Corporate Law Update: 15 - 21 October 2022

21 October 2022

In this week’s update: multiple email addresses may not be used for the service of documents relating to legal proceedings, a contractual termination right was not subject to an express duty to act in good faith, proposed changes to the Takeover Code, the TCFD’s fifth annual status report, the House of Commons seeks views on the new Economic Crime Bill and the EU mandates minimum gender representation on EU listed company boards.

Court clarifies when parties can agree to receive legal proceedings by email

The High Court has held that legal proceedings could not be served by email under the Civil Procedure Rules (CPR) on a person who had provided multiple email addresses for that purpose.

In R (Tax Returned Ltd and others) v HMRC [2022] EWHC 2515 (Admin), HMRC (the defendant in litigation) specified in a pre-action protocol letter that further correspondence was to be sent by email both to HMRC and to the solicitor acting for HMRC.

The court found that this did not comply with CPR Practice Direction 6A, paragraph 4.1, which sets out when documents can be served by electronic means. Paragraph 4.1 contemplates only a single email address for service. As a result, in the circumstances, documents could not be served validly by email.

In this case, the agreement to accept service by email was set out in a pre-action letter. However, it is increasingly common for parties to agree in a contract that notices and other documents can be sent by email, and for this to extend to documents sent in connection with legal proceedings.

To ensure valid service, parties that wish to permit email service should ensure that either each party provides only one email address for this purpose or, if a party wishes to provide multiple email address, that only one of those email addresses is required for serving documents relating to legal proceedings.

Termination right was not subject to duty to act in good faith

The High Court has held that an express contractual duty to act in good faith did not restrict a party’s ability to terminate the contract at will.

In Optimares SpA v Qatar Airways Group QCSC [2022] EWHC 2461 (Comm), the court found that an express contractual duty on the parties to perform their respective responsibilities and obligations in good faith did not apply to a decision whether to terminate the contract.
The court reached its conclusion, based on the wording of the contract, for two reasons:

  • The ability to terminate the contract was not a “responsibility” or an “obligation”, and so the express contractual duty of good faith did not apply.
  • The right to terminate was stated to apply “notwithstanding anything to the contrary” in the contract and so, in any event, would have overridden the duty to act in good faith.

You can read more about the decision in our in-depth review.

Takeover Panel consults on Code changes, including on timetable for competitive offers

The Takeover Panel has published two consultations on proposed amendments to the Takeover Code.

The first consultation (PCP 2022/3) would clarify how the offer timetable prescribed by the Code would apply in a competitive offer situation where one offeror is proceeding by a way of a contractual offer and another offeror proposes to implement a takeover by way of a scheme of arrangement.

Broadly speaking, the Panel proposes to amend the Code to require parties to an offer to consult the Panel on the offer timetable. The amendments would also clarify that the Panel would not impose an auction to resolve a competitive situation until the last condition relating to an official authorisation or regulatory clearance is satisfied or waived (unless the offer parties request otherwise).

The second consultation (PCP 2022/4) proposes changes to various parts of the Code. These include:

  • greater power for the Panel to grant derogations from the Code (including the requirement to make a mandatory offer under Rule 9);
  • requiring a potential offeror to make a public announcement where there is rumour or speculation, or an untoward movement in the target’s share price, that results only from a clear and unequivocal public statement (which is not currently required);
  • a requirement for a target’s board to issue a recommendation to holders of convertible securities;
  • where there are alternative offers, a requirement for those of the target’s directors that hold shares to confirm which alternative they are choosing; and
  • altering the deadline by which irrevocable undertakings are to be published.

The Panel has asked for comments on both consultations by 13 January 2023.

TCFD publishes fifth annual status report on climate disclosures

The Taskforce on Climate-related Financial Disclosures (TCFD) has published its fifth annual status report. The report sets out developments in climate-related disclosure since the TCFD published its last report in 2021, as well as progress in implementing the recommendations and recommended disclosures set out in its Final Report, published in 2017.

Under the Financial Conduct Authority’s Listing Rules, companies listed in the UK must disclose against the TCFD’s recommendations and explain where they have not done so. In addition, for financial years beginning on or after 6 April 2022, larger companies and LLPs in the UK must publish climate-related financial disclosures modelled on the TCFD’s recommendations.

80% of companies sampled disclosed against at least one TCFD disclosure in 2021. Compliance was highest in Europe, with an average level of disclosure across the 11 recommended disclosures of 60%, up 23 percentage points from 2017. However, overall only 4% of companies disclosed against all recommended disclosures and only 40% in line with at least five.

House of Commons seeks views on new Economic Crime Bill

We previously reported that the Government had introduced the Economic Crime and Corporate Transparency Bill into Parliament.

The Bill proposes to meet various Government objectives, including reforming the role and powers of Companies House, reforming limited partnership law to prevent the abuse of limited partnerships, and creating additional powers to seize and recover suspected criminal cryptoassets.

The House of Commons Public Bill Committee is now asking for written evidence on the Bill. The Committee will scrutinise the Bill line by line and will report by 24 November 2022. The Committee can consider any evidence submitted to it before it concludes its review. It is therefore asking interested parties to submit written evidence as soon as possible.

EU adopts new directive to address gender balance in listed company boards

The EU has adopted a new Directive that will require companies listed within the European Union to promote gender balance on their board or equivalent management body.

Under the Directive (which will also extend to the European Economic Area (EEA)), EEA states will need to adjust their domestic law to require that at least 40% of non-executive director (NED) positions at a company are held by members of the underrepresented sex, or that at least 33% of executive and NED positions are held by members of the underrepresented sex, in each case by 30 June 2026.

The Directive will apply only to companies that have their registered office in an EEA member state and have shares admitted to trading on an EEA regulated market. As such, it will not apply to UK companies or companies admitted to solely to a UK regulated market.

There is currently no requirement in UK law to ensure a minimum gender balance. However, under the Financial Conduct Authority’s Listing Rules, a company listed in the UK must report on its board gender and ethnicity balance and state whether it has met certain minimum targets, including at least 40% of its board comprising women.