A recent judgment of the High Court should serve as a reminder to all business people of the dangers of jumping head first into a business deal, without putting in place the necessary legal and tax structures.

The judgment was delivered in an employment related dispute, but is of much wider implication. The defendants in the case were engaged in property development in Romania and the plaintiff was the project finance director. Difficulties ultimately arose between the parties with the result that the plaintiff’s employment was terminated. When the plaintiff brought legal proceedings, the Court had to determine whether he had been employed by a company or by the defendants personally.

The lack of certainty as to the identity of the plaintiff’s employer arose due to the fact that no proper legal structure had been put in place in respect of the defendants’ property development business. Consequently, details of the entity which was to act as the plaintiff’s employer had not been fully ironed out prior to him commencing work.

The Court commented that there could be little doubt that business on the ground was moving ahead much faster than the establishment of an appropriate group structure for the defendants’ Romanian interests. It stated that had such a structure been put in place, the employer would have been the ultimate group holding company. However, in circumstances where this was not done the plaintiff’s contract was with the defendants as individuals. He was, therefore, entitled to enforce the contract against the defendants in their individual capacities.

In many instances, pressing ahead in business in the expectation that the legal formalities will “work themselves out” in due course may not cause any major difficulties. However, it is when things go wrong that the importance of not only seeking, but implementing, professional advices becomes apparent. The defendants in this case learned that lesson the hard way.

Contributed by Carol Plunkett.

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