07 Jun 2017

COT's top four commercial issues - May 2017

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Taking a break from the snap-election, which is making us WannaCry, the commercial, outsourcing and technology ("COT") team's monthly snapshot shall run you through the top four commercial issues that have got us talking in May.

We will leave the risks and challenges that the WannaCry Ransomware attack presented to individuals and businesses to our learned colleagues on the DP bulletin and instead focus on all things commercial. So grab a coffee and take five minutes to enjoy.

Digital Economy Act 2017

Streamers, gamers and marketers take note: the Digital Economy Bill just beat the pre-election klaxon to become the Digital Economy Act 2017 on 27 April.

The Act covers a raft of topics, including the availability of broadband and communications services, direct marketing guidance and the extension of Ofcom's powers.

Avid box set streamers have been celebrating, as the Act has as its centrepiece the requirement for the Secretary of State to publish a "broadband universal service obligation", which will state the minimum communications services that must be made available to all citizens, regardless of their location. The USO will even specify a national minimum download speed.

However, Game of Thrones fans in rural Anglesey should hold off on hassling their broadband providers for a little while yet, as it's not yet clear when the USO will be made and what minimum speed it will specify. The unseemly rush to get legislation through in the "wash up" period before the dissolution of Parliament meant that the Lords backed down in their quest to set the minimum download speed at 30Mbps, with 10Mbps looking most likely to become the specified minimum. But on the plus side, who knew that the Lords were such fans of Netflix?

On a more serious note, with an increasing amount of public (and private) services moving online, the recognition that effective broadband is vital to individuals as well as to corporate profits is welcome. Next step - broadband as a human right?

Ofcom will also be getting beefed up powers, including enhanced powers to require communications providers to pay compensation for poor performance, to carry out comparative overviews of quality and prices of public communications services, to require information from communications providers and to specify requirements for customers who want to switch providers. So we can look forward to hearing much more from them in the future.

Companies that run direct marketing campaigns should also sit up and take note that the Act will place the ICO's direct marketing code of practice on a statutory footing, arguably making enforcement action a more frequent and likely occurrence.

And online pornography also gets a look in, with the introduction of penalties for anyone making online pornographic material available commercially accessible to those under 18.

We await the coming into force of the bulk of the Act with interest. Who knows which Secretary of State will be making the relevant Orders, post-election…

Tools of the trade

The Institute for Government recently (17 May 2017) published its report on the tools needed for the UK government to secure a successful UK trade policy post Brexit with countries other than the European Union.

Having relied on the Brussels political machine to secure and run the UK's and other member state's international trade deals, the newly created Department for International Trade will be venturing into unchartered territory.

To assist the Department, the Institute sets out the following nine key steps that will need to be followed to make any trade deals a success (although no guarantees of success were offered):

  1. The Department should be staffed with experts, not career government "staffers" who jump from post to post.
  2. A cross department trade strategy should be led by the Cabinet Office to avoid "deals for the sake of deals".
  3. The Department must ensure that key stakeholders, including devolved bodies, business and consumers are informed and "buy-in" to a trade deal.
  4. Parliament should have greater say in any trade deal. However, it is unclear whether any sitting government would want this, as opposition parties could use such power as leverage.
  5. The Government should establish an independent body for trade similar to the Office for Budget Responsibility.
  6. Not simply relying on trade deals as the only way to secure investment in trade. Supporting another country by offering to "scratch their back if they scratch ours" can also offer similar results without the complications of agreeing a trade deal.
  7. The Department must avoid getting bogged down in trying to achieve too much too soon. Co-ordinated negotiations with a manageable number of countries will make securing deals more realistic.
  8. Making use of existing trade deals the EU secured such as those with Turkey and try to mirror these as much as possible.
  9. Making use of its relationships with Australia and New Zealand would be a useful place to start, as negotiations on trade deals with BRIC countries can use up resources without guaranteeing success

The sheer scale of securing any trade deals cannot be overestimated and the UK will need to find a new USP now that it cannot offer trading partners a bridge to the rest of the EU. That being said, one could argue that actually ratifying a trade deal should, in theory, be a lot simpler and quicker through our Parliament than the processes needed to be followed in Europe.

While the report did not focus on the potential UK-EU trade deal, the UK's hopes of securing a fast-track deal were boosted after a recent ECJ judgment provided clarity on the requirements that any such trade deal would have to have in order for the EU to agree it without requiring the approval of all other member states. The UK government should heed the ECJ's judgment and craft a deal that would avoid too much political wrangling.

Deriving sense out of nonsense? Or void for uncertainty?

Looking for room to wiggle out of a commercial contract? Unfortunately crying uncertainty is unlikely to see the court declare your contract void and unenforceable. The recent High Court case of Associated British Ports v Tata Steel UK Limited [2017] EWHC 694 (Ch) reinforces the courts' ongoing reluctance to find commercial provisions too uncertain to be enforceable.

In this case, the claimant (ABP) owns and operates 21 ports in the UK, including a deep water Tidal Harbour at Port Talbot in Wales. On 1 March 1995, the parties entered into a 25 year port licence agreement which included a controversial clause allowing either party, at any time after the mid-way point in the term, to serve a notice on the other party requiring the terms of the licence to be renegotiated if "any major physical or financial change in circumstances affecting the operation" of Tata's works or operation of the port had occurred. If the parties failed to agree re-negotiated terms within 6 months of such notice, the matter was to be referred for binding arbitration.

Tata, suffering from the continued effects of "market challenges", sent a notice to ABP in February 2016 claiming a major financial change in circumstances and asking for a renegotiation of the terms of the licence, including a reduction of over 50% in fees. ABP argued that the clause was void for uncertainty and the dispute should not be referred for arbitration for two reasons: (i) the trigger event (being the major physical or financial change in circumstances) was too uncertain to create a binding obligation to refer a dispute to arbitration; and (ii) because there were no, or insufficient, objective criteria to guide an arbitrator on how to amend the licence terms – making it akin to an agreement to agree.

Representing a small victory for the beleaguered British steel industry, the court rejected ABP's arguments on both counts. The court considered that there was commercial sense behind the relevant clause as the parties were mutually interdependent and the halfway point represented an opportunity for the parties to reassess the relationship in an otherwise lengthy term of 25 years. The trigger event was found to be sufficiently certain; being adequately defined to allow one to identify a change which would definitely constitute a trigger event and identify a change which would fall outside this scope. Even though there may be some murky waters in-between, this would be for the arbitrator to exercise their skill in determining.

On the second point, the court held that it is the role of the arbitrator to imply reasonableness into a provision like the applicable clause, by reference to existing terms, the nature of the change and the submissions of the parties during the arbitration and that, on the facts, the arbitrator was not faced with setting new terms in a vacuum.

In summary, whilst we all chase the holy grail of drafting perfection, courts seem prepared to do their utmost to give meaning and effect to a commercial contract if it is at possible to do so, especially where that contract has been substantially performed. If the courts can discern a commercial rationale behind the parties' intentions, this only lends credence to favouring party autonomy and, finally, courts are not afraid of interpreting provisions through the lens of "reasonableness" if required.

Supervising Facebook

This month has seen a spotlight turned onto website operators' responsibilities in relation to taking down harmful content shared by their website users.

The Guardian newspaper recently reported that Facebook's moderation policies had been leaked to it, leading to widespread criticism of Facebook's ethics from various quarters. The Facebook leak has enlightened us as to what its censors will and will not permit to be shared on its website, with the files covering issues including violence, abuse, hate speech, terrorism, pornography and self-harm, and has led many to ask questions about Facebook’s responsibilities when it comes to censoring information.

Facebook has historically refuted claims that it is operates as a media organisation, and instead describes itself as an information society service provider (“ISS Provider”), a class which allows it to avoid liability for damages, other pecuniary remedies and criminal sanctions under the Electronic Commerce (EC Directive) Regulations 2002 (the “Regulations").

The Regulations allow ISS Providers to benefit from a safe harbour where they act as either a ‘mere conduit’ for the transmission of information, a provider of caching services for the purposes of efficient onward transfers of information (provided that information isn’t modified or interfered with in any way), or a provider of hosting services. It is within this latter category that most social media websites fall. Under regulation 19 of the Regulations, an ISS Provider is not liable where (i) it does not have actual knowledge of unlawful activity or information, or it isn't aware of facts or circumstances which would have made it apparent that the activity or information was unlawful at the time a claim was made, or (ii) upon becoming aware of the activity or information’s unlawfulness, it has acted 'expeditiously' to remove or disable access to the offending information.

Clearly, the Regulations do not give Facebook a get-out-of-jail-free card. There remains an obligation on ISS Providers to remove content once they have been put on notice of its unlawful nature. The leaked guidelines make clear that the much more difficult question to answer is how to determine what information is 'unlawful' whilst balancing website users' rights to free speech, and there appear to be a number of grey areas and fine lines that need to be considered when making these decisions.

The question of whether website operators should continue to be considered ‘mere conduits’ and avoid liability for harm caused to individuals is a topic that is gaining greater significance with the increase in frequency and scale of terrorist attacks. In particular, at the recent G7 summit, the UK Prime Minister Theresa May urged world leaders to put more pressure on tech companies to identify and remove extreme material.

For now, website operators who allow users to post content on their websites should continue to enforce their codes of conducts, removing content which may be considered unlawful and disclaiming liability for the views of third party shared on their website.

 

Handy hints - "What is gross negligence?"

Generally speaking, English law does not have a recognised definition of "gross negligence". The presence of such language is often as a result of the language being taken from contracts governed by other jurisdictions (in particular with a US influence). The English courts have grappled with distinguishing gross negligence from simple negligence, without ever really settling on an accepted definition (see Camarata Property v Credit Suisse Securities [2011] EWHC 479). However, if you are the contracting party looking to make use of such a term, consider including an express definition within the contract to clearly establish what gross negligence is intended to mean in the contract rather than leaving it to the courts to decide.

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