02 Aug 2017

COT's top four commercial issues - July 2017

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This month the Commercial, Outsourcing and Technology ("COT") team felt particularly valued after reading an article in the Guardian, which had the audacity to suggest that people do not read the terms and conditions us lawyers spend hours drafting. Rather amusingly, a Manchester-based wifi company called Purple temporarily inserted a "community service clause" into the terms and conditions that customers needed to agree to in order to access the wifi service. By clicking "accept", over 22,000 people inadvertently committed themselves to 1,000 hours of toilet cleaning and other community services.

Let that be a lesson to all who skim the Ts & Cs.

In other news…

They think it's all over…

The Premier League has successfully obtained an order from the High Court to help stop the illegal streaming of its football matches.

Rights holders have had an ever increasingly difficult battle to protect their rights against technological developments which facilitates a user's free access to their content. Problems have existed since the dawn of the printing press, recording TV and radio to VHS and cassettes respectively, the music industry's fight against Napster and the Premier League's battle with the landlady of the Red White and Blue pub in Portsmouth. The difficulty in all those cases was that the law was relatively slow to react to the development in technology which allowed users to benefit illegally from free content for a few years before the law could catch up to address how the content was accessed.

The problems rights holders have recently faced is the improvements in internet speed to allow live streaming of music and video content. While the industry has kept up to a certain extent by the offering of viable legal alternatives such as Spotify, Netflix and online on-demand services from the traditional television companies, the lure of free content is too difficult to resist for some. For the Premier League, they have been increasingly interested in software and hardware known as "Kodi" which facilitates the live streaming of football matches and other content such as films and television shows. This software is very simple to use and can be pre-loaded onto Amazon's Firestick.

The reason why this is so significant to the Premier League is clear when Sky and BT paid a record £5.136 billion for rights to show live matches for three seasons. What has been concerning for these parties is that viewing figures for such content seems to be falling. It has been suggested that Sky saw a 14 per cent fall in viewing numbers, while BT channels dropped by 2 per cent.

The order obtained by the Premier League will mean internet service providers will be required to shut down servers hosting unlicensed online streaming. Mr Justice Arnold approved the order for Britain’s top four broadband providers BT, Sky, TalkTalk and Virgin Media to block connections to the servers that host pirated streams of matches.

Welcoming the order, Kevin Plumb, Premier League Director of Legal Services said "This blocking order is a game-changer in our efforts to tackle the supply and use of illicit streams of our content".

Due to the eye-watering figures paid for such content it is clear why Kevin.

Modern slavery and supply chains

There have been further developments in supply chain transparency this month, with the first reading in the House of Lords of the Modern Slavery (Transparency in Supply Chains) Bill 2017 on 12 July 2017. The Bill seeks to improve the current regime for the publication of slavery and human trafficking statements, which it is feared is still seen as too much of a box-ticking exercise. In April, the Joint Committee on Human Rights pointed out in its report Human Rights and Business 2017:

Promoting responsibility and ensuring accountability research showing that many organisations appear to have nearly identical statements, which suggests that they may be basing them on the same templates. Anti-Slavery International has also criticised the present law, saying that it is not currently clear which businesses are covered by the requirements.

To recap on the existing rules, section 54(1) of the Modern Slavery Act 2015 requires commercial organisations supplying goods or services and with a minimum total turnover of £36 million per year (including subsidiaries' turnovers) to prepare and publish a slavery and human trafficking statement for each financial year. Both UK and non-UK entities are covered, provided that they carry on a business or part of a business in the UK.

The slavery and human trafficking statement must include a statement of the steps the organisation has taken during the financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains, and in any part of its own business; or alternatively that the organisation has taken no such steps. However, there is currently no other compulsory content for such a statement.

So what does the Bill seek to change? One of the key aspects is that it proposes to make the existing list of what the statement may include (section 54(5)) compulsory rather than voluntary. This would mean that the statement must in future also include information about:

  • the organisation's structure, business and its supply chains;
  • its slavery and human trafficking policies and due diligence processes in its business and supply chains;
  • the parts of its business and supply chains where there is a risk of slavery and human trafficking taking place, and the steps it has taken to assess and manage that risk;
  • its effectiveness in ensuring that slavery and human trafficking is not taking place in its business or supply chains, measured against such performance indicators as it considers appropriate; and
  • the training about slavery and human trafficking available to its staff.

The Bill seeks to require organisations that have taken no steps to ensure that slavery and human trafficking is not taking place in any of its supply chains to add to its statement the reasons why it has not done so.

The Bill would also bring public authorities under the requirement to publish a slavery and human trafficking statement and it requires the Secretary of State to publish a list of all commercial organisations that are required to publish a statement under section 54, in a place and format that is easily accessible and categorised according to sector.

The Bill is obviously intended to raise awareness about and extend the reach of the slavery and human trafficking statement requirements, making them an even greater concern for organisations that take part in outsourcing and supply chains. The intention is obviously to make organisations really think through the specific actions that they themselves could and should be taking to prevent modern slavery, not to simply stick up on their website an off-the-peg template slavery and human trafficking statement that amounts to mere empty words. Due diligence on modern slavery compliance and ensuring appropriate contractual protection from trading partners also look to become of even greater importance for organisations to get right.

Futile endeavours

The High Court recently rejected the argument that a "principle of futility" exists and also provided useful guidance when looking at an "all reasonable endeavours" obligation.

In Astor Management AG & Anor v Atalaya Mning Plc & Ors [2017] EWHC 425, the claimants had entered into a master agreement with the defendants on 30 September 2008 relating to the ownership and exploitation of the Rio Tinto Project. Pursuant to the agreement, the defendants bought the claimants' interest in the project for consideration of up to $63.3 million, most of which was deferred. The key provision stated that deferred consideration was payable when (a) permits were granted to restart the mining activities; and (b) the defendants secured senior debt finance for a sum sufficient to restart mining. The defendants undertook to use "all reasonable endeavours" to obtain such senior debt finance.

The permits were granted in July 2015 and after, the funds required were raised by a series of intra-group loans (rather than through senior debt finance). On this basis, the defendants held that the payment triggers had not been met, and deferred consideration was not payable. The claimants refuted this and argued, amongst other things, that (i) where mining had restarted without the need for the senior debt facility, this requirement should fall away by virtue of a "principle of futility", thereby triggering payment, and (ii) the defendants had breached their undertaking to use all reasonable endeavours to obtain the senior debt facility.

On the futility argument, the claimants submitted that, in order to make commercial sense of the agreement, the conditions triggering payment of the deferred consideration should be read as applicable only if they remained necessary to restart mining. The claimants relied on Lord Denning MR's dictum in Barrett Bros v Davies [1966] 1 WLR 1334, that "the law never compels a person to do that which is useless and unnecessary". Leggatt J rejected the contention that such a principle of futility exists, stating that a court will not disapply "a contractual precondition to the accrual of a right or obligation…just because complying with it is considered by the court to serve no useful purpose".

In terms of the "all reasonable endeavours" obligations, the defendants argued that an obligation to use all reasonable endeavours is only enforceable "if the object of the endeavours is sufficiently certain" and "there are sufficient objective criteria" to evaluate the reasonableness of the endeavours and that, in this case, the court would be required to make an unlimited number of decisions to determine whether it breached its undertaking by opting to use intra-group loans to obtain the financing required. The court rejected this argument; in adopting a test of "reasonableness", the parties invite the court to make a value judgment and set a limit on their freedom of action. In determining that the defendants had not breached the undertaking to use "all reasonable endeavours" to obtain the senior debt facility, the court noted that the defendants were not obliged to pursue the senior debt facility at any cost or at a cost that would make the project "commercially unviable".

"Endeavours" wording is frequently used in contracts, and is also often subject to litigation. If the parties do not wish to invite the court to make a value judgment on their actions, the contract should explicitly set out each party's obligations, including the consequences for failure to achieve a result.

Artificially intelligent, or just intelligent?

"Pushed or jumped?" is a question we asked in July when a security robot met a watery end after 'drowning' in a fountain located at an office complex. Against a backdrop of discussions on the topic of suicidal robots, it is pertinent that this is also the month when the Select Committee on Artificial Intelligence (Committee) published its call for evidence and submissions on the implications of artificial intelligence (AI).

The Committee was appointed at the end of June, and on 19 July, issued its call for written submissions from as many people and organisations as possible to help it understand what opportunities exist for society in the development and use of AI, as well as what risks there might be. The Committee's intent to deal with the economic, ethical and societal implications of advances in AI technology is clear, with the inquiry focussing on the following issues in particular:

  • The current state of AI and the factors which will accelerate or hinder its development;
  • The pace of technological change and the development of AI;
  • The impact of AI on society, and how the public can prepare itself for more widespread use of AI;
  • The public perception of AI, and what might be done to improve it;
  • The sectors which are most and least likely to benefit from developments in AI;
  • How to address the data-based monopolies of some large corporations, and how data can be managed and safeguarded to ensure it contributes to the public good and a well-functioning economy;
  • The ethical implications of AI, and how negative implications might be resolved;
  • The role of the Government in the development of AI and whether the area should be regulated; and
  • Whether anything can be learnt from the work of other countries or international organisations, and their policies on AI.

The deadline for submitting written evidence to the Committee is 6 September 2017, with oral evidence being heard in autumn and the Committee's deadline for releasing its final report set at 31 March 2018.

Although the subject of many a sci-fi novel, AI has become a hot topic for other reasons in recent years. Not only are technology businesses putting serious investment into the development of robotics and AI technology, the UK Government has also pledged £20 million of investment into robotics and AI, with the aim of promoting the UK as a world leading AI sector. However, to benefit from the opportunities presented by the growth of this sector, much needs to be done to improve the public perception of AI by addressing the risks it poses. With driverless vehicle trials taking place in cities across Europe, robots undertaking the role of security guards, and even various law firms investing in text analytics software (…gulp!), it's no surprise that the question on many commentators' lips is whether robots are about to take our jobs, and there's no doubt the Committee will be considering this particular issue and the way in which these concerns might be addressed in the inquiry.

We also expect the Committee to take a wider look at the ethical concerns surrounding the development, design and use of machine-learning algorithms in robotics, with one such concern being the perpetuation of cultural stereotypes and bias through the use of AI, and discussion of how to deal with these, whether by developing codes of conduct or regulation applicable to engineers, designers and researchers or otherwise. We might also see a discussion of issues around civil liability and whether AI technology should be assigned a legal personality of its own for this purpose, rather than their creators.

Whether the inquiry will consider the more fantastic issues of whether robots should be considered conscious beings and deal with the protection of their rights and wellbeing however, is another story - for now, it seems that humankind's biggest defence in the fight against the rise of the machines might be rust after all…

 

Handy hints - Good faith, it's not your duty

Other than specific agreements, such as employment, agency and insurance contracts, it is well established that there is not a recognised definition or obligation to act in good faith under English law. While the courts have, at times, found reasons to imply such a duty in a contract (See Yam Seng Pte Ltd v International Trade Corp Ltd), the majority of times the courts are reluctant to imply such a non-defined obligation into a contract.

In addition to the courts' reluctance to imply a duty of good faith, they are also not too comfortable enforcing an express obligation to act/negotiate in good faith. The reason for this is down to uncertainty of the obligation and how wide the obligation could be at the expense of a party's right to advance their own interest. That being said, over time the courts have taken a creative approach in determining the scope of such an obligation when the parties have expressly included it within a contract. Such duties have included, not acting in a manner that would frustrate the purpose of the agreement and not knowingly providing information that the other party will rely on. Nevertheless, where flexibility has been shown by the courts in exploring this doctrine, they have been keen to narrow its scope to ensure it does not undermine other express contractual rights or prevent a party from pursing its commercial interests.

While the case law regarding duties of good faith is evolving, if you are acting for the party seeking to rely on such a provision, like the endeavours clause referred to above, you would be minded to specify and define the scope of such a duty to avoid any ambiguity. Such a definition may include a limited governance structure of escalation and dates by when each of the parties must have acted so that rather than simply stating: "The parties will agree the milestones in good faith during the implementation phase", specify key dates and times with consequences for failing to do this e.g. the account managers meeting within [x] days after the contract signature to agree milestones, failure of which shall be escalated to the senior representatives with possible termination rights for failure to agree within the fixed timescales.

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