a guide to doing business in the uk

Transcription

1 EDINBURGH 3 Glenfinlas Street Edinburgh EH3 6AQ Tel Fax A Guide To Doing Business in The UK ABERDEEN 66 Queens Road Aberdeen AB15 4YE Tel Fax GLASGOW 151 St Vincent Street Glasgow G2 5NJ Tel Fax LONDON One London Wall London EC2Y 5AB Tel Fax BRUSSELS Scotland House, Rond-Point Schuman 6 B-1040 Brussels, Belgium Tel Fax lawyer@mms.co.uk Website Maclay Murray & Spens a guide to doing business in the uk a guide to doing business in the uk

2 very smart people At MMS we believe that delivering an excellent service requires each and every member of our team to be performing at the top of their game all the time, whether they be lawyers or business support staff. In recognition of the importance of this team effort the models you see photographed in our literature and our website are MMS people from a range of disciplines across the firm, not just our partners and not just our lawyers. This document is intended merely to highlight issues for general information purposes only. It is not comprehensive nor does it provide legal advice. Any information is subject to change without notice. No liability whatsoever is accepted by Maclay Murray & Spens.

3 a guide to doing business in the uk PREPARED BY MACLAY MURRAY & SPENS

4 ii iii contents limitations on scope of this report This Guide deals with Scots and English law only. References in this Guide to UK law should be construed accordingly. Northern Ireland is part of the UK and is a separate legal jurisdiction, but is not covered by this Guide. English law also applies in Wales. Much of Scots and English law is identical and where there is no express statement in this Guide as to whether a paragraph is dealing with Scots or English law, or there is a reference to UK law, the position is the same under Scots and English law. The Guide only makes express reference to either Scots or English law where there are differences between the Scots and English law on a particular topic. This Guide deals only with the conduct of business of a general nature in the UK. Many businesses (for example, banks, insurance companies and financial services businesses) are subject to detailed regulation which is beyond the scope of this Guide. This Guide touches on complex issues and of necessity cannot be comprehensive. It is intended to give general guidance only, and is not a substitute for taking proper legal advice. This Guide is accurate as at January DEFINITIONS UK Law the laws of Scotland and England 1. THE COUNTRY AT A GLANCE What languages are spoken? What is the exchange rate for the US dollar and the Euro? Describe your country s geography, proximity to other countries and climate Are there cultural influences or prohibitions on the way business is conducted? Are there religious influences or prohibitions on the way business is conducted? Explain your country s infrastructure. Be sure to explain which cities have airports, railroad systems, ports, public transportation The communication system Public services i.e. water, electricity, gas 3 2. GENERAL CONSIDERATIONS Investment Policies Diplomatic Relations Government What is the public/government attitude towards environmental regulation? Intellectual Property INVESTMENT INCENTIVES Export incentives or guarantees Grants, subsidies or funds your country offers foreign investors What is the type of financial system in the country? STRUCTURES FOR DOING BUSINESS The Limited Liability Company Unlimited Liability Companies Companies Limited By Guarantee Limited Partnerships Limited Liability Partnerships Partnerships Sole Proprietorships Other Methods Of Establishing A UK Business Joint Ventures 49

5 iv v 5. REQUIREMENTS FOR THE ESTABLISHMENT OF A BUSINESS IN THE UK Alien Business Law Anti-Trust Law Environmental Regulations Government Approvals Insurance Licences / Permits OPERATION OF THE BUSINESS Advertising Attorneys Book Keeping Requirements UK GAAP Business Codes / Ethics Consumer Protection Laws Construction Contracts Price Controls Cessation Or Termination Of Business EMPLOYER/EMPLOYEE RELATIONS What laws govern employer/employee relations? EMPLOYMENT REGULATIONS Does the investor have to hire UK nationals Minimum wage Working hours Vacation and sick days HIRING AND FIRING REQUIREMENTS Employing UK nationals Hiring/dismissing personnel (e.g. notice) LABOUR PERMITS SAFETY STANDARDS TAX ON CORPORATIONS Allowances Calculation of Taxes Capital Gains Filing and Payment requirements Miscellaneous Taxes Due Registration Duties Sales Tax or Other Turnover Tax Social Security and Welfare System Contributions Special Tax Schemes Tax on Profits Tax Treaties Territoriality Rules Treatment of Tax Losses Wealth Tax Withholding Taxes TAX ON INDIVIDUALS Allowances Calculation of Taxes Capital Gains Tax Filing and Payment Requirements Inheritance and Gift Tax Miscellaneous Taxes Due Real Estate/Habitation Tax Sales Tax Social Security and Welfare System Contributions Stock Option, Profit Sharing and Savings Plans Taxation of Benefits in Kind Taxes on Dividends Tax on Income Tax Treaties Territoriality Rules Wealth Tax Withholding Tax UNIONS 102

6 vi TAX ON OTHER LEGAL BODIES Allowances Calculation of Taxes Capital Gains Filing and Payment Requirements Miscellaneous Taxes Registration Duties Sales Tax or Other Turnover Tax Social Security and Welfare System Contributions Special Tax Schemes Tax on Profits Tax Treaties Territoriality Rules Treatment of Tax Losses Wealth Tax Withholding Taxes IMMIGRATION REQUIREMENTS Are entry permits required? Must you apply before entering the UK? Are exit and/or re-entry permits required? What is a Visa? Is a Visa required for travel or stay in the UK? If so, how long is it valid? What is the process for applying for a Visa? What documents / evidence are required? How long does it take to receive a Visa? What fees are involved? Does the UK have immigration quotas? Are medical certificates or vaccinations required for someone coming to the UK? Is a residence permit required? Does it have to be applied for before entering the country? What information must be supplied to the immigration authorities? How long does it take to receive authorisation? Is a work permit required? the country at a glance 1.1 What languages are spoken? The official language spoken in the United Kingdom is English. There are minorities in Wales and Scotland who speak Welsh and Gaelic. There is also a trend to incorporate Welsh and Gaelic into some schools and students can learn them at University level. 1.2 What is the exchange rate for the US dollar and the Euro? The UK s monetary unit is the pound sterling ( ). It is fully convertible and, since 1972, has floated freely (with the exception of the period of 1990 through 1992). No exchange controls have been imposed since The United Kingdom is not a member of the European Union (EU) Exchange Rate Mechanism and has elected not to adopt the euro. In June 2003, the Labour Government announced that although the United Kingdom would clearly receive certain benefits by adopting the euro, such a move will not be undertaken until the five economic tests set out by the Chancellor of the Exchequer have been met. It is envisaged that there will be a further announcement relating to this matter some time in In April 2005, the exchange rate for the U.S. dollar was 1 = $1.8749* and for the Euro was 1 = *. *These rates are mid rates and are rough guides as to what the conversion will be. 1.3 Describe your country s geography, proximity to other countries and climate The United Kingdom is located in Western Europe. It is a group of islands situated northwest of France including the northern one-sixth of the island of Ireland between the North Atlantic Ocean and the North Sea. Its geographic coordinates are N, 2 00 W. Its total area comprises 244,820 sq km which includes Rockall and the Shetland Islands. In comparative size it is slightly smaller than the US State of Oregon. Its only land boundary is with the Republic of Ireland which stretches to 360 km. The UK has a total coastline of 12,429 km. The UK s climate is temperate, moderated by prevailing southwest winds over the North Atlantic. Its terrain consists of rugged hills and low mountains which level to rolling plains in the east and southeast. The country s lowest point is Fenland at -4 meters, its highest point being Ben Nevis in Scotland at 1,343 meters. The country s natural resources are coal, petroleum, natural gas, tin, limestone, iron ore, salt, clay, chalk, gypsum, lead, silica and fertile arable land. 1.4 Are there cultural influences or prohibitions on the way business is conducted? There are no adverse cultural influences of significance or prohibitions on the way business is conducted in the United Kingdom. 1.5 Are there religious influences or prohibitions on the way business is conducted? There are no religious influences or prohibitions on the way business is conducted in the United Kingdom.

7 Explain your country s infrastructure. Be sure to explain which cities have airports, railroad systems, ports, public transportation. The United Kingdom is easily accessible from all over the world. London Heathrow is Europe s busiest and best-served airport with flights to all major business centres world-wide. All major UK ports are connected to mainland Europe and Ireland via frequent ferry services. Internally, the UK has excellent air, rail and road links to all of its major cities. Internationally and internally, air travel is available to all major UK airports including: London Heathrow London Gatwick London Luton London Stansted London City Birmingham Manchester Bristol Newcastle Glasgow (Scotland) Prestwick (Scotland) Edinburgh (Scotland) Aberdeen (Scotland) Cardiff (Wales) Belfast (N. Ireland) There are also numerous smaller regional airports capable of handling smaller aircrafts. There are about 100 ports of commercial significance in the UK, including such ports as London, Dover, Forth, Tees and Hartlepool, Grimsby and Birmingham, Sullom Voe, Milford Haven, Southampton, Felixstowe and Liverpool. Belfast is the principal freight port in Northern Ireland. The main passenger ports in the UK are: Hull Dover Portsmouth Southampton Newcastle Rosyth (Scotland) Railway services are provided by regional railway companies. All major UK cities are well served by public transport companies. London and Glasgow both have underground systems. 1.7 The communications system The telecommunications market in the UK consists of privately-owned operators, although they do operate in a regulated market with the operators subject to a licensing regime. The media sector in the UK is privately owned with the notable exception of the state-funded British Broadcasting Corporation ( BBC ). OFCOM, a statutory corporation, is the regulator for the UK communications industries, with responsibilities across television, radio, telecommunications and wireless communications services. It covers both content and infrastructure and is responsible for licensing in the communications sector. The country code for telephoning the UK is 44. This is followed by the code for the city or area you are calling. Please note that when calling from abroad, the initial 0 of the city/area code is dropped. Postal services in the UK are currently mainly provided by Royal Mail, but their monopoly was ended at the beginning of 2006 so competition is expected in this area particularly for business mail. Other companies have been providing courier services for some time. 1.8 Public services i.e. water, electricity, gas. Water England & Wales Water services are privatised in England & Wales. These services are provided by a series of regional licensed monopolies with some limited competition at the margins. There is no integrated water transportation system in England & Wales. The Office of Water Services (Ofwat) is the economic regulator for water and sewerage services in England and Wales. It is a non-ministerial government department led by the Director General of Water Services (known as the Director). Ofwat works with the Government, the Welsh Assembly Government and the quality regulators (the Environment Agency, the Drinking Water Inspectorate, English Nature and the Countryside Council for Wales) to monitor the way in which water companies provide a good quality and efficient service at a fair price. Each regional monopoly has its own water transportation system and has an access and allocation code setting out the regime for access to its pipes. The regime operates on a common carriage basis. The water industry is characterised by high capital costs of construction and has a number of sectoral regulators for different aspects of their activities. The Water Act 2003 ( the 2003 Act ), which received Royal Assent on 20 November 2003, has increased the deregulation of the water industry in England and Wales. The stated purpose of the 2003 Act was to strengthen the voice of consumers and implement a measured increase in competition, for example: It established a regulatory Board to replace the existing individual Director General of Water Services along with a new independent Consumer Council for Water to replace the Customer Service Committees. It introduced provisions intended to improve the regulatory regime and to extend the opportunities for competition in the water industry, by allowing new entrants to obtain a licence to supply non-household customers who use large volumes of water (in excess of 50 ML per year). Further information in relation to the water industry in England & Wales can be obtained at Water Scotland The structure for the provision of water services in Scotland is different to the structure in England and Wales. In Scotland, Scottish Water, a large publicly owned business operates a regulated monopoly. The recent Water Services etc (Scotland) Act 2005 ( the 2005 Act ) overhauls the system of water regulation in Scotland. The Act received Royal Assent on 17 March The 2005 Act establishes a Water Industry Commission to improve the transparency, consistency

8 4 5 and accountability of regulation in the water industry 1. This body replaces the Water Industry Commissioner, previously charged with regulating the water industry in Scotland. The Water Industry Commission undertakes to: license those bodies who wish to provide retail water and sewerage services to non-household customers in Scotland in competition with Scottish Water (the publicly owned service provider in Scotland). determine Scottish Water s charge caps in much the same way as Ofwat determines price caps for the water companies in England and Wales. The 2005 Act also prohibits common carriage in the water or sewerage systems and prohibits retail competition for households. Furthermore, the 2005 Act establishes a licensing regime for retail competition for non-household premises only. Electricity Great Britain The electricity industry in England & Wales and Scotland was privatised in However, separate markets existed in England & Wales and in Scotland and the process for reform in relation to each was different until the introduction of the British Electricity Trading & Transmission Arrangements (BETTA) on 1 April BETTA introduced a single Great Britain (GB) wide set of arrangements for trading energy and for access to and use of the GB transmission system which came fully into effect at BETTA go-live on 1 April BETTA effectively extends to Scotland the New Electricity Trading Arrangements, introduced in England & Wales in Scottish Hydro-Electric Transmission Limited (SHETL) in the north of Scotland; SP Transmission Limited (SPTL) in the South of Scotland and the National Grid Company plc (NGC) 2 in England & Wales are the transmission owners responsible for the physical state of the transmission network in their respective areas. Together, the above three companies are responsible for the physical state of the GB transmission network and in each case the licensee provides access to and use of its transmission system. The BETTA arrangements for connection to and use of the GB transmission system are administered by (NGC), the GB system operator. NGC (as well as being transmission owner in England & Wales) is the company responsible for contracting for the provision of connection to and use of the transmission system in Great Britain. Thus any party in Great Britain that wishes to have access to the GB transmission system since 1 April 2005 needs to have a contract with NGC. The pro-forma terms for such contracts are set down in the Connection and Use of System Code (CUSC). Under BETTA the separate contractual arrangements for use of the Scotland England interconnector are no longer applicable. The interconnector is now part of the GB transmission system. Provisions relating to the creation of the single wholesale electricity market are contained in the Energy Act The GB Transmission System connects with France and Northern Ireland. In addition to the GB transmission system, there are a number of local distribution networks owned by the various distribution companies. Power is traded in GB in a half hourly balanced market. The economic sectoral regulator is Ofgem (the Office of the Gas and Electricity Markets Authority). It is a criminal offence to undertake electricity transmission, supply, distribution or generation without holding a licence (licences are granted by Ofgem) or being exempted. The same person may not hold a distribution licence and a supply licence. The generation and supply markets are competitive and are not subject to price controls. The electricity transmission and distribution markets are viewed as natural monopolies and operate under price controls with some competition on the margins of these activities. Since privatisation, the industry has been characterised by merger and consolidation activities, including the creation of pan-european group structures. This trend is likely to continue. Further useful information in relation to the operation of the electricity market can be obtained at and Gas Mains gas is available in most of Great Britain (GB) with some special arrangements for gas supplies in the Scottish islands. A separate network exists in respect of Northern Ireland which is separately regulated 3. It is a criminal offence to act as a gas transporter, gas shipper or gas supplier without holding a licence (granted by Ofgem the sectoral regulator) or being exempted. To date, the National Transmission System (NTS) and Local Distribution Zones (LDZs) have been owned and operated by National Grid Transco (NGT) under a single transporter s licence. The NTS is a high pressure gas transportation network. LDZ s are lower pressure networks connected to the NTS. Subject to regulatory clearance, NGT is expected to complete the sale of four of its eight regional Distribution Networks (DNs) 4 in June 2005 to third party purchasers. Transco will continue to operate the NTS and four retained DNs under two separate gas transporters licences. The proposed changes to the gas industry will constitute a significant change within the GB gas 1 At the time of writing, the Water Industry Commission has not set up a website. Further useful information can be found at the site for the Water Industry Commissioner at and the 2005 Act can be located at 2 NGC forms part of the National Grid Transco (NGT) group 3 The network in Northern Ireland is regulated by the Office for the Regulation of Electricity and Gas (Ofreg). 4 A Distribution Network is defined by reference to LDZs and contains one or more LDZs.

9 6 7 industry and will allow for comparative price controls between DNs. The changes have involved the introduction of a new gas transporters licence structure for NTS and DN gas transporters. In addition, changes to what was formerly Transco s Network Code, which set out the contractual relationship between shippers and Transco as transporter, have also taken place. As part of this process, a Uniform Network Code (UNC) has been created and separate short form codes have been put in place in respect of each of the DN networks expected to be sold in June The short form codes incorporate by reference the terms of the UNC. These set out the contractual arrangements between shippers and transporters going forward. In addition to the National Transmission System and Local Distribution Zones, there are some independent private networks operated by other Independent Gas transporters (IGTs). Gas shipping and supply is seen as fully competitive and is not subject to price controls. Transco has been subject to a price control in respect of its various gas transportation activities. The next price control review in respect of the NTS will take place in 2007 and in 2008 in respect of the DNs. Interconnected markets for power and gas There are a number of Interconnectors operating in the UK gas and power markets. These connect GB with Northern Ireland (and through a subsequent interconnector with the Republic) the Republic of Ireland and mainland Europe. There are also a number of proposals to build merchant interconnectors to connect with Scandinavia and other parts of mainland Europe. Most recently, work has commenced on an interconnector between GB and Norway. The interconnectors are privately owned and have access arrangements. Further useful information in relation to the operation of the gas market can be obtained at 2 general considerations 2.1 Investment Policies The UK generally welcomes investment. No legislation restricts foreign investment in the United Kingdom. Foreign investment in new manufacturing and internationally traded service businesses is encouraged. Generally speaking, Foreign companies or individuals may establish or acquire businesses within the country and buy securities, land or mortgages without a special license or permission. What is the rate of inflation? In April 2005, the rate of inflation in the UK was 1.90%. Explain any sector exceptions, incentives or restrictions on foreign investment? In some strategic industries, such as defence, foreign investment may be deemed to be against the national interest and therefore subject to investigation by the Competition Commission. State assistance in particular sectors (shipbuilding and automotive) may need approval from the European Commission to ensure compliance with certain sectoral policies. What type of business is conducted in the country? The United Kingdom has an open economy in which international trade plays a vital role. In 2003, exports of goods and services accounted for 25% of gross domestic product (GDP). The United Kingdom has traditionally exported significant quantities of manufactured products and imported considerable quantities of food and raw materials. In an emerging trend, manufactured goods are forming a larger portion of imports and a smaller portion of exports. The working population of the United Kingdom is approximately 28 million. The changing employment patterns in the country have been characterised by an increase in part-time work, selfemployment and employment by small firms, which accounted for 46% of employees. In general the workforce is highly skilled but a shortage of certain skilled workers, such as engineers and technologists, mean that they are very much in demand. The public sector remains a significant part of the economy. Government spending in 2003 was 41.1% of GDP, compared with 40% of GDP in The decline in public-sector employment by 33% since 1979 is the result of the privatisation of many public corporations and government agencies and of the reclassification of some sectors. However, in 1999, public sector employment increased for the first time in 20 years. The UK s relative international competitiveness has shifted from manufactured goods towards services. In 1960, manufacturing accounted for 37% of GDP and services for 45%; in 2003 manufacturing contributed 16%, and services had increased to almost 73%. The severity of the recession sharply affected manufacturing, with a 7.6% decline in manufacturing output during that period. In 1993, manufacturing output began to increase, and, by

10 , manufacturing output was 10% above the level in 1991 and However, since then, manufacturing output has declined slightly. Following the recession, several industries, including chemicals, rubber and plastic products, electrical and optical equipment and transport equipment, have achieved substantial growth. However, other sectors, including textiles, leather and wood products, remain below their 1990 levels. The largest sector of the UK economy is now the service sector, which in 2003 accounted for 73% of total GDP. The fastest-growing areas are financial services, computer and business services, leisure and tourism. During the recession, the rate of growth of the service sector did not decrease as much as that of other major sectors and is again increasing significantly. 2.2 Diplomatic Relations The United Kingdom plays a prominent role in international relations and associations as one of the five permanent members of the United Nations (UN) Security Council, a member state of the EU and the progenitor of the British Commonwealth of Nations. It is a member of international bodies such as the UN and its special forces and missions, the Organization for Economic Cooperation and Development, the Council of Europe, the Commonwealth Secretariat, the North Atlantic Treaty Organization and the North Atlantic Assembly. The United Kingdom is also a signatory to the General Agreement on Tariffs and Trade (GATT) and a member of the World Trade Organization (WTO), the inter-national trade liberalisation agency headquartered in Geneva. The United Kingdom has also taken a leading role in international discussions on climate change. The United Kingdom maintains diplomatic and consular relations with 184 countries and has 220 diplomatic posts worldwide. The Foreign and Commonwealth Office also administers Britain s 15 overseas territories. 2.3 Government The United Kingdom is both a constitutional monarchy and a democracy. It is governed by the Prime Minister and a cabinet of ministers, who together form the Government. The Sovereign formally appoints the Prime Minister, who, by convention, is the leader of the majority party in the House of Commons. Other ministers are appointed by the Sovereign on the advice of the Prime Minister. Although the ministers control the executive division of the Government, they remain responsible to the UK Parliament. The Sovereign or Monarch, currently Queen Elizabeth II, is head of state but has no personal political involvement in the administration of the country. The role of the monarch is ceremonial rather than constitutional. The Queen has many symbolic political duties but little, if any, political power. For example, no statute that has received parliamentary approval may become law without receiving Royal Assent, but, in practice this is never withheld. The UK Parliament is the United Kingdom s legislative body. It consists of the Queen and the two Houses of Parliament, the House of Commons and the House of Lords. The House of Commons is a representative body consisting of 659 Members of Parliament (MPs) elected by a system of universal adult suffrage. A general election must be held at least once every five years, but the Government may call a general election at any time. MPs represent individual constituencies and are elected by a simple majority first past the post system, rather than by any form of proportional representation. This tends to favour larger political parties at the expense of smaller ones; the majority of MPs belong to either the Labour Party or the Conservative Party. The House of Lords is not elected. It is not allowed to amend in any way certain bills passed by the House of Commons and has only limited powers of revision or delay over others. The current House is a transitional body consisting of a small number of hereditary peers and a larger number of appointed peers. The Queen appoints peers on the advice of the Prime Minister. Further proposals for reform are expected to be made in the near future. Proposed legislation must receive the support of a majority in each house and then Royal Assent before it becomes law. After it becomes law, the constitution-al validity of legislation may not be overturned by a court of law. Scotland and Wales have regional bodies (the Scottish Parliament and the Welsh Assembly). These bodies are elected under a mixed system consisting of first past the post and a proportional element, which ensures proper representation for smaller parties. The Scottish Parliament and Welsh Assembly have powers over regional issues, but the UK Parliament has power over all matters involving defence and the economy. The UK Parliament also deals with all matters relating to England. The voters in the United Kingdom also elect members of the European Parliament on a broadly proportional system of voting. The most recent general election in the UK was held in May 2005 where the status quo was maintained although the Labour Party now has a reduced majority. The UK s political history in the last decade. The present government is stable, and the UK has experienced stable government since it became a parliamentary government in the seventeenth century. Two factors are critical in ensuring this. Firstly, the electoral system usually ensures that a single party wins an outright majority of seats in the House of Commons. This reduces the necessity for forming coalition governments, which are often thought to be less stable. The last peacetime coalition government in the UK was formed in Secondly, the UK s parliamentary system of democracy requires a government to enjoy the confidence of the House of Commons in order to survive. By convention, a government which loses a vote in the House of Commons on an issue of confidence must dissolve Parliament and an election is called immediately, as happened in This tends to mean that governments are only removed and replaced as a result of elections. Only once in the last twenty-five years, in 1990, has a Prime Minister been replaced other than via an election. Elections are not conducted at fixed terms, but the dates of elections are chosen by the incumbent Prime Minister, provided that an election is held every five years. The British political system was mostly a two-party system until around 1974, involving a centreright party (Conservative) and a centre-left party (Labour). They tended to alternate in office, with the Conservatives holding power for longer than Labour. Since 1974 there has been increasing tendency

11 10 11 for the public to vote for other parties, such as the main third party, the Liberal Democrats, or for Scottish, Welsh, or Northern Irish regional parties, each of which are represented in Parliament. However, the electoral system tends to support the two-party system and militates against smaller or fringe parties winning seats. The opportunity for smaller parties to gain influence would appear to be limited to the rare occasions when there is a hung Parliament, such as in 1974, and There was a Conservative government from 1979 to 1997, led firstly by Margaret Thatcher and latterly by John Major. The Conservative government won successive majorities in the House of Commons of 43 (in 1979), 144 (in 1983), 102 (in 1987) and 21 (in 1992) (throughout this time, the House of Commons had between 630 and 650 seats in total). Due to by-elections, suspensions and defections to other parties, the Conservatives majority was wiped out in However, the government survived until May 1997, when it had to call an election. In 1997, a Labour government was elected with a landslide majority of 179 and Tony Blair became the Prime Minister. This was in many ways a momentous result, since Labour won their highest number of seats ever and the Conservatives won their lowest share of the vote, and their lowest number of seats, since The Labour government was re-elected in 2001 with a majority of 167, and re-elected again for a third term with a reduced majority. Explain your country s judicial system. The United Kingdom does not possess a single document (or written constitution ) which is the foundation of all constitutional law. There are many constitutional rules, but these are derived from a variety of legal sources, including Acts of Parliament and subordinate legislation; decided cases; institutional writings; practices, procedures and conventions; and the laws of the European Union. In this sense the United Kingdom s constitution is described as unwritten. These rules have also evolved throughout the centuries, rather than being planned as part of a deliberate design. This unwritten constitutional tradition means that the UK does not enjoy a formal separation of powers between the executive, legislative and judicial branches of the State. The Sovereign, who is the Head of State in the UK and throughout the Commonwealth, is the ultimate authority in constitutional law. Decisions of the Executive and of the Courts are made in Her Majesty s name; and Her Majesty s formal Assent is required before any statute is enacted. The United Kingdom s sovereign legislative body, the Queen in Parliament (which consists of the Sovereign, the House of Lords and the House of Commons), is also the High Court of Parliament, the highest court. The Lord Chancellor is a member of the Cabinet, is the Speaker of the House of Lords as a legislative body and is also the chairman of the House of Lords sitting as an appeal court. The Appellate Committee of the House of Lords exercises the judicial functions of the High Court of Parliament. The House of Lords is the highest court for civil matters in Scotland, and for both civil and criminal matters in England, Wales and Northern Ireland. It consists of 12 Lords of Appeal in Ordinary (or Law Lords ), of whom customarily not less than two are qualified in Scots law. Efforts are made to ensure that both Scottish Law Lords sit in appeals from Scotland, although this is not mandatory. The current UK Government recently announced proposals to create a Supreme Court, which would exercise the judicial functions of the House of Lords but would no longer be connected to Parliament. Supreme Court judges would not sit as legislators. The next highest court in Scotland is the Court of Session. This was created in 1532 to assume the judicial functions of the old Scots Parliament (which existed while Scotland was an independent country, until the Union with England and Wales in 1707). It is sometimes also described as the College of Justice, and judges are also referred to as Senators of the College. It is a court of both originate and appellate jurisdiction: the Outer House is a court of first instance and appeals are heard in the Inner House. The Inner House consists of two divisions: the First Division, which is presided over by the Lord President, the highest judge based in Scotland, and the Second Division, which is presided over by the Lord Justice-Clerk. There is no difference in status between the Divisions, although there is an informal division of subject matter. Divisions usually consist of 4 judges, although occasionally a court of five or more judges (a full bench ) is formed to consider overruling a previous decision of a Division. It is a collegiate court, and it is competent (although unknown) for all 32 judges to sit together. In the Outer House judges sit alone and, in that capacity, are referred to as Lords Ordinary. Occasionally, a jury of 12 persons will sit with a Lord Ordinary in a civil damages case. The Court only sits in Edinburgh. The next courts in Scotland are the Sheriff Courts. These courts have a wide originate jurisdiction in both civil and criminal matters, and hear some administrative appeals. Its civil jurisdiction is almost as wide as the Court of Session. There are 49 Sheriff Courts across Scotland. Most judicial business in Scotland is conducted in the Sheriff Courts. In criminal matters, the highest court in Scotland is the High Court of Justiciary. There is no appeal to the House of Lords (unlike the position for criminal cases in England, Wales and Northern Ireland). The High Court goes on circuit around Scotland. The High Court consists of the same judges as the Court of Session, in which capacity they are referred to as Lords Commissioner of Justiciary. The High Court is a trial court, in which a judge sits with a jury of 15. There are three verdicts guilty, not guilty and not proven and any verdict may be returned by a majority of 8 jurors. The Sheriff Court is a criminal trial court for a wide range of criminal matters. Sheriffs sit with a jury for serious crimes, and sit alone for less serious crimes. The lowest court in Scotland for criminal matters are the District Courts. There are 53 around Scotland. These deal mainly with minor and regulatory offences. Non-legally qualified justices or stipendiary magistrates. In addition, there are a variety of courts and tribunals created by statute or at common law to deal with specific issues, including the Election Petitions Court, the Court of the Lord Lyon, the Lands Valuation Appeal Court, the Scottish Land Court, the Courts-Martial Appeal Court, the Scottish Lands Tribunal, the Employment Tribunals and the Employment Appeals Tribunal, the Social Security and Child Support Tribunals, and the VAT and Duties Tribunals. An independent and impartial judiciary is required by Article 6 of the European Convention on Human Rights to determine criminal charges and disputes concerning civil rights and obligations. Statutory provisions and common law rules must be interpreted and applied consistently with Article

12 so far as this is possible; if this is not possible the courts cannot overturn legislation but the UK risks challenge in the European Court of Human Rights in Strasbourg. There are important Scottish rules requiring judges to decline to hear a case if they are, or would reasonably be perceived to be, personally affected by its outcome. Recommendations for judicial appointment are made by an independent commission. Once appointed, a judge cannot be removed except where an investigation led by a senior judge has decided that the judge is unfit for office. Judicial salaries are also protected. Disputes need not be settled within Scotland. If a Scottish court is hearing a case it will sit in Scotland (the only exception being the Lockerbie trial, in which the High Court of Justiciary sat in the Netherlands) for all stages of the case. Parties to a case should be represented but need not attend personally, except in criminal cases or where a party is a witness. A court may appoint an independent commissioner (usually a lawyer) to obtain evidence from another country, where that evidence cannot practically be brought to the court: alternatively it is possible for evidence to be given via a video link. It is possible for an overseas court or tribunal to apply Scots law in resolving a dispute and for the Scottish courts to recognise that judgment as valid. This would depend upon the rules of private international law both in Scotland and in the other country. There is no alternative method of political dispute resolution to the courts, but it is possible for either the UK Parliament or the Scottish Parliament to legislate to make exceptions or additions to the general law for individual persons or property by a Private Act of Parliament. This can be an expensive, uncertain and time-consuming process. There are also Alternative Dispute Resolution methods to the courts, which have been growing in popularity over the last years. Mediation is increasingly used in family disputes. Arbitration or adjudication clauses often appear in modern construction contracts. Many commercial disputes are subject to informal negotiation by the parties or their legal representatives before resorting to formal methods of dispute resolution, such as the courts. In contractual cases, parties can agree that the outcome of arbitration or adjudication will be binding on them, and the courts will usually not interfere with this. The time taken to resolve disputes largely depends upon the complexity of the issues and the degree to which they are disputed. An uncontested action in the Sheriff Courts can be resolved within two months, but it may take two or three years to resolve a dispute in the Court of Session. If the parties agree to sist (suspend) an action, it can remain live for many years. The Court of Session has a Commercial Court which uses specialist procedures and can process cases more quickly. The UK is a contracting party to the 1968 Brussels Convention on Jurisdiction and Enforcement of Judgments in Civil and Commercial Matters, which is given effect in Scots law by the Civil Jurisdiction and Judgments Act This allows free movement of civil and commercial judgments between EU countries. There is a similar arrangement in place between the UK and Canada. Otherwise, in general terms foreign decisions can be enforced in Scotland if there is a satisfactory link between the person obtaining the decree and the legal system from which the decree originated. A judgment for the payment of money may be registered and enforced in terms of the Foreign Judgments (Reciprocal Enforcement) Act 1933, which is based on a number of international conventions relating to this issue. Matrimonial decrees (such as for divorce and annulment) may also be recognised if they conform to domestic laws in the appropriate area. The Civil Jurisdiction and Judgments Act 1982 also allows certain arbitration awards to be enforced in Scotland. The highest court in Scotland for civil matters is the Court of Session, although an appeal may lie to the UK House of Lords (shortly to be replaced by a UK Supreme Court). The highest court in Scotland for criminal matters is the High Court of Justiciary, and there are no appeals to UK courts in criminal matters. The Court of Session and the High Court of Justiciary are both appeal courts and courts of first instance, although they are constituted differently for these purposes. Scotland and England were separate countries between 1314 and In the 1707 Treaty of Union, the distinct nature of Scotland s legal system was preserved. The court structures; rules of procedure, evidence and remedies; and many of the substantive legal rules themselves are quite different. However, the development of the UK economy and the increasing influence of the European Union have meant that there is great harmonisation between the laws of Scotland and England on issues such as company law, taxation, social security, competition and intellectual property. There are still important differences, particularly in the fields of criminal law, property law, contract and obligations and family law. Northern Ireland is also a distinct legal jurisdiction within the UK, although it has a much greater degree of similarity with England than Scotland does. Individuals can broadly choose that Scots law may not apply to certain situations or legal relationships. For example, parties to a contract can choose which law the governing law of a contract should be. This need not have any direct connection with the parties or the place of performance or payment. However, in some areas, such as company law, an overseas investor will be subject to the UK company law rules and will not be able to avoid these. The UK s legislative system The UK s legislative system is largely shaped by its history as a union state. The principality of Wales conjoined with England in 1295, Scotland and England were joined in Union, subject to conditions, in 1707, the whole island of Ireland formed a Union with Great Britain in 1800, although in of the 32 Irish counties seceded to become the Republic of Ireland. The basic parliamentary system involves a single, bicameral unitary parliament based at Westminster. However, in recent years subordinate legislatures have been created in Scotland, Wales and Northern Ireland. The pattern is not neat, though, as England has no devolved legislature. The UK Parliament remains sovereign, and can theoretically overrule a decision of a devolved legislature, although this has not happened yet and would be politically controversial. The elements of the UK Parliament are the Sovereign, the House of Lords and the House of Commons. The Sovereign assumes the Crown according to heredity by male primogeniture. The House of Lords consists of around 700 peers, most of whom are appointed as life peers by the UK Government. Until 1999, some 800 hereditary peers were also entitled to sit and vote in the House of Lords, although now there are only 92 such peers who represent the larger number. There are also 26 Bishops of the Church of England and 12 Law Lords. The House of Lords has been roundly criticised as being undemocratic, and the UK Government has an electoral commitment to reform its

13 14 15 composition. However, there is no political consensus on what to replace the current system with and, as a result, reforms have been slow and contentious. In recognition of the House of Lords unelected status, there is a convention that, if a UK Government enjoys a single party majority in the House of Commons, a Bill to implement a manifesto promise will not be opposed by the House of Lords at second reading (the debate on the general principles of the Bill), although the House of Lords may seek to amend the detail of the Bill. The House of Lords also does not debate money bills (relating to the raising or spending of public money). However, the parliamentary timetable is less pressurised in the House of Lords than in the House of Commons, and the House of Lords is often praised for its technical ability to consider and improve the detail of legislation. The House of Commons consists of 659 Members of Parliament (MPs). The Commons does not have a fixed term: the Sovereign dissolves Parliament and triggers a general election, although this is almost inevitably on the advice of the Prime Minister, although there is a maximum term of five years. A Bill may be introduced by the UK Government or by an individual MP or peer. Bills introduced by individual MPs or peers stand far less chance of success than Government Bills because the Government controls the parliamentary timetable. In both houses, the Bill is introduced (first reading), its general principles are debated (second reading), then a committee goes through the Bill on a line-by-line basis and considers amendments (committee stage), the committee reports back to the whole House, and further amendments can be considered then (report stage), and finally there is a debate and a vote on whether to pass the Bill as amended (third reading). Any amendments agreed by one House must be agreed by the other. If there is an impasse, the Parliament Acts allow the Commons to overrule the wishes of the Lords if an identical Bill is passed a second time by the Commons one year later. A Bill may not be passed in terms of the Parliament Acts if it seeks to extend a parliamentary term beyond five years. Only five Acts have been passed by the Parliament Act procedure since this became possible in Once a Bill has been agreed by both Houses (or in terms of the Parliament Acts) the Sovereign must give Royal Assent. This role is now largely formal, and a refusal to assent to an Act passed by the Houses would probably trigger a constitutional crisis. As there is no UK constitution, legislation passed by Parliament is theoretically the supreme source of law, and the courts are bound to give effect to it. However, Parliament has accepted limitations on its own authority, most prominently by acceding to the laws and regulations of the European Union, which may have direct effect in Scots law in preference to contradictory provisions of a UK statute. The Human Rights Act 1998 also gave greater effect to certain fundamental rights contained in the European Convention on Human Rights and Fundamental Freedoms 1951, and provided that statutory provisions had to be interpreted consistently with those rights if that was possible, even if a different meaning would be more suitable. The Scottish Parliament was created in As a creature of statute, its powers are limited and the courts may strike down a piece of legislation that is outwith those powers. It consists of 129 members (MSPs), elected under a system of proportional representation. This has made the Parliament more politically diverse than the UK Parliament, in which a single party usually has an overall majority. The first two devolved Scottish governments have been political coalitions. It can legislate in relation to key issues such as health, education, transport, housing and agriculture. Issues such as the constitution, tax, foreign affairs and defence and social security are reserved to the UK Parliament. Although the UK Parliament is sovereign, a convention is developing that the UK Parliament will not legislate for Scotland on a devolved issue unless the Scottish Parliament has agreed first. The Scottish Parliament s legislative system is similar to the UK Parliament s, with some key differences. The parliamentary timetable is controlled by a business committee, which is chaired by the Parliament s presiding officer and has representatives of each significant political grouping in the Parliament. Bills may be introduced by one of the Parliament s sixteen committees, and some of these have already become law. Individuals and organisations may petition the Scottish Parliament directly, which can lead to changes in the law, since it is elected by a more proportional electoral system. 2.4 What is the public/government attitude towards environmental regulation? In general, environmental issues/regulation are not given a high priority by the UK Government. The UK and Scottish Governments are, however, developing an ambitious climate change programme. The Department for Environment, Food and Rural Affairs (DEFRA) and the Scottish Executive are responsible for environmental policy issues. Over 80% of Scottish environmental laws are created as a result of EC environmental legislation and this is the main driver for the increase in environmental legislation rather than UK Government initiatives. There are currently two instances where the UK may be fined by the EC for not implementing EC legislation timeously e.g. for the Directive on the end-oflife vehicles. In the UK the key areas of environmental legislation are: waste management, water pollution, air pollution, noise, hazardous substances, contaminated land and the IPC/IPPC regimes; and there is a significant amount of non-statutory guidance, practice and technical notes. In general terms Scotland and England are subject to similar legislation. They have two separate regulators the Environment Agency (EA) in England ( and the Scottish Environment Protection Agency (SEPA) in Scotland ( Local Authorities also play a role in environmental regulation e.g. in the Contaminated Land Regime and the regulation of Noise Pollution. There is a significant overlap between planning and environmental regulation regimes. SEPA, which has no prosecution powers, must refer details of environmental offences to the Procurator Fiscal who will determine whether a prosecution should be brought under the guidance of SEPA. The EA in contrast has prosecution powers. In England, guidance has also been issued for Magistrates to assist them with dealing with prosecutions for environmental offences. A breach of environmental law will ultimately result in criminal proceedings but there are also civil liability and clean-up sanctions. In general the public are becoming more and more concerned with environmental issues and are more aware of environmental issues. The Green Party is enjoying an increase in support, particularly in Scotland where there are now seven Green MSPs. Industry remains concerned about the costs

14 16 17 and the complexity of increased environmental regulation and this has resulted in initiatives to encourage compliance such as the Netregs guidance being available on the EA website. Environmental insurance is also becoming increasingly common for environmental law issues, in particular for contaminated land issues, and there are an increasing number of environmental law issues for Solicitors to understand and advise on. Explain any environmental regulations This review focuses on Scottish environmental regulation with some references to the English position. Installations Air/Water/Land pollution by installations/plants is governed by Part I of the Environmental Protection Act 1990 (EPA 1990) and the Pollution Prevention and Control Act 1999 (PPCA 1999). SEPA is the enforcer and is responsible for issuing Integrated Pollution Control authorisations (IPC) or Integrated Pollution Prevention and Control (IPPC) permits. Air The main provisions for the control of air pollution are contained in Part I of EPA 1990, PPCA 1999 and the Clean Air Act It is an offence to operate a prescribed process without a relevant authorisation or in breach of any conditions attached to an authorisation for an IPC or Air Pollution Control (APC) process. IPPC is progressively replacing the IPC and APC regimes. The Clean Air Act 1993 also gives power to the local authorities to deal with air pollution, and makes it an offence to emit dark smoke, grit and dust in certain situations. Water The relevant legislation is the Control of Pollution Act 1974 (COPA), the Sewerage (Scotland) Act 1968 and the Groundwater Regulations In Scotland the major controlling mechanism for water pollution is a general prohibition on the entry of matter or pollutants into a water system unless with the consent of SEPA. An offence is committed where a person is found guilty of causing or knowingly permitting the unlawful entry into controlled waters of solid matter, or of poisonous, noxious or polluting matter, or of trade and sewage effluent. The EC Water Framework Directive has recently been implemented in Scotland by the Water Environment and Water Services Act 2003 (similar to the provisions of the Water Bill in England). Discharges of sewage/trade effluent are controlled in Scotland by the Sewerage (Scotland) Act 1968 and Scottish Water is the regulator of this piece of legislation. Waste on Land Pt II of EPA 1990 provides the main controls for waste management in the UK. The Controlled Waste Regulations 1992 (as amended) detail the categories of household, industrial and commercial wastes but the definition of waste is a particularly complex issue. A waste management licence is required from SEPA or the EA for the treatment, keeping and disposal of controlled waste in accordance with the Waste Management Licensing Regulations Special waste is governed by the Special Waste Regulations 1996 but these regulations are currently the subject of a detailed consultation process and will be amended within the next two years. It is an offence to treat, keep or dispose of controlled waste in a manner likely to pollute the environment or harm human health, even where these activities are in accordance with a waste management licence. There are also detailed provisions regarding the procedures for the transport of waste and special waste. Radioactive Substances The Radioactive Substance Act 1993 provides the framework for the keeping and use of radioactive substances and accumulation and disposal of such substances. Radioactive substances registration certificates are required for keeping and using specific radioactive material on premises and authorisations are also required for the accumulation and disposal of radioactive material from premises. In addition, a certificate of registration is required for the keeping, using, lending or letting on hire mobile radioactive apparatus. The certificates are personal and not transferable. SEPA and EA are the regulators of this legislation. The Government are finalising plans for a new supervisory body, the Nuclear Decommissioning Authority (NDA), to oversee the decommissioning of nuclear operations in the UK in the future. Noise The EPA 1990 Part III and COPA 1974 address noise nuisance. Construction site noise and noise abatement zones are dealt with by COPA Noise emitted from premises which is prejudicial to health or a nuisance may be a statutory nuisance under EPA 1990 Part III. Local authorities are under a duty to inspect their area and to take steps to investigate any complaints made by members of the public. There are a number of exemptions. The local authority can serve an abatement notice either requiring action to be taken or prohibiting the noise from occurring/recurring. There is a twentyone day period during which time the notice can be appealed. The Noise Act 1996 which is intended to deal specifically with music coming from residential properties does not apply in Scotland. Harmful Substances The Contaminated Land regime came into force in England in April 2000 and in Scotland in July 2000 (Part IIA of EPA 1990). The regime creates a system for the remediation of historically contaminated land with current and future pollution being dealt with under existing UK pollution control regimes. Local authorities in the UK are obliged to identify contaminated land within their boundaries. A site is deemed contaminated if, significant harm is being caused or there is a significant possibility of such harm being caused or pollution of controlled waters is being, or likely to be caused. The remediation of contaminated land through the planning regime is often the most appropriate way to remediate contaminated land with the Planning Authority having power to impose planning conditions in a planning consent requiring remediation measures to be carried out for a site. There is a raft of other environmental legislation governing the storage, keeping and disposal

15 18 19 of harmful substances which include: the Health & Safety at Work etc Act 1974, the Control of Asbestos at Work Regulations 2002, the Asbestos (Prohibitions) Regulations 1992 and the Asbestos (Licensing) Regulations 1983 where the Health and Safety Executive is the enforcer and the Environmental Protection (Disposal of Polychlorinated Biphenyls and Other Dangerous Substances) (Scotland) Regulations 2000 (for Polychlorinated Biphenyls (PCBs)) where SEPA is the enforcer. Habitats/Wildlife Protection The Wildlife and Countryside Act 1981 regulates the protection of plants, animals and habitats and it is enforced by Scottish Natural Heritage and English Nature. Forest Conservation The Forestry Act 1967 is enforced by the Forestry Commission. Under the Act a felling licence must be obtained from the Forestry Commission for the felling of certain trees and it is an offence to fell without a licence. There are exemptions to the requirement to obtain a licence such as felling trees in a garden or felling fruit trees. Packaging Waste The Producer Responsibility Obligations (Packaging Waste) Regulations 1997, as amended, came into force in 1997 and were made under the EA 1995 to implement the EC Directive on Packaging Waste (94/62/EC). They create a regime to ensure certain amounts of packaging in the production chain are recovered or recycled. SEPA are currently increasing their enforcement of this regime. The EA in England has brought over 80 successful prosecutions. Common law liability In addition to statute law there are remedies under the common law. The most common types of civil proceedings are actions of nuisance or negligence. In environmental cases successful nuisance or negligence actions can result in damages being paid for the loss suffered or an order granted against the person causing the damage requiring him or her to refrain from doing the act causing the damage. For both types of action an action must be taken by the person who has suffered or been injured by the wrongdoing. Environmental Management Systems An Environmental Management System (EMS) is the part of the management of a company that includes all the practices and procedures for implementing and maintaining the environmental policy to minimise environmental impacts and improve the environmental performance of a company. There are two internationally recognised environmental management systems schemes ISO and the EC Eco-Management and Audit Scheme ( EMAS ) which are both valuable tools for businesses organising and demonstrating environmental management. 2.5 Intellectual Property There are five main intellectual property rights in the UK, namely: Patents; Trade Marks; Copyright; Design Rights; and Know-How. With the exception of Know-How, each of these intellectual property rights will be considered under 4 headings: Procedure and Costs which will consider the requirements to register the intellectual property right and the associated costs; Requirements which will consider the legal requirements in the UK to obtain the intellectual property right; Scope of Protection which will consider the right which is bestowed upon the owner of the intellectual property right; and Duration and Renewal which details the period of protection, the possibility of renewal terms and the associated costs. Patents Procedure & Costs UK patents are governed by the Patents Act 1977, as amended, and the Patents Act Applications for a UK patent may be submitted to either to the UK Patent Office or the European Patent Office. A European patent designating the United Kingdom falls to be treated under the 1977 Act as if the UK Office had granted it. A patent application should contain: (a) a request for a patent to be granted; (b) the name and address of the applicant; (c) a specification, containing a description of the invention; (d) a statement of claims delimiting the scope of the patent; and (e) an abstract. A patent will normally be granted within 4 years of the date of filing the application although there is a fast track process. There are 3 types of applications which can be pursued in respect of the UK: (1) a UK Application; (2) a European Application; (3) an International Application (PCT). A UK Application will result in protection covering the UK alone. A European Application will result in Community Patent protection covering a bundle of national patents for such countries as are designated in the Application. The Application is handled by the European Patent Office (EPO). A PCT Application can be made, designating the PCT countries in which patent protection is sought. Administration is provided by the World Intellectual Property Office (WIPO) and the Patent Office of Australia, Japan, Asia, USA, together with the EPO provide assistance. The current approximate costs of filing a patent application include the preliminary search 130 and the substantive examination 70. There is no longer any charge for filing the application itself. In relation to European Patent Office applications, the costs including the filing fee are 160 (if not filed online) or 90 (if filed online), search fee of 690, designation fee of 75 for each state (subject to maximum of 525), examination fee of 1,430, and claim fee of 40 payable per claim in excess of 10 claims. In relation to international (PCT) patent applications the costs include a transmittal fee of 55, search fee of 1078, basic fee of 628 for the first 30 sheets and 7 for each sheet thereafter and the designation fee of 60 up to 4 states or a maximum fee of 300 (and other professional) for 5 states or more.

16 20 21 All the above costs are exclusive of professional fees. A full list of up to date UK and European Patent fees can be found at and respectively. Requirements A patent may only be granted for an invention where the following is satisfied: (a) the invention is novel, that is to say it does not form part of the state of the art; (b) the invention involves an inventive step which is not obvious to a man skilled in the art; and (c) the invention must be capable of industrial application. The 1977 Act makes clear that discoveries, scientific theories and mathematical methods cannot be regarded as inventions and are thus not patentable. Similarly, works properly found within copyright are non-patentable e.g. schemes for performing a mental act, playing a game or doing business. Computer programs are technically not patentable per se but this is far from the reality in that software with a technical effect can be patented and good patent drafting can often procure effective protection for software nonetheless. Finally the Act denies patent protection to offensive, immoral or anti-social inventions and also for any animal, plant or biological process. Scope of Protection Where the patent is for a product, patent protection provides the patentee with the exclusive right to make, dispose or otherwise use the product. Where the patent is for a process, the patent protection provides the patentee with the right to use the process or dispose or otherwise use a product obtained directly by means of the process. If a third party exercises any of these rights with permission from the patentee this will constitute patent infringement. Notwithstanding the foregoing there are circumstances where a third party may make use of a patented product or process without infringing the patent. This includes private use for non commercial purposes and experimental purposes. Whilst the patent belongs to the patentee, after three years of the patent s life application can be made for a compulsory licence on various grounds, including, the patent has not been sufficiently worked in the UK or the patentee has failed to meet the demand for a product on reasonable terms. Duration and Renewal Patent protection runs from the date of filing for twenty years. Renewal payments are on a sliding scale from currently 50 for the fifth year to 400 for the twentieth year. Trade Marks Procedure & Costs UK trademarks are governed by the Trade Marks Act A trademark application should include (a) a request for registration of the mark, (b) a statement of the goods or services in relation to which the mark is sought, (c) a representation of the mark, and (d) a statement that the mark is to be used in connection with those goods or services. There are 3 types of Application which can result in coverage in the UK: (1) a UK application; (2) a Community Trade Mark (CTM) application; and (3) an International application. A UK application will result in protection covering the UK alone. The application is handled by the UK Patent Office and the UK Trade Mark Registry. A CTM application will result in protection in such CTM countries as are designated in the application. The application is handled by the Office For Harmonisation in the Internal Market (OHIM). International applications will result in protection in the countries which have signed up to the Madrid Protocol and as are designated in the application. Patent Office fees are 200 per mark for one class with a further 50 for each additional class. In addition there will be Trade Mark Agent s (and other professional) fees which will vary depending on whether any opposition is encountered. The costs for filing a CTM application are 975 for the first 3 classes of goods and 200 for each additional class. The costs for registration are 1100 for the first 3 classes of goods and 200 for each additional class. The registration process should be completed in approximately 9 months. Requirements Any sign which is capable of being represented graphically and which is capable of distinguishing goods or services of one undertaking from another may be registered. A trademark may consist of words (including personal names), designs, letters, numerals, shapes, colours and smells. It is thought that phrases ending in.com or.org etc may be capable of registration if shown to be distinctive in character. Trademarks which consist exclusively of signs or indications which may serve, in trade, to designate the kind, quality, quantity, intended purpose, value, geographical origin or other characteristics of goods or services are not capable of registration. Scope of Protection Trade Mark protection in the UK allows the owner of the Trade Mark to prevent: (a) a third party using, in the course of trade, a mark which is identical to the registered Trade Mark in relation to the same goods or services; (b) a third party using, in the course of trade, a mark which is identical to the registered Trade Mark in relation to similar goods or services and this causes a likelihood of confusion on the part of the public; (c) a third party using, in the course of trade, a mark which is similar to the registered Trade Mark in relation to the same or similar goods or services and this causes a likelihood of confusion on the part of the public; (d) a third party from using, in the course of trade, a mark which is identical or similar to the

17 22 23 registered Trade Mark in relation to dissimilar goods or services and where the Trade Mark has a registration in the UK and use of the identical/similar mark takes unfair advantage or is deferential to this reputation. Duration A registered trademark may be kept in existence indefinitely, subject to renewal every ten years. The current fees for renewal are 200 for one class and 50 for each additional class. Copyright Procedures & Costs Copyright is governed by the Copyright Designs and Patents Act Copyright in the UK arises automatically. There is no registration system and there are no fees to pay. Whilst there are no official registration procedures for copyright in the UK, it may be helpful to the owner to have proof of the work and when it was created. This may be achieved by depositing a copy of the work with a trusted party such as a bank or a solicitor, or sending a copy of the work to him/herself by registered post and leaving the envelope unopened. Whilst not a requirement, copyright notices are advisable and good practice under the Universal Copyright Convention. Requirements Copyright protection covers the following works: (a) original literary, dramatic, musical or artistic works; (b) sound recordings, films, broadcasts or cable programmes; and (c) the typographical arrangement of published editions. All works must be reduced to material form before enjoying protection. Computer software is protected by the 1988 Act as a literary work. Often the owner of copyright and the author of the work will not be one and the same. The 1988 Act includes moral rights for the author, namely (a) the right to be identified as the author or director of a work (paternity right); (b) the right of the author or director of a work to object to derogatory treatment of that work (integrity right); (c) the right for someone not to have work falsely attributed to them; and (d) the commissioner s right of privacy in respect of a photograph or film made for private and domestic purposes. To protect the author, moral rights are inalienable, although they can be waived. Such waivers may relate to existing or future works. There is no right to be identified as author in relation to computer programs or computer generated works. Scope of Protection The copyright owner has the exclusive rights in the UK: (a) (b) (c) (d) (e) (f) to copy the work; to issue copies of the work to the public; to rent or lend the work to the public; to perform, show or plan the work in public; to make an adaptation of the work; and to broadcast the work. If a person carries out any of the above acts without the permission of the copyright owner this will constitute copyright infringement. Duration and Renewal Copyright in a literary, dramatic, musical or artistic work (including a photograph) lasts until 70 years after the death of the author. The duration of copyright in a film is 70 years after the death of the last to survive of the principal director, the authors of the screenplay and dialogue, and the composer of any music specially created for the film. Sound recordings, broadcasts and cable programmes are protected for 50 years, and published editions are protected for 25 years. Computer generated works enjoy copyright protection for fifty years. The Copyright (Computer Programs) Regulations 1992 were introduced adopting the EC Directive on Computer Programs into domestic law. Moral rights subsist for the duration of the copyright in the work, with the exception of the right against false attribution, which subsists until 20 years after the person s death. Design Rights There are Registered Designs and Unregistered Designs. Registered Designs The current position relating to Registered Designs is provided by the Registered Designs Act 1949, as amended by the Copyright Designs and Patents Act 1988 and the Registered Design Regulations There are two types of Design Applications which can result in coverage in the UK: (a) a UK Application; and (b) a European Application. A UK application covers the UK only and application is made to the UK Design Registry at the UK Patent Office. A European Application is made to OHIM. The costs of a UK Application are 60 for one design. The costs for a European Design are 230 for one design and an additional fee of 115 for other designs up to 10 and 50 thereafter.

18 24 25 An application must provide representations of the design, an application form and the relevant filing fee. Requirements A registered design is a monopoly right in the outward appearance of the whole or part (so long as it is visible) of a product resulting from the lines, customs, colours, shape, texture or other feature. Designs which are purely functional are not registrable. The design must be: (1) novel it must not be the same as a design already available to the public. There is a 12 month period of grace in which a designer can test a design in public without losing the right to register the design; and (2) distinctive character the original impression the design producer on an informed user must differ from the overall impression produced on such a user by a product already made available to the public. An important difference introduced by the 2001 Regulations is that the design is now protected rather than the article to which it is applied. Scope of Protection Registered Design rights provide the exclusive right to make, import, export, use or stock any product to which the design has been applied or incorporated. A third party exercising the above rights without permission from the owner will constitute infringement. Duration Designs may be registered for an initial period of five years and the registration is renewable for successive periods of five years up to a maximum of twenty years. Renewal fees are currently around 130 for the first five years, 210 for the second, 310 for the third and 450 for the final period. Unregistered Designs Original, non-commonplace designs of the shape or configuration of articles may constitute an unregistered design right. The design does not require registration although it does require to be in a tangible form. The design right comes into existence at the moment when it is either recorded in a design document or when an article is made to the design. The right lasts for 15 years unless articles are made to the design which are made available for sale or hire within 5 years, in which case the right lasts for ten years. Know-How Know-How covers knowledge, such as methods of working, specific to an individual/business, which are kept secret. There is no specific right or requirement for registration nor any statutory protection. The extent to which Know-How will be protected will be determined by a Court considering a nonexhaustive list of factors such as: (a) the time taken to develop it; (b) steps taken to protect the information both within and out with the individual/business; (c) the value to the individual/business and that of the individual s/business competitors. If a company does have know-how then it needs to take adequate steps to protect it, for example appropriate security measures, entering into confidentiality agreements and putting in place internal procedures vis a vis employees etc. Treaties The UK is a party to certain intellectual property treaties. These are as follows: (a) Convention establishing the World Intellectual Property Organization. (b) Paris Convention for the Protection of Industrial Property. (c) Berne Convention for the Protection of Literary and Artistic Works. (d) Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods. (e) Madrid Agreement Concerning the International Registration of Marks and Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks. (f) Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks (g) International Convention for the Protection of Performers, Producers or Phonograms and Broadcasting Organisations. (h) Patent Cooperation Treaty. (i) Strasbourg Agreement Concerning the International Patent Classification. (j) Convention for the Protection of Producers of Phonograms Against Unauthorised Duplication of Their Phonograms. (k) Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure. (l) Trademark Law Treaty. The list of treaties above are correct at the date of publication. Reference should be made to the World Intellectual Property Office website for full details of intellectual property treaties ( Intellectual Property Agreements General As previously mentioned, there are some differences between the laws of the territories comprising the UK but the statutory regime governing intellectual property is very similar throughout the country. The general principles of contract law throughout the UK support freedom of contract parties are free to choose with whom they will contract and upon what terms. There are few terms implied into a contract by law and, in general, courts will uphold commercial terms which have been negotiated between the parties to an arm s length transaction. Parties are also at liberty to choose the law they wish to govern the contract. However, the parties

19 26 27 may not, by choice of a different legal system, avoid the application of the mandatory rules of the country which would otherwise apply to the situation. For example, the courts may apply local statutory consumer protection laws. The courts in the UK will generally hear IP disputes, although the parties are again free to provide in the contract for alternative means of resolving disputes e.g. mediation or arbitration. Although local courts are entitled to hear many actions concerning intellectual property, some actions (such as patent infringement issues) may only competently be brought in the higher courts of the land. Remedies include injunction/interdict (court order prohibiting the defendant from carrying out certain actions), delivery (an order requiring offending goods to be delivered up), and/or damages or an account of profits all depending on the nature/extent of the infringement. There are also certain criminal liabilities under relevant intellectual property legislation. Transfers of Intellectual Property How are transfers achieved? Outright transfers of IP are completed by way of an assignment (in Scots law terminology, the same document is generally known as an assignation). There is no statutory form of assignment, although they tend to be relatively short documents following a typical style. However, legislation does require that certain IP assignments be in writing, and signed (at least) by, or on behalf of, the assignor and in the case of assignments of patents, by both parties. It is possible to assign past, present and future rights (by way of present assignment). It is also possible to assign rights in security for a loan, and to assign in return for periodical payments (effectively a staged consideration) although the latter can be complex and an exclusive licence with royalty payments may be a better solution (see below). Is there anything that cannot be assigned? Moral rights, which are personal to the author of a work, cannot be assigned (they are only transferred to successors upon death), but can be waived. Certain statutory rights of employees to compensation (in the case of an employer deriving extraordinary benefit from employee inventions) under sections of the Patents Act 1977 cannot be transferred or waived. However, both of these sets of rights are relatively weak, not often used and can be expensive to enforce. Are there any other parties who require to be notified of changes in ownership? Changes in the ownership of registered rights must be notified to the appropriate authorities to receive the full protection of the law. In the case of UK registered trade marks, this is the Trade Marks Registry; UK registered designs, the Designs Registry; and patents, the UK Patent Office. Changes in the ownership of Community Trade Marks and Community Registered Designs should be notified to the Office for Harmonisation in the Internal Market (OHIM) in Alicante, Spain. Intellectual Property Licensing What are the rules about licensing in the UK? There is no statutory form of Licence Agreement although most will follow a common pattern and contain standard terms one would expect to see in such an agreement e.g. scope of the licence, permitted territories, financial terms and so on. There are generally no restrictions under law as to the appointment of sub-licensees or parties to whom the licence may be assigned, so if there are to be any restrictions, then these should be covered in the agreement. Are there any pre-contractual considerations? In the same way as in other territories, confidentiality can be an important aspect of pre-contractual negotiations, depending on the sensitivity of information or technology concerned. Non-disclosure agreements should be entered into in writing prior to disclosures being made, particularly in view of the lack of statutory protection in the UK for confidential information, trade secrets and know-how. Are there any formalities of contract? An intellectual property licence is a contract and, like any other contract under UK law, it can be constituted verbally or in the course of correspondence, and even inferred from the actings of the parties. However, a written agreement is usually entered into by the parties. As well as clarifying the terms of the licence, writing can of course be useful or even necessary to strengthen the rights of the parties concerned. If there is to be no written agreement, or matters are to proceed on an informal basis, it is wise to have at least a document setting out the commercial heads of terms of the agreement. Lack of a written agreement could lead to ambiguities and uncertainty, which may in turn require the courts to determine implied terms (not necessarily to both parties advantage) in the event of disputes arising. There are advantages to ensuring that a written agreement signed by the parties is in place. For example, in relation to copyright, an exclusive licence must be in writing and an exclusive licensee will have no right to sue infringers unless the written formalities are met. Similarly, registration of a written patent licence will allow an exclusive licensee in the UK to step into the shoes of the patent owner and raise proceedings in respect of infringement of the patent, whereas failure to register may result in a licensee forfeiting the right to damages/an account of profits. There are also advantages under applicable UK trade marks legislation to registering both exclusive and non-exclusive licences, such as rights against holders of conflicting interests in a trade mark where these were acquired in good faith, and certain rights to bring actions for infringement in the name of the licensee. Please note that there are generally no notarisation requirements for the transfer or licensing of IP in the UK. Are there financial restrictions? There are no specific constraints under UK law in relation to the financial terms which may be included in a licence agreement, although there may be certain anti-trust/competition law

20 28 29 considerations if the licensor is seeking payment of a royalty which extends beyond the patented or licensed process. The licensor will require to consider the taxation implications of any payments to be remitted by the licensee. The UK applies a withholding tax on UK patent royalties and certain copyright royalties if payment is to be made to a non-resident company. The terms of any applicable double taxation agreement should be considered carefully, particularly in relation to payment of royalties. In the absence of any double taxation agreement withholding tax at the basic rate (22% at time of writing) applies to patent royalties paid to nonresidents. Appropriate professional tax advice should be taken in each case, including the implications of Value Added Tax legislation on the payment of royalties and other payments under the licence. Intra-group sharing of IP between parent/subsidiary companies may also give rise to financial, accounting and taxation considerations depending on the nature of the arrangement and the relationship between the companies and specific advice should be sought in individual cases. Are there regulatory requirements or necessary approvals? Licence Agreements do not generally need to be approved or registered by any governmental agency. However, there are specific requirements in certain areas. In relation to medicines and medical devices, for example, there is specific domestic and EU legislation and guidelines, but there are also issues relating to clinical trials; current good laboratory, clinical and manufacturing practice; health and safety and environmental issues governing the use, storage and disposal of various materials. Specialised advice should be sought in each case. In addition, there may be competition law considerations at a European Union level see below. What are the competition law (antitrust) considerations? The UK is an EU Member State, and therefore, EU law has direct effect in the UK and actions based on EU law can be brought in the national courts. One of the areas more heavily regulated by the EU is competition law. The key provisions of the UK s Competition Act 1998 mirror the EU Rules (Articles 81 and 82). The Act prohibits agreements or concerted practices which have the effect of preventing, restricting or distorting competition in the UK (known as the Chapter I prohibition ) and conduct by one or more undertakings which amounts to abuse of their dominant position in the UK marketplace ( the Chapter II prohibition ). The UK authorities are required by the Act to ensure that application of these prohibitions is consistent with EU jurisprudence to the extent that this is possible. IP agreements may be able to take advantage of so-called block exemptions from the competition rules. There is a specific exemption from the EU rules for technology transfer agreements which satisfy certain requirements. There is a whitelist of permitted clauses and a blacklist of prohibited clauses. The position in the UK is currently being consulted upon, but we expect that once published it will probably resemble the EU approach. There is also an EU exemption for research and development co-operation agreements satisfying certain criteria. It is also possible to apply for individual exemption at both EU & UK level for agreements that are outwith the scope of the block exemptions. It should be borne in mind that exemptions and exclusions do not preclude the possibility of a dominance type analysis of the effects of an agreement. Both the EU and UK authorities have exemptions/exclusion orders in relation to vertical agreements (e.g. supply, distribution, purchasing, etc where the parties operate at different levels of the market). Provisions relating to IP are generally exempted in so far as they are ancillary (not the main purpose) to the agreement. The EU block exemption focuses on market shares thresholds below which the rules will not apply, whereas the current UK approach is blanket in approach (save where an agreement contains a flagrant breach). It is possible that the UK approach on vertical agreements will be brought more into line with the EU rules in future. What are the liability implications of the licensing model? Whilst the UK courts will generally respect parties rights freely to contract, there are notable exceptions. One such exception relates to possible liability for defective products manufactured under licence. There may be liability at common law, but there may also be strict liability under UK consumer protection legislation, which places liability for personal injury or property damage on the producer. The licensor, not being the producer, may not be liable. However there could be implications for the licensor, for example, if the licensee is authorised to use the licensor s trade mark or get up in relation to the products. Attempts to limit or exclude liability will be subject to a test of reasonableness by the courts under legislation governing unfair contract terms and could be struck down or revised. Other unreasonable terms in standard form contracts (e.g. standard end-user software licence) could similarly be subject to a reasonableness requirement. As regards termination of licences: in the absence of any contractual provision to the contrary there is no compensation payable to licensees on termination of a licensing arrangement under the law of the UK unless, of course, the contract has been wrongly terminated and damages are sought, or the contract itself provides for compensation.