INDEX
CHAPTER
1. BUSINESS ENTITIES
2. RAISING CAPITAL
3. DEBT FINANCE
4. EMPLOYMENT
5. TAXATION
6. INTELLECTUAL PROPERTY
7. DATA PROTECTION
8. COMMERCIAL CONTRACTS
9. REAL PROPERTY
10. COMPETITION LAW
Chapter 1
BUSINESS ENTITIES
2. CORPORATE BODIES
2.1 Legal Status
A company is a corporate body recognised in law as having legal personality. A company has the capacity to enter into contracts and undertake liabilities on its own behalf in the same way as any legal person.
2.2 Companies House
Details of a body corporate will be registered at Companies House (the central filing registry for companies in the UK). All companies are required to file details of themselves at Companies House, although the filing requirements will vary according to the type of Company that is registered. The register at Companies House is a public register and information can be obtained by any person by paying a small fee.
2.3 Types of corporate bodies
A company may only be registered for a lawful purpose. There are three types of corporate entities as follows:
2.3.1 Company limited by shares - this is the most common type of company. With this type the liability of the shareholders is limited to the nominal value of shares held by them.
2.3.2 Company limited by guarantee - this type of company will have members and not shareholders, whose rights are generally not transferable. These types of companies are commonly used for charities. They do not have a share capital.
2.3.3 Unlimited companies - shareholders of these companies have unlimited liability and are most commonly used where their promoters (the person(s) forming it) do not wish to file accounts for the company at Companies House.
2.4 Terminology of PLCs and Private companies
Companies limited by shares and companies limited by guarantee may be “public companies” or “PLCs”. If a company is not a PLC it will be a private company. A PLC must have a minimum share capital of £50,000 of which a quarter is required to be paid up. A PLC cannot commence trading without a certificate from Companies House, which is obtained upon the PLC satisfying the share capital criteria. A PLC’s statutory obligations will be materially greater than that of a private company, given the increased standing expected of PLCs. A private company may, subject to fulfilling a number of requirements, be re-registered as a plc.
All UK companies traded on an exchange in the UK will be PLCs. It is not normally the case that privately held companies are PLCs although where they are this is normally for marketing reasons.
2.5 Liability of Promoters
Promoters are the persons who form a company. Prior to the incorporation of a company any contracts entered into or liability incurred on behalf of the company will be the personal liability of the Promoters.
2.6 Directors
A director of a company is any person who occupies the position of a director. It is possible for a person to be regarded as a shadow director even if he does not describe himself as a director. A shadow director is a person in accordance with whose directions or instructions the directors of a company are accustomed to act (but this excludes professional advisers). Infrequently, the description of director or assistant director is given to a person who does not, in fact, have the status of a director in law. Directors may also be employees, but not necessarily so.
Directors of a company owe duties to the company only and so they are not owed to other associated companies (e.g. holding company or subsidiaries). The duties are broadly speaking fiduciary duties of good faith and honesty and duties of care and skill. Whilst these duties are owed to the company “taken as a whole”, their general purpose is the protection of present and future shareholders and in the case of actual or potential insolvency the company’s creditors. Directors of all Companies assume a range of statutory responsibilities. Directors of PLCs have increased statutory responsibilities.
Directors of a publicly listed company are subject to greater restraints and wider duties in the course of running their business than directors of an unlisted company. Relevant areas include keeping the market properly informed of developments which could affect the share price, acquisitions and disposals of assets, the allotment of shares and restrictions on dealings in shares. In addition, directors of listed companies may be personally liable (for civil and criminal penalties) for any inaccuracies or misrepresentations in its fundraising documentation.
2.7 Constitutional Documents
The constitutional documents of any company comprise:
2.7.1 Memorandum of Association - This document sets out the purpose or objects for which the company is incorporated. It must also state the name of the company, and whether its registered office is situated in England and Wales or in Scotland. It must also state the amount of the company’s share capital and whether the liability of its members is limited.
2.7.2 Articles of Association - These are its regulations or bye-laws. It is possible for a company to be incorporated adopting articles prescribed by statute (one of Tables A, C, D and E). Private companies customarily have Articles which adopt Table A but then provide for modifications to deal with the particular requirements of the members. Whilst there is nothing to prevent a PLC from doing this it is usual for the Articles of Association of PLCs to exclude all of the Tables and be exhaustive in their drafting. Articles of Association of a listed PLC will also need to comply with the applicable rules governing its trading status.
2.8 Statutory Books
The statutory books of a company consist of its registers detailing allotments and transfers of shares and details of shareholders, directors, mortgages and directors interests.
The statutory books are ordinarily kept at the registered office of the company and can be inspected by any shareholder. A notice in the prescribed form is required to be filed at Companies House if the statutory registers are kept elsewhere.
2.9 Share Capital
A PLC must have at least two shares in issue. A private company must have at least one. In both cases, subject to shareholder approval, there is no limit to the number of shares a company may issue. A share can be issued at a premium but not at a discount to its nominal value. The nominal value of a share is the value at which the shares are created.
The authorised share capital of a company (the amount of unissued shares available for issue) can be increased by a shareholders’ resolution. The authorised share capital can only be allotted if the Directors of the company have been given power to do so in its Articles of Association or by way of resolution of the shareholders. A private company cannot offer its shares to the public. A public company may offer its shares to the public, subject to the rules for doing so (see Chapter 2).
Central to company law is the doctrine of maintenance of share capital. The paid-up share capital of the company forms a permanent fund available to creditors of the company to meet their legitimate claims against the company and it cannot be dissipated nor returned to the shareholders, whether in the guise of dividends or otherwise, without, as a general rule, the Court’s approval.
2.10 Accounts, Accounting Periods and Annual Return
There are rules to determine the length of a company’s accounting reference period and changes to it.
A private company has ten months and a public company has seven month, from the end of its accounting reference period to file with Companies House its accounts. These may be extended in very limited circumstances and, if not observed, the company is liable to a fine which is strictly enforced. Directors may also find themselves liable in the case of late filing of accounts.
There are detailed rules as to the information to be set out in the accounts of a company and when an audit must be undertaken in respect of a financial year.
Once a year a company must file a Return, known as its Annual Return, with Companies House notifying changes to its directors, Secretary and shareholders. The company is liable to a fine in the case of failure which is also strictly enforced.
2.11 Company Names
The names of companies are regulated. The same name cannot be used by more than one company on the Register at Companies House and similar names can be challenged. The use of certain key words will need to be justified, and in some cases authorised, before a name will be registered. Once a name has been registered, it remains subject to the law of passing off (see Chapter 6).
2.12 Branch Office
A company incorporated outside Great Britain which establishes a place of business here must register at Companies House within one month of doing so. Registration requires the filing of a certified copy of the company’s byelaws or constitution and a form setting out the company’s directors, secretary and the names and addresses of persons in Great Britain authorised to accept service of process on it here. Changes to this information must also be provided to Companies House. An overseas company registered here must also file accounts in the form they would be required to prepare if they were registered under the Companies Act 1985. Due to the obligation to accept process and to file accounts in the UK, it is often the case that overseas companies try to avoid establishing a place of business here. Often it is preferable to incorporate a UK subsidiary. However, there may be compelling tax reasons for establishing a branch office instead.
There are restrictions on the ability of an overseas company to register with Companies House under its name which is similar to the name requirements for a UK company.
3. PARTNERSHIPS
A partnership is formed where there is a relationship between persons carrying on a business in common with a view of profit. We have three types of partnership:
3.1 General Partnerships
Under a general partnership the partners have unlimited liability on a joint and several basis. Their relationship is governed by the Partnership Act 1890 and by any partnership agreement entered into between the partners. Without a partnership agreement a partnership is said to be “at will” and may be terminated without notice by any of the members. General partnerships have no public filing requirements and their affairs are a matter of privacy amongst the partners. Professional partnerships tend to be general partnerships although there is a move by them towards adopting limited liability partnership status (see paragraph 2.3 below).
3.2 Limited Partnerships
A limited partnership will have at least one general partner whose liability is unlimited and one or more partners whose liability is limited to the amount of capital invested by each of them in the partnership. The limited partners will be passive investors, otherwise they risk being treated as general partners with unlimited liability. Limited partnerships are governed by the Limited Partnerships Act 1907 and by the terms of any partnership agreement. They are registrable at Companies House. They have been commonly used as investment vehicles although it is thought that their use will be reduced following the introduction of limited liability partnerships (as described below). Difficulties can arise in connection with the management and promotion of these types of partnerships where authorisation or approval may be needed under the Financial Services and Markets Act 2000 since they may constitute Collective Investment Schemes (see below).
3.3 Limited Liability Partnerships
This is a new form of partnership introduced with effect from April 2001. All of the partners can have their liability limited to a fixed amount. Limited liability partnerships are governed by the Limited Liability Partnership Act 2000 and by the terms of any partnership agreement. In law they are treated as separate legal entities although, as with general and limited partnerships, they will be tax transparent. They are registrable at Companies House where annual financial information in relation to the partnership must also be filed and be available for public inspection. Again limited liability partnerships can constitute Collective Investment Schemes and so be subject to regulations as to management and promotion (see below).
4. COLLECTIVE INVESTMENT SCHEMES
The Financial Services and Markets Act 2000 defines these schemes to mean arrangements where property is pooled with a view to receiving profits or income from them and where the participants do not have day to day control over the management of the property. The management will be passed to an operator. There are restrictions on the promotion and management of these schemes. There are four types of schemes as follows:
4.1 Authorised Unit Trust Schemes
Here the scheme has a manager and a trustee, must meet certain specified requirements and its units will be listed on the Official List of the London Stock Exchange.
4.2 Open-ended Investment Companies
These are companies with variable capital which meet certain specified requirements and are also listed on the main market.
4.3 Recognised Overseas Schemes
These are schemes constituted in another EU state which, if they satisfy certain requirements, will be “passported” for promotion and management here.
4.4 Unregulated Schemes
These would include limited partnerships and limited liability partnerships as well as other structures. There are special rules dealing with their promotion and restructuring.
CONTACTS
If you have any queries in respect of the above or require specialist advice, please contact:
Paul Millett
Managing Partner
Paul has a broad experience of corporate finance transactions. His main area of work is in companies and businesses sales and purchases, venture capital and public fundraisings with an emphasis on the leisure industry.
Office Direct Phone: +44(0)20 7344 5516
E-mail: paul.millett@fsilaw.com
Peter Carter
Head of Commercial
Partner
Peter specialises in corporate finance. He has a wealth of experience in all aspects of corporate and commercial work and has a particular reputation for advising growing, owner-managed businesses, through their various stages of development. His expertise covers acquisitions and disposals of companies and businesses, and finance, including debt and venture capital. His close involvement with his clients has given him a broad experience of all kinds of commercial contracts and Peter heads up our Commercial Group.
Office Direct Phone: +44(0)20 7344 7687
E-mail: peter.carter@fsilaw.com
CHAPTER 2
FLOTATIONS AND RAISING CAPITAL
1. Flotations
We have three principal markets in the UK:
1.1 The Official List of the London Stock Exchange is the main UK market. It is governed by the Financial Services Authority, and has its own rules - “The Listing Rules” published by the UK Listing Authority. There are various admission requirements for listing a company on the Official List, including the requirement for a company to have at least 25% of it issued shares in public hands and for the company to have traded for not less than 3 years. On listing, a company will need to produce a prospectus which complies with the Listing Rules.
1.2 The Alternative Investment Market (“AIM”), established in 1995, is the UK’s secondary market and is regulated by the London Stock Exchange Plc. An applicant who wishes to apply to join AIM must produce an admission document in accordance with the Prospectus Rules. Companies must also retain a nominated adviser (“NOMAD”) and broker, both of which should be approved by the London Stock Exchange. There is no minimum trading requirement.
As part of its drive to attract international companies, on 28 May 2003 the London Stock Exchange Plc announced a new fast-track admission route to AIM. Companies already listed on the nine overseas designated exchanges will now be able to use their existing annual report and accounts as a basis for a dual quotation on AIM, and in many cases would not need to produce a separate admission document. The London Stock Exchange Plc expects the new route to make it considerably easier and faster for overseas-listed companies to access institutional investors in London as well as the wider European capital market. Companies that can take advantage of the fast-track route to AIM are those already listed on the main markets of NASDAQ, NYSE, the Australian Stock Exchange, Euronext, Deutsche Börse, JSE Securities Exchange (South Africa), Stockholmsbörsen, Swiss Exchange and Toronto Stock Exchange. Companies using the new route are required to:
1.2.1 have been traded on one of the nine AIM Designated Markets for at least 18 months;
1.2.2 join the market within 9 calendar months of their financial year end;
1.2.3 appoint and retain a London Stock Exchange approved NOMAD to perform any additional due diligence and to warrant that it is suitable for AIM and to appoint an approved broker;
1.2.4 give a minimum 20 business days’ advance notice to AIM, including any further information required under AIM disclosure rules which has not already been disclosed in the home market;
1.2.5 provide a working capital statement for a period of not less than 12 months;
1.2.6 adhere to AIM’s ongoing disclosure obligations once admitted;
1.2.7 have an address or website address where all public announcements the company has made during the last two years are available.
1.3 The OFEX market is not part of the markets of the London Stock Exchange Plc. The market is operated by OFEX Plc and governed by its own set of rules, and by general legislation. An applicant who wishes to apply to join OFEX must produce an admission document which is compliant with the Prospectus Rules. There is no minimum trading requirement. The fees for joining this market are lower than AIM.
2. RAISING CAPITAL
A company looking to raise capital in the UK will need to be aware of the following:
2.1 Regulated Activity
Arranging deals in investments by way of a business carried on in the UK is an activity which is regulated by the Financial Services and Markets Act 2000 (“FSMA”). A person carrying on such activity (which does not include a company arranging for the issue of its own shares) needs to be authorised to conduct investment business by the Financial Services Authority. A person who arranges deals in investments in the UK when not authorised commits a criminal offence and any contract made with or through an unauthorised person is unenforceable and any funds raised will be returnable.
2.2 Prospectus Regulations
An offer for sale of securities to the public may first require a prospectus to be published by the company and filed at Companies House. It may be possible to use one of the exemptions to this requirement. These include an offer to no more than 100 persons and an offer to persons whose business is to purchase or manage investments. The rules for the contents of a prospectus and the exemptions are found in the Prospectus Rules and the Listing Rules.
2.3 Financial Promotion
If the Prospectus Regulations do not apply any offering document or information memorandum (or any oral offer or website containing relevant information) is likely to be a financial promotion under the FSMA. Unless one of a number of exemptions can be applied, a financial promotion must be approved by a person authorised to conduct investment business by the Financial Services Authority before it may be circulated. Failure to do so is a criminal offence and any funds raised will be returnable.
2.4 Market Requirements
A company which is planning for its shares to be listed or traded on an Exchange in the UK (or overseas) at the time of its fundraising will need to comply with the documentation requirements of the relevant Exchange.
2.5 Overseas Law
It is common for fundraisings to be made over several jurisdictions. The laws of each jurisdiction will be different and legal advice will need to be sought from local lawyers on the applicable law.
CONTACTS
If you have any queries in respect of the above or require specialist advice, please contact:
Ashley Reeback
Corporate Finance
Partner
Ashley specialises in all forms of public company fundraising work which includes advising on the Listing Rules for companies quoted on the Official List as well as advising companies seeking admission to AIM and OFEX. In particular he has developed a reputation for the raising of finance for small to medium sized companies by way of placings, rights issues, offers for subscription and offers for sale as well as raising funds by way of private placing memoranda and investment memoranda. During the past three years Ashley has advised on seven AIM admissions and nine OFEX admissions together with associated secondary fundraisings. In addition, Ashley advises companies on Takeovers and Mergers and advises on City Code issues.
Office Direct Phone: +44(0)20 7344 5301
E-mail: ashley.reeback@fsilaw.com
Nilam Statham
Corporate Finance
Partner
Nilam's practice covers a broad range of corporate finance work. She has extensive experience acting in relation to acquisitions and disposals of both owner managed businesses and publicly quoted companies. She is an experienced adviser to both brokers and companies in respect of the Alternative Investment Market and the Official List and has acted on a variety of flotations and equity fundraisings. In addition, she advises quoted companies on the Listing Rules, ABI guidelines, corporate governance and compliance issues. She also advises businesses on general company/commercial matters such as corporate share restructures, shareholders agreements, international outsourcing arrangements, strategic alliance/joint venture arrangements.
Office Direct Phone: +44(0)20 7344 5639
E-mail: nilam.statham@fsilaw.com
CHAPTER 3
DEBT FINANCE
1. TYPES OF DEBT INSTRUMENTS
This can be available in a variety of combinations according to the structure of the deal. The simplest may be intra-group debt which is undocumented and as such is interest free, unsecured and repayable on demand. The most complex may involve the securitisation of an asset and the taking of broad-ranging security. There may also be a layering of debt with elements of it being convertible into equity.
Security available to be taken includes:
(a) Debentures containing fixed and floating charges over the borrower’s assets;
(b) Fixed charges over property;
(c) Charges over a cash deposit (or blocked account);
(d) Charges over shares;
(e) Assignment of the benefit of an agreement;
(f) Subordination and priority agreements;
(g) Negative pledges;
(h) Guarantees.
Most charges granted by a company must be registered at Companies House within 21 days of creation if they are to be enforceable against a liquidator.
3. FIXED AND FLOATING CHARGES
Whether security over an asset is either a fixed or floating charge will determine the priority of recovery from the asset on enforcement. A charge holder will recover the net proceeds of sale from an asset which is subject to a fixed charge. However, there are statutory priorities as against floating charge holders whose security is said to “float” over the borrower’s assets before crystallising in the case of an insolvency event.
It should always be possible to take a fixed charge over real property or shares or cash in a blocked account. Care is needed if a fixed charge is required over debtors or stock. There is long line of case law deciding that even if a charging document provides for a fixed charge over book debts or stock, a floating charge will be created where discretion is given to the borrower on their release and concerning the resulting proceeds.
4. FINANCIAL ASSISTANCE
Security given by a company for the purpose of an acquisition for its own shares is “financial assistance”. The giving of “financial assistance” is a criminal offence and could render the entire transaction void. There is a relaxation of the rule for private companies only and where a “whitewash” is undertaken. Included in a “whitewash” is a statutory declaration as to the solvency of the company given by the directors and supported by an auditors’ certificate.
It is anticipated that if the Company Law Reform Bill becomes law (the second reading took place on Wednesday 11 January 2006), then financial assistance will no longer be relevant to private companies.
5. INSOLVENCY
Enforcement is governed by the terms of the finance documents and by the Insolvency Act 1986 (as amended by the Enterprise Act 2002). Enforcement may occur by the appointment of a receiver in respect of assets the subject of a fixed charge. In respect of floating charges granted before 15 September 2003 an administrative receiver may be appointed. In respect of floating charges granted after that date an administrator will need to be appointed. Different regimes apply according to the manner of enforcement.
CONTACTS
If you have any queries in respect of the above or require specialist advice, please contact:
Paul Millett
Head of Corporate & Commercial
Partner
Paul has a broad experience of corporate finance transactions. His main area of work is in companies and businesses sales and purchases, venture capital and public fundraisings with an emphasis on the leisure industry.
Office Direct Phone: +44(0)20 7344 5516
E-mail: paul.millett@fsilaw.com
Graham Reid
Corporate
Partner
Graham specialises in all aspects of banking law acting for both lenders and borrowers with particular expertise in acquisition, property and project finance. He also has experience in derivatives and trade finance. He advises on corporate workouts and other distressed non contentious situations and works closely with insolvency practitioners. His clients include banks, corporates and high net worth individuals..
Office Direct Phone: +44(0)20 7344 5628
E-mail: graham.reid@fsilaw.com
CHAPTER 4
EMPLOYMENT
1. Introduction
The employment relationship between employer and employee in England and Wales/UK is subject to:
(a) the contract between employer and employee;
(b) legislation, both national and from the European Union that emphasises the preservation and protection of employment plus health and safety regulations;
(c) common law; and
(d) in some instances collective agreements between an employer and a Trade Union.
2. CONTRACTS OF EMPLOYMENT
Employees must be given the standard terms and conditions of their employment within 2 months of the commencement of employment. Legislation sets out the basic requirements to be included in the contract and these are the essential commercial and legal requirements. It is usual for a employee handbook to be provided which will set out additional terms and is frequently used to ensure that the employer complies with a range of statutory provisions, for example, disciplinary and grievance procedures. Usually the terms of the handbook are specifically incorporated into the contract but there are circumstances where employers prefer not to include all the arrangements.
Examples of statutory requirements for contracts and handbooks that are the subject of frequent enquiry are as follows:
2.1 Notice periods - there are statutory minimum periods by reference to years of service.
2.2 Working Time Regulations - this sets out limits on the number of hours each working week an employee may be required to work (currently 48 hours averaged over 17 weeks subject to waiver) and also impose minimum holiday entitlement and the basis upon which “holiday pay” must be paid.
2.3 Disciplinary and Grievance Procedures
3. LEGISLATION
Legislation impacts on the contract of employment as described but its greater impact is in preserving and protecting employment and to promote equal treatment and to prevent discrimination in certain set areas.
3.1 Protection of Employment
The basic protection given by employment legislation is the requirement that employers must follow a fair process to ensure that employees are not unfairly dismissed. Employees who believe that they have been unfairly dismissed may bring a claim against their employer in an Employment Tribunal. These Tribunals only hear claims relating to employment matters within certain statutory limitations. Tribunals will consider not only the substance of any claim but also the form and process adopted by the employer. The approach is very much dependent on interpreting regulations with little leeway for employers who do not follow the rules.
3.2 Equal Opportunities
Employment Tribunals also have jurisdiction to hear claims by workers on the grounds of equal pay, race, sex, sexual orientation, religious belief or disability discrimination/harassment. Age discrimination legislation applies to the UK from October 2006. A worker may be an employee, partner or contractor. Such a claim may be against an employer, an employing contractor, a partner or against fellow workers. Employers found to have infringed frequently may be subject to supervision by the appropriate Commission depending on the nature of the discrimination.
There has been significant development of legislation designed to protect employment in cases of asset and business transfers. The regulations (known in short as “TUPE”) have been in force in the UK following European directives for more than 20 years. Over recent years the scope of the regulations has been widened by the European Court and national courts to cover a range of transfers including assignment of leases, sale and purchase of properties as well as outsourcing contracts. Relevant employees engaged with an entity, transfer automatically from the transferor employer to the transferee employer by operation of law. This is a complex area and may involve employers engaged in these activities incurring significant cost.
4. COMMON LAW
In employment terms the most frequent area that applies under this heading is in respect of covenants in restraint of trade. Usually for more senior employees, employers will seek to limit the activities of their employees post termination of employment to protect the goodwill of the employer. The courts review these matters from the position that there should not be any restraints or restrictions save as may be appropriate to preserve the reasonable interests and goodwill of an employer. Other common law areas are constructive dismissal and terms implied otherwise than by statute, for example, clauses relating to trust and confidence between employee and employer.
5. AGREEMENTS WITH TRADE UNIONS AND WORKPLACE CONSULTATION
By no means as common as they were before there were changes in legislation relating to Union recognition in the 1980s and 1990s. Some industries still operate collective agreements between employers and Trade Unions over such matters as, for example, redundancy schemes. With Unions entitled to recognition under more recent legislation there may be an increase in these negotiated terms which are deemed to be incorporated into the contract of employment of the relevant employees.
Even where no union is recognised employers with a certain number of employees are required to inform and consult with their workforce on a range of business and employment related issues.
6. CONCLUSION
Employment law is developing in a highly technical way both as the result of new legislation (European and national) and following regular decisions in the Employment Tribunals, the higher appellate courts and the European Court of Justice. Although there is increasing harmonisation of law throughout the European Union much law is specifically related to each national state.
CONTACTS
If you have any queries in respect of the above or require specialist advice, please contact:
Carolyn Brown
Head of Employment
Carolyn specialises in Employment Law cases particularly in the Civil Courts and the Employment Tribunal. She has a broad range of experience in employment work including advising on disputes over Employment Contract terms, bringing and defending statutory claims for, for example, unfair dismissal and discrimination as well as advising clients on new statutory rights such as the Working Time directive, Family Friendly legislation and other new recent statutory protections for workers.
Office Direct Phone: +44(0)20 7344 5598
E-mail: carolyn.brown@fsilaw.com
Howard Goulden
Partner: Employment
Howard specialises in all aspects of non-contentious and contentious employment law including; terms and conditions of employment, service contracts, breach of contract and unfair dismissal claims, restrictive covenants and restraint of trade, maternity rights, discrimination and harassment - including sex, race and disability, employment procedures and policies, sale and purchase of businesses including operation of the TUPE regulations, handling redundancies including closures and relocation, health and safety, working time, contract for independent contractors and consultants and obtaining immigration clearance for prospective foreign employees.
Office Direct Phone: +44(0)20 7344 5510
E-mail: howard.goulden@fsilaw.com
Anthony Barling
Partner: Employment; Commercial
Anthony specialises in Employment Law and Commercial Law. His clients are mainly in the IT world, motor, fashion and retail industries. Anthony is a regular speaker on employment matters and initiated FSI's Employment Forums which address current issues facing human resources personnel. In addition he undertakes off-site client training on employment law to enable managers to develop their human resource skills. Anthony chaired the Third Annual Best Practice Law Firm Management Series conference on 'Development and Expansion of your Law Firm'.
Office Direct Phone: +44(0)20 7344 5641
E-mail: anthony.barling@fsilaw.com
CHAPTER 5
TAXATION
1. UK Corporation Tax
1.1 Profits subject to Corporation Tax
A UK resident company will be subject to UK corporation tax on its worldwide profits including capital gains.
An overseas company carrying on a trade in the UK through a branch will be liable to UK corporation tax on all income profits directly or indirectly attributable to the branch and on any capital gains realised from the disposal of chargeable assets used or held for the purposes of the branch. A branch will not normally be subject to UK tax on any profits not attributable to the branch.
If there is a Double Tax Treaty between the UK and the jurisdiction in which the overseas company is resident then the overseas company will generally not be subject to a charge to corporation tax unless it has a permanent establishment (as defined in the relevant Treaty) in the UK. A branch operated from either owned or leased premises in the UK will usually be held to be a “permanent establishment”.
Under current law, a company will be resident in the UK (and hence subject to UK corporation tax on its worldwide income and capital gains) if it is incorporated in the UK or its central management and control is exercised in the UK. The place at which central management and control is exercised is usually the place where the board of directors normally meets although in exceptional circumstances HM Revenue & Customs (“HMRC”) is prepared to look beyond the board meetings to the actual day-to-day control of the company, if necessary at control by a dominant shareholder if the directors are accustomed to acting in accordance with his or her instructions.
A company may be a dual-resident company if, for example, it is incorporated overseas but has its central management and control in the UK. In that case, a relevant Double Tax Treaty may award residence to one of the two relevant jurisdictions. If such a Treaty awards residence to another country, the company automatically will not be resident in the UK.
1.2 Rates of tax
A UK resident subsidiary company and a branch will each pay UK corporation tax on their profits. The rates of corporation tax are normally fixed by Parliament annually and the rates from April 2006 are:
Year to 31.3.2007
Standard rate 30%
Small companies rate 19%
The small companies rate is available for profits of a UK company of not more than £300,000 per annum. A sliding marginal rate is applied for profits in excess of £300,000 but less than £1,500,000 per annum, at which point the full companies rate of 30% is reached.
The above profit limits are proportionately reduced by reference to the number of associated companies (whether UK or foreign) of the UK company (or the company operating the branch). This reduction is effected by dividing the lower and upper limits by the total number of associated companies, including the company charged to UK tax. For example, in the case of a US company with three existing subsidiaries which forms a new UK subsidiary, the relevant limits will be divided by five.
Strictly speaking, the small company rate of corporation tax should not be available to branch operations, but the rate will be applied by concession if a relevant Double Tax Treaty contains a non-discrimination article.
1.3 Interest
Interest on loans from the parent company to a UK subsidiary company will be regarded as a distribution (i.e. a deemed dividend) to the extent that the loan would not have been made between unconnected parties (i.e. to the extent the loan is on favoured terms). The UK does not have a specific “thin-capitalisation” rule but HMRC has been known to take the view that a ratio of debt to equity of more than 1:1 is not reasonable. However, in assessing whether or not a debt is on favoured terms, it is necessary to consider the interest rate and other terms of the loan as well as the debt/equity ratio.
A distribution is not a deductible expense in calculating a company’s profit for corporation tax purposes. Since, by definition, a branch is part of the same legal entity as its “parent”, there can normally be no deduction of “interest” payments from the branch to its “parent”.
1.4 Special equity rule for a branch
For accounting periods starting on or after 1 January 2003, new rules ensure that a UK branch of an overseas company is to be treated as having the amount of equity share capital that it would need if it was a separate company operating in the UK in the same or similar conditions and circumstances as the branch. In particular, the branch is assumed to have the same credit rating as the overseas company of which the branch forms part. This effectively limits the amount of third party (e.g. bank) debt capacity the branch is treated as having and hence the interest deduction it may be able to claim for tax purposes.
1.5 Inter-Company trading
It is, generally speaking, easier to control the amount of profit subject to UK tax through the use of a subsidiary company. It must be emphasised, however, that HMRC has power to re-allocate profit on transactions between associated parties, and although use can be made of trade mark royalties, technical service fees, pricing policies etc., it is essential that any such payments be on an arm's length basis.
1.6 Initial losses and loss carry forward
One of the main tax advantages of using a branch rather than a subsidiary company may occur when significant start-up losses are anticipated. If a subsidiary is used, those losses usually will not be utilized until the subsidiary becomes profitable. However, if the business is commenced through a branch of an overseas company, the initial start-up expenses and all other losses may be eligible for tax relief in the home state of the overseas company.
A business which is initially started as a branch of an overseas company can subsequently be transferred to a separate UK subsidiary. Provided that this transfer is properly carried out, UK tax law will allow unused losses incurred to be carried forward indefinitely against the subsidiary's UK taxable profits arising from the transferred business.
1.7 Capital Allowances
Both a branch and a subsidiary company are entitled to capital (i.e. depreciation) allowances in calculating their profits for UK tax purposes.
The depreciation of capital assets calculated for accounting purposes may not be deducted in assessing profits subject to corporation tax. However, a UK company or a branch may be entitled to a specific statutory allowance (“capital allowances”) in respect of expenditure on capital assets. Capital allowances are usually treated as trading expenses and deducted from profits. Capital allowances apply to various assets including plant and machinery, industrial buildings, patents and know-how, hotel buildings and ships. The rules relating to capital allowances available vary for each type of asset.
2. INDIRECT TAXATION
2.1 Introduction
The UK has a system of indirect taxation encompassing stamp duties and value added tax.
2.2 Stamp duty
Stamp duty is a tax payable on transfers of company shares and certain securities. The duty is paid by the purchaser.
Stamp Duty Land Tax is separately charged on transfers and leases of real property. See Chapter 9 Paragraph 6 for further details.
2.3 Value added tax (“VAT”)
VAT must be charged by a “taxable person” on the consideration for taxable supplies of goods or services made by him in the course of his business. A trader is a “taxable person” if his taxable supplies exceed the current rate of £60,000 per annum and must register as such with HMRC.
A “taxable supply” is any supply of goods or services other than an exempt supply (principally certain supplies of land or financial services) and tax is charged at:
2.3.1 zero rate on certain basic supplies such as food
2.3.2 5% on domestic gas & electricity
2.3.3 17.5% on any other taxable supply
A registered trader must make a return (usually quarterly) to HMRC recording the VAT charged to customers and the VAT incurred on expenses. The net difference is paid to, or repayable by, HMRC, although not all VAT paid can be taken into account if some exempt supplies are made by the trader.
There are substantial penalties for:
(e) registering as a taxable trader later than the official date for registration (usually 30 days after first exceeding the limit of taxable supplies of £60,000 in any 12 month period);
(f) making late returns to HMRC (these are due 30 days after the end of the relevant quarter);
(g) serious errors in returns;
(h) persistently making errors in returns.
The penalties may not be charged if the trader has a “reasonable excuse” which is defined in very narrow terms and a penalty can be reduced by HMRC or the Appeal Tribunal if there are mitigating factors.
3. PAYE AND NATIONAL INSURANCE CONTRIBUTIONS
Income tax due on employees’ salaries is collected by the employer and accounted for to HMRC under a scheme known as Pay As You Earn (“PAYE”). Reporting and accounting to HMRC is usually dealt with monthly. Each employee is allocated a code number which corresponds with tables supplied by HMRC and which enable an employer to calculate and deduct exactly the right amount of income tax. Whilst HMRC still issues the tables in paper form if requested, most employers use computer software or third party bureau to deal with PAYE obligations.
Generally, all employers and employees in the UK are required to make national insurance contributions which the government uses for the provision of certain state benefits (e.g. medical care and unemployment benefits). Employees normally make a contribution, at the present time, of 11% of their earnings between £5,044 and £33,540 per annum and 1% of all earnings thereafter. An employer must make a contribution of 12.8% of all earnings over £5,044 per annum. For this purpose, earnings includes the value of cars and most other non-cash benefits provided to employees. The rates may be lower if employees are members of a minimum standard pension scheme provided by the employer and are contracted out of the full State pension benefit. These national insurance contributions are accounted for under the PAYE system together with the income tax due on salaries.
The national insurance contributions position of individuals coming to the UK to work is complex, can be subject to bilateral agreements between countries, and advice should always be sought.
Tax is a complex area and the structure of transactions is often dependent on the tax consequences. Accordingly, we strongly advise that a tax specialist is consulted very early on.
CONTACTS
If you have any queries in respect of the above or require specialist tax advice, please contact
Brian Slater
Head of Commercial Tax
Brian practices in all aspects of commercial taxation, but he particularly specialises in: company acquisitions, disposals, mergers and reconstruction; Management buy out and buy in of companies; Transaction planning; Employee share incentives, including all forms of share option schemes and Employee Benefit Trusts; Value Added Tax, with particular reference to commercial property and property development; Stamp duty and stamp duty land tax on commercial and property transactions; Offshore commercial structures; Negotiation and settlement of serious HMRC investigations (principally involving the Special Civil Investigations Office), particularly with a view to avoiding prosecution.
Brian is the author of 'VAT on Property Transactions' which was published as a
second edition by Jordans in September 1999. He is also a co-author of 'Service
Charges - Law and Practice' (Jordans 2002 - 3rd edition).
Office Direct Phone: +44(0)20 7344 7698
E-mail: brian.slater@fsilaw.com
CHAPTER 6
INTELLECTUAL PROPERTY
Much of UK intellectual property law is similar to its US equivalent and intellectual property rights owners can take advantage of the multiplicity of international treaties (such as the Universal Copyright Convention and the Berne Convention) of which the USA, the UK and many other countries are signatories. The UK has the following intellectual property rights:
1. Copyright
Copyright can subsist in an original literary, musical, dramatic or artistic work. Unlike in the USA, there is no official registration process for copyright works and protection arises automatically so long as the basic criteria are met. The term of protection varies according to when the work was created but is generally the life of the copyright author plus an additional 70 years from the end of the calendar year in which the author dies.
2. Moral Rights
Authors of copyright works have additional statutory rights known as “moral rights”. An author’s moral rights include the right:
2.1.1 to be identified as the author of the work;
2.1.2 to object to derogatory treatment of the work; and
2.1.3 to object to false attribution of authorship.
Unlike copyright, moral rights cannot be assigned during the author’s lifetime but, in the UK, (unlike in continental Europe from where these rights are derived) they can be waived.
In 2006 moral rights were extended to apply to performers as well as authors.
3. TRADE MARKS
As in the USA, trade marks can be registered centrally. A UK trade mark lasts for 10 years but is renewable. It is also possible to register a community trade mark which, for a relatively small fee, offers protection in 15 European countries at once. Furthermore, a trade mark application submitted under the Madrid Protocol can be filed in many jurisdictions worldwide.
4. PASSING OFF
The tort of passing off governs the unauthorised use of unregistered trade marks and applies where a person trades off the goodwill of another. In order to demonstrate that passing off has occurred, three factors must be present:
4.1.1 the claimant must have goodwill in the relevant market;
4.1.2 there must have been a misrepresentation by the defendant leading to confusion in the minds of consumers; and
4.1.3 the claimant must have suffered damage.
Passing off does not therefore provide a monopoly right as would be available with the registered trade mark, where infringement can occur without having to demonstrate that these factors are present.
There is no such thing as a right of personality in the UK but passing off has been recently extended towards creating a law of this nature. In a recent case, the racing driver Eddie Irvine sued the radio station Talk Sport in relation to the appearance of his image in one of their advertisements. The Court held that it was passing off to imply this kind of celebrity endorsement. Indeed, the Court of Appeal confirmed this recently by significantly increasing the damages awarded in this case.
5. DATABASE RIGHTS
Since 1st January 1998 databases have been protectable not only by copyright but also by a specific database right to protect the investment needed to obtain, verify and present the contents of a database.
In order to obtain protection under the Database Regulations a database must be original by reason of the selection or arrangement of its contents as the authors own intellectual creation. This is a very different test of originality to that used for a copyright work (which, broadly, is merely whether the author has expended his/her own skill and labour on the project).
The database right lasts for 15 years from the end of the calendar year in which the database was completed or, if the database is made available to the public before the end of that period, 15 years from the end of the calendar year in which it was published. However, the term of protection can be complicated by the date at which the database was first created (due to the transitional provisions in the Regulations) and the extent to which the database has been updated during its lifetime.
6. DESIGN RIGHTS
There are now effectively four parallel systems for the protection of designs for products in the UK (five if you include copyright). Firstly, UK unregistered design rights protect the shape and configuration of an article but not its surface decoration. Unregistered design right protection also excludes designs which are constructed in order to fit with existing articles (the so called “spare part” exception).
Unregistered design rights last for the shorter of either 15 years from the end of the calendar year in which the design was created or 10 years from the end of the calendar year in which articles made to the design were made available for sale or hire.
However, there is now an additional unregistered design system available in the UK (applicable to designs first made available to the public after 6 March 2002). This is the unregistered community design which is a right which applies across the European Union and lasts for 3 years from the date that the design is deemed to have been made available to the public. Unregistered community designs must be novel and have individual character but features of a design which are solely dictated by the product’s technical function are excluded. The European unregistered design right lasts a mere three years, but it can apply to the material or ornamentation of a product (so would include surface decorations which are excluded under the UK unregistered design right). Even graphical symbols e.g. computer icons, can be protected by the European unregistered design right.
There are also two parallel registered design systems in the UK and European Community. In the UK, a design must have eye appeal if it is to be registered. Registrable designs cover the appearance of the whole or a part of the product resulting from its features including its lines, colours, shape, texture and material. Registered designs can therefore cover surface decoration. In order to qualify for registration, the design must be new and have individual character. It is not possible to register a design in the UK which is concerned only with how a product works or a part of a complex product that is not visible in normal use.
UK registered design right protection lasts for a maximum of 25 years. Unlike trade mark protection, the term of registered design protection is not renewable.
In addition, there is now a European Community registered design. EU registered designs, like UK registered designs, last for a maximum of 25 years from filing, but criteria for registration are broader, for example parts of complex products are registrable and there is no requirement for the design to have an aesthetic quality.
7. PATENTS
As in the USA, patents are used to obtain a monopoly right to protect an invention. To obtain a patent in the UK the invention must be new, must involve an inventive step and must be capable of industrial application. However, certain kinds of inventions are not patentable and it is here that the UK system differs most from the USA. In particular, computer programmes are not generally capable of obtaining patent protection.
CONTACTS
If you have any queries in respect of the above or require specialist advice, please contact:
Nicola Solomon
Consultant
Nicola specialises in Publishing, Design and all aspects of Intellectual Property including: agency and publishing agreements, brand and rights protection, copyright infringement, design rights, drafting contracts and terms of business, electronic rights, freedom of expression/obscenity, intellectual property rights, libel reading/defamation, literary estates, negotiations, publishing and royalty disputes
Her clients are Agents, Authors, Fashion Designers and Retailers, Higher Education Providers, Illustrators, Journalists, Newspapers, Picture Libraries, Photographers, Publishers, Screenwriters and Trade Organisations.
Office Direct Phone: +44(0)20 7344 7652
E-mail: nicola.solomon@fsilaw.com
Robert Lands
Partner: IP & Media
Robert specialises in intellectual property, working with clients from a wide spectrum of industries. He also advises regularly on the growing and increasingly complex field of data protection providing compliance advice to UK and multi-national organisations such as Dow Jones, publishers of The Wall Street Journal.
Robert acts for high street retailers such as LK Bennett and Base London and technology companies such as YooMedia plc, providers of interactive digital TV services to all the major platforms.
In the arts, Robert advises film producers, film finance companies and all facets of the motion picture industry. He advises the Council of the Association of Illustrators and provides copyright and contractual assistance to its membership. He also acts on behalf of several well known artists, photographers, PR and design agencies.
Robert handles IP and commercial issues from advertising and sales promotion to agency and distribution agreements for brands ranging from global restaurant chains to the Queen's perfumer. His remit extends to European brand protection for US rock band Linkin Park.
Robert regularly writes and lectures on intellectual property, most recently to The Royal College of Art and the Institute of Contemporary Arts.
Office Direct Phone: +44 (0)20 7344 7664
E-mail: robert.lands@fsilaw.com
CHAPTER 7
DATA PROTECTION
It may come as a surprise that the way in which the USA deals with personal data - its collection, dissemination and protection - is at odds with the way in which it is dealt with in the UK and indeed the rest of the European Union. At such odds in fact, that the EU considers the USA to be a country with inadequate protection in respect of personal data.
1. What is Personal Data?
Personal data (broadly any information about an identifiable living individual) is a prime asset of practically every company.
A company may also process “sensitive personal data”. This is personal data which relates to an individual’s racial/ethnic origin, political opinions, religious beliefs, trade union membership, physical/mental health, sex life and criminal record. There are additional compliance requirements for sensitive personal data.
Without the collection of personal data, companies would not be able to target their products and services with any degree of accuracy or carry out many of the normal functions of a modern business. However, these commercial realities must now be weighed against the rights of individuals to prevent the unauthorised use and dissemination of their details.
2. WHAT RULES GOVERN PERSONAL DATA?
The law is rapidly evolving to balance these competing concerns and has now been more or less standardised across the European Union. In the UK, the primary piece of relevant legislation is the Data Protection Act 1998 (“the Act”).
The Data Protection Act sets out the procedure for handling personal data and for registering with the UK Data Protection Commissioner. The Act establishes criminal offences for non compliance.
At the core of the Act are eight “principles” of data protection. These are:-
2.1.1 Data should be processed fairly and lawfully and may not be processed unless the data controller (company or person responsible for the processing of data) can satisfy at least one of the conditions for processing set out in the Act;
2.1.2 Data should be obtained only for specified and lawful purposes;
2.1.3 Data should be adequate, relevant and not excessive;
2.1.4 Data should be accurate and, where necessary, kept up to date;
2.1.5 Data should not be kept for longer than necessary for the purpose for which it was processed;
2.1.6 Data should be processed in accordance with the rights of the data subject (the person about whom the data refers) under the Act;
2.1.7 Appropriate technical and organisational measures should be taken against unauthorised or unlawful processing of data and against accidental loss or damage to data;
2.1.8 Data should not be transferred to any country outside of the European Economic Area unless that country ensures an adequate level of protection for the rights and freedoms of data subjects (individuals who are the subject of personal data) in relation to the processing of personal data.
3. TRANSFERRING PERSONAL DATA OUT OF THE EU
For those companies whose business stretches across the Atlantic, the eighth principle has been of great concern. Transfer of personal data from the EEA to a country without an “adequate level of protection”, (even if to a subsidiary or parent company) is forbidden. Thus the flow of data to the USA from Europe is under threat as the USA is not considered by the EU to be a country with adequate protection. After all, data protection legislation in the USA has historically been limited to the protection of special groups (e.g. children).
For example, a US news provider sets up a web site, which of course can be seen globally. It collects personal information from registered users of that site which is then transmitted across national borders, analysed and possibly even sold as part of a database. What if some of the registered users are in the UK? Can the US company be pursued by the UK authorities for data protection offences? If the personal data is merely transmitted through the UK on route to the US and is not processed here, there will be no liability. However, if the US company is collecting the data from its UK subsidiary, that is quite a different matter.
Fortunately, there are ways to transfer data outside of the EU lawfully including:
3.1 The data subjects can consent to the transfer; and/or
3.2 The US organisation can sign up to “Safe Harbour” which is a voluntary scheme operated by the US Department of Commerce and recognised by the EU as satisfying the eighth principal of data protection; or
3.3 The US organisation and the EU exporter can enter into a special agreement using standard contractual terms approved by the EU.
4. DATA PROCESSORS
It is also a requirement of the Act that there is a written data processor contract with any third party that processes personal data on behalf of a data controller, for example, an outside payroll organisation or credit card payment centre.
5. NOTIFICATION
Unless a business is exempt (and very few are) it will need to notify the Information Commission of it’s data processing activities. Data controllers are obliged to add their company’s details to a publicly available register and keep those details up to date. Failure to do so is a criminal offence for which company directors can be personally liable!
Fortunately notification is relatively simple and inexpensive. You can notify over the Internet at www.dpr.gov.uk and it costs £35 per year. The vast majority of data protection prosecutions so far have been for failure to notify but this is not the only criminal offence created by the Act. Indeed, notification is only the beginning of compliance.
6. SUBJECT ACCESS
Data subjects have rights to object to processing and to obtain copies of data processed. This is known as “subject access”. Such requests can be made by employees, job applicants, clients, customers and others about whom personal data is held.
The data subject may, upon making a request in writing, obtain copies of all personal data relating to him/her. The request must be completed promptly (within 40 days) and the data controller may not charge a fee in excess of £10. The data subject can request handwritten data (provided it was created after 24 October 1998) as well as all relevant data stored on computer and is additionally entitled to an explanation of why the data is being processed, to whom it will be disclosed and the source of such data.
7. NEW LEGISLATIVE CHANGES
Data protection is a rapidly developing area. In 2003 the Privacy and Electronic Communications (EC Directive) Regulations were introduced. These Regulations implement a European Directive which impact greatly on direct marketing.
The Regulations require that “opt-in” prior consent be obtained (e.g. by asking the data subject to actively tick a box labelled “I consent” rather than merely having the right to “opt-out”) for the sending of direct marketing emails or SMS messages. The Regulations also contain provisions relating to itemised billing and the use cookies on websites.
CONTACTS
If you have any queries in respect of the above or require specialist tax advice, please contact
Robert Lands
Partner: IP & Media
Robert specialises in intellectual property, working with clients from a wide spectrum of industries. He also advises regularly on the growing and increasingly complex field of data protection providing compliance advice to UK and multi-national organisations such as Dow Jones, publishers of The Wall Street Journal.
Robert acts for high street retailers such as LK Bennett and Base London and technology companies such as YooMedia plc, providers of interactive digital TV services to all the major platforms.
In the arts, Robert advises film producers, film finance companies and all facets of the motion picture industry. He advises the Council of the Association of Illustrators and provides copyright and contractual assistance to its membership. He also acts on behalf of several well known artists, photographers, PR and design agencies.
Robert handles IP and commercial issues from advertising and sales promotion to agency and distribution agreements for brands ranging from global restaurant chains to the Queen's perfumer. His remit extends to European brand protection for US rock band Linkin Park.
Robert regularly writes and lectures on intellectual property, most recently to The Royal College of Art and the Institute of Contemporary Arts.
Office Direct Phone: +44 (0)20 7344 7664
E-mail: robert.lands@fsilaw.com
CHAPTER 8
COMMERCIAL CONTRACTS
This chapter covers issues which are relevant when negotiating commercial agreements in the UK:
1. COMMERCIAL AGENTS
The Commercial Agents Regulations 1994 apply when an agent for the sale of goods is appointed in the UK, even if the principal is a company foreign company. The Regulations impose into the relationship a number of rights for the agent including the right to minimum notice periods for termination (which increase according to the length of the relationship) and, in most cases, a right to receive a payment on termination. Contracts therefore need to be carefully drafted with these statutory rights in mind.
The Regulations allow an agent and principal to agree on whether the termination payment should take either the form of “Compensation” or an “Indemnity”. The Regulations arise from an EU Directive, and these concepts are derived from European legal principles.
The Indemnity is a concept first found in German law and is supposed to represent the value to the principal of the agent’s efforts. The Regulations cap the amount payable under an Indemnity to the equivalent of one year’s gross commission.
Compensation, on the other hand, stems from French law and is supposed to represent the damage to the agent caused by termination. Compensation is not defined as tightly in the Regulations. Importantly, there is no cap on the amount payable under the Compensation route.
Historically, the view on what amounts to adequate compensation has been that a commercial agent ought to be awarded compensation of two years earnings if his agency is terminated, unless there is a good reason to depart from the two year presumption. However on 8 February 2006 the Court of Appeal overturned these previous cases stating that the correct measure of damages is the loss of agency business, including whatever goodwill attaches to it. This will often require expert evidence. As a result, there can be no presumption that the starting point for compensation is two years earnings, as that does not involve any reasoned attempt to ascertain the true extent of the agent’s loss.
Given that liability under Compensation is uncertain and potentially substantial, principals generally prefer the Indemnity option. However, the Regulations state that the Compensation route will apply unless there is an agreement to the contrary. It is therefore crucial that a written agency agreement is in place to ensure that the best position is obtained in the event of termination.
2. IMPLIED TERMS IN THE SALE OF GOODS AND SUPPLY OF SERVICES
Under UK law, a business entering into a contract involving the sale of goods and supply of services will be subject not only to the express terms included in the contract, but also to the obligations and implied terms as set out by statute. The Court may also be prepared to imply a term into a contract if it is considered necessary to reflect the presumed intention of the contracting parties.
2.1 Sale of Goods Act 1979
The terms implied by this Act include:
2.1.1 That the goods will be of satisfactory quality - goods will be deemed to be of satisfactory quality if they meet the standards that a reasonable person would expect, taking account of all the relevant circumstances. However, this term will not be implied to the extent that any matter making the goods unsatisfactory was specifically drawn to the buyer’s attention before the contract was made. This term is implied only where the seller acts in the course of a business.
2.1.2 That the goods will be fit for the purpose for which they were supplied - this provision applies where the buyer made known to the seller before contract of a particular purpose for buying the goods in question. If the goods have only one normal purpose the seller will be automatically taken to know what the purpose is. Again, this term is implied only where the seller acts in the course of a business.
2.1.3 That the bulk of any goods will correspond with any sample in quality - it is implied that the goods actually supplied under the contract will be free from any defect rendering the quality unsatisfactory which was not apparent on a reasonable examination of the sample originally provided.
Certain implied terms can be excluded when dealing business to business, but not when dealing with consumers (see Limitation of Liability below).
2.2 Supply of Goods and Services Act 1982
This Act applies to contracts for the supply of goods, contracts for the hire of goods and contracts for the supply of services. The terms implied by the Act are:
2.2.1 That the supplier will carry out the service with reasonable care and skill - the standard of duty has been stated to be that of ‘the ordinary skill of an ordinary competent man exercising that particular art’. This term is implied only where the supplier acts in the course of a business.
2.2.2 That the supplier will carry out the service within a reasonable time - this implied term applies only if a time for performance can not be inferred in any other way. The standard as to what is ‘reasonable’ time will be a question of fact. Again, this term is implied only where the supplier acts in the course of a business.
2.2.3 That the party contracting with the supplier will pay a reasonable charge - this will only apply if it is not possible to establish in any other way, the parties’ intention as to a fee. What is ‘reasonable’ will again be a question of fact.
2.3 Sale and Supply of Goods to Consumers Regulations 2002
These Regulations introduced further rights for consumers. They state that if the buyer deals as a consumer:
2.3.1 The relevant circumstances which are taken into account with regard to the implied term in respect of the quality of the goods will include any public statements on the specific characteristics of the goods made about them by the seller, the producer or his representative, and in particular in advertising or on labelling. However, a public statement will not be a ‘relevant circumstance’ if the seller is able to show that at the time the contract was made he was not and could not reasonably have been aware of the statement, or that before the contract was made the statement had been withdrawn or corrected in public, or that the decision to buy the goods could not have been influenced by the statement.
2.3.2 If the goods do not conform to the contract of sale at the time of delivery the buyer has the right to require the seller to repair or replace the goods or to require the seller to reduce the purchase price of the goods by an appropriate amount or to rescind the contract. Goods which do not conform to the contract of sale at any time within the period of six months from the date on which the goods were delivered to the buyer will be taken not to have conformed at the date of delivery. The requirement to repair or replace the goods is not absolute and there are various circumstances in which the seller will not be liable, such as when to do so would prove impossible or disproportionate.
2.4 Consumer Protection (Distance Selling) Regulations 2000
These Regulations apply to ‘distance selling’, i.e. goods or services sold to consumers by way of the internet, digital television, mail order, telephone or fax. The Regulations are not applicable to business to business contracts and there are various exceptions to their application to consumer contracts, such as those involving financial services, land and auctions.
Under these regulations the seller has a duty to provide:
2.4.1 Prior information - this must include:
2.4.1.1 the seller’s business name and, if payment is required in advance, the seller’s postal address;
2.4.1.2 a description of the goods or services;
2.4.1.3 the price (including all taxes) and arrangements and date for payment, delivery or performance;
2.4.1.4 the right to cancel of the order;
2.4.1.5 the minimum duration of any long-term contract; and
2.4.1.6 whether substitute goods will be supplied if the order is unavailable.
2.4.2 Written Confirmation - this must be sent to the consumer unless it has already been provided in writing (for example in a catalogue or advertisement). This confirmation must be provided by the time of delivery or during performance of the contract and must include:
2.4.2.1 the requisite prior information, as shown above;
2.4.2.2 details as to how and when the consumer may exercise the right to cancel the order, and details as to whether the consumer is required to return the goods;
2.4.2.3 information as to whether the seller or the consumer is responsible for the costs of returning the goods;
2.4.2.4 a geographical address to which the consumer may address any complaints; and
2.4.2.5 details of any guarantees or after-sales services.
Other important provisions include:
2.4.3 Contract Performance - Goods must be delivered, or services provided, within 30 days (beginning the day after the consumer placed the order), unless otherwise agreed with the consumer. The seller cannot oblige the consumer to agree to an extended period.
2.4.4 Cancellation Periods -The consumer must provide the seller with written notice of cancellation of the order within seven days (beginning from the day after that on which the goods were delivered, or in the case of services from the day after the consumer agrees to go ahead with the contract).
2.4.5 Repayment Period - The consumer must be refunded as soon as possible and within 30 days of the seller receiving written notice of cancellation.
3. LIMITATION OF LIABILITY
A business which enters into a supply of goods or services contract may wish to exclude or restrict any potential liability arising out of the contract it is are entering into.
In order to rely on a limitation or exemption clause, it is necessary to prove the following:
3.1.1 that the clause was a term of the contract;
3.1.2 that the clause covers the loss or damage which has occurred; and
3.1.3 that the clause does not fail under the Unfair Contract Terms Act 1977.
3.2 The Unfair Contract Terms Act 1977
The Act controls the exclusion or restriction of liability in contract and negligence and applies to any clause purporting to do so. In drafting such a clause it is therefore important to consider what the party’s liability would be but for the clause, whether the clause is incorporated as a term, which potential breaches the clause will cover and whether the exclusion/restriction is within the scope of the Act.
The extent to which such liability may be excluded or could change the statutory implied terms (referred to in paragraph 2 above) will depend upon whether the customer is dealing as a business or as a consumer. A party deals as a consumer if he neither makes the contract in the course of business nor holds himself out as doing so and the goods are of a type ordinarily supplied for private use or consumption.
3.2.1 Implied terms
The Act provides that no contract term can exclude or restrict the term as to title implied into contracts for the sale or supply of goods by the Sale of Goods Act 1979 or the Supply of Goods and Services Act 1982. This applies both to consumer and business contracts.
A clause excluding or restricting the implied conditions as to description, quality and fitness for purpose will be void against a consumer, and an attempt to exclude these conditions is a criminal offence. These clauses will not be void against a customer who deals in the course of a business but they will be subject to the Reasonableness Test described in paragraph (3.1.4) below.
3.2.2 Negligence liability
A party relying on a clause which purports to exclude or restrict liability for negligence must be a business.
Liability for death or personal injury resulting from negligence can never be excluded or restricted, whether or not the customer deals as a consumer or in the course of business and any such clause will be void. In the case of other loss or damage caused by negligence, such as damage to property, a party may only exclude or restrict its liability for negligence if the term or notice satisfies the Reasonableness Test.
3.2.3 Breach of express terms
Where one party deals as a consumer or on the other party’s written standard terms of business, the following contract terms will only be valid if they satisfy the Reasonableness Test:
· clauses which seek to exclude or restrict liability
· clauses which seek to render a contractual performance substantially different from that which was reasonably expected or clauses seeking to allow no performance at all
3.2.4 The Reasonableness Test
A court will consider the following elements:
· whether the customer knew or ought reasonably to have known of the existence and extent of the term;
· the strength of the bargaining position of the parties;
· whether the customer received an inducement to agree to the term;
· whether the customer had an opportunity of entering into a similar contract with another party but without a term similar to the clause subject to the Reasonableness Test;
· if the term excludes or restricts any relevant liability should a particular condition not be complied with, whether it was reasonable at the time to expect that compliance with the condition would be practicable; and
whether the goods were manufactured, processed or adapted to the special order of the customer.
3.2.5 Indemnity Clauses
The Act provides that a consumer can only be required to indemnify another in respect of liability for negligence of the other if the indemnity clause is reasonable.
3.2.6 Guarantees
It is not possible to deprive a consumer of any right against a negligent manufacturer or distributor by anything contained in a written guarantee.
4. THE UNFAIR TERMS IN CONSUMER CONTRACTS REGULATIONS 1999
These Regulations apply when the seller is a business and the customer a consumer. They deem unfair, and therefore unenforceable, any contract terms which:
4.1.1 have not been individually negotiated;
4.1.2 cause a significant imbalance in the parties’ rights, to the consumer’s detriment; and
4.1.3 are contrary to the requirement of good faith (if a term satisfies the requirement of good faith it can be relied upon).
The regulations state that contract terms should be expressed in plain, intelligible language. Any ambiguity will be interpreted in favour of the consumer. If the contract can be performed without the unfair and unenforceable clause, the remainder of the contract will be valid and enforceable.
5. RETENTION OF TITLE
Depending on the type of product being supplied and the use to which the product is to be put by the customer it may be possible to reserve to the supplier title to goods which have been delivered until they are paid for by the customer. A reservation of title clause has to be in writing and is normally contained in a supplier’s terms of business. In practice, they can be difficult to operate but when they are successful they will be good security as against all creditors in the case of the customer’s insolvency.
CONTACTS
If you have any queries in respect of the above or require specialist advice, please contact
Peter Carter
Partner: Corporate
Peter specialises in corporate finance. He has a wealth of experience in all aspects of corporate and commercial work and has a particular reputation for advising growing, owner-managed businesses, through their various stages of development. His expertise covers acquisitions and disposals of companies and businesses, and finance, including debt and venture capital. His close involvement with his clients has given him a broad experience of all kinds of commercial contracts and Peter heads up our Commercial Group.
Office Direct Phone: +44(0)20 7344 7687
E-mail: peter.carter@fsilaw.com
Anthony Barling
Managing Partner
Employment; Commercial
Anthony specialises in Employment Law and Commercial Law. His clients are mainly in the IT, motor, fashion and retail industries.
Anthony is a regular speaker on employment matters and initiated FSI's Employment Forums which address current issues facing human resources personnel. In addition he undertakes off-site client training on employment law to enable managers to develop their human resource skills. Anthony chaired the Third Annual Best Practice Law Firm Management Series conference on 'Development and Expansion of your Law Firm'.
Office Direct Phone: +44(0)20 7344 5641
E-mail: anthony.barling@fsilaw.com
CHAPTER 9
REAL PROPERTY
1. Estates in Land
In England and Wales, there are two ways of holding real estate: Freehold and Leasehold. Owners of the freehold interest in land own the land outright. Owners of a leasehold interest (a “tenant”) have the exclusive right to use the land granted to them by a lease for a given length of time. A tenant may either take a new lease from a freeholder, having negotiated the terms of the lease with the freeholder, or may take an assignment of the residue of an existing lease subject to the terms already negotiated. It is also possible for a leasehold interest to be granted from another leasehold interest, this is known as an underlease. The length of an underlease must be shorter than the leasehold interest from which it is granted and will be subject to any terms and restrictions in it.
In the case of a unit within a larger property, such as an office in an office block, it is possible only to own a leasehold interest of the office, with a freeholder (a “landlord”) owning the freehold of the building. The tenant pays rent to the landlord, along with service charges for insuring, repairing and servicing the building, depending on the terms of the lease. The amount of rent is dependent in part upon the length of the lease. A longer lease, say of 999 years, may be at a low rent (or “ground rent”) with the tenant paying a premium for the lease up front, whereas a lease of 5 or 10 years may have no premium and a higher rent (or “rack rent”).
There is soon to be a third category of ownership called commonhold, which is yet to be introduced at time of writing, and relates to owning property in a development which has communal facilities.
2. LEASE TERMS
A lease will define a number of aspects of the landlord and tenant relationship, including:
2.1 the length of time (“the term”) for which a property is held by the tenant;
2.2 the extent of the property (including whether the tenant is taking the structure of the property or just the internal area);
2.3 the rent payable, provisions for review of rent;
2.4 the rights granted to the tenant to enable them to use the property;
2.5 the tenants obligations (such as repair);
2.6 rights reserved to the landlord;
2.7 the landlord’s obligations (such as insuring the building);
2.8 whether the parties may terminate the lease at any time (a “break clause”); and
2.9 whether the lease is contracted out of statutory protection under the Landlord and Tenant Act 1954 (see below).
A lease will also contain any requirements for Landlords’ consent with regard to assigning or under letting the property, or altering the property (for example, for fitting out the property prior to moving in).
3. PROCEDURE FOR TAKING AN EXISTING LEASE OF AN OFFICE
As mentioned above an existing lease of an office may be acquired by either taking an assignment of the residue of an existing lease subject to the terms already negotiated or by the grant of an underlease.
When taking an underlease of an office, shop or other property, depending on the terms of the existing lease, consent may be required from the landlord before the underlease is granted. This consent is often recorded in a document known as a licence to underlet.
It is also common for a licence to be required from the landlord and head landlord for any works to be carried out to the property, such as fitting out works prior to taking occupation. A tenant may therefore have to negotiate an underlease, a licence to underlet and a licence for alterations, as well as considering the terms of the head lease, before taking an underlease of an office or shop premises.
4. LANDLORD AND TENANT ACT 1954
With business leases, a tenant may be able to stay in the property at the end of the term of the lease by asking for a renewal lease. This depends on whether the lease was “contracted out” of the security of tenure provisions of the Landlord and Tenant Act 1954 (the “Act”), (although certain leases are not subject to the Act, for example, those of less than six months) or not. This is of significance to purchasers of investment property who may find that their tenants are able to stay in the property at the end of their leases. A landlord whose lease comes within the Act will only be able to require the tenant to leave the property at the end of the term of the lease if there are certain grounds for doing so, as set out in the Act.
For a company looking for office premises for short term lets of, for example, one to five years, it is common for landlords to negotiate an exclusion from the provisions of the Act, and for the lease to be “contracted out”. Contracting out is done by the landlord serving a notice on the tenant stating that the lease is to be contracted out of the Act. The Tenant then makes a statutory declaration (a declaration made before an English or Welsh solicitor) confirming that they understand that they will not have a right to remain in the property at the end of the term of the lease
5. REGISTRATION- FREEHOLD AND LEASEHOLD
All freehold land in England and Wales is now subject to compulsory registration at the Land Registry and certain leases must also be registered. The register is in three parts: one giving the title defining each parcel of land, one showing the proprietorship of the land, and one showing any charges (i.e., lender’s security), and other third party rights in relation to the land.
6. STAMP DUTY LAND TAX
Most acquisitions of interests in real estate are subject to stamp duty land tax, which can be as high as 4% of the purchase price of the property. The level of tax depends on the purchase price and, in the case of leasehold property, the rent and other factors. No tax will be payable on acquisitions of commercial property for a price of less than £150,000.
There are thresholds for each rate of tax and (with the exception of the grant of some leases) the rate of tax applies to the entire purchase price rather than the portion of the price in each tax band. For instance, the tax on a freehold property purchased for £250,000 will be 1% or £2,500: for a property costing £250,001 the tax will be 3% or approximately £7,500 - an additional £5,000 tax for £1 difference in price. The implications of stamp duty land tax are therefore of importance when negotiating the price of the property.
Stamp duty land tax payable on the grant of a lease for rent is complex and advice should always be sought.
CONTACTS
If you have any queries in respect of the above or require specialist advice, please contact
Melvyn Orton
Senior Partner: Head of Property Investment
Melvyn Orton is an experienced property lawyer with particular expertise in complex commercial investment portfolio transactions and projects involving major regeneration schemes.
He acts for publicly quoted companies, the property subsidiaries of large commercial organisations and private property companies. He deals with the purchase/sale of substantial investment portfolios, the sale of properties subject to planning and the structuring of transactions which allow landowners to increase value in development and urban regeneration projects. He also deals in a wide range of landlord and tenant transactions involving office, leisure, industrial and retail properties.
Melvyn is fluent in French and maintains strong professional links in France through the Firm's French Group and has acted on a number of transactions involving both French and Swiss companies.
Office Direct Phone: +44(0)20 7344 5508
E-mail: melvyn.orton@fsilaw.co.uk
Michael Kutner
Partner: Head of Property Development
Michael specialises in all key areas of commercial property with particular emphasis on property development. He is involved in a number of substantial commercial development projects in London as well as a wide range of industrial, office and leisure schemes across England and Wales.
Michael's experience in development covers the full spectrum and also includes collateral warranties, professional appointments and other construction related issues. He has also been heavily involved in joint ventures as well as advising private companies and institutions on property investments.
Office Direct Phone: +44(0)20 7344 7673
E-mail: michael.kutner@fsilaw.com
CHAPTER 10
COMPETITION LAW
1. INTRODUCTION
1.1 In the UK, pursuant to the European Community Merger Regulation (“ECMR”) and the Enterprise Act 2002 (the “Enterprise Act”), European and UK competition authorities have powers to investigate certain asset and share acquisitions having regard to competition issues.
1.2 In addition, due regard should also be had to:
1.2.1 Chapters I and II of the Competition Act 1998 (the “Act”) which generally prohibits anti-competitive behaviour between ‘businesses’ and the abuse of a dominant market position in a market that affects trade in the UK; and
1.2.2 Articles 81 and 82 of the European Community Treaty (the “EC Treaty”) which prohibit anti-competitive behaviour that affects trade in the European Community (“EC”) and upon which Chapters I and II of the Act are based closely.
2. COMPETITION LAW RELEVANT TO ASSET AND SHARE PURCHASES
2.1 Jurisdiction
2.2 Prior to completion of an asset or a share purchase (the “Acquisition”), it is necessary to determine which competition authority has jurisdiction to examine the Acquisition having regard to competition issues.
2.3 If certain turnover thresholds (which are discussed below) are met, the Acquisition will (subject to specific exceptions) fall within the ECMR. Where the ECMR applies, the European Commission (“EC”) has exclusive power to investigate.
2.4 Where an Acquisition does not meet the ECMR thresholds, then it may fall within the jurisdiction of the UK Office of Fair Trading (“OFT”). Under the Enterprise Act, the OFT is under a duty (subject to certain exceptions) to refer a merger, or anticipated merger under its jurisdiction, to the Competition Commission (“CC”) for consideration where it believes that the merger meets the qualifying criteria and has resulted, or may be expected to result, in a substantial lessening of competition within any market in the UK for goods or services.
2.5 Depending on the circumstances, other national competition authorities, both EU and non-EU, may also have jurisdiction to investigate the offer. This can potentially lead to multiple filings.
2.6 Wherever there is doubt as to whether an authority has the power to consider a transaction, it is important at an early stage to enter into an information discussion with both the relevant domestic authorities and the EC so as to establish how best to proceed.
ECMR
2.7 The ECMR applies to “concentrations” having a “community dimension”. The definition of concentration is broad and catches cases where companies merge or one company acquires “decisive influence” over another company. This may occur at shareholding levels as low as 15 per cent and also catch Acquisitions of control falling short of full control.
2.8 A concentration will have a “Community dimension” if the following criteria are met:
2.8.1 The aggregate worldwide turnover of all the parties exceeds EUR5 billion.
2.8.2 The aggregate Community-wide and EEA-wide turnover of each of at least two of the parties is more than EUR250 million.
2.8.3 The parties achieve not more than two-thirds of their Community -wide and EEA turnover within one and the same member state.
2.9 In addition, a concentration that does not meet the above thresholds will nevertheless have a Community dimension if:
2.9.1 The combined aggregate world wide turnover of all the parties concerned is more than EUR2.5 billion.
2.9.2 In each of at least three member states, the combined aggregate turnover of all the parties concerned is more than EUR100 million and in each of the three member states the aggregate turnover of each of at least two of the parties concerned is more than EUR25 million.
2.9.3 The aggregate Community-wide turnover of each of at least two of the parties concerned is more than EUR100 million.
National jurisdiction
2.10 The Enterprise Act requires that an Acquisition falling outside the ECMR will be subject to UK competition rules and may be referable by OFT to the CC if it is a “relevant merger situation” which will be the case where two or more enterprises (one of which is carried on in the UK or by or under the control of a body corporate incorporated in the UK) cease to be distinct (that is, they are brought under common control or ownership) or there is a proposal that they should do so and if either:
2.10.1 the value of the turnover in the UK of the enterprise being taken over exceeds £70 million; and/or
2.10.2 it will create or enhance a 25 per cent share of the supply in the UK (or a substantial part of it) of any goods or services (the share of supply test).
2.10.3 In the case of both goods and services, the share supply test will be satisfied where at least one quarter of the goods or services of any description in the UK, or a substantial part of the UK, are either:
2.10.3.1 supplied by one and the same person or are supplied to one and the same person;
2.10.3.2 supplied by the persons to whom the relevant enterprises (so far as they continue to be carried on) are carried on, or are supplied to those persons.
The test is not satisfied if an enterprise already supplies or consumer 25% of a particular market, unless its share of that market is increased as a result of the merger;
The OFT and CC have a wide discretion in applying the share of supply test and may apply criteria relating to cost, price, quantity, capacity or number of workers employed or any other criteria they consider suitable in all the circumstances.
2.11 Notification
ECMR
2.12 Acquisitions falling within the ECMR must be notified to the EC prior to the transaction being implemented and cannot be completed pending clearance. Intentional or negligent failure to notify a concentration prior to implementation in accordance with the requirements of the ECMR is not a criminal offence but it empowers the EC to impose a fine of up to 10% of the aggregate turnover of the undertakings concerned. The validity of any concentration depends on a notification subsequently being made and on the EC taking a favourable decision.
National jurisdiction
2.13 For an Acquisition that is subject to the UK competition rules, there is no legal requirement to notify the competition authorities, either pre- or post completion. However, in cases where there might be competition issues, clearance is usually sought to avoid the risk of a reference by OFT of the Acquisition for investigation by the CC later on.
2.14 Timetable Following Notification
2.15 The ECMR and the UK regime involve a preliminary evaluation, followed by a detailed investigation where there may be serious competition issues.
ECMR
2.16 The basis of assessment by the EC is to establish whether or not a concentration is compatible with the common market. It is likely a concentration will be found to be incompatible with the common market where it would significantly impede effective competition in the common market, or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position.
2.17 The EC undertakes an initial investigation period (lasting at least 25 working days from notification). During this period, the EC publishes details of notifications in the Official Journal and uses these notices to request third party comments on concentrations. Before the end of the initial investigation period, the EC is required to take one of the following decisions:
2.17.1 That it does not have jurisdiction.
2.17.2 Clearance be granted (which may be conditional).
2.17.3 To launch a second stage investigation.
2.18 Second stage investigations must be completed within at least 90 working days and at the end of this period, the EC is required to grant a decision to either:
2.18.1 Grant clearance (to which the EC may attach conditions or obligations requiring structural changes or imposing behavioural obligations).
2.18.2 Impose prohibitions.
2.19 Should the EC fail to issue a decision within the time period, the concentration is deemed to have been cleared.
OFT Procedure and CC Procedure
2.20 The OFT will conduct an initial evaluation of the merger. It will then decide whether to:
2.20.1 refer it to the CC for further investigation;
2.20.2 accept undertakings in lieu of a reference; or
2.20.3 let the merger proceed without further investigation.
2.21 Following a referral to the CC by OFT, the CC has a statutory period of 24 weeks (subject to extension in some circumstances) to conduct an investigation into the matter and reach its decision.
2.22 There are two stages to the CC’s investigation, being:
2.22.1 First, it must reach a decision whether or not there is a substantial lessening of competition as a result of the merger.
2.22.2 Second, if it has decided that there is an anti-competitive outcome, it must decide how to address the competition concerns by reaching a decision on suitable remedies.
2.23 In carrying out its investigation, the CC will request the written submissions of the parties, obtain third parties views and request each of the main parties to attend a hearing. The CC will then publish provisional findings to which the parties are invited to respond. Proposed remedies will then be published separately and published on the CC’s website for comment. It will then hold a second hearing with the main parties in relation to remedies. The CC’s final decision on the assessment of a merger and remedies are published in its final report on the merger, together with the reasons for its decision.
2.24 The CC has the power to impose fines on anyone who fails to supply information when requested to do so by the CC. The fines can be up to £20,000 for a one-off failure and up to £5,000 a day.
3. ANTI COMPETITIVE BEHAVIOUR: CHAPTER I AND II OF THE ACT
3.1 Anti-competitive agreements
3.2 Chapter I of the Act and Article 81 of the EC Treaty prohibit agreements between two or more undertakings that appreciably prevent, restrict or distort competition or are intended to do so and thereby affect trade in the UK and/or EU.
3.3 Agreements (whether informal, formal, written or verbal) which are likely to be prohibited include those which:-
3.3.1 directly or indirectly fix purchase or selling prices or any other trading conditions;
3.3.2 limit or control production, markets, technical development or investment;
3.3.3 share markets or sources of supply;
3.3.4 apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; or
3.3.5 make the conclusion of contracts subject to a acceptance by the other parties supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
3.4 Whether or not an agreement has an ‘appreciable’ effect on competition will be determined by, among other factors, the relevant market share of the parties. Within the meaning of Article 81, if the aggregate market share of the competing parties to the agreement does not exceed 10% on any of the relevant markets affected by the agreement or, in the case of non-competing parties if the market share of each parties does not exceed 15%, that agreement is unlikely to be considered anti-competitive.
3.5 Exempt Agreements - both the Act and Article 81 provide a legal exemption regime by which certain types of agreement are not prohibited if they satisfy the conditions laid out under the relevant provisions (being s9(1) Act and Article 81(3)). For example, pursuant to s9, agreements which improve or contribute to economic or technical progress and allow consumers a fair share of the benefit while not adversely affecting competition will be considered exempt. If the s9 conditions are satisfied (and it is up to