Last year saw a number of interesting and important decisions affecting construction and engineering practitioners relating to liquidated damages, penalty clauses, payment under the Construction Act and adjudication (in particular pay less notices and interim applications), implied terms and contribution claims. The new Construction (Design and Management) Regulations and Public Contracts Regulations also came into force.
The main changes and expected developments in the construction industry that will affect adjudication and contracts (both bespoke and standard form) are as follows:
- Payment and adjudication: Following the decision in ISG Construction Limited v Seevic College (2014) and Harding v Paice and another (2015) we expect to see more cases concerning a party’s failure to serve a payment or pay less notice on time.
- FIDIC: The Red (building and engineering works designed by the employer), Silver (EPC/Turnkey projects) and Yellow (building & engineering works designed by the contractor) FIDIC contracts are currently under review and may be approved during 2016.
- BIM: Government projects are now required to use BIM level 2.
- RICS Property Measurement 1st edition: In May 2015, RICS published RICS Property Measurement 1st edition which contains three parts; Part 1 (Professional Statement: Office Measurement) applies only to office measurements, Part 2 (International Property Measurement Standards: Office Buildings) applies only to office measurements and Part 3 (Code of Measuring Practice, 6th edition) applies to all building classes such as residential, industrial, retail and mixed use buildings except offices. Since January 2016 Parts 1 and 2 are mandatory for the measurement of office buildings.
- Insurance Act 2015: The Insurance Act 2015 comes into force on 12 August 2016. The Act makes changes to the law regarding the insured’s pre-contractual duty to the insurer, which will apply to construction insurance contracts and the Act requires insurers to pay insurance claims within a reasonable time; and
- Insolvency Rules: The Insolvency Rules 2016 are expected to come into effect in October 2016. The aim of the new rules or to modernise the Insolvency Rules 1986 and consolidate all the amendments. The government currently anticipates that the Insolvency Rules 2016 will be made in Spring 2016 and become effective in October 2016.
These are some of the significant changes and developments we can expect over the next 12 months:
The Small Business, Enterprise and Employment Act
- The Small Business, Enterprise and Employment Act: This received Royal Assent in March 2015, and introduces a number of significant measures both to reduce red tape and to increase corporate transparency. Those that come into effect in 2016 include:
- Bearer shares have been abolished and bearer shareholders have until 26 February 2016 to surrender their warrants voluntarily. These will then be converted into registered shares, and the bearer shareholder’s name will be entered into a company’s register of members. Any company with outstanding bearer shares should ensure bearer shareholders know their rights to surrender their warrants, and the consequences if they don’t.
- Companies will need to keep a register of people with significant control (PSCs) from 6 April 2016, and certain prescribed information about PSCs will then need to be filed at Companies House from 30 June 2016. A PSC is defined in the legislation as a person who owns more than 25% of the company’s shares or voting rights, or has the right to appoint or remove a majority of the board of directors, or has significant influence or control over the company.
- In June 2016, the requirement on companies to file an Annual Return will go, to be replaced by a requirement to check and confirm information held about them at Companies House, filing a ‘confirmation statement’ and notifying changes if necessary at least once every 12 months.
- In June 2016, private companies will be able to opt to keep certain information on the public register, instead of holding their own statutory registers. This will apply to registers of members, directors, secretaries, directors’ residential addresses and PSCs.
- In October 2016 (scheduled, but not finally confirmed), a prohibition on companies having corporate directors (ie directors which are not natural persons) will be introduced, with limited exceptions. Any company with an existing corporate director will need to take action, either explaining how they meet the conditions for an exception or give notice to the registrar that the person has ceased to be a director.
- The Consumer Rights Act 2015 (CRA): This Act, which modernises, simplifies and consolidates UK consumer protection law, came into force for the most part in October 2015. In 2016, we are likely to see the Act biting significantly, both in terms of changes to business practices and enforcement.
On 6 April 2016, parts of the Act relating to the provision of services by rail, air, sea and inland waterways will come into force.
It should be noted that, in December 2015, two draft EU Consumer Directives - to harmonise across the EU both consumer sales of digital content and online sales of goods to consumers – were published. If these are implemented, they will have an effect on the CRA, and some aspects of it – for example, the short-term rejection right for faulty goods – may be modified or removed.
- Transfers of personal data from the EU: After the European Court of Justice ruled, in October 2015, that the “Safe Harbour” agreement between the US and the EU, which has allowed personal data to be transferred legally between EU countries and the US for 15 years, is invalid, there is now likely to be considerably more scrutiny by EU national authorities of personal data transfers to non-EU countries.
So, in 2016, businesses transferring personal data outside the EU should be assessing thoroughly the data protection regime in the data recipient’s country, which, in most cases, is likely to mean that Binding Corporate Rules or a binding data transfer agreement will need to be put in place to allow legally-compliant personal data transfer to occur.
If the much anticipated EU referendum occurs in 2016, and the outcome is “Brexit”, we can confidently predict that “What to Expect for 2017” in the area of corporate and commercial law will be somewhat lengthier than this summary!
There is much for litigators to expect in 2016, concerning both procedure and substantive law. Highlights include:
- The Third Parties (Rights against Insurers) Act 2010 is expected to finally come into force. The Act will make it easier for a creditor of a company or individual subject to formal insolvency proceedings to benefit from an insurance policy in the name of the insolvent party insuring against the creditor’s claim. It received Royal Assent in 2010 but required various amendments to other legislation, the majority of which have now been made.
- Since 2013 a successful claimant cannot recover from a losing party a success fee under a conditional fee agreement or an after the event insurance premium. Proceedings brought by liquidators, administrators and trustees in bankruptcy have benefitted from an exemption, so that such fees and premiums continued to be recoverable in claims to recover the assets of an insolvent estate. The rationale for this was that without such an exemption claims simply would not be brought (because they could not be funded on an economic basis) and the general body of creditors would suffer as a result. However, the insolvency exemption will end in April 2016.
- Further increases to Court fees are expected across the board. The good news, for at least the time being, is that the proposal to increase the maximum fee on issuing proceedings of £10,000 has been dropped.
- The widely reported Jackson reforms are slowly revolutionising all matters relating to litigation costs. Unsurprisingly, there have been some teething problems and a series of further tweaks are planned over 2016 to address these. In particular:
- The level of detail required for costs budgeting in lower value claims will be reduced.
- Clarification that the Court will not approve or fix hourly rates at the budget stage.
- A new form Bill of Costs for detailed assessment will be introduced
- The Court will continue with various proposals aimed at greater efficiency, including the extension of pilot schemes for electronic working. In parallel, the MoJ is currently considering the results of a consultation to close 91 Courts and Tribunals in England & Wales.
- The process for debtors to make themselves bankrupt will be made easier by the introduction of an out of court process. This change, expected in April 2016, will permit individuals meeting certain criteria to apply to an adjudicator rather than, as is presently the case, a district judge or registrar.
- The decision of the Court of Appeal in Sugar Hut v AJ Insurance is expected. The decision under appeal included a costs order that took into account the defendant’s part 36 offer, even though the claimant had beaten the offer at trial. The case is significant because it threatens to undermine the clear guidance in other decisions that a ‘near miss’ in a Defendant’s part 36 offer is to be disregarded when considering issues of costs.
- Another Part 36 related appeal will be heard in Webb v Liverpool Womens’ NHS Foundation Trust. The Claimant beat her part 36 offer and recovered 100% of the damages she had claimed. However, she brought the claim on two limbs, one of which was unsuccessful, and the court made a proportionate costs order on that basis. The Court of Appeal must decide whether the fact that she had beaten her part 36 offer precluded this approach when determining costs.
Set out below are the key employment law changes employers can look forward to for the next 12 months. This year is potentially significant with the forthcoming EU Membership Referendum, which may well take place in 2016.
- 1 January 2016 – Bonuses in financial services: FCA-regulated firms will be required to ensure that variable remuneration (e.g. bonuses) can be clawed back for 7 years (10 years for senior managers) in cases of employee misbehaviour or where the firm suffers a material failure of risk management.
- January-February 2016 – Holiday pay: The EAT judgment in Lock v British Gas Trading Ltdis expected to be delivered early this year, which will confirm whether holiday pay under UK law can be read so as to include commission and other similar payments in order to comply with EU law.
- 11 January 2016 – Zero hour contracts: Regulations come into force enabling zero-hour workers to bring tribunal claims if they are dismissed or subjected to a detriment for refusing to comply with an unlawful exclusivity clause.
- 15 February 2016 – Employment agencies: The Government is scheduled to publish its response to consultation concerning a proposed ban on employment agencies recruiting workers exclusively from overseas EEA countries to work in the UK.
- 16/17 February 2016 – Staff handbooks: The Court of Appeal is scheduled to hear Sparks v Departmentof Transport and consider whether the terms of a staff handbook are incorporated into employees’ contracts so cannot be changed unilaterally by the employer.
- 2/3 March 2016 – Agency Workers Regulations: The Court of Appeal is scheduled to hear Moran v Ideal Cleaning Services Ltd, which will consider the definition of “temporary” agency workers for the purposes of the Agency Worker Regulations 2010.
- 26 March 2016 – Gender pay gap reporting: Regulations will potentially to come into force by no later than this date requiring private sector employers with 250 or more employees to report gender pay gap information.
- 1 April 2016 – National Living Wage: The National Living Wage, which applies to workers aged 25 and over, will come into force on this date. This will entitle eligible workers to a minimum wage of £7.20 per hour. All current rates are reviewed annually and any new rates will take effect from 1 October 2016.
- 18-19 May 2016 – Employment status: The Court of Appeal is expected in hear the case of Pimlico Plumbers Ltd v Smithand consider the meaning of self-employment and the degree of personal financial risk required for an individual to be regarded as self-employed.
- June 2016 – EU referendum: Widely regarded by commentators as the earliest practical time the EU referendum can be held. More likely it may be held before September 2016.
- 14 June 2016 – TUPE: The Court of Appeal is scheduled to hear BT Managed Services Ltd v Edwardsand determine whether an employee on permanent sickness absence is “assigned” to an organised grouping of employees for the purposes of a TUPE transfer and so becomes an employee of the transferee. This will be of relevance to outsourcing, insourcing and tendering of services.
- 7 September 2016 – Whistleblowing: Relevant PRA and FCA-regulated firms are to appoint whistleblowing champions, establish internal whistleblowing channels and inform staff of protections available to whistleblowers.
- 11/12 October 2016: The Court of Appeal is scheduled to hear Chesterton Global Ltd v Nurmohamed, which will consider the public interest test in determining whether a worker’s complaint amounts to a protected disclosure for the purpose of whistleblowing claims.
Other things to look out for this year:
- Due to the current low rate of inflation, the Government has proposed that there will be no change in 2016 to the various statutory weekly payments, including sick pay, maternity pay, paternity pay, adoption pay and shared parental pay
- The Trade Union Bill is currently going through Parliament, which will place further requirements for industrial action to be lawful, such as:
- 50% voting thresholds;
- 40% of those entitled to vote in the ballot must vote in favour of industrial action for important public services;
- industrial action must take place within 4 months of the ballot;
- increasing the amount of notice to be given to employers before industrial action takes place
- additional regulation of picketing and leverage tactics by unions
- Proposed regulations may emerge this year wholly or partially repealing the ban on the use of agency workers during industrial action
- Regulations are expected to come into force requiring public sector employees to repay some or all of any exit payments if they return to public sector employment, and place an overall cap of £95,000 before tax on public sector severance packages
- Hearings in the Court of Appeal may be scheduled this year considering the scope of collective redundancy consultation, namely:
- the meaning of “establishment” in the Woolworths case;
- when an employer is regarded as “proposing” to dismiss 20 or more employees so as to trigger collective consultation in the USA v Nolan case
- Provisions imposing penalties on employers who fail to pay employment tribunal awards or sums under an ACAS settlement agreement may come into force
- Draft Regulations are due to come into force requiring certain bodies to annually report on the whistleblowing disclosures made to them on an anonymous basis
Most of the expected changes to immigration law are a result of the Conservative government’s pledge to reduce net migration in the UK and so this year we expect to see the introduction of a host of measures that are designed to make the UK a hostile place for illegal workers, which also have the effect of making it much harder for people from outside of the European Economic Area to live and work in the UK.
- Changes to settlement criteria: From 6 April 2016, those people who wish to apply for settlement, also known as indefinite leave or ILR, on the basis that they have been in the UK for 5 years on a Tier 2 visa must be paid at least £35,000 per annum (or the appropriate rate for their role according to the code of practice, if higher). This is the first time that a minimum salary as been imposed on those applying for ILR and means that if you currently sponsor anyone on a Tier 2 visa who wishes to apply for ILR after 6 April 2016 in order to remain in the UK they will need to be paid at least this amount.
- More scrutiny from UKVI: A key trend throughout 2015 which looks set to continue this year is UKVI’s increased scrutiny of sponsors including UKVI querying whether the job offered to a Tier 2 migrant is a genuine vacancy or whether the applicant is appropriately qualified for the role. Sponsors will need to be prepared with evidence of the vacancy and the candidate’s suitability in case this is queried. There has also been an increase in the number of unannounced UKVI visits and businesses should ensure that they have stringent and tested procedures in place to ensure that they are meeting their sponsor duties, including reporting all changes to their sponsored employees. We recommend carrying out an audit of your personnel files at least every 6 months to check you are prepared for a UKVI visit.
- Immigration Bill: Hot on the heels of the Immigration Act 2014, a draft Immigration Bill is making its way through Parliament. It is not known when the draft Bill will come into force but the current draft contains the following key provisions:
- Making illegal working a criminal offence, meaning illegal workers’ wages can be seized as the proceeds of crime. There will also be tougher sanctions on businesses that employ illegally workers.
- An immigration skills charge could be introduced which will apply to employers sponsoring staff under Tier 2. The proceeds will go to funding training and apprenticeships as part of the Government’s aim of reducing the need for skilled migrant workers, which could prove a significant barrier to recruiting staff from overseas.
- Limiting the right to appeal visas refusals from inside the UK. This will mean that employers wanting to employ migrant workers will need to ensure that employees’ visa applications are carefully drafted to minimise the risk of the applications being refused and the employee having to leave the country.
- Criminal records checks: Following on from the introduction of the requirement for those applying for Investor and Entrepreneur visas (and their dependants) to produce a criminal record certificate from every country they have lived in for the past 10 years, it is expected that the initiative will be extended to other visa routes in 2016/17. This means that those applying for a Tier 2 visa in the future may be required to provide evidence of their criminal record as part of their application which would add another administrative hurdle to the visa application process.
- Salary increase for Tier 2: The Government is looking at increasing the minimum salary thresholds for Tier 2 visas, currently set at £20,800 for a Tier 2 (General) and £24,800 for a short term Tier 2 (Intra company Transfer) visa. The minimum salary is increased slightly every year but it seems that the Government is considering introducing a more significant increase, presumably as another way of reducing migration to the UK. It asked the Migration Advisory Committee (MAC) to advise on this issue in summer 2015, but we do not yet know whether and when any changes will come into force.
- Wider review of Tier 2: The Government has also asked MAC to carry out a wider review of Tier 2 and make recommendations about significantly reducing economic migration to the UK. The areas MAC is currently looking at are:
- Restricting the Tier 2 (General) route to migrants in high value roles or who are required to fill skill shortages.
- Which businesses the skills charge should apply to and the level of the charge.
- The impact of not permitting dependents of Tier 2 migrants to work in the UK.
- Tightening the Tier 2 (ICT) route and requiring such migrants to pay the immigration health surcharge.
- EU referendum: This is expected this year. Clearly if the result of the referendum is that the UK leaves the EU then this will have a significant impact on a number of areas, including the ability of employers to employ EU nationals.
- The Finance Bill 2016: 2016 will see the passing of the Finance Bill 2016, which will introduce a number of changes for private clients. The changes will include the following:
- Capital Gains Tax for non-UK residents disposing of UK residential property: Legislation will be introduced in the Bill correct the Capital Gains Tax (CGT) computations required by non-residents on the disposal of UK residential property. The aim is to ensure that a double charge to tax does not arise by enabling individuals to claim consequential adjustments.
- Tax evasion: Legislation is being introduced to try to counter offshore tax evasion. This will include new penalties for those deliberately taking advantage of the loophole. Those who persistently enter into tax avoidance schemes that are defeated by HMRC will have to comply with special reporting requirements in the future. Further defeats will result in a surcharge and after four defeats names of the defeated avoiders can be published.
Legislation is also being introduced aimed at tackling the promoters of tax avoidance schemes.
- Inheritance tax: domicile: The government will introduce legislation to bring the existing deemed domicile provisions for inheritance tax in line with the proposed new deeming rules for non domiciled individuals who are long term resident in the UK.
The legislation will also ensure that anyone born in the UK with a UK domicile at birth and who later acquires a domicile of choice elsewhere, will be deemed to be UK domiciled for tax purposes if they are resident in the UK in at least one of the previous two tax years.
- Inheritance Tax: Downsizing and the Residence Nil-Rate Band:We are gearing up to the introduction of the Residence Nil Rate Band which is being phased in from April 2017. This will enable those who are leaving a residence directly to their children, or grandchildren, to benefit from an additional £175,000 nil rate band on top of their existing £325,000 nil rate band from 2020. This is being phased in gradually from April 2017. After April 2020, a married couple with children and a residence will be able to leave up to £1 million to their children before any inheritance tax becomes payable.
Legislation is being introduced to ensure that the residence nil-rate band will also be available when a person downsizes or ceases to own a home, and other assets up to the maximum value of the residence nil-rate band are passed on death to direct descendants.
- Inheritance tax and undrawn funds in drawdown pension schemes: The Finance Bill 2016 also aims to ensure that a charge to inheritance tax will not arise when a pension scheme member designates funds for drawdown but does not draw all of the funds before death.
- Inheritance Tax: Compensation and Ex-Gratia payments for victims of persecution during the World War 2 era: The inheritance tax exemption in respect of certain compensation and ex-gratia payments for World War 2 claims will be extended to include a payment made under the Child Survivor Fund.
- Deeds of variation: The government continues to monitor deeds of variation, but is not taking any action to restrict these at this time.
- Care: 2016 was meant to be the year when a cap was introduced on the amount people have to contribute towards their care. This has however been delayed until 2020.
Currently, anyone with assets over £23,250 has to pay the full cost of their care. Only when your assets fall below this do your receive assistance with the cost of your care. From April 2020, a cap is being introduced on the care element so that people do not need to pay more than £72,000 towards the cost of their care, provided you are assessed as having very high needs. The cost of food and lodging in a residential care home will not count towards this cap.
- Lasting Powers of Attorney: New forms were introduced on 1 July 2015. The old forms were only valid if they were signed before 1 January 2016. If they have not been completed, signed and dated by Friday 1 January 2016, then they will not be able to be registered.
- Court of Protection: New forms have also been introduced for Court of Protection work. As with Lasting Powers of Attorney, they were introduced in July 2015. It will not be possible to use the old forms in 2016 for matters in the Court of Protection, such as Deputyship applications.
The main changes and expected developments in real estate are:
- Higher residential property buy to let SDLT rates come into force in April 2016.
- Consultation to continue on whether filing times for SDLT returns is to be cut from 30 days to 14 days.
- Potential privatisation of the Land Registry. It will be interesting to see how this might affect the level of service and efficiency of the current registration system.
- With the enforcement of the Small Business, Enterprise and Employment Act 2015 we will see the New Pubs Code in May 2016. The new set of rules for the industry will be overseen by an independent adjudicator and will include provisions designed to help those publicans struggling with tied lease arrangements.
- Following consultation in 2015 it is possible that there will be a new or reformed Electronic Communications Code. The Code’s main purpose is to enables electronic communications network providers to construct electronic communications networks.
- The Government is expected to reveal the results of some consultation into the current CRC Energy Efficiency Scheme and this is expected at the next budget in 2016.