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Doing business in the UK: trading contracts & compliance issues

(Part 6 of 7)

This is part 6 of 7 of our guide: 'Doing business in the UK'.

Trading contracts 

Clearly, any UK operation will need to put in place trading contracts with its customers, suppliers and other third parties.

Companies dealing with other businesses in the UK are broadly free to agree the terms of their trading contracts (for example, relating to the purchase and supply of goods and services) as they think fit.  However consumers are afforded certain protections by law and it is important to ensure any trading contracts/terms with consumers comply with the legal requirements. The requirements extend to all advertising and marketing and sales promotions as well as rights and remedies for defective goods and services.  Much of the law to do with consumers is derived from EU legislation. 

Typical protections include:

  • Unfair contract terms - there are controls on the terms which can be imposed when dealing with consumers to reflect the difference in bargaining power between the two parties.  In general, terms must be clear, fair and not misleading.  The ability of a business to exclude or limit its liability is also severely restricted in contracts with consumers.
  • Provision of services - there are regulations which apply specifically to businesses providing services in the UK.  They impose obligations in relation to making certain information available to customers, complaints handling, and abiding by the principles of non-discrimination in the provision of services.
  • Unfair commercial practices - there is a general ban on unfair commercial practices relating to consumers and misleading acts and omissions, and aggressive commercial practices are outlawed.
  • Product liability - manufacturers have a statutory obligation to ensure that their products are safe, with increased rights for consumers.  Given that much product liability law is derived from EU law, the impact of Brexit on the UK's product liability regime is currently unclear but it is likely to be significant, including the acceptability in the UK of products designed manufactured and labelled to EU standards and the acceptability of UK conformity assessments across the EU. Beyond general product safety, market specific regulations apply to labelling and safety for pharmaceuticals, toys, food, medical devices, electrical goods, etc.

It should be noted that there are some over-arching limitations on the ability of UK contracting parties to agree their terms freely. There is an absolute ban on attempts to exclude or restrict liability for death or personal injury caused by negligence, and certain exclusions or limitations of liability must be reasonable to be enforceable, for example, any provision excluding or restricting liability for negligently caused loss or damage to property. 

Therefore, to ensure terms are enforceable, it is important for businesses to review their standard form contract documentation before doing business in the UK. 
Regulated and licensable activities.

In the UK some industry sectors are more heavily regulated than others, including: banking and financial services, professional advisory services, life sciences and pharmaceuticals, gambling, energy and utilities, media, broadcasting and telecommunications, defence, waste disposal and food and drink production.  Some trading activities require a licence, such as the sale of alcohol, provision of late night refreshment and gambling activities. Requirements for licences can differ substantially between each local authority. Businesses operating without a licence can face large fines. Consequently, before operating a business in the UK it is important to check that the business has all the requisite licences. 

There are a number of general controls over trading activity in the UK which also require consideration. These include: 

Sales & marketing agreements 

Agency agreements are regulated by the Commercial Agents (Council Directive) Regulations 1993. These protect commercial agents by providing, among other things, minimum notice periods for terminating indefinite term agency contracts; rules on the validity of post-termination restrictions; and either indemnity or compensation for agents on termination. When (or if) the UK leaves the EU, the future of the 1993 Regulations is uncertain. Distribution and franchise agreements are subject to both UK and EU competition law. There is nothing in EU law that protects distributors and franchises in the same way as commercial agents. However, the UK will become a ‘third country’ upon Brexit so, for example, distributors who sell UK products in the EU after this point will become subject to importers' obligations.

Data protection 

The collection and use of personal and certain other data is strictly governed in the UK under, for example, the General Data Protection Regulation (GDPR) and the Data Protection Act 2018. Provisions under these laws put significant obligations on any person or company collecting or processing personal data. These provisions are designed to address, among other concerns, security of personal data and the purposes for which such data is used. Sanctions for breach of data protection law includes considerable financial penalties (the higher maximum amount being Euros 20 million or 4% of total annual worldwide turnover in the preceding financial year, whichever is the higher). After Brexit, data processing in the UK and transfers of personal data from the UK to EEA states will continue to be governed (in effect) by the GDPR because it has been transposed into UK legislation.

Online trading 

There are a number of compliance requirements which apply to business conducted online and advertising and selling goods online. These obligations include, amongst others, an obligation to provide pre-contractual information to consumers when entering into contracts online and a cooling-off period during which, in most cases, the consumer can cancel their order and receive a refund.

Advertising

As well as the consumer protection laws mentioned above, there are certain advertising codes enforced by the Advertising Standards Authority.  These codes set out general advertising rules, including a requirement that all adverts are legal, decent, honest and truthful.  There are more detailed rules relating to advertising in particular industries.

Health, safety & environmental compliance 

Health, safety and environmental protection is a fundamental cornerstone of UK law. Any overseas investor considering either investing in property or establishing a UK business should evaluate carefully the health, safety and environmental record of the property or business concerned. Regulators have significant powers to control activities and impose significant financial penalties (unlimited in most cases) on those in breach of legal requirements. Importantly, in some instances, directors or employees can face personal prosecution for breach of health, safety and environmental legislation.

Competition or antitrust law 

There are detailed UK and EU competition laws that apply to business activities in the UK. The relevant UK and EU laws adopt a similar approach to the competition laws in many other jurisdictions around the world, by prohibiting anti-competitive agreements and the abuse of a dominant market position.  How the rules apply in practice has been developed through a significant amount of published guidance and decisional practice by the competition authorities, as well as through judgments of the courts. As well as prohibiting anti-competitive agreements between competitors (eg cartels), the laws also apply to other aspects of trading arrangements (including, for example, contractual restrictions in supply agreements). Additional rules apply to businesses that have strong (dominant) market positions. 

Competition law is a constantly developing area on which specialist legal advice should always be sought. The sanctions for breach of competition law are severe and can include both civil and, in the UK, criminal law liabilities.  Civil fines can be up to 10% of group worldwide turnover and legislation has been introduced in both the UK and the EU to encourage and simplify damages claims.

In addition, the competition authorities have the power to review corporate transactions (eg mergers and acquisition) on competition grounds under the merger control rules. There are also rules that require certain ‘public’ contracts to be competitively tendered (referred to as the ‘public procurement rules’) and that limit public bodies’ ability to offer funding (and other advantages) to businesses (‘State aid’).

Bribery 

UK has anti-corruption legislation in force.  There are four criminal offences, including the ‘Corporate Offence’ of failure by relevant commercial organisations to prevent bribery by those working on behalf of the organisation.  A maximum of 10 years’ imprisonment is allowed for all offences, while corporate failure could involve an unlimited fine.  In addition, senior managers may be personally liable if bribery committed by companies was done with their consent or collusion. 

Practical considerations

There will be any number of practical matters which have to be addressed when doing business in the UK but a few key ones are specifically worth mentioning:

Insurance

You should seek insurance advice.  It is compulsory to have certain insurance protections before doing business in the UK, and it would be prudent to consider additional insurance cover in areas where it is regarded as common and best practice to have insurance cover in place to protect your business.

Bank accounts 

If a UK bank account or other bank finance is required, the bank will have to comply with the UK’s strict anti-money laundering legislation before the account can be opened. You will be asked to produce certain documents to verify the UK entity’s existence, such as the company’s certificate of incorporation and articles of association, as well as personal identity documentation for the directors, for example their passports and documents to verify their address (a similar procedure has to be followed when instructing third party professional advisers, such as lawyers and accountants).  The bank will also have to comply with FATCA regulations in relation to disclosure of information if there is a US connection.  For a company account, the board of directors will need to approve the bank mandate and designate authorised signatories on the account.  There are no exchange control restrictions in the UK that would restrict cash leaving the UK but there might be issues with getting cash from the country of origin of the group into the UK  (some countries do have exchange control restrictions in place).

Stationery & website 

Whether operating as a limited company or a branch, there are statutory requirements in relation to trading disclosures.  The name of the business, together with other prescribed information has to be disclosed on business correspondence (including letterhead, business cards, order forms, invoices, delivery notes and email footers) and on any website.


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Doing business in the UK

A guide to setting up, running & managing a business in the United Kingdom.

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Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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