Overview

Our regular round-up of recent and forthcoming developments in law and practice for in-house counsel.

Watch below for an editorial overview of the newsletter from Commercial, IP & Technology Partner, Richard Brown

Highlights

  • Duties of directors of companies facing financial difficulties
  • Filing company information – new requirements under The Economic Crime and Corporate Transparency Bill
  • Pension schemes and the gilt market turmoil
  • Budget update – where are we now? Visit our Budget portal for the latest news and views
  • ESG round up
  • Regulatory reform - the current state of play on proposed reforms of the UK data protection, competition law, consumer protection and audit regimes, and the launch of our Regulatory Reform portal
  • The metaverse – top tips for protecting your brand
  • Data transfers – on the path to an EU-US adequacy decision?
  • Transactions with national security implications – emerging trends from the NSI Act
  • Liability clauses – lessons from CIS General v IBM on excluding lost profits and wasted expenditure
  • A round up of other recent cases on contracts, crypto, ESG and other key topics
  • Direction of travel on mandatory mediation in disputes
  • Another Brexit cliff edge looming? – the proposed revocation of retained EU law
  • Further delay to the new border control scheme for imports from the EU
  • Changes to strike laws, holiday pay for casual workers and Government guidance on employment status – key developments for employers
  • The Building Safety Act 2022 - obligations for property developers and landlords
Beyond Brexit/Regulatory Reform

Another Brexit cliff edge? - proposed revocation of retained EU law in 2023

The Government's Retained EU Law Bill envisages that a large proportion of retained EU legislation will be revoked at the end of 2023, unless expressly preserved by Ministers. For the business community, this creates the risk of another Brexit-related cliff edge, as it may not be clear which measures are being allowed to expire until close to the deadline. 

Other proposed changes under the Retained EU Law Bill

In addition to the so-called "sunsetting" provisions for much retained EU legislation, the Bill will also:

  • give Ministers extensive new powers to amend or revoke retained EU law swiftly, with only limited Parliamentary scrutiny;

  • reverse the current approach to conflicts between retained EU law and domestic law;

  • remove general principles of EU law, including the requirement for courts to interpret retained EU law in accordance with those principles; and

  • introduce new measures designed to make it easier for UK courts to depart from retained EU case law.

Our briefing examines the Bill in more detail and discusses whether it will help to drive growth (e.g. through deregulatory measures) or just create further uncertainty for business.  We also look at some potential examples of EU-derived measures which might be considered candidates for revocation under the Bill. 

For an explanation of the current position on retained EU law, see our detailed guide.

Border controls on imports from the EU: another delay

New border controls on imports of goods from the EU, scheduled for July 2022, were postponed until "the end of 2023" – by which point the Government aims to introduce a new regime, probably applicable to all imported goods, to minimise and streamline border formalities.  As explained in our briefing, however, this deadline may prove challenging to meet.  This is the latest in a series of postponements since the end of the Brexit transition period on 31 December 2020. 

Other key Brexit-related developments

  • State aid:  the UK-EU Trade and Cooperation Agreement required the UK to put in place its own domestic subsidy regime to replace the EU state aid rules. The Subsidy Control Act 2022 has now received Royal Assent and will come fully into force on 4 January 2023. The Act has been hailed by the Government as a major departure from the EU state aid rules. Our briefing discusses the extent of that departure and the key implications for businesses.

  • Northern Ireland:  the Northern Ireland Protocol Bill, published in June 2022, is intended to enable the UK to act unilaterally in relation to matters covered by the Northern Ireland Protocol to the Brexit Withdrawal Agreement. Negotiations on a settlement between the UK and EU have been fraught but in recent weeks, the signs have been more positive.  Whilst this is a welcome development, many commentators remain cautious about whether a positive outcome can be expected in the near future.

Regulatory reform

Despite the U-turn on most of the Budget measures designed to encourage growth, our view is that the new Government is likely to want to continue to explore ways in which the UK could support growth through some degree of regulatory reform, particularly in areas where – following Brexit – it has greater freedom to pursue an approach tailored to the needs of the UK economy. Over the coming months, we will be publishing a series of articles looking at the challenges of regulatory reform across a wide range of topics.  For the latest coverage, see our regulatory reform portal.

You may also be interested in our coverage of the Government's legislative programme as outlined in the Queen's Speech; despite the change of administration, many of the measures discussed in our briefing (and in more detail below) are still being taken forward. The briefing also highlights a number of notable omissions from the programme.

Beyond Brexit: A-Z by topic

Brexit has already had a significant impact on the UK legal landscape and its implications will continue to be felt for many years to come. To help you navigate your way around these issues, we have created a new resource which brings together all our materials on Brexit and related issues, arranged alphabetically by topic. This resource can also be accessed from our Beyond Brexit portal.

For further information, please contact

Company Law and M&A

Company law reform - The Economic Crime and Corporate Transparency Bill

The role of the Registrar of Companies is set to change from a repository for information to a gatekeeper for the integrity of the register under Companies Act reforms to be enacted by The Economic Crime and Corporate Transparency Bill. In this expanded role, the Registrar will have greater power to query and reject filings and require further information. The Bill, which was introduced to Parliament in September 2022, also contains provisions requiring verification of identity for company directors, persons with significant control and subscribers to new companies. It also contains new rules intended to improve the financial information on the register, and various other changes which aim to "prevent organised criminals and kleptocrats from abusing our open economy". 

Please see our briefing for more detail. 

The Bill also includes provisions imposing increased registration and transparency requirements on limited partnerships and making changes to the Register of Overseas Entities regime which was introduced under the Economic Crime (Transparency and Enforcement) Act 2022. For more on this, see this article in the Real Estate section.

Audit and corporate governance reform

The creation of a more effective and better-constituted regulator to replace the FRC: the Audit Reporting and Governance Authority (ARGA); the introduction of more onerous reporting requirements; and additional directors' duties are some of the recommendations contained in the Government's response to the March 2021 consultation on strengthening the UK's audit, corporate reporting and corporate governance systems.

There is no precise timetable for the implementation of the proposals as yet and it is expected to stretch over several years in the case of certain measures. For further information, see our briefing note.

Guidance on company matters

New FRC guidance for listed companies on enhancing shareholder participation when planning and conducting annual general meetings and other general meetings was published in July. It covers key aspects such as board engagement with shareholders; communication of meeting arrangements; using proxies; and voting processes. The guidance sets out actions to help companies maximise shareholder engagement by embracing new technologies, whilst recognising that there are still many benefits of physical meetings. The guidance is divided into four sections: before the meeting; during the meeting; after the meeting; and engagement throughout the year, with each section containing one or two high-level principles, together with some suggested actions. For other developments specific to listed companies, please see our Listed Company Update.

For further information, please contact

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Competition Law

The National Security & Investment Act 2021: emerging trends from the UK's first interventions

That report covered the first three months of the new regime (4 January to 31 March 2022), noting that whilst 222 notifications had been received across the whole range of sectors, at that point, no final orders had yet been issued.

Almost 9 months into the new regime, what more can we say about the impact that the NSI Act is having on deals with UK national security aspects?

Where UK national security concerns arise, the first months of the NSI Act demonstrate the Government's appetite to take strong action. Blocks, at least in the case of acquirors linked to politically sensitive states and sectors that are key to the UK's national security, are happening – and we can expect this to continue. However, the Government has also demonstrated a pragmatic stance when considering the appropriateness of remedies packages, even where politically sensitive states are involved.

To date, the two blocks have both related to acquirors with Chinese links and transactions that pose risks to UK defence interests. However, notifications have been received across all sectors covered by the NSI Act (not purely defence), so the scope of sectors in which action is taken is expected to broaden. Indeed, as explained above, we have now seen clearances subject to remedies in, for example, the satellite, communications and energy spheres.

At the other end of the spectrum, i.e. deals which do not raise material national security issues, our experience is that the new system is working efficiently. Filings are generally accepted by the Government within a few days, with clearance received within the initial review period without significant requests for further information. 

However, the Government's action to date also reflects the focus of the NSI Act on the activities of the target, rather than purely the nationality of the investor. UK-based investors (and acquirors based in politically friendly nations) are not exempt from notification or from facing in-depth probes into their deals.

See our briefing for more detail.

EU foreign subsidies regulation: another notification regime for dealmakers

The EU has a strong regime to address EU State Aid, i.e. subsidies granted by EU Member States. However there has been growing concern over recent years that forms of assistance granted by 'third' (i.e. non-EU) countries can also impact the internal market, and that legislation is required to address the loophole.

The result is the Foreign Subsidies Regulation (or "FSR"): a new regulation seeking to combat the effects of potentially distortive subsidies granted by third countries to companies operating in the EU.

The final agreed text was approved by the European Parliament on 11 July 2022 and now faces a full vote of the legislature in November 2022. The obligations under the FSR are expected to take effect from mid-2023.

The FSR provides three routes for EU scrutiny of third country (i.e. non-EU) subsidies:

  • A broad ex officio review tool, giving the Commission the power to investigate potentially distortive foreign subsidies on its own initiative.

  • A mandatory and suspensory, ex ante, notification regime for M&A deals meeting certain financial thresholds, including a minimum level of foreign contribution received from third countries.

  • A mandatory, ex ante, requirement to notify public procurement bids where a certain level of financial contribution has been granted by third countries.

Please see our briefing, which explores how the regime will operate (insofar as it relates to the second aspect, i.e. M&A deals), as well as some of the ambiguities created by the current drafting and next steps for dealmakers active in the UK.

UK Government confirms significant competition law reform: but legislative hurdles remain

As explained in the April 2022 edition of Insights for In-house Counsel, the UK Government conducted a wide-ranging consultation last year proposing substantial changes to the UK competition regime, including to UK merger control and market studiesCompetition Act investigations and enhanced scrutiny of 'Big Tech'.

Our recent briefing outlined the reforms that the Government intended to take forward.

However, many of the reforms will require legislation to implement so may be some way off, if indeed they happen at all. The Government (under both the previous and new leadership) has not committed to any particular time-scale, promising only to identify the appropriate legislative vehicles "as Parliamentary time and priorities allow". Indeed, the late Queen's Speech fell short of including a commitment to legislate in the current Parliament (including only a Draft Digital Markets, Competition and Consumer Bill).

The Government has already been criticised for failing to table 'digital markets' proposals in Parliament, when the EU has already brought its Digital Markets Act into force.

For further information, please contact

Consumer Protection

Proposed reform of UK consumer law: current state of play

The Government has confirmed plans to reform the UK's consumer law regime to:

  • give regulators stronger enforcement powers, including the ability to issue decisions that consumer law has been infringed without first going to court and to impose fines of up to 10% of global turnover for breaches; and

  • tighten up the law, particularly in relation to subscription contracts and fake reviews.

These changes could result in a significantly tougher regulatory environment for consumer-facing businesses, but the Queen's Speech only contained a commitment to publish a draft Bill. Any reforms will now have to wait until at least the next session of Parliament (the current session is due to end in 2023).

Legislation to create a new pro-competition regime for digital markets involving a special unit within the Competition and Markets Authority was also postponed (although there was a commitment to publish a draft Bill). This regime would also be likely to impact on consumer-facing businesses.

Greenwashing: CMA calls for legislative change 

The Competition and Markets Authority (CMA) has recommended legislating to impose a positive obligation on consumer-facing businesses to disclose information about the environmental impact of their products. It has also recommended changes designed to make it easier to enforce consumer law against companies making misleading environmental claims, to allow orders to be made requiring businesses to make redress payments for environmental harm and to increase supply chain transparency. 

Our briefing looks at what these changes would mean in practice and what is likely to happen next (one possibility would be to include the changes in the draft consumer reform legislation announced in the Queen's speech – see above).

For further information, please contact

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Contract Law

Liability for lost profits and wasted expenditure: what can you exclude?

Commercial contracts can often provide that all liability for loss of profits is excluded – and sometimes wasted expenditure may also be excluded. But what is the impact of this in practice? 

A recent Court of Appeal decision (CIS General v IBM) highlights the potential for confusion, as well as the substantial sums that can be at stake. In this case, which concerned a dispute over a failed IT project, it came down to whether the customer could recover £80 million – or a rather more modest £12.9 million (as found by the first instance judge). 

This is an important case for anyone advising on liability clauses. Our briefing explains why the Court of Appeal overruled the first instance judge and discusses the key lessons for both customers and suppliers. It also considers whether a blanket exclusion of loss of profits and/or wasted expenditure would be considered unreasonable (and therefore void) under the Unfair Contract Terms Act 1977.

Post-termination non-compete clauses: what's the Court of Appeal up to? 

The challenge for a business when drafting a restrictive covenant is that if it seeks to constrain the other party's freedom to operate too much or for too long in the interests of protecting its own business, the courts may refuse to enforce the restriction. Two recent Court of Appeal rulings highlight some of the hazards in relation to post-termination non-compete obligations in B2B agreements. Our briefing looks at what happened in these cases and the implications for businesses at both ends of these obligations. 

Material adverse change clauses

The High Court recently considered whether the delay to the Premier League season caused by the first COVID-19 lockdown triggered a material adverse change clause (commonly known as a MAC clause) in contracts for broadcasting rights. Our briefing looks at how this compares with previous cases on MAC clauses and what the lessons are when drafting such provisions.

Impact of Brexit on contracts

In the final video in our series "Brexit: 1 year on", we look at the impact on contracts. This video includes discussion of:

  • Issues around territory definition
  • Impact of exhaustion of IP rights on distribution arrangements
  • Change control/variation provisions
  • INCOTERMS
  • Force majeure

Contract law round-up

  • Contractual discretion:  in CMC Spreadbet v Tchenguiz, the High Court considered whether a spreadbetting firm had used its contractual discretion appropriately when closing out a client's trading position during a period of market volatility. Our briefing highlights some useful pointers from this case on the how to comply with the Braganza duty to exercise contractual discretion honestly and in good faith, as well as in a manner that is reasonable and not irrational, arbitrary or capricious.

  • Unilateral mistake:  in Longley v PBB Entertainment, the High Court provided some helpful clarification of the test in English law for unilateral mistake.  The dispute concerned a gambler who wanted to place a bet for £1,300 with Paddy Power, but the latter mistakenly placed a bet for £13,000.  Having realised its mistake, Paddy Power argued that it should only have to pay out by reference to the intended £1,300 stake (but would return the rest of the money). Our briefing explains why the court found in favour of Paddy Power and why the judgment provides useful guidance on the issue of mistake.

  • Sanctions, force majeure and reasonable endeavours:  in MUR Shipping BV v RTI Ltd, the High Court found that a force majeure clause applied in a situation where sanctions prevented payments being made in dollars, even though the affected party had offered alternative performance (by paying in another currency). Our briefing explains why the court decided that the force majeure clause could be relied upon here and why there was no obligation to accept the offer to pay in a different currency.  We also compare this dispute with a number of other cases involving force majeure.

  • Misrepresentation: in SK Shipping Europe v Capital VLCC 3 Corp, the Court of Appeal clarified several key points in the law of misrepresentation. These included including the circumstances in which a representation of fact will be implied from the offer of a contractual term, the effect of a reservation of rights on an alleged affirmation, and the operation of section 2(2) of the Misrepresentation Act 1967 concerning damages in lieu of rescission. 

For further information, please contact

Data Protection, IP and Technology

UK data protection reform 

As part of its post-Brexit National Data Strategy, the Government plans to reform the UK's data privacy laws.  In June 2022, it published a response to its original June 2021 consultation, "Data: A New Direction", followed in July by a draft Data Protection and Digital Information Bill (DPDI Bill). The DPDI Bill largely reflects the measures set out in the consultation response and retains the foundations of GDPR.

The DPDI Bill's second reading was delayed on 5 September. At the Conservative party conference, the Secretary of State for Digital, Culture, Media and Sport, Michelle Donelan, appeared to reveal a plan (but with no firm details) to replace the current data protection regime with a "truly bespoke, British system of data protection", promised to be "co-design[ed] with business". Referring to GDPR as a "regulatory minefield", she said that it was "just not right" that smaller organisations were "forced to follow the same one-size-fits-all approach as a multi-national corporation". 

The rhetoric hints at more far-reaching reform than a few tweaks to the DPDI Bill and we can expect a further public consultation in the coming weeks but the extent to which the DPDI Bill will be changed is as yet unclear. Watch this space!

Fresh uncertainty and delay

The Government claims that the proposed approach would be "simpler and clearer for businesses to navigate", but if the UK and EU data protection rules diverge such that UK organisations with EU operations cannot adopt a uniform approach to satisfy both UK and EU requirements, this would add cost and complexity - when many have already invested heavily in their GDPR compliance programmes.  A grand departure from GDPR also places a question mark over the adequacy decision that the EU granted in favour of the UK and which the EU can withdraw if it considers that the UK has ceased to offer an essentially equivalent level of data protection. If the UK loses its adequacy status, cross-border data flows between the EU and the UK would become more difficult (and costly). The Impact Assessment for the DPDI Bill estimates that a loss of adequacy would entail one-off costs of £190m-£460m for standard contractual clauses and an annual cost of £210m-£410m in lost export revenue.

Impact Assessment for the loss of adequacy 

£190m-£460m
Estimated one-off costs for standard contractual clauses
£210m-£410m
Estimated annual cost in lost export revenue

Data transfers: on the path to an EU-US adequacy decision?

On 7 October 2022 President Biden issued an Executive Order on Enhancing Safeguards for United States Signals Intelligence Activities (the EO). The EO attempts to resolve the Schrems II concerns about US intelligence agencies’ access to EU's individuals’ personal data and serves as the basis for a draft adequacy decision by the European Commission. It must then be formally approved by EU member state representatives (a process which is likely to take until March 2023, at the earliest). 

Schrems II

The effect of the Schrems II judgment was to:

  • strike down the EU's 2016 adequacy decision for the EU-US Privacy Shield (which replaced the "Safe Harbor" regime); and

  • require other EU-approved transfer mechanisms, such as standard contractual clauses, to be supplemented by an assessment of the risks involved in the data transfer or "transfer impact assessment". It includes an assessment as to whether the laws and practices of the importing territory undermine the effectiveness of the safeguards provided by those mechanisms. See our previous briefing for more detail.

The commitments set out in the EO include:

  • requiring US intelligence agencies to collect data for only specific national security purposes and in a necessary and proportionate manner.  They must update their policies and procedures to align with the order’s guidelines;

  • the creation of bodies to oversee compliance, including a Civil Liberties Protection Officer in the Office of the Director of National Intelligence (CLPO); and

  • a two-tiered redress mechanism to review and resolve complaints concerning US signals intelligence activities, comprising: (i) a CLPO investigation; and (ii) a Data Protection Review Court to provide an independent and binding review of the CLPO’s decisions.

While the EO is not strictly relevant to data exports from the UK under the UK GDPR, the UK will be eager to build on it for the purposes of making its own adequacy finding in respect of the US.

Meanwhile, Max Schrems has already declared that the EO does not go far enough (not least that it is an EO, rather than a legislative change, which renders it insufficient), so we can realistically expect the outcome of this process to be challenged in the CJEU.

To read more, click here.

Businesses gear up for the metaverse

While immersive environments have existed in the gaming world for some time (for example, Roblox, Minecraft and Fortnite), the metaverse is largely still just an idea. But it's an idea in which the largest tech companies are already investing heavily, which has contributed to the significant buzz around it, as businesses consider the opportunities and risks that the metaverse is likely to present. 

In this briefing we take a look at some of the boundaries that the metaverse is likely to test from a trade marks perspective and set out key issues for brand owners to consider as they venture into the metaverse.

For further information, please contact

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Helen Reddish
Debt Finance

LIBOR

Sterling LIBOR, the reference rate of interest for many financial contracts, was discontinued from 31 December 2021 and, for a limited time period, a synthetic version of the rate is now published for use in legacy contracts. US dollar LIBOR will be discontinued at the end of June 2023 and the UK Financial Conduct Authority (FCA) will assess whether US dollar LIBOR will be published on a synthetic basis when the US dollar LIBOR panel ends.

The FCA recently announced that the 1- and 6-month synthetic sterling LIBOR will be discontinued at end-March 2023. The 3-month synthetic sterling LIBOR setting will continue for a limited period beyond end-March 2023 and the FCA is considering the appropriate date for such cessation and will provide further information in due course.

Companies should continue to identify existing contracts (not just financial instruments) which reference LIBOR and engage with counterparties to amend affected provisions. Read our commentary on consequences for commercial contracts which reference LIBOR (for instance in late payment clauses).

For further information, please contact

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Matthew Ayre
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James Bell
Dispute Resolution

Law Commission consultation on arbitral reform

The Law Commission, in September, published a consultation paper on proposed reforms to the Arbitration Act 1996 (the "Act").  The Law Commission is keen to ensure the Act remains "state of the art" and "continues to support London's world-leading role in international arbitration". The provisional conclusion of the Law Commission is that no major reform is required, with only a few discrete reforms proposed to keep it "cutting edge".

Summary of proposed reform

Summary disposal of claims: One proposal is to introduce a non-mandatory provision allowing a tribunal to summarily dispose of claims or issues which are without merit.  The Law Commission believes that the Act as it stands "probably" already does this, but that without an express provision some arbitrators are reluctant to adopt such a procedure for fear of court challenge.  Inclusion of an express power to adopt a summary disposal procedure should remove any doubt for arbitral tribunals.  The Law Commission has asked for views on this and the appropriate threshold for summary disposal. 

Jurisdiction challenges: Another proposal is for applications to the court challenging the jurisdiction of a tribunal (where a party has participated in arbitral proceedings and objected to the jurisdiction of the tribunal, and the tribunal has ruled on the question of jurisdiction in an award) to be treated as an appeal (i.e., a review of the tribunal's decision) rather than a full re-hearing.  The Law Commission also proposes making explicit that where a tribunal decides that it does not have substantive jurisdiction over a dispute, it should still be able to make an award of costs.

Confidentiality and impartiality: Interestingly, the Law Commission does not propose codifying a default presumption of confidentiality in the Act, provisionally concluding that it is best left for development by the courts.  Also of note is that the Law Commission does not propose imposing an express duty of independence on arbitrators in the Act. Instead, the Law Commission focuses on impartiality, proposing to codify a continuing duty on arbitrators to disclose any circumstances which might reasonably give rise to justifiable doubts as to their impartiality. 

Other matters: There are also proposals to strengthen the immunity of arbitrators, to restrict the ability of parties to object to arbitral appointments on the basis of the protected characteristics listed in the Equality Act 2010 (subject to limited exceptions), and some clarifications around the circumstances in which the court can aid arbitral proceedings (including emergency arbitral proceedings).

Responses to the consultation are requested by 15 December 2022. To read more, click here.

Government consults on mandatory mediation

In July 2022, the Ministry of Justice ("MoJ") opened a consultation on a number of changes aimed at embedding mediation more firmly within the court system in this jurisdiction.  Whilst focused on small value claims, the consultation is arguably indicative of the MoJ's intentions for much higher value litigation.

The MoJ's key proposal is that parties to defended small claims (i.e. those valued at less than £10,000) must attend a free, mandatory mediation appointment with HM Courts and Tribunals Service ("HMCTS") at an early stage of their case, on pain of costs sanctions or the striking out of their claim or defence.  The MoJ also wants to begin to lay the groundwork for mandatory mediation for higher value claims.  This would require parties to be referred to external mediation providers, rather than to HMCTS.  The Government is therefore seeking views on how best to strengthen oversight of and maintain standards within the external mediation provider market. 

It has been apparent for some time that compulsory mediation is on the Government's agenda, with the aim of enabling parties to reach quicker, more consensual resolutions to their disputes where possible, and to free up court resources for those cases where they are really needed.  The consultation above follows hot on the heels of a report last year from the Civil Justice Council’s Judicial ADR Liaison Committee to the effect that compulsory mediation is both lawful and could in some circumstances be beneficial. 

Separately, a pilot mediation scheme has been instituted for certain types of cases (including contractual disputes with a value of up to £500,000) where permission to appeal is sought and obtained from the Court of Appeal.  Mediation under the pilot scheme is voluntary, but parties may be required to justify to the Court of Appeal their decision not to attempt mediation at subsequent court hearings. 

It will be some time before these proposals become a reality, and compulsory mediation for the largest and most complex cases is even further away, but the intended direction of travel is clear.

October 2022 Dispute Resolution Round-up

Read our October 2022 Dispute Resolution Round-up for more about developments in the dispute resolution sphere over the last three months. In addition to a focus on proposed reforms on a number of fronts where England and Wales is, and is looking to remain, a global jurisdiction of choice, we also delve into a number of interesting judgments concerning crypto, ESG and competition disputes.

For further information, please contact

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Rob Fell
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Hannah Hartley
Employment Law

Changes to strike laws

A change in the law means employers can now engage temporary agency workers to cover the work of employees on strike. Previously, temporary work agencies were prohibited from supplying agency workers to cover the work of striking workers, but this ban was lifted with effect from 21 July 2022. In response, the Trades Union Congress and the trade union Unison have launched separate judicial review proceedings challenging the change, arguing that allowing agency workers to replace striking workers fundamentally undermines the right to strike under the European Convention on Human Rights.

The Government also plans to require trade unions to put meaningful pay offers to a vote of members before they can ballot for strike action. The intention is that a strike could only been called once pay negotiations have broken down. This may be helpful to employers where they would like to be able to put the pay offers directly to employees but doing so risks liability for unlawful inducement to sidestep collective bargaining.

New legislation is also to be introduced to ensure minimum service levels for transport services during industrial action, to minimise the disruption of strikes in the transport sector.

Employment status update

The Government has published new guidance for HR and legal professionals on employment status and employment rights. The guidance explains the difference between the three categories of "employee", "worker" and "self-employed", and contains a specific section on recent developments in the labour market, including the gig economy and zero hours workers. The guidance follows a series of rulings in recent years, particularly in the gig economy, that workers have been wrongly classified as self-employed and therefore wrongly denied worker rights.

In 2018, the Government had said it would legislate to improve clarity around employment status tests and also align the tests for employment rights and tax purposes. However, it has now confirmed that it does not plan to make legislative changes at this stage.

Separately, the Government has also commissioned a review into the future of work, to be conducted over 2022, and to inform labour market policy in response to changing ways of working. 

Holiday for casual workers

The Supreme Court has delivered a ruling on the correct way to calculate holiday pay for workers whose hours vary, such as casuals and zero hours workers (Harpur Trust v Brazel). The ruling is significant for any employer with workers on permanent contracts who do not work 52 weeks a year, such as term-time workers, casuals or zero hours staff. It is common for employers to prorate holiday entitlement for such workers to reflect the proportion of the year worked.

However, this case confirms such proration is unlawful. Instead, such workers must receive the full 5.6 weeks' minimum statutory holiday, paid at their average weekly rate of pay based on a reference period that ignores any weeks when no work is done.

In some cases, this can mean holiday pay for term-time workers and casuals or zero hours staff on permanent contracts is disproportionately high compared with fulltime employees.

Please see our September 2022 Employment Update for more detail on the ruling.

Immigration

All employers are required to check that employees have the right to work lawfully in the UK. Temporary changes made during the pandemic to the rules on how to carry out right work checks ended on 1 October, and employers should ensure their policies and processes are up to date. See our briefing for more details.

For an overview of forthcoming developments in UK employment law and business immigration, please see our In the Pipeline briefing.

For further information, please contact

Equity Capital Markets

Review of listing and prospectus regimes

In May, the FCA published a discussion paper setting out its response to feedback received regarding the structure of the UK listing regime. The feedback was in response to the FCA's Primary Markets Effectiveness Review. The proposals include a single segment listing for companies, to be described as simply as a "UK Listing".  Under the proposals, there would be a single set of eligibility criteria and at the point of listing, companies would also decide whether to opt into a second set of "supplementary" (non-mandatory) continuing obligations, which would be similar in scope to the existing rules for premium listed companies. For further information, see our briefing note.

Review of secondary fundraising regime

HM Treasury has been looking at ways to improve the secondary fundraisings process for UK listed companies to make it cheaper, quicker and more efficient. The recommendations contained in the outcome of its UK Secondary Capital Raising Review, published in July, include changes to the pre-emption regime and the rights issue process. Some of the recommendations, are to be implemented "immediately" and others in the longer term. For further information, see our briefing note.

For further information, please contact

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Andrew  Gillen
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Beliz  McKenzie
ESG

As we head into COP27 at the end of the week, we will be reminded of the importance of ESG concerns, even in these difficult times, due to unstoppable waves of new regulation and market pressure. We will provide an overview of the latest developments in a new edition of our ESG Newsletter which is due to be published soon. If you would like to go on our ESG mailing list, click here. Meanwhile, here is a brief snapshot of some of the key ESG-related developments we will be covering in the newsletter:

Sustainable finance

We will look at:

  • UK financial services regulatory issues – likely to include: the FCA's recently-published consultation on a new labelling regime for sustainable products and a Sustainability Disclosure Regime (SDR), the UK's domestic alternative to the EU SDFR; an update on the status of the UK's Green Taxonomy, which is still awaited; a reminder of the start of the TCFD-aligned disclosure rules for UK asset managers with less than £25bn AUM

  • EU financial services regulatory issues – likely to include: the coming into force of the Climate Complementary Delegated Act (including Taxonomy-aligned screening criteria for nuclear and fossil gas) and the revised Article 8 and Article 9 EU SFDR templates; the EU Platform's final report on minimum social safeguards; Q&As from the ESAs and the European Commission; and the possible arrival of technical screening criteria for the four remaining environmental objectives

  • TCFD – the FRC's analysis of the quality of the first round of TCFD disclosures from listed companies, the ISS Benchmark Survey on investor priorities as regards ESG issues for the next AGM season and recommendations from the more wide-ranging Status Report from the TCFD itself

  • CSRD – a glimpse at the future of ESG reporting under the EU's Corporate Sustainability Reporting Directive, which is edging closer

  • "Minimum safeguards" – commentary on the move to underpin sustainable finance obligations with the concept of "minimum safeguards" against the negative impacts of economic activity, and

  • Responsible taxation – global developments aimed at increasing transparency and preventing tax avoidance

Climate change and environment

Climate issues will be dominating the headlines as COP27 unfolds in Egypt between 6 and 18 November. Our briefing explains what is on the agenda and why it is important, and our ESG newsletter will link to our COP27 portal for a series of further articles on key developments from the conference.  

People

The policy focus on the "S" in ESG continues to result in new regulation including:

  • Modern slavery - the potentially far-reaching impact of the EU proposal to ban products made using forced labour

  • UK moves to protect vulnerable workers – developments of note for UK employers to ensure the fair treatment of part-time, casual and zero hours workers

  • D&I – diversity reporting for UK listed companies

ESG risk and litigation

Our newsletter will contain an overview of the latest ESG-related cases, including analysis of global value chain liability following the Dyson case and wider trends in transnational group litigation claims.

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Pensions

Liability driven investment and market turmoil

The former Chancellor's 'Mini-Budget' in September 2022 led to well-publicised turmoil in the gilts market, with pension schemes having to take urgent action and the Bank of England intervening to calm the market.

Liability driven investment (LDI)

DB pension schemes invest heavily in gilts as a way of as closely as possible matching their investments to their liabilities.  This is because pension liabilities are valued for most purposes by reference to gilt yields and so such schemes' asset and liability values move in a corresponding way.  Under very common liability driven investment (LDI) arrangements, managers use derivatives to leverage gilt holdings in order to increase exposure to gilts and free up assets for return-seeking investment with the aim of improving the scheme's funding position.  Schemes are required to post cash collateral for the purpose of riding out fluctuations in the value of gilts, which have normally been gentle.

A loss of market confidence in the Government led to a sharp rise in long-term gilt yields (meaning the same as a fall in the value of the gilts).  This led to large and urgent calls by LDI managers for schemes to post additional cash collateral in order to maintain their hedging positions.  A failure to satisfy these margin calls can lead to the LDI manager reducing leverage or even cancelling hedging, which would leave the scheme exposed to the market risks it was seeking to avoid, at just the time when key markets are at their most volatile.  Many schemes turned to their sponsor for a loan in order to meet the call.  Failing that they need to liquidise assets at a less than ideal time.  After other options are exhausted, that could mean having to sell gilts at the worst imaginable time.  This prospect of a 'doom spiral' in markets led to the Bank of England's limited intervention with the intention of stabilising the gilts market: it promised to buy long-term gilts up to a high limit until 14 October 2022.  It later extended this to other types of gilt.  

After dealing with the margin calls, affected schemes have been urgently reviewing their investment strategy and LDI managers have in many cases been proposing reductions in leverage levels.  The Pensions Regulator issued a statement for pension scheme trustees on 12 October 2022 on managing investment and liquidity risk in the current economic climate.

Defined benefit scheme funding and investment

The Government has consulted on draft regulations in relation to the new funding and investment requirements for defined benefit (DB) pension schemes that will be introduced under the Pension Schemes Act 2021.  DB schemes will have to be funded, with an integrated investment strategy, based on an agreed long-term objective for providing benefits (for example buy-out with an insurer, consolidation into another scheme, or run-off i.e. the pension scheme remaining attached to the employer and paying pensions).  This is the first time that employers have been legally required to confirm their long term vision for a DB pension scheme.  Historically employers have preferred to reach a more informal understanding of their pensions 'end game' with trustees so as to give maximum flexibility in future funding discussions.

Funding and investment strategy

Schemes will now be required to have a 'funding and investment strategy' agreed between the trustees and the employer.  The strategy will need to be set out in a 'statement of strategy' which will also record information about its implementation (on which the trustees must consult the employer).  The statement will need to be submitted to the Pensions Regulator alongside every future actuarial valuation report.

Additionally, deficit recovery plans will have to be prepared following a proposed new statutory principle that deficits must be recovered as soon as the employer can reasonably afford, although one of the questions the Government is asking in the consultation on the draft regulations, is whether this principle should have primacy.  This proposal has caused a good deal of concern and industry consultation responses have challenged it.  Trustees were encouraged to see this as their objective in funding negotiations, but it was never a legal requirement in the applicable regulations.

In order to formulate the strategy and prepare the statement, there will need to be an agreed long-term objective for the scheme to provide or secure benefits and an assessment of how mature the scheme is.  The scheme will be expected to be funded with a target of low dependency on the employer and a low dependency investment allocation by the time it reaches significant maturity (determined by the duration of its pension liabilities). 

These concepts have technical definitions and this is a very abbreviated summary: for more detail, please see What's Happening in Pensions Issue 97

One major criticism made of the draft regulations is that by requiring all schemes to be self-sufficient (i.e. placing minimal reliance on their sponsoring employer) by the time of reaching significant maturity, those schemes with very strong employer covenants are unable to agree funding and investment strategies that give employers credit for the strength of covenant.  In other words, the proposed regime is much more prescriptive than the current funding regime which, when introduced, was heralded as being 'scheme specific' and allowing employers and trustees to reach agreement that best fitted the circumstances of the employer and the scheme.

A Pensions Regulator code of practice will address how the Regulator will apply the legislation and only when we have this will we have the full picture: a consultation on that will follow. 

These requirements are expected to take effect in relation to scheme valuations with effective dates from October 2023, though further delays cannot be ruled out.

Pensions dashboards

As previously reported, pension scheme trustees are taking steps to prepare for connection to the forthcoming pensions dashboards system, under which individuals will be able to access information about all of their future pension entitlements in one online place.  We have produced and updated an article '10 actions for getting to grips with pensions dashboards' to help with this work.

Climate-related reporting

New regulations have added to the TCFD climate-related governance and disclosure requirements for pension schemes.  Trustees subject to the requirements must calculate and disclose an additional portfolio alignment metric, setting out the extent to which their investments are aligned with the Paris Agreement goal of limiting the global average temperature increase to 1.5°C above pre-industrial levels.  This applies in addition to the existing requirements for in-scope schemes to calculate and disclosure a minimum of one absolute emissions metric, one emissions intensity metric and one additional climate change metric.

The principal regulations have applied since 1 October 2021 to schemes with relevant asset values over £5bn, authorised master trusts and (in future) collective DC schemes.  Schemes with relevant asset values over £1bn have been in scope since 1 October 2022.  The new requirement applies to all those schemes from 1 October 2022

We have a short video briefing on this topic in our Spotlight on ESG video series.

For further information, please contact

Real Estate

Economic Crime (Transparency and Enforcement) Act 2022

The new register of overseas entities went live at Companies House on 1 August 2022 and requires overseas entities that hold UK real estate to register their beneficial ownership at Companies House. Failure to comply can result in fines and criminal liability. For further details, see our briefing.

Restrictions are now being put on relevant Land Registry titles. Although the restriction on existing titles will only become effective on 1 February 2023, most overseas entities holding UK real estate will now require an overseas entity ID ("OE ID"), issued by Companies House, before they can sell, charge or grant leases with a term of more than 7 years over their UK property. A well-advised buyer, chargee or tenant will usually want to know their OE ID before completion because of the likelihood that their application to register their transaction at the Land Registry has not been completed before the restriction becomes effective.

All overseas entities currently wishing to buy or take a lease of more than a 7-year term over UK real estate will need to provide the Land Registry with their OE ID, which is valid at the date of the relevant transaction, before the Land Registry will complete its registration.

Trust Registration Service

The Trust Registration Service ("TRS") was expanded under the Money Laundering and Terrorist Financing (Amendment) EU Exit) Regulations 2020.  The TRS is a register of the beneficial ownership of trusts and is managed by HMRC.  It contains information about each registered trust and the people connected to it, including settlors, trustees and beneficiaries.  As an overview, the extension is broadly to include non-taxable trusts that are:

  • UK express trusts, unless specifically excluded; and
  • non-UK express trusts, unless specifically excluded, which acquire land or property in the UK, or have at least one trustee resident in the UK and enter into a ‘business relationship’ within the UK.

However, there are various exemptions including trusts created for the purpose of enabling or facilitating a transaction effected for genuine commercial reasons.

Relevant non-taxable trusts which came into existence before 4 June 2022 were required to be registered by 1 September 2022. Trusts created on or after 4 June 2022 must register within 90 days of their creation. Registration will also be triggered when a non-UK trust acquires UK real estate.

Ban on ground rents

The ban on ground rents for most new residential leases came into force on 30 June 2022 (with the key exception of retirement housing leases, which will come into force after 1 April 2023 assuming the relevant regulations are put in place).

Building Safety Act

Most of the Building Safety Act 2022 came into force in April 2022 and, as it is a long and complicated Act, the real estate industry is just starting to get to grips with the detail.  Key provisions to note are:

  • Section 124 of the Act entitles the First-tier Tribunal to make a “remediation contribution order” against a landlord or developer of an in-scope building (one which contains at least two dwellings, and is either at least 11 metres tall, or with at least five storeys), or any “person associated with” the landlord or developer to contribute towards the costs of fire remediation works.

  • Section 126 of the Act enables the Secretary of State to make regulations to establish a building industry scheme to secure the safety of people in relation to risks arising from buildings and to improve the standards of buildings.  It is thought that the membership of this scheme will be comprised of those developers who have signed the Government's Pledge.  Any developers who have not yet signed the Pledge will now feel under great pressure to do so.

  • Sections 128-129 of the Act hint at the importance of becoming a member of the building industry scheme by granting the Secretary of State wide powers to prohibit people from carrying out development in England and from obtaining building control approvals for developments.

The pledge

This was a commitment on the part of developers to remedy fire safety defects in all residential buildings over 11 metres high that they developed in the last 30 years; to contribute to the costs of so doing; and to confirm that leaseholders should not have to pay for any costs associated with life-critical fire-safety remediation work arising from the design, construction or refurbishment of residential buildings of at least 11 metres in height. 

UK Land Registry changes

From 30 November 2022, the Land Registry will make their Digital Registration Service their default route for all applications submitted online. First registrations can still be submitted by post, but most other applications will be made via this service.  The service entails answering questions about the application in an online questionnaire, rather than uploading a PDF of a Land Registry form.

For further information, please contact

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Sarah  Quy
Restructuring and Insolvency

BTI v Sequana Supreme Court judgment on directors' duties

The long awaited Sequana Supreme Court judgment has provided increased clarity as to the duties of the directors of a company in the "twilight zone" – i.e. where a company is facing financial difficulties, but where an insolvent administration or liquidation is not unavoidable. This landmark judgment represents an important development in English insolvency law and is particularly timely, given the current uncertain economic outlook in the UK.

Section 172(1) of the Companies Act 2006 requires that the directors of a company act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members (i.e. shareholders) as a whole. The Supreme Court's decision in this case is the first time that the highest court has been asked to consider whether this duty includes, or is replaced by, a requirement that directors consider or act in the interests of the company's creditors; when that duty arises; and its scope.

For more information, see our briefing note.

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Taxation - Corporate Taxation

Mini budget 2022 – business tax measures

The former Chancellor, Kwasi Kwarteng's September Growth Plan focussed on driving increased business investment and expansion through a reduced tax and compliance burden.

Then on 17 October, the newly-appointed Chancellor, Jeremy Hunt, made a statement confirming which of the measures previously announced in the Government's Growth Plan would be taken forward, and which would not be retained.

The increase in corporation tax to 25% from April 2023 will now go ahead, as previously planned.  The Chancellor confirmed that Annual Investment Allowance (AIA), which enables businesses to claim a 100% deduction for capital expenditure on qualifying plant and machinery, will be set permanently at £1 million.  This cancels the planned reset of the AIA to £200,000 which was due to take place from 1 April 2023.

Generous local tax reliefs were announced in the Growth Plan as part of a package of measures to create new "investment zones". The tax reliefs go beyond those introduced in relation to freeports in 2021 and include a zero rate of employer NICs on new employee earnings of up to £50,270, full SDLT relief on qualifying purchases and a 20% rate of structures and buildings allowance.  As is the case with freeports, the tax incentives will be time-limited – in this case, for 10 years.  It is not clear when these reliefs will take effect; sites will need to be designated as investment zones before the tax incentives are available. Jeremy Hunt's 17 October statement did not cover investment zones: it is not currently clear whether or not the Government will proceed with this measure.

The new Chancellor is now expected to deliver an Autumn Statement on 17 November 2022.

More details on the measures outlined above can be found on our website: https://www.traverssmith.com/knowledge/knowledge-container/mini-budget-2022/. We are continuing to monitor the Sunak Government's taxation plans and will update our resources accordingly following the Chancellor's Autumn Statement.

Multinational top-up tax

In October 2021, international agreement was reached on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. The two-pillar corporate tax reform plan forms part of the OECD's project tackling base erosion and profit shifting (BEPS).

The GloBE rules

The main plank of Pillar Two is the Global anti-Base Erosion rules (GloBE rules) that seek to establish a global minimum corporate tax rate of 15% for multinational enterprises (MNEs).  The rules will apply to MNEs that meet a €750m turnover threshold test. There will be various exclusions, including for pension funds and for investment funds that are ultimate parent entities of an MNE group (and any holding vehicles used by such funds). The GloBE rules do not require low tax companies to increase their corporate tax rates to 15% (although they may lead to them doing so). Instead, the way in which a global minimum corporate tax rate will come into effect is via two new rules. The first is the income inclusion rule (IIR). The IIR can result in tax for a parent entity if one of its subsidiaries is subject to taxes which are considered to be too low (a bit like the UK's existing controlled foreign companies charge). The second is the undertaxed profits rule (UTPR). The UTPR rule might come into play if a parent entity is in a country that has not implemented the IIR. It works by imposing top up taxes on other group entities that meet certain criteria.

Draft legislation introducing a "multinational top-up tax" was published in July 2022.  Assuming this legislation is enacted, it will implement the IIR element of Pillar Two into UK law.  The Government has announced that the IIR will come into force in relation to accounting periods starting on or after 31 December 2023.  No decision has been made on the timing of the introduction of the UTPR.

The draft legislation is expected to be revised before being included in the Finance Bill 2022-23, to be introduced into Parliament either later this year or in the Spring.  In publishing this legislation well in advance of the intended effective date, the Government has attempted to strike the difficult balance of giving businesses as much certainty as possible whilst many important aspects remain under discussion at an international level.  The early publication also gives the UK the opportunity to influence the direction of Pillar Two implementation internationally.

For further information, please contact

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Ian Zeider
Taxation - Incentives and Personal Taxation

Health and social care levy scrapped

On taking office as Prime Minister, Liz Truss confirmed that she would scrap the Health and Social Care Levy.  This levy was introduced in April 2022 and initially collected through a 1.25% increase in the rates of National Insurance contributions ("NICs") paid by employees, employers and the self-employed.  In his Mini Budget, the then Chancellor announced that the NICs increases will be reversed from 6 November 2022 at which point the rates will return to their 2021-22 levels (subject to some transitional arrangements for contributions collected annually).  The plan for the levy to be charged separately next year has also been cancelled and the legislation to make these changes has been passed.  When the levy was introduced, there was a corresponding 1.25% increase in the rates at which dividend income is taxed. 

It was expected that the corresponding increases in dividend tax rates would be reversed with effect from April 2023, but, on 17 October, HM Treasury confirmed that this reversal would not go ahead.

To soften the impact of the NICs rises, in July, the point at which employees start to pay NICs was aligned with the income tax threshold.  This will stay the same notwithstanding that the Health and Social Care Levy is to be scrapped. HMRC has said that it recognises the timeline for the NICs changes is tight and has written to employers and payroll software developers with practical guidance on what they should do.

 CSOP limits to be increased

The Company Share Option Plan (CSOP) is a form of share incentive arrangement under which qualifying companies can grant tax-advantaged options to their employees.  There is a limit on the value of CSOP options that an employee can hold at any one time and, for many years, this has stayed at £30,000.   One of the measures announced in the Mini Budget was that this limit will be doubled to £60,000 from April 2023 which is very welcome news to those qualifying companies and participants that find themselves held back by the existing cap.  Another important announcement was that some of the restrictions on the class of shares that can be used for CSOP options will be eased to bring them closer to the rules of the more flexible Enterprise Management Incentive taxed-advantaged option scheme.  This change will make CSOP available to a wider range of eligible companies, particularly in the private sector, although other qualification rules (such as those on control) mean that it continues to be unavailable to some. 

HM Treasury stated on 17 October that the CSOP will continue, and we presume that this is intended to mean that the CSOP changes will go ahead.

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Kulsoom Hadi
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Mahesh Varia
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