners work hard to build the value and success of their business and preparation for this inevitability in life can ensure that value is preserved and increased for future generations.

If you are a sole shareholder director, you should consider whether your current company constitutional documents are in line with your current needs and fit for purpose. If you were to pass away unexpectedly, what would happen to your company? It may be a good time to consider having a corporate governance health check on your company where issues can be identified and addressed.

You should also consider your thoughts and plans for the company to continue trading in the event of your passing. Is there anyone in particular who you would like to take the reigns after you are gone?

You should also consider whether your PRs will have the required authority to step up to the mantle of the company and take necessary steps to ensure your company is not left in an authority vacuum and vulnerable in your absence.

A small amount of preparation in advance can pay dividends in the long run, not least of all ensuring a company’s continued survival during a difficult period of change.

Asim Arshad, Solicitor within our dispute resolution and commercial teams.