aberdeen’s south harbour development i · • entrepreneurship and exploration — what next for...

• Entrepreneurship and exploration — what next for the oil and gas sector?• Vanguard Legacy — delivering a renaissance• Lease re-gearing — a rare win-win?• The new reality — finding the best approach to deal with digital assaults• Immigration and Brexit — what next for the UK’s workforce?• Playing fair — the importance of restrictive covenants• New tax evasion legislation — incentivising stronger governance?• BBC pay row — FOI versus data protection• Offshore Europe — a confidentiality free zone?

t h e m a g a z i n e o f l e d i n g h am c h a lm e r s L L P • i s s u e 3 7

Aberdeen’s South Harbour development I see pages 4-5

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LEDINGHAM CHALMERS INFORM: ISSUE 37

Introduction“O wad some Power the giftie gie us; To see oursels as ithers see us! It wad frae mony a blunder free us; An' foolish notion.”

Contents

Entrepreneurship and exploration — what next for the oil and gas sector? — Rod Hutchison 3

Writing the next chapter — Aberdeen’s South Harbour development 4-5

Vanguard Legacy — an interview with AGCC CEO Russell Borthwick 6-7

Lease re-gearing — a rare win-win? — John Mitchell 8

The new reality — finding the best approach to deal with digital assaults — Sarah Londragan and Sine Mackay 9

Immigration and Brexit — what next for the UK’s workforce? — Veli-Matti Raikkonen 10

Playing fair — the importance of restrictive covenants — Tim Thomas and Rebecca Walker 11

New tax evasion legislation potentially incentivises stronger governance — Jody Mitchell 12

BBC pay row — FOI versus data protection — Kirk Tudhope 13

Offshore Europe — a confidentiality free zone? — Peter Murray 14

“ ....the need for self awareness; to step back and take in thebigger picture; and celebrate what this region has to offer””

You’d be forgiven for wondering whether, like the recentweather, I have my seasons muddled in quoting from thebard’s “To a Louse” at this time of year.

Story has it that Robert Burns was inspired after noticing anupper class lady, Jenny, in church with a louse roamingaround in her bonnet.

The theme is that we would all be disabused of ourpretensions if we were to see ourselves through others’ eyes.

With SPE Offshore Europe returning to Aberdeen this year, Imake no apology for this issue of inform having a distinctlyAberdonian focus to it.

Whilst the north east of Scotland has faced its challengesover the past few years, affecting many people andbusinesses, there remains much to celebrate. Burns’ lineswere brought particularly to mind in recent months when wehosted the Europe, Middle East and Africa regional meetingof LAW (Lawyers Associated Worldwide) in Aberdeen.

Ledingham Chalmers has been the Scottish member of thisglobal association of nearly 100 independent law firms frommore than 50 countries for over 10 years. Forty-eightdelegates attended the meeting in Aberdeen, includingattendees from the USA, Sweden, Estonia, Czech Republic,and Ireland. A busy three day schedule with topics rangingfrom employment law to Brexit also included enjoying thehospitality and fare on offer at several Aberdeen hotels andrestaurants, as well as a guided tour of Dunnottar Castle,Footdee and old Aberdeen.

To a lawyer, the feedback was consistent: how beautiful ourcity and surrounding areas are; how fabulous the food (anddrink) is; and how friendly and helpful the locals were.Special mention was made of taxi drivers conveyingdelegates from the airport, pointing out the new buildingsand infrastructure en route as well as extolling the virtues ofthe humble buttery.

In all, it was an important reminder to me of the need forself awareness; to step back and take in the bigger picture;and celebrate what this region has to offer. We have aimedto highlight more of that within this issue.

Who knows, these projects could, indeed, save us from many mistakes and foolish thoughts.

I’d be delighted to hear from any of you with feedback on inform or the firm.

Jennifer Young, chairman & partner [email protected]

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Entrepreneurship and exploration –what next for the oil and gas sector?With Offshore Europe underway, Aberdeen partner Rod Hutchison gives us his perspective on the latestchallenges and opportunities the sector faces.

“ ...over-production was cited as a major barrier to achieving a better price for oil”

Offshore Europe is the largest oil and gas showcase in ourregion. Throughout the four days of this biennial event, it willbe interesting to gauge the mood of delegates, and find outmore from those attending on what they believe the futureholds.

The view from across the AtlanticTo that end, it is worth reflecting on the views expressed atMay’s Offshore Technology Conference (OTC) in Houston,which I attended.

There, over-production was cited as a major barrier toachieving a better price for oil. Commentators suggested itwas likely OPEC members would agree to extend theiragreement to cut production by 1.8m barrels per day.

This was confirmed at the end of May with the extensionrunning until March 2018. Whilst this is viewed as helpful,the same commentators cautioned that this would not, initself, solve the problem for those businesses engaged in thetraditional offshore oil and gas sector.

A major concern was the threat of production from US shale,which has the potential to produce vast quantities of oil at amuch lower cost, offsetting any OPEC production reduction.

Potential skills shortages also remained a topic of concern.Whilst it is hoped the level of redundancies being made fromnow on will be less than we’ve seen, a large number ofbusinesses questioned on the subject said cost cutting wasstill ongoing and, in fact, those cuts may not yet be deepenough.

A common view expressed at OTC was the concern that theloss of experienced personnel and lack of recruitment maywell be storing up a problem for the future. The result couldwell be a skills gap and that, in turn, might result in thereturn of a familiar cycle of having to pay inflated prices toattract talent.

The rise of entrepreneurshipWhat has been interesting is the resilience andentrepreurship shown in the face of such extraordinarycircumstances, particularly by individuals who findthemselves facing redundancy.

In fact back here in Aberdeen in June, Elevator, a socialenterprise dedicated to supporting the entrepreneurs,business leaders and employees of today and tomorrow,announced it had helped more than 1,300 people start uptheir own business in 2016/17: an increase of almost 10%on the previous year.

Interestingly, the organisation said it had seen a raft ofinnovators from the oil and gas industry, with at least 70 newbusinesses set up by those who faced redundancy from thesector during the last year.

Our perspectiveSo what trends are we seeing?

Given that we are now in an environment where maximisingreturn on investment is more challenging than before, manyof our clients see the merits in being more proactive inseeking legal advice.

High up the priority list is sense-checking contracts and,where appropriate and reasonable, resisting terms that areweighted too heavily in favour of the other party.

In commercial property, our colleagues are seeing a trendtowards re-gearing of leases, as John Mitchell explains onpage 8.

And not surprisingly, many businesses are looking forinvestment.

Whatever funding route they may take, such as privateequity, bank lending or other avenues, there will be importantconsiderations for business owners, including the relatedconstraints, and risks of any given option.

I would expect too there will be opportunities for owners ofsuccessful businesses to exit through the sale of theirbusiness: new start ups with innovative technology are boundto be on the radar of larger, more established companieslooking to secure a competitive edge.

So while there remains little doubt we’re operating inextraordinary times, the opportunities are there — with theright advice, of course — for businesses and entrepreneurslooking to seize them.

Ledingham Chalmers is exhibiting at stand 2C20 at OffshoreEurope.

For further information contact Rod –[email protected]

Additional 125,000 square metres of laydownarea (equivalent 17.5 football pitches) and 1,400 metres of new quay (equivalent distance as the Castlegate to the Union Terrace Bridge)

Vessellength up to 300 metres

Heavylift in excess of1600t

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Writing the next chapter –Aberdeen’s South Harbour developmentAberdeen Harbour has helped shape the fortunes of the north east since the 12th century. Now, in thelatest stage of the trust port’s evolution, construction is underway on an ambitious £350million expansionof national and international importance.Here, inform looks at the South Harbour development: what it means for the future of the energy industry,as well as for the north east of Scotland and beyond.

The project “Aberdeen Harbour is already Europe’s premier marinesupport centre for the oil and gas industry, and the maincommercial port serving the north east; however, it’s safe tosay we’ll look back on the last 12 months as being pivotal,”says chief executive Colin Parker.

And as he looks to retire from the post in October, after threedecades with the business, it seems fitting the end of histenure overlaps with the start of construction after five yearsof unprecedented public engagement across a broad range ofstakeholders.

The new facilities, which are located in Nigg Bay to the southof the existing harbour, will include 1,400 metres of newquay, with a water depth of up to 10.5 metres, and will createan additional 125,000 square metres of lay-down area. Anindependent study, commissioned by Scottish Enterprise,estimates that the development will generate an additional£1 billion per annum to the economy by 2035, and willcreate an additional 7,000 equivalent jobs.

The impactAberdeen Harbour says the expansion gives existingcustomers the opportunity to diversify and expand theirinterests. When complete, this facility will open significantopportunities for the city, as well as the wider economy.

These include up-scaled decommissioning opportunities andthe ability to accommodate larger commercial vessels, as well

as attracting an increased share of the available cruise vesselfleet, and improved facilities for businesses to better tap intoScotland’s growing renewables market.

Aberdeen-based Ledingham Chalmers consultant MalcolmLaing is a non-executive board member of Aberdeen Harbour,and has witnessed progress of the new harbour developmentfrom the drawing board to start of construction of the newnorth breakwater.

“It is the duty of the board of a trust port to hand the port onto succeeding generations in the same or better condition:safeguarding and improving it, so it continues to flourish.

“Aberdeen Harbour Board is committed to the continuousimprovement and modernisation of the port’s assets, servicesand infrastructure for the benefit of its stakeholders, presentand future; construction of the new harbour at Nigg Bay istestament to that responsibility.”

The latest evolutionWith a rich history, this expansion is the next chapter in theport’s incredible story, which has seen it evolve over centuriesinto a modern, world-class facility.

First established in 1136 by King David I of Scotland,Aberdeen Harbour is, according to the Guinness Book ofBusiness Records, the oldest existing business in Britain,with a history spanning almost 900 years.

The harbour has played a central role in the commercial successof the city that grew up around it over the past 881 years.

Max vessel draft 10.5 metres

Extra £1 billion per annum to the economy by 2035

Create additional 7,000 equivalent jobs

Writing the next chapter – Aberdeen’s South Harbour development (continued)

“ Aberdeen Harbour is already Europe’spremier marine support centre for the oiland gas industry, and the maincommercial port serving the north east...”

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More recently, North Sea oil and gas has ensured the GraniteCity’s strategic part in the fortunes of the Scottish and UKeconomies, however, it is only the most recent in a series ofindustries accommodated by the port: fishing, shipbuilding,textiles, paper manufacturing, and global transportation ofstone from the Aberdeen’s famous quarries have all relied onthe facilities of this essential North Sea gateway.

Colin says: “For hundreds of years, the harbour has beenright at the heart of Aberdeen’s commercial activity, andindeed its prosperity.

“The lives of generations of Aberdonians have been affectedand shaped by the harbour, ever since King David I ofScotland granted the Bishops of Aberdeen the right to levy atithe on all ships trading at the port in 1136.

“And in recent years, the trust port has been a vital link inthe established supply chain that secures the city’s standingas the country’s primary offshore oil and gas support centre.

“Now looking ahead, this project will transform the port’sability to accommodate the trend we’re seeing for largervessels across a whole range of industries, therebyencouraging commercial diversification and future-proofingthe port’s ability to support large scale marine operations.

“For example, the creation of a decommissioning supportcentre adjacent to the world-renowned oil and gas supplychain in Aberdeen, supported by the broadest range ofcertified service companies, with excellent trunk roadaccessibility is a major development.

“The heavy lift capabilities of the port and, of course, theadditional water depth are the icing on the cake of thisremarkable decommissioning package.

“Furthermore, cruise liner operators, who strive to minimisethe number of cruise calls where passengers need to beferried to shore by tender, are keenly anticipating the abilityto berth vessels of up to 300 metres in length.

They regard the port as a gateway to an incredible city andregion of untapped visitor attractions.”

The communityDragados UK Ltd is the principal contractor for the project.

The company has embarked on a series of measuresdesigned to realise benefits for the community during workon the expansion, including local amenity improvements, aswell as education and training programmes. Measuresdesigned to ensure targeted local recruitment andprocurement are also an important part of this initiative.

Colin concludes: “While we believe there are decades ofexploration drilling and production yet to come in the NorthSea, we are committed to pursuing and enablingdiversification.

“Relying on a mature offshore environment cannot stanchionour future plans. As such, only by matching these new, world-class facilities with a fresh outlook underpinned by ambition,drive and determination not just for the port, but also for thecity and the region it serves, will we ensure success.”

South Harbour development keyconstruction timeline

• Preconstruction Activities: May – October 2017

• North Breakwater: May 2017 – December 2019

• Coast Road/St Fitticks Road re-alignment: October – November 2017

• Closed Quays (with caissons): June 2018 – April 2020

• Open Quays (pile construction): July 2018 – October 2019

• South Breakwater: August 2018 – November 2019

• Superstructure Works: January 2019 – April 2020

• M&E Works (including commissioning): March 2019 – April 2020

• Delivery of Project: May 2020

With thanks to Aberdeen Harbour Board for allowing us tofeature this development.

Images on this page & cover reproduced with kind permission ofAberdeen Harbour Board.

Vanguard Legacy — delivering a renaissance

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This month, groups chosen to take part in the latest stage in the Vanguard series start work on their projectproposals as part of a once-in-a-lifetime opportunity to shape the future economic prosperity of the north east.They will present exactly how they plan to deliver this change at a conference focusing on the RegionalRenaissance vision in December; meanwhile, Aberdeen and Grampian Chamber of Commerce’s chief executive, Russell Borthwick, explains why it will take action from us all to make good things happenin the region.

What does the success of VanguardLegacy look like?We all aspire to live and work in a great and unique part ofthe world.

We want to be proud of the amazing architecture, the placesto see, eat, drink and shop, as well as enjoy a fantasticquality of life. We want to be the sort of place that otherpeople love to visit, come to study, and somewhere they wantto stay to build a career.

Aberdeen city and shire is already many of these things, butwe are not yet the finished article.

We have a strong foundation on which to build. There is acohesive plan in place and progress is underway to re-inventour future economy.

Success is about recognising the good things that arehappening here; taking action to send a confident, positivemessage out to the world; and ensuring we become arenaissance region, not a museum that was once Europe’s oiland gas capital.

What has been the key to success inattracting public and private sectorinvestment so far?Chamber research has consistently found the development ofpublic infrastructure is necessary to boost economicdevelopment, and maximise the region’s potential.

Our members have clearly stated this type of investmentwould help them attract and retain staff, and support theirambitions for growth.

We have seen our two local authorities working morecohesively and joining up with the Scottish and UKgovernments on the priorities for the region, and now have inplace the Regional Economic Strategy, the City Region Deal,the City Centre Masterplan, the sector diversification agenda,and over £7billion of infrastructure projects either underwayor in the pipeline.

All of this represents an exciting and necessary step-changein the region’s infrastructure and has allowed us to beginaddressing the most significant constraints to growth.

How does Vanguard Legacycomplement this investment?Ultimately, it’s about making things happen that otherwisewouldn’t.

Since the launch of Vanguard in 2013, we have seenapproval of the City Centre Masterplan; construction isunderway on the AWPR and the new AECC; and the Oil & GasTechnology Centre has opened its doors as the centrepiece ofan innovation-driven city region deal. We are even going toget our new, improved Union Terrace Gardens.

The early phases focused on ensuring there was a cohesiveeconomic plan for the city region and then on bringing highprofile leaders from sport, business and the forces to sharetheir styles and how they overcame challenges to succeed.

“ It is everyone’s business to write the next chapter in the region’s success story,and deliver an amazing legacy for future generations.”

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Now we’re focused on delivery. We need to engage morepeople, develop fresh thinking and give our future leadersthe chance to shape key initiatives.

It is everyone’s business to write the next chapter in theregion’s success story, and deliver an amazing legacy forfuture generations.

Vanguard aims to have a direct positive impact on the cityand shire across the next two to five years by developingbusiness cases outlining what is required to achieve thedesired outcomes on a range of economic developmentprojects.

And I have to say, I was hugely impressed by both the qualityand quantity of the 100-plus submissions received followingour call to action during July. At that time, we talked aboutlegacy projects potentially including establishing food anddrink tourism as a regional USP, galvanising a newgeneration of independent retailers at the heart of our towncentres, and ensuring success in any future Capital ofCulture Bid.

Why do business in the north east?One of the biggest benefits of our successful energy industryis the way international trade is now embedded into our localbusiness culture. We also have a very strong heritage ofinnovation and entrepreneurial development, all of whichcombines to make this a very competitive and attractiveplace to do business.

We’re more than an energy hub, however. The region isbroadening its economy through investment in key industrysectors of food, drink, agriculture and fishing; life sciencesand tourism, all tourism, all of which offer significantopportunities for SMEs.

In fact, businesses with fewer than 50 employees alreadyaccount for around 90% of all registered enterprises inAberdeen city and shire* with their turnover representing asignificant portion of the Scottish total.

*Reference: Businesses in Aberdeen City & Shire report by Aberdeen City Council

How important are SMEs toVanguard Legacy? It isn’t just the role of our local authorities andenterprise agencies to drive our economicdevelopment and shape the future of ourarea. We all need to talk things upand embrace the change.

There is much to be positiveabout, but the fact that three outof four respondents to a recentChamber business survey saidthey do not feel involved in thefuture economic success of theregion tells us there could be adisconnect between those workingon the vision for the city region andthe people and organisations who willbe an integral part of achieving it.

Vanguard is part of the wider solution to get people engaged.In particular we want to connect future leaders. Researchtells us that this generation is more likely to join a causethan a club and require an element of guided support on the‘why’ and ‘how’ of civic leadership. Vanguard will provideboth: that cause, and an entry point into this ‘commonpurpose’ world.

What are the area’s challenges andopportunities?The risk is that as the oil price and associated economyrecovers, bad habits return and that the delivery of the futurevision is left in the hands of only the few. There is a dangerthat we will suffer from “if you do what you always did, you’llget what you always got” syndrome.

In short, we’d create an insurmountable barrier to the peopleand organisations we need to deliver the investment,innovation, jobs and skills that underpin our new diversifiedeconomy.

The opportunity on the other hand is that we diversify andcontinue to be a world leader, but across a wider range ofsectors, thus securing a sustainable future for generations tocome.

What is the single best piece ofadvice you’d offer SMEs?Get involved.

We all want a buoyant, diversified economy but we cannotcomplain from the sidelines that things aren’t as we’d like ifwe haven’t taken part with a positive and open mind, willingto see a bright future for the region.

Vanguard Legacy — delivering a renaissance (continued)

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Lease re-gearing – a rare win-win?

With every downturn, there are opportunities. And this challenging marketplace is no different. PartnerJohn Mitchell explains why lease re-gearing and renegotiating terms can benefit both landlord and tenant.The oil price, Brexit, the global economy, and changes to rates relief have all conspired over the past fewyears to affect the commercial property market, not only in Aberdeen, but across the country.

Re-gear from a tenant's perspectiveJohn says the commercial property team has been involved ina significant amount of transactions recently where well-informed tenants are looking to re-gear existing leases thatare coming to an end in the short to medium term.

This involves the tenant agreeing with their landlord to extendthe term of their lease in exchange for some kind of incentive.

“For example, a re-gear could result in a six or 12 monthrent-free period, which the tenant would no doubt welcome atany time, but particularly now given the current climate.

“Incentives are also being offered in the context of newlettings, and we have acted in transactions where the tenant’sincentive package has been the equivalent of 12, 18 andeven more than 24 months rent-free.”

While incentives most commonly take the form of a rent-freeperiod, they can be delivered in a host of other ways includingrent reductions, the payment of a premium, the softening oflease terms, the introduction of break options and options toextend, as well as service charge caps.

Any incentives are a matter of negotiation, and differdepending on the properties involved. The extent of, say, arent-free period is likely to be greater for a 10 year extensionas opposed to a five year extension, or a 10 year extensionwith a tenant only break option at the half way mark.

John adds a note of caution: “A five year lease with a sixmonth rent-free period at £50k per annum is of course morecostly over the term than a five year lease with no rent-freeperiod at an annual rent of £40k. It is therefore importantthat professional advice is taken on the level rent and thepackage as a whole, and sooner rather than later so tenantsare in the strongest negotiating position.”

Re-gear from a landlord’s perspectiveLandlords should be doing all they can to avoid propertiesbecoming vacant, resulting in rental voids and the additionalfinancial burden such as insurance and service chargepayments, as well as potentially rates liability.

“Against this background, we are also finding landlords arebeing proactive and are actively looking to re-gear leases.

“The letting of commercial property is ultimately aninvestment, and the short-term pain generated by granting asix to 12 month rent-free period could secure a rental incomestream for a further period of 10 or 15 years.

“Furthermore, the payment of a premium to secure tenantswith good covenants for the long term can increase theinvestment value of the landlord’s asset,” John says.

Other re-gearing benefits include

• A landlord not having to deal with an outgoing tenant

• A landlord not having to manage and try to settledilapidations, and their impact on any new lettings

• Re-gears are normally completed more quickly — thetenant having already carried out all due diligence, andthe main lease terms are already in place

• Professional fees are likely to be lower, which in the caseof surveyors’ fees are often based on a percentage ofsavings/incentives

John concludes: “It’s clear that there are considerablebenefits for both tenants and landlords, in the currenteconomic context, should they seriously consider lease re-gearing.

“While the process, relatively, is more straightforward than abrand new lease, a strong negotiating position will be key tostriking the best deal. As such, we’d recommend tenants andlandlords alike seek professional advice as early as in theprocess as possible.”

For further information contact John [email protected]

“ It’s clear that there are considerable benefits for both tenantsand landlords, in the current economic context, should theyseriously consider lease re-gearing”

The consultant’s view“ The positive aspect of lease re-gears is that with noprescribed or contractual timings within a lease, bothparties should receive mutual benefit. In the current marketthere are undoubtedly greater opportunities for landlordsand tenants alike to explore such opportunities now ratherthan wait for a contractual break option or lease expiry.”

Chris Ion, partner at leading global property consultancyKnight Frank – [email protected]

“ Businesses also need to be prepared for a damages claim, or even a fine, if they have been negligent and failed to protect,say, a customer’s confidential information.”

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The new reality – finding the best approach to deal withdigital assaultsWith cyber attacks increasing, senior associate Sarah Londragan and associate Sine Mackay explain whatbusinesses should be doing to protect themselves and their information.

With a number of potential motives, from the desire to stealdata, obtain publicity, damage a business’ reputation ormaliciously harm an organisation’s computer system, theseattacks can be far reaching with potentially devastatingresults.

In fact, Lloyd’s of London recently warned a serious digitalassault could cost the global economy more than £92billion.

For most businesses, protecting intellectual property andknow-how is crucial, whether that information is a secretrecipe, customer and supplier databases or employee details.

Sarah adds: “Businesses also need to be prepared for adamages claim, or even a fine, if they have been negligentand failed to protect, say, a customer’s confidentialinformation.”

Furthermore, victims of cyber crime are not limited to largeorganisations — like the recent attacks on NHS hospitals —but include small enterprises too.

Berkshire-based Boomerang Video Ltd, for example, wasfined £60,000 after an investigation found it failed to takebasic steps to stop its website being attacked: more than26,000 customers’ details could have been accessed duringa cyber assault in 2014.

What can businesses do?Sarah suggests: “While seeking to protect computer systemsand keeping them up-to-date is of paramount importance,there are other things businesses can do such as reviewingand updating contracts. Insurance is also available.”

Unless a business can meet the rigorous test of contractualfrustration, i.e. that the cyber attack caused a materialchange in the circumstances of the contract and allcontractual liabilities cease, a business can rely only on theexpress contractual provisions set out in a contract to eitherremove or suspend its obligations.

Sarah explains: “Many contracts contain force majeureprovisions – these exempt contracting parties fromfulfilling their obligations for causes that could not beforeseen and/or are beyond their control. Thesetraditionally include acts of God, war, labour strikes andso on.

“In recent times, it has become increasingly common tosee terrorism and terrorist threats added to this list.

“As such, businesses might want to considerwidening force majeure clauses in contracts toinclude cyber attacks. Alternatively, they couldinclude in their contracts a specific clausedealing with this type of digital assault, possiblyforgiving performance with a time limit anddetailing how the effect should be handled.”

A cyber security policy can also help avoid or manage cyberattacks. It should demonstrate compliance with rules andregulations to mitigate a business’ liability if an assault doesoccur.

Sine advises: “Data protection legislation requires those whoprocess personal data to have in place appropriate technicaland organisational measures against unauthorised orunlawful processing of that information. It makes sense thenthat businesses should regularly audit and ‘health check’their information security and technical processes.”

The law governing data protection will be subject to a radicalchange in 2018. The General Data Protection Regulationincludes a specific requirement for businesses to haveadequate security in place.

Sine explains: “Penalties under the new regulations are nowmuch tougher. Fines can be up to 4% of annual globalturnover or €20million, whichever is greater. A cyber attackcould therefore be very costly for a business. More than everthen, it pays to be prepared and have a number ofprotections in place.”

In conclusion, businesses cannot escape entirely from therisk of cyber attacks: even the most robust IT protectionsystems are open to new forms of attacks. It is imperativethen that businesses seek to address and mitigate the risks:protecting themselves, and their customers.

For further information contact Sarah and Sine [email protected] [email protected]

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“ Fast forward to 2017 and I am still here, having lived far longer in Aberdeen than anyother place in the world, yet come March 2019 – when the UK is expected to leave theEU – I will truly become a “foreigner”, an EU citizen outside of the EU. ”

Immigration and Brexit – what next for the UK’s workforce?

With the number of EU migrants to the UK already falling sharply following the country’s decision to leavethe European Union, senior associate Veli-Matti Raikkonen asks — where will the next generation ofworkers come from?

Veli himself boarded a plane in September 1998 from hishome in Finland to Heathrow, before flying on to Aberdeen.He says: “I had never set foot in Britain, but looking back, itwas remarkably easy. I just packed a suitcase, grabbed myFinnish passport, and away I went. The passport not only gotme into the UK, it also allowed me to study and work herewithout any further administrative loops or form filling”

“Fast forward to 2017 and I am still here, having lived farlonger in Aberdeen than any other place in the world, yetcome March 2019 — when the UK is expected to leave theEU — I will truly become a “foreigner”, an EU citizen outsideof the EU. More importantly my right to continue to workhere, as matters stand, will be open to question.”

What next?So with Brexit, where is the next generation of workers goingto come from? Perhaps the answer is self-evident: thedomestic population and immigration. In other words, fromwhere it has always has.

However, scratch below the surface of this question, and youwill find increasing uncertainty and complexity.

At the moment, high numbers of EU immigrants in the northof Scotland work in the food, drink and construction sectors,not to mention the NHS. To illustrate, Pret a Mangerreportedly struggles to recruit UK nationals. It is unlikely tobe alone.

Come next March the likelihood is that — with no guaranteesover the right to work and to live in the UK — many of thethree million or so EU nationals will feel insecure, and othersmay well decide not to make the move over here.

In March this year, the Chartered Institute of Personnel andDevelopment (CIPD) published its response to the All-PartyParliamentary Group (APPG) on migration, citing the biggest

danger and risk for the labour marketas the loss of skilled labour, giventhese particular EU migrants havemore options elsewhere than theirunskilled counterparts.

The report adds, looking further ahead, the prospect ofmigration restrictions hitting organisations that perceive theydo not have enough expertise or financial resource to recruitfrom outside the European Union, including many SMEs.

Ongoing uncertaintyThe jury is still out on whether this uncertainty is makingrecruitment more challenging at the moment. The NHS, forexample, has reported hiring difficulties, but the causes arelikely to be numerous and complicated. Hard data on this isimpossible to come by, and anyone can read what they willinto anecdotal evidence.

Regardless, the bad news for employers and EU nationals inScotland is that this uncertainty is likely to persist.

More significantly, Veli says, there are numerous conflictingred lines on both sides. The main one relates to who theguardian of EU nationals’ rights will be.

Veli adds: “Will it be the UK courts, which is not acceptableto the EU27, who say that the UK can simply change therules later on; or will it be the European Court of Justice,which is totally unacceptable to Brexiteers’ view ofsovereignty.

“Something has to give, and the fear is that it will be anorderly Brexit.”

UK employers will have other matters to consider. Whatabout UK nationals sent to (say) Norway to work in the oilindustry? Will they have to apply for visas? If so, how easy ordifficult will it be to get those visas? What about a UKnational sent to work in Norway today, but Holland tomorrowand Germany next week? How easy or difficult will that be?No doubt more difficult than it is at the moment.

Veli concludes: “What will recruitment in general look like inthe UK post-Brexit? One thing seems pretty clear, and that isthat the route I took to the UK job market is likely to becomemuch more difficult, as will attracting labour to this island Icall home.

“Those wishing to future-proof their businesses may have torestrict themselves to carefully following the latestdevelopments as the UK divorces itself from the EU.”

For further information contact Veli [email protected]

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“ A restrictive covenant has a much greater prospect of being upheld if an employer can demonstrate that careful thought was putinto the clause and it represents protection of a legitimate business interest.

Playing fair – the importance of restrictive covenants

Partner Tim Thomas and senior associate Rebecca Walker explain why, in today’s challenging economicclimate, proper consideration of restrictive covenants has arguably never been more important.

The most commonly-seen restrictive covenants take the formof non-compete, non-solicitation, non-poaching andconfidentiality clauses, and aim to protect a business’intangible assets, namely its know-how, trade secrets andtrade connections, while also deterring errant employees frommisusing that information and engaging in unfair competition.

MPT v PeelIn fact, as the recently-reported case of MPT v Peel showswhy employers must give proper consideration to protectingtheir business, including carefully-drafted contracts andrestrictive covenants.

While this case arose under English law, it is relevant to theposition here in Scotland.

Here, two senior employees resigned from MPT. When asked,they said they had no intention of setting up a competingenterprise; however, on expiry of their six month covenants,that is exactly what happened.

MPT sought an injunction (an interdict in Scots Law) sayingthe former employees had misused confidential informationand had breached a duty of good faith; however, the HighCourt held the employees had no duty to tell the truth abouttheir future intentions. Their restrictive covenants hadexpired, but it raised a salutary lesson about ensuringconfidentiality clauses were properly drafted and enforceable:they should not be generic or too wide if employers wish toenforce them.

Finding the balanceRebecca says: “By definition, restrictive covenants placerestrictions on an employee’s ability to work.

“For that reason, much of the discussion and litigationaround them focuses on the balance between protection of abusiness asset and infringement of an individual’s rights.

“The courts take a cautious approach. While they will oftenuphold them, an employer must be able to satisfy the courtthat the covenant is reasonable, necessary to protect alegitimate business interest, and goes no further thanprotecting that interest.”

What is reasonable depends on the specific circumstances ofeach case. When considering “reasonableness”, the court willlook at the character of the employer’s business, theseniority of the employee, their remuneration, theduration of the covenant, and its geographicalscope.

For example, a court will be far more willing touphold a restrictive covenant preventing a high-earning senior manager with a lengthy servicerecord from working for a competitor for aperiod of two years than it would a modestlypaid junior office clerk who has no involvementin management.

Employers therefore need to give careful thought to eachemployee’s contract and what business interests require to beprotected. Of course, employees owe a duty of confidentialityand cannot use confidential information belonging to theiremployer when they leave. However, employers need toconsider whether the other types of covenants are reallynecessary and if so, for how long. Is it really necessary toinclude a non-compete clause in the office cleaner’semployment contract?

Equally, the geographical scope of any covenants need to beconsidered. A court will only uphold a covenant preventing anemployee from competing over a wide geographical area ifthat is truly necessary to protect the business’ interests. Thatmay be appropriate for a senior manager who worked globally,but more likely the courts will view it as an infringement ofthe former employee’s right to earn a living.

Tim says: “A restrictive covenant has a much greater prospectof being upheld if an employer can demonstrate that carefulthought was put into the clause and it represents protectionof a legitimate business interest.

“For that reason employers should regularly review theiremployees’ contracts. Over time an employee’s role maychange and greater protection might be required. It is notuncommon to find that a senior manager leaving a businessis subject to no restrictive covenants because they joined atan early stage in their career and their contract was neverupdated.

“On the flip side, employees should not be afraid to questionrestrictive covenants when considering a job offer ornegotiating an exit from the business. A poorly worded orplainly inappropriate covenant can provide a good bargainingtool.”

For more information please contact Tim or Rebecca [email protected] [email protected]

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New tax evasion legislation potentially incentivisesstronger governancePartner Jody Mitchell discusses the new corporate offences of "failure to prevent the facilitation of taxevasion" coming into force on 30 September.

The two new offences, in part 3 of the Criminal Finances Act2017, make “relevant bodies” — essentially, companies andpartnerships, including LLPs — vicariously liable if anemployee, agent or other person who performs services for oron their behalf (an “associated” person) does in that capacityfacilitate tax evasion. Even if the relevant body’s seniormanagement are not involved, or aware of what is going on.

This is in contrast to the previous regime where attributingcriminal liability to a corporate body required prosecutors toshow senior members were involved in, and aware of, theillegal activity.

However in large multinationals, for example, decision-makingis often decentralised and decisions are taken at a level lowerthan board level. This could effectively shield the organisationfrom criminal liability, contrasting unfairly with the positionof the SME, where directors may be more “hands on.”

There had also been concern that senior management wouldturn a blind eye to the criminal acts of its representatives inorder to shield their organisation from criminal liability. Thenew offences, then, might be said to incentivise strongcorporate governance.

The offences under Part 3 of theCriminal Finances Act 2017The first offence (section 45) is failure to prevent facilitationof UK tax evasion offences.

The second (section 46) is failure to prevent facilitation offoreign tax evasion offences.

In each case “a relevant body (B) is guilty of an offence if aperson commits a [UK][foreign] tax evasion facilitation offencewhen acting in the capacity of a person associated with B.”

Additionally, the foreign tax evasion offence carries arequirement of some UK nexus – whether that B isincorporated or formed under the law of any part of the UK;

carries out business in the country; orthat any conduct constituting part ofthe foreign tax evasion facilitationoffence took place in the UK, forexample a meeting at Heathrow. It alsorequires there to be dual criminality

under UK law and the foreign law.

Breaking it down, then,there are two criteria that,if met, mean the relevantbody will havecommitted the newcorporate offence, inthe absence of anydefence —

1. There must be a criminal offence of tax evasion at thetaxpayer level: non-compliance, falling short of fraud, atthe taxpayer level will not result in the corporate offencebeing committed

2. There must be criminal facilitation of the tax evasion by an“associated” person of the relevant body. This personmust deliberately and dishonestly take action to facilitatethe taxpayer-level evasion

Examples:

• A company (X) appoints a payroll company (Y) to manage X’spayroll. Y’s employee arranges for Z to be paid “off the books”.

• X’s employee colludes with one of X’s suppliers to falsifythe amount paid on an invoice by reducing the true amountpaid so that the supplier evades tax.

X would be in a difficult position: a conviction could lead to anunlimited fine and orders for confiscation of assets. It may bringunwanted publicity and result in accreditations being lost.

The defenceThere is a defence when the relevant body can demonstrateit has put in place "reasonable procedures" to preventassociated persons from facilitating tax evasion, or where it isunreasonable to expect such procedures to exist.

HMRC’s guidance sets out six principles to inform whatbusinesses should put in place:

• Risk assessment• Proportionality of risk-based prevention procedures• Top level commitment• Due diligence• Communication (including training)• Monitoring and reviewPrevention procedures will not be prescribed or monitored byHMRC, though. Accordingly, a business might choose toignore this legislation: a risky and inadvisable position!

Speaking in Aberdeen this summer, Jennie Haslett, HMRC’scorporate crime and international engagement lead,cautioned that where — on the face of it — a new corporateoffence has been established, it follows that there would bea greater risk of prosecution in the absence of a reasonableprevention procedures defence.

What is reasonable will depend on the circumstances particularto the relevant body. Upon carrying out a risk assessment, itmay be reasonable and proportionate for the relevant body toconclude a light touch compliance procedure is required. Butit is vital as an absolute minimum that a risk assessment iscarried out, documented, and regularly reviewed.

Read the new guidance —www.gov.uk/government/consultations/tackling-tax-evasion-a-new-corporate-offence-of-failure-to-prevent-the-criminal-facilitation-of-tax-evasionFor further information contact Jody [email protected]

“ What is reasonable will depend on the circumstances particular tothe relevant body. Upon carrying out a risk assessment, it may be reasonable andproportionate for the relevant body to conclude a light touch compliance procedure isrequired. ”

“ ...are we at liberty to disclose salaries to the wider public in all circumstances? The answer is no. Further identifying when an organisation should do this is not alwaysan easy judgement call.”

With much discussion and debate still ongoing weeks after the BBC revealed its highest paid stars’ salaries, partner Kirk Tudhope explains why publishing employees’ pay is just the start of addressing thegender pay gap.

BBC pay row – FOI versus data protection

13


Office for National Statistics (ONS) figures show that in2016, the gap in salary levels was 9.4% for full-timeemployees, and 18.1% for all employees. It hardly needsadding that this was in favour of males.

In an attempt to improve matters, the government nowrequires public sector and larger private and voluntary sectoremployers (those with 250 or more employees) to analysetheir gender pay gap, and publish an annual gender pay gapreport.

This should include

• overall gender pay gap figures• the proportion of men and women in each quartile of paybands

• information on the employer’s approach to bonusesincluding the proportion of male and female employeeswho receive a bonus in the relevant 12-month period

In relation to the BBC, the government took a more directapproach requiring specific details of all employees whoearned in excess of £150,000 per annum.

Kirk says: “Ignoring the media clamour and some tongue-in-cheek generalisations, including from one twitter user notingthat it’s good to see a nurse earning more than a doctor(Derek Thompson who plays Charlie Fairhead in Casualty is inthe £350,000 to £399,000 bracket, while Doctor Who’sPeter Capaldi is on £200,000 - £249,999), there are somelegal issues arising from disclosing an individual’s earnings.

“In particular are we at liberty to disclose salaries to thewider public in all circumstances? The answer is no. Furtheridentifying when an organisation should do this is not alwaysan easy judgement call.”

FOI versus the duty to protect dataIn relation to salary, this is clearly personal data and governedby the Data Protection Act (DPA).

Accordingly, the default position is that it should not bedisclosed without the consent of the data subject i.e. theemployee.

The problem for the BBC, and other public sectororganisations, is the clash with the Freedom of Information(FOI) legislation, which is all about disclosure.

The duty to protect personal data under DPA and the duty todisclose under FOI are not easy bedfellows. Whether torelease such details as staff wages requires a balancing actbetween the duty to protect personal information, and aseparate duty to shine a light on the operations of the publicsector.

Considerations normally favour non-disclosure albeit, as arule of thumb, the higher the salary and more prominent thepost, the easier it is to argue the details should be divulged.

Over and above issues of disclosure and personal privacy it isevident that the BBC’s wage details raised other legal andwider public concerns including the disproportionate numberof white middle aged males in the high earners list.

There is a concern that a lack of transparency on pay hideswider bad practices, including helping perpetuate the genderpay gap. The recent disclosures have encouraged the BBC toaddress at least some of its problem with pay. Wouldrequiring a similar openness amongst other employers havethe same result?

Kirk adds: “The legislation to publish an annual pay gapreport will be seen by many as a step in the right direction,but it’s still a long way from solving the problem. For a start,there are no sanctions for failing to comply with thelegislation.

“That said, an employee who believes they are paid less onaccount of their gender — or indeed their ethnicity amongother criteria — could pursue a claim for equal pay orunlawful discrimination.

“Relying on this as a means to achieve greater equality maybe seen as placing the obligation to redress the pay gapunfairly on individuals who have both the means and appetiteto raise a claim.

“Meanwhile, some countries such as Norway favour fulltransparency with tax returns available for all to scrutinise.Maybe that’s the ultimate way forward, even if many,including some of Auntie’s best-paid talent, will take someconvincing.”

For more information please contact Kirk –[email protected]

14


Offshore Europe – a confidentiality free zone?

The temptation to showcase your business to the tens of thousands of delegates descending on Aberdeento visit the biennial Offshore Europe event is understandably huge; however, Peter Murray explains why it’sarguably never been more important to put the right protections in place first.

“ Research and development departments don’t have open days for good reason; yet, we accept our competitors as well as our clients will visit us at showssuch as Offshore Europe.”

There is a natural conflict between exhibiting andmaintaining commercial confidentiality.

Peter says: “Research and development departments don’thave open days for good reason; yet, we accept ourcompetitors as well as our clients will visit us at shows suchas Offshore Europe.

“In the current climate, new technology has never been moreimportant, but speed to market shouldn’t be your onlycompetitive advantage.“

He adds exhibitions like Offshore Europe can be a minefield,for example when showcasing technological innovations: “Atworst a patentable new product is prematurely launched intothe public domain, and a 20 year legitimate monopoly lost.

“It makes no difference if you gather the world’s media for aspeech by your president or have a ‘soft launch’ by puttingyour innovation at the back of your stand. If passingdelegates can see it (and they will, and take a photo of it –whatever the rules say) then likely there is no going back.”

In such situations, whilst it might be too late to involve yourUK attorney, there may be potential to still file a patent incertain overseas jurisdictions. Filing a UK patent on the veryday you made public disclosure might also be possible, buteven with a patent attorney on speed-dial there remains amajor problem.

Company nameFurthermore, what if you have no patentable products toexhibit? What about your new company name instead? Has afiling date for trade mark registration been established, forexample?

Peter says: “You wouldn’t be the first delegate to play “namesnap” between exhibitors. Does “GE” stand for GeneralElectric or Golden Eagle where you come from? Decidingwhether or not to seek an emergency court order whilst theshow is running can prove a huge distraction!

“Would the media be sympathetic to the corporate victim orthe ‘innocent’ infringer? Would you win? It’s a conundrum forthe media relations department as well as the lawyers.”

Copyright protectionWhat about copyright protection? Does your marketingcollateral carry the copyright symbol, the year and the nameof the copyright owner? These features aren’t essential toclaim copyright protection in the UK, but Offshore Europe isan international show.

Likewise there is no copyright registry in the UK, but there isin the USA. Just before you pick up a brochure think aboutthe photos in it. Copyright and moral rights arise out ofphotography: the moral right is the right to be acknowledgedas the creator/photographer of the work.

“Is the photographer’s name there or has he or she waivedtheir moral rights?

“Your engineer turned amateur photographer hopefully won’tcomplain, but what about the client whose platform thepicture was taken on? Your master services agreement maywell have prohibited any photography without the client’sconsent. The fact your client is now represented two aislesaway from your stand is suddenly a mixed blessing!” Peteradds.

Off the record?As for confidentiality, Peter says it is safest to assume thatall conversations on the stands are not confidential.

“We can document non-disclosure agreements betweenprincipals, but anonymous delegates passing in their hordescan leave your company potentially exposed. Some exhibitorshave the benefit of private booths, and lawyers have beenknown to spend entire shows documenting deals in them.”

However, whether it’s back-stage, out-front or in therestaurant, confidential negotiations are best kept outsidethe exhibition halls. Whilst lots of deals are announced atshows, the vast majority are really signed well in advance,with the announcement held back until maximum coveragecan be secured.

In contrast, taking the time to have these vital protections inplace, such as trademarks or patent applications in time forlandmark events such as Offshore Europe, will not justprotect your business and safeguard your new technology: itwill also ensure you tap into what is a massive commercialopportunity, helping your organisation stand apart in today’sintensely competitive, global marketplace.

For more information, contact Peter [email protected]

The purpose of this magazine is to provide information about Ledingham Chalmers LLP, its people and its work. Material is provided for generalinformation only and nothing in this magazine constitutes legal or other professional advice on which a reader may rely for his own purposes.To obtain legal advice please contact one of the partners listed or email us generally at [email protected] Chalmers LLP is not responsible for any loss which may arise from reliance on material obtained from this magazine. Copyright inthe content of this magazine is vested in Ledingham Chalmers LLP (except where otherwise stated). The reproduction, permanent storage or re-transmission of the content of this magazine is prohibited without the prior written consent of Ledingham Chalmers LLP.

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