As the new year unfolds, we look ahead at what legal developments businesses can expect
Prediction can be a fool's game; it is unlikely anyone thought there would be four chancellors and three prime ministers in a year. That said, these are some of the developments in UK business law which our expert team of Knowledge Lawyers expect in 2023.
With opinion polls continuing to show a steady and wide lead for Labour ahead of an expected 2024 election, businesses and their advisers are likely to sharpen their focus on the Opposition's emerging plans for the economy. As we saw in 1997, business interest drains away from the incumbent administration and switches to engaging with the expected winners of the next election.
The rolling introduction in November 2023 of the requirement for UK travellers to obtain an ESTA-style visa waiver (an "ETIAS") to visit the Schengen area will contribute to a growing awareness and frustration, extending beyond the business community, of the frictions that Brexit has introduced into UK-EU relations. And as 2023 ends, perhaps Labour will break its long silence on Brexit and announce that if elected it will seek a fundamental reset of the relationship with Brussels, focusing on easing the movement of people and goods.
The Retained EU Law (Revocation and Reform) Bill – which if passed in the government's preferred form would enable the sweeping removal of all retained EU law still on the statute book at the end of 2023 – will run into the sand amid opposition in the Lords and overwhelming scepticism in Whitehall. Although the Bill is likely to be passed in mid-2023, it is likely to be so watered down that in most respects it simply puts into statutory form the May government's starting position that it is up to future Parliaments to decide whether to reform, replace or keep retained EU law.
2023 will see more disruption to public services, with continued industrial action across a number of sectors which will inevitably have a knock-on impact on the wider workforce. The government introduced some reforms to existing strike laws in 2022, and in January 2023 it has announced further legislative reform on industrial action and strike law, to enforce "minimum service levels" in vital public sectors, which could include maintaining core service provision in emergency services and ensuring key transport, travel and trade routes do not completely shut down on strike days. How quickly any proposed legislation comes into force remains to be seen, with the unions stating that they will challenge the government's proposals.
On government-backed initiatives promoting wellbeing in employment, there are currently a number of proposed legislative reforms progressing through parliament aimed at supporting employee wellbeing throughout employment, including measures extending the statutory right to request flexible working, new carer's rights and redundancy protections. The government has also committed to the Department of Work and Pensions "thoroughly" reviewing "workforce participation" to understand the rise in economically inactive individuals which has been "seen particularly acutely within those aged over 50".
With the difficult economic climate looking set to continue and potentially worsen over the coming year, it is anticipated that redundancies will be a prevalent theme as companies restructure or put a hold on pay rises and additional perks previously introduced to attract talent in a competitive market (we are still awaiting the government's promised statutory code on fire and re-hire). Employers can expect to see more individual and collective grievances and we are anticipating new ways of working affecting the issues arising in Employment Tribunal claims in this context.
We are also expecting an important decision from the Supreme Court on the ongoing holiday pay litigation which could have significant repercussions for many employers. The government response to the consultation on non-compete provisions remains outstanding but we anticipate business protection challenges remaining a pressure point for employers in the current market conditions, particularly with higher levels of remote working making monitoring and identifying potential risks arguably more difficult.
Widespread non-compliance with the requirement for overseas entities holding UK real estate to register their beneficial owners at Companies House by 31 January 2023 is expected. This failure to meet the mandatory requirements of the Economic Crime (Transparency and Enforcement) Act 2022 will lead to delays to sales, leases for more than seven years and charges relating to land held by such entities.
Investors and occupiers are likely to continue the push for greener buildings, not just to comply with the more stringent legal requirements coming into force on 1 April but to implement the ESG goals demanded by many business strategies and to ensure that employers can offer the type of working environment that can attract and retain the best talent.
Decarbonisation ambitions will drive an increase in agreements between landlords and tenants to reduce the environmental impact of their building, including obligations relating to sustainable materials, energy efficient plant, renewables and recycling initiatives. With the increasing ability of new technology to offer powerful insights into the optimisation of energy use in the built environment, parties are also more accepting of requirement to collect and share data with a view to collaborating on strategies to reduce their carbon footprint.
We can also expect the publication of Building Safety regulations throughout 2023 to support the implementation of the more stringent building control regime under the Building Safety Act 2022 which is planned to come into operation in October 2023. The Act aims to drive an industry culture change with greater accountability and responsibility for fire and structural safety issues throughout the lifecycle of a building.
For minimum energy efficiency standards (MEES) we can predict that a majority of registered commercial properties will not be in compliance with the tightened rules by 1 April 2023. The government's next goal is that all non-domestic buildings achieve an EPC of C by 2027 and currently only 12% of properties meet this criteria. As many properties will still be in breach, it may be that there will be limited penalties actually issued in practice.
The Short-Term Holiday-Let Accommodation (Licensing) Bill is currently in its second reading in the House of Commons, so we might expect it to be passed later this year. It gives local authorities the power to require licences for the conversion of domestic properties into holiday homes. While its aim is to improve the holiday letting market for those living in tourist hotspots, we can expect it to be controversial.
Finally, in a look ahead for case law, we have the high-profile Fearn and others v The Board of Trustees of the Tate Gallery, where the Central London Tate gallery's neighbours, whose residences feature floor-to-ceiling windows, created a "self induced incentive to gaze" as the Court of Appeal ruled. The Supreme Court heard the case of alleged nuisance at the beginning of the last year, so we can expect the judgment on this finely balanced point of law very soon.
After years of planning, the Unitary Patent and the Unified Patent Court (UPC) is due to launch in Europe in mid-2023. For the first time, the new system will introduce a single patent right covering all EU Member States that have ratified the UPC agreement and opens up the possibility of pan-EU injunctions and central patent revocation. Although the UK will not be participating in the new system, it will remain a key jurisdiction for parallel litigation and we must wait to see how the systems interact.
Sticking with the world of patents, artificial intelligence is going to be on the agenda with an anticipated Supreme Court appeal in the litigation concerning the AI machine, DABUS. The case raises an important practical point – can a patent be granted for an invention created by an AI machine? Whether the owner of the AI machine is entitled to own the inventions the machine creates is a point likely to be considered.
Turning to trade marks, the issue of bad faith is firmly back on the agenda, with the Supreme Court to decide whether filing broad trade mark specifications can amount to bad faith and, before this, the High Court to hear the trial of a dispute between supermarkets, where bad faith allegations are to be made (after an interim decision from the Court of Appeal which suggested that the hurdle for making a bad faith allegation and arguing it at trial is lower than previously thought).
The issue of online sales and trade mark infringement will feature heavily this year. The Supreme Court has accepted an appeal in the Lifestyle Equities v Amazon case concerning Amazon's liability for trade mark infringing third party goods on amazon.com and its decision will have a big impact for platform providers.
In addition, the Court of Appeal will hear an appeal of a dispute on liability for third-party apps. Whether the distinction between passive and active involvement in third party sales affects the availability of the hosting defence will be put to the test.
For more detail on these developments, see our Insight.
The Edinburgh Reforms, announced by the chancellor in December 2022, are expected to make major changes to how the sector is regulated. Measures range from the highly complex project of replacing retained EU law in financial services with a framework tailored to the UK, to publishing an updated Green Finance Strategy, to reforming consumer credit law, the bank ring-fencing regime, and the rules for senior managers. At the moment much of the package is in the initial stages, but more detail is expected to emerge during 2023, allowing for a fuller assessment of the likely impact on the industry.
The Edinburgh Reforms build on the landmark Financial Services and Markets Bill 2022-2023, currently making its way through Parliament. It includes measures on the revocation of retained EU law for financial services, reforming the financial promotions framework, and potentially bringing cryptoassets within the regulatory perimeter.
The Financial Conduct Authority's new Consumer Duty goes live for open products and services on 31 July 2023, aiming to drive higher standards of consumer protection across the sector. In-scope firms are in the midst of implementation, often requiring a significant lift, while bearing in mind the regulator's message: firms should be doing what they can now to support consumers amid the cost of living crisis.
This should be the year when the shape of the EU's AI Act settles (although it will be some years before it is in full force and effect). The emergence of powerful "general purpose" AI systems such as Dall-E or ChatGPT since the original draft of the Act was issued in April 2021 emphasises the challenge for legislators in creating a regulatory framework that is able to flex and adapt to the rapid shifts and massive impact of this all-pervasive and ever-morphing technology.
More generally, 2023 is the year when other landmark pieces of EU digital regulation start to come into force, including the Digital Markets Act, Digital Services Act and Data Governance Act. The Data Act, Cyber Resilience Act, AI Act, AI Liability Directive are close behind in the legislative process, as well as digital-focused overhauls of consumer law and product regulation. Businesses around the world that offer digital products, services and platforms to EU customers are facing a complex jigsaw of compliance with potentially challenging intersections.
Digital regulation may be an area where we see significant divergence between the EU and UK regimes. This will be more due to EU legislative advances than to the UK's post-Brexit activities. The EU is progressively creating a whole new field of law that will not apply to UK markets, and UK policy around digital regulation is, generally, developing more slowly, with exception of the UK Online Safety Bill, currently before Parliament, and the UK's digital markets legislation (expected in mid-February). These areas will offer early tests of the impact of divergence on digital products, services and platforms that might not otherwise face geographic barriers to cross-border trade.
The bulk of the provisions catered for in the Building Safety Act 2022 are due to come into force during 2023. While firm dates and details of a number of aspects of the Act are still outstanding, the changes will have a significant impact on developers and the wider construction industry, particularly for the construction of "higher-risk buildings" (over 18 metres high, with at least one residential unit (broadly speaking)). The introduction of the gateway regime, the "golden thread" information requirements, the mandatory registration of all higher-risk buildings and the building safety levy are just some of the provisions that will be introduced before the end of the year, and we await the outcome of a number of government consultations and the publication of draft secondary legislation for the detail and transitional arrangements that apply to these new concepts.
We expect to see claims relating to building safety to continue to make their way through the courts. The extended liability periods for certain statutory claims relating to dwellings (introduced by the Building Safety Act 2022) came into force in June last year, with the new retrospective 30 year limitation period opening up the possibility of bringing a claim to a sizeable tranche of persons who had previously been time barred. We may see a particular flurry of these claims in the first half of the year, as the one year "initial period" for these claims (which allowed extra time if the 30 year period was close to expiry when the changes were introduced) ends on 28 June 2023. We will also be monitoring any government announcements regarding the introduction of section 38 of the Building Act 1984 which provides a right to pursue civil damages for a breach of duty imposed by Building Regulations, though there have been no recent indications from the government as to when this will be introduced.
More generally, we expect the trend of cladding and fire-safety related claims to continue during 2023.
With the cost of living continuing to rise, employees might look to reduce their pension contributions or even opt-out of their pension scheme in order to maximise their take-home pay. Businesses need to be alive to this (and to any link between active pension scheme membership and death in service cover) and think about ways to help employees to continue saving.
Businesses with final salary (defined benefit) pension schemes could receive questions from pensioner or deferred members about the "in payment" or "in deferment" increases they receive. Can or should a discretionary increase be paid? They will also be preparing for the new notifiable events rules (expected to come into force last year, but delayed) and the new scheme funding regime (expected to apply to valuations with an effective date on and after 1 October 2023). Some might like to respond to the Pension Regulator's consultation on a new funding code and fast track document, open until 24 March 2023.
Those with money purchase (defined contribution) trust-based schemes can expect to see a continued focus on value for members (and consolidation – perhaps into a DC master trust – if value cannot be achieved).
And pension scheme costs associated with preparing for pension dashboards and complying with a new requirement to have an effective system of governance are likely to increase.
2023 may see the first climate change-related litigation brought against directors of a UK company. Alleging breach of duties under the Companies Act 2006, it would be the first derivative action against a board of directors for failing to implement an effective climate strategy.
The post-Brexit UK is still unlikely to be allowed to join the Lugano Convention, but may join the EU in signing up to the Hague Convention on the Recognition and Enforcement of Judgments in Civil and Commercial Matters 2019. This enables, as between the UK and the EU Member States, a simplified procedure for the enforcement of judgments obtained where there was no exclusive jurisdiction clause entered into by the parties.
From January 2023 the UK starts to roll its Electronic Travel Authorisation visa waiver programme for visitors from the EU and other countries whose nationals do not require a visa to visit the UK. The EU also starts a European Travel Information and Authorisation System (ETIAS) from November 2023.
Throughout 2023 there will be changes to how overseas workers are sponsored, how they apply for their visas and how sponsors update UK Visa and Immigration (UKVI) – in line with UKVI's vision of streamlining and digitising visa applications.
The Procurement Bill becomes law in the first half of 2023, but given the need to develop underlying secondary legislation we expect that the UK's new post-Brexit procurement regime will not "go-live" until early 2024.
With higher tax rates (the rate of corporation tax rising to 25 per cent, from 1 April 2023) and the implementation of new levies (such as the Electricity Generator Levy), we may see more tax reforms around capital investment tax reliefs to support future business investment and innovation.
We expect some further changes to the tax treatment of investment funds, with the aim of making the UK a more attractive destination for funds. The chancellor has already announced (as part of the Edinburgh Reforms) some improvements to the tax rules for Real Estate Investment Trusts from April 2023.
On international initiatives, the UK is expected to implement the OECD proposals for a global minimum corporate tax rate for the fiscal years beginning on or after 31 December 2023. Also along these lines, the UK continues to move away from EU-derived legislation, for example through the implementation of the UK Mandatory Disclosure Rules which are expected to come into force in the first half of 2023 (and which follow OECD rules), replacing the EU's DAC6 regime in the UK.
We expect increased interest in tax-advantaged plans, in particular company share option plans (CSOPs), as from 6 April 2023, qualifying companies will be able to grant CSOP options to employees over shares with a market value of up to £60,000 (double the current £30,000 limit). The current restrictions on share classes will also be eased, which will widen access to CSOP for many companies. Save as you earn (SAYE) plans may also see an increase in popularity if the bonus and interest rates for such plans are increased at the conclusion of HMRC's ongoing review.
There may also be additional pressure to update employee tax rules to reflect new hybrid working arrangements, following the Office of Tax Simplification's report on hybrid and remote working in December 2022, setting out the calls businesses are making for changes to the tax rules to reflect modern working patterns. But as usual in this complex area, policy and legislative change is likely to take some time.
We anticipate a significant overlap between firms designated with "strategic market status" by the Digital Markets Unit and those identified as "gatekeepers" under the EU's Digital Markets Act. The Competition and Markets Authority (CMA) has indicated that it expects its powers to come into force in October 2023.
Until the end of last year, the UK relied on retained EU legislation to regulate horizontal agreements (commercial arrangements entered into between competitors). On 1 January 2023, the EU regulations were replaced by the Specialisation Agreements Block Exemption Order and the R&D Block Exemption Order. We are expecting the CMA to publish its draft guidance on the application of both orders early in 2023, with the regulator indicating that it will consult on this guidance before publication. Notably, the CMA has stated that there is a benefit in consistency between EU and UK block exemptions. This indicates that there may be limited divergences from the EU's own horizontal guidance (although this position could change).
Subsidy control will be a big theme as the UK's Subsidy Control Act came into force on 4 January 2023. This will regulate how public authorities can give financial assistance to businesses. It increases the limit for minimal financial assistance to £315,000 over the previous two financial years and the elapsed part of the current financial year, compared to the EU state aid €200,000 limit.
We'll still be talking about LIBOR...although publication of the remaining US dollar LIBOR tenors will cease after 30 June 2023, the FCA is consulting on whether to require the continued publication of certain synthetic US dollar LIBOR settings until the end of September 2024. Having been reformed to comply with EU Benchmark Regulations, EURIBOR is still routinely referenced in euro loans and that is not set to change. However, the ECB has recommended that €STR, the near risk-free rate for euro, be included in relevant contracts as a fallback rate. We expect to see increased pressure on the syndicated loan market in 2023 from the EU Risk-Free Rates Working Group to start including €STR fallbacks in loan agreements.
...and we'll start talking about Basel IV. We will see firms continue to prepare for the long-awaited implementation of the Basel IV standards that are expected to increase regulatory capital requirements, restore credibility in risk weighted averages and will require financial institutions to update internal systems. These new standards were originally expected to be in place from 1 January 2022, were then delayed to 1 January 2023 due to the pandemic, and are now expected to take effect from 1 January 2025 in the EU (through CRR3). In the UK, the Prudential Regulation Authority is consulting on the implementation of the new standards until 31 March 2023.
We're expecting UK DAC6 to be replaced in the first half of 2023 with the UK Mandatory Disclosure Rules which implement the OECD's model mandatory disclosure rules for CRS Avoidance Arrangements and Opaque Offshore Structures. We will see changes to the typical representations and undertakings used in syndicated loan documents as a result.
ESG will remain a focus in banking. Sustainability-Linked Loans (SLLs) were perhaps not as prevalent as expected in 2022, but we did see deals with meaningful KPIs. Expect to see more SLLs in 2023.
The Economic Crime and Corporate Transparency Bill is expected to become law in the first half of 2023, to be followed by an implementation period. There will be a ban on the use of corporate directors (with an exemption likely where used in groups) and a requirement for identity verification for company directors/LLP members and persons with significant control. The legislation will also give Companies House new powers to interrogate the information submitted to it.
Two separate but linked taskforces will publish reports in 2023 that are likely to lead to fully digital share registers. The Digitisation Taskforce is a government taskforce established in July 2022 with the objective of eradicating paper-based processes in securities settlement in capital markets. The UK Jurisdiction Taskforce is part of LawtechUK, a government-backed initiative established to support digital transformation in the legal sector and is looking at how English law can support the issue and transfer of equity and debt securities on blockchain and distributed ledger technology systems.
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