Brexit for Business – How to Adjust Your Commercial Contracts and Agreements

Solicitor and ContractStore founder Giles Dixon has some useful pointers for updating your commercial contracts in the light of the UK Brexit vote.

brexit photoOn the Monday after the Referendum vote, I was asked to draft my first Brexit clause for a substantial long term services contract between a European and UK company that was being negotiated. So, although we have not yet left the EU, the potential legal implications of our likely withdrawal are already being felt.

As we do not know what agreement might be reached with the EU it is difficult to be too specific on how business and society will be affected.

But for starters, here are some possible issues that clients may want to consider when reviewing or negotiating their contracts:

  • Customs duties and tariffs: If these are introduced on trade between the UK and other EU countries, be sure to have some wording that says how they will affect the payment terms under the contract.
  • Personnel: If your contract involves sending a team of engineers to the UK from Europe (or vice versa), what happens if new visa requirements are introduced that make this difficult to achieve? And if you already employ citizens from other EU states, how might their status be affected if there is a change in immigration law?
  • Currency: Any contract involving pricing that has a currency risk should consider wording to deal with that risk. But if the impact of Brexit sees a continuing fall in the value of sterling (already down by around 10% against the USD), an escape clause or renegotiation provision could be essential.
  • Standards: If EU quality standards diverge from those in the UK, how might this affect manufactured products or the supply of services and whose standards will apply under your contract?
  • Trade Marks: Anyone who has registered an EU trade mark has protection throughout the 28 member states. If we leave, will that EU mark still give protection in the UK?

A material adverse circumstances clause can be a helpful device to deal with issues that might arise in future but are not identified when the contract is signed. But the difficulty with such a clause is in specifying what happens if a particular event occurs. An obligation to discuss and try to resolve the problem by good faith negotiation is the type of wording sometimes used, but it does not remove the uncertainty. So, where you can, you need to have wording that says what will happen if a situation arises – e.g. if new taxes are introduced on the supply of goods to Europe, these will be added to the price and payable by the customer.

Brexit – The Legal (Constitutional) Position

On 23 June 51.9% of those who took part in the Referendum voted that they wish to leave the EU.  Approximately 72% of the electorate voted – in other words 37% of the adult population of the UK said they want to leave the EU and only those in England and Wales had a majority in favour of leaving. Interestingly, the percentage wanting to remain in Scotland and Northern Ireland was higher than that for leaving in England & Wales (and in Gibraltar the remain vote was 95%).

The Referendum Act does not say clearly what happens next.

Article 50 of the Lisbon Treaty says that any Member State may decide to withdraw from the Union ‘in accordance with its own constitutional requirements’. It then has to give notice of its intention to withdraw to the European Council.

Brexit and the LawAs the UK does not have a written constitution, and Parliament is where our decisions are made, it is for Parliament to decide whether and when to give that notice to the EU.

However, some think the Government can give the notice without the need for a vote of the House of Commons. Since the referendum result does not itself have the force of law and this is perhaps the biggest decision the UK has to make, it would be strange for the Government of the day (especially a different Government from the one that took office at the last General Election) to make the decision without the approval of Parliament.

This issue is likely to be decided by the courts, as legal steps are already being taken to ensure the UK Government will not trigger the procedure for withdrawal from the EU without an Act of Parliament.

Article 50 then says that, once the notice is given, the EU will ‘negotiate and conclude an agreement with that State, setting out the arrangements for its withdrawal, taking account of the framework for its future relationship with the Union’. The UK will then withdraw from the EU on the date the withdrawal agreement comes into effect or, failing that, two years after the notification, unless an extension of that two year period is agreed. The agreement needs to be approved on behalf of the Union by the Council, acting by a qualified majority, after obtaining the consent of the European Parliament.

Until the withdrawal is final, the UK remains a member of the EU and bound by its laws, but not able to take part in discussions on its withdrawal.

Employment Law Update June 2016

Our partners Moore Blatch have several updates for us:

Read more updates and commentary at the Moore Blatch website.

Does Your Company Have Any ‘Persons with Significant Control’?

If so, you need to include their details in a new Register.

If you run a limited company, under new regulations, it is necessary to keep a register of people with significant control of the company. This register will be in addition to the register of directors and register of members.

The Regulations came into effect on 6th April 2016 and details have to be included in your annual statement at Companies House from 30th June 2016.

Persons With Significant Control

puppet master photo

You now have to record who pulls the strings in your company Photo by Greg Walters

A person with significant control (a PSC) is someone who:

• directly or indirectly holds more than 25% of the shares or voting rights of a company,
• directly or indirectly has the right to appoint or remove the majority of the directors, or
• has “significant influence or control” over the company itself, or over the activities of a trust or a firm which meets any of the other specified conditions in relation to the company (e.g. by holding more than 25% of the shares).

A person would exercise “significant influence or control” if for example he/she is not a member of the board of directors, but regularly or consistently directs or influences a significant section of the board, or is regularly consulted on board decisions and whose views influence decisions made by the board.

This would include a person who falls within the definition of “shadow director”. It can apply even if the individual is not aiming to gain economic benefits from the policies or activities of the company, trust or firm.

The PSC Register

The register has to contain the name, nationality, date of birth, usual country of residence and usual residential address of each individual who is a PSC plus the nature of their control and the date on which that person became registrable. A service address is also needed. The residential address will not appear on the public record.

Your company’s PSC register must not be left empty and you must take reasonable steps to determine whether any individual or any legal entity meets the conditions for being a PSC. Failure to do so is a criminal offence.

If there is nobody with significant influence, your register (and the information to Companies House) should say:
The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company.

Or, if you are still checking, it might say “The company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company.

LLPs and Exemptions

Similar regulations apply to LLPs (limited liability partnerships).

There are exemptions for those who have influence in a purely professional capacity, such as a lawyer or accountant.

Why Is This Being Introduced?

The new regulations are part of the Government’s attempts to deal with tax evasion and money laundering and are part of a Europe-wide initiative.

Employment Law Update February 2016

The latest update from Moore Blatch is out now:

£2.3 million Fine Under Bribery Act. Protect Your Business!

Avoid Bribery Act headaches with a simple download

Bribery Act headaches can be avoided with a simple download
Photo by threephin Creative Commons

 

 

Consultant Sweett Group have been fined £2.25 million plus £95,000 costs at Southwark Crown Court in the first prosecution under Section 7(1) of the Bribery Act.

This is an offence of strict liability – if a business does not have “adequate procedures” designed to prevent persons associated with it from bribing a third party, then it will automatically be guilty of an offence.  And this offence can occur even if the person who offered the bribe was not an employee or not even in the UK – so it could be an overseas agent over whom you have no direct control.  Indeed, in Sweett’s case the offence occurred in the Middle East on some contracts related to the firm.

It is very easy to protect yourself from this risk – you can start by having a proper Code of Conduct or Anti-Corruption Policy in place – and that will cost you a mere £39 (excl. VAT) at ContractStore.

Thousands of small businesses do not have adequate protection – don’t be one of them – set up your Code of Conduct today!

New EU Regulations for e-commerce: Deadline 15th February 2016

fighting photo

Don’t get in a fight! You can now sort out disputes online. 
Photo by MGEARTWORKS Creative Commons License

If you sell goods or services online, under new EU Regulations from 15th February, your website must provide a link to the European Commission’s Online Dispute Resolution (ODR) Platform.

Online traders who use Alternative Dispute Resolution (ADR) should also provide information about the ODR Platform in their contractual terms.

How To Comply with the New ECommerce Regulations

In order to comply with the regulations, you must provide the following information on your website:

1. a link to the ODR platform http://ec.europa.eu/odr
2. the email address of the online trader

The following wording may be suitable:

If you are a client/customer and we have made a contract with you by electronic means you may be entitled to use an EU online dispute resolution service to assist with any contractual dispute you may have with us. This service can be found at http://ec.europa.eu/odr. Our email address is xxxxxx

What is the EU Online Dispute Resolution?

The EU website has the following explanation:

If consumers have a complaint about a good or service they have bought, instead of going to court, they can choose Alternative Dispute Resolution (ADR). The term ADR includes all the ways of resolving a complaint which do not involve going to court.

Typically consumers ask a neutral third party to act as an intermediary between them and the trader; this neutral third party is called an ADR entity. The ADR entity can then suggest or impose a solution, or simply bring the two together to discuss how to find a solution. This is also known as “mediation”, “conciliation”, “arbitration”, “ombudsman” or “complaints’ board”. Compared with going to court, ADR is usually quicker, simpler and costs less.

Online Dispute Resolution (ODR) is an ADR procedure conducted entirely online.

The platform is user-friendly, multilingual and accessible to all.

Everything is done in four, simple steps:
• The consumer fills in an online complaint form and submits it.
• The complaint is sent to the relevant trader, who proposes an ADR entity to the consumer.
• Once consumer and trader agree on an ADR entity to handle their dispute, the EU ODR platform transfers automatically the complaint to that entity.
• The ADR entity handles the case entirely online and reaches an outcome in 90 days

Read the information in full:

http://ec.europa.eu/consumers/solving_consumer_disputes/docs/adr-odr.factsheet_web.pdf

Regulations for Traders Who Use ADR for Resolving Disputes

Under The Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015, if a trader is required by his Trade Association or Professional Institution to use ADR in resolving disputes, the trader must provide the name and website address of the ADR entity:

  • on the trader’s website, if the trader has a website; and
  • in the general terms and conditions of sales or service contracts between the trader and a consumer.

The ADR entity has to be one authorised by one of the organisations referred to in the Regulations, which include the Financial Conduct Authority and the Legal Services Board.

More Resources

ContractStore has a free download on ADR at this link: http://www.contractstore.com/Z140-alternative-dispute-resolution

Also our document A221, Website & Email Legal Notices, provides templates and explanations on the increasing number of notices that a business needs to include on its website.

Let us know in the comments if you have any questions or experiences to share.

Technology Update – What Every Business Needs to Know

New technology laws for business and more in the Moore Blatch updateOver the next couple of years, important new legislation about data privacy will be coming through from the EU: any business that stores customer information, needs to be aware and can start preparing now. Read more here

Other news in the latest update from Moore Blatch:

 

 

Think Twice Before You Copy From Another Website (it could prove to be expensive!)

In a recent case, a home improvement company in Bradford lifted 21 images from the website of a loft conversion company in the London area when it decided to move into loft conversion work and wanted some illustrations.

Absolute Lofts South West London Ltd. sued the Bradford company, Artisan, and its owner, Mr Lubbock, and won substantial damages. Artisan admitted liability and the judge awarded a total of £6300 in damages – £300 for ‘compensatory damages’ and a further £6000 – 20 times the basic compensation– because of the flagrant nature of the breach.

imitate photo

Making duplicates of other people’s images could leave you exposed
Photo by iloveart106 Creative Commons

In a case like this, compensatory damages are calculated on a theoretical basis of what might have been agreed for the use of the images between two willing parties. Experts instructed by each of the parties came up with different figures – the expert for Absolute Lofts argued that Artisan would have paid £9000 for a professional photographer to take those pictures. Artisan reckoned the figure was less than £1000. The judge did not think much of either expert opinion and decided £300 was the right amount as this was what it would have cost to source similar images from a photographic library.

However, the judge then decided that additional damages were due. Section 97 (2) of the Copyright Designs & Patent Act 1988 allows additional damages when there is a flagrant infringement of copyright.  And Article 13(2) of the EU Directive on The Enforcement of Intellectual Property Rights allows for damages appropriate to the prejudice suffered by the injured party.

Artisan’s owner knew that the images were being used without consent. But the judge also found that Artisan had directly profited from the photographs on their website – it seems that they not only implied the company had expertise in loft conversions, but its profits increased as a result.   Even though the distance between the two companies did not mean that Absolute Lofts suffered from direct loss of business as a result of Artisan’s action, the judge nonetheless thought there was prejudice and so awarded the £6000 additional damages.

The internet is often seen as a free resource where you can pick up and copy other people’s pictures or text and use them on another website. This case underlines the fact that you do so at your peril, and do remember that it is relatively easy for a copyright owner to search for and find duplication on the web.

There are plenty of free images available online, and Google search now allows you to search by license. There is a system of Creative Commons licensing that allows image publishers to declare the details of how they want their images shared.  Because of this, the courts are likely to get increasingly firm on blatant infringements.

So, if you are engaging a designer, be sure to check that their contract makes it clear that nothing they supply will infringe any third party’s copyright. Our designers’ contract template covers this along with all the other things you need to consider when working with designers.

For the full case report see: http://www.bailii.org/ew/cases/EWHC/IPEC/2015/2608.html

 

Data Protection: Safe Harbor Not Safe Any More

 

servers photo

Who in the world is handling your data? Maybe Joshua Crass in Oregon has it on this Facebook Data Center Server Board. Photo by IntelFreePress on Flickr

You may not think that much about where all the personal information you share on Facebook is physically stored, but because each country has different rules about the data stored within their territory, this global data sharing is presenting a complex challenge for anyone involved in personal data collection and storage.

The rules in the EU are different from those in the US, yet millions of Europeans are sharing their data with companies whose computers are located in America, and thus who are subject to different rules on who can access that data.

Safe Harbor

The EU places strict limitations on transferring data overseas and up till now, an arrangement called Safe Harbor has been used to allow US companies to store a European citizen’s data without having to have individual case-by-case agreements with all parties. The Safe Harbor scheme is a set of principles and rules for processing personal data.

US organisations wishing to transfer personal data from the EU to the US may subscribe to the scheme voluntarily with the US Department of Commerce. An agreement was reached between the US and the European Commission in 2000 that US companies that subscribed to Safe Harbor would be considered to be operating within the requirements of the European legislation requirements.

However, following Edward Snowden’s revelations of the levels of interference with personal data by American security agencies, it has become apparent that data protection in the States is incompatible with EU data protection laws.

A certain Mr Max Schrems of Austria brought a challenge to Facebook in Ireland through the European courts. Does Facebook, which stores a lot of data in the States, ensure that a European’s data is looked after correctly according to EU regulations?

As a result of this case, the European Court of Justice has declared that this Safe Harbor agreement is invalid for failure to comply with Article 25(6) of the Data Protection Directive. Safe Harbor no longer provides sufficient protection to European citizens when their personal data is transferred to the USA.

So the 4500+ companies that are relying upon it to cover the transfer of information from Europe to the US will have to put in place alternative mechanisms.

Facebook must also be investigated further by the Irish Data Protection Commissioner (DPC). If the DPC decides that Facebook’s activities have not provided adequate protection for European Facebook users, then it may suspend transfers of personal data to American servers with immediate effect.

Are many businesses affected?

The ruling is far wider than just Facebook and other tech giants. There is as yet no allegation that Facebook has done anything wrong but as Safe Harbor has been ruled invalid then thousands of businesses have significant work to do!

As stated, some 4,500 US companies are currently signed up to Safe Harbor. They will now have to put in place alternative means of ensuring that they comply with the European data protection legislation.

But many other companies also send data about their employees and their customers to the US. Companies with a US parent often use IT systems located at the US headquarters to administer personal data such as HR and CRM.

Likewise, significant numbers of companies outsourcing their IT systems to cloud service providers which frequently use US-based servers to store the data. Even companies that, for example, send payroll data to the US for administrative purposes will be caught by the collapse of Safe Harbour.

What will we do instead?

For businesses operating in Europe and the USA, the significance of this decision should not be under-estimated. Transfers of personal data from Europe to the USA made solely on the basis of the protection afforded by the Safe Harbor Agreement are no longer compliant with data protection law, so clearly any organisations that have been relying on Safe Harbor will now have to find another way to comply with their data protection obligations.

The most common response will be to sign up to model contract clauses. However, this will cause an administrative burden. Particularly as the collapse of Safe Harbour has the following effects:

  • Individual European countries can set their own regulation for US companies’ handling of their nationals’ data. This means that US companies may have to comply with different regulations for each European country. This will mean numerous different contractual requirements;
  • Countries can choose to suspend the transfer of data to the US — forcing companies to host user data exclusively within the country. Russia has recently introduced this requirement and others may follow suit.
So, if affected, your buisiness needs to consider:
  • Can the transfer of data be suspended? Can you move all your data storage to the country in which you operate?
  • Where transfers of data to the USA are still necessary, consider putting in place model data protection contractual clauses in respect of those transfers
  • or set up corporate rules in respect of intra-group transfers of data.