Commercial

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While a shareholders’ resolution is still required, the FCJ left open the question of whether notarization of the resolution is necessary.

By Christian Thiele and Otto von Gruben

The German Federal Court of Justice (FCJ) decided on 8 January 2019 that Section 179a (1) of the German Stock Corporation Act (AktG) does not apply mutatis mutandis to a German GmbH (II ZR 364/18). The decision contradicts the prevailing view in legal literature so far, pursuant to which a notarized shareholders’ resolution approving the sale and transfer of all or substantially all assets of a GmbH was required.

Background

Section 179a (1) AktG provides that an agreement, pursuant to which a German stock corporation undertakes to transfer all of its assets requires an approving shareholders’ resolution. If a respective agreement is executed without such resolution, it remains provisionally invalid until it is approved by way of a shareholders’ resolution in accordance with Section 179a (1) AktG. If the shareholders refuse to approve such agreement, it becomes permanently void.

Sellers may be liable for damages if actual rent is lower than stated in the rent roll, despite contractual exclusion of liability for defects.

By Christian Thiele and Patrick Braasch

The Higher Regional Court of Cologne (HRC Cologne) has ruled that a property seller is liable for the difference between the rent shown in the rent roll attached to a property purchase agreement and the actual rent — irrespective of the general exclusion of warranty claims in a purchase agreement. As a consequence, a seller may have to compensate a purchaser for all future losses resulting from such lower actual rent for up to 30 years. The decision highlights the high commercial relevance of rent rolls and the legal risks resulting from rent rolls in the context of real estate transactions.

Background

The HRC Cologne’s judgment, dated 29 November 2018 (3 U 24/18), involved a case in which the plaintiff had acquired from the defendant a residential building with 14 rental units. The sale and purchase agreement (SPA), which excluded the defendant’s statutory liability for material defects as seller, stated that the plaintiff was aware of the lease agreements. An exhibit listing all leases (names of tenants, location of and rent for the respective rental units) was attached to the SPA, which also stated the annual net rent for the entire building.

Ruling finds that parties may make informal modifications without notarization after the conveyance has become binding.

By Christian Thiele

The German Federal Court recently ruled that parties may informally modify a property purchase agreement if the conveyance has become binding — thereby confirming prior case law. The Court further held that the parties may also make such informal modifications if they have granted fiduciary instructions to the notary not to file the conveyance with the land register until the purchaser has paid the full purchase price.

The case

On 4 May 2011, the defendant bought three apartments from the plaintiff by virtue of a notarial purchase agreement at a price of €309,692. The parties declared the conveyance and applied for the entry in the land register. In the purchase agreement, the parties instructed the notary to file the conveyance only when the purchaser paid the full purchase price. On 24 July 2012, the defendant demanded a €27,100.76 reduction of the purchase price. The plaintiff accepted the reduction in writing, and the defendant paid the reduced price. However, the plaintiff then requested the payment of the full purchase price, arguing that the reduction of the purchase price was invalid because the amendment had not been notarized.

New “range of factors” test suggests broad use in future civil matters and fairer, more nuanced outcomes.

By Daniel Smith and Alanna Andrew

The High Court has applied the new fact-sensitive “range of factors” test in Harb v Aziz[i] to determine whether a defendant to a civil claim can rely on the claimant’s wrongdoing to defeat the claim. The Supreme Court adopted this new “range of factors” test in the 2016 case of Patel v Mirza[ii], which replaced the “reliance test” identified in Tinsley v Milligan (widely criticised as being too formal). See Latham’s related blog, UK Supreme Court Adopts New “Range of Factors” Approach to Defence of Illegality.

The principles of the illegality defence are that a person should not be able to benefit from their own wrongdoing, and the court should not enforce claims that harm the integrity of the legal system. The defence is potentially far reaching, particularly under the new “range of factors” test, and so its recent application will be of interest to many litigants — especially if there is evidence of a claimant’s wrongdoing.

By Andrew Moyle, Stuart Davis, Fiona Maclean, Christian McDermott and Charlotte Collins

The Bank of England (BoE) announced on 19 July 2017 that it is extending direct access to its real-time gross settlement (RTGS) service to non-bank payment service providers (i.e., e-money institutions and payment service providers that do not have regulatory permissions to carry out the “core” banking activity of taking deposits), subject to appropriate safeguards.

For the first time, non-banks will be able to apply for a settlement account with the BoE, providing direct access to the UK’s sterling payment systems that settle in sterling central bank money, including Faster Payments, Bacs, CHAPS, LINK, Visa, and, once live, the new digital cheque imaging system.

This change to the BoE’s settlement account policy is part of a broader strategy to widen access to the UK’s payment systems, to help smooth the path for new entrants such as FinTech payment firms to compete on a more level playing field with incumbent banks. This is an important development for non-banks as, at present, non-bank payment service providers can only “plug in” to these essential BoE payment systems indirectly via settlement agent banks, limiting access and therefore the ability of non-banks to compete with their bank counterparts.

By Deborah Kirk

The UK will ratify the Unified Patent Court Agreement despite the Brexit vote, it was announced yesterday. It is unclear whether this marks the start of a long participation of the UK in this 40-years-in-the-making unifying change in patent law in Europe or whether Brexit will result in the UK exiting the new system almost as soon as it has signed up to it.

The unitary patent (UP), or “patent with unitary effect” is in the senior stages of adoption after four decades of preparation and negotiation. When introduced, UPs will protect an invention in all participating Member States of the EU in a uniform manner. UPs will be subject to the jurisdiction of a new Unitary Patent Court (UPC) whose judgments will be binding on participating states in so far as they apply to UPs under the Unitary Patent Court Agreement (UPCA).

By Jennifer C. Archie, Gail Crawford, Andrew Moyle, Serrin A. Turner, and Brian Meenagh

Hacking of organisations’ systems is becoming increasingly commonplace, even with advancements in security practices. To mitigate risk, a company must have an enterprise-level, cross-functional incident response plan that is rehearsed and practiced. In the event of an incident a company with a rehearsed plan can avoid delays and mistakes, minimize conflicts between functions, and ensure regulatory, legal and contractual reporting requirements are met.