Hello and welcome back to the Pinsent Masons podcast with me, Matthew Magee. We're here to make sure you're up in the very latest news and analysis about the legal opportunities and challenges faced by your business. If there's an issue you'd like us to cover, then just let us know.
This week we're finding out about changes to building safety laws in the UK and about what changes to companies law in Ireland mean for businesses operating there. But first, some business law news from our Out-Law reporting team.
KLM ‘green’ ad claims misled consumers, says Dutch court
New regulations reflect Saudi Arabia’s push to build regional data centre hub and
New EU design rules adopted but AI opportunity missed
An Amsterdam court has ruled that Dutch airline KLM misled consumers with its “Fly Responsibly” advertising campaign. Amsterdam’s District Court said the airline made “environmental claims that are based on vague and general statements about environmental benefits, thereby misleading consumers”. The Dutch court also found that the company painted “an overly rosy picture” about the sustainability of aviation fuels and by doing so gave “the wrong impression that flying with KLM is sustainable.” The ruling is evidence of the developing legal framework regarding environmental claims, green claims and greenwashing, said technology law expert Michelle Seel. She said: “companies are being closely watched by the European Commission, national consumer authorities and regulators when it comes to their green advertisements”.
New regulations protecting data centre users in Saudi Arabia will help build trust and encourage companies to move to third party data centre providers, a technology law expert has said. The Data Centre Services Regulations came into force at the start of the year and cover both the Saudi Arabian retail and wholesale data centre markets, and focus on service quality and safeguarding data centre users. Data centre providers must ensure their data centres are physically secure, with only authorised individuals allowed to access to the facilities, maintain quality standards and provide service level agreements to their customers. They will also need to maintain with the Communications, Space and Technology Commission accurate and up to date information concerning power capacity, connectivity and certifications. According to Martin Hayward, a technology law expert, the new regulations reflect Saudi Arabia's push to create a regional data centre hub and builds trust in its data centre ecosystem.
European law makers have missed an opportunity to implement specific rules governing AI-created designs following the adoption of the new EU design protection rules, an intellectual property law expert has said. The European Parliament has recently adopted the Design Reform package with aims of making design rights fit for the digital age, more attractive to companies, especially smaller ones.
Brand protection expert Florian Traub said: “European law makers have missed an opportunity to implement specific rules governing AI-created designs.” Although one of the primary goals of the reform package was to make European design law fit for the digital age, it does not contain any provisions regarding AI, but only improves design protection to some degree for technologies such as 3D printing.
A series of tragedies, including the Grenfell Tower fire in London and the collapse of a wall at an Edinburgh school, has led to a serious overhaul of the rules governing the safety of new buildings in the UK, particularly in England and Wales. Later this week the latest deadline will pass for companies to change how they plan and construct certain buildings, and how building activity is regulated. Glasgow-based building safety expert Katherine Metcalfe has tracked the many changes leading to this point.
Katherine Metcalfe: It’s an unprecedented level of change in the built environment. We've been on a journey release since Dame Judith Hackett published her interim report on building regulations and fire safety back at the tail end of 2017 of a phenomenal amount of effort from industry and government to change law and to change the practise of how we build particularly residential buildings to make sure that people feel safe in their homes and are safe in their homes.
Matthew: And so how is industry coping with that much change?
Katherine: It's a real challenge because you know from my regulatory perspective, people are having to get to grips with new laws, new procedures, they need new policies and procedures in place to cope with all of that. They need to train people and all of this. But for industry, they are also at the same time trying to remediate all the defects that have been discovered, in particularly residential buildings since the Grenfell Tower fire and that is putting an enormous pressure on particularly and specialist resources. Like fire engineers, but also contractors, and who can actually do that remedial work, there's a real bottleneck in the market and which is making it difficult to do all of these things at once.
Matthew: Let's get right down to basics. How is building activity regulated in the UK?
Katherine: Usually by a set of building regulations made by government, there are a combination of procedural requirements. How do you get approval to build a building? How is that signed off before people occupy it? But also functional requirements, so what standard of quality does the building need to meet either from a fire performance perspective or an energy efficiency perspective?
Matthew: Over the last 18 months, the Building Safety Act has introduced significant changes. Building safety is devolved, Wales is largely following England's law. Scotland is making some changes, but on a smaller scale and because it didn't have a devolved administration for years until recently, Northern Ireland has not yet changed its rules. Some of the changes will have an impact later this week on the 6th of April. So what are the most important changes being introduced?
Katherine: There are quite a number of different strands to this. I suppose a key one is around competence and making sure that people are involved in all aspects of design and constructing buildings and understand the safety requirements associated with what they're doing. Understand the bigger picture and carry out work to high standards to make sure that the building complies with the building regulations. The 2nd strand is really trying to change the way that we design buildings. A practise has grown up over many years of really designing as you go. You've started the work, but you're still designing the finer detail and the building that you end up with is not what you thought you were going to build on day one. There are some problems with that which have been identified and in response to the Grenfell Tower fire. What government has tried to do with these new rules as front load design to force people to think through much more detail at a much earlier stage how they are going to make sure that the design of the building complies with the building regulations and then it's built in accordance with the design because there's a real disconnect between those aspects to at present.
Matthew: The most onerous requirements relate to higher risk buildings. Those over 18 metres or with seven or more stories, or with two or more residential units in them. The new rules put in place significant new cheques and balances in the construction process, and some of those changes take place later this week.
Katherine: They do have different rules. The building safety regulator will always be the building control body for any work on these buildings, either work on existing buildings or the construction of a new, higher risk building, and they will regulate how you go about designing and constructing these buildings through a series of gateways. Gateway One is a planning permission stage where you have to submit a fire statement which the building safety regulator is consulted on. Gateway two is the main one where you have to submit a very detailed application with a detailed design before you start any building work on site and they need to sign off on the building at Gateway 3 which is completion certificate stage before the building can be handed over and occupied. What's happening on the 6th of April is the end of the transitional arrangements which allowed building work which had already started or reached a particular stage to be finished under the old building control system that we were all familiar with.
Matthew: The law has not only changed current processes, it creates and gives significant powers to the building safety regulator, a new body which will itself be the engine for major future change.
Katherine: Most of what I've been talking about so far is about procedure, but the actual substance of the building regulations is going to change too. So, what is the standard that we need to build to and that's going to have a huge impact to the building safety regulator has been tasked with reviewing all of the guidance documents that accompany the building regulations.
Matthew: So the changes so far have directly introduced change, but they've also put the mechanisms in for really substantial changes in the coming few years.
Katherine: Yeah, I think that's exactly right. I also think we will see once this regime beds in that it will be extended to other types of building the way that government has defined higher risk buildings allows it to expand over time and I think we'll start to see this greater level of regulation applied to a wider range of buildings. So, perhaps hotels for example, other types of building where people sleep would be obvious examples, but we may also see the height limit dropped down maybe to 11 metres so that a much greater number of buildings are actually being regulated by the building safety regulator rather than local authorities.
Ireland’s company laws were overhauled in 2014 when the Companies Act was passed, and that law is now being updated by a series of proposed changes that will affect how companies are run, and what happens when they go out of business. Corporate law expert Neil Keenan and insolvency specialist Zara West, both in Dublin, explained what the main changes are.
Neil Keenan: I’d say there's two aspects to it. There's the bit that makes it a bit easier to run companies and to do business, particularly to do business remotely. But then the other side of that is probably a bit of a step change around enforcement in particular, and it's giving the Irish company owned force or the Corporate Enforcement Authority, quite a range of significant new powers around enforcement, and I suppose there's a bit of a carrot and stick with this legislation. So, the carrot is the administrative things that are that are making certain things like statutory mergers a bit easier, but then there is the enforcement element and I think that probably just reflects much more focus on you know the proper running of companies and making sure that you know white collar crime and that kind of thing is addressed. So, I think one of the most very useful changes is around doing business virtually and remotely and there's a couple of changes. First one of those is just around being able to have virtual shareholder meetings. There still needs to be a physical location where the meeting is initiated, but shareholders can attend remotely and obviously for you know, for companies with a very large shareholder base or public limited companies that's going to be very useful and is going to facilitate shareholders and being able to attend general meetings which would be a very good thing from a corporate governance perspective. Company law as it stands, where a company has to apply its common seal and Irish companies do need to still apply their common seals to every deed that they execute. The seal generally has to be signed and countersigned by two directors or one director and the Secretary and that actually has to be done on the same piece of paper as the seal is affixed. So the change that's proposed now is that those signatures can be on separate pieces of paper which obviously will facilitate closings where people and signings where people are in different locations. Suppose the other very useful and welcome provision is that it's now going to be an option for Irish companies to include information on the gender diversity of their boards in their annual returns. So, in this legislation that's going to be voluntary, but I'd hope that a lot of companies will avail of that because it is something that investors and other stakeholders are very interested in seeing and again that's something which could be made mandatory down the line.
Matthew: A lot of the corporate governance changes involve taking temporary COVID era workarounds and making them permanent.
Neil: Yeah, I think they're probably happening quicker than they would have otherwise and because of COVID, so company law change tends to happen quite slowly, certainly in Ireland. So I think COVID resulted in the measures around the virtual meetings and the execution of deeds on under seal being introduced as a temporary measure. But both of those changes were actually, you know, very useful and facilitated remote working which you know is happening anyway so I do think we would have seen them at some point, even if COVID haven't occurred.
Matthew: Other changes will affect what happens when companies go out of business, said Zara.
Zara West: Turning first to receivership, the area that they really focus on is transparency and accountability in relation to receivers remuneration, so how much they get paid. So the scheme proposes a legislative basis for members and creditors of a company to access information on receivers fees. So this means that members and creditors of the company can request their information on a receiver's fees with that a receiver is obliged to give that information within seven days of request. So this is entirely new, and it is designed to improve transparency and accountability when it comes to receivers fees as receivers will have to be mindful that this information will be under more scrutiny and as a result would be more capable of being challenged. There are specific basis on which liquidators can have an entitlement to remuneration, but that's going to be carried across for receivers and those include things like that they are entitled to be paid based on a percentage of a fee, the time spent on the receivership, or any other method or thing. The court can also fix the remuneration of receivers, which wasn't currently the case and again this models what’s already for liquidators and they can take prescribed things into account which include things like the complexity of a case, the time taken by the receivership team and the value and the nature of the property that's under the receivership.
Matthew: When a company goes into insolvent liquidation, liquidators must seek a restriction application so that directors can’t be directors of this or other companies for five years. Regulator the Corporate Enforcement Authority has the power to decide that a director in fact behaved as well as they could and shouldn’t be struck off. But when that doesn’t happen the new laws force liquidators to pursue directors to the absolute conclusion of that process.
Zara: So under the current rules, our liquidator is obliged to bring a restriction application to the High Court or offer a restriction undertaking in relation to a director of an insolvent company, unless they are relieved by the Corporate Enforcement Authority from doing so. The scheme proposes that there is an extension to this such that it would include any appeal of any restriction case. So for example, if a liquidator brought a restriction application against a director was successful, if that director wanted to appeal that a liquidator would now be obliged to defend that appeal all the way until the end. I think the policy objective is really designed to ensure that liquidators are, you know, enforcing the position that directors of insolvent companies have to face, you know, responsibility and that they have to ultimately bring a restriction application all the way to the end so that directors can't get out of it simply by appealing it and then liquidators, then they can effectively just try and compromise it at that stage. So I think it is very important because ultimately liquidators now know that when they take on a case, they will have an obligation to bring restriction all the way to the end unless relieved from doing so.
Matthew: These changes are significant but limited in scope, but more is coming. Neil sits on the Irish Company Law Review Group, which has plenty more recommendations for changes to company law.
Neil: The Company Law Review Group has made quite a number of different recommendations. Alot of them are around, you know, things that need some reform or clarification in the Companies Act 2014. So, there's actually a big long list of those and I think we might see a separate companies bill in the later part of this year dealing with some of those and also then Ireland has to implement this year the CSRD, the Corporate Sustainability Reporting Directive. So, we do expect to see some legislation or regulations on that over the next few months.
Matthew: Well, thanks again for joining us on the Pinsent Mason's podcast. Please do share and recommend with other people that you think might be interested in this overview of business, law challenges. And remember, you can get day by day our buyer up-to-the-minute business loan use and analysis from our team of journalists at pinsentmasons.com, and if you want to make sure that you never miss a thing, subscribe for updates at pinsentmasons.com/newsletter. But thanks for listening this week and we'll see you again soon. The Pinsent Masons podcast was produced and presented by Matthew Magee for international professional services firm, Pinsent Masons.
