General Counsel Update - A Multijurisdictional Guide

GENERAL COUNSEL UPDATE A MULTIJURISDICTIONAL GUIDE 3 JULY 2018 NOTES PROVIDED IN THE NEW LAYER DESIGNATED SLUG AREA NOTES - DO NOT PRINT FAMILIARISE WITH THEM THEN HIDE FROM VIEW Contents page UK developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04 1. Brexit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04 1.1 Draft Withdrawal Agreement published incorporating the proposed transitional arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04 1.2 Unlikely to obtain legal certainty regarding whether there will be status quo transitional arrangements until shortly prior to Brexit . . . . . . . . . . . . . . 04 1.3 European Council adopts negotiating guidelines on the framework for the future UK‑EU relationship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04 1.4 EU (Withdrawal) Act has finally become law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04 1.5 The clock is ticking with 9 months to go . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 04 2. Competition, regulation and trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05 2.1 Focus on gun jumping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05 3. Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05 3.1 Construction (Retention Deposit Schemes) Bill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 05 4. Corporate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06 4.1 New corporate governance reporting requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 06 4.2 Corporate governance – governance code for large private companies . . . . . . . . . 06 5. Dispute resolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06 5.1 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06 5.1.1 English Commercial Court releases s68 and s69 statistics: the high hurdle remains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 06 5.2 Banking litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07 5.2.1 High Court finds duty of care owed by arranger of capital markets transaction to investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07 5.2.2 PAG v RBS: Court of Appeal dismisses IRHP mis-selling and LIBOR manipulation claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 07 5.2.3 High Court applies SAAMCO principle to find no assumption of responsibility for losses flowing from market forces . . . . . . . . . . . . . . . . . . . . . . . . . . . 08 5.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 08 5.3.1 Supreme Court breathes new life into “no oral modification” clauses.......... 08 5.3.2 Ground-breaking report hails new era for commercial dispute resolution . . . . . . 08 5.3.3 Our new book: Class Actions in England and Wales . . . . . . . . . . . . . . . . . . . . . . . . . . 09 5.3.4 Managing risk: A disputes perspective (2018) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09 6. Employment and pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09 6.1 Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09 6.1.1 Employment documents need to be updated to reflect tax changes and limit non-disclosure clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 09 02 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS page Contents 6.1.2 Shared parental leave: time to review pay policy? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6.2 Pensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 6.2.1 Government White Paper: Defined benefit pension schemes . . . . . . . . . . . . . . . . . . 10 6.2.2 Upper Tribunal rules in favour of tPR in Box Clever judgment . . . . . . . . . . . . . . . . . 10 6.2.3 Carillion leads to criticism for tPR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7. Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7.1 New Brexit environmental watchdog . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 7.2 Implementation of the revised National Emissions Ceilings Directive . . . . . . . . . . 11 8. Finance: banking........................................................... 11 8.1 The potential discontinuation of LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 8.2 Guarantees, intragroup loans and distributions – Law Society and CLLS papers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 8.3 EU Commission proposed regulation on the law applicable to the third party effects of assignments of claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 9. Finance: debt capital markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9.1 Prospectus Regulation to replace current Prospectus Directive . . . . . . . . . . . . . . . 13 9.2 The potential discontinuation of LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 9.3 MiFID II/PRIIPs and application to DCM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10. Financial services regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10.1 Update on Cryptoassets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10.2 FOS extended to SME's . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 11. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 11.1 Insurance Distribution Directive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 11.2 Extension of senior managers and certification regime to insurers and insurance intermediaries ................................................ 15 12. Intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 12.1 Website blocking orders should be paid for by brand owners not Internet Service Providers (ISPs): decision of the UK Supreme Court . . . . . . . . . . 15 13. Real estate and planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 13.1 Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 13.1.1 Relief from forfeiture of a licence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 13.2 Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 13.2.1 National Planning Policy Framework and London Plan review . . . . . . . . . . . . . . . . . . 16 HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 03 14. Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 14.1 Corporate tax and the digital economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 14.2 Off-payroll working in the private sector ..................................... 17 14.3 Brexit – temporary customs arrangement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 15. Technology, media and telecommunications, sourcing and data . . . . . . . . . . . . . . 17 15.1 EDPB issues statement on the proposed ePrivacy Regulation . . . . . . . . . . . . . . . . . . 17 15.2 The GPDR is here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 15.3 NIS Regulations and Government response to public consultation . . . . . . . . . . . . . 18 International developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 16. Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 16.1 Ipso facto reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 16.2 ASX Corporate Governance Principles and Recommendations – new draft fourth edition released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 16.3 The winner takes all: a new approach in resolving competing class actions.... 20 16.4 Australian class actions under the knife: recent recommendations for reform . . 20 17. China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 17.1 Herbert Smith Freehills' Guide to corporate investigations In China . . . . . . . . . . . . 21 18. Hong Kong . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 18.1 Hong Kong SFC continues to identify deficiencies in sponsor work in second thematic review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 18.2 A new global toolkit for fighting misconduct risk: What does this mean for firms and regulators? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 19. Singapore . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 19.1 Lighter touch, or more of the same? Monetary Authority of Singapore issues consultation paper on proposed guidelines on individual accountability and conduct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 20. United Arab Emirates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 20.1 UAE has a new Arbitration Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 page Please do not hesitate to contact any of the named people for further information on the items set out below. We would also like to hear whether you wish to receive this update more regularly or have other suggestions for its improvement. Please e-mail your comments to Mark Collins or your relationship partner. 04 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS 1. Brexit 1.1 Draft Withdrawal Agreement published incorporating the proposed transitional arrangements The draft Withdrawal Agreement was published on 19 March 2018 and is based on the conclusions of phase one of the Brexit negotiations which were published in the EU/UK Joint Report in December 2017. It highlights the areas of consensus, including the agreements on the proposed status quo transitional period arrangements (Part Four), citizens’ rights (Part Two) and the financial settlement (Part Five). The key outstanding issues for negotiation relate to governance of the Withdrawal Agreement (including dispute settlement mechanisms, the jurisdiction of the Court of Justice of the EU (CJEU) and the role of UK courts), the framework for the future relationship between the UK and EU and the outstanding issues surrounding the Irish border. The draft transitional arrangements allow the UK to, in effect, remain in the Single Market and the Customs Union for a limited period, until 31 December 2020, notwithstanding its withdrawal from the EU from 29 March 2019. During this period the UK would be bound by EU law (including any changes) and the jurisdiction of the CJEU. Practically, the key change to the current position would be that the UK would lose its right to influence and vote on new legislation. For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams. 1.2 Unlikely to obtain legal certainty regarding whether there will be status quo transitional arrangements until shortly prior to Brexit Until the Withdrawal Agreement is approved, the cliff edge remains a realistic possibility. The cliff edge refers to a no deal Brexit in so far as following March 2019 there is no special UK/ EU relationship. The earliest date for approval of the Withdrawal Agreement by the EU Council (voting by qualified majority) is its 18-19 October 2018 meeting. This will then be followed by the EU and UK Parliaments' respective approval (both voting by simple majority). It is unlikely that the approval process outlined above will be completed during 2018. For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams. 1.3 European Council adopts negotiating guidelines on the framework for the future UK‑EU relationship The Withdrawal Agreement is expected to be accompanied by a Political Declaration setting out the overall understanding of the framework for the future relationship. The full agreement would then be due to be negotiated and finalised during the transition period. The negotiating guidelines of the EU 27 Member States on the post-Brexit trade relationship were issued on 23 March 2018. The guidelines state that the EU is committed to obtaining "a balanced, ambitious and wide-ranging free-trade agreement insofar as there are sufficient guarantees for a level playing field". Publication of the UK White Paper on the topic, described by the Secretary of State for Exiting the European Union, David Davis, as the "most significant publication on the EU since the referendum", has been postponed to the week of 9 July 2018. This means that the UK's presentation on the UK-EU Economic Partnership Framework of 24 May 2018, is the most up-to-date outline of the UK Government's position. It proposes an economic partnership "that goes beyond any existing FTA, covering more sectors and with deeper cooperation". This is not consistent with the tone of the EU 27's guidelines which suggests an FTA more along the lines of the much more limited CETA deal with Canada. For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams. 1.4 EU (Withdrawal) Act has finally become law The difficulty that the EU (Withdrawal) Act faced getting through the UK Parliament has delayed the introduction of an extensive body of secondary legislation to adjust retained EU law to make it suitable for use by the UK as a country which is not a Member State of the EU. In the end the final hurdle was agreeing wording to give the UK Parliament a "meaningful" vote on any Article 50 withdrawal agreement agreed between the UK and the EU, without, in the opinion of the UK Government, hampering the UK's negotiating stance with the EU. The UK Government succeeded in defeating the amendments to the Act on this issue and, while the Act does provide for a Parliamentary vote on the Withdrawal Agreement, this is in a form which the UK Government considers will not compromise its negotiating stance with the EU. The current estimate is that the necessary corrections to retain EU law will require between 800 and 1000 statutory instruments to soon be passed under the new Act. For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams. 1.5 The clock is ticking with 9 months to go As 29 March 2019 approaches, business will face decisions on what are proportionate risk management responses to "no deal" risk. A "wait and see" approach will itself increasingly be making decisions, knowingly or not, as potential implementation lead times expire. UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 05 On 28 June we released our updated Brexit Legal Guide to assist businesses prepare. The new online guide will be regularly updated as the legal impact of Brexit evolves. If you would like to keep up to date with our latest Brexit analysis, please subscribe to our Brexit blog. It includes a page collating the key new EU and UK materials here. For further information, please contact Paul Butcher, Tom Henderson, Dorothy Livingston or Gavin Williams. 2. Competition, regulation and trade 2.1 Focus on gun jumping Over the last few months we have seen a number of developments relating to the standstill obligation set out in Article 7(1) of the EU Merger Regulation (EUMR) under which undertakings are not allowed to implement their transaction prior to notification or before receiving a clearance decision by the EU Commission. EU Commission fines Altice €124.5 million for gun-jumping conduct In May 2018 the EU Commission imposed a fine of €124.5 million on Altice, a multinational cable and telecoms company, for having implemented its acquisition of Portuguese telecoms operator PT Portugal prior to notifying the transaction and receiving clearance under the EUMR, so-called "gun-jumping". Following a detailed investigation the Commission concluded that certain provisions of the purchase agreement between the two companies resulted in Altice acquiring the legal right to exercise decisive influence over PT Portugal before clearance of the transaction, in particular with Altice acquiring veto rights over PT Portugal's day-to-day business decisions. The Commission also concluded that in some instances Altice did actually exercise decisive influence over aspects of PT Portugal's business. The level of the fine reflects the Commission's strict approach to breaches of the EUMR's fundamental rules "which undermine the effective functioning of the EU merger control system", and is intended to act as a clear warning that this type of conduct will not be tolerated. The distinction between permissible planning activities and prohibited implementation activities pending merger clearance under a suspensory regime is not always easy to make, yet getting it wrong can have serious consequences. The starting point is that, until merger clearance has been obtained, the parties to a transaction should remain independent and should not act as though their deal were already complete. CJEU provides guidance on gun-jumping in KPMG DK/EY merger referral There is no legal definition or guidance on the meaning of early implementation under the EUMR, but shortly after the Commission's decision in the Altice case, the Court of Justice of the EU (CJEU), for the first time since the EUMR came into force, has provided some guidance on the scope of the standstill obligation in Article 7(1) EUMR. The key test for the CJEU appears to be whether the conduct resulted in a (even partial) change of control. Preparatory measures which are taken in connection with the concentration but are severable from those measures actually leading to the change in control should not fall within the scope of Article 7 EUMR. The judgment clearly narrows the scope of the standstill obligation and will be seen as a loss by the EU Commission which has typically taken a much wider approach to the prohibition. Despite the court's clarification it remains to be seen how the judgment will be applied to other specific instances of partial implementation such as warehousing arrangements and payment of a significant or even the full value of the transaction upfront. It is important to bear in mind that measures will always need to be assessed on the basis of the individual facts and context of each case. Given the significant uncertainty and severe consequences if errors are made, companies should seek specialist advice focussed on the specific situation they are facing. See our e-bulletins on the Altice case and on the CJEU ruling here and here. For further information, please contact Stephen Wisking or Kyriakos Fountoukakos. 3. Construction 3.1 Construction (Retention Deposit Schemes) Bill The Construction (Retention Deposit Schemes) Bill has reached the stage of Second Reading in Parliament. Its aim is to ensure that cash retentions under construction contracts are placed in an approved deposit scheme into which only retentions are placed. There is no detail of what the terms of such a scheme would be as this is left to Regulations. The Regulations must, however, safeguard the retentions and facilitate the resolution of disputes about them. The Bill makes invalid any clause in a construction contract (entered into after the Act is passed) withholding retentions unless they are deposited into such a scheme on withholding. They also require any retentions already withheld after the Act comes into force to be placed into a scheme or refunded. The Bill applies also to contracts "created to have a similar effect to a construction contract for the purposes of withholding monies" 06 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS otherwise due. This may refer to collateral arrangements or devices intended to escape the Act. The Second Reading is on 26 October 2018 and if passed will be followed by the Committee, Report and Third Reading stages in the Commons then the same process in the House of Lords. No timetable has been fixed for the remaining stages after Second Reading nor is it yet known if the Government supports the Bill, which is probably crucial to its survival. For further information, please contact Nicholas Downing or Tim Healey. 4. Corporate 4.1 New corporate governance reporting requirements The Government has laid before Parliament The Companies (Miscellaneous Reporting) Regulations 2018 which will introduce a number of new corporate reporting requirements on UK-incorporated companies. These new requirements form part of the Government's corporate governance reform agenda which it announced last summer. Subject to parliamentary approval, each of these new reporting requirements will apply in relation to financial years beginning on or after 1 January 2019. The new reporting requirements are in relation to: • compliance with directors' section 172 duty; • UK employee engagement; • engagement with suppliers, customers and others in a business relationship with the company; • disclosure of corporate governance arrangements; and • new directors' remuneration report disclosures including CEO pay ratios. Each of the new reporting requirements applies to a different sub-set of UK-incorporated companies. The factors which determine whether a company is in scope include the company's size for accounting purposes under the Companies Act 2006 and how many employees the company (or group) has. The tests have to be looked at on a company-by-company basis. A range of companies within the same corporate group may therefore be required to comply with some of the requirements. The Government also published a Q&A document on the draft Regulations. Topics covered include the scope of the regulations, timing and what information companies should include to meet the requirements. A document summarising each of the new requirements, its application and the publication requirements is available here. For further information please contact Carol Shutkever or Gareth Sykes. 4.2 Corporate governance – governance code for large private companies A consultation draft of the Wates Corporate Governance Principles for Large Private Companies has been published by the Financial Reporting Council (FRC). In January 2018, the Government announced that James Wates CBE, chair of the Wates Group (one of the UK’s largest family-owned construction firms) would chair a group to develop a set of corporate governance principles appropriate for large privately-owned businesses. The group includes the FRC, Institute of Directors, CBI, TUC, British Venture Capital Association and others. The Government committed to the production of those principles as part of the corporate governance reform agenda which it announced last summer. Large private companies which are subject to the new corporate governance reporting requirement outlined above could apply the Principles to discharge and explain that reporting obligation. The Principles consists of six broad governance principles: purpose, composition, responsibilities, opportunity and risk, remuneration and stakeholders. Each principle is followed by guidance for companies to help them apply each principle in practice. The Principles adopt an "apply and explain" approach, that is companies are expected to provide a supporting statement for each principle that gives an understanding of how their corporate governance processes operate and achieve the desired outcomes. The consultation closes on 7 September 2018 with the final version of the Principles expected to be published by the end of the year. The Wates Corporate Governance Principles for Large Private Companies are available on the FRC website. For further information please contact Carol Shutkever or Gareth Sykes. 5. Dispute resolution 5.1 Arbitration 5.1.1 English Commercial Court releases s68 and s69 statistics: the high hurdle remains The Judiciary of England and Wales recently published a report which contains statistics regarding the number and outcome of arbitration claims within the Commercial Court over the past three years. UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 07 Of the claims brought under s69 of the Arbitration Act 1996 (Appeal on a point of law), the statistics read as follows: YEAR NUMBER OF APPLICATIONS MADE NUMBER OF CASES IN WHICH PERMISSION WAS GRANTED NUMBER OF SUCCESSFUL APPEALS 2015 60 20 4 2016 46 0 0 2017 56 10 1 Of the claims brought under s68 of the Arbitration Act 1996 (Serious irregularity), the statistics demonstrate: YEAR NUMBER OF CHALLENGES BROUGHT NUMBER OF SUCCESSFUL CHALLENGES 2015 34 1 2016 31 0 2017 47 2* * The original statistics released show no successful s68 challenges in 2017, but two successful challenges were made in the last months of 2017. There were only five successful s69 challenges from 162 applications made over the period (3.1%), and only three successful s68 challenges out of the 112 brought (2.7%). Given these statistics it is clear that the threshold set by the English court is extremely high, and that there is little scope for overturning or remitting an arbitral award in any but the most egregious of cases. This is important confirmation of the English court's pro-arbitration stance and its reluctance to interfere with the arbitral process or its outcome. For a full report, please visit our Arbitration blog here. For more information, please contact Nicholas Peacock or Vanessa Naish. 5.2 Banking litigation 5.2.1 High Court finds duty of care owed by arranger of capital markets transaction to investors In Golden Belt 1 Sukuk Company BSC(c) v BNP Paribas [2017] EWHC 3182 (Comm), the High Court found that a bank arranging a publicly listed issue of debt securities owed a tortious duty of care to investors and that it breached that duty. The bank acted as the arranger of a sukuk (an asset-based Islamic financing transaction) and the duty found to exist was to ensure that a transactional document providing certificate holders with a claim against the underlying obligor (in the event of default by the obligor) was properly executed. The imposition of the duty in this case was said to have been justified by the court on the basis that it was limited and specific, and because it was imposed following the application of established principles to the specific facts of the instant case. In that sense, the decision is capable of being distinguished in future cases or confined to its particular facts, and so it does not necessarily follow that it will provide a proper or firm basis on which to bring proceedings which require the imposition of a broader duty of care. However, there is a risk that the judgment is taken to represent a novel extension of the law in the context of capital markets transactions. Until now, those advising on capital markets transactions have operated on the basis that - while there was a risk that an arranging bank may owe tortious duties to investors (which has typically been addressed by appropriately worded disclaimers) – this risk was relatively low in the absence of a precedent holding that such a duty existed. The High Court has granted permission for the bank to appeal the decision. This is unsurprising, particularly given the novel duty of care established. See our banking litigation e-briefing for more details. For further information, please contact Simon Clarke, Harry Edwards or Ceri Morgan. 5.2.2 PAG v RBS: Court of Appeal dismisses IRHP mis-selling and LIBOR manipulation claim The Court of Appeal has dismissed the entirety of the appeal in Property Alliance Group v The Royal Bank of Scotland [2018] EWCA Civ 355. The result was that all claims against the defendant bank failed. This was the first substantive decision involving allegations of LIBOR manipulation and IRHP mis-selling to reach the Court of Appeal, and it offers a number of points of binding authority, which are helpful from the perspective of financial institutions. This includes confirmation that the expression "mezzanine" or intermediate duty of care is best avoided. There is no "continuous spectrum of duty, stretching from not misleading, at one end, to full advice, at the other end". Absent an advisory relationship or special circumstances in which a specific broader duty is established, a financial institution owes no duty to explain the nature or effect of a proposed arrangement to a prospective customer. This restates the orthodox position from which earlier cases had seemed to depart. Departing from the judgment of the High Court, the Court of Appeal did find that in selling GBP LIBOR linked products, the bank made the narrow implied representation (at the time of entering into the IRHPs) that it was not itself seeking to manipulate GBP LIBOR and did not intend to do so in the future. However, on the 08 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS current facts, the claimant could not prove that the representation (concerning GBP LIBOR) was false. See our banking litigation e-briefing for more details. For further information, please contact John Corrie or Ceri Morgan. 5.2.3 High Court applies SAAMCO principle to find no assumption of responsibility for losses flowing from market forces The decision of the High Court in Manchester Building Society v Grant Thornton UK LLP [2018] EWHC 963 (Comm) is a useful illustration of how the scope of an adviser's duty under the SAAMCO principle can operate to limit liability. In summary, the court held that an auditor's negligent advice in relation to the accounting treatment of interest rate swaps caused a building society to incur break costs of some £32.7m, but nevertheless found that such losses were irrecoverable, being outside the scope of the auditor's duty. The outcome of the case was driven by the court's view that it would be a "striking conclusion" for an accountant who advised a client as to how certain transactions could be treated in its accounts to have assumed responsibility for the financial consequences of those transactions. As a statement of principle, that may appear self-evident. However, what makes the decision both interesting and difficult is the fact that the client in question entered into/ continued the swaps only because it was led to believe that the swaps would result in an accounting treatment which removed volatility from its balance sheet with resulting advantages for the assessment of its regulatory capital requirements. Ultimately, the court considered that the auditor had not assumed responsibility for its client being "out of the money" on the swaps, because break costs suffered by the building society for terminating the swaps flowed from market forces (for which the auditor did not assume responsibility). The decision is subject to an appeal to the Court of Appeal. See our banking litigation e-bulletin for more details. For further information, please contact Simon Clarke or Ceri Morgan. 5.3 Litigation 5.3.1 Supreme Court breathes new life into “no oral modification” clauses The Supreme Court recently overturned a decision that contractual clauses requiring amendments to be in writing would not preclude amendments subsequently being effected orally: Rock Advertising Ltd v MBB Business Exchange Centre Ltd [2018] UKSC 24. This is an important judgment which means that “no oral modification” (or NOM) clauses will generally be given effect so as to prevent contracting parties being bound by a subsequent variation unless the specified formalities are complied with. The decision will be welcomed by commercial parties who agree NOM clauses in their contracts in the interests of commercial certainty. The Supreme Court recognised that there is the risk of injustice where a party acts on the contract as varied and then finds that it is not binding, but said the law of estoppel would provide a safeguard, where the circumstances are such that the counterparty should be prevented from enforcing its strict contractual rights. The Supreme Court did not seek to define the circumstances in which such an estoppel would arise. However, it would require at the very least some words or conduct which unequivocally represented that the variation would be valid despite being agreed informally; the informal promise itself would not be sufficient for that purpose. In light of its decision, the Supreme Court did not need to consider the Court of Appeal’s conclusion that an agreement to accept payment of an existing debt by instalments was supported by consideration in the form of a practical benefit received by the creditor. Interestingly, however, it noted that the long-standing rule in Foakes v Beer (that part payment of a debt is not good consideration for the release of the whole) “is probably ripe for re-examination”, but said that any departure from that rule should be a matter for an enlarged panel of the court where its decision would be more than obiter dictum. For further information please see our summary of the decision here on our Litigation Notes blog, or contact Anna Pertoldi or Maura McIntosh. 5.3.2 Ground-breaking report hails new era for commercial dispute resolution Herbert Smith Freehills was the founding sponsor of the Global Pound Conference series. This brought together over 4,000 dispute resolution stakeholders at 28 conferences spanning 24 countries worldwide. We have now analysed the data gathered at the conferences, focusing on the views of in-house counsel. Global themes reveal: • Efficiency is the key priority of parties when choosing dispute resolution processes. Most dispute resolution continues to have as its frame of reference an adversarial process (litigation or arbitration) based on asserted legal rights. Yet two thirds of in-house counsel canvassed at GPC events said they require more efficiency in dispute resolution. • Parties expect greater collaboration from advisors in dispute resolution. Around two thirds of in-house counsel said they need to see more collaboration from their lawyers. This applies when lawyers are interacting with clients and opponents. UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 09 • Global interest in the use of pre-dispute protocols and mixed-mode dispute resolution. With the data pointing towards a more collaborative and efficient approach, unsurprisingly, delegates felt that disputing parties should be encouraged to consider processes like mediation before they commence formal proceedings. The data also showed a growing desire by parties to use mediation in parallel with litigation and arbitration. • In-house counsel can achieve organisational change. In-house counsel were judged to be change enablers. As such, they shoulder a significant responsibility to encourage their organisations (and, if necessary, their external lawyers) to consider dispute resolution options more carefully, including using processes like mediation. Download your copy of our report here to learn more. To discuss the content of this report and its impact on your organisation’s approach to dispute resolution, please contact Alexander Oddy, Julian Copeman, Natasha Johnson or Anita Phillips. 5.3.3 Our new book: Class Actions in England and Wales Herbert Smith Freehills has launched a new textbook, Class Actions in England and Wales, which has been written by lawyers from the firm and published by Sweet & Maxwell. In the book’s foreword, the Chancellor of the High Court, The Right Honourable Sir Geoffrey Vos, describes the book as “an approachable and insightful text, offering useful summaries of the main authorities and a practical guide to the conduct of a collective action”, which he predicts will “rapidly become invaluable” to lawyers engaged in class action litigation. The text focuses mainly on the Group Litigation Order procedure, providing guidance on the issues to be considered in relation to the commencement of a group action, the conduct of a group action, how group actions are tried, the effect of judgments and orders, and how group actions are settled. Jurisdiction, choice of law and enforcement issues are also addressed in some detail, as are issues relating to costs and funding. The opt-out procedure for claims in the Competition Appeal Tribunal, introduced by the Consumer Rights Act 2015, is also discussed. The text devotes specific chapters to three areas that are becoming increasingly important, with a number of high profile and high value claims being brought. These are: shareholder claims; environmental or human rights based claims against businesses; and competition claims. For further information please contact Gregg Rowan or Maura McIntosh. 5.3.4 Managing risk: A disputes perspective (2018) At our annual disputes client conference in May, we explored some key legal and compliance risks facing major corporates in relation to: GDPR, emerging technologies, cyber insurance, reputation management, arbitration, sanctions for third party enablers of tax evasion and avoidance, dealing with document requests, and historic investigations. For further information please see our summary of the conference here on our Litigation Notes blog, or contact Anna Pertoldi or Maura McIntosh. 6. Employment and pensions 6.1 Employment 6.1.1 Employment documents need to be updated to reflect tax changes and limit non-disclosure clauses Template employment contracts and settlement agreements will need to be reviewed in light of recent tax changes and #MeToo developments. For terminations taking place from 6 April 2018, new rules fully tax as earnings such part of a termination payment as is deemed to be in respect of any unworked notice, whether or not there is a contractual payment in lieu of notice provision. Employers should review and if necessary update wording in template settlement agreements addressing the tax treatment of compensation payments. As there is no longer a tax advantage in omitting a payment in lieu of notice clause, employers should also consider including them in template contracts, particularly if there are restrictive covenants (as otherwise these will fall away should the employer wish to terminate without notice). At the same time it would be worth checking that any references to data protection legislation are up to date following the General Data Protection Regulation and Data Protection Act 2018 coming into force on 25 May 2018. It would also be prudent to review the scope of any confidentiality provisions in light of criticisms made by the Parliamentary Women and Equalities Committee that such provisions could be seen as deterring the reporting of sexual harassment or other misconduct to law enforcement agencies or regulators. Most employers’ templates will already carve out whistleblowing disclosures from the scope of confidentiality undertakings, but it is advisable to extend this to explicitly permit disclosures to regulators and law enforcement agencies to ensure that employees are not left with the impression that these types of reporting are prohibited ( in accordance with guidance from the Solicitors Regulatory Authority). The same applies to provisions clawing back compensation for breach of disclosure obligations. Employees should also not be prevented from disclosing confidential matters (in confidence) to 10 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS their medical advisers in the course of seeking treatment, and should always be given a copy of the agreement. Similar issues may need to be considered in relation to employment contracts and other types of agreements containing confidentiality obligations. For further information, please contact Andrew Taggart or Christine Young. 6.1.2 Shared parental leave: time to review pay policy? Many employers that enhance maternity pay have chosen not to mirror this for shared parental leave, pending clarity as to whether this could be direct or indirect sex discrimination. The Employment Appeal Tribunal has now given its first rulings on the issue. In Capita v Ali [2018] I.R.L.R. 586, the EAT confirmed that this practice is not directly discriminatory, at least where the enhancement is only for the first part of maternity leave, as the purpose of protecting the health and wellbeing of the mother is different from the purpose of shared parental leave (to care for the child). However, the EAT did note that the purpose of maternity leave may change after this initial period, leaving open the possibility of direct discrimination claims where an employer enhances maternity pay for longer than 14 weeks (the period protected by the Pregnancy Workers Directive) or possibly 26 weeks (the period of ordinary maternity leave). Leave to appeal has been given. Indirect discrimination was considered by the EAT in Hextall v The Chief Constable of Leicestershire Police [2018] I.R.L.R. 605. The EAT found that the tribunal had applied the wrong test and remitted the case to a new tribunal, so there is no clear ruling as yet. However, the EAT did clarify that the issue is whether a practice of paying only the statutory rate of pay for those taking shared parental leave puts at a particular disadvantage the men within a pool comprising all employees with a present or future interest in taking leave to care for their newborn child. The potential disadvantage was identified as the greater difficulty fathers would have taking leave to care for their child, given that they had no other choice than to take shared parental leave on reduced pay while mothers could choose instead to take maternity leave with a period of full pay. Employers should watch out for the outcome of these appeals. If a failure to enhance shared parental pay is prima facie indirect discrimination, employers will need to be able to show objective justification, which cannot be based on cost alone. There may also be reputational issues to consider, particularly for larger employers required to publish their gender pay gap. Inequality in parental policies has been identified as one cause of women continuing to suffer a "motherhood pay penalty". A cross-party group of MPs is supporting a Private Member's Bill to require larger employers to publish their parental leave and pay policies. For further information, please contact Tim Leaver or Anna Henderson. 6.2 Pensions 6.2.1 Government White Paper: Defined benefit pension schemes In March, the DWP published its long awaited White Paper outlining the legislative and regulatory changes to improve protections for defined benefit pension schemes. The changes include extending the Pensions Regulator's (tPR) powers to include penalties alongside tPR's contribution notice power and a new criminal offence of wilful or grossly reckless behaviour of directors. tPR will also acquire additional information gathering powers, including the right to compel attendance at interview. Following a negative response from members of the industry, the Government has decided not to introduce a compulsory clearance regime in relation to corporate activity. A new requirement will be introduced requiring parent companies and sponsoring employers to issue a statement of intent, in consultation with trustees, prior to transactions which pose a high potential risk to a defined benefit pension scheme. Helpfully, tPR will be consulting on a revised Code on Scheme Funding, which will be binding (or, at least, binding in parts with a comply-or-explain approach). Greater clarity will be provided on when the assumptions used for calculating technical provisions have been set "prudently", and when the recovery plan has been set "appropriately". The Government also decided not to introduce a power to change pension indexation and revaluation from RPI to CPI. The changes are unlikely to come in overnight and there is likely to be a process of consultation lasting for the rest of this year. All in all, the changes outlined in the White Paper pave the way for a more heavily regulated regime going forwards. For further information, please contact Alison Brown, Samantha Brown or Rachel Pinto. 6.2.2 Upper Tribunal rules in favour of tPR in Box Clever judgment In the first anti-avoidance case by tPR to be heard by the Upper Tribunal the Financial Support Direction (FSD) issued by tPR against ITV was upheld. The case provides useful commentary on the scope of tPR's powers under the FSD regime. Box Clever was established in 2000 as a joint venture between Granada (now ITV) and Thorn (now Carmelite) who combined their TV rental businesses. In 2003, administrative receivers were appointed over Box Clever; tPR subsequently ordered ITV to UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 11 provide support for the Box Clever pension scheme, which has 2,800 members and a deficit of £115 million. Following ITV's challenge of tPR's powers, the Upper Tribunal considered whether tPR had jurisdiction to issue an FSD, and whether it was "reasonable" to do so. The Upper Tribunal held that the FSD regime is based on responsibility, rather than fault; in this case the shareholders in Box Clever had "extracted considerable cash from the business with no risk of recourse to their assets". The judgment clarified that the reasonableness of tPR's use of FSD powers will be assessed by reference to a wide interpretation of key legislative terms, such as the "relationship with the employer" and "benefit". Significantly, the Upper Tribunal also confirmed that tPR is permitted to take into account events which occurred prior to the legislation coming into force when deciding if using its powers is "reasonable". ITV has been given permission to appeal this judgment to the Court of Appeal. For further information, please contact Alison Brown, Samantha Brown or Rachel Pinto. 6.2.3 Carillion leads to criticism for tPR The joint report on the collapse of Carillion, prepared by the Work & Pensions Select Committee and the Business, Energy and Industrial Strategy Select Committee, was released in May. Carillion went into liquidation this year with net pension liabilities of around £2.6 billion and will be the largest (aggregate) scheme ever in the Pension Protection Fund. The joint report heavily criticised tPR for its "feebleness and timidity" and for being "chronically passive". It questions the ability of the current leadership of tPR to change this culture. Since then, the current head of tPR, Lesley Titcomb, has announced that she will not be renewing her term in February 2019. The joint report found that tPR had made "empty threats" to use its powers to substitute its own view of the valuation, which have never been used, and the launch of an anti-avoidance investigation after Carillion went into liquidation was too little and too late. The Select Committees recommended that tPR regard deficit recovery plans of over 10 years as exceptional and that tPR be given stronger powers to levy punitive fines and intervene in corporate transactions. It also recommended new powers for trustees to demand information from sponsors. The acute criticism (whether justified or not) of tPR gives rise to practical questions for upcoming triennial valuations and may also lead to more proactive use by tPR of its scheme funding and moral hazard powers. The focus of the Work & Pensions Select Committee will now turn to to the White Paper. For further information, please contact Alison Brown, Samantha Brown or Rachel Pinto. 7. Environment 7.1 New Brexit environmental watchdog One of the most troubling aspects of Brexit for environmentalists is the vacuum that will result following removal of the powers of the European Commission to enforce implementation by the UK of our national obligations. A consultation was published by DEFRA in May 2018 outlining details of a proposed post-Brexit environmental watchdog which would be a new, independent statutory environmental body in England, operating from December 2020. The Government has proposed that EU governance structures will apply during the transition period (ie until December 2020). Concerns were raised over the fact the proposed watchdog would be "toothless" – it would only be able to issue an advisory notice – however, amendments have been made in the Withdrawal Bill to grant the watchdog power to take legal action and ensure the government complies with environmental law. For further information, please contact Julie Vaughan. 7.2 Implementation of the revised National Emissions Ceilings Directive The UK has transposed the requirements of the National Emissions Ceilings Directive 2016 into national law as the National Emission Ceilings Regulations 2018 (SI 2018/129), which enter into force on 1 July 2018 and apply to England, Wales, Scotland and Northern Ireland. The regulations require a percentage reduction of sulphur dioxide, nitrogen oxides, volatile organic compounds, ammonia and fine particulates emissions based on 2005 emissions levels (taking a phased approach), an annual inventory of relevant UK emissions, and national air pollution control and monitoring programmes. The UK Government has announced a £220 million Clean Air Fund to tackle roadside emissions which is part of a £260 million plus package to improve air quality. A Clean Air Strategy has also been published in May 2018 setting out how the UK will significantly reduce emissions by 2020 and 2030; the deadline for responding is 14 August 2018. For further information, please contact Julie Vaughan. 8. Finance: banking 8.1 The potential discontinuation of LIBOR The FCA said in July 2017 that it will not encourage or compel banks to continue to provide quotes for LIBOR after the end of 2021. 12 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS The view is that further reform of LIBOR cannot compensate for the lack of data from an underlying market, and that an alternative risk-free rate should be developed. Currently, the preferred option is a rate based on the Sterling Overnight Interbank Average Rate (SONIA), which has recently been reformed. The Loan Market Association has raised various concerns in relation to the adoption of SONIA as the replacement for LIBOR in the syndicated lending market, principally because, as a backward-looking, overnight rate rather than a forward-looking, term rate, it has the potential to cause the loan markets difficulty both operationally and commercially. The Bank of England has recognised this, and the Working Group on Sterling Risk-Free Reference Rates is considering the options. The Bank of England has also noted that international co-ordination is crucial, given the different currencies for which LIBOR is currently produced, and risk mitigation strategies for legacy contracts will be required. It is difficult to draft meaningful, detailed provisions now which will cater for the possible future replacement of LIBOR by a new reference rate, since it is currently unclear what that reference rate will be, how that replacement rate will operate, and even when it will come into operation as the market standard. It is therefore important that documents which refer to LIBOR include robust fall-back provisions to allow the relevant interest rate to be determined even if LIBOR is not available. However, the practicalities of administering these fall-back options would not be not straightforward. Parties may also wish to consider the consent threshold for replacement of the reference rate in facility agreements; the LMA has recently published some expanded provisions to allow this to happen on the occurrence of various trigger events to facilitate this. For further information, please contact Simon Chadney, Will Nevin or William Breeze. 8.2 Guarantees, intragroup loans and distributions – Law Society and CLLS papers When a company is entering into any intra-group transaction, it is necessary to consider, amongst other things, whether the transaction involves a distribution. Papers recently published by the Law Society and the City of London Law Society (CLLS) consider whether an on-demand intra-group loan or a guarantee of a group company's indebtedness, can constitute a distribution for the purposes of UK company law. The papers were prepared in light of guidance published by the ICAEW in Tech 02/17 which said that these types of intra-group transactions could constitute a distribution. The conclusions set out in the Law Society and CLLS papers are as follows: • Guarantees – A guarantee given by a subsidiary of its parent company's indebtedness in relation to a normal financing transaction cannot constitute a distribution, provided the board of directors of the guarantor: properly considers the financial position of the member of the group in respect of which the guarantee is provided; and concludes, in good faith and on reasonable grounds, that the relevant group member is likely to be able to repay or refinance the guaranteed indebtedness when due and therefore that a claim is unlikely to be made on the guarantee. • Intra-group loans – A normal on-demand intra-group loan made by a subsidiary to its parent company, whether interest-bearing or not, is not a distribution provided the board of directors of the subsidiary: properly considers the parent’s financial position; and concludes, in good faith and on reasonable grounds, that the parent is likely to be able to repay the loan when repayment is demanded. The papers therefore contain useful guidelines for companies on when an intra-group loan or guarantee will not involve a distribution. Companies will have to consider the position carefully each time as, in situations where these criteria are not met, there may be a distribution, requiring available distributable reserves. The papers on Guarantees and distributions and Intra-group loans and distributions are available on the Law Society and CLLS websites. For more information, please contact Simon Chadney or Will Nevin. 8.3 EU Commission proposed regulation on the law applicable to the third party effects of assignments of claims Following a previous consultation, the European Commission (EC) is proposing new rules to determine which national law will apply to third party effects of assignment of claims (there being a perceived lacuna between competing assignees). The EC had posed three possible approaches based on: (1) the law of the contract between assignor and assignee; (2) the law of the assignor's habitual residence; and (3) the law applicable to the assigned claim. The City of London Law Society Financial Law Committee (CLLS), ISDA and AFME all responded to the initial consultation saying that (3), the law of assigned claim, was most suitable. (England and, it is understood, Germany, Spain and Japan, all follow (3) currently.) In March, the EC announced that it proposes adopting (2) ie that, as a rule, the law of the country where the assignor (creditor of original debtor) has its habitual residence will govern the third party effects UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 13 of the assignment of claims. This general rule will be subject to three exceptions, it having been acknowledged that it would be unsuitable in these situations or transactions: • cash on the account of a credit institution – where the law will be that of the assigned claim; • claims derived from financial instruments, such as derivatives – where the law will be that of the assigned claim; and • securitisations – where there will be a choice between the law of the assignor's habitual residence and the law of the assigned claim. In response, on 24 May, the CLLS has issued a paper to urge the EC to amend substantially or abandon the proposal, and to recommend that the UK Government exercises its right not to opt in to the proposed rule. The CLLS believe that the proposed rule has not been given sufficient thought, is conceptually mistaken and will cause huge difficulties in the EU debt and capital markets. In particular: • the rule would be inconsistent with the current operation of the loans trading market which is founded on basis that all assignments of a particular loan will comply with one set of laws – namely those applicable to the underlying loan agreement (ie the law of the assigned debt), and that that law would apply to resolve all related disputes • the effect of the rule on other forms of transfer of loans eg sub-participation and novation of primary participation, is not clear and may lead to inconsistencies • the rule will introduce a third jurisdiction law into a situation where otherwise the law of only one jurisdiction would apply to all aspects of an assignment, thus complicating matters and increasing the likelihood that the parties' contractual choice of court will not cover the type of dispute likely to arise between competing assignees: • law firms will not be able to give clean legal opinions regarding assignments (as habitual residence is at least partly a question of fact); • it is unclear how the rule will affect mutuality of claims in an insolvency context; and • the rule is overly complex and, apart from the three exceptions, is confusing. The LMA has also issued a detailed response to the proposal, which includes a statement that it "has the potential to disrupt a fully functioning, settled and thriving cross-border European secondary loan market by creating new problems for that market, disrupting settlement times and making cross-border assignments more complex and more costly". The LMA therefore proposes that if the proposal proceeds, assignments of debt claims against borrowers arising out of syndicated credit facilities in the European secondary debt market should be a further exception to the habitual residence rule. We share the concerns of the CLLS and the LMA, and hope that the EC amends substantially or abandons the proposal. For further information, please contact Dorothy Livingston and Simon Chadney. 9. Finance: debt capital markets 9.1 Prospectus Regulation to replace current Prospectus Directive The new Prospectus Regulation came into force on 20 July 2017 and the majority of provisions will apply from 21 July 2019. The key changes for debt capital markets (DCM) include new requirements on the form and content of risk factors and summaries in prospectuses and the expansion of the wholesale disclosure regime and exemption from the requirement to produce a summary (available under the Prospectus Directive to bonds with a minimum denomination of €100,000) to bonds traded on a regulated market to which only qualified investors can have access. Further guidelines on risk factor disclosure are expected from the European Securities and Markets Authority later in the year. For further information please contact Amy Geddes or Andrew Roberts. 9.2 The potential discontinuation of LIBOR The Financial Conduct Authority (FCA) has said that it will not encourage or compel banks to continue to provide quotes for LIBOR after the end of 2021. The view is that further reform of LIBOR cannot compensate for the lack of data from an underlying market, and that an alternative risk-free rate should be developed. Currently, the preferred option is a rate based on the Sterling Overnight Interbank Average Rate (SONIA), which has recently been reformed. However, there have been concerns raised about whether SONIA is an appropriate replacement as it is a backward-looking, overnight rate rather than a forward-looking, term rate. There are two aspects to consider in relation to DCM: (i) ensuring contractual continuity for outstanding legacy bonds which currently reference LIBOR; and (ii) the adoption of an appropriate benchmark for future floating rate bonds. Market participants, together with the International Capital Markets Association, are considering the various options available for bond documentation, particularly given that there is no clear LIBOR alternative. These include inserting a penultimate fallback mechanism in bond terms and conditions to allow the issuer or determination agent to appoint an independent financial adviser to determine the appropriate rate at the relevant time. 14 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS For further information please contact Amy Geddes or Andrew Roberts. See also the entry titled The Potential Discontinuation of LIBOR in "Finance: Banking". 9.3 MiFID II/PRIIPs and application to DCM The product governance regime and certain conflicts of interest provisions under the new Markets in Financial Instruments Directive (MiFID II) are particularly relevant to DCM and MiFID II legends are being included in bond prospectuses in order to address certain MiFID II product governance requirements. MiFID II applies from 3 January 2018. The PRIIPs Regulation applies from 1 January 2018 and introduces a pre-contractual disclosure regime for packaged retail and insurance based products (PRIIPs). Given the wide scope of the legislation, selling restrictions and legends are being included in wholesale bond prospectuses and documentation in order to ensure that sales are not permitted to retail investors. For further information please contact Amy Geddes or Andrew Roberts. 10. Financial services regulation 10.1 Update on Cryptoassets Cryptoassets is an area of increasing interest for regulators globally, with some jurisdictions banning cryptoassets outright and others issuing warnings to investors on investment risks. The Financial Stability Board (FSB) reported to the G20 in March on its initial assessment of cryptoassets. The FSB does not consider that cryptoassets currently pose a risk to global financial stability but will continue to monitor the situation. In the EU, action has already been taken to address certain risks: • the Anti-Money Laundering Directive will be amended to require EU cryptoasset exchanges and custodial wallet providers to carry out customer identification and to exercise due diligence; and • the European Supervisory Authorities (ESAs) issued warnings to investors about the speculative market environment for virtual currencies and the high risk of investors losing their invested capital in initial coin offerings. In its Action Plan for FinTech published in March, the EU Commission stated that it will, together with the ESAs, the European Central Bank, the FSB and other international standard setters, continue to monitor cryptoassets and initial coin offerings and will assess whether regulatory action at the EU level is required during the course of 2018. In the UK, the House of Commons Treasury Committee launched an inquiry in February on the role of digital currencies in the UK, including the opportunities and risks that digital currencies may bring to consumers and businesses. The inquiry will consider whether regulation could be balanced to provide adequate protection for consumers and businesses without stifling innovation. The Financial Policy Committee (FPC) stated in March that it does not consider that existing cryptoassets currently pose a material risk to UK stability, in particular as systemically important UK financial institutions currently have negligible exposures to these assets and to the system around them, but will continue monitoring this area. The UK Government established a Cryptoassets Task Force in March, consisting of HM Treasury, the Bank of England and the FCA, to explore the risks of cryptoassets. The Task force will report back in the summer, including whether or not regulation would be appropriate in this area. More recently, the FCA has written to firms, reminding them of the risks of cryptoassets being used for criminal purposes. Banks which offer banking services to current or prospective clients who derive significant business activities or revenues from crypto-related activities are reminded of the need to enhance their scrutiny of these clients and their activities. For more information, please contact Clive Cunningham. 10.2 FOS extended to SME's The FCA has consulted on the widening of access to the Financial Ombudsman Service (FOS) to small and medium-sized enterprises (SMEs) offering SMEs an alternative route to dispute resolution without incurring the high costs which court action can attract. Feedback to the consultation – CP18/3: Consultation on SME access to the Financial Ombudsman Service and Feedback to DP15/7: SMEs as Users of Financial Services – closed on the 22 April 2018. The proposed changes give SME's, with fewer than 50 employees, an annual turnover of under £6.5m and an annual balance sheet total of under £5m, access to the FOS service where complaints against banks can be resolved quickly and informally without recourse to costly court proceedings. At present only micro-enterprises have access to the FOS but with an additional 160,000 firms, charities and trusts falling within the jurisdiction of the FOS, there is likely to be a significant increase in the amount of FOS complaints and consequently the amount of redress that financial services firms will be required to pay. The increased workload of the FOS may also lead to an increase in the regulatory fees and levies charged to firms. The proposals will not cover disputes involving dissolved businesses or businesses subject to insolvency proceedings, or where the redress sought exceeds the FOS binding award limit of £150,000. In these instances, the court will remain the most appropriate venue The FCA will make amendments to the Dispute Resolution Handbook (DISP) to accommodate the proposals and publish a final policy statement in the summer of 2018. UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 15 For further information, please contact Jenny Stainsby. 11. Insurance 11.1 Insurance Distribution Directive The Insurance Distribution Directive (IDD) replaces and updates the Insurance Mediation Directive (IMD). The IDD rules are just the minimum level of regulation that each EU Member State must implement, but the changes from the existing European regime are significant. Key changes include: • some distributors will be regulated for the first time – this will mean a significant increase in the number of regulated firms from less than half (48%) to almost all (98%) distributors of insurance products in the EU; • new rules on governance, systems and controls, and knowledge requirements; • a requirement to issue a document known as the insurance product information document (IPID) when non-life insurance products are sold. Providers of insurance-based investment products will also be required to provide customers with key information documents in line with other types of retail investment products; and • additional disclosures which must be made during the sales process. European legislation postponing the date on which IDD requirements come into force to 1 October 2018 has now been adopted. The IDD will be transposed into UK law before the UK's withdrawal from the EU, so its requirements will remain part of UK law after Brexit. For further information, please contact Alison Matthews or Geoffrey Maddock. 11.2 Extension of senior managers and certification regime to insurers and insurance intermediaries The PRA's Senior Insurance Managers Regime (SIMR) took effect in early 2016. The SIMR introduced a new accountability framework for individuals working in UK insurers, consistent with standards set by the Solvency II Directive. In July 2017, the FCA and PRA published proposals to extend application of the Senior Managers and Certification Regime (SMCR) that was originally introduced for banks to all almost all financial services firms, including insurers and insurance intermediaries. Further consultations have been issued since that date. The biggest change is that insurers will be subject to the certification regime for the first time. In addition, the vast majority of employees working for insurers will become subject to directly enforceable conduct rules. The new regime will come into force for insurers from 10 December 2018. Insurance intermediaries are not expected to be subject to the new rules until mid-to-late 2019. Final rules for the new regime are expected in summer 2018. Our more detailed briefings on the above topics can be found on our insurance blog here. For further information, please contact Alison Matthews or Geoffrey Maddock. 12. Intellectual property 12.1 Website blocking orders should be paid for by brand owners not Internet Service Providers (ISPs): decision of the UK Supreme Court The UK Supreme Court (UKSC) has decided that ISPs should not bear the implementation costs for website blocking orders. Blocking orders are still available, but it is the rights-holder who must indemnify the ISP for the reasonable costs of implementing the order. In Cartier v BT [2018] UKSC 28, the UKSC decided that the protection of IP rights is an ordinary and natural cost to the business which owns those rights. An innocent party should be entitled to be indemnified against the costs of taking compliance measures required by a third party. The ISPs in this action are innocent, in that they would not incur liability for trade mark infringement under English law. An ISP is a “mere conduit” and has no means of knowing what use is being made of its network by third parties to distribute illegal content. This decision is a powerful endorsement of the neutral role of intermediaries as mere conduits of internet traffic. The UKSC decided that three categories of reasonable compliance costs are recoverable: • the marginal cost of the initial implementation of the order, configuring the ISP’s blocking systems; • the cost of updating the block over the lifetime of the order in response to notifications from rights-holders, which entails reconfiguring the blocking system; and • the costs and liabilities that may be incurred if the blocking system malfunctions through no fault of the ISP, eg overblocking due to errors in the notifications from the rights-holders. Click here to read more on this decision on our Intellectual Property Notes blog. For further information, please speak to Joel Smith or Sarah Burke. 16 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS 13. Real estate and planning 13.1 Real estate 13.1.1 Relief from forfeiture of a licence The Court of Appeal has heard an appeal against the High Court decision in General Motors UK Limited v The Manchester Ship Canal Company Limited [2016] EWHC 290 (Ch); Vauxhall Motors Ltd (formerly General Motors UK Ltd) v Manchester Ship Canal Company Ltd [2018] EWCA Civ 1100. The High Court decision was the first reported case in which relief from forfeiture of a licence (rather than a lease) had been granted. Until then, relief from forfeiture had only been granted in cases where there was a proprietary or possessory interest in land. The High Court was of the belief that a licence agreement could be subject to relief from forfeiture where the rights granted were not actually "possessory", but "as close to possessory as it is possible to imagine". The case was seen to be ground-breaking, as it pushed the boundaries on whether other licences could attract the same rights. However, despite upholding the High Court decision and resurrecting the original licence agreement, which allowed the discharge of water and waste into a canal at a nominal cost, the Court of Appeal made it clear that most licences granted for use of premises should not be subject to a right of relief from forfeiture by the licensee. The Court of Appeal has clarified matters, by determining that the rights in this particular case were possessory, because the licence governed the licensee's right to install, use and control pipes and mechanical infrastructure. This therefore pulled the law back from going over into unknown territory, where land licences may be subject to relief. However, not everything has been resolved. This is still a question over where exactly the line is between licences of infrastructure, where relief might possibly be available, and licences purely of land, where it is not. For further information, please contact Matthew Bonye. 13.2 Planning 13.2.1 National Planning Policy Framework and London Plan review The Government is due to publish the revised version of the National Planning Policy Framework (NPPF) in July 2018. The NPPF sets a national framework for planning policy and it must be taken into account by local planning authorities when they set local planning policy and when they make decisions on whether to grant planning permission. A draft version of the revised NPPF was published for consultation on 5 March 2018, alongside other documents including a consultation on revising the community infrastructure levy system and related developer contributions. Most of the changes proposed had been previously consulted on in the Housing White Paper and the consultation "Planning for the right homes in the right places" during 2017 and broadly aim to increase housing supply and make the planning system more efficient. The London Plan (the spatial development strategy for London) is also due to be revised, with the new draft version due to be subject to an examination in public in the autumn 2018 and with the adoption of the new London Plan expected in autumn 2019. The London Plan guides local authorities when setting their local development plans and is taken into account by the Mayor and local planning authorities when considering applications for planning permission in the capital. For further information, please contact Matthew White or Catherine Howard. 14. Tax 14.1 Corporate tax and the digital economy The Government has published a detailed position paper setting out its proposals for the taxation of companies operating in the digital economy (dated 13 March 2018). In the long term, the Government's preferred approach is for multilateral reform of the international corporate tax framework, to take account of the value created, and therefore profits generated, for organisations by "user participation" (ie the engagement, participation and active contribution of users). A detailed proposal is not put forward at this stage. Pending such wider reform, the Government is receptive to interim taxing measures. Although it would prefer to implement these measures on a multilateral basis, it notes that it is equally prepared to "act alongside a smaller number of like-minded countries, or unilaterally, in the absence of sufficient progress". It is envisaged that an interim measure would entail a tax on the revenues of digital businesses deriving significant value from UK user participation. The tax would apply to such businesses wherever they are located, and irrespective of the physical presence that they have in the UK. In the same month, the European Commission also issued two draft Directives on the taxation of the digital economy. The Commission proposes a long-term "comprehensive solution", under which companies would have to pay corporate income tax in each Member State where they have a "significant digital presence". Whilst this solution is being developed further, the Commission proposes a temporary measure, consisting of a 3% revenue-based Digital Services Tax, to be imposed on specific digital services where the main value is created through user participation. For further information, please contact Isaac Zailer or Howard Murray. UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 17 14.2 Off-payroll working in the private sector The Government has published a long-awaited consultation into reform of off-payroll working (the IR35 regime) in the private sector. The consultation is motivated by the need to tackle perceived non-compliance with the IR35 rules. The IR35 regime is designed to ensure that those who individuals who work through an intermediary (such as a personal service company (PSC)), and who would be employees if directly engaged, are subject to the same employment and social security taxes as an employee. The consultation follows changes to the IR35 rules in the public sector, effective from April 2017. These changes made the public authority end-user client, rather than the intermediary, responsible for determining whether IR35 should apply, and also for deduction and payment of PAYE income tax and NICs. These changes have been deemed a success by HMRC. The current consultation puts forward several options for reform of the rules in the private sector, including requiring end-user clients to keep comprehensive records to be made available to HMRC in the event of enquiry into a PSC in their supply chain. Although not explicitly stated as such, the Government's preferred option appears to be extension of the public sector changes to the private sector. This could have a significant impact on businesses in the private sector, including increased administrative and compliance burdens. Our e-briefing on the consultation is available here. For further information, please contact Isaac Zailer or Howard Murray. 14.3 Brexit – temporary customs arrangement A technical note on a temporary customs arrangement was published by the Government earlier this month. The note provides a proposal for a "backstop" position with respect to customs arrangements between the UK and the EU, which would apply in the "specific and narrow circumstances" of a final customs arrangement not being in place by the end of the post-Brexit potential Implementation Period (which is proposed to run until December 2020). The key elements of the "backstop" arrangement include: • elimination of tariffs, quotas, rules of origin and customs processes including declarations on all UK-EU trade; • the UK outside the scope of the common commercial policy (CCP), except where it is required to enable the temporary customs arrangement to function, which means applying the EU’s common external tariff at the UK’s external border, alongside the Union Customs Code and such other parts of the CCP that are required to enable the temporary customs arrangement to function; and • the UK able to negotiate, sign and ratify free trade agreements with rest of world partners and implement those elements that do not affect the functioning of the temporary customs arrangement. Such a temporary arrangement can only be provided for in law if a Withdrawal Agreement is agreed between the UK and the EU. It is intended that the "backstop" solution should be time limited. The technical note provides that "the UK expects the future arrangement [ie the permanent customs arrangement] to be in place by the end of December 2021 at the latest." Theresa May has, however, refused to provide a definitive guarantee that this temporary solution will not endure beyond 2021. For further information, please contact Isaac Zailer or Howard Murray. 15. Technology, media and telecommunications, sourcing and data 15.1 EDPB issues statement on the proposed ePrivacy Regulation On 28 May 2018, the European Data Protection Board (EDPB) adopted a statement on the revision of the ePrivacy Regulation which has been delayed in the legislative process. The current ePrivacy Directive is in the process of being amended and a proposed new ePrivacy Regulation is expected 2018/19. The EDPB's statement urges the European Commission, Parliament and Council to work together to ensure that the revised ePrivacy Regulation is adopted rapidly. The statement also offers advice and clarification on certain issues raised during the amendment process, in particular the EDPB: • confirms that there should be no possibility under the ePrivacy Regulation to process electronic communications content based on "legitimate interests" or for the performance of a contract. The EDPB confirms fully supports the use of consent; • further confirms that the ePrivacy Regulation should go beyond the scope of the current Directive to provide protection for all types of electronic communications, including "over-the-top" services; • supports the creation of specific sanctions for violating the ePrivacy Regulation and an extended territorial scope, both of which should mirror the GDPR; and • supports the strengthening of the cookie consent provisions of the ePrivacy Regulation to explicitly apply to operating systems of smartphones, tablets or any other user agent. For further information, please contact Miriam Everett, Nick Pantlin or David Coulling. 18 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS 15.2 The GPDR is here The EU General Data Protection Regulation (GDPR) came into force on the 25 May, bringing with it additional rights for individuals and additional obligations for organisations. It also extends its reach beyond European borders and applies not just to companies within the EEA but also to some organisations outside the EEA. In the UK, the Data Protection Bill also received Royal Assent on the 23 May to become the Data Protection Act 2018 (DPA 2018). The DPA supplements the GDPR in the UK by, for example, implementing various national derogations permitted by the GDPR and extending the GDPR standards to certain areas of data processing outside of EU competence (eg immigration). In light of the GDPR, there has been a variety of guidance published both at a national level and at an EU level by the Article 29 Working Party (WP29), a body which reflects the consolidated view of national supervisory data protection authorities in all EU Member States. The ICO has updated its guide to the GDPR to provide more detailed guidance on many key issues including consent and the right to be informed. The ICO has also added new pages on codes of conduct and certification. The WP29 was superseded by the European Data Protection Board (EDPB) on 25 May 2018. During its first plenary meeting the EDPB endorsed all GDPR related WP29 Guidelines, published draft guidelines on certification (the consultation will end on 12 July) and adopted the final version of the guidelines on derogations applicable to international transfers. For further information, please contact Miriam Everett, Nick Pantlin or David Coulling. 15.3 NIS Regulations and Government response to public consultation The Network and Information Systems Regulations (the NIS Regulations) came into force in the UK on 10 May 2018. The NIS Regulations implement the so-called Cyber Security Directive, which was adopted by the European Parliament on 6 July 2016. The Cyber Security Directive provides legal measures to boost the overall level of cyber security in the EU. It required Member States to transpose the directive into domestic legislation by 9 May 2018 and apply the relevant measures from 10 May 2018. The NIS Regulations help make sure UK operators in electricity, transport, water, energy, transport, health and digital infrastructure are prepared to deal with the increasing numbers of cyber threats. The regulations also cover other threats affecting IT, such as power failures, hardware failures and environmental hazards. The NIS Regulations also establish a number of Competent Authorities which will provide appropriate oversight and an enforcement regime for the regulations. The Government has published guidance for the Competent Authorities to help them carry out this function. The guidance can be found here. For further information, please contact Miriam Everett, Nick Pantlin or David Coulling. UK developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 19 16. Australia 16.1 Ipso facto reform In September 2017, the Treasury Laws Amendment (2017 Enterprise Incentives No. 2) Act 2017 (Cth) (the Act) introduced a regime to restrict the ability of counterparties from exercising ipso facto clauses (eg termination or other contractual rights) under contracts where a company enters into certain insolvency procedures. This reform was intended to encourage and facilitate the restructuring of financially distressed businesses. The ipso facto reforms are expected to take effect from 1 July 2018. Unless specifically excluded by regulations or legislative instruments, the stay provisions will apply to all contracts in all industries and segments of the market, entered into on or after that date. The Government recently released draft regulations and a draft instrument, which set out the types of contracts and rights that will be excluded from the stay on ipso facto clauses. Given the breadth of the Act, these exceptions are critical to understanding the scope of the regime. The draft exceptions to the regime include: • Excluded types of contracts: (a) derivatives; (b) subscription agreements for securities; (c) arrangements to which a SPV is a party; (d) margin lending facilities; (e) subordination arrangements; • Excluded types of rights: (f) certain indemnity rights; (g) termination rights in a standstill; (h) rights to change the priority of payments; and (i) rights of set-off and netting. For further information (and a full list of the exceptions to the ipso facto regime), please refer to our briefing on 17 April 2018 here. For further information, please contact Paul Apáthy and Rowena White. 16.2 ASX Corporate Governance Principles and Recommendations – new draft fourth edition released On 2 May 2018, the ASX Corporate Governance Council released the draft fourth edition Corporate Governance Principles and Recommendations (Principles and Recommendations) for public consultation. The consultation draft of the fourth edition Principles and Recommendations is available on the ASX website. ASX-listed entities will be expected to measure their governance practices against the new Principles and Recommendations from financial years beginning on or after 1 July 2019. Key changes – focus on culture and non-financial risk oversight Consistent with international developments in governance regulation, the key change reflected in the fourth edition Principles and Recommendations is a shift towards recognising the importance of monitoring and taking responsibility for conduct and behaviour within the corporate group and for focussed management of and disclosure in relation to non-financial risks, including environmental, social and governance risks, in addition to the traditional focus on financial risks and performance. The fourth edition Principles and Recommendations address emerging issues around corporate values and culture, and social licence to operate, and are directed at encouraging organisations to set “the tone from the top” and ensuring that boards are provided with the information needed to monitor the culture of the organisation. Nine new recommendations are proposed, in addition to a number of enhancements to the current Principles and Recommendations. The consultation period will close Friday 27 July 2018, with the release of the final version expected in early 2019. For further information, please contact Carolyn Pugsley, Priscilla Bryans, Quentin Digby or Stefanie Wilkinson. International developments 20 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS 16.3 The winner takes all: a new approach in resolving competing class actions Multiple (or “competing”) class actions raising same or similar allegations based on the same factual circumstances against the one defendant is a common feature of the Australian litigation landscape, particularly with respect to shareholder claims. This presents challenges to the courts in dealing with competing claims. Until recently, courts have tended to allow the competing claims to proceed but under the same case management judge and timetable. On 23 May 2018, the Federal Court of Australia permanently stayed 2 out of 3 competing class action claims, in effect selecting the vehicle to proceed: Perera v GetSwift Ltd [2018] FCA 732. A key criterion, and the determinative factor, was the court’s assessment of the comparative returns available to group members. The preferred funding model was thought to achieve a better calibration between risk and reward. The other factors considered included: the experience of the legal practitioners; estimated costs; state of preparation of each proceeding; the financial position of the funders; the funders’ positions on provision of security for costs; the substantive merits of each proceeding; the existence of funding agreements; potential “moral hazard” in the particular funding structures on offer; cost control measures; public policy considerations and potential prejudice to the funders and lawyers associated with the claims not allowed to proceed. This decision marks a significant moment in class action jurisprudence. It is currently the subject of an appeal; if upheld, it will be a turning point towards an increased level of competition in the class action funding market, and increased flex in the court's case management powers. For further information, please contact Jason Betts, Christine Tran or Christopher Kahwaji. 16.4 Australian class actions under the knife: recent recommendations for reform Both the Australian Law Reform Commission (ALRC) and Victorian Law Reform Commission (VLRC) recently issued reports following their separate inquiries into class actions and third party litigation funders operative at the Federal level and in the State of Victoria respectively. The VLRC tabled their final report in the Victorian Parliament on 19 June 2018. The ALRC issued their discussion paper on 31 May 2018, inviting further submissions by 30 July 2018 (the final report is due 21 December 2018). The reforms currently under consideration include: • Disclosure laws review: a further review of the consequences of shareholder class actions, specifically the legal and economic impact of the continuous disclosure obligations of Australian listed entities (such as the cost and availability of D&O insurance) (proposed by the ALRC); • Contingency fees: lifting the prohibition on contingency fees for all claims (VLRC) or for class actions only (ALRC); • Regulation of litigation funder: introducing a "litigation funding licence" scheme, including prudential requirements (ALRC), and advocating for a stronger national regulation and supervision of the litigation funding industry (VLRC); • Competing class actions: introducing a specific framework for determining competing class actions (ALRC) or establishing a cross-vesting judicial panel to deal with competing class actions filed in different jurisdictions (VLRC); • Court powers: strengthening the powers of the Federal Court or Supreme Court of Victoria to supervise class actions, including the power to vary funding commissions and review contingency fees, appointing an independent costs assessor to assess legal costs and funding fees and supervising the administration of settlement proceeds (ALRC and VLRC). These potential reforms are igniting strong debate amongst the Australian legal profession and class action industry, and will likely be the subject of further discussion and scrutiny before enactment. For further information, please contact Jason Betts or Christine Tran. International developments HERBERT SMITH FREEHILLS GENERAL COUNSEL UPDATE 21 17. China 17.1 Herbert Smith Freehills' Guide to corporate investigations In China Kyle Wombolt, global head of corporate crime and investigations, and Anita Phillips, a professional support consultant, have published a guide to corporate investigations in China. This forms part of GIR's acclaimed 2018 text, The Practitioner's Guide to Global Investigations, available in print and online. Our chapter covers the legal and regulatory framework in China, running an internal investigation, dealing with cross-border investigations and responding and reporting to the Chinese authorities. In the increasingly global business environment, multinationals face the risk of investigation not only in their principal country of business but in higher-risk jurisdictions with which they are less familiar. International investigations by the US and UK authorities are increasingly targeting operations in China and this chapter navigates the local complexities. Since publication, there have been two key legislative and regulatory developments. First, the legal framework for civil bribery and IP-related offences like passing off, false advertising and trademark infringement was updated in January 2018 under the amended Anti-Unfair Competition Law. Second, at the 13th National People's Conference in March, the creation of the powerful National Supervision Commission (NSC) was announced. This merges the Party's anti-graft watchdog, the Central Commission for Discipline Inspection, with other anti-graft departments, including the Ministry of Supervision. There will no doubt be an uptick in surveillance and investigations in light of the NSC's creation. For further information, please contact Kyle Wombolt or Anita Phillips. 18. Hong Kong 18.1 Hong Kong SFC continues to identify deficiencies in sponsor work in second thematic review On 26 March 2018, the Securities and Futures Commission (SFC) published a circular and a report following its second thematic review of sponsors. As with its first thematic review, the SFC found deficiencies in standards of conduct, due diligence practices, and internal systems and controls. Particularly serious deficiencies and instances of non-compliance were found to be prevalent in the sponsor work done for Growth Enterprise Market listings. This second thematic review covered the work undertaken by 31 sponsors from October 2013 (when the new sponsor regime was introduced) to 31 December 2017. The first thematic review was completed in 2011. In the report, the SFC sets out its observations on non-compliance of the requirements under: • the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission; • the Corporate Finance Adviser Code of Conduct; and • the Main Board and GEM listing rules. The report also highlights some practices observed during the review which met the SFC's expected standards. Both the report and the circular set out the relevant requirements and the SFC's expectations on the areas highlighted. The SFC has made it clear that sponsors with a checkered history in discharging its obligations may expect more frequent inspection visits and supervisory actions, and that future listing applications submitted by them may be subject to closer regulatory scrutiny. The SFC emphasises that it will not hesitate to take enforcement action against those responsible for non-compliance. Our briefing of April 2018 provides an overview of the key points discussed in the SFC circular and report. For further information, please contact William Hallatt, Gareth Thomas, Matthew Emsley or Hannah Cassidy. 18.2 A new global toolkit for fighting misconduct risk: What does this mean for firms and regulators? On 20 April 2018, the Financial Stability Board (FSB) released its long awaited toolkit for firms and regulators’ use in fighting misconduct risk. The toolkit forms part of the FSB’s workplan to mitigate misconduct risk, and builds on existing measures such as the FSB’s guidance on sound compensation practices. The toolkit sets out 19 tools for use by firms and regulators to strengthen governance frameworks in order to reduce misconduct risk. The tools within the toolkit reflect a growing consensus that more aggressive measures need to be taken to prevent, or at least reduce, misconduct by financial institutions before it occurs, rather than harshly punishing that misconduct “after the fact”. The 19 tools within the toolkit are focused on what the FSB consider to be three key areas of misconduct risk: • The role of (poor) culture in driving misconduct within a financial institution; • Lack of individual responsibility and accountability; and • The “rolling bad apples” phenomenon through which individuals who engage in misconduct move between financial institutions without their misconduct being disclosed to their new employer. 22 GENERAL COUNSEL UPDATE HERBERT SMITH FREEHILLS Our briefing of April 2018 provides an overview of the above key areas and our thoughts on the Toolkit. For further information, please contact William Hallatt, Luke Hastings, Andrew Procter, John O'Donnell or Emily Rumble. 19. Singapore 19.1 Lighter touch, or more of the same? Monetary Authority of Singapore issues consultation paper on proposed guidelines on individual accountability and conduct On 26 April 2018, the Monetary Authority of Singapore (MAS) issued a consultation paper on its proposed, and much-anticipated, senior manager accountability regime in the form of "Guidelines on Individual Accountability and Conduct". The consultation paper comes soon after the release of the Financial Stability Board’s toolkit for firms and regulators to use to strengthen governance frameworks to mitigate misconduct risk. The toolkit encourages regulators to develop and monitor a responsibility and accountability framework. Further details on the toolkit can be found in our briefing of April 2018. Like the senior manager accountability regimes in the UK, Hong Kong and Australia, the guidelines seek to strengthen the individual accountability and oversight of directors and senior managers and raise the standards of conduct across the financial services industry. Specifically, the MAS has said that the guidelines reinforce financial institutions responsibilities in three key areas: • promoting the individual accountability of “senior managers”; • strengthening the oversight of “employees in material risk functions”; and • reinforcing standards of proper conduct among all employees. Our briefing of May 2018 provides an overview of the proposed guidelines and their implications. For further information, please contact William Hallatt, Natalie Curtis or Fatim Jumabhoy. 20. United Arab Emirates 20.1 UAE has a new Arbitration Law A new arbitration law, Federal Law No. 6 of 2018, has been promulgated in the UAE. Once it comes into force in the coming months, the new law will apply to any future and ongoing arbitration conducted in the UAE, unless the parties have agreed otherwise. The law is heavily based on the UNCITRAL Model Law on International Commercial Arbitration, but diverges in some areas. Some key points: • The arbitration agreement must be written and can be made by modern methods of electronic messaging such as email. The new law also confirms principles of severability and competenz-competenz. • Notably, the authority of arbitral Tribunals to order interim or conservatory measures and to issue interim or partial awards is expressly recognised. In addition, courts have jurisdiction to order interim or conservatory measures in support of the arbitration. • In a push for efficiency, the law sets out a time limit of six months (with a possibility to extend for another six months) from the date of the first hearing for the issuance of an award unless the parties agreed otherwise. Furthermore, arbitral awards are confidential by default. • The procedure to enforce an arbitration award in the UAE has also been significantly streamlined, increasing the ease and ability with which foreign arbitration awards can be enforced in the UAE. For a more detailed insight, please visit our Arbitration blog here. For further information, please contact Craig Shepherd, Stuart Paterson, Caroline Kehoe or Anna Wren. 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