Care Quality Commission (CQC) inspections have fallen to their second lowest level in almost 10 years, as the day-to-day regulatory function of the public body continues to lag behind pre-pandemic activity.

According to new data, physical inspections by the CQC have dropped from a peak of almost 23,000 in 2016, to just less than 8,000 in 2023 – a marginal increase on 2020 figures, which showed that 7,711 inspections were carried out during the height of the COVID-19 pandemic.

Of the 107 inspections with an overall rating of ‘Requires Improvement’ or ‘Inadequate’, only four have resulted in completed and published full Quality Statement reviews.

The fall in inspections also coincides with the commencement of the CQC’s new operating model, which may account for some of the reduction.

Bill Dunkerley, regulatory associate partner at Pannone Corporate, which conducted the annual research under the Freedom of Information Act, commented: “Despite the fanfare and extensive publications to promote its introduction, the CQC’s new regulatory model has had something of an inauspicious start.

“The regulator was hopeful that its new approach would enable it to be more dynamic in its assessment of services, and permit more contemporaneous data collection to take place. Far from becoming a more proactive, dynamic and responsive agency, as the data shows, the CQC is becoming more sedentary in its approach.”

The research shows that despite an increase in the number of concerns being received by the CQC, the total number of regulatory actions taken by the Commission has fallen year-on-year and currently sits at around half of pre-lockdown levels (10,618 in 2019; 5,783 in 2023). Although there was a clear drop-off in the number of regulatory actions in 2020, figures have remained consistently low since then, compared with upwards of 15,000 each year in the period following the CQC’s receipt of enhanced powers in 2015.

In addition, the use of warning notices has dropped significantly, from a peak figure of just over 1,500 during 2015 to less than 600 in 2023. Despite a flurry of prosecutions over the last few years, the annual figures also show that prosecutions are decreasing rapidly. There are currently 121 open criminal investigations concerning specific incidents or unregistered providers.

Dunkerley added: “To be an effective regulator going forwards, and one with real teeth, the CQC has to combine its new inspection and assessment framework with meaningful regulatory activity. Whilst to date, the CQC could have been seen to be relatively proactive – undertaking inspections of providers at fairly reasonable intervals – an inherent danger within its ‘data-driven’ approach is that this may result in it becoming reactive, as recent data perhaps tends to indicate.

“At the end of the day, the CQC’s new regulatory model does not change its investigatory and enforcement powers. The latest figures suggest that either the CQC is becoming less active, or is achieving compliance by providers without the need to resort to use of its enforcement powers.”

In the latest in our 10 year anniversary blog series, Ten in 10, we speak to the man who keeps the IT engine running at Pannone – Steve Elderfield.

Steve joined what was the ‘old’ Pannone is 2006 as a Senior IT Support Technician, before moving across to Pannone Corporate following the firm’s MBO in 2014, becoming IT Manager. Ten years on, he continues to play an integral role in the firm as IT & Facilities Manager. “Pannone offered a great opportunity to continue my journey in IT which I couldn’t turn down and I’ve never looked back,” admits Steve.

Like many people in the firm, his role has evolved significantly in the last 10 years. “What started out as just the IT Manager, has grown into much more,” explains Steve. “I have taken on more roles and responsibilities along the way, covering various different areas of our IT and the building.”

While his role has developed in the last decade, there’s one thing that hasn’t changed from the day he started and that’s the people and work culture. “Everyone was very friendly and welcoming on my first day, which gave me a real sense of acceptance and made the working environment that much more enjoyable,” says Steve. “I recall feeling like I was part of something special and through the years I developed a lot of friendships in the firm.”

There have been a number of highlights and key achievements for Steve since he joined, including his own personal development and gaining the trust and responsibilities that comes with the role, while also seeing and being part of the firm grow into what it is today. But one particular highlight was the move to the Chapel, which Pannone proudly calls home. “Although the move was very challenging to manage at the time,” admits Steve. “It was also very exciting to be a part of.”

He’s not only proud of Pannone and its achievements in the last 10 years, but also how the North West business community has grown during that time. “It’s been flourishing over the last 10 years, bringing more people to the city,” says Steve. “In the next 10 years, I can only see the North West becoming one of the great business hubs, alongside London which, in turn, will boost the economy and generate more work for firm’s such as ours.”

The use of the word ‘our’ feels very deliberate. Steve has a strong connection with the firm and carries real aspirations for more expansion and growth, but it’s how he describes Pannone that tells the true story of his relationship with the firm – “If I had to describe Pannone in one word, it would be ‘family’.”

Commercial entities will, at some time or other, be faced with the termination of a contract they are a party to. Despite the parties’ best intentions at the outset of a contract, circumstances may change, whether through a change in the economy; rising cost of materials; an unforeseen situation whereby one party is unable to perform its obligations under the contract; or the effect of a global pandemic. In such circumstances, termination of the contract may become a consideration, whether for convenience or for breach.

Often the position on termination is more nuanced than might at first appear to be the case. This means careful consideration should be given to a number of issues, including:

1. is termination the right option and are there any alternative outcomes available?
2. whether a party is in fact able to terminate under the contract terms;
3. the practical and procedural steps that will need to be followed in accordance with the contract; and
4. the effects of termination.

Meaning of termination

Termination of a contract is where the contract is brought to an end, such that the parties are released from their continuing obligations effective from the termination date. Termination does not undo the contract and the contract will still be enforceable by both parties in respect of any historic rights or obligations which have accrued prior to the termination date. There are also often terms that will survive termination, for example, post-termination restrictive covenants and/or terms relating to misuse of confidential information. However, the future performance of obligations under the contract will cease on termination.

Entitlement to terminate

The starting point when considering termination is the terms of the contract itself. It may be possible to terminate for convenience, by either party giving notice in the required format and with the specified notice period.

If a party is looking to terminate based on the other party’s alleged breach of the contract, it is important to note that not every breach of a contract gives an entitlement to terminate. Often in commercial contracts, certain events will be specified as being a material breach which give rise to the ability to terminate, for example, the insolvency of the other party.

In the absence of any express termination provisions within the contact relating to breach, it is necessary to consider whether the breach committed entitles the innocent party to terminate. In doing so, it is necessary to consider whether the breached term is a condition, which will enable a party to terminate for breach, a warranty or an intermediate term.

A condition is a fundamental term of the contract, going to the heart of it, and a breach of which will enable the innocent party to terminate the contract and claim damages. Generally, a breach of a condition is not capable of remedy, for example, the main purpose of the contract has not been performed.

By way of contrast, a warranty does not go to the root of the contract and therefore if a warranty term is breached, this will not entitle the aggrieved party to terminate, but their remedy will be limited to damages for any loss suffered; the contract will continue.

There are other terms, which when breached, the remedy for which will depend on the nature and effect of the breach at the time it happens. In this sense the position following the breach will be fact specific and may give rise to an entitlement to terminate.

In the heat of the moment, it may be difficult for commercial parties to ascertain whether the affected term is a such that it gives rise to an entitlement to terminate the contract. Whilst parties will often seek to label a term as a ‘condition’ when looking to terminate a contract, whether or not a term actually is a condition will often require closer consideration. It is therefore often sensible, before taking the decision to terminate a contract, to seek independent legal advice as to your position.

Giving notice

Before taking any steps to terminate the contract, it is necessary to reconsider the specific terms around termination and the necessary steps that must be taken to ensure the termination is effective. Accordingly, it is necessary to have regard to:

• whether the party in breach must first be given a chance to cure a breach of contract;

• the time period within which notice can be given – commercially drafted contracts will often include provisions which preclude the termination of the contract where the innocent party has unduly delayed in exercising their rights under the contract, i.e. they will be taken to have affirmed the breach if the contract has not been terminated within the prescribed period;

• the content of the notice – if terminating for breach, it will be important when giving notice of the termination to clearly set out the grounds for termination, including details of the breach and with reference to the contract terms;

• another consideration on giving notice to terminate, including for convenience, is where a contract is subject to automatic renewal terms, it will be necessary for the party wishing to terminate the contract to consider the period of notice which it is required, so as to avoid the situation whereby the contract is automatically renewed for another period; and
• the means of communicating notice – it will be necessary to consider:

• who can give notice;
• the form of the notice required, i.e. is there a requirement for the notice to be in writing?
• the means of delivering the notice, i.e. is there a requirement for notice to be sent by email to a specified individual and/or by recorded delivery post, and/or by personal service?
• when the notice will be deemed delivered.

Effect of a failure to properly terminate

If a party elects to terminate a contract without sufficient grounds or fails to do so in accordance with the prescribed procedures, it will not be sufficient to terminate the contract and the act of purported termination can itself be a repudiatory breach of the contract entitling the other party to terminate the contract and sue for damages. This is why it is often advisable to seek professional advice when considering the termination of a commercial contract.

Alternatives to termination

By terminating a contract, you are effectively terminating, or at the very least potentially prejudicing, any ongoing business relationship with the other party. In addition, there may be reasons not to terminate a contract if there has been a breach, for example, if you are due to receive payments from the other party and there are no concerns as to their solvency.

Whilst circumstances may allow for termination of a contract, this does not mean it is always the most appropriate course of action to take. If the parties want or need to salvage their ongoing business relationship, other alternatives can be considered, including:

1. the renegotiation of the contract terms and a variation of the contract itself to reflect a change in circumstances; and
2. if an alternative remedy is available and/or if there are any prescribed procedures within the contract in the event of a dispute, for example, arbitration or mediation.

All in all, the termination of commercial contracts should not be rushed, and it is important to ensure that sufficient thought and consideration is given to the position before taking any steps. Seeking advice as to the position and exploring the commercial implications of taking such a step is important, before moving forward to terminate.

If you would like to discuss this blog, please contact Jonny Scholes on 07824 435665 or by email to jonny.scholes@pannonecorporate.com

Manchester law firm Pannone Corporate has strengthened its team with the appointment of four legal professionals.

Helen Fyles joins the firm as an associate partner in the insolvency and restructuring team, previously having worked at Knights plc and Mills & Reeve LLP. Helen will support partner Daniel Clarke in helping to develop and grow the team, bringing over 20 years’ experience advising all stakeholders in the insolvency process, particularly insolvency practitioners in their capacity as liquidators, administrators and trustees in bankruptcy. Helen also has particular expertise in insolvency investigations and pursuing delinquent directors.

Helen is joined at the firm by Jessica Boswell, who has been appointed as an associate in the dispute resolution team. Joining from JMW, Jessica will assist the team across a wide range of disputes covering general commercial contracts and professional negligence. She brings experience in breach of contract claims, misrepresentation issues and disputes with insurers in both an individual and business capacity.

Imogen Eastwood has been appointed as a solicitor in the commercial team. Joining from Deloitte LLP, Imogen will be responsible for advising clients on a wide range of commercial agreements across various sectors, ranging from trading agreements through to major projects.

Bradley Davies completes the current round of appointments, joining Pannone as a solicitor in the dispute resolution team. Bradley will support the team in advising on a wide range of areas, including real estate litigation, disputes concerning general commercial contracts, estates and trusts, intellectual property, IT and professional negligence.

Paul Jonson, senior partner at Pannone, said: “As a firm, we’re committed to hiring and investing in the brightest talent – people who possess technical excellence but also emotional intelligence.

“We recognise the value they can bring to the firm in helping us to deliver a personal, collaborative and client-focused service. I’m confident Helen, Jessica, Imogen and Bradley will be a real asset in our commercial, insolvency and dispute resolution teams as we look to build on our success in our tenth year of business.”

The General Election is just around the corner and is expected to bring a changing of the guard, with Labour firm favourites to take over the post.

A change in government would bring a change in approach, and while the manifestos are light on the detail, they do give us an indication of where possible reforms may come.

Labour has pitched itself as the party that will ‘make work pay’ for working people, in a bid to improve both living standards for those in employment and economic growth. This includes stimulating more funding for training, skills and technology, to help make the UK more efficient and increase productivity levels – something we currently lag behind on compared to our international peers.

An important dynamic in the productivity debate is how workforces function and the legislation that sits around them. So what could we see from a Labour government when it comes to employment law and HR? Let’s look at the detail.

Zero hour contracts

Labour’s plan to ‘make work pay’ includes ending “one-sided” flexibility by banning “exploitive” zero-hour contracts and providing a baseline level of security and predictability for all jobs.

The party believes that too many working people face insecurity when it comes to their working hours, bearing all the risk and being unable to plan and live well. However, the inclusion of the word “exploitive” suggests that Labour has moved away from its earlier pledge for an outright ban on zero-hours contracts.

Under Labour’s proposals, everyone will have the right to have a contract which reflects the number of hours typically worked by reference to a 12-week period.  Workers will also be entitled to receive reasonable notice of any change in shifts or working time, whilst also receiving compensation (proportionate to the notice given) for any cancelled shifts. Anti-avoidance measures will be implemented where necessary to protect the integrity of these policies.

The plans will not prevent workers from the right to be paid overtime rates, nor will it prevent employers from offering fixed-term contracts such as seasonal work.

Basic day one rights

Labour has indicated that it wishes to address what it sees as the unfairness of the current system that requires employees to have two years’ continuous service* before they can bring a claim of ordinary unfair dismissal. The party believes this is an arbitrary requirement which is preventing people from changing jobs and enjoying the resultant wage increases that often accompany such moves, and preventing employers from being able to hire the best candidates.

The length of service required for employees to bring a claim of ordinary unfair dismissal has fluctuated since its inception as a right in 1971. The current requirement of two years’ service was introduced by the Conservative government in 2012 (the requirement remains 12 months in Northern Ireland).

An unintended consequence of the two-year bar has been a rise in the number of discrimination claims brought by employees seeking to find a remedy for the termination of their employment in its early stages. It will be interesting to see if such claims reduce if the right of unfair dismissal becomes available from day one.

Labour has assured employers that they will still be able to operate probationary periods, although how this will work in practice is not yet clear. Commentators have speculated that perhaps dismissals within an employee’s probationary period will be deemed fair so long as a set process is followed.

*While we wait for the outcome of the election, it is worth flagging a point that often catches employers out. Where an employee is dismissed with immediate effect and paid in lieu of notice, the statutory minimum notice period of one week is added on to the dismissal date, meaning that employees dismissed after 103 weeks (one week less than 2 years) can still claim unfair dismissal.

Discrimination, equal pay, and the menopause

Labour’s ‘New Deal for Working People’ plan also includes proposals to promote equality, by tackling the gender pay gap and providing support in the workplace for those going through the menopause.

Large firms will be required to develop, publish and implement action plans to close the gender pay gap. Similarly, employers with more than 250 employees will be required to publish information about ethnicity and disability pay gaps.

There is also a commitment to re-instate the ability for equal pay claimants to draw on comparators in other organisations, where workers’ terms and conditions can be attributed to a single source, and to put a stop to employers outsourcing services to avoid paying equal pay. Labour plans to implement a regulatory and enforcement unit for equal pay with involvement from trade unions.

In relation to the menopause, businesses with more than 250 employees will be required to produce Menopause Action Plans, setting out how they will support employees going through the menopause. For smaller employers, Labour will produce and publish guidance on measures relating to uniform, temperature, flexible working and how employers should record menopause related leave and absence.

Right to switch off

To address what it describes as the ‘inadvertent blurring of the lines’ between work and home life caused by the change in working practices following the pandemic, Labour has committed to bringing in a ‘right to switch off’.

This isn’t a new concept. We can look to a number of European countries which have already given employees some form of right to disconnect, including Ireland. A voluntary code of practice statesthat employees should not be required to carry out work outside normal working hours regularly and should not be penalised for refusing to do so. The code also sets out that employees must respect their colleagues by avoiding work-related contact outside of normal working hours.

Labour’s proposal indicates that it will follow a model similar to that adopted in Ireland, ‘giving workers and employers the opportunity to have constructive conversations and work together on bespoke workplace policies or contractual terms that benefit both parties.’ It seems most likely at this stage that a code of practice will be introduced which can be taken into account by employment tribunals on liability and compensation, but does not in itself create a standalone claim, much like the current Code of Practice on Disciplinary and Grievance Procedures.

Working in partnership with trade unions

Unsurprisingly, one of the areas of employment law that a new Labour government would address is industrial relations.

Its stated aim is to bring in a new era of partnership that sees employers, unions and government working together in co-operation and through negotiation, rather than what it describes as ‘the Conservatives’ scorched earth approach to industrial relations.’

As a starting point, Labour would repeal the trade union legislation brought in by Conservative governments over the past 14 years, specifically, the Trade Union Act 2016, the Minimum Service Levels (Strikes) Bill and the Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022.  In particular, repeal of the Trade Union Act 2016 would potentially remove the requirement for at least 50% of all eligible members to vote in a ballot for industrial action in addition to a majority vote in favour, and reinstate the previous minimum period of seven rather than the current 14 days’ notice of strike action.

Referring to the disruption caused by strike action over the past two years, Labour believes its proposals will remove the barriers that currently make it harder for unions to engage in the bargaining and negotiation that settles disputes, and put the UK in line with high-growth economies that benefit from a more co-operative industrial relations culture.

A matter of time

If the polls are right and we have a new Labour government on 5 July, we expect the employment landscape to change quite quickly. Labour has committed to implementing its new its deal for working people within the first 100 days in government.  Over the coming months, it’s essential that businesses keep a watchful eye over a changing landscape to ensure their policies and procedures keep up with the changes.

If you’d like to discuss this blog in more detail, contact Fiona Hamor.

Photo credit: Chrisdorney

Following our AI in the Workplace event last month (May), our guest speaker, Dr Richard Whittle, University Fellow, University of Salford Business School, takes a closer look at AI and the future of work, looking at the uncertainty that exists, as well as the potential. Read more here…

AI and the Future of Work: A landscape of uncertainty

I doubt it is an exaggeration to say that virtually every time you look at the news, your socials or LinkedIn you see another story about Artificial Intelligence (AI). The subject is everywhere and headlines range between an AI utopia of less work and increased productivity, and the AI dystopia of science fiction nightmares. The AI of today is a long way from either extreme; however, it is fast becoming a feature of modern work and life.

You are hearing about AI everywhere you turn, as over the last 18months or so – in waves of increasing sophistication – a new type of AI is producing human realistic outputs in a manner which is both highly accessible and relatively inexpensive. Text, code, images and more can be produced quickly, cheaply and by anyone.

This is Generative AI (GAI) and we will talk more about this later. We will be mostly talking about ChatGPT which many of you will have heard about and may be using, but I should note impartially that there are other models with similar capabilities.

In order to get to grips with the implications of this new technology we must briefly mention the history of AI, this helps us to think about what this technology actually means for us and put the hype into context.

A Brief History of AI: Booms, Busts, and the Path to Today

The journey of AI is a fascinating tale of ambition and unpredictability. Since its inception in the 1950s, AI has experienced periods of significant hype, known as AI booms, followed by phases of disillusionment and stagnation, termed AI winters. These cycles were characterised by overpromises and unmet expectations, as researchers and technologists grappled with the complexities of replicating human intelligence.

This latest boom is marked by tangible breakthroughs that have brought AI out of the lab and into everyday applications, from chatbots to creative content generation. However, history teaches us to approach these advancements with a balanced perspective, mindful of both the potential and the limitations of AI. In recent years, we’ve witnessed a resurgence in AI, fuelled by advancements in machine learning, deep learning, and, notably, generative AI. Here I will borrow a definition from the Turing Institute’s fascinating Generative AI lecture series.

Generative = Create new content.

AI = Automatically with a computer program.

I tend to be cynical of ‘this time is different’ positions, however the accessibility and quality of generated output means that economies, markets and institutions will need to adapt to the ease at which some outputs can now be produced as well as consider the implications of these tools on processes and products. For me, the best way to think about this is in terms of radical uncertainty.

Radical Uncertainty in the Age of AI

The rapid development of AI technologies has plunged us into an era of radical uncertainty. The Resolution Foundation consider that AI “is unknowable in a way that rules out even envisaging some of the possible outcomes, and provides no sensible basis for attaching probabilities to any of them”. Unlike the risks we encounter in traditional scenarios, where probabilities can be assessed and managed, the impacts of AI on the future of work are far more elusive. This radical uncertainty stems from our inability to foresee the full scope of AI’s influence on job markets, economic structures, and societal norms. In short, how do we plan for something we cannot imagine?

Predicting the exact trajectory of AI’s impact on work is challenging. Will AI lead to massive job displacement or create new categories of employment? How will different sectors adapt to the integration of AI? These questions remain open-ended, and our current understanding provides only a glimpse into the possible futures shaped by AI.

Uncertainty is a better way to think about AI, rather than to think about it in terms of risk. Risk is knowable, we can put likelihood and chances onto outcomes, uncertainty doesn’t allow us the luxury of that.

Organisations, policy makers and individuals need to attempt to turn uncertainty into risk in order to plan for ‘the age of AI’. This will allow people to take appropriate risk with incorporating Artificial Intelligence.

You will note that I said appropriate rather than low risk, the potential reward and disruption of AI is great, and purposely low risk adoption may not be possible. The challenge with AI is that its rapid evolution and diverse applications introduce unprecedented levels of uncertainty. Acknowledging this uncertainty is the first step toward developing strategies that can adapt to the unpredictable nature of AI’s future.

As organisations contemplate the integration of AI, they face a paradoxical dilemma: incorporating AI carries inherent risks, yet failing to adopt AI is equally perilous. Embracing AI could lead to operational efficiencies, innovative products, and competitive advantages. However, it also brings challenges such as job displacement, ethical concerns, and security vulnerabilities.  Not embracing AI may however lead to falling behind competitors and consumer expectations.

Disruption in the World of Work

Generative AI is poised to be particularly disruptive in various sectors. In creative industries, AI tools can generate content, design graphics, and even compose music, challenging traditional roles and workflows. In finance, AI algorithms are streamlining processes, analysing vast datasets, and making real-time decisions that previously required human intervention. Digital twins allow us to test new products costlessly and AI product development means the cost of a business trying new things may be virtually nil.

These new technologies generate questions around skills, investment, work and more broadly what type of economy do we want and what will we end up with?

AI could automate repetitive and mundane tasks, allowing humans to focus on more creative, strategic, and interpersonal roles. This shift will necessitate significant upskilling and reskilling of the workforce. Education and training systems must evolve to prepare individuals for jobs in the age of AI, emphasising skills that can be completed by AI rather than compete with it.

Currently though, Generative AI, by automating creative knowledge tasks, is challenging this more traditional view of the role of AI. As X user @AuthorJMac succinctly puts it “I want AI to do my laundry and dishes so that I can do art and writing, not for AI to do my art and writing so that I can do my laundry and dishes.”

Picture credit: gorodenkoff

Nearly a decade on from joining Pannone Corporate, Danielle Amor talks about her career, her passion for seeing clients get the outcome they deserve, her love of coffee, and the growing influence of Artificial Intelligence (AI) in the legal sector.

Tell us a little about your career before joining Pannone

I studied law at Durham, then took the LPC at Oxford before starting a two year training contract at an international law firm in London, which included six months working at ITV in the Rights and Business Affairs team. I worked there for about seven years before making the move back up north.

My first role in Manchester was in-house at Manchester United working on the then-record sponsorship deal with adidas, before moving back into private practice at Pannone. When I joined, the firm had only been formed a few months before, so it was a really exciting time to be starting.

In her current role as a director in the commercial team, Danielle advises on commercial contracts, intellectual property and data protection compliance, with a broad range of specialism across the experienced team covering retail, fashion, manufacturing, hospitality, media, IT and industrial services. It was that talent and expertise that attracted her to Pannone. I was drawn to the mix of excellent lawyers and high quality work.

Despite a few wobbles along the way when she considered packing it all in ‘for a life of wanderlust’,  Danielle remains committed to the profession and what can be achieved. I am really irked by injustice! I enjoy seeing clients achieve the outcome they deserve, particularly when they have been in a dispute and I am instructed to draft the settlement terms.

Danielle is also passionate about the important role lawyers have to play in a world that is already changing with the increasing use of technology, particularly AI. I can see why businesses might turn to AI for drafting contracts and legal letters when they don’t always receive the practical, commercial advice they need from legal advisors. However, the nuances and subtleties that the majority of our drafting requires, cannot be replicated by AI as it stands. This reinforces why we need to continue to keep our advice concise, relevant and responsive to our clients’ needs.

So what does a typical day look like? I prefer being in the office, so I usually get in around 9am after dropping the kids off at school and nursery. A lot of my work involves drafting long agreements, so there is a lot of time spent in front of a screen. We have regular team catch-ups and training sessions in the diary and most client meetings tend to be via Teams. I also try and go for a walk at lunchtime and get a coffee from Mancoco to power me through the afternoon.

Coffee is a clear favourite of Danielle’s. When asked what she would be doing if she didn’t have a career in law, she responded: I have always quite fancied running my own café selling coffee and cake.

What’s more, if Danielle was managing partner for the day, the first thing she would do is install a coffee machine!

Outside of work, Danielle is kept busy by her three young children and a springer spaniel! We enjoy getting out into the nearby countryside and back to my home town of Blackpool whenever the weather allows. I also enjoy baking birthday cakes (for the kids, not the dog!) and yoga to de-stress.

Pannone Corporate has been crowned Corporate/Commercial Team of the Year at the 15^th annual Manchester Legal Awards.

The firm was recognised at the regional awards, which aim to reward the wide range of skills and talent across the North West legal sector.

The Pannone team beat off stiff competition, including well known international firms, to clinch the prestigious award at an event that was launched by Manchester Law Society in 2010. The 21 categories cover all areas of law, with organisation, team and individual awards.

Mark Winthorpe, Corporate Partner at Pannone Corporate, commented: “What an achievement by the team! After such a standout year, it’s fantastic to see our team being chosen as winners by a panel of 18 esteemed judges, who recognised the stellar work that we have carried out over the last 12 months.

“The Manchester Legal Awards is a real showcase of the legal talent that exists across the North West, so to be a part of that is a real honour for both our team and the firm!”

Exclusion clauses are among the most important clauses within commercial contracts. When a dispute arises, the parties may first turn to the exclusion clauses to assess their respective exposure or any protections from liability.

Exclusion clauses are contractual terms which can either exclude or restrict a party’s exposure to a legal obligation or liability. For instance, exclusion clauses could protect a contracting party from:

• Liability for defects in goods: e.g. “The seller shall not be liable for any defects in the goods after they have been delivered and accepted by the buyer”.
• Liability for non-performance due to specified events: e.g. “The agency shall not be liable for any failure to provide services due to government actions”.
• Liability for the loss of data: e.g. “The service provider shall not be liable for any loss or corruption of data stored on its servers”.

Why are exclusion clauses useful?

Exclusion clauses are useful because they provide a mechanism for parties to manage and allocate risk. They provide predictability and clarity regarding liability and risk management.

By incorporating exclusion clauses into a contract, parties can allocate risk in a manner which is suitable to them. This could involve an equitable sharing of risk or an allocation of risk that reflects the contractual realties of the parties and their respective ability to manage contractual risks.

Controls on Exclusion Clauses:

To be considered enforceable, exclusion clauses must meet certain legal requirements. These requirements are intended to promote fairness and are based on both common law principles and statutory regulations. They are as follows:

1. Incorporation: An exclusion clause can be successfully incorporated into a contract through signature, notice or a consistent course of dealing.

2. Construction: There are two main principles the courts will consider:

• Main Purpose: If an exclusion clause defeats the main purpose of the contract, it may be rendered ineffective. This ensures that exclusion clauses cannot completely undermine the fundamental obligations of the contract.

• Ambiguity: Any ambiguity in the clause will be construed against the party relying on it. This ensures that the party seeking to exclude liability must do so in clear terms.

3. Unfair Contract Terms Act 1977: UCTA applies a reasonableness test to exclusion clauses, particularly in consumer contracts and those involving liability for negligence. This legislation seeks to ensure that exclusion clauses are fair and reasonable in the context of the contract.

Implications for Businesses: Drafting and Allocation of Risk Strategies

While exclusion clauses are a powerful tool that allow parties to limit their exposure to risk when engaging in contractual undertakings, it is advisable that lawyers are engaged at the drafting stage to ensure that the term a party seeks to rely upon does not become void if disputed in court.

Key considerations include:

• Clarity and Precision: Draft exclusion clauses in clear and unambiguous terms.
• Enforcement: Ensure that the clause complies with applicable laws and regulations, such as the Unfair Contract Terms Act 1977.

• Negotiation: Clearly express intentions in the contract and ensure that all parties understand the terms to which they have agreed. This is especially important in “battle of the forms” scenarios, where conflicting standard terms and conditions may exist.

Further Considerations for Effective Risk Management

• Scenario Planning: To test the effectiveness of exclusion clauses, apply them to a variety of hypothetical scenarios. For example, simulate a data breach incident to determine whether the clause adequately limits liability.

• Integration with insurance policies: Insurance combined with exclusion clauses can improve risk management and provide additional protection for businesses. For example, businesses can use insurance policies to cover risks that are not covered by the contract. Exclusion clauses, on the other hand, can be used to close any gaps in risk coverage if an insurance policy excludes certain types of damages. By strategically combining insurance and exclusion clauses, businesses can fortify their risk management strategies and safeguard against unforeseen liabilities.

Conclusion

Exclusion clauses are critical for effective risk management in contracts. Their enforceability and effectiveness depend on clear and precise drafting, legal expertise, and thorough negotiation. By employing the strategies discussed in this article, businesses can better navigate contractual relationships, allocate risks appropriately, and safeguard their interests in a dynamic and evolving marketplace.

What’s next…

Our next blog post in this series will examine the issues to consider and pitfalls which can arise when terminating contracts.

If you would like to discuss this blog, please contact Paul Jonson on 07737 571147 or by email to paul.jonson@pannonecorporate.com.

Radhika Das joined Pannone in July 2018 as a Paralegal from a well-known HR services provider. In the last six years, Radhika has progressed to become an Associate in the firm’s employment team.

Radhika began her career at Pannone mid-way through its 10-year journey at which point it was clear what set it apart from other firms. “I was aware of the Pannone name and that it is well respected in the industry,” she says. “When I joined, the firm had been going for four years post-MBO and I felt it was an exciting time to join.”

In that time, a lot has changed at Pannone, with the employment team, in particular, growing to eight lawyers – a team that has plenty of experience behind it. “I received a team sheet on my first day which had the details of my team members, including the years they qualified,” explains Radhika. “I remember being impressed by the experience in the team and that some of them qualified in the 1990s!”

But it’s the team approach that Radhika values the most about the firm. “It sounds cliché but the people really are the best thing about Pannone, definitely,” she says. “Even though we operate a hybrid model, the office is always busy on any given day, and I think that is because everyone here genuinely enjoys working with their colleagues.”

The last six years have thrown up some real highlights for Radhika, including helping to plan the firm Christmas party in 2019. “It was the best work Christmas party I have been to, even if I do say so myself!”

She certainly has a lot to be proud of. “I joined the firm as a Paralegal,” she explains. “I qualified as a Legal Executive in 2021, I went back to University in 2022 to do my LPC part-time whilst continuing to work, and I finally cross-qualified as a Solicitor in 2023. I took the more scenic route to qualification, but I would not change a thing.”

While the firm has undoubtedly grown and developed during her time at Pannone, so too has the business community that sits around it. So what of the next 10 years?

“The North West business community is already growing rapidly and I can only envisage that this will continue over the next 10 years to level up with the South,” she says.

“In terms of the firm, I would like Pannone to continue investing in its people and talent and to carry on supporting alternative routes to qualification. Without that support, I wouldn’t be where I am today,” she adds.

It’s hardly surprising that when asked to sum up Pannone in one word, the first that springs to Radhika’s mind is ‘talent’.

The insolvency and debt teams at Pannone Corporate have featured highly in the latest Insolvencies and Companies List, according to the latest Solomonic Year in Review.

The teams ranked second in the top insolvency law firm list, based on the volume of claims issued in 2023. Collectively, 260 claims were issued by Pannone Corporate, ahead of the likes of Irwin Mitchell, Shoosmiths and Weightmans.

Daniel Clarke, insolvency and restructuring partner at Pannone, commented: “Given the current economic climate and the challenges facing businesses across England and Wales, it’s unsurprising to see such high volumes of claims going through the High Courts, with the Pannone teams contributing significantly to those claims numbers.”

Paul Jagger,  Head of Debt Recovery at Pannone, added: “We have invested in experienced and fresh talent to strengthen our proposition in both teams. This, coupled with our bespoke case management system, allows us to be perfectly placed to deal with high volume petitions, achieving excellent results for our clients.”

The annual High Court commercial litigation data report looks at key trends and analytics on the claims issued in the civil courts of England and Wales over a 12 month period.

In 2023, more than 7,500 claims were issued, with an 86% increase in insurance-related claims driven by aircraft leasing and Covid-related disputes.

The report states that ‘geopolitical, pandemic and economic events loomed large over English High Court litigation in 2023’, with winding up petitions continuing to drift upwards through most of the year, peaking in September.

English law upholds the principle of contractual autonomy, granting parties the freedom to negotiate and establish terms tailored to their specific needs and objectives. Contractual certainty is business critical in order to clearly delineate duties and obligations and to provide recourse for an innocent party in the event of a breach.

For contracting parties, it is important to note that contractual autonomy is not absolute and operates within legal frameworks aimed at ensuring fairness and equity in contractual relationships. This article explores the limitations designed to prevent abuse and safeguard parties from unfair or oppressive clauses.

Understanding Penalty Clauses

A contractual term that specifies predetermined consequences for a breach of contract is known as a “liquidated damages” clause. The purpose of this type of clause is not to punish the breaching party but rather to estimate, in a reasonable and realistic manner, the likely losses that would result from the breach. Importantly, the pre-estimate must be made at the time the contract was made (Clydebank Engineering v. Castaneda). This should not be confused with a penalty clause, which imposes excessive financial penalties to deter breaches and can be unenforceable if challenged in court.

The complexity of distinguishing between these two types of clauses often leads to legal challenges, with courts examining the true nature of the clause and the context of its inclusion in the contract. Factors that can be considered include the rationale behind the clause, the bargaining power of the parties, and whether the sum stipulated is excessively high or unconscionable.

Understanding whether or not a clause may amount to a penalty clause could have costly consequences. If a clause is deemed to amount to a penalty clause, it could be struck out as unenforceable.

Evolution of the Test for Penalty Clauses

The legal framework surrounding penalty clauses in UK law has significantly evolved, especially following key judicial decisions that have reshaped their assessment and enforceability.

Historical Perspective:

Historically, the assessment of penalty clauses revolved around the concept of exorbitance in relation to common law damages. In Dunlop Pneumatic Tyre Co Ltd v. New Garage & Motor Co Ltd [1915], the court held that a clause would be considered a penalty if it was not a genuine pre-estimate of costs or sought to impose a detriment on a party out of proportion to the innocent party’s legitimate interest in enforcing the contract.

Shifts in the legal test:

In recent years, the UK courts have moved away from the strict prohibition of penalty clauses. The Supreme Court judgment in Cavendish Square Holding BV v. Talal El Makdessi and ParkingEye Limited v. Beavis [2015] noted that the Dunlop test had taken on the status of a “quasi-statutory code”, which was never the intention.

Lords Neuberger, Sumption and Carnwath took a more nuanced stance, emphasising that the rule on penalty clauses does not permit the courts in every instance to review the fairness of a contractual term when parties can be said to have equal bargaining power. Instead, the focus will be on whether the term in question is a primary or a secondary obligation.

Key principles when assessing penalty clauses:

• Primary vs. secondary obligations: A primary obligation refers to an obligation that arises independently of a breach of contract, while a secondary obligation is triggered by a breach. The Supreme Court emphasised that the penalty rule applies only to secondary obligations. This distinction is crucial in determining the enforceability of penalty clauses, as primary obligations are not subject to the penalty rule.
• Legitimate interest and proportionality: The court highlighted the importance of assessing the legitimate interest in enforcement of the clause in question. The penalty rule will not be engaged if the clause serves a legitimate commercial purpose and is proportionate to the interest being protected. This requires courts to consider the context and commercial rationale behind the clause when determining its enforceability.
• Unconscionability or exorbitance: Even if a clause constitutes a secondary obligation, it may still be enforceable if it is not unconscionable or exorbitant in relation to the legitimate interest which is served by the clause. The courts will assess whether the clause imposes a penalty that is disproportionate to the loss suffered or the legitimate interest being protected. This requires a contextual analysis that considers the specific circumstances of the case.

The following can act as a checklist when considering whether or not a clause is likely to fall foul of the law of penalties: