17 January 2014

Address for service

Directors' risk of being served with a claim in the UK

Directors of UK companies have to give an "address for service" to Companies House. This came in in 2009 as a trade-off for the ability to conceal the director's home address (section 1140 Companies Act 2006).

In a surprising decision, a Master of the High Court has ruled that the address for service at Companies House can be used to serve any document on the director, including a claim form starting legal proceedings against him which were unrelated to the company in question (Key Homes Bradford Ltd & Ors v Patel [2014] EWHC B1 (Ch) 10 January 2014). That applies even if the director is not in the UK, and proceedings against him could not otherwise be started in England without the court giving leave to serve proceedings outside the UK (which is not automatic), and an expensive process of serving abroad. The usual rules of court requiring an individual to be served at his usual or last known residence are overridden.

Directors' addresses for service are often given quite casually, often as the company's registered office, perhaps without consulting the director in question. Now it is clear that directors should take more interest, especially directors resident abroad. Giving an address for service in the UK makes them vulnerable to being sued in England much more easily, even in unrelated matters. They can also be seriously prejudiced if proceedings are served at the company's offices and are not passed on. Disputes with the company are a particular risk: the company may be tempted to serve its claim at its own office, not pass the papers to the defendant, and enter judgment in default.

It is even possible that the address for service can be used for things that would otherwise have to be served personally, such as a statutory demand in bankruptcy or a court order threatening imprisonment for contempt.

Advisers should be much more careful in future about giving an address for service for directors, especially for those resident overseas. The address given does not have to be in the UK, and if it is outside the UK it would still be necessary to get leave from the court to serve a claim form there. Even UK directors might want to give an address abroad!

14 January 2014

Negligence: staying out of the firing line

Shared responsibility in a professional team

Professionals work in teams, formally or informally, on all sorts of projects. Where something goes wrong, it may not be clear that one professional firm is solely responsible.  One professional may have relied entirely on another to do his bit, either by agreement between them or because it naturally fitted in the other's area of expertise; or one may have appointed the other to assist. Successive advisers may have made the same mistake. Two advisers may assume that each other are dealing with an issue. If work or advice has been negligent, the client will be tempted to sue all parties and let them fight it out amongst themselves. It may come down to assessing the contributions to be made by different parties.

In Flanagan v Greenbanks Ltd (t/a Lazenby Insulation) & Cross two successive firms carried out negligent surveys to assess suitability for cavity wall insulation. The Court of Appeal said that both were liable: the negligence of the later survey had not absolved the earlier one of responsibility, nor could the second firm assume that the first had done its work correctly without checking.

Firms can improve their position if sued by including suitable terms in their conditions of engagement - subject always to the usual considerations on limitation and exclusion clauses, especially in consumer contracts. Something like this can help:

"Where other professionals are engaged by you or on your behalf (including any predecessor of ours), we will be entitled to rely on the work and advice of those other professionals and to assume that they have carried out their work with due care and skill and to all relevant standards. We will not be responsible for checking or re-doing their work, or for checking their instructions, assumptions or conclusions, unless specifically instructed to do so, and then only to the extent falling within our area of expertise. We may review or comment upon the work of other professionals where we consider it appropriate but we will not be obliged to so and by doing so we do not assume responsibility for such work. Where we engage or recommend other professionals, our responsibility for their work is limited to selecting professionals whom we believe to be reasonably suitable for the purpose. Where we engage such professionals with ourselves as principals (and not as your agents) our liability for loss or damage arising directly or indirectly from their act or default (including negligence) is limited to the amount we are actually able to recover from them. If we recommend the engagement of other professionals but you decline to do so, we will not be liable for any loss or damage which would have been avoided had such professionals been engaged."

Of course it also helps if the roles of the professional teams are clearly defined, and if each member has a proper definition of its scope of work and terms of engagement. Specifically exclude from your scope of work any high-risk areas you don't regard as part of your role, and adapt your contract terms carefully to each situation.