Welcome to the latest edition of Corporate Update, our fortnightly bulletin offering a two-minute read of the latest developments which we consider relevant to corporate counsel. Please get in touch with your usual contact if you want to explore any of the topics covered in more detail. If you would like to subscribe to this bulletin as a regular email, please click here.
In this issue
UK government plans to introduce ‘failure to prevent’ economic crime offence
In response to an amendment moved by Sir Robert Buckland to introduce a new 'failure to prevent fraud, false accounting or money laundering' offence in the Economic Crime and Corporate Transparency Bill, the Minister of State for Security, Tom Tugendhat, confirmed at the third reading of the Bill in the House of Commons that the government intends to address the need for a new 'failure to prevent' economic crime offence in the House of Lords as part of Bill. While there is little detail at this stage, the new provision is likely to be modelled on similar ‘failure to prevent’ offences, such as the failure to prevent bribery offence in the Bribery Act 2010.
The Bill is currently being debated at the House of Lords following its passage through the House of Commons. Certain amendments were made during the Bill’s passage through the House of Commons, including the introduction of a power to disqualify a person from acting as a director for breaching obligations relating to the registration of overseas entities and an amendment to give Companies House increased powers to share information with a wider group of persons.
A summary of the background to the Bill, its contents and proceedings through Parliament is set out in the House of Lords most recent research briefing.
BEIS consults on duty to report on payment practices and performance
On 31 January 2023, the Department for Business, Energy & Industrial Strategy (BEIS) launched a consultation on proposed amendments to the Reporting on Payment Practices and Performance Regulations 2017. The Regulations require large UK companies to report publicly on their payment policies, practices and performance (‘PPP reporting’). Among other things, BEIS is consulting on:
- Requiring companies to include their PPP reporting in their annual reports.
- Requiring companies to report on the number and value of their disputed invoices.
- Extension of the current expiry date of the Regulations beyond the planned date of 6 April 2024.
The consultation will close on 28 April 2023. The government is expected to publish its response 12 weeks after the closing date of the consultation.
FRC publishes Statement of Intent on ESG challenges
On 30 January 2023, the Financial Reporting Council (FRC) published an update to its ‘ESG Statement of Intent: What’s Next’, setting out areas where the FRC feels there are ongoing challenges with ESG reporting, actions taken to address these, and the FRC’s planned activities in this area going forward. The statement includes guidance, examples of best practice, and identifies the FRC’s 2023 areas of focus for ESG reporting. Key areas of focus for the coming year include:
- Communication of ESG data to investors, regulators and other stakeholders.
- Revision of the UK Corporate Governance Code to greater accommodate ESG reporting.
- Issuing guidance on climate-related risks for Financial Reporting Standards 102.
High Court considers whether fees agreement reached over email is legally binding
In this case, the High Court was asked to decide whether an agreement in an email regarding fees created a legally binding contract, despite the fact that no final engagement letter was ever signed.
A company (AA) had engaged a corporate finance advisory firm, Fenchurch Advisory Partners LLP (Fenchurch), to provide advice in relation to a potential sale of the insurance division of the company. The sale of the AA's insurance division did not ultimately materialise. During negotiations, AA emailed Fenchurch seeking to confirm its final fee for advisory services. Fenchurch confirmed the fee, but the figure was never included in the final engagement letter. Certain terms of the engagement remained subject to negotiation and the engagement letter was never signed in the end. Fenchurch argued that the email confirmation of the final fee amounted to a binding contractual agreement.
The High Court held that there was no binding contract in relation to the fees. Though it was possible in principle to agree binding fees before the other terms of the engagement were finalised, the judge held that there was no objective intention to create legal relations at the time of the email, and therefore no contract was made. Supporting this conclusion, the judge cited the fact that numerous points of the engagement letter were still in contention when the email was sent, and the fact that there was no urgent need to pre-agree fees in the circumstances.
However, the Court did hold that Fenchurch had a restitutionary claim as it had provided services to the AA without payment, and the AA was unjustly enriched as a result. On the basis that no binding contract had been formed, the Court did not need to consider a related dispute over whether an obligation to pay a success fee was triggered. Nonetheless, as the issue had some bearing (albeit tangentially) on the restitutionary claim, the Court did express a view on the issue and held that the relevant obligation was not triggered on the facts. Fenchurch was therefore only entitled to a progress payment of £350,000 plus expenses if the contract had been binding. Accordingly, the quantum of the restitutionary claim was also limited to Fenchurch’s progress payment and expenses, which was what it would have been contractually entitled to.
How does the National Security and Investment Act affect AI?
Slaughter and May has published a briefing ‘How Does The National Security And Investment Act Affect AI?’, which discusses how the UK’s National Security and Investments Act 2021 (NSIA) will interact with the UK artificial intelligence (AI) sector. With the AI sector classified as ‘high risk’, the NSIA regime will be increasingly relevant for parties looking to buy or sell an entity active in the UK’s AI space.