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Commercial Awareness: The Fortnightly Round-Up (w/b 31st July)

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About The Author

Jack Turner (Commercial Awareness Guru)

Jack is a law graduate from the University of Manchester and is currently working for as an analyst for a 'Big 4' accountancy firm. He has an interest in current affairs, business and commercial law, while also being a talented and passionate musician.

This article is part of the 'Commercial Awareness Fortnightly Round-Up' series, edited by Jack Turner.

Every two weeks, Keep Calm Talk Law will bring you an overview of main commercial stories that have occurred. Detailing the main players involved, the interesting and salient facts, and the main points of discussion that arise from each story, this round-up is intended to be vital tool for developing that commercial knowledge and awareness demanded by the country’s top law firms.

Other articles from this series are listed at the end of this article.

UK Supreme Court Declares Tribunal Fees Illegal

Relationships between employers and employees are generally characterised by an imbalance of power. Employees are vulnerable to exploitation, discrimination, and other undesirable practices. As such, Parliament confers statutory rights on employees instead of leaving their rights to be determined by freedom of contract. Employment Tribunals (ET) are the forum for the enforcement of these rights.

Section 42 of the Tribunals, Courts and Enforcement Act 2007 gives the Lord Chancellor the power to prescribe fees in respect of issues dealt with by tribunals. In July 2013 such fees were introduced for claims presented to an ET and any appeal to the Employment Appeal Tribunal (EAT). The government reasoned that users needed make a contribution to the costs of the court service and a mechanism was needed to deter unmeritorious claims. However, in a landmark decision, the Supreme Court ruled that these fees prevented access to justice and breached both EU and English law.

In English law, the right of access to the courts has long been recognised. The central idea is expressed in the Magna Carta – “we will not deny or defer to any man either Justice or Right.” Since then there has been judicial recognition of the constitutional right of unimpeded access to the courts, negated only by clear statutory enactment.

A series of cases concerning the rights of prisoners’ access to justice developed the principle that even where statute authorises a restriction on this right, the extent of the restriction must be reasonably necessary to fulfil the objective of the statutory provision in question. Therefore, the Lord Chancellor can lawfully impose fees to contribute to the upkeep and resources of the tribunal or to deter frivolous claims which affect the efficiency of the justice system and overall access to justice, but he cannot lawfully impose whatever fees he chooses in order to achieve these purposes; they must be reasonably necessary to fulfil the objectives.

The Supreme Court reasoned that the fall in the number of claims since the fees were introduced has been so sharp, so substantial, and so sustained as to warrant the conclusion that a significant number of people who may have otherwise brought claims have found the fees unaffordable. Indeed, the Ministry of Justice reported that 88,476 claims were brought in 2016-17 compared with 191,541 in 2012-13 before the fees were introduced. The Court further noted that the fees don’t just prevent access to justice because they are unaffordable; they also have the effect of rendering it irrational or futile to bring certain claims. For example, claims to enforce the right to regular work breaks or written particulars of employment do not necessarily seek any financial award. Similarly, some claims which do seek financial award are for modest amounts – if fees of £390 have to be paid to pursue a claim for £200, a sensible person will only pursue the claim if they can be virtually certain that they will succeed. In practice, certainty of success can rarely be guaranteed. The fees effectively prevent access to justice and are therefore unlawful.

The Court explored whether the fees could be justified as being reasonably necessary to achieve the objective of deterring frivolous claims and maintaining the resources of the court. Giving the government a lesson on basic economics, the Court explained that maximising revenue is not achieved through maximising the fee; an optimal fee needs to be found based on the price elasticity of demand. The fees can only have the effect of transferring costs to the user if claims are actually filed. Given that the fees caused a dramatic fall in the number of claims being brought before the ET, less onerous fees which do not discourage claims may have been more effective in meeting the objective of transferring the cost burden to users. As such, the fees were not reasonably necessary and could not be justified.

The Court further recognised the general principle of judicial protection in EU law, which has been enshrined in Articles 6 and 13 of the European Convention on Human Rights and has also been reaffirmed by Article 47 of the Charter of Fundamental Human Rights of the European Union. EU law allows for limitations to the principle of judicial protection subject to the principle of proportionality. However, the Court ruled that given that the fees were unaffordable for some claimants and so high as to prevent certain low value and non-monetary claims from being pursued, the fees were disproportionate and the limitation on judicial protection was also unlawful under EU law.

Dominic Raab, the justice minister, announced that the government will quash employment tribunal fees with immediate effect and reimburse those who have paid them over the past four years, at an estimated cost of £32m.

Talking Points

A right of access to justice is not a meaningful right if it cannot be exercised. The fees were acting as a deterrent preventing some people from bringing genuine and important claims before an ET. As such, this ruling is a victory for justice, welcomed by many workers and unions.

Law firms will also be welcoming this ruling from a business perspective. It is very likely that there will be an increase in cases being brought before employment tribunals now that there is no fee to bring the claim. On top of this, UK businesses will soon be required to disclose how much their male and female employees are being paid. This has led to a real concern about a fresh flood of equal pay cases. Indeed, the BBC has faced criticism over the revealed pay gap between its male and female stars which could leave it open to litigation.

Most employment claims have to be brought within three months of the act complained of. It remains to be seen whether, in light of the decision, there will be a provision to allow for expired, retrospective claims which would have been brought but for the existence of the fee regime. This could further increase the flood of claims anticipated follow the ruling.

The Court did not rule that imposing fees for bringing claims is illegal per se. If they had been more reasonable the fees probably would have been permitted. Some lawyers expect fees to be reintroduced in a more reasonable form and linked to the value of the claim. However, a minority government preoccupied with negotiating Brexit might not see this as a priority or even a possibility.

Law firms with a strength in representing employers in employment disputes include Allen & Overy, Baker McKenzie, Herbert Smith Freehills, Lewis Silkin, and Simmons & Simmons.

“Walkie-Talkie” Building Sold for £1.3bn

The landmark “Walkie-Talkie” skyscraper in central London made headlines in 2013 after the glare from the building was blamed for burning holes in cars on the streets below. This time the building has been responsible for burning holes in the pockets of Hong Kong-based food company Lee Kum Kee Group, who bought the building for a record-breaking £1.3bn. The bulbous building, home to the law firms DWF and Vinson & Elkins, was owned jointly by Canary Wharf Group and Landsec who both agreed to sell their 50 per cent stakes in the building.

This deal follows the sale of the Leadenhall Building, known as the ‘Cheesegrater’, for £1.15bn to Chinese property company CC Land in May. A deal that Herbert Smith Freehills, Mayer Brown, and Berwin Leighton Paisner all landed key roles on.

Talking Points

Chinese investors spent around £2.3bn on City of London commercial properties in the first half of 2017. This inflow of Chinese investment has helped to limit an overall decline in overseas buying since the UK voted to leave the European Union.

A weaker pound following the Brexit referendum result has made UK property cheaper for foreign investors and has contributed to this uptick in Chinese investment. Analysts also attribute this trend to a slowing in the Chinese property market causing Chinese investors to diversify their portfolios by buying properties in global gateway cities.

Chinese investors are keeping Britain’s commercial property market buoyant, much to the pleasure of law firms with a strength in commercial property operating in the City.

CMS is advising Landsec and Berwin Leighton Paisner is advising Canary Wharf Group. Mayer Brown is advising Lee Kum Kee Group.

Financial Institutions Set Out post-Brexit Plans

Financial institutions based in London rely on passporting rights in order to serve customers in the EU. An EU passport permits a financial institution based and regulated in the UK to do business in other member states without having to establish themselves elsewhere in the EU. Brexit could lead to such rights being lost.

As the Article 50 clock counts down and the Bank of England mounts pressure on financial institutions to submit their plans for dealing with a hard Brexit, more financial institutions are going public with their plans to continue to serve EU clients. Bank of America picked Dublin as its main base for EU investment banking and market operations, while Citigroup, Morgan Stanley, and Deutsche Bank chose Frankfurt.

Amsterdam is also proving to be a popular location for some financial institutions. This fortnight, trading venues MarketAxess and Tradeweb have both picked the Dutch capital as their post-Brexit base alongside Japanese banking giant, Mitsubishi UFJ Financial Group. Royal Bank of Scotland also announced that it will expand its Amsterdam office to serve customers in the EU if there is a hard Brexit.

The Dutch city proves to be a popular choice due to its transport links, position at the centre of the continent, and the regulator’s attitude towards financial services. Dutch ministers have also reassured foreign banks that they could avoid a statutorily imposed bonus cap of 20 per cent of salary by using an exception in the law for institutions that employ at least three-quarters of their staff outside the country. 

Talking Points

London provides great opportunities for financial institutions; the ease of doing business in the City and the talent on offer has allowed it to become the financial capital it is today. Further, the costs of relocating and restructuring their operations is an expense that financial institutions would probably rather not incur. As such, most have held off making a final decision on their post-Brexit plans, looking for clarity on the future legal relationship with the EU. However, the ability to wait is coming to an end. KPMG’s Brexit navigator gives September 2017 as the deadline for companies to begin setting up an EU subsidiary. Soon afterwards companies will have to begin executing contingency plans and restructuring their business so as to be able to serve customers in the EU if Britain’s trading relationship with the bloc falls away overnight.

A transition period to allow for an extension of negotiations and the implementation of new arrangements beyond March 2019, when the Article 50 clock ends, accompanied by a clear plan for how the UK proposes to protect passporting rights is vital for upholding the confidence of the financial services industry. A transition period would give financial institutions more time to prepare for life outside of the EU and would delay them in implementing contingency plans. This, in turn, would give them more time to evaluate how Brexit negotiations are heading and whether their plans will need to be implemented at all. Without such a deal, financial institutions could begin to relocate jobs and business outside of London before salient points have even been negotiated.

Firms with a strength in financial services include, amongst many others, Clifford Chance, Linklaters, Allen & Overy, Freshfields, Slaughter & May, Norton Rose Fulbright, Hogan Lovells, Shearman & Sterling, and Simmons & Simmons.

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Tagged: Banking & Finance, Brexit, Commercial Awareness, Commercial Law, Employment Law, Human Rights, Justice, Legal Aid, Legal Business, Legal Careers, Rule of Law

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