Pixdene Ltd v Paddington and Company Ltd

This recent judgment is a useful reminder of the importance of clearly setting out the scope and process for conducting an audit in a commercial contract. An audit clause should outline the parties’ rights and what is or isn’t permitted in clear and practical terms.

In practical terms:

• It is important to clearly outline who has the right to audit or obtain copies of the documents being audited. Should you wish to be able to audit the documents yourselves or have a third-party auditor appointed, this should be included in the audit clause. Any such omission is likely to be viewed by a court as intentional.

• If you wish for the audit to take place under particular circumstances, such as the audit taking place in a specific location, having the right to have your representatives present and/or having the right to redact the documents subject to an audit, you should incorporate that into your agreement. If omitted, such matters are unlikely to be implied by the courts.

• The obligation to provide ‘reasonable prior written notice’ of an audit may be implied, however it is unlikely to be less than ten business days.

Drax Energy Solutions Limited v Wipro Limited

In a recent High Court case relating to an IT contract, the court looked closely at the poor drafting of a limitation of liability clause. The judgment serves as a useful reminder of the importance of clear and coherent drafting across the contract as a whole as well as specific clauses – such as a liability cap clause.

In practical terms:

• Care must be taken when drafting or reviewing a limitation of liability clause to ensure that it reflects the parties’ desired intentions. It is vital that the drafting of such clauses is clear as to whether a limit is intended to cover all potential claims (i.e., have a single cap) or if the intention is that each claim will be subject to an individual limit (i.e., have multiple caps).

• Attention must also be paid to ensure that the limitation of liability clause does not conflict with any other liability provisions in an agreement (e.g., data protection breaches) or excluded losses, such as indirect or consequential.

What steps should you take?

We would suggest that regular updates of a company’s playbook and contractual risk tolerances are made to ensure they reflect best practice in the market.

Data Protection and Digital Information (no.2) Bill – UK GDPR Reform Bill

The UK recently re-introduced the Data Protection and Digital Information (no.2) Bill, with the UK Government suggesting ‘British Businesses to Save Billions Under New UK Version of GDPR’.

The objective is to retain enough existing EU GDPR elements to ensure that UK data laws remain of a high standard, promising to retain EU approval for international data transfers, whilst simplifying other elements of the EU GDPR to make it more practicable and less burdensome in low-risk scenarios – a no doubt welcome change for many UK organisations. However, for organisations operating in both the UK and EU, the divergences between the two regimes will need to be carefully monitored to ensure compliance with both.

How could it impact the business?

• New definition of personal data designed to limit the circumstances in which an individual is to be considered identifiable (therefore potentially narrowing the scope of the legislation).

• Changes to simplify the concept of legitimate interests,  introducing a list of examples of processing ‘necessary for the purposes of a legitimate interest’, intended to give organisations more confidence around when this applies (and therefore, when consent is unnecessary).

• Fines to be increased for direct marketing. The current £500,000 maximum fine for breaches of direct marketing rules under the separate PECR is expected to be increased to the higher of £17.5 million or 4% of an organisation’s global annual turnover, bringing this in line with current UK GDPR enforcement powers.

• Relaxation of cookie consent rules. The requirement for consent for certain types of non-intrusive cookies is expected to be relaxed.

• “Vexation” or “excessive” subject access requests. A wider threshold within which it is permissible to refuse to respond, or charge a fee for responding to subject access requests.

What steps should you take?

Compliance with the Bill once made into an Act will be mandatory, so it is worth being mindful of upcoming changes in this sphere. However, it is hoped that the new regime will align with the principles of current law. We will continue to monitor the Bill’s progress and provide further guidance.

Retained EU law bill becomes law

The “Retained EU Law (Revocation and Reform) Act” (or “REULA”) aims to speed up the process of removing and replacing laws derived from the EU by giving government ministers new powers to reform EU based laws. However, the idea of a ‘sunset clause’ which would have deleted EU-based law automatically has been dropped.

How could it impact the Business?
There is no immediate change to employment laws at this stage and retained EU employment laws are still in place. However, in the not-so-distant future there may be some modest employment law reforms, and longer-term changes may involve key issues being re-litigated with possible departures from previous EU rulings.

What steps should you take?
At this stage, it’s not possible to implement steps in anticipation of REULA outcomes. However, businesses should keep a watchful eye as potentially we may see changes to issues such as working time rules, collective consultation, TUPE and holiday pay.

Cracking down on illegal workers

From the start of 2024, fines for employers who engage workers illegally (i.e. without the right permissions) will be tripled in an effort to “strengthen action against licensed businesses who are employing illegal workers."

How could it impact the Business?
The civil penalties per illegal worker will increase from £15,000 up to an overall maximum of £45,000 for a first breach, and from £20,000 up to an overall maximum of £60,000 for repeat breaches.

The Home Office also plans to launch a consultation this year on options for more stringent compliance action against Points-Based Immigration System sponsors who have been found to be employing illegal workers.

What steps should you take?
It is proposed that the increases to fines come in from 1 January 2024. Businesses should take steps now to review their policies and procedures on right-to-work checks and sponsor compliance, to ensure these are fit for purpose. We also strongly recommend training staff and carrying out broader periodic audits of sponsor licence compliance.

Workers (Predictable Terms and Conditions)

The Workers (Predictable Terms and Conditions) Bill 2022-23/The Workers (Predictable Terms and Conditions) Act 2023 has been given Royal Assent. It will introduce a new right for casual workers to request a predictable work pattern.

How could it impact the Business?
These changes are expected to come into force in September 2024 and flexible working policies will need to change to reflect the above rights.

Casual workers will also be able to bring claims based on procedural failings in considering applications and also for unlawful detriment and automatic unfair dismissal.

What steps should you take?
Businesses will need to consider introducing new procedures and policies to deal with requests and familiarise itself with the statutory grounds for rejecting such applications to avoid getting their approach wrong.

Employment Relations (Flexible Working) Act 2023

The Employment Relations (Flexible Working) Act 2023, will amend the existing procedure in place for requesting flexible working. It will be accompanied by a revised ACAS Code of Practice.

How could it impact the business?

The current legislation will be amended so that:

• Employees will no longer be required to explain the effect(s), if any, that their requested change might make on their employer, or how any effect(s) might be dealt with.

• Two requests will be permitted in any 12-month period, however employees will not be permitted to make further applications while another application to the same employer is already proceeding.

• An employer will not be permitted to refuse a request without first consulting with an employee.

• Employers will need to communicate their decision within two months (reduced from three months) although extended periods can be granted if both parties agree to this.

Supporting regulations which are necessary before the changes can be implemented are pending, as is additional legislation which will make the right to request flexible working a day one right.

What steps should you take?
Whilst immediate changes are not required, businesses should think about how they will amend policies in anticipation of a change in the law next year.

Claims for underpayments of holiday pay 

Currently a holiday pay claim which is made as an unlawful deduction of wage claim, is limited by two important factors:

• There is a two-year backstop, meaning that a maximum of two years' underpayments can be recovered, even if holiday pay has been miscalculated for a longer period (this does not apply in Northern Ireland);

• As with many claims in the Employment Tribunal, there is a three-month deadline to bring unlawful deductions claim. Where there is a series of deductions, this means that the claim must be brought within 3 months from the latest underpayment in the series. Importantly, however, a principle was established in a 2014 case (Bear Scotland v Fulton) which means that, if, where a series of deductions is concerned, there is a gap of more than three months between any two deductions in a chain, this gap breaks the chain and anything before the three-month break can no longer be claimed.

However, a recent claim has challenged the legitimacy of the three-month gap principle, which is making its way through the higher courts (Chief Constable (NI) v Agnew). We are currently awaiting the judgment of the Supreme Court to see whether it overturns the Bear Scotland decision.

How could it impact the business?
If, as expected, the Supreme Court does reverse the Bear Scotland decision, this would mean that a series of deductions is not necessarily broken by a gap of more than three months, which could potentially increase the amount of underpayment that is due to an employee/worker. However, potentially the two-year backstop may remain (although commentary suggests this might also be challenged).

If the business faces holiday pay claims from employees (and other deductions claims, based on long-standing miscalculation of wages), the liability could be significantly greater, following the Supreme Court decision.

What steps should you take?
Whilst there are no immediate actions required, businesses should keep a watchful eye on this matter.

Trade Marks

The UK IPO has confirmed that from 1 January 2024, overseas owners of UK trade marks will need to appoint a UK representative.

How could it impact your business?
Failure to appoint a UK agent could have significant consequences, for example, if an international mark with UK designation is opposed, without a UK address for service the mark owner will not be able to contest the opposition.

What action should you take?
Overseas businesses are advised to review any UK trade marks and appoint a UK agent, if one is not already appointed. This will also help to ensure that key deadlines and other developments are not overlooked.

Green claims

In January 2023, the CMA confirmed that it would be expanding its focus into ‘greenwashing’ by investigating how products and services that claim to be ‘eco-friendly’ are being marketed and whether consumers are being misled.

How could it impact your business?
The primary cause of ‘greenwashing’ is a lack of transparency within a business. However. whether intentional or not, businesses facing allegations of ‘greenwashing’ could find that the reputation of their businesses is at stake.

What steps should you take?
This is ongoing and will be of increasing importance for businesses operating within the UK. Whilst the investigations are currently focused on FMCG products, it is something to keep in mind for all organisations considering ESG claims.

When making ‘green claims’, it is important to:

• ensure that any claims made are clear and unambiguous and that no information is hidden from customers which may impact their buying decision

• be honest about sustainability practices – consider the CMAs Green Claims Code (https://greenclaims.campaign.gov.uk/)

• ensure any images associated with the company (e.g. through marketing) are not misleading.

AI

Proposed in 2021, the EU AI Act is now in the final stages of negotiation. The world’s first AI regulation, the proposals are far reaching with much AI categorised as high risk and hence creating enhanced obligations.

The UK is also debating AI regulation, the key aim of which is to set standards which improve consumer confidence.

How could it impact your business?
Businesses adopting AI technologies need to be mindful of the potential impact on their IP, with recent cases where employees have inadvertently shared previously confidential IP by uploading code to AI tools.

There are also increased risks around copyright infringement, both in terms of the content uploaded to AI, but also content produced by AI. With varying approaches to AI, we are starting to see jurisdiction shopping on the use of AI to navigate copyright issues.

What steps should you take?

Businesses should implement an AI policy to dictate how their teams use AI. The key principles are that businesses should:

• Ensure that AI is used safely;

• Ensure that AI is technically secure and functions as designed;

• Make sure that AI is appropriately transparent and explainable;

• Consider fairness;

• Identify a legal person to be responsible for AI; and

• Clarify routes to redress or contestability.

Fixed Recoverable Costs

Where court proceedings are issued on or after 1 October 2023, a fixed recoverable costs regime (FRC) shall apply to most civil litigation claims which have a value of up to £100,000.

How could it impact the business?

This means that if you were successful in bringing a claim against a party (for example a claim for breach of contract, where the value is £100,000 or less) there is a fixed amount of legal costs which you may recover from your opponent. The amount you may recover under FRC is calculated by reference to an associated table of costs set by the court, which is based on the track the claim is allocated to and the complexity of the case.

Whilst the sums you may be able to recover might seem limiting, on the flip side, in comparison to the current regime this could be more advantageous if you are unsuccessful in defending a claim brought against you. Furthermore, you shall have better transparency of your likely costs liability from the outset of the claim, as opposed to having to wait for the court to costs manage the case.

Only in exceptional and limited circumstances shall the court consider awarding a party costs that exceed the sum set under FRC. Therefore, it is important to be aware that there could be a greater shortfall between any costs which you incur in bringing/defending a claim and the costs you are able to recover from your opponent under FRC.

Also, under FRC, the extent of the evidence which the parties shall be able to rely on is more limited in certain circumstances, which will have its advantages and disadvantages depending on whether you are bringing or defending a claim. This is another factor to consider when contemplating litigation or seeking to resolve a dispute which falls under FRC.

What steps do you need to take?

It would be beneficial to review any matters where court proceedings are contemplated and the case would fall under FRC. Any action to be taken to issue proceedings for claims falling under FRC should be prioritised ahead of the implementation date of 1 October 2023.

The changes shall not apply to claims which have been issued prior to 1 October 2023 as the costs recovery position on those claims shall remain as under the existing Civil Procedure Rules.

The Non-Domestic Rating Bill

The Non - Domestic Rating Bill is currently going through its final stages in parliament. Its intention is to support businesses by modernising the business rates systems to incentivise property improvements.

How could it impact your business?
The Bill introduces a new business rates improvement relief, which means that businesses making qualifying building improvements to properties in England will not face higher business rates for 12 months. The Government anticipates that the relief will make it easier for businesses and tenants in particular to invest in property improvements. The improvement relief will be available from April 2024 and will remain available until 31 March 2028.

What steps should you take?
If you intend to carry out any improvements to occupied premises, it would be prudent to check whether they are ‘qualifying building improvements’ which may be eligible for business rates relief next year.

EPC

On the 20 September 2023, the Prime Minister announced a change to the UK government’s net zero policies. However, so far, no changes have been announced concerning the proposals put forward in the Energy White Paper: Powering Our Net Zero Future, requiring most commercial property to achieve a minimum energy rating of ‘B’ by 1 April 2030 before a landlord can lawfully grant a lease or continue to let a property.

How could it impact your business?
To prepare for the 2030 deadline, there is in an increasing trend towards landlords seeking to include provisions within commercial property leases requiring tenants to pay, or contribute to costs incurred to install energy efficiency improvements.

RICS Service Charge in Commercial Property 1st Edition promotes a cooperative and collaborative approach between landlords and tenants in managing the environmental impact of commercial property. It suggests that costs for improving the energy efficiency of a building might be a legitimate service charge item, provided there is a proportionate cost benefit to a tenant. Many landlords’ surveyors will use this as rationale to push such green provisions into leases with the market standard evolving to include green provisions as accepted practice.

What steps should you take?
Whilst no actions are currently required, tenants should anticipate increased service charges over the next few years as landlords try to improve the energy efficiency of their portfolio to meet a minimum energy rating of ‘B’ by the 2030 deadline.

Overseas Entities - Duty to update the register

The Register of Overseas Entities was launched on 1 August 2022 to increase transparency in the ownership of UK land by overseas entities. Overseas entities who want to buy, sell or transfer property in the UK must register with Companies House and disclose who their registrable beneficial owners or managing officers are. This is also applicable to overseas entities that lease any UK property for 7 years or more (as such leases are registrable with the Land Registry).

How could it impact your business?
Overseas entities are obliged to update their information every 12 months starting from the date that they were first registered. Entities who registered when the register was established in August last year will now need to update the information provided, or file a confirmatory statement at Companies House. Until the information has been updated, the entity won’t be deemed to be a ‘registered overseas entity’ for land registry restriction purposes, which will prevent the relevant entity from carrying out a property transaction.

Failure to comply with the requirement to file an annual update statement is a criminal offence and the overseas entity and every officer in default may face prosecution or a financial penalty.

What steps should you take?
All overseas entities who registered as such last year will need to check the date of registration and ensure that the information is updated or confirmed at Companies House within 12 months of that date.

Government publishes its second Annual Report on the National Security and Investment Act 2021 (NSIA)

The UK Government has recently published its second annual report on the NSIA, covering the period 1 April 2022 – 31 March 2023. It is the first report to cover an entire financial year and provides a useful insight into how the Government has been handling the NSIA from a procedural perspective for the last financial year.

The NSIA provides a statutory regime for Government scrutiny and intervention in acquisitions and investments in the interests of protecting national security in the UK.

Summary of Report

• Most businesses in the UK had no interaction with the NSIA screening process.

• In total, 866 notifications were received. Interestingly, when the NSIA came into force, it was predicted that there would be between 1,000 and 1,830 notifications per year.

• Of the 866 notifications, 671 were mandatory and 180 were voluntary notifications, with 15 being retrospective validation applications. Clearance remains the most common outcome with 93% of transactions being cleared within 30 days of being accepted.

• Of the 866 notifications, 65 of the acquisitions were called in for further assessment. Of those 65 call-ins, 37 were made following mandatory notification and 17 following a voluntary notification. One call-in was made to a retrospective validation application and 10 call-in notices were issued for acquisitions that had not been notified.

• The Secretary of State intervened on 15 occasions on the basis of national security – issuing final orders to block, unwind or impose conditions on acquisitions.

Sector focus

Of the 17 sensitive areas of the economy subject to the mandatory notification regime, Defence related transactions featured prominently at call-in and final order (47% of mandatory notifications related to the Defence sector). Other areas that were subject to the final orders were Communications, Energy, Advanced Materials and Computing Hardware.

Of the transactions called in, 37% were associated with Military and Dual Use, 29% with Defence and 29% with Advanced Materials.

Investor origin

Interestingly, the NSIA does not take into account the location of an investor when determining whether a transaction will require notification or not. UK investors are subject to the exact same requirements as overseas investors. Having said that, 42% of call-ins were of transactions involving acquirers associated with China (32% with acquirers associated with the UK and 20% with the USA) and of the 15 final orders made, eight were issued to Chinese investors (including four of the five prohibition/unwinding decisions).

Final notifications, final orders, enforcement and assistance

Of the call-ins that were closed in the last financial year, the Secretary of State made 57 final notifications and 15 final orders. One final order was revoked.

Of the 57 final notifications, 42% were in respect of acquisitions in the Military and Dual Use area, 32% were Advanced Materials and 26% for Defence. 11 final notifications were issued to transactions that did not complete and so scrutiny under the NSIA stopped.

No financial assistance orders were given during the last financial year and no penalties were issued nor any criminal prosecutions concluded.

Timings

Mandatory and voluntary notifications were accepted, on average, within 4 working days of receipt. Of the 42 notifications that were rejected, it took an average of 10 working days to reject a mandatory notification and 7 working days to reject a voluntary notification.

All mandatory and voluntary notifications were either called in or cleared within the statutory time limit of 30 wording days after being accepted. Of those notifications that were called in, the Government took on average 28 working days for mandatory notifications and 27 working days for voluntary notifications to decide to call in the relevant transaction.

Takeaways

The NSIA’s first full annual report provides some useful insights into the timelines, types of notifications, sector focus and general case load that spins out of the NSIA. However, it does lack detail as to the Government’s approach or reasoning and it does not touch on points of interpretation.

We suspect that this current year will continue in the same trend, with many acquirers and investors taking the cautious approach to notify, particularly where it can be tricky to determine whether or not a transaction does in fact require mandatory notification but the consequences of getting it wrong are serious (i.e. a void transaction coupled with criminal liability).