updated on 05 January 2021
Commercial awareness is a vital skill for trainee solicitors. For candidates applying for vacation schemes and training contracts, becoming commercially aware involves building an understanding of how law firms and their clients work as businesses, as well as how they are impacted by the wider world. This guide rounds up a range of key commercial stories and talking points from 2020.
Keeping up with current affairs and thinking critically about what you watch, listen to and read are important habits to develop. A solicitor needs to know what is going on in the world and to consider how it might affect their firm and clients. As an applicant, you are not expected to be an expert but must be prepared to hold your own in a conversation with a panel of partners in an interview.
Let’s look at some key stories that made headlines in 2020 across various practice areas and consider how they overlap and interact. Use this guide to reinforce your commercial thinking going into 2021.
What is the impact of covid-19 on the legal sector?
The financial impact of the pandemic on law firms has varied depending on each firm’s range of specialisms, size and liquidity. A Law Society survey of 250 firms found that corporate and commercial practices were the least affected in terms of their ability to continue working through the first UK lockdown, but property, conveyancing, probate and wills services were significantly disrupted by court closures and difficulties ensuring the proper execution of documents under social distancing restrictions.
Redundancies among lawyers and support staff, employees furloughed through the government’s Coronavirus Job Retention Scheme, salary reductions and delayed partner promotions were all in evidence across the sector in 2020, its most challenging financial year since the 2008 global financial crisis.
Merger activity among law firms fell drastically in 2020. There were just three mergers across the entire UK legal sector – a 70% drop on the 10 completed in 2019 – and all three were completed before the first UK lockdown began on 16 March.
The justice system was struggling with underfunding and an increasing backlog of cases before the pandemic, but court closures and reduced capacities in court buildings have worsened the situation into a crisis. Some experts have warned that the logjam of cases concerning the most serious criminal offences could reach 195,000 if no action is taken. There are over 500,000 outstanding cases in magistrate’s courts and 50,000 crown court cases still waiting to be heard.
The chair of the Criminal Bar Association, James Mulholland QC, told the Guardian that the system is “on its knees” and that the combination of the pandemic and underfunding by the government is punishing innocent victims: “The system is in logjam – we are having some cases listed into 2023 for trials where people are being released on bail, sometimes for offences like rape, sexual offences, affray and significant burglaries...There’s a one in 50 chance of an old-age pensioner who is burgled seeing that person brought to justice. The police don’t have the resources. Only 1–1.5% of [reported] rapes result in charges. And even then, it’s 1,319 days for the average rape case to go through the system from actual offence to completion.”
When the pandemic is finally brought under control by new vaccines (discussed in ‘impact on the economy’ and ‘intellectual property’ below), there is expected to be a “massive increase” in demand for legal services. Law Society President Simon Davis and Bar Council Chair Amanda Pinto QC have both warned that the legal profession will not be able to cope, with the lack of government support during the crisis reducing the long-term availability of legal services.
What is the impact of covid-19 on the economy?
The severity of the global economic downturn caused by the pandemic forced half of the world’s countries to ask the International Monetary Foundation (IMF) for a bailout in 2020 and is likely to see the global economy shrink by 3% (and the UK economy by 11%) – the biggest crash since the 1930s.
The crisis has forced economically liberal politicians in countries such as the UK and Singapore to intervene in their market economies on a scale previously unheard of in free-market-based, laissez faire policymaking (although the UK government had stepped in to bail out stricken airline Flybe in February).
In the UK, the Coronavirus Job Retention Scheme was introduced to mitigate some of the effects of emergency public health restrictions on companies and employees, with the state paying out £43 billion to cover furloughed employees’ wages as of December 2020. However, questions were asked about a lack of forward planning when employers proceeded with job cuts in anticipation of the furlough scheme ending in October, only for it to be extended at the last minute. The scheme also provided no support to some particularly vulnerable groups, with thousands of migrant workers in low-paid roles in the agricultural sector falling into poverty because they don’t qualify for access to the UK welfare system or the Job Retention Scheme.
As well as the furlough scheme, the government’s efforts to protect the economy included relief on business rates (which some companies, including several supermarket giants, have since paid back) and the wildly popular Eat Out to Help Out scheme, through which businesses claimed £849 million of taxpayers’ contributions toward the cost of 160 million meals.
But despite the government’s interventions, the economic impact of the pandemic is difficult to understate. The Office for Budget Responsibility expects the number of people unemployed to reach 2.6 million people in Summer 2021 – 7.5% of the working population. British businesses borrowed £34.5 billion in the second quarter of 2020 – 50% more than in the whole of 2019. And while 2021 travel restrictions between the UK and EU were always a possibility in the event of a no-deal Brexit, few would have predicted a year ago that a travel ban would be guaranteed anyway, because of a global pandemic.
The best news of the year came when the Pfizer/BioNTech vaccine was approved for use in the UK, with rollout now underway for the most vulnerable groups and hope for economic recovery to begin. Meanwhile, news that late-stage trials of Moderna’s new vaccine had proved 95% effective sent stocks falling among ‘stay at home’ businesses such as Netflix, Zoom and Peloton.
A trade deal was agreed between the UK and EU on 24 December 2020, enabling businesses on both sides to continue trading without the imposition of tariffs or quotas, but with the introduction of some border checks. However, the deal was not as comprehensive as many businesses wanted, with important areas of the UK economy, such as the financial sector, still facing uncertainty.
What is the impact of Brexit on the legal sector?
Practice rights in Europe are a key Brexit concern for the UK legal profession, with the All-Party Parliamentary Group (APPG) on Legal and Constitutional Affairs reporting back in 2018 that “mutual recognition of professional qualifications, rights of audience and the ability to practise and establish firms in EU member states has benefited the UK legal services sector, providing a large net contribution to the UK economy.” Thousands of UK solicitors invested in Irish qualifications in an effort to maintain their rights to practise in the EU after Brexit, but their hopes were dashed when the Law Society of Ireland insisted that solicitors must be based in the republic to qualify, not the UK. The Law Society of England and Wales said the decision “will come as a huge disappointment to the hundreds of solicitors who requalified under rules that have been long established.”
Part of the process of preparing for Brexit is a tussle over which courts and tribunals should be able to depart from retained EU case law once the transition period ends. The government is considering whether to extend the right to depart from EU case law to the Court of Appeal or the High Court, but the Law Society has recommended that this power be limited to the Supreme Court, partly on the grounds that “granting the power to depart to lower courts is likely to encourage litigation by parties who hope to overturn an earlier judgment which relied upon EU case law, and subsequently increase the volume of cases.”
What is the impact of Brexit on the economy?
The UK-EU trade deal has avoided the damage that would have been done to businesses by tariffs and quotas if the UK had been forced to trade with Europe on basic World Trade Organisation terms. But the impact on the UK's services sector - the largest part of the country's economy - remains uncertain. Businesses such as law firms, banks and accountants will lose their automatic right to sell their services in the EU and may face some restrictions on how they can operate.
The UK and EU have said they will continue negotiations around the future of the UK services sector's access to EU markets.
Now, let’s consider some of the other developments of 2020 across key commercial practice areas that you should know about as we start 2021.
The 2020 stock market crash
The 2020 stock market crash (or Coronavirus Crash) began on 20 February 2020 and ended on 7 April. But despite being the fastest fall in stock market history, the declining ‘bear market’ resulting from the crash did not last long and a recovering ‘bull market’ saw stock values increase from April, as governments tried to cushion the economic impact of the pandemic with the unprecedented stimulus policies discussed above.
Stock market flotations in 2020
The biggest initial public offering (IPO) of the year was that of Airbnb, with the rental firm’s debut share price on the Nasdaq exchange doubling in a frenzy of trading. Airbnb’s valuation soared to $100 billion, making it the world’s biggest online travel company.
There were also some big IPOs among tech companies, including cybersecurity firm McAfee, which endured a disappointing flotation in which shares fell by over 6% on the first day of trading. Meanwhile, secretive software and analytics company Palantir (named after magical video call stones in The Lord of the Rings) floated via direct listing, ending its first day of trading valued at $21 billion.
Parliament passed the Corporate Insolvency and Governance Act 2020, which came into force on 26 June 2020 in a bid to help struggling businesses. The act introduced temporary and permanent changes to insolvency law to help businesses cope with the economic impact of the coronavirus pandemic. These included breathing space for businesses against creditor action and a Restructuring plan – a new insolvency process aimed at company rescue, enabling more debts to be restructured, as well as temporary restrictions on winding up petitions.
But despite legislative reforms, the economic shock of the pandemic pushed many businesses over the edge in 2020.
Perhaps the most high profile example in the UK was the collapse of the Arcadia Group, owner of Topshop, Burton and Dorothy Perkins. The group’s appointment of administrators left 13,000 jobs at risk. But while the pandemic placed huge pressure on Arcadia, the group’s brands were already ailing because of a failure to respond to massive structural change in the retail industry driven by digital disruption.
Other venerable high street brands have also failed to survive. Debenhams’ liquidation, with the potential loss of 12,000 jobs, shows how previously sound business models have been rendered obsolete by changing consumer habits and the dominance of Amazon.
But life on the high street has been difficult for all businesses in 2020, even successful firms such as lunch chain Leon, which had to ask investors for a multi-million pound cash injection to secure the future of its business, as footfall collapsed during the pandemic.
Even with coronavirus vaccines in sight, many companies on and off the high street face uncertain futures, with the Office for National Statistics reporting that one in seven UK companies risk collapse by February.
The shift to online and mobile-first banking has accelerated during the pandemic, driving up investment in fintech. According to CB Insights, global fintech funding increased 17% in the second quarter of 2020.
The banking sector continues to transform with the rise of digital-only neobanks, tech companies, and non-traditional entrants to the financial services market. Meanwhile, there is a range of challenges facing traditional banks; shares in Barclays, HSBC and Standard Chartered fell in the Autumn following the leak of 2,000 suspicious activity reports filed by banks and other financial firms, indicating that multinational banks had moved large sums of allegedly illicit funds despite warnings about the origins of the money.
Mergers and acquisitions (M&A) fell at the outset of the pandemic, but news of multiple covid-19 vaccines and the conclusion of the 2020 US presidential election has encouraged parties to revisit planned transactions and plan new moves in their markets.
The biggest deal of 2020 was data firm S&P Global’s acquisition of IHS Markit for $44 billion, while Salesforce’s purchase of business chat service Slack for almost $28 billion is the latest move in the battle between Salesforce and Microsoft. “This is a stellar exit strategy for Slack,” said Kate Leggett, an analyst at Forrester Research. “Microsoft Teams is eating Slack’s lunch.”
In the insurance sector, the RSA recommended that its shareholders support a takeover bid worth $7.2 billion by Canada’s Intact Financial and Denmark’s Tryg.
And elsewhere, after months of speculation that bread maker Hovis would be changing owners and bids from firms including Newlat, the venerable bakery brand was finally bought by private equity firm Endless.
The monopoly of big tech firms remains at the forefront of competition regulators’ concerns. Facebook, Google and Amazon are among those in the spotlight for allegedly pursuing monopolistic practices on their digital platforms through exploitation of competitors and manufacturing unearned rents, instead of competing and innovating.
Facebook faces ‘break up’ action
The US government is suing Facebook in an attempt to force the company to sell assets such as Instagram and WhatsApp, alleging that Facebook dominates too much of the market and stifles competition. Facebook says that “antitrust laws exist to protect consumers and promote innovation, not to punish successful businesses.”
Amazon accused of abusing dominant market position
The EU has charged Amazon for allegedly using its market dominance to gain an unfair advantage over competitors. The European Commission claims that Amazon used data on third-party sellers that use its marketplace to increase sales of its own-label goods.
Viagogo and the “worst deal in history”
The UK element of Viagogo’s attempted takeover of rival ticket resale site StubHub was blocked by the Competition and Markets Authority (CMA). The competition watchdog’s chair, Stuart McIntosh, said: “The evidence we’ve seen so far consistently points in the same direction – that Viagogo and StubHub have a market share of more than 90% combined and compete closely with each other. We are therefore concerned that their merger could lead to secondary ticketing customers facing higher fees and lower quality services.” The takeover has been described as the “worst deal in history” after it was completed shortly before the pandemic shut down the vast majority of live events around the world, and now the CMA says that Viagogo must address its concerns, potentially by selling all or part of StubHub.
Technology, media and communications
Huawei and 5G
In July, the government announced that UK mobile providers can no longer buy new Huawei 5G equipment over concerns about the firm’s relationship with the Chinese government. The decision stands to hugely benefit Finnish telecoms company Nokia, which has agreed to become BT’s largest equipment provider and replace Huawei in the UK’s 2G and 4G networks.
Data protection failures
Video-sharing platform YouTube has been accused of collecting the data of children under 13 without parental consent. YouTube now faces a claim against its parent company, Google.
Facebook is also facing legal action, following its failure to protect almost one million users’ personal data in England and Wales in the Cambridge Analytica breach.
It’s… celebrity libel cases of 2020
Celebrities’ legal fights always attract attention, but they are also significant in what their outcomes mean for the UK’s evolving libel laws. Popular tabloid the Sun adopted a risky strategy in its libel defence against the actor Johnny Depp, who sued the paper’s publisher, Rupert Murdoch’s News Group Newspapers, over its claim that he was a “wife beater” – but it paid off as Depp’s disastrous and sexist attempts to discredit Amber Heard, the Sun’s key witness, as a ‘gold digger’ failed to impress the judge.
The other great libel battle to transfix the UK in 2020 even has its own nickname – ‘Wagatha Christie’ – after sleuthing by Coleen Rooney to trace stories in the media which contained details from her private Instagram led her to allege that “it’s… Rebekah Vardy’s account” from which the leaks originated. But the High Court ruled that Rooney had libelled Vardy in her bombshell social media post and ordered her to pay £23,000 toward Vardy’s legal costs.
Media litigation specialist Matthew Dando commented: “Whilst it is Rebekah Vardy suing for libel, it is Coleen who has to prove the truth of what she said in order to defend the claim. The judge has found that Coleen’s post told a ‘whodunnit’ story and pointed the finger firmly at Rebekah for having personally abused her status and made a great deal of information about Coleen public. This makes it much harder for Coleen to prove the truth of the allegation because she will have to show that it was Rebekah herself who was leaking the stories. It won’t be enough to show that the leak simply came from her account or people operating it.”
To speed up and simplify the construction of new homes across England, Prime Minister Boris Johnson has revealed planning reforms to limit local councils’ ability to oppose future developments. However, housing experts have warned that fast-tracked building proposals risk eroding building laws and creating “a generation of slums.”
Eliminating modern slavery from the supply chain continues to be a key issue for the construction industry. In April 2020, the Home Office published guidance on reporting modern slavery during the coronavirus pandemic. The guidance highlights how covid-19 might give rise to new slavery risks, with the pandemic making more workers vulnerable to exploitative practices such as not paying statutory sick pay, late cancellations of orders, late payment for supplies and inadequate or no grievance procedures.
Intellectual property (IP)
WTO delays decision on waiving IP rules for covid-19 vaccines
Ongoing opposition from rich countries has forced the WTO to delay a decision on whether normal IP rules can be waived for covid-19 vaccines, which would enable poorer countries to produce generic versions of the drugs. India and South Africa proposed the waiver, but the idea is opposed by countries including the UK, US and Switzerland. Private companies that have developed vaccines argue that most developing countries lack the manufacturing capacity and technology expertise to make the new products, while Albert Bourla, chief executive of Pfizer, said: “The IP, which is the blood of the private sector, is what brought a solution to this pandemic and it is not a barrier right now.”
Experts have pointed to lessons from the AIDS epidemic, when rules were relaxed temporarily to enable medicines to be distributed, arguing that in emergencies, IP procedures can create barriers to affordable treatments for vulnerable people in poor countries.
Disney in “unprecedented” copyright fight
Disney has been accused of failing to pay royalties to author Alan Dean Foster for his for bestselling Star Wars novelisations, after the entertainment megacorporation bought Lucasfilm and the rights to the space opera franchise in 2012. Foster’s Star Wars books, which include the novelisation of the original film’s screenplay, are still in print and sold by Disney, and Foster is asking Disney for back royalties as well as any future royalties, or to cease publication.
Why are Star Wars paperbacks important from an IP perspective? Because Disney’s stance on Foster’s copyright is unprecedented, as president of Science Fiction and Fantasy Writers of America Mary Robinette Kowal explains: “The larger problem has the potential to affect every writer. Disney’s argument is that they have purchased the rights but not the obligations of the contract. In other words, they believe they have the right to publish work, but are not obligated to pay the writer no matter what the contract says. If we let this stand, it could set precedent to fundamentally alter the way copyright and contracts operate in the United States. All a publisher would have to do to break a contract would be to sell it to a sibling company.”
Josh Richman is the senior editorial manager of LawCareers.Net.