GENERAL COUNSEL UPDATE

A MULTIJURISDICTIONAL GUIDE

3 DECEMBER 2018

HERBERT SMITH FREEHILLS 01GENERAL COUNSEL UPDATE

Contents

UK developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 041. Brexit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 041.1 Draft Withdrawal Agreement published . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 041.2 The Protocol on Ireland/Northern Ireland (the backstop) . . . . . . . . . . . . . . . . . . . . . . 041.3 Framework for the future UK-EU relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 041.4 What next for the Withdrawal Agreement and the Political Declaration? . . . . . . 041.5 UK and EU no-deal planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 052. Competition, regulation and trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 052.1 Government White Paper on national security and investment . . . . . . . . . . . . . . . . 052.2 Competition Appeal Tribunal upholds strict approach to online sales ban . . . . . . 062.3 High Court ruling in first follow-on damages cartel claim – no standard

overcharge found but €13 million damages under other heads of loss . . . . . . . . . 063. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 073.1 Construction (Retention Deposit Schemes) Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 073.2 New legislation in relation to VAT reverse charge for building and

construction services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 074. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 074.1 M&A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 074.1.1 Government White Paper on national security and investment . . . . . . . . . . . . . . . . 074.2 Corporate governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 074.2.1 2018 UK Corporate Governance Code published . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 074.2.2 GC100 publishes guidance on directors’ duties under section 172 of

Companies Act 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 084.2.3 Government publishes response to insolvency and corporate

governance consultation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 085. Dispute resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 095.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 095.1.1 CPTPP to come into force at the end of December . . . . . . . . . . . . . . . . . . . . . . . . . . . 095.1.2 Controversial Prague Rules on taking evidence launch in December . . . . . . . . . . . 095.2 Banking litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 095.2.1 Court of Appeal finds ISDA jurisdiction clause trumps "theoretically

competing" clause in separate agreement governing wider relationship . . . . . . . 095.2.2 Supreme Court provides clear guidance on liability to third parties for

bankers’ references . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.2.3 Court of Appeal finds non-reliance clause sought to exclude liability for

misrepresentation and was therefore subject to UCTA reasonableness test . . . . 105.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.3.1 Important Court of Appeal decision on privilege in ENRC case . . . . . . . . . . . . . . . . 10

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Contents

5.3.2 Information gathering by in-house lawyer won’t necessarily be privileged . . . . . . 115.3.3 Two-year pilot of new disclosure rules to commence 1 January 2019 . . . . . . . . . . 115.3.4 Witness evidence working group: survey includes radical alternatives . . . . . . . . . 116. Employment and pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.1 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.1.1 Pay gap reporting: consultation on extension to ethnicity pay . . . . . . . . . . . . . . . . . 126.1.2 Whistleblowing: managers could face personal liability for dismissal framed

as detriment claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126.1.3 Employment Appeal Tribunal ruling that privilege did not protect in-house

advice on “redundancy” of aggrieved disabled employee . . . . . . . . . . . . . . . . . . . . . . 126.2 Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136.2.1 £15 billion+ cost of pensions equalisation could hit company accounts . . . . . . . . 136.2.2 Company directors face prospect of tougher penalties for pensions failures . . . 136.2.3 Defined benefit consolidation: alternative option for companies seeking to

discharge pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147. Finance: banking, insolvency and restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147.1 The potential discontinuation of LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147.2 New regulations which interfere with English law freedom of contract – The

Business Contract Terms (Assignment of Receivables) Regulations 2018 . . . . . . 147.3 IFRS 16: Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158. Financial services regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158.1 EU and UK sustainable finance initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158.2 Supervisory focus on operational resilience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169.1 Brexit continuity clauses: what corporates need to know for their

insurance policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169.2 Extension of Senior Managers and Certification Regime to insurers and

insurance intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169.4 House of Commons Treasury Committee launches inquiry into consumers’

access to financial services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1710. Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1710.1 Brexit & IP – what to do in the event of “no deal” or the Withdrawal

Agreement in its current form . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1711. Real estate and planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1811.1 Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1811.1.1 RICS issues revised Commercial Service Charge Code as

Professional Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1811.1.2 Reduction in time limits for SDLT returns and payments . . . . . . . . . . . . . . . . . . . . . . 1911.2 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

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HERBERT SMITH FREEHILLS 03GENERAL COUNSEL UPDATE

11.2.1 National Planning Policy Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1911.2.2 Developer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1911.2.3 Shale gas planning policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1912. Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012.1 Autumn Budget 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012.2 Finance Bill 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013. Technology, media and telecommunications, sourcing and data . . . . . . . . . . . . . . 2013.1 Court of Appeal confirms Morrisons vicariously liable for employee's

deliberate actions in first successful UK class action for data breach . . . . . . . . . . 2013.2 EU GDPR: First enforcement notice shows extra-territorial reach . . . . . . . . . . . . . . 21

International developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2214. Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2214.1 The cost of ambiguity in dispute resolution clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2214.2 Subpoenas issued by Australian court in support of arbitration proceedings . . . 2214.3 Who is a casual employee in Australia? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2214.4 Launch of the second edition of the Guide to Restructuring, Turnaround

and Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2214.5 Open Banking – rollout commencing on 1 July 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . 2314.6 Proposed superannuation guarantee (SG) changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2314.7 Australian decommissioning discussing paper released . . . . . . . . . . . . . . . . . . . . . . . . 2414.8 ACCC to up the ante in consumer protection matters . . . . . . . . . . . . . . . . . . . . . . . . . 2414.9 What’s the damage? – The Federal Court of Australia’s decision in

Sigma v Wyeth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2415. Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2515.1 New and improved HKIAC Rules now in force . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2515.2 Casting the regulatory net over virtual assets – new approach for regulating

crypto fund managers, fund distributors and trading platforms . . . . . . . . . . . . . . . . 2515.3 Hong Kong Court of Final Appeal clarifies “innocent purpose” defence to

insider dealing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2615.4 Insurance Authority prepares for implementation of new licensing

regime for insurance intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2616. Saudi Arabia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2616.1 The new Saudi Arabia Arbitration Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

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Please do not hesitate to contact any of the named people for further information on the items set out below . We would also like to hear whether you wish to receive this update more regularly or have other suggestions for its improvement . Please e-mail your comments to Mark Collins or your relationship partner .

HERBERT SMITH FREEHILLS04 GENERAL COUNSEL UPDATE

UK developments

1. Brexit1.1 Draft Withdrawal Agreement published

On 14 November 2018 the UK government published the text of the draft Withdrawal Agreement agreed with EU .

The Withdrawal Agreement sets out the arrangements for the UK’s withdrawal from the EU on 29 March 2019 and includes a transition period to 31 December 2020, during which EU law and the jurisdiction of the Court of Justice of the EU will continue to apply in and to the UK . The Withdrawal Agreement is 586 pages long and is outlined as follows:

•• Part One – Common provisions: relevant definitions, rules of interpretation and territorial scope of the Agreement

•• Part Two – Citizen’s rights: rights of EU citizens in the UK and UK citizens in the EU who are exercising their free movement rights before the end of the transition period

•• Part Three – Separation provisions: operational mechanisms for a range of areas, such as goods, customs procedures, IP rights and judicial cooperation after the transition period

•• Part Four – Transition period: as above . During this transition period the UK will no longer be an EU Member State but EU law will be applicable to and in the UK, so as to produce the same legal effect as it does prior to exit . The Withdrawal Agreement (Article 132) provides for the option of an extension of the transition period, decided by the UK-EU Joint Committee

•• Part Five – Financial provisions: methodology for calculating the financial settlement of UK’s exit from the EU

•• Part Six – Institutional and final provisions: establishment of a Joint Committee responsible for the implementation and application of the Withdrawal Agreement

•• Protocols on Ireland/Northern Ireland (see below), the Sovereign Base Areas in Cyprus and Gibraltar

For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams .

1.2 The Protocol on Ireland/Northern Ireland (the backstop)

The Protocol aims to avoid the need for a “hard border” between Ireland and Northern Ireland by creating a “single customs territory” (that is, a customs union) between the whole of the UK and the EU . It is detailed and complex with multiple cross-references to annexes and EU law . Most importantly, the UK will be required to align its tariffs and other customs legislation on that of the EU and also to apply EU commercial policy (including, trade defence measures, GSP, trade concession contained in the EU’s trade agreements with other countries) .

The Protocol is presented as a last resort (or “backstop”) . The first Article provides that it is to apply temporarily “unless and until” it is superseded by a subsequent agreement between the parties who go on to commit themselves to use their best endeavours to conclude an agreement to supersede the Protocol in whole or in part before the end of the transition period .

In addition, the entry into force of the main provisions of the Protocol can be delayed by an extension of the transition period by decision of the Joint Committee for a fixed but as yet undetermined period so as to allow more time for it to be superseded .

For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams .

1.3 Framework for the future UK-EU relationship

In addition to the Withdrawal Agreement the UK government also published an outline of the Political Declaration on the future relationship agreed with EU . This is a summary only, with the full draft text due to be published imminently .

The Political Declaration when it is published will set out the framework for the future relationship between the UK and the EU in a non-binding declaration across a number of areas including: trade in goods, services and investment, financial services, digital, intellectual property, mobility, transport, energy, fishing, climate change, foreign policy, security and defence, law enforcement and judicial cooperation in criminal matters . The UK’s detailed future relationship with the EU will then be negotiated in a separate binding agreement or agreements to be entered into once the UK has left the EU .

For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams .

1.4 What next for the Withdrawal Agreement and the Political Declaration?

The process for ratifying the Withdrawal Agreement requires the approval of the UK Parliament, EU Parliament and European Council in the following sequence:

•• UK Parliament: Section 13 of the European Union (Withdrawal) Act 2018 requires the House of Commons to pass a resolution approving both the Withdrawal Agreement and the Political Declaration (the so called “meaningful vote”) with the House of Lords then having the opportunity to debate a motion that it has “taken note” of the two documents . The vote is expected to be contentious . If there is no agreement on the Withdrawal Agreement and the Political Declaration by 21 January 2019, the UK government must present its plan on how it will proceed to the UK Parliament for approval .

HERBERT SMITH FREEHILLS 05GENERAL COUNSEL UPDATE

Once the texts of the Withdrawal Agreement and the Political Declaration have completed their passage through both Houses, Parliament needs to pass the European Union (Withdrawal Agreement) Bill, which will formally implement the terms of the Withdrawal Agreement into UK law .

•• EU Parliament: Members of the European Parliament must consent by simple majority (half plus one of all votes cast) to the Withdrawal Agreement . Given the upcoming European Parliament elections on 23-26 May 2019, the final date when the current EU Parliament can vote on the Withdrawal Agreement is likely to be 18 April 2019 .

•• EU Council: The Council of the EU needs to adopt the Withdrawal Agreement by qualified majority, meaning it needs the support of 72% of the 27 participating member states (or 20 member states), and the support must also represent 65% of the population of the 27 member states .

For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams .

1.5 UK and EU no-deal planning

If the negotiated Withdrawal Agreement is rejected there are a number of theoretical outcomes, for instance, continued participation in the EEA, a trade agreement based on the deal between Canada and the EU, General election, a second Brexit referendum . The chief concern for many, however, is the risk of a cliff-edge “no deal” Brexit .

A “no deal” Brexit would involve the UK defaulting to WTO rules for international commerce . In this scenario, the UK’s right to trade with the EU in both goods and services would be governed by the WTO rules, as both the EU and the UK are members . Ostensibly, this would place the UK in a similar position to that of the USA currently, but in a less sophisticated relationship to the EU than that achieved by Canada . There will be no special relations between the EU and the UK . Nonetheless, given the high degree of convergence in legislation and existing trade relationships between the UK and the rest of the EU, it will make many new restrictions difficult to justify under WTO rules .

Given it remains uncertain whether the UK will exit the EU with “no deal”, many businesses will now be implementing strategies to address this risk . There are a variety of different aspects to “no deal” planning that will vary depending on how the business is structured, how it operates and the details of its supply chains .

To aid “no deal” planning, the UK government has published 106 technical notices containing information on what the UK government plans to do, unilaterally, to assist affected businesses and individuals through temporary waivers and derogations . The EU has also published 75 and a recent communication providing

details on the types of contingency measures that should be taken a plan for the adoption of any necessary legislative measures .

For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams .

2. Competition, regulation and trade2.1 Government White Paper on national security

and investment

In July 2018 the Government published a White Paper and Policy Statement setting out its proposal for a new national security and investment regime (the Proposals) . The public consultation closed in October 2018 and the Government is targeting May 2019 to bring the regime into force .

OverviewThe Proposals set out significant legislative changes to create a distinct regime for scrutinising a broad range of transactions on national security grounds . No target, transaction or revenue thresholds will need to be met . The new powers will apply on an economy-wide basis but “core areas” have been identified (certain national infrastructure sectors, AI, military technologies and critical direct suppliers to government/emergency services) .

The legislation catches “trigger events” – mainly acquisitions (of controlling and, in some cases, minority stakes) but, in some circumstances, consortia arrangements, loan structures and land acquisitions could also be caught:

•• Acquisitions of 25% of voting or shareholding rights will be caught as will acquisitions of 50% or more of an asset (including IP rights) .

•• Minority stakes below 25% could be called in for review if the acquirer is able to exert “significant influence” . This could include minority shareholders who have expertise in the particular industry or rights to appoint/remove one Board member if they have responsibility for activities impacting on national security .

•• Acquisitions of land could be caught if located next to or near sites with national security importance and loan agreements may be reviewed in “exceptional” circumstances if a hostile lender gains significant influence over assets that can be used to undermine national security .

Where there is a qualifying trigger event, the Government (Cabinet level minister) will determine if there is a national security concern . Target companies and assets in core areas will be highest risk and hostile states and parties (who are more likely to be foreign states/nationals as compared to British acquirers) will create an acquirer risk (although track record in other holdings and ultimate controlling interests will also be relevant) . The Government will have wide discretion when assessing these risks (as well as what constitutes a

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UK developments

national security concern) . Remedies the Government can impose include carving out assets or divisions, limiting access to sites/information and prohibiting investments .

Impact on foreign investment and deal managementThe foreign investment regime will apply in addition to UK (and EU) merger control and notification will be voluntary (with a power for government to call in) .

The Government has estimated 200 notifications p .a ., half of which would be screened out without a full review and 50 of which would require remedies . This is a high intervention rate compared to UK merger caseload (approximately 60 notifications p .a .) .

There are a number of steps foreign acquirers will need to take when considering an investment in the UK – particularly if it falls within a core area:

•• Frontloading the assessment of whether an investment could be caught . This will need to be factored into deal valuation, risk sharing and completion timetable .

•• Building the (currently uncertain) notification process into a global regulatory engagement strategy .

See our e-bulletin on the White Paper here .

For further information, please contact Veronica Roberts or Gavin Williams .

2.2 Competition Appeal Tribunal upholds strict approach to online sales ban

In August 2017 golf club manufacturer Ping was fined £1 .45 million by the Competition and Markets authority (CMA) for banning UK retailers from selling its golf clubs online . Ping appealed the CMA’s decision before the Competition Appeal Tribunal (CAT) which upheld the CMA’s decision in its ruling of 7 September 2018 . The aim of Ping’s online sales ban was to promote in-store custom fitting for its golf clubs and although the CMA and the CAT both accepted that this was a legitimate commercial strategy, they concluded that alternative and less restrictive measures were available to Ping which would achieve the same outcome . The CAT concluded that Ping’s online sales ban constituted a restriction of competition by object under EU and UK competition law . It held that the ban was by its very nature liable to restrict competition between retailers through an important sales channel . In particular, retailers could not attract consumers located outside their physical catchment areas to buy Ping golf clubs online by offering better prices or quality online service .

The judgment will be of particular interest to UK businesses that seek to restrict online sales in order to promote face-to-face customer relationships for technically complex or bespoke goods . This is the first time that the UK courts have examined prohibitions

in online sales under competition law, and the CAT’s ruling confirms the approach taken by the European Court of Justice (ECJ) in the Pierre Fabre (C-439/09, Pierre Fabre Dermo-Cosmétique SAS v. Président de l’Autorité de la Concurrence and Others) and Coty (C-230/16, Coty Germany GmbH v. Parfümerie Akzente GmbH) cases . While the CAT did not rule out that online sales bans could be permissible if they are objectively justified by reference to certain criteria, the CMA and CAT have shown that they will take a strict approach in assessing whether such a restriction is proportionate to its legitimate aim .

See our e-bulletin here .

For further information, please contact Stephen Wisking or Susan Black .

2.3 High Court ruling in first follow-on damages cartel claim – no standard overcharge found but €13 million damages under other heads of loss

The High Court ruling in BritNed Developments v ABB [2018] EWHC 2616 (Ch) of 9 October 2018 is the first damages ruling by a UK court in a follow-on damages case . BritNed brought a claim for €180 million in damages based on ABB’s participation in the power cables cartel . The judgment recognises the impact of the cartel on BritNed’s interconnector project but, based on the facts and evidence specific to the case, only awarded damages for €13 million .

Taking into account the facts and evidence in relation to the cartel the court took a restrictive approach to the issue of overcharge . Although the cartel had resulted in a limited number of suppliers and fewer bids being available, the court found that BritNed had been in a position to put commercial pressure on ABB in the negotiations, for example through comparing value and costs with previous projects and the pressure that the project would not go ahead if the price was too high .

The court recognised that ABB’s position in the cartel had allowed it to maintain inefficiencies in its cable design when compared to competitors, and that the costs of these inefficiencies had been passed on to BritNed . The court found that there was an overcharge to BritNed arising out of this inefficiency and ordered ABB to pay just over €7 .5 million . The court also held that it was appropriate to consider internal savings ABB achieved through not having to compete with its co-cartelists and ordered ABB to pay just under €5 .5 million for these efficiency savings it obtained from participating in the cartel .

See our e-bulletin here .

For further information please contact Kim Dietzel or Stephen Wisking .

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3. Construction3.1 Construction (Retention Deposit Schemes) Bill

The Construction (Retention Deposit Schemes) Bill 2017-2019 has reached the stage of Second Reading in Parliament . Its aim is to ensure that cash retentions under construction contracts are placed in an approved deposit scheme into which only retentions are placed . There is no detail about what the terms of such a scheme would be as this is left to Regulations . The Regulations must, however, safeguard the retentions and facilitate the resolution of disputes about them .

The Bill makes invalid any clause in a construction contract (entered into after the Act is passed) withholding retentions, unless the monies are deposited into an approved deposit scheme on withholding . The Bill also requires any retentions held after the Act comes into force to be placed in such a scheme or be refunded .

The Bill applies also to contracts “created to have a similar effect to a construction contract for the purposes of withholding monies” otherwise due . This may refer to collateral arrangements or devices intended to escape the Act .

The Second Reading will now take place on 25 January 2019, having been delayed several times . The Second Reading had been due to take place on 23 November 2018, and prior to that on 26 October, 15 June and 27 April 2018 . If passed, the Bill will be followed by the Committee, Report and Third Reading stages in the Commons; then the same process in the House of Lords .

No timetable has been fixed for the remaining stages after Second Reading nor is it yet known if the Government supports the Bill, which is probably crucial to its survival . More than 100 MPs have, however, given their support to the Bill as have many industry bodies .

For further information, please contact Nicholas Downing or James Doe .

3.2 New legislation in relation to VAT reverse charge for building and construction services

The Government has published a final version of the new draft legislation, which will introduce a VAT domestic reverse charge for building and construction services . The new legislation is intended to tackle tax fraud in the construction sector, and is due to take effect from 1 October 2019 .

The domestic reverse charge operates so that the customer receiving the supply of specified construction services is liable to account to HMRC for the VAT due rather than the supplier . The customer then deducts the VAT due on the supply as an input, meaning no net tax is payable to HMRC .

The domestic reverse charge only applies to supplies between UK taxable persons at the standard or reduced rates where payments must be reported through the Construction Industry Scheme . Further, certain supplies are excepted from the application of the domestic reverse charge if supplied on their own, and the supply of specified services to ‘end users’ is also excluded .

In anticipation of the new legislation coming into effect, new or existing construction contracts under which applicable supplies are to be made on or after 1 October 2019 should be drafted or reviewed to ensure that their payment terms correctly reflect the new regime .

For further information, please contact Nicholas Downing or James Doe .

4. Corporate4.1 M&A

4 .1 .1 Government White Paper on national security and investment

See the “Government White Paper on national security and investment” item in the competition, regulation and trade section above .

4.2 Corporate governance

4 .2 .1 2018 UK Corporate Governance Code published

The 2018 UK Corporate Governance Code will apply to all premium listed companies for financial years beginning on or after 1 January 2019 .

The 2018 Code is a complete rewrite of the 2016 Code and has a range of new requirements for both corporate behaviour and reporting – we published a detailed briefing on it, available here .

Key new requirements in the 2018 Code compared to the 2016 Code are:

•• enhanced focus on culture and aligning the company’s strategy and values with culture;

•• requirement to have a board-monitored whistleblowing mechanism;

•• new stakeholder engagement and section 172 Companies Act 2006 disclosure requirements;

•• requirement for the board to have a mechanism for workforce engagement;

•• the chair should not normally remain in post for longer than nine years from the date of their appointment to the board;

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UK developments

•• greater focus on gender, social and ethnic diversity in succession planning for both the board and senior managers, including diversity reporting requirements, covering senior managers;

•• vesting and holding periods for long-term incentives should be at least five years; and

•• removal of certain of the concessions for smaller companies (those outside the FTSE 350) .

Companies will need to review existing policies and procedures to identify gaps and areas that require change before the start of their first financial year to which the 2018 Code applies . Companies will then report against compliance with the 2018 Code when they produce their annual report and accounts during the course of 2020 .

For further information, please contact Sarah Hawes or Gareth Sykes .

4 .2 .2 GC100 publishes guidance on directors’ duties under section 172 of Companies Act 2006

In October 2018, the GC100 published its guidance on directors’ duties under section 172 of the Companies Act 2006 . The guidance forms part of the package of measures introduced by the Government in recent months to improve the UK’s corporate governance framework .

The guidance aims to provide practical help to directors on the performance of their duty under section 172, with a particular focus on the consideration of the stakeholder factors listed in section 172(1) . It contains:

•• a short summary of suggestions for directors to consider;

•• examples of practical steps that directors can take in order to comply with their section 172 duty, including a focus on training, information, strategy and culture;

•• a summary of the key legal background to the section 172 duty; and

•• an example scenario of how directors could discharge their duties in a specific business situation .

The guidance emphasises that there is no “one size fits all” approach, and says that the suggestions in it reflect different ways in which different businesses have sought to ensure they achieve their goals responsibly and, at the same time, address their specific company law duties in relation to stakeholder considerations . While it is acknowledged that some of the processes and practices used by GC100 members will not be practicable for smaller companies, GC100 hopes the guidance will provide useful insights and ideas for all company directors .

For further information, please contact Sarah Hawes or Gareth Sykes .

4 .2 .3 Government publishes response to insolvency and corporate governance consultation

In August 2018, BEIS published its response to the March 2018 Insolvency and Corporate Governance consultation paper . The response includes feedback on the Insolvency Service’s 2016 Consultation Paper on the Corporate Insolvency Framework .

No new legislation or regulation is proposed at this stage but further consultation in the following corporate governance areas is planned:

•• Group structures: The Government and the Financial Reporting Council (FRC) will work to underline the importance of boards understanding of how governance applies throughout the group .

•• Shareholder responsibilities: The Government and the FRC plan to incorporate stewardship within mandates given to asset managers and establish a new mechanism for institutional investors to escalate concerns .

•• Dividends: The dividend payment framework may be strengthened . The Government has asked the Investment Association to review the practice of companies “avoiding” a shareholder vote on dividends by only declaring interim dividends .

•• Directors’ duties: The Government plans to strengthen access to training and guidance for directors and will consider whether training for directors of large companies should be mandatory .

•• Supply chain protection: The Government has issued a call for evidence to gather data and information on how to create a responsible payment culture for small businesses . It also intends to prohibit the enforcement of termination clauses in supply contracts triggered purely by the entry of a party into an insolvency process .

The proposals in the consultation paper around the sale of distressed businesses and reversal of value extraction schemes have been scaled back . The Government:

•• will proceed with proposals for a moratorium to help distressed businesses to be rescued and a new restructuring plan procedure to bind dissenting creditors; and

•• will not include a proposal that a director be personally liable in connection with the sale of a distressed business, but will propose measures to disqualify directors of holding companies which do not give due consideration to the interests of stakeholders on the sale of a distressed subsidiary .

For further information, please contact Sarah Hawes or Gareth Sykes .

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5. Dispute resolution5.1 Arbitration

5 .1 .1 CPTPP to come into force at the end of December

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade deal between 11 Pacific nations, will now come into force on 30 December 2018, 60 days after Australia’s ratification . Australia’s ratification followed swiftly after Canada deposited its official notice of ratification on 24 October, joining Japan, Mexico, New Zealand and Singapore .

The 11 signatory economies represent approximately 16% of global economic output and 500 million people . It is anticipated that a number of the remaining five signatory states (Brunei, Chile, Malaysia, Peru and Vietnam) will be in a position to ratify the agreement over the coming months . Japan has expressed interest in having other countries join the agreement and in November 2018, Japanese Prime Minister Shinzo Abe stated his interest in seeing the United Kingdom join after it departs from the European Union .

The CPTPP has emerged from the earlier Trans-Pacific Partnership (TPP) following America’s withdrawal from the treaty . A number of provisions that were in the original TPP have been suspended in the CPTPP . Notably, this includes certain provisions on investor-state dispute settlement (ISDS), meaning that the scope of the ISDS mechanism has narrowed . New Zealand has also signed side letters to exclude or limit compulsory ISDS with five signatories to the CPTPP .

For more information please contact Brenda Horrigan, Alastair Henderson, Chris Hunt, or Andrew Cannon .

5 .1 .2 Controversial Prague Rules on taking evidence launch in December

The Rules on the Efficient Conduct of Proceedings in International Arbitration (the Prague Rules) launch on 14 December 2018 . The Prague Rules arise from civil lawyers’ concerns that the Rules on the Taking of Evidence in International Arbitration (the IBA Rules) are too common law-influenced . The Prague Rules drafters question the effectiveness of prevailing practices .

In many ways the Prague Rules provisions are not new, including the power the tribunal already has to restrict submissions to limited matters of law or fact . They also provide for early case management conferences to narrow facts and legal issues, rather like the International Chamber of Commerce (ICC) Terms of Reference .

However, there are important changes . Under the Prague Rules, the tribunal “will avoid extensive production of documents, including any form of e-discovery” . There will be an inquisitorial approach to fact witnesses, “conducted under the direction and control” of the

tribunal . Documents-only arbitrations are preferred . More controversially, the tribunal can assist with settlement, as in many civil law systems . Common lawyers generally view this as potentially infringing arbitrator impartiality .

Where the Prague Rules give tribunals more powers, it would perhaps be better to address tribunal reluctance to use existing powers .

The IBA Rules will clearly remain popular, especially for complex and high value disputes where comprehensive evidence is key . It is less clear whether the Prague Rules will find favour and how differently arbitrations will be conducted under them .

For more information please contact Vanessa Naish or Rebecca Warder .

5.2 Banking litigation

5 .2 .1 Court of Appeal finds ISDA jurisdiction clause trumps "theoretically competing" clause in separate agreement governing wider relationship

Consistent with recent authority, the Court of Appeal gave primacy to an English law jurisdiction clause in an ISDA Master Agreement (overturning the first instance decision that had declined to do so), in circumstances where there was a “theoretically competing” jurisdiction clause in a separate agreement governing the wider relationship: Deutsche Bank AG v Comune di Savona [2018] EWCA Civ 1740 .

The appellate decision contributes to market certainty in respect of contracting parties’ choice of jurisdiction and therefore represents good news for derivative market participants . The Court of Appeal commented that it would have been “startling” if the bank’s claims for declaratory relief falling squarely under the relevant swap contracts could not be brought in the forum selected by the parties in the ISDA Master Agreement .

The approach taken by the Court of Appeal focused on determining the “particular legal relationship” to which the dispute related for the purpose of Article 25 of the Recast Brussels Regulations, which deals with jurisdiction agreements . In circumstances where there were two contracts (with theoretically competing jurisdiction clauses), it held that there was a distinction to be drawn between a generic wider relationship on the one hand, and a specific interest rate swap relationship governed by the ISDA Master Agreement on the other . It concluded in general terms that, disputes relating to the swap transactions were therefore governed by the jurisdiction clause in the ISDA Master Agreement . Given that there had been conflicting first instance decisions on this issue, it was helpful to have this clarification from the Court of Appeal .

See our banking litigation e-bulletin for more details .

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UK developments

For further information, please contact Donny Surtani, Ceri Morgan or Emma Deas .

5 .2 .2 Supreme Court provides clear guidance on liability to third parties for bankers’ references

In NB Banca Nazionale del Lavoro SPA v Playboy Club [2018] UKSC 43 the Supreme Court upheld the decision of the Court of Appeal, confirming that where a bank reference is requested on behalf of an undisclosed principal, then no duty of care is owed by the bank providing the reference to the undisclosed principal receiving it .

The decision provides authoritative and clear guidance to banks who give references for their customers as to the potential duties they will owe to third parties for inaccuracies in the information they provide, where the purpose and the identity of the recipient of the information is unknown .

This case also provides guidance on how parties should structure requests for bank references to ensure that any third party on whose behalf the request is ultimately made will have recourse against the referee bank in the event that the reference is provided negligently .

See our banking litigation e-bulletin for more details .

For further information, please contact Harry Edwards, Melissa Federico or Ceri Morgan .

5 .2 .3 Court of Appeal finds non-reliance clause sought to exclude liability for misrepresentation and was therefore subject to UCTA reasonableness test

In First Tower Trustees Ltd v CDS (Superstores International) Limited [2018] EWCA Civ 1396 the Court of Appeal found that a “non-reliance” clause was a term that excluded or restricted liability for misrepresentation . The clause was therefore within the scope of section 3 of the Misrepresentation Act 1967 (MA) and subject to the reasonableness test under section 11(1) of the Unfair Contracts Terms Act 1977 (UCTA) .

Although the contract in the present case was a lease over real property, the Court of Appeal’s findings will be of interest to financial institutions, which include non-reliance clauses (and other forms of contractual estoppel) in their contractual documentation as standard practice . These features of the Court of Appeal’s analysis are likely to be of interest:

•• Where a clause simply delimits the parties’ primary obligations, it is not an exclusion clause and therefore the reasonableness test in UCTA will not apply . Such clauses define the basis on which the parties are contracting . Lewison LJ, who gave the leading judgment, suggested that this is how the label “basis clause” in

some of the cases should be understood, though Leggatt LJ, who delivered a concurring judgment, suggested that the term is best avoided in the interests of clarity .

•• A non-reliance clause, in contrast, seeks to prevent liability arising in misrepresentation by stating that no representations have been made or, if made, have not been relied on, and therefore setting up a contractual estoppel . The Court of Appeal held that such a clause amounts to an attempt to exclude liability for misrepresentation . Accordingly, it is subject to section 3 MA and therefore the reasonableness test under section 11 UCTA .

•• Leggatt LJ commented (obiter) that it does not matter whether the non-reliance clause is contained in a contract entered into after the representation was made (as in this case) or before it (eg in a confidentiality agreement entered into before the main transaction) . Where it is in a contract agreed before the representation, however, it might affect whether the elements of the misrepresentation claim are in fact established, eg whether a particular communication would reasonably be understood as making a representation or whether it was in fact relied on .

An application for permission to appeal to the Supreme Court has been filed and we are monitoring developments .

See our litigation notes blog post for more details .

For further information, please contact Harry Edwards or Ceri Morgan .

5.3 Litigation

5 .3 .1 Important Court of Appeal decision on privilege in ENRC case

In SFO v ENRC [2018] EWCA Civ 2006, the Court of Appeal helpfully disagreed with the High Court’s overly strict approach to the question of whether litigation privilege applied to documents prepared for an internal investigation . However, it (reluctantly) dismissed the appeal against the High Court’s decision that legal advice privilege did not apply .

In relation to litigation privilege, the High Court found that, where ENRC’s purpose was to investigate allegations made by a whistle blower, this was not sufficient to meet the dominant purpose test for litigation privilege . The Court of Appeal disagreed, finding that this was all part and parcel of preventing or defending litigation . It also confirmed, contrary to the High Court’s decision, that documents prepared for the purpose of avoiding or settling proceedings are covered by litigation privilege, just as documents prepared for the purpose of resisting or defending litigation .

In relation to legal advice privilege, the Court of Appeal considered itself bound by the notorious Court of Appeal decision in Three Rivers No 5 [2003] QB 1556 to find that the privilege applies to

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communications between a lawyer and the lawyer’s “client”, which is limited to those tasked with seeking and receiving advice on behalf of the client company . It does not include those who are merely authorised to provide information to the lawyer . The court said that, if it had been open to it to depart from Three Rivers No 5, it would have done so . This will, however, be a matter for the Supreme Court in an appropriate case .

For further information please see our summary of the decision here on our litigation notes blog, or contact Anna Pertoldi or Maura McIntosh .

5 .3 .2 Information gathering by in-house lawyer won’t necessarily be privileged

In Glaxo Wellcome UK Ltd v Sandoz Ltd [2018] EWHC 2747 (Ch), the High Court held that an in-house lawyer’s communications with an employee of the business, who was accepted to be her in-house “client” for some purposes, were not protected by legal advice privilege where those communications were to seek and obtain information to provide to external solicitors in order to obtain their legal advice . In doing so, the court applied the narrow interpretation of “client” established by the notorious Three Rivers No 5 decision as recently confirmed by the Court of Appeal in the ENRC case (see above) .

Significantly, the decision illustrates that an individual can be a lawyer’s “client”, and therefore entitled to communicate information to the lawyer under protection of privilege, for one purpose but not others .

The decision underlines the importance of considering, in any given context, who is likely to be considered the lawyer’s “client” for that particular purpose . Where an external lawyer is advising, and the in-house lawyer is the relevant “client” for that purpose, the in-house lawyer’s internal information gathering exercise may not be privileged (unless litigation privilege applies, as in that context a lawyer/client communication is not essential) . The position may be different where the in-house lawyer’s advice is sought in addition to that of the external lawyer .

For further information please see our summary of the decision here on our litigation notes blog, or contact Anna Pertoldi or Maura McIntosh .

5 .3 .3 Two-year pilot of new disclosure rules to commence 1 January 2019

New rules to govern disclosure of documents in litigation before the English courts will be subject to a two-year pilot in the Business and Property Courts starting on 1 January 2019 . It is expected that, if the pilot is a success, it will lead to wider reforms to disclosure . The pilot will affect both new and existing proceedings, but it will not

affect orders for disclosure made before the commencement date (unless those orders are varied or set aside) .

The new rules follow on from proposals published in November 2017 by a working group chaired by Lady Justice Gloster . In broad summary, the current disclosure “menu” will be replaced by a new list of “models” . Different models may be applied to different issues in the case, and a list of issues for disclosure will have to be prepared and agreed between the parties for that purpose .

Although the list of models is not dramatically different from the current menu, the new rules contain clear signs steering the parties, and the court, toward a more restrained approach to disclosure . Perhaps most significantly, where a party proposes Model D disclosure (which is roughly equivalent to what is currently referred to as “standard disclosure”) it will need to be ready to explain to the court why Model C disclosure (disclosure by reference to requests by the opposing party, similar to the approach often adopted in international arbitration) would not be sufficient .

The new rules contain an express duty to disclose documents a party is aware of which are adverse to its case (unless they are privileged), regardless of any order for disclosure . There is also an express duty to refrain from providing irrelevant documents .

For further information please see our litigation notes blog post here, or contact Anna Pertoldi or Maura McIntosh .

5 .3 .4 Witness evidence working group: survey includes radical alternatives

A working group was set up in 2018, led by Mr Justice Popplewell, to review the current rules and practice and make recommendations for potential reform of the procedures for factual witness evidence in the Business and Property Courts (the Chancery Division, Commercial Court and Technology and Construction Court) . It has conducted an online survey seeking views from court users on whether the current rules on witness statements ought to remain in their present form and be enforced more rigorously or whether the rules themselves need to be changed and, if so, how .

The alternatives set out in the survey include some radical alternatives such as: doing away with witness statements and returning to oral examination-in-chief; moving to pre-trial depositions; and (perhaps most controversially) lifting privilege in the production of witness statements so as to require a note be taken of oral communications with the witness, with all communications and drafts to be disclosed to the other side, or permitting the opposing party to conduct or be present at the interviewing of witnesses .

For further information please see the group’s survey monkey page here, or contact Anna Pertoldi or Maura McIntosh .

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UK developments

6. Employment and pensions6.1 Employment

6 .1 .1 Pay gap reporting: consultation on extension to ethnicity pay

Following the introduction of gender pay gap reports in 2017, a couple of reforms on the horizon will require larger employers to publish yet more HR-related data . Given considerable media interest around such disclosures and the potential impact on recruitment and reputation, businesses may want to get one step ahead by reviewing their current position and, if appropriate, considering steps to improve it .

The Government has recently published a consultation on ethnicity pay reporting, making clear its intention that this should become mandatory (possibly subject to a trial or phased approach with “early adopters”), given the lack of progress from a voluntary approach . The consultation is open until 11 January 2019 and asks for views on a number of issues including the most appropriate method of reporting and whether to make it mandatory to produce a narrative and action plan . See our blog post for further information .

The Government has also announced that it will consult on requiring larger employers to publish their parental leave and pay policies, so that job applicants can make informed decisions about whether they can combine the role with caring for their family . This is also the focus of a Private Member’s Bill which is currently going through Parliament with cross-party support .

Employers will welcome the news that the Government does not intend to amend the gender pay gap duty in the near future, despite recommendations to do so from the House of Commons’ BEIS Committee . It had recommended mandatory narratives and action plans and the publication of certain additional data . Further details are set out in our blog post here .

Businesses currently drafting their April 2018 gender pay gap reports (to be published in April 2019) may be interested in new Government Equalities Office guidance on the effectiveness of various approaches to reduce the gender pay gap (see our blog post here) .

For further information, please contact Andrew Taggart or Anna Henderson .

6 .1 .2 Whistleblowing: managers could face personal liability for dismissal framed as detriment claim

Employers should ensure board members and senior managers are aware that, if they are instrumental in a decision to dismiss an employee for whistleblowing, they could be personally liable for post-dismissal losses .

The Court of Appeal has upheld the EAT's decision in Timis and Sage v Osipov [2018] EWCA Civ 2321 that an employee can bring a whistleblowing detriment claim against a fellow worker in relation to their actions in dismissing him (for which the employer may be vicariously liable), in addition to an unfair dismissal claim against the employer . The law only prohibits bringing a claim based on dismissal as a detriment claim against the employer, not against colleagues instrumental in the decision to dismiss .

Given that detriment claims have a lower standard of causation and the possibility of injury to feelings awards (not available for unfair dismissal claims), it may well be advantageous for claimants to bring both types of claim . The colleagues and the employer can be jointly and severally liable for the losses flowing from the dismissal, and the award against the colleagues can also be subject to the statutory uplift for a failure to comply with the Acas Code of Practice on Disciplinary and Grievance Procedures (presumably a tribunal is more likely to award this where the colleagues were responsible for the employer’s compliance with the Code) .

Employers should consider refreshing whistleblowing training for managers to highlight the potential for personal liability in relation to dismissal or other detrimental treatment in whistleblowing (and discrimination) cases . This could both avoid claims arising and also help an employer establish a reasonable steps defence should a vicarious liability claim be brought .

For further information, please contact Christine Young or Anna Henderson .

6 .1 .3 Employment Appeal Tribunal ruling that privilege did not protect in-house advice on “redundancy” of aggrieved disabled employee

The EAT in X v Y Ltd [2018] UKEAT 0261/17/0908 has ruled that an email containing advice from an in-house lawyer was not protected by privilege due the “iniquity principle” . There was a strong prima facie case that the email was to be interpreted as advising that a genuine redundancy exercise could be used as a “cloak” to dismiss the claimant to avoid his continuing complaints and difficulties with his employment (which he alleged were related to his disability) . As such, the advice was an attempt to deceive both the claimant and, ultimately, an employment tribunal . Relevant passages in the claimant’s claim should therefore not have been struck out .

The EAT considered that advice that a certain course of action runs the risk of being held as unlawful discrimination would not be iniquitous, whereas advice that a course of action, which may be unlawful, could be taken, does “shade into iniquity” . Whether privilege is lost will depend on whether the discrimination advised is “so unconscionable as to bring it into the category of conduct which is entirely contrary to public policy” .

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In-house and external legal advice should be framed carefully in light of this ruling, particularly where written advice is given on the potential to dismiss for a fair reason where there are allegations of discrimination in the background .

See our blog post for further details . The decision has now been appealed and is to be listed by the Court of Appeal by 31 October 2019 .

For further information, please contact Peter Frost or Anna Henderson .

6.2 Pensions

6 .2 .1 £15 billion+ cost of pensions equalisation could hit company accounts

In a landmark judgment given in Lloyds Banking Group Pensions Trustees Ltd v Lloyds Bank Plc & Ors [2018] EWHC 2839 (Ch), the High Court has ruled that pension schemes are required to equalise male and female members’ benefits to address inequalities arising from the calculation of guaranteed minimum pensions (GMPs) . Trustees are also required to make back payments to make good historic underpayments (subject to any limitation under a scheme’s rules) .

Estimates suggest that implementing GMP equalisation will add around £15 billion to the liabilities of the pension schemes of FTSE 350 companies alone . This cost will ultimately need to be met by employers and may need to be reflected in company accounts .

In considering how equalisation should be implemented, the court rejected the most generous approach, approving instead several lower cost alternatives . However, subject to any appeal, trustees must now decide, together with their scheme’s sponsor, how to implement equalisation in the context of their scheme .

As well as increasing a scheme’s liabilities, equalising benefits could also significantly increase the cost of scheme administration . Trustees and sponsors may want to explore options for simplifying the process, such as compromising members’ claims or converting GMPs into ordinary scheme benefits, to reduce this .

It is likely to take several months for trustees to implement equalisation . In the meantime, they must decide whether to adjust transfers and other lump sum payments that fall due before benefits are equalised . Where relevant, trustees will also need to consider the impact on planned buy-outs .

For a more detailed summary of the impact of this judgment read our e-bulletin .

For further information, please contact Alison Brown, Samantha Brown or Rachel Pinto .

6 .2 .2 Company directors face prospect of tougher penalties for pensions failures

Following the criticism that it received in the wake of the failures of BHS and Carillion, which saw both companies’ pension schemes enter the Pension Protection Fund (with a combined deficit in excess of £800 million), the Pensions Regulator (PR) has signalled its intention to adopt a tougher approach to pensions regulation . The Government is also planning to strengthen the PR's hand by giving it greater powers and enabling it to act more quickly and decisively .

The proposed changes to the regulatory regime include:

•• introducing new notifiable events to require directors to notify the PR on:

i . the sale of a material part of the business or assets of a company that supports a defined benefit (DB) pension scheme;

ii . business refinancing where security is granted which has priority over the pension scheme;

iii . a restructuring of the board of directors (such as changes to two of the Chairman, CEO or CFO in a six month period or the appointment of a chief restructuring or transformation officer); and

iv . the company taking independent pre-appointment restructuring advice .

•• giving the PR the power to issue fines of up to £1 million on company directors and other connected parties for a serious failure to comply with pensions regulatory requirements (including a failure to comply with the notifiable events requirements) .

•• introducing a new criminal offence to punish wilful or reckless behaviour in relation to a defined benefit pension scheme .

There have also been calls for the Government to introduce a new notifiable event relating to the payment of dividends where a company’s pension scheme has a sizeable deficit . However, these have so far been resisted .

The consultation on these proposed changes has now closed and the Government is expected to confirm its plans later this year . In advance of this, the PR is already demonstrating a more interventionist approach by implementing a new one to one supervisory regime for some schemes and proactively contacting others to raise concerns and influence behaviour (for example, where the PR believes that dividends are too high relative to deficit repair contributions) . The PR’s tougher approach can also be seen in its enforcement of companies’ auto-enrolment duties, where the first custodial sentences for non-compliance by company directors have recently been handed down .

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For more information on how directors should be responding to this tougher regulatory environment, please contact Alison Brown, Samantha Brown or Rachel Pinto .

6 .2 .3 Defined benefit consolidation: alternative option for companies seeking to discharge pension liabilities

The consolidation of defined benefit (DB) pension schemes is emerging as a new option for companies beleaguered by the costs and risks associated with running legacy DB schemes .

Consolidation seeks to remove risk for the sponsor at a lower-cost than an insured buy-out, currently the “gold standard” for securing member benefits . The cost saving arises because it is anticipated that consolidation vehicles will not need to adhere to the same capital requirements as insurers . The advantages of consolidation over an ongoing scheme include more effective investment strategies and economies of scale, resulting in reduced running costs per member and improved scheme governance .

Research conducted by the Pensions Regulator (PR) suggested that on average, small and medium sized schemes are most likely to fail to meet the governance standards expected by the PR and often face higher administrative costs due to a lack of economies of scale . In these cases, consolidation could serve as an alternative method of securing members’ benefits .

Consolidation works by replacing the sponsor covenant with the financial covenant of the consolidator vehicle, in return for a cash injection from the sponsor, thereby removing the DB liability from the sponsor’s balance sheet . The cash injection is required to improve the funding level of the scheme to bring it up to the level required by the consolidation vehicle and to provide a capital buffer . However, the additional funding is likely to be considerably less than an insured buy-out .

In its March 2018 White Paper, the Department for Work and Pensions committed to facilitating the entrance of new consolidation vehicles into the market . So far, The Pension Super Fund and Clara Pensions have publically announced their arrival, with other consolidators vehicles expected to follow .

It is important to note that even if consolidation is a viable option, getting a scheme’s trustees on board may be challenging as the regulatory landscape is still uncertain and consolidation will inevitably result in a loss of control and a loss of the sponsor’s financial support for the scheme . However, in the right circumstances, this should be possible .

For further information, please contact Alison Brown, Samantha Brown or Rachel Pinto .

7. Finance: banking, insolvency and restructuring

7.1 The potential discontinuation of LIBOR

The FCA has said in strong terms that it will not encourage or compel banks to continue to provide quotes for LIBOR after the end of 2021 . The view is that further reform of LIBOR cannot compensate for the lack of data from an underlying market, and that an alternative risk-free rate should be developed .

The preferred almost risk-free rate is one based on the Sterling Overnight Interbank Average Rate (SONIA) . The Loan Market Association (LMA) has raised various concerns in relation to the adoption of SONIA, as a backward-looking, overnight rate rather than a forward-looking, term rate, as the replacement for LIBOR in the syndicated lending market, principally because in this form it has the potential to cause the loan markets difficulty both operationally and commercially .

The Bank of England has recognised this, and the Working Group on Sterling Risk-Free Reference Rates recently launched a consultation on the development of a term SONIA reference rate . The Bank of England has also noted that it is aware that international co-ordination is crucial, given the different currencies for which LIBOR is currently produced, and also that risk mitigation strategies for legacy contracts will be required .

It remains difficult to draft meaningful, detailed contractual provisions now which will cater for the possible future replacement of LIBOR by a new reference rate, since it is currently unclear exactly what that reference rate will be, how that replacement rate will operate, and even when it will come into operation as the market standard . It is therefore important that documents which refer to LIBOR include robust fall-back provisions to allow the relevant interest rate to be determined even if LIBOR is not available . However, the practicalities of administering these fall-back options, would not be not straightforward in all cases .

Parties may also wish to consider the consent threshold for replacement of the reference rate in facility agreements; the LMA has published some expanded provisions to allow this to happen on the occurrence of various trigger events to facilitate this .

For further information please contact Simon Chadney, Will Nevin or Will Breeze .

7.2 New regulations which interfere with English law freedom of contract – The Business Contract Terms (Assignment of Receivables) Regulations 2018

New regulations, the Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations), which introduce a ban on contractual provisions which prohibit the assignment

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of receivables in certain contracts, have now been brought into effect .

The Regulations apply to business-to-business (B2B) contracts entered into on or after 31 December 2018 and are intended to make it easier for smaller businesses to raise finance from their payment streams – currently, anti-assignment provisions in commercial contracts are very common .

Although at first glance the Regulations appear of wide application, qualifications to their scope mean that, in broad terms, they only apply to English and Northern Ireland law B2B contracts where:

•• the supplier is an SME or a micro-business at the date when it makes an assignment prohibited by the terms of the contract;

•• at least one of the parties to the contract has entered into it in the course of a business carried on the United Kingdom; and

•• none of the other exclusions applies .

Under the Regulations, a term will have no effect in a contract that is within scope to the extent that it:

•• prohibits or imposes a condition on the assignment of a receivable;

•• prevents the assignee of a receivable from determining its validity or value; or

•• hinders the assignee’s ability to enforce the receivable .

A receivable is defined as a right (whether or not earned by performance) to be paid any amount under a contract, other than an excluded contract, for the supply of goods, services or intangible assets .

Importantly, the Regulations contain a long list of excluded contracts – this includes contracts relating to prescribed financial services (eg lending and financial trading), contracts concerning interests in land, certain contracts relating to the acquisition or disposal of a business, contracts entered into by a project company of a public-private project, certain derivative contracts in the energy and commodities sectors and contracts under which the supplier is a special purpose vehicle which holds assets or finances commercial transactions which involves it incurring a liability of £10 million or more .

The time for testing the status of the supplier (assignor) is the time of the assignment (not the time of entering into the contract) based on the latest filed accounts (where available) .

Affected businesses, which include buyers of goods and services from UK suppliers who routinely prevent assignment of receivables in their standard terms of purchase, now have only a very short window to prepare for the change .

For further information please contact Simon Chadney, Will Nevin or Will Breeze .

7.3 IFRS 16: Leases

New IFRS 16: Leases (which was issued in January 2016) will become effective from 1 January 2019 . It requires recognition of all identified leases on a lessee’s balance sheet with only limited exceptions . Currently, operating leases are not recognised on a lessee’s statement of financial position; instead, operating lease commitments are disclosed in the notes .

New IFRS 16 may have an impact on, and could result in breach of, agreed financial covenants in facility agreements which are tested against the borrower’s financial statements . However, any adverse effects may be mitigated or may even be prevented if a facility agreement contains “frozen GAAP” provisions (ie provisions which require the borrower either to ensure that all its financial covenants are calculated by reference to the same generally accepted accounting principles (GAAP) as those used when the facility agreement was entered into or to provide the lender with a comparison back to the original GAAP) or terms allowing renegotiation of covenants when accounting standards change . The LMA has already amended its facility documentation to address these requirements . However, lenders and borrowers still need to be aware of the changes and will need to address any issues which arise as a result, particularly in older facility agreements and refinancings, where the original documentation may not contain the current LMA wording .

For further information please contact Simon Chadney, Will Nevin or Will Breeze .

8. Financial services regulation8.1 EU and UK sustainable finance initiatives

Climate change and the growth of green finance are pushing regulators to engage with the challenges and opportunities for the financial services sector and consider ways to provide more structure and protection to consumers .

In its recent discussion paper (DP18/8), the FCA seeks views on various sustainability issues including the impact of climate change potentially resulting in reduced investment values and pension outcomes, classification of green products and markets, disclosure and ways to prevent misleading “green washing” of financial products and services . The paper also discusses the impact of climate change on the FCA’s objectives . The Prudential Regulation Authority (PRA) is consulting on its expectations regarding banks’ and insurers’ approaches to managing financial risks from climate change (CP23/18) . The joint FCA/PRA Climate Financial Risk Forum, which expects to hold its first meeting in early 2019, will discuss the management of financial risks from climate change as well as innovations in green finance .

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In its Action Plan on financing sustainable growth, the EU Commission discussed upcoming initiatives for 2019, including work on a taxonomy on climate change mitigation activities, green bond standards and a review of EU legislation on public reporting . The EU Commission also intends to clarify, by amending existing legislation (eg MiFID II, AIFMD, UCITS Directive, Solvency II Directive and the Insurance Distribution Directive), how financial market participants should integrate sustainability risks and other sustainability factors in their organisational requirements, operating conditions, risk management and target market assessment . The EU Commission has also published draft legislation, expected to be finalised in 2019, on sustainable finance, including draft regulations establishing a sustainable investment framework, sustainable investments disclosures and new categories of carbon benchmarks .

For further information, please contact Karen Anderson or Clive Cunningham .

8.2 Supervisory focus on operational resilience

A “hostile cyber environment and large scale technological changes” were cited by the FCA as it joined forces with the Bank of England and the Prudential Regulation Authority to release a discussion paper on an approach to improving the operational resilience of firms and financial market infrastructures (FMI) in July 2018 .

While not an entirely new concept or term, the focus on “operational resilience” is the response to the longstanding high ranking position of ICT risks and cybersecurity on firms’ risk registers and on regulators’ own lists of their supervisory priorities . Preoccupation with firms’ ability to restore critical services effectively and timeously following interruption is not limited to the UK or national regulators, as the challenges of delivering operational resilience are echoed by supervisors at both global and EU level .

In September 2018, the European Banking Authority’s head of unit for banking markets, innovation and products outlined the regulatory framework for mitigating key resilience risks to the Operational Resilience in Financial Services Conference . At a global level, the Financial Stability Board (FSB), the global standard setter for financial stability-focused regulation and supervision, has prioritised the development of tools relating to response to, and recovery from, cyber incidents; a progress report will be published in mid-2019 . Given that the Bank of England Governor is also the Chair of the FSB, it seems likely that the UK discussion will feed into the FSB’s thinking .

Generally, the approaches which are emerging combine three elements: policy or regulation which aims at strengthening governance and risk management; robust supervisory assessment of firms; and resilience testing . While regulators and supervisors necessarily focus on regulated firms and the financial system, there

is an inherently broader reach to unregulated service providers (for example, cloud service providers and other third party IT providers) which provide the elements of the infrastructure of individual firms and the broader system . Successful delivery and maintenance of operational resilience by firms and financial markets is, of course, critical to the proper functioning of the wider economy .

For further information, please contact Karen Anderson, Andrew Procter or Andrew Moir .

9. Insurance9.1 Brexit continuity clauses: what corporates

need to know for their insurance policies

Herbert Smith Freehills has assisted Airmic to produce a guide for policyholders on continuity clauses, which some in the insurance market are using to prepare for the impact of Brexit . The clauses aim to provide a level of contract continuity in the event that the UK leaves the EU without suitable transitional arrangements being put in place or without an agreement allowing UK insurers to perform cross-border business into the EEA .

The guide explains those Brexit issues of particular relevance to policyholders and explains what continuity clauses aim to do . Policyholders are encouraged to discuss the implications of Brexit for their insurance programme with their broker and this guide should assist policyholders in those discussions .

For further information, please contact Paul Lewis .

9.2 Extension of Senior Managers and Certification Regime to insurers and insurance intermediaries

The PRA’s Senior Insurance Managers Regime (SIMR) took effect in early 2016 .The SIMR introduced a new accountability framework for individuals working in UK insurers, consistent with standards set by the Solvency II Directive .

In July 2017, the FCA and PRA published proposals to extend application of the Senior Managers and Certification Regime that was originally introduced for banks to almost all financial services firms, including insurers and insurance intermediaries . Further consultations have been issued since that date . The biggest change for insurers is the introduction of a certification regime for employees whose role means that they could expose the firm or its customers to significant harm . Certified Persons do not need pre-approval but must be certified by the relevant authorised firm as fit and proper on an annual basis . The vast majority of employees working for insurers will also become subject to directly enforceable conduct rules .

UK developments

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The new regime will come into force for insurers from 10 December 2018 . Insurance intermediaries will be subject to the new rules from December 2019 .

Our more detailed briefings on the above topics can be found on our insurance blog here .

For further information, please contact Alison Matthews or Geoffrey Maddock .

9.3 European Commission consults on amending Solvency II Delegated Regulation

The European Commission is consulting on a number of amendments to the Solvency II regime applying to EEA (re)insurers . Proposed changes to the Solvency II Delegated Regulation cover a range of topics including:

•• introducing prudential criteria that allow reducing the capital charges in the standard formula for insurers’ unrated debt and unlisted equity investments;

•• simplifying burdensome or costly elements of the capital requirement standard formula; and

•• aligning the Solvency II capital requirement standard formula with the rules applicable in the banking sector .

The proposals reflect technical advice provided by the European Insurance and Occupational Pensions Authority (EIOPA) and work undertaken as part of the capital markets union relating to the prudential treatment of private equity and privately-placed debt in Solvency II . In the UK, the PRA has also made a number of changes over the past year to the Solvency II regime applying to UK (re)insurers .

Our more detailed briefings on Solvency II can be found on our insurance blog here .

For further information, please contact Alison Matthews or Geoffrey Maddock .

9.4 House of Commons Treasury Committee launches inquiry into consumers’ access to financial services

On 9 November 2018, the House of Commons Treasury Committee announced the launch of a new inquiry into consumers’ access to financial services . It will focus on the interaction between vulnerable consumers and financial services firms .

The Committee will scrutinise whether certain groups of consumers are excluded from obtaining a basic level of service from financial services providers . It will also examine whether vulnerable consumers pay more financial service products . Vulnerability is

defined by the FCA to cover someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm us not acting with appropriate levels of care . The Committee will examine the practicality of the FCA’s definition, the effectiveness of attempts by financial services providers to prevent increased financial exclusion, and whether a premium is placed on products such as travel insurance for vulnerable consumers .

The FCA has increasingly been looking at financial firms’ interactions with vulnerable customers . It expects firms to pay attention to possible indicators of vulnerability and to have policies in place to deal with consumers where those indicators suggest they may be at greater risk of harm .

For further information, please contact Alison Matthews .

10. Intellectual property10.1 Brexit & IP – what to do in the event of “no

deal” or the Withdrawal Agreement in its current form

Since our last edition of General Counsel Update, the UK Government has issued several “no deal technical notices” in relation to various aspects of intellectual property, setting out what will happen if there is no deal . There are lots of statements asserting that IP rights that might be lost in the UK by virtue of being EU-wide, such as EU trade marks (EUTMs) or Community registered designs (CRDs), will be replaced by the UK with equivalent rights in the UK . Even Community unregistered design rights will be replaced with a new “supplementary design right” it was stated . Pending applications for EUTMs of CRDs will have a nine-month grace period within which to make fresh applications to the UK IPO for an equivalent right, with preservation of priority . These “no deal” statements are very similar to the arrangements agreed with the EU in the latest draft of the Withdrawal Agreement (WA) at date of writing nevertheless, businesses intellectual property rights in the UK consist solely of EU-wide rights currently, should consider whether to rely on these statements from the UK Government and/or the WA, or to make equivalent UK trade mark applications now and UK registered design applications if within the 12-month grace period for these .

The Government’s statements have been clear that the UK intends, at Brexit (or at the end of the transitional period if that comes into effect), to provide replacement rights in the UK for EUTMs by effectively automatic creation of equivalent UK trade marks (UKTMs) in all respects to replace them with full continuity (there will be “minimal administrative burden” says the UK Government which implies a fairly automatic process) . Registration of UK trade mark rights in advance of Brexit would be a “belt and braces” approach, depending on how confident the business is in the UK Government’s assurances of continuity of rights and the risk of a no

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UK developments

deal Brexit meaning there is not enough time to prepare for this administrative process . There will be an option to “opt out” of conversion of EUTM right in the UK to a UKTM right but the process has not been published . For future registrations, UKTM rights should be registered alongside EUTM rights .

One key issue does not appear to have been addressed, that of “genuine use” of trade marks, without which a trade mark can be liable to revocation . If the use relied on for the EUTM was use in the UK, then use should be established in the rest of the EU as soon as possible and at least within five years . If the use relied on was outside the UK, then use in the UK should be established, again within five years .

There was acknowledgment in the “no deal notice” that sui generis database rights established by virtue of a UK creator (individual or business) would no longer apply in the UK or the EEA once the UK exits the EU . However, the UK says that it will continue to recognise them in the UK, along with any other sui generis database rights (or whatever origin) which applied in the UK immediately before Brexit, but there will be no mutual recognition in the EEA . The UK Government’s suggestion was that copyright or other legal means was used to protect databases going forward .

Copyright should not be affected as such as it is not harmonised within the EU and relies on international treaties to provide protection internationally . However, certain aspects such as the portability of content which have been subject to EU legislation will be . For more on this see our IP blog here .

The UK Government hopes that UK originating Geographical Indications (GIs) will continue to be recognised under the EU system . If not then it suggests that UK producers will need to submit applications to the EU “as third country producers” . The UK is planning to have its own GI system and is including GI protection in the free trade deals it hopes to conclude post-Brexit . The no deal notice says that “After March 2019, irrespective of the outcome of EU negotiations, the Government anticipates that UK GIs currently named in and protected by EU free trade agreements and other sectoral agreements will continue to be protected“ .

Patents and SPCs will not be affected by Brexit since the EPO is not an EU institution and patent applications will still be made centrally for EPC States via the EPO . SPCs will continue to be administered nationally . The WA as agreed with negotiators so far, states that any SPC applications pending at Brexit will be assessed by the UK on the basis of the same criteria as immediately before Brexit . The new unitary patent right can only become available once the Unified Patent Court has been established (for more on this see our UPC hub), but should this option become a possibility prior to Brexit (or the end of any transition period), then the UK Government has said it would replace these rights with UK patents . Again, a “belt

and braces” approach would be to continue to apply for individual national patent rights rather than a unitary patent if one was available pre-Brexit/end of transition .

In terms of commercial risks, IP licences and agreements should be reviewed and consider in particular:

•• territory definitions which refer to the EU (ensure that there is clarity between parties as to what territory the agreement now covers, if necessary by concluding an additional agreement) . There is more advice available on this in the Herbert Smith Freehills' Brexit resources;

•• definitions of intellectual property (in particular where some rights will no longer apply in the UK and others may arise in replacement of them); and

•• consider the impact of the potential exhaustion of IP rights between the UK and the EEA markets on your distribution models and enforcement strategies (the no deal notice suggested that the UK would recognise goods that had already been put on the market in the EU as having their IP rights exhausted, whilst acknowledging that the EU would not do the same in respect of goods first put on the market in the UK) .

For more on Brexit and IP and on the “no deal” arrangements in respect of the Life Sciences sector see our IP Blog Intellectual Property Notes here:

•• Brexit “no deal” technical notices published on patents, trade marks, designs, copyright, GIs, and exhaustion of rights

•• Brexit “no deal” technical notices – lots for the life sciences sector to think about

For further information, please contact Joel Smith or Rachel Montagnon .

11. Real estate and planning11.1 Real estate

11 .1 .1 RICS issues revised Commercial Service Charge Code as Professional Statement

The Royal Institute of Chartered Surveyors (RICS) has issued the first edition of its Professional Statement “Service Charges in Commercial Property”, which will take effect from 1 April 2019 . The new Statement supersedes the previous Code of Practice (3rd edition) and now includes nine mandatory obligations which must be complied with, plus best practice requirements which should be complied with . If these are not followed, the reasons for doing so should be justifiable . The Professional Statement is effective for all service charge periods commencing from 1 April 2019 and whilst it cannot override the terms of the lease, it should be read in conjunction with it to “identify the best way forward in interpreting the lease to ensure effective management

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of services” . Subject to the terms of the lease, a failure to meet the standards set out in the Statement will not of itself be sufficient to negate or limit an occupier’s liability to pay a service charge .

Whilst many landlord clients may already work within these requirements, if they want to be able to claim that they are “compliant” with the Service Charge Professional Statement, then they will need to make sure that their managers and advisers, including their accountants, comply with the above requirements in full . A failure by a RICS member or regulated firm to do so risks the possibility of sanctions being brought by RICS against that party .

Going forward, any negotiations of new or renewal leases will need to have regard for this, particularly if the landlord has expressed a willingness to comply with the Code .

For further information, please contact Jeremy Walden or Matthew Bonye .

11 .1 .2 Reduction in time limits for SDLT returns and payments

With effect from 1 March 2019 the time limit for submitting a Stamp Duty Land Tax (SDLT) return and for paying any SDLT due will be reduced from 30 calendar days to 14 calendar days . Whilst government statistics show that approximately 85% of SDLT returns are already made within 14 days of the effective date, companies and their advisers will need to ensure that any existing systems for dealing with SDLT returns are updated accordingly to reflect the shortened window for making a submission .

Under the current regime, it is possible to apply to HMRC to defer payment of SDLT where it is due on contingent or uncertain consideration, until the “trigger event” that results in it being ascertained or ceasing to be contingent occurs . The draft regulations make it clear that the 30 day period for submitting a deferral application will remain unaltered, although the obligation to make a return and pay SDLT after the trigger event occurs will be reduced to 14 days .

For further information, please contact Jeremy Walden or Neil Warriner .

11.2 Planning

11 .2 .1 National Planning Policy Framework

The Government has confirmed its commitment to “simplifying and speeding up the planning system, to support the high street, make effective use of land and deliver more homes” . The revised National Planning Policy Framework (NPPF) was published on 24 July 2018, implementing reforms from the Housing White Paper and Autumn 2017 Budget . The revised NPPF introduces a new standard method for calculating local housing need and a new Housing Delivery Test, changes the definition of affordable housing, shifts

viability considerations to the plan making stage, emphasises design and sustainability, incorporates the “agent of change” principle and tightens Green Belt policies . Planning Practice Guidance is being updated in line with the revised NPPF .

At the Autumn 2018 Budget, various proposals to amend and reform planning policy were announced for consultation including: changes to the standard method for calculating housing need; changes to the definition of “deliverable” for housing development; changes to the use classes order and to permitted development rights to support the high street and promote housing delivery; relaxation of restrictions on disposals of land by local authorities at less than best consideration; policy on new town development corporation compulsory purchase powers; and clarification regarding appropriate assessments for habitats sites . Also published with the Autumn 2018 Budget was the Final Report of the Independent Review of Build Out, which recommends that new planning rules should be adopted for large housing sites in areas of high housing demand . The Government’s response to this report is expected in February 2019 .

For further information, please contact Matthew White or Catherine Howard .

11 .2 .2 Developer contributions

At the Autumn 2018 Budget, the Government published its response to its March 2018 consultation “Supporting housing delivery through developer contributions” on reforms to the Community Infrastructure Levy (CIL) and section 106 obligations . The Government proposes to: improve guidance; amend consultation requirements; lift section 106 pooling restrictions; improve CIL operation; index residential CIL to the House Price Index; improve transparency and accountability; and introduce a Strategic Infrastructure Tariff . Changes to the Community Infrastructure Levy Regulations 2010 will be consulted on in due course .

For further information, please contact Matthew White or Catherine Howard .

11 .2 .3 Shale gas planning policy

A consultation seeking views on the principle of granting planning permission for non-hydraulic shale gas exploration development through a permitted development right closed on 25 October 2018 . This ran concurrently with a separate consultation gathering views on timings and criteria for including shale gas production projects in the Nationally Significant Infrastructure Project (NSIP) regime . The Government is currently considering its response to both consultations . The Government has since launched a separate consultation seeking views on whether applicants should be required to conduct a pre-application consultation with the local community prior to submitting a planning application for shale gas development . This consultation closes on 7 January 2019 . These

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consultations are pursuant to a joint Written Ministerial Statement of 17 May 2018 on Energy Policy .

For further information, please contact Matthew White or Catherine Howard .

12. Tax12.1 Autumn Budget 2018

This year’s Budget, delivered on 29 October 2018, was prefaced by the Chancellor’s statement that if the “economic or fiscal outlook changes materially in-year” (for which, read a “no deal Brexit”), a new Budget would be forthcoming in the shape of upgrading the Spring Statement 2019 to a “full fiscal event” . Therefore, although the Budget included some significant tax measures, we may find, depending on the outcome of Brexit negotiations, that some of these are of a rather temporary nature . Significant announcements included:

•• a new digital services tax, to be levied at the rate of 2% on revenues exceeding £25 million that are derived by social media platforms, online marketplaces and search engines from providing certain services that are ‘linked’ to UK users . The tax will be introduced from April 2020 but will be disapplied if an appropriate solution to the taxation of companies in the digital economy is reached at an international level; and

•• reform of the off payroll working rules (known as IR35) in the private sector . These rules seek to ensure that individuals who are engaged through intermediaries (most often personal service companies (PSCs)) by service users (end users), but who perform roles equivalent to employees, are taxed through payroll in the same way as employees . The regime will be changed from April 2020 so that the obligation to determine whether or not the IR35 rules apply, and to operate and pay PAYE income tax and associated employer NIC costs, will fall to the end user rather than the PSC .

Further details of these and other tax measures can be found in our Budget briefing here .

For further information, please contact Isaac Zailer or Howard Murray .

12.2 Finance Bill 2019

Finance Bill 2019 (formerly known as Finance (No . 3) Bill 2017-19) was published on 7 November, together with explanatory notes . The Bill includes a number of significant tax measures, in particular in relation to UK real estate:

•• from April 2019, the scope of the current tax on gains on UK residential property-related assets held by non-UK residents (“Non-Resident Capital Gains Tax” or “NRCGT”) will be extended

so that all disposals by non-UK residents of investments in UK land and buildings (residential or commercial) will fall within either UK corporation tax or capital gains tax; and

•• from April 2020, non-UK resident landlords will move from the income tax regime to the corporation tax regime .

For further information, please contact Isaac Zailer or Howard Murray .

13. Technology, media and telecommunications, sourcing and data

13.1 Court of Appeal confirms Morrisons vicariously liable for employee's deliberate actions in first successful UK class action for data breach

On 23 October 2018, the Court of Appeal dismissed Morrisons’ appeal against the High Court’s decision that it was vicariously liable for its employee’s misuse of data, despite: (i) Morrisons having done as much as it reasonably could to prevent the misuse; and (ii) the employee’s intention being to cause reputational or financial damage to Morrisons itself: WM Morrison Supermarkets Plc v Various Claimants [2018] EWCA Civ 2339 (click here for our summary of the High Court decision) .

This case highlights the wide reach of data protection . An organisation can be liable for data breaches even if it has taken appropriate measures to comply with the data protection legislation itself, and even if it is the intended victim of the breach . In this respect, the decision will also concern employers who can now be vicariously liable for the actions taken by a rogue employee, even with appropriate safeguards in place to protect employee personal data . In addition to civil liability, organisations may suffer further damage as a result of negative publicity and impact on share price .

There is now a risk for organisations that this decision, combined with the legislative changes made by the EU General Data Protection Legislation (GDPR), increased public awareness of data protection issues, and the publicity that the case has attracted, could spark a new wave of court cases from workers and customers in the event of a data breach . Whilst individuals may not themselves be entitled to significant sums, if the data breach affects large numbers of individuals, the total potential liability for organisations could become commensurately large .

It should be noted that this case related to data breaches which occurred prior to 25 May 2018 (ie prior to the implementation of the GDPR) . In the post-GDPR world where there is an express right for individuals to be compensated for non-material damage (ie distress) it could become easier to bring such actions, particularly where there have been findings of non-compliance by the Information Commissioner’s Office (ICO), the UK’s data

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protection regulator . It will be interesting to see the impact of this decision on future compensation claims brought by individuals .

For more details please refer to the firm’s article here .

For further information, please contact Miriam Everett or Nick Pantlin .

13.2 EU GDPR: First enforcement notice shows extra-territorial reach

The UK data protection regulator, the Information Commissioner’s Office (ICO), has issued its first enforcement notice under the EU’s new data protection legislation, the General Data Protection Regulation (679/2016/EU) (GDPR) . The notice is particularly noteworthy because it has been issued against a company located in Canada, which does not appear to have any presence within the EU .

The GDPR came into force on 25 May 2018 . The territorial scope of the GDPR provides that the GDPR applies to organisations outside the EU when they process personal data which, among other things, relates to monitoring the behaviour of individuals who are in the EU (Article 3(2)(b)) . According to the enforcement notice issued to AggregateIQ Service Ltd, the ICO considers AggregateIQ to be directly subject to the GDPR as a result of Article 3(2)(b) of the GDPR .

The ICO found that AggregateIQ failed to comply with the GDPR in a number of ways, including by processing personal information in a way that the data subjects were not aware of, for purposes which they would not have expected, and without a lawful basis for that processing .

Not only is it the first extra-territorial notice issued by the ICO under the GDPR, but it is the first action ever taken by the ICO against an entity outside the UK . It is understood that the notice is being appealed . The extraterritorial reach of the GDPR is as yet untested and, without any regulatory guidance as to interpretation, how that appeal plays out may be an early indicator as to the issues that could arise in extra-territorial enforcement under the GDPR .

For further details please refer to the firm’s article here, which was first published in the November 2018 issue of the PLC magazine .

For further information, please contact Miriam Everett or Nick Pantlin .

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International developments

14. Australia14.1 The cost of ambiguity in dispute

resolution clauses

An Australian court has recently dismissed an application for a permanent stay of proceedings on the ground that the parties were not subject to a binding agreement to arbitrate: Hurdsman & Ors v Ekactrm Solutions Pty Ltd [2018] SASC 112 .

The issue for the court was whether a dispute resolution clause which required the parties to submit disputes to a “mediator for determination in accordance with the Rules of the Singapore International Arbitration Centre (SIAC)”, constituted a binding arbitration agreement (notwithstanding there are no rules for mediation prescribed by SIAC) .

The court held that the clause was not consistent with an intention to determine disputes by arbitration, nor was it quite an arbitration agreement or a mediation agreement . In drawing this conclusion, the court placed weight upon:

•• the parties’ pre-contractual negotiations, which revealed that the dispute resolution clause changed qualitatively from an arbitration clause contained in an earlier agreement between the parties which referred disputes to SIAC; and

•• the balance of the dispute resolution clause, which contemplated that a dispute could subsist and still be amenable to court proceedings, which would have little, if any, work to do if there was a binding arbitration agreement .

The decision highlights the importance of drafting dispute resolution clauses that clearly express the parties’ intent and which can be given effect . Poorly drafted dispute resolution clauses are often the source of extended and time-consuming disputes over a tribunal’s jurisdiction which can take place prior to the commencement of the substantive merits phase of the dispute .

For further information, please contact Leon Chung, Mitchell Dearness or Phoebe Winch .

14.2 Subpoenas issued by Australian court in support of arbitration proceedings

An Australian court has granted an application made under the International Arbitration Act 1974 (Cth) (IA Act) for the issue of subpoenas for the cross-examination of two persons not a party to the arbitration proceedings: UDP Holdings Pty Ltd v Esposito Holdings Pty Ltd [2018] VSC 316 .

The court was satisfied that the two key requirements of the IA Act had been met:

•• The tribunal had given unconditional permission for the application to be made to the court .

•• The issue of the subpoenas was reasonable in all the circumstances . It was considered particularly relevant that both witnesses had previously been examined in related Supreme Court proceedings and that the other party had filed statements of intended evidence from the individuals in which each witness would affirm and adopt the evidence given in the Supreme Court examination . The witnesses were not cross-examined in the Supreme Court and therefore it was appropriate that they were cross-examined in the arbitration .

The court’s decision is consistent with the supportive role that Australian courts play in relation to arbitral proceedings, although it is clear that the court will not act as a “mere rubber stamp” .

For further information, please contact Leon Chung, Mitchell Dearness or Phoebe Winch .

14.3 Who is a casual employee in Australia?

A Full Court of the Federal Court of Australia handed down a decision in WorkPac v Skene [2018] FCAFC 131 that held that the definition of “casual employee” at law depends on whether the “essence of casualness” is absent or not .  For a significant period of time, there was ambiguity about whether that definition applied, or whether a “casual employee” was merely someone who was engaged and paid as such .

Employers should review their casual employment arrangements to determine if there is a firm advance commitment from the employer to the casual employee of continuing and indefinite work . Where a casual employee’s employment is not irregular, informal, intermittent or uncertain, they may be a permanent employee at law, and therefore entitled to receive paid benefits associated with that status . This creates an exposure for employers to back-pay of paid leave entitlements and notice of termination and redundancy pay (where relevant) . An individual can make a claim for underpayment of employment entitlements for up to six years, so both current and former employees may have a claim .

The decision in WorkPac v Skene is not being appealed but WorkPac is challenging the definition of “casual employee” in the Federal Court of Australia in another matter .

For further information, please contact Kirsty Faichen, Penny Brooke, Wendy Fauvel or Catherine Pase .

14.4 Launch of the second edition of the Guide to Restructuring, Turnaround and Insolvency

Herbert Smith Freehills has launched the second edition of the Guide to Restructuring, Turnaround and Insolvency in Asia Pacific, offering exclusive insight into the diverse legal systems across the Asia Pacific . The guide covers 18 major Asia Pacific jurisdictions including four new chapters on Bangladesh, Myanmar, Pakistan and

HERBERT SMITH FREEHILLS 23GENERAL COUNSEL UPDATE

Sri Lanka . The chapters include on-the-ground insight into the recent trends and developments in each jurisdiction, as well as:

•• a summary of each of the key formal restructuring and insolvency procedures;

•• the methods by which secured creditors can enforce their security;

•• common issues encountered in the lead up to a formal insolvency procedure;

•• priority of distributions in insolvency;

•• the prevalence of restructuring techniques, as well as the ability of creditors to engage in debt trading; and

•• the recognition of foreign restructuring and insolvency procedures .

The guide also contains a “Regional Overview” chapter where we have highlighted the key regional trends in the Asia Pacific . Given the increased investment throughout the region, this has been inevitably accompanied by instances of financial distress and business failure, creating a market for special situations, distressed debt and private equity investors .

Thus, it is critical that stakeholders understand the legal systems, processes and nuances of the Asia Pacific legal systems prior to making investment decisions in those jurisdictions .

A copy of the guide can be requested from the Herbert Smith Freehills’ website here .

For further information, please contact Paul Apathy, Margaret Fong or Tiffany Cheung .

14.5 Open Banking – rollout commencing on 1 July 2019

The banking sector is gearing up for the rollout of Open Banking (OB) – Australia’s first application of the “Consumer Data Right” (CDR) that will allow consumers to direct organisations (in the case of OB, banks) to transfer their data to trusted third parties .

The four major Australian banks must make certain categories of transaction, product and account customer data available by 1 July 2019, and open up broader data sets to third party access by 1 July 2020 . Other banks will be subject to the OB regime with a 12-month delay on these timeframes .

Consumer consent is central to the regulatory aspect of OB, and the CDR legislation also contains robust “Privacy Safeguards”, extending beyond the Australian Privacy Principles . 

Regulatory compliance is only part of the OB risk profile . The reputational risk arising from data breach is material, and may be

higher than that presented by existing “personal” data breach risk, due to the broader categories of data involved and potential financial loss exposure . Banks will need to ensure their technology systems and operations are equipped to control, secure and manage higher levels of data transfer to less “known” recipients .

OB provides immense opportunity for banks to create and enter new markets, increase innovation, and develop new product lines . It will also result in new market entrants (increasing competition), and has the potential to be transformative on existing banking business models . Development of the reciprocity principle (the requirement for accredited data recipients to share “equivalent consumer data” with banks) is an example of how OB may blur borders between industry verticals, and fundamentally change the banking industry as we know it .

It is worth watching the development of the OB regime closely given its likely impact on how the CDR is applied to other sectors in the future .

For further information, please contact Julian Lincoln, David Ryan or Mandy Milner .

14.6 Proposed superannuation guarantee (SG) changes

As part of the 2018/2019 Federal Budget, the Australian Government announced that individuals who earn more than $263,157 a year with multiple employers will be able to make wages from certain companies exempt from the SG legislation to avoid breaching the concessional contributions cap . 

The Treasury Laws Amendment (2018 Superannuation Measures No . 1) Bill 2018 (Bill) will allow the Commissioner of Taxation (Commissioner) to issue an employer shortfall exemption certificate (essentially exempting the employer specified in the certificate from making contributions for SG purposes for the period specified in the certificate) if:

(a) the employee has made an application to the Commissioner (in the approved form);

(b) the Commissioner considers that the person is likely to exceed their concessional contribution cap for the financial year;

(c) the Commissioner is satisfied that after issuing the certificate the person will have at least one employer who will make SG contributions for them; and

(d) the Commissioner considers that it is appropriate in all of the circumstances to issue the certificate .

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Directors in particular may wish to take note of these proposed changes . As a director is deemed to be an employee for SG purposes, this will apply where a director has multiple directorships (or a directorship with one entity and an employment relationship with another) and their directors’ fees (together with any other income for SG purposes) exceed $263,157 (in total) .

The Bill has been passed by the House of Representatives and is currently before the Senate .

For further information, please contact Ally Crowther, Sarah Yu or Nita Alexander .

14.7 Australian decommissioning discussing paper released

Consistent with reform initiatives in many industries around the globe, the Department of Industry, Innovation and Science (DIIS) is reviewing the Commonwealth legislative framework for the decommissioning of offshore oil and gas installations, with the aim of ensuring that it is fit-for-purpose, continues to meet community and industry expectations, and positions Australia for future decommissioning challenges and opportunities .

As a first step, DIIS has released a discussion paper and it is now hosting discussion seeking stakeholder input ahead of written submissions due in early 2019 .

The emphasis evident from the paper and the discussion forums is on industry honouring its “social licence” to operate and the need to reframe existing laws to meet modern societal expectations . Many of the themes in the paper focus on transparency in relation to planning and executing decommissioning operations, ensuring that they are conducted appropriately, and that the Australian taxpayer is not liable for decommissioning costs in a default context . Specifically, the paper investigates whether more specific and onerous obligations on operators and owners are appropriate, and we expect DIIS to recommend changes with higher compliance and assurance (eg security may be required) .

The key message for major infrastructure and asset owners is to assess how the review outcomes could potentially affect their assets and the associated legacy obligations and whether to now engage with DIIS or await their initial response to stakeholder submission due towards the end of 2019 .

If you are interested in learning more about the proposed reforms, please see our article here or contact Laura Thomas to be added to our decommissioning mailing list .

For further information, please contact Stuart Barrymore, Robert Merrick or Melanie Debenham .

14.8 ACCC to up the ante in consumer protection matters

The Australian Competition and Consumer Commission (ACCC) has recently released its Annual Report, which provides useful insights into the ACCC’s areas of focus for the year ahead . All indications are that 2018/2019 will likely be another busy year for the ACCC in the area of consumer protection, and for businesses that are caught in its cross-hairs .

Looking back over the previous year, the ACCC initiated 56 new enforcement actions (well over the target of 40), and made the headlines with significant financial penalties in a number of cases . For example, these penalties ranged from AUD $2 .25 million against Heinz (for false or misleading representations regarding the nutritional value of a snack product for toddlers) to AUD $10 million against Telstra Corporation (for false or misleading representations regarding third party billing services) .

Looking to the year ahead, the Annual Report reveals that we can expect the ACCC to focus its enforcement efforts on consumer protection issues that have the potential for industry-wide impact, significant penalty outcomes, or which occur in the ACCC’s priority areas . These priority areas include the motor vehicle, telecommunications, health and medical sectors, as well as product safety, consumer guarantees and “truth in advertising” . Following recent legislative changes to increase the maximum penalties for breaches of the Australian Consumer Law, the ACCC has indicated that it will continue to advocate strongly for higher financial penalties for breaches of the consumer law .

In this environment of heightened regulatory focus, businesses operating in Australia should pay careful attention to their marketing, terms and conditions across all platforms and ensure their compliance procedures are up to date, fit for purpose and properly implemented .

Click here to read our more detailed analysis of the ACCC’s Annual Report .

For further information, please contact Sue Gilchrist, Patrick Gay, Liza Carver or Anna Vandervliet .

14.9 What’s the damage? – The Federal Court of Australia’s decision in Sigma v Wyeth

The Federal Court has recently issued an important decision in relation to a claim for damages payable pursuant to an undertaking given for the grant of an interlocutory injunction (also known as a preliminary injunction) in a pharmaceutical patent case . The decision in Sigma v Wyeth [2018] FCA 1556 is the first decision of its kind in Australia, and is likely to have significant ramifications both within the pharmaceutical sector, and in relation to interlocutory injunction applications more broadly .

International developments

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In Australia, an applicant who obtains an interlocutory injunction is generally required to give an undertaking to the court to compensate any person affected by the injunction, in the event the interlocutory injunction was wrongly granted . In this case, Wyeth obtained interlocutory injunctions against a number of parties in 2009 on the basis that generic pharmaceutical products infringed Wyeth’s patent . On appeal, the patent was held invalid . A number of parties then claimed compensation pursuant to the undertaking given by Wyeth .

Justice Jagot ultimately held that Wyeth should pay compensation to each of the claimants for damage suffered as a result of the grant of the interlocutory injunctions . The decision is a lengthy and complex one, but a number of important lessons emerge . These include:

•• Evidence led in support of an interlocutory injunction regarding potential market share, or loss thereof if an injunction is not granted, will also be relevant to the quantification of a later claim made on an undertaking as to damages .

•• Liability for losses suffered as a result of the interlocutory injunction is confined to reasonably foreseeable direct losses .

•• Parties should clearly document business decisions and plans, especially where an interlocutory injunction is anticipated . The court will place significant weight on contemporaneous records when calculating losses arising from an interlocutory injunction .

•• In the life sciences sector, this case will likely be relied on by generics in balance of convenience arguments to support a proposition that the calculation of their losses is complex . Patentees on the other hand are likely to seek to distinguish this case on the facts .

Our more detailed analysis of the Sigma v Wyeth decision can be found here .

For further information, please contact Rebekah Gay, Sue Gilchrist, Shaun McVicar, Patrick Sands or Emma Iles .

15. Hong Kong15.1 New and improved HKIAC Rules now in force

On 1 November 2018 the new Hong Kong International Arbitration Centre (HKIAC) Rules came into force (2018 Rules) . The 2018 Rules are the product of a detailed review by a committee including Herbert Smith Freehills’ Professional Support Consultant Briana Young and a robust public consultation process .

The updates and innovations contained in the 2018 Rules include:

•• allowing parties to submit documents through secured online repositories;

•• requiring tribunals to consider the effective use of technology in

adopting suitable procedures for the conduct of the arbitration, to avoid unnecessary delay or expense;

•• expanding the provision for single arbitration under multiple contracts;

•• the power to conduct multiple arbitrations concurrently or sequentially;

•• introducing an early determination procedure;

•• improvements to the Emergency Arbitrator Procedure; and

•• requiring that the tribunal notify the parties and the HKIAC of the anticipated date of the award, to be no later than three months after close of proceedings .

There are also several amendments that reflect the imminent introduction of third party funding for arbitration in Hong Kong, including a requirement for funded parties to disclose the funding arrangement .

The 2018 Rules are accompanied by a Practice Note on Appointment of Arbitrators, setting out the HKIAC’s general practice of appointing arbitrators . Arbitrators are appointed through the Appointments Committee, which will consider the non-exhaustive list of factors set out in the Practice Note . The Practice Note also affirms the HKIAC’s commitment to diversity in arbitral appointments .

For more information please contact Kathryn Sanger or Briana Young .

15.2 Casting the regulatory net over virtual assets – new approach for regulating crypto fund managers, fund distributors and trading platforms

On 1 November 2018, the Hong Kong Securities and Futures Commission (SFC) issued a statement setting out a new approach for regulating crypto fund managers, fund distributors and trading platforms . The statement:

•• sets out the risks associated with investing in virtual assets, which the new regulatory approach is aimed at addressing;

•• outlines the regulatory standards expected of virtual asset portfolio managers and fund distributors (appendix 1 to the statement sets out the standards relevant to virtual asset portfolio managers and a circular sets out the standards regarding the distribution of virtual asset funds); and

•• discusses a conceptual framework for the potential regulation of virtual asset trading platforms (including a regulatory sandbox), with a view to exploring and forming a view on whether such platforms are suitable for regulation (further details of the framework are in appendix 2 to the statement) .

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International developments

The SFC is closely monitoring the development of virtual assets and may issue further guidance where appropriate . In a speech at Hong Kong Fintech Week, Mr Ashley Alder (CEO of the SFC) discussed the SFC’s regulatory response to the growing importance of fintech and the rationale for the new regulatory approach . Our briefing of 2 November 2018 provides an overview of the key components of the new approach .

For further information, please contact William Hallatt, Hannah Cassidy, Grace Chong or Michael KS Tan .

15.3 Hong Kong Court of Final Appeal clarifies “innocent purpose” defence to insider dealing

The Hong Kong Court of Final Appeal (CFA) has recently allowed the Securities and Futures Commission’s (SFC) appeal against the Market Misconduct Tribunal’s (MMT) findings that two former executives (Mr Charles Yiu Hoi Ying and Ms Marian Wong Nam) of listed company Asia Telemedia Limited (ATML), had not engaged in insider dealing in ATML shares .

The appeal focused on the defence to insider dealing under section 271(3) of the Securities and Futures Ordinance (SFO), which is sometimes referred to as the “innocent purpose” defence . In brief, it provides that a person shall not be regarded as having engaged in market misconduct by reason of an insider dealing taking place through his/her dealing in listed securities, if he/she establishes that the purpose(s) for dealing in the securities were not or did not include the purpose of securing or increasing a profit (or avoiding or reducing a loss) by using inside information .

Overturning the rulings by the MMT and the Court of Appeal on the applicability of the defence, the CFA held that the Mr Yiu and Ms Wong could not rely on the defence as they sold their ATML shares taking advantage of their knowledge that the prices were significantly higher than they ought to have been and which would not be achievable if the inside information were available to the market .

The CFA’s clarification of the applicability of the innocent purpose defence means that it would be difficult for persons who are connected to listed companies for the purpose of insider dealing provisions to rely on the defence, unless in exceptional circumstances where they can demonstrate that the purpose of their dealings is unconnected with the market price of the shares .

Our briefing of 12 November 2018 provides an overview of the key issues discussed by the CFA .

For further information, please contact William Hallatt or Hannah Cassidy .

15.4 Insurance Authority prepares for implementation of new licensing regime for insurance intermediaries

The Insurance Authority has been preparing for the implementation of the new licensing regime for insurance intermediaries . It plans to take over the regulation of the intermediaries from the three self-regulatory organisations (SROs) by mid-2019 .

As part of this, substantial work is being done in relation to the rules, codes and guidelines which will apply under the new regime . They are generally first subject to soft consultation with the industry, before being published for general public consultation . The rules and guidelines which are currently under public consultation include guidelines relating to fit and proper criteria and continuing professional development, guideline on pecuniary penalties and rules on the maximum number of authorised insurers to be represented by an agent or agency .

Insurance intermediaries validly registered with SROs immediately before the new regime commences will automatically be deemed to be licensees for a transitional period of three years . Existing chief executives of insurance brokers and responsible officers of insurance agencies will also be deemed as responsible officers under the new regime .

The insurance Authority is also developing an online portal to facilitate electronic submission of license applications, continuing professional development reporting and other functions .

For further information, please contact William Hallatt or Hannah Cassidy .

16. Saudi Arabia16.1 The new Saudi Arabia Arbitration Law

Saudi Arabia enacted an UNCITRAL Model Law-based arbitration law on 8 June 2012 (the New Arbitration Law) . Implementing Regulations of the New Arbitration Law appeared in the Official Gazette on 9 June 2017 and have played a significant role in providing clearer guidance in relation to the New Arbitration Law .

The New Arbitration Law applies to all arbitrations seated in Saudi Arabia or abroad, where the parties have agreed its provisions will apply . There are exceptions for personal disputes (such as child custody disputes) and matters that cannot be reconciled (such as criminal matters) .

Parties are allowed to choose the procedures to be followed by the tribunal when conducting the arbitral proceedings and to choose institutional rules such as the ICC, LCIA or UNCITRAL rules . Parties may also choose any law to govern the arbitration proceedings . Nevertheless, the application of the rules or law must not contravene the principles of Shari’ah or public policy .

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The arbitral award is not subject to appeal, provided that it is in compliance with Shari’ah principles and public policy, though an action may be brought to set aside the award on a range of limited listed grounds . It is likely that arbitral awards that provide for interest will be unenforceable in Saudi Arabia if the interest element cannot be separated from the award for damages .

In the past, enforcement of foreign arbitral awards in Saudi Arabia could be described as somewhat challenging and problematic . However, the recent move towards a more arbitration-friendly era has significantly streamlined the enforcement process .

For more information please contact Craig Shepherd or Caroline Kehoe .

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Notes

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BEIJINGHerbert Smith Freehills LLP Beijing Representative Office (UK)

BELFASTHerbert Smith Freehills LLP

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JAKARTAHiswara Bunjamin and TandjungHerbert Smith Freehills LLP associated firm

JOHANNESBURGHerbert Smith Freehills South Africa LLP

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MILANStudio Legale Associato in association with Herbert Smith Freehills LLP

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NEW YORKHerbert Smith Freehills New York LLP

PARISHerbert Smith Freehills Paris LLP

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RIYADHThe Law Office of Mohammed Altammami Herbert Smith Freehills LLP associated firm

SEOULHerbert Smith Freehills LLP Foreign Legal Consultant Office

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SINGAPOREHerbert Smith Freehills LLP

SYDNEYHerbert Smith Freehills

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2717E General Counsel Update December 2018_d6/0412182018© Herbert Smith Freehills LLP