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This article was first published by Solicitors Journal on 9 April 2013, and is reproduced by kind permission.

The case of Re Integral Limited [2013] EWHC 1745 (Ch) is a useful reminder that consideration must be given as to whether the purpose of an administration will be achieved before this process is used and that if it cannot be achieved then an Administration Application may fail and any concurrent winding-up petition may succeed.

The purpose of an administration is set out in Schedule B1 to the Insolvency Act 1986.  The purpose is set out by reference to objectives that must be considered in the following order; (a) the rescue of a company as a going concern, (b) achieving a better result for creditors as a whole than would be likely to be achieved if the company were wound up, or (c) realisation of property in order to make a distribution to one or more secured or preferential creditors.  This is not a choice of objectives but a hierarchy.  Further the administrator must perform his functions in the interests of the creditors as a whole and only seek to achieve the third objective if he will not unnecessarily harm the interest of the creditors of the company as a whole.

This ability to achieve the purpose must be considered by the Court when considering making an Administration Order, under paragraph 11 Schedule B1 and must be confirmed by a proposed administrator when providing his Statement of Administrator and consent to act under Insolvency Rule 2.3(5)(c).

In AA Mutual International Insurance co Limited [2005] 2 BCLC 8 it was held that the appropriate test is whether there is a “real prospect” that the purpose will be achieved.

In the Integral the Court faced an application for an Administration Order, made in response to a winding up petition.  The first hearing had been adjourned, at the request of the company’s directors in order to allow time to pay.  Before the adjourned hearing came back before the Court, the directors made an application for an Administration Oder.  The Court considered that there was never any prospect of payment being made in the intervening period and referred to Re Pinstripe Farming Limited [1996] 2 BCLC 295 as support to the proposition that such conduct was relevant to the decision to make a winding up order.  Indeed, it is to be noted that in Pinstripe the Court considered that, where a company obtained an adjournment for a purpose which it did not then use the time grated to achieve, but another purpose, it would be the duty of the solicitors acting for the company to inform the opposing party and the Court, at the very least, before the alternative purpose was  achieved.

The Court considered the merits of an administration against those of a liquidation.  The Court rejected evidence that a litigation claim was more likely to be funded in an administration than in a liquidation.  This was a claim that the company’s directors said would enable the company to pay all creditors if won, notwithstanding evidence that an interest in the proceeds of the claim had already been granted to five other parties.  Indeed the Court rejected much of the evidence put before it by the directors.  It referred to the case of re Bowen Travel Limited [2012] EWHC 3405(Ch) which set out what may be considered to be an obvious burden upon an applicant for an administration order, to present evidence to the Court that is reliable insofar as it is accurate, supported by underlying material, not contradicted, credible and a full account of all potentially relevant circumstances.

The Court considered that it was relevant that an action in wrongful trading under Section 214 Insolvency Act 1986 could only be taken against the directors of the company in liquidation, there being some evidence that the company had traded on after it had become unable to pay employees.

Also, the directors had incorporated a company with a similar name that would be restricted by Sections 216 and 217 Insolvency Act 19876 but only in the event of a liquidation.  The Court considered this to be an important factor notwithstanding that the use of those provisions would not result in a return to creditors.

Further, the Court preferred to ensure that the “relation back” period for anti-avoidance provisions of the Insolvency Act under Sections 238 and 239 Insolvency Act 1986 (Transactions at an Undervalue and Preference claims) were preserved, since certain claims that appeared may not have been caught by the look back period (which, in the event of compulsory liquidation, would start with the date of the petition) in the event that the petition was dismissed. The Court considered this to be a significant factor in its decision making. Indeed, in Bowen, the Court also cited the need to investigate payments made by the company after the presentation of the winding-up petition (deemed to be void under Section 127 Insolvency Act 1986)  as one of its reasons for refusing to dismiss the petition and make an administration order.  Further the Court noted that, in a compulsory winding-up procedure, the Official Receiver had a duty to investigate the failure and business dealings and affairs of the company and report to the Court as he thinks fit (Section 132 Insolvency Act 1986) which it considered was an additional benefit to the creditors. It can therefore be appreciated that it is not merely a comparison of the return to creditors that the Court will take into account,

In Integral, the Court was unimpressed with the conduct of two proposed administrators who seem to have adopted an unquestioning approach to information provided to him by the company’s director, which was not questioned even in the light of significant opposing evidence adduced by the petitioner.

The Court  referred to the decision in Re Structures & Computers Limited [1998] 1 BCLC 292 in which the Court said that the conduct of a company, which would require investigation, would not itself justify refusal of an Administration Order where this could be investigated by either a liquidator or administrator.  Further the Court may still decide to make an administration over a winding up order where the majority of creditors were opposed to it since it would not follow that they would object to the administrator’s proposals.  Whilst accepting the position, the Court in Intergral thought that the view of the creditors would, nevertheless, be relevant where the subject of the necessary investigations might be behind the directors’ true reasons for making the administration application and where creditors were facing the loss of sums due to them and potentially a request for funding for investigations.

Other grounds for applications for Administration Orders relied upon, which the Court did not accept achieved the statutory purpose, were considered in Doltable Ltd –v- Lexi Holdings plc [2006] 1 BCLC 384.  The company applied for an Administration Order, the purpose of which was to rescue the company as a going concern by enabling an administrator to take over the sale of land, being the company’s only asset and achieve a better price than was about to be achieved through a sale by a LPA Receiver appointed by a secured creditor. It was said, in support of the application, that the administrators would investigate the ability to exploit the land and generate a surplus for members, whereas the duty of the LPA Receiver was to the secured creditor only.  The Court did not accept that a return to members necessarily meant that the company would be rescued where there was no evidence that there would be any going concern at the end of the process, therefore objective (a) was not achieved.  Objective (b) did not feature. The Court considered that the only purpose of making the application for an Administration Order was to use the moratorium against a secured creditor. The Court also noted that other remedies were available such as an injunction with appropriate undertakings as to damages, which the applicant was seeking to avoid, and a transaction at undervalue claim if the land was sold at too low a value etc.

The requirements of Paragraph 3 of Schedule B1 (the administrator’s duty to perform his functions with the objective of achieving the statutory objective) only applies once he is in office.  However, in the case of an out of Court appointment (under Paragraph 14 or 22 of Schedule B1) an administrator is required to provide a Statement of Proposed Administrator.  This confirms his belief that the purpose of the administration can be achieved.  It is not necessary for the administrator to identify which of the objectives he thinks will be achieved; merely that one of the objectives can be achieved (Harris Simons Construction Leisure Ltd [1989] BCLC 202).  However, an administrator must apply some thought to this prior to accepting the appointment to enable him to make the statement required.  It is difficult to see how an administrator might be expected to make this statement in circumstances where he may have had no involvement with the company prior to appointment.

Once appointed the administrator must make proposals for achieving the purpose of the administration as soon as reasonably practicable and in any event within 8 weeks.  The Insolvency Service criticised office holders, as long ago as May 2004, for failing to comply with Insolvency Rule 2.33(2)(m) which requires that the proposals include a statement as to how it is envisaged that the purpose will be achieved, which according to Paragraph 111 (1) Schedule B1 means an objective under paragraph 3 Schedule B1.  A statement of all 3 objectives would not satisfy this requirement.

Paragraph 49(2)(b) allows the administrator to conclude, by the time he is making the proposals, that the objective of the administration cannot be achieved.  However, it does not follow that (in the absence of some challenge before the Court) the administration will have been invalid.  Whilst paragraph 79(2) appears to compel the administrator to make an application to Court, in those circumstances, to end the administration, it was confirmed in Re Ballast [2004] EWHC 2356 that this was merely a choice of exit route and there was, in fact, no obligation to make an application to the Court where exit could be achieved through other means.  This would mean that there would be no consideration by the Court as to whether the company should have been placed into administration in the first instance.

The line of cases following Minmar Limited –v- Khalatschi [2011] EWHC 1159 (Ch) was a stark reminder that out of Court appointments may be challenged by aggrieved parties, and that creditors faced with losses in the wake of the recession and directors and shareholders in conflict with their business associates, may well seek to challenge appointments and this may be an option where it appears that the objectives cannot and could not ever have been achieved.  Administrators must carefully consider the basis of their appointment and record the basis of their decision, even where information is scant, in order to avoid criticism by the Court for taking an appointment which is found not to have been in the interests of the creditors as a whole.

Denise Fawcett
Partner
T: 0207 634 4642
E: dfawcett@pitmans.com

The Reading Professionals Lunch, held in December 2012 at Reading Town Hall and attended by over 280 local professionals, raised over £7,800 for Thames Valley-based ‘The Brain Tumour Charity’.

The event, in its 5th year and organised by Pitmans LLP, RBS and BDO, provides Reading’s professionals with the opportunity to network and mingle in a festive environment before the Christmas period. The Master of Ceremonies was Barry Williams, one of the country’s premier after-dinner speakers, who provided superb humour and ad-lib throughout the dinner whilst encouraging the professionals to dig deep for this great charity.

During the main course, the live entertainment began with the 3 waiters, suddenly bursting into song, hoaxing and amusing the audience, before revealing themselves as singing waiters in a thrilling operatic performance a-la The Three Tenors.

A raffle was held following the dinner with prizes including a luxury hamper, fine champagne and the latest Kindle; all of which were kindly donated by the organisers as well as Thames Valley businesses.

Nicola Kirk, Partner at Pitmans LLP said: “We were delighted with the day, it was a fantastic occasion and everyone enjoyed the lunch – especially the live entertainment when the 3 waiters began. We were overwhelmed with the monies raised, in excess of £7,800, for The Brain Tumour Charity.”

The Brain Tumour Charity is the UK’s largest dedicated brain tumour charity. It funds scientific and clinical research into brain tumours and offers support and information to those affected, whilst raising awareness and influencing policy. Its aim is to improve understanding, diagnosis and treatment of brain tumours.  For further information please visit www.thebraintumourcharity.org.

L to R: Andrew Clarke, RBS, Nicola Kirk, Pitmans, Lucy Knight, The Brain Tumour Charity, Graham Rutter, BDO

Courtesy of Thames Valley Business Magazine April 2013

The Energy Act 2011, which was given Royal Assent on 18 October 2011, is intended to improve energy efficiency in homes and businesses, in particular through the Private Rented Sector Regulations (PRSR). The Green Deal came into effect at the end of January 2013. Further regulations affecting the private rented sector will come into force between now and 2018.

In particular the Act provides for regulations to be effective from no later than April 2018 to restrict property owners from letting properties which are below a minimum energy efficiency rating by reference to the building’s Energy Performance Certificate (EPC). The current proposition is that the threshold will be an E rating, meaning landlords with buildings with an F or G rating (estimated to be 18% of rented non-residential buildings) will not be able to legally let them unless sufficient efforts have been made to reduce the rating to the lowest possible level. The market is likely to quickly factor in a discount for properties likely to need significant expenditure to bring them up to the required standard.

The Green Deal may provide some comfort to landlords. It allows private firms to lend finance to businesses and consumers to fund energy efficiency improvements to their properties, so that landlords bear no upfront cost for installing improvements. The lender will recoup payment through a charge on the energy bill of the property. The ‘Golden Rule’ is that the incentive only applies where the expected financial savings are equal to or greater than the costs attached to the energy bill.

In Practice:

• Landlords are advised to review their portfolios now and consider what action they should take. At the very least, knowing the current EPC rating of buildings held or occupied is critical. Landlords should review potential options for improving the energy rating where necessary to ensure properties’ lettability in 2018 onwards or they may wish to consider disposing of poorly rated stock in favour of that with higher energy efficiency.

• Other factors for landlords to consider are whether they have necessary access rights under their lease to carry out the works and the issue of recovery of costs of such works to the common part via service charges. Both landlords and tenants will have to consider service charge provisions in leases carefully in this respect.

• Landlords should be aware that as from April 2016 they will not be able to refuse consent to a tenant’s request to make alterations for energy efficiency reasons. Landlord may wish to consider incorporating provisions in leases to the effect that a Green Deal plan cannot exceed the term of the lease. This would prevent the landlord being responsible for the charges during a void period and having to market the property again with a Green Deal charge.

• Other issues for tenants include being aware that a low EPC rating could restrict their ability to sublet a property after 2018. In addition, if a tenant is carrying out the works, it should ensure they are recorded in a licence for alterations which provides that they are disregarded at rent review and that the tenant does not have to remove such works at the end of the lease term.

• Landlords and tenants should consider seeking legal advice on the incorporation of “green” clauses into their leases which require better environmental management of a building.

• It seems reasonable for lenders to question how significant expenditure on improvements will be funded during the loan term, whether that be through the Green Deal or otherwise. For example, lenders should be asking if the cost has been factored into the borrowers’ business plan. Conversely, those lenders who have considered the point may be faced with customers who do not appreciate the scope of the problem.

• From 1 January 2015, it will be illegal to use any HCFCs to service refrigeration and air conditioning equipment, given the effect on the ozone layer including the commonly used R22 coolant. Aged air conditioning plant can be a major factor in driving EPC ratings into the lower F and G categories.  Landlords may wish to upgrade the air conditioning plant in a building if it covers the common parts and lettable areas. This will affect the whole building, being for the long–term benefit of its occupiers, but savvy tenants of new leases are already attempting to remove any liability on their part to pay for upgrades to achieve improved energy performance. Contracting parties therefore need to consider the problem now, not in five years.

For further information regarding other topical property issues, please contact Pitmans real estate, planning and environmental teams.

Sally Sharp
Partner
T: 0118 957 0362
E: ssharp@pitmans.com

Courtesy of Thames Valley Business Magazine April 2013

Auto-enrolment means that all employers in the UK must automatically enrol eligible jobholders and pay employer contributions in to a qualifying pension scheme from a date after 1 October 2012.

The starting date is determined by how many workers an employer has in its PAYE scheme as at 1 April 2012. The following tables act as a useful guide.

Contributions will be phased in over 3 transitional periods

Employers will need to identify those workers that are eligible for enrolment and may use a combination of pension schemes both existing and new to meet their obligations, as long as the pension scheme(s) they select satisfy minimum quality standards.

To date auto-enrolment has exposed a number of legal and practical challenges for our clients due to elements of the legislation that have been described in some quarters as “insanely complex”. Fortunately, the DWP announced on the 11 February 2013 that a consultation will be undertaken on proposals to make the auto-enrolment process simpler. Based on feedback to date the DWP has identified three immediate areas of concern as follows:

• Making assessment of the workforce easier
• Making it easier for money purchase schemes to show they meet the scheme quality requirements
• Removing the duty to enrol particular groups such as high earners who benefit from protection because they have already exceeded the lifetime allowance for tax purposes

In addition we anticipate that the practical application and definitions of “qualifying earnings”, the “relevant pay reference period” and the processes of “opting in” and “opting out” will be looked at among other areas of complexity before any resolutions are reached. A target date for any proposed changes has been identified as the early part of 2014 before the bulk of medium and small employers reach their staging dates.

Whilst some employers may consider this legislative consultation exercise sufficient justification to delay looking at auto-enrolment, our experience to date would suggest the contrary. Approximately 30,000 employers will have to auto-enrol staff over the four month period between April to July 2014, placing a considerable strain on scheme providers. To date we are aware of at least one employer with over 1,000 employees who has struggled to source a pension provider of its choice; some providers are already seeking more than six months notice in order to set up a new contract based money purchase scheme that is compatible with auto-enrolment.

From our experience to date it is clear that medium and small employers are aware of the headline requirements to auto-enrol workers by a set date and the need to make contributions to an employee’s pension. However, what appears to be less clear are the administrative, data management and communication demands of auto-enrolment and the duties set out in the legislation with regard to these issues. Unlike the Stakeholder regime that was introduced a decade ago, employers also need to take note that auto-enrolment will be policed by the Pensions Regulator.

In approaching these challenges Pitmans LLP is working closely with a number of pension specialists so that it can provide comprehensive advice and practical solutions for its clients.  The legislation has thrown up a number of pension and employment issues that many consider straight forward on first glance though in practice they can be complex. We have advised on areas such as:

- assessing whether existing pension schemes need to be amended to meet the qualifying criteria for auto enrolment;
- determining whether consultants or self employed contractors are “workers”;
- confirming that employee contracts and an employer’s day to day  HR practices comply with the auto-enrolment legislation;
- finalising the details of service agreements with third party service providers; and
- rationalising existing pension schemes.

This is not an exhaustive list and the legal complexities of auto enrolment should not be underestimated.

We recommend that any employer with 61 to 249 workers should now start planning for auto-enrolment staging dates that start from 1 April 2014, if they have not done so already, and that any employers with over 1,250 workers should take immediate action if they are to comfortably meet their auto-enrolment obligations by their staging date.

For more information please contact Pitmans’ Auto Enrolment Team.

David Loosemore
Solicitor
T: 0118 957 0240
E: dloosemore@pitmans.com

Parminder Latimer
Director
T: 0118 957 0324
E: platimer@pitmans.com

This article was originally published by Professional Pensions.

In January this year the Department for Work and Pensions published its White Paper “The single-tier pension: a simple foundation for saving”.

Initial reception of the main proposals – introducing a single pension at a level higher than the current guaranteed minimum, replacing the current State Second Pension based on an individual’s contribution record over 35 years – focused, perhaps understandably, on the socio-economic impact of what is the biggest shift in State pension design in 35 years.

However, the impact that the changes may have on defined benefit occupational schemes following the abolition of contracting-out are significant and, as always, the devil is in the detail.

Those who were affected by the abolition of contracting-out by means of Protected Rights in 2011 will recall the straightforward methodology that allowed schemes to amend their rules by way of resolution to modify Protected Rights Accounts.  The abolition of contracting-out by means of Guaranteed Minimum Pensions is, it appears, likely to create more challenges for schemes and seems certain to be a bumpier ride than was perhaps envisaged by trustees and employers as they followed the debate on State pension reform.

The DWP has chosen a different approach for the abolition of contracting-out through GMPs than was chosen for Protected Rights. Schemes with GMPs will, from the commencement date currently set at April 2016, be treated as having ceased to contract out. That means that accrued GMPs will remain within schemes as specifically identified elements of accrued entitlement.  As a result, Schemes may face increased administrative issues presented by ongoing schemes with deferred contracted-out entitlement. In particular, dealing with revaluation, potential restriction of lump sum and transfer payments as well as ensuring that anti-franking legislation is complied with – something that the majority of trustees may not have dealt with before. There will also be particular challenges for those schemes that are integrated with the State schemes through language and definitions which will no longer be relevant after April 2016.

Perhaps of most significance will be the proposed opportunity for sponsoring employers to amend their schemes to take account of the increased employer National Insurance contributions following the cessation of contracting-out. Currently employers enjoy a National Insurance rebate of 3.4% in respect of contracted-out employees. The proposed legislation will give an employer the opportunity to amend the structure of its pension scheme to take account of the additional cost by way, for example, of a reduction in the future rate of accrual or an increase in members’ contributions.

It appears that this opportunity will be offered to employers on a “one off” basis and that it will be sanctioned by overriding legislation – thus potentially nullifying the involvement of scheme trustees regardless of how the balance of powers is held within a scheme’s amendment power.
Whilst further details are to follow, it seems clear at this point that the decision to move to a single tier pension will bring about some interesting and challenging, and perhaps unexpected, issues for employers and trustees of occupational schemes.

Julian Richards
Solicitor, Pensions
T: 0207 634 4649
E: jrichards@pitmans.com

This article was originally published by BVCA.

The recent sale of the 3i and Risk Capital Partners backed restaurant chain Giraffe to Tesco for £48.6m highlights the growing attraction of the leisure and dining out sector for venture capital and private equity investment. Tesco obviously saw the acquisition as a way to attract more lucrative growth for its supermarkets, as well as perhaps utilizing under-used retail space. However, Tesco was a surprising acquiror of a chain of restaurants and it provides an interesting additional exit route for VCs/PEs holding such investments. Presumably, other retail operators will be thinking carefully about ways to attract customers to their stores or to encourage them to spend a longer amount of time in their shopping experience.

Another chain of restaurants which is publically up for sale at the moment is the Cote chain, which has expanded very quickly and reflects the growing popularity of restaurants which offer simple cooking rather than the expensive and over complicated cooking found in formal restaurants,but still using very good quality ingredients. It is certainly true that the dining habits of the Great British public have changed dramatically over the last few years with far more people dining out on a casual basis than ever before. This change in dining habits appears to have survived the economic downturn, although inevitably there will be regional variations.

At Pitmans, we have recently acted on an early stage investment in a modern Japanese restaurant, acting for the VC institutional investor and a very experienced business angel, who has numerous interests in the leisure and dining out sector. This transaction demonstrates how the boundaries between the traditional stages of funding are being broken down,so that instead of an early stage company receiving funding from a business angel and then, at a later stage in its growth, applying for institutional venture capital funding, it made far more sense to attract investment from both the business angel and the venture capital institution at the same time. The venture capital institution obviously received huge comfort from the fact that a very experienced business angel was investing his own money and the business angel appreciated the formality and corporate governance which the financial institution brought to the investment. We know that the UK Business Angels Association is keen for such investments to be made and for VCs/PEs to tap the huge resources of money which are around in the business angel community.

The restaurants and indeed the food and drinks sector generally require many different aspects of legal advice ranging from:

- work on the investment agreement, articles of association and corporate structuring

- property advice

- intellectual property advice to protect the brands vital for these sorts of businesses

- advice on food safety legislation

- employment advice including temporary workers’ regulations

- management agreements

- licensing issues

- card fraud and e-commerce abuse

to name but a few. Pitmans is a full service law firm based in Reading with a London City office in Cheapside and has handled many hospitality transactions involving all of those issues.

It is comforting to know that even in these difficult economic times, some sectors appear to have weathered the storm better than others and are becoming attractive to acquirors from different markets.

Roger Gregory
Partner
T: 0207 634 4634
E: rgregory@pitmans.com

This article was originally published by The Telegraph on 16 April 2013.

Google Inactive Account Manager is a new feature which allows account holders to donate their digital assets to a nominated beneficiary, with implications for anyone writing their will.

Your Google assets could be Google Docs, Gmail, Picasa photos, YouTube videos, or a host of other data.

Inactive Account Manager allows users to determine when their account expires (after, say, 6 or 12 months of inactivity). After that their nominated beneficiary will be provided access to, and the ability to extract, their digital assets. Facebook provides a similar feature which allows family members to create a memorial page for their dead loved one.

These features are particularly relevant to the new EU Data Protection Regulation, currently in draft. It provides individuals with a ‘right to be forgotten’; i.e. the right for people to delete their digital persona. This has met with considerable resistance from Britain’s Information Commissioner and web industry lobbyists who argue it is impractical and costly. Nevertheless, wherever possible, we should still seek to control our digital estate.

It’s a broad, international issue. In the United States it was reported, albeit mistakenly, that Bruce Willis was filing proceedings against Apple for restricting his kids from inheriting his iTunes collection. Related issues were recently raised in a claim made by Capital Records against ReDigi, however.

ReDigi allows members to upload tracks into its cloud service. The original copies are then deleted from their computer. They may then sell “second-hand” digital music online in return for credits to purchase new music. Capital Records successfully claimed that this service infringed its copyright.

It is perhaps easier to justify why music stored in a cloud-based music service, such as Spotify, may not be inherited by beneficiaries. However, even where a cloud subscription service is concerned, beneficiaries should still arguably be able to retain the associated metadata to the catalogue. A beneficiary may then at least reproduce a relative’s catalogue (e.g. discover favourite tracks and how often, where and when they were played).

But what implications do Google Inactive Account Manager and Facebook memorial pages have from a probate perspective? Are these prudent steps to take when writing your will?

Most of us now leave digital footprints that may be lost forever if provisions are not put in place. It is not just the sentimental or personal items stored on social media sites though: the digital world enables finances (PayPal) and other assets (online gaming profiles) to be held online and out of the reach of the persons left to deal with your estate.

One way around this problem is to leave instructions with your will. Details of web addresses and passwords to accounts can be held in a note supplemental to the will to enable executors to readily access them. The important point to note is that when a will goes to probate it becomes a matter of public record, hence such sensitive information must not be put in the will itself.

Another solution comes in the form of a “cyberwill”, an online service offered by the likes of Legacy Locker, AssetLock, Cirrus Legacy and many more. They enable online storage of key account information and directions as to what should happen on death. Cyberwill providers pass this protected information on to named guardians following specified events, such as if an email prompt is unanswered or a death certificate is presented.

The concern with this would be if the accounts were hacked or if there was risk of the information being sold to a third party. Certainly, before placing your digital inheritance in the hands of a third party, it would be prudent to examine their reputation they have for privacy and security. Some online providers may be more trustworthy than others.

Unfortunately due to the rapid evolution of the internet, there has been very little in the way of case law and legislation on the area of succession of digital assets, and with the digital age still young, people writing their will do not often consider the issue. But lawyers will increasingly need to help their clients protect their online interests.

Philip James and Sheilagh Magee are senior members of the Media and Private Client teams at Pitmans solicitors.

Philip James
Partner
T: 0207 634 4655
E: pjames@pitmans.com

Sheilagh Magee
Director
T: 0118 957 0208
E: smagee@pitmans.com

This article was originally published on the Current Awareness service on LexisLibrary on 9th April 2013.

IP & IT analysis: How far will the adoption of the EC’s Opinion (02/2013) on apps held on smart devices, which cites lack of transparency and free and informed consent, go in alleviating users’ and regulators’ concerns? Philip James, Partner in Pitmans SK Sport and Entertainment Group, considers the future for app developers and site operators.

Original news

Article 29 Working Party Opinion 02/2013 on apps held on smart devices

This opinion clarifies the legal framework surrounding the processing of personal data in the development, distribution and usage of apps on smart devices. Particular focus is placed on the requirements surrounding consent, the principles of purpose limitation and data minimisation, the adequacy of security measures and the fair processing of data collected from and about children.

What are the obligations of app developers and platforms (such as Google and Fa-cebook) in relation to the personal data of users?

Apps have an enormous ability to collect sensitive data, including personal data, stored on the user’s device as well as store and access metadata on that same device. When it comes to accessing, storing and passing on this data, there are a number of obligations app developers are bound by.

Consent
Their primary obligation is to obtain valid consent under the Data Protection Directive 95/46/EC (in relation to personal data) and, more recently, under the ePrivacy Directive 2002/58/EC in relation to data which may potentially infringe an individual’s privacy and private sphere. The opinion advises  this is more than merely clicking an ‘I accept’ button–users must be provided with more granular information explaining:

• what data will be collected
• who will access it
• what it will be used for

Layered consent mechanisms and transparency are recommended and ‘just-in time’ consents are advised, although used on their own will not necessarily comply with legal requirements. It is important to bear in mind, however, that consent is not always required (for instance, personal data may be processed where it is necessary for legitimate commercial interests or where, say, for technical purposes or to satisfy a contract at the request of user).

Targeted collection   
Developers must make sure data collected is minimised, its processing should be limited to the purpose for which app requires it, and there are adequate systems in place to ensure the protection of the personal data they possess. In this regard, organisations should seek guidance from the ICO’s Anonymisation Code. Re-ducing the quantity of data reduces cost (eg  storage, distribution, analysis, mining), improves efficiency, protects privacy, increases accuracy whilst reducing potential liability and risk.

Developers and platform operators alike should instill:

• privacy by default in technical mechanisms
• privacy by design in research and product development

This makes for good business practice and can significantly reduce cost and enhance improvements and build trust and, in turn, protect reputation.

What are the implications for other parties involved in the development, distribution and processing of mobile apps in the EU?

Other parties such as app stores, operating systems and device manufacturers have an obligation to regu-late developers, as well as put in place and improve standards for application programme interfaces (APIs) to control access to sensitive information. These regulations can be enforced through these parties’ admis-sion policy.

Advertisers and analytics providers can fall into one of two categories: either they process data on behalf of the app owner or process data for their own purposes. If the latter, such as apps involved in behavioural targeting, they will share the obligations to obtain appropriate consent and have appropriate security measures in place with the app developers. Site owners and platform operators will need to consider carefully how to contract with third party advertisers and analytics providers to manage risk and liability and clearly delineate responsibility for achieving and reporting for compliance purposes.

Why has the Article 29 Working Party considered it necessary to address apps specifically in their recent opinion on apps held on smart devices? 

Apps are considered to have a particularly close relationship with the operating system of a device compared to the traditional web browser. This enables apps to collect large quantities of data from the device, much of which is personal.

The risk from a data protection perspective arises due to the fragmentation of the app provider landscape: device manufacturers; operating systems; platform developers; app developers; third parties.

This fragmentation can result in:

• poor security measures
• a lack of transparency as to responsibility
• a lack of appropriate consent
• indiscriminate data-gathering

Given the proliferation of apps and success of many developers, there is a challenge to police privacy whilst not restricting or impeding innovation. This is a constant juggling act, but the scales are currently listed too much in favour of developers. It is argued platform owners and network providers should act as the gatekeepers to help manage data privacy and users’ trust in apps.

What steps should app developers and others be taking to ensure they comply with the law? 

Appropriate consent forms the backbone of the opinion.

Freely given consent means that, if an app needs to process personal data, a user should not be confronted with one button, ‘I accept’, but a choice to ‘Accept’ or to (eg) ‘Cancel’. Informed consent means the data subject must have the necessary information to make an accurate decision before any data is processed–the consent must also be specific, meaning the label of the button or link to be clicked must be specific to the category of data to be processed.

How is the issue of informed user consent likely to be dealt with in practice, particularly in relation to children?

When it comes to children, developers should be aware of their potentially limited understanding of data protection issues. Because of their vulnerability, the principles of minimisation and limiting the data collected apply even more strictly for children. For example, developers and third parties should not process children’s personal data for behavioural targeting as this is likely to be outside of the scope of a child’s understanding. Specific prohibitions also include not collecting any data relating to the parents or family members of the young user.

Security is also a fundamental consideration and those commissioning, operating or licensing apps should conduct due diligence as part of the procurement process to manage security and provide for management audit and reporting requirements.

Interviewed by Nicola Laver.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

In addition, the following article was written on data collection in apps:
EU WP29: Free and informed consent at the crux of lawful app data collection

Courtesy of Thames Valley Business Magazine March 2013

Legislative changes to the way the costs of litigation can be recovered from unsuccessful opponents are expected to come into effect in April 2013.  Any claims which your business currently has in prospect should be reviewed without delay, to ensure that there is the opportunity to resolve those claims before the benefits of the existing arrangements are lost.

What is changing?

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 introduces a wide range of reforms to the justice system. One of those reforms will be to bring an end to the recovery of certain types of litigation costs, presently referred to as ‘additional liabilities’, from the unsuccessful party to a claim.

When advising clients on their options for funding a prospective claim, we will explore with them whether the matter is suitable for a Conditional Fee Agreement (CFA), sometimes referred to as a ‘no win no fee’ agreement. An integral part of a CFA is known as the ‘success fee’, triggered if our client succeeds in the claim. Subject to some Court assessment, this success fee is (presently) recoverable from the opponent along with the client’s other costs.

In cases where we act under a CFA, and in some other cases, it is also appropriate to consider whether an After The Event insurance policy should be taken out, to cover the risk of having to pay the opponent’s costs (and sometimes own disbursements) in the event that the litigation is not successful.  A premium is payable for that ATE insurance – usually deferred until the end of the case and only payable on success – when again, at present, it can be recovered from the unsuccessful opponent.

CFA success fee and ATE insurance premiums will not be recoverable from the unsuccessful party for any arrangements entered into after 01 April 2013.

Why do these changes affect you and your business?

The reforms are a significant departure from the present rule – which is that the loser can expect to pay some or all of the winner’s costs, including additional liabilities –  and will mean that even successful litigants will need to dip in to their own pockets to meet these additional liabilities in future.

The changes will mean that many claims become significantly less commercially attractive to pursue, are only pursuable at significant additional adverse cost risk, or even become altogether uneconomic.

Consider these issues now

By taking advice in good time before the reforms come in to effect, you can ensure that all possible funding options are open to you, including those that will be lost altogether or become significantly less attractive on 01 April 2013.

Whilst not all cases are suitable for a CFA or for ATE insurance, it is certainly worthwhile investigating all of the funding options that might be available before some of them are lost. The reforms also introduce a new kind of funding arrangement called a Damages Based Agreement (DBA), which will become available from 01 April 2013. We can discuss with you how DBAs will work and whether your case might be suitable for a DBA once they become available.

It is anticipated that as the deadline approaches there will be a significant surge in applications for ATE insurance that risks overwhelming brokers and underwriters. It is therefore important not to wait until the last minute and to take advice on any current issues sooner rather than later.

How Pitmans can help

As an existing client of Pitmans, you may well already be aware of our top-ranked Dispute Resolution team. We are able to assist with a wide range of commercial and personal claims including contract, trade and finance, IT disputes company and shareholder issues, fraud, professional liability, land and property disputes, inheritance and trusts.

We are always happy have an initial telephone discussion on any contentious matters without charge and without obligation. If there are any issues with which we can assist you and your business, particularly in light of the above matter, then please do not hesitate to contact:

Sue O’Brien
Partner, Head of Dispute Resolution
T:0118 957 0513
E: sobrien@pitmans.com

Courtesy of Thames Valley Business Magazine March 2013

Angela Shields, employment law specialist at Pitmans LLP interviews Deanna Surman, Head of Human Resources of Jonas Group UK.

Deanna Surman reports to Jonas Software, headquartered in Toronto, Canada. The company is the leading provider of enterprise management software solutions to the club, foodservice, construction, leisure fitness & sports, attractions, metal service centers, moving & storage, education, radiology/laboratory information systems, and consumer product licensing industries.

Jonas Software boasts 33 distinct brands, all of which are respected and longstanding leaders within their own domain.   It is the valued technology partner of over 25,000 customers worldwide in more than 15 countries. Jonas employs hundreds of skilled individuals consisting of a cross-section of industry experts and technology professionals.

Why and how did you get to your current role?

Like many people, I did not start out thinking that’s what I want to do.  I wanted something structured and with wider opportunities in the 1980’s, I was accepted on a two year Dispensing Technician apprenticeship programme at Boots. As a large corporate and well respected retailer, I thoroughly enjoyed the training and development offered for employees.  I was hooked on what we called “personnel”. I was quickly offered a secondment as a Territory Training Officer at Boots and stayed with them for 9 years. It was a very diverse role covering regional areas interspersed with some personnel related activities.

After a family career break, I joined Safeway Food Stores at an exciting time with the development of out of town super stores, Sunday trading and a move towards 24 hour trading.  This was the time I knew my life was going to be spent in the world of HR. I was provided with lots of opportunity to grow and following a second family career break, I realised I needed to gain a professional HR qualification and it was also a personal ambition to achieve it by the time I had reached a milestone birthday.

After successfully completing my qualification, I continued to enjoy a wider range of HR roles, including Regional HR and Central HR positions. I stayed with Safeway for 15 years most of which were fantastic, but decided I wanted to explore a new direction.

Following Safeway, I worked for a not for profit childcare company which was meant to be a six month secondment and I ended up staying seven years.

I was then offered the role of HR Manager at Gladstone PLC in January 2008.  In 2010 Gladstone was acquired as part of the Constellation Software Inc (“CSI”) group, based in Toronto.   Gladstone sits as one of a number of UK companies in the Jonas organisation.  In January 2011, I was promoted to Head of HR, Jonas Group UK.

Have you found any barriers to your career progression and how did you overcome them?

For me, the competitive employment market meant I could not rest on my laurels.  Not only did I have to be in the right place at the right time, I needed to become externally marketable and for that I needed to qualify and have that “piece of paper”.  I overcame this by gaining my Chartered Institute of Personnel and Development (CIPD) Diploma in Personnel Management and Chartered Fellowship status.

Are there any mentors who played a significant part in helping you get where you are today?

I would say that has to be one of the first female store managers appointed in one of the companies I worked for.  She had a lot to live up to.  She was an exemplary role model – she didn’t stop working and neither did I. I was positively introduced to her senior management team and actively encouraged by her, through being pushed out of my comfort zone to take up opportunities: regional roles, secondments, and Head Office HR positions.

What is the best piece of advice you were given?

Treat people how you would expect to be treated yourself and you have to earn respect.

What advice would you give?

Learn from your mistakes, don’t take things personally and if it isn’t meant to be, then move on.

What would you consider your greatest achievement?

My favourite example would be keeping my composure at the start of a one hour presentation when three people in the front row took out their knitting. You had to be there!

What proposed employment law do you consider will have the most impact this year?

For 2013 and beyond, I think auto enrolment for pensions will have a huge impact across all business sectors.  Preparations in advance of the provisions will be vital for businesses.

What would you abolish or change if you had the power to do so?

I would not necessarily change or abolish anything but I would like to see a less painful consultation process for both employers and employees on a restructuring.  It is the time to explore all commercial options but sometimes in doing so it can cause such uncertainty for both parties.  If I had the power I would create certainty – quite a mission impossible in a changing environment but I love a challenge.

How do you think your role will change over the next 5 years? 

I envisage my role developing and bringing with it a deeper knowledge, skills and experience of how organisations work – I certainly hope so.

What is the greatest change in HR you have seen during your career?

The greatest change for me has been the perception of HR by business.  I have seen it progress to being an integral part of business over the years.  It is seen as a business partner who assists in sometimes having to make difficult decisions but ultimately helps the business move forward.

Angela Shields
Director
T: 0118 957 0450
E: ashields@pitmans.com