Doing Business In.. 2020

Last Updated July 15, 2020

UK

Law and Practice

Authors



McDermott Will & Emery UK LLP partners with leaders around the world to fuel missions, knock down barriers and shape markets. With 20-plus locations on three continents, the team works seamlessly across practices, industries and geographies to deliver highly effective – and often unexpected – solutions that propel success. More than 1,100 lawyers strong, the firm brings its personal passion and legal prowess to bear in every matter for its clients and the people they serve. As part of an extensive international network, the firm's London office provides complete multidisciplinary legal services to a diverse range of national and international businesses, from multinational and national corporations to financial institutions and investment banks, as well as high net worth individuals. The team advises clients across several areas of law, with a client roster comprising leading Borsa Italiana, DAX 30, Euronext Paris, FTSE 100, FTSE 250 and Fortune 1000 organisations, governmental and regulatory authorities, international banks and trade organisations.

England and Wales operate a common law legal system. This means that the law develops by way of both statutory legislation and case law, which are regarded as equally weighted. For example, in England and Wales the laws of tort and contract are not grounded, for the most part, in statutory legislation and instead are established and developed in case law. 

It is important to note that there is no unified legal system across the UK. Distinct from England and Wales, Scotland and Northern Ireland operate separate legal systems. For the purposes of this section of the guide, the authors will focus on the legal system of England and Wales. 

Civil Proceedings

Civil proceedings with a claim value of less than GBP100,000 (or GBP50,000 in the case of personal injury claims) are generally dealt with at local County Courts. Claims with a value in excess of these thresholds can be brought before the High Court.

The High Court has three divisions.

  • The Chancery Division deals with claims relating to corporate, partnership, property, IP, insolvency/bankruptcy and probate matters. The division includes the Insolvency and Companies Court, the Patents Court, the Intellectual Property and Enterprise Court, and the Chancery Chambers.
  • The Queen’s Bench Division deals with claims relating to commercial contract matters (save for those reserved for the Chancery Division), personal injury claims and tortious claims. The division includes the Commercial Court, the Mercantile Court, the Technology and Construction Court, the Administrative Court and the Admiralty Court.
  • The Family Division deals with claims relating to children (including exclusive jurisdiction in wardship) and divorce. The Family Division also hears appeals transferred from the Family Court. 

Criminal Proceedings

All criminal proceedings are first heard by the Magistrates' Court. While the Magistrates' Court will progress proceedings in the large majority of criminal cases (and magistrates are empowered to deliver, among other punishments, prison sentences), more serious indictable offences are likely to be referred to the Crown Court.

Cases referred to the Crown Court are heard by a judge and the trial is conducted, and ultimately decided, by jury. If the jury find an individual guilty, sentencing will be carried out by the judge.

Appeals

The Court of Appeal hears appeals made from all divisions of the High Court and the Crown Court. Permission to appeal to the Court of Appeal is required. It is unusual for lower courts to grant such permission (as this would indicate that the judge accepts the decision may not be right), hence usually permission is refused and the applicant has to apply directly to the Court of Appeal itself. If permission is granted, the appeal will typically be heard by a three-judge court, with (normally) no fresh evidence being submitted (in the case of civil cases). 

The Supreme Court is the final court of appeal in the UK for civil claims and criminal proceedings. Established in 2009, the Supreme Court is legally independent from the High Court and the Court of Appeal. As such it hears appeals made from the courts of Scotland and Northern Ireland, as well as the courts of England and Wales. Permission to appeal to the Supreme Court is first dealt with by the lower courts and is typically only granted if the claim involves an arguable point of law of general public importance.

Judiciary

The UK constitution (largely unwritten and based on constitutional conventions) provides for a judiciary that is independent from government and politically impartial. For example, judges are selected for appointment by the Judicial Appointments Commission, an independent body.

UK policy and legislation does not generally distinguish between foreign and domestic investment. The biggest regulatory hurdles on foreign investment in the UK are therefore likely to be the same as on UK domestic investments – for example, both foreign and domestic investors must comply with the competition law provisions set out in the merger control regime of the Enterprise Act 2002 (as amended by the Enterprise and Regulatory Reform Act 2013 and supplemented by statutory instrument). 

Certain sectors of the UK economy – such as water, electricity, gas and energy, aviation, nuclear and communications – are governed by specific regulations or by independent regulators. Approval of the regulator is often required for changes of control of regulated entities (whether through domestic or foreign investment) and the nationality of the acquirer may have an impact on this process.

The Industry Act 1975 also grants the Secretary of State the power to prohibit a change of control of an important manufacturing undertaking if the change of control would be contrary to the interests of the United Kingdom (or any substantial part of it). However, this power has never been used.

The UK government does have the power to intervene in respect of certain transactions that are subject to merger control review by the UK Competition and Markets Authority. This power is limited to transactions that raise “public interest considerations.” Such considerations are currently limited to matters of national security, the plurality of media (in respect of media mergers), the accuracy and freedom of expression (in respect of newspaper mergers) and matters relating to the maintenance of the stability of the UK financial system. Where the UK government intervenes, the nationality of the acquiring entity will be a relevant factor that is considered as part of the approval process. 

The compliance procedure for transactions that are subject to merger control review by the UK Competition and Markets Authority is set out in 6 Competition Law.

There are no specific commitments required from foreign investors beyond those that would be requested from domestic investors. 

The compliance procedure for transactions that are subject to merger control review by the UK Competition and Markets Authority is set out in 6 Competition Law.

Corporate vehicles in England and Wales can take various forms, including general partnerships, limited partnerships, limited liability partnerships, companies limited by shares (both private and public), companies limited by guarantee and unlimited companies. The form of vehicle the incorporating parties elect to use depends on the business being undertaken, the relationship between the incorporating parties and tax structuring. This guide will focus on the most common forms of corporate vehicle, being companies limited by shares and limited liability partnerships. 

Companies Limited by Shares (a "Company")

A Company must be formed with a minimum of one shareholder and there is no upper limit on the number of shareholders a Company can have. A Company must have an issued share capital comprising of at least one share and each share must have a fixed nominal value. All Companies must have articles of association (Articles) that govern the relationship between the shareholders and the Company, and set out the corporate governance structure of the Company as well as the responsibilities of the directors. Companies are subject to filing requirements and disclosure obligations that are principally set out in the Companies Act 2006 (CA2006). 

A Company can either be private (in which case the Company’s shares are not allowed to be offered to the general public) (Limited Companies) or a public Company (in which case the Company must have an allotted share capital with a nominal value of at least GBP50,000 and the shares can be offered to the general public, and, ordinarily, the shares are admitted to trading on a stock market) (Public Companies). Most Companies are incorporated as Limited Companies that re-register as Public Companies if, and when, they choose to list their shares on a stock market. Limited Companies are the most popular form of vehicle due to their flexibility and are normally seen as the preferred vehicle for small businesses, English subsidiaries of international groups and joint ventures. 

Limited Liability Partnerships (LLPs)

An LLP combines the benefits of a Company with the flexibility of a general partnership. An LLP is regulated, primarily, by the Limited Liability Partnerships Act 2000 and the CA2006. The participants in an LLP are referred to as its members. There is no limit on the maximum number of members; however, an LLP should have two appointed members at all times. An LLP must have at least two designated members who have particular responsibilities and functions within the LLP. Unlike a Company, there is no need for an LLP to adopt constitutional documents; however, it is advisable for the members to adopt an LLP agreement to regulate the management of the LLP and the members’ rights and obligations. 

LLPs are often used where a general partnership might otherwise be used, except the benefits of limited liability are required by the members; eg, solicitors and accountants. Unlike a general partnership, an LLP has its own separate legal personality and its members are not personally liable for debts and obligations of the LLP. However, like a general partnership, an LLP is (broadly) tax transparent and profits are therefore taxed on the individual members in accordance with their entitlement to share profits. 

The incorporation process of a Company and an LLP both require documents to be filed with, and a fee paid to, Companies House. Companies House will then proceed to issue a certificate of incorporation and the Company or LLP will appear in the companies register, which is publicly maintained by Companies House. The incorporation process is swift and can, if same-day incorporation is selected, be completed within 24 hours.

Company:

  • documents to be filed – (i) a form setting out (among other things) whether the Company will be a Limited Company or a Public Limited Company, the Company’s name and registered office, the name and addresses of its directors, and a statement of capital setting out the total number of shares to be taken on formation and their aggregate nominal value; and (ii) a copy of the Company’s Articles; and
  • fee to be paid – an incorporation fee of GBP40 for paper filing (or GBP100 for same-day paper registration), or GBP12 for electronic filing (or GBP30 for same-day web incorporation).

LLP:

  • document to be filed – a form setting out (among other things) the LLP’s name, registered office, the names and addresses of members and designated members; and
  • fee to be paid – an incorporation fee of GBP40 for a paper filing (or GBP100 for same-day paper registration), or GBP10 for electronic filing (or GBP30 for same-day web incorporation).

Once the Company or LLP has been incorporated, the vehicle should maintain a set of books and registers that include (but are not limited to) a register of members, a register of persons with significant control, a register of charges and, for a Company, a register of directors. 

Both a Company and an LLP are subject to ongoing filing obligations. The below documents are examples of the type of documents that must be filed with Companies House either on an annual or event-driven basis. The Companies House website provides a useful resource of forms that can be used to file information relating to the vehicle.

Company:

  • a confirmation statement, which must be filed at least once in each 12-month period (beginning with the day after the confirmation date of the last such statement) stating that the Company has delivered all the information required to be delivered to Companies House for the period covered by the confirmation statement;
  • subject to certain limited exemptions, Companies must file a copy of their annual accounts;
  • notification of changes to a Company's registered office, the identity and details of a Company's directors, a Company's issued share capital, its Articles or its register of people with significant control; and
  • under the CA06, Companies must file a copy of certain shareholder resolutions with Companies House within 15 days of the resolution being passed.

LLP:

  • a confirmation statement, which must be filed in every 12-month period beginning with the day after the LLP’s last return date;
  • annual accounts; and
  • notification of changes to the LLP's membership or to its designated members (eg, new members, new designated members, resignation of members or designated members, or changes in status of a member to a designated member or vice versa), registered office address and details of any mortgage or charge created by the LLP.

If the Company is a Public Company listed on a stock market, it will also be subject to the disclosure requirements under rules appropriate to the listing, such as the Transparency Rules, the Market Abuse Regulation and the Takeover Code.

Company

There is a separation between the management and ownership of a Company. The directors are responsible for the day-to-day management of a Company, while the shareholders are the owners. The roles are not exclusive and shareholders can also be appointed as directors. 

The Articles commonly provide for the remit of powers of the directors and the rights of shareholders. The CA06 sets out further rules and procedure; for example, requiring that particular matters be approved by the shareholders, such as amendments to the Company’s Articles, certain transactions involving directors and amendments to the Company’s share capital. 

LLP

No LLP legislation in England and Wales prescribes a particular management structure that must be adhered to by an LLP. Hence, one of the main advantages of an LLP structure over a Company is that it has more organisational flexibility at an operational level. The default position is that there is no separation between management and ownership as the legislation prescribes for each member to have a right to take part in the management of the LLP. The negotiation of the LLP agreement between members and the allocation of designated member/member roles would enable participants in an LLP to determine the rights, roles and obligations available to each participant. 

Company

Shareholders’ liability

A Company has a separate legal personality from its shareholders. A shareholder’s liability is generally limited to the amount that remains unpaid on that shareholder’s shares. However, the principle of shareholder limited liability can be eroded if, for example, a shareholder accepts direct contractual liability to a third party by providing a guarantee. Furthermore, in certain circumstances the courts may be prepared to disregard the Company’s separate legal personality and fix liability on the shareholders, known as "piercing the corporate veil". The courts typically only pierce the veil when a shareholder has deliberately used the fact that a Company has a separate legal personality as a device or façade to conceal or avoid liability following the shareholder’s wrongdoing.

Directors’ liability

The CA2006 provides that directors may be held criminally liable for a number of offences under the CA2006 (for example, failing to make certain filings) and codifies the duties of directors to limit the abuse of their power. These duties include the duty to act within powers, the duty to exercise independent judgement and the duty to avoid conflicts of interest. The CA2006 also provides that any provision that seeks to exempt or limit a director from any liability for negligence, default, breach of duty or breach of trust in relation to a Company is void. A Company may indemnify a director in respect of certain costs and expenses relating to proceedings brought by third parties but other indemnities from the Company are customarily void. This being the case, most Companies maintain directors’ and officers’ liability insurance cover. 

LLP

As mentioned above, an LLP also has a separate legal personal from its members. The members act as its agents and are generally only liable up to the amount they have contributed to the LLP. However, the members may agree to contribute to the LLP's assets on its winding-up. Anyone lending money to the LLP (such as a bank) may still require personal guarantees from the members, as they frequently do with shareholders in a Limited Company. The principle of piercing the corporate veil also applies equally to LLPs. 

Employment laws and obligations in the UK derive from a variety of legal sources, which apply in broadly the following order:

  • EU law/jurisprudence (until 31 December 2020 or such longer period as may be agreed pursuant to the EU-UK Withdrawal Agreement governing Brexit arrangements) and other international treaties;
  • UK domestic legislation;
  • common law (case law) – significant elements of UK employment legislation are founded on common law concepts and so case law remains very important; the UK courts and tribunals are subject to a doctrine of precedent under which they are bound by any higher judicial authority; and
  • individual employment contracts – it is possible for individual terms to exceed minimum statutory requirements (and they often do); however, it is generally not possible to contract out of statutory employment rights, subject to limited exceptions. 

Collective bargaining agreements (CBAs) entered into between trade unions/employee representative bodies and employers are less prevalent in the UK than other jurisdictions. However, collective bargaining can occur with a trade union that is recognised by the employer and, subject to satisfaction of certain requirements, a CBA may contain terms that become incorporated into individual employment contracts.

Under UK law, an individual may be an employee, a worker, or self-employed. The distinction is important, as it determines that individual's statutory employment rights (if any) and how he or she is taxed. Employees receive the full range of rights; workers only certain core protections.

Importantly, assessing an individual's status is not just determined by how the parties label the relationship. It is a question of law and fact. 

An employee is an individual who has entered into, or works under, a contract of employment. A contract of employment may be in writing, but can also be found to exist verbally or by virtue of how the relationship between the employer and employee operates in practice. The contract of employment will also include implied terms; most notably, a term that neither party will do anything calculated or likely to destroy the mutual trust and confidence necessary in an employment relationship.

In determining whether an individual is an employee, an employment tribunal will assess his or her integration into the organisation, considering, in particular:

  • control – the degree of day-to-day control exerted over the individual by the business;
  • mutuality of obligation – whether (and the extent to which) the business is obliged to provide work for the individual and he or she is obliged to do it; and
  • personal service – whether (and the extent to which) the individual is required to provide services personally or can send a substitute.

Although the employment contract itself need not be in writing, under UK domestic legislation, employees who have been employed for one month or more are entitled to a written statement of certain key particulars of employment within two months of starting. 

Employment contracts are typically "permanent" (indefinite) or fixed-term. Both can be entered into either on a full or a part-time basis. Fixed-term contracts can be of any length and used in succession. However, employees who have been continuously employed for four years or more on a series of successive fixed-term contracts are automatically deemed to be on a permanent contract, unless the continued use of a fixed-term contract can be objectively justified.

Full-time weekly working hours usually vary between 35 and 40 hours depending on employer preference. UK legislation contains a number of restrictions on working time, including as regards rest breaks, daily and weekly rest periods, and a 48-hour limit on average weekly working hours. A number of exemptions apply (including the ability for individuals to "opt out" of the maximum 48-hour week). 

There are further specific rules for employees who carry out work at night, those who are under 18 and for certain industries.

Furthermore, all UK employees have a minimum entitlement to 5.6 weeks’ paid annual leave/holiday each year (inclusive of any public and bank holidays in the UK). This amounts to 28 days in the case of full-time (five-day week) employees, which is pro rated for part-time employees. Employment contracts can provide for annual leave in excess of this statutory minimum. Legislation and case law govern precisely how holiday pay in respect of leave taken should be calculated.

For completeness, note that working time rights also apply to the intermediate category of "workers" in the UK. 

Notice

In most circumstances, employees are entitled to receive statutory minimum notice of termination. An employee who has been continuously employed for more than one month but less than two years is entitled to receive one week's notice. Thereafter, he or she is entitled to receive an additional week's notice for each complete year of service, up to a maximum of 12 weeks. The minimum notice to be given by an employee with at least one month's continuous employment is one week.

However, it is common for employment contracts to provide for notice periods that exceed the statutory minimum, in which case the longer contractual period will apply. Employment contracts also often give employers the discretionary right to make a payment in lieu of an employee's notice period.

An employee may be dismissed summarily (ie, without any notice period) if he or she commits a repudiatory breach of the employment contract that would justify this (eg, gross misconduct).

Procedure

An employer should comply with any contractual obligations regarding termination of employment to avoid giving rise to a breach of contract/wrongful dismissal claim. 

In addition, an employee who has been continuously employed for at least two years has a statutory right not to be unfairly dismissed. 

An unfair dismissal is one where the principal reason for the employee’s dismissal is not one of the following:

  • capability;
  • conduct;
  • redundancy;
  • breach of statutory restriction; or
  • some other substantial reason of a kind such as to justify dismissal.

A fair and reasonable process is also required in dismissing any employee for one of the valid reasons set out above. What constitutes a fair and reasonable process will depend on the circumstances and the reason for the dismissal.

There is no minimum qualifying service required to bring a claim where dismissal is based on certain grounds (eg, trade union membership, whistle-blowing, asserting a statutory right, protected characteristics). It is good practice, therefore, for UK employers to follow fair process in most cases. 

Employees who are dismissed for redundancy may be entitled to a statutory redundancy payment. Employees who successfully bring a claim for unfair dismissal may be entitled to compensation, reinstatement or re-engagement. 

Collective Redundancy Consultation

If an employer proposes to dismiss 20 or more employees on the grounds of redundancy in a period of 90 days or less, it must consult collectively with employee representatives (whether a recognised trade union or elected employee representatives). 

Consultation must begin no later than 30 days before the first dismissal takes effect (and no later than 90 days before if 100 or more dismissals are proposed).

If an employer fails to comply with its obligations to collectively consult in a redundancy situation, the affected employees (or their representatives) can bring a claim for compensation of up to 90 days' (uncapped) pay each.

Employers must inform and consult trade unions or other elected employee representatives before business transfers (ie, in circumstances where legislation provides for the automatic transfer of employees) or in respect of collective redundancy proposals (see above).

Employees have the right to join a trade union. Where an employer with at least 21 employees does not recognise a union voluntarily, the union can follow a statutory procedure to obtain recognition. Depending on the terms of the recognition agreement, once recognised, the union may have the right to collectively bargain on issues such as pay, hours and holidays, and to be informed and consulted on a number of other matters. 

Individuals are subject to income tax on their employment income, wherever earned, when received. Individuals who have moved to the UK from abroad may, however, claim "overseas workday relief" for their first three years of UK tax residence, whereby earnings in respect of duties performed outside the UK will only be taxed if and when they are remitted to the UK.

Individuals who are not resident in the UK are taxed in the UK to the extent that they perform duties of their employment (other than duties of a merely incidental nature) in the UK. Any tax charge on non-resident individuals may be limited where a tax treaty applies. 

Income tax is charged at progressive rates of up to 45%. Employers are obliged to deduct income tax from payments of employment income and account for it to HMRC through the Pay as You Earn (PAYE) system.

Employers must also account for National Insurance (ie, social security) contributions through the same mechanism. Employee contributions are charged at a rate of 12% on earnings of up to approximately GBP50,000 per year and 2% above that threshold; employer contributions are charged at a flat rate of 13.8%. 

Corporation Tax

UK-resident companies are subject to corporation tax on their worldwide income (although an exemption can be claimed for profits of foreign permanent establishments). Non-resident companies are subject to corporation tax on profits attributable to any trade carried on in the UK through a permanent establishment in the UK, and to profits from developing or dealing in UK land. 

Capital gains arising to non-residents on disposals of UK land and interests in land-rich entities were brought within the charge to UK corporation tax from April 2019. 

Corporation tax is charged at a rate of 19%. Most dividends are exempt, as are capital gains on the disposal of shareholdings in trading companies in which the disposing company has held a 10% shareholding for at least a year. 

Withholding Tax

Persons making payments of UK-source interest, royalties and other "annual payments" to non-residents are generally required to withhold income tax at a rate of 20% from the payment. There is no withholding tax on payments of dividends, other than dividends paid by companies within the REIT regime. 

Value Added Tax (VAT)

VAT is charged on goods and services supplied within the UK in line with EU rules. The standard rate of VAT is 20%. Certain goods and services are charged at a reduced rate of 5% and a zero rate applies to certain other supplies (including most foods, books and children’s clothes), as well as to exports. Supplies of medical and financial services are generally exempt. 

Stamp Duty

Stamp duty or stamp duty reserve tax is charged at 0.5% on the consideration paid for shares in a UK company. Transfer taxes also apply to transfers of interests in UK land or buildings. 

Business Rates

Business rates are payable in respect of the occupation of non-domestic property. They are calculated by applying a multiplier to the property’s "rateable value" (which is its open-market rental value and is subject to revaluation every five years). Certain reliefs are available, particularly for smaller businesses, and wide-ranging exemptions were introduced for the year commencing 1 April 2020 as a response to the COVID-19 pandemic. 

Companies can elect into the "patent box" regime, which offers an effective rate of 10% on income and gains derived from patents and similar IP rights.

Additional relief is available for qualifying expenditure on R&D. SMEs can claim either a deduction equal to 230% of qualifying R&D expenditure, or, if they are in a loss-making position, a credit equal to 14.5% of qualifying expenditure. Larger companies, and SMEs that are sub-contracted R&D, can claim a credit equal to 12% of qualifying expenditure (13% with effect from 1 April 2020). 

Group companies remain separately taxable persons for UK corporation tax purposes. Members of the same group of companies can, however, surrender losses to other group companies that are subject to UK corporation tax through the "group relief" system. Companies will be members of the same group if one is a 75% subsidiary of the other or both are 75% subsidiaries of a third company (which need not be UK or EU-resident). The 75% test looks both to ownership of ordinary share capital and to the shareholder’s interest in the profits available for distribution and assets distributable on a winding-up. 

Thin capitalisation is policed primarily through application of transfer pricing rules, which will deny a deduction for interest expense in excess of an arm’s-length amount. 

In addition, interest deductions are now limited to an amount equal to the lower of 30% of earnings before interest, taxes, depreciation and amortisation (EBITDA) of the group companies within the corporation tax charge and the net interest expense of the worldwide group, subject to a de minimis of £2 million. Where the worldwide group’s interest expense exceeds 30% of EBITDA, the company can claim interest deductions up to the lower of an equivalent percentage of its EBITDA or the amount of the group’s worldwide interest expense (subject to certain adjustments). 

Deductions are also denied for interest payable under a loan relationship that has an unallowable purpose (ie, where its main purpose, or one of its main purposes, is the obtaining of a tax advantage). Interest that exceeds as a reasonable commercial return is treated as a dividend and is not deductible; the same is true for payments on instruments with certain equity-like characteristics. 

The UK’s transfer pricing rules follow the arm’s-length standard and incorporate the current Organisation for Economic Co-operation and Development (OECD) guidelines by reference. Small enterprises are largely exempted from the rules, as are medium-sized enterprises unless they are issued a transfer pricing notice by HMRC. 

There are no specific documentation requirements imposed in relation to transfer pricing (eg, no formal requirement to prepare or file with HMRC a master file or local file). Companies remain subject to the general obligation to keep and preserve such records as are necessary to enable them to deliver a correct and complete tax return, which includes records relating to transfer pricing.

The UK has controlled foreign company rules. These impose a UK tax charge on profits of foreign subsidiaries that are attributable to risks or assets managed in the UK, and on non-trading finance profits deriving from capital contributed from the UK, as well as certain other classes of profits viewed as being artificially diverted from the UK. Certain exemptions apply in respect of arrangements posing a low risk of diversion. 

The UK has a general anti-abuse rule that can re-characterise "abusive" arrangements whose main purpose, or one of whose main purposes, is the obtaining of a tax advantage. Arrangements are "abusive" if they cannot reasonably be regarded as a reasonable course of action in relation to the relevant legislative provisions. The legislation also includes numerous targeted anti-avoidance provisions. 

A transaction can fall within the scope of the UK merger control rules (primarily contained within the Enterprise Act 2002, as amended by the Enterprise and Regulatory Reform Act 2013) if it does not fall within the exclusive jurisdiction of the European Commission under the EU Merger Regulation (or if a transaction is referred to the UK Competition and Markets Authority (CMA) from the Commission for merger control review). 

Following the transition period under the “Withdrawal Agreement”, which runs until 31 December 2020, the UK will become a new "parallel" jurisdiction; ie, transactions that meet both the UK and the EU merger control thresholds will be notifiable to both the CMA and the Commission.

A transaction will be subject to the UK merger rules if it constitutes a "relevant merger situation" and meets a jurisdictional threshold.

A "relevant merger situation" will arise if the transaction in question results in two or more businesses "ceasing to be distinct". Businesses will "cease to be distinct" if they are brought under common ownership or control. There are three relevant levels of control.

  • Acquisition of de jure control – ie, a legal controlling interest in the target is acquired. This will be the case where, for example, there is an acquisition of all, or the majority of, the shares in the target. 
  • Acquisition of de facto control – ie, the ability to control the policy (the competitive conduct) of the target. De facto control is assessed on a case-by-case basis.
  • Acquisition of an ability to exercise "material influence" over the commercial policy of the target, for instance through board representation or relevant industry knowledge. A shareholding above 25% in a UK company gives rise to a presumption of material influence that is, however, rebuttable on the facts (eg, where an acquisition of a shareholding of more than 25% would not result in the acquirer being in a position to block special resolutions).

An acquisition that causes the purchaser to move from one level of control (eg, the ability to exercise material influence over the target’s commercial policy) to a higher level of control (eg, de jure control) will be caught by the UK merger control regime and therefore may require notification to the CMA. The creation of a new joint venture, or a change of control over an existing joint venture, may give rise to a relevant merger situation, provided that the jurisdictional thresholds are met. 

The jurisdictional thresholds are triggered if (i) the target had UK turnover of GBP70 million or more in the prior financial year or (ii) the transaction will result in the creation of, or an increase in, a 25% share of supply (or purchases) of a given good or service in the UK (or a substantial part of it).

Lower turnover thresholds apply where the target is active in one of three specified sectors:

  • the development or production of items for military or military and civilian use;
  • quantum technology; or
  • computer processing units.

Even where the jurisdictional thresholds are met, notification to, and prior clearance by, the CMA is not mandatory. It is therefore for the parties to decide whether to notify and each case turns on its particular facts. The Guidance on the CMA’s jurisdiction and procedure provides in this regard that: “In cases that constitute a relevant merger situation solely on the basis of the turnover threshold, but where competition concerns clearly do not arise because there is no (or no material) overlap between the merger parties’ activities (and where there is no non-horizontal concern), the parties may well decide that notification to the CMA would be disproportionate and unnecessary.”

To the extent that the CMA becomes aware of a transaction that has not been notified voluntarily (through, for example, its (active) Mergers Intelligence Committee or a third-party complaint), the CMA can elect to review the transaction to determine whether the transaction creates the realistic prospect of a substantial lessening of competition in the UK. If it makes an election to this effect, the CMA may take up and review the non-notified transaction, and impose interim orders preventing or unwinding integration pending its review. 

Finally, the CMA’s jurisdiction to review a completed transaction has a temporal element. The CMA is subject to a four-month statutory deadline for completed transactions in which to make a Phase II reference, from the date on which facts about the transaction became public, or the time the CMA was informed of the transaction, whichever is earliest. A transaction is referred for a Phase II investigation where the CMA believes it could give rise to a substantial lessening of competition. 

The CMA has the power to carry out an initial Phase I investigation, and has a duty to refer the merger to a detailed Phase II investigation where it believes a transaction could give rise to a substantial lessening of competition in the UK.

Absent an extension (eg, to negotiate commitments or to "stop the clock"), the CMA is required to complete its Phase I investigation within 40 working days from (i) the date on which the CMA confirms that the Merger Notice – ie, the filing form – is complete (which it will typically do within five working days of the date on which the Merger Notice is submitted); or (ii) the date on which the CMA informs the parties that it has sufficient information to commence its Phase I investigation, where the CMA decides to review a transaction on its own initiative.               

Where a Phase II investigation is opened, the CMA must publish its report within 24 weeks from the date of reference for a Phase II investigation, subject to possible extensions. If the CMA requires remedies as a condition for clearance, it will have an additional period of 12 weeks (which can be extended by six weeks) to accept any remedies. 

The CMA encourages parties in all cases to engage in "pre-notification" discussions with the CMA at least two weeks before submitting the Merger Notice. Pre-notification discussions enable the case team to familiarise itself with the markets by asking for additional information before the regulatory timetable starts to run. The pre-notification period will typically last a few weeks, but for very complex cases, it can last several months. 

Chapter I of the UK Competition Act of 1998, which closely mirrors Article 101 of the Treaty on the Functioning of the European Union (TFEU), prohibits agreements or concerted practices between two or more undertakings that have the object or effect of preventing, restricting or distorting competition and that may affect trade within the UK.

Chapter I applies only to the extent that an agreement, decision or practice is, or is intended to be, implemented in the UK and concerns, in particular, agreements that:

  • fix prices;
  • limit or control production, markets, technical development or investment;
  • share markets or sources of supply;
  • unfairly discriminate; and
  • make contracts conditional on unconnected additional obligations.

Cartel activity in the UK may be sanctioned both civilly and criminally. The CMA has the power to:

  • impose fines of up to 10% of an undertaking's worldwide turnover in the last financial year;
  • declare the agreement void;
  • impose behavioural undertakings; and
  • request a court order disqualifying directors for up to 15 years.

Individuals who are found guilty of a cartel offence can be imprisoned for up to five years and/or face an unlimited fine.

Under Chapter II of the UK Competition Act of 1998, any conduct on the part of one or more undertakings that amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the UK. Chapter II of the UK Competition Act closely mirrors its EU equivalent, Article 102 TFEU. 

Article 102 TFEU requires dominance in a substantial part of the EU, but there is no requirement under Chapter II of the UK Competition Act of 1998 that a dominant position must be held in a substantial part of the UK, meaning that dominance could be considered to exist in a small area of the UK.

A company may generally be considered dominant if it is able to behave to an appreciable extent independently of its competitors, its customers and, ultimately, consumers. As a rule of thumb, dominance will not generally be considered to exist below a market share of 40%. Above 50%, a rebuttable presumption of dominance exists. 

Conduct may, in particular, constitute an abuse if it consists in:

  • directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
  • limiting production, markets or technical development to the prejudice of consumers;
  • applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; or
  • making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations that, by their nature or according to commercial usage, have no connection with the subject of the contracts.

Generally, there are two main categories of abuse: (i) where the dominant undertaking uses its position to exploit its customers or suppliers and (ii) exclusionary abuses designed to prevent the development of competition. 

Cases in which conduct has been alleged to exploit consumers have been fewer in number and most have related to excessive pricing. 

The CMA may impose a financial penalty of up to 10% of the worldwide turnover of an undertaking for an infringement of Article 102 TFEU and/or the Chapter II prohibition.

In addition, the director of a company that commits a breach of the Chapter II prohibition can be disqualified for up to 15 years if the court considers that his conduct as a director makes him unfit to be concerned in the management of a company. 

A patent is a monopoly right allowing the patent owner to protect his or her invention. A patent does not confer a "right or freedom to use" the patented invention. Rather, it provides its owner a "right to exclude" others from doing so.

Legislation

The laws governing the grant of patents in the UK are set out in the Patents Act 1977 (the Patents Act) and the Patents Rules 2007 (the Rules).

The Patents Act states that a patent may be granted only for an invention that:

  • is new, meaning that the essence of the invention is not already known to the public (whether in the United Kingdom or elsewhere);
  • involves an inventive step, meaning the invention is not obvious to a person skilled in the relevant field of technology; and
  • is capable of industrial application, meaning the invention can be made or used in any kind of industry.

Applications for the grant of patents are made to the UK Intellectual Property Office (IPO). The inventor need not be one of the applicants.

The procedure for applying for a patent is set out in the Rules, which also outline the procedures for (i) oppositions, (ii) challenging the validity of a granted patent and (iii) obtaining opinions on validity and infringement.

Duration

A patent can be granted for a maximum of 20 years.

Infringement

Infringement occurs when an unauthorised person makes, imports or sells products, or uses a process, or sells products made to a process, falling within the claims of the patent. However, there are allowable exceptions for non-commercial and experimental use.

Patent infringement does not give rise to criminal liability. However, certain false claims, such as falsely stating that a product is the subject of a patent or patent application, is a criminal offence. 

Registered Trade Marks

A trade mark is a sign that distinguishes the products or services of a business from those of another. 

Legislation

The laws governing registered trade marks in the UK are set out in the Trade Marks Act 1994 (the Trade Marks Act), incorporating the Trade Marks Regulations 2018 (the Regulations).

The Trade Marks Act states that a trade mark may consist of “words (including personal names), designs, letters, numerals, colours, sounds or the shape of goods or their packaging.” 

To be registered, a trade mark must be capable of (i) "being represented" clearly and precisely, and (ii) distinguishing one entity's goods or services from another.

Applications for the registration of trade marks are made to the IPO.

Duration

Trade marks are registered on an indefinite basis, subject to renewal every ten years.

Any person may apply to revoke a trade mark if it is not used for the last five years, or it has become a generic term. 

The proprietor of a registered trade mark has the exclusive right to use the trade mark in the UK with respect to the goods or services for which the mark is registered, and may deal with the trade mark as any other property right, including assigning or licensing to other parties.

Infringement

Infringement occurs when a person (not being the proprietor of a registered trade mark) uses a mark identical to (or similar to) the registered trade mark for similar (or identical) goods or services, and where such similarity causes confusion.

Unregistered Trade Marks – Passing Off

The UK also protects unregistered trade marks (including trading names, brands or get-up) through the common law tort of passing off. To succeed in a claim of passing off, the claimant must prove (i) it has goodwill in the UK in the mark, (ii) misrepresentation by the other party (ie, the other party’s goods are "passed off" as those of the claimant) and (iii) the claimant has suffered damage. 

The UK operates two industrial design regimes: (i) registered designs and (ii) unregistered design rights. 

Registered Designs – Legislation 

The laws governing registered designs in the UK are set out in the Registered Designs Act 1949 (the Registered Design Act). 

The Registered Design Act states that a "design" comprises of “the appearance of the whole or a part of a product resulting from the features of, in particular, the lines, contours, colours, shape, texture or materials of the product or its ornamentation.” Essentially, the design (which can be two or three-dimensional) of a product relates to its appearance, rather than to the technical principles of its construction or operation. 

To be registered, a design (i) must be novel (differing from prior designs by more than immaterial detail) and (ii) must possess "individual character". A design cannot be registered if its features are dictated by the product’s technical function or connectability to another product. 

Applications for the registration of designs are made to the Designs Registry of the UK Intellectual Property Office.

Duration

A registered design can be granted for a maximum of 25 years.

Infringement

A registered design gives its proprietor the exclusive right in the UK to make, use, sell, import and export any product embodying or bearing the design. This means that a proprietor is protected even if a third party is using a design created independently and without intentionally copying the registered design. A person intentionally copying and making products exactly or very similar to that design, knowing it is registered, is liable for up to ten years’ imprisonment and/or to a fine.

Unregistered Designs - Legislation

Unregistered designs are protected in the UK under the Copyright Designs and Patents Act 1988 (CDPA).

An unregistered design right comes into being automatically, and without application or registration, when a new design is created and graphically recorded. Unregistered design rights do not vest in two-dimensional designs or decoration, but only to the shape of a three-dimensional design. 

Design rights will not subsist in a design that is not original; that is, one being commonplace in the field when designed. 

Duration

An unregistered design right is protected for ten years from the first sale of products made to the design, or 15 years from design creation. 

Infringement

The proprietor of a design right has the exclusive right to reproduce the design for commercial purposes by making (articles/products) to that design. A design right is only infringed if a third party intentionally copies the design. Independently created articles or designs are not infringements if they do not involve the intentional copying of the protected design. 

Legislation

The CDPA allows an "author" to protect certain qualifying "works" from unauthorised copying.

"Works" can comprise:

  • literary (including software), dramatic, musical or artistic works;
  • sound recordings, films or broadcasts; and
  • typographical arrangements of published editions.

Copyright automatically comes into being without application or registration when a work is created, regardless of any artistic or other merit attaching to the work. 

Duration 

The duration of the protection afforded by copyright depends on the classification of the work. For example, copyright protection for literary, dramatic, musical and artistic works expires 70 years from the end of the calendar year in which the author dies. 

Infringement

Where a work is the product of an author’s independent creation, the author (or subsequent copyright holder) has the exclusive right to, among other things, copy, sell, rent or lend the work, and perform, show or play the work in public. Copyright is therefore infringed if any third party carries out any of these activities.

Remedies for copyright infringement include criminal liability of up to ten years’ imprisonment and/or unlimited fines.

An author, even if not the proprietor of copyright in a work, has certain "moral rights", namely to be identified as the author of the work, object to derogatory treatment of the work and not have a work falsely attributed to him.

Infringement Proceedings

All IP infringement proceedings may be brought in the High Court or in the Intellectual Property Enterprise Court (IPEC). The IPEC generally offers more streamlined proceedings than the High Court and has caps on the level of costs (GBP50,000) and damages (GBP500,000) that can be recovered.

The remedies available in either court include:

  • preliminary and final injunctions;
  • damages;
  • accounts of profits;
  • delivery up and disclosure;
  • search and seizure (Anton Piller) orders; and,
  • asset-freezing (Mareva) orders.

Databases

Databases can be protected by both copyright as a literary work and by way of database right (introduced by The Copyright and Rights in Databases Regulations 1997) when the database producer can demonstrate “substantial investment in obtaining, verifying or presenting the contents of the database.” The database right offers protection against copying, extraction and re-utilisation of the database and/or its contents.

Geographical Indications

A specific protection is granted when a sign is used on products that have a specific geographical origin and qualities, notoriety or characteristics related to that place of origin (eg, the Scotch Whisky Regulations 2009).

Trade Secrets

Trade secrets are potentially protectable without any procedural formalities and for an unlimited period, where the information is not generally known or readily accessible to the public, and contractual measures and reasonable steps are taken to keep it secret.

The Trade Secrets (Enforcement, etc) Regulations 2018 formalised a regime for the protection of know-how by, in particular, providing for the possibility of obtaining orders, provisional or not, to prohibit, destroy or recall products resulting from an infringement of a trade secret, as well as awarding compensation for the damage caused by the unlawful use or disclosure of the misappropriated trade secret.

The main regulations applicable to data protection in the UK are:

  • Regulation (EU) 2016/679 (GDPR); 
  • the Data Protection Act 2018 (DPA 2018); and
  • the Privacy and Electronic Communications (EC Directive) Regulations 2003 (PECR).

The GDPR applies directly in the UK. The DPA 2018 sits alongside the GDPR and provides supplementary rules to tailor how the GDPR applies in the UK (for example, by providing national exemptions). The DPA 2018 also sets out separate and specific rules for law enforcement authorities and intelligence services, and for certain processing activities that fall outside the scope of the GDPR.

PECR complements the general data protection regime and sets out more-specific privacy rights on electronic communication. In particular, PECR governs marketing and the use of cookies. The e-privacy regime is currently in the process of being reformed and it is expected that the new regime will have far-reaching consequences for electronic marketing and cookie use.

The position regarding data protection in the UK will change  after 31 December 2020 (being the end of the transition period). In the event of a "no-deal" Brexit, the DPA 2018 will remain in place and the GDPR will form part of UK law, with some technical adjustments to allow it to work in a UK-only context (Exit Regulations)).

As both the DPA 2018 and GDPR apply in the UK, the territorial application of data protection regulation should be considered as a two-stage process.

GDPR: Territorial Scope

Companies are directly subject to the GDPR if they satisfy any of the following three tests.

Establishment

The GDPR applies where an organisation has an EU "establishment" and the processing of personal data is “in the context of the activities” carried out by such establishment (whether the processing takes place in the EU or not). Whether an organisation has an EU "establishment" is a broad concept and means that an organisation has an “effective and real exercise of activity [in the EU] through stable arrangements.” The presence of a branch office or even a single representative in the UK (or any other EU member state) could be sufficient to bring an organisation’s activities within the scope of the GDPR, whereas the mere accessibility of an organisation’s website in the EU would not. 

Offering goods or services

This test is satisfied where a non-EU organisation’s processing of personal data relates to the offering of goods or services to data subjects (consumers) located in the EU. Regulatory guidance confirms that (i) this test is not limited by the citizenship or residence of individuals and (ii) there must be an element of "targeting" individuals in the EU. Certain factors should be taken into account when considering this test; for example, whether a company has launched a marketing campaign directed at an EU audience, if a specific EU language or currency is used, or any mention of dedicated addresses or phone numbers to be reached from the UK (or another EU country).

Monitoring

This test is satisfied where a non-EU organisation’s processing of personal data relates to the monitoring of data subjects’ behaviour located in the EU. The "monitoring" of behaviour relates to any recording or tracking of the behaviour of data subjects, particularly via the internet, to predict or analyse an individual’s attitudes, behaviours or personal preferences. For example, this can include behavioural advertisement, geo-localisation activities, or personalised diet/health analytic services online. Again, the data subject must be located in the EU.

DPA 2018: Territorial Scope

In addition to the test under the GDPR, organisations doing business in the UK must consider the application of the DPA 2018. Currently, the DPA 2018 applies to (i) the processing of personal data that takes place in the context of the activities of an establishment in the UK, which means all companies established in the UK will also be subject to the DPA 2018; and (ii) any processing activities to which Part 2, Chapter 2 DPA 2018 applies (ie, GDPR processing), where the processing relates to a data subject in the UK by a non-EU established company that offers goods or services to, or monitors the behaviour of, those individuals in the UK.

The Information Commissioner’s Office (ICO) is the supervisory authority for data protection in the UK. The ICO offers advice and guidance, conducts audits and advisory visits, considers complaints, monitors compliance and takes enforcement action, where appropriate.

The ICO has the power to:

  • issue information notices – an information notice requires an organisation to provide the ICO with any information reasonably required for the purpose of investigating compliance failures; 
  • issue assessment notices – an assessment notice gives the ICO the power, in each case, for the purpose of investigating compliance failures, to enter premises, be directed to documents and equipment, be given copies of documents and explanations, observe processing and interview staff;
  • conduct audits – the ICO can carry out investigations in the form of data protection audits; 
  • issue enforcement notices – the ICO has the power to impose an absolute ban on processing any personal data, or a ban on the processing of certain descriptions of personal data or processing in a particular manner or at a particular time, which can be powerful, as it can, in practice, put a halt to an organisation’s business altogether;
  • issue monetary penalty notices – the ICO has the power to issue administrative fines of up to EUR20 million or up to 4% of global turnover, whichever is higher; 
  • require a registration fee – the ICO has the power to require a registration fee of up to GBP2,900; and
  • prosecute criminal offences – the ICO can also prosecute against criminal offences under the DPA 2018.

Recent trends indicate that the ICO is increasingly issuing monetary penalty notices. At the time of writing, the ICO’s highest fine has been issued to British Airways for a sum of GBP183.39 million in connection with a cyber-incident. The ICO has indicated that more fines are in the pipeline.

Furthermore, the ICO is currently a member of the European Data Protection Board (EDPB), which includes representatives from data protection authorities in each EU member state. The ICO also co-operates with other supervisory authorities across the EU. From exit day, the ICO will no longer be able to take part in the existing co-operation mechanism between EU supervisory authorities and will lose its seat on the EDPB.

McDermott Will & Emery LLP

110 Bishopsgate
EC2N 4AY London
UK

+44 20 7577 6900

+44 20 7577 6950

ewest@mwe.com www.mwe.com
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Law and Practice

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McDermott Will & Emery UK LLP partners with leaders around the world to fuel missions, knock down barriers and shape markets. With 20-plus locations on three continents, the team works seamlessly across practices, industries and geographies to deliver highly effective – and often unexpected – solutions that propel success. More than 1,100 lawyers strong, the firm brings its personal passion and legal prowess to bear in every matter for its clients and the people they serve. As part of an extensive international network, the firm's London office provides complete multidisciplinary legal services to a diverse range of national and international businesses, from multinational and national corporations to financial institutions and investment banks, as well as high net worth individuals. The team advises clients across several areas of law, with a client roster comprising leading Borsa Italiana, DAX 30, Euronext Paris, FTSE 100, FTSE 250 and Fortune 1000 organisations, governmental and regulatory authorities, international banks and trade organisations.

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