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Doing Business in United Kingdom

The United Kingdom has been a member state of the European Union since 1973 and has the second largest economy with a dynamic financial and service sector.

Economic and Monetary Union (EMU)

Government policy on EMU was originally set out by Gordon Brown, the Prime Minister, in October 1997 when he was the Chancellor of the Exchequer. The Government is purportedly in favour of UK membership providing the economic conditions are deemed to be appropriate. The determining factor is held to be the 'national economic interest' and whether the economic case for joining is clear and unambiguous.

The Government has set out five economic tests which must be met before any decision to join can be made:

  • sustainable convergence between the United Kingdom and the economies of a single currency;
  • whether there is sufficient flexibility to cope with economic change;
  • the effect on investment;
  • the impact on the UK financial services industry; and
  • whether it is good for employment.

The Treasury periodically reviews progress on whether it is in the United Kingdom's economic interest to join EMU. If a decision to recommend joining is taken by the Government, it will be put to a vote in Parliament and then to a referendum of the electorate.

Legal System

The UK possesses three separate legal systems for England and Wales, Scotland and Northern Ireland. The systems reflect their historical origins and traditions. Laws applied by Act of Parliament can refer to one, a combination or all of the jurisdictions. All are, however, subject to European Union Law or Directives. Matters have been further complicated by the advent of devolution with the creation of the Scottish Parliament and Welsh Assembly. The commentary below is confined to the legal system of England and Wales.

It is often a surprise for those familiar with the continental European tradition of codified law that the legal system in the sphere of civil law is based to a large degree upon judge-made common law. The common law consists of judicial precedent in spheres that hitherto have not been regulated by statute in the form of an Act of Parliament or Statutory Instrument.

A precedent is a statement of law made by the judiciary that becomes binding on later judges dealing with the same subject matter. There are two components.

The first is that the precedent must be delivered by a court of sufficient seniority so that it is binding upon the lower courts. The highest court is the House of Lords which deals with appeals from the next tier, the Court of Appeal (Civil Division), on matters of singular legal importance. Below the Court of Appeal is the High Court which is the highest first instance civil court that deals with cases of significant value or complexity. The lowest tier is the County Court which deals with disputes of lesser value and complexity and the decisions of which can only be 'persuasive' but not binding. Most precedents emanate from the Court of Appeal.

The second feature of a precedent is the ratio decidendi which translated into English is the 'reasoning behind the decision'. This consists of the distillation of the legal principles applied in reaching a judgment as applied to the particular facts of a case.

In practice, a judge in conducting a trial of a case is required to determine what precedents are binding in reaching a decision based on the features and evidence peculiar to the matter in question. Findings of fact are made to which the appropriate precedents are applied to determine liability and quantum between the parties.

The centrality of precedent in determining civil disputes purportedly provides consistency and generally only permits an appeal to a higher court based upon a judicial misdirection in law rather than findings of fact.

Judicial discretion is also extended in the sphere of the interpretation of statute law. Rules of language are applied whereby the literal meaning is defined and where general words are taken to possess specific meaning if, for example, appearing in a list. Judges are also entitled to be 'presumptive' in making assumptions about the intentions of Parliament when the particular legislation was framed and adopted. The aforesaid exercise of judicial discretion arises in circumstances where there is ambiguity in primary legislation.

The Legal Profession

For those familiar with the legal system of other countries, it often comes as a surprise that there are two distinct branches of the legal profession within the UK. The reasons for this are purely historical and have much to do with the common law origins of how the court system operated.

Solicitors deal with all non contentious matters such as contracts, property matters and probate. They also deal with contentious matters that result in litigation and are responsible for gathering evidential material and preparing the matter for trial. They have automatic rights of audience in the County Courts and in the High Court where matters are dealt with 'in chambers' as opposed to a trial before a High Court Judge. Solicitors are fully regulated by the Law Society and stringent rules of conduct apply.

Barristers specialise in advocacy before the courts and are instructed by solicitors to conduct trials or applications. They can be called upon to settle pleadings and to conduct research and advise in specialist areas of law where matters of precedent are complicated. Barristers are regulated by the Bar Council and, as with solicitors, are required to maintain the integrity and probity of the legal system.

The most important reform that has been implemented in recent years which has had a major impact upon the legal profession was the introduction of the Civil Procedure Rules (CPR) in 1999. The intention of the CPR was to simplify Court procedure by creating a commonality of rules between the different layers of the court system and to expedite the conclusion of matters by imparting a greater level of control to judges in managing a case. Emphasis was also placed on the avoidance of litigation if possible by the introduction of pre-action protocols and inducements to utilise alternative methods of dispute resolution such as mediation with the discretion to impose costs penalties for unreasonable refusal on a party that declines to participate.

Corporate Structure

Most corporate businesses are 'limited liability' companies - the liability of members is restricted to contributing an amount related to their shareholding (or to their guarantee where companies are limited by guarantee). Businesses can also be incorporated as limited liability partnerships, with the organisational flexibility and tax status of a partnership but with limited liability for their members. Companies may be either public or private. Certain conditions must be satisfied before they can become a Public Limited Company (Plc) - they must be limited by shares and meet specified minimum capital requirements. Private companies are generally prohibited from offering their shares to the public.

The private limited company has proven itself to be a popular choice with other EU entrepreneurs because of the nominal capital reserve required at foundation and the 'light touch' regulation thereafter.

Company law and corporate governance

Company law is designed to meet the need for proper regulation of business, to maintain open markets and to create safeguards for those wishing to invest in companies or do business with them. It takes account of EU Directives on company law, company and group accounts and their auditing.

Individual employment rights

Employment protection legislation provides a number of safeguards for employees. For example, most employees have a right to a written statement setting out details of the main conditions, including pay, hours of work and holidays. Employees with at least one year of continuous employment with their employer are entitled to lump sum redundancy payments if their jobs cease to exist and their employers cannot offer suitable alternative work. Minimum periods of notice are laid down for both employers and employees.

Most employees who believe they have been unfairly dismissed have the right to complain to an employment tribunal subject to the general qualifying period of one year's continuous service. If the complaint is upheld, the tribunal may make an order for re-employment or award compensation. Employment tribunals also have jurisdiction over other complaints covering a range of employment rights, including redundancy pay, equal pay, and discrimination.

Legislation prohibits discrimination in employment, training and related matters, on grounds of sex, marital status, gender reassignment, disability, race, age, nationality (including citizenship), ethnic or national origin. All pregnant employees have the right to statutory maternity leave with their non-wage contractual benefits maintained, and to protection against detriment and dismissal because of pregnancy.