Corporate thunderbolt

There are two main reasons why the business community as a whole needs to be aware of – and indeed wary of – the Human Rights Act 1998 (HRA) when it comes into force on 2 October this year.

First, although the HRA appears to be directed to the decisions of public authorities (as the courts are a public authority, and as the vast majority of disputes which arise in the business community may be the subject of court proceedings), the effect of the act will be felt by any entity – including private commercial entities – because they may become embroiled in court proceedings. Even matters that are not ultimately decided by the courts will be affected, because the parties will be aware that they could be subject to the court, and will therefore have to be aware of the basis on which the court may make a decision.

Second, the HRA introduces a number of rights that have not been available to the business community, its employees or its customers to date. For example, the right to fair procedures (Article 6), the right to respect for privacy (Article 8) and the right – albeit a qualified one – to equality (Article 14).

All legislation in England and Wales will be interpreted to give effect to the rights under the Convention for the Protection of Human Rights and Fundamental Freedoms.

The Government will be required to amend the law to ensure conformity with a convention right if the current law is incompatible.

Those providing any sort of “public service” must act in a way that is compatible with the rights protected by the convention (the courts are likely to interpret public service widely).

Public authorities will face proceedings by individuals if the convention rights are breached while providing that public service.

There are three types of right protected by the act: absolute, strong (for which limited derogation is permitted, such as in times of war or national emergency), and qualified. These rights must be interpreted to give proportionality; in other words, a fair balance between the interests of the individual and those of the wider community. The courts will retain a degree of discretion because they have what is termed as “a margin of appreciation” when considering possible breaches of convention rights.

The act makes it illegal for a “public authority” to act in a way that is incompatible with a convention right. Any commercial entity with a mix of public and private functions will be deemed to be a public authority in so far as the public functions are concerned. This means that any organisation providing a “public service” will be caught directly by the legislation.

All businesses, even those with no element of public service whatsoever, will be affected in their dealings with employees, local residents and the wider community. This is because the courts will be required to protect convention rights, and so judicial decisions must inevitably reflect the appropriate interpretation of the convention right. This is how most companies will be affected by the act.

And all of this is notwithstanding the fact that the then Master of the Rolls Lord Woolf, in the case of Daniels v Walker, warned that litigants and their advisers must consider and plead convention points sensibly.

The rights that are most likely to concern companies are: Article 6, the right to a fair trial before an independent tribunal; Article 8, respect for a private and family life, home and correspondence; Article 9, freedom of thought; Article 10, freedom of expression; Article 11, freedom of association; Article 14, prohibition of discrimination in the enjoyment of convention rights; and the first protocol, Article 1, the protection of property.

The main issue for the financial services and banking industries will be whether the services they provide place them within the ambit of public authorities.

Section 6 of the act provides that it is unlawful for a public authority to act in a way that is incompatible with the act. Those banks and financial institutions that provide any service which a government would otherwise have to provide, will therefore be open to proceedings under Section 6. So any business performing or operating in the public domain and performing a duty of public significance is likely to be caught by this definition.

Banks and other lending institutions provide finance and mortgages, a service that is clearly of public significance, and one which, in the absence of such institutions, would have to be provided by the Government. Clearly, this is the basis for the argument that such functions are of a public nature. This fact alone is sufficient to place the organisations providing these services within the definition of public authority. It is likely, therefore, that the banks and financial institutions will be directly affected by the HRA if they do not respect convention rights in performing their functions.

Even if the courts do not accept that the services provided by these institutions amount to them acting as a public authority, the act is still likely to be tested in the most common of banking and finance industry functions. For example:

The collection and use of the financial and personal information required to process credit or mortgage applications, particularly if this involves the sharing of information between branches and/or organisations. While such information is likely to be caught by the provisions of the Data Protection Act 1998, the collection of personal data itself may raise issues under the act in the protection of privacy and family life (Article 8 of the convention). Section 6 of the HRA provides that it is unlawful for public authorities to act in a way which is incompatible with a convention right, and Section 7 provides that any person who claims that they have acted in such a way may bring proceedings against them or – and this may be more relevant as far as the banks and financial institutions are concerned – a person may rely on convention rights to argue that they could be the victim of action which contravenes the act, as it breaches a convention right.

The basis of any decision-making process that the banks and financial institutions may invoke in the approval of, for example, loans for the purchase of property or transfer of equity. This decision-making process will need to comply with the act even if the courts hold that the banks and financial institutions are not acting as a public authority. Under Section 8(1) the court will be able to grant remedies that it considers just and appropriate, should an individual make an application to the court based on Article 14 (discrimination), and argue that they were discriminated against in the procedure used by the bank or financial institution.

The process of enforcement by orders for possession of property, which is presently used for secured loans, is likely – notwithstanding Lord Woolf's warning – to result in arguments raised that such a means of enforcement, where say a relatively small sum is in default compared to the length of the mortgage term, should be considered an inappropriate remedy. This is because it is a process that breaches the individual's right to private and family life and the protection of their property. But what about possession actions that are made in the absence of the mortgagor? Is this upholding the right to a fair trial? The act will at the very least allow for delaying tactics, even if the end result is the same.

Any corporations that have a public function will be directly affected by the act. These will include: those providing healthcare services in the private sector; those building or maintaining roads on behalf of Government bodies; privately-owned television stations; those in the private sector providing public housing and (it may well be argued) local supermarkets.

As far as those corporations which have no public authority functions are concerned, they will still need to consider the following:

Internal procedures for regulating staff and employment issues generally – the surveillance of emails or the use of CCTV cameras in the workplace could all potentially breach Articles 8 and 10.

Examination of directors under Sections 235 and 236 of the Insolvency Act 1986, and the use of such information in subsequent proceedings, has already been argued – albeit unsuccessfully – to be a breach of Article 6.

Any company whose business has a potential environmental consequence to a neighbour. So a nuisance arising from the disposal of waste or other hazards, for example, may give rise to proceedings as being a breach of Article 8, respect for private and family life, or possibly even Article 1, protection of property.

The good news as far as corporations are concerned, is that they may not only be on the receiving end of actions brought under the act, but could also benefit. It is clear that corporations can be the victims of a breach of a convention right, just as a private individual can, so long, of course, as it is a right that a corporation can enjoy. So the actions of bailiffs in a seizure of goods or a restraint against a company's possessions could be argued to breach the first protocol, Article 1, protection of property. The control of, and restrictions imposed by, the Town and Country Planning Act may contravene a company's right, again under Article 1. And as taxation on a company has the indirect result of depriving the company of its property, it could even be argued that it would be in breach of the first protocol. This, though, is a proposition that is unlikely to be successfully argued unless taxes are raised in an arbitrary or discriminatory fashion.

Views vary as to how widely the effects of the act will be felt throughout the business community: whether it will be felt at all; whether it will be another millennium bug; or whether it will result in a raft of cases being pursued through the courts and a raft of defences to actions where there would have been no defence prior to the act.

However, what is clear is that it will give litigants an opportunity to bring proceedings and to defend proceedings on much wider grounds than has been possible up to now.

Nicola Mumford is a partner at Wragge & Co.