Ed discusses why he established his own specialist legal practise, what the main legal challenges are in the sector, what impact the pandemic has had on the industry, and his views on the future of the industry.
Ed discusses why he established his own specialist legal practise, what the main legal challenges are in the sector, what impact the pandemic has had on the industry, and his views on the future of the industry.
Organisations that are looking to use mediation as a way to resolve a dispute without the need for costly litigation need to be aware of the impact that the Covid-19 pandemic will have on the process in the coming months, and the potential pitfalls and challenges.
This is according to Ian Timlin, a specialist dispute resolution and commercial litigation lawyer at Conexus Law, who cautions that the new process may not be as effective and is also less secure unless certain measures are put in place.
Ian explains: “From a practical point of view it has been relatively straightforward to bring mediation online with Zoom for example being used as the facility for secure separate breakout rooms for separate parties and for bringing the parties together in a plenary session. The mediator can then speak to each party separately or with the parties together, virtually switching online from room to room.
“However, this does mean that things are not necessarily as secure as in a physical situation. As a result, we are advising that there is an online mediation protocol in the mediation agreement to be signed by the parties which governs the terms of how the virtual mediation progresses and the rules that are to be adhered to. It should cover areas such as not recording the sessions or sharing of the mediation meeting ID other than to participants involved to ensure no one ‘sits in’ unannounced.
“Also each party should agree that if for any technical reason, including error on the mediator’s part in moving parties correctly to the breakout rooms, they can see and/ or hear a private conversation between the mediator and/ or any other party, they must terminate the session at once and call or text the mediator.”
However, Ian goes on to say that the biggest challenge remains the fact that it is much more difficult to establish a genuine rapport across a screen with the mediator and other parties and this is key in mediation to gain a parties’ trust and confidence.
“Before people are willing to settle, they must feel that their interests are truly understood, and only then can a mediator reframe problems and float creative solutions. Eye contact with the other side can be difficult if they are sitting well back from their screens and not in the same room and therefore it is vital that participants show their faces and do not hide behind their name on a black screen or stock photo of themselves. That way each party and the mediator can see how they are reacting to the points being made,” he explains.
Ian also points out that whilst online mediation is new to many organisations, Ebay is a big user and it is estimated that an incredible 50+ million disagreements amongst traders on eBay are resolved every year using online dispute resolution.
“There is no doubt that virtual mediation is here to stay and is certainly appropriate for low value disputes. However, where considerable sums are in dispute or complex issues arise, serious consideration should be given to the traditional form of mediation even in the current circumstances,” concludes Ian.
Conexus Law, the specialist advisory firm that provides legal and commercial advice to clients who work in sectors where the built environment, technology, engineering and people converge, is urging companies to prepare for the strong possibility that the EU will fail to agree that the UK has an “adequate data protection regime” after the transition period at the end of the year. This will mean that businesses will face barriers transferring personal data to and from the UK to EU countries under GDPR. The warning comes on the back of the ruling by the European Court of Justice at the beginning of July that reversed the prior adequacy decision of the EU for the USA – rendering its Privacy Shield ineffective.
Ed Cooke, Founder at Conexus Law said: “The UK’s use of mass surveillance techniques, our Investigatory Powers Act, and our membership of the Five Eyes intelligence sharing community has raised particular concerns with the EU – especially in relation to the sharing of data with the US, and even more so given the recent Schrems II decision on the Privacy Shield scheme. What is clear is that once a decision has been made then companies will need to move quickly to ensure they are not severely impacted.”
Failure to reach an agreement would mean that companies will need to look at alternatives such as Standard Contractual Clauses and binding corporate rules. Ed reiterates that merely relying on consent is not really an option for most businesses.
“Each of these options has its challenges with consent generally viewed to be unworkable as it can be revoked at any time. Standard Contractual Clauses were upheld in the ECJ in its judgment on Privacy Shield, but the judges did cast some doubt on whether or not these offer suitable protection in all cases without businesses adopting further practical measures such as encryption, to ensure the protection of personal data,” explains Ed.
Conexus Law is advising companies to start preparing now. Companies should already have a full audit of what personal data they collect and where it is stored and transferred to, including back-ups that may be held by cloud-based providers with datacentres all over the world. This audit needs to include all suppliers and partners that data is shared with. The next stage is to look at standard contractual clauses and decide whether further measures are required based on the specific data being transferred. If not, consideration should be given additional methods such as encryption.
“It seems that an adequacy ruling under GDPR is being used as a BREXIT bargaining chip in relation to other unrelated diplomatic negotiations taking place. Unfortunately, businesses may end up bearing the brunt of this and I would highly recommend that they start to prepare now,” concludes Ed.
In our factsheet Renegotiation – An art not a science, we touched upon resolving disputes using the process of mediation.
In the past, mediation has usually been undertaken across, at least, three rooms at a neutral venue with the mediator shuttling between the opposing parties’ rooms having confidential decisions with each party to try to narrow the dispute and gap between them, and ultimately try to get them to reach a settlement.
At the start of such a mediation, there was usually a plenary session where the mediator sits at one end of the table and the parties and their lawyers speak to each other across it.
With Covid-19, mediation has now moved online and they are taking place by various platforms using live screen video. In particular, Zoom is being used as the facility for secure separate breakout rooms for separate parties and for bringing the parties together in a plenary session.
So how is it operating virtually? The mediator places each party and its lawyers into its own virtual room, even if representatives from party are at different locations. The mediator can then speak to each party separately or with the parties together. Instead of actual shuttle diplomacy between actual rooms, the mediator does the same virtually by switching online from room to room.
But what are the matters and potential pitfalls that need to considered for a virtual mediation:
Check that there is an online mediation protocol in the mediation agreement to be signed by the parties which governs the terms of how the virtual mediation progresses and the rules to be adhered to. It should contain at least the following:
In the case of the cross border mediations, pre-mediation checks should be undertaken to ensure that no national firewalls prevent parties in one jurisdiction from using Zoom or the technology platform to be used for the mediation.
A pre-mediation call from the mediator to all participants from a party and the testing of the technology platform to be used by all representatives of party for the mediation is paramount. A good and secure internet connection and both the parties and the mediator understanding the technology/platform are very important to a successful mediation.
As to the virtual mediation itself, the following points should be borne in mind:
Virtual mediation is still relatively new for all clients, litigators and mediators. In our experience of having undertaken virtual or live screen mediations, it’s the best bet in circumstances where parties genuinely cannot all be present at the same premises (even on a socially distanced basis), but it is simply not as effective as a live mediation with all the parties at the same venue, cooped up in their respect rooms for most of a day and with the mediator being able to shuttle between them in the flesh.
Perhaps one of the most well recognised users of online dispute resolution is Ebay. It is estimated that an incredible +50 million disagreements amongst traders on eBay, are resolved every year using online dispute resolution.
Virtual mediation is here to stay and is no doubt appropriate for low value disputes but where considerable sums are in dispute, serious consideration should be given to the traditional form of mediation even in the current circumstances.
For further advice on mediating, please contact Ian Timlin via his contact details below. Ian has been a CEDR accredited mediator since 2000.
Main: +44 (0)20 7390 0280
Mobile: +44 (0)77 6742 7332
This factsheet is for general information purposes only and does not constitute legal advice. The law is open to, and may have changed since this was written, and it cannot be relied upon as advice in respect of your particular situation. 05/08/2020
It has been so encouraging to see shops, bars and restaurants take their first tentative steps out of lockdown, but it’s probably fair to predict that it will not be business as usual for the foreseeable future: changes in consumer habits and routines, financial uncertainty for many, and simple fear, will all continue to impact directly upon the ability of commercial tenants to cover the rent.
In a recent piece, we talked about whether or not these tenants remain obliged to pay the rent during the unprecedented set of circumstances we find ourselves in. The conclusion was compromise; yes, the rent should be paid, but keeping tenants intact and in situ would also be high on the list of landlord priorities.
When it comes to compromising for the benefit of both parties to a lease, there are no hard and fast rules, but here are some of the possibilities to consider.
Adjustments to rent
Rent free periods
Looking slightly beyond the immediate crisis, a certain level of rental income is going to be required, with added pressure on landlords because of debt secured on property and obligations and covenants related to servicing that debt. Parties to existing or new lettings might think about the following:
Any of these structures could work in tandem with an element of deferred rent as described above.
Other financial concessions
Other options worthy of consideration include the following:
A “second wave”?
Looking beyond solely the rent provisions, here are some further points to consider.
Compromise with caution
If a compromise can be reached, always consider the following:
Would-be commercial tenants no longer know whether to take on a new lease. Existing tenants are looking for ways to adjust arrangements with landlords in order to survive the impact of the recent lockdown. Could something reminiscent of the traditional turnover rent now be a way to pin rental levels to the performance of a tenant’s business, during a unique period of economic uncertainty?
Yes, but whereas historically, turnover structures would see a landlord share in the very good times with the tenant, we’ve now seen measures undertaken on a global scale which have had an unmatched negative effect on the performance of businesses with a necessary physical presence – cafes, bars, restaurants, and retail.
Whilst some sectors have thrived – data, hosting, and connectivity, as well as e-commerce and the tech industry – some others have seen their revenue decimated and through no fault of their own; not many businesses could have foreseen to protect themselves against the consequences of coronavirus.
Whilst we cautiously emerge from lockdown and do all that we can to avoid a second wave of the virus, the turnover rent approach could prove a useful tool, for both new and existing commercial tenants.
Traditionally, turnover structures would see a base level of rent paid (usually around 75-80% of the open market value), and a top-up element which would be a percentage of the tenant’s net turnover over a given time period – usually between 5-12%.
This would generally have to be in tandem with a landlord option to fall back on a full open market rent if turnover fell below a certain threshold, and in some specific cases, keep-open covenants by the tenant such that turnover could be optimised – obviously for the purposes of making life easier in the current circumstances, an ability for the landlord to do either of these things would defeat the object somewhat.
If we assume a period of zero turnover (no longer unthinkable), a base rent would at least provide the landlord with some degree of certainty of continued rental income, and some capacity to satisfy any related loan obligations and covenants. At the same time, the tenant might be cushioned from the very worst of any ongoing or renewed impact on its business.
But many businesses occupying commercial premises are no longer holding back in requesting full turnover rents across entire existing portfolios i.e. no base rent, solely a rent linked to turnover.
On the face of it, this will be hugely unpalatable to commercial landlords, but faced with the dual prospect of tenants that simply won’t survive if they must pay rent over and above a level linked in some way to their income, and a potentially pretty tough lettings market, turnover only structures might begin to look more feasible, perhaps even as a temporary measure.
A deferred rent structure in place alongside a wholesale turnover rent might soften the blow i.e. allow the tenant to pay a turnover-only rent, with a structure to claw back a perceived “shortfall” once certain conditions are met, or at a certain point in the term. These structures carry some risk in that there’s no guarantee the tenant will ever be able to pay the shortfall in the future, and if used, they should be carefully documented as to exactly how the shortfall will be calculated and with reference to which income figures, and when and how it is expected that any shortfall will be paid to the landlord.
And what else is there to look out for?
Turnover rent provisions in leases are reasonably complex, and the gathering and provision of evidence of turnover, as well as the potential professional verification or audit of calculations can be burdensome and costly. These calculations also have great potential to lead to dispute. Any party considering a turnover structure must take expert advice, and ensure that there is appropriate provision in the lease for dispute resolution.
The parties will also need to be clear on what is and is not regarded as turnover.
Traditionally, items such as VAT on goods, refunds or credits for returned or faulty goods, or allowances for exchanged or traded in goods, or customary discounts given by a tenant, would all be discounted for the purposes of calculating a net turnover. Tenants will be keen to carve out income from online sales too i.e. that not generated on the premises in question.
Implementation of a turnover rent would also be the time to consider re-tightening returns policies for goods sold – many retailers relaxed and extended these during the height of the lockdown, but when it comes to turnover rent estimates and calculations, good turnover visibility is important.
Whether agreeing new terms or amending existing ones (whether as temporary concessionary arrangements or via more permanent variations to leases), rent review and alienation provisions are also matters to consider.
How is any turnover rent, whether a temporary or permanent arrangement, to be treated on rent review? Will “usual” assignment and subletting provisions apply? Or, did the landlord envisage a turnover rent with one specific tenant in mind? If an assignee or subtenant coming into occupation on any basis remains a possibility, will the turnover rent provisions be suspended for all or part of the remainder of the term, and if so, what will the substitute rent be?
Lastly, the following should always be kept in mind if changes are being made to existing arrangements, whether they manifest as concessions or variations:
Conexus Law, the specialist advisory firm that provides legal and commercial advice to clients who work in sectors where the built environment, technology, engineering and people converge, has appointed a specialist dispute resolution and commercial litigation lawyer.
Ian Timlin brings with him nearly 30 years’ experience including acting for long standing technology clients in the following sectors: data centres, document management, telephony, car parking and young driver insurance. Career highlights include: leading and completing the successful settlement of complex multi-party multi-insurer construction claims including recovering £21m from a FTSE 100 construction company, architect and their insurers following mediation.
Ian Timlin said: “I have been a CEDR Accredited Mediator since 2000 and feel strongly that discussion and negotiation are often the primary tool in resolving disputes and Court proceedings. This is particularly important during this pandemic where companies, businesses and individuals need to work together to get the best possible outcome and maintain good working relationships for when this is all over.”
Ed Cooke, founder at Conexus Law, said: “Ian’s clients comment that he is straight talking, tough (when necessary), practical, tenacious and ultimately very commercial in getting disputes resolved. He is a great asset to our growing team and will be invaluable in helping our clients both through these unprecedented times and after as we start the process of rebuilding.”
Ian was previously an equity partner at Maxwell Batley on Chancery Lane and at City law firm, Speechly Bircham, and the Group Legal Director for a large offshore property development, investment and construction group based in the Channel Islands.
He is also an accomplished sports lawyer, with particular and significant experience in the world of motorsport, advising in respect of disputes and putting in place a myriad of commercial contracts in that sector.
The Covid-19 coronavirus outbreak is already having a significant impact on many individuals and many businesses. Unfortunately, it is becoming clearer that the impact will likely be more significant and longer lasting than we may have imagined at first.
Primarily, businesses should be focussed upon the health and wellbeing of their teams, and what they can do operationally to minimise the spread of the virus. Governments across the world are issuing guidance, and mandating actions that businesses and individuals must take to support this effort.
This is a fast-moving landscape. We are working hard to keep our clients up to date.
This note provides legal analysis alongside some valuable, practical steps that may be taken by parties who find the impact of Covid-19 affects their ability to meet contractual obligations owed to others (upstream), or who find that their trading partners can no longer meet the obligations owed to them (downstream).
In the modern commercial world, businesses are also more reliant on trading partners and long “just in time” supply chains in order to fulfil their contractual obligations. The impact of Covid-19 could significantly upset those finely balanced arrangements. The relationships between parties may be tested in ways they had not previously contemplated.
As trading relationships are now often global, one may have to consider a complex interplay of laws from different jurisdictions, some of which are potentially in conflict. The answers are not simple and are highly fact specific. This note gives some general legal guidance, but it is no substitute for proper legal advice – whether that advice comes from us, or your usual lawyers.
Various governments are introducing emergency legislation to provide support to businesses that may be affected by Covid-19. Some of that legislation may amend the general legal guidance provided in this note.
For countries that are key for our clients, we will endeavour to provide more detailed advice on the latest position.
A law firm that focuses solely on supporting companies at the intersection where the built environment, technology and people converge, has launched today. Conexus Law will work closely with clients in the connected world in both IT, telecommunications, infrastructure and datacentre construction and with engineering businesses delivering major infrastructure projects.
The company has been founded by Ed Cooke, a recognised expert in critical IT infrastructure, engineering, procurement and construction. He has previously been a partner in international law firms DLA Piper and Bird & Bird.
Conexus Law is founded on the belief that its people can only deliver the best counsel if they have a strong understanding of the industry challenges and the underlying technology and processes, so every member of the team has specific industry expertise.
It will take a fresh and different approach to legal practice, in many ways mirroring the way its clients operate, using similar language and processes to enable seamless interaction, identifying key risks and creating flexible legal frameworks.
Ed Cooke, Founder at Conexus Law, said: “With growth continually outstripping predictions, the digital sector is facing major challenges around the unprecedented pace of change, lack of resources and an inability to predict what the future technology landscape will look like or demand. In addition, innovative technologists are pioneering emerging technology where there is often no legal precedent and the regulatory environment frustrates innovation. Conexus Law will deliver robust, creative and commercially pragmatic global solutions in this fast moving and unpredictable sector.”