Following the referendum, there has been much talk about the impact Brexit may have on existing contracts involving companies trading between Europe and the UK.

This opinion piece seeks to separate speculation from reality and answers a number of FAQs about the impact of Brexit on cross-border disputes.

Our business to business contracts contain a choice of “English law”. Do we need to change this?

The rules governing which law applies to a contract between parties based in different countries in Europe are set out in the two Rome Conventions[1]. These Conventions state that European Member States must give effect to a choice of law stipulated in a contract, regardless of whether that is of a country which is a member of the Rome Convention.

Accordingly, if your contracts contain an express choice of English law, then regardless of Brexit (and a UK withdrawal from the Rome Convention), other European countries who continue to be members of the Rome Convention would be required to respect a choice of English law. So in reality, nothing should change on Brexit. A choice of English law in a commercial contract should continue to be respected by Rome Convention countries in Europe.

Our business to business contracts say that any disputes are to be heard by the Courts of England and Wales exclusively – do we need to change this?

The rules governing which European country’s Court has the right to hear and determine a dispute are set out in the Brussels Regulation[2]. These rules provide that the Courts of an EU Member State must respect a choice of Court in a contract in favour of the Courts of another EU Member State. So if your opponent decides to bring Court proceedings against you in Spain, in breach of an express requirement in your contract that the English Courts are to hear the dispute, the Spanish Courts are obliged to halt their proceedings and let the English proceedings run their course.

It is important to be certain about which Courts are able to determine a dispute, for the following reasons:

It avoids the legal costs associated with arguing over the point in Court, and potentially having to deal with parallel proceedings issued in two countries at once which concern the same dispute;

At the outset of a commercial relationship, it is best to clearly identify which Court (or Courts) is able to give a Judgment, to ensure that any Judgment you obtain is actually going to be enforceable in another jurisdiction. For example, you may secure an English Judgment against a French company which obliges it to pay you money. Your opponent’s assets may well be based in France, so you will want to know (before you incur the costs of proceeding through the English Courts) that your English Judgment will ultimately be recognised and enforced in France, as if it were a French Judgment.

Without the certainty provided by the Brussels Regulation, European Courts could, theoretically, refuse to recognise an express choice of English Court jurisdiction in a commercial contract (and so refuse to enforce an English Judgment brought to them for enforcement). But is this going to happen in reality?

One factor which may assist the English Courts is that the EU has ratified the Hague Convention on Choice of Court Agreements[3] (HCCA). This convention could be important in the light of Brexit. If the UK ratifies the HCCA on its own behalf, then this would provide a consistent framework for European Courts to recognise an express choice of English Court jurisdiction in a commercial contract. Other non-European countries, such as Mexico and Singapore, have also ratified the HCCA.

Without a specific set of rules in the Brussels Regulation or without any other replacement international convention, each European country’s Court would need to determine whether it has jurisdiction to deal with a dispute that a party has brought to it, according to its own national law. Most commentators agree that our major trading partners in Europe will endeavour to give effect to a choice of English Court jurisdiction, regardless of the lack of any treaty or international convention framework.

So in reality, it should not be necessary to change your commercial contracts if they give the Courts of England and Wales exclusive jurisdiction to deal with a dispute.

Some of my business to business contracts do not contain any choice of governing law or jurisdiction and I regularly trade internationally – do I need to specify these?

The position for business to business contracts which do not contain an express choice of governing law or jurisdiction is more uncertain in light of Brexit. At the moment, there are specific rules which govern which European country’s law or jurisdiction applies in certain situations, where there is no express choice of governing law and jurisdiction. Those rules will cease to apply on Brexit and these issues will be determined according to the local law of the country where a party has brought a dispute to be heard.

A new Hague Convention[4] is in the process of being negotiated which could assist parties in this situation. However, it is a long way from signature and ratification.

As a result, we recommend that businesses always include a choice of law and jurisdiction in their business to business contracts where they are trading in Europe or in other countries around the world.

Will my ability to serve English proceedings on a party in Europe be affected by Brexit?

Yes – potentially. At the moment, there is a specific set of rules under the EU Service Regulation which govern how Court proceedings are to be served within the EU, in order for service to be effective.

Without these rules, in order to validly serve English proceedings in Europe, the main options are to serve either in accordance with local rules in the country where the party being served is based, through formal channels using the Hague Convention (which can be very slow indeed) or by some contractually agreed method.

Serving proceedings overseas can be expensive and time consuming. For this reason, if you are embarking upon a significant new commercial relationship or reviewing your existing contracts with a party based overseas, we strongly suggest requiring them to nominate an agent to accept service of Court proceedings in England, if a dispute ever arises.

We are negotiating a significant new contractual arrangement with a business in Europe – should we opt for Arbitration (rather than Court proceedings) to determine any disputes that might arise?

Arbitral awards are generally enforceable in states that have ratified the New York Convention. This will not change in light of Brexit, so arbitration is now increasingly seen as a more ‘certain’ option for dispute resolution in Europe.  Arbitration also has the benefit of being confidential, but it is not necessarily quicker or cheaper than Court action.

If you are considering requiring disputes to be referred to arbitration rather than the Courts, it is important to bear in mind that certain countries (like Italy for example) do not recognise interim remedies granted by an arbitrator. For instance, you may be concerned that your opponent who owes you money, based in Italy, is taking steps to put assets out of your reach. And, as such, you may wish to take steps to freeze or ring fence their assets. An arbitrator’s decision would have no effect in this situation – you would need to take steps directly through the Courts in Italy. For this reason we often advise clients who opt for arbitration to ensure that their contract specifically allows them to take interim steps in an appropriate local Court to preserve their position, until the arbitration has run its course.

For high value international contractual disputes in particular, we expect to see a rise in the use of arbitration as an alternative means of dispute resolution in the short term, in light of the outcome of the EU Referendum.

[1] Rome I (EC) 80/934; Rome II (EC) 864/2007

[2] Brussels Regulation “Recast” (EU) 1215/2012

[3] Hague Convention on Choice of Court Agreements 2005

[4] The Special Commission on the Recognition and Enforcement of Foreign Judgments; the “Judgments Project”

Sara Chisholm-Batten is a Partner in our commercial disputes team specialising in cross border enforcement measures. She has a wealth of first hand international experience in this area in Europe and around the world, including in Emerging Markets.

If you would like to discuss any of the issues set out in this article which may affect your business, please do not hesitate to contact our team of specialists.

Contact us

Anyone who has been wading through training contract applications recently will have noticed that ‘marketing and business development’ are becoming popular buzzwords, in a similar way to ‘commercial awareness’.  In a competitive legal market and fluctuating economy, it’s essential for trainees to become confident with marketing and business development during their training, learning more than just the legal ropes.

I asked Grace Williams, our marketing and business development manager, to explain exactly what it’s all about:

‘Marketing and business development work hand in hand, but the principles are quite different. For Michelmores, marketing focuses on the satisfaction of our clients, their needs, wants and requirements. Our aim as marketers is to maintain a professional and consistent image for the firm through our website, marketing collateral and public relations. Business development, however, is about seeking opportunities to form partnerships and strategic relationships with referral sources and target markets in order to obtain new clients.’

How can I get involved?

At Michelmores there are many opportunities to get involved, and trainees are actively encouraged to do so. During my training contract so far I have been invited to a range of events from drinks receptions and business breakfasts, a classic car event, and a conker competition with a local firm of accountants (to name a few)! These events are a great opportunity to get to know fellow professionals, build your networking skills, and understand a bit more about our clients and their businesses.

Why should I get involved?

As a final note, I asked Grace why she thought it was important for trainees to get involved:

‘It’s so important for trainees to get involved in marketing and business development as early as possible. The benefits are two fold; it increases a trainee’s awareness of the business, how it operates, its strategy and the process to obtain new work and seek opportunities. Secondly, it allows them to begin building their own network which they will carry throughout their career.’

Marketing and business development is an essential part of your training contract. On qualification you will be expected to be ready to generate your own work and build your personal network.  It is extremely valuable to start building on these skills from day one and there are plenty of opportunities do that at Michelmores.

If you have any other questions on being a trainee please comment below or tweet us @MMTrainees

Michelmores’ Real Estate team has advised on all aspects of Exeter’s newest student accommodation development, offering 159 new rooms for students at the University of Exeter and revitalising the city’s Cricket Club facilities at Prince of Wales Road.

Michelmores acted on the £8 million development from conception to completion. The project involved Yelverton Properties Developments Limited acquiring an interest in the land securing the planning consents to redevelop the site taking down the former cricket pavilion on the site, and re-siting and replacing it with a new state-of-the art two-storey pavilion, built in conjunction with the new student accommodation and disposing of the student accommodation to Curlew Capital.

The development was undertaken by Yelverton Properties and their development and funding partners, Campus Development Management Ltd and Curlew Capital. The main contractor was Midas Construction.

Students will take up residence in the new accommodation in September 2016 for the new academic term.

Partner Joanna Damerell, who led the Michelmores team said:

“This is a very exciting project for the city, not only providing much-needed and high quality accommodation for students, but also revitalising a popular community sports facility. It has been a real pleasure to support this successful project from start to finish.” 

In our May update on the Consumer Rights Act 2015 (CRA), we reported the Government’s announcement that maritime, air and rail services will not be exempt from the CRA scope. Instead, the implementation date has been delayed until 1 October 2016.

At the time of that update, we were still awaiting publication of the Government’s response to the consultation that influenced their decision. This has now been published and the decision not to exempt transport services has been qualified.

The relevant CRA Sections

The implementation delay in respect of the transport sector relates only to sections 57(3) and 57(4)(a) of the CRA.

Section 57(3) restricts traders who supply consumer services from limiting their liability to less than the price paid for such services, if they are in breach of relevant statutory obligations. Those obligations include providing services within a reasonable time, at a reasonable price and with reasonable care and skill.

Section 57(4)(a) deals more generally with constraints on the ability of service providers to restrict consumer remedies.

Purpose of the Government’s consultation

The consultation focussed on a number of points and concerns, summarised below. Responses were received from a variety of transport industry and consumer bodies.

If sections 57(3) and 57(4)(a) CRA are applied to the transport sector:

• The relevant CRA provisions could affect current compensation schemes. These schemes contain terms that have the effect of limiting transport operators’ liability to pay compensation; often regardless of the reason for any delay or cancellation. Such compensation tends to be based on fixed rates or percentages and, as such, the amount recoverable by a consumer will often be less than the full ticket price.
• There is a risk of over-complicating and potentially duplicating existing schemes, which already provide an established package of remedies for consumers in the transport sector.
• Concerns were raised that the factors above might result in additional cost to transport operators, which could be passed on to tax payers/consumers. This argument was particularly prevalent in Consultation responses from transport industry bodies.

If the CRA sections are not applied to the transport sector:

• There was concern that existing compensation scheme limits would apply even in the event of service disruptions caused by an operator’s failure to comply with the statutory rights. This would put consumers in the transport sector at a disadvantage to other sector consumers, and out of pocket where there have been service failings by transport operators.
• Limited and partial CRA exemptions for the transport sector may be overly confusing for consumers. This and the above point were raised primarily by consumer groups in their Consultation responses.

The Consultation outcome:

In reaching its decision, the Government considered that consumer interests are best served if transport sectors are not exempted from the CRA provisions. The financial and logistical risks posited by the transport industry bodies were considered to be outweighed by the potential benefits to consumers.

In particular, the Government stressed that, provided transport operators perform their services with reasonable care and skill, there is no reason why they should incur any additional costs under the CRA regime.

As such, the CRA will apply to the aviation and maritime sectors from 1 October 2016.

Implementation delay for rail transport operators:

For the rail industry, the Government considers that an additional 12 month exemption period for Section 57(3) CRA is necessary for some (but not all) rail operators:

• A further 12 months is being afforded to EU Licenced rail passenger operators, to allow the industry further time to review their compensation schemes. Section 57(3) CRA will not apply to these operators until 1 October 2017. All other CRA provisions will still apply from 1 October 2016.

EU licenced rail operators are those operating mainland services in the UK pursuant to an EU Rail Licence. This includes London Overground rail services.

• Operators providing services on only local and regional standalone infrastructures were not included in the original exemption and CRA has applied since it came into force on 1 October 2015. This includes London underground, metro services and heritage/tourist rail passenger services.

What next?

All businesses providing consumer-facing services should now be aware of the enhanced rights afforded under CRA, albeit some transport sectors have had a period of grace before being bound by those rights.

With implementation deadlines now determined, the transport industry and service providers individually should be actively addressing the requirements under CRA.

Businesses should be checking their terms and conditions and, in particular, the compensation mechanisms where services are delayed or cancelled and, in the case of air travel, if boarding is denied or a passenger is downgraded.

Compensation schemes may still be applied. However, they will need to comply with the CRA where such compensation is being paid as a result of a breach of a consumer’s statutory rights.

Of particular relevance are the following requirements:

• Refunds for any breach of statutory rights cannot be limited to less than the price a consumer has paid for their ticket.
• Refunds must be paid:
  • using the same means of payment as the consumer used to pay for the service;
  • without undue delay and within 14 days of the date a refund is agreed; and
  • without any fee being imposed on the consumer.

Any breach of the CRA may entitle a consumer to pursue the operator through the courts to enforce their rights.

Please click here for a link to the full Response to Consultation.

The Current Law and Policy

In April 2015, the Town and Country Planning (General Permitted Development)(England) Order 2015 (the “GPDO”) statutorily embedded the right to change the use of agricultural land and buildings (subject to size thresholds, limitations and conditions and restrictions) in England.

Under the GPDO, agricultural land and buildings can be changed to any one of the following uses:

• a flexible use (Class R): any use falling within Class A1 (shops), Class A2 (financial and professional services), Class A3 (restaurants and cafes), Class B1 (business), Class B8 (storage or distribution), Class C1 (hotels) or Class D2 (assembly and leisure);
• an educational use (Class S): “state-funded school” or “ registered nursery”;
• a residential use (Class Q): the conversion of a maximum floor space of 450 m2 into three dwellings, subject to siting, noise, contamination, flood risk, design or the transport or highways impacts of the proposal being acceptable.

The new permitted development rights have been incorporated into the Planning Practice Guidance (“PPG”). Permitted Development to change the use of agricultural land and buildings into residences was previously covered by Class MB which was far more restrictive in practice than originally intended and Class Q goes some way to remove some of the restrictions that existed under Class MB. As no planning application is required the process should be cheaper and easier.

Teething Problems

It inevitably takes time for organisations to get to grips with new legislation and policy. One of the main issues that Class Q applicants have encountered is that there are still some Local Planning Authorities (“LPAs”) resisting permitted development under Class Q on the basis of “sustainability of location”. This is illustrated by the recent appeal of Sawbridgeworth (East Herts DC [3140675] which was decided on 12 May 2016.

In Sawbridgeworth, there was no dispute that the qualifying criteria of Class Q were satisfied. The LPA raised no concerns in relation to noise, contamination, flood risk, design or the transport or highways impacts of the proposal; the only remaining issue was whether or not the location or siting of the proposed dwellings made it impractical or undesirable for residential use.

The LPA’s case was that the PPG contravenes the National Planning Policy Framework (the “NPPF”) and in particular paragraph 55. Relying on paragraph W.10(b) of Part 3 of the GPDO, the LPA claimed that it must have regard to the NPPF, so far as relevant to the subject matter of the prior approval, as if the application were a planning application.

However, the Inspector rejected this approach and stated that the PPG (as updated in March 2015) is clear that Class Q does not apply a test in relation to sustainability of location, especially considering that agricultural buildings will be located in a rural setting. Paragraph 109 of the PPG states “that an agricultural building is in a location where the local planning authority would not normally grant planning permission for a new dwelling is not a sufficient reason for refusing prior approval”. Accordingly, the re-use of a rural building to meet the rural housing demand is the correct approach.

The LPA has until the end of June to appeal the Inspector’s decision in Sawbridgeworth. This case clearly shows the lengths to which LPAs go in order to hold off development pursuant to Permitted Development Rights and begs the question: how can surplus agricultural buildings be reused and converted into housing in practice?

Looking Forward

The Government’s 10-point plan for boostingproductivity in rural areas published in August 2015 promised that it would “increase the availability of housing in rural areas, allowing our rural towns and villages to thrive, whilst protecting the Green Belt and countryside”. In accordance with its plan the government wants to ensure that any village in England has the freedom to expand in an incremental way, subject to local agreement. In addition to carrying out the review of planning constraints in rural areas mentioned above, the government stated it would:

“Ensure local authorities put local plans in place for housing according to agreed deadlines and require them to plan proactively for the delivery of Starter Homes… bringing forward proposals to speed up the process of implementing or amending a plan.

Help villages to thrive by making it easier for them to establish a neighbourhood plan and allocate land for new homes, including through the use of rural exception sites to deliver Starter Homes”.

The Housing and Planning Act 2016 which came into force in April 2016, has legislated for the construction of Starter Homes” which will be offered at a 20% discount for first-time buyers under the age of 40.

The government has further promised to review the current threshold for agricultural buildings to convert to residential buildings.

Conclusion

The conversion of agricultural buildings for residential use and the construction of housing thereby creating small residential developments does make economic sense, especially on sites no longer suitable to be used for agricultural purposes. However, it is early days and Sawbridgeworth illustrates that it may be some time before all organisations fully understand and embrace the ever-changing landscape of rural planning law and policy.

It is an all too common scenario: a landowner enjoys what he believes is a right of way over neighbouring land only to subsequently find that there is no written document evidencing his right. In such a situation all is not lost, as it may be possible to establish a right under the law relating to “prescription”.

A right acquired by prescription is a right established by the long use or enjoyment of that right. This is explored in more detail below.

Every application of the law relating to prescription will turn on its particular facts; however, a right can often be established where the following two key facts can be demonstrated:

1. 20 years’ continuous use of the right of way

The right must have been used for a period of at least 20 years, for the same use, and there must have been no interruptions in that use. This continuous use requirement does not require the right to be exercised with any specific frequency but it is important that there are no significant periods where the right is not exercised and which interrupt the 20 year period.

Commonly 20 years’ continuous use will have occurred immediately prior to the landowner seeking to establish the right of way. However, if it is clear that the right has been exercised for the requisite 20 year period but not recently, then this is not necessarily fatal to the landowner’s claim. The failure to use a right of way once it has been established will not extinguish that right, and in these circumstances the doctrine of “lost modern grant” will apply a presumption that the right was historically created by deed but that the document has now been lost. This is a particularly valuable presumption – as it can apply regardless of evidence indicating whether or not such a deed did in fact exist.

2. The use must have been as of right – “without force, without secrecy, and without permission”

The right must have been exercised by the landowner as if there was a formal right of way enjoyed for the benefit of his land (the dominant land) over the neighbouring land (the servient land). It is also important that the servient landowner knew about the exercise of the right of way and took no steps to prevent it when he could otherwise have done so. This submission by the servient landowner to the right of way will be more easily established where the servient landowner occupies the servient land himself, and in contrast will be difficult to establish where the land is let to a third party and has been for the duration of the exercise of the right.

Supporting Evidence

Before the Land Registry will register the right of way, they will need to be satisfied that a right has in fact been acquired. Supporting evidence and information will therefore play an important role in establishing that the elements necessary for claiming a right of way by prescription are present. Examples of information and evidence likely to be particularly helpful are:

• Statutory declarations made by people with personal knowledge of the use of the right of way and the duration of that use;
• Ownership information in respect of the servient land;
• Plans showing the route of the right of way

The High Court has recently quashed a planning permission for a single wind turbine.

In this case the developer applied for planning permission for the wind turbine. The wind turbine was a single community scale 500KW turbine on agricultural land. The turbine was intended to meet local energy demands and a similar turbine had been installed by the developer on a nearby site. As part of the development the developer offered a package of community benefits including an annual contribution of 4% of turnover. This was not an insignificant amount as the donation was expected to be in the region of £15,000 – £25,000 per year over a 25 year period (the total benefit to the community was estimated to be £500,000 – £1,000,000 over the life of the project).

Planning permission was granted for the wind turbine in September 2015 and the Local Planning Authority (“LPA”) considered the community donation to be a “material consideration”. This decision was challenged by the claimant, Mr Wright, on the basis that the LPA had unlawfully taken the donation in to consideration.

An LPA must have regard to “material considerations” when considering planning permission applications. Material considerations are widely defined as considerations which are relevant to the planning decision in question and will entirely depend on the factual circumstances. The Courts have been asked to decide what is and what is not a “material consideration” on numerous previous occasions.

In this case the Court confirmed that the financial contribution was not material. Following the previous case of Newbury District Council v Secretary of State for the Environment [1981] AC 578, the donation should be for a planning purpose and relate to the proposed development. In this case the donation was intended to be locally administered by the community and applied to community initiatives. The Court decided that there was not a sufficient link between the application of the fund and the wind turbine, regardless of the operation of a similar fund on a nearby development. Whilst defibrillators and proving play groups are commendable contributions, the Court would expect to see something linked to the planning permission. For example when developers build new houses, they provide contributions towards education facilities or employment initiatives.

The Court also followed the case of Sainsbury’s Supermarkets Ltd v Wolverhampton City Council and another [2010] UKSC 20 which requires any off-site financial benefit to be connected with the development – in this case there was no real connection between the turbine and the community benefit fund. The Court considered the contribution to be “untargeted” and “not designed to address a planning purpose”.

So what does this mean for developers? It is unlikely that this case will see the end of community contributions. However, this case serves as a reminder that, if developers want their contributions to be considered in their favour as part of a planning application, the contribution should be related to the land in question and serve a planning purpose.

For more information about any of the issues raised in the article please contact Mark Howard, head of Planning and Environment at Michelmores on mark.howard@michelmores.com

Developers and operators will know the care that has to be exercised in tax structuring retirement housing and care provision. VAT is an area which needs special attention.

Help is at hand this week with a ruling by the First Tier Tribunal upholding a taxpayer’s appeal against a VAT self-supply charge.

The Law

The issue at stake here concerned zero rating. The sale or lease of a building will be rated zero, standard or exempt, depending on the circumstances. Zero rating means that the developer can sell the building without charging VAT on the sale but, crucially, can recover VAT that he has paid out.

Zero rating for residential property will depend on whether the building is a dwelling – in which case the rating is based on design – or whether it is intended for a ‘relevant residential purpose’ – in which case the rating is dependent on use. This distinction will always be important for care homes and sometimes for retirement housing.

In the latter case, as one might expect, a change of use can trigger a charge to VAT. The legislation is contained in schedule 10 to the VAT Act 1994. The dispute concerned the meaning of that legislation. In the words of the Revenue & Customs Brief, Issue 49. 6/12/2012:

‘The current provisions are complex and… produce uneven tax consequences’.

The Facts

A care home at Huntly in Scotland was built by Faskally Care Home Group Ltd (‘FC’), a subsidiary of Balhousie Holdings Ltd (‘BH’). For VAT reasons FC was not in the same tax group as BH and BH’s other subsidiaries. Following the development in 2010 it was decided to finance Huntly and two other homes owned by another BH subsidiary, Balhousie Care Ltd (‘BC’), by way of a sale and lease back.

The Huntly property was sold by FC to BC; BC then in 2013 sold all three properties to Target Healthcare REIT (‘Target’) and immediately took back long leases of all three properties.

The first transaction – the sale of Huntly by FC to BC – was treated as a VAT zero rated supply of a major interest in residential property. The relevant self-certification that the property was to be used for residential purposes was produced. So that transfer was zero rated.

The Dispute

The issue arose over what happened next to the Huntly property – the sale by BC to Target and the lease back from Target to BC. HMRC referred to its own VAT Guidance Note 708 which takes the view that where a person who is in receipt of zero rated supplies in respect of a building intended for residential purposes (BC in this case) disposes of their entire interest in those premises within 10 years, then that person must account for VAT on the original supply, as output tax.

In this case the amount of tax was assessed as £801,492. Added to this was interest of £24,308.26. This amount was described by Grant Thornton as a ‘potentially business ending issue’. The stakes could not have been higher.

The argument turned on an interpretation of paragraphs 35 to 37 of Schedule 10 of the Value Added Tax Act of 1994 and (i) whether a sale and lease back separated by a scintilla of time amounted to a disposal of the entire interest and (ii) whether such a disposal had to be accompanied by a change of use. Paragraph 35 is helpfully headed ‘Residential and Charitable Buildings: Change of Use etc.’ which would seem to offer a clue as to Parliament’s intentions.

HMRC referred to its own VAT guidance Note 708 which takes the view that as regards buildings completed after 1 March 2011, the taxable charge arises on a disposal of the building, regardless of whether or not it continues to be used for a qualifying purpose – residential in this case. They also argued that the sale was a distinct transaction from the lease back for tax purposes, notwithstanding they were linked contractually, and one could not happen without the other. For a scintilla of time BC had disposed of its entire interest.

The Decision

The outcome, as indicated at the outset, was in favour of the tax payer which clearly had the sympathy of Court. The Tribunal took a robust and purposive approach in its interpretation: it did not accept that the entire interest was disposed of by BC, but rather that the sale and lease back was a composite transaction forming a commercial unity. And it added that the legislation is clearly intended to deal with the issue of ensuring that use for the relevant residential purposes continues.

Commentary

This decision appears at first sight to be a victory for common sense. However the background and the questions it raises have to be considered. The law changed as of 1 March 2011 – the sale and lease back took place in 2013, and HMRC’s harsh views of the relevant law were well known 2 years before the transaction took place. Many operators in the sectors covered by ‘relevant residential use’ law e.g. care homes and student accommodation had structured their developments so as to prevent such a fact pattern ever arising and indeed banks at the time were lending according to whether the borrowers were at risk of such a self-supply charge. The taxpayers should not have been surprised that they were met with the response of HMRC.

The second question with a decision such as this is where will it end? The Tribunal held that the sale and lease back did not constitute a disposal of the entire interest of the taxpayer. The same could be said of a taxpayer having a contrived buy back option in any sale agreement – HMRC made this point but the Tribunal failed to address it. This is fertile territory for an appeal by HMRC.

The Moral

Like all good stories this one has a moral. For nearly three years the Balhousie Group has laboured under the shadow of a business-ending issue which will have taken an enormous amount of management time, expensive legal fees and, no doubt, an emotional toll. With litigation like this the outcome is never certain, and with the prospect of an appeal the taxpayer’s troubles may not yet be over.

So the moral here: Beware VAT traps, and take tax advice early.

Following the decision of the Supreme Court back in March 2016 in PMS International Group plc v Magmatic Limited,(‘the Decision’) in which it was held that the ‘Kiddee Case’ did not infringe the design rights of the ‘Trunki’ case, the UK Intellectual Property Office (‘UKIPO’) has now published further guidance on registered design applications.

Traditionally designers have chosen to only register the shape of their designs on the basis that surface decoration or other visual features will be ignored when determining infringement and a wider scope of protection is therefore afforded.

As a result of the Decision, there is now more emphasis on the distinction between designs protecting shape alone and those protecting other features as well as the shape. Applicants should therefore be careful when selecting the form of representation for their designs (i.e. pencil drawings, line drawings, photographs, CAD drawings) to ensure that they do accurately reflect what the design is intended to protect. The UKIPO recommends that designers seek advice before submitting an application.

The UKIPO acknowledges the tension between previous case law affirming that basic line drawings are likely to be interpreted as protecting shape only designs (Procter and Gamble Co. v Reckitt Benckiser (UK) Ltd) and the Decision, which held that the absence of decoration can be a positive feature of a registered design, i.e. a plain undecorated surface intended for protection in its own right.

The UKIPO advises that when seeking to protect designs for shape only, designers use simple line drawings.  The UKIPO does not discourage the use of CAD drawings, but notes that tonal differentiation can result in the design being assessed as a registration for both shape and other features and the scope of the protection obtained therefore being limited.

Clearly, Magmatic Ltd is a case in point here, as it was not able to benefit from the intended protection of its registered ‘Trunki’ design against PMS International Group plc.

To define and clarify the intended protection, the UKIPO encourages use of disclaimers and/or limitations by designers when submitting applications. These disclaimers/limitations can be provided in graphical or written form, for example ‘protection is sought for the shape and contours alone’. Further guidance on disclaimers/limitations is available on the UKIPO website.

For designers looking to protect several different aspects of their designs, the UKIPO highlights the availability of the ‘multiple application’ route as a simple and cost-effective means of submitting different forms of representations in one action.

The UKIPO guidance is a further reminder that the exact interpretation of a registered design by the Courts is fact-specific.

Designers must take great care when selecting the method of representation of their registered design applications to ensure that the required protection is obtained.

For more information please contact Charlotte Bolton, Associate on charlotte.bolton@michelmores.com

The Corporate Team at Michelmores comprising Roger Fink, Alex Watson and Edwin Richards is delighted to announce that it advised a management team combining existing operational expertise with external sector talent and led by new CEO David Tracey. David Tracey joined incumbents Scott McGinley, COO and Scott Merrick, IT Director and buy-in managers: Nick Frogbrook as CFO and Stewart Oades as Chairman.

Sovereign Capital, the UK private equity Buy & Build specialist, backed management’s acquisition of Dalepak with a significant investment and will work with the management team to develop the business further as it meets the increasing demand for its specialist services.

A family business founded in 1991, Dalepak offers customers a fully managed and bespoke, end-to-end solution for all of their logistic requirements. These include integrated warehouse solutions, contract packing, value added production services and carrier management. In the last three years, Dalepak’s revenue grew by 150 per cent. The business employs 265 staff which provide their services from over half a million square feet of warehousing space, across four sites in Northampton.

David Tracey commented:

“It was a pleasure to work with Michelmores on this deal.  They, with Argyll Partners and Dixon Wilson, were very helpful in guiding the management teams through a transaction executed within a tight timescale”.

Argyll Partners acted as financial advisers and Dixon Wilson as tax advisers on the deal.

For further information please contact our Corporate team.

A recent opinion of the Advocate General (AG) in GS Media BV v Sanoma Media Netherlands BV and others C-160/15 has indicated that a hyperlink to content freely available on an unrestricted third party website is not copyright infringement within Article 3(1) of the Copyright Directive (2001/29/EC) (the Directive), despite the content itself being used without the copyright holder’s consent.

The dispute considered by the AG concerned the use of a hyperlink by GS Media BV to a website showing photographs of a Dutch television personality without the consent of Sanoma Media Netherlands BV – the publisher of Playboy. The photos were posted illegally prior to the publication in Playboy magazine.

Two criteria have been established to determine if a copyright work has been unlawfully ‘communicated to the public’ online. There must be: (1) an act of communication of the work; and (2) it must be ‘communicated to a public’.

The AG did not consider that hyperlinks to protected content, which could be accessed without restriction on a third party website, fulfilled the criteria of being ‘made available to a public’, the hyperlink simply made access easier. However, if the use of the hyperlink was ‘indispensable’ to enable access, that would infringe copyright. This test of indispensability as part of the first criteria departs from the previous approach of the Court of Justice of the European Union (CJEU) in Nils Svensson and Others v Retriever Sverige AB C-466/12 (C-466/12) (Svensson) where ‘indispensability’ was considered under the second limb of the test i.e. was the content communicated to a public.

Although the AG viewed there to have been no infringement on the basis of no act of communication, he clarified that, if the photographs were freely available to the public on the third party website, hyperlinking to this content would not make them available to a new public and would not therefore constitute infringement (as set out in Svensson). The position it appears from both Svensson and the AG’s opinion would be different if the hyperlink enabled users to circumvent restrictions to access on third party websites.

Whilst the AG has encouraged the CJEU to apply an alternative approach to the controversial assessment in Svensson of what contributes ‘an act of communication’, the same outcome is likely to be achieved if the CJEU follows the AG’s guidance – hyperlinking does not fall within Article 3(1) of the Directive.

Practically, although the guidance will be welcomed by website operators and internet users, this will prevent copyright holders from taking action against website operators posting hyperlinks to their unlicensed, unauthorised content. This is no doubt highly frustrating where website operators can flagrantly promote and facilitate unauthorised use of copyright material.  Other remedies remain available against the third party website or the original publishing entity, but these may be more difficult to obtain. For example, in this case the identity of the original publisher was impossible to determine.

It will be interesting to see whether the CJEU does follow the AG’s opinion and if so, the practical effects flowing from the decision.

Read the AG’s opinion in full.

For more information please contact Charlotte Bolton, associate in the Commercial Disputes & Regulatory team on charlotte.bolton@michelmores.com or 01392 687745.

http://www.kier.co.uk/

Congratulations to EDF Energy Training Centre – Cannington, Somerset, winner of Heritage Project of the Year.

The EDF Energy Training Centre is a new training facility built to inspire innovation, creativity and interaction for all EDF Energy staff, business and education partners. The project involved the sensitive refurbishment of the historic site, including the Grade I listed Cannington Court dating from 1138, together with landscaping and car parking within the Cannington Conservation area. The site generates up to 50% of its energy requirements through site based ground-sourced heat pumps, radiant solar panels and solar voltaic panels.

Submitted by BDG architecture + design.

Here’s the shortlist in full:

• Churston Court Farm – Churston Ferrers, Devon. 
• Dean Clarke House – Exeter.  
• EDF Energy Training Centre – Cannington, Somerset.  
• Ocean Studios – Plymouth.