The Foreign Investment Regulation Review: United Kingdom
i Legislation, policy and practices
The United Kingdom does not currently have a domestic legal framework that specifically governs inward foreign direct investment (FDI). Neither is there a formal policy distinction between domestic and foreign investment in the United Kingdom. However, there are a number of means by which the government can intervene in transactions, as discussed further in this chapter. While these provisions are of general application and not specific to foreign investors, intervention may be more likely in some circumstances when foreign investors are involved, in particular with regard to the public interest intervention regime that allows for intervention in transactions that may raise issues of national security (including public security).
Many transactions involving the acquisition of UK businesses will be subject to review from a competition law standpoint (i.e., assessing whether the merger will have a significant negative effect on competition). The review will be conducted either under the UK merger control regime, as set out in the Enterprise Act 2002 (the Enterprise Act), or – until the Brexit transition period is over (currently expected to be 31 December 2020) –– the European Union (EU) merger control regime, as set out in the EU Merger Regulation (EUMR).2 Some reference will be made to these regimes (e.g., with respect to their jurisdictional thresholds, which are also relevant to the public interest intervention thresholds), but the general merger control regime will not be discussed in detail.
The UK government can also intervene to review transactions from the perspective of protecting the United Kingdom's public interests, including with respect to transactions raising concerns regarding national security (including public security), media plurality, financial stability or (as at June 2020) to combat a public health emergency such as covid-19, if certain conditions are met. The government's current powers to intervene in mergers raising public interest concerns are in the Enterprise Act. Until the Brexit transition period is over, any intervention must also be compatible with EU law as discussed further below.
In addition to the above-mentioned regimes, express controls are also prescribed in some other areas, notably:
- under Section 13 of the Industry Act 1975, the Secretary of State has the broad power to block an acquisition by a non-UK-based entity of an 'important manufacturing undertaking' when it appears that a change of control would be contrary to the interests of the United Kingdom or any substantial part of it; and
- the government holds 'golden shares' in a limited number of UK companies that typically allow it to prevent certain investors holding more than a certain percentage of shares. A number of golden shares also include powers over the disposal of material assets.
Again, EU law currently imposes some limits on the exercising of these rules.
In some sectors of the economy, the government or independent regulators also operate licensing or authorisation schemes, allowing for the scrutiny of individuals participating in particular activities. Certain investments in regulated sectors – such as water3 and financial services4 – may be subject to different merger control assessment or authorisation requirements, or both. Independent regulators operate in a number of sectors, including communications, water, electricity, gas and energy, nuclear and aviation (regulated by Ofcom, Ofwat, Ofgem, the Office for Nuclear Regulation and the Civil Aviation Authority, respectively). The scope of regulators' powers for intervention varies (such as licensing schemes for existing enterprises or approval requirements prior to commencing a new infrastructure project) as do the processes and timescales associated with the different regimes. None of these regulatory processes are specific to foreign investors, although, in some cases, the nationality of an investor will play a part in the authorisation process.5 Mergers concerning the defence sector may also require consent from the Ministry of Defence (MOD) to assign or novate any defence contracts. Details of these sector-specific regulations are outside the scope of this chapter. However, consent requirements and policy direction in particular UK business sectors should be further investigated before undertaking investment activities.
In an ongoing development in recent years, the government has been taking steps to reinforce safeguards and broaden the range of transactions that can be reviewed based on national security concerns. This is in line with broader international activity aiming to reinforce screening powers in light of growing concern that hostile states may use the ownership or control of entities and assets, particularly those concerning critical infrastructure and key technologies, to undermine national security through espionage, sabotage or exerting inappropriate leverage. The changes formulated also aim to address the changing and developing risks that the United Kingdom is facing because of national security, in particular in light of technological developments and the increasing importance of technology in society.
As a short-term (temporary) step, which has not been as temporary as anticipated, the UK government lowered the legislative thresholds at which it can intervene in transactions to protect the public interest for targets involved in activities connected with three areas of the economy in June 2018 (goods and services with military or dual use, computer hardware technologies and quantum technologies) and a further three categories in July 2020 (artificial intelligence, advanced materials and cryptographic authentication technology). This allows the government to review a greater range of transactions in these areas (including those where the target has a much lower UK turnover and where the acquirer is not already active in the relevant market). These powers were first used to review the proposed acquisition by Gardner Aerospace (a subsidiary of a Chinese aerospace and mining company) of Northern Aerospace in June 2018.
In a second, longer-term step, the government is proposing to introduce a stand-alone notification and review process for investments, acquisitions and other events raising national security concerns. This new regime is expected to expand significantly the range of circumstances in which the government can analyse and address national security concerns.
When originally introducing the above-mentioned policies, the government was keen to emphasise that 'scrutiny does not mean making any part of the UK's economy off-limits to foreign investment' and that the proposals are not 'in any way designed or intended to limit market access for any individual countries'.6 Nevertheless, it is clear that the proposals are intended to lead to a far greater number of transactions being reviewed for national security concerns than is currently the case, with corresponding consequences in terms of timeline and deal uncertainty going forward. At the time of writing, the National Security and Investment Bill 2020 is expected to be published imminently, probably in September. It is widely expected to be far-reaching and may involve a mandatory and suspensory notification regime.
The global trend towards increasing protectionism has been accelerated by the covid-19 pandemic, with the UK government concerned to protect UK enterprises with critical capabilities that may be suffering a short-term impact on their share price or profitability and could therefore be more vulnerable to opportunistic takeover.
ii Significance of foreign investment in the United Kingdom
The United Kingdom has historically had a reputation for being one of the economies most open to foreign investment, reflecting the values on which its economic approach is based, including the welcoming of overseas investment.7 It is an attractive place for businesses within Europe, with one of the lowest corporation tax rates in the G20 countries, lower labour costs than businesses in Germany, France and Italy and up to 230 per cent tax relief available on research and development costs.8
A UK attractiveness survey conducted by Ernst & Young (EY) reports that, in 2019, the United Kingdom attracted 5 per cent more FDI projects than the year before. However, France achieved a 17 per cent increase in projects, enabling it to leapfrog the United Kingdom as the leading destination for FDI in Europe for the first time since EY's FDI database was launched in 1997. While Brexit has caused uncertainty and the covid-19 pandemic has caused progress to stall, '31% of global investors suggested they were planning to invest in the UK in the coming 12 months, the UK's highest rating for a decade'.9
Foreign investment regime
There is generally no formal policy distinction between domestic and foreign investment in the United Kingdom. However, there follows an overview of the main (generally applicable) legislation regulating government intervention. Further details on the jurisdictional tests and processes under the public interest intervention regime are provided in Section IV.
i Merger control law
As set out in further detail below in relation to the wider implications of Brexit, the United Kingdom left the EU on 31 January 2020 and entered into a transition period running until 31 December 2020. During the transition period, inward investment in the United Kingdom that involves the acquisition of a business, part of the activities of a business or the creation of a joint venture may fall to be reviewed under EU or UK merger control law, if the relevant jurisdictional thresholds are met. The European Commission (the Commission) will retain exclusive jurisdiction over transactions that meet the EU merger control thresholds and have either been notified to the Commission by 23 December 2020 (or the Commission has accepted a referral request from the parties or the UK Competition and Markets Authority (CMA)).10 The CMA will have jurisdiction when the UK thresholds are met and the transaction was not notified to the Commission by 23 December or the transaction does not meet the EU thresholds.11 In terms of substantive review, the authorities will investigate whether there are any competition concerns associated with a transaction.12 The nationality of the parties to a transaction is not a relevant consideration for this assessment.
The UK merger control regime is a voluntary system, meaning that parties are not obliged to notify a transaction that meets the jurisdictional thresholds for review. However, pre-merger notifications are recommended in challenging cases for the sake of legal certainty, because the CMA can review (completed and anticipated) mergers on its own initiative, can issue interim orders (preventing integration or completion, or unwinding integration) and can impose conditions (e.g., requiring divestments if, on reviewing a transaction, it believes that the transaction has resulted or may be expected to result in a substantial lessening of competition).
ii Public interest review regimes
Both the UK and EU merger control regimes include provisions allowing a transaction to be reviewed on certain specified grounds other than competition law (so called 'public interest' or 'legitimate interest' grounds) when the nationality of a party to a transaction can have greater relevance.
For transactions subject to the EU merger control regime, the EUMR permits Member States to investigate a transaction to protect its 'legitimate interests' (other than the maintenance of competition). In these cases, the competition review will be conducted by the Commission (unless jurisdiction is transferred in a manner prescribed by the EUMR), and a review of the identified 'legitimate interest' will take place under the relevant domestic legislation, such as the Enterprise Act in the case of the United Kingdom. If the Commission were to clear a transaction on competition grounds, it would still be open to the UK government to intervene on the basis of a legitimate interest and to impose conditions on the transaction (for example, Fox/Sky, 2017). However, if the Commission were to block a transaction based on competition concerns, even if the government considered that it was in the United Kingdom's public interest for the transaction to go ahead, the government would not be able to override the block imposed by the Commission.
The question of what constitutes a legitimate interest is a matter for EU law. There are three specific categories of legitimate interests deemed to be compatible with general principles and other provisions of EU law, namely public security, media plurality and prudential rules.13 Any other legitimate interest a Member State wishes to protect must be communicated to the Commission, which then has 25 working days to assess the compatibility of that interest with EU law before a measure to protect the interest can be taken by the Member State.14 To trigger the intervention process, the UK Secretary of State will issue a European intervention notice under Section 67 of the Enterprise Act. Member States may also retain jurisdiction to examine national security aspects of mergers under Article 346 of the Treaty on the Functioning of the European Union (the TFEU).15
The UK government acting via a Secretary of State16 can also intervene in a transaction on defined public interest grounds in circumstances where the relevant EU merger control thresholds are not met, including in respect of:
- transactions that are reviewable under UK merger control law (known as public interest cases): a public interest intervention notice is issued in such circumstances, under Section 42 of the Enterprise Act; and
- transactions that do not meet the requirements for notification under UK or EU merger control law but raise special public interest considerations (known as special public interest cases): a special public interest intervention notice is issued in such circumstances, under Section 59 of the Enterprise Act.
Special public interest mergers are narrowly defined and limited to certain mergers in the newspaper and broadcasting sectors, and mergers involving certain government contractors or subcontractors who hold or receive confidential information or material relating to defence.17 Cases of this kind are rare, this provision only having been used twice under the Enterprise Act to date, both of which were in the defence sector.18
For both public interest cases and special public interest cases, the public interest considerations on which the Secretary of State may rely to justify intervention are set out in the Enterprise Act, and include:
- interests of national security, including public security;
- the need for sufficient plurality of persons with control of the media, the need for a wide range of broadcasting (of high quality and appealing to a wide variety of tastes and interests) or the need for persons carrying on media enterprises, or those with control of such enterprises, to have a genuine commitment to broadcasting standards;
- the need for the accurate presentation of news and free expression of opinion in newspapers;
- the need for sufficient plurality of views in newspapers;
- maintaining the stability of the UK financial system; and
- the need to maintain in the United Kingdom the capability to combat, and to mitigate the effects of, public health emergencies.19
The Secretary of State has the power to modify the above-mentioned list of public interest considerations by specifying a new consideration, or removing or amending any existing specified consideration.20 Under Section 42(3) of the Enterprise Act, the Secretary of State may also intervene based on public interest considerations that are not specified in the Enterprise Act, but that in the opinion of the Secretary of State ought to be so specified.
Although all public interest considerations could, in principle, be applicable to foreign investors, national security considerations (including national security, public security and UK security) are clearly of greatest relevance to FDI, given the potential importance of the nationality of the investor.
iii Treaty on the Functioning of the European Union
While EU law continues to apply in the United Kingdom (i.e., until 31 December 2020), FDI is to a certain extent affected by EU law. One of the key aims of the TFEU is the establishment and development of an internal market between EU Member States. To this end, the TFEU contains provisions to remove tariff and non-tariff barriers to trade, establishment and the movement of capital between Member States. The TFEU thus largely acts to lower the barriers to FDI, at least from other parts of the EU. The prohibition against restrictions on the freedom of establishment for nationals of one EU Member State in the territory of another Member State21 and the prohibition against restrictions on free movement of capital between EU Member States22 are particularly relevant.
There are, however, some limitations on the freedoms granted by the TFEU. In particular, the TFEU provisions enshrining freedom of establishment and free movement of capital have been interpreted to be subject to overriding considerations, such as the protection of national security.
Furthermore, Article 346(1) TFEU underlines that obligations in the TFEU do not preclude a Member State's rights to take certain steps to protect its essential security interests. Article 346(1) TFEU is a permissive article, and acts to disapply the TFEU rules in certain circumstances. In this way, Member States can derogate from the TFEU protections where justified by that Article.
iv Golden shares
Following the privatisation of certain companies in the 1980s and early 1990s, the government retained 'golden shares'.23 Golden shares do not give the government a general right to intervene in a company's day-to-day affairs, but generally the company's articles of association provide that, without the consent of the holder of the special share (that is, the government department concerned), no shareholder may hold more than a stated percentage (usually 15 per cent) of the equity share capital of the company.24
The Court of Justice of the European Union (CJEU) has previously held that the use of these golden shares can, in certain cases, contravene EU law on the free movement of capital and on the freedom of establishment, and that their use is acceptable only in specific circumstances and subject to strict conditions.25
There have been cases in which the CJEU has not accepted the legality of specific golden shares; for example, in 2003, it held that the government golden share in BAA plc breached EU law, although it confirmed that a potential justification existed for EU Member States holding a degree of influence over private companies that were originally public undertakings if they were active in providing services in the public interest or strategic services, provided the restrictions applied equally to nationals of the Member State concerned and of other EU Member States, and complied with the principle of proportionality.
v UK Industry Act 1975
Under the terms of Section 13 of the UK Industry Act 1975, the Secretary of State can block an acquisition by a non-UK-based entity of an 'important manufacturing undertaking' when it appears to the Secretary of State that a change of control would be contrary to the interests of the United Kingdom, or to any substantial part of it.
An 'important manufacturing undertaking' is an undertaking that, insofar as it is carried on in the United Kingdom, is wholly or mainly engaged in the manufacturing industry, and is considered by the Secretary of State to be of special importance to the United Kingdom, or to any substantial part of it.26
There is no public record of this provision having ever been used to block an acquisition of a UK business and so this provision will not be considered further in this chapter. Until the end of the Brexit transition period, the EU law provisions on freedom of establishment and free movement of capital will remain relevant to its exercise.
Typical transactional structures
There are generally no specific legal considerations facing foreign entities seeking to set up new facilities or businesses, or to carry out mergers and acquisitions in the United Kingdom, above and beyond the considerations that also apply to domestic investors.
i Corporate law residency requirements
There are no corporate law residency requirements when investing in the United Kingdom, regardless of whether an investment in a UK company is by way of share purchase or asset purchase.
ii Rules pertaining to takeover bids by foreign companies
There are generally no additional rules relating to the takeover of public or private UK companies by foreign investors as compared with domestic investors.
While acquisitions of interests in non-regulated private companies are generally not subject to specific procedural requirements, a takeover bid by any company (whether domestic or foreign) of a UK public company is usually subject to the City Code on Takeovers and Mergers (the Takeover Code). The Takeover Code provisions cover, inter alia, the timing of takeovers, disclosure requirements and various obligations regarding documentation and announcements to shareholders of a target company. In particular, bidders must make specific statements of intent regarding their plans for a target company, including regarding the company's research and development functions, pension schemes, any material change in the balance of the skills and functions of the target's employees and management and the location of the company's headquarters. Such statements assist target companies' boards, employee representatives and pension scheme trustees to give their opinions on the offer and increase the information available to shareholders. In some circumstances, companies may also voluntarily make legally binding post-offer undertakings in which they commit to take or not take particular actions (see also Section VI). This may be advisable to address concerns about the effects of the transaction on jobs, pensions and the long-term direction and location of the company. Pursuant to Part 28 of the Companies Act 2006 (the Companies Act), the Panel on Takeovers and Mergers is the supervisory and regulatory authority in respect of UK public takeovers.
iii Asset purchases and share purchases
With the exception of industries that are regulated or involve national security, there are no notable differences between a foreign investor and a domestic investor in respect of share purchases or asset purchases. Tax treatment may vary for many reasons, including the domicile or residence of the acquirer.
iv Joint ventures
There are no specific UK rules governing a foreign investor's ability to enter into a UK joint venture, whether with a domestic partner or otherwise. The benefits and risks of entering into a UK joint venture are the same as those for a domestic investor.
v Corporate ownership structures
The key corporate ownership structures under English law are as follows.
A company is a business vehicle with a separate legal identity from that of its owners, and can therefore enter into contracts on its own behalf. All companies incorporated in England and Wales are registered with the Registrar of Companies for England and Wales (otherwise known as Companies House).
The Companies Act provides for four types of companies:
- limited by shares (which can either be public or private);
- with unlimited liability;
- limited by guarantee; and
- community interest.
The vast majority of companies used for investment structures will be companies limited by shares. In addition, under European legislation introduced in 2001, a Societas Europaea (European company) can be created and registered in any one EU Member State, including the United Kingdom. The European company structure allows companies established across more than one EU Member State to merge and operate under a single set of rules and with a unified management and reporting system. As a consequence of the United Kingdom leaving the EU, UK companies will not be able to operate under the Societas Europaea framework after the end of the transition period on 31 December 2020.
Generally, partnerships do not constitute separate legal entities; therefore, when investing in a partnership, the foreign investor will do so under its own name and will be directly responsible for all business conducted by the partnership. However, there are two alternative partnership structures that are also used:
- limited partnership (LP) formed under the Limited Partnerships Act 1907 (as amended) – an LP is similar to an ordinary partnership, in that it does not have separate legal personality, but an LP will typically have a general partner and one or more limited partners; and
- limited liability partnership formed under the Limited Liability Partnerships Act 2000 – the partnership takes on its own legal identity, similar to that of a company.
Broadly, a foreign branch registered with Companies House (in accordance with the Companies Act) is not a legal entity in itself and cannot contract on its own behalf. The foreign branch acts as the UK agent for its overseas entity, which acts as the principal. Tax is a key driver in selecting the optimal investment structure.
i Thresholds for notification and review of foreign investment transactions
EUMR notification thresholds
For a transaction to be reviewable under the EUMR (until the end of the Brexit transition period), it must consist of a 'concentration' (i.e., the merger of two or more independent undertakings or parts of undertakings, the acquisition of direct or indirect control of the whole or parts of another undertaking or the formation of a 'full function' joint venture) that has an 'EU dimension'.
Concentrations will have an EU dimension when (1) the combined aggregate worldwide turnover of all the parties to the transaction exceeds €5 billion and the EU-wide aggregate turnover of each of at least two parties exceeds €250 million, or (2) the combined aggregate worldwide turnover of the parties exceeds €2.5 billion, the aggregate EU-wide turnover of each of at least two of the parties exceeds €100 million, in each of at least three Member States the combined aggregate turnover of all the parties exceeds €100 million, and in each of the same three Member States the aggregate turnover of each of at least two of the parties concerned exceeds €25 million. Unless, in each case, each of the parties involved achieves more than two-thirds of its EU-wide turnover in one and the same EU Member State.
When the thresholds are met, a merger filing is mandatory. In certain circumstances, a transaction that meets the EUMR thresholds may be referred entirely or partially to a Member State for review by the national authority.
UK merger notification thresholds
For a transaction to be reviewable under the UK merger control regime, the transaction must constitute a 'relevant merger situation'. The regime covers mergers, acquisitions of minority shareholdings, asset purchases and joint ventures.
A relevant merger situation will generally be created if two or more enterprises cease to be distinct by virtue of being brought under common ownership or control (or if the CMA believes there is an arrangement in progress or contemplation that will lead to this) where either (1) the UK turnover associated with the enterprise being acquired exceeds £70 million or (2) the transaction creates or enhances a 25 per cent share of supply or purchases of any goods or services in the United Kingdom, or in a substantial part of it (the 'share of supply test').27 The term 'enterprise' is defined as the activities or part of the activities of a business (it need not, therefore, be a separate legal entity).28 'Control' is not limited to the acquisition of outright voting control but includes situations of material influence falling short of outright voting control. Intervention is thus possible with respect to acquisitions of minority shareholdings (material influence will be presumed at 25 per cent and can arise at lower levels still, such as 10 or 15 per cent).29
For certain 'relevant enterprises', the thresholds were lowered as of June 2018. In July 2020, the concept of a relevant enterprise was extended further.30 A relevant enterprise is now one that is involved in specified activities connected with (1) military or dual-use goods subject to export control, (2) computer processing units, (3) quantum technology, (4) artificial intelligence, (5) advanced materials or (6) cryptographic authentication. The legislation is drafted broadly, but both the CMA and the government have issued guidance to assist in the interpretation of the scope of the new categories.31 The test for review in these cases requires (1) the enterprise being acquired to have turnover in the United Kingdom of over £1 million, (2) the meeting of the share of supply test or (3) the relevant enterprise being acquired to have a share of supply or purchase of goods or services in the United Kingdom of 25 per cent or more, made in connection with activities by virtue of which it is considered a relevant enterprise (there is no need for an increase in share in these circumstances). Whereas the changes in these thresholds open a wider range of transaction to potential competition review by the CMA, the key driver of the reforms was to reduce the thresholds for government intervention under the public interest regime for transactions raising national security concerns (which, as described below, are based on the same tests). The CMA has indicated in guidance that it would not expect to open competition investigations into deals that fall within its jurisdiction only because of the new thresholds. In line with its usual policy, the CMA will only investigate a transaction on its own initiative if there is reasonable chance that the transaction may give rise to both a relevant merger situation and a realistic prospect of a substantial lessening of competition.32
ii Thresholds for intervention in public interest, special public interest and EU legitimate interest cases
For public interest cases, the Secretary of State must have reasonable grounds for suspecting that it is or may be the case that a 'relevant merger situation' has been or will be created (i.e., the relevant UK merger control thresholds are met) and must believe that it is or may be the case that one or more public interest considerations are relevant to the consideration of the transaction.33
For special public interest cases (i.e., those not reviewable under either the UK or EU merger control regimes), the Secretary of State must have reasonable grounds for suspecting that a 'special merger situation' has been or will be created (as defined below) and that it is or may be the case that one or more public interest considerations are relevant to the consideration of the transaction.34
A special merger situation may arise if, immediately before the enterprises ceased to be distinct:
- at least one of the enterprises35 concerned was carried on in the United Kingdom, or by or under the control of a body corporate incorporated in the United Kingdom, and where a person who was carrying on one or more of the enterprises concerned is a relevant government contractor;36 or
- in relation to the supply of newspapers or broadcasting of any description, at least 25 per cent of all the newspapers or broadcasting of that description in the United Kingdom, or a substantial part of it, were supplied by the person or persons by whom one of the enterprises concerned was carried on.37
For European intervention notices (which will only apply until the end of the transition period), the Secretary of State must have reasonable grounds for suspecting that it is or may be the case that a 'relevant merger situation' has been or will be created (i.e., the relevant UK merger control thresholds are met), that the EU merger control thresholds are met, must be considering whether to take appropriate measures to protect legitimate interests as permitted by Article 21(4) of the EUMR, and believe that it is or may be the case that a public interest consideration is relevant to the consideration of the transaction.38
iii Procedure and timeline to obtain public interest clearance for transactions and other investments
In respect of each of the categories of public interest mergers under the Enterprise Act, the regime consists of the following stages:
- The Secretary of State, having been notified by the CMA of a Phase I merger case that the CMA believes raises public interest considerations39 or, at its own instance,40 issues an intervention notice to the CMA requesting that it prepare a report in relation to the specified public interest considerations (perhaps following interactions with the parties or third parties regarding the fact that they are minded to intervene). In Lebedev Holdings Limited and another v. Secretary of State for Digital, Culture, Media and Sport, the Competition Appeal Tribunal (CAT) recently found that a public interest intervention notice cannot be issued later than four months from the Secretary of State receiving notice of the 'material facts' relating to a completed transaction.41
- The CMA issues an invitation requesting third-party comments on the public interest considerations (and competition issues if relevant) and consults other government departments, sectoral regulators, industry associations and consumer bodies regarding the public interest considerations.
- The CMA conducts its review and prepares its report for the Secretary of State (usually within 40 business days, but depending on the date stipulated in the intervention notice)42 considering jurisdictional issues and summarising any representations received in relation to public interest issues (and in the case of public interest cases, explaining whether the transaction raises competition concerns).
- In addition to the CMA's report, advice on public interest issues will also normally be provided to the Secretary of State (directly or indirectly via the CMA) by the relevant government department or public body (e.g., Ofcom in the case of newspaper and media mergers,43 the MOD for defence mergers, Ofgem for energy sector mergers, and the Financial Conduct Authority and Bank of England for mergers concerning the stability of the UK financial system). In the case of Ofcom, the regulator will conduct its own public consultation as part of its review.
- The Secretary of State must then decide as soon as reasonably practicable whether to refer the transaction for a Phase II investigation on public interest grounds (and perhaps also on competition grounds in the case of public interest cases),44 to accept undertakings from the parties in lieu of a reference to a Phase II investigation or not to make a reference (including referring the case to the CMA where public interest concerns are no longer considered relevant but the CMA has identified that competition concerns are relevant).45 The threshold for referral is low and the relevant Secretary of State has a wide margin for exercising his or her discretion (i.e., he or she has the power to make a referral if he or she believes there is a risk that is not 'purely fanciful' that the merger 'might be expected to operate' against the public interest (see the statements of the Secretary of State in Fox/Sky (2017)).46 Parties can offer undertakings in lieu of reference to a Phase II investigation.47 Typically, the Secretary of State will make a decision on whether he or she is minded to accept such undertakings in short order following receipt of the CMA's Phase I report.48 However, before formally accepting any such undertakings, the Secretary of State must give public notice of the proposed undertakings and consider any representations made in response. The notice shall specify a period of not less than 15 days in which representations can be made.49 However, the Secretary of State may dispense with any of these procedural requirements if he or she considers that there are special reasons for doing so, for which the Secretary of State has wide discretion.50 In the Lebedev case, the CAT further clarified that the Secretary of State's power to make a reference to Phase II (as well as issue an intervention notice) in a public interest case expires four months after receiving notice of the material facts of a transaction.
- When the Secretary of State refers the case for a Phase II investigation, the CMA is required to conduct an in-depth inquiry into the public interest considerations (and any competition concerns in public interest cases, if referred also on this basis) and to prepare a detailed report for the Secretary of State. The CMA has 24 weeks to prepare the report – this period may be extended by eight weeks where 'special reasons' exist for doing so. The report will include the CMA's conclusion as to whether the merger operates or is expected to operate against the public interest and its recommendations for remedies.
- Upon receipt of the CMA's recommendations, the Secretary of State must decide whether to make an adverse public interest finding (or whether to take no decision at all in public interest cases).51 The Secretary of State must publish the decision within 30 days of receipt of the CMA's report.52 The Secretary of State must accept the CMA's conclusions as to whether the transaction will result in a substantial lessening of competition in public interest cases and the CMA's jurisdictional assessment; the Secretary of State will have 'regard to' but is not bound by the CMA's recommendations for remedies or the wider public interest issues.53 If no action is taken by the Secretary of State in public interest cases, the CMA will proceed to deal with any remaining competition issues.54
The CMA has the power to take by interim order any action it considers necessary to prevent or unwind pre-emptive action (i.e., integration steps that may prejudice the later imposition of remedies), for example by appointing a monitoring trustee or hold separate manager. These powers can be used in both completed and anticipated deals. For example, on 20 December 2019, the Secretary of State both issued a public interest intervention notice and imposed a pre-emptive enforcement order in Aerostar/Mettis (2019-20),55 which involved a Chinese company's proposed acquisition of a UK manufacturer of aerospace solutions across military and commercial markets. The interim order prohibited any action that might lead to integration of the two businesses, transfer of the ownership or control of the businesses or otherwise affect the ability of the businesses to compete independently in any market affected by the transaction. The deal was ultimately abandoned following the intervention.
iv Substantive test for clearance of public interest cases
In public interest mergers under the Enterprise Act, the Secretary of State assesses the public interest issues raised by the transaction and adopts a decision based on whether the merger operates or may be expected to operate against the public interest (the public interest test).
The following are recent examples of cases considering the various grounds for intervention. For further details about how particular grounds will be considered or investigated, reference should be made to relevant cases.
Transactions reviewed on the basis of national security have tended to be defence mergers with public security concerns being dealt with through a range of undertakings negotiated or proposed by the MOD, including the maintenance of strategic capabilities within the United Kingdom and the protection of classified information and technology.56
In Gardner/Impcross, the government intervened in the attempted acquisition by a Chinese-owned aerospace company (Gardner) of a UK manufacturer of aerospace parts for the UK military (Impcross). The Secretary of State raised national security concerns relating to the protection of the United Kingdom's aerospace capability and the safeguarding of sensitive information, skills and manufacturing capabilities within Impcross. Gardner abandoned the transaction, but the Secretary of State still required Gardner to give undertakings that it would not acquire shares in Impcross without the prior written consent of the Secretary of State for one year. The Secretary of State held a public consultation on these undertakings (which expired on 2 July 2020) and, at the time of writing, was considering the representations of interested parties.
In the case of Melrose/GKN (April 2018), concerns were also raised regarding the intended period of ownership and plans for a defence-related business, based on the fact that the acquirer, Melrose (a British listed company), was a turnaround specialist (which acquires, improves and sells businesses). The Secretary of State did not deem it necessary to intervene on public interest grounds based on undertakings agreed by Melrose with the MOD, and binding undertakings offered by Melrose through the takeover process to allay additional concerns held by the Secretary of State, discussed further below. The undertakings agreed with the MOD included an agreement to seek government consent for plans to divest a business, a component of a business or assets engaged in activities that the MOD considered had national security implications (allowing the MOD to first seek relevant protections from the subsequent purchaser), to ensure the continuation of contractual obligations to protect intellectual property and classified information, and to ensure the continued maintenance of any capabilities with a national security dimension. Further, the MOD was granted powers to inspect information and facilities to ensure the protection of classified information.57
Other recent cases have signalled a greater willingness to apply the national security review to broader aspects of public security. For example, the case Hytera Communications Corporation Ltd/Sepura plc (2017) concerned the purchase by a Chinese radio systems manufacturer (Hytera) of a Cambridge-based radio systems provider (Sepura) for £74 million. The Secretary of State issued a public intervention notice on national security grounds on the basis that Sepura supplied communication equipment systems to emergency services across the United Kingdom. Concerns were raised regarding the protection of sensitive information and technology, and for ensuring the maintenance of UK capabilities in maintaining and servicing radio devices used by the UK emergency services. The Secretary of State accepted a series of undertakings, in line with advice received from the Home Office, instead of referring the merger to a Phase II review. The undertakings required the parties to implement enhanced controls for the protection of sensitive information and technology from unauthorised access, as well as granting the relevant agencies, including the Home Office, rights of access to premises and information to audit compliance with the security measures. The two companies also undertook to continue repair and maintenance of relevant radio devices for as long as it is required by the Home Office.58
Further, recent cases such as Connect Bidco/Inmarsat (2019) and Advent/Blackstone/Cobham (2019), have illustrated that the United Kingdom is also scrutinising acquisitions made by investment funds and closely examining the composition of those funds. Inmarsat involved a consortium of US and Canadian private equity investors acquiring control of a UK company that provides satellite communications services, including for military purposes. The Secretary of State issued a public interest intervention notice and raised concerns surrounding the security of sensitive defence data held by Inmarsat and security of supply. The Secretary of State carefully considered the investment structure and control rights and ultimately required undertakings to ring-fence and limit access to sensitive information and secure ongoing supply. Prior to any intervention, the government had already accepted a number of voluntary undertakings, including that the majority of Inmarsat's strategic decisions would be taken in the United Kingdom, that its important global network operation centres would remain in the United Kingdom and that skilled engineering jobs in the United Kingdom would be protected.59
In Cobham, the Secretary of State issued a European intervention notice on national security grounds, raising concerns regarding Advent's (a US-based private equity investor) proposed acquisition of Cobham (a UK-based defence and aerospace supplier to the UK government). The review involved a close examination of the ownership structure and concerns that insufficient security controls within the new ownership structure could result in unauthorised access to sensitive defence and security data held by Cobham or carried on Cobham's systems. Additional concerns focused on whether, under the new ownership, parts of the Cobham group that provide critical services could cease to operate or be sold or transferred abroad in light of Advent's stated intent to buy, improve and sell the business. The MOD was also concerned with the issue of continuity of supply for services and capabilities that are important to the ability of the MOD to operate. Ultimately, the Secretary of State's concerns were resolved with undertakings that would (1) ensure that the existing security arrangements will be continued and strengthened; (2) require the new owners to honour the terms of existing contracts and notify the MOD in the event of a material change to Cobham's ability to supply key services; and (3) require the new owners to give the MOD prior notice of plans to sell any part of Cobham's business.60
The Secretary of State issued a public interest intervention notice and reviewed DMG Media's completed acquisition of JPIMedia Publications on the public interest ground of sufficient plurality of views in newspapers. The Secretary of State accepted Ofcom's conclusions that the merger did not reduce the plurality of views provided across newspaper groups in the United Kingdom and decided not to refer the transaction to Phase II on 25 March 2020. On 27 March 2020, the CMA cleared the transaction on competition grounds finding that the transaction on competition does not give rise to a realistic prospect of a substantial lessening of competition.
Media plurality and broadcasting standards
In the proposed acquisition by 21st Century Fox of Sky plc,61 the Secretary of State conditionally cleared the transaction following a Phase II review by the CMA. The deal was reviewed on the basis of media plurality and commitment to broadcasting standards grounds.62 The conclusion by the Secretary of State was that the merger may be expected to operate against the public interest on grounds of media plurality but that the merger may not be expected to operate against the public interest on grounds of the parties' commitment to broadcasting standards. The key concern in this case was that, following the merger, the Murdoch family trust would control both News Corp (which owns News UK, a publisher of newspapers such as The Times, The Sunday Times and The Sun) and Sky News. An undertaking was given to divest Sky News to the Walt Disney Company, or to an alternative suitable buyer. Undertakings were also given by the Walt Disney Company, including not to sell Sky News without Secretary of State approval for 15 years (should it acquire Sky News). Further, the Walt Disney Company undertook (among other things) to maintain a Sky News branded service for 15 years that would abide by the principle of editorial independence and integrity in news reporting and that, for each of these 15 years, total funding available to Sky News would not be less than £100 million. Fox committed (among other things) to pay funding to Sky News for a period of 15 years.63
More recently, on 27 June 2019, the Secretary of State issued a public interest intervention notice in relation to the sale of a 30 per cent stake in the Independent and Evening Standard newspapers to a Saudi investor on the public interest grounds of the freedom of expression and accurate news reporting, requesting that the CMA and Ofcom submit their reports by 23 August 2019. However, following judicial review proceedings before the CAT, the Secretary of State was time-barred from referring the transaction to Phase II. After describing the relevant provisions of the Enterprise Act as 'labyrinthine' and 'convoluted', the CAT found that the public interest intervention notice could only be brought within four months of the Secretary of State receiving notice of material facts relating to a completed transaction and that the same time limit also applies to the Secretary of State's power to make a reference to Phase II in a public interest case. Having been made aware of the material facts of the transaction by letter to the Secretary of State on 1 March 2019, the four-month period had already expired by 1 July 2019, such that the time limit for a reference to Phase II had expired by the time of the hearing.64 The process for appealing to the CAT is described further below.
The Lloyds TSB plc/HBOS merger (2008) is the only case reviewed on this basis to date. In its report to the Secretary of State, the Office of Fair Trading (the predecessor of the CMA) found that the merger may result in a substantial lessening of competition and recommended that the merger be referred for a Phase II review. However, the Secretary of State decided to clear the merger without referring it for an in-depth review, concluding that the merger would result in significant benefits to the public interest (as it related to ensuring the stability of the UK financial system) that outweighed the potential anticompetitive outcomes identified.65
Public health emergency
The government introduced only in June 2020 the new public interest consideration allowing intervention in transactions to maintain in the United Kingdom the capability to combat, and to mitigate the effects of, public health emergencies. At the time of writing, there have not yet been any transactions reviewed on this public interest ground.
UK merger control
In the UK merger control context, the test is whether the merger has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.
v Powers of the competent authorities to interfere with a transaction
The Secretary of State may take any action considered reasonable and practicable to remedy, mitigate or prevent any effects adverse to the public interest that have resulted from, or may be expected to result from, the transaction.66 This includes, if necessary, prohibiting the merger, accepting undertakings from the parties in lieu of a reference to a Phase II review or imposing remedies after a Phase II investigation. The CMA will advise the Secretary of State of the appropriateness of undertakings and will negotiate those undertakings with the parties.67
Since the introduction of the Enterprise Act, the Secretary of State has been willing, for the most part, to accept undertakings to mitigate identified public interest concerns. Although there has yet to be a transaction formally blocked under the public interest regime, two transactions have recently been abandoned as a result of government scrutiny.
In normal merger control processes, the CMA has the power to address concerns through accepting undertakings, imposing remedies or by recommending that others (e.g., government or sectoral regulators) take action to address concerns. If it is not possible to address concerns, the CMA can prohibit a merger. The three possible options are unconditional clearance, conditional clearance and prohibition.
vi Remedies available to challenge a negative decision in public interest cases
Any person aggrieved by a decision in connection with a reference or a possible reference in a public interest case (i.e., any of the three types discussed in this chapter) may appeal to the Competition Appeal Tribunal (CAT) for review of that decision. The CAT determines such appeals in accordance with judicial review principles, and has the power to quash the whole or part of the relevant decision or to dismiss the application.68
Subject to judicial leave to appeal, decisions given by the CAT may be appealed before the Court of Appeal of England and Wales, the Court of Session in Scotland, or the Court of Appeal in Northern ireland, or in certain cases the UK Supreme Court. The decision of the Secretary of State may also be subject to judicial review by the High Court on limited grounds of errors of law and procedure.
vii Measures for the protection of confidential information
The Enterprise Act contains a general restriction on disclosure of specified information, including information submitted to a public authority in the exercise of any function it has pursuant to the Enterprise Act.69 Disclosing information in contravention of the Enterprise Act is a criminal offence.
The Freedom of Information Act 2000 (FOIA) gives any person a right of access to information that is held by a public authority. However, the FOIA contains several exemptions to the general right of access, including, in relation to information that must not be disclosed to safeguard national security,70 and information where disclosure would be likely to prejudice the defence of the British Islands or any colony, or the capability, effectiveness or security of the armed forces or any forces cooperating with those forces.71
viii Lobbyist registration requirements
Foreign investors that choose to engage external political lobbyists in connection with their proposed or existing investments in the United Kingdom should be aware of the statutory regime requiring registration of consultant lobbyists in the United Kingdom. Under the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Act 2014 (the Lobbying Act), organisations and individuals that carry on the business of consultant lobbying of ministers or permanent secretaries must be entered in the Register of Consultant Lobbyists.72 Any person or organisation intending to conduct the business of consultant lobbying must be entered on the Register before doing so.73 To comply with the Lobbying Act, consultant lobbyists must provide a quarterly update that includes the names of the clients on whose behalf oral or written communications were made (or payment was received to make) personally to a minister, permanent secretary (or equivalent) relating to UK government policy, legislation, the award of contracts, grants, licences or similar benefits or the exercise of any other government function.74 The registration regime does not cover in-house lobbyists advancing the interests of their own company.
Foreign investor protection
Foreign investors in the United Kingdom are principally protected by a network of more than 90 bilateral investment treaties (BITs) that the United Kingdom has entered into with countries around the world.75 The EU now has exclusive competence over FDI under Article 207 TFEU and is negotiating and concluding several BITs;76 however, the European Commission can grant authorisation for Member States to negotiate and enter treaties with third countries independently.77
In the case of Slovak Republic v. Achmea, the CJEU held that BITs between EU Member States are incompatible with EU law,78 calling into question the possibility of future claims under BITs between the United Kingdom and EU Member States while the United Kingdom remains in the EU. As a consequence of this judgment, 23 Member States signed the Agreement for the Termination of Bilateral Investment Treaties between certain EU Member States (the Termination Agreement) on 5 May 2020.79 The United Kingdom, Austria, Finland, Ireland and Sweden are the only Member States that have not signed the Termination Agreement. Therefore, the United Kingdom's BITs with EU Member States remain in force.
If the United Kingdom opts out of the EU's common investment policy in whatever arrangement is in place when the United Kingdom leaves the EU, the consequences for third countries will be that:
- the United Kingdom will not be part of any future BITs concluded between the EU and third countries, and any claims will have to be brought by foreign investors pursuant to UK BITs; and
- the United Kingdom will be able to retain, renegotiate and conclude BITs with third countries without any limitation.
Additionally, after the United Kingdom's departure from the EU, there should no longer be any obstacles to bringing claims under BITs between the United Kingdom and EU Member States.
The United Kingdom's existing BITs with third countries outside the EU framework should be unaffected by its withdrawal from the EU.
While the precise scope of any BIT depends on its terms, it is possible to identify general terms contained in most BITs concluded by the United Kingdom. These treaties provide both general standards of treatment for nationals of one of the states party to the BIT that has investments in the territory of the other state party and access to international arbitration against the host state if an investor considers that any of these standards have been breached. In this way, UK BITs make the broad standards of investor protection they contain meaningful and enforceable. These standards generally include:
- the non-discrimination standards of most-favoured nation treatment and national treatment, entitling the investor to treatment as favourable as that provided to investors from third countries and domestic investors respectively;
- a right to 'fair and equitable treatment', which encompasses both due process norms of procedural fairness and protection for investors' substantive legitimate expectations;
- a right to 'full protection and security', implying a duty of care on the part of the host state to safeguard the physical (and potentially the legal) security of investment property;
- a right to compensation at full market value in the event that investments are expropriated, either directly or through regulatory measures with equivalent effect;
- protection against arbitrary or unreasonable measures that may impair the management, maintenance, use, enjoyment or disposal of investments; and
- a commitment by the host state to observe any undertakings it has entered into with respect to an investment.80
In addition, investors in the United Kingdom may also be protected by domestic human rights legislation, namely on the basis spelled out in the Human Rights Act 1998 by reference to due process, non-discrimination and property rights norms set out in the European Convention on Human Rights and Fundamental Freedoms.81
Other strategic considerations
Unlike other jurisdictions where foreign investors may need to consider local investment protection legislation, discriminatory taxation of inward investors and restrictions around the extraction of cash, considerations such as these are not relevant for foreign investors investing in the United Kingdom.82
Nevertheless, there are considerations that foreign investors should be aware of in connection with investments in UK assets, regardless of the fact that their application is not limited to foreign investors. For example:
- the identity of the target company or the company selling assets (i.e., whether it is a public or private company), as this will determine the relevant statutory regimes that will apply and the regulatory bodies that will have to be consulted;
- the sector in which the target company operates (broadly speaking, the national security, defence, financial, media and utilities sectors are the most heavily regulated);
- any company law requirements relating to shareholder and other approvals (as these may affect the time frame of the investment); and
- the jurisdiction of the investor and whether it is a jurisdiction in respect of which any current UK (or other) sanctions are in place (which may, for instance, restrict a seller's ability to transact with the foreign investor).
In addition to the above, foreign investors should not ignore political and public perception considerations in connection with their proposed investments. In recent times, the following have been at the forefront of public debate:
- Tax avoidance and tax evasion – a foreign investor may find itself an easier target for media accusations of 'offshoring' UK profits to reduce its group's tax bill, and may need to consider tax rules targeting situations of this kind (e.g., diverted profits tax). The investor may also need to consider whether it has appropriate group-wide anti-tax evasion policies and procedures in place that would reach the standard required under the UK Criminal Finances Act 2017.
- The negative perception of investments that result in the extraction of economic value from the United Kingdom (if a transaction is likely to be sensitive and to attract a high profile in terms of media or political interest, transacting parties may need to consider whether it would be appropriate to instruct public relations advisers and whether it would be appropriate to make public undertakings in the context of public deals), by way of example:
- the Softbank/ARM takeover in 2016 – SoftBank's £24.3 billion acquisition of ARM Holdings was announced in the weeks following the Brexit vote in June 2016. Such a large acquisition of a British technology company faced a strong risk of opposition from the media and government. SoftBank sought to deal with potential concerns about the takeover by becoming the first bidder to give legally binding post-offer undertakings under the UK Takeover Code. Among other things, SoftBank undertook to: (1) at least double the employee head count of ARM in the United Kingdom within five years; (2) increase the employee head count of ARM outside the United Kingdom within five years; and (3) maintain ARM's global headquarters in Cambridge for five years.83 SoftBank's chief executive personally spoke to the Prime Minister, who decided to welcome the investment and the commitments to increase jobs in the United Kingdom. The Chancellor of the Exchequer stated (via Twitter) that the deal demonstrated the health of the British economy post-referendum, suggesting that this may be a counterbalancing factor for similar deals in the near future: 'Decision by SoftBank to invest in @ARMHoldings shows UK has lost none of its allure to global investors – Britain is open for business';84
- the Melrose/GKN takeover in 2018 – the Secretary of State raised several concerns about GKN being acquired by a turnaround specialist in terms of its effect on the economy, including the effect on employment (GKN being a valuable employer in the United Kingdom, direct and through its supply chain), the UK's Industrial Strategy (in light of the importance of GKN's research and development (R&D) activities), the fact that GKN benefited from government-sponsored contracts and participated in a sector that enjoyed active engagement from government-sponsored R&D and the large number of pensioner stakeholders who depended on GKN's ability to fund its pension schemes. In particular, the government felt that companies that benefit (directly or indirectly) from long-term public sector contracts or indirectly from government-supported R&D should adopt appropriate time horizons on investment decisions so as to safeguard public funds.85 In response, Melrose offered legally binding post-offer undertakings under the UK Takeover Code, including undertaking to: (1) maintain a UK stock exchange listing and its UK headquarters for at least five years; (2) ensure that a majority of directors are resident in the United Kingdom; (3) ensure that both the aerospace and drive-line divisions retained the rights to the GKN name; and (4) guarantee that spending on R&D would at least maintain GKN's previous levels, amounting to a minimum of 2.2 per cent of sales for the next five financial years. Melrose also undertook not to dispose of the aerospace business for at least five years without the government's consent and offered to meet officials and the Secretary of State every six months to provide updates on its ownership;86 and
- the Comcast/Sky takeover in 2018 – the parties agreed upfront a number of post-offer undertakings under the Takeover Code and further undertakings offered by way of deed poll to seek to mitigate the risk of a public interest intervention by the Secretary of State. The undertakings were similar to those given by Fox to the Secretary of State to gain approval for its proposed acquisition of Sky through the formal intervention process (discussed further in Section IV), including in relation to maintaining investment in Sky News for a number of years and enhancing Sky News editorial guidelines.87
- the Inmarsat acquisition in 2019 – the parties agreed a number of undertakings ahead of the foreign investment review, which focused on security of information and security of supply. The acquiring consortium of investment funds offered voluntary undertakings, including that the majority of Inmarsat's strategic decisions would be taken in the United Kingdom, that its important global network operation centres would remain in the country and that skilled engineering jobs in the United Kingdom would be protected.88
- Anti-bribery and corruption issues and, in particular, whether investors are connected to jurisdictions perceived as high risk from an anti-bribery and corruption perspective, or whether they have appropriate group-wide policies and procedures in place that would reach the standard required under the UK Bribery Act 2010. This is the case despite the fact that there is some debate as to the extent to which the Bribery Act applies to a multinational organisation's global operations as a result of the existence within the group of a UK business or subsidiary. Companies incorporated outside the United Kingdom will only be caught by the Bribery Act if they are 'carrying on a business or part of a business in the UK'. In the absence of any other factors, the mere fact that a UK entity, which operates independently, exists within the group will not, in itself, be enough to extend the reach of the Bribery Act to other group entities.
Given the increasing emphasis on FDI screening, and the expanded UK national security regime, it will also be important to analyse early on when considering a potential transaction whether the government will have jurisdiction to review a transaction from a public interest or competition perspective and to analyse the potential risks of public interest and competition concerns arising with respect to a particular transaction, including the risks of intervention.
Deal documentation should address the need and risk associated with any required regulatory processes or approvals, in particular by:
- covering required approvals in regulatory conditions precedent, the seller will also want to seek obligations on the buyer to satisfy conditions to closing; and
- ensuring cooperation between the seller and target during the pre-closing period in obtaining required approvals and with any government public interest intervention process.89
Depending on the likelihood of a public interest intervention notice being issued, it may (for example) be appropriate to make the transaction conditional on the Secretary of State not having referred the transaction for a Phase II review by a certain date.
The effect of a public interest (or any other regulatory) review on a deal's timetable should also be taken into account. In particular, the issuing of a public interest intervention notice can have important timing implications as certain parts of the process are not subject to statutory deadlines.
Parties may want to consider proactively engaging with the relevant Secretary of State or government department early on to help determine whether a public interest intervention notice is likely to be issued and to proactively discuss any potential concerns. It may, for example, be possible to avoid the issuance of a public interest intervention notice or an in-depth review if an agreement can be reached directly with the relevant government department regarding suitable undertakings to remedy any potential public interest concerns presented by the transaction. This process has, for example, been followed in cases involving the defence sector that do not raise significant public interest concerns and where, therefore, the full process may not be warranted. For example:
- in Gardner Aerospace Holdings/Northern Aerospace (2018), the Secretary of State cleared the transaction unconditionally and did not deem it necessary to refer it to a Phase II review. In its report to the Secretary of State, the CMA noted that the MOD had obtained written assurances from Gardner confirming that previously agreed protections between Gardner and its current owner would also apply to Northern Aerospace. These protections were designed to prevent Northern Aerospace's owner accessing restricted information and required the appointment of an independent auditor and the establishment of a series of auditable security arrangements to affirm the protection of restricted information;90 and
- in April 2018, the Secretary of State decided not to intervene in the proposed acquisition by Melrose Industries of aerospace and automotive parts maker GKN. The Secretary of State said that the MOD had completed a 'detailed analysis' of the deal and had agreed with Melrose a set of undertakings to allay any national security concerns.91
i Proposed legislative reforms to the national security review regime
On 24 July 2018, the UK government published the National Security and Investment White Paper, containing proposals for a new, voluntary, national security review regime (the White Paper).92 At the time of writing, the expectation is that the National Security and Investment Bill will be published after the UK Parliament's summer recess and possibly in September 2020. The regime is expected to focus on critical infrastructure, advanced technology and military and dual-use goods and be more far-reaching than the proposals set out in the White Paper. In contrast to the existing regime, it is possible that the regime may involve mandatory and suspensory notification if certain thresholds are met.
When the new regime is introduced, the government will remove the national security considerations from the public interest and special public interest regimes under the Enterprise Act. In doing so, this will remove national security concerns from the remit of the CMA. Although the CMA will remain the competent authority for competition law purposes (and its role in public interest interventions related to media plurality and financial stability will remain the same), national security matters will be assessed separately and dealt with by the government.
The government was keen to emphasise when first introducing the prospect of long-term reforms that '[s]crutiny does not mean making any part of the UK's economy off-limits to foreign investment' and that the proposals are not 'in any way designed or intended to limit market access for any individual countries'.93 The government also stressed its intention for the United Kingdom to remain 'amongst the most open economies to foreign investment' and emphasised that the measures will 'reinforce this by strengthening safeguards'. Greater opportunities for scrutiny does not mean prevention; however, this process will need to be factored into deal timelines, with appropriate assurances in terms of cooperation from both the target and the seller and appropriate risk allocation mechanisms built into transaction documents, going forward.
Following the referendum held on 23 June 2016, the British people voted to leave the EU. The United Kingdom left the EU on 31 January 2020 and entered into a transition period running until 31 December 2020, during which time most EU law continues to apply, including the EU merger control regime. At the time of writing, it is still unclear exactly what the new relationship between the United Kingdom and the EU will be, although negotiations are ongoing.
The United Kingdom remains a member of the World Trade Organization (WTO) and will need to continue to meet its obligations under its BITs and the WTO General Agreement on Trade in Services, which sets out WTO members' rights and freedoms in relation to investing in the United Kingdom's markets. It will also continue to act in accordance with its commitments on freedom of investment as a member of the Organisation for Economic Co-operation and Development. The government has asserted in this respect that the 'UK will remain an open economy that welcomes foreign investment'.94
After the end of the transition period on 31 December and unless a different regime is agreed between the United Kingdom and the EU, the UK and EU merger control regimes will be separated and there will be the potential for parallel reviews by the CMA and the Commission, which is likely to increase costs for transacting parties.95
In terms of the effects of Brexit on the public interest intervention regime in the United Kingdom, the UK government would be free to widen the regime to intervene on industrial policy or public interest grounds, subject to anything agreed between the United Kingdom and the EU and subject to other international obligations and BIT terms.
The long-term effects on foreign investment of the United Kingdom leaving the EU remain highly uncertain. Although the EY UK Attractiveness Survey 2019 reported further decline (from 2017) in predicted foreign investor sentiment towards the United Kingdom in the long term,96 this has subsided somewhat in the 2020 report. Brexit-related uncertainty was weighing less on investors' minds, with EY's survey finding that it was cited as one of the top risks by only 24 per cent of investors, down from 38 per cent the year before.97
iii EU Foreign Direct Investment Screening Resolution
In April 2019, the regulation adopting the European framework for screening FDI into the EU entered into force.98 The intention is for the framework to be fully implemented at Commission and Member State level by 11 October 2020. The regulation allows for greater cooperation between Member States, with obligations to inform other Member States and the Commission of the intention to screen a FDI within five working days and to be open to comments from other Member States. The Commission could also issue a (non-binding) opinion on an FDI planned or completed in a Member State.99 However, the regulation does not mandate any changes to existing national FDI review frameworks and Member States remain the ultimate arbiters of FDI in their territory.
1 Alex Potter is a partner at Freshfields Bruckhaus Deringer LLP. The author would like to thank Koo Asakura (associate), Anthony Parry (senior adviser – Brexit), Lloyd Rees (knowledge lawyer – global transactions and Brexit), John Tolman (senior knowledge lawyer), Désirée Prantl (principal associate), Ashmita Garrett (counsel) and Caroline Doherty de Novoa (global head of knowledge for dispute resolution) for their contributions to this chapter.
2 Council Regulation (EC) No. 139/2004 of 20 January 2004 on the control of concentrations between undertakings (EU Merger Regulation (EUMR)).
3 For example, in the water sector, a special regime applies to mergers between licensed water companies. The Competition and Markets Authority has a duty to refer mergers involving two or more water enterprises to 'Phase II' unless certain turnover thresholds are not exceeded (Sections 32 and 33 Water Industry Act 1991, as amended by Section 15 Water Act 2014). There are limited exceptions to this duty. It will be able to accept undertakings in lieu of a mandatory reference in certain circumstances (Section 33D Water Industry Act 1991 as inserted by Section 14 Water Act 2014). Water supply and sewerage licences are also granted by Ofwat based on an assessment of a potential operator's managerial, financial and technical competencies.
4 For example, the acquisition or increase of 'control' over a UK authorised financial services firm (including banks, investment firms and insurers) requires the prior approval of the appropriate UK financial services regulator. Acquiring control for these purposes includes where a person holds 10 per cent or more of the shares or voting power of the authorised firm or, as a result of its shares or voting power, is able to exercise significant influence over management. Control is increased when the percentage of shares or voting power held crosses certain specified thresholds, or if the acquirer becomes a parent undertaking of the UK authorised firm. A parallel notification regime exists for reductions in control crossing particular thresholds (see Sections 178 to 184 Financial Services and Markets Act 2000).
5 For example, EU rules, implemented in the United Kingdom, specify that an entity operating an airline within the EEA must be majority owned and effectively controlled by an EEA Member State or nationals of such Member States. This requirement is reflected in the basic licensing requirements for commercial air carriers whose principal place of business is the United Kingdom. See www.caa.co.uk/Commercial-industry/Airlines/Licensing/Requirements-and-guidance/Airline-licensing/.
6 See Government Green Paper, 'National Security and Infrastructure Investment Review', October 2017, at assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/652505/2017_10_16_NSII_Green_Paper_final.pdf (National Security Review Green Paper), pages 2 and 7.
7 'National Security and Investment' White Paper, available at www.gov.uk/government/consultations/national-security-and-investment-proposed-reforms (the White Paper), see Foreword, page 3.
9 EY UK Attractiveness Survey, May 2020: 'Building back better', available at https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/topics/attractiveness/ey-uk-attractiveness-survey-may2020.pdf, see pages 6–7.
10 In certain cases, transactions meeting the EU thresholds may be reviewed in whole or in part by competent authorities of Member States (under Article 4(4), 9, 21(4) or 346 of the EUMR). Transactions not meeting the EU thresholds can also be referred to the European Commission in certain cases (under Articles 4(5) and 22 of the EUMR).
11 In certain cases, transactions meeting the EU thresholds may be reviewed in whole or in part by competent authorities of Member States (under Article 4(4), 9, 21(4) or 346 of the EUMR). Transactions not meeting the EU thresholds can also be referred to the the Commission in certain cases (under Articles 4(5) and 22 of the EUMR).
12 The CMA considers whether the transaction may result in a substantial lessening of competition within any market or markets in the United Kingdom or a substantial part of it for goods or services. The Commission considers whether the transaction may significantly impede effective competition in the EU or a substantial part of it.
13 Article 21(4) EUMR.
14 In Case No. IV/M.567, Lyonnaise des Eaux/Northumbrian Water , the Commission recognised the legitimate interest of the UK authorities in applying the relevant provisions of the water regulatory regime contained in the Water Industry Act 1991. However, in Case No. IV/M.1346, EDF/London Electricity , the Commission rejected the United Kingdom's request for use of the legitimate interest provisions to apply aspects of the electricity regulatory regime. It held that the EUMR would not prevent the UK authorities from imposing regulatory measures on the electricity industry and, as such, the interest in question was not aimed at the transaction itself.
15 This provides that 'any Member State may take such measures as it considers necessary for the protection of the essential interests of its security' so long as such measures 'shall not adversely affect the conditions of competition in the internal market regarding products which are not intended for specifically military purposes'. Using this provision, Member States have in the past investigated the military aspects of a transaction, while the Commission investigated the civilian aspects.
16 The Secretary of State for Business, Energy and Industrial Strategy has the power to intervene in all public interest cases, except mergers in the media, broadcasting, digital and telecoms sectors, in which the Secretary of State for Digital, Culture, Media and Sport can intervene.
17 Section 59 Enterprise Act.
18 See Lockheed Martin Corporation/Stasys Ltd (2005) and Atlas Elektronik GmbH UK/ Qinetiq's Underwater Systems Winfrith Division (2009).
19 Section 58 Enterprise Act , as amended by the Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order in June 2020.
20 Section 58(3) and (4) Enterprise Act. In October 2008, the Enterprise Act was amended to include the interest of maintaining the stability of the UK financial system as a specified ground for intervention by the Secretary of State. The new ground was specified to accommodate the Lloyds TSB Group plc/HBOS plc merger, which took place in the context of the financial crisis in 2008 and raised a number of competition law concerns (discussed further below).
21 Article 49 of the Treaty on the Functioning of the European Union (TFEU) prohibits, with certain exceptions, restrictions on the freedom of establishment of nationals of one EU Member State in the territory of another Member State.
22 Article 63 TFEU prohibits, with certain exceptions, restrictions on the movement of capital between EU Member States.
23 The UK government holds golden shares in a number of companies, particularly in the defence sector, including Rolls-Royce, BAE Systems and Qinetiq – see The Economist, 'Defence industry: Take your partners' (9 April 2016), available at www.economist.com/news/britain/21696551-defence-
firms-look-joint-ventures-boost-exports-and-profits-take-your-partners. In August 2017, the UK government completed the sale of the state-backed Green Investment Bank (GIB) to a consortium led by the Macquarie Group. Following the sale, five independent trustees will hold 'special shares', giving them power to approve or reject any changes in GIB's green purposes in the future. See www.gov.uk/government/news/uk-governments-sale-of-green-investment-bank-completed.
24 Practical Law Company, Practice note, 'Competition regime: Utilities', available at uk.practicallaw.thomsonreuters.com/Document/Ib5554892e83211e398db8b09b4f043e0/View/FullText.html.
25 Case C-98/01 Commission v. United Kingdom  ECLI:EU:C:2003:273, Paragraphs 44 and 52.
26 Section 11(2) Industry Act.
27 Sections 23 and 26(1) Enterprise Act.
28 Section 129 Enterprise Act. A business also need not be trading to constitute an enterprise.
29 For completed transactions, the authority only has jurisdiction to investigate within four months of the date of the merger's completion, or, if later, from the earlier of (1) the date on which material facts about the merger are made public or (2) the date on which the CMA is informed of the merger.
30 Three new categories of enterprises were added to the list subject to amended thresholds for the turnover and share of supply tests by way of the Enterprise Act 2002 (Share of Supply Test) (Amendment) Order 2020 and the Enterprise Act 2002 (Turnover Test) (Amendment) Order 2020.
31 See, for example, the CMA's Guidance on changes to the jurisdictional thresholds for UK merger control (CMA90), available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/903147/guidance_on_changes_to_the_jurisdictional_thresholds_for_UK_MC.pdf; and the Department for Business, Energy and Industrial Strategy's (BEIS) guidance, available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/902531/Enterprise_Act_2002_guidance_on_changes_to_the_turnover_and_share_of_supply_tests_for_mergers__Orders_2020_.pdf.
32 See assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/715167/guidance_on_changes_to_the_jurisdictional_thresholds_for_uk_merger_control.pdf, page 6. The new lowered thresholds for intervention were used for the first time on 17 June 2018 when the Secretary of State issued a public interest intervention notice with respect to the anticipated sale of Northern Aerospace to Gardner Aerospace Holdings Limited (a subsidiary of Chinese aerospace and mining company Shaanxi Ligeance Mineral Resources Co Limited). Northern Aerospace had turnover in the United Kingdom exceeding £1 million and manufactured products that constituted 'restricted goods' within the meaning of the Act. The transaction concerned the UK aerospace industry, which was described as 'a strategic priority for defence' by the MOD in its representations to the CMA, suggesting that similar transactions may also be subject to review going forward. For further details, see www.gov.uk/government/publications/proposed-acquisition-of-northern-aerospace-limited-by-gardner-aerospace-holdings-limited-decision-notice.
33 Section 42(1) and (2) Enterprise Act. The CMA must also not have made a reference to a Phase II investigation on competition grounds nor taken a decision not to make a reference or to accept undertakings in lieu of a reference.
34 Section 59(1) and (2) Enterprise Act.
35 Section 129 Enterprise Act; the term 'enterprise' is defined as the activities or part of the activities of a business.
36 Section 59(3B) Enterprise Act.
37 Section 59(3C) and (3D) Enterprise Act.
38 Section 67(1) and (2) Enterprise Act.
39 The CMA is under a formal obligation to bring to the attention of the Secretary of State any cases it believes raise material public interest considerations under review from a competition standpoint (see Section 57(1) Enterprise Act), which is what, for example, provoked the government's probe into Trinity Mirror's proposed purchase of the Express and Star newspapers from Northern & Shell in April 2018.
40 Mergers that raise public interest considerations may come to the attention of the Secretary of State through press coverage, or as a result of representations made by third parties. Government departments and public bodies, such as the utility sector regulators, are also expected to be alert to the possibility of public interest concerns arising in relation to a merger and to raise concerns with the Secretary of State. Department procurement policy and standard contractual terms or other regulatory requirements may bring a transaction to the attention of a government department (e.g., the MOD requires contractors to notify it of any intended, planned or actual change in control of a contractor).
41 See the CAT's judgment in Lebedev Holdings Limited and another v. Secretary of State for Digital, Culture, Media and Sport  CAT 21, available at: https://www.catribunal.org.uk/sites/default/files/2019-08/1328_Lebedev_Judgment_160819.pdf.
42 Mergers: Guidance on the CMA's jurisdiction and procedure, available at assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/384055/CMA2__Mergers__Guidance.pdf.
43 When the Secretary of State has intervened on media public interest considerations, Ofcom is required to give a report to the Secretary of State on the public interest considerations of the case (Sections 44A and 61A Enterprise Act and Section 4A Enterprise Act 2002 (Protection of Legitimate Interests) Order 2003 (PLIO)).
44 The Secretary of State must accept the CMA's competition and jurisdictional assessment, including on the need for a reference to Phase II and whether undertakings in lieu of a reference would be suitable; however, the final decision concerning referral remains with the Secretary of State. A finding that a merger results in a substantial lessening of competition will be treated as adverse to the public interest unless it is justified by one or more public interest considerations (see Section 45(6) Enterprise Act).
45 Section 56(1) Enterprise Act.
46 See www.gov.uk/government/news/statement-from-the-culture-secretary-on-the-proposed-
47 Paragraph 3, Schedule 7 Enterprise Act.
48 In Hytera Communications Corporation Ltd/Sepura plc (2017), the CMA delivered its Phase I report to the Secretary of State on 4 May 2017. On 8 May 2017, the Secretary of State announced that he was proposing to accept draft undertakings received from the parties in lieu of reference to a Phase II investigation.
49 Paragraph 2, Schedule 10 Enterprise Act.
50 Paragraph 9, Schedule 10 Enterprise Act. In Hytera Communications Corporation Ltd/Sepura plc (2017), the Secretary of State expedited the consultation to only two days, citing 'the importance of maintaining the service provided by Sepura and in order to minimise the uncertainty surrounding the progress of the proposed acquisition'. For further details, see: assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/612855/sepura-hytera-draft-undertakings-consultation-notice.pdf.
51 Sections 54(2) and 66(2) Enterprise Act and Section 12(2) PLIO.
52 Sections 54(5) and 66(3) Enterprise Act and Section 12(3) PLIO.
53 Sections 55(3), 54(7), 66(4) and 66(7) Enterprise Act and 12(5) and (8) PLIO.
54 Section 56(6) Enterprise Act.
55 The Public Interest Merger Reference (Mettis Aerospace Ltd) (Pre-emptive Action) Order 2019.
56 See Finmeccanica SpA/AugustaWestland NV (2004), Finmeccanica SpA/BAE Systems plc's avionics and communications business (2005), General Dynamics/Alvis PLC (2004), Lockheed Martin Corporation/Stasys Ltd (2005), General Electric Company/Smiths Aerospace (2007), Atlas Elektronik GmbH UK/Qinetiq's Underwater Systems Winfrith Division (2009). Also see Gardner Aerospace Holdings/Northern Aerospace (2018), MOD undertakings referred to in the CMA report.
58 See government decision notice, at www.gov.uk/government/uploads/system/uploads/attachment_data/file/613788/sepura-hytera-decision-notice.pdf.
59 See the government decision to accept undertakings, at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/843009/Enterprise_Act_2002_Undertakings__1_.pdf.
60 See the government decision to accept undertakings, at https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/854627/Cobham-Advent_Decision_Notice.pdf.
61 See www.gov.uk/government/collections/proposed-merger-between-twenty-first-century-fox-inc-and-sky-plc, for further information.
62 See www.gov.uk/government/news/statement-from-the-culture-secretary-on-the-proposed-
63 Other cases reviewed from the perspective of media plurality include BSkyB's acquisition of a 17.9 per cent stake in ITV (2007). In this case, the Secretary of State imposed remedies recommended by the competition authority of requiring BSkyB to partially divest its shares in ITV down to a level below 7.5 per cent, with behavioural undertakings not to dispose of the shares to an associated person, not to be represented on the ITV board and not to re-acquire shares in ITV. See assets.publishing.service.gov.uk/media/55194c63ed915d1424000382/sky_berr_decision.pdf.
In August 2012, the acquisition by Global Radio Holdings Limited of Guardian Media Group's radio stations was reviewed. Following the advice of Ofcom, the Secretary of State did not make reference to a Phase II review on media plurality public interest grounds and the case fell to be reviewed on competition grounds by the competition authority. See www.gov.uk/government/news/global-radio-and-guardian-media-group-radio-merger-not-to-be-considered-on-media-plurality-grounds--2. In 2010, News Corp's proposed acquisition of 60 per cent of shares in BSkyB that it did not already own was also reviewed.
64 See the CAT's judgment in Lebedev Holdings Limited and another v. Secretary of State for Digital, Culture, Media and Sport  CAT 21, available at: https://www.catribunal.org.uk/sites/default/files/2019-08/1328_Lebedev_Judgment_160819.pdf. The hearing took place on 23 July 2019 and the judgment was delivered on 16 August 2019.
66 Sections 55(2), 66(6) and Schedule 8 Enterprise Act and Section 12(7) PLIO.
67 The MOD will negotiate undertakings with the parties on the Secretary of State's behalf for mergers involving national security considerations.
68 Where it quashes the whole or part of that decision, the Competition Appeal Tribunal (CAT) may refer the matter back to the original decision-maker with a direction to reconsider and make a new decision in accordance with the ruling of the CAT.
69 Section 237 Enterprise Act.
70 Section 24 of the Freedom of Information Act 2000 (FOIA).
71 Section 26 FOIA.
72 Section 1 Lobbying Act. For more information on the process of registration, see the web page of the Office of the Registrar of Consultant Lobbyists, available at registrarofconsultantlobbyists.org.uk/.
73 Office of the Registrar of Consultant Lobbyists, 'Guidance on the requirements for registration', available at registrarofconsultantlobbyists.org.uk/wp-content/uploads/2015/12/20151111Guidance-on-the-
74 Section 5 Lobbying Act.
75 At the time of writing, according to the United Nations Conference on Trade and Development (UNCTAD), the United Kingdom has signed 103 bilateral investment treaties (BITs), of which 93 are in force (see UNCTAD Investment Policy Hub listing of UK BITs, available at investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu).
76 For example, negotiations are complete for the Comprehensive Trade and Economic Agreement with Canada (CETA), which entered into force provisionally on 21 September 2017 pending ratification by all Member States; however, the sections of CETA dealing with investment protection do not apply provisionally and will only enter into force when CETA has been ratified by all Member States (ec.europa.eu/trade/policy/in-focus/ceta).
77 TFEU, Article 2, Paragraph 1. According to the Commission, by mid 2016, it had given 93 authorisations to open new negotiations and 41 to open renegotiations. In addition, it granted 16 authorisations to conclude new agreements and 21 authorisations to conclude protocols for existing BITs with third countries. See S Schacherer, 'Can EU Member States Still Negotiate BITs with Third Countries?', 10 August 2016, at www.iisd.org/itn/2016/08/10/can-eu-member-states-still-negotiate-bits-with-
78 Slovak Republic v. Achmea BV, Case C-284/16, Judgment, 6 March 2018.
80 ibid. See Article 2(2) of the UK Model BIT.
81 Convention for the Protection of Human Rights and Fundamental Freedoms, as amended by Protocols No. 11 and No. 14, Rome, 4 November 1950.
82 Although the United Kingdom has now extended its tax base to non-resident investors disposing (directly or indirectly) of UK real estate, this is not dissimilar to the approach taken by many other jurisdictions and puts foreign investors in a similar position to UK resident investors (who have always been within the scope of UK tax on such disposals).
83 See University of Oxford business law blog, 'UK Takeover Code – Bidder Elects to Give Post-Offer Undertakings for the First Time', at www.law.ox.ac.uk/business-law-blog/blog/2016/09/uk-takeover-code-–-bidder-elects-give-post-offer-undertakings-first.
85 See assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/694572/Letter_from_Business_Secretary_to_Melrose_Industries_Plc.pdf. The government also suggested that to protect public funding, it may insert change of control provisions into funding agreements to allow the government to claw back funding in the event that a takeover means that the new company does not meet the eligibility criteria to receive the grant or the new company intends a fundamental change to the purpose for which the grant was given. See National Security Review Green Paper, page 18 (see footnote 6).
86 See hansard.parliament.uk/commons/2018-04-24/debates/182BCB15-D87C-4C4B-8489-2D9F6E3F3F23/GKN and assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/694573/Response_letter_from_Melrose_Plc_to_Greg_Clark.pdf.
88 See the government decision to accept undertakings, at https://assets.publishing.service.gov.uk/
89 Sellers may also want to explore remedies if conditions to closing are not satisfied for reasons other than their own fault (e.g., through reverse break fees, which may vary according to particular trigger events), if the financial consequences to not closing are sufficiently serious.
91 See hansard.parliament.uk/commons/2018-04-24/debates/182BCB15-D87C-4C4B-8489-2D9F6E3F3F23/GKN, for further details.
93 See National Security Review Green Paper, pages 2 and 7 (see footnote 6).
94 id., Paragraph 151.
95 The UK government has set out its approach to the negotiations with the EU in a policy paper 'The Future Relationship with the EU: The UK's Approach to Negotiations' (released in February 2020) and a series of draft negotiating documents intended to be shared among negotiating teams (https://www.gov.uk/government/publications/our-approach-to-the-future-relationship-with-the-eu, released in May 2020). The policy paper sets out (at paras 66–67) that the Comprehensive Free Trade Agreement (CFTA) should commit the United Kingdom and the EU 'to maintain effective competition laws, covering merger control, anticompetitive agreements and abuse of dominance, while maintaining the right to provide for public policy exemptions. This does not require legal or regulatory alignment. Both parties should have the regulatory freedom to respond to new and emerging challenges in these areas.' This position is expressed to be in line with precedents such as CETA. The paper sets out that the Agreement should 'include provisions that have transparent, non-discriminatory rules and enforcement procedures for competition law' and should also 'recognise the mutual importance of effective cooperation' between the United Kingdom and the EU on competition law.
96 See EY UK Attractiveness Survey, June 2019: 'Tipping point', available at www.ey.com/uk/en/issues/business-environment/ey-uk-attractiveness-survey, pages 8, 9 and 15.
97 See EY UK Attractiveness Survey, May 2020: 'Building back better', available at https://assets.ey.com/content/dam/ey-sites/ey-com/en_uk/topics/attractiveness/ey-uk-attractiveness-survey-may2020.pdf, page 7.
99 For further details, see trade.ec.europa.eu/doclib/docs/2019/february/tradoc_157683.pdf.