Archive for April, 2014
Marriott Harrison LLP continues to increase its international offering, focusing on key jurisdictions across all of its departments. Below are some recent examples of Marriott Harrison LLP’s international work:
The Corporate Department continues to advise on a large number of international transactions. This includes acting for:
- a Qatari investment fund on various educational holdings and investments in the UK;
- an international stadia group on its deal for the provision of ticketing and catering services to a well-known Spanish football club;
- a South American Aeronautical Commission in Europe in relation to a number of its contractual arrangements;
- a South American Embassy and Consulate General on various commercial matters;
- an Irish IT/technology company in connection with a further fundraising from existing equity providers and other shareholders and in connection with a new facility and security arrangements with a London branch of a US bank;
- a UK gaming company in its new revolving credit and term loan facility with a London branch of US bank with warrants to subscribe for stock in its US parent;
- a nominated adviser and broker in its role as nomad and broker to a resource company which undertook a placing and open offer to fund capital expenditure to restart mining activities in Tanzania;
- a Nigerian based goods manufacturer, on its contractual arrangements with various multinational drinks companies;
- a US fund management client on the providing of legal opinions to a Greek Bank in connection with its credit facility agreements;
- a Danish client on the re-structuring of its UK subsidiaries;
- a cornerstone American investor on its new venture in the sports and leisure industry;
- an American software services provider, as the company’s UK Counsel, in relation to the acquisition of a UK software solutions provider in the media industry;
- a corporate vehicle issuing bonds, the proceeds of which include investment in international commercial property;
- certain managers of an operating company in relation to a farm-out agreement relating to certain natural resource assets based off the coast of South Africa; and
- a major shareholder on the group demerger of an executive search business with offices in the UK, US and Hong Kong.
Media and Technology
The Media and Technology Department has advised:
- a music label on various royalty and moral rights issues in a number of European territories;
- a New York based import/export business on trading issues in the UK;
- a Toronto based heavy metal band, on its recording and publishing deal;
- long-standing film production client on its international distribution of films;
- a Swiss based financial services company in connection with the online promotion of its brand;
- an Israeli based online TV platform on its content licensing arrangements with UK based archives;
- a Dutch based music publisher on copyright issues in the UK; and
- a manufacturer of sporting equipment on various competition rules with regard to the exploitation of its products in Europe.
Tony Morris also acted as an arbitrator on:
- a dispute between Hollywood Studios and a European film distributor; and
- a dispute between two international technology providers on a claim for misuse of confidential information and trade secrets.
MH Dispute Resolution has been:
- advising an internet search optimisation specialist in a claim against a Guernsey-based supplier of products via the internet;
- advising a major Far East commodities trading company in connection with (i) a dispute relating to its exclusive distributor of Russian sourced metals; (ii) losses suffered by it on the purchase of exotic metals contaminated with asbestos;
- advising South American government entities in connection with issues relating to the service on them of High Court proceedings; and
- advising in connection with claims advanced against a client in connection with contracts for the building of stadia for the 2014 World Cup.
The MH Real Estate Department has continued to act for:
- a Malaysian Bank based in Kuala Lumpur, on its ongoing secured lending transactions in the UK.
The MH Employment Department has:
- advised both individual and corporate clients based in Italy, Russia and Kazakhstan on a wide range of employment matters; and
- continued to advise the Brazilian Embassy on a number of contentious and non-contentious matters.
Conferences and Events
In October 2013, Duncan Innes, Andrew Wigfall and Peter Curnock attended the International Bar Association conference in Boston, the world’s largest meeting of lawyers.
In October 2013, Hugh Gardner attended the UKIBC event “in conversation with” Patricia Hewitt and the panel session for the City of London Advisory Council for India.
In February 2014, Tony Morris attended MIDEM 2014 and presented a panel on the topic of user generated content.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (“TUPE”) – the notoriously complex rules which require employers who take over a business, or take over certain contracts from another employer, to take on the employees who worked in the business or the contract acquired – have recently been amended (again).
The changes, enacted by the snappily-titled Collective Redundancies and Transfer of Employment (Protection of Employment) (Amendment) Regulations 2013 came into force on 31 January 2014.
The main changes are:
Service provision changes
For TUPE to apply, the activities carried on after a “service provision change” (broadly, where there is a contracting-out, a second-generation outsourcing or a contracting-in) must be “fundamentally or essentially the same” as before in order to qualify as a service provision change, and consequently for TUPE to apply. This codifies recent case-law and re-opens the door to potentially being able to avoid the application of TUPE where the contracted services are provided in a different way by the new provider than they were by the old provider.
Employee liability information
The “transferee” – that is, the new employer, now has more time to consider the liabilities it will be taking on. “Employee Liability Information” (details of the transferring employees’ terms, contracts of employment, details of grievances and claims, etc.) now normally have to be handed over by the transferring employer (the “transferor”) at least 28 days before the transfer. Before January 31st the relevant period was 14 days.
Businesses employing 10 or fewer employees will from 31 July 2014 be able to inform and consult with affected employees directly, rather than holding elections for employee representatives, who are then consulted on behalf of the transferring employees, as is required for businesses with more than 10 employees. The obligation to inform and consult itself, however, remains.
Following a TUPE transfer, the new employer is now only bound by collective agreements that were in place at the time of the transfer. They cannot be bound by later changes which they were not involved in negotiating. This follows a recent European Court case and is helpful to the incoming employer, particularly when there is a TUPE transfer from the public sector (where terms such as pay are often collectively bargained) to the private sector – the new employer will not be held to changes such as pay rises which are collectively bargained after it takes over the employees. This seems fair if you consider that the new employer is unlikely to be entitled to take part in the collective bargaining process in such circumstances.
Also, terms agreed in a collective agreement can now be renegotiated by the employer. That is as long as the new terms are, overall, no less favourable to the employee and do not take effect until at least one year after the transfer.
Automatically unfair dismissal and variations to terms
Dismissals are now only automatically unfair where the transfer was the reason for the dismissal (and not as before, also where dismissal was for a reason connected with the transfer), unless an “economic, technical or organisational reason” applies.
It is fair to say that this change is obscure, even by TUPE standards and some of employment law’s finest minds have struggled to come up with an example of when it would make any difference.
A similar “change” affects employers’ ability to make alterations to employees’ contracts after a TUPE transfer. Previously, changes could not be made if the reason for them was the transfer itself or a reason connected with the transfer which was not an “economic technical or organisational reason entailing changes in the workforce” (known for short as an “ETO Reason”). As amended, a change is void if the reason for it is “the transfer” but changes can be allowed if: they are for an ETO Reason and the employer and employee agree or if the employee’s contract allows for such a variation. Again, it is perhaps unlikely that this will make much difference in practice.
Redundancies and relocation
A change of location, post-transfer, can now be an ETO Reason. This should make it easier, where a business sale involves a relocation, to make redundancies as a result of the relocation without acquiring liability for unfair dismissal.
Also, in certain circumstances, consultation carried out before the TUPE transfer could count towards any overall 30 or 45-day collective redundancy consultation period (i.e. where 20 or more redundancies are planned). The rules on this, however, are complicated.
BIS has published guidance on the amended Regulations (here:https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/271528/bis-14-502-employment-rights-on-the-transfer-of-an-undertaking.pdf) which will be of great interest mainly to TUPE anoraks and insomniacs.
The 2013 Autumn Statement introduced a number of measures designed to reduce the burden of business rates. From 1 April 2014, businesses will be able to spread the cost of their business rates over 12 monthly instalments, rather than in 10 instalments as at present. Further, the business rates increase will be capped at 2% for the year commencing April 2014 for all businesses, as opposed to a 3.2% increase to match inflation.
We detail below some of the key proposals from the past 6 months that may benefit your business.
Small Business Rate Relief
Small business rate relief has been extended for another year until 31 March 2015.
Eligible businesses occupying premises with a rateable value of not more than £6,000 are entitled to 100% relief from business rates. Further, there is a tapered relief for properties with a rateable value between £6,001 and £12,000.
In addition and with effect from 1 April 2014, where a ratepayer begins to occupy an additional property (that would otherwise cause them to lose the relief) the ratepayer will continue to benefit from small business rates relief for the first 12 months of occupation.
In an attempt by the government to support town centres, retail premises with a rateable value of up to £50,000, will receive a business rates reduction of £1,000 in 2014-2015 and 2015-2016. The amount does not vary with rateable value and there is no taper.
Premises which benefit from this reduction include pubs, cafes, restaurants and charity shops but not banks and betting shops. Furthermore, premises which are not wholly or mainly used for the qualifying purpose will not qualify for this relief.
Businesses moving into retail premises as new occupants between 1 April 2014 and 31 March 2016, where such premises were previously empty for one year or more, will receive a business rates discount of up to 50% for 18 months.
It is hoped that this will help to reduce the number of boarded up shops on High Streets across the country.
Unoccupied New Non-Domestic Builds
Local Authorities may grant a discretionary relief of up to 100% from rates on non-domestic new build properties. The relief will apply for a maximum of 18 months from the date of completion of the buildings and relates to buildings completed between 1 October 2013 and 30 September 2016. Completion is deemed to have occurred once the building is ready for occupation for the purpose for which it was constructed. In order to exclude refurbished buildings, the building must comprise wholly or mainly (guidance indicates that this means more than half) qualifying new structures. Structures mean foundations, permanent walls and/or permanent roofs.
The relief will run with the property rather than the owner and therefore developers will be able to sell or lease the property with the benefit of the remaining term of relief.
What You Should Do
If you are entitled to a relief make sure you claim for it, if you do not you might not receive your entitlement.
If you would like any further information or advice on this please contact Mark Lavers on 020 7209 2013 or firstname.lastname@example.org
For the latest Real Estate news, please follow us on Twitter @RealEstateMH
The obvious answer, of course, is that both have fallen foul of the tougher stance taken by the Courts following the Jackson procedural reforms. The relatively recent case of Andrew Mitchell MP -v- News Group Newspapers Ltd  EWCA Civ 1537, which has come to be known by the moniker ‘Mitchell’, has had an enormous impact on the way in which litigation is now pursued in the English Courts.
The appellant, Andrew Mitchell MP (“M”) (the claimant in separate defamation proceedings) appealed to the Court of Appeal against the decision of the High Court that a sanction be imposed for his failure to file his costs budget on time.
As part of the Jackson reforms, which came into effect in April 2013, parties in litigation are now required to file costs budgets with the court at an early stage in which that party’s estimated costs to trial are set out in a detailed spreadsheet with (hopefully) reasoned analysis. The Court may then approve or reject the costs budgets of the parties bearing in mind the need to conduct litigation efficiently and at proportionate cost. If a party is successful at trial in the litigation then, generally speaking, it may recover only the sums projected in its costs budget. The practical effect of this process is that increasingly the costs of litigation are front-loaded for a party and parties are discouraged from expending large sums on litigation.
In M’s case, his solicitors had lodged his costs budget after the deadline set out in Practice Direction 51D (which relates to defamation proceedings) to the Civil Procedure Rules, citing the pressures of work as their reason for non-compliance. The High Court observed that there was no specified sanction for non-compliance with Practice Direction 51D and so, by analogy, applied the sanction in Rule 3.14 which provides that where a party fails to file a costs budget when required to do so it is treated as having filed a budget comprising only the applicable Court fees. M appealed.
The Court of Appeal held that the High Court had been entitled to apply the sanction set out in Rule 3.14 and said that there was a shift away from focusing exclusively on doing justice in the individual case and that there was a need to enforce compliance with Court rules. The Court held that justice in an individual case was only achievable through the proper application of the Civil Procedure Rules and that the mere overlooking of a deadline, for whatever reason, was unlikely to justify relief.
The effect of this is that even if M is successful in his defamation claim he will not be able to recover any of the legal fees he has incurred, save the Court fees which will be comparatively small. This decision is therefore a clear sign that the Courts will no longer tolerate non-compliance with the Civil Procedure Rules or a casual disregard for time limits imposed by those rules or by the Court.
Since this decision there have been a number of further decisions which reinforce the message that the Court will no longer tolerate a party’s delay or failure.
These include the cases:
- Michael Burt v Linford Christie (No: 3BM90128)
- where the former international athlete failed to file his costs budget by the relevant time as his solicitors had miscalculated the deadline by one day with the consequence that he would be treated as having filed a budget comprising court fees only
- M A Lloyd and Sons Ltd (trading as KPM Marine) v PPC International Ltd (trading as Professional Powercraft)  EWHC 41 (QB)
- where the claimant failed to serve its witness statements in time and as a result was prevented from adducing any factual evidence at trial
- Thevarajah v Riordan and others  EWCA Civ 15
- , where the Court of Appeal overturned an order granting the defendants a second application for relief from sanctions arising from their failure to comply with an unless order which meant that the defendants were prevented from defending the claim.
‘Mitchell’ has therefore proven a clear demonstration that the Courts are taking a much tougher stance since the introduction of the Jackson reforms. It is also apparent that while this tougher direction is here for the long term, for the short term there will also be an increase in satellite litigation arguing about its exact ramifications.
The Uniform Rapid Suspension system (“URS”) is a rights protection mechanism which forms part of the ‘New gTLDs (generic Top Level Domains) Program’ of the Internet Corporation for Assigned Names and Numbers (“ICANN”) and is designed to provide rapid relief for trademark holders in the most clear-cut cases of infringement. It is intended to offer cheaper, faster responses than the existing Uniform Domain Name Dispute Resolution Policy.
Through the URS Procedure, ICANN aims to offer a lower-cost, faster path to relief for rights holders experiencing clear-cut cases of infringement caused by domain name registrations. A URS complaint must in the first instance be submitted directly to an approved URS provider.
The URS decision provided through the National Arbitration Forum (which is an approved URS provider) in favour of IBM (which was the Complainant) is the first ever decision under the URS. IBM filed a URS complaint on 5 February 2014 and the URS decision was completed on 12 February 2014.
The Respondent to the complaint had, on 31 January 2014, registered the two domain names ’ibm.guru’ and ‘ibm.ventures’ through GoDaddy and would have paid approximately $2,500 to register these domain names. The domain names as set up by the Respondent redirected to legitimate IBM websites.
The Complainant owns trademark registrations in 170 countries and has used the IBM mark for IT-related goods and serves for a hundred years. The URS decision notes that during the registration process the Respondent received a notification that the domain names matched a mark registered with the Trademark Clearinghouse and the Respondent was required to click on a notice which stated that he acknowledged the claim as part of the registration of the domains. The URS decision therefore found that, at the time of registration, the Respondent knew of the existence of the Complainant’s trademarks.
The URS decision also found that the activity for which the domains were established did not constitute a bona fide offering of goods or services or legitimate non-commercial fair use of the disputed domain name. In fact, the URS decision notes that by redirecting the disputed domain names to IBM websites, the Respondent had essentially acknowledged that the disputed domain names could only refer to the Complainant.
The URS decision found that the Complainant had established by clear and convincing evidence the necessary elements to obtain an order that the domain names should be suspended. These being that the registered domain names were identical or confusingly similar to a word mark (i) for which the Complainant holds a valid national or regional registration and that is in current use, (ii) that has been validated through court proceedings or (iii) that is specifically protected by a statute or treaty in effect at the time the URS complaint was filed.
As such, it was determined that the domain names ‘ibm.guru’ and ‘ibm.ventures’ should be suspended for the duration of the registration.
This decision therefore shows that the URS system can offer a speedy resolution in certain instances of trademark infringement in domain registrations and also illustrates the possible benefit of submitting trademark details to the Trademark Clearinghouse which was the trigger for the registration notification which the URS decision held gave the Respondent knowledge of the Complainant’s trademark.
Marriott Harrison LLP acted for AIM-listed integrated VOIP provider Coms plc on its acquisition of Redstone Converged Solutions Limited (“Redstone”) from Redstone plc for a consideration of £9.5 million. Completion was conditional upon approval of the transaction by Redstone plc shareholders, which was obtained at a Redstone plc general meeting held at the end of 2013.
Dave Breith, CEO for Coms explains: “”We are delighted to complete the acquisition of Redstone’s ICT business and it demonstrates our intent to become a major player in the sector. Redstone is our seventh acquisition in 2013, and the business is now well positioned to provide the total end-to-end solution. Everyone benefits from this purchase; customers, our partners in the channel, our stakeholders and our staff. We will continue to build on the Redstone brand and this provides an immediate expansion and fully complements our growth strategy of Coms.”
By acquiring Redstone, Coms has instantly strengthened its portfolio with the provision of IT support, business infrastructure, data centre and smart building solutions to business across the UK and Europe.
Simon Charles (Corporate partner) led the Marriott Harrison LLP team with assistance from Ben Devons and David Strong (Corporate associates), Mark Lavers (Real Estate partner) and Bob Cordran (Employment partner).
Marriott Harrison LLP corporate partner Simon Charles said “The Marriott Harrison and Coms acquisition teams integrated really well on this. The transaction is a significant one for Coms and we look forward to continuing to work with Coms on the implementation of its acquisition strategy”.
The British Private Equity & Venture Capital Association (“BVCA”) has recently published for consultation amended drafts of its model subscription and shareholders’ agreement and articles of association for use in early stage investments, for the first time since 2010. Marriott Harrison’s corporate partner, Andrew Wigfall, was invited to join the working group responsible for the revisions in recognition of his wide experience in VC transactions.
The intention of the revised drafts is to bring these template documents up to speed with current market practice. Final versions are expected to be released in April.
The most noteworthy changes proposed include:
Subscription and shareholders’ agreement
- Expanding founder warranties concerning IT systems and software, compliance with anti-corruption laws, pension schemes, data protection and state funding, while scaling back the environment warranties
- Greater focus on IP protection relating to a founder’s works (clauses 15.4 and 15.5)
- The inclusion of vesting provisions for employee share options, something recognised as becoming a more common requirement (clause 8.2)
- Permitting founder shareholders to satisfy warranty claims brought against them by a transfer of shares (clause 7.10)
- New provisions detailing the consequences of an investor’s failure to comply with its subscription obligations on a staged investment (clause 5.5)
- Standard investor warranties and undertakings relating to possible implications under the United States Securities Act of 1933 and other US securities laws (generally required by US funds) (clause 38)
Articles of Association
- Authority for the company to purchase its own shares under new powers in section 692(1)(b) of the Companies Act 2006 (article 3.4). New provisions regulating holdings of treasury shares and their treatment under the transfer, allotment, anti-dilution and exit articles (articles 3.7. 10.4, 13.9, 15.13, 17.3(d) and 22)
- New rights for another fund in an investor’s group to take up the investor’s pre-emption rights (articles 13.8 and 16.9)
- New provisions adjusting the applicable conversion ratio for convertible shares in certain scenarios, such as a consolidation or sub-division of shares, or a capitalisation of profits (articles 9.8 – 9.10)
- Leaver provisions for the automatic conversion of founder or employee shares into deferred shares (articles 19.1 and 19.2)
We welcome the changes as a positive step in updating the documents to reflect current legal and market practice. These drafts will hopefully help to reduce time and costs for early stage companies in negotiating investments, while providing a realistic view of the rights and restrictions private equity investors will require and be willing to provide to owner managers.
In other news, The Guidelines Monitoring Group (“GMG”) has published an update to its guidelines on good practice reporting by private equity portfolio companies under the Walker Guidelines for Disclosure and Transparency in Private Equity (the “Walker Guidelines”), with updated examples provided. The purpose of the GMG is to assist private equity owned portfolio companies to improve transparency and disclosure in their financial and narrative reporting. The intention is to ensure that portfolio companies within its scope report to, or exceed, the standard required of FTSE 300 companies.
The GMG is currently reviewing whether the transaction size criteria should be lowered to bring more portfolio companies into its scope, which will be communicated this year. With the GMG not providing any indication as to how far it could widen its reach, PE managers of small to mid-cap firms will be looking over their shoulders to see whether their groups could fall under increased reporting standards.
With these developments and the market hopefully continuing to rise, not to mention the AIFM Directive coming into effect later this year, it promises to be another interesting year for the private equity industry.
The recent High Court decision in Abbar v SEDCO and others  EWHC 1414 (Ch) is an important reminder to investors of the potential difficulties involved in seeking the return of their investment where expectations of the investment vehicle are not attained.
The decision highlights that an award for damages for breach of contract will not be made where the contract can only be performed in a manner that offends the well established capital maintenance principle, whereby a limited company cannot return capital to its shareholders except in certain circumstances allowed under statute (namely, a reduction of capital, the redemption or purchase of shares, or a distribution in a winding up). This principle exists primarily for the benefit of the company’s creditors.
In May 2007 a Dr Abbar, subscribed £500,000 for shares in The Pinnacle Holdings Limited (“PHL”). A total of £120 million was subscribed by the promoters and by other investors. The capital was being raised to purchase a site in London, demolish existing buildings on the site and then sell the site for redevelopment within 12 to 18 months. The site was bought and prepared for sale but it was not sold. Instead, a decision was taken to retain it with a view to redevelopment. Attempts were made to raise new capital to buy out those investors who did not wish to retain their investment but these were only partially successful and a significant number of investors, including Dr Abbar, were unable to dispose of their shares.
Dr Abbar claimed that a contract existed by which he subscribed for his shares and that it was a term of the contract that the site would be sold within a period of not more than 18 months and that an exit from the investment would be available to the shareholders. The failure to sell the site within the agreed time was, therefore, a breach of a contractual term. As such, he argued that he should be able to recover damages from, among others, PHL. Dr Abbar also claimed in negligence and misrepresentation.
The High Court dismissed Dr Abbar’s claims, finding that there was no contract to the effect alleged and there was no misrepresentation.
The trial judge held, obiter, that an award of damages to a shareholder for breach by the company of a contract to return or to make a payment out of capital was not permissible where the contract could only be performed in a manner that offended the capital maintenance principle.
This case shows the importance the courts place on upholding the principle of capital maintenance for the protection of creditors. The share capital of a company is available to them should the company become insolvent and statute therefore limits the ways in which capital can be returned to shareholders in order to protect creditors. The High Court would only have awarded damages if PHL had made a sufficient profit in order to meet Dr Abbar’s claim.
Indeed, the obiter comments by the High Court are a stark reminder that damages may not be available to compensate a shareholder for loss in the event a company fails to comply with its obligations under such provisions.
A recent Court of Appeal decision has provided clarity on the modern law of penalties and guidance on the structuring of certain provisions in commercial agreements.
In Talal El Makdessi v Cavendish Square Holdings BV  EWCA Civ 1539, a seller (the “Seller”) sold a part of his shareholding in a company (the “Target”) to a purchaser (the “Buyer”). Under the terms of the share purchase agreement (the “SPA”) (i) the Seller retained 20% of the shares in the Target (the “Retained Shares”), (ii) the Buyer was to be (partly) paid in instalments (the “Deferred Consideration”), (iii) the Seller retained a right to sell the Retained Shares to the Buyer at a certain price (the “Put Option”), and (iv) there was a restrictive covenant prohibiting the Seller from competing with the Target following the sale of the part of Seller’s holding in Target (the “Restrictive Covenant”).
The SPA also provided that if the Seller breached the Restrictive Covenant, he would (i) forego the Deferred Consideration, (ii) forego the Put Option, and (iii) be required to sell the Retained Shares to the Buyer at net asset value (i.e. without accounting for Goodwill) (the “Clauses In Issue”).
The Seller breached the Restrictive Covenant and the Buyer sought a declaration that the Seller was not entitled to the Deferred Consideration and sought specific performance in respect of the sale of the Retained Shares at net asset value. The effect of the Clauses In Issue would be to deprive the Seller of $115 Million in consideration.
The Court of Appeal held the Clauses In Issue to be unenforceable on the ground that they were penalty clauses. A trifling breach had the same effect as a breach of very substantial gravity and did not fulfil a justifiable commercial or economic function.
The case provides clarity that a clause is not penal merely because it is not a genuine pre-estimate of loss and also that a clause must be “extravagant and unreasonable with a predominant purpose of deterring a breach of contract” (i.e. there is no “commercial justification” for it) to be deemed penal.
The case provides the following guidance relating to the structure of commercial agreements:
- A buyer may avoid the application of the Law of Penalties by structuring deferred consideration as conditional upon a specified future event i.e. the deferred consideration is not lost by a breach, but gained upon the happening of a specified future event.
- If a buyer does structure the loss of deferred consideration as a consequence of a breach, it must ensure that the payment is not “extravagant and unreasonable” in that there is no great disparity between the amount the seller is set to pay as a consequence of its breach and the loss to the buyer attributable to that breach and that there is a “commercial justification” for the existence of the payment which means its “predominant purpose is not to deter breach”.