When are Joint Ventures subject to merger control

Traditionally joint ventures are contractual arrangements that document joint activity between two businesses (often competing entities). It is also possible to create structural joint ventures, usually by two parties creating a third entity, often referred to a Special Purpose Vehicle (SPV), which is formed to carry out a purpose. However, there is also the possibility to use a joint venture to implement an acquisition strategy.

In June 2023, Vodafone Group Plc and CK Hutchison Holdings Limited entered into a joint venture with a view to combine their UK telecoms businesses, Vodafone Limited (Vodafone) and Hutchison 3G UK Limited (3UK), becoming the largest mobile network operator by revenue in the UK. The structure of the joint venture will, over time, enable Vodafone to control the newly created entity effectively taking over the operations of 3UK.

Despite Vodafone and 3UK’s claims that the joint venture will have pro-competitive efficiencies and consumer benefits, the Competition and Markets Authority (CMA) expressed concern that it will harm consumers by driving up prices, eliminating competitive constraints on each other and lead to an increasingly concentrated market.

Vodafone and 3UK had the opportunity to offer undertakings to the CMA, however on 28 March 2024 both parties informed the CMA that they would not. The CMA has therefore referred the joint venture for a Phase 2 investigation, demonstrating its ability to investigate under the merger regulations; it has until 18 September 2024 to publish its final report.

How could it impact your business?

If Vodafone and 3UK had opted for a contractual joint venture, the CMA could have investigated under its general powers under the Competition Act 1998 but other than the ability to fine the parties for blatant anti-competitive behaviour, it would have limited ability to intervene.

On the other hand, as a structural joint venture, the CMA has the power to investigate under the merger provisions of the Enterprise Act. There may have been a mistaken belief that a SPV joint venture could not be investigated under these provisions. However, as set out in the leading case Govia / Thameslink M.901, even joint ventures that do not have equal shares can be investigated if the parties exercise joint control through annual business plans, budgets and voting rights. Ultimately, CMA can unpick the collaboration and require the parties to maintain separate businesses.

What steps should you take?

If parties are considering a joint venture to achieve a strategic aim, it is important at the outset to determine whether it is a contractual or structural arrangement to ensure compliance with competition law. Any structural joint venture must be assessed to determine if the parties have joint control and, if so, whether the SPV will require merger clearance.

Key consideration would need to be given to issues like approval of the annual business plan, voting rights of the parties including consent for material expenditure and, crucially, the exit provisions. As demonstrated in the investigation into the Vodafone 3UK JV, Competition Authorities like the CMA and even the European Commission are primed to use their merger control powers to investigate joint ventures and transactions that could affect competition.

Data protection and employment considerations arising from the use of AI

Artificial intelligence (AI) is powerful and rapidly developing. It has the potential to significantly enhance an organisation’s product/service offering and streamline operations, but can equally expose it to risks and issues, including in spheres such as equality, diversity and data privacy.

As its use becomes more commonplace, organisations are taking steps to govern how their workforce uses AI and consider what assessments and procedures are required to ensure its safe and lawful implementation. Such measures include the implementation of AI usage policies and training.

How could it impact your business?

Whilst it can be difficult, it will be essential for legal teams and senior management to keep abreast of what systems are in use across the business. AI is now built into many IT products, including video conferencing, transcription services, security surveillance systems, chatbots and algorithm-based recruitment platforms. It can be easy to overlook the need to risk assess new systems prior to introduction, particularly where they are readily available at little or no cost (such as ‘off the shelf’ software and mobile applications) or as ‘add ons’ made available by existing suppliers.

Any new process or activity involving use of personal data and/or AI must be carefully assessed prior to introduction to ensure safety, security, and legal compliance. Failure to do so could give rise to claims, complaints, or even regulatory fines.

What steps should you take?

We recommend implementing targeted AI usage policies and processes to ensure that full consideration is given to any new product or activity involving AI. This should include an assessment of matters such as bias mitigation, information security, fair usage, and privacy.

From a data protection perspective, the use of AI that affects personal data will, among other things, typically give rise to a mandatory requirement to conduct a data protection impact assessment (DPIA) prior to commencement of the new activity, or the implementation of any new tool. A DPIA enables the business to identify an appropriate lawful basis for processing, ensure that key principles (such as security, accuracy, transparency, and fairness) are fully considered and that any associated risks are mitigated.

From an employment perspective, organisations will need to consider how they will enforce such policies in practice, for instance, will a breach give rise to disciplinary proceedings? How do the policies treat use of personal devices, if permitted for work purposes? Setting out such matters within a dedicated policy and supporting this with training will help to standardise the position and enable organisations to properly track and govern usage of AI to mitigate risk.

The Open Justice Consultation

In 2024, there is potential for a revision to the Civil Procedure Rules, including a proposal to introduce a new rule for the “Supply of Documents to a Non-Party from Court Records." The primary goal is to improve the access rights of non-parties to documents used in civil proceedings. The basis for this change was discussed in the matter of Cape Intermediate Holdings Ltd V Dring [2019] UKSC 38, in which the Supreme Court stressed the importance of the “Open Justice Principle”. This was also a focus of Lady Chief Justice Carr in her first annual press conference earlier this year.

The current position is to limit non-party access to statements of case, judgements, and orders. However, the proposed change is to allow non-parties (subject to Court approval) access to those documents, along with skeleton arguments, witness statements, affidavits, and expert reports, but not any documents filled with or attached to these documents.

How could it impact your business?

This change may affect anyone currently considering litigation, as it could allow documents that have traditionally been limited to those involved in the proceedings to become available to third parties, including the media.

Any party that includes documents containing information of a private or commercially sensitive nature should be aware that those documents may soon be accessible to third parties. Where a document is held in the Court record, it will be possible to make an application to restrict access, but it is possible that the Court will refuse to restrict access.

What steps should you take?

Individuals and companies that are considering litigation should keep in mind that many of the documents that have previously been solely for the benefit of the Court in considering cases could now become available to third parties. This includes parties that may in the future consider either bringing a claim against them, or defending a claim brought against them, or even the media. Parties may therefore want to consider the benefits of engaging in alternative solutions.

This might be a welcome improvement for those involved in the litigation process, since it would allow access to more details regarding any prior legal actions taken by the other party. On the other hand, it will enable them to obtain data on you and make this information available to third parties in the future. It will also mean that companies and individuals will need to exercise greater caution when considering the information that they are willing to provide in these documents and how it is presented.

Increases to compensation limits for Employment Tribunal awards

On 6 April, the compensation limits for certain Tribunal awards were increased. These increases are as follows:

• The limit on a week's pay (used for calculating various awards, including statutory redundancy pay and unfair dismissal basic awards) increased from £643 to £700.

• The maximum compensatory award for unfair dismissal increases from £105,707 to £115,115.

• The minimum basic award for certain prescribed unfair dismissals (including health and safety dismissals) has increased from £7,836 to £8,533.

How could it impact your business?

Whilst no new penalties have been introduced, the increases detailed above came into effect this month and will be applied to Employment Tribunal awards going forward.

What steps should you take?

No specific action is required. However, employers should familiarise themselves with the increased limits so that they can make an informed decision when weighing up the costs of defending an Employment Tribunal claim as part of any settlement negotiations.

Updates to family friendly rights

As detailed in our January Horizon Scanning update, on 6 April 2024, several changes to family friendly rights came into force. These are as follows:

Paternity Leave
An employee can now choose to take a single period of leave of either one or two weeks, or two non-consecutive periods of leave of a week each. The paternity leave must be taken within 52 weeks of the child’s birth, or placement for adoption.

Carer’s Leave
Employees are now entitled to one week of unpaid leave to care for a dependant with a long-term care need and this can be requested regardless of an employee’s length of service. The leave can be taken in increments of half days, or individual days, up to a maximum of one week in total over a twelve-month period.

Flexible Working
Employees now have a ‘day one’ right to request flexible working arrangements and can make up to two applications during any twelve-month period. Employers now have a two-month decision period (previously this was 3 months) and must consult with employees before rejecting a request. In contrast to the previous rules surrounding flexible working requests, employees no longer have to explain what effect, if any, the flexible working request would have on their employer’s business and how any effect could be managed.

How could it impact your business?

The changes will likely impact staff working across all areas of an organisation. Employers should therefore familiarise themselves and their workforces with the changes to ensure that requests for paternity and carer’s leave are dealt with correctly, and flexible working requests are responded to appropriately.

What steps should you take?

As with any change to statutory entitlements and/or processes regarding leave, the main steps for employers to take will be to ensure that policies are updated to reflect the changes and to brief any managers who will be dealing with employees who make any relevant requests.

TPT Guidance on Transition Plans

In April 2024, the Transition Plan Taskforce (“TPT”) published its final set of resources to assist with access to finance for transition to net zero by 2050. The guidance outlines how a company will adapt its methods and operations in order to achieve this. The guidance, which is intended to be the “gold standard” and “best practice”, has been split into two sections:

1. TPT sector summary - providing an overview of transition plan guidance; and

2. TPT sector “deep dive guidance”

The TPT has published sector specific guidance for the following sectors:

• Asset managers

• Asset Owners

• Banks

• Electric Utilities and Power Generators

• Food and Beverage

• Metals and Mining

• Oil and Gas

This framework is not mandatory in the UK however, the Financial Conduct Authority (“FCA”) has confirmed that it plans to draw on the framework to develop the disclosure requirements for “listed companies, asset managers and FCA-regulated asset owners”. The FCA aims to finalise its position with new requirements likely to come in for accounting periods beginning on or after 1 January 2025. The FCA foresee the first reporting beginning from 2026. It is important to note that, at this stage, these dates are subject to change.

How could it impact your business?

The guidance has been provided to support users of private sector climate transition plans with the disclosure framework and implementation guidance published by the Transition Plan Taskforce in October 2023. This guidance builds on the International Sustainability Board’s disclosure standards.

Commercially, it is likely to become more important that transition plans are in place, in line with the guidance, and also, implemented, not only for the TPT but also for stakeholders, investors, other companies in the supply chain and also lenders and insurers.

It has been made clear that this is not just a disclosure exercise for companies and that plans should be supported by implementation.

What steps should you take?

You should consult the guidance which applies to your company and ensure that your transition plan complies with this. However, it is important that the transition plan is not simply a documentation exercise and you should also consider producing a robust implementation strategy.

In addition, listed companies and financial services firms should start considering the framework and guidance now prior to the introduction of mandatory requirements.

Corporate Sustainability Due Diligence Directive

On 24 April, the European Parliament approved the new Corporate Sustainability Due Diligence Directive (CS3D). This approval accepted the proposed alterations to the scope of companies who will be required to comply with the directive, as detailed in our March Horizon Scanning.

The directive will cover key ESG considerations, expanding beyond net-zero considerations to include modern slavery, trafficking, labour exploitation and destruction of natural heritage. It will require large companies to carry out regular due diligence through their whole supply chain, embed this in their supply chain contracts, and report on it annually.

Whilst the directive was approved in the vote last week, it still needs to be formally endorsed by the Council and published in the EU Official Journal. Member states will have two years to embed the content of the CS3D into their national laws.

How could it impact your business?

Details of the companies likely to be covered by the directive are set out in the ESG section of our March Horizon Scanning. However, once it does come into force, the majority of the rules will be subject to a phased roll-out as follows:

• From 2027 – companies over 5,000 employees and worldwide turnover of 1,500m euro and above.

• From 2028 – companies over 3,000 employees and worldwide turnover of 900m euro.

• From 2029 - all remaining companies within the scope.

In addition to EU companies and parent companies, the rules will also apply to businesses with franchising or licensing agreements in the EU, whether they are headquartered in the EU or not.

On the face of it, the amendments drafted into the current version of the bill reduce the number of companies that will have to comply. However, companies that supply to the European Union or to other large corporates that may be caught by the CS3D in future, should still expect to receive increased scrutiny from their customers on their supply chains.

What steps should you take?

Until the directive is formally approved, there are no immediate steps for companies to take. However, as stated previously, it is advisable to review the scope of the directives and understand if your company falls within the criteria and, if so, understand the reporting requirements you will be subject to.

Importantly, the CS3D will not be directly transposed into UK law and current indications do not suggest that the UK will be pursuing a similar policy regarding supply chain due diligence. This could become a key area of divergence between the EU and the UK in coming years. However, considering the close trading relationship between many UK-based companies and the EU, it is much more likely that the CS3D becomes a global standard for ESG, much like the GDPR did for data protection.

The Transition Plan Taskforce’s guidance on Transition Plans for companies is currently seen as an example of best practice in the ESG space by a number of UK regulators. However, the guidance does not have a scope as far reaching as that in the CS3D and instead focusses exclusively on net zero pathways, to the detriment of other sustainability considerations. In order to effectively prepare for the introduction of the CS3D, companies should familiarise themselves with the obligations set out in the CS3D and consider whether their current practices are likely to be compliant.  

Lessons from the greenwashing in fashion investigation

In a landmark decision, the CMA recently accepted signed formal agreements (undertakings) from Boohoo, ASOS and Asda in relation to misleading green claims. This is the first time the CMA has accepted undertakings for Green Claims and is indicative of a wider focus by the regulator on combatting greenwashing.

The announcement of the undertakings was accompanied by an open letter from the CMA to the retail sector in relation to Green Claims compliance. Whilst this does not mark a change in the law, the undertakings and the letter provide significant insight into the CMA’s expectations and what it considers best practice in relation to Green Claims.

How could it impact your business?

The CMA has previously indicated that approximately 40% of Green Claims online are misleading and could amount to breaches of consumer law.

For businesses that make environmental claims as part of their marketing and advertising practices, the release of the undertakings presents an opportunity to review their compliance of existing Green Claims. The undertakings go into granular detail on the extent of information and evidence that must be provided when making claims about environmental credentials and how this information must be displayed. Arguably most importantly, the undertakings prescribe that when making Green Claims, the organisations must not make claims that give an overall misleading impression of its green credentials.

The letters also emphasise the role of compliance/legal teams in ensuring that marketing initiatives are compliant with the consumer law regime, prescribing that each of the retailers involved in the investigation implement a robust internal review process for Green Claims, have clear policies regarding the use of Green Claims, and that frequent training is provided to certain marketing and sales teams.

The Digital Market, Competition and Consumers Bill (DMCC), likely to come into force later this year, introduces new fines of up to 10% group worldwide turnover for breaches of consumer law. Contravention of Green Claims guidance could therefore result in significant fines on organisations falling foul of consumer legislation.

What steps should you take?

Businesses that in any way utilise green credentials in their marketing or advertising should review their existing Green Claims to ensure that the claims, as well as the wider policies and procedures, are compliant with the law, being guided by the undertakings. Businesses are also advised to have clearly documented ESG compliance programmes to ensure that they have effective audit trails in place in the event of an investigation.

Combatting greenwashing is an area of strategic focus for the CMA and is the subject of much of the CMA’s activity. Businesses are therefore advised to act quickly to avoid becoming the subject of a CMA investigation, particularly with the DMCC on the horizon.

Significant increases in the salary requirements for Skilled Workers

The Skilled Worker visa is a popular visa route for those wishing to work in the UK with a licenced sponsor. On 4 April 2024, the much-anticipated increase to the salary requirements for Skilled Workers that we referred to in our January Horizon Scanning came into force.

The new minimum salary for most people is £38,700 per year and the stated “going rate” (which is set out by the Home Office) for that individual’s specific role. Not only is the £38,700 a significant increase from the previous £26,200, the going rates have, for many roles, also increased substantially.

However, there is good news in that various transitional provisions apply for individuals who were already in the Skilled Worker route before 4 April 2024 and for those in Health and Care jobs. In such cases, reduced salary requirements may apply. In addition, reductions in the salary requirement continue to apply for those classed as “new entrants” to the labour market and for the few roles that appear on the “Immigration Salary List” (a list of roles in which the UK has a shortage).

How could it impact your business?

The increased salary requirements will have an impact on the recruitment plans for many businesses that hold sponsor licences or who wish to apply for one. In particular, businesses wishing to sponsor individuals from overseas to come to the UK as Skilled Workers, or businesses intending to sponsor individuals switching to a Skilled Worker visa from other visa types (such as student visas) are likely to face the biggest challenges.

When the time comes for individuals already sponsored on the Skilled Worker route to renew their visas, even if the transitional provisions apply, they may struggle to meet the increased going rates.

What steps should you take?

Although the increased requirements may cause problems for many, the Skilled Worker route will remain a viable and useful visa route for many individuals, roles and sponsors. However, the financial requirements will need careful consideration in each individual’s circumstances.

New Guidance on Using AI in Public Procurement

New guidance has been released by Cabinet Office in relation to the use of AI in public procurement.

For businesses engaging in public procurements, the guidance provides a degree of clarity into the attitude of the public sector towards bidders using AI, both in the formulation of bids and in the provision of goods and/or services under the contract.

The guidance also provides useful insight for companies engaging in public procurements as to the changes they may see to the procurement process to account for increased use of AI.  

How could it impact your business?

Interestingly, the guidance does not prohibit AI, rather recognising it as a useful tool with the capacity to create efficiencies and facilitate participation in a larger number of procurements. However, the guidance does invite caution, identifying risks that may arise as a result of AI usage in procurement. Some of the risks for bidders to consider include:

• Breach of confidentiality: companies should not use confidential and/or sensitive data to train AI systems. When involved in highly sensitive procurements, such as those involving issues of national security, it may also be advisable to involve your Information Security team to ensure confidentiality is maintained.

• Misleading information: the use of Large Language Models (LLM) increases the potential for inaccurate or misleading information. Companies should therefore take care to ensure the accuracy of any information submitted.

• Increased procurement timescales: The guidance recommends that, where AI has been used to produce responses, that local authorities carry out enhanced due diligence. This may result in a longer procurement timetable or delays to the process.

In addition to highlighting the risks, the guidance suggests that, when drafting procurement questions, authorities include non-ranked questions to determine AI usage by bidders (with the inclusion of several precedent questions that may be used by authorities). The guidance is clear however that AI usage cannot be a factor used to discriminate between suppliers, with AI based questions to be used for information only, rather than as scored criteria. 

What steps should you take?

Businesses who engage in public procurements can see this is as a green light to use AI in formulating public procurement responses, with the caveats that steps are taken to minimise risks and any text produced by AI is checked thoroughly to ensure it is an accurate reflection of the bidder's position.

It is also recommended that entities that do engage in public procurements should identify if their Marketing/Bid teams (or indeed, any other teams in the business) are using AI, or machine learning tools, in any capacity, including to help formulate responses.

Changes in transactional structures

Whilst market conditions are improving, with mortgage rates set to fall during 2024, corporate investors remain cautious for a variety of reasons. These include the increasing costs of financing, construction and void levels remaining above those in pre Covid times.

How could this impact your business?

A gap remains between pricing expectation and what an investor wants to (or can) pay for a property, leading to a stagnation of the property market. This means that sellers may not be able to immediately obtain the price they want for a property and buyers may not be able to obtain the relevant finance. Investors and developers are therefore considering alternative transactional structures in order to achieve their desired outcome and continue to invest in what remains to be a challenging market.

What steps should you take?

Employing the right transactional structure can make all the difference and prevent a transaction from going abortive, which can result in wasted time and costs for both parties.

Conditional contracts: Whilst sellers would prefer certainty, negotiating a conditional contract can be the middle ground, enabling the investor to become comfortable with the potential risks of the transaction. The key to a successful condition is to ensure it is clearly defined to avoid any uncertainty as to whether it has been satisfied.

Options: Options are a popular choice for developers, to secure property for a small sum while having the ability to buy the property in the future. Once the option is exercised, the seller is contractually obliged to sell. While it is often granted to developers who need time to line up appropriate financing, or obtain a particular planning permission, the option could be a mechanism employed by others who are keen to secure a site ahead of their competitors but unwilling to over-commit in the current market.

Sale-and-leaseback: A popular option for corporate owner occupiers is the sale and leaseback. The seller transfers the property to the buyer with the buyer granting a lease straight back to the seller, allowing them to remain at the property. This can give an owner-occupier the opportunity to unlock capital with minimal operational disruption. This can attract significant interest from investors, particularly if the parties agree to enter an institutionally acceptable “full repair and insuring” leaseback at market rent which will give the buyer an income producing asset. Alternatively, the rental payments under the lease could be deducted from the initial sale price so that a reduced rent is payable while the seller remains in occupation.

Forward purchase/contingent contract: This is a flexible tool that can be used to structure a transaction allowing the parties to share the risk. Contingent consideration (held in a segregated escrow) is particularly useful where the ability of the asset to generate a sustainable income remains untested (perhaps because the building has been recently developed). The contingent payments are only released to the appropriate party on certain contractual conditions being met. It means the structure is limited if either party wants to have full use of these funds during the contingency period. This can be a particularly useful way of getting a buyer comfortable with the asking price on an untested asset.

Overage provisions: Overage provisions provide parties with a mechanism that allows the seller to share in the increased value of a property post-sale. They are commonly used where the land has the potential to be redeveloped, or a valuable planning permission might be obtained. An overage can be a useful way for a developer or promoter to bring the seller to the table in exchange for a share in any potential uplift to the value of the land.

Pre-emption agreements: A pre-emption right gives a prospective buyer the right to be offered the opportunity to buy land before the landowner offers it to another party. Whilst this places no obligation to sell, it can provide a potential buyer with a competitive advantage.

Before agreeing to acquire a property, investors and developers alike should invest some time in considering how they wish to structure the transaction to limit the potential risks and maintain a level of flexibility.