Short summaries of each article are shown below. If you would like to view the full article, click on the underlined links. To return to the start, click on the "Go back" link.
FINANCE, TECHNOLOGY AND IP
Universities urged to go it alone?
Our article considers the complex commercial and funding issues raised by a recent news report that university researchers have found a way to bypass patent protection in order to develop a drug treatment for Hepatitis C, with a view to providing a more affordable version for sale in developing nations. Read more
Another case (following our report last month) in which the Court has found against a 'special method' of partial exemption for VAT recovery, again reinforcing the difficulties for education providers to maximise input tax recovery by distinguishing a particular location or facility with a high level of taxable use.
Details of registered office etc to appear on company websites and e-mails from 1 January 2007
A "heads-up" for those universities which are constituted as companies, and for university subsidiary companies, of an amendment to the Companies Act 1985 which has just come into force. Read more
Company communication provisions of the Companies Act 2006 in force, 20 January 2007
For universities which are companies, new provisions facilitating e-communications with members come into force under the 2006 Act, allowing companies to disseminate documents and information to members electronically. Read more
ESTATE
WEEE Regulations (new waste regulations for electrical/electronic waste)
These new regulations are now coming into force and the WEEE regime may apply to universities as "producers" or "distributors": our article explains the obligations. Read more
Construction Industry Scheme – changes ahead
Our article points out the main changes to the Scheme as far as universities are concerned, with effect from 6 April 2007. Read more
HUMAN RESOURCES
Changing the Model Statute without breaching employment contracts
Chris Mordue gives an update on current thinking on the subject of reform of the academic staff provisions incorporated in the so-called "Model Statute". There is an appetite for radical change in some quarters and we are involved in developing proposals for a number of institutions going as far as abolition of the Model Statute. Read more
Dismissals can be fair despite procedural flaws
Our article reviews recent developments in this quite complex and much litigated area of employment law. The current position is that tribunals for the time being are likely to follow the EAT's latest decision and adopt a broader interpretation of "procedural fairness" which would on the whole be useful for universities, especially chartered institutions whose model statute expressly incorporates a "reasonableness" test. Read more
FULL ARTICLES
FINANCE, TECHNOLOGY AND IP
Universities urged to go it alone?
The BBC News website recently carried an article which stated that researchers at Imperial College and University of London have found a way to bypass patent protection owned by Hoffmann-La Roche and Schering Plough which relates to an interferon drug which treats Hepatitis C.
(This article is relevant throughout the UK).
By setting out to avoid the particular structure protected by the patents (which covered the coating of interferon with a large "sugar" molecule), the researchers managed to develop a new process for manufacturing the drug, which, according to the article, the researchers plan to develop and market without involving pharmaceutical firms, with a view to benefiting the tens of millions of sufferers who could not afford the original version of the drug.
The article goes on to report the researchers' belief that other universities, and charities, should follow suit and retain the rights to new discoveries, rather than selling them to industry.
The article states that many of the scientific advances which eventually lead to effective treatments are developed within universities or by researchers working for charities, but that the 'intellectual property' is then sold to pharmaceutical companies who bring the product to market.
Professor Shaunak is reported to have called for a different approach - for academic institutions to go into competition for cures with 'big pharma' - "We in academic medicine can either choose to use our ideas to make large sums of money for small numbers of people, or to look outwards to the global community and make affordable medicines".
According to reports, the Universities are acting in collaboration with an Indian manufacturer and clinical trials are reported as being scheduled to start in 2008.
The statements made by Professor Shaunak raise a number of interesting questions.
If we assumed, for the sake of argument, that a number of universities were to set up in competition with big pharma then what hurdles would they need to overcome?
Firstly, there would be a question as to where the funding is going to come from to research and develop new drugs? Presently, big pharma invests enormous sums of money, many tens of millions of pounds, into drug research.
If the university sector were to set itself up in competition then it would seem unlikely that any of that funding would be placed with the universities on the basis that (i) companies do not tend to finance their competitors, and (ii) industry sponsorship tends to require an assignment of any arising IP rights to the sponsor. If this is the case then where would future research funding come from?
In this instance, the development of the Hepatitis C drug was reportedly co-funded by the Wellcome Trust (whose own funds, ironically, are derived from profits from the pharmaceuticals industry) and the Department for Trade and Industry. The Wellcome Trust has considerable, but ultimately limited, funding available to it and it is very questionable whether the Government would (or should) channel many millions of pounds of taxpayers' money into speculative drug development research programmes (as only a tiny percentage of drug candidates ever make it to the market place), in particular at the expense of an industry which is seen as being very important to "UK Plc".
Ultimately the university spin-out companies may be in a position to fund their own research programmes, but to get to such a position would not be easy. Even if the universities were to limit themselves to producing "me too" versions of existing products (but ones which skirted around the patent protection) then the costs are still likely to be extremely high. In addition, for so long as they are manufacturing only alternative versions of existing drugs then they would of course be acting in direct competition with big pharma and so they could not simply set the price as desired in the key markets of Europe and North America. Profits for both the university and the incumbent pharma could therefore be limited.
This could of course have a knock-on effect in relation to more innovative development work, because if big pharma loses its monopoly over its key products, then where will it get the revenues from to invest in further drug developments?
If the universities were able to fund and develop their own products then they could create true monopolies, however, the development of new products is extremely risky and extremely expensive, and as discussed above, where would the many tens of millions of pounds needed to fund such activities come from?
In addition, in such a scenario third parties, including big pharma, would then likely seek to invent around the universities' patents, so as to take a cut of those profits for themselves. To protect revenues, the spin-outs would need to be willing and able to fund multi-million pound patent litigation suits. Where would the funding for such actions come from? Indeed, it will be interesting to see what the response from the patent holders will be in this instance once they have had an opportunity to look at the alternative process.
Issues surrounding the access to affordable medicines in developing nations are extremely complicated and contentious and, as ever, there are no easy answers. Whilst there may be opportunities for universities to develop their own IP through partnerships with industry and/or spin-out companies, it is not as simple as stating "we are going to keep our IP and compete with the pharmaceutical industry" when the universities are not set up to do so and in an industry where the costs of failure are so high and the chances of success (in respect of each new product) so relatively slim. Go back
ian.mckie@pinsentmasons.com
Following on from the University of Glasgow case reported on in last month's Briefing, the High Court has found against St Helen's School Northwood in relation to its partial exemption method. The decision reinforces the difficulties education providers will face in seeking to justify proposing a special method for maximising input tax recovery where they seek to distinguish a particular location or facility with a high level of taxable use.
(This article is relevant throughout the UK).
The general principles of input tax recovery and partial exemption methods were set out in an article in last month's Briefing concerning the University of Glasgow.
In the St Helens School case, the school constructed a new sports complex. The facility was to be used both by pupils in school time and also by the public outside school hours. For this latter purpose the school granted a taxable licence of the sports complex to a subsidiary company ("SHEL"). The standard method of partial exemption would have allowed only a very small recovery of input VAT incurred on the construction of the sports complex (as the vast majority of the school's turnover was exempt supplies of education), so the school sought to apply a special method to the sports complex based on the proportion of taxable supplies to total supplies (exempt and taxable combined). The school based its proposed method on the use of the sports complex, i.e. VAT recovery based on the proportion of the total use of the sports hall represented by taxable use "after hours" under the licence to SHEL.
HM Revenue & Customs, the VAT Tribunal and the High Court each in turn dismissed the school's arguments. The High Court held that it was not the physical use of the sports complex itself that should be used to determine the proportion of recoverable input tax. Rather, the economic use of the sports complex should be considered, and in that regard the overwhelming economic use of the sports complex was in relation to the provision of exempt educational services, and the taxable supply of the licence to SHEL had been a secondary use. As such, the standard method of partial exemption was a fairer method than the proposed special method, and the special method was therefore rejected.
Readers are also reminded of the views of HM Revenue & Customs and the European Court of Justice on the grant by universities of a taxable lease or licence to a subsidiary company as an attempted means of recovering input VAT on construction costs – see the University of Huddersfield case (March 2006 Briefing).
jon.robinson@pinsentmasons.com
Details of registered office etc to appear on company websites and e-mails from 1 January 2007
A little noticed amendment to the Companies Act 1985 has recently come into force requiring a company's website and e-mails to include the same details as are required for its stationery. Full details can be found in the statutory instrument which makes the necessary changes to sections 349 and 351 of the 1985 Companies Act, i.e. The Companies (Registrar, Languages and Trading Disclosures) Regulations 2006, No 3429.
This applies throughout the UK.
From 1 January 2007 all companies must ensure that their websites, and soft copies of business letters and order forms, contain the company's full name in legible characters, its place of registration, company number and registered office, and, in the case of a company exempt from the requirement to use the word "Limited" as part of its name, such as a company limited by guarantee, the fact that it is a limited company – in other words, the details which are already required to appear on the hard copies of a company's business letters and order forms. Companies and their officers are liable to a fine if they are in breach of these provisions.
So, if you have not already done so, you need to ensure that somewhere on the website of the University's subsidiary companies (and your own website if the University itself is a company) you have these statutory details, and that they appear on all hard and soft copy business letters and order forms. It is probably sufficient for this information to appear once on the website – for example, on a "Home" or "About us" page.
Rather than worry whether an e-mail sent by a company amounts to a "business letter" or not, it will be advisable to ensure that all e-mails sent on company business contain these details in the standard rubric at the end. Go back
martin.webster@pinsentmasons.com
Company communication provisions of the Companies Act 2006 in force, 20 January 2007
The process of bringing the new Companies Act 2006 into force is underway, following the making of the first Commencement Order*. For universities which are companies, the introduction of new provisions facilitating e-communications with members should be helpful in reducing the amount of paper communication with members.
This applies throughout the UK.
The Commencement Order brings into effect the "company communication provisions" of the new Act. These provisions will facilitate increased use of e-communications as the method by which a company disseminates documents or information to its members which are required under the Companies Acts. Members will, however, be entitled to request that they be supplied, free of charge and within a period of 21 days, with hard copies of information supplied to them in any other form.
Broadly, to communicate with members in "electronic form" (which is widely defined to include emails and material on hard media, such as a CD-ROM), a company will have had to obtain the individual agreement of the member concerned. Additionally, where a company wants to use its website as a means of distributing information, there will need to be a members' resolution approving such use, or a provision to that effect included in the company's Articles.
These provisions won't supersede any existing agreements in place with members, or in a company's articles, for the receipt of communications electronically. However, these are likely to be specifically related to the annual report and accounts or AGM notice. If a company wishes to widen the range of documents it can disseminate electronically, the next AGM might be a convenient occasion to obtain the necessary member approvals. Go back
*The Companies Act 2006 (Commencement No 1, Transitional Provisions and Savings) Order 2006, No 3428.
antoinette.jucker@pinsentmasons.com
ESTATE
Waste Electrical and Electronic Equipment Regulations 2006 – how will your university be affected? An update
After a consultation period of almost four years, the Waste Electrical and Electronic Equipment (WEEE) Regulations 2006 came into force on 2 January 2007, although certain obligations within the regulations will be phased in during the year.
This article applies throughout the UK.
Waste from electrical and electronic equipment has been a growing European concern due to its potential hazardousness and the increasing quantities in which it is being produced.
The WEEE regulations 2006 implement one of two directives adopted by the European Union to address the problem. The other (the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive) restricts the use of certain hazardous substances such as lead, mercury and cadmium in the manufacture of electrical and electronic goods and was implemented by the UK on 1 July 2006.
Scope
The WEEE regime applies to both new and old products used by universities; ranging from large and small household appliances used in student accommodation, electrical and electronic research products and by-products (including for medical research), IT and telecoms equipment, lighting, tools, leisure and sports equipment and automatic dispensers.
It makes producers (manufacturers and importers) and distributors (retailers and distance sellers), responsible for financing the collection, treatment, recycling and recovery of WEEE, and requires that producers and distributors provide free take-back facilities to consumers.
Universities may fall into the category of producer if they manufacture, resell (apply their own brand to a product) or import electrical and electronic equipment (EEE). They will be a distributor if they sell EEE for any purpose, for example the on-selling of computers to students or staff and the running of retail outlets on campus.
Timescale
By 15 March 2007 producers must join an approved producer compliance scheme. The producer compliance scheme must register how much electrical equipment is placed in the EU market by its members with the Environment Agency. This forms the basis for calculation of the producers' take back and recycling obligations.
From 1 April 2007, new labelling obligations will take effect, including marking all EEE with a crossed out wheeled bin symbol.
From 1 July 2007, obligations for distributor take back and final user financing of non-household WEEE commence. There will be no separate, visible, fee to cover this at the point of sale.
Obligations
If a university is a producer of EEE for non-household users, the university must finance the collection and treatment of WEEE (through the approved producer compliance scheme) put on the market after 13 August 2005, or before 13 August 2005 if supplying new EEE that is intended to replace the WEEE, or perform an equivalent function.
A producer shall provide information to any person carrying out treatment activities in the form of manuals or by means of electronic media, on reuse and environmentally sound treatment for each new type of EEE put on the market by that producer. That information should identify the different components and materials of the EEE and the location of any dangerous substances and preparations in the EEE.
As a Distributor, a university has the option to offer in-store take back or join the collective take-back scheme run by Valpak, the Industry Council for Electronic Equipment Recycling. If a university joins Valpak all WEEE will be sent to the nearest civil amenity site which has been upgraded to a designated collection facility for WEEE. Existing arrangements between waste management companies and local authorities will be allowed to continue.
A distributor who supplies new EEE shall make information available to users of EEE in private households (i.e. students) on:-
- the user's role in contributing to the reuse, recycling and recovery of WEEE;
- the collection and take back systems available to them;
- the potential effects on the environment and human health as a result of the presence of hazardous substances in EEE; and
- the meaning of the crossed out wheeled bin symbol on the packaging.
Both producers and distributors must keep records for at least 4 years of the amount of EEE they put on the market and the WEEE they take back.
Universities will also have certain responsibilities as the end user of EEE when it becomes waste. If the EEE was acquired before 13 August 2005, and is not being replaced by new equipment performing an equivalent function, the university must ensure the equipment is disposed of at an Authorised Treatment Facility at its own cost. There is an obligation to recycle and reuse as much WEEE as possible and universities will have a duty of care under the regulations to make sure that the WEEE is being disposed of correctly i.e. not in general waste but separately.
What to do now
The legal requirements of the WEEE Regulations need to be addressed by universities now so as to avoid committing a criminal offence. There is a history of comparatively good enforcement by the Environment Agency of other producer responsibility schemes, and we expect to see the Agency take active steps include prosecution to ensure the WEEE Regulations are complied with. Universities should also check their terms and conditions with suppliers of EEE as those few who choose to operate their own take back schemes are likely to place universities under a contractual obligation to return the goods to them once finished with. Go back
helen.keele@pinsentmasons.com
The new Construction Industry Scheme will take effect from 6 April 2007. Under the current scheme, charities that spend sufficient amounts on construction operations are deemed to be "contractors". Where a university is a deemed contractor, it is required to register for the scheme, and payments to subcontractors cannot be made gross (and in some cases cannot be made at all) until the university has seen the relevant documentary evidence from the subcontractor.
(This article is relevant throughout the UK).
Under the new CIS, charities that are currently deemed contractors should not be registered as contractors. The regulations provide that "a payment under a construction contract is not a contract payment if the payment is made by any body of persons or trust established for charitable purposes only". This takes payments by charities outside the scope of CIS.
HM Revenue & Customs is apparently reviewing all charities currently registered for CIS and will take action to de-register those charities before the new regulations come into effect - charities thus need take no further action themselves.
It should be noted that the new regulations will not take universities outside the scope of CIS where the university is the subcontractor. Registration as a subcontractor will remain in place as the new scheme goes forward. Also, where a university incorporates a subsidiary company in connection with construction works and that subsidiary does not have charitable status in its own right, the exemption will not apply and the subsidiary most comply with the new regulations as a contractor and/or subcontractor. Go back
jon.robinson@pinsentmasons.com
HUMAN RESOURCES
Changing the Model Statute without breaching employment contracts
Recent discussions with Chartered University clients indicate a growing appetite to reform the academic staff provisions in their Statutes (on equivalent constitutional documents), originally imposed by the University Commissioners. As we have mentioned in an earlier Briefing, The prevailing mood seems to be against adopting the Revised Model Statute, with institutions favouring a more radical objective – adopting a single set of procedures for academic and non-academic staff and replacing the complexity of the model statute provisions with common sense and straightforward procedures based on ACAS principles.
One potential obstacle to any attempt to reform the employment provisions in Statutes is whether this involves a change to existing contracts of employment and, if so, whether this could ultimately involve having to achieve change by dismissal and re-engagement. Many institutions see this as a real stumbling block to reform and a step too far in straining employment relations.
While the contracts of employment for academic staff will incorporate the Statutes, the key issue is whether the wording used is sufficient to give the university the flexibility to change the statutes without breaking the contract. What you are looking for is wording which would automatically incorporate any change to the Statutes into the employment contract, allowing even a unilateral change to take effect as a consequence of the university exercising its contractual rights. In this scenario there is no need for individual agreement or dismissal and re-engagement – the university is operating the existing contract, not breaching it or replacing it with a new contract.
The wording used by universities to refer to the Statutes varies widely across the sector and even within institutions, depending on when the contract was issued. However, a commonly used phrase in contracts is that the contract is "subject to the University's Charter and Statutes". Although this wording does not directly refer to the Statutes as amended from time to time, the reference made to the Charter could be crucial. Such Charters include an express provision that Council has the power to repeal or amend existing Statutes and to make new Statutes. The incorporation by reference of the Charter allows the University to argue strongly that changes made to the Statutes by Council automatically vary the contents of existing contracts.
Institutions will of course wish, wherever possible, to adopt a consensual approach to changing the Statutes. Indeed, they will be expected by the Privy Council to have consulted the trade unions on any changes to the Statute and new ordinances/regulations. However, the argument set out above would give the university the ability to ultimately impose a change without needing individual consent or a process of dismissal and re-engagement. Furthermore, the university can engage with the unions from a position of strength – unions can input into the design of new procedures but cannot in the end prevent change by withholding their agreement to new employment procedures. Go back
christopher.mordue@pinsentmasons.com
Dismissals can be fair despite procedural flaws
The Employment Act 2002 added many new complexities to unfair dismissal law, challenging previously well established principles. One key issue exercising the EAT at present is whether a dismissal can be fair even if the employer has breached the normal procedural safeguards set out in case law.
(This article is relevant throughout the UK).
The longstanding position in unfair dismissal law was that a dismissal could be unfair if the employer seriously departed from its own procedures and would be unfair if the well-established procedural standards set out in case law were not followed. Arguments that these procedural lapses made no difference to the outcome were relevant only in reducing the amount of compensation awarded – the so called "Polkey reduction" – and the dismissal would still be regarded as unfair. However, from October 2004, the Employment Rights Act was amended to provide that, as long as the statutory dismissal procedure was followed, a failure by an employer "to follow a procedure in relation to the dismissal of an employee" should not of itself make the dismissal unfair if the employer shows that he would have decided to dismiss the employee if he had followed the procedure. In other words, employers who could show that the outcome was not affected by the procedural lapse could avoid liability for unfair dismissal altogether.
What is meant by a "procedure" for the purposes of this new defence has been the subject of considerable controversy. Two previous EAT decisions – handed down on the same date! –gave conflicting answers. One case took a wide view, making the defence applicable to any failure to comply with the procedural standards normally expected under unfair dismissal case law. The other limited the defence to a breach of the employer's own written procedures.
In its latest decision – Kelly-Madden v Manor Surgery – the EAT reviewed these conflicting decisions and adopted the broader interpretation.
The decision
Kelly-Madden was employed by the Surgery as its practice manager. In March 2005 she was dismissed for dishonesty after the partners discovered that she had been making unauthorised overtime payments to herself.
At the disciplinary meeting, Kelly-Madden claimed that her predecessor had told her that she was entitled to overtime payments and that one of the partners, Mr Hellyer, had checked her salary payments including her overtime payments. Neither Dr Blake, who conducted the disciplinary meeting, nor (the fabulously named) Dr Craze, who conducted the appeal hearing, checked the truth of these claims.
The tribunal considered that the procedure adopted had been unfair, in particular because failure to check the truth of the employee's defence rendered the investigation inadequate. However, the tribunal held that the procedural failings made "no difference" and that, had the procedure been fair, the decision to dismiss Kelly-Madden for dishonesty would still have been made.
Kelly-Madden appealed, arguing that the tribunal was only permitted to apply the "no difference" test where the procedural failings related to a breach of the employer's own written internal procedures. As Manor Surgery had no written procedures, the tribunal should not have applied the "no difference" test and ought to have found the dismissal unfair on procedural grounds.
The EAT dismissed the appeal, endorsing the tribunal's approach. The EAT held that for the new defence "a procedure" referred to any fair procedure that an employer could be expected to follow and was not limited to a breach of the employer's own written procedures. The EAT concluded that had such a limitation to the defence been intended, the legislation would have identified with some precision how "the procedure" in question should be identified. Any other interpretation would lead to arbitrary results and inconsistencies. Liability would depend not on the nature and impact of the procedural breach, but on whether the employer had written procedures, and if so, what they contained. The same failure could result in different outcomes for employers with different written procedures.
Impact on universities
Until a decision on this issue is made by the Court of Appeal, we are left with conflicting EAT decisions. However, for the time being, this decision provides important and useful clarification on this new defence and is likely to be the preferred approach by tribunals.
This decision is clearly good news for universities. Provided the statutory dismissal procedure has been followed, any other procedural defect will not render the dismissal unfair if it can be proved that the failure made no difference to the decision to dismiss. The "no difference" defence can now be applied to breaches of the university's written procedures, the ACAS Code of Practice and other principles of unfair dismissal law. This can not only avoid liability for unfair dismissal (as opposed to merely reducing compensation), but can strengthen your negotiating position in settlement discussions. Universities may also be able to produce a wider range of evidence when defending unfair dismissal claims, including facts discovered after dismissal which show that further investigation would have had no effect on the decision to dismiss.
This ruling may also be relevant at internal appeals, particularly for chartered universities whose "model statute" provisions expressly incorporate the unfair dismissal test of "reasonableness". These provisions mean that an "unfair dismissal" is a dismissal in breach of the statute, and appeals under statute often involve arguments about the "reasonableness" of the decision in an effort to secure reinstatement. Chartered universities will now be able to run the "no difference" defence in internal appeals as well as at tribunal.
However, some words of caution are needed. The defence still requires the employer to be able to convince a tribunal that the procedural failure made no difference to the decision to dismiss. This will not always be possible especially in cases where the procedural lapse involves failures in consultation or the discussion of alternatives to dismissal. Universities cannot disregard their internal procedures or the ACAS Code of Practice, and should regard this case as a useful safety net, rather than an excuse for short cuts. In all cases, they must make sure that they follow the statutory dismissal procedure. Go back
sarah.banatvala@pinsentmasons.com
We welcome your feedback, criticism and suggestions
If you have any comments, or if you would like further advice or assistance with any of the issues covered in this briefing, or for information about Pinsent Masons' National Universities Team, please contact Nicola Hart, Head of Education at Pinsent Masons.
Email: nicola.hart@pinsentmasons.com
Tel: 0121-260 4050
While our Universities Legal Briefing is copyright, you are welcome to copy or forward it to colleagues within the institution, and to quote from it as long as the source is acknowledged.
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