North West WIN Annual Update

Manchester

25 April 2013

North West WIN Annual Update

Welcome – Ian Wood

25 April 2013

TUPE REGULATIONS AND EMPLOYMENT ISSUES UPDATE 2013 EMPLOYMENTHelen Hall

TUPE – Current issues (1)

Erosion of service provision change mechanism

Enterprise Management Services Ltd v Connect-Up Ltd and others [2012] IRLR 190 (EAT)

Johnson v Campbell and another UKEAT/0041/12

Argyll Coastal Services Ltd v Stirling and others UKEATS/0012/11

Hunter v McCarrick UKEAT/0617/11

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TUPE – Current issues (2)

Which employees transfer?

Eddie Stobart Limited v Moreman and others

Argyll

Seawell Limited v Ceva Freight (UK) Limited

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TUPE - Consultation on proposed changes

Consultation 17 January – 11 April 2013

Proposals include:

repeal of "service provision change" provisions

removal of obligation to provide employee liability information

amending the meaning of 'entailing changes in the workforce' (part of the ETO defence) to cover changes in location of the workforce

dual consultation

Legislation expected October 2013 onwards

Contractual protection key to address uncertainty

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Employment Tribunal Reform - Fees

Implementation in Summer 2013?

Employment Tribunal fees

Issue and hearing fees

Level 1 – low value claims for sums due on termination (e.g. unpaid wages and PILONs)

Level 2 – all other claims (including unfair dismissal, discrimination, equal pay and whistleblowing)

Application specific fees

EAT fees

Remission scheme

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Employment Tribunal Reform – Procedures

Changes to the Tribunal procedure rules

Implementation in Summer 2013?

Key changes

Rejection of claim and response

"Sift" stage

Costs – awards above £20,000 no longer need to be referred to the court for assessment

Presenting a response – 5pm deadlines?

Preliminary hearings – to consider both case management and preliminary issues

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Employment Tribunal Reform – Enterprise and Regulatory Reform Bill

Implementation from Summer 2013 onwards

Key changes in the context of Employment Tribunal reform include

Compulsory pre-claim ACAS conciliation

Protected settlement conversations for ordinary unfair dismissal claims

Settlement Agreements – statutory code of practice and guidance

Change to compensation award cap in unfair dismissal claims capped at the lower of 1 year's pay and existing limit

Abolish discrimination questionnaires

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Changes to collective redundancy consultation

Changes to collective redundancy consultation obligations:

Implemented 6 April 2013

90 day minimum consultation period before the first redundancy can take effect is reduced to 45 days where 100 or more employees are affected

Employees on fixed term contracts which have reached their termination point will be excluded from collective redundancy consultation obligations

New ACAS non statutory code of practice

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OPPORTUNITIES AND RISKSCORPORATE RESTRUCTURING

Christopher Roberts

Expertise

Summary Profile

Christopher joined DLA Piper in 2002 as a trainee solicitor, qualifying into the firm's restructuring team in 2004.

Christopher specialises in non-contentious aspects of corporate recovery, restructuring, turnaround and insolvency including advising upon administrations, receiverships and liquidations.

Other aspects dealt with include advising directors upon their duties and responsibilities in relation to companies facing financial difficulties and acting for purchasers of businesses from insolvent companies.

Expertise

All aspects of non-contentious insolvency and restructuring including business and asset sales, real estate transactions, landlord and tenant issues, advice on security issues, advising main clearing banks, invoice discounters and factors and insolvency practitioners.

Major Transactions

Administrations of: MusicZone, Wine Cellar, Passion for Perfume, Weatherseal Windows, Total Fitness and Stanleybet UK Investments/Stanleybet Overseas Investments.

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Aim and Focus

Aim of update

To highlight certain circumstances where corporate restructuring and/or insolvency procedures may be used to benefit your company's business.

To reduce concerns surrounding corporate restructuring and insolvency

Focus of update

Acquisition of a company's shares followed by a CVA

Sale of a company's business and assets through an Administration process

Avoiding TUPE liabilities

ROT claims and identifying goods

Risk of over-reliance on a single supplier in the current economic climate

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Acquisition of shares followed by a CVA

CVA (Creditors voluntary arrangement) - process whereby a company proposes an arrangement to its creditors to reorganise its liabilities

Enables a buyer to purchase a company and drop the loss making parts whilst leaving the good parts untouched and intact

Successful, well publicised CVA's include: JJB Sports, Focus DIY, Blacks Leisure, Barratts Shoes and Flannels

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Acquisition of shares followed by a CVA cont…

DLA Piper was the first firm to bring this product to the market

Our first client to successfully utilise the product acquired the shares in a group of companies holding over 500 retail units and in doing so acquired the benefit of very significant tax losses which were available to be set off against the future profits of the post CVA profitable business

Advantages:

Preservation of tax losses

Less business disruption

Reduces overall liabilities

Avoids the stigma of insolvency?

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Sale of a company’s business and assets out of Administration

If a CVA is not workable, an asset sale may be a potential alternative

However, risk of an asset sale being challenged as a TUV in a subsequent insolvency and vendor unable to fulfil its obligations under the SPA

An asset sale out of an insolvency procedure, e.g. Administration, may be more desirable for vendors and purchasers:

Preserve goodwill and no break in trading where the sale is pre-packaged

Cherry pick assets without the company's liabilities (except for TUPE liabilities) – though be wary of commercial reality: lack of supply credit going forward and may need to pay sweetner to suppliers

Limit the risk of the sale being challenged and subsequently unravelled as TUV

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Avoiding TUPE liability on a business purchase

The Transfer of Undertakings (Protection of Employment) Regulations 2006 ("TUPE") apply when purchasing a solvent business or a business from an administrator

All employees automatically transfer plus purchaser may also be liable for potential protective awards

However, employees do not automatically transfer in a sale by a liquidator

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Retention of title "club"

When supplying goods to customers, supply contracts normally contain ROT clauses

If a supplier is unable to identify its goods from an insolvent customer’s stock, then the supplier’s ROT clause will not normally be effective

Admixture of goods

BUT the supplier may be able to defeat an admixture defence if it can prove that it supplied generic stock/raw material to the customer

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Risk of over-reliance on a supplier

As a result of the current economic climate, suppliers have been forced to reduce prices in order to combat competition

Increasing shift to low stock, just in time models of supply

Many suppliers now rely on volume ordering and customers have reduced their amount of suppliers to increase efficiency

Insolvency of one link in the supply chain can create a domino effect of insolvencies up and down the chain

eg the administration of Woolworths led to the insolvency of Zavvi

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Risk of over-reliance on a supplier cont…

Insolvency practitioners may seek ransom payments from customers of an insolvent supplier

eg the Land Rover and UPF case:

KPMG threatened to stop supply unless Land Rover paid it £46 million.

Land Rover ultimately paid £15m to £20m for UPF’s debt to replace UPF’s receivers to ensure UPF continued to supply essential parts to Land Rover

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Early warning signs of a supplier’s insolvency

Warning Signs

Missed deliveries

Requests for deposits and up-front payments

Unexpected rise in prices or attempts to renegotiate pricing or terms

Reduction in credit insurance cover

County court judgments and winding-up petitions – DLA Piper can conduct these searches for you

Questions to ask the supplier

Have you moved from quarterly to monthly rents?

Have you agreed a time to pay agreement with HMRC?

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Protect yourself

Methods of dealing with a supplier's insolvency:

Protect yourself by building up stock levels and consider having more than one supplier for key supplies

If a supplier becomes insolvent, customers may have to consider acquiring the supplier's business to avoid costly renegotiation of supply terms or having to make ransom payments to the insolvency practitioner

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Key Messages

Key Messages

There are ways to purchase distressed businesses and assets in a financially efficient way

A vendor can make the sale of a subsidiary business more attractive to the market

If you are a supplier of generic stock or raw material, you may still be able to recover your goods from an insolvent supplier even if you are unable to identify your specific goods

Be vigilant of supplier distress and protect yourself from ransom demands and other business disruption

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North West WIN Annual UpdateINTELLECTUAL PROPERTY

David Gardner

Contents

Apple v Samsung - who is winning in the UK and the US?

The new European Unified Patent system - what will it mean for you?

The Internet's New Wild West? - an update on who iss applying for new gTLDs and why

Is using your Community Trade Mark in one Member State enough to keep it safe from attack?

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Apple v Samsung (UK)

In the UK, Apple sued Samsung for infringement of its tablet Registered Community Design

Apple alleged that three Samsung Galaxy tablets had copied its RCD

The High Court found that there were certain similarities:

the front screen

the fact neither had indicator lights or buttons

the "thinness enhancing effect" of the curved sides

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Apple v Samsung (UK)

However, there were two major differences which meant that the Samsung tablets did not infringe Apple's registered design:

The Samsung tablets were thinner than the Apple tablets

The Samsung tablets had detailing on the back of each of one, whereas the Apple tablets we uniformly smooth

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"They [the Samsung devices] do not have the same understated and extreme simplicity which is possessed by the Apple design, they are not as cool, and so the overall impression produced is different".

The verdict of the High Court was upheld by the Court of Appeal

Apple v Samsung (US)

In the US it was a different story. Apple sued Samsung for infringement of three patents:

1.US Patent No. 7,469,381 relating to "list scrolling and document translation, scaling and rotation on a touch-screen display"

2.US Patent No. 7,844,915 relating to an "application for programming interfaces for scrolling operations" (zooming, bounce-back on scrolling)

3.US Patent No. 7,864,163 relating to a "method for displaying at least a portion of a structured electronic document"

as well as four US "design patents", including one for the "ornamental design for an electronic device", similar to the Registered Community Design referred to above

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Apple v Samsung (US)

Samsung counterclaimed for infringement of six of its own patents

After a three week trial, a Californian jury gave its verdict:

1.Samsung had infringed all Apple's patents and design patents, except the "ornamental" design patent

2.Apple had not infringed any of Samsung's patents

In the first instance, the jury awarded Apple damages of…

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The '889 "ornamental" design patent

Apple v Samsung (US)

$1.05 billion

The fourth largest jury award in a patent case ever…

…though a Judge has ordered a new jury trial to re-examine $450 million of the damages Apple was awarded

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European unified patent system

The old European system

Obtaining patent protection in Europe is a cost-intensive procedure

Overall, the acquisition of patent protection in all 27 EU Member States costs around €30k - €40k

The cost of translations is a major factor in this high cost

This is considerably more expensive, even for only the "major" Member States, than it is in economically competing countries such as the US or China

The solution?

On 19 February 2013, 24 members of the 27 European Union signed a unified patent court agreement in Brussels, followed by Bulgaria on 5 March 2013

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European unified patent system

Single European patent seeks to boost the innovative capacity of European industry by streamlining previously fragmented and bureaucratic procedures and decreasing costs

The new unified patent will:

1.be cheaper and more effective than current systems in protecting the inventions of EU businesses

2.provide automatic unitary patent protection in all 25 participating member states, cutting costs for EU businesses

3.cost as little as €4,725 when the new system is fully in place, according to the European Commission

Italy (despite signing the agreement), Spain and Poland have all expressed concerns about the new arrangements

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New generic Top Level Domains ("gTLDs")

The new generic Top-Level Domain Program was developed by ICANN to increase competition and choice in the domain name space (ICANN just made $350 million in the process!)

There are roughly two dozen gTLDs now (.com, .org, .net, etc).

Soon, there will be hundreds – 2,000 have been applied for

Not a universally popular move by ICANN – a group of over 100 major international business associations and companies campaigned against it…but it's happening!

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New gTLDs – Who is applying?

Google has announced that it is targeting gTLDs such as .google, .youtube, and .lol, to name a few – at a cost of $185,000 per domain – at a total cost of more than $18.6m

Amazon is Google's biggest competitor, with both companies bidding on 21 of the same domains, including: .search, .play, and .drive

Microsoft also put in two applications that Google has also applied for .docs and .live

Apple applied for just one (.apple, of course)

So why are they applying?

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New gTLDs – Potential benefits

You operate a domain name registry, like .com today

You have greater control and flexibility over your web presence

The new gTLD create opportunities for company specific or sector specific domains

They could be used to increase security - .dlapiper?!

They could be used to increase brand profile (though some notable brand owners have withdrawn, e.g. Heinz, G.M.)

They may help in the fight against online counterfeiters – "If it doesn’t end in .[brand], it's not real"

This does come at an administrative and financial cost – ICANN will evaluate applicants on this basis

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New gTLDs – Protecting your trade marks

The "Trademark Clearinghouse" opened on 26 March 2013 to allow rights holders to file evidence of their trade marks

Sunrise period – trade mark holders who registered with the Clearinghouse were given 30 days to register gTLDs matching their trade marks before these were offered to the public

The Clearinghouse provides a central repository of verified trade mark data, to avoid the need to notify every gTLD owner

Requirements

You must provide a signed declaration of use and a single sample to prove use

Clearinghouse fees for a single trade mark are $145 for one year, $435 for 3 years and $725 for 5 years

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New gTLDs – Protecting your trade marks

A number of speculators have also been purchasing gTLDs, hoping this will be the next internet gold mine

For example, one VC-funded company called Donuts has applied for 307 gTLDs – at a cost of almost $57 million

ICAAN has established additional dispute resolution procedures (known as RPMs) in connection with gTLDs

This includes the Universal Rapid Suspension system (or URS), intended to deal with clear cases of trade mark abuse

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Use of community trade marks

The ECJ has recently handed down its decision in Case C-149/11 Leno Merken v Hagelkruis Beheer B.V

Better known as the ONEL/OMEL case

The case is about the requirement for "genuine use" of a Community Trade Mark ("CTM")

A CTM which has not been put "to genuine use in the Community in connection with the goods or services in respect of which it is registered" within five years following registration:

is subject to revocation

cannot be relied on as an earlier trade mark right when opposing a later filed CTM

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Community trade marks – CJEU referral

So what constitutes "genuine use in the Community"?

In particular, what if a trade mark is only used in one of the 27 Member States - is this genuine use?

The four questions referred to the CJEU in this case were:

§ Is use in one country always enough?

§ If not, is it never enough?

§ If it is never enough, what is needed?

§ Should the assessment of genuine use in the Community be done in the abstract, without reference to the borders of the territory of the individual Member States?

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Community trade marks - Decision

The CJEU held that Article 15(1) of the Community Trade Mark Regulation must be interpreted as meaning that:

use of a Community trade mark within the borders of a single Member State is not, of itself, necessarily sufficient to constitute genuine use of that trade mark, BUT

it is possible that, when account is taken of all relevant facts, use of a Community trade mark within an area corresponding with the territory of a single Member State will constitute genuine use in the Community

Has the ECJ dodged the question, or is this answer the pragmatic solution needed by CTM owners and their advisors?

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North West WIN Annual UpdateTAX

David Thompson

Patent Box 1

Reduced rate of 10% for companies within the charge to UK corporation tax who exploit patents and/or certain other botanical and medical innovations

Companies must opt into the regime for it to apply and the relief is to be phased in between 1 April 2013 and 1 April 2017

The reduced rate of corporation tax is applied to a proportion of the company's profits derived from:

sales of products incorporating the patented technology

licensing and selling patent rights themselves

other use of such right sin the course of a trade (e.g. in providing services)

compensation for infringement of patent rights

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Patent Box 2

The company must have an "exclusive" licence over the qualifying IP in one or more countries or territories.

The company must have been involved significantly in the creation or development of the qualifying IP, or of a product or process that incorporates it.

There are special rules for groups aimed at preventing relief where the IP was developed outside the group (e.g. where a company that developed the IP is subsequently acquired by another company), unless certain further activity is carried out within the group or an additional "active ownership" condition is satisfied.

Patent box profits are calculated according to a standard formula (see next slide) or a "streaming method"

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Patent Box 3

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Patent Box 4

Patent Box – Practice Points for In-House Lawyers

The ownership of patent rights and other qualifying IP will affect the availability of relief:

whether a company opts into the patent box may depend upon whether it is making profits or losses;

this and other factors may influence a decision whether or not to move IP around the group;

the effect of litigation settlements and licensing arrangements will be relevant for determining whether the company has an "exclusive" right enabling it to claim relief;

it may be beneficial to bring qualifying IP into the UK and to relocate development here.

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Statutory Residence Test 1

Statutory Residence Test ("SRT") is contained in schedule 43 of the Finance Bill and replaces the previous mix of case law and HMRC practice (HMRC's approach was set out in HMRC6) for tax years 2013-14 onwards;

SRT

if automatic non-residence test is satisfied, the individual is not resident;

if the automatic residence test is satisfied, the individual is resident;

where neither of these applies the individual is resident if he or she has "sufficient ties" with the UK, which test depends on "connecting factors" and days spent in the UK – the more "connecting factors" the fewer days are required to make a person resident

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Statutory Residence Test 2

Automatic Non-Residence – always takes precedence

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Test Days in UK

UK resident in one or more of 3 previous tax years

< 16 (and did not die here!)

UK resident for none of previous 3 tax years

< 46

Sufficient overseas work with no significant breaks (complex formula)

< 31 days in UK where more than three hours' work done and < 91 days spent in UK

Two other automatic tests apply in the event of death

Statutory Residence Test 3

Automatic Residence – next test to apply

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Test Days in UK

Present in UK for 183 days in tax year

No additional "days" test

"Home" in the UK Spends sufficient days in that home and satisfies requirements in relation to overseas home (if any) – complex rules

Sufficient UK hours of work with no significant breaks

Complex rules here too!

A fourth automatic test applies in the event of death

Statutory Residence Test 4

"Sufficient Ties" where resident in one or more of previous three tax years

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Days spent in the UK Minimum number of ties

Greater than 15 but not more than 45

4

More than 45 but not more than 90 3

More than 90 but not more than 120

2

More than 120 1

Statutory Residence Test 5

"Sufficient Ties" where not resident any of previous three tax years

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Days spent in the UK Minimum number of ties

More than 45 but not more than 90 4

More than 90 but not more than 120

3

More than 120 2

Statutory Residence Test 5

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The "UK ties"

"Family"- "relevant relationship" with another person resident in the UK

"Accommodation" – a "place to live" in the UK for at least 91 days and spends at least one night there

"Work" – at least 40 days working for at least three hours on each such day in the UK

"90-day tie" – spends more than 90 days in the UK in the preceding tax year, the tax year preceding that year or both

"country" tie (only applies if resident for one or more of previous three tax years) – meets the "midnight test" for the greatest number of days in the UK (compared to each other country)

Statutory Residence Test 6

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The rules are complex and the slides above are an over-simplification!

SRT – Practical Points for In-House Lawyers

Patterns of work for multi-state employees may change

Old contracts and methods of working may need to be reconsidered

There will be a constant need to take tax advice on the impact of detailed personal and employment circumstances

Double taxation relief rules still apply

General Anti-Abuse Rule

The General Anti-Abuse Rule (GAAR) will apply to income tax, corporation tax, capital gains tax, inheritance tax, petroleum revenue tax and stamp duty land tax (it is later to be extended to NIC)

The GAAR will provide for the counteraction of tax advantages arising from tax arrangements that are "abusive"

Counteraction must first be notified by a designated HMRC officer and, unless having considered representations made by the taxpayer a designated HMRC officer decides that counteraction ought not to apply, the arrangements must be referred to an "Advisory Panel" to be established by the Commissioners for HMRC for the purpose, for its opinion.

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General Anti-Abuse Rule

"Tax arrangements are “abusive” if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances including—

(a) whether the substantive results of the arrangements are consistent with any principles on which those provisions are based (whether express or implied) and the policy objectives of those provisions,

(b) whether the means of achieving those results involves one or more contrived or abnormal steps, and

(c) whether the arrangements are intended to exploit any shortcomings in those provisions"

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General Anti-Abuse Rule

Statute will set out examples of arrangements that are to be considered "abusive"

they result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes

they result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes

they result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid.

Practical Point for In House Lawyers – difficult dividing line between "abusive" and non-abusive structures – scrutiny required

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Miscellaneous Points to Remember

Entrepreneur's relief for shares acquired under an enterprise management incentive scheme – always consider EMI if you qualify.

VAT and acquisition costs – following BAA –v- HMRC [2013] EWCA Civ 112 – taxpayer lost its claim to recover input tax on incurred on professional fees invoiced to a company which acquired it and subsequently became a member of its VAT group; the case underscores the need for a holding company to have an "economic activity", to make ,or to intend to make, supplies in the course of a business.

VAT – Robinson Family Limited –v- HMRC [2012] UKFTT 360(TC) – grant of a long lease subject to sub-leases can be a TOGC if value of reversion is minimal.

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North West WIN Annual UpdateHOT TOPICS IN THE ENERGY SECTOR

Ian Wood, Darren Walsh and Andrew Davies

RENEWABLE HEAT INCENTIVE (RHI)

Ian Wood

25 April 2013

Background

Government scheme to promote renewable energy for heat generation

Launched 2011

Payments to businesses, organisations and communities that generate and use renewable energy to heat their buildings

AIM = to help UK reduce greenhouse gas emissions and meet climate change targets

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Renewable energy sources

The following are currently covered by the RHI

Biomass (boilers and energy from waste)

Ground and water source heat pumps

Geothermal

Solar thermal

Biogas combustion

Biomethane production

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Eligibility criteria

England, Scotland or Wales (not N. Ireland)

Technology installed and commissioned on or after 15 July 2009

New equipment

Minimum capacity requirements

Not purchased using public grant (option to pay back if installed before 28 November 2011)

MCS (Microgeneration Certification Scheme) or equivalent

Heat delivered via liquid or steam

Inside a building (due to be extended to external uses of heat)

NOT single home heating

Other technology-specific criteria

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Payments

Spread over 20 years = long-term incentive Pay every quarter Tariff dependent upon

technology used

heat production capacity

energy consumption of participant

Examples (from 1 April 2013) Solar thermal collections (<200 kWh capacity) = 9.2p per kWh

produced Small biomass (<200 kWh capacity)

= 8.6p per kWh produced (Tier 1) or

= 2.2p per kWh produced if energy consumption above threshold (Tier 2)

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How to apply

Online account at Ofgem website (www.ofgem.gov.uk)

Provide evidence of installation

Eligibility assessment by Ofgem

Annual reporting

NB – suspension of scheme to new entries possible if 97 per cent of annual budget met

currently £67.9 million

projected payments last financial year = £24 million

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Future updates

Tariff changes (including mechanism for reduction of payment if uptake triggers met)

Introduction of further technologies

bioliquids

landfill gas

air source heat pumps

Air quality (biomass)

end of 2013

Biomass sustainability

April 2014

Domestic scheme

summer 2013

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Further information

Ofgem website (www.ofgem.gov.uk/e-serve/RHI/Pages/RHI.aspx)

Enquiry helpline

0845 200 2122

rhi.energy@ofgem.gov.uk

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RENEWABLE ENERGY INCENTIVE SCHEMESROCs and FITs

Andrew S Davies

25 April 2013

Renewables Obligation (1)

Obligation on licensed electricity suppliers to source a specified proportion of the electricity they provide from eligible renewable sources

Statutory obligation – Renewables Obligations Order 2009 (as amended)

Steadily increasing proportion (initially set at 3% in 2002, currently up to approximately 20%)

Fixed target each year based on MWh of electricity supplied – e.g. 0.158 ROCs per MWh energy supplied for year ending 31 March 2013 rising to 0.206 ROCs per MWh energy supplied for current year ending 31 March 2014

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Renewables obligation certificates (ROCs)

Issued by Ofgem to eligible renewable energy generators

ROCs are tradeable commodity with fluctuating value – average March 2013 price = £43.76

ultimately sold to suppliers to help meet their obligation commitments

number issued depends upon amount of electricity generated technology used (banding system)

'degression' of banding levels over time BUT 'grandfathering' generator retains same banding as when entered scheme fixed level of support

provide extra financial incentive to energy generators if generating via eligible renewable source

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RO – meeting the obligation

obligation met by:

purchasing ROCs from generators on open market then presenting ROCs to Ofgem

generating own electricity from eligible renewable sources – receive own ROCs which present to Ofgem

paying 'buy-out' penalty to cover shortfall

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ROCs – energy sources

Eligible renewable sources include (but not limited to):

Anaerobic digestion

Biomass

Energy from waste with combined heat and power

Geothermal

Hydro

Solar photovoltaic

Tidal

Wind

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ROCs – the future

Last available entry date 31 March 2017

Participants in scheme for 20 year period (up to 31 March 2037)

From 31 March 2027:

ROC price fixed by government

Direct purchase from generators by government

Aim to reduce market volatility

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Feed-in Tariffs (FITs)

Introduced 1 April 2010

Small scale systems

no greater than 5 MW total installed capacity

organisations, businesses, communities and individuals

eligible technologies

solar photovoltaic

wind

hydro

anaerobic digestion

micro combined heat and power (up to 2 kV capacity only)

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FITs – what are they?

Payments

generation tariff – for electricity produced

export tariff – for surplus electricity exported to the grid

Payments

over 25 years (solar)

over 20 years (wind, hydro, anaerobic, digestion)

over 10 years (micro CHP)

'Degression' of tariffs from April 2012

BUT generators receive prevailing tariff from time to time 'commissioned'

Not a replacement for ROCs – choice of one or the other required

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FITs – current tariff rates

Range of current tariffs dependent upon energy type and capacity of generator (higher rates for lower output systems)

solar PV = 9.24 to 15.16p/kWh

hydro = 3.23 to 21.65p/kWh

wind = 4.15 to 21.65p/kWh

anaerobic digestion = 6.85 to 15.44p/kWh

Note that little to no degression seen with anaerobic digestion tariffs in latest prices (compared to notable degression with e.g. wind)

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FITs v ROCs – the choice

No choice if:

very small - only FITs if below 50KW capacity

very large - only ROCs if greater than 5MW capacity

Otherwise make a one-off choice (included following lobbying by energy sector)

Increased certainty of fixed price of FITs – may encourage investors looking for fixed income

ROCs subject to fluctuating market - greater rewards when high demand

ROCs tend to suit larger organisations re fluctuations in price

ROCs no longer registrable for after 31 March 2017

Note : importance of date of 'commissioning' for both schemes

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CRC ENERGY EFFICIENCY SCHEME

Darren Walsh

25 April 2013

Introduction

Mandatory scheme

Public and private sector organizations

AIM = "to improve energy efficiency and reduce CO2 emissions in large organisations"

Administered by environmental agencies (EA, SEPA. NIEA, Natural Resources Wales)

Currently in last year of phase 1 (due to end 31 March 2014) and first year for phase 2

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Qualification – who must participate?

Based on qualifying electricity consumption in qualifying year (April 2008 – March 2009 for phase 1)

Whole organisation

Criteria

at least 1 x half-hourly electricity meter

use 6,000+ MWh electricity in qualifying year

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Registration

Highest UK parent undertaking

Significant group undertakings ("SGU")

defined at time of qualification only

could meet qualification criteria in own right

can disaggregate register as participant itself at registration or within three months of purchase by another

participant

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Reporting

Footprint report during first phase year e.g. for phase 1 = April 2010- March 2011, for phase 2 = April 2013 - March 2014

Annual report

by last working day in July after compliance year e.g. by end of July 2014 for year ending 31 March 2014

- gas and electricity supplied and consumed (unless landlord-tenant rule (landlord responsible if receives/pays for supply) or franchise)

- CRC emissions calculated

- purchase and surrender allowances

Designated changes eg purchase of SGU from another participant

BUT not required if EXCLUSION or EXEMPTION

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Exclusions

No need to report for:

outside UK

'domestic accommodation' – premises intended to be used as a permanent home – note that hospitals, hotels etc. are included in CRC scheme and not considered to be 'domestic'

third party supplier heat

most forms of transport

already covered by EU Emissions Trading Scheme e.g. commercial aviation, energy-intensive industries such as iron manufacturing and oil refineries

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Exemptions

If already covered by climate change agreement (CCA) then may be subject to exemption

1)GENERAL (Article 33 of CRC Energy Efficiency Scheme Order 2010 (the "CRC Order") not group CCA emissions >25 per cent total emissions lose exemption in subsequent years if conditions don't apply

2)MEMBER (Article 32 of CRC Order) group a member of that group has CCA emissions >25 per cent of

that member's total emissions member only exempt

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Exemptions

3) GROUP (Article 34 of CRC Order) total electricity to all members group not subject to member

exemption <1,000 MWh lasts for rest of phase – not lost unless loss of a member

exemption causes conditions not to apply

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CRC Scheme – where are we now?

Last year phase 1 (provisions (including exemptions) still apply)

First year phase 2 qualification based on position as at

31 March 2013 key date

New legislation due by June 2013

Transition – uncertainty for participants already in scheme as to whether the Phase 1 or Phase 2 rules will apply to this reporting year

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CRC Scheme Phase 2 – main changes (1)

Looking to simplify the scheme

Based on guidance issued by Environment Agency

Qualifying electricity only if supplied via settled half hourly meters i.e. those able to measure electricity supply on a half hourly basis

Unconsumed supply – if pass on unconsumed supply to third party, will remain responsible for that supply under CRC scheme unless there is a meter measuring that supply to the third party

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CRC Scheme Phase 2 – main changes (2)

Alteration to applicability of landlord-tenant rule:

phase 2 position = rule no longer applies to construction leases i.e. 30+ years, specific lessee covenants re. utilities installation, consent for building, removal of works/buildings at lease termination, lessor covenant to compensate for improvements made

CCA

all electricity/gas used to operate a certified CCA facility will be excluded

CCA exemptions no longer apply

KEY = define the boundaries of your CCA Facilities

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Conclusions

Important for any high energy-consumption business

Transition between phases

CCA exemptions no longer apply for Phase 2

Watch this space re. new legislation and guidance due – see EA website for details

We can assist with quick audit of Phase 1 compliance and the implications for Phase 2

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Coffee Break

18 April 2013

North West WIN Annual UpdateCOMMERCIAL

Claire Edwards

Overview - lots of new cases!

Endeavours

Ampurius Nu Homes v Telford Homes

Liability

Kudos Catering v Manchester Central Convention Complex

Material Breach, Termination and Affirmation

The Trademark Licensing Co Ltd v Leofelis SA

Good Faith

Compass Group UK & Ireland Limited v Mid Essex Hospital Services NHS Trust

Yam Seng Pte Ltd v International Trade Corp Limited

The Late Payment of Commercial Debts Regulations 2013

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Endeavours - Ampurius Nu Homes v Telford Homes (2012)

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"Telford will use its reasonable endeavours to procure completion of the Works by the Target Date or as soon as reasonably possible thereafter"

•The credit crunch intervened and Telford was unable to obtain sufficient funding, suspended work and claimed this was not a breach provided it had used reasonable endeavours to obtain funding but had been unable to do so

Held

•Lack of funding was not a defence •Reasonable endeavours was designed to cover physical conduct of the work e.g. inclement weather and shortage of materials•The subjective difficulty that Telford experienced in raising funding was irrelevant

Endeavours

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• An "endeavours" obligation will not always impose the same level of obligation from one contract to another

• Reasonable – does not require the action if it disadvantages the party; only one reasonable course is required, not all reasonable courses

• Best – Onerous but not absolute; take all steps a prudent, determined and reasonable party is acting in its own interests and desiring to achieve the result; may impose an obligation to invest or run risk of failure but not require risk of bankruptcy

• All reasonable – compromise between best and reasonable (closer to best); use endeavours until all reasonable alternatives are exhausted

• Conclusion – be clear about the objective to be achieved and list steps to be taken?

Liability – Kudos Catering v Manchester Central Convention Complex (2013)

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18.6 Indemnity and Insurance"MCCC shall have no liability whatsoever for any loss of goodwill, business, revenue or profits, anticipated savings or wasted expenditure."

5 year catering contract ended 2 years early. Both claimed repudiatory breach. Kudos claimed £1.3m of lost profit

Liability – Kudos Catering v Manchester Central Convention Complex (2013)

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• Kudos would have earned profit. If upheld then the clause could deprive Kudos of any sanction for MCCC's breach of contract, reducing the contract to an unenforceable statement of intent

• MCCC had not put forward a commercial justification for such a wide exclusion of liability. CoA concluded there was none, and that a literal interpretation of clause 18.6 would be contrary to business common sense

• Held that the clause applied only to MCCC's liability for defective performance, not for a refusal to perform

CoA held – loss of profits was not excluded. Need to consider the wider context and parties commercial intentions.

Liability – Lessons

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Lessons?

•Give a remedy for material breaches

•Explain why a clause is drafted in a particular way

•Flag onerous provisions e.g. use correct headings

•Cover liability on repudiation expressly

Material Breach, Termination and Affirmation

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The Trademark Licencing Co Ltd v Leofelis SA (2012)

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• Use of the Lonsdale brand in Europe, exclusive licence granted but Lonsdale licenced another person in Germany

• While a party can use after acquired knowledge of a repudiatory breach to justify the termination, they cannot use the same repudiatory breach as a ground for claiming damages

• Where terminating party unaware of the repudiatory breach and termination would have happened in any event, terminating party not entitled to profit from the decision to terminate by some later emergence of fact

• Ensure repudiatory breach has occurred before taking steps to terminate a contract

• Loss can only be claimed if it flows from the breach that the party had knowledge of

Good faith – an implied duty?

Background

Traditional hostility towards an implied doctrine of good faith

Many civil law jurisdictions, and more recently Canada, Australia and the US recognise a general duty to act in good

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faith when forming and performing commercial contracts

Scots law recognises a broad principle of good faith and fair dealing

EU legislation has increased significance of the concept of good faith in English Law

Are we moving towards English courts applying an implied duty of good faith to English contract law in certain circumstances?

Mid Essex NHGS v Compass Group (trading as Medirest) [2013]

Hospital FM Outsourcing Agreement

Payment mechanism based on performance

Financial deductions:

£84,450 – out of date chocolate mousse

£96,060 – 3 day old bagels

£46,320 – out of date ketchup sachets

Express obligation to "co-operate with each other in good faith…and take all reasonable action as is necessary for…the Trust…or any Beneficiary [e.g. patients] to derive the full benefit of the Contract".

An implied term that the Trust would not exercise its discretion to award itself payment deductions or service failure points arbitrarily, capriciously or in an irrational manner?

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Compass – Take away points

The express obligation in this context to co-operate in good faith means "work together honestly endeavouring to achieve the two stated purposes"

While discretions involving absolute contractual rights are unlikely to be subject to an implied term of the type at issue, those involving an assessment or a choice as to the range of options in which the interests of both parties are relevant, are likely to be

Although you may be able to expressly exclude the implied term, Jackson LJ warned that doing so would be "extremely difficult"

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Yam Seng PTE Ltd v International Trade Corp Ltd (2013)

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• Exclusive distribution agreement to YS

• YS terminated for ITC's repudiatory breach• failure to supply product• beach of exclusive territorial grant• provision of false information

• YS pleaded an implied term in the agreement that parties would deal with each other in good faith

• Held: D was in breach of contract and 2 breaches were repudiatory in nature, justifying termination by YS

An implied term (obiter – Leggatt J)?

Judge acknowledges existence of such an implied term in certain contracts (employment/partnership)

No general duty of good faith under English law

No difficulty in implying such a duty based on the presumed intentions of the parties

context sensitive

"Relational contracts" [joint venture agreements, franchise agreements and long term distribution agreements] may require a high degree of communication, cooperation and predictable performance based on mutual trust and confidence and … expectations of loyalty which are…implicit.. and necessary to give business efficacy to the arrangements"

Question of fact to be decided on a case by case basis

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The Late Payment of Commercial Debts Regulations 2013 ("2013 Regulations")

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The 2013 Regulations came into force on 16 March 2013 and resulted in amendments to the Late Payment of Commercial Debts (Interest) Act 1998 ("Late Payment Act")

Changes to sections 4 and 5A of the Late Payment Act

Contracts concluded before 16 March 2013 will be excluded from the amended provisions

Debtors will be forced to pay interest and reimburse reasonable recovery costs of the creditor, if they do not pay for goods and services on time

The Late Payment of Commercial Debts Regulations 2013 ("2013 Regulations")

Business to Business contracts

Contract is silent on payment terms

Interest will accrue unless payment is made within 30 days of the later of:(i)receipt of invoice(ii)receipt of goods or services(iii)verifying acceptance of the goods or services

Contract contains express payment terms

If parties agree a payment date up to 60 days from the later of:(i)receipt of invoice(ii)receipt of goods or services(iii)verifying acceptance of the goods or servicesInterest will accrue from that date.This 60 day period can be extended so long as it is in writing and not "grossly unfair". Grossly unfair – all circumstances considered in particular: deviation from good commercial practice and contrary to good faith and fair dealing; the nature of the goods and services; another objective reason

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The Late Payment of Commercial Debts Regulations 2013 ("2013 Regulations")

Business to Public Authority contracts

Contract is silent on payment terms

Interest will accrue unless payment is made within 30 days of the later of:(i)receipt of invoice(ii)receipt of goods or services(iii)verifying acceptance of the goods or services

Contract contains express payment terms

If parties agree a payment date of more than 30 days from the later of:(i)receipt of invoice(ii)receipt of goods or services(iii)verifying acceptance of the goods or servicesInterest will still accrue after the 30 daysNo possibility to extend this period

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The Late Payment of Commercial Debts Regulations 2013 ("2013 Regulations")

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Verification process introduced: maximum period of up to 30 days for a purchaser to confirm that goods or services conform with the contract

Statutory interest rate: Unchanged - Bank of England reference rate plus at least 8%

Compensation for recovery costs: In addition to fixed sums that were previously available (£40, £70 or £100 depending on the size of the debt) to compensate for the cost of recovering a debt, as a result of the 2013 Regulations the supplier is also entitled to the reasonable costs of recovering the debt that are not met by the fixed sum

The rights for a supplier under the Late Payment Act are not compulsory – it does not have to claim interest

Cost ReformsLITIGATION

Jonathan Eatough

The Jackson Reforms

The "Big Bang" on 1 April 2013

 What does this mean for commercial litigation?

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Proportionality

Lies at the core of the reforms

The new rules on proportionality come into force on 1 April 2013 but will not apply to:

cases commenced before 1 April 2013

work carried out before 1 April 2013 in cases which are commenced after that date

New CPR 44.3(5) - disproportionate costs will no longer be recoverable even if they were necessarily incurred

New overriding objective - to deal with cases "justly and at proportionate cost"

Implications

greatest impact on low to medium value cases

parties will end up bearing more of their own costs

affect directions - approach to disclosure, number of witnesses, expert evidence

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Costs & Funding

Costs

introduction of court-controlled budgeting 

up-front mini-assessment of costs

budget is a cap on the costs that a successful party can recover from the losing party unless there is "good reason"

 Funding

CFA's - abolition of recovery of success fees and ATE premiums from the losing party

introduction of contingency fee/damage based agreements

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Disclosure

Introduction of a "menu" of disclosure options

Applies to multi-track cases only where first CMC is on or after 16 April 2013

Implications:

forward planning - need to be in a position to agree an approach to disclosure by the first CMC requiring a good grasp of documents

budget - new CPR 31.5(3)(iii) requires a disclosure report, including an estimate of the cost of disclosure, to filed and served 14 days before the first CMC

co-operation - parties and their lawyers need to work together at an early stage to attempt to manage disclosure

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Part 36

Introduction of a new "additional sanction" for defendants who fail to beat a claimant's Part 36 made on or after 1 April 2013

Percentage of the damages or costs awarded as follows:

10% for amounts up to £500,000

5% for amounts above £500,000 up to £1m

 The maximum "additional sanction" is capped at £75,000

 To incentivise claimants to make offers

 Consider reviewing/making a Part 36 offer to take advantage of new sanction

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Experts

Increased focus on expert issues to control and limit expert evidence

 From 1 April 2013 in order to receive permission for expert evidence you must:

provide an estimate of the costs (to be included in the budget)

identify the issues to be addressed

 Introduction of "Hot-tubbing"

 Implications:

identify issues to be determined by expert evidence early on

obtain an estimate of the cost of expert evidence early on

consider whether "Hot-tubbing" is appropriate

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North West WIN Annual UpdateREGULATORY

John Gollaglee

Health and SafetyFee for InterventionCorporate Manslaughter

Fee for Intervention (HSE)

Cost recovery for previously free advice provided by Health and Safety Inspectors

In force October 2012

Only applies to premises regulated by the Health and Safety Executive (not local authority or environmental health officer regulated premises)

Current hourly rate is £124 (no VAT charged)

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Purpose Designed to make those who breach health and

safety legislation pay for the costs of correcting their breach

116

Fee for Intervention (HSE) (2)

Application

Applies to almost all businesses and same hourly rate charged irrespective of size

Costs split where multi-dutyholder intervention occurs

Scope

Costs charged in respect of

carrying out visits

writing notification of contraventions (including improvement and prohibition notices and preparing reports)

taking statements

getting specialist input for complex issues and

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The material breach test

Fee for Intervention can only be charged where the HSE Inspector believes there has been a "material breach" of the legislation.

"A material breach is where you have broken a health and safety law and the inspector judges that this is serious enough for them to notify you in writing"

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An 'appeal'?

It is possible to 'appeal' against a Fee for Intervention invoice

Level One 'query' (within 21 days)

Invoice is reviewed by an HSE Senior Manager (independent of the line management which generated the invoice)

Level Two 'dispute' (within 21 days of the reply to the 'query')

Invoice is reviewed by a panel of HSE Staff and an independent representative.

All HSE costs incurred in handling the dispute must be met by the duty holder, unless the dispute is upheld.

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Fee for Intervention – Prosecutions

Is there a problem created by paying a Fee for Intervention invoice?

Does payment of Fee for Intervention invoice constitute acceptance of a "material breach"?

Does acceptance of a "material breach" preclude an effective trial in due course?

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Corporate Manslaughter – where are we now?

Past prosecutions

Cotswold Geotechnical (Holdings) - £385,000

MW Farms - £187,500

Lion Steel Limited - £480,000

Note: Sentencing Council Guidelines state that a fine of £500,000 is usually the starting (lowest) point for the court

Current prosecutions

PS & JE Ward

MNS Mining Limited

Mobile Sweepers (Reading) Limited

The future?

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Corporate Crime and investigationsDefence legal costsBribery Act 2010

Recovery of Legal Defence Costs abolished

The change

Rules on Defence Costs Orders amended

Schedule 7 to the Legal Aid, Sentencing and Punishment of Offenders Act 2012

In force October 2012

The impact

In any criminal proceedings involving a defendant company commenced after 01 October 2012, any defence costs order made cannot include legal costs incurred by a company (unless proceedings are in the Supreme Court).

The response

The importance of adequate legal defence costs insurance and nomination

Or, a 'fighting fund'

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Bribery Act 2010

In force since July 2011

Enforcement Activity

not a single corporate prosecution

two prosecutions of individuals

prosecutors have continued to consider and finalise bribery and corruption investigations involving facts that pre-date the Bribery Act

Under the Surface

Civil Settlements – Rolls Royce and others

result of internal investigations

significant impact on M&A activity

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North West WIN Annual UpdateREAL ESTATE

Steven Jennings

General Overview

There have been no significant changes in legislation in relation to Real Estate over the last 12 months

But the case law continues to reflect the economic climate

Conditional break clauses

Business rates on empty property

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Tenant's break options

Options – strict compliance needed

Conditions eg:

compliance with covenants – "material", "substantial" etc

payment of a premium

rent and service charges up to date

vacant possession

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Recent cases

Rent etc up to date

Avocet Industrial Estate –v- Merol

tenant failed to pay £130 in default interest – lease continued

PCE Investors –v- Cancer Research UK

break date 11 October

break required tenant to pay rent up to date

tenant paid rent apportioned from quarter day (29 September) to 11 October

not sufficient – full quarter's rent should have been paid

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Vacant possession

NYK Logistics –v- Ibrend Estates

80,000 sq. ft. warehouse and office block

giving vacant possession a condition of tenant's break

tenant's contractors on site doing dilapidations work after break date

tenant's security guard also still there

break failed

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Rates on empty business premises

Rates on empty business premises

Non Domestic Rating (Unoccupied Property) (England) Regulations 2008

Regulation 5 – occupation for at least six weeks

Makro Properties –v- Nuneaton Council

warehouse – 13,000 sq. metres

pallets of paperwork – 0.2% of the space

Makro in occupation

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North West WIN Annual UpdateCORPORATE

Nick Roome

Topics – recent developments

1.Audit Exemptions and Accounting Framework

2.Corporate Governance and Board Effectiveness

3.Entrepreneurs' Relief

4.Share Buybacks

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New regulations (1)

• The Companies and Limited Liability Partnerships (Accounts and Audit Exemptions and Change of Accounting Framework) Regulations 2012 – in force 1 October 2012

• Provide audit exemption for qualifying subsidiaries

• Provide exemption from preparing and filing accounts for qualifying dormant subsidiaries

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Conditions for subsidiary audit exemption (1)

• Current position

• Members unanimous agreement (in respect of financial year)

• Parent provides statutory guarantee of all liabilities as at the end of that year

• Company is included in parent's consolidated accounts for that year

• Filing requirements met

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Statutory guarantee (1)

• All outstanding liabilities

• Wider than debts: extends to contingent liabilities and liabilities in tort

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A good idea? (1)

•Directors duties – guarantee cuts across concept of limited liability

•Does guarantee require a provision in parent accounts?

•Impact on parent solvency (S.123 Insolvency Act 1986 balance sheet solvency test)

•Guarantee is irrevocable: parent liable even if subsidiary sold

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Other points to consider (1)

• Contractual restrictions on parent guarantee

• What are anticipated costs savings?

• Is audit required for other reasons?

• Potentially class 1 transaction for listed parent

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Dormant subsidiary accounts exemption (1)

• Current position

• If company fulfils like conditions to those for audit exemption, it may be exempt from requirement to prepare and file accounts

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Corporate governance and board effectiveness: ABI report (2)

ABI report published December 2012

Focuses on:

• board diversity

• succession planning

• board evaluation

as fundamental to ensuring an effective board

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Board diversity (2)

Report concludes that:

• more women are being appointed

• disclosure of gender diversity is improving

BUT ABI:

• considers lack of female executives in boardrooms remains a concern (for shareholders)

• is not in favour of legislative approach

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Recommendations: board diversity (2)

Report recommends:

• clear and specific disclosure

• greater disclosure of steps to achieve balance of skills and experience

• companies should disclose proportion of women in senior management and whole organisation

• development of initiatives to develop women in the organisation

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Recommendations: succession planning (2)

Report recommends:

• meaningful (rather than "boilerplate") disclosure

• active engagement in succession planning (for board and senior management)

• companies should report on initiatives to develop next generation of senior management (however youthful current management are)

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Key role of chairman (2)

Chairman's role:

• tailored to suit needs of each company

• create right board dynamic

• assist in setting agenda and ensuring (right) issues are debated

• manage board relations with executives

• to be an ambassador and fully engaged in company's business

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Entrepreneurs Relief (3)

What is Entrepreneurs Relief?

•qualifying capital gains taxed at 10% (v.s. typically 28%)

Criteria required to qualify for Entrepreneurs Relief:

•lifetime limit – first £10m of qualifying capital gains

•Shares

•trading company (or holding company of)

•officer/employee (company or group)

•12 month period

•5% votes, 5% ordinary capital

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Entrepreneurs Relief – structuring (3)

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• Transaction structures and ER planning

• voting

• nominal values

• extended period if within 12 months

• management companies

Entrepreneurs Relief – EMI options (3)

• EMI options

• from 6 April 2013, qualify for ER

• no need to meet 5% test

• option period counts to 12 months

• applies to shares realised on exercise

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Share buybacks (4)

Changes to share buyback provisions: 30 April 2013

Off-market buyback:

• ordinary resolution (not special)

• de minimis on reserves requirement - £15,000 or 5% share capital

• treasury shares – all companies

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Share buybacks (4)

Buybacks for employee share schemes

•private company – approve multiple buybacks by ordinary resolution

•payment by instalments

•financed out of capital with solvency statement and special resolution

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North West WIN Annual UpdateNetworking Lunch

25 April 2013