Oxford Uni student Yoshinori Maejima looks at continuation funds and explains their impact on law firms

What are continuation funds in private equity?

Continuation funds are a type of exit plan in the private equity secondary transactions market. Private equity firms buy and manage unlisted, underperforming companies to increase their profitability, to be sold off or listed on the stock exchange for a profit. The primary and secondary markets differ in significant ways. Whereas the primary transactions market consists of Limited Partnership (LP) investors (investors who invest into private equity funds) investing directly into the fund and buying an interest from the General Partner (professionals responsible for managing the investment fund), the secondary transactions market consists of investors buying and selling existing/pre-owned investments in private equity funds with other investors. Continuation funds have formed nearly 50% of secondary transactions since 2021, and are a crucial form of secondary transactions in the ever-expanding private equity market.

Continuation funds allow for the fund manager to distribute the revenue from the existing investment to its current investors while also allowing for a continuation in ownership under its current management. In short, continuation funds allow fund managers to have continued ownership of existing investments while also providing liquidity to investors.

What are its benefits, and why is it on the rise now?

Asset management company Schroders notes that continuation funds have become a popular exit option in the secondary market due to the increased market volatility and geopolitical uncertainties. Such uncertainties discourage traditional exit options in private equity, namely IPO (Initial Public Offering, or listing on the stock exchange) and mergers and acquisitions. Continuation funds thus provide existing investors with more options for liquidity.

Additionally, continuation funds allow for long-term strategies to be implemented in existing investments. This allows for the growth of high-quality, high-potential companies to realise their full market potential. Additionally, because continuation funds allow for the continued ownership of the portfolio companies by the same General Partner, they can employ existing, experienced management teams to continue developing the company’s long-term strategy.

What are the risks?

However, continuation funds carry significant legal risks. Firstly, because the same private equity firm acts as the buyer (as the continuation fund) and the seller (as the existing fund), it creates a potential conflict of interest. Private equity firms must make sure that a fair price is given to the portfolio companies being sold to the continuation fund from the existing fund, in order not to favour one group of LP investors over another. To mitigate this issue, EQT, a Swedish global investment firm, notes that the presence of a neutral, third-party advisor who ensures the fairness of the prices for which the assets are being sold from the existing fund to the continuation fund is crucial in resolving any conflicts of interest that may exist.

Additionally, ensuring that the interests of the General Partner and the LP investors of the funds are aligned is crucial. This is important as the General Partner must work to maximise the value of investments made by the LP investors. The Institutional Limited Partners Association (ILPA) states that the General Partners are usually expected to contribute 100% of their carried interest earnings from the existing fund to the continuation fund to ensure the alignment of interests between the General Partner and the LP investors.

How does this affect law firms?

The rise of continuation funds affects law firms in significant ways. Firstly, it increases the volume of transactions, thus creating more work for transactional and advisory lawyers. The work of these lawyers is crucial in making sure that these transactions are as efficient as possible from a business and tax point of view while complying with all legal requirements pertaining to private equity in all relevant jurisdictions. The work of advisory and regulatory lawyers is made particularly important in light of the increased regulatory scrutiny into GP-led secondary transactions since 2023. Orrick, a global law firm, notes that regulators, particularly those in the US, scrutinise these transactions to ensure that the interests of the LP investors are not being compromised and that the third-party advisors to these transactions do not have existing relationships with those involved in the transaction, which could create conflicts of interest.

Conclusion

In conclusion, continuation funds are a necessary and crucial exit option at a time of heightened geopolitical and economic uncertainty. They serve two crucial purposes, as they allow for the continued ownership of strategically important private equity investments while also providing liquidity to LP investors. However, they carry significant legal risks, with the potential conflict of interest being the most significant. Law firms have a significant role to play in navigating such complex transactions.

Yoshinori Maejima is an undergraduate student reading history and politics at the University of Oxford.

The Legal Cheek Journal is sponsored by LPC Law.

Year 12 student Inaam Bawa takes a look at how businesses use gaps in the law to maximise their profits

Businesses are run to maximise their profits. This means that, when taxes and legal limitations threaten to reduce their earnings, businesses begin to reconsider their strategies. Therefore, many companies turn to “loopholes”, gaps or ambiguities in legislation, as a strategic tool.

Whilst these practices aren’t actually illegal, they often raise ethical concerns and are frowned upon by the public. This article will explore how loopholes shape strategies in three different ways: international tax avoidance; domestic regulatory exploitation; and the morals involved in the flexibility of the law. Using case studies and various sources, I will argue that although loopholes may offer short-term benefits to businesses, they ultimately reveal the need for smarter laws.

One of the most prominent examples of how legal loopholes shape business strategy is seen in international tax planning. Some multinational corporations exploit the differences in national tax codes to move profits from high-tax countries to low or no-tax jurisdictions. For example, Google utilised a mechanism known as the “Double Irish with a Dutch Sandwich” to transfer billions in profits from Europe through Ireland (and the Netherlands) to Bermuda. In 2017, Google moved roughly £16.9 billion ($23bn) using this to process. Though entirely legal at the time, this strategy drew sharp criticism. The European Parliament argued that these mechanisms distort competition and undermine the fairness of tax systems. In 2013, Apple chief executive Tim Cook said the company paid “all the taxes we owe, every single dollar”, however the company announced in 2020 that it would no longer be using this strategy, following a change in US tax law. Companies that use these structures say they are complying with the law; however, these schemes force us to confront whether legality is an adequate measure for fairness.

Loopholes are not always limited to international tax shelters; they also exist in domestic systems and are exploited in other ways. In the UK, for example, property owners began registering empty commercial buildings as “snail farms” to avoid paying full business rates. As agricultural land is taxed differently, this reclassification allowed owners to significantly reduce their liabilities, costing local councils revenue. Though it seems absurd on the surface, these actions highlight the resourcefulness with which some businesses exploit legal ‘grey areas’. The fact that this strategy was used to bypass a legal duty without straying outside the boundaries of the law, indicates the need for more precise laws to be drafted. It also demonstrates that loopholes are not always the result of international complexity; often, they stem from oversights in domestic policy.

Another major way loopholes shape decisions is through how companies treat their workers. A clear example is how gig economy platforms like Uber, Deliveroo, and Bolt have sought to classify their drivers and riders as “self-employed” rather than employees. By doing this, they don’t have to cover holiday pay, sick leave, or pensions. These workers often work full-time hours, but legally they’re not entitled to the same protections as regular employees. It’s a clever strategy, but one that comes at a human cost. It means many people working under these conditions have no real security, even if the company relies on them every day.

This loophole in employment law has generated some backlash and legal challenges in recent years, with courts in both the UK and EU ruling in some cases that these workers should be considered employees. For example, Uber drivers were recognised as ‘workers’ by the Supreme Court in 2021, although this only applies when they are logged onto the app, they are now entitled to holiday pay and a few other employment rights. However, they still don’t have the same full-employment rights as employees. Interestingly, much more recently, Deliveroo riders were subject to a ruling that was not in their favour, as the Supreme Court ruled against collective bargaining rights finding that they were not ‘workers’ but ‘self-employed contractors’. This left thousands of riders without paid sick leave and other benefits.

Another example would be zero-hour contracts. Technically, they offer flexibility and no guaranteed hours, just the chance to work when needed. However, in actuality, this can often lead to unstable incomes and workers being constantly “on call” without knowing when they’ll get paid. It makes it hard to budget, plan childcare, or even apply for a mortgage. Companies defend these contracts by saying they’re legal and suit some lifestyles, but the reality is that it results in uncertainty and stress for lots of employees.

According to the Trades Union Congress, over a million people in the UK are on zero-hour contracts, with many stuck in low-paid, insecure work. It’s a clear case of businesses using a legal structure to their advantage, even when it puts workers in difficult positions. More recently however, the Labour Party’s pledge to ban these contracts has been widely anticipated by the UK. Changes to these zero-hour contracts are included in the Employment Rights Bill 2024-25. The Bill would create two key rights: the right to reasonable notice of shifts and payment for shifts that are cancelled or curtailed at short notice and the right to a guaranteed hours contract reflecting the hours regularly worked. This provides evidence of how the law is constantly adapting and adjusting to close a few of these loopholes that businesses exploit.

Finally, there’s also outsourcing. Large companies often use agencies or third-party contractors to avoid taking responsibility for how workers are treated. A 2023 University of Aberdeen research report shed light on the treatment of Bangladeshi suppliers by global clothing retails. Some major online retailers have been criticised for poor conditions in UK warehouses, long shifts, pressure to meet intense targets, and little recourse for workers, because the staff were hired through agencies. Technically, these companies can say the workers aren’t “theirs”, even if they’re doing the company’s work. It’s another loophole that keeps profits up while shirking responsibilities and shifting accountability to someone else. These gaps in the law make it easy for consumers to separate a company’s brand image from the reality behind the scenes.

Legal loopholes are likely to continue to shape business strategy across both global and local contexts alike, as no matter the measure put in place, individuals are likely to always find a way around the law. Whilst these tactics provide a way for companies to reduce costs and increase competitiveness and profit, they often do so at the expense of fairness and public trust. Whether through tax avoidance or domestic rate manipulation, these methods reveal the need for smarter regulation and more ethical awareness. Legal systems should close the gap between what is permitted and what is fair. Ultimately, it is not just the loopholes our societies need to examine, but the culture that rewards the use of them.

Inaam Bawa is an A-level student at the Tiffin Girls’ School and is currently studying English, Psychology, and Economics. She plans to pursue a law degree and legal profession and is particularly interested in how the law constantly adapts to human behaviour.

The Legal Cheek Journal is sponsored by LPC Law.

Oxford University student Yoshinori Maejima’s explainer on this increasingly popular form of lending

Private credit (also referred to as direct lending) has grown tremendously in the past year, with the largest asset management firms in the world, such as BlackRock, acquiring leading private credit firms such as HPS in July 2025. Preqin, a London-based investment data company, expects the global private credit market to reach $2.6 trillion by 2029.

The rise in private credit is also reflected in the rise of private credit Collateralised Loan Obligations (CLOs), especially in the European market, which has traditionally lagged behind the US private credit CLO market. This was demonstrated in the first private credit CLO offering in Europe by Barings, a global investment management firm, in late 2024. This article will explain what private credit and private credit CLOs are, how they compare to more traditional forms of lending, the reasons for their rise, and potential risks.

What is private credit, and how does it compare to traditional forms of lending?

Private credit refers to loans given by asset managers, rather than banks, to corporate borrowers. The loans originate from private credit funds, which are funded by investors — limited partners (LPs) — and usually include institutional investors such as pension funds. The private credit managers pool these resources and extend loans to corporate borrowers, making a profit from the scheduled interest repayments on the loans. Some of this profit is then returned to the LPs, allowing institutional investors to make a profit.

This structure is quite similar to private equity; however, rather than investing in privately listed companies, investors in private credit invest in loans extended to corporate borrowers. Private credit originated as a way for corporate borrowers to access loans during times of high interest rates, or when banks and debt capital markets were unwilling to extend loans to these corporations because of financial distress or mismanagement. However, in the past decade, they have become a mainstay on the global financial market.

Private credit is often analysed in comparison with syndicated loans, which are loans given by two or more lenders and structured and administered by commercial or investment banks. In comparison to loans extended by a single private credit fund, syndicated loans generally have less restrictive covenants (conditions on loans) and lower interest rates. However, broadly, syndicated loans have a slower speed of execution and are less flexible in their arrangement, considering how the interests of multiple banks must be taken into account.

Private credit also differs from public debt in significant ways. Public debt is traded publicly in debt capital markets, and often has higher liquidity and more transparent pricing, which are determined by market forces while being more heavily regulated by the FCA. On the other hand, private credit is negotiated entirely between the borrower and the lender. They tend to be less liquid than public debt, less regulated, and therefore are considered less transparent.

Notable lenders in the private credit market include firms such as Ares, Blackstone, and Apollo.

What are private credit CLOs, how do they compare to more traditional forms of CLOs, and how are they related to private credit?

Collateralised Loan Obligations (CLOs) are a structured credit product. They are a single security sold to investors backed by a pool of corporate loans, which are usually below investment grade. Investors invest in CLOs to receive interest payments from the underlying pool of corporate loans. To facilitate this, CLO managers classify and divide the underlying pool of loans based on their default risk (referred to as tranches, ranging from AAA to BB) and sell them to investors based on this categorisation.

CLOs fundamentally differ from syndicated CLOs as the source of the loans is different. Syndicated CLOs are backed by corporate loans that are bought from the syndicated loans market. On the other hand, private credit CLOs are backed by loans from the asset management firm’s own private credit portfolio. In short, the asset management firms package the private credit loans extended to corporate borrowers into private credit CLOs and sell them to third-party investors, allowing the asset management firms to free up capital and earn management fees on the CLOs. Thus, as global corporate services provider Ocorian notes, the rise in private credit and private credit CLOs is inextricably linked.

Why is private credit on the rise, and what are its benefits?

Both private credit and private credit CLOs are on the rise as they suit both investors (LPs) and corporate borrowers. The International Monetary Fund (IMF) notes that for LPs, the relative illiquidity of private credit compared to syndicated loans means that they can earn illiquidity premiums, increasing their yield. Additionally, most private credit loans use a floating interest rate and are never traded publicly, thus protecting LPs from volatile changes in interest rates and the wider economy. Lastly, private credit is considered a safer investment compared to private equity, although it may generate lower returns than some private equity investments. As Pete Drewienkiewicz, chief investment officer at Redington, an investment consultancy, notes, in the case of bankruptcy or liquidation, debt always takes precedence over equity and other classes of assets in subsequent legal proceedings, ensuring that investors will be protected when the asset manager’s investments fail.

Barings notes that investors favour private credit CLOs for similar reasons. Compared to syndicated CLOs, they provide greater illiquidity premiums. Additionally, compared to syndicated CLOs, investors have a higher chance of recovering their investments in cases of bankruptcy. Private credit CLOs have stricter covenants compared to syndicated CLOs, and therefore, investors have greater control over their loans and can engage directly with the company management to protect their investments. Ocorian notes that private credit CLOs are less affected by market turbulences, have stronger underwriting discipline, and therefore have lower default rates compared to syndicated CLOs.

Investment management firm State Street cites three key reasons why borrowers turn to private credit. Firstly, private credit offers an attractive alternative to traditional lending, especially as banks are becoming less willing to extend loans given new regulations such as Basel III, which were introduced after the 2008 financial crisis. Additionally, private credit is more flexible than traditional lending, and therefore, borrowers can get loans which are more tailored to their specific needs. Lastly, compared to a private equity investment (if the company is private) or selling equity on the stock market (if the company is public), private credit allows corporate borrowers to obtain funds without diluting their ownership and decision-making processes.

What are the potential risks in private credit?

Despite its benefits, private credit carries significant risks, as noted by Credit Benchmark, a financial data analytics company. The characteristics which make it attractive to investors (illiquidity and lack of regulation) can also be a source of concern. Its illiquidity means that investors cannot readily sell these investments, unlike stocks and debts traded on public markets. Additionally, its lack of regulation means a lack of transparency for investors.

Although there are strict regulations on disclosing information for publicly listed equities and debt, the fact that the borrowers of private credit are often non-listed companies means that information on these companies is less readily available, thus requiring more stringent due diligence from investors. Similarly, as Barings notes, grade reporting in private credit CLOs is less transparent compared to syndicated CLOs.

Finally, private credit’s relatively unregulated nature has attracted the attention of regulators and international bodies. Bodies such as the IMF and the Bank for International Settlements have expressed concern that if underwriting standards for private debt (requirements a borrower must meet to obtain debt) are lowered in the future, and if retail banks gain greater exposure in private credit, this could lead to another financial crisis caused by unsustainable debt.

Although future EU and US regulations on private equity could provide more clarity for industry players and thus help boost the industry, more stringent regulations could also stymy its growth. Cato Holmsen, CEO of Nordic Trustee, a bond trustee and loan agency provider company, argues that while some industry leaders believe that new regulations could improve investor confidence, new regulations should not be too stringent to the extent that they harm demand in the private credit market.

Conclusion

In conclusion, private credit offers an attractive alternative to traditional lending for both institutional investors and corporate borrowers. For investors, it provides a relatively stable, high-yield source of income that is safer than private equity. For borrowers, it provides access to funds which traditional banks may not be willing to lend in a quicker and more flexible manner. However, its low liquidity, relatively less transparent nature, and new regulatory frameworks proposed by bodies such as the IMF can pose significant threats to the growth of the private credit market in the coming years.

Yoshinori Maejima is an undergraduate student reading history and politics at the University of Oxford.

The Legal Cheek Journal is sponsored by LPC Law.

Future BCLP trainee, Keenan Taku, delves into the government’s proposed trading system

Among the Labour government’s ambitious plans for achieving economic growth is the introduction of the Private Intermittent Securities and Capital Exchange System (PISCES). Originally proposed by the Conservatives in December 2022, PISCES will be a new regulated trading platform designed to let shares in private companies trade in a controlled, intermittent environment.

Rather than being a single exchange, PISCES will operate as a regulatory regime under which approved third-party platforms, such as alternative trading venues, brokers and even the London Stock Exchange (LSE), will provide the trading infrastructure. The initiative forms part of a wide range of proposals intended to reinvigorate the UK capital markets amid concerns that British companies are increasingly choosing to list in the US – for example, Arm Holdings, a Cambridge-based semiconductor and software design company which chose to list on NASDAQ last year.

HM Treasury plans to lay a statutory instrument before Parliament in May 2025, setting out the legal framework for PISCES. It will be set up as a ‘financial markets infrastructure (FMI) sandbox’ – a way for the government to let companies test new technologies and promote innovation in financial services. The sandbox will operate in a live, structured environment with special oversight, and can allow for temporary waivers or adjustments to regulatory requirements.

Key features

• Non-listed companies — PISCES will mainly serve private companies, but unlisted public companies (including overseas firms) may also be eligible.

• Secondary market — The platform will only allow for existing shares to be traded between current and potential investors, and will not allow companies to raise new capital by issuing new shares like a stock exchange would.

• Reduced regulatory burden — As PISCES will initially run as an FMI sandbox, companies trading on PISCES will not be subject to the full Market Abuse Regulations (MAR) or UK Listing Rules. They will follow tailored disclosure and transparency requirements: more than in a private placement, but less than in the public markets.

• Intermittent trading — Participating companies will decide when the “trading windows” will take place (e.g. quarterly or biannually) and for how long.

• Investor restrictions — Only institutional investors, employees of participating companies, and investors who meet the definition of ‘high net-worth individuals’, ‘self-certified sophisticated investors’ and ‘certified sophisticated investors’ under the FSMA 2000 (Financial Promotion) Order 2005 are eligible to participate. At least initially, retail investors are excluded.

• Tax exemption — The draft statutory instrument provides the power to exempt Stamp Duty and Stamp Duty Reserve Tax from applying on the transfers of shares admitted on PISCES platforms.

The market context

With just 18 new listings on the London Stock Exchange in 2024, the UK’s public equity markets have struggled. With factors such as global economic uncertainty, geopolitical risks, and increased regulatory burdens and costs, it is clear why many companies prefer to stay private for longer and then list elsewhere when market conditions are favourable.

The PISCES proposal comes at a time when access to capital from private markets has seen steady growth, with private capital in the UK now providing £1.2 trillion in funding according to UK Finance. Coupled with greater investment from venture capital and private equity into private companies but fewer opportunities for companies to become public and list their shares on a stock exchange by undertaking an Initial Public Offering (IPO), PISCES could be the crucial link that provides a cross-over between the private and public markets.

Private access to capital

One appeal of PISCES is that it provides an easier way for founders and venture capital or private equity backers to access liquidity in a market where IPOs are less attractive and buyers are hard to find. The platform simplifies share sales, but some investors are sceptical about its benefits. Founders of fast-growing companies may be reluctant to opt in fearing that shares negotiated with trusted VC or PE partners could end up with unknown investors with different visions.

Companies could manage this risk by listing a class of non-voting shares on PISCES and limiting the amount of shares offered, but this could come at the cost of little to no interest, and therefore liquidity, from potential investors interested in having control.

Light touch regulation

Under the statutory instrument, the Financial Conduct Authority (FCA) will approve, supervise and intervene in how PISCES platforms are run. However much of the regulation surrounding market abuse, listing rules, and financial promotions will be disapplied or modified in favour of a more tailored regulatory framework.

While a more ‘hands off’ approach to regulation may encourage more PISCES listings, there should still be strong enough controls to prevent abuse and protect investors. The FCA itself confirmed that without market abuse rules, there is a higher risk than in public markets that some investors, such as employees, could have access to information not available to other investors, bringing the integrity of the market into question.

Although breaches of the MAR will not be sanctioned under PISCES, participants would still be subject to broader laws around fraud and misrepresentation, and will be asked to compensate investors, assuming they are still solvent.

All of this could make for an uneven playing field between investors ‘in the know’ and those who aren’t, and reduces trust and confidence in the system.

It is poignant to remember that last year FCA Chair Ashley Alder warned that, “there are clear dangers in indulging in any sort of race to the bottom in any sort of deregulatory agenda…” in relation to a growing trend of the UK trying to deregulate quickly, with a view to keeping up with the US and boost business activity. Are the lack of guardrails worth the opportunities for investment and liquidity?

Decentralised operations

The FCA will delegate much of the rule-setting to the individual operators on admission, disclosure and trading, effectively decentralising its administration. This could prove highly beneficial by creating a competitive ‘private stock exchange market’ where future operators try to outcompete rivals by having lighter onboarding requirements, offering cheaper fees or operating better technology. Competition should lead to smarter, cheaper and faster platforms, as well as expand the choice of listing locations. Different operators may even specialise in different sectors e.g. one operator focusing on biotech startups, another on infrastructure companies.

However, the PISCES operators will ultimately bear no responsibility for the content of disclosures, and will be expected to monitor but not approve them. The FCA does propose a negligence standard to core information disclosure and a higher liability standard for “recklessness or dishonesty” standard for forward-looking statements, but wouldn’t this be more effective if the disclosure was verified? One’s thoughts may turn to when Companies House lacked the statutory powers to verify the accuracy of information it published, so that esteemed characters such as Mickey Mouse and Donald Duck were published as the names of directors of fake companies that were engaged in fraud and money laundering.

That being said, companies seeking investment through PISCES may need to reckon with investors requesting full disclosure of information about the company and its future prospects as institutional investors will likely not give up their usual due diligence checks. While making for a more transparent market, it will erode arguably the most significant advantage of being a private company: confidentiality.

The death of AIM?

Some commentators believe PISCES will be a direct rival to the public equities markets and could prove fatal to the Alternative Investments Market (AIM); the LSE’s junior market for smaller, high-growth companies keen to float but falling short of the requirements of the Main Market. The future of PISCES is wide open, but this prediction is unlikely given that it will not be open to retail investors who freely browse the public exchanges and are more prone to “panic selling” when the market is down.

PISCES does not allow companies to raise new capital which public markets allow for, making it more of a stepping stone to a full listing rather than a direct rival. The LSE’s proposed ‘Private Securities Market’ – making use of the PISCES framework – underscores this co-operation between the public and private markets.

Looking ahead

PISCES represents a bold and potentially transformative attempt to bridge the gap between the private and public markets at a time when companies are increasingly reluctant to go public. By providing liquidity without the burdens of full public market regulation, it could unlock new opportunities for founders, employees, and investors alike. However, its success will hinge on maintaining a careful balance between encouraging innovation and safeguarding market integrity. Without sufficient regulatory guardrails, the very issues that have plagued other lightly regulated systems could resurface, damaging trust and undermining the platform’s credibility before it has had a chance to flourish.

Whether PISCES becomes a springboard for UK growth or a cautionary tale of deregulation gone too far will ultimately depend on how wisely its freedoms are managed.

Keenan Taku is a future trainee solicitor at BCLP. He has a strong interest in capital markets and investment funds, holding a Capital Markets and Securities Analyst certification from the Corporate Finance Institute.

The Legal Cheek Journal is sponsored by LPC Law.

Future BCLP trainee, Keenan Taku explores the FCA’s abandoned proposals to name firms under investigation

The Financial Conduct Authority (FCA) has three operational objectives as set out in Section 1 of the Financial Services and Markets Act 2000 (“FSMA”): a) protecting consumers, b) maintaining the integrity of the markets and c) promoting healthy competition between financial service providers.

These three mandates are crucial in terms of maintaining the integrity of the financial system, providing a stable environment in which market participants can act, and ensuring consumers are adequately protected from harmful actors and products through the use of regulations and enforcement powers.

Part 1 proposals

On 24 February 2024, the FCA published CP24/2 (the “Transparency Proposals”). This was a consultation paper setting out the adoption of a new, more flexible framework for publicising the names of firms at the onset of enforcement investigations, and would stir up considerable controversy in the City over the succeeding months.

According to the current enforcement guidance regime, naming a firm under investigation before it has concluded is only done in ‘exceptional circumstances’, such as to protect consumers and investors, or to maintain public confidence in the market.

For example, in 2022 the FCA publicised the opening of an investigation against Citigroup Global Markets for a trading error that caused a ‘flash crash’ (a rapid, volatile drop in the price of equities followed by a quick recovery) and for which CGM was eventually fined £27.7 million in 2024. Having made the announcement very near to the actual incident, the FCA believed, quite reasonably, that this reassured investors that an accountable and responsible regulator was alert and addressing the problem, and this may have helped to maintain trust and confidence in the markets. However, this power is seldom used.

Under the Transparency Proposals, the ‘exceptional circumstances’ test would have been replaced by a new ‘public interest’ test that set out a non-exhaustive list of factors that the regulator would take into consideration before deciding to name companies under investigation. In effect, the bar for public announcement would be significantly lowered, which would make it a more common event in the financial markets. Most controversially, the impact on firms under investigation was explicitly ruled from the public interest framework and was accompanied by a notice period of no more than 1 business day before an announcement of a named firm would be made.

Backlash to the original consultation

Then-Chancellor Jeremy Hunt, in a rare intervention with the regulator, expressed hope that the FCA would “re-look at their decision”. Citing that the FCA now had a secondary growth duty as enacted by Parliament in 2023, the proposals “did not feel consistent” with said duty, according to Mr Hunt who introduced the 2022 ‘Edinburgh Reforms’ in a bid to loosen financial regulation. Chancellor Rachel Reeves, while not making explicit reference to the Transparency Proposals, used her speech in Mansion House to criticise financial regulation that had “gone too far” and hampered financial service firms since the GFC, promising a package of regulatory reforms to get the City back on its feet.

Herbert Smith Freehills expressed several concerns, which included the removal of certain procedural safeguards and the potential for a less transparent enforcement process. It was noted that the significant reduction of the guide, from 328 pages to 59, may omit important guidance which could lead to ambiguity in enforcement procedures. If firms are uncertain about what powers the regulator has and how they are exercised, this can ultimately contribute to regulatory uncertainty for firms, weak deterrence against misconduct, and damage to the UK’s reputation as a financial hub.

BCLP contested that the proposals were incompatible with several legal obligations, including its general duties under section 1B FSMA as highlighted earlier in this article. Far from ensuring financial stability or promoting competition, the firm highlighted the one sidedness of the public interest framework by reference to the fact that the target firms’ interests have been deliberately excluded as a “specified factor” in the test. The firm went on further to say that “when a major regulator announces that there are circumstances suggesting a firm has breached regulatory standards, customers and investors will always be inclined to believe that there is “no smoke without fire”. Such circumstances mean that the firm may suffer significant prejudice as a result of an announcement, creating an unstable business environment.

One of the most oft-cited objections from detractors across the City was that in 2023/24, the FCA reported that approximately 67% of enforcement investigations resulted in no further action, reinforcing concerns that premature public announcements could unfairly damage firms that are later cleared. Given that investigations can take three to four years from start to finish, it is little wonder why announcements appear detrimental to public reputation. As a client, investor or supplier of a firm under investigation, the commercial association would potentially be so damaging that waiting for a result would not cut it: you would need to find alternative partners.

However, an upside is that they could have promoted transparency for consumers and built trust in the financial system. By announcing that a firm is investigated, consumers could feel more reassured that the regulator is actively working to protect them from nefarious or unfair dealings and that bad behaviour is being punished. One clear demonstration of precisely this lack of transparency and trust was the PPI scandal (in which tens of millions of consumers were mis-sold credit financial products) that wasn’t discovered until the early 2000s when it had already taken place for decades. The inability to identify the scandal, coupled with a delayed regulatory response, perceived weak enforcement, and underestimation of the scale of mis-selling rightfully caused the kind of mistrust in the financial system that supporters of the Transparency Proposals want to avoid.

Transparency also allows market participants to make clearer, more informed decisions. In this regard, consumers and firms will feel emboldened to avoid dealing with businesses under investigation due to the perceived risk of regulatory breach or other unlawful conduct, which itself minimises the risk of being associated with such actions.

Following widespread criticism from across the financial services sector, the House of Lords Financial Services Regulation Committee (FSRC) wrote to the regulator seeking further clarification and justification of the proposals, with the Head of the Committee Lord Forsyth of Drumlean warning that such proposals risked having a “disproportionate effect on firms”. To fully come to terms with the regulator’s reasoning, the Committee requested a cost benefit analysis from the FCA to evidence its proposed changes.

In April 2024, the FSRC invited respondents to give evidence, who highlighted major failings in the consultation process. A number of law firms were among the respondents submitting evidence as highlighted with Herbert Smith Freehills and BCLP above.

Part 2 proposals

In November 2024 the FCA issued revised proposals in a second consultation paper: CP24/2, Part 2. Taking on the feedback from stakeholders, the Part 2 proposals would include 1) the impact of an announcement on the relevant firm and 2) the potential for an announcement to seriously disrupt public confidence in the financial system or the market as considerations to the public interest test.

Furthermore, the 24-hour notice period has been extended to 10 days for firms to make representations to the FCA, and firms will receive an additional two days’ notice if the regulator decides to announce.

The FCA defended its decision not to publish a CBA by citing s138I FSMA, which mandates CBAs for new rules, not changes to enforcement guidance. However, this reasoning was strongly contested by stakeholders who argued the economic impact warranted voluntary disclosure to fully make sense of why the proposals were being introduced.

Closure and moving forward

In the face of the government’s strong commitment to economic growth and widespread institutional backlash from major players and groups in the City, the FCA’s Transparency Proposals were dropped on 12 March, with chief executive Nikhil Rathi citing a “lack of consensus” as the reason for not moving forward. While firms and investors may welcome the decision, it raises an uncomfortable question: where does this leave consumer protection?

The FCA’s retreat is a clear signal that UK regulatory policy is shifting towards market-friendly policies that prioritise business confidence over aggressive enforcement. Transparency, once seen as a pillar of financial integrity, has now been weighed against economic growth and found wanting. The government’s mission to position London as a global financial hub may well succeed, but at what cost?

History has shown that when consumer protection is sidelined in favour of economic growth, the consequences can be severe. The PPI mis-selling scandal, where billions were eventually paid out in compensation, was not a failure of overregulation but of too little, too late. A financial system that protects firms at the expense of transparency risks eroding public trust: a lesson that regulators and policymakers would do well to remember.

As the FCA moves forward under mounting pressure to foster growth, the challenge remains: can it strike a balance between maintaining confidence in the markets and ensuring consumers are not left in the dark? Or will this be a precedent for a more lenient regulatory approach, where accountability takes a backseat to economic ambition?

Keenan Taku is a future trainee solicitor at BCLP. He has a strong interest in capital markets and investment funds, holding a Capital Markets and Securities Analyst certification from the Corporate Finance Institute.

The Legal Cheek Journal is sponsored by LPC Law.

Law student at Maharashtra National University, Avisha Dhiman, analyses the implications of anti-competitive practices in sustainability

Mergers and acquisitions (M&A) are a strategic way for companies to grow faster than they could on their own. This approach can act as a pathway for firms to strengthen their position in the global market and boost their competitive advantage.

Because of the power and potential of M&A, the term “killer acquisitions” has emerged. This describes a strategy where large companies buy smaller ones with strong potential—not to help them grow, but to remove future competition. These deals are often used to hold back innovation and limit market progress. To stop this, merger control has developed as a key part of competition law, aimed at preventing M&A from being used to block, weaken, or disrupt fair competition in the market.

Competition and sustainability – a brief background

M&A deals are subject to the scrutiny of competition authorities in order to protect competition in the market and, consequently, to protect consumers. In the European Union (‘EU’), for example, the main legislation on merger control is the EU Merger Regulation (‘EUMR’), which provides a regional level mechanism for merger control.

Antitrust authorities around the world have been characterised by an increasing level of interventionism in deals which often leads to deals getting frustrated. This trend is accompanied by the increasing recognition of the role of innovation and sustainability in M&A deals. The EU has acknowledged the role that competition law has to play in the EU achieving its commitments to the European Green Deal, which has resulted in a stricter regulatory role being played by the EU.

In the Merger Brief, the European Commission (‘EC’) has underscored the evident shift towards considering sustainability-related factors in the Commission’s merger assessments, as evidenced by several recent merger investigations. In addition to this, the EC has also revised the Notice on Market Definition (‘Notice’). The Notice importantly introduces and emphasizes the degree of a product’s innovation and attributes of its quality (like sustainability, resource efficiency, durability, etc.) as defining relevant market under competition law.

This move is in line with an increased focus on innovation as well, as it has the potential to introduce environmentally friendly or sustainable technologies, products, or services to the market. The EC has recognised the potential of innovation, which encompasses capabilities like developing new recycling technologies, as essential for advancing towards a more circular economy. Therefore, the EC has emphasised that competitive assessment should shift to incorporate innovation as a factor to ensure that anticompetitive mergers do not unduly hinder green innovation. In lieu of this, the EU has also begun keeping a check on any “green” killer acquisitions.

Green ‘killer acquisitions’ — what do they mean for competition?

The September 2023 Merger Brief discusses what the EC calls “green killer acquisitions”. Green killer acquisitions are created when smaller players with strong environmental credentials are snapped up by bigger companies looking for shortcuts in their transition towards a low-emissions economy. This can include acquisitions that stifle “green” innovation or sustainability.

The EU’s Policy Brief in 2021 highlighted the widespread agreement that the Commission ought to rigorously apply and advocate for innovation-based harm theories in merger evaluations, with the aim of safeguarding against the erosion of “green” innovation.

The EU’s policy discussions and deliberations, which indicate the jurisprudential shift that the EC is looking to implement, are accompanied by the expansion of the definition of “market” through the Notice. The European Commission (‘EC’) through the Notice stated that:

“When defining the relevant market, the Commission takes into account the various parameters of competition that customers consider relevant in the area and period assessed. Those parameters may include the product’s price, but also its degree of innovation and its quality in various aspects — such as its sustainability, resource efficiency, durability, the value and variety of uses offered by the product, the possibility to integrate the product with other products, the image conveyed or the security and privacy protection afforded, as well as its availability, including in terms of lead-time, resilience of supply chains, reliability of supply and transport costs.”

The policy changes and discussions are being accompanied by judicial changes as well. The EC through a recent series of judgements has delineated relevant markets on parameters like sustainability. The EC’s decisions in cases like Marine Harvest/Morpol, wherein the Commission took into account customer preferences for sustainably farmed salmon in differentiation of separate product markets with respect to farming and primary processing of Scottish salmon in contrast with Norwegian salmon.

The case underscores that the EC has noticed a changing market and consumer preference for green or sustainable products, and hence these markets should be treated separately. This understanding is also carried forward in the case of Andel/Energi Danmark, where the Commission gave consideration to the possibility of a separate market for electricity which is produced from renewable sources and possibly limited to the supply of renewables-generated electricity through power purchase agreements (PPAs).

In the evaluation of competition, sustainability can serve as a significant factor for distinguishing between the merging entities and their rivals. In the Sika/MBCC case, for example, the Commission determined that the concrete/cement sector was significantly influenced by innovation endeavours and research and development capacities, particularly in the creation of novel polymers and the introduction of more environmentally friendly chemical admixture formulations. Both Sika and MBCC demonstrated robust innovation in eco-friendly R&D, which was deemed crucial for addressing sustainability issues. This was a key consideration in evaluating the competitive proximity between them and other industry participants.

This is all set against the backdrop of environmental objectives established by European governments, which have created significant impetus for both public and private entities to move towards a net-zero economy. This necessitates alterations to business frameworks to align with ecological sustainability. Consequently, environmental considerations are increasingly influencing the direction of M&A. There are massive environmental deals happening across the EU, and this deal landscape is poised to be affected by the USA’s recent policy changes on climate change and sustainability.

The move to delineate “green” killer acquisition from “non-killer” innovation shows a deeper policy move in light of the EU’s commitments under its Green Deal. The EC is using competition law to protect these commitments and foster sustainability-focused innovation. Through merger control, the EC is making it clear that large businesses cannot simply buy environmental credentials — they must earn them through genuine, sustainable practices.

In such an innovation-driven, sustainability-oriented transaction landscape, the EU’s vigilance over what it defines as “green” killer acquisitions is crucial. Research by McKinsey and Nielsen IQ in 2023 showed that consumers often prefer sustainable options to regular alternatives. In this market, where consumer preferences are shifting, the EC’s proactive stance ensures both market integrity and consumer protection.

Avisha Dhiman is a penultimate year law student pursuing BA LLB (Hons) from Maharashtra National University Mumbai. She is interested in financing and M&A with a focus on technology and ESG.

The Legal Cheek Journal is sponsored by LPC Law.

Aspiring commercial barrister and BPC graduate Radha Shivam deep-dives into the headline grabbing case

Over the last few months, legal and non-legal headlines have been littered with news of Britain’s biggest water company, Thames Water. The company provides water and additional services to nearly a quarter of the UK population in London and South-east England. Thames Water has been on the verge of collapse and temporary nationalisation for several months, weighed down by significant debt.

But what’s the big deal? Well, it marks one of the most significant corporate restructurings in UK history. What is at stake? Only £19 billion of debt. It is a significant development in the legal world as this case brings unprecedented complexity and sets new standards for future restructurings.

Thames Water applied for a Part 26A restructuring plan (“the plan”) at a hearing in December 2024 and a sanction hearing scheduled for February 2025. It is hoping to secure £3 billion in debt funding to give it long enough to secure new equity investment worth £3.25 billion or more.

So, what’s the plan? It involves a £3 billion loan facility from the company’s secured creditors at a hefty 9.75% annual interest rate, as well as further fees to lenders. This is to avoid potential special administration and opposition from lower ranking creditors with an alternative, lower rate. Alongside the £3 billion, it also seeks access to cash reserves and debt extensions.

Thames Water’s CFO denied that the additional costs of the new loan would be borne by Thames Water’s customers, saying that any costs above those that the water regulator Ofwat allowed would be borne by its creditors or new equity investors.

This is hugely important for the company, as Thames Water has said that it will collapse by the end of March if it does not receive court backing for a deal with the holders of “class A” debt. That group includes US hedge funds, as well as British investors.

“We believe it is the only implementable solution to enable the equity investment required to provide stability and certainty in the longer term and will not impact customer bills”, Julian Gething, chief restructuring officer.

However, 84.5% of the lower-ranked “class B” creditors voted against the plan. They filed an objection and proposed an alternative restructuring plan, claiming it would provide Thames significantly more committed funding on cheaper and more flexible terms. The class B plan was filed in the name of a Cayman Islands-registered fund controlled by another company, who are specialists in investing in companies that are in financial distress.

What is a Part 26A plan?

The recent case of Re AGPS Bondco plc [2024] EWCA Civ 24, was a complex and important case regarding restructuring plans, particularly in relation to Part 26A of the Companies Act 2006.

The Court of Appeal, for the first time, considered the test that the court should apply when exercising its discretion to ‘cram down’ a dissenting class of creditor under a Part 26A restructuring plan, known as a “cross-class cramdown”, which was introduced by the Corporate Insolvency and Governance Act 2020.

On a basic level, Part 26A enables a company experiencing financial difficulty to agree a compromise or arrangement with its creditors in the form of a restructuring plan. A “cross-class cramdown” is permitted where Conditions A and B are met.

The first being that if the plan were to be sanctioned, none of the members of the dissenting class would be any worse off than they would be in the event of the relevant alternative. The “no worse off” test, (Condition A).

The second is that the compromise or arrangement has been approved at a class meeting by a class who would receive a payment or have a genuine economic interest in the company in the event of the relevant alternative. The “relevant alternative” is whatever the court considers would be most likely to occur in relation to the company if the compromise or arrangement were not sanctioned (Condition B).

At first instance, the judge concluded that the conditions were met and exercised his discretion to approve the plan and “cramdown” the dissenting class. The dissenting creditors appealed on eight grounds.

The appeal focused on the way in which the court should exercise its discretion when considering whether to exercise it to sanction a plan when there is a dissenting class. The court held that both a “vertical” and “horizontal” comparison should be considered, and where this includes unequal treatment of different classes, a departure from the principle of pari passu distribution must be where there is “a good reason or proper basis for that departure”. The principle of pari passu distribution is a fundamental principle of corporate insolvency law, and it is important in the exercise of a cross-class cram down power under Part 26A for the court to consider.

One of the most critical issues for a cross-class cram down is the distribution of post-restructuring value where not every stakeholder class approves the restructuring plan. At the heart of the debate lies the delicate balance of “fairness” when stakeholders must necessarily compromise, or else have compromise thrust upon them.

It is evidently a complex area of law which can have many significant ramifications depending on which way it goes, so it’s no surprise that Thames Water is stacking up quite the bill. According to the FT, the company is reportedly spending £15 million a month on lawyers and other advisers. The eventual bill for a restructuring could top £20 million, the company’s CFO has told the High Court.

The role of government, stakeholders and a potential SAR

Thames Water’s restructuring holds the potential for unique dynamics. There is a diverse group of stakeholders involved, including government officials from Defra and others, regulatory bodies, and environmental groups representing 16 million bill payers. The current Plan also takes an unusual approach by splitting the restructuring into two distinct phases, which could lead to one of three outcomes, but one of which could see the implementation of a special administration regime (SAR), which although was designed specifically for water companies, has never been implemented before.

A SAR is a modified insolvency procedure that gives an administrator special objectives. SARs often exist where the industry provides a statutory or public service or supply function, such as water or energy, and the continuity of the critical service is important to the stability of the economy. This process would allow services to keep running while the debt is frozen ahead of a restructuring and sale of the business, or a full nationalisation.

Loan approval and next steps

As of February 2025, in a dramatic turn of events, the company was given a lifeline after a £3 billion loan was approved by the High Court. The loan gives Thames Water time to sort out its finances and could ward off nationalisation. It will now receive an initial tranche of £1.5bn to fund it until September 2025. That is being provided by class A creditors who hold around £11 billion in debt racked up by Thames Water.

The funding will be released on a monthly, or interim basis as needed, subject to Thames Water satisfying loan requirements including that it has taken on new shareholder investment. Potential funders had submitted bids to invest in Thames Water and the company said it is now conducting a detailed assessment of each bid.

Loan terms dictate it must be repaid first in the event of administration and existing creditors have their repayment dates set back two years. The timeline for accessing loan funds depends on the impact of a potential appeal process by class B creditors, who hold around £750,000 of subordinate debt. They had objected to the loan as they face being wiped out completely in a restructuring. The company said it is considering when to draw down the money.

What’s next for Thames Water?

The government has been on standby to put Thames Water into special administration, whilst some campaigners have called for nationalisation — though the government currently opposes this.

Thames Water wants a full restructuring, taking in new shareholder investment and swapping debt for a portion of the company for existing creditors. It is seeking higher bills to pay for its future investments and continued existence. It is asking for bills to rise 53% from this year to 2030, challenging Ofwat’s allowed 35% increase.

Is there an alternative to nationalisation? Companies like the UK’s biggest energy supplier Octopus Energy have expressed interest in its technology arm, managing Thames’s business functions, alongside Infrastructure CK Infrastructure Holding and water provider Castle Water, also understood to have submitted proposals to invest in Thames Water.

What does this mean going forward?

This historic restructuring demonstrates the evolution of corporate financial management, particularly in relation to regulated utilities. The outcome will influence how English law approaches troubled utility restructurings, whilst balancing financial stability with public interest considerations, in ways which have never been seen before.

It will be interesting to see how things unfold as time progresses, especially with new updates coming out almost every day at the time of writing, alongside awaiting the outcome of appeal. No doubt this restructuring will be referenced in future cases and will be a point of discussion in the legal landscape when it comes to high-stakes corporate restructurings.

Radha Shivam is an aspiring commercial barrister, currently an unregistered barrister and mentor. She is a University of Law LLB and BPC graduate.

The Legal Cheek Journal is sponsored by LPC Law.

Durham University modern languages graduate Alicia Boothroyd analyses the challenges Shein faces in listing on the London Stock Exchange

Shein, the Chinese-founded fast fashion behemoth, filed the initial paperwork to list on the London Stock Exchange (LSE) in early June. The potential listing, at an estimated value of £50 billion, has proved divisive. Although the listing would provide the LSE with a much-needed boost, Shein’s potential IPO is facing considerable resistance due to the company’s alleged exploitation of workers and environmental impact.

Shein was founded in 2008 in China but moved its headquarters to Singapore in 2022. Known for its rapid production of ultra-affordable clothing, the online fast fashion retailer is synonymous with overconsumption, with over 500 products being added to its website daily. Shein has received criticism for its carbon footprint (reported to be 6.3 million tons of CO2 emissions yearly) as well as alleged excessive water consumption and chemical pollution. In 2022, Shein scored 0–10% on the Fashion Transparency Index due to 83% of Shein’s suppliers violating worker health and safety conditions, according to Fashion Revolution. The fast fashion giant has also been accused by a US House Select Committee of using forced labour; Shein uses cotton from the region of Xinjiang in China, where the Chinese government are reportedly forcing the Muslim minority Uyghur population to work in cotton fields. Shein states in its 2023 Sustainability and Social Impact Report that the company “strictly prohibits child labor and forced labor”.

However, the report also acknowledges that from Q1 to Q3 2023, “SRS audits uncovered two cases of child labor in our supply chain”. In response to these violations, Shein “suspended orders from the contract manufacturers and undertook investigations”. The company emphasises that it “remain[s] vigilant in guarding against such violations going forward” and, according to current policies, will terminate any suppliers found to be noncompliant.

Shein tried to list on the New York Stock Exchange (NYSE) earlier this year but failed in part due to geopolitical tensions between the US and China. The IPO’s fate in London is in the hands of the UK Financial Conduct Authority (FCA). This places the regulatory body under a great deal of pressure, as it attempts to find a balance between its corporate governance considerations and ensuring the UK is appealing to businesses. Shein’s potential listing would provide a significant boost to the LSE, which has lagged behind the NYSE and Nasdaq due to Brexit uncertainty, slowing economic growth and waning investor confidence. From 2015 to 2020, the UK accounted for just 5 per cent of IPOs globally. The new Labour government is therefore under pressure to strengthen the UK’s appeal to global companies and bring in foreign investment post-Brexit.

However, while the LSE could benefit significantly from Shein’s IPO, the listing faces several challenges. Firstly, Shein will have to overcome the LSE’s regulatory hurdles. In 2024 the UK government and the FCA introduced new listing rules which aim to create a more flexible, disclosure-based framework. For instance, the historical financial data required for listings was reduced, making the LSE a more attractive listing venue. However, the LSE maintains high due diligence standards, with increasingly strict environmental, social and governance (ESG) criteria. The FCA’s 2024 anti-greenwashing regulation also demands that companies clearly and accurately represent the sustainability of their products and services. In order to list, Shein would be required to provide full transparency in its supply chain to meet the LSE’s requirements, proving that its sourcing practices are ethical and free from human rights violations. The company would also need to meet rigorous disclosure requirements, providing detailed and accurate information about its finances, operations, and potential risks.

The allegations of forced labour within Shein’s supply chain present a serious challenge to its LSE listing. In May, Shein claimed to be investing tens of millions of dollars in “strengthening governance and compliance across our supply chain, as well as in empowering our suppliers to build more successful and responsible businesses”. The company also announced a 200-million-euro textile ‘circularity’ fund in July, targeting recycled materials technology startups in an attempt to boost the company’s ESG credentials. These efforts are clearly intended to demonstrate Shein’s commitment to responsible business practices ahead of a potential listing. Whether these measures will satisfy the FCA remains uncertain. It’s worth noting that the LSE’s ESG requirements, while strict, are not exhaustive; for instance, Boohoo, another fast-fashion brand, is listed on the LSE yet, according to The Good On You Directory, none of its supply chain is certified by crucial labour standards that help ensure worker health and safety, living wages, and other rights.

The potential IPO has also faced backlash. Amnesty International UK has described Shein’s potential London IPO as “deeply troubling”, drawing attention to the company’s “questionable labour and human rights standards”. Meanwhile, the online campaign and petition ‘Say No to Shein’ has gained considerable traction online, with public figures such as Mary Portas and Jeremy Corbyn calling on the government to block the proposed listing. The petition, which has over 40,000 signatures as of mid-August, demands that “the UK government should block the application until it has completed a thorough investigation into the company’s labour practices, environmental impact and tax arrangements” and that “if the investigation finds that Shein is violating international agreements on labour rights, making use of forced labour, or avoiding tax, the company’s IPO application must be rejected”.

The IPO also faces a legal challenge from the UK-based human rights group Stop Uyghur Genocide. Represented by leading human rights firm Leigh Day, the group wants to block the listing due to the concerns about labour practices in Shein’s supply chains. The human rights group argues that the listing should be denied, as the UK is a signatory to the International Labour Organization convention, which sets out minimum standards for worker engagement. Allowing Shein’s listing, given the concerns about its labour practices, would, it claims, undermine the UK’s commitment to upholding this convention.

Will ethical standards prevail over the pressure to bolster London’s struggling IPO market? The result of Shein’s bid to list on the LSE will shed light on the real significance of ESG considerations in the UK. Even if Shein makes substantial improvements to its image and supply chains to secure FCA approval, critics may view these efforts as an extreme case of greenwashing. Although Shein would hardly be the first FTSE 100 company to present ESG challenges, it remains to be seen whether investors will have an appetite for a company fraught with so many legal and ethical issues. Moreover, if the listing does succeed in boosting the LSE, will it come at the expense of its reputation?

Both Shein and the LSE have declined to comment on the planned float and the fashion retailer maintains, “We are committed to operating responsibly across every area of our business and hold ourselves to leading international standards.”

Alicia Boothroyd is a modern languages graduate from Durham University and incoming PGDL student at BPP.

City Uni law grad Sammar Masood explores the viability of ESG clauses in commercial contracts

Our planet’s environmental state is at an all-time high level of concern. With the recent approval of the EU Corporate Sustainability Due Diligence Directive (CSDDD) in May 2024, it is clear that our most powerful institutions are beginning to take corporate entities’ impact on the environment seriously.

 The CSDDD, Corporate Sustainability Reporting Directive (CSRD), and emerging national counterparts are encouraging regulatory frameworks that impose binding obligations upon businesses to conduct due diligence on environmental, social, and ethical risks in their activities and supply chains.

These businesses will be large with high global turnovers and therefore multiple, complex, and multi-jurisdictional supply chain agreements. Along with this, it is known that the majority of a business’s emissions are produced in its supply chains. Therefore, it is widely acknowledged that the most powerful tool to enforce ESG due diligence requirements is the use of ESG clauses in commercial contracts. However, the reality of turning a contract ‘green’ to include such binding obligations, is easier said than done.

What exactly are ESG clauses?

Long and short, ESG clauses guarantee that suppliers adhere to ESG standards, whether these standards are derived from internal net-zero company policies or, as is most likely the case moving forward, from regulatory obligations included in the CSDDD. For the latter, the EU Commission is due to publish further guidance on what may be seen in such clauses. Moreover, the Commission has confirmed that it will introduce voluntary model contractual clauses for businesses. These clauses can take the form of conducting due diligence, compliance, monitoring, or disclosure. Depending on the sectors, industry, and variety of products or services involved, these actions can be required in areas including greenhouse gas emissions, modern slavery, waste disposal methods, and enforcing net zero standards for suppliers.

For smaller companies that may not fall under the jurisdictional or monetary scope of the CSDDD or any other corporate sustainability regulations, the Chancery Lane Project provides contractual clauses under English law which are ready to implement into a potential agreement. These clauses are tailored to the type of contract and certain climate-related aims.

Additionally, ESG warranties have been common practice in mergers and acquisitions. Warranties are contractual promises which, if breached, can result in damages. For example, a seller in a merger or acquisition may warrant that it has not fallen foul of any environmental legislation or does not have any ongoing investigations into its environmental conduct. If these claims are found to be untrue, damages and indemnity clauses can trigger action. The latter can establish which contracting party can hold the other responsible for breaching ESG clauses.

So, there is plenty of regulatory development and social awareness that permits the drafting and incorporation of ESG clauses into commercial and corporate contracts. However, when these clauses are attempted to be enforced, several problems start to appear.

Disputes, disputes, and more disputes?

There is no doubt that ESG clauses are relatively novel. They are also particularly complex because they will need to be increasingly based on multi-jurisdictional, legally binding obligations rather than flexible internal business ESG charters and commitments. Supply chain contracts will be particularly challenging to overhaul as they often span multiple developing jurisdictions, many of which do not prioritise or even have any processes in place for environmental protection or sustainability. For companies to delve into their supply chains and make each supplier aware of new ESG clauses or regulations, will be time-consuming and not easy.

As a result, it makes sense that lawyers and academics alike agree that the sheer size of this task will inevitably lead to more disputes relating to the enforceability and interpretation of ESG clauses in commercial contracts.

Firstly, this is because ESG is dependent on many factors beyond the commercial world. A new government after an election can have a vastly stricter or relaxed approach to environmental policies compared to its predecessor. One supplier may be based in an unstable country with many geopolitical tensions. Generally, the state of the global economy may be fragile, causing businesses to care more about profits rather than maintaining expensive sustainability obligations. This, paired with the fact that ESG clauses are relatively new and that companies may not want to damage relationships with some of their longest suppliers by imposing specific environmental obligations upon them, can result in broadly drafted ESG clauses which do not contain precise, measurable obligations via numerical metrics that can be objectively verified. Examples of a broad approach include general indemnity clauses or unilateral termination clauses. While some may argue flexibility is necessary when dealing with such a fast-evolving regulatory landscape when it comes to the interpretation of ESG clauses, increased flexibility can likely lead to interpretational ESG disputes.

Secondly, businesses have intricate, expansive supply chains, and suppliers frequently have independent subcontracts with third parties. So how far would due diligence obligations extend in these circumstances? Would these third parties be subject to rigorous due diligence requirements? Under the CSDDD, supply chain obligations are imposed on “lasting” and “not ancillary” relationships with business partners. Official examples of how far down the supply chain this provision can cover have not yet been introduced. Moreover, if a third party were to commit environmental abuse, this raises questions if the contracting parties decide to escalate the matter to arbitration proceedings. Arbitration proceedings tend to be more popular as they can be conducted behind closed doors as opposed to open litigation. Typically, arbitration proceedings possess a lack of jurisdiction when it comes to non-parties to the original agreement. The third-party deciding to initiate simultaneous proceedings can also complicate matters. Considering the current rise in litigation regarding claims that companies possess a duty of care to those who are affected by a third party’s actions in the supply chain, this issue will remain important.

Are contract law principles making ESG clauses harder to implement?

Conventional contract law principles should also be questioned, even though the new and evolving nature of ESG clauses and the introduction of corporate sustainability regulations are undoubtedly factors that are making it harder to practically enforce necessary ESG clauses without numerous roadblocks.

To begin with, English common law has been criticised for having a formalistic approach to contract law. This approach maintains the idea that contracts should be drafted and interpreted based on the plain structure of the words. Social and economic, or in this case environmental context, should not be embedded into the contract or its interpretation. So, while contemporary ESG clauses are being drafted to suit the needs of private regulation, English contract law is arguably not suited to interpret these clauses in the accommodating context that is required.

Additionally, contractual remedies may rely on proving loss. Therefore, if the breach of an ESG clause leads to harmful environmental impact, a company may be required to prove whether activities by a supplier caused the specific harm alluded to in a claim. Environmental damage or human rights abuses are not simple matters to prove. Chemical testing, soil samples, and even blood testing may be needed to verify a supplier’s activities were the direct cause of any abuses. Potential solutions might be to include a lump-sum indemnity payable if there is breach of an ESG clause or requiring the breaching supplier to perform a certain obligation in kind or make a donation to a recognised climate change organisation, though this, in turn, raises issues regarding the enforceability of a specific performance obligation.

A company may try to prove damage to its reputation as a result of breaches or abuses conducted by its suppliers. In the current economic climate containing increased awareness of ESG, investors are more cautious about investing in companies associated with ESG abuses. Therefore, a company must prove financial loss and damage to reputation as a result of their supplier’s actions or breaches, if it wishes to obtain damages in this manner. However, with larger, multinational companies, financial loss as a direct cause of a supplier’s actions will be hard to prove considering the multiple revenue streams companies are involved in at once.

Final outlook…

Overall, ESG clauses have the potential to completely transform the way commercial supply chains operate. Mandatory due diligence and monitoring with quantifiable commitments as essential contract clauses attached to robust remedies are the way forward if ESG clauses are to have their intended effect. However, fear of the new, the desire not to disturb long-lasting supplier relationships, and the added pressure and contractual processes for a company by potentially bringing claims against its supplier for breach of the newest type of contract clause, all make ESG clauses seem less attractive to parties. With the dawn of the CSDDD in December 2024, it will be interesting to see whether the EU will be able to truly turn contracts green. But for now, it seems as if the commercial world and contract law norms will be in a constant state of gradual adjustment and adaptation to ensure the right balance is met between commercial interests and ESG.

Sammar Masood is a recent LLB graduate from City, University of London. She has a keen interest in the intersection of environmental and commercial law, along with commercial dispute resolution. 

LLM student Sean Doig compares the arbitral regimes of the two countries

It is no secret that there has been a long rivalry between England and France throughout history; particularly, one of animosity and frequent hostility. For centuries, the French and British Empires fought for supremacy of the New World, later expanding their conflicting ambitions to India, the Pacific, and Africa. Today, that rivalry takes a different form.

While the two countries are great allies, politically-speaking, the race for arbitral supremacy over the other is prevalent. French and English courts are constantly bickering over who has jurisdiction in arbitral proceedings according to the vaguely-defined law governing the arbitration agreement (lest we forget Kabab-Ji).

Although, their rivalry comes as no surprise. From the decline in litigation proceedings to globalisation and the increasingly international nature of disputes, attracting arbitral proceedings to one’s host state is now an artform. Among many other jurisdictions around the globe, two major competitors in the arbitration game are London and Paris: both systems offering different approaches in areas ranging from the law governing the arbitration to the enforcement of awards.

With the upcoming 2024 Summer Olympics about to be held in Paris, there is never a better time to examine this friendly rivalry. So, get your flags at the ready. Cue the national anthems. And enjoy the spectacle of two nations going head-to-head for gold in the race for arbitration supremacy.

Team briefing

In lane one, representing France, is the International Chamber of Commerce’s International Court of Arbitration (ICC): the forefront of France’s arbitration institutions. Other key institutions on France’s team include the French Association for Arbitration (Association Française d’Arbitrage), the Regional Chamber of Arbitration (Chambre Régionale d’Arbitrage), the International Arbitration Chamber of Paris (Chambre Arbitrale Internationale de Paris), the Paris Centre of Mediation and Arbitration (Centre de Médiation et d’Arbitrage de Paris, CMAP), and the European Court of Arbitration located in Strasbourg.

In 2023, the ICC celebrated its 100^th year of service, recording over 28,000 cases since its establishment. The key industries in France for international arbitration proceedings are construction, energy, industry, and digital technologies. The majority of disputes involve contractual breaches or brutal termination of commercial relationships.

In lane two, representing England, is the London Court of International Arbitration (LCIA): the heart of English arbitration since 1889. Other key arbitration institutions on England’s team include the Centre for Effective Dispute Resolution (CEDR), the London Chamber of Arbitration and Mediation (LCAM), Falcon Chambers Arbitration, and Sports Resolution.

In 2022, the LCIA had 333 referrals with its caseload increasing by 60% in the past 10 years. Indeed, a 2021 survey by Queen Mary University of London found that London remains the most favoured arbitral seat in the world, with non-UK parties accounting for around 88% of its users. According to the LCIA’s 2022 annual casework report, the top three industry sectors dominating the LCIA’s caseload are banking and finance, energy and resources, and transport and commodities (together representing 65% of all cases).

While London would probably be a bookies’ favourite to win at this point, there are a few core aspects to each approach that require further examination.

 The legal framework governing arbitration

French arbitration law is not based on the United Nations Commission on International Trade Law (UNICITRAL) Model Law; in fact, it largely pre-dates the Model Law and differs from it in several aspects. Instead, French law distinguishes between domestic and international arbitration.

The law is mainly codified in Articles 1442 to 1527 of the French Civil Procedure Code (“CPC”) and Articles 2059 to 2061 of the French Civil Code (“CC”). The domestic arbitration regime is more strict than that for international arbitration, which allows the parties and arbitrators more flexibility in adopting arbitration procedures. According to Article 1504 CPC, arbitration is international “when international trade interests are at stake”. An arbitration is therefore deemed international upon the objective criteria relating to the trade in goods, services or financial instruments across borders, regardless of the parties’ nationality, the applicable laws, or the arbitration seat. This distinction matters since the rules applicable to international arbitration are more liberal.

Regarding both domestic and international arbitration, France created a dedicated judge (juge d’appui) to have jurisdiction over arbitration-related issues and act in support of arbitral proceedings. Such a judge may assist the parties in the constitution of the arbitral tribunal if any problem arises, particularly in ad hoc proceedings, as the judge’s role is limited in proceedings governed by institutional rules.

Additionally, the Paris Court of Appeal created a dedicated international chamber exclusively focused on appeals against first-instance decisions in cross-border commercial matters, and some other specific matters including the annulment proceedings against international arbitral awards handed down in Paris, as well as challenges against enforcement orders, in order to ensure coherent case law. Similarly, the French Supreme Court (cour de cassation) systematically assigns such proceedings to its first civil division.

In contrast, the Arbitration Act 1996 (the “Act”) regulates domestic and international arbitrations seated in England, Wales and Northern Ireland. The Act is influenced by the UNCITRAL Model Law but differs from it in some important ways. For example, the Arbitration Act is a single legislative framework governing all arbitrations, not just international commercial arbitrations. Applications in support of arbitrations are made in specialised courts of the Business and Property Court of the High Court of Justice, typically in the Commercial Court or the Technology and Construction Court.

Confidentiality of proceedings

According to article 1464 CPC, relating to domestic arbitrations, an arbitral proceeding is confidential unless otherwise agreed between the parties; such confidentiality obligation extending to the names of the arbitrators, the arbitral institution, the legal counsels, and the seat.

With respect to international arbitration, no French legal rules provide for a general obligation to ensure confidentiality for international arbitration. Consequently, the parties must enter into a confidentiality agreement, provide a confidentiality clause in their arbitration agreement, or choose an institution which expressly sets out that arbitral proceedings are confidential.

Nevertheless, article 1479 CPC provides that members of the arbitral tribunal must keep their deliberations a secret, whether it be a domestic or international arbitration.

In England, there is no express provision for confidentiality in the Arbitration Act. However, English law generally recognizes the confidentiality of arbitral proceedings, subject to limited exceptions. For instance, documents used in arbitration proceedings may be disclosed where ordered by the court, or in cases where such disclosure is necessary for a party to establish or protect their legal rights. In their 2022 review of the Arbitration Act 1996, the Law Commission  proposed that the Act should not codify English law on confidentiality in arbitration, concluding that it is an area best left to be addressed by the courts. Two reasons were given: (a) arbitration is used in a variety of instances and there is a trend towards transparency in some types of arbitrations (i.e. investor-State disputes), and (b) existing case law on confidentiality is still evolving and not yet ready to be codified.

Enforcement of arbitral awards

While France is a signatory of the New York Convention — as well as to the ICSID Convention – France put forward one reservation upon ratification in relation to the principle of reciprocity: “France declares that it will apply the Convention on the basis of reciprocity, to the recognition and enforcement of awards made only in the territory of another contracting State”. It should be noted that French law usually prevails over the New York Convention as permitted by Article VII(1) since French law is actually more favourable than the Convention itself.

An international arbitral award can only be enforced in France if it is rendered effective by an enforcement order known as an “exequatur”. This procedure is non-adversarial and only allows the judge limited control. In fact, the judge is solely requested to verify if the award whose enforcement is sought does exist, and whether it is not manifestly contrary to the French definition of international public policy. Conflict with French international public policy is the only ground for refusal of exequatur, and it is defined by French courts as the values and principles that cannot be disregarded, even in an international context. The cases where French judges refuse to grant an exequatur are very rare. Since conflict with French international public policy is the only ground for refusal, French courts may confer exequatur even if the award has been set aside by the courts in the seat of arbitration since the setting aside of an award is not a ground for refusing it.

England is also a signatory of the New York Convention, but subject to the reservation that the New York Convention only applied to awards made in the territory of another Contracting State. In IPCO (Nigeria) Ltd v Nigerian National Petroleum Corporation (2017) UKSC 16, the Supreme Court held that the Convention constitutes “a complete code” that was intended to establish “a common international approach” to the conditions for recognition and enforcement. Thus, it is not permissible to use English procedural rules to fetter a party’s rights under the New York Convention.

The procedure for enforcing an arbitral award in England is governed by the 1996 Act. Section 66 provides the following two alternative procedures for the enforcement of an award: (i) an arbitral award may, by leave of the court, be enforced in the same manner as a judgement or order of the court, or (ii) an award creditor may begin an action on the award, seeking the same relief from the court as is set out in the tribunal’s award.

To obtain a recognition and enforcement of a New York Convention award, under section 102(1) of the 1996 Act, a party must produce the duly authenticated original award and the original arbitration agreement. The grounds for refusal are set out in section 103 of the 1996 Act, mirroring Article V of the New York Convention. This means that the English courts retain their discretion to enforce an award even where one of the grounds for refusal is shown to exist. However, in practice, it is rare that the English courts would conclude that an award should be enforced if there are grounds for refusing recognition. Indeed, in Dallah Real Estate & Tourism Holding Co v Ministry of Religious Affairs (Pakistan) (2009) EWCA Civ 755, the court recognised that its discretion to enforce an award – even where a ground under section 103 exists – should be narrowly construed.

Furthermore, it is not necessary for the court to recognise and enforce an arbitral award in its entirety. In IPCO (Nigeria) Ltd, the High Court held that “award” in the 1996 Act should be construed broadly to mean the “award or part of it”, meaning the court can enforce part of an award.

Final comments

While both France and England can be said to have fairly rigid legal frameworks to facilitate arbitral proceedings and empower arbitrators to hand down their awards, there is a case to be made that France might have the upper hand; particularly in terms of a higher degree of complicity in enforcing arbitral awards on its soil. Ultimately, it boils down to which system is the best fit for one’s client. There are several other factors involved in selecting a seat of arbitration that have  not been covered here, including costs, selection of arbitrators, types of reliefs, and so on. Indeed, there is also the possibility of future reform of either the French arbitral procedure or reform of the Arbitration Act in England, therefore it is best to conduct thorough due diligence before making any legal commitments.

Sean Doig is an LLM student at Université Toulouse Capitole specialising in International Economic Law. He is currently working on his master’s thesis, and displays a particular interest in international law, technology and dispute resolution.

Jaaved Fareed, Bar Vocational Studies student at City, University of London, analyses the Court of Appeal’s decision in Churchill v Merthyr Tydfil

Article 6 of the European Convention on Human Rights (ECHR), the right to a fair trial, played a crucial part in Lord Dyson’s comment in Halsey v Milton Keynes General NHS Trust. He said that the “compulsion of ADR would be regarded as an unacceptable constraint on the right of access to the court and, therefore, a violation of article 6”. However, Churchill v Merthyr Tydfil County Borough Council marks a crucial turning point in the law. In this groundbreaking judgment, the Court of Appeal took a substantial leap forward in the development of dispute resolution in England and Wales.

Catherine Dixon, director general of the Chartered Institute of Arbitrators, once commented that “Halsey has proved hugely problematic for the wider adoption of mediation. It is generally considered to be bad law and this case (Churchill) offers the Court of Appeal the opportunity to clarify that referring parties to mediation does not breach their human rights.”

The facts

The case concerns damage caused by Japanese knotweed growing on Merthyr Tydfil County Borough Council land encroaching onto Mr Churchill’s property whose gardens adjoined the Council’s land. The claimant sent the Council a letter of claim in 2020 which prompted the Council to query why the claimant declined to use the defendant’s own complaints procedure. Instead, the claimant issued proceedings against the defendant in nuisance to which the defendant applied for a stay (and costs), claiming that the claimant needed to follow its own complaints procedure before issuing proceedings.

Deputy District Judge Rees initially ruled against compelling the parties to engage in non-court based dispute resolution processes, stating that he was bound to follow Dyson LJ’s statement in Halsey that: “to oblige truly unwilling parties to refer their disputes to mediation would be to impose an unacceptable obstruction on their right of access to the court”.

The application was dismissed, but the defendant was given permission to appeal to the Court of Appeal on the ground that the appeal raised an important point of principle and practice.

The judgement

Sir Geoffrey Vos, Master of the Rolls (with whom Lady Carr, Lady Chief Justice, and Lord Justice Birss agreed) gave the leading judgment in the Court of Appeal. He considered that the main issues which the Court had to resolve were as follows:

i. Was the judge right to think that Halsey bound him to dismiss the Council’s application?

ii. If not, can the court lawfully stay proceedings for, or order, the parties to engage in a non-court-based dispute resolution process?

iii. If so, how should the court decide whether to stay the proceedings for, or order, the parties to engage in a non-court-based dispute resolution process?

iv. Should the judge have granted the Council’s application to stay the proceedings to allow Mr Churchill to pursue a complaint under the Council’s internal complaints procedure?

The Court of Appeal, in considering, whether the judge was bound by the decision in Halsey considered whether the relevant paragraphs in Halsey were a necessary part of the reasoning that led to the decision in the case (ratio decidendi) or, in fact, obiter. In Halsey, it was stated that compelling a party who is not willing to undertake ADR would be wrong. According to the Court of Appeal, Dyson LJ’s reasoning in Halsey, regarding whether the Court had the authority to order ADR was not a “necessary” [19] part of the reasoning leading to the decision. As a result, it was unanimously concluded that Dyson LJ’s observations were merely obiter dicta, therefore not part of the ratio decidendi and as such, not binding.

The Court of Appeal then assessed the second part which is whether the court can lawfully stay proceedings in an attempt to allow parties to engage in a non-court based dispute resolution process.

To begin with, the courts can stay proceedings to order parties to engage in ADR. However, the Court in exercising its power must be careful so that it does not impair the very essence of the parties’ rights under Art 6 ECHR. Rather, this power needs to be exercised proportionately to “achieving the legitimate aim of settling the dispute fairly, quickly and at a reasonable cost” [65].

The Master of the Rolls, Sir Geoffrey Vos, however, declined to “lay down fixed principles as to what will be relevant to determining” [66] whether the proceedings should be stayed or whether to order the parties to engage in a non-court based dispute resolution process. It was held to be “undesirable to provide a checklist or a score sheet for judges to operate ”. Rather he said that this should be left to the discretion of the judges who “will be well qualified to decide whether a particular process is or is not likely or appropriate for the purpose of achieving the important objective of bringing about a fair, speedy and cost effective solution to the dispute and the proceedings, in accordance with the overriding objective”.

Ultimately, the Court considered whether the judge should have granted a stay in the proceedings. The Court of Appeal considered the merits of the council’s internal complaints procedure and found that “whilst the Council submits that its internal complaints procedure is crucial, …it may not be the most appropriate process” given the specific nature of this dispute. As a result, a stay was not ordered here. The parties were, however, encouraged “to consider whether they can agree to a temporary stay for mediation or some other form of non-court-based adjudication.”

Implications

In response to The Civil Justice Council’s report on compulsory ADR (2021), Sir Geoffrey Vos said, “ADR should no longer be viewed as “alternative” but as an integral part of the dispute resolution process; that process should focus on “resolution” rather than “dispute”. The recent Court of Appeal’s decision aligns with this point of view.

The direct implication of this case is that the court have the power to lawfully stay proceedings for, or order the parties to engage in a non-court-based dispute resolution process provided that the order made does not impair the very essence of the claimant’s right under Article 6 ECHR. Each case will be fact-sensitive and hence parties who opt not to engage in ADR will need to justify their positions. Additionally, when instructing parties to mediate, the court should consider factors such as cost, financial situations of the parties, urgency, suitability for mediation and legal representation.

The judgment is especially important for businesses and organisations dealing with multiple small-value claims, where legal costs often exceed the claimed sums. The decision enables courts to demand that claimants attempt to resolve disputes through ADR before pursuing court claims, which is seen as a positive development. Even in larger or infrequent disputes, the decision is welcomed as it promotes the potential for resolution through ADR, avoiding the costs and risks associated with a full trial.

The clarity provided by the Churchill decision is expected to empower judges to increasingly promote or order parties to use ADR, aligning with the overarching objective of the Civil Procedure Rules to handle cases justly and at a proportionate cost.

Jaaved Fareed is currently pursuing his Bar Vocational Studies at City, University of London. Holding a commercial pupillage, Fareed demonstrates a keen interest in alternative dispute resolution (ADR), planning and environment law, and commercial litigation.

KCL senior lecturer Anil Balan analyses the Court of Appeal’s recent decision

The Court of Appeal’s recent decision in Ntzegkoutanis v Kimionis [2023] EWCA Civ 1480 offers a beacon of hope for minority shareholders fighting against unfair prejudice within their companies.

This case revolves around the powerful “unfair prejudice” petition under section 994 of the Companies Act 2006 (CA 2006), a tool for minority shareholders to seek redress when their interests are unfairly disregarded. The Court of Appeal judgment clarifies the scope of remedies available and sets a valuable precedent for protecting minority rights.

The ‘unfair prejudice’ petition

The “unfair prejudice” petition under section 994 and derivative claims under 260 of the CA 2006 both aim to protect the interests of minority shareholders in UK companies. Section 994 deals with claims by shareholders against the company for conducting its affairs in a manner that is unfairly prejudicial to them. On the other hand, section 260 deals with derivative claims brought by shareholders on behalf of the company against third parties for past wrongs done to the company.

Section 994 is often the preferred remedy for shareholders, as it prioritises the petitioner’s individual interests, while section 260 prioritises the company’s overall wellbeing. Section 994 also offers a wider range of remedies, including restructuring or winding up, while section 260 is generally restricted to financial redress or preventative measures.

The scenario:

Mr. Ntzegkoutanis, a minority shareholder in Coinomi Limited, alleged that Mr. Kimionis, the majority shareholder and director, had misappropriated company assets and excluded him from management. Mr. Ntzegkoutanis filed an unfair prejudice petition under section 994 of the CA 2006, seeking the following remedies:

• Reconstitution of misappropriated assets: He wanted the court to order the return of assets allegedly taken by Mr. Kimionis.

• Damages for the company: He also sought compensation for the financial losses suffered by Coinomi Ltd.

• Other relief for himself as a shareholder.

The controversy

Kimionis contended that Ntzegkoutanis’s petition was abusive and should be struck out, arguing that seeking relief for the company constituted an improper attempt to use unfair prejudice remedies for personal gain. He claimed that Ntzegkoutanis should have pursued a derivative claim on behalf of the company rather than his own petition.

The Court’s Ruling

The Court of Appeal dismissed Kimionis’s argument and upheld Ntzegkoutanis’s petition. They recognised the following key points:

• Genuine interest in company redress: The Court acknowledged that Ntzegkoutanis had a genuine interest in seeking reconstitution of assets and damages for Coinomi as it directly affected his own value as a shareholder.

• Personal right as a shareholder: The Court emphasised that Ntzegkoutanis was exercising his personal right as a member of the company to seek redress under section 994. He was not acting on behalf of the company itself, but rather protecting his own interests as a minority shareholder unfairly impacted by Kimionis’s actions. His petition therefore did not constitute an abuse of the s.994 process.

• Access to remedies: While derivative claims exist, minority shareholders are not limited to them and can seek relief for the company within their own unfair prejudice petitions when their personal interests are genuinely linked to the company’s well-being.

The significance

Ntzegkoutanis v Kimionis strengthens the protection of minority shareholders in several ways:

• Clearer access to unfair prejudice remedies: The case clarifies that minority shareholders can seek the return of misappropriated assets and damages for the company as part of their unfair prejudice petition, provided they have a genuine interest in these outcomes. It also widens the range of available remedies for minority shareholders facing unfair prejudice, allowing them to seek direct redress for harm to the company that impacts their own share value.

• Strengthens minority rights: This decision empowers minority shareholders to act as guardians of the company’s interests when majority shareholders misbehave, providing a valuable tool for holding them accountable. It also reinforces the principle that majority shareholders must act in the best interests of the company, not just themselves.

• Clarifies legal boundaries: The court’s clear distinction between personal claims and actions benefiting the company sets a framework for future cases, preventing abuse of the unfair prejudice process while ensuring genuine grievances are addressed. This ruling recognises that unfair prejudice petitions offer a valuable alternative to derivative actions, particularly in situations where initiating a formal derivative claim may be challenging or impractical.

Conclusion

Ntzegkoutanis v Kimionis stands as a landmark decision for minority shareholder protection. It reaffirms the power of unfair prejudice petitions and provides a clearer path for minority shareholders to seek remedies when their interests are unfairly prejudiced. This case serves as a reminder that even in complex corporate situations, minority voices deserve to be heard and their rights protected.

Anil Balan is a senior lecturer in professional legal education at the Dickson Poon School of Law, King’s College London.

Hannah Sinclair, Bristol Uni law grad and aspiring barrister, charts the developments following Philipp v Barclays Bank

In the early 1990s, statutes failed to keep pace with “radical and multifarious advances in the use of modern technology” to commit fraud offences. Within this landscape of heightened economic crime and few statutory protections, the judiciary held that banks owe a duty to their customers not to action the customer’s instructions if the bank has reason to suspect the instruction is a result of Authorised Push Payment (APP) fraud. This offence occurs when a fraudster persuades the victim to instruct their bank to transfer funds into an account controlled by the fraudster. This article examines the creation and evolution of this duty, dissects the Supreme Court’s recent decision in Philipp v Barclays Bank UK PLC [2023] UKSC 25, and reviews regulations expected in 2024.

Creation of the Quincecare duty of care

The duty was created by the Court in Barclays Bank Plc v Quincecare Ltd [1992] 4 All E.R. 363. In this case, Barclays loaned Quincecare £400,000 to purchase chemists’ shops, making Quincecare Barclays’ customer. Quincecare’s chairman instructed Barclays to transfer nearly the entirety of the loan into accounts which were then misapplied for dishonest purposes.

The Court held that Quincecare could recover their losses from Barclays because an ordinary and prudent banker in Barclays’ circumstances would suspect the chairman’s instructions were an attempt to misappropriate the funds, and therefore, Barclays owed Quincecare a duty not to execute the instructions. Thus, the “Quincecare duty” was created.

The evolution of the duty

From the early 90s to the late 10s, the Court heard very few cases in which the Quincecare duty arose. However, by 2016, 850 million remote banking direct credits were made per year in the UK, compared with 100 million in 2006. The increase in bank transfers predestined an increase in APP fraud and consequential legal disputes; between 2019 – 2022 the Quincecare duty was considered by the Court four times.

The most relevant case in respect of the issues in Philipp v Barclays Bank UK PLC [2023] UKSC 25 was Singularis Holdings Ltd (in liquidation) v Daiwa Capital Markets Europe Ltd [2019] UKSC 50, in which the Court developed the Quincecare duty such that it was no longer solely a negative duty to refrain from executing the payment but also a positive duty to make the reasonable enquiries.

Philipp v Barclays Bank UK PLC [2023] UKSC 25

Mrs Philipp instructed Barclay’s to transfer two payments totalling £700,000 into an account held by a fraudster in the United Arab Emirates. Mrs Philipp delivered her instructions in-person and confirmed via telephone. Once the funds were misappropriated, Mrs Philipp sued Barclays, and argued that the Quincecare duty applied regardless of the fact that she, as opposed to an agent, provided the instructions.

When determining this case, the Supreme Court took the opportunity to re-write the logic of the Quincecare duty.

First, banks have a primary duty to their customers to act with reasonable care and skill when executing their instructions. This duty must be strictly adhered to and is not in conflict with any of the bank’s other duties.

Second, there is a distinction between the agent’s actual authority and apparent authority. Actual authority is granted by the customer for the sole purpose of the agent undertaking actions which they honestly believe will advance the customer’s best interests. When the agent acts otherwise than to undertake such actions yet feigns to others that they are doing so, the agent acts beyond the scope of their actual authority. Therefore, the agent merely has apparent authority.

As it is inconceivable that a customer would authorise their agent to defraud the customer, when the agent seeks to do so, the agent creates the façade of having actual authority but in fact has apparent authority. Once the bank suspects the agent is acting outside the scope of their actual authority, the façade is broken, the apparent authority ceases to exist, and the bank is on notice that the agent has no authority. In such circumstances, the bank’s primary duty requires the bank to make enquiries to ascertain whether the agent’s instructions are actually authorised by the customer.

Lastly, if the bank is on notice or has reasonable grounds for suspecting the customer lacks the mental capacity to manage their financial affairs, the bank is not to execute the customer’s instruction until enquiries regarding the customer’s authority have been made.

In applying the above logic to the facts in Philipp v Barclays, the Supreme Court found against Mrs Philipp because she unequivocally gave her instructions to Barclays, and so the bank was not required to make reasonable enquiries or refrain from executing the instructions.

 Following this case, the scope of the Quincecare duty is refined and specific: the duty only arises in circumstances where an agent has acted beyond the scope of the actual authority granted to them by the customer and a reasonable banker would have cause to suspect this. Consequentially, the Supreme Court’s judgement removes the possibility for individual customers to recover their lost funds from the bank, save for a caveat of protection for individuals who lack mental capacity.

Predictions

The Court’s reluctance to impose a detailed regime of bankers’ duties means the task has been passed onto Parliament, regulators and government.

Parliament has explicitly delegated the task to the Payment System Regulator (PSR) by virtue of section 72 of The Financial Services and Markets Act 2023 which obliges the PSR to prepare and publish policy regarding requirements for reimbursement in respect of cases in which customers would have previously sought to rely upon the Quincecare duty.

In June 2023, the PSR prepared and published a Policy Statement which describes their proposal to impose a system of mandatory reimbursement. Under this system, banks will be obliged to reimburse a “consumer, microenterprise, or charity” who was incited by APP fraud to transfer funds under the Faster Payments Scheme (FPS), a service which actions payments of up to £1 million within 2 hours.

The PSR states that FPS was used in 97% of APP fraud payments. However, this does not mean that 97% of the funds acquired through APP fraud were done so using FPS because this scheme limits transactions to £1 million.  Therefore, higher values that were obtained through APP fraud were done so using different payment systems. This highlights the problem with the PSR’s mandatory reimbursement system: customers who have been defrauded of larger values will be excluded from protections.

Fortunately, the Bank of England (BoE) has indicated it will implement similar measures of reimbursement for consumer payments made under a different transfer scheme which is not capped at £1 million. Although, the BoE have indicated an upper limit will be set, they have not stated figures.

Whilst the PSR has proposed that the liability for the reimbursement be divided 50:50 between the bank which sent and which received the funds, the BoE’s measures will provide the customer with additional security by imposing an obligation on the sending bank to reimburse the customer within a specified timeframe. The sending bank may then separately seek to recover an appropriate proportion of the costs from the receiving bank.

Both the PSR and BoE have indicated the mandatory reimbursements systems will come into force in early 2024. Nevertheless, until then, individuals will have no viable option to recover their misappropriated funds in transactions exceeding £1 million. Additionally, the PSR’s, and most probably the BoE’s, systems will not apply to international transactions – hence, the protections do not fully reflect the realities of APP fraud. Therefore, a potential negative consequence is that the Supreme Court’s decision and the mandatory reimbursement systems may encourage fraudsters to use international accounts and demand higher payments.

Conclusion

 Since the creation of the Quincecare duty, the Courts have increasingly narrowed the circumstances in which it may apply; Philipp v Barclays Bank demonstrates this. Whilst bankers will welcome the Supreme Court’s decision, their celebrations will be short lived as the PSR’s and BoE’s systems of mandatory reimbursement will be operational in early 2024.

Hannah Sinclair is a first-class law graduate from the University of Bristol and an aspiring barrister. She is currently working as a paralegal.

Exeter Uni law student Dara Adefemi explores the complexities of competition law

On January 18, 2022, Microsoft announced its intention to acquire Activision Blizzard for $95 (£76) per share in an all-cash transaction valued at $68.7 billion (£55.4 billion). If successful, the deal will transform Microsoft into the third-largest gaming company by revenue.

Background

By nature, an acquisition of this scale is bound to meet resistance from regulators worldwide. Regulators are always apprehensive about endorsing deals with a high risk of producing a ‘monopoly’ (a company whose product dominates an entire industry) and significantly eliminating competition or disadvantaging consumers. Therefore, it is important for deals of this nature to be approved by regulators worldwide to ensure there is a global agreement that competition within the market is not being significantly harmed. A global endorsement is important to Microsoft to avoid the risk of being unable to conduct business in disapproving countries.

Allies and foes

Microsoft is involved in, what I would describe as, the first ever regulations world war. Regulators across the world are standing either beside Microsoft or against them. Microsoft’s allies, who hold that its acquisition of Blizzard will not reduce competition, total over 37 countries, including China (the world’s largest gaming market), New Zealand (the most recent addition) and the European Commission (who first stood as a foe but were converted to allies in May 2023 after Microsoft provided them with a list of 10-year licensing commitments). From this, it can be seen that Microsoft stands in a very strong position as it has significant backers behind the deal.

However, standing as foe are two of the most powerful regulators in the world: The Competition and Markets Authority (CMA) and the Federal Trade Commission (FTC).

In December 2022, the FTC sued to block Microsoft’s acquisition of Blizzard. They went as far as to request a restraining order in June 2023, requesting to completely immobilise the merger during the duration of the lawsuit. This was successful. However, in July 2023, the courts denied the FTC’s request to extend the restraining order,  on the grounds that they had not sufficiently proved that the deal will lessen competition. Relentlessly, the FTC appealed this decision the following day. This appeal was denied. The denial of the FTC’s appeal ended Microsoft’s regulatory struggles in the US and served as a victory by default as it rendered the FTC’s disapproval powerless.

In January 2023, the CMA provisionally opposed the deal. In March, they released a statement stating that Microsoft had addressed one of its key concerns by providing evidence. Based on this announcement, the UK believed that the CMA’s approval was imminent. However, in April 2023, the CMA took the UK by surprise by vetoing the deal because of the ‘consequences it will have on the cloud gaming market’ to which Microsoft’s solution was rejected. Microsoft and Blizzard have appealed and, alongside the world, await the results.

Some thoughts on the matter

Though I am a big supporter of the deal, it is important to understand why the FTC and the CMA are taking such a strong stand against Microsoft and its allied forces.

Microsoft owns Xbox, the second most popular gaming console after PlayStation, making them direct competitors to Sony and other large gaming companies like Tencent. It is therefore a possibility that Microsoft are acquiring Blizzard, who own leading games such as Overwatch and Call of Duty, to grant themselves a competitive advantage by making Blizzard games exclusive to Xbox.

In doing this, regardless of preference, if a consumer wanted to play a Blizzard game, they would have to purchase an X-box instead of a PlayStation, thus eliminating Sony’s chance to compete. Therefore, it is entirely possible that the deal would unfairly eliminate competition. However, such is the case with any mega-merger and acquisition — which is why I believe it is important to focus on the intention of both parties.

Microsoft has explicitly stated their intention is “to bring the joy and community of gaming to everyone, across every device”. Their apparent intentions are to create better games and increase the accessibility of these games amongst niche devices. Objectively, the deal is an effective business move for both companies to grow and increase revenue, as are all mega-mergers. However, this is not as selfish an objective as it seems, as it will better equip the companies to meet their consumer’s needs.

Take, for instance, the decision of Vodafone and Three to merge, which will allow customers to enjoy greater internet coverage and reliability. Think also about JustEat and Grubhub’s merger which gave consumers more restaurant options to choose from. I think the ultimate goal of a mega-merger is to better meet consumer needs. This, I believe, is the intention of Microsoft and Blizzard.

Through producing a list of 10-year licensing commitments, they’ve demonstrated that their main objective is to meet consumer needs rather than reduce competition, so it is unlikely that they will take any anti-competitive actions. Seen through the fact that the CEO of Blizzard is set to remain in position after the deal, there are no signs of Microsoft intending to dampen innovation at Blizzard. Therefore, I view the CMA’s and FTC’s adamant resistance towards the deal as unfounded.

I believe competition in the gaming industry will continue to boom and insinuating otherwise underestimates the strength of Microsoft’s competitors. The concerns of the FTC and CMA would be greater justified if Microsoft stood at number 1 in its industry which, presently, is not the case.

Conclusion

It remains Microsoft’s best course of action to reach an amicable agreement with the CMA as, to win they appeal they are burdened with the difficult task of proving  the CMA’s  decision to veto the original deal was wrong. Their best course of action would be to come to an amicable agreement with the CMA by agreeing to a set of demands. The CMA’s continued rejection of Microsoft’s proposals makes this a near impossible task.

Importantly Microsoft’s agreement to license call of duty to Sony forced the CMA to re-evaluate the deal due to a change of the original terms.

Due to the CMA’s relentless rejections of Microsoft’s proposals, reaching an amicable agreement seemed unlikely. Nevertheless, after a tumultuous battle, Microsoft’s victory against regulatory constraints appears imminent as the CMA now hold that Microsoft have addressed their concerns. By agreeing to transfer Activision games streaming rights from the cloud to Ubisoft for 15 years, Microsoft have relinquished control of Activision games which is a significant deterioration from their original deal that likely affects the value for money Microsoft are receiving. Despite this, the new term has paved a path for UK approval though we still await a final decision from the CMA.

Dara Adefemi is a second-year law student at the University of Exeter. She is an aspiring commercial solicitor with an interest in M&A, ESG and competition law.

University of York law student Phoebe Parker explores the implications of unexpected events in today’s rapidly changing world

How do you define an act of God? At first glance, this question doesn’t appear to have much to do with law. In contract law, however, the existence of the force majeure clause means that contracting parties are forced to answer that question.

Setting the scene

A force majeure clause allows for the suspension or termination of a contract if its performance is heavily delayed or made entirely impossible by an event so far beyond the control of either party that it can be considered an “act of God”. Via a handful of current examples, this article demonstrates how the perhaps seemingly niche clause can be a point of contention, due to an increase in drastic world events. Moreover, this clause can also boost fairness in the competitive world of commercial law, allow the law to protect weaker stakeholders and allow contracting parties to effectively mitigate risk.

Case study one: Pfizer and pilfered supplies

The Covid-19 pandemic was an uncontrollable act of God which delayed, frustrated and otherwise kiboshed hundreds of thousands of contracts, resulting in terminations and suspensions on a global scale.

One recent, and perhaps ironic, example, occurred in late 2022, when Poland claimed force majeure against Pfizer due to the pandemic subsiding unpredictably and uncontrollably. They have since refused to accept or pay for vaccines.

Pfizer acquired a contract with the 27 member states of the European Union (EU) for billions of vaccines in 2020, before they had even been approved for production. Now, as interest has plummeted and supplies have amassed, it faces contention from contracting parties like Poland. It is difficult to argue that the pandemic’s end is any more or less predictable than its beginning and it is unlikely that this will be the last time force majeure is evoked on this basis.

Most recently, in June 2023, the European Commission came to an agreement with Pfizer, but Poland continues to refuse to do so. The Polish Health Minister, in an interview with the Polish Press Agency, stated that the country “continued to believe that the conditions negotiated by the Commission… with Pfizer are completely inadequate”.

Case study two: Wildfires and withholding refunds

A type of event often incorporated into force majeure clauses is natural disasters, such as the 2023 Greek wildfires which started in July. The extent of the fires is certainly unpredictable and devastating but holiday operators are still attempting to mitigate their losses.

An article in the Financial Times noted that while some operators are offering refunds to those due to travel before 31 July, those who do not wish to risk it after this date may find themselves shouldering the cost. Equally, no Foreign, Commonwealth & Development Office (FCDO) warning has been issued against travel to the areas affected, further limiting the scope of refunds and rebooking. Travel insurance policies typically require FCDO travel advisories to have been issued before they will consider trip cancellation and interruption claims. Therefore, the lack of a formal advisory in the current circumstances leaves travellers with no contractual grounds on which to make claims.

As our climate continues to change, it is likely that there will be more events like this. The force majeure clauses present in contracts between holiday operators, travel insurers, holidaymakers and other key parties are, therefore, likely to be of increasing interest. A balance will have to be struck between financial surety for businesses and the facility for individuals to be reimbursed for loss over which they had no control.

Fairness and Laissez-Faire

The world of business, especially in the United Kingdom, is often defined as laissez-faire, with contracting parties being, in many ways, free to set their own standards of fairness. It is a key concept of contract law that the law will not necessarily quash a clause because it is unreasonably detrimental to one party.

In force majeure clauses the same emphasis applies, with good drafting being key to the clause benefiting both parties. An example of where a force majeure clause could be used to enforce fairness or morality is a business extracting itself from Russia due to the conflict in Ukraine. Armed conflict can and has been included in definitions of an act of God. The war in Ukraine has taken an incalculable toll on the country and businesses can withdraw from Russia as an act of moral activism on the basis that it is entirely beyond their prediction or control.

As force majeure has no intrinsic meaning in English law, it is a concept which can be manipulated to best serve contracting parties. This type of clause, therefore, is a key example of the law adapting to serve those it governs.

AI and adapting employment contacts

Much like climate change, artificial intelligence (AI) continues to develop at a rapid rate and will have immeasurable, unpredictable consequences. This is especially the case when it comes to employment.

Even within the legal field, there is much talk of the administrative work often left to trainees being entrusted to AI instead. While this may sound a plot line from The Matrix or a vision from a dystopian future, a quick conversation with Google’s AI programme Bard, or OpenAI’s ChatGPT, will demonstrate that this is very much reality.

I asked ChatGPT what it thought of the premise of this article and within a few seconds it gave me a comprehensive 200-word answer, raising points around Covid-19 without any prompting. Force majeure clauses, then, could be used in the future to protect employees from unfair dismissal as a result of AI being able to carry out their jobs.

It is inevitable that AI will develop to fulfil certain roles far more cheaply and efficiently than human beings, but individuals having their jobs usurped in this way is not particularly fair and high levels of unemployment rarely contribute to a prosperous, lawful society.

Force majeure clauses in employment contracts could be drafted to include the advancement of AI as an unforeseeable act of God, beyond the control of the employee, thereby disallowing any termination of such contracts on this basis. This expansion of the concept of force majeure would protect the weaker contracting party in the face of an unimaginable event.

Concluding thoughts

Force majeure clauses are a staple of contract law. They require a logical consideration of the nebulous, perhaps philosophical, concept of what can be defined as an “act of God.”.

Due to an apparent increase in unpredictable events, like the start and end of the Covid-19 pandemic and climate change events like the Greek wildfires, this type of clause will continue to be a point of contention. The flexibility of the term, however, allows it to be manipulated to enforce fairness in the law. Looking to the future of the concept means that it can, and hopefully will, be expanded to protect vulnerable parties, like those employees who might be replaced by AI.

Phoebe Parker is a second-year law student at the University of York. Her research interests lie in corporate law, particularly in insolvency and interbank lending.