The Corporate Manslaughter and Corporate Homicide Act 2007 comes into force on 6 April 2008. The legislation was drafted in response to the difficulties found in prosecuting organisations under the health and safety ‘identification principle’, i.e., the offence is based on ‘senior management failure’. Organisations will still be prosecuted under health and safety provisions alternatively, or in addition to, the new Act; however, the common law offence of manslaughter by gross negligence will now be restricted to individuals.

The Act will apply to companies, specified crown and governmental bodies, partnerships, LLPs, and trade unions. Such organisations can be found guilty of an offence if the way in which any of their activities is managed or organised by their senior managers causes death due to a gross breach of a relevant duty of care. A party found guilty will be subject to an unlimited fine and the possibility of a publicity and/or remedial order.

It is crucial therefore that policies and procedures are in place to limit litigation exposure but more importantly to ensure that people are protected. 

All reasonable endeavours

The recent case of Hiscox Syndicates Ltd v The Pinnacle Ltd [2008] considered the meaning of "all reasonable endeavours". The case centered around an application by Hiscox for an injunction to restrict the noise and vibration caused by building activities being carried out by Pinnacle.

It was ordered that the injunction should contain a provision that if the prescribed level was exceeded in any one hour period it would not be a breach if Pinnacle could prove it had taken steps to prevent the excessive noise and vibration happening.

Disagreement arose between Hiscox and Pinnacle as to what these steps should be: Hiscox wanted Pinnacle to show it had "used all reasonable endeavours to prevent such an excess occurring"; whereas Pinnacle wanted to show it had "used all proper and reasonable steps to prevent such an excess occurring".

In accordance with well-established case law, the injunction was granted on the basis of "all proper and reasonable steps". It is important to note, however, that in reaching this decision the court considered the difference between the two standards of  "all reasonable endeavours" and "all proper and reasonable steps".  The judge helpfully provided guidance on the meaning of "all reasonable endeavours" which will apply to all areas of law. In particular, the judge stated that: "best endeavours" is more onerous than "reasonable endeavours"; and “all reasonable endeavours" should be equated with (and is not less than) best endeavours on the basis that "reasonable endeavours" does not, generally, require a party to take all reasonable steps but "best endeavours" probably does.

When drafting contracts, there is a hierarchy of obligations, the strongest being an absolute obligation to do something through best endeavours down to reasonable endeavours. The above case makes it clear that the previous suggestion that "all reasonable endeavours" falls somewhere in the middle is not correct.

Top tips – Avoid conflict of interest

Section 175 of the Companies Act 2006 imposes a duty on directors to avoid a situation in which they have, or could have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. It is important to note that:

• There is no definition of “interest” or “conflict of interest”, although a reference to a conflict of interest includes a conflict of interest and duty and a conflict of duties;

• The conflicting interest can be direct or indirect;

• The duty applies in particular to the exploitation of any property, information or opportunity, whether or not the company could itself take advantage of it;

• The duty is not infringed if the situation cannot reasonably be regarded as likely to give rise to a conflict of interest;

• It appears that it is not necessary for a director to have any influence over a particular situation for a conflict to arise;

• A director must declare the nature and extent of that interest to the other directors;

• A conflict can be authorised – but it cannot be authorised retrospectively;

• Failure to comply with the provisions contained in section 175 is a criminal offence – although there are some specific instances where declaration is not required

Is this a change in the law?

The new provision embodies the current law that is derived from the expression of the rule by Lord Cranworth in the case Aberdeen Railway -v- Blaikie Brothers [1854]: “[No fiduciary] shall be allowed to enter into engagements in which he has or can have a personal interest conflicting or which possibly may conflict with the interests of those whom he is bound to protect”.

Commentators of the Companies Act 2006 have expressed that, “this section imposes a positive duty to avoid conflicts of interests and departs from the common law which merely imposed a ‘disability’ in a situation of conflict, but did not impose a duty to avoid a conflict”. (Hannigan and Prentice).

In order to ensure compliance with the duties imposed by section 175, boards should have procedures in place to:

• Identify existing conflicts or potential conflicts as at October 2008;

• Ensure that any conflict is properly presented to the board;

• Consider the extent to which those conflicts should be authorised;

• Clarify the circumstances when authorisation can be withdrawn;

• Ensure that all future conflicts are reviewed regularly

Fact file – Company Secretary duties

From 6 April 2008 it will no longer be obligatory to appoint a company secretary, although companies may still choose to do so if they wish. It is fundamental that a secretary is fully aware of their duties and responsibilities, as they may be criminally liable for their failures.

The Facts

A company secretary is not required to hold any formal qualifications; however, must be ‘qualified’ by meeting various criteria. A secretary must appear to have proper knowledge and experience to complete the functions of the role and must also:

a)      be a member of a specific Chartered body;

b)      have held the office of secretary (or assistant or deputy secretary) of the company on 22 December 1980; or

c)      have held the office of company secretary (except a private company) for at least 3 out of the 5 years immediately before his or her appointment as secretary; or

d)      be a barrister, advocate or solicitor called or admitted in any part of the UK; or

e)      be a person who appears to the directors to be capable of carrying out the functions of company secretary, because he or she holds, or has held, any other similar position or is a member of any other body

Special duties include:

• The maintenance of statutory registers;

• Ensuring that statutory forms are filed promptly and accurately;

• Provide members and auditors with notice of meetings;

• Send copies of resolutions and agreements to the registrar;

• Supply copies of accounts to every member of company, debenture holder and any other party entitled to receive notice of general meetings;

• Keeping, or arranging for the keeping of, minutes of directors’ meetings and general meetings;

• Ensuring that people entitled to do so can inspect company records;

• Custody and use of the company seal.

To ensure that your company secretary is adhering to their legal responsibilities, contact us to discuss our Company Secretary health check service. 

Further information of our expertise and experience for specific assignments is available on request. If you would like to speak to us about any corporate or commercial matters please contact either Steve Thomas or Julian Maitland-Walker.

Maitland Walker Solicitors

As this information has been prepared by Maitland Walker Solicitors as a general guide, we recommend that you seek specific professional advice before acting upon the information contained within it.  Maitland Walker can accept no liability for any action taken or not taken as result of this information. Maitland Walker is regulated by the Solicitors Regulation Authority