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Record labels hold substantial power and control in the music industry, shaping artists’ careers and providing the crucial platform for their artistic talent to flourish. However, a concerning issue arises when some influential entities go beyond facilitating artistic expression and start manipulating not only the artist’s professional journey, but also shaping their core identity.

We will explore the K-pop phenomenon, a global sensation that exemplifies the intricate dynamics between record labels and artists in the contemporary music landscape. We will be diving deep into some of the contractual ties that bind K-pop artists to their agencies, and the potential human rights implications that could echo from these agreements. We will also be exploring the freedom of contract, or perhaps the lack thereof, and the steps that can be taken to avoid any restrictive contracts. And finally, we will be striking a hopeful note with a recommendation for labels to harmonise with artists, rather than ensnaring them in a symphony of never-ending, unjust contracts.

Context

Let us delve into the K-pop phenomenon. This is not just a catchy tune on your playlist; it is a global symphony, amplified by the power of digital media and the latest tech innovations. K-pop has danced its way across cultural borders, creating a universal stage for young people to connect and engage. South Korean pop music, or K-pop as it is better known, is a shining example of content that has hit the right note with audiences worldwide, thanks to the strategic planning, business execution and marketing of the entertainment agencies nurturing the artists.

But behind this catchy beat, there is a more somber tune playing. The contracts binding some K-pop artists to their agencies may come with strings attached, strings that can control not just the artist’s career, but their identity too.

Imagine signing a contract that not only dictates your career but also your personal life. Picture working up to 20 hours a day, with no time to rest, and being cut off from your family and normal life. The contracts signed by some K-pop artists have been found to contain provisions that entail limitations on various aspects of their private life, such as dating, dietary restrictions, plastic surgery and limited vacation time.

This sounds like less of a contract and more of a violation of human rights. The inclusion of a ‘no dating’ clause can be perceived as excessively intrusive as it may infringe upon individuals’ fundamental rights to privacy and family life, as stipulated in Article 17 of the International Convention of Civil and Political Rights. South Korea’s ratification of this convention raises concerns regarding the reported suppression of artists by entertainment companies. These companies often justify the imposition of no dating bans as a precautionary measure against potential scandals that may negatively impact an artist’s public image. Despite the temporary nature of such bans, usually lasting around three years, the adverse consequences are already imposed upon the artists.

This is the consequence of a notable disparity in bargaining power, resulting in a constrained freedom of contract. K-pop artists typically find themselves in a comparatively weaker position, so their ability to negotiate contractual terms becomes significantly limited. Often presented with non-negotiable agreements, these artists face a binary choice, compelled to sign to advance their aspirations of achieving fame.

It is a harsh reality that can lead to severe mental health problems. As a result of these contracts, many artists have initiated lawsuits against their record labels.

Case studies

In 2009, Han Geng took his agency SM Entertainment to court. The dispute? A 13-year contract that allegedly contained unfair profit distribution and rigid lifestyle restrictions. No sick leave provision was included in the contract, which made it impossible for the artist to cancel events on the basis of infirmity. The court’s verdict? Music to Han Geng’s ears, as he was free from the contract’s restrictive ties. On September 27 2011, Han Geng’s departure from his boy band, Super Junior, was officially announced through a joint statement by his and SM Entertainment’s legal representatives. The statement confirmed that “Han Geng and SM Entertainment have amicably settled on a mutual agreement, and the lawsuit was able to come to a close”.

The same year, three members of the boy band TVXQ, now JYJ, sued the same label. The case gained significant media attention. The dispute? Again, a 13-year-long contract which the band claimed contained unfair profit distribution and intensive schedules. The contract had a “damages clause” that imposed heavy penalties on the artists for cancelling the agreement. On the other hand, the contract allowed the label to terminate at any time without compensating the artists. The court ruling addressed the issue of contract duration, stating that a 13-year term was excessively long. The Korean Fair Trade Commission (KFTC) also investigated and concluded that after seven years, the artists should have the option to terminate the contract. The court in fact noted the absence of termination options for the artists and found the resulting damages imposed for the cancellation to be unfair. The court deemed the whole contract unconscionable due to the excessive control it granted to the label. This led to reforms being implemented later by the KFTC to address, among other issues, entertainment companies’ unfair contract cancellations and excessive penalties.

Since Han Geng and JYJ’s lawsuit against the company, SM Entertainment has been urged to improve contract terms. In 2010, SM Entertainment made a public declaration to implement progressive reforms aimed at enhancing celebrity rights and raising the overall standards of the entertainment industry. SM representatives, together with government auditor Jo Moonhwan, pledged to foster ongoing discussions with the aim of improving contractual terms. Kim Young-min, former CEO of SM Entertainment, emphasised that the company’s commitment to improving standards would create a mutually beneficial scenario for celebrities and their management. “We’ll do our best to improve the culture industry, which causes Hallyu’s expansion, and add national value to it,” he stated.

While some artists are winning their battles and their songs are heard, many stories remain unheard. These are the stories of artists who remain bound by restrictive contracts, silenced by the imbalance of power.

Steps taken and recommendations

But it is not all doom and gloom. There is a growing chorus of voices calling for change. They are pushing for contracts that protect artists equally, ensuring that they are not just performers but partners in their own careers. The law is stepping in, hitting the right notes to prevent unfair contracts and ensure a fair distribution of profits and creative control.

The KFTC has taken the stage, investigating talent contracts and setting a seven-year limit on their length. They have also introduced a ‘standardised contract’ to keep things in tune. Further action was taken in 2017, when the KFTC identified and prohibited six types of unfair contractual terms and conditions. But despite these measures, the music has not stopped for many artists. Many contracts continue to play to the tune of the entertainment agencies, with some companies still hitting the wrong notes when it comes to fairness.

As we sing along to the catchy tunes, let us not forget the importance of legal harmony. Let us rewrite the industry’s symphony, ensuring that artists have the power to shine and chart their own paths. It is time to compose contracts that hit all the high notes, protecting artists’ rights, and granting them the freedom to create their own melodies. A true symphony of fairness. Because in this melody-filled world, it is not just about the music we hear; it is also about the contractual cadence that allows artists to flourish.

Anca Andreea Aurica is a University of Westminster law graduate, currently pursuing the LPC with an integrated master’s at BPP University.

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On Friday 10 March 2023, Silicon Valley Bank (SVB) was shut down by regulators. The bank’s failure has sent shockwaves through the markets — some even began to fear a repeat of the 2008 financial crisis. While the impact has not been (and is very unlikely to become) that severe, the focus has shifted in recent days to understanding why the bank failed, and how we can avoid another event anytime soon — since SVB’s collapse has rocked not only its own stakeholders, but also related companies (and even entire industries) across the globe.

Wall Street Journal columnist Andy Kessler released an opinion piece in the immediate aftermath of the dramatic collapse which directed significant blame at the diversity work of the firm(£). A particularly dark passage claims that “in its proxy statement, SVB notes that besides 91% of their board being independent and 45% women, they also have ‘1 Black,’ ‘1 LGBTQ+,’ and ‘2 Veterans.’ I’m not saying 12 white men would have avoided this mess, but the company may have been distracted by diversity demands,” Kessler writes. Similar sentiments have been reiterated (mostly by Republican politicians) across the US over the last few days. SVB has been labelled a “woke” bank catering to Big Tech-based Democrats, with Florida Republican Governor Ron DeSantis suggesting that “they’re so concerned with DEI and politics and all kinds of stuff […] that really diverted from them focusing on their core mission”.

While the bank’s admirable diversity efforts continue to be weaponised for political gain, this article instead alleges another much more plausible cause of the turmoil — financial mismanagement which could have been made possible by a lack of suitable regulation. In order to demonstrate this, it is important to first outline a brief timeline of the bank’s collapse.

Founded in 1983, SVB was a major player in the financing of tech companies and start-ups in America’s innovation hub. It eventually became rather sizeable, growing to earn the spot of 16th largest bank in America — big enough to leave a major scar once it went under, but, crucially, not quite big enough to fall under particular legal frameworks of financial regulation that may have avoided this crisis altogether — more on that soon.

The collapse, in short, can be traced back to SVB’s large investment of customer deposits into US government bonds over the course of 2021-22. While not generally viewed as high-risk investments, bonds do hold an inverse relationship with interest rates — so when the Federal Reserve began to raise interest rates rapidly in 2023, SVB’s portfolio value was suddenly plummeting. Another consequence of interest rate hikes was a tougher economic climate for SVB’s clients, who consequently missed out on expected venture capital investment, and so turned to their bank to withdraw money. Caught in the worst possible ‘perfect storm’, SVB appeared to panic and sold off its bonds at a $1.8 billion loss. This panic then transferred over to clients receiving the news of SVB’s major losses, and a run on the bank ensued. SVB stock plummeted, and the Federal Deposit Insurance Corporation (FDIC) stepped in shortly thereafter. While the FDIC has promised to return all customer funds, and most economists feel there is not a major threat to overarching financial structures as a result of SVB’s collapse, there have still been serious implications for other businesses (including structurally important banks themselves — Santander stock dropped 7%). All major US indexes fell at least 1% in the immediate aftermath, to provide another example. As a result, the need to diagnose a cause (and therefore avoid a repeat event) is obvious.

Following the 2008 financial crisis (a repeat of which was the primary concern following the SVB collapse), the 2010 Dodd-Frank Act was passed by US Congress. The overall goal was to make the overarching financial system safer in the future. While the Act itself is over 800 pages long, the short version is that it tightened regulations on banks in an effort to ensure lax governance would not allow high-risk investments and lending practices (the ones that largely caused the crash in 2008) to occur again. High-risk investments such as, for instance, investing a huge proportion of your clients’ deposits into severely interest rate dependent products at a time where hikes certainly seemed possible (if not likely).

The Dodd-Frank Act included a provision stating that banks with over $50 billion in assets (2023 SVB ticked that box) would be subject to particularly stringent risk assessment standards since, if any one of those banks were to collapse, the aftermath would pose a threat to the entire financial system.

Here is the major issue, however — when Trump came to power, he announced a Republican agenda of massive deregulation. One of the first parts of this agenda was to re-examine the Dodd-Frank Act and suggest that the threshold be moved from $50 billion to $250 billion. Where SVB did fall under the regulations before, it would not anymore — meaning much greater freedom to make high-risk investments. The Act passed as a result of Trump’s efforts (and a successful lobbying campaign admittedly reaching across the political spectrum, but still drawing from mostly Republican support) was titled the Economic Growth, Regulatory Relief and Consumer Protection Act. The final product is actually a little more complicated than simply moving the threshold from $50 billion to $250 billion — it allows the Federal Reserve to exercise some discretion in what it chooses to regulate across the range of assets under management in which SVB sat. In practice, little of that discretion was exercised — while small adjustments were admittedly made (e.g. new Prudential Standards, changes to Liquidity Requirements, etc.), medium-sized banks like SVB were left largely to their own devices.

It would be an overstatement to state that, if Dodd-Frank had simply been left alone, it would definitely have prevented the SVB collapse altogether. However, Randy Quarles (a senior staff member at the Federal Reserve) stating in a recent interview that deregulation “had nothing to do” with the collapse certainly raises some eyebrows. Former FDIC lawyer Todd Phillips points out that, if Dodd-Frank had not been amended, SVB would have had to fulfil stringent liquidity requirements which may well have prevented the crisis. Additionally, a lack of regulation meant that, at the point of its collapse, SVB appeared to be in such a messy state that it became even harder to find a buyer willing to step in. HSBC did recently purchase the UK arm of SVB (£) (in a deal widely promoted by Prime Minister Rishi Sunak as a successful move to protect UK customers), but the impact has not been mitigated elsewhere yet.

In my opinion, SVB only has itself to blame for poor investment choices and suboptimal liquidity (a lack of risk management has been widely acknowledged now, including the fact that the firm went a staggering eight months without a chief risk officer). However, lawmakers (via regulation) have the ability (or perhaps even the responsibility) to mitigate at least some of these risks in the first place. Turning instead to a supposed over-emphasis on diversity is not only an exploitation of a serious financial disaster for political gain, but also embodies a dangerous deflection of accountability by lawmakers who should have done better. Ironically, it was many of the very same politicians who voted for the 2018 deregulation act who now find themselves scrambling to blame diversity for failings they could better identify in a mirror.

Declan Peters is an Oxford University final-year music student and aspiring lawyer. He holds a training contract offer at Allen & Overy (having also completed a vacation scheme at Hogan Lovells) and maintains a particular interest in intellectual property/entertainment law. He is also a passionate advocate for social mobility in the legal industry.

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Spring/summer 2022 saw green come back in, not just in terms of jeans and accessories but also in terms of consumers becoming more environmentally conscious.

Brands responded to this, purporting to meet various ‘green’ targets and began to lure shoppers in with environmental, social and governance (ESG) campaigns that seemingly showed them as pioneers of environmentally friendly production lines, responsibly sourced fabrics and more relaxed targets and hours for garment-makers. While shoppers may take these slogans and taglines as gospel, competition authorities such as the Competition and Markets Authority (CMA) were not so sure. On 29 July 2022, the CMA launched investigations into three large, high-profile retailers. It is important to note that all three investigations remain open as of the date of publication, with no final decisions or sanctions being imposed yet. As a result, it should not be presumed that any company under investigation has violated any laws pertaining to consumer protection.

After the CMA announced their ongoing investigations, the term ‘greenwashing’ entered the mainstream. Fundamentally, the CMA champions the premise that consumers deserve to know where they are buying from. The Consumer Protection from Unfair Trading Regulations 2008 is the primary consumer protection law that applies to the CMA’s Green Claims Code. A general restriction against unfair business practices is found in the CPRs, as well as particular prohibitions against deceptive conduct and omissions reporting.

So, what characterises fast-fashion products and what are the environmental implications of their production? Fast fashion items are characterised by rapid turnover times, where celebrities’ styles and designer clothes are replicated in a matter of weeks or even days. According to a Business Insider investigation, fashion production produces 10% of all global carbon emissions, which is more than the European Union. Additionally, 85% of all textiles end up in landfills each year, water sources are dehydrated, and rivers and streams become polluted.

The increasing data available relating to the impact of the fast fashion industry culminated in the CMA beginning an investigation in January 2022 into the industry, where consumers spend an estimated £54 billion annually. They immediately identified issues with potentially deceptive green claims. These included several businesses giving the impression that their goods were “sustainable” or better for the environment, such as by making generalisations about the use of recycled materials in new clothing, with little to no details about the foundation for those assertions or precisely which products they related to.

Sarah Cardell, the interim chief executive of the CMA, has stated that: “People who want to ‘buy green’ should be able to do so confident that they aren’t being misled. Eco-friendly and sustainable products can play a role in tackling climate change, but only if they are genuine.” With this in mind, the CMA wants to identify whether the wording of campaigns used by the brands being investigated are too vague and if the business criteria developed to decide which products to include in these collections are lower than consumers might expect. It has been identified, for example, that some garments featured within such collections contain as little as 20% recycled materials. There are also concerns about the robustness of their fabric accreditation schemes and how their more ‘green’ collections sit within their broader business model and production processes.

Staying within but also looking beyond the UK, the fast fashion industry is coming under further scrutiny by key stakeholders, no matter the extent of their greenwashing. Recently, there has been a large amount of media attention surrounding the fast fashion brand Shein. Originating as SheInside.com, the relatively young brand now has a $100 billion valuation. However, it has been subject to negative press surrounding working conditions, with a BBC report exposing “enormous pressure” on workers to produce garments quickly across long hours. Near-identical items are listed on their app at a fraction of their competitors’ prices, with designs matching other leading brands. With 5,000 products appearing on their site daily, global attitudes towards fast fashion have seen a growing shift from capitalist consumerism to social responsibility. This is significant because if demand decreases, so will investment, with global markets fluctuating with shoppers’ changing motivations. Nevertheless, large investors have financially contributed to Shein’s success. In preparing to make initial public offerings in the US as early as 2024, the brand has recognised the importance of improving its ESG factors.

As per a 2022 Channel 4 documentary ‘Untold: Inside the Shein Machine’, whilst policies are supposedly in place with contracted factories, their implementation reportedly falls short of being in practice. The documentary showcased workers allegedly having to meet garment targets, with the expectation that they would work until they met this, even though it would often take them several more hours than those stipulated in their contract. Undercover workers were also apparently told that should any garments fail quality testing, their pay would be docked on a per-garment basis.

For companies to succeed in public offerings in the US, they need to ensure proper working conditions and respond to a more consciously-minded consumer. Future exponential growth will rely on transparency in supply chains and respond to chances to partner with more sustainable brands. Failing to engage with opportunities to make packaging eco-friendly or use renewable energy, for example, could result in poor financial performance for some stakeholders and the loss of others for brands.

In response to the documentary Shein defended its “on-demand production model”, stating that unlike the wider retail industry who average 25%-40% unsold inventory, they have reduced theirs down to a “single digit” percentage. Shein also advised that they “engage industry leading third-party agencies… to conduct regular audits” and sever business relations with factories who do not “remediate… violations… [within] a specific time-frame”.

Shein’s full statement in response to Channel 4’s documentary was as follows: “Shein’s business model is built on the premise of reduced production waste and on-demand production… The average unsold inventory level of the industry is between 25%-40%, whereas Shein has reduced it to a single digit.”

Specifically on the matter of working hours they said, “Shein is absolutely committed to empowering our ecosystem partners… which includes our Supplier Code of Conduct that complies with the core conventions of the International Labour Organisation. Shein engages industry leading third-party agencies… to conduct regular audits of supplier’s industries to ensure compliance. Suppliers are given a specific timeframe in which to remediate the violations, failing which, Shein takes immediate action against the supplier, including terminating the partnership.”

When it came to claims of design theft by independent designers in the documentary, they said, “When legitimate complaints are raised by valid IP rights holders, Shein promptly addresses the situation.”

Whilst Shein clearly has policies coming from those in its head office, unless these are actioned, its business model that theoretically “empower[s]… ecosystem partners” falls short of increasing ESG scrutiny.

To conclude, there is increasing pressure on fast fashion brands to advertise any green claims honestly and transparently. With greenwashing becoming an area that the CMA is swiftly cracking down on and consumers increasingly becoming aware of how the clothes they buy may have been manufactured, there is hope that fast fashion brands will innovate. There is increasing recognition among those dominating the industry that they must lessen their environmental and social shortcomings so that any claims by them are evidenced.

Charlotte Cheshire is a recent LPC and LLM graduate from The University of Law, having completed her undergraduate degree in law from Newcastle University. She now works as a mergers and acquisitions paralegal at KPMG UK in their northern deal advisory team.

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I am openly passionate about Court of Protection (‘CoP’) work but as it is a little-known area of law, when I talk about it, I am often met with a blank stare. My usual one liner response is that we manage the financial affairs of vulnerable and elderly adults who no longer have capacity to do so themselves — but it is so much more than this!

The CoP is a specialist court designed to make decisions on behalf of a person (‘P’) who lacks mental capacity to make a decision independently, at the time it needs to be made. This can be done in a number of ways, including:

• Appointing deputies to make ongoing decisions for people who lack mental capacity
• Giving people permission to make one-off decisions on behalf of someone else who lacks mental capacity
• Making decisions about a lasting power of attorney or enduring power of attorney and considering any objections to their registration
• Considering applications to make statutory wills or gifts
• Making decisions about when someone can be deprived of their liberty under the Mental Capacity Act 2005

The work conducted by the CoP can be divided into two categories:

1. Property and financial affairs
2. Health and welfare

My experience is in the former category, namely management of finances under either a lasting power of attorney or deputyship. However, the two categories are not so clearly divided and at times, there are circumstances whereby the two overlap.

When is a deputy required?

A deputy can be appointed to manage a person’s financial affairs for a number of reasons, including, but not limited to the following:

1. When a vulnerable adult has lost capacity as a result of progressive dementia. In this situation, the most common reasons for appointment are:

a. P has no suitable family members or friends that can act on their behalf as deputy. It may be that P no longer has any family members or sometimes their family members will approach a firm to act for their relative as they do not have the time or expertise to manage a large asset pool.

b. In the more sinister situation, P may have prepared a lasting power of attorney (LPA) in their lifetime appointing family members and/or friends to act in the event they later lost capacity. The appointed individuals then abuse their power and steal or misuse P’s funds. Once concerns are raised, the Office of the Public Guardian will conduct an investigation and if not satisfied with the outcome, the existing LPA will be revoked and an application will be made to the CoP for a panel deputy (a qualified professional who will be chosen from a list of approved law firms and charities if no one else is available to act as deputy) to be appointed (in circumstances whereby there are no other suitable family members and/or friends to act in place of the removed attorneys).

2. A person may require a deputy following an incident whereby they have subsequently lost capacity. There are various circumstances which may lead to a person losing capacity at an early stage in their lives e.g. brain injury as a result of a road traffic accident, medical negligence or injury to name but a few. In these instances, there may be ongoing litigation which will result in a large settlement to fund care needs for life. Where injury is severe and there is a need for ongoing care, the settlement is likely to be millions. A deputy is required to manage such a large settlement and ensure that investment is made appropriately.

3. Injury may occur at birth and in circumstances whereby there is a negligence claim, children may be funded for their care needs for life. Similar to the above, this can result in a very large settlement but in these circumstances, there is added complexity as claims continue to be calculated until the child reaches adulthood and therefore a deputy is required to manage interim payments and ensure that they are properly utilised.

4. It may be that a person is born with a disability and/or a learning difficulty which impacts their ability to understand, retain, weigh up and communicate decisions in respect of finances (Mental Capacity Act 2005, Section 3(1)(a-d)).

How does a deputy manage finances?

When a deputyship order lands on our desk, we are rarely provided with the full client details. Our job is therefore to piece together a person’s entire financial portfolio and as a part of this, it is vital to understand their family circumstances, their lifestyle and to try to gain an understanding of their personality. This involves a lot of ‘digging’, speaking to the client, speaking to family members, care providers, social workers and other connected professionals.

Once we have pieced together a basic picture, we then have to consider the bigger picture and ensure that all financial affairs are in order. This may include:

• Wills — What if the existing will leaves the entire estate to a relative who has stolen from them? Or, what if there is no existing will?

We would then consider whether it is in P’s best interests* (or whether it would have been in their wishes if they were capacitous) for the existing will to stand. In the event it is not in their best interests (or there is no existing will), we then consider the totality of their estate and whether it would be cost effective for P to make a statutory will application to court.

*The best interests of P are at the forefront of every decision made by a deputy, as per Mental Capacity Act 2005, Section 1(5).

• Property — What if P has moved into residential care and they have a vacant property?

The first consideration and a prime example of the overlap between finances and health and welfare matters is whether the intention is for P to remain living in residential care. P may lack capacity to deal with finances but retain capacity in respect of health/welfare/living arrangements. If P objects to the placement then there may be a Section 21A challenge and in these circumstances, a financial deputy would not be able to proceed with an application to court to sell the property until the matter has been resolved and there are sufficient deprivation of liberty safeguards in place.

• Financial abuse — if it is clear that P has been the subject of financial abuse then we will carry out a thorough investigation, gather evidence and then decide whether the matter should be reported to the police or trading standards with a view to reclaiming misappropriated funds.

Essentially, there is no financial decision too big or too small for a deputy to consider.

A simple consideration for a deputy may be deciding how much personal monies P is able to afford on a weekly basis. Whereas examples of complex considerations include — where monies should be invested, whether a property should be sold or rented, whether adaptations to a property are affordable and required etc.

Mental capacity

It is a common misconception that if you are diagnosed with dementia, suffer from a brain injury or have a learning difficulty or disability then you no longer have capacity to make your own decisions. This is simply not the case.
In the UK, there is a presumption of capacity which means that a person is assumed to have capacity unless it is established otherwise (Mental Capacity Act 2005, Section 1(1)). It is vital to note that capacity can fluctuate and is time- and decision-specific, therefore a person must be given the opportunity to make a decision for themselves and if they are unable to do so, this is when a deputy can step in and use their court-ordered authority. For example, a person may be able to budget their weekly personal monies but may not be able to make decisions about large investment portfolios.

Importantly, just because a person’s decision is seen as ‘unwise’ does not mean they lack capacity to make a decision. For example, you may think that choosing to spend half of your weekly personal monies on cigarettes would be an unwise decision but that does not mean the person lacks capacity to make that decision.

The principles of the Mental Capacity Act 2005 must always be borne in mind.

The rise of CoP matters

Arguably, CoP work is a ‘niche’ area of law but it is a vital part of the law and without it, there would be very little safeguarding for vulnerable people who are unable to manage their financial affairs. In the absence of such protection, they could be subjected to fraudulent activities, theft and/or financial abuse.

Sadly, dementia figures are rising which means that the need for a deputy will become more prevalent in the coming years.

In summary, there are endless considerations to take into account if you are a Court of Protection practitioner but ultimately, everything you do is to safeguard, help and ensure your client has the best quality of life. The relationships you build with clients over the years is a special part of working within CoP and you truly feel that you are making a difference to the lives of vulnerable children and adults.

Leanne Gibson is a second year trainee solicitor at Ramsdens Solicitors. She joined the firm as a paralegal and later completed her first seat in Court of Protection, having graduated in 2019 with a first class masters degree in law from Northumbria University.

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If you are a wealthy individual, foreign or national, a Russian oligarch perhaps, or even an international business looking for a fair, impartial, and expert hearing, then the London Commercial Court may just be the place for you to litigate.

Perhaps it’s a dispute about a multi-million-pound diamond, a row about oil shares or maybe you are seeking a bizarre court order to arrest a billionaire’s yacht? These types of cases are just a few of the unique and often high value cases heard in the Commercial Court each year. Located in the Rolls Building in London and part of the Business and Property courts of England and Wales, there has never been a more enterprising court that attracts the level of unprecedented investment and capital into the London corporate legal market than that of the Commercial Court. But could this court’s lucrative practice be under threat from Brexit or other global events? Perhaps it has new foreign rivals to contend with or perhaps it’s just lost the unique edge it once had in its youth?

For a comprehensive insight into the London Commercial Court, it’s important to examine what it does for the City of London and the London legal market as a whole, its powers and jurisdiction and also the possibility of the court’s “glow-down” in the eyes of international litigants and transnational companies. Set up in 1895, as part of the Queen’s Bench Division, the court served as a place for expert judicial consideration on the increasing amount of complex commercial disputes arising as a result of globalisation and the growth of transnational commerce on a scale never before seen by the English courts. But in recent years, while maintaining that unparalleled expertise and expanding its business, the court has come to be used exclusively by the super-rich and even, one might quietly say, dubious Russian businessmen.

What does it do for London and the legal market?

The Commercial Court’s enterprising reputation emanates from the fact that practically every case heard by the court is worth in-excess of £10 million. Given that the court handles approximately 800 cases per annum, its sheer volume of litigation provides a thriving practice for corporate lawyers in the City. According to the Commercial Court’s annual report, the majority of the court’s work stems from international cases, with 75% of cases involving one international litigant in 2020-2021. This is unsurprising given the scope of the court’s work from aviation to maritime shipping collisions and carriage of goods disputes as well as oil, gas, and banking litigation.

The combination of the Commercial Court’s independence of mind and the expert legal industry in London attracts a significant amount of business to the capital. To quantify this contribution, one might point to the £60 billion the legal sector contributed towards the UK economy in 2018, with the majority of this revenue being produced in London. Furthermore, it is no secret that London has a long history of being attractive to foreign companies and wealthy individuals seeking to bring legal challenges. Most notably and rather unsurprisingly, Russia was one of the most active nations in London’s courts for the fifth sequential year in 2021, with the number of litigants doubling since 2017, according to research from Portland Communications. The Commercial Court, by virtue of the work it undertakes, often deals with high-profile and high-net-worth individuals creating big bucks for London lawyers. To exemplify this, the Berezovsky v Abramovich saw some of the highest legal fees in British legal history.

The dispute concerned oil share profits in the Russian oil giant, Sibneft (now known as Gazprom Neft), that Boris Berezovsky claimed he had lost out on as a result of being forced to sell the shares by Roman Abramovich. The legal costs associated with instructing London’s top commercial litigators and KCs exceeded £10 million for Abramovich. In fact, Lord Sumption KC (then QC and prior to his Supreme Court appointment), acting on behalf of Abramovich was paid nearly £8 million, the biggest fee in British legal history according to The Times. This case is not uncharacteristic of the types of cases seen in the Commercial Court, demonstrating its ability to facilitate million-pound legal fees for London lawyers, enabling the growth of both the London legal market and the City of London. It is for this reason that this little-known court is truly an invisible export of the UK.

What makes London so attractive?

Having examined the contribution of the Commercial Court to the London legal economy and consequently the UK economy, it is only natural to ponder why London is the chosen location to conduct such high-value litigation. As for Russian activity in the Commercial Court, one can assume that the reason for this is the distrust and partiality of the Russian courts when deciding such high-value cases between high-profile litigants. To exemplify this, we need not look further than why Berezovsky chose London as the place to hear his claim. As an outspoken critic of the Putin government, he reportedly felt unable to have a fair trial in Russia, fearing a Kremlin conspiracy to urge the court to favour Abramovich, who according to reports was once a close associate of Putin. In London, Berezovsky could be sure that the English courts would give him a fair trial. He demonstrated this sentiment upon entering the Rolls Building, exclaiming that he “believed in the system”. While England and Wales’s judicial independence boosts business confidence, much international business is conducted under the long-established principles of English contract law.

Let’s turn back to the Berezovsky litigation. This case, as we know, involved verbal agreements between parties. This simple fact provides further insight as to why Berezovsky didn’t pursue his claim in Russia. Russian law does not, in essence, recognise verbal agreements. However, English law does, making Berezovsky’s decision to choose London’s commercial court both a strategic and politically prudent one. In fact, most business transactions in Russia are agreed verbally, whether it be because of knowing one another or a mutual commercial interest. When such agreements fall through, Russian law provides no appropriate remedy to vindicate one’s rights, making the Commercial Court increasingly appealing. In addition, the wide range of legal tools at a litigant’s disposal makes litigation in England very enticing. A freezing injunction is just one of the many powerful legal moves available to the court. This order will freeze money and assets, stopping defendants transferring their assets outside the court’s jurisdiction to frustrate future awarded damages. Moreover, that’s not the only powerful play: search orders give claimants an opportunity to seize items related to proving their case and which could be disposed of by the defendant to frustrate the claimant’s case evidentially.

Current threats to this enterprising court

Given the financial success bought by the Commercial Court, many other countries have endeavoured to take a piece of the pie. In recent years other financial cities like London have established their own Commercial Court in hopes of attracting investment, businesses, and high-value litigation. Countries like Germany, France, Belgium, Singapore, and Cyprus have set-up English-speaking Commercial Courts which threaten the future of London’s once unique contribution. With multiple Commercial Courts on each continent, it would seem that Britain’s domination and hegemony of adjudicating on the world’s commercial disputes is shrinking. Cyprus will soon set-up its own Commercial Court in 2023, possibly rivalling London’s sphere of influence over middle eastern/Mediterranean litigation and potentially costing irreparable profits for London lawyers. Furthermore, with other EU nation states establishing their own Commercial Courts, European litigants may also be turned off from litigating in London. The London Commercial Court appears to be facing attack from not only the EU and Mediterranean angle but also the Asia Pacific region. The Singapore International Commercial Court (SICC), established in 2015, presents not only a financial threat, but due to its international outlook and desire for growth has taken a rare step in allowing foreign lawyers to present cases before the court. Known as “offshore cases”, this recent phenomenon is clearly aimed at attracting those litigants with lawyers based outside the Singaporean jurisdiction, which in turn will attract more business and litigation for the court.

Unlike litigating in open court there are more discrete and often cheaper ways to resolve disputes which are eroding the profitability and popularity of the Commercial Court. This risk to the Commercial Court’s future success is known as arbitration. Set up to assist the court with its extensive backlog, it has flourished into a potential risk to the Commercial Court’s future. Held in private, this dispute resolution process is not only discrete but efficient and less costly than a day at the Commercial Court. It is worth noting that while this form of dispute resolution will take cases away from the Commercial Court, it is not as drastic as other issues currently facing the court. This is because the London Commercial Court serves as the supervisory court over arbitrations, therefore should a dispute arise regarding the arbitrator’s decision the Commercial Court will step in to resolve the subsequent dispute, suggesting that arbitration is not always a solid way of keeping one’s dispute out of public eyes.

There are further drawbacks to arbitration that make the Commercial Court a better option in some instances. An arbitrator can order a litigant not to do something, for example, sell an expensive painting in which the ownership of said painting is in dispute. If the subject of the arbitrator’s order did sell the painting, however, they would merely be in breach of an arbitrator’s order. On the other hand, if that worried litigant seeks an injunction from the Commercial Court, the usual remedies for breaching a court order would apply, like contempt and imprisonment, which alone would likely deter the other litigant from selling the painting in the first place.

As for the future of this court, therefore, only time will tell. Will the Commercial Court be able to hold on to the title of Britain’s most enterprising court serving the rich and famous or will its once unique allure be lost to a foreign rival or two? It’s a case of wait and see.

Ben Holder is a second year law student at the University of Reading. His main interests are in crime, human rights and commercial law, and he has completed internships and mini-pupillages.

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There can be no doubt that in recent years, the excitement around the prospects of legal tech has reached dizzying heights. Concerned training contract applicants are taking every opportunity to question recruiters on whether it will lead to a contraction in trainee intakes and hopeful associates are praying that it will relieve them of their more menial work in the near future.

The consensus appears to be that, for better or worse, it will be transformative. And why shouldn’t we allow our imaginations to wander a little in considering a time, not too far away, when highly adept Artificial Intelligence (AI) can review thousands of pages in the time it takes trainees to decide what coffee they want? Or where smart contracts backed by the Ethereum or Solana blockchains support vast decentralised networks making any non-algorithmic contracts appear relics of a paper-based past? But, is this a desirable outcome for the legal profession, and how far away is it?

The Covid-19 pandemic posed an existential threat to the operations of law firms across the world. With no chance of seeing clients in person, whether for the signature or handover of documents, firms were forced to more fully embrace electronic ways of working. Since then, electronic documents and DocuSign have been on the rise. The speed of adoption has been remarkable. In 2018, official DocuSign promotions were extolling Linklaters and Ellis Jones as market leaders in customer service just for adopting the software. Fast-forward four years, and DocuSign claim that half of the world’s top 100 firms and 9,000 in total now use it as part of their regular services. This shows the naturally cautious ethos of lawyers can be overcome and change can happen in the legal services industry as rapidly as any other industry when the market demands it.

Billable hours—flaws and advantages

So you may now be thinking, how does this relate to the billable hours model? There are massive opportunities in legal tech beyond simply DocuSign, but recent improvements have simply been reactive, so how can we expect any further developments in this post-pandemic world? In answering this, we must discuss a sometimes-overlooked aspect of the law firm as a business. It is in the service industry. At the most fundamental level, the chief function of a law firm is to deliver a service with which the client is satisfied so they will continue to work with the firm. For simplicity, pricing models can be broadly divided into billable hours and value-based pricing. The former is based on three principles, how much an individual worked, how many of those hours are chargeable to the client, and for what percentage of those hours the client is required to pay. The latter aims to price according to the estimated value of the service to the client rather than the cost of the product.

The airline industry can be used to illustrate this separation from the consumer’s perspective. Imagine that rather than buying the value-based ticket which we currently do, all airlines introduced a billable-hours system in which you paid at the end of your journey. Under this system, customers would be charged from the moment they walked into the airport (document preparation) and then an increased rate during the flight itself (arbitration). Only on landing would they discover that turbulence had delayed the flight and the ticket price had therefore increased above its estimated cost.

While this comparison is primarily tongue in cheek, it does offer transferable insights into the inefficiencies of the billable hours model. For example, in this scenario, the airline is encouraged to make the flight as long as possible where the customer would still be willing to pay for the service, as opposed to a value-based pricing model where airlines would be encouraged to arrive as fast as possible. Even from a staffing perspective, as long as the airline was making a profit per member of staff compared to their billable hours, they would be encouraged to provide more pilots (partners) and more flight attendants (associates) than was optimally efficient from the customer’s perspective.

Impact of legal tech

Evidently, there are some problems with the billable hour system, but you might rightly ask yourself, if they are as prominent as I have described, why have consumers not flocked to firms using a value-based approach? There are two key reasons for this that I can see. First, firms operating under a value model tend to be established in market niches where they have a more detailed understanding of what possible costs incurred might be. Second, the differences in end cost to the consumer are currently similar, if not higher, with a value-based model, partly because they are pricing in the benefit of a fixed price for the consumer. This is where legal tech comes in.

While, currently, the operating and consumer costs in both types of firms are similar, value-based firms are encouraged to conduct research and development into legal tech, which may significantly lower operating costs in the future. Though it might require extensive investment to create, a machine learning algorithm could potentially produce or review documents far quicker and cheaper than any associate with only minimal human oversight. A billable hours firm only has an incentive to produce legal tech which can perform a task more cheaply, provided they can still pass the former per hour rate onto the consumer, rather than more quickly.

It is here where the “tragedy of the commons” (an economic term for a situation where individuals acting in their own interests are not acting in the common interest) becomes clear for billable hours firms. The major international firms still overwhelmingly operate under a billable hours system. While they all continue to do so, the consumer is left with limited options meaning their expectations are conditioned to this status quo. There is no market incentive to innovate in any department, which may result in faster or more efficient processes unless a greater per hour rate can be charged to the client.

The tragedy may arise when each firm realises it is in their individual interests to adopt truly innovative tech paired with a structural system which can maximise client satisfaction despite it being in the interest of the collective, and perhaps even the legal profession at large, that the status quo remains undisturbed. As the waters of modernisation rise around law firms with language processors such as GPT-3 demonstrating the remarkable capabilities of just current machine learning algorithms, the chances of a single firm taking the gamble on widespread automation increases and the potential losses of being behind the curve grow ever more detrimental.

The role of trainees, payment structures, management hierarchies, the nature of contracts, and client expectations, to name a few, are all evolving around us. Regardless of what you may think of my predictions on how market forces will demand a level of innovation which can only be achieved through an overhaul of our current payment structures, we can all agree that automation will challenge law firms going forward. Each of these challenges presents the prepared firm with an opportunity to forge themselves a place as a leader in the legal market of tomorrow. Feeling this shifting legal landscape below our feet, I, for one, can confidently say that there has never been a more exciting time to make your mark in the legal world.

Lewis Ogg is an Oxford University finalist (BA History) and intends to study the PDGL in 2023. He is interested in commercial law, particularly counter-cyclical work, namely, insolvency and restructuring, and is also a campus ambassador for the 2022/23 academic year with Legal Cheek and Travers Smith.

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Companies commonly employ sustainability as a strategy since it is a requirement brought on by globalisation. However, sustainability is more than just a passing fad, and society as a whole is moving toward greater social responsibility. Sustainability is a value that companies integrate into their operations due to their environmental, social, economic and governance effects.

It is necessary for corporate operations because of its effects on the environment and society, but it also plays an important role that promotes the organisation to success. Notably, governments have a substantial role in promoting corporate sustainability by making regulation.

The UK also has enacted many regulations so that companies can be managed in accordance with sustainability criteria. But does the UK’s regulatory curve really promote sustainability in many of the regulations governing the operation of companies?

Mandatory reporting — not for everyone!

The transition to mandatory reporting with regulatory instruments has been made from a time when there was no legally binding regulation on sustainability reporting and when businesses decided cooperatively what information to disclose in their sustainability reports and the degree to which these reports complied with sustainable development policies and requirements.

To ensure that large corporations and limited liability partnerships take into account the financial threats and opportunities that climate change presents in their corporate governance strategies, the UK government regulated the Task Force on Climate-Related Financial Disclosures aligned mandatory climate change reporting requirements. In this way, these strict legal measures support the UK’s green economy while aiding businesses in achieving sustainability goals with an awareness of the environment.

It is important to note, however, that these restrictions do not apply to small and medium-sized businesses (SMEs). Examining how such firms’ CEOs comprehend and respond to climate change-related challenges may provide critical hints on how other SMEs may be pushed to do the same, given that SMEs account for the bulk of the company population in the UK. As a result, removing SMEs from the application area of required disclosure regulations makes it harder to accomplish the regulatory framework’s sustainability goal.

Prevention of greenwashing

Another precaution taken by the UK is to avoid greenwashing, which refers to disinformation produced by a corporation to enhance its image as environmentally responsible while discussing its intentions on climate concerns, which can frequently mislead stakeholders’ perspectives on businesses. Therefore, the company’s sustainability ambitions may deteriorate. In light of these considerations, as many governments deal with the issue, the UK has also implemented legislative measures to guarantee businesses avoid it.

A claim under the Green Claims Code may include not just sustainable products, but also services or activities carried out in accordance with sustainable business standards. Furthermore, the Competition and Markets Authority (CMA) created the Guidance on Green Claims Code to avoid greenwashing and help firms in compliance with legal obligations, notably consumer law, when asserting environmental claims. The fundamental goal of this guidance is to strengthen the reputation and, eventually, the sustainability of the companies by gaining the confidence of consumers, namely the stakeholders.

Although the regulations are not statutorily enforceable, the CMA considers that failing to comply with the applicable regulatory framework should be considered significant evidence of a violation of consumer law. As a result, firms may face legal ramifications from the CMA and Trading Standards. This situation can naturally create a deterrent effect for companies.

Director’s duties

Section 172 of the Companies Act 2006 requires directors of UK enterprises to consider, among other things, employee profits, the obligations to build business relationships, the consequences of corporate operations on society, the environment, and the company image while carrying out responsibilities. A director’s principal obligation, on the other hand, is to promote the company’s success in order to protect the interests of the shareholders.

The UK now takes an approach that fundamentally imposes shareholder precedence in directors’ duty, while also recognising the need to respect other interests. Indeed, authorities seek to encourage transparency and accountability while also ensuring that corporate actions have good social and environmental consequences and that stakeholders’ basic rights are maintained. The prior obligation to act in the best interests of the corporation has been replaced in the hard law approach by section 172, which requires a director to “act in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole”.

Tackling modern slavery

It is critical to be mindful of stakeholders’ interests and create a positive influence in the outside world while assisting businesses to define and articulate the concept of economically sustainable development. Under the Modern Slavery Act of 2015, firms must submit an annual report describing their efforts to avoid modern slavery in their operations and supply networks. On the one hand, reporting requirements can assist companies in developing a strong awareness of the threats and implications of their primary operations on corporate social responsibility; on the other hand, the publication of these management strategies assists shareholders in allocating investment to more sustainable, responsible companies, bolstering the financial system’s long-term sustainability.

Ece Gorgun Balci is a qualified lawyer in Turkey and an LLM student at Brunel University, London. She is interested in international commercial law, international arbitration, company law and media law, and is an aspiring solicitor in the UK.

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International commercial arbitration is widely perceived as an autonomous dispute resolution mechanism that relies on the all-important doctrine of party autonomy. This doctrine, in the arbitration sphere, calls for the freedom of the parties in determining the procedure of the arbitral process, substantive law, and all aspects of arbitration. This is not universally accepted, however, as the arbitration climate is engulfed by two competing theories — the seat theory and the delocalisation theory — with the former calling for an interventionist approach on the part of the national courts and the latter calling for a non-interventionist approach.

Delocalists — doctrine of party autonomy should be upheld

Recent scholarship has addressed this theoretical conundrum and they appear to stand in favour of the delocalisation theory for it stands up for the doctrine of party autonomy the core fabric of international commercial arbitration. Indeed, the very roots of this theory arose when unwarranted judicial intervention came about. It opposes the seat approach as the autonomy of the parties in enforcing and having their awards recognised would be restricted to the jurisdiction in which the award was rendered. To illustrate this proposition, one can refer to the case of Hilmarton Ltd v Omnium de Traitement et de Valorisation [1997]. Here, the seat of the arbitration was agreed upon by the parties to be Geneva — a jurisdiction where the arbitral award was successfully challenged by the claimant in the Swiss Courts. The arbitral award was subsequently successfully challenged by the claimant in the Swiss Courts. The defendant, however, enforced the award in the Court of Cassation in France and the French Court, in recognising the award, pointed out that “the award is not integrated in the legal system of that State, so that it remains in existence even if set aside and its recognition in France is not contrary to international public policy”.

Again, in Société PT Putrabali Adyamulia v SA Rena Holding [2007], where the French Court, in recognising an already-annulled award in another jurisdiction, ruled that “an international arbitral award, which is not linked to any national legal order, is a decision of international justice, whose validity is reviewed in accordance with the rules applicable in the country where its recognition and enforcement is sought”. From this, we can see why the delocalisation theory is favourable for it has legal standing from the courts and the law — Article V(1)(e) of the New York Convention confers upon the courts of the signatory states the power to enforce awards that were previously annulled by the courts of another signatory state.

Delocalists — the helping hands of the lex arbitri and the courts are uncalled-for

The self-regulatory function of arbitration also gave the proponents of delocalisation theory a reason to stay. As the mutually agreed procedural rules of the arbitration (for ad hoc arbitrations) or the procedural rules administered by the arbitral institution (for institutional arbitration) would be implemented, there is no need for interventions from the courts and the lex arbitri — the law of the seat of arbitration. This set of rules may perhaps be said to constitute the law of arbitration that possesses similar features with that of the law of the seat of arbitration. In fact, in the context of institutional arbitration, it may be said that the arbitral institution has taken over the state’s regulatory function by itself administering rules for the arbitration. It is, therefore, clear that the lex arbitri and the judicial interventions are both irrelevant to the process of the arbitration.

Seat theorists — an already-annulled award in one jurisdiction should not be recognised as a good award in another

As convincing as they appear to be, the arguments posed by the pro-delocalisation camp attracted a broad range of criticisms from scholars and academics. Indeed, the delocalists may argue that the place of arbitral proceedings was chosen to assure “neutrality” and ought not to be an implicit expression of the parties’ intent to subject themselves to the law of the seat of arbitration. However, how can an award that was annulled by one jurisdiction be enforced and recognised as a good award in another? This approach of a “drifting arbitration” not only creates a major commercial uncertainty and a threat to the interests of justice, but it renders the ruling of the court that annulled the award irrelevant and undermines the jurisdiction and the integrity of that court. In addition to that, it also gives no finality to the already-annulled award.

Seat theorists — the courts are the only recourse for certain orders to take effect

Indeed, the arbitral process is usually conducted without any reference to the lex arbitri as there is minimal room for its application. What happens, however, when the arbitration calls for a support that only the courts can provide? This is evinced from the use of interim and preliminary measures whereby the parties are required to refer the matter to court for such orders to take effect as the arbitral tribunals do not possess the jurisdiction to order interim and preliminary measures unless it has been assigned or has the authority to do so for it requires the force of law to take effect.

Not only that, but the arbitral tribunal becomes funtus officio once the award has been issued and, to reap the fruits of the award, the national courts are required to deal with any pre-enforcement issues. Moreover, the proponents of seat theory have argued that when there appears to be “deficiencies” or “irregularities” in the arbitral award and the arbitral process, the courts are the only recourse for the adversely affected party to appeal. On top of that, the rights of the parties to arbitrate were derived from the national laws. As such, it’s only right to permit the national laws and courts to oversee the process of arbitration.

More importantly, the arbitral tribunal becomes funtus officio once the award has been issued and, to reap the fruits of the award, the national courts are required to deal with any pre-enforcement issues. Moreover, the proponents of seat theory have argued that when there appears to be “deficiencies” or “irregularities” in the arbitral award and the arbitral process, the courts are the only recourse for the adversely affected party to appeal. Furthermore, in terms of legal reasoning, the rights of the parties to arbitrate are themselves derived from national laws and this may be viewed as an implicit indication that the arbitration should be subject to the supervision and monitoring of national laws and the national courts.

Seat theory or delocalisation theory?

From the above, we can see that the arguments from the proponents of the delocalisation theory are neither baseless nor unfounded. Indeed, the reigning doctrine of party autonomy should be at the forefront of every decision with regards to international commercial arbitration and this can easily be achieved by adopting the delocalisation approach as it gives the parties freedom to enforce their awards wherever and however they deem convenient without having the authority of the courts hanging over their heads. However, the freedom of the parties to enforce their awards despite the award having been annulled will undermine the integrity of the courts and the author believes that this is not at all intended by the court enforcing the already-annulled award. In fact, the courts are legal experts in comparison to the parties — who are mere mortal beings.

It therefore does not make sense to allow the parties to roam around the arbitration process freely with unfettered power to make substantive and procedural laws when they have limited knowledge as to the effect of the laws that they are making. As such, marrying these with the security blanket insured by the national courts, the author strongly believes that the seat theory is the more proportionate approach in achieving its objectives.

Teck Sing Voon is a first class law graduate from the University of Leicester.

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Are the principles established in the Etridge case still effective in dealing with the challenges of coercion and privacy? How did they fare during the circumstances of COVID-19?

What was changed by Etridge?

The landmark case Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44 revitalised the law of undue influence through its reassertion of the duties of banks and solicitors, and clarified the law more aptly than the previous authority — Barclays Bank plc v O’Brien [1994] 1 AC 180. The law of undue influence under O’Brien was separated into two categories — actual undue influence which entailed actual acts of coercion and presumed undue influence which detailed relationships that gave rise to a possibility of an exercise of unlawful influence.

Etridge removed these classifications under the reasoning that they were of no actual use to the parties involved and changed this to two factors that the court must consider. First, the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over the complainant. Second, the transaction is one which calls for explanation or is not readily explicable by the relationship of the parties.

This change in classification aided the new notice criterion under Etridge, which is that any spouse taking on the debts of the other, and uncommercial relationships, give rise to notice. The elements of trust and ascendancy are rooted in undue influence while allowing for spousal debt to be taken more seriously, which was the intention behind O’Brien. The element of ‘explicability’ allows for non-commercial relationships to be scrutinised which, again, hits at the issue of debt being taken on by a spouse.

As aforementioned, under Etridge notice is flagged when a spouse acts as surety and there is a non-commercial relationship. The way the bank discharges its duty is new as well. Under O’Brien, the law was confusing and vague, failing to give clear guidance on how banks should discharge their duty. This ultimately hit the mortgagor the hardest, as lack of clear guidelines meant that banks could deem what steps were sufficient subjectively and without an objective guideline that ensured scrutiny for the mortgagor.

Under Etridge, the bank must: inform the party acting as surety that they must consult a solicitor of their choice, provide all the necessary financial information to the said solicitor so they can give proper advice and lastly obtain written confirmation from that solicitor that the implications of such a transaction have been fully detailed to the client. This gives a far clearer and structured manner of dealing, which helps balances the rights of the mortgagee and mortgagor far more adequately than its past counterpart, as it strays from subjectivity and provides what an independent advisor is — a key failing of O’Brien.

The advantages of Etridge

Academics have commended the new approach under Etridge stating that its low threshold for notice allows for the swift catchment of undue influence. To contrast again with O’Brien, one of the requirements here was to have actual notice of unfair conduct and failing to act.

This would have been difficult to obtain considering that, as outlined in the Etridge criterion, such relationships carry an element of trust which, given the evidential difficulties, severely disadvantages the mortgagor in proving they’re a victim of foul play. A report by Women’s Aid, the Domestic Abuse Report 2019: The Economics of Abuse, states that 43.1% of respondents were in debt as a result of the abuse. In serious situations of spousal abuse this is unlikely to be discovered due to fear on the victim’s part, but in situations where one spouse emotionally manipulates the victim in a one-time action to gain surety, it is unlikely that they would flag their bank on it.

Under Etridge the notice protocol is effectively immediate. Here, victims of spousal abuse cannot be blamed by their partners as it is essentially deemed ‘standard procedure’. Arguably, this benefits both the mortgagor and the mortgagee. The mortgagor has the confidential potential to be made aware of legal ramifications by an independent solicitor, which could prevent them from acting as surety. The mortgagee who realistically sees this as a purely economic venture and does not want to engage in unnecessary court proceedings, benefits from having their duty easily discharged and thus being assured that in cases of non-payment they have an easy way of obtaining security. This analysis tips toward the rights of both parties being protected equally.

The disadvantages

It has, however, been argued that the mortgagee is unduly burdened in order to protect the interests of the mortgagor. In his 2014 article, Undue influence: a post-Etridge world, Professor Mark Pawlowski rightly points out that while Lord Wilberforce did not think the protocol imposed unworkable burdens on banks, it did go beyond the duties expressed in the then current Voluntary Code of Banking Practice. This consideration has led to a lowering of standards in post-Etridge case law. In Massey v Midland Bank plc [1995] 1 All ER 929, Lord Justice Steyn held that the requirements under Etridge should not be mechanically applied, which resulted in the meeting being attended by the debtor and the Court of Appeal ruling that the bank had in fact relieved its duty. This aspect of judicial creativity and varying the clear outlined standards of the protocol, rules in favour of mortgagees since, other than legal fees, the mortgagee is not in much of a risk. If a bank cannot obtain its security there are still other avenues of relief such as the right to sue on personal covenant as confirmed in Alliance & Leister plc v Slayford [2001] 1 All ER.

It is the mortgagor that completely loses out in such a situation as not only do they lose a dwelling due to undue influence on the part of their partner, the procedures that have been put in place to protect them have not been followed, thus limiting their legal protection. This is an unfortunate development as it is not actually the rules of Etridge that have failed to balance the rights of the relevant parties but the application of such rules, or more adequately put, the lack thereof. Furthermore, Professor Sarah Greer has also found that only 38% of lending institutions insisted on a private meeting, with 83% carrying one out as standard procedure and 17% only carrying out a meeting if the surety was to the spouse’s detriment, thus completely ignoring the rules in place to protect their lenders.

Etridge during Covid-19

Finally, the Etridge Protocol provides minimum requirements for solicitors. These entail a private, in-person meeting that explains the nature of the documents and outlines the risks involved. The solicitor must reinforce the client’s agency in the matter and make sure they are happy to proceed. These requirements themselves are fairly satisfactory, however, I would argue that they don’t account for certain difficulties. During the recent Covid-19 pandemic, face to face contact would have been difficult if not impossible for the individuals concerned. This would mean resorting to online measures where full privacy would not be guaranteed. Here, due to no fault of the actual protocol, difficulties would ensue and the already vehement lowering of standards via the judiciary would make it impossible for mortgagor rights to be protected. The law itself is blameless, but there is a possibility to create a fail-safe having gone through a time when so many people would have likely taken out security loans and aforementioned domestic abuse victims would have been cooped up in their home with no possibility of the advice being adequate considering the lack of privacy involved.

Overall Etridge was an invaluable development in modern land law and, for the most part, it has aptly fulfilled its main purpose — ensuring that spouses are made aware of the risks that come with being put down as surety. However, the lowering of judicial standards is a development that puts mortgagors at risk and it would be in the interest of the law to create mechanisms that can be used during pandemics due to the undesirable privacy and adequacy issues created.

Oliwia Maliszewska is a final year LLB student at Lancaster university. She is particularly interested in human rights, legal philosophy and family law.

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The effects of the global financial crisis in 2007-08 led to conscientious soul searching with regards to the complicity of corporate governance in engendering the numerous bank failures. Crucially, some scholars advocated that the Business Judgement Rule (BJR) or the UK’s “Good Faith Standard” led to aggressive risk taking in what were systemically important financial institutions. This article examines whether case law in England and Wales actually supports this lack of substantive assessment and also challenges a common justification for the current interpretation of the good faith standard in the context of financial enterprises.

When should courts interfere?

Despite the English courts having not formalised and, in the words of Professor Carsten Gerner-Beuerle of University College, London, “not delineated the boundaries of a director’s business judgement, within which the courts will only exercise limited review”, under section 172 of the Companies Act 2006, courts are not allowed to interfere with the board’s decision concerning an alleged breach of the duty of good faith (in pursuing the best interests of the company) unless it is one that no reasonable director could have made (referred to in public law as the “Wednesbury standard”).

This standard has mainly been interpreted to contain merely a subjective element, which is that courts are to abstain from reviewing on objective grounds whether the board’s decision was, in fact, in the best interest of the company. (For an explanation of this point, see Professor Ernest Sim, of Singapore University, in a 2018 Journal of Business Law article.) Adherence to this interpretation is, however, not justifiable due to case law which contradicts the traditional Wednesbury standard. In Roberts v Frolich [2012] 2 BCLC 625, High Court judge Mr Justice Norris, in reaching the decision that the directors had not honestly believed that they acted in good faith, carefully scrutinised how the directors arrived at the decision to continue with the development of industrial and trading units, finding them wanting.

Furthermore, in Simtel Communications Ltd v Rebak [2006] EWHC 572 (QB), despite the director asserting that he had considered the company’s best interests, the court applied the Charterbridge test [as applied by Pennycuick J in Charterbridge Corp v Lloyds Bank Ltd [1970] Ch 62 which states that directors will not breach their duty of pursuing the best interests of the company if an intelligent and honest person in the position of the director could, in the circumstances, reasonably have believed the transaction would benefit said company as an objective benchmark, holding that the director was liable for breaching the duty because an “intelligent and honest man in the position of [the director] could not… have reasonably believed that these transactions were for the benefit of Simtel”.

In both cases, Roberts and Simtel, had the court held that the directors had complied with section 172 simply because they had considered the company’s best interests in good faith, this would fail to account, in the words of Lord Justice Bowen in Hutton v West Cork Rly Co CA 1883, that “bona fides cannot be the sole test, otherwise you might have a lunatic conducting the affairs of the company… in a manner perfectly bona fide yet perfectly irrational”. It is clear, and the courts have acknowledged so, that a substantive objective assessment, akin to Ernest Lim’s “Heightened Review”, is a mechanism distinguishable from the Wednesbury standard of review in that the courts do not review the board decision or its outcome, but only the decision-making process. It implies judges should not be categorically prohibited from examining the quality of the board members and the integrity of the decision-making process is necessary as a matter of policy for the general guidance of corporate conduct.

Corporate law or financial regulation?

In the context of financial enterprises and aggressive risk taking, Professor Ferrarini of the University of Genoa has questioned the need for corporate law to influence what is essentially handled under financial regulation. Ferrarini suggests that “there is no need for corporate law to enhance the duty of care… given that financial regulation already provides enforcement mechanisms to this effect”. However, I believe this argument errs in two important ways. First, it unduly underestimates the role of the corporate governance structure in the events leading up to the global financial crisis. Professor Robert E Grosse, of Thunderbird School of Global Management, in analysing the causes of the global financial crisis, argues that “managers of these financial institutions failed to exercise oversight over their employees who created and sold improperly valued assets”. Moreover, Grant Kirkpatrick points to major failures of risk management systems “in main financial institutions due to improper corporate governance procedures”. Alessio M Pacces, of the Rotterdam Institute of Law and Economics, citing a lack of a deterrence mechanism, argues directors did not have “sufficient skin in in the game”. Additionally, leaving management of directorial conduct to financial regulation ignores the importance of promoting organic growth internally in corporate governance structures.

Ferrarini also overestimates the effectiveness of regulators, who have been, I believe rather accurately, described by the UNSW Centre for Law Markets and Regulations as “political footballs” with their funding levels often “at the whim of politicians” with the opposing political side taking the brunt of the blame when markets fail.

Looking forward

Conclusively, reformatory proposals in response to case law and the lack of tenable justifications for the current interpretation of section 172 of the Companies Act 2006 would therefore be that the good faith standard should not protect decisions where scrutiny of the decision-making processes reveals a lack of “expertise and experience of directors, effectiveness of the oversight system of the companies…” This should apply particularly where the corporation involved is a systemic one (the so called “too big to fail”).

Chidera Ofili is an LLB graduate of Warwick University, finishing with a 2:1. He is interested in the field of corporate governance and banking and finance law, and is studying a masters in corporate law at Durham University from September.

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Between the climate emergency, the cost-of-living crisis and geopolitical tensions rising globally, it is no wonder that consumers are increasingly coming to the conclusion that the wonders capitalism has brought are coming at a price. In an attempt to avoid the risk of being seen as faceless, profit-hungry corporations against this increasingly-critical backdrop, many companies pour money and time into Corporate Social Responsibility (‘CSR’) projects. But some are taking it a step further, and incorporating such commitments into their DNA by becoming social enterprises. One sector which is seemingly reluctant to take up this trend is the legal industry. But why?

To answer this question, a brief overview of the key forms of social enterprises in the UK is first needed. It is useful to think of social enterprise as a concept on a sliding scale; on one end, there lie full-blown charities, and on the other, companies that do little more than the occasional greenwashed charity bake sale. In-between these points lies a myriad of possibilities for companies. The two options I will focus on are that of the Community Interest Company (‘CIC’) and the B-Corp certification scheme.

CICs are a business vehicle that serve as a hybrid between a traditional limited liability company and a charity. Introduced in the Companies (Audit, Investigations and Community Enterprise) Act 2004, a CIC’s legal basis rests on the Companies Act 2006 (just as for standard companies in the UK) but has additional obligations placed upon them. The two most notable of these are the asset lock and the dividend cap, which work together to ensure that CICs are prevented from serving their shareholders at the expense of their community purpose. Each CIC must also meet the ‘Community Interest Test’ which is broadly defined as “if a reasonable person might consider that its activities are being carried on for the benefit of the community”. The test is widely applied, allowing for the growth of the CIC model in many different industries.

The B-Corp certification scheme is somewhat different in its approach to governing the interaction of commercial activity and social good. Instead of being an entirely separate business vehicle, this global certification scheme instead acts as an external ‘varnish’ which if earnt allows companies to authentically market their social benefit to their customers. In order to join the scheme, however, internal changes must be made to the rules governing the company. In the case of UK limited liability companies, this will mean altering aspects of the Articles of Association. The biggest change is a strengthening of stakeholder interests as part of a directors’ duty to promote the success of the company under section 172 Companies Act 2006.

A further aspect of the B-Corp scheme is that of the ‘B Impact Assessment’ (‘BIA’). Unlike a CIC, a B-Corp can have any purpose. The BIA measures not what the company is doing, but how it is doing it. To qualify for B-Corp status, a company must score a minimum of 80 points across the five categories of the BIA: governance, workers, community, environment and customers.

Both the CIC and B-Corp model provide companies with a chance to authentically demonstrate their commitment to ‘doing good’ beyond the odd CSR day. Now this sounds like something which many law firms would want to get on board with — so why aren’t we seeing the rise in law firms structured as a social enterprise which we are seeing across other industries?

The biggest reason is perhaps summed up best by the old adage ‘too many cooks spoil the broth’. Under section 13 Legal Services Act 2007, law firms have to be authorised by the Solicitors Regulation Authority (SRA) in order to practice. The rules set by the SRA are understandably long in length and broad in their application, covering everything from how firms treat clients (SRA Code of Conduct for Firms) through to how the firm’s internal accounts are run (SRA Accounts Rules). Combined with the additional obligations which come with being a social enterprise, many firms would find the burden of compliance too expensive and time-consuming.

London-based firm Mishcon de Reya is a prime example of this issue. After having had a relationship with B Lab for several years, the firm decided to take the plunge and become a B-Corp in August 2021. However, by March 2022 the firm had decided to drop out of the scheme. The reason? According to a spokesperson for the firm, the main reason was the difficulty of balancing “our sustainability commitments with our professional obligations”. Although the firm didn’t say so, another factor could be their upcoming floatation plans. Accountability to shareholders inevitably rises upon floatation, and this can make it extremely hard to maintain B-Corp status, as Etsy found out in 2017.

Another issue for any law firm considering becoming a social enterprise is the inherent tension between being socially responsible as a firm yet potentially serving clients who themselves are far from being so. For firms with specialisms in the oil or mining sectors, this is perhaps more problematic than those focusing on smaller-scale private client work, for example. I highly doubt that B Lab would score a firm servicing — and thereby enabling — some of the biggest corporate polluters or the worst offenders of employment right breaches very highly.

A final issue is the lack of demand. Whilst consumers of goods such as clothing or food are increasingly likely to consider the social impact of their choice of brands, they are less likely to do so when considering which law firm to use. It is telling that two of the most prominent B-Corps, Ben & Jerry’s and Patagonia, are companies selling physical goods straight to the consumer. Consumers of services, especially when these consumers are companies themselves, are less likely to focus on the social impact of the service providers they use. In the case of law firms specifically, clients will have more of an eye not just on the cost of their services, but on their success rate/speed/client care standard.

Given all of these issues, is there any way social enterprises will have a greater role to play in the future of the legal sphere? In a satisfying circular manner, I believe the solution lies in a greater appreciation of my first point about social enterprises: they lie on a spectrum.

This answer becomes clear when you look at the few law firms in the UK which are trying to follow a social enterprise model. Not For Profit Law and Commons Legal are two such (rare) examples of CIC law firms. Their benefit to the communities they serve comes through profit pledging to a local charity and advocating for improvements to the criminal justice system alongside serving legal aided and self-funded clients alike. Both of these examples can successfully operate as CICs because they are relatively small firms, and they specialise in areas where social responsibility is perhaps seen as a more pressing issue due to the direct links with the public. For larger corporate/commercial firms, the issues above ring clearer. The CIC lies further towards the charitable end of the spectrum. This makes it unsuitable for almost all law firms.

Teneu Legal, which specialises in immigration cases, is a step further towards the enterprise end of the spectrum. Comprised of a sole practitioner, this is not technically eligible for ‘social enterprise’ status; however, it serves as a more achievable example of a future for law firms. This is because Teneu Legal intentionally aims to sit in the “middle ground” of the social enterprise spectrum by guaranteeing 20% of firm time to pro bono work. Whilst most firms will have pro bono commitments of some form, structuring this in relation to a percentage of firm time may be a better option for firms looking to be more socially responsible.

A final solution lies towards the B-Corp end of the social enterprise spectrum. Michcon de Reya was not the first B-Corp law firm in the UK. More importantly, the first two — Bates Wells and Radiant Law — remain committed to the B-Corp model. However, the inflexibility of the model (due in part to its goal of catering to businesses across many different industries and countries) means that the tension with regulatory obligations still exists with the B-Corp solution for law firms.

But the idea behind B-Corp represents an opportunity for law firms. Either the legal sector needs to proactively engage with B Lab to create a more tailored system for law firms under the certification scheme (such as already exists for higher education service companies or financial services). No, these attempts to tailor the B-Corp certification process for different industries are not flawless. But getting on board at an earlier stage would be beneficial for the legal sector, as the changes needed will be developed sooner. Alternatively, the SRA or the Law Society could themselves create a more specialised certification system for law firms, akin to the B-Corp model. Critical to the success of such a scheme would be the inclusion of concrete commitments by firms, else greenwashing is risked.

The number of social enterprise vehicles is growing, as is the raw number of social enterprises. Why? Because there is demand for them. Whilst this demand is stemming from more consumer-orientated fields than law, all law firms would do well to start considering now how their social responsibility commitments could best be prepared for the future.

Bethany Barrett is a first class law graduate from the University of Bristol and a future trainee solicitor in the Manchester office of an international law firm.

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Insidiously intercepting a trader en-route to the market, buying up his goods and then inflating the price, was once considered to be one of the most heinous crimes known to law. “Forestalling” as it was called, also became the beginnings of antitrust or competition law. By enforcing the ‘King’s peace’, this offence was punishable with a heavy fine, forfeiture and some humiliating time in the pillory.

A millennium later, anticompetitive practices are not as simple as the Anglo-Saxons perpetrated. This is the age of Big Data and AI, paving way for more subtle and evasive forms of monopolistic conduct. The complexity of a digital marketplace has given rise to technologically facilitated anticompetitive techniques. Antitrust enforcement is now faced with the dilemma of playing catch-up to rapidly fluctuating business behaviour.

Dynamic-pricing by “algorithmic collusion” is one such example. In 2011, Amazon’s algorithmic pricing used by two booksellers had comically resulted in skyrocketing the price of a used book to nearly $24 million. In 2015, Uber was charged with monopolistic conduct for using its price-surging algorithms. Although exonerated of the charges due to lack of evidence (of human collaboration), the District Judge highlighted that: “The advancement of technological means for the orchestration of large-scale price fixing-conspiracies need not leave antitrust law behind”. In the same year, an art dealer pleaded guilty of colluding with other dealers to fix the prices of artworks on Amazon with the help of dynamic-pricing algorithms. Perfect price discrimination, once considered an impossibility, is now a reality. It is evident that the laws and enforcement techniques created to control the monopolies of the industrial age are struggling to keep pace with the information age.

The question, then, that is begging to be asked is whether computational law is the future of antitrust? Let’s analyse. Computational methods are already being used to detect, analyse, and remedy the increasingly dynamic and complex nature of modern antitrust practices. In 2017, mechanised legal analysis was employed by the European Commission to study 1.7 billion search queries in the Google Shopping case. In 2018, the Commission used similar tools to examine 2.7 million documents in the Bayer-Monsanto Merger. This nullifies the well-documented historical mismatch between “law time” and a market’s “real time”. This also presents a strong case that antitrust regulators can better analyse the prevailing market practices by employing computational tools. For example, The American Federal Trade Commission (FTC) is using a software called ‘Relativity’ in order to analyse companies’ internal communications for the purpose of identifying monopolistic conduct. A step further, application programming interfaces (APIs) can play a significant role in creating channels for transfer of data between companies and regulators.

Merger control is another dimension of antitrust regulation where computational tools have useful applications. Analysis of vast datasets is the backbone of merger analysis. A persistent problem is that companies are in control of the data being sent to regulators. In both the DuPont and WhatsApp cases, the EU Commission highlighted that the parties were guilty of withholding or providing misleading data in the investigations. APIs could fix this by establishing systemised communication links between companies and regulators in real-time. The use of ML (machine learning) and AI, in auditing millions of documents, enables “finding the needles in these haystacks”. In addition to this, blockchain could be used to create impenetrable databases, ensuring integrity.

Judges and regulators are often faced with doctrinal questions pertinent to anticompetitive behavior. Computational legal analysis (CLA) can be utilised to unravel existing patterns in judicial decisions, contracts, constitutions and existing legislation. A perfect example is the use of aggregated modelling to analyse linguistic patterns in Harvard’s Caselaw Access Project (CAP). Such modelling can help create topic clusters that revolve around specific antitrust doctrines for example, predatory pricing or shifting market power. This can be helpful to both courts and regulators adjudicating unique antitrust cases or investigations. By providing context, trends and connections between various doctrines, such modelling has practical utility in tackling complex or novel scenarios.

Computational tools have interesting implications on the current framework of merger reviews. More specifically, they can be of great use to predict “killer acquisitions”. The current law requires the adjudicator to use a combination of precedent and guesswork when forecasting a killer acquisition. Modern ML and AI tools can be of greater assistance, in order to reach a more accurate prediction. The use of autoencoders to assess dynamic market environments is a very suitable approach. The stacking of multiple autoencoders (for example, embedding, translation, and detection) can help identify fact patterns. Iterative processes can be used to converge towards an optimal prediction vis-a-vis intervention.

Forestalling became an obsolete offence more than a century ago, but the monopolistic behavior it embodied, has now transformed into more creative and sophisticated ways. It would not be incorrect to say that the antitrust policies of today and the ‘Kings’ peace’ of the bygone days, both share a common sentimentality of consumer welfare. In this digital age, being forewarned is forearmed. So, unless you are willing to pay millions of dollars on Amazon for a used book, or twice the fare for an Uber ride, it’s about time you put your trust in computational antitrust.

Tanzeel ur Rehman is a second year law student at the University of Sindh, Pakistan.

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In the past year, there have been a spate of hacking attacks on cryptocurrency exchanges, which are exchanges which allow people to trade digital currencies such as Bitcoin and Ethereum. Last September, a hacker managed to take out $610 million (£460 million) worth of customers’ coins from Poly Network, a Japanese cryptocurrency exchange.

Interestingly, the hacker returned all of the stolen assets, claiming that the hack was just an attempt to highlight the vulnerabilities in Poly Network’s system. When the heist was discovered, Poly Network immediately published the addresses to which the digital assets had been transferred, and asked centralised crypto exchanges to stop all asset flows stemming from the specified addresses. Tether, a stablecoin operator immediately froze $33 million of the stolen assets, while other major exchanges such as Binance agreed to look into the matter. In the meantime, internet sleuths sprung quickly into action to piece together information about the hacker. A cyber security firm called Slowmist even claimed to have personal information relating to the hacker, such as the hacker’s IP address and email information.

Regardless of whether the hacker’s motivations can be taken at face value, what is evident is that identifying errors in the code of a crypto exchange is one thing, but actually laundering those ill-gotten gains into money in the real world is another. Due to the transparency of the blockchain technology upon which the cryptocurrencies are built, every transaction in the digital markets is publicly transparent on blockchains, and as proponents of De-Fi (decentralised finance) like to argue, this creates a crowdsourced imitation of a self-regulating banking system.

What are the inherent or systemic problems with having a self-regulatory banking system however? For one, how do you draw the line between an ethical “white hat” hacker, who is just exploiting a bug in the system, and a self-interested criminal? There is of course an argument distinctive to the De-Fi and blockchain context. The unique strength of an open-sourced technological system is that improvements to the system itself are built upon community improvements and ingenuity. On the other hand, what is clear is that ethical hacking cannot be without scope. No ethical hacker would risk the assets or data of thousands of users. One might imagine that if every firm that were a victim of a hack were to legitimise these actions by labelling these acts as “whitehats”, then ethical hacking would be devoid of any meaning.

What I find more concerning is the notion that criminality and the commensurate level of punishment can be outsourced to a private company, like Poly Network. Hypothetically, imagine if a group of armed robbers organised a traditional bank heist, and was able to steal a significant sum of money, which it eventually returned, although it had broken numerous criminal laws along the way, such as criminal trespass, common assault, and other public crimes. Let’s imagine as well that the bank is unable to print or obtain more money, and was thus compelled to offer the robbers criminal immunity and a monetary reward if the money was returned. That the money eventually came to no harm is irrelevant, it would even be irrelevant if the armed robbers were not eventually found to be guilty of those accompanying crimes. In my opinion, what is problematic is the idea that a private company is able to arbitrarily dictate the criminality of a hack, or to even ‘whitewash’ a criminal hack for commercial reasons.

Things haven’t ended on a sour note because the assets have been returned, but shouldn’t it be time to consider the implications if a similar situation were to happen again? What happens then if a significant number of consumers of a hugely popular crypto-asset exchange were to lose their life savings through the brilliance of an unscrupulous hacker? What are the legal protections available to consumers, and how robust is the regulatory and compliance regime in place to prevent crypto-assets from being laundered?

From a consumer protection perspective, there are unsurprisingly no guarantees of reimbursement in a largely unregulated sector. In fact, a “haircut” has become a term used to describe partial compensation in the wake of a cyber-attack. For example, in the wake of a hack on Bitfinex (£) in August 2016, which caused a loss of 120,000 Bitcoin, worth around $75 million at the time, its users faced a 36% haircut regardless of whether they held any Bitcoin.

In terms of Anti-Money Laundering (AML) and Know-Your-Customer (KYC) regulation, the UK Financial Conduct Authority (FCA) is the regulator of crypto-asset companies in the UK. Crypto-asset companies have to comply with the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017, which includes the requirement of having to be registered with the FCA in order to continue business. The FCA also introduced a Temporary Registration Regime for firms that had applied to be registered before, but whose applications were still being processed. As it turns out, the FCA had to extend the deadline for the Temporary Registration Regime (for existing businesses when the requirement was first announced) to 31 March 2022, due to the unprecedented number of firms which could not meet these requirements (£) and had to withdraw their applications. Since the need to register with the FCA was introduced in January 2020, only five companies have successfully registered with the regulator. In short, the issue isn’t really that of a lack of regulation, but that the sector as a whole has yet to catch up in terms of cyber-security and AML practices.

This seems to suggest therefore that there is a good chance that retail investors and consumers of such crypto-asset exchanges are using products with significant cybersecurity risks. The need to raise regulatory standards therefore seems like a natural answer. On the other hand, it has been argued that stricter regulatory rules only drive criminals towards exchanges in jurisdictions with looser regulatory requirements. However, as pointed out by Michael Philipps (£), chief claims officer at cyber insurance group Resilience, these exchanges usually have lower liquidity, which makes the laundering process more difficult. If what we are concerned about is preventing large-scale hacking heists amongst the most widely used exchanges in the UK, then imposing a level of regulation commensurate with the increased level of risk makes sense.

The other libertarian counter-argument would be to argue that investment decisions are personal commercial decisions that inherently involve some level of risk, and that excessively regulating these exchanges would not prevent the ignorant, the gullible, or the fearless from similar decisions that would be equally risky or dangerous. One’s right to plunge one’s entire life savings into Bitcoin should be zealously guarded, no matter how crazy such a decision may seem, so the argument goes. However, I think a distinction needs to be made between raising regulatory standards to better inform consumer choice, and banning these exchanges outright. The desire for the UK to grow into a global fintech hub should also be balanced with the consumer risks inherent to these platforms. The priority should not be to discourage the flourishing of fintech businesses and start-ups, but to ensure that any crypto-asset exchange legitimately operating in the UK measures up to a rigorous and sufficient AML/KYC regulatory regime, which would in turn protect consumers.

The reality of course is that while the FCA continually warns retail investors that they risk losing all their money by transacting on these unregulated exchanges, there will always be those who choose to ignore these warnings. But by actively regulating these exchanges and presenting a stark choice between the legitimate and the unregulated, retail traders on unregulated exchanges would have to take stronger ownership of their personal choices, and whatever risks these choices may entail.

Hui Ting Tan is a law graduate and LLM student at the LSE. He is an aspiring commercial solicitor.

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‘SPAC’ seems to be the commercial awareness buzzword of the moment. You only need to pick up a copy of the Financial Times or scroll through LinkedIn to catch a glimpse of the hottest trend in M&A and capital markets right now. And with good reason! The sector has exploded over the past two years. In 2019, only 59 SPACs were created globally, which soared to 295 in the first quarter of 2021 alone . Which begs the question: what are SPACs? Why are they so popular, and how has their boom impacted the law? By the end of this article, you should know, and be prepared to weave your knowledge into training contract applications and interviews.

What is a SPAC?

‘SPAC’ is short for ‘special purpose acquisition company’. These are companies that have no commercial operations of their own and are simply used as a novel means to take a private company public.

The best way to understand this process is by looking at the lifecycle of a SPAC.

1. Creating a SPAC

Firstly, a group of sponsors will come together and decide that they want to create a SPAC. They will produce a business plan and invest risk capital into the project which covers the operating costs of the business (such as paying bankers, lawyers, and accountants).

The sponsors also engage underwriters and assemble a team to steer the whole process.

2. Taking the SPAC public

The next crucial step involves taking the SPAC public as a method of fundraising. This means that the SPAC’s stocks become tradeable and can be purchased by members of the public, the same as any other publicly listed company. Investors will buy shares in the SPAC without knowing which company it will eventually merge with and are trusting the talent of the SPAC’s sponsors and team. This shot in the dark approach has leant SPACs their alternative name, ‘blank cheque companies’.

3. Finding a target

At this point, the SPAC’s management team will begin to liaise with private companies that they think may be good candidates for going public. This process is complicated by a time limit that means the SPAC must perform a merger within two years, else seek an extension or become liquidated.

If a suitable target is not found and the SPAC is liquidated, investors will receive their money back. But the risk capital invested by sponsors to maintain the SPAC’s operations is non-refundable, so they make both a financial and reputational loss. This provides a great level of motivation for sponsors to get a deal done in the allotted time period.

On the other hand, if the SPAC does find a suitable target, they will agree to terms and start looking to raise capital through PIPE (private investment in public funds). This is when institutional investors — think private equity funds or pension funds — invest in the SPAC. PIPE investments are important because they bring a degree of credibility and show confidence in the SPAC.

Now merger and PIPE agreements will be signed, and SPAC shareholders decide whether they approve of the proposed merger or not.

4. Completing the merger

Hopefully, the SPAC’s shareholders will approve the merger and the deal can be concluded. In which case, the target is now a publicly listed company, and the SPAC is no longer needed. The SPAC’s governance team will be disbanded, leaving the target to trade publicly.

If shareholders did not approve the merger, the SPAC will begin searching for a different target which will be more suitable. Remember though, that if no merger is completed within the allotted time frame, the SPAC becomes liquidated!

Why are they so popular?

So, we know what SPACs are, but what is all the fuss about? Well, going public through the SPAC process has advantages over a traditional Initial Public Offering (IPO). The main one is time efficiency as using a SPAC shortens the process dramatically, think three to five months compared to nine to 12 months or more. This is great for sponsors and investors as it helps them reduce risk during periods of market volatility, such as the pandemic. At the height of Covid-19 disruption, the world could change dramatically in a matter of days, let alone 12 months. This made it difficult to forecast how an IPO would be received upon completion and whether it would be successful or not. By shortening the IPO process to a couple of months, sponsors could predict with greater certainty how profitable the IPO would be.

Remember that SPAC’s function within a condensed time period of around two years, by which time they must have completed a merger or face liquidation. This is beneficial to target companies that are looking to go public as it gives them greater negotiating power when dealing with SPACs. The pressure on sponsors to form a deal quickly or else face a financial and reputational loss can allow target companies to haggle a premium price. This was especially true during the boom period when numerous SPACs may have been pitching to the same target.

What are the legal implications?

The US Securities and Exchange Commission (SEC) has been cautionary in its advice regarding SPACs. Between December 2020 and September 2021, the SEC has released a stream of reports focusing on areas of concern. This included a need for greater transparency in the merger process to protect public stockholders’ interests. Perhaps most interestingly, in March 2021 the SEC issued an investor alert warning the public to refrain from investing in SPACs based solely on celebrity endorsements. This embodies the SPAC-mania that occurred during the pandemic boom period when unlikely celebrity figures such as Shaq, Ciara and A-Rod were promoting SPACs. More recently, the SEC has been concerned that the pace of the SPAC process means that companies are transitioning from private to public without adequate preparation.

Overall, the SPAC market is an exciting area to pay attention to and provides ample room for discussion in the commercial awareness sections of training contract application forms or at interview.

Roisin Blackmore is a third year history student at UCL.

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