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www.brownejacobson.com
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Birmingham Exeter London Manchester Nottingham
www.brownejacobson.com
1
Index
Page
Public Contract Regulations 2015 scope to negotiate?
Craig Elder
2 – 4
Austerity and planning enforcement – can it work?
Jessica Aldridge
5 – 8
Court of Appeal backs affordable homes exemptions
Ben Standing
9 – 12
Finally: European Dynamics win with damages
Anja Beriro
13 – 15
Do all of your companies now have a PSC register?
Emma Grant
16 – 20
The right to privacy and disciplinary investigations
Sarah Hooton
21 – 23
What would Brexit mean for procurement law?
Angelica Hymers
24 – 25
Relief from sanctions: a practical approach
Katie Scott
26 - 29
The articles in this newsletter are for general information only. They do not represent legal advice. You
should always take legal advice before pursuing any course of action discussed in this newsletter. If you
would like to discuss any of this issues raised in this newsletter please call us +44 (0)115 976 6000.
2
Since, and indeed before, the Regulations were introduced, by far the most commonly used processes in UK
procurements are Open and Restricted.
Under the Open and Restricted Procedure, there is little (or no) scope for negotiations without departing
from the Regulations. In the more simple or standardised procurements, this is unlikely to be problematic for
authorities who will principally be seeking a price for clearly stated goods, services or supplies.
For more complex procurements, where for example:
 the needs of the authority cannot be met without adaptation or requires innovative solutions; or
 there is a need for innovative products, services or works that are not already available on the
market.
The competitive dialogue or innovation partnership, can be used.
Clarifications v negotiations
However, and for understandable reasons of cost and time, authorities are often reluctant to use these
processes for all but the largest and most complex procurements. On the other hand, there might be some
issues that the authority wishes to discuss with the bidders through an Open or Restricted Procedure. The
question then arises: to what extent can clarifications be used as a framework for discussions and
management of the procurement process, and when does this veer into negotiation?
The Regulations provide no clear an answer to this question, although there has been some case law which
looks at the extent to which post-tender clarifications can be entered into. In the case of Slovensko, the
court held that “correction or amplification of details of a tender where appropriate, and on an exceptional
basis, particularly where it is clear that they require mere clarification…or correct obvious errors”.
It is therefore likely that there is some discretion to allow correction of obvious errors (and, indeed, the
authority will often wish to do so, in order to ensure that it is able to consider the widest range of bids)
provided that this does not effectively represent a ‘new bid’. It should be relatively clear where: (i) a bidder
has made an obvious typographical error (missing a zero from the price for example), which is likely to be a
permitted clarification; and (ii) the bidder’s price is unattractive, and it is asked to re-submit it, which is
likely to be seen as negotiation, and a new tender not permitted by the Regulations. Assuming that the Open
or Restricted process is being used, the latter situation will place the authority at risk of a successful
procurement challenge.
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Of course, there are likely to be situations in which it is less clear which side of this line that the
‘clarification’ falls on. Advice from procurement or legal colleagues should therefore be taken by authorities
considering post-tender clarification of all but the most minor, clerical errors. In particular, clarifications
which: (i) affect the merits of the tender; (ii) where the ‘real’ position was not clear from the face of the
document; and/or (iii) the error was not obvious at all but corrected only on the basis of knowledge of the
authority outside of the terms of the tender, may be steering closer to what is effectively a new proposal
and, therefore, impermissible negotiations that might place the authority at risk.
It is also worth noting that, in certain cases, there may even be a duty to allow clarification of a tender. The
situations in which such a duty might arise can be summarised as: (i) an error has been made that is clear
from the terms of the tender itself; (ii) the error is known to the authority; (iii) the intended contents of the
tender is clear; and (iv) correcting the error does not affect the score. This is a limited set of circumstances
which would cover, for example, mistakes in completing an address or other formal requirement of the
tender. It is apparent from the case law that there is no duty to allow a bidder to improve its position, or to
clarify areas of its tender which are genuinely unclear from the face of the document. Although, as noted
above, an authority may well wish to do so.
It can be seen from this analysis that scope for authorities, using the Open or Restricted procedures, to enter
into wide-ranging ‘clarification discussions’ with bidders, whilst avoiding risk of challenge, is limited.
What is the obvious alternative?
Competitive Procedure with Negotiation (CPWN)
CPWN allows authorities, providing that this is made clear in the procurement documentation, to accept
initial tenders.
Authorities can therefore go out to tender with every intention of accepting the bids that are returned. In
order to have a realistic chance of doing so, the documents issued to the market (for example, the contract
and specification) will have to be sufficiently clear, balanced and capable of acceptance. In this respect, a
CPWN is no different from a Restricted procedure.
So why would an authority use CPWN rather than Restricted?
The main advantage is that, if for any reason the initial bids cannot be accepted, or the authority wishes to
discuss them with bidders, it is permitted to do so “in order to improve their contents”. This process will
therefore give authorities the scope (but not the obligation) to undertake clarifications/negotiations without
risk of challenge.
4
CPWN may therefore be a useful alternative to a Restricted procedure that might require material
clarification. However, in the author’s view it is unlikely to be a suitable substitute for a Competitive
Dialogue procedure where acceptance of the initial tenders is not realistic. This is because:
 the scope of discussions under CPWN is narrower. In particular, Competitive Dialogue may involve
discussion of “all aspects of the procurement” (rather than merely discussions to “improve their
contents”); and
 the final tenders may also be “clarified, specified or optimised” whereas, under CPWN, final tenders
may not be negotiated or clarified in this way.
Therefore, authorities might not consider CPWN as a realistic alternative not to a full-blooded Competitive
Dialogue but, instead, as a viable substitute in potentially more complex Restricted Procedures in order to
give scope for discussions within the constraints of the Regulations.
Craig Elder | +44 (0)115 976 6089 | Craig.Elder@brownejacobson.com
5
The current situation
Unauthorised development is increasingly becoming a problem for local planning authorities (LPAs). In these
times of austerity, it is seen as an area where cuts can be made and has led to an increasing number of
dedicated enforcement teams being disbanded or having their resources cut.
The impact of austerity on LPAs potentially means that unauthorised development and breaches of planning
control are on the increase, with the LPA unable to monitor actively and enforce compliance with planning
control as effectively as it once could. Despite the budget cuts however, LPAs do have a duty to enforce
breaches of planning control. Limited resources make this difficult. This means that it is more important than
ever that resources are utilised in a targeted manner in order to maximise the effectiveness of the resources
which are available.
The following factors are be considered below:
 is enforcement necessary?
 time limits for taking enforcement action
 enforcement options
 working more efficiently
 communication
 Local Planning Enforcement Plan.
Is enforcement necessary?
Whilst the ideal position is to have every breach of planning control remedied as soon as possible, there are a
number of considerations for LPAs before formal action can be commenced. In order to reduce unnecessary
expenditure, a decision on whether or not enforcement action is necessary should be taken early on in the
process.
In assessing whether or not enforcement action, by whatever means, is necessary, the LPA must consider the
following:
 whether the breach of planning control "unacceptably affects public amenity or the existing use of
land and buildings"
 personal circumstances, such as the health of the persons suspected of acting in breach of planning
control. Case law makes it clear that considerations of humanity must be taken into account in
reaching decisions in relation to enforcement action: see R v Kerrier DC Ex p. Uzell (1996)
 human rights of the people responsible
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 the risk that the LPA is exposed to in taking enforcement action i.e. public criticism, cost, no
forthcoming result
 whether allowing the breach to continue will damage trust in the planning system.
In considering any possible planning enforcement action, the pivotal issue for the LPA is whether the breach
of control would affect public amenity, meriting action in the public interest. It is important to note that the
LPA has a discretion whether or not to take enforcement action and the power to do so should only be used
when expedient to do so. A decision in relation to this should be taken as early as possible to avoid
unnecessary investigation costs.
The LPA must consider the expediency for taking enforcement action having regard to all material planning
considerations raised by a particular breach. Such considerations include any evidence of harm which the
breach may be causing. If the breach is considered to be less serious and not damaging to the surrounding
public, it may not be expedient or necessary to take enforcement action. Accordingly resources can then be
focused elsewhere.
Whatever decision is reached, the reasons for doing so must be clearly and thoroughly documented. A failure
to provide sufficient reasons could result in the LPA becoming susceptible to judicial review proceedings or
becoming the subject of a complaint to the Local Government Ombudsman. The interests of the public must
therefore be carefully considered and weighed against the expediency and necessity of taking enforcement
action.
Time limits for taking enforcement action
In addition to considering the merits of taking enforcement action LPAs should also take care to avoid
exceeding the time limits for taking enforcement action.
Section 187B of the Town and County Planning Act 1990 sets out time limits upon which a development
becomes immune to planning enforcement if no action has been taken. Accordingly if no action is taken
within the following deadlines, the development becomes immune:
 within four years of substantial completion for a breach of planning control consisting of operational
development
 within 4 years for an unauthorised change of use to a single dwellinghouse
 within 10 years for any other breach of planning control (essentially other changes of use).
It is therefore essential that action is commenced before these deadlines pass. Enforcement officers should
take steps to establish when breaches occurred early on in the process so that they are able to prioritise
those cases which are closest to exceeding the enforcement deadlines.
7
Enforcement options
Taking formal enforcement action is not the only way of remedying a breach of planning control. In practice
a satisfactory result can often be achieved by the LPA seeking to negotiate and persuade those responsible to
remedy the breach that has occurred voluntarily. A roundtable meeting can be suggested with parties to
enable a fair and open discussion of the issues at hand.
Of course not all cases are that simple. Once attempts to resolve the breach amicably have been exhausted,
formal enforcement action can be considered. With current budget cuts in mind however, a focus on actively
seeking a solution to the problem should be kept in mind.
In addition, in less serious cases it may be appropriate for the LPA to ask those responsible to apply for
retrospective planning permission. This means that the breach is remedied, upholding the integrity of the
planning system but without more costly and complicated enforcement procedures becoming necessary.
Working more efficiently
Steps should be taken to ensure that despite the lack of dedicated enforcement officers, breaches of
planning control are being actively managed and action is being taken as swiftly as possible. Due to the time
limits mentioned above, it is imperative to ensure that any deadlines are diarised in a central system. This is
a simple way to keep track of deadlines for action to be taken.
In addition matters should be prioritised to ensure that the most serious breaches are considered first. We
are aware that some LPAs have formally decided to prioritise some areas, e.g. health and safety matters:
listed buildings, conservation areas and trees protected by a tree preservation order. Some LPAs have also set
out that some issues would not normally by investigated, e.g. domestic sheds, garages, fencing and walling to
the rear and side of homes; dormer windows that would be permitted development but the materials do not
match the existing roof; unauthorised roller shutters where the shutter box is internal and the shutter, guides
and box are powder coated; all signs; and satellite dishes.
There is a risk that by having a formal policy, those unhappy about the actions of the LPA may challenge the
legality of the policy by way of judicial review. This could lead to unnecessary expense. However it is useful
to see how some LPAs have reacted to the challenges posed by austerity.
Prioritising work and assessing the severity of the breach can be made much easier by front loading
investigations into the breach of planning control. For example, more time should be spent on the initial
investigation into the breach to ascertain the deadlines for taking action i.e. when did the breach first occur?
But also the public importance of the breach so that subsequent matters can be prioritised for action
accordingly. There will be areas of planning control which are of particular importance to LPAs on a case by
8
case basis and so matters should also be prioritised by the importance given to those areas in the LPA’s
planning policy.
Communication
Managing complaints from local residents unhappy with the development which has been undertaken in their
area can be a time-consuming and expensive process. In times of austerity it is inevitable that not every
breach of planning control will be investigated and remedied. It is important to communicate effectively with
the local residents in order for them to understand why certain enforcement decisions are made. Providing
appropriate communication early on in the process can help avoid protracted issues with the local
community.
Local planning enforcement plan
LPAs may wish to consider introducing a local planning enforcement plan (a plan). This can aim to simplify
the process and can be a tool to explain to local residents, developers and town and parish councils the main
principle of the LPA’s policy and approach and the standards of service that can be expected.
This can set out issues such as which cases will be considered a priority and how the LPA plans to
communicate with the public.
However, as mentioned above the difficulty of having a policy such as this is that the policy itself is open to
challenge and it may simply be best to have a structured internal way of working rather than a formal plan.
Conclusion
Austerity has meant that the resources allocated to planning enforcement have been reduced. This means
that enforcement officers who were already overstretched will find it more difficult to ensure that
appropriate enforcement action is taken within the relevant time frames.
Therefore it is important that LPAs use their resources in the most effective manner. This involves a
consideration of whether cases can be resolved through negotiation, prioritising more serious breaches, and
an understanding of when time for enforcement expires.
The current situation is less than ideal, however it is important that LPAs make the best of a difficult
situation and continue to undertake appropriate planning enforcement activity.
Jessica Aldridge | +44 (0)115 976 6036 | jessica.aldridge@brownejacobson.com
9
Index
On 11 May 2016 the Court of Appeal allowed an appeal by the Secretary of State in relation to a High Court
decision to quash a ministerial statement which exempted developers from providing affordable housing for
certain developments. This decision is likely to be welcomed by developers however the effect on the ability
of local authorities to deliver sufficient affordable housing is unclear.
Background
By a Written Ministerial Statement dated 28 November 2014 (the WMS), certain developments were excluded
from affordable housing levies. These levies were placed on developers through section 106 agreements. The
excluded developments were as follows:
 Developments of 10 units or less, and which had a combined gross floor space of no more than 1000
square metres, would be excluded from affordable housing levies and tariff based contributions. This
also applied to residential annexes and extensions.
 A lower threshold would apply in designated rural areas, National Parks and Areas of Outstanding
Natural Beauty, with developments of five units or less to be excluded from affordable housing levies
and tariff based contributions. Developments of between 6 and 10 units would be subject to a
commuted sum payable on or after completion.
 Where a vacant building was brought back into use or demolished for redevelopment, local
authorities would provide a ‘credit’, equivalent to the floor space of the vacant building, to be set
against affordable housing contributions.
The government justified the new policy by stating that it wished to make small-scale developments more
financially viable.
However the decision was challenged by West Berkshire District Council and Reading Borough Council (the
Councils) on a number of grounds. In particular the Councils were concerned that the new policy simply
resulted in a windfall for small landowners and developers and may open to doubt the validity of current
local plans and policies.
In August 2015 the High Court quashed part of the WMS which exempted certain types of development from
the requirement to provide affordable housing. This was on the basis that:
 the ministerial statement was inconsistent with the statutory planning regime
 the Secretary of State had failed to take into account necessary material considerations
 the Secretary of State’s consultation upon the proposals was legally inadequate
10
 the Secretary of State had failed to properly assess the impact of the proposal on persons with
protected characteristics, pursuant to section 149 of the Equality Act 2010
The Secretary of State appealed to the Court of Appeal to overturn the High Court’s conclusions on all four
grounds.
The appeal
The Court of Appeal allowed the Secretary of State’s appeal all four grounds. In particular it was determined
that the statutory planning context prevented the Secretary of State from introducing into planning policy,
matters which were not proper planning considerations at all. Subject to that his policy choices were for him.
The planning legislation established a framework for the making of planning decisions: it did not lay down
merits criteria for planning policy or establish what the policymaker should or should not regard as relevant
to the exercise of policy-making.
The Councils are currently considering whether to appeal.
The effect
The WMS was withdrawn and accordingly the exemptions for small developments will only occur if the policy
is reintroduced by the government.
The government has stated:
“We’re committed to building more homes, including record numbers of affordable homes – key to this is
removing unnecessary red tape and bureaucracy that prevents builders getting on sites in the first place”
Accordingly it is likely that a policy of affordable housing exemptions for small developments will be
published in the near future.
The local plan
Local authorities will be concerned that the exemptions appear to be encouraging the building of market
housing at the expense of the requirement to provide affordable housing. Local authorities should consider
how this is going to impact upon their local plan.
The result may be that larger developments will need to provide a greater percentage of affordable housing
in order to meet the area’s assessed need. However this is likely to be met with significant resistance by
developers and could lead to delay in the delivery of larger developments. Any delay in delivery of larger
developments could have a negative effect on five year housing land supply and accordingly leave local
authorities vulnerable to planning appeals.
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In addition many local authorities have adopted local plan policies which require contributions from all sites,
not just those of 10 houses or more. This may mean that the local plan is out of date and liable to be set
aside in planning decisions and appeals. It is important that local authorities are able to demonstrate why
their local plan should prevail over any newly adopted national policy. Local authorities should consider
whether the local plan needs amending.
New applications
It is also possible that developers with planning permission for plots of less than 10 dwellings who are yet to
commence development will apply for a new planning permission with the affordable housing requirements
removed. Local authorities will need to consider how this impacts upon projected provision of affordable
housing.
Other contributions
Local authorities often need to balance the requirements for contributions from the developers with the
requirement to deliver a five year housing land supply. It is not unusual for below optimum contributions to
be sought in order to allow a development to proceed. For example lower percentages of affordable housing
and lower contributions (such as education and open space) are not uncommon. Accordingly if the
government decides to re-issue its exemptions for small developments local authorities will need to consider
whether they can increase the contributions required in other contribution categories.
It is also arguable that the financial burden placed on developers through planning obligations is not the real
reason for the delay in development coming forward. Other pressures, such as a lack of skilled tradesmen, a
desire not to saturate the market with new homes and an expectation that delay will force local authorities
to allow development in more profitable areas may also play a part.
Accordingly it is possible that the reduction in affordable home requirements will have little impact upon the
number or speed at which developments are delivered.
Conclusion
In combination with the government's introduction of starter homes, and the proposed extension of the right
to buy scheme, the pressure on traditional rented affordable housing continues to grow.
There is a growing pressure from the government to incentivise house building above other needs. Whilst
reducing the developers’ requirement to provide affordable housing may potentially lead to more houses
being built, the effect on long term provision of affordable housing is unclear.
12
What is clear is that local authorities are going to have to find increasingly innovative ways of encouraging
house building without further reducing the provision of affordable housing.
Ben Standing | +44 (0)115 976 6200 | Ben.Standing@brownejacobson.com
13
In a break from the norm, European Dynamics (ED) have been handed a favourable judgment from the
European Court of Justice (the ECJ). The challenge related to a procurement exercise run by the European
Union Intellectual Property Office (EUIPO) for the award of a ‘waterfall’ of framework agreements to three
providers (the Contracts). ED challenged on the basis of:
 a breach by EUIPO of the requirement to state reasons when telling ED that they had been
unsuccessful
 manifest errors of assessment for both the quality and financial evaluation criteria and
 allowing a bidder with a conflict of interest to take part and win;
As well as calling for the outcome of the procurement exercise to be annulled, ED also claimed damages. The
ECJ upheld both those claims, accepting some, but not all of ED’s arguments.
The case is a useful summary of the approach taken in case law in relation to the three issues set out above
and it is unusual that damages were awarded. Readers should note that the rules governing procurement by
central EU bodies are different to those governing member states and are known as the General Financial
Regulation but the principles remain the same. However the requirements of Treaty on the Functioning of the
European Union (the TFEU) apply equally to EU bodies as they do to member states and their organisations.
The requirement to state reasons
The first claim by ED was that the EUIPO did not provide ED with sufficient information to allow them to
understand the reasons for the decision to reject their tender. Article 296(2) of the TFEU (Article 296(2))
requires a contracting authority to disclose its reasoning in a clear and unequivocal fashion in order that the
bidder can understand the reasons for the decision and the ECJ can exercise its powers of review and Article
100(2) of the General Financial Regulation (Article 100(2)) requires all bidders to be given the grounds on
which the decision to reject their tender was taken.
The claim was based on the fact that the EUIPO simply gave the overall sum of points awarded to each of the
three quality evaluation criteria without breaking it down into the sub-criteria. There were negative
assessments of certain elements of ED’s tender without the supporting numerical evidence to show where
points had been deducted. The ECJ held that these were sufficient breaches of both Articles 100(2) and
296(2) to provide a ground to annul the decision by the EUIPO to award the Contracts.
Manifest errors of assessment
In this case the ECJ upheld the claim that there were manifest errors in relation to the assessment of the
qualitative evaluation criteria but not the financial evaluation criteria. Interestingly, the ECJ also ruled as
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inadmissible some of the 14 examples of manifest errors because they did not meet the requirements of
clarity and precision required for a claim.
The manifest errors that the ECJ did find were:
 A criticism by the EUIPO of a lack of certain “key measures” such as a legal agreement with the
incumbent provider to cover transition activities both in and out of the new contract was unjustified.
The detailed requirements were not such that all bidders would interpret them in the same way nor
could they allow the EUIPO to apply them objectively and in the same way to all tenders;
 A criticism by the EUIPO that some of the answers were too long, they were within the word limit.
The EUIPO felt that unnecessary points had been made, when the ECJ held that evaluation criterion
did not make clear what the “other key measures” should be. In one written assessment, the EUIPO
had said that only 25% of the answer was relevant, without explaining why;
 An error in the evaluation of one criterion so as to state in the evaluation summary that the response
didn’t include specific pieces of information when it in fact did;
 A criticism by the EUIPO that ED’s submission for a particular evaluation criterion did not contain
more “pro-activity”. The manifest error was actually in relation to the evaluation summary itself,
rather than to an incorrect evaluation by the EUIPO. The ECJ was critical of the EUIPO not being able
to explain its evaluation summary in a way that changed the interpretation of its criticism;
 The use by the EUIPO of undisclosed sub-criteria when evaluating questions relating to the
development of a business case and client relationship model. In particular, the EUIPO said that the
business case did not take into account the transfer of know-how to national offices of EUIPO. The
ECJ agreed with ED that the tender requirements did not make this transfer of know-how clear. The
requirements were also particularly vague in relation to the client relationship model, meaning that
not all bidders could be expected to interpret them in the same way.
Conflicts of interest
ED claimed that one of the three successful bidders had members of its consortium that had previously been
involved in developing the tender specifications. The ECJ held, firstly, that the EUIPO had taken the
necessary steps to check that such a conflict of interest could not affect the outcome of the procurement
exercise. Secondly, with the same bidder, the member of the consortium with a possible conflict of interest
had not been involved in the bid team for long enough to be able to provide any useful inside information.
ED also claimed that another successful bidder should have been disqualified due to a conflict of interest
because of its interest in another framework awarded by EUIPO. The ECJ dismissed this claim.
The final claim in relation to a conflict of interest was upheld by the ECJ. This related to the fact that a
member of one of the successful consortia had been found to be involved in cases of fraud, corruption and
15
payment of bribes. The ECJ held that the EUIPO had not undertaken sufficient investigation in ascertain the
possible grounds for exclusion. This was sufficient for the decision to award the Contracts to be annulled.
Damages
The ECJ held that the loss of opportunity to obtain the contract flowed directly from the decision by the
EUIPO to reject ED’s tender and was actual and certain damage. Therefore, ED was entitled to damages.
However, the ECJ held that it could not make a decision on the amount of damages and has asked the parties
to agree damages or it will make that decision at a later stage.
The ECJ sets out guidance as to what the parties should take into account when agreeing the value of the
damages. This includes the fact that the framework allows for an extension (the initial term is three years).
Only the initial term should be taken into account. The net profit which could have been made by ED should
be factored into the value of the recoverable loss. Other profits that have been made by ED because of its
failure to win this contract should be taken into account.
Conclusion
This case highlights the importance of setting out clearly the criteria and sub-criteria that a contracting
authority is going to use to evaluate tenders. It emphasises the Lianakis line of case law. It also highlights the
importance of providing adequate and clear feedback to unsuccessful bidders. There is always a balance to
be struck between providing sufficient information to allow bidders to understand why they were not
successful without providing so much that it makes it easier for a bidder to pick holes in what has been said.
Clarity is the key.
The final point in relation to real or potential conflicts of interest supports our advice to clients. Always
address any issues relating to conflicts of interest at the time. They look much worse if they are brushed
under the carpet and addressed retrospectively.
Anja Beriro | +44 (0)115 976 6589 | Anja.Beriro@brownejacobson.com
16
Introduction
From 6 April 2016 all unlisted UK companies and LLPs must now have a new statutory register identifying and
recording persons who have significant influence and control (PSCs) over them – known as a ‘PSC register’.
Companies and LLPs are obliged to keep this information internally from 6 April 2016 and will need to file this
information at Companies House from 30 June 2016 – either as part of the new annual confirmation process
(which will replace the annual return in June 2016) or on a new company incorporation.
This note focuses on these new requirements as they apply to companies rather than LLPs, as these are the
more commonly encountered corporate vehicle.
Background
Until now, a company’s statutory registers would only record the strict legal owner of its shares – they would
not tell you who is ultimately in control of that company (if, for example, there is a chain of companies
above it in a group structure or the shares are held by a nominee).
This lack of transparency around the true controllers of UK companies is one of many reasons why the
government has introduced the new PSC regime. The government wants to enhance transparency and trust in
UK companies – and by flushing out this information also reduce criminal activity which may be hidden by
complex corporate structures – making it harder for criminals to carry out tax evasion, terrorist funding and
money laundering for example.
Who is caught by the requirement to have a PSC register?
The new PSC regime is very wide reaching – all unlisted UK companies (whether limited by shares or
guarantee), community interest companies, societas europaea and LLPs must have a PSC register,
irrespective of their size or complexity. There is no exception for dormant or non-trading companies.
The regime does not currently extend to co-operative societies, community benefit societies and charitable
incorporated associations.
Overseas companies and companies listed on certain regulated markets (e.g. the London Stock Exchange and
AIM) are excluded from the requirement to have a PSC register.
Local authorities themselves would therefore not need to have a PSC register – but any trading subsidiaries,
dormant subsidiaries or joint venture companies (controlled by two local authorities for example) would be
caught.
17
What does a company that must have a PSC register need to do?
In summary, a company needs to:
 keep an internal register of their PSCs from 6 April 2016
 take reasonable steps to identify those persons who should be registered on the PSC register
 enter the required information on the PSC register - and keep this information updated if changes
occur
 make the PSC register available for public inspection free of charge or provide copies on request for
an optional flat fee of £12
 file information about their PSCs at Companies House (as set out above) from 30 June 2016 onwards.
PSCs are under a corresponding duty to notify the company of their interest in certain circumstances.
What are the consequences for breach?
Failure to comply with the new PSC requirements is a criminal offence, which can result in a fine and/or
imprisonment of up to two years.
Offences can be committed by the company and its officers – and also by PSCs themselves if they fail to
provide information to the company as required by law or provide false information. And if a relevant person
fails to respond to a company’s formal requests for PSC information this may eventually result in the
company being able to apply restrictions (such as restrictions on transfer) on the affected shares.
What does the PSC register include?
The new PSC register must identify and record details about a company’s PSCs – recording stipulated
particulars (such as name, address, date of birth etc.) and containing official wording outlining when they
became a PSC and what level of control they have (this official wording is contained in the government
guidance).
All companies must keep a PSC register – even if they have no PSCs or the process of investigating who may
be a PSC is still ongoing. The PSC register can never be empty - and there is prescribed wording to be
included depending on the specific circumstances.
So, who, or what, is a PSC?
Very broadly speaking, a person is a PSC if he/she:
1. holds, directly or indirectly, more than 25% of the nominal value of the company’s issued shares
2. holds, directly or indirectly, more than 25% of the voting rights in the company
3. holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the
company
18
4. has the right to exercise, or actually exercise, significant influence or control over the company
5. exercises or has the right to exercise significant influence or control over a trust or firm, which itself
meets any of the above conditions.
The fourth point above is potentially very wide - and statutory guidance has sought to clarify who this is
intended to catch. This guidance also provides examples of 'excepted roles', which would not generally be
caught.
Generally speaking, professional advisers, trade bodies, company directors and company employees acting in
the normal course would not be caught by this fourth condition – unless they had other opportunities to
exercise influence/control which would take them outside of this exception or the nature of their role went
wider than it is commonly understood. Similarly in a shareholders/investment agreement a minority
shareholder with veto rights purely for the purpose of protecting their minority interest would also not
usually be caught under the fourth condition.
Bear in mind that the legislation also draws a distinction between those PSCs that are registrable and those
that are not - and should be consulted to check whose details should be included on the PSC register in any
given situation, especially where the person has indirect ownership (through corporate entities for example)
as the analysis can be more complicated.
How does the above apply to a company limited by guarantee rather than shares?
A company limited by guarantee without a share capital may well have articles of association which prevent
the distribution of profits and or capital. For example, every charity registered as a company limited by
guarantee must have articles of association which prevent any distribution of profits or capital to members. If
your company cannot distribute profits or capital it will have no PSC who meets condition 1.
However, your company limited by guarantee might well have PSCs or registrable RLEs who meet one or more
of conditions 2 to 5. These will apply to your company notwithstanding that it does not have share capital.
Where your company’s constitution does allow for the distribution of profits or capital, a person will meet
condition 1 in relation to your company if that person holds a right to share in more than 25% of your
company’s profits or capital. Quantification of a person’s interest under condition 1 must be entered on the
register using official prescribed wording.
Confusingly, the official wording refers to shares because this is the most common company form. For your
company limited by guarantee you should consider “shares” to mean profit or capital. You should select the
applicable control statement reading “profit or capital” for shares and considering the percentages contained
in the statements. If, for example, a person has a right to 30% of your company’s capital, you should enter
19
statement 9(j) from Annex 2 of the non-statutory guidance on your company’s PSC register – this states that
“the person holds, directly or indirectly, more than 25% but not more than 50% of the shares in the
company.”
What if my company is owned by a company rather than an individual?
So far we have been considering control of a company by a ‘person’ – meaning a living individual. Of course,
many companies are not directly owned by individuals – they are part of a wider corporate group structure
and their immediate owner may well be another company.
The PSC regime acknowledges this and tries to make life more straightforward for companies forming part of
a wider group by having the concept of ‘relevant legal entities’ (RLEs) – so that details of a registrable RLE
can be recorded in a company’s PSC register rather than the details of any individuals who may ultimately
control that RLE.
Where a UK unlisted company is owned by another legal entity, details of that legal entity can simply be
entered into its PSC register (without looking further up the ownership chain at who owns that immediate
parent) provided that the legal entity in question is a ‘registrable RLE’. It will be a registrable RLE if it:
 meets one or more of the control conditions 1-4 set out above (such as holding more than 25% of
shares or voting rights)
 is a UK registered company (or LLP) that maintains its own PSC register or is a company with shares
listed on certain markets (including the London Stock Exchange)
 is the first such legal entity in the ownership chain above the company.
So, for UK companies that are wholly owned by another UK company the position will be very straightforward
– they will simply record details of their immediate parent company in their PSC register. The logic behind
this is that if someone wants to know which individuals are at the very top of the group structure they can
simply follow the chain of PSC registers of all the UK companies in between in order to identify them.
What information does a company record in its PSC register when it is wholly owned by another
company?
When you need to record an RLE in your PSC register you must include the following information about each
registrable RLE:
 company name
 legal form of the entity and governing law
 registered or principal office
 the register of companies in which it is registered and its registration number
 date on which the entity became registrable as an RLE (for RLEs in place when the new law came in
you simply put 6 April 2016)
20
 any additional registrations the RLE has (e.g. Charity Commission)
 which of the conditions for being an RLE are met (you must include all that are relevant and there is
prescribed wording that must be used (see Annex 2 of the guidance here)
What if my company is wholly or jointly owned by local authorities?
Local authorities unfortunately do not fall within the definition of RLEs for the purposes of this legislation.
However, the new law does treat certain entities as if they are individuals for PSC purposes (which means
that no further digging as to their ultimate ownership or control is required – they can simply be recorded in
the PSC register). Such entities include national or local governments or international organisations (being
one whose members include two or more countries, territories or their governments).
For such entities you must include the following information in your PSC register:
 name
 principal office
 legal form
 law by which it is governed
 the date they became a PSC
 which conditions for being a PSC they meet (once again you must include all that are relevant and
there is prescribed wording that must be used).
What does this all mean for companies directly owned by local authorities?
If you have a company that is wholly or jointly owned by local authorities or another government body, you
will simply record details of each such entity’s name, principal office, legal form, governing law, date of
becoming a PSC and the control conditions they satisfy (using the prescribed wording) in your PSC register
once you have taken reasonable steps to check that they are a PSC and are confident that the details you
have are accurate.
You should keep an audit trail of the steps you have taken to reach this conclusion (in case it is ever called
into question) and should have processes in place going forward to make sure that any required
updates/amendments to the PSC register are made if the control of the company changes in future.
Emma Grant | +44 (0)115 934 2043 | emma.grant@brownejacobson.com
21
In our February edition, we looked at the case of Bărbulescu v Romania, and the impact of an employee’s
right to privacy under Article 8 of the European Convention on Human Rights (ECHR) where an employer
wishes to monitor work emails. Article 8 has again been considered in the case of Garamukanwa v Solent NHS
Trust, this time looking at when it is permissible for an employer to rely on ‘private’ material in a disciplinary
process. The case concerned not only emails sent to work email addresses but also to material provided by
the police to the employer that the employer would not otherwise have had access to.
So was the employer right to rely on that material in this case?
Background of Garamukanwa
Mr Garamukanwa was employed as a Clinical Manager. He formed a relationship with a Staff Nurse, Ms
Maclean, and, after that relationship ended, he suspected that she had formed a relationship with a
Healthcare Support Worker, Ms Smith. He emailed both Ms Maclean and Ms Smith at their work email
addresses, referring to their alleged relationship and telling them that unless they informed their manager
about their relationship, he would do it himself. By that time, an anonymous letter had been sent to their
manager, raising concerns. Ms Maclean and Ms Smith spoke to their manager, denied any inappropriate
conduct and stated that they were not in a relationship. Ms Maclean suggested that Mr Garamukanwa might
have sent the letter because she had ended their relationship recently and he believed she had left him for
Ms Smith. Ms Maclean raised concerns about the email received from Mr Garamukanwa with her manager and
that manager spoke to Mr Garamukanwa, confirming that his email had been inappropriate. Mr Garamukanwa
denied writing the anonymous letter.
Thereafter, a number of emails were sent from various different bogus email addresses (including ‘deesmith’,
‘katieprice’ and ‘notflorencenightingale’) to various members of management which were malicious in nature
and content. The content of the emails also suggested that the author was following Ms Maclean and Ms Smith
on occasion.
A further email was sent to a large number of employees (including Ms Maclean and Ms Smith) from the
‘katieprice’ email address which included unpleasant personal comments. As a result of this email, Ms
Maclean approached the police and made a complaint.
An internal investigation was conducted by the employer and the investigating manager was provided by the
police with copies of photographs found by the police on Mr Garamukanwa’s iPhone including Ms Maclean’s
home and a photograph of a sheet from a notebook containing details of the email addresses from which the
malicious emails had been sent. The investigating manager specifically asked the police whether she was
permitted to use this evidence in the internal investigation and was informed that she was.
22
The investigating officer subsequently relied upon those photographs as establishing a sufficient link between
the malicious emails sent and Mr Garamukanwa. The matter proceeded to a disciplinary hearing and the
disciplinary manager also relied upon those photographs. The claimant was summarily dismissed.
The decision of the Employment Appeal Tribunal
Mr Garamukanwa originally brought a number of claims including unfair dismissal and race discrimination.
However, his appeal related to whether there had been a breach of the Human Rights Act and Article 8 of
ECHR by the employer by failing to respect of his right to a private life.
Mr Garamukanwa argued that the employer (and the Tribunal) had failed to distinguish between public
material such as the anonymous emails sent to the employer’s staff and managers and private material sent
directly between Mr Garamukanwa and his former girlfriend about his private feelings and their relationship,
and the photographs on his iPhone which were not sent anywhere.
The Tribunal held that Article 8 was not engaged here and the EAT found that it was entitled to reach this
conclusion:
 the anonymous emails were sent to work addresses of the recipients and in part dealt with work-
related matters
 employees suffered distress to such an extent that it could have had an adverse impact on their
performance at work
 it was proper for the employer to be concerned about the judgment of the person sending the email.
The Tribunal therefore concluded that Mr Garamukanwa could have had no reasonable expectation of
privacy.
The EAT acknowledged that the Tribunal did not distinguish between any types of materials and treated them
all in the same way but held that the Tribunal was entitled to do so primarily because the police had not
made any distinction between the materials disclosed and had given permission for them all to be relied
upon. Mr Garamukanwa did not object to their use or reliance during the internal proceedings. Further, once
Ms Maclean had complained about the email from Mr Garamukanwa, he must have had an expectation that
further complaints would be made in respect of any subsequent emails. Lastly, those emails did go beyond
private feelings and touch on workplace issues.
The EAT also expressed a view (although it did not need to do so), that if Article 8 was engaged, any
interference would have been justified by the employer’s need to protect the health and welfare of other
employees.
23
Comment
The EAT did not address the issue of whether or not the police were entitled to disclose the information that
it did to the employer and, in light of the express permission given by the police, it would have been a harsh
decision to expect the employer not to rely on the material if they had been misled on this point. However, it
would be easy to imagine an employer being provided with information by another employee, or potentially a
third party, and where objections are raised by an employee during internal proceedings as to their rights to
privacy. Public sector employers need to be live to the issue of privacy in the context of disciplinary
investigations and the potential grounds available for either arguing that the issues being investigated have
been brought into the workplace, and therefore that Article 8 is not engaged, or for arguing that any
interference is justifiable to protect the health and welfare of other employees.
Sarah Hooton | +44 (0)115 976 6033 | Sarah.Hooton@brownejacobson.com
24
The EU procurement regime is complained of by many as unduly restrictive and difficult to manage, and for
those people perhaps one of the welcome thoughts associated with Brexit (a British exit from the EU) is the
possibility of no longer having to run another EU compliant tendering process. For those people this article is
likely to come as rather a disappointment, as it appears to us that the EU procurement regime is here to
stay, in one form or another.
What will happen to EU law and its effect in the UK will depend on the relationship between the UK and the
EU after Brexit. A number of possible outcomes have been suggested, each with their own implications for
procurement law. Whichever approach is taken, it is likely that the UK will wish to retain some relationship
with the EU, bearing in mind that the EU accounts for around 50% of British exports and accordingly, access
to the EU market is vital for UK businesses:
The UK Joins the European Free Trade Association (EFTA) and European Economic Area (EEA)
This approach would see the EU lose influence over many areas of UK life, including agriculture and fisheries,
energy and transport, foreign and security policy, but from a procurement perspective the outlook is likely to
be very much business as usual. EFTA and EEA membership give member countries access to the EU internal
market, and require that EU Member states are given reciprocal access to the markets of EFTA and EEA
members. Accordingly, Non EU states which are party to these agreements are still party to all relevant EU
procurement legislation in the same way as the UK is now.
The UK negotiates free trade agreements with the EU
If this approach was taken, the UK would need to either negotiate one, all-encompassing free trade
agreement, or a number of agreements on a specific sectoral basis. Many countries have free trade
agreements with the EU, such as the TTIP currently being negotiated between America and the EU, and the
CETA between Canada and the EU. The common feature of these agreements is that they all contain a
procurement chapter which (more or less) replicates the EU regime.
Complete break with the EU
If the UK took the approach that a complete break with the EU was necessary, then it could rely on the
various agreements within the World Trade Organisation framework to gain access to the EU market, such as
the Government Procurement Agreement (GPA). The UK is currently party to the GPA through its membership
of the EU, but if it were to leave the EU it would need to join in its own right. This would require signing up
to procurement rules which are not unlike the EU rules currently in place. Accordingly, the position for public
bodies under this approach is unlikely to be significantly different to the position they are currently in.
25
Conclusion
In each case, if the UK wishes to trade with the EU it is likely to need to comply with procurement rules
which are similar to or the same as those it is already subject to. The reason for this is that the EU
procurement regime is intended to protect trade within the internal market by ensuring that companies
across the EU are able to trade on an equal and non-discriminatory basis. Accordingly, the EU is reluctant to
allow third party states (those who are not EU members) to have access to its internal market without giving
its Member states the reciprocal benefit of access to the markets of those states on the same terms. In 2012
the EU put forward a procurement initiative intended to restrict access to the EU internal market to states
not willing to give reciprocal access by allowing EU states to reject bids from such states, thus increasing the
EUs leverage in its negotiations with such states on reciprocal access. The procurement initiative was blocked
by a number of states including the UK, but the EU has recently put forward a new, similar initiative which
could affect the UK if it ceased to be an EU Member state.
It is worth noting that even in the scenario where the UK severs all ties with the EU and does not enter into
any trade deal or arrangement, the UK is likely to continue to require some form of procurement regulation.
Competitive tendering requirements were in place before the present EU procurement regime came into
force and the existence of regulation in this area has given rise to the principle that contractors are entitled
to equal, non-discriminatory treatment when tendering for contracts. Indeed, it is the increasing volume of
procurement challenges which supports and encourages the development in legislation in this area and is the
reason why the EU rules are increasingly detailed, which is a clear sign that procurement legislation is
required. If the EU regime were removed, contractors would still expect the fundamental rights that the EU
regime protects and in all likelihood, public law would need to develop quickly to protect those rights.
Accordingly, this approach would result in a high degree of uncertainty until the law had developed
sufficiently, which in turn would be likely to cause significant headaches for public bodies trying to get to
grips with a quickly changing legal environment.
Accordingly, it appears that there are unlikely to be significant changes to the procurement regime, and, if
such changes were to take place, the likelihood is that there would still be procurement law to comply with,
whether in the form of the EU regulations or otherwise.
Angelica Hymers | +44 (0)115 976 6092 | angelica.hymers@brownejacobson.com
26
In the last six months we have seen a raft of cases relating to the implementation of the three stage test for
applications for relief from sanctions laid down by the Court of Appeal in the cases of Denton v TH White Ltd
& Another, Decadent Vapours Ltd v Bevan & Others and Utilise TDS Ltd v Davies and Another [2014] EWCA Civ
906. In this article I shall take a look at the impact this guidance has had on the courts’ handling of such
applications and provide a practical guide to applications for relief in the post Denton era.
Position pre April 2013
Prior to the implementation of the Jackson reforms on 1 April 2013 it was considered that courts had become
too tolerant of parties non-compliance with orders, rules and practice directions and the delays this non-
compliance caused. It seemed judges were more comfortable using their powers to impose cost penalties,
rather than sanctions for non-compliance, in order to ensure they were seen to be dealing with cases justly in
accordance with the over-riding objective. Lord Justice Jackson was concerned with the “damage this
culture of delay and non-compliance [was] inflicting upon the civil justice system,” and considered it needed
to be addressed.
Consequently the 1 April 2013 brought with it changes to the rules relating to applications for relief with the
new test requiring Judges to consider all the circumstances, so as to enable them to deal justly with
applications, including the need:
a) for litigation to be conducted efficiently and at a proportionate costs
b) to enforce compliance with rules, practice directions and orders.
It was hoped that with the new more stringent test, and the words of Lord Justice Jackson’s final report
ringing in their ears, judges at all levels would take heed of the consequences non-compliance was having on
the court system and take a far less tolerant approach to parties who defected from the rules.
Post April 2013 and Mitchell
Unfortunately, immediately post 1 April 2013, what we actually saw was a very inconsistent application of
the new test. Accordingly, when the first case relating to an application for relief from sanctions, Mitchell MP
v New Group Newspapers Limited [2013] EWCA Civ 1537, came before it in November 2013 the Court of
Appeal took the opportunity to lay down a no nonsense approach when it came to applications.
This stringent approach attracted much negative comment as it was felt that the pendulum had swung too far
the opposite way. So through the following cases of Denton v TH White Ltd & Another, Decadent Vapours Ltd
v Bevan & Others and Utilise TDS Ltd v Davies and Another [2014] EWCA Civ 906 the Court of Appeal laid
down more detailed guidance to assist lower courts when giving judgement on applications for relief. This
guidance consisted of a three stage test:
27
1. The court should identify and assess the seriousness or significance of the ‘failure to comply with any
rule, practice direction, or court order’ which engages CPR 3.9(1);
2. The court should consider why the default occurred;
3. The court should “evaluate all the circumstances of the case, so as to enable it to deal justly with
the application including factors in CPR3.9(1)(a) and (b)” (which are set out above).
Post Denton
The Denton cases were meant to introduce more flexibility into how courts should approach applications for
relief, seemingly relaxing the strict line imposed by the Mitchell decision. So has this worked? Over the last
six months we have seen a number of cases from courts at varying levels dealing with applications for relief
from sanctions with varying results.
British Gas Trading Ltd v Oak Cash and Carry Ltd [2016] EWCA Civ 153
The defendant was two days late in complying with the terms of an unless order and its defence was struck
out. The defendant’s subsequent application for relief from sanction was allowed at first instance but refused
on appeal so the defendant appealed to the Court of Appeal.
Appeal was dismissed and relief was refused.
On hearing the appeal Jackson LJ considered whether the court should give consideration to the defendant’s
original breach giving rise to the unless order when assessing the seriousness or significance of the breach as
unless orders were usually only made when a breach already existed. In this situation whilst the defendant
had only missed the date in the unless order by two days it was 18 days late under the original order. Jackson
LJ held that this was a serious and significant breach as the Defendant’s breach of the unless order should
not be viewed in isolation as it was necessary to consider the underlying breach.
Jackson LJ also commented on the defendant’s failure to apply for relief from sanctions promptly. Their
delay had caused a loss of the trial date, which was critical and meant that relief must be refused.
Gentry v Miller and another [2016] EWCA Civ 141
The claimant obtained default judgment and an order awarding damages against the defendant who failed to
file an acknowledgment of service. The defendant’s insurer applied to set aside the judgment and costs order
on the basis of evidence that the claim was fraudulent.
Relief was refused.
28
On hearing the application Vos LJ found that the insurer had delayed inexcusably in making the application.
He held that judgment could not be set aside, long after it had been made simply on the basis of an
allegation of fraud.
In his judgment Vos LJ also made clear that professional litigants, such as insurers, should be held responsible
for any disregard of their own commercial interests as professional litigants were particularly qualified to
respect the change in litigation culture introduced by Mitchell and the Denton cases. This decision also
provided a warning to insurers to investigate claims at the outset. Insurers are professional litigants who
should take active steps to protect their interests from the start and, if they take part in litigation, should
conduct it efficiently, ensuring orders and directions are complied with.
BPP Holdings v Her Majesty’s Revenue and Customs Commissioners [2016] EWCA Civ 121
This claim concerned a decision made by the Tax Tribunal. HMRC failed to comply with an order requiring it
to properly particularise its claim. The First-Tier Tax Tribunal applied CPR 3.9 in compliance with the
guidance in Denton and granted a debarring order, preventing HMRC participating in the proceedings. On
appeal, the Upper Tribunal overturned the debarring order, stating it was not open to a tribunal to apply
changes in the CPR.
The matter was referred to the Court of Appeal who found that there was nothing in the wording of the
overriding objective in the Tax Tribunal rules which was inconsistent with the general legal policy described
in Mitchell and the Denton cases. The Court of Appeal also failed to see any justification for a more relaxed
approach to compliance with rules and directions in tribunals.
Murray v BAE Systems Plc 2016
The claimant filed its costs budget seven days late, meaning its entitlement to recovery costs was limited to
applicable court fees only. The claimant applied for relief from sanctions, but its application failed at first
instance so an appeal was lodged.
The appeal was allowed.
The judge hearing the appeal held that the first instance judge should not have rejected the suggestion that
the consequences of the claimant's breach should be taken into account in categorising the nature of the
breach. The breach had been caused by an isolated mistake made by the claimant’s solicitor following a
genuine breakdown in communications. The appeal judge therefore did not consider that the claimant's
breach could fairly be categorised as "serious and significant” as the litigation could be conducted
efficiently, at proportionate cost and without being adversely affected by the breach; that the application
for relief had been made promptly; that there had been no previous breach in the proceedings; that the
District Judge could have proceeded to assess the costs budget in any event; and that the claimant's
solicitor's mistake was an isolated one and due to a genuine breakdown of communication.
29
The Appeal Judge found that consideration should have been given to where the breach lay on the scale of
seriousness and significance and in this instance believed that it would fall towards the bottom of any
applicable scale.
So what can we learn from the recent case law?
While the overarching message seems to be that the Denton cases have introduced more flexibility into how
the courts should approach applications for relief from sanctions, through its decisions, the Court of Appeal is
still sending out the message that courts are to take a strict approach to compliance. In light of this there is
undoubtedly greater incentive on parties to avoid being in a situation where they have to seek relief but,
given the manner in which litigation can develop, it would be artificial of me to suggest that parties just
avoid the need to seek relief altogether. I have therefore set out some practical tips for when it comes to
non-compliance with orders, rules and practice directions:
 Ensure that parties set a realistic timetable from the outset.
 Anticipate non-compliance and, in good time, try and agree with your opponent a ‘buffer order’ using
the provisions of CPR3.8(4).
 In the absence of agreement from your opponent, apply for an extension of time. But do make sure
that applications are made at the earliest possible opportunity so that you avoid having to seek
retrospective permission as this will be treated as an application for relief from sanctions.
 If you are having difficulties with a deadline or if there is any doubt over the wording of an order –
communicate with the court at the earliest possible opportunity.
 Do not assume the court shall approve a consent order where the parties have agreed an extension of
time. Make sure you have obtained court approval before relying on any extension agreed between
the parties.
 If you do miss a deadline, act promptly. Delays in seeking relief, especially when the non-compliance
impacts on other aspect of the court’s timetable, seems to one of the most significant reasons for
applications being refused.
 Finally, if you find yourself in a position where your opponent requires relief from sanctions do not
view it as an opportunity to gain a tactical advantage but co-operate as in the Denton cases the Court
of Appeal warned that parties who unreasonably oppose applications for relief (and time extensions)
will be penalised.
Katie Scott | +44 (0)161 300 8033 | katie.scott@brownejacobson.com

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Public matters May 2016

  • 1. Birmingham Exeter London Manchester Nottingham www.brownejacobson.com 0
  • 2. Birmingham Exeter London Manchester Nottingham www.brownejacobson.com 1 Index Page Public Contract Regulations 2015 scope to negotiate? Craig Elder 2 – 4 Austerity and planning enforcement – can it work? Jessica Aldridge 5 – 8 Court of Appeal backs affordable homes exemptions Ben Standing 9 – 12 Finally: European Dynamics win with damages Anja Beriro 13 – 15 Do all of your companies now have a PSC register? Emma Grant 16 – 20 The right to privacy and disciplinary investigations Sarah Hooton 21 – 23 What would Brexit mean for procurement law? Angelica Hymers 24 – 25 Relief from sanctions: a practical approach Katie Scott 26 - 29 The articles in this newsletter are for general information only. They do not represent legal advice. You should always take legal advice before pursuing any course of action discussed in this newsletter. If you would like to discuss any of this issues raised in this newsletter please call us +44 (0)115 976 6000.
  • 3. 2 Since, and indeed before, the Regulations were introduced, by far the most commonly used processes in UK procurements are Open and Restricted. Under the Open and Restricted Procedure, there is little (or no) scope for negotiations without departing from the Regulations. In the more simple or standardised procurements, this is unlikely to be problematic for authorities who will principally be seeking a price for clearly stated goods, services or supplies. For more complex procurements, where for example:  the needs of the authority cannot be met without adaptation or requires innovative solutions; or  there is a need for innovative products, services or works that are not already available on the market. The competitive dialogue or innovation partnership, can be used. Clarifications v negotiations However, and for understandable reasons of cost and time, authorities are often reluctant to use these processes for all but the largest and most complex procurements. On the other hand, there might be some issues that the authority wishes to discuss with the bidders through an Open or Restricted Procedure. The question then arises: to what extent can clarifications be used as a framework for discussions and management of the procurement process, and when does this veer into negotiation? The Regulations provide no clear an answer to this question, although there has been some case law which looks at the extent to which post-tender clarifications can be entered into. In the case of Slovensko, the court held that “correction or amplification of details of a tender where appropriate, and on an exceptional basis, particularly where it is clear that they require mere clarification…or correct obvious errors”. It is therefore likely that there is some discretion to allow correction of obvious errors (and, indeed, the authority will often wish to do so, in order to ensure that it is able to consider the widest range of bids) provided that this does not effectively represent a ‘new bid’. It should be relatively clear where: (i) a bidder has made an obvious typographical error (missing a zero from the price for example), which is likely to be a permitted clarification; and (ii) the bidder’s price is unattractive, and it is asked to re-submit it, which is likely to be seen as negotiation, and a new tender not permitted by the Regulations. Assuming that the Open or Restricted process is being used, the latter situation will place the authority at risk of a successful procurement challenge.
  • 4. 3 Of course, there are likely to be situations in which it is less clear which side of this line that the ‘clarification’ falls on. Advice from procurement or legal colleagues should therefore be taken by authorities considering post-tender clarification of all but the most minor, clerical errors. In particular, clarifications which: (i) affect the merits of the tender; (ii) where the ‘real’ position was not clear from the face of the document; and/or (iii) the error was not obvious at all but corrected only on the basis of knowledge of the authority outside of the terms of the tender, may be steering closer to what is effectively a new proposal and, therefore, impermissible negotiations that might place the authority at risk. It is also worth noting that, in certain cases, there may even be a duty to allow clarification of a tender. The situations in which such a duty might arise can be summarised as: (i) an error has been made that is clear from the terms of the tender itself; (ii) the error is known to the authority; (iii) the intended contents of the tender is clear; and (iv) correcting the error does not affect the score. This is a limited set of circumstances which would cover, for example, mistakes in completing an address or other formal requirement of the tender. It is apparent from the case law that there is no duty to allow a bidder to improve its position, or to clarify areas of its tender which are genuinely unclear from the face of the document. Although, as noted above, an authority may well wish to do so. It can be seen from this analysis that scope for authorities, using the Open or Restricted procedures, to enter into wide-ranging ‘clarification discussions’ with bidders, whilst avoiding risk of challenge, is limited. What is the obvious alternative? Competitive Procedure with Negotiation (CPWN) CPWN allows authorities, providing that this is made clear in the procurement documentation, to accept initial tenders. Authorities can therefore go out to tender with every intention of accepting the bids that are returned. In order to have a realistic chance of doing so, the documents issued to the market (for example, the contract and specification) will have to be sufficiently clear, balanced and capable of acceptance. In this respect, a CPWN is no different from a Restricted procedure. So why would an authority use CPWN rather than Restricted? The main advantage is that, if for any reason the initial bids cannot be accepted, or the authority wishes to discuss them with bidders, it is permitted to do so “in order to improve their contents”. This process will therefore give authorities the scope (but not the obligation) to undertake clarifications/negotiations without risk of challenge.
  • 5. 4 CPWN may therefore be a useful alternative to a Restricted procedure that might require material clarification. However, in the author’s view it is unlikely to be a suitable substitute for a Competitive Dialogue procedure where acceptance of the initial tenders is not realistic. This is because:  the scope of discussions under CPWN is narrower. In particular, Competitive Dialogue may involve discussion of “all aspects of the procurement” (rather than merely discussions to “improve their contents”); and  the final tenders may also be “clarified, specified or optimised” whereas, under CPWN, final tenders may not be negotiated or clarified in this way. Therefore, authorities might not consider CPWN as a realistic alternative not to a full-blooded Competitive Dialogue but, instead, as a viable substitute in potentially more complex Restricted Procedures in order to give scope for discussions within the constraints of the Regulations. Craig Elder | +44 (0)115 976 6089 | Craig.Elder@brownejacobson.com
  • 6. 5 The current situation Unauthorised development is increasingly becoming a problem for local planning authorities (LPAs). In these times of austerity, it is seen as an area where cuts can be made and has led to an increasing number of dedicated enforcement teams being disbanded or having their resources cut. The impact of austerity on LPAs potentially means that unauthorised development and breaches of planning control are on the increase, with the LPA unable to monitor actively and enforce compliance with planning control as effectively as it once could. Despite the budget cuts however, LPAs do have a duty to enforce breaches of planning control. Limited resources make this difficult. This means that it is more important than ever that resources are utilised in a targeted manner in order to maximise the effectiveness of the resources which are available. The following factors are be considered below:  is enforcement necessary?  time limits for taking enforcement action  enforcement options  working more efficiently  communication  Local Planning Enforcement Plan. Is enforcement necessary? Whilst the ideal position is to have every breach of planning control remedied as soon as possible, there are a number of considerations for LPAs before formal action can be commenced. In order to reduce unnecessary expenditure, a decision on whether or not enforcement action is necessary should be taken early on in the process. In assessing whether or not enforcement action, by whatever means, is necessary, the LPA must consider the following:  whether the breach of planning control "unacceptably affects public amenity or the existing use of land and buildings"  personal circumstances, such as the health of the persons suspected of acting in breach of planning control. Case law makes it clear that considerations of humanity must be taken into account in reaching decisions in relation to enforcement action: see R v Kerrier DC Ex p. Uzell (1996)  human rights of the people responsible
  • 7. 6  the risk that the LPA is exposed to in taking enforcement action i.e. public criticism, cost, no forthcoming result  whether allowing the breach to continue will damage trust in the planning system. In considering any possible planning enforcement action, the pivotal issue for the LPA is whether the breach of control would affect public amenity, meriting action in the public interest. It is important to note that the LPA has a discretion whether or not to take enforcement action and the power to do so should only be used when expedient to do so. A decision in relation to this should be taken as early as possible to avoid unnecessary investigation costs. The LPA must consider the expediency for taking enforcement action having regard to all material planning considerations raised by a particular breach. Such considerations include any evidence of harm which the breach may be causing. If the breach is considered to be less serious and not damaging to the surrounding public, it may not be expedient or necessary to take enforcement action. Accordingly resources can then be focused elsewhere. Whatever decision is reached, the reasons for doing so must be clearly and thoroughly documented. A failure to provide sufficient reasons could result in the LPA becoming susceptible to judicial review proceedings or becoming the subject of a complaint to the Local Government Ombudsman. The interests of the public must therefore be carefully considered and weighed against the expediency and necessity of taking enforcement action. Time limits for taking enforcement action In addition to considering the merits of taking enforcement action LPAs should also take care to avoid exceeding the time limits for taking enforcement action. Section 187B of the Town and County Planning Act 1990 sets out time limits upon which a development becomes immune to planning enforcement if no action has been taken. Accordingly if no action is taken within the following deadlines, the development becomes immune:  within four years of substantial completion for a breach of planning control consisting of operational development  within 4 years for an unauthorised change of use to a single dwellinghouse  within 10 years for any other breach of planning control (essentially other changes of use). It is therefore essential that action is commenced before these deadlines pass. Enforcement officers should take steps to establish when breaches occurred early on in the process so that they are able to prioritise those cases which are closest to exceeding the enforcement deadlines.
  • 8. 7 Enforcement options Taking formal enforcement action is not the only way of remedying a breach of planning control. In practice a satisfactory result can often be achieved by the LPA seeking to negotiate and persuade those responsible to remedy the breach that has occurred voluntarily. A roundtable meeting can be suggested with parties to enable a fair and open discussion of the issues at hand. Of course not all cases are that simple. Once attempts to resolve the breach amicably have been exhausted, formal enforcement action can be considered. With current budget cuts in mind however, a focus on actively seeking a solution to the problem should be kept in mind. In addition, in less serious cases it may be appropriate for the LPA to ask those responsible to apply for retrospective planning permission. This means that the breach is remedied, upholding the integrity of the planning system but without more costly and complicated enforcement procedures becoming necessary. Working more efficiently Steps should be taken to ensure that despite the lack of dedicated enforcement officers, breaches of planning control are being actively managed and action is being taken as swiftly as possible. Due to the time limits mentioned above, it is imperative to ensure that any deadlines are diarised in a central system. This is a simple way to keep track of deadlines for action to be taken. In addition matters should be prioritised to ensure that the most serious breaches are considered first. We are aware that some LPAs have formally decided to prioritise some areas, e.g. health and safety matters: listed buildings, conservation areas and trees protected by a tree preservation order. Some LPAs have also set out that some issues would not normally by investigated, e.g. domestic sheds, garages, fencing and walling to the rear and side of homes; dormer windows that would be permitted development but the materials do not match the existing roof; unauthorised roller shutters where the shutter box is internal and the shutter, guides and box are powder coated; all signs; and satellite dishes. There is a risk that by having a formal policy, those unhappy about the actions of the LPA may challenge the legality of the policy by way of judicial review. This could lead to unnecessary expense. However it is useful to see how some LPAs have reacted to the challenges posed by austerity. Prioritising work and assessing the severity of the breach can be made much easier by front loading investigations into the breach of planning control. For example, more time should be spent on the initial investigation into the breach to ascertain the deadlines for taking action i.e. when did the breach first occur? But also the public importance of the breach so that subsequent matters can be prioritised for action accordingly. There will be areas of planning control which are of particular importance to LPAs on a case by
  • 9. 8 case basis and so matters should also be prioritised by the importance given to those areas in the LPA’s planning policy. Communication Managing complaints from local residents unhappy with the development which has been undertaken in their area can be a time-consuming and expensive process. In times of austerity it is inevitable that not every breach of planning control will be investigated and remedied. It is important to communicate effectively with the local residents in order for them to understand why certain enforcement decisions are made. Providing appropriate communication early on in the process can help avoid protracted issues with the local community. Local planning enforcement plan LPAs may wish to consider introducing a local planning enforcement plan (a plan). This can aim to simplify the process and can be a tool to explain to local residents, developers and town and parish councils the main principle of the LPA’s policy and approach and the standards of service that can be expected. This can set out issues such as which cases will be considered a priority and how the LPA plans to communicate with the public. However, as mentioned above the difficulty of having a policy such as this is that the policy itself is open to challenge and it may simply be best to have a structured internal way of working rather than a formal plan. Conclusion Austerity has meant that the resources allocated to planning enforcement have been reduced. This means that enforcement officers who were already overstretched will find it more difficult to ensure that appropriate enforcement action is taken within the relevant time frames. Therefore it is important that LPAs use their resources in the most effective manner. This involves a consideration of whether cases can be resolved through negotiation, prioritising more serious breaches, and an understanding of when time for enforcement expires. The current situation is less than ideal, however it is important that LPAs make the best of a difficult situation and continue to undertake appropriate planning enforcement activity. Jessica Aldridge | +44 (0)115 976 6036 | jessica.aldridge@brownejacobson.com
  • 10. 9 Index On 11 May 2016 the Court of Appeal allowed an appeal by the Secretary of State in relation to a High Court decision to quash a ministerial statement which exempted developers from providing affordable housing for certain developments. This decision is likely to be welcomed by developers however the effect on the ability of local authorities to deliver sufficient affordable housing is unclear. Background By a Written Ministerial Statement dated 28 November 2014 (the WMS), certain developments were excluded from affordable housing levies. These levies were placed on developers through section 106 agreements. The excluded developments were as follows:  Developments of 10 units or less, and which had a combined gross floor space of no more than 1000 square metres, would be excluded from affordable housing levies and tariff based contributions. This also applied to residential annexes and extensions.  A lower threshold would apply in designated rural areas, National Parks and Areas of Outstanding Natural Beauty, with developments of five units or less to be excluded from affordable housing levies and tariff based contributions. Developments of between 6 and 10 units would be subject to a commuted sum payable on or after completion.  Where a vacant building was brought back into use or demolished for redevelopment, local authorities would provide a ‘credit’, equivalent to the floor space of the vacant building, to be set against affordable housing contributions. The government justified the new policy by stating that it wished to make small-scale developments more financially viable. However the decision was challenged by West Berkshire District Council and Reading Borough Council (the Councils) on a number of grounds. In particular the Councils were concerned that the new policy simply resulted in a windfall for small landowners and developers and may open to doubt the validity of current local plans and policies. In August 2015 the High Court quashed part of the WMS which exempted certain types of development from the requirement to provide affordable housing. This was on the basis that:  the ministerial statement was inconsistent with the statutory planning regime  the Secretary of State had failed to take into account necessary material considerations  the Secretary of State’s consultation upon the proposals was legally inadequate
  • 11. 10  the Secretary of State had failed to properly assess the impact of the proposal on persons with protected characteristics, pursuant to section 149 of the Equality Act 2010 The Secretary of State appealed to the Court of Appeal to overturn the High Court’s conclusions on all four grounds. The appeal The Court of Appeal allowed the Secretary of State’s appeal all four grounds. In particular it was determined that the statutory planning context prevented the Secretary of State from introducing into planning policy, matters which were not proper planning considerations at all. Subject to that his policy choices were for him. The planning legislation established a framework for the making of planning decisions: it did not lay down merits criteria for planning policy or establish what the policymaker should or should not regard as relevant to the exercise of policy-making. The Councils are currently considering whether to appeal. The effect The WMS was withdrawn and accordingly the exemptions for small developments will only occur if the policy is reintroduced by the government. The government has stated: “We’re committed to building more homes, including record numbers of affordable homes – key to this is removing unnecessary red tape and bureaucracy that prevents builders getting on sites in the first place” Accordingly it is likely that a policy of affordable housing exemptions for small developments will be published in the near future. The local plan Local authorities will be concerned that the exemptions appear to be encouraging the building of market housing at the expense of the requirement to provide affordable housing. Local authorities should consider how this is going to impact upon their local plan. The result may be that larger developments will need to provide a greater percentage of affordable housing in order to meet the area’s assessed need. However this is likely to be met with significant resistance by developers and could lead to delay in the delivery of larger developments. Any delay in delivery of larger developments could have a negative effect on five year housing land supply and accordingly leave local authorities vulnerable to planning appeals.
  • 12. 11 In addition many local authorities have adopted local plan policies which require contributions from all sites, not just those of 10 houses or more. This may mean that the local plan is out of date and liable to be set aside in planning decisions and appeals. It is important that local authorities are able to demonstrate why their local plan should prevail over any newly adopted national policy. Local authorities should consider whether the local plan needs amending. New applications It is also possible that developers with planning permission for plots of less than 10 dwellings who are yet to commence development will apply for a new planning permission with the affordable housing requirements removed. Local authorities will need to consider how this impacts upon projected provision of affordable housing. Other contributions Local authorities often need to balance the requirements for contributions from the developers with the requirement to deliver a five year housing land supply. It is not unusual for below optimum contributions to be sought in order to allow a development to proceed. For example lower percentages of affordable housing and lower contributions (such as education and open space) are not uncommon. Accordingly if the government decides to re-issue its exemptions for small developments local authorities will need to consider whether they can increase the contributions required in other contribution categories. It is also arguable that the financial burden placed on developers through planning obligations is not the real reason for the delay in development coming forward. Other pressures, such as a lack of skilled tradesmen, a desire not to saturate the market with new homes and an expectation that delay will force local authorities to allow development in more profitable areas may also play a part. Accordingly it is possible that the reduction in affordable home requirements will have little impact upon the number or speed at which developments are delivered. Conclusion In combination with the government's introduction of starter homes, and the proposed extension of the right to buy scheme, the pressure on traditional rented affordable housing continues to grow. There is a growing pressure from the government to incentivise house building above other needs. Whilst reducing the developers’ requirement to provide affordable housing may potentially lead to more houses being built, the effect on long term provision of affordable housing is unclear.
  • 13. 12 What is clear is that local authorities are going to have to find increasingly innovative ways of encouraging house building without further reducing the provision of affordable housing. Ben Standing | +44 (0)115 976 6200 | Ben.Standing@brownejacobson.com
  • 14. 13 In a break from the norm, European Dynamics (ED) have been handed a favourable judgment from the European Court of Justice (the ECJ). The challenge related to a procurement exercise run by the European Union Intellectual Property Office (EUIPO) for the award of a ‘waterfall’ of framework agreements to three providers (the Contracts). ED challenged on the basis of:  a breach by EUIPO of the requirement to state reasons when telling ED that they had been unsuccessful  manifest errors of assessment for both the quality and financial evaluation criteria and  allowing a bidder with a conflict of interest to take part and win; As well as calling for the outcome of the procurement exercise to be annulled, ED also claimed damages. The ECJ upheld both those claims, accepting some, but not all of ED’s arguments. The case is a useful summary of the approach taken in case law in relation to the three issues set out above and it is unusual that damages were awarded. Readers should note that the rules governing procurement by central EU bodies are different to those governing member states and are known as the General Financial Regulation but the principles remain the same. However the requirements of Treaty on the Functioning of the European Union (the TFEU) apply equally to EU bodies as they do to member states and their organisations. The requirement to state reasons The first claim by ED was that the EUIPO did not provide ED with sufficient information to allow them to understand the reasons for the decision to reject their tender. Article 296(2) of the TFEU (Article 296(2)) requires a contracting authority to disclose its reasoning in a clear and unequivocal fashion in order that the bidder can understand the reasons for the decision and the ECJ can exercise its powers of review and Article 100(2) of the General Financial Regulation (Article 100(2)) requires all bidders to be given the grounds on which the decision to reject their tender was taken. The claim was based on the fact that the EUIPO simply gave the overall sum of points awarded to each of the three quality evaluation criteria without breaking it down into the sub-criteria. There were negative assessments of certain elements of ED’s tender without the supporting numerical evidence to show where points had been deducted. The ECJ held that these were sufficient breaches of both Articles 100(2) and 296(2) to provide a ground to annul the decision by the EUIPO to award the Contracts. Manifest errors of assessment In this case the ECJ upheld the claim that there were manifest errors in relation to the assessment of the qualitative evaluation criteria but not the financial evaluation criteria. Interestingly, the ECJ also ruled as
  • 15. 14 inadmissible some of the 14 examples of manifest errors because they did not meet the requirements of clarity and precision required for a claim. The manifest errors that the ECJ did find were:  A criticism by the EUIPO of a lack of certain “key measures” such as a legal agreement with the incumbent provider to cover transition activities both in and out of the new contract was unjustified. The detailed requirements were not such that all bidders would interpret them in the same way nor could they allow the EUIPO to apply them objectively and in the same way to all tenders;  A criticism by the EUIPO that some of the answers were too long, they were within the word limit. The EUIPO felt that unnecessary points had been made, when the ECJ held that evaluation criterion did not make clear what the “other key measures” should be. In one written assessment, the EUIPO had said that only 25% of the answer was relevant, without explaining why;  An error in the evaluation of one criterion so as to state in the evaluation summary that the response didn’t include specific pieces of information when it in fact did;  A criticism by the EUIPO that ED’s submission for a particular evaluation criterion did not contain more “pro-activity”. The manifest error was actually in relation to the evaluation summary itself, rather than to an incorrect evaluation by the EUIPO. The ECJ was critical of the EUIPO not being able to explain its evaluation summary in a way that changed the interpretation of its criticism;  The use by the EUIPO of undisclosed sub-criteria when evaluating questions relating to the development of a business case and client relationship model. In particular, the EUIPO said that the business case did not take into account the transfer of know-how to national offices of EUIPO. The ECJ agreed with ED that the tender requirements did not make this transfer of know-how clear. The requirements were also particularly vague in relation to the client relationship model, meaning that not all bidders could be expected to interpret them in the same way. Conflicts of interest ED claimed that one of the three successful bidders had members of its consortium that had previously been involved in developing the tender specifications. The ECJ held, firstly, that the EUIPO had taken the necessary steps to check that such a conflict of interest could not affect the outcome of the procurement exercise. Secondly, with the same bidder, the member of the consortium with a possible conflict of interest had not been involved in the bid team for long enough to be able to provide any useful inside information. ED also claimed that another successful bidder should have been disqualified due to a conflict of interest because of its interest in another framework awarded by EUIPO. The ECJ dismissed this claim. The final claim in relation to a conflict of interest was upheld by the ECJ. This related to the fact that a member of one of the successful consortia had been found to be involved in cases of fraud, corruption and
  • 16. 15 payment of bribes. The ECJ held that the EUIPO had not undertaken sufficient investigation in ascertain the possible grounds for exclusion. This was sufficient for the decision to award the Contracts to be annulled. Damages The ECJ held that the loss of opportunity to obtain the contract flowed directly from the decision by the EUIPO to reject ED’s tender and was actual and certain damage. Therefore, ED was entitled to damages. However, the ECJ held that it could not make a decision on the amount of damages and has asked the parties to agree damages or it will make that decision at a later stage. The ECJ sets out guidance as to what the parties should take into account when agreeing the value of the damages. This includes the fact that the framework allows for an extension (the initial term is three years). Only the initial term should be taken into account. The net profit which could have been made by ED should be factored into the value of the recoverable loss. Other profits that have been made by ED because of its failure to win this contract should be taken into account. Conclusion This case highlights the importance of setting out clearly the criteria and sub-criteria that a contracting authority is going to use to evaluate tenders. It emphasises the Lianakis line of case law. It also highlights the importance of providing adequate and clear feedback to unsuccessful bidders. There is always a balance to be struck between providing sufficient information to allow bidders to understand why they were not successful without providing so much that it makes it easier for a bidder to pick holes in what has been said. Clarity is the key. The final point in relation to real or potential conflicts of interest supports our advice to clients. Always address any issues relating to conflicts of interest at the time. They look much worse if they are brushed under the carpet and addressed retrospectively. Anja Beriro | +44 (0)115 976 6589 | Anja.Beriro@brownejacobson.com
  • 17. 16 Introduction From 6 April 2016 all unlisted UK companies and LLPs must now have a new statutory register identifying and recording persons who have significant influence and control (PSCs) over them – known as a ‘PSC register’. Companies and LLPs are obliged to keep this information internally from 6 April 2016 and will need to file this information at Companies House from 30 June 2016 – either as part of the new annual confirmation process (which will replace the annual return in June 2016) or on a new company incorporation. This note focuses on these new requirements as they apply to companies rather than LLPs, as these are the more commonly encountered corporate vehicle. Background Until now, a company’s statutory registers would only record the strict legal owner of its shares – they would not tell you who is ultimately in control of that company (if, for example, there is a chain of companies above it in a group structure or the shares are held by a nominee). This lack of transparency around the true controllers of UK companies is one of many reasons why the government has introduced the new PSC regime. The government wants to enhance transparency and trust in UK companies – and by flushing out this information also reduce criminal activity which may be hidden by complex corporate structures – making it harder for criminals to carry out tax evasion, terrorist funding and money laundering for example. Who is caught by the requirement to have a PSC register? The new PSC regime is very wide reaching – all unlisted UK companies (whether limited by shares or guarantee), community interest companies, societas europaea and LLPs must have a PSC register, irrespective of their size or complexity. There is no exception for dormant or non-trading companies. The regime does not currently extend to co-operative societies, community benefit societies and charitable incorporated associations. Overseas companies and companies listed on certain regulated markets (e.g. the London Stock Exchange and AIM) are excluded from the requirement to have a PSC register. Local authorities themselves would therefore not need to have a PSC register – but any trading subsidiaries, dormant subsidiaries or joint venture companies (controlled by two local authorities for example) would be caught.
  • 18. 17 What does a company that must have a PSC register need to do? In summary, a company needs to:  keep an internal register of their PSCs from 6 April 2016  take reasonable steps to identify those persons who should be registered on the PSC register  enter the required information on the PSC register - and keep this information updated if changes occur  make the PSC register available for public inspection free of charge or provide copies on request for an optional flat fee of £12  file information about their PSCs at Companies House (as set out above) from 30 June 2016 onwards. PSCs are under a corresponding duty to notify the company of their interest in certain circumstances. What are the consequences for breach? Failure to comply with the new PSC requirements is a criminal offence, which can result in a fine and/or imprisonment of up to two years. Offences can be committed by the company and its officers – and also by PSCs themselves if they fail to provide information to the company as required by law or provide false information. And if a relevant person fails to respond to a company’s formal requests for PSC information this may eventually result in the company being able to apply restrictions (such as restrictions on transfer) on the affected shares. What does the PSC register include? The new PSC register must identify and record details about a company’s PSCs – recording stipulated particulars (such as name, address, date of birth etc.) and containing official wording outlining when they became a PSC and what level of control they have (this official wording is contained in the government guidance). All companies must keep a PSC register – even if they have no PSCs or the process of investigating who may be a PSC is still ongoing. The PSC register can never be empty - and there is prescribed wording to be included depending on the specific circumstances. So, who, or what, is a PSC? Very broadly speaking, a person is a PSC if he/she: 1. holds, directly or indirectly, more than 25% of the nominal value of the company’s issued shares 2. holds, directly or indirectly, more than 25% of the voting rights in the company 3. holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company
  • 19. 18 4. has the right to exercise, or actually exercise, significant influence or control over the company 5. exercises or has the right to exercise significant influence or control over a trust or firm, which itself meets any of the above conditions. The fourth point above is potentially very wide - and statutory guidance has sought to clarify who this is intended to catch. This guidance also provides examples of 'excepted roles', which would not generally be caught. Generally speaking, professional advisers, trade bodies, company directors and company employees acting in the normal course would not be caught by this fourth condition – unless they had other opportunities to exercise influence/control which would take them outside of this exception or the nature of their role went wider than it is commonly understood. Similarly in a shareholders/investment agreement a minority shareholder with veto rights purely for the purpose of protecting their minority interest would also not usually be caught under the fourth condition. Bear in mind that the legislation also draws a distinction between those PSCs that are registrable and those that are not - and should be consulted to check whose details should be included on the PSC register in any given situation, especially where the person has indirect ownership (through corporate entities for example) as the analysis can be more complicated. How does the above apply to a company limited by guarantee rather than shares? A company limited by guarantee without a share capital may well have articles of association which prevent the distribution of profits and or capital. For example, every charity registered as a company limited by guarantee must have articles of association which prevent any distribution of profits or capital to members. If your company cannot distribute profits or capital it will have no PSC who meets condition 1. However, your company limited by guarantee might well have PSCs or registrable RLEs who meet one or more of conditions 2 to 5. These will apply to your company notwithstanding that it does not have share capital. Where your company’s constitution does allow for the distribution of profits or capital, a person will meet condition 1 in relation to your company if that person holds a right to share in more than 25% of your company’s profits or capital. Quantification of a person’s interest under condition 1 must be entered on the register using official prescribed wording. Confusingly, the official wording refers to shares because this is the most common company form. For your company limited by guarantee you should consider “shares” to mean profit or capital. You should select the applicable control statement reading “profit or capital” for shares and considering the percentages contained in the statements. If, for example, a person has a right to 30% of your company’s capital, you should enter
  • 20. 19 statement 9(j) from Annex 2 of the non-statutory guidance on your company’s PSC register – this states that “the person holds, directly or indirectly, more than 25% but not more than 50% of the shares in the company.” What if my company is owned by a company rather than an individual? So far we have been considering control of a company by a ‘person’ – meaning a living individual. Of course, many companies are not directly owned by individuals – they are part of a wider corporate group structure and their immediate owner may well be another company. The PSC regime acknowledges this and tries to make life more straightforward for companies forming part of a wider group by having the concept of ‘relevant legal entities’ (RLEs) – so that details of a registrable RLE can be recorded in a company’s PSC register rather than the details of any individuals who may ultimately control that RLE. Where a UK unlisted company is owned by another legal entity, details of that legal entity can simply be entered into its PSC register (without looking further up the ownership chain at who owns that immediate parent) provided that the legal entity in question is a ‘registrable RLE’. It will be a registrable RLE if it:  meets one or more of the control conditions 1-4 set out above (such as holding more than 25% of shares or voting rights)  is a UK registered company (or LLP) that maintains its own PSC register or is a company with shares listed on certain markets (including the London Stock Exchange)  is the first such legal entity in the ownership chain above the company. So, for UK companies that are wholly owned by another UK company the position will be very straightforward – they will simply record details of their immediate parent company in their PSC register. The logic behind this is that if someone wants to know which individuals are at the very top of the group structure they can simply follow the chain of PSC registers of all the UK companies in between in order to identify them. What information does a company record in its PSC register when it is wholly owned by another company? When you need to record an RLE in your PSC register you must include the following information about each registrable RLE:  company name  legal form of the entity and governing law  registered or principal office  the register of companies in which it is registered and its registration number  date on which the entity became registrable as an RLE (for RLEs in place when the new law came in you simply put 6 April 2016)
  • 21. 20  any additional registrations the RLE has (e.g. Charity Commission)  which of the conditions for being an RLE are met (you must include all that are relevant and there is prescribed wording that must be used (see Annex 2 of the guidance here) What if my company is wholly or jointly owned by local authorities? Local authorities unfortunately do not fall within the definition of RLEs for the purposes of this legislation. However, the new law does treat certain entities as if they are individuals for PSC purposes (which means that no further digging as to their ultimate ownership or control is required – they can simply be recorded in the PSC register). Such entities include national or local governments or international organisations (being one whose members include two or more countries, territories or their governments). For such entities you must include the following information in your PSC register:  name  principal office  legal form  law by which it is governed  the date they became a PSC  which conditions for being a PSC they meet (once again you must include all that are relevant and there is prescribed wording that must be used). What does this all mean for companies directly owned by local authorities? If you have a company that is wholly or jointly owned by local authorities or another government body, you will simply record details of each such entity’s name, principal office, legal form, governing law, date of becoming a PSC and the control conditions they satisfy (using the prescribed wording) in your PSC register once you have taken reasonable steps to check that they are a PSC and are confident that the details you have are accurate. You should keep an audit trail of the steps you have taken to reach this conclusion (in case it is ever called into question) and should have processes in place going forward to make sure that any required updates/amendments to the PSC register are made if the control of the company changes in future. Emma Grant | +44 (0)115 934 2043 | emma.grant@brownejacobson.com
  • 22. 21 In our February edition, we looked at the case of Bărbulescu v Romania, and the impact of an employee’s right to privacy under Article 8 of the European Convention on Human Rights (ECHR) where an employer wishes to monitor work emails. Article 8 has again been considered in the case of Garamukanwa v Solent NHS Trust, this time looking at when it is permissible for an employer to rely on ‘private’ material in a disciplinary process. The case concerned not only emails sent to work email addresses but also to material provided by the police to the employer that the employer would not otherwise have had access to. So was the employer right to rely on that material in this case? Background of Garamukanwa Mr Garamukanwa was employed as a Clinical Manager. He formed a relationship with a Staff Nurse, Ms Maclean, and, after that relationship ended, he suspected that she had formed a relationship with a Healthcare Support Worker, Ms Smith. He emailed both Ms Maclean and Ms Smith at their work email addresses, referring to their alleged relationship and telling them that unless they informed their manager about their relationship, he would do it himself. By that time, an anonymous letter had been sent to their manager, raising concerns. Ms Maclean and Ms Smith spoke to their manager, denied any inappropriate conduct and stated that they were not in a relationship. Ms Maclean suggested that Mr Garamukanwa might have sent the letter because she had ended their relationship recently and he believed she had left him for Ms Smith. Ms Maclean raised concerns about the email received from Mr Garamukanwa with her manager and that manager spoke to Mr Garamukanwa, confirming that his email had been inappropriate. Mr Garamukanwa denied writing the anonymous letter. Thereafter, a number of emails were sent from various different bogus email addresses (including ‘deesmith’, ‘katieprice’ and ‘notflorencenightingale’) to various members of management which were malicious in nature and content. The content of the emails also suggested that the author was following Ms Maclean and Ms Smith on occasion. A further email was sent to a large number of employees (including Ms Maclean and Ms Smith) from the ‘katieprice’ email address which included unpleasant personal comments. As a result of this email, Ms Maclean approached the police and made a complaint. An internal investigation was conducted by the employer and the investigating manager was provided by the police with copies of photographs found by the police on Mr Garamukanwa’s iPhone including Ms Maclean’s home and a photograph of a sheet from a notebook containing details of the email addresses from which the malicious emails had been sent. The investigating manager specifically asked the police whether she was permitted to use this evidence in the internal investigation and was informed that she was.
  • 23. 22 The investigating officer subsequently relied upon those photographs as establishing a sufficient link between the malicious emails sent and Mr Garamukanwa. The matter proceeded to a disciplinary hearing and the disciplinary manager also relied upon those photographs. The claimant was summarily dismissed. The decision of the Employment Appeal Tribunal Mr Garamukanwa originally brought a number of claims including unfair dismissal and race discrimination. However, his appeal related to whether there had been a breach of the Human Rights Act and Article 8 of ECHR by the employer by failing to respect of his right to a private life. Mr Garamukanwa argued that the employer (and the Tribunal) had failed to distinguish between public material such as the anonymous emails sent to the employer’s staff and managers and private material sent directly between Mr Garamukanwa and his former girlfriend about his private feelings and their relationship, and the photographs on his iPhone which were not sent anywhere. The Tribunal held that Article 8 was not engaged here and the EAT found that it was entitled to reach this conclusion:  the anonymous emails were sent to work addresses of the recipients and in part dealt with work- related matters  employees suffered distress to such an extent that it could have had an adverse impact on their performance at work  it was proper for the employer to be concerned about the judgment of the person sending the email. The Tribunal therefore concluded that Mr Garamukanwa could have had no reasonable expectation of privacy. The EAT acknowledged that the Tribunal did not distinguish between any types of materials and treated them all in the same way but held that the Tribunal was entitled to do so primarily because the police had not made any distinction between the materials disclosed and had given permission for them all to be relied upon. Mr Garamukanwa did not object to their use or reliance during the internal proceedings. Further, once Ms Maclean had complained about the email from Mr Garamukanwa, he must have had an expectation that further complaints would be made in respect of any subsequent emails. Lastly, those emails did go beyond private feelings and touch on workplace issues. The EAT also expressed a view (although it did not need to do so), that if Article 8 was engaged, any interference would have been justified by the employer’s need to protect the health and welfare of other employees.
  • 24. 23 Comment The EAT did not address the issue of whether or not the police were entitled to disclose the information that it did to the employer and, in light of the express permission given by the police, it would have been a harsh decision to expect the employer not to rely on the material if they had been misled on this point. However, it would be easy to imagine an employer being provided with information by another employee, or potentially a third party, and where objections are raised by an employee during internal proceedings as to their rights to privacy. Public sector employers need to be live to the issue of privacy in the context of disciplinary investigations and the potential grounds available for either arguing that the issues being investigated have been brought into the workplace, and therefore that Article 8 is not engaged, or for arguing that any interference is justifiable to protect the health and welfare of other employees. Sarah Hooton | +44 (0)115 976 6033 | Sarah.Hooton@brownejacobson.com
  • 25. 24 The EU procurement regime is complained of by many as unduly restrictive and difficult to manage, and for those people perhaps one of the welcome thoughts associated with Brexit (a British exit from the EU) is the possibility of no longer having to run another EU compliant tendering process. For those people this article is likely to come as rather a disappointment, as it appears to us that the EU procurement regime is here to stay, in one form or another. What will happen to EU law and its effect in the UK will depend on the relationship between the UK and the EU after Brexit. A number of possible outcomes have been suggested, each with their own implications for procurement law. Whichever approach is taken, it is likely that the UK will wish to retain some relationship with the EU, bearing in mind that the EU accounts for around 50% of British exports and accordingly, access to the EU market is vital for UK businesses: The UK Joins the European Free Trade Association (EFTA) and European Economic Area (EEA) This approach would see the EU lose influence over many areas of UK life, including agriculture and fisheries, energy and transport, foreign and security policy, but from a procurement perspective the outlook is likely to be very much business as usual. EFTA and EEA membership give member countries access to the EU internal market, and require that EU Member states are given reciprocal access to the markets of EFTA and EEA members. Accordingly, Non EU states which are party to these agreements are still party to all relevant EU procurement legislation in the same way as the UK is now. The UK negotiates free trade agreements with the EU If this approach was taken, the UK would need to either negotiate one, all-encompassing free trade agreement, or a number of agreements on a specific sectoral basis. Many countries have free trade agreements with the EU, such as the TTIP currently being negotiated between America and the EU, and the CETA between Canada and the EU. The common feature of these agreements is that they all contain a procurement chapter which (more or less) replicates the EU regime. Complete break with the EU If the UK took the approach that a complete break with the EU was necessary, then it could rely on the various agreements within the World Trade Organisation framework to gain access to the EU market, such as the Government Procurement Agreement (GPA). The UK is currently party to the GPA through its membership of the EU, but if it were to leave the EU it would need to join in its own right. This would require signing up to procurement rules which are not unlike the EU rules currently in place. Accordingly, the position for public bodies under this approach is unlikely to be significantly different to the position they are currently in.
  • 26. 25 Conclusion In each case, if the UK wishes to trade with the EU it is likely to need to comply with procurement rules which are similar to or the same as those it is already subject to. The reason for this is that the EU procurement regime is intended to protect trade within the internal market by ensuring that companies across the EU are able to trade on an equal and non-discriminatory basis. Accordingly, the EU is reluctant to allow third party states (those who are not EU members) to have access to its internal market without giving its Member states the reciprocal benefit of access to the markets of those states on the same terms. In 2012 the EU put forward a procurement initiative intended to restrict access to the EU internal market to states not willing to give reciprocal access by allowing EU states to reject bids from such states, thus increasing the EUs leverage in its negotiations with such states on reciprocal access. The procurement initiative was blocked by a number of states including the UK, but the EU has recently put forward a new, similar initiative which could affect the UK if it ceased to be an EU Member state. It is worth noting that even in the scenario where the UK severs all ties with the EU and does not enter into any trade deal or arrangement, the UK is likely to continue to require some form of procurement regulation. Competitive tendering requirements were in place before the present EU procurement regime came into force and the existence of regulation in this area has given rise to the principle that contractors are entitled to equal, non-discriminatory treatment when tendering for contracts. Indeed, it is the increasing volume of procurement challenges which supports and encourages the development in legislation in this area and is the reason why the EU rules are increasingly detailed, which is a clear sign that procurement legislation is required. If the EU regime were removed, contractors would still expect the fundamental rights that the EU regime protects and in all likelihood, public law would need to develop quickly to protect those rights. Accordingly, this approach would result in a high degree of uncertainty until the law had developed sufficiently, which in turn would be likely to cause significant headaches for public bodies trying to get to grips with a quickly changing legal environment. Accordingly, it appears that there are unlikely to be significant changes to the procurement regime, and, if such changes were to take place, the likelihood is that there would still be procurement law to comply with, whether in the form of the EU regulations or otherwise. Angelica Hymers | +44 (0)115 976 6092 | angelica.hymers@brownejacobson.com
  • 27. 26 In the last six months we have seen a raft of cases relating to the implementation of the three stage test for applications for relief from sanctions laid down by the Court of Appeal in the cases of Denton v TH White Ltd & Another, Decadent Vapours Ltd v Bevan & Others and Utilise TDS Ltd v Davies and Another [2014] EWCA Civ 906. In this article I shall take a look at the impact this guidance has had on the courts’ handling of such applications and provide a practical guide to applications for relief in the post Denton era. Position pre April 2013 Prior to the implementation of the Jackson reforms on 1 April 2013 it was considered that courts had become too tolerant of parties non-compliance with orders, rules and practice directions and the delays this non- compliance caused. It seemed judges were more comfortable using their powers to impose cost penalties, rather than sanctions for non-compliance, in order to ensure they were seen to be dealing with cases justly in accordance with the over-riding objective. Lord Justice Jackson was concerned with the “damage this culture of delay and non-compliance [was] inflicting upon the civil justice system,” and considered it needed to be addressed. Consequently the 1 April 2013 brought with it changes to the rules relating to applications for relief with the new test requiring Judges to consider all the circumstances, so as to enable them to deal justly with applications, including the need: a) for litigation to be conducted efficiently and at a proportionate costs b) to enforce compliance with rules, practice directions and orders. It was hoped that with the new more stringent test, and the words of Lord Justice Jackson’s final report ringing in their ears, judges at all levels would take heed of the consequences non-compliance was having on the court system and take a far less tolerant approach to parties who defected from the rules. Post April 2013 and Mitchell Unfortunately, immediately post 1 April 2013, what we actually saw was a very inconsistent application of the new test. Accordingly, when the first case relating to an application for relief from sanctions, Mitchell MP v New Group Newspapers Limited [2013] EWCA Civ 1537, came before it in November 2013 the Court of Appeal took the opportunity to lay down a no nonsense approach when it came to applications. This stringent approach attracted much negative comment as it was felt that the pendulum had swung too far the opposite way. So through the following cases of Denton v TH White Ltd & Another, Decadent Vapours Ltd v Bevan & Others and Utilise TDS Ltd v Davies and Another [2014] EWCA Civ 906 the Court of Appeal laid down more detailed guidance to assist lower courts when giving judgement on applications for relief. This guidance consisted of a three stage test:
  • 28. 27 1. The court should identify and assess the seriousness or significance of the ‘failure to comply with any rule, practice direction, or court order’ which engages CPR 3.9(1); 2. The court should consider why the default occurred; 3. The court should “evaluate all the circumstances of the case, so as to enable it to deal justly with the application including factors in CPR3.9(1)(a) and (b)” (which are set out above). Post Denton The Denton cases were meant to introduce more flexibility into how courts should approach applications for relief, seemingly relaxing the strict line imposed by the Mitchell decision. So has this worked? Over the last six months we have seen a number of cases from courts at varying levels dealing with applications for relief from sanctions with varying results. British Gas Trading Ltd v Oak Cash and Carry Ltd [2016] EWCA Civ 153 The defendant was two days late in complying with the terms of an unless order and its defence was struck out. The defendant’s subsequent application for relief from sanction was allowed at first instance but refused on appeal so the defendant appealed to the Court of Appeal. Appeal was dismissed and relief was refused. On hearing the appeal Jackson LJ considered whether the court should give consideration to the defendant’s original breach giving rise to the unless order when assessing the seriousness or significance of the breach as unless orders were usually only made when a breach already existed. In this situation whilst the defendant had only missed the date in the unless order by two days it was 18 days late under the original order. Jackson LJ held that this was a serious and significant breach as the Defendant’s breach of the unless order should not be viewed in isolation as it was necessary to consider the underlying breach. Jackson LJ also commented on the defendant’s failure to apply for relief from sanctions promptly. Their delay had caused a loss of the trial date, which was critical and meant that relief must be refused. Gentry v Miller and another [2016] EWCA Civ 141 The claimant obtained default judgment and an order awarding damages against the defendant who failed to file an acknowledgment of service. The defendant’s insurer applied to set aside the judgment and costs order on the basis of evidence that the claim was fraudulent. Relief was refused.
  • 29. 28 On hearing the application Vos LJ found that the insurer had delayed inexcusably in making the application. He held that judgment could not be set aside, long after it had been made simply on the basis of an allegation of fraud. In his judgment Vos LJ also made clear that professional litigants, such as insurers, should be held responsible for any disregard of their own commercial interests as professional litigants were particularly qualified to respect the change in litigation culture introduced by Mitchell and the Denton cases. This decision also provided a warning to insurers to investigate claims at the outset. Insurers are professional litigants who should take active steps to protect their interests from the start and, if they take part in litigation, should conduct it efficiently, ensuring orders and directions are complied with. BPP Holdings v Her Majesty’s Revenue and Customs Commissioners [2016] EWCA Civ 121 This claim concerned a decision made by the Tax Tribunal. HMRC failed to comply with an order requiring it to properly particularise its claim. The First-Tier Tax Tribunal applied CPR 3.9 in compliance with the guidance in Denton and granted a debarring order, preventing HMRC participating in the proceedings. On appeal, the Upper Tribunal overturned the debarring order, stating it was not open to a tribunal to apply changes in the CPR. The matter was referred to the Court of Appeal who found that there was nothing in the wording of the overriding objective in the Tax Tribunal rules which was inconsistent with the general legal policy described in Mitchell and the Denton cases. The Court of Appeal also failed to see any justification for a more relaxed approach to compliance with rules and directions in tribunals. Murray v BAE Systems Plc 2016 The claimant filed its costs budget seven days late, meaning its entitlement to recovery costs was limited to applicable court fees only. The claimant applied for relief from sanctions, but its application failed at first instance so an appeal was lodged. The appeal was allowed. The judge hearing the appeal held that the first instance judge should not have rejected the suggestion that the consequences of the claimant's breach should be taken into account in categorising the nature of the breach. The breach had been caused by an isolated mistake made by the claimant’s solicitor following a genuine breakdown in communications. The appeal judge therefore did not consider that the claimant's breach could fairly be categorised as "serious and significant” as the litigation could be conducted efficiently, at proportionate cost and without being adversely affected by the breach; that the application for relief had been made promptly; that there had been no previous breach in the proceedings; that the District Judge could have proceeded to assess the costs budget in any event; and that the claimant's solicitor's mistake was an isolated one and due to a genuine breakdown of communication.
  • 30. 29 The Appeal Judge found that consideration should have been given to where the breach lay on the scale of seriousness and significance and in this instance believed that it would fall towards the bottom of any applicable scale. So what can we learn from the recent case law? While the overarching message seems to be that the Denton cases have introduced more flexibility into how the courts should approach applications for relief from sanctions, through its decisions, the Court of Appeal is still sending out the message that courts are to take a strict approach to compliance. In light of this there is undoubtedly greater incentive on parties to avoid being in a situation where they have to seek relief but, given the manner in which litigation can develop, it would be artificial of me to suggest that parties just avoid the need to seek relief altogether. I have therefore set out some practical tips for when it comes to non-compliance with orders, rules and practice directions:  Ensure that parties set a realistic timetable from the outset.  Anticipate non-compliance and, in good time, try and agree with your opponent a ‘buffer order’ using the provisions of CPR3.8(4).  In the absence of agreement from your opponent, apply for an extension of time. But do make sure that applications are made at the earliest possible opportunity so that you avoid having to seek retrospective permission as this will be treated as an application for relief from sanctions.  If you are having difficulties with a deadline or if there is any doubt over the wording of an order – communicate with the court at the earliest possible opportunity.  Do not assume the court shall approve a consent order where the parties have agreed an extension of time. Make sure you have obtained court approval before relying on any extension agreed between the parties.  If you do miss a deadline, act promptly. Delays in seeking relief, especially when the non-compliance impacts on other aspect of the court’s timetable, seems to one of the most significant reasons for applications being refused.  Finally, if you find yourself in a position where your opponent requires relief from sanctions do not view it as an opportunity to gain a tactical advantage but co-operate as in the Denton cases the Court of Appeal warned that parties who unreasonably oppose applications for relief (and time extensions) will be penalised. Katie Scott | +44 (0)161 300 8033 | katie.scott@brownejacobson.com