1. Over the last few years I have written about four core inter-linked phrases, which can be summarised as:- too much law; too much complex law; law which is unenforceable; and law which is unenforced. To me, these phrases suggested among other things an absence of common sense in the corporate and commercial legal processes. They could apply to many areas of law; I am concentrating on business law.

 

  1. As part of my interest in these and related topics I gave a lecture at UCL Centre for Commercial Law, entitled “Common Sense – the Dark Matter of Business Law”.   Research for that paper included a survey of owner/managers of SMEs who produced comments such as:-

…a director of a small company is far too busy keeping his head above water to worry too much about regulations. I would say that the attitude towards all this is to ignore it, fear it, hope it goes away and hope you won’t be caught doing something you didn’t know was wrong in the first place. I would also say that most directors of small companies run their businesses using common sense and by hard work and a desire to make money, grow the business, employ the people and so on.   Regulation is a barrier to this”.

 

  1. My paper looked at the “disconnect” between (i) those who decide on the framework of rules and those who draft them, and (ii) the “users” of those rules. I wondered whether common sense could have any part to play in drafting legislation, because if people can’t or don’t (for whatever reason) understand the law, they might ignore it; they might also do the same if it makes no “sense”.   I also wondered about issues of legislation being micro-managed, resulting in an enormous piece of domestic legislation of particular concern to me (Companies Act 2006 and its dozens of accompanying statutory instruments).

 

4. I summarised my ideas follows:-

 

In respect of SMEs, as well as many other groups, there are far too many rules, most of which are too complex for their constituents to understand without costly assistance;

 

If laws are going to be passed there should be an acceptance that they will, whenever possible, be clear for their core constituents;

 

One size generally does not fit all companies/constituents and we should stop trying to draft laws as if it does;

 

Too often the wrong people appear to have been consulted during the discussion stages of the legislative process, when that process applies to smaller businesses;

 

Legislators should not try and micro-manage the regulations of every sort of business – some need it more than others;

 

If those who wish to encourage SMEs, and economic growth through that part of the private sector are serious about doing so, then not only do we need less complex legislation, we need appropriate legislation; and

 

If a halt to legislation is not possible, appropriate rules need to be introduced; in the case of some SMEs, a Smaller Companies (Companies) Act, about which more ideas to follow

 

It seems to me that there is a strong case for those teaching company law in its widest sense to become involved in this debate, to shape future regulation by broadening the views of practitioners.  I appreciate that some of these issues may not be within the direct scope of undergraduate law courses, but I believe that those teaching company law could assist by finding a way to introduce some of these issues.

 

It leads on to another area about which there will be more to follow if I can gather any enthusiasm. the breaking down of “ silos” !

 

Nick Gould

 

I saw an article in The Times about that on-going debate” do we have too many lawyers”? I understand the number of solicitors qualified to work in England and Wales has increased by more than 35% over the past 10 years, according to the Law Society. The number holding certificates – which excludes retired lawyers and those no longer following a legal career is about 130,000– up from about 115,000 seven years ago. That said, the number in New York State is more than 150,000 and to show statistic mean whatever you want,the number in Italy is not too far from the number in England and Wales.

 One particular point caught my eye.The idea that because there are so many lawyers there is so much law. The point seemed to be more lawyers — more law BUT less lawyers– less law. My response was ” wrong / wrong !” . Having been a member of the Good Law Initiative  www.gov.uk/good-law, I have given this some thought. From my totally amateur research, certainly in the world of business law where I work, most lawyers don’t have any particular interest in how a bundle of ideas gets to end up as a particular statute. Some who have a passion for a subject, might,but that I suggest will be rare. Lawyers work with what they are given. So give me The Companies Act 2006 with its 1200 sections and 14 (or whatever) schedules and I don’t sit and wonder where it all came from.I just get on and find what I need.

I have suggested before those lawyers who try genuinely to look after the best interests of their clients ( and those who like to go home earlier than late at night ) would be happier to see a lot less law. And this takes me to another point; that of potential professional liability.We have sadly adopted an aspect of the US legal system which is to think that every deal or other piece of advice will throw up a risk, every client is a potential litigant against his own lawyer  and therefore every lawyer, like so many others giving professional advice, now has to be 100% (or more) careful and cautious.

In a recent piece by Mike Atherton ( ex-captain of English cricket team for those not aware) headed ” law enforcement should rest with umpires “he makes a number of fairly unkind comments about lawyers and you know what, who can really blame him? For example he suggests, in connection with cricket’s codes of conduct, these will attract  “armies of lawyers ready to exploit any loophole”. One further point he makes is why cricket, (like other sports I assume),spends hundred of thousands of pounds on legal fees.

Why? I suggest because those running these organisations, like so many others have essentially abrogated their roles and duties, for reasons I don’t understand.Clients and others instructing law firms in so many cases need to take up more responsibility. How often do I hear ” Oh its the lawyers”; but hey, lawyers are advising or working with a client, so why the cry? Years ago I read a book by Mary Ann Glendon, a professor of law at Harvard  called ” A Nation under Lawyers”; I never thought it could happen here;why has it?

Or more accurately the question is, I think, why do people think we are a country run by lawyers?  Is law too complex and difficult for all but lawyers to understand? If so it is a damning indictment on those who are responsible for legal drafting  and who, as I know,work hard to make sure it is intelligible.There is no doubt some laws are difficult, for everyone, even judges. Or is the problem a legislature which comes up with complex ideas and wants these turned into rules with little time for anyone to really think about them. Micro-managing the world  so that every rule is set out in vast detail ( for example 31 sections on the rules on company names) really doesn’t help many people.

Back to gouldsmatra ( repeat after the writer) :

too much law;

too much bad / complex law;

laws which are unenforceable; and

laws which are enforced.

and never mind the number of lawyers for now .

I had a go the other week at writing about Silos. I was gently reprimanded [ thanks DL] for not better explaining what Silos are. In this context the word Silo means ” a system or group or team, working in isolation from any other group or team “. I was disappointed at the few responses received because I really do think it is something worth thinking about; how to better share information which will in turn lead to greater understanding (and who knows what else), between my four Silos; practitioners,academics,Whitehall / Westminster and the end-users, in this case Small and Medium Sized Enterprises (SMEs). My one page paper on silos can be found here,I hope  — or in an earlier blog on this site http://t.co/myqrE8KtOG  Do have a look when you have a minute. Thanks.

This is something which I keep thinking about and seems to be relevant in so many situations. I am only focussing on business law – my specialist area , but think about its application in international politics, medicine , teaching and so on.  It started during my discussions as part of the Good Law Initiative working group. Silos could perhaps be defined, at least by me,  as the following four “parts” of the business law system in which I work– academics, professionals, clients and Whitehall / Westminster. [ Note that for the purposes of this discussion , I have not included the legal system as a specific part , as I think that would be wrong] I am sure the Silo concept could be applied to various other parts of the economy as well as areas already mentioned. Silos, as I understand it,  generally allow no leakage in or out and are seen as self-contained units unless, like me, you are lucky enough to straddle some or all of them. I don’t think, as I have described them, they are beneficial to any one part of the system; are they ?

 

Within the area of the economy in which I am particularly involved – that is the legal market relating to small and medium sized enterprises (“SME’s”) there is little interaction between those four groups so far as I am aware .   I have written before in respect of the much bigger organisations (whether they are international investment banks, large accounting firms, FTSE 100 companies and, perhaps, (although I cannot of course possibly  confirm or deny !!) government ministers and/or senior civil servants ), where there is I believe a silo breakdown and so a lot more inter-silo contact between members of the various silos. Is this because, perhaps, the need for that contact, particularly from an overall  economic and /or a political point of view, is much more important than for smaller organisations or for some other reason?

 

For example, if a FTSE 100 company is pitching for a £1 billion contract overseas, it is quite possibly going to need government support as well as support from numerous of its professional advisers. It may also be because the size of each silo at that “top/ exclusive “( call it what you will), level, is still much smaller than in the case of the millions of SMEs. This perhaps is a reflection of how the City itself used to operate when some quite rightly , I think, described it as a club.

 

However an SME with a turnover of, say, £5 million wanting to obtain an overseas order  is I suggest much less likely to have contact with other silos except, perhaps, with its local professional advisers. I wonder how interested the other silos would be in getting involved – at the £100m level, “sure“ but at the £5m level, “maybe not”.

 

I am also aware that in other areas, for example medical research, successful attempts have been made to break down the silo mentality.

 

My question is whether the lack of contact between the silos is a barrier to better and more productive business and better and more useful information flows. I think the answer must be yes but I have done little research on this at the moment.  I have had discussions, as mentioned, with members of all three other silos, academia, Whitehall/Westminster and of course many of my clients themselves.   All of us think this is a topic worth exploring so that is what I intend to do in a further series of short notes. I would very much welcome any comments.

This is another piece which sets out some of the areas I have written and lectured about in the past and which want to blog about when I get some time.There are, I reckon some good discussion subjects below — anyone have a view ?

As many know,several years ago I wrote a short paper about four core inter-linked phrases, which can be summarised as:- too much law; too much complex law; law which is unenforceable; and law which is unenforced.. These are now known ( by me at least ) as gould’s mantra. To me,these phrases suggested among other things an absence of common sense in the corporate and commercial legal processes.They could apply to many areas of law; I am concentrating on business law.

In 2011 I gave a lecture at UCL Centre for Commercial Law, entitled “Common Sense – the Dark Matter of Business Law”. Research for that paper included a survey of several owner /managers of SMEs who produced comments such as:-

…a director of a small company is far too busy keeping his head above water to worry too much about regulations. I would say that the attitude towards all this is to ignore it, fear it, hope it goes away and hope you won’t be caught doing something you didn’t know was wrong in the first place. I would also say that most directors of small companies run their businesses using common sense and by hard work and a desire to make money, grow the business, employ the people and so on. Regulation is a barrier to this”.

My paper looked at the “disconnect” between (i) those who decide on the framework of rules and those who draft them, and (ii) the “users” of those rules. I wondered whether common sense could have any part to play in drafting legislation, because if people can’t or don’t (for whatever reason) understand the law, they might ignore it; they might also do the same if it makes no “sense”. I also wondered about issues of legislation being micro-managed, resulting in an enormous piece of domestic legislation of particular concern to me (Companies Act 2006 and its dozens of accompanying statutory instruments).

I summarised some of  my ideas as follows:-

In respect of SMEs, as well as many other groups, there are far too many rules, most of which are too complex for their constituents to understand without costly assistance;

If laws are going to be passed there should be an acceptance that they will, whenever possible, be clear for their core constituents;

One size generally does not fit all companies/constituents and we should stop trying to draft laws as if it does;

Too often the wrong people appear to have been consulted during the discussion stages of the legislative process, when that process applies to smaller businesses;

Legislators should not try to micro-manage the regulations of every sort of business – some need it more than others;

If those who wish to encourage SMEs, and economic growth through that part of the private sector are serious about doing so, then not only do we need less complex legislation, we need appropriate legislation; and

If a halt to legislation is not possible, appropriate rules need to be introduced; in the case of some SMEs, a Smaller Companies (Companies) Act.

It seems to me that there is a strong case for those teaching company law in its widest sense to become involved in this debate, to shape future regulation by broadening the views of practitioners.

I appreciate that not all of these issues may not be within the direct scope of undergraduate law courses, but I believe that those teaching company law would greatly benefit their students by finding a way to introduce some at least.

I am often asked why it is important to document / record shareholder arrangements—particularly by SME owners.    Let me give you three practical examples which I often use; each is true. I appreciate there can be an upfront payment for fees. But as you will see, I think it is worth it; the alternative is usually worse.

 

One

Mr Smith owns all of the shares in a private company.The company is doing well but Mr Smith is not getting any younger and wants to slow down.   He brings into his company, where he is currently sole shareholder and sole director, Mr Jones.  He sells Mr Jones 25% of his shareholding for £25,000 and it is agreed that should Mr Jones leave he will resell the shares to Mr Smith.  Five years later the company has expanded dramatically and is making very large amounts of money.   It has trebled its workforce and can barely keep up with its orders.  However, Mr Smith and Mr Jones are unable to carry on working together and Mr Jones wants out.  Mr Smith says that’s fine and he will buy his shares back for the same price at which Mr Jones acquired them, i.e. £25,000.   Mr Jones is not a happy man!  He suggests that the price for the shares should reflect the massive rise in  the company’s profitability over the last few years and requests a figure some twenty times the amount offered.   There is no documentation to assist.   A simple agreement (even if covering little else) might have suggested words to the effect that “should Mr Jones leave, his shares will be valued by an independent third party (which may include the company’s auditors), and such valuation  will be the price at which Mr Smith will purchase those shares”.   Of course the clause could have been slightly (or much) longer but even basic wording such as that ought to have done the trick.  In the end  – and this is based on a set of facts almost identical to the example given –  the parties agreed a very expensive deal for Mr Smith on the steps of the court.   As I recall the total bill, including the cost to re-buy the shares and legal fees for both parties, was pushing £1 million.   The initial price that Mr Jones paid for the shares  was about £4,000.

 

Two

Mr Blue and Mr Grey each own 50% of the shares in a private limited company.   They are the only directors.   There is no shareholders’ agreement or any other written arrangements between them.   After some time working together they disagree fundamentally about the future direction of the company and there is a complete breakdown in trust and confidence between the two of them.   The company is profitable and has plenty of cash in the bank.   Neither of them is prepared to sell his shares to the other and neither of them is prepared to sell his shares to a third party.   Each wants total control of the business.  There are legal mechanisms by which they could deal with this  but that would involve an application to the High Court.  Neither is prepared to pay to initiate such proceedings.   Because of the mistrust between the parties the bank accounts are frozen.   The company, therefore, cannot pay its debts even though there is plenty of cash “available”.   In the end after several weeks of fruitless negotiations between them, they get some  sensible and commercial advice from their respective lawyers and they come to a settlement – although not necessarily the best one.   It does not really matter what that settlement is.   During the interim period the customer base of the company has suffered badly. The Company has lost the confidence of its employees and its suppliers.   There is a sense of mistrust between the two parties on an ongoing basis and six months later the company is sold for a significant discount to its true value.  Both of the shareholders end up with a lot less than they would have wanted.

 

Three

Mr James and Mr Johns each own 50% of a PR company.   They disagree on the future direction of the company.   It is all very amicable but they don’t want to continue working together.   The company is extremely successful and has a very large pot of money in the bank.   They are both equally relaxed as to whether they go or stay but one of them will have to go – the other person will continue to operate and, indeed, own the company.   The fact that there is a significant cash sum in the bank again, there is no shareholders” agreement or any other document which plots a route to determine how they divide up the company.  In this instance a truly “commercial” solution was suggested.  The fact that they were media related companies inspired their legal adviser  [WHO ME?] to suggest they invited their friends and contacts, together with as many media sources as they could find to a party .   They would toss a coin.   The person who chose correctly would then decide whether he took the cash or the company – in this case, remarkably, both were sufficient to satisfy each party.   Unfortunately although one of the two shareholders thought this was a great idea – the other didn’t.   The final outcome is not known but rumour is, again, they ended up in court.

 

The fact there was no shareholders’ agreement added significantly to this drama.  A good lawyer advising clients setting up a business together would always suggest some sort of written document between them.  It could be as long or as short as they wish.  None of this is particularly difficult or particularly expensive.  The cost of litigation is significantly greater in time, cost and management terms, than the cost of having a short, clear shareholders’ agreement drawn up at the outset.

 

Goulds mantra suggests, among other things, that we have too much bad / complex law. Rather than make that statement in isolation, I thought you might like this (not) nice example. It might be of practical interest for many SMEs who have small contractual claims.

It’s not what the law is or isn’t, but the process itself. Why have I chosen to blog about it? Because many too many small companies have small claims against bigger organisations – some of course may be try-ons. However, in my experience, very many are not. Why should a smaller company have to “give up” its rights to bring a claim, just because the system does its best to put hurdle after hurdle in the way?

Sheena (who is not in fact a punk rocker, for those who remember the Ramones but is a lawyer – important fact) and her husband booked two tickets on “Planet Zog airways” four months ago. Then, about four weeks before flying, Sheena’s husband cancelled the flight assuming (he thought quite reasonably) he would get some sort of refund. The whole thing was of course carried out online. The refund offered for the cancelled tickets was zero, although there was a tax refund of £225 of the total amount paid (£1,000). The airline, of course, suggested the contract was formed when the tickets were booked, and full cancellation details were set out at that point.

So, is it reasonable to expect customers to remember the cancellation policy in these circumstances? Some airlines set out their cancellation policy clearly in their website T&Cs. This one doesn’t. What follows is a nightmare journey through so-called consumer protection legislation.

 

Question  – how to get money back?

 

FIRST – Examine legislation which includes:

 

The Consumer Protection (Distance Selling) Regulations 2000;

 

The Consumer Protection from Unfair Trading Regulations 2008 (via trading standards — therefore perhaps no direct consumer right/query applies to services);

 

The Unfair Contract Terms in Consumer Contracts Regulations 1999 (this may be the one, although may have to go through what used to be the DG of Fair Trading from April 2014 replaced by the Competition and Markets Authority – rules not particularly clear on that point, shouldn’t be the case);and

 

maybe Unfair Contract Terms Act too

 

Result

None of these are particularly easy to understand and one key area to think about (but who would?) is to what extent each is/is not relevant to a contract involving transportation.

 

Note: Unfair contract terms guidance. Contacting the Office of Fair Trading (OFT) If you think that any of the standard terms in a consumer contract are unfair you should contact Consumer Direct in the first instance at the address below. The OFT cannot provide advice or assistance to individual consumers or traders. For consumer advice, information on specific consumer rights, to make a complaint against a trader or to contact your Local Authority Trading Standards Service, please call the Consumer Direct advice service or visit the Consumer Direct website.

 After phoning Consumer Direct, they suggested that it was possible to bring a claim to court directly “like anything else”. But after explaining the situation to the person on the line, she kept insisting that the claimant would not be legally entitled to be reimbursed as she had already agreed to enter into the contract when she first purchased the tickets – good thing she isn’t a lawyer or, presumably, giving legal advice.

 

Claim form finally prepared. The next part is to actually issue it. Lawyer and colleagues spent over 30 minutes trying to find the relevant County Court for their London address. So far, not one court anywhere seems to serve either W2 or indeed W1—surely they do… but where are they?

All searches take you to an online system in Manchester, or The Royal Courts of Justice – I am sure the RCJ would not be interested in this £700 claim. But that is apparently the local County Court, we are told by our friendly lawyer.

By the way, the Notes for Guidance on the Claims Issuing Form don’t have the relevant information about “which Court”, even though they say they do… and so as noted… we looked and we looked… and we looked… and we wondered what this is all about… and why yet another part of the system, to use that well-known phrase, “is broken”.

At last, Sheena the non-punk rocking lawyer manages to issue the claim.

Watch this space for part 2.

 

A couple of years ago I took part in a radio discussion on the complexities of law;  I knew a lot less about this topic than I do now , but this summary received at the time from an owner of several SMEs might be useful . Hopefully others will want to comment. I will develop some of these ideas in due course.

I focussed on

1.  the true cost to business etc

2. the fact that complexity leads to people just ignoring the rules

3. the fact that one size in the law doesn’t fit all.

He said. that he would  have liked to raise the following with lawmakers  ………………………

“Always trying to write regulations that deal with every eventuality rather than something closer to the 80 / 20 rule that pervades the rest of life.  Deal with the bulk and let the courts and common sense deal with the rest.

Completely lost sight of the biggest customer of regulation i.e. the company with a small number of employees, and what its needs are.

Stop changing the regulations so frequently.  Take longer, write better and resist the bureaucrats jobsworth to continue changing at every opportunity.

Restore the balance between employer and the rest.

Stop blaming the EU – deal with it, we are in the club.

Help the employer – stop hindering it

Get the lawmakers out in to business and have them try and implement the nonsenses they have created.”

 

I see the Forum of Private Business has estimated the financial impact of red tape on companies with fewer than 250 staff is more than £19 billion a year. The same report suggests that the compliance bill for firms with less than nine employees is more than £150 per employee. So despite the best attempts of DBIS to slash the red tape burden which I support completely , it still seems to be much too heavy. As the SME constituency is one which I often think doesn’t always get the support it needs , this blog will , in its own small way, attempt to draw attention to SME concerns ; of which I know there are many.

Pause for thought–

 A client who was an in–house lawyer at a FTSE 100 company once told me that there are only ever three key issues in a legal agreement – our joint objective is to work out what they are. What does that mean we need to do as commercially minded transactional lawyers? Ignoring the fact that a well drafted contract will never correct a commercially bad deal here are just a few ideas   Let’s see if you agree, and I accept it’s rather easier to do this when you have been practicing law for years than when you are just starting.

 

  1. Work with a client rather than just always accepting their views;

 

  1. Don’t just follow precedents without thinking about the relevant deal;

 

  1. Try and remember it’s about the client, not about egos.

 

One of the main issues for me,  is persuading clients that although they have agreed a deal with their ……….. brother, sister, best friend, friendly advisor or just a third-party who wants a cut of the deal, they do need to properly document it.

For me, that doesn’t necessarily mean putting together the longest possible agreement, much of which will invariably be irrelevant to that deal. It does mean looking at the deal from both a legal and commercial point of view and documenting the agreed key and other relevant points.

The same FTSE 100 lawyer told me it is your job to get me 90% of the way there I will worry about the risk of not documenting the other 10%. Lawyers, I think, can’t protect the client 100%. For example, my client who wanted to buy a ship management company but only with guaranteed zero risk or even zero potential risk, was just wasting his time. Any good corporate lawyer can negotiate and draft all the relevant papers for a deal valued at £1million or £50 million.  A commercially aware corporate lawyer knows when to tell his client, “I think,from my point of view, this is as good a deal as you will get—do you want to do it from your point of view?” And bear in mind the two views may not always be the same  A good transactional lawyer knows when and how to close a deal—it’s a skill in itself.

TO BE CONTINUED