Topical legal current affairs - February 2024

Each month,?Jake Schogger?(ex-Magic Circle lawyer and founder of City Career Series) and?Peter Watson?(ex-stock broker, head hunter and founder of Watson's Daily) host a free webinar summarising the key current affairs and trends from the previous month, including insights from a business, markets and legal perspective.??The below articles are based on Jake's contributions during the February 2024 current affairs webinar.

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This blog post covers topical legal current affairs from February 2024, including Shein's alleged intellectual property abuses, Boeing's issues with its 737 MAX aircraft, Hertz' decision to suspend plans to buy more Polestar vehicles, and the potential implications of changing a business' place of incorporation (in light of Elon Musk's reaction to his compensation package being struck out by a Delaware judge).

Please note that these articles do not constitute legal advice and should not be relied upon. They simply reflect the author's research and opinion.

Shein continues to battle counterfeiting lawsuits ahead of its inevitable IPO and I would reiterate that I think that litigation risk is going to be a major problem for the fast-fashion company for quite some time to come. QUESTION: HOW HAS SHEIN BEEN GETTING AWAY WITH THIS FOR SO LONG? WILL THEY HAVE TO TONE IT DOWN BEFORE LISTING?

From what I’ve read, Shein’s approach has often been to largely ignore intellectual property when creating clothing. To try to avoid large-scale liability, it has been claimed that the company initially produces only a few infringing items, then waits to see if an infringement claim follows. If a claim does follow, it will quickly settle or cease production, but if not, then production ramps up.?I’ve also read reports where the company has ignored copyright infringement notices altogether, or takes down allegedly infringing listings only after social media backlash.

An article from Time suggested that complicated copyright law in the fashion industry has made it difficult to take legal action for copycat clothing designs.?Nonetheless, Forbes reported that some law suits have resulted in a settlement, whilst others are pending, although no cases had been decided on their merits as of last summer.

In terms of how Shein will act before an IPO, it seems the business is already taking steps to try to refine its public image.?For example, Shein recently invited influencers to visit the company’s factories to try to allay concerns regarding poor employment conditions. However, the influencers have been criticised extensively on the basis that they did not provide full and accurate reports.

Maybe intellectual property-related steps will follow as the business tries to get its ducks in line, as trying to IPO with loads of pending lawsuits in play isn’t a great look. Not to mention all the other criticisms around its treatment of workers and significant environmental impact.

To access our links to sources / further reading recommendations, check out the blog post version of this article.

Boeing has found another problem with its 737 MAX fuselages. This could delay deliveries in the short term but it did say that 737s could still fly! What a nightmare. Now Emirates Airlines is sending in its own engineers to oversee Boeing’s production lines due to mounting concerns over its manufacturing quality! The nightmare continues…QUESTION: WHAT IS THE PROBLEM EXACTLY AND WOULD CUSTOMERS (E.G. RYANAIR) BE ABLE TO CANCEL ORDERS ON THE BACK OF THIS?

There have been a long list of issues with the Boeing 737 Max planes.

• There were fatal crashes back in 2018 and 2019, which resulted in the aircraft being grounded and production of the 737 MAX being halted.
• A report found that the crashes "were the horrific culmination of a series of faulty technical assumptions by Boeing's engineers, a lack of transparency on the part of Boeing's management, and grossly insufficient oversight by the FAA".
• Countries started to clear the planes to fly again in late 2020 and early 2021, and Boeing agreed to pay billions to settle a US investigation.
• In 2023, there were then issues reported with noncompliant fittings provided by a new supplier, plus an issue involving improperly drilled holes, which resulted in Boeing pausing deliveries.
• In January 2024, a window and chink of fuselage then blew out during an Alaska Airlines flight, leaving a hole in the side of the plane.
• This was soon followed by United Airlines alleging that it found loose bolts on plug doors on multiple aircraft during inspections.

Whether Ryanair can cancel orders will depend on what was agreed in the purchase contract. If the production pauses and delays mean Boeing will miss agreed delivery deadlines, then this might – if contractually agreed – give Ryanair the right to terminate, but I would imagine these contracts have more sophisticated mechanics in place (e.g. Boeing paying fines on a sliding scale depending on the length of the delay).

The issue for Ryanair seems to be the lack of aircraft stock however, so I can’t imagine Ryanair wanting to cancel. It’s very unlikely that they could quickly source replacement aircraft from elsewhere – for example from Airbus - given how long lead-times tend to be.

To access our links to sources / further reading recommendations, check out the blog post version of this article.

Hertz decided to suspend plans to buy a load of Polestar vehicles this year after resale values collapsed last year! This is a major policy U-turn for the hire company. On the subject of used EV sales, the SMMT’s latest figures said that sales of used EVs in the UK doubled last year as new models came to the market and prices fell steeply. QUESTION: WHY CAN HERTZ DO THIS? I'VE SEEN THIS HAPPEN WITH AIRLINES THAT BUY PLANES AND THEN A FEW YEARS DOWN THE LINE DECIDE THEY OVER-ORDERED. HOW DOES THIS WORK?

The default position is that once a contract for the sale and purchase of goods binds the parties, the buyer must buy and the seller must sell. However, some contracts might include caveats or conditionality, where certain events may entitle one or more parties to escape some or all of their obligations. For example:

• A force majeure clause may excuse a party from performing their obligations where specific circumstances arise that make such performance impossible or much more onerous.
• A clause might state that if one party enters into administration or insolvency procedures, the other party can terminate.
• A clause might entitle the buyer to reject certain products that were to be delivered in the future, or terminate the contract if the seller is in breach of certain conditions (e.g. conditions regarding the delivery date or quality of the products).
• Or there might be something more bespoke.?

Even where such terms do not exist, one party may permit the other to walk away in exchange for agreeing a new set of terms, or to preserve the relationship between the parties.?In other words, you must not just consider the legal position; the commercial relationship and bargaining power between the parties is also relevant.

According to EV Magazine, in the Hertz scenario, the Polestar CEO?apparently agreed to waive Hertz's requirement to purchase more of its cars, providing Hertz agrees to certain terms.?This included keeping its current stock of Polestars for more than a year, and giving Polestar right of first refusal if Hertz ever wants to take one of their vehicles out of the fleet.

To access our links to sources / further reading recommendations, check out the blog post version of this article.

A Delaware court judge told Elon Musk that he had to forfeit $56bn of share awards, the granting of which had been agreed back in 2018 as long as he fulfilled some pretty incredible targets – which he then duly did! Musk didn’t like that and is now looking to switch his HQ to Texas in protest while he appeals the ruling. QUESTION: HOW CAN YOU CHANGE WHERE YOU’RE INCORPORATED, AND HOW MUCH OF A DIFFERENCE DOES IT REALLY MAKE?

According to 1st formations,? the only way to officially move a UK limited company’s place of registration to another country is to set up a new company (or acquire a company) in your desired jurisdiction, transfer the assets of the existing business to that new entity, then dissolve the UK entity.

However, the process differs between jurisdictions. For example, a company incorporated in Jersey may migrate to a foreign jurisdiction and continue as a foreign incorporated company, provided the correct procedure is followed.?

In the US, businesses are incorporated within specific states, rather than simply incorporating in the US as a whole.?There are various options for moving a business’ domicile to a different US state, including setting up a new entity and dissolving the old one, or merging the old entity into a new one, among others.?

Note that changing your place of incorporation can have a broad range of implications, as the business will become subject to the laws and rules that apply in the new jurisdiction, including tax and employment laws.

In the US in particular, each state has some autonomy to set its own rules for businesses – including laws and rules around privacy, human resources, tax, court procedures and more - meaning changing the place of incorporation can have a real impact for businesses.

Delaware is seen as a particularly business-friendly state, given its comparatively lenient tax policies, simplified corporate laws, privacy benefits, and use of courts comprised of judges that specialise in corporate law.?However, Musk is now considering moving Tesla from Delaware to Texas, after a Delaware judge struck down his previously agreed compensation arrangement.

According to the Guardian, the case was brought by a Tesla shareholder, who accused Musk of improperly dictating negotiations around the compensation package, and claimed the board acted without independence.?The Delaware judge essentially agreed, basing her decision, in part, on the fact that Musk had “thick ties” with the directors when negotiating his 2018 package and had “dominated the process that led to board approval of his compensation plan”.

Musk must believe that a court in Texas would take a more sympathetic approach, instead honouring the contractual arrangements approved by Tesla’s shareholder base.

To access our links to sources / further reading recommendations, check out the blog post version of this article.

Peter Watson helped to deliver Commercial Law Academy's?Discussing current affairs and industry trends?course, which offers in-depth advice on how to research into and confidently discuss current affairs, including how to select which news stories to focus on, what to consider when reading the news, and how to structure your discussions in interviews.

The course also includes recordings of our monthly current affairs wrap-ups from Jan 2021 to present, an overview of legal industry trends and challenges, and an insight into how legal technology is changing the legal landscape. This is just one of our?SEVEN courses covering different aspects of commercial awareness.

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